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What changed in CNB FINANCIAL CORP/PA's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CNB FINANCIAL CORP/PA's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+343 added−313 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-03)

Top changes in CNB FINANCIAL CORP/PA's 2023 10-K

343 paragraphs added · 313 removed · 234 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

67 edited+39 added−31 removed50 unchanged
Biggest changeThe risk-weighting categories in the Capital Rules are standardized and include a risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities to 600% for certain equity exposures, and resulting in higher risk weights for a variety of assets.
Biggest changeThe risk-weighting categories in the Capital Rules are standardized and include a risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities to 600% for certain equity exposures, and resulting in higher risk weights for a variety of assets. 3 Table of Contents The Capital Rules: (i) include “Common Equity Tier 1” (“CET1”) and a related regulatory capital ratio of CET1 to risk-weighted assets; (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements; (iii) mandate that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; and (iv) expand the scope of the deductions from and adjustments to capital as compared to existing regulations.
Holiday Financial Services Corporation In 2005, the Corporation entered the consumer discount loan and finance business, which is conducted through a wholly-owned subsidiary, Holiday. Holiday currently has nine offices within the Corporation’s market area.
Holiday Financial Services Corporation In 2005, the Corporation entered the consumer discount loan and finance business, which is conducted through Holiday, a wholly-owned subsidiary. Holiday currently has nine offices within the Corporation’s market area.
To support these objectives, the Corporation’s Employee Experience processes and programs are designed and operated to: • Attract and develop talented employees across the spectrum of professional experience, life experience, socio-economic background, gender, race, religion, skill set, and geographic representation; • Prepare all members of our team for critical roles and leadership positions both now and the future, in serving as employees and valuable community members; • Reward and support employees fairly and without discrimination based upon successful performance and through competitive pay and benefit programs; • Enhance the Corporation’s culture through efforts to better understand, foster, promote, and preserve a culture of diversity and inclusion; and • Evolve and invest in technology, tools, and resources to better support employees of varying skills and backgrounds at work.
To support these objectives, the Corporation’s Employee Experience processes and programs are designed and operated to: • Attract and develop talented employees across the spectrum of professional experience, life experience, socio-economic background, gender, race, religion, skill set, and geographic representation; • Prepare all members of our team for critical roles and leadership positions both now and the future, in serving as employees and valuable community members; • Reward and support employees fairly and without discrimination based on successful performance and through competitive pay and benefit programs; • Enhance the Corporation’s culture through efforts to better understand, foster, promote, and preserve a culture of diversity and inclusion; and • Evolve and invest in technology, tools, and resources to better support employees of varying skills and backgrounds at work.
Various consumer financial protection laws and regulations also affect the operation of the Bank and, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), the Consumer Financial Protection Bureau ("CFPB") is authorized to write rules on consumer financial products and services which could affect the operations of the Bank and Holiday.
Various consumer financial protection laws and regulations also affect the operation of the Bank and, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), the Consumer Financial Protection Bureau ("CFPB") is authorized to write additional rules on consumer financial products and services which could affect the operations of the Bank and Holiday.
Capital Adequacy The Capital Rules adopted in 2013 by the Federal Reserve Board, the FDIC, and the Office of the Comptroller of the Currency generally implement the Basel Committee on Banking Supervision’s capital framework, referred to as Basel III, for strengthening international capital standards.
Capital Adequacy The Capital Rules adopted in 2013 by the Federal Reserve Board, the FDIC, and the Office of the Comptroller of the Currency ("OCC") generally implement the Basel Committee on Banking Supervision’s capital framework, referred to as Basel III, for strengthening international capital standards.
The differences among the Corporation’s Board of Directors and employees, and its customers and community members, are respected and embraced to drive innovative products, services, and solutions that effectively meet the variety of needs among the Corporation’s diverse group of stakeholders.
The differences among the Board and employees, and its customers and community members, are respected and embraced to drive innovative products, services, and solutions that effectively meet the variety of needs among the Corporation’s diverse group of stakeholders.
We are required to file with the Federal Reserve Board an annual report and such additional information as the Federal Reserve Board may require pursuant to the BHC Act, and applicable regulations.
We are required to file with the Federal Reserve Board an annual report and such additional information and submissions as the Federal Reserve Board may require pursuant to the BHC Act, and applicable regulations.
The Bank has in place a Bank Secrecy Act and USA PATRIOT Act compliance program and engages in very few transactions of any kind with foreign financial institutions or foreign persons. 7 Table of Contents Office of Foreign Assets Control Regulation The United States government has imposed economic sanctions that affect transactions with designated foreign countries, nationals, and others.
The Bank has in place a Bank Secrecy Act and USA PATRIOT Act compliance program and engages in very few transactions of any kind with foreign financial institutions or foreign persons. Office of Foreign Assets Control Regulation The United States government has imposed economic sanctions that affect transactions with designated foreign countries, nationals, and others.
In addition, it is the Federal Reserve Board’s policy that in serving as a source of financial and managerial strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks.
In addition, it is the Federal Reserve Board’s policy that a bank holding company must also serve as a source of managerial strength to its subsidiary banks, and a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks.
Impressia Bank, a division of the Bank, will operate in the Bank’s primary market areas. The Bank is a full-service bank engaging in a full range of banking activities and services for individual, business, governmental and institutional customers.
Impressia Bank, a division of the Bank, operates in the Bank’s primary market areas. The Bank is a full-service bank engaging in a full range of banking activities and services for individual, business, governmental and institutional customers.
In September 2019, the Office of the Comptroller of the Currency, the Federal Reserve Board and the FDIC adopted a final rule that is intended to further simplify the Capital Rules for depository institutions and their holding companies that have less than $10 billion in total consolidated assets, such as us, if such institutions meet certain qualifying criteria.
In September 2019, the OCC, the Federal Reserve Board and the FDIC adopted a final rule that is intended to further simplify the Capital Rules for depository institutions and their holding companies that have less than $10 billion in total consolidated assets, such as us, if such institutions meet certain qualifying criteria.
This final rule became effective on January 1, 2020. Under this final rule, if we meet the qualifying criteria, including having a leverage ratio (equal to Tier 1 capital divided by average total consolidated assets) of a certain size (greater than 9% beginning January 1, 2022), we will be eligible to opt into the community bank leverage ratio framework.
This final rule became effective on January 1, 2020. Under this final rule, if we meet the qualifying criteria, including having a leverage ratio (equal to Tier 1 capital divided by average total consolidated assets) greater than 9%, we will be eligible to opt into the community bank leverage ratio framework.
Activities for financial holding companies include those that are "so closely related to banking as to be a proper incident thereto" as well as certain additional activities deemed "financial in nature or incidental to such financial activity" or complementary to a financial activity and that does not pose a substantial risk to the safety and soundness of the depository institution or the financial system.
Activities for financial holding companies include those that are "so closely related to banking as to be a proper incident thereto" as well as certain additional activities deemed "financial in nature or incidental to such financial activity" or complementary to a financial activity and that do not pose a substantial risk to the safety and soundness of the banking organization or the financial system.
Community Involvement and Social Impacts The Corporation serves as a cornerstone institution of both financial support and community service in the markets in which we serve. We are committed to strengthening these communities through the active volunteering of our employees.
Community Involvement and Social Impacts The Corporation serves as a cornerstone institution of both financial support and community service in the markets in which we serve. The Corporation is committed to strengthening these communities through the active volunteering of its employees.
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 and Niagara. Ridge View Bank, a division of the Bank, operates in Southwest, Virginia.
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 and Niagara. Ridge View Bank, a division of the Bank, operates in the Virginia counties of Botetourt, Craig, Franklin, and Roanoke.
Holiday Financial Services Corporation ("Holiday"), incorporated in Pennsylvania, offers small balance unsecured loans and secured loans, primarily collateralized by automobiles and equipment, to borrowers with higher risk characteristics. CNB Bank The Bank was originally chartered as a national bank in 1934 and is now a Pennsylvania-chartered bank. The CNB Bank franchise operates eighteen full-service branch locations in Pennsylvania.
Holiday Financial Services Corporation ("Holiday"), incorporated in Pennsylvania, offers small balance unsecured loans and secured loans, primarily collateralized by automobiles and equipment, to borrowers with higher risk characteristics. CNB Bank The Bank was originally chartered as a national bank in 1934 and is now a Pennsylvania-chartered bank.
The Bank’s 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.
The CNB Bank franchise's primary market areas are the Pennsylvania counties of Blair, Cambria, Centre, Clearfield, Elk, Indiana, Jefferson, and McKean. ERIEBANK, a division of the Bank, operates in the Pennsylvania counties of Crawford, Erie, and Warren and in the Ohio counties of Ashtabula, Cuyahoga, Geauga, Lake, and Lorain.
In establishing these principles as the foundation upon which all other strategic objectives are anchored, the Corporation seeks to further develop and sustain a diverse, equitable, and inclusive culture, with sensitivity to the entirety of the Corporation’s footprint and environment in which it operates.
In establishing these core values and principles as the foundation upon which all other strategic objectives are anchored, the Corporation seeks to further develop and sustain a corporate culture with sensitivity to the entirety of the Corporation’s business and demographic footprint and environment in which it operates.
We accomplish this by promoting economic development through investments in community-strengthening initiatives, such as affordable housing and revitalization efforts.
The Corporation accomplishes this by promoting economic development through investments in community-strengthening initiatives, such as affordable housing and revitalization efforts.
In 2016, the Bank received regulatory approval to conduct business in the state of New York as BankOnBuffalo, a division of the Bank. In July 2020, the Corporation acquired Bank of Akron, with its branch locations operating with BankOnBuffalo.
The Bank currently operates seven full-service branch locations as FCBank, a division of the Bank, with its headquarters in Worthington, Ohio. In 2016, the Bank received regulatory approval to conduct business in the state of New York as BankOnBuffalo, a division of the Bank. In July 2020, the Corporation acquired Bank of Akron, with its branch locations operating with BankOnBuffalo.
The federal banking agencies and the SEC most recently proposed such regulations in 2016, but the regulations have not yet been finalized. If the regulations are adopted in the form initially proposed, they will restrict the manner in which executive compensation is structured.
The federal banking agencies and the SEC most recently proposed such regulations in 2016. The regulations have not yet been finalized, but it is expected that this rulemaking will be a priority in 2024. If the regulations are adopted in the form initially proposed or a similar form, they will restrict the manner in which executive compensation is structured.
At December 31, 2022, the Bank qualified as "well capitalized" under applicable regulatory capital standards. 5 Table of Contents Bank holding companies and insured depository institutions may also be subject to potential enforcement actions of varying levels of severity by the federal banking agencies for unsafe or unsound practices in conducting their business, or for violation of any law, rule, regulation, condition imposed in writing by the agency, or term of a written agreement with the agency.
Bank holding companies and insured depository institutions may also be subject to potential enforcement actions of varying levels of severity by the federal banking agencies for unsafe or unsound practices in conducting their business, or for violation of any law, rule, regulation, condition imposed in writing by the agency, or term of a written agreement with the agency.
The Bank currently operates two LPOs in Southwest Virginia. In early 2023, the Bank intends to launch Impressia Bank, a full-service banking division dedicated to the professional and financial development and advancement of women business owners and women leaders.
The Bank currently operates two full-serve branch locations and one LPO in Southwest Virginia. In 2023, the Bank launched Impressia Bank, a full-service banking division dedicated to the professional and financial development and advancement of women business owners and women leaders.
The Corporation must obtain permission from or provide notice to the Federal Reserve Board prior to engaging in most new business activities. 3 Table of Contents Regulation of CNB Bank Federal and state banking laws and regulations govern, among other things, the scope of a bank’s business, the investments a bank may make, the reserves against deposits a bank must maintain, the loans a bank makes and collateral it takes, the activities of a bank with respect to mergers and acquisitions, the establishment of branches, management practices, and numerous other aspects of banking operations.
Regulation of CNB Bank Federal and state banking laws and regulations govern, among other things, the scope of a bank’s business, the investments a bank may make, the reserves against deposits a bank must maintain, the loans a bank makes and collateral it takes, the activities of a bank with respect to mergers and acquisitions, the establishment of branches, management practices, and numerous other aspects of banking operations.
As of December 31, 2022, the Corporation’s investment in affordable housing totaled approximately $8.0 million, with an additional investment commitment of $1.0 million and $2.5 million invested in the Erie Downtown Development Corporation, which is focused on revitalization efforts in downtown Erie, Pennsylvania. The Corporation is also committed to supporting women owned businesses.
As of December 31, 2023, the Corporation’s investment in affordable housing totaled approximately $8.2 million, with an additional investment commitment of approximately $800 thousand, and $2.5 million invested in the Erie Downtown Development Corporation, which is focused on revitalization efforts in downtown Erie, Pennsylvania.
The Bank currently operates twelve full-service branch locations, a division of the Bank, with its headquarters in Erie, Pennsylvania. In October 2013, the Corporation acquired FC Banc Corp. and its subsidiary, Farmers Citizens Bank. The Bank currently operates six full-service branch locations as FCBank, a division of the Bank, with its headquarters in Worthington, Ohio.
In conjunction with the closing of the LPO, the Corporation opened a full-service branch in Cleveland, Ohio. The Bank currently operates twelve full-service branch locations within its ERIEBANK franchise, a division of the Bank, with its headquarters in Erie, Pennsylvania. In October 2013, the Corporation acquired FC Banc Corp. and its subsidiary, The Farmers Citizens Bank.
We are proud of the diversity we have achieved within the Corporation’s senior leadership team, which is comprised of 16 individuals, of which 50% are female or members of underrepresented minority groups. Overall, the Corporation's workforce is 67% female and 33% male, as reported by those who self-identified.
The Corporation is proud of the diversity it has achieved within the Corporation’s senior leadership team, which is comprised of 19 individuals, of which 58% are female or members of underrepresented minority groups. Overall, the Corporation’s workforce is 66% female and 34% male, as reported by those who self-identified.
Among the means we use to monitor our performance in employee diversity and inclusion management, we take recurring management and employee demographic measurements and engagement surveys, and utilize the results to identify progress made, as well as areas in need of more attention, in improving the diversity, equity, and inclusion of our leadership and workforce profile, and personnel management practices.
Among the means the Corporation uses to monitor its performance in employee experience and management, the Corporation takes recurring management and employee demographic measurements and engagement surveys, and utilize the results to identify progress made, as well as areas in need of more attention, in improving the effectiveness of its leadership development and workforce profile, and personnel management practices.
This women-focused commercial bank will operate within the existing geographic footprint of each of CNB Bank’s other divisions and also will have an online presence. 1 Table of Contents The Bank had 47 full-service branch offices located in various communities in its market area at December 31, 2022.
This women-focused commercial bank operates within the existing geographic footprint of each of CNB Bank’s other divisions and also has an online presence. 1 Table of Contents The Bank had two loan production offices, one drive-up office, one mobile office, and 51 full-service branch offices located in various communities in its market area at December 31, 2023.
Blocked assets (property and bank deposits) cannot be paid out, withdrawn, set off, or transferred in any manner without a license from the Office of Foreign Assets Control. Failure to comply with these sanctions could have serious legal and reputational consequences.
Blocked assets (property and bank deposits) cannot be paid out, withdrawn, set off, or transferred in any manner without a license from the Office of Foreign Assets Control.
Impressia Bank clients will have access to resources related to accelerating their business, developing appropriate business strategies, and establishing a community of women who support one another. 11 Table of Contents Available Information The Corporation makes available free of charge on its website (www.cnbbank.bank) its Annual Report on Form 10-K, its quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as practicable after it electronically files such material with, or furnishes it to, the Securities and Exchange Commission, the SEC.
Available Information The Corporation makes available free of charge on its website (www.cnbbank.bank) its Annual Report on Form 10-K, its quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as practicable after it electronically files such material with, or furnishes it to, the SEC.
These instruments of monetary policy are used in varying combinations to influence the overall level of bank loans, investments and deposits, and the interest rates charged on loans and paid for deposits.
Government securities and federal funds, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These instruments of monetary policy are used in varying combinations to influence the overall level of bank loans, investments and deposits, and the interest rates charged on loans and paid for deposits.
A critical measure is realizing increasing diversity in our senior leadership positions, as those members of the Corporation’s management have greater ability to effectuate sustained change in the composition of our team and the expanded, relevant involvement of all groups within the spectrum of our workforce and communities.
A critical measure is realizing increasing diversity in the Corporation's senior leadership positions, as those members of the Corporation’s management have greater ability to demonstrate their professional skills and experience, effectuate sustained change in the composition of its team, and provide the Corporation with their important financial services expertise to ensure The Corporation benefits from the relevant involvement of all groups within the spectrum of its workforce and communities.
Eighty employees donated over 875 hours of volunteer time and leveraged partnerships with thirty community organizations. Our employees and community volunteers not only shared their real-life knowledge of budgeting, but also provided additional financial education after the events. In addition to the fairs, employees participated in 120 other financial literacy events ranging from basic community banking sessions to school presentations.
The Corporation's employees and community volunteers not only shared their real-life knowledge of budgeting, but also provided additional financial education after the events. In addition to the fairs, employees participated in 243 other financial literacy events ranging from basic community banking sessions to school presentations. Employees contributed 1,263 hours of their time to participate in the Corporation’s financial literacy program.
BankOnWheels, which opened in the fourth quarter of 2022, is an innovative new banking experience, making full-service banking accessible to more consumers and small businesses, particularly those in underserved communities.
BankOnWheels, which began services in the fourth quarter of 2022, is an innovative new banking experience, making full-service banking accessible to more consumers and small businesses, particularly those in underserved communities, through a banking unit built on a mobile-home-like commercial trucking chassis.
Incentive Compensation The Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities, including the Corporation and the Bank, with at least $1 billion in total consolidated assets that encourage inappropriate risks by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits that could lead to material financial loss to the entity.
Further, pursuant to interpretive guidance issued under the Gramm-Leach-Bliley Act and certain state laws, financial institutions are required to notify customers of security breaches that result in unauthorized access to their nonpublic personal information. 6 Table of Contents Incentive Compensation The Dodd-Frank Act requires the federal banking agencies and the Securities and Exchange Commission (the "SEC") to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities, including the Corporation and the Bank, with at least $1 billion in total consolidated assets that encourage inappropriate risks by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits that could lead to material financial loss to the entity.
One requisite element of such a plan is that the institution’s parent holding company must guarantee compliance by the institution with the plan, subject to certain limitations.
One requisite element of such a plan is that the institution’s parent holding company must guarantee compliance by the institution with the plan, subject to certain limitations. At December 31, 2023, the Bank qualified as "well capitalized" under applicable regulatory capital standards.
To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by express reference to each of the particular statutory and regulatory provisions. A change in applicable statutes, regulations or regulatory policy may have a material effect on our business.
To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by express reference to each of the particular statutory and regulatory provisions.
ERIEBANK, a division of the Bank, began operations in 2005. In July 2016, the Corporation acquired Lake National Bank, which operated two full-service branches in Mentor, Ohio, approximately 20 miles east of Cleveland, Ohio. The Bank continues to operate one of these branch locations within its ERIEBANK franchise, with the other location ceasing operations in August 2020.
The CNB Bank franchise operates nineteen full-service branch locations in Central and North Central Pennsylvania. ERIEBANK, a division of the Bank, began operations in 2005. In July 2016, the Corporation acquired Lake National Bank, which operated two full-service branches in Mentor, Ohio, approximately 20 miles east of Cleveland, Ohio.
To date, we have not opted in to this community bank leverage ratio framework. Dividend Restrictions The Corporation is a legal entity separate and distinct from the Bank. Declaration and payment of cash dividends depends upon cash dividend payments to the Corporation by the Bank, which is our primary source of revenue and cash flow.
To date, we have not opted in to this community bank leverage ratio framework. 4 Table of Contents Dividend Restrictions The Corporation is a legal entity separate and distinct from the Bank.
In January 2020, the Corporation established a loan production office ("LPO") in Cleveland, Ohio. This LPO operated within the ERIEBANK division as of December 31, 2021 and has subsequently closed. In conjunction with the closing of the LPO, the Corporation opened a full-service branch in Cleveland, Ohio.
The Bank continues to operate one of these branch locations within its ERIEBANK franchise, with the other location ceasing operations in August 2020. In January 2020, the Corporation established a loan production office ("LPO") in Cleveland, Ohio. This LPO operated within the ERIEBANK division as of December 31, 2021 and has subsequently closed.
Federal banking regulators have the authority to prohibit banks and bank holding companies from paying a dividend if the regulators deem such payment to be an unsafe or unsound practice.
Moreover, the federal banking agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. Federal banking regulators have the authority to prohibit banks and bank holding companies from paying a dividend if the regulators deem such payment to be an unsafe or unsound practice.
Employee experience committees were also formed in 2022 to explore and evaluate how various DE&I topics impact our employees and how we can better address them. To monitor progress and solicit feedback, the Corporation conducted a company wide survey on DE&I. The results of this survey will be utilized for developing areas of focus for 2023.
Our employee resources include a certified diversity and inclusion trainer, and external training courses. Employee experience committees were also formed in 2022 to explore and evaluate how various diversity, equity and inclusion ("DEI") topics impact our employees and how we can better address them. The Corporation conducted a company-wide survey on DEI to monitor progress and solicit feedback.
Bank Holding Company Regulation As a bank holding company that controls a Pennsylvania state-chartered bank, the Corporation is subject to regulation and examination by the Pennsylvania Department of Banking and the Federal Reserve Board.
A change in applicable statutes, regulations or regulatory policy may have a material effect on our business. 2 Table of Contents Bank Holding Company Regulation As a bank holding company that controls a Pennsylvania state-chartered bank, the Corporation is subject to regulation and examination by the Pennsylvania Department of Banking and the Federal Reserve Board.
Human Capital Management and Leadership Development We seek to recognize the unique contribution each employee brings to the Corporation, and we are fully committed to supporting a workplace that understands, accepts and values the similarities and differences between individuals.
Currently, there are 58 employees involved in DEI initiatives with the Bank through the DEI Committee and ERGs. 9 Table of Contents Human Capital Management and Leadership Development The Corporation seeks to recognize the unique contribution each employee brings to the Corporation, and the Corporation is fully committed to supporting a workplace that understands, accepts and values the similarities and differences between individuals.
As a Pennsylvania state-chartered bank, the Bank is subject to regulatory restrictions on the payment and amounts of dividends under the Pennsylvania Banking Code. Further, the ability of banking subsidiaries to pay dividends is also subject to their profitability, financial condition, capital expenditures and other cash flow requirements.
Further, the ability of banking subsidiaries to pay dividends is also subject to their profitability, financial condition, capital expenditures and other cash flow requirements. The payment of dividends by the Bank and the Corporation may also be affected by other factors, such as the requirement to maintain adequate capital above regulatory requirements.
The Corporation's employees actively participate in their local communities through volunteer activities in education, economic development, human and health services, and community reinvestment. During 2022, employees donated 15,316 hours in support of more than 658 organizations, with 60% of employees actively participating. Additionally, there were approximately $987,000 in donations to community organizations and events within the communities we serve.
The Corporation’s employees actively participate in their local communities through volunteer activities in education, economic development, human and health services, and community reinvestment. During 2023, employees donated 22,486 hours in support of more than a thousand organizations, with 77% of employees actively participating.
Section 23A also imposes quantitative restrictions on the amount of and collateralization requirements on such transactions.
Section 23A also imposes various qualitative and quantitative requirements and restrictions on Covered Transactions and imposes collateralization and other requirements on certain of these transactions.
To ensure that the Environmental, Social, and Governance principles are understood, implemented, and demonstrated by the Corporation’s employee team on a sustained basis, the Corporation developed a comprehensive diversity, equity, and inclusion ("DE&I") communication processes and a training curriculum which was rolled out to all employees, including internal sessions delivered by a certified diversity and inclusion trainer, supplemented by relevant external training sources.
To ensure that the core values and corporate responsibility principles are understood, implemented, and demonstrated by the Corporation’s employee team on a sustained basis, the Corporation developed comprehensive communication processes and a training curriculum which was rolled out to all employees, including establishing a committee focused on ensuring diversity, equity, and inclusion issues are considered in our employee activities.
Some of the financial service providers operating in the Corporation’s market area operate on a large-scale regional or national basis and possess greater resources than those of the Corporation.
Mortgage banking firms, leasing companies, financial affiliates of industrial companies, brokerage firms, retirement fund management firms, and even government agencies provide additional competition for loans and other financial services. Some of the financial service providers operating in the Corporation’s market area operate on a large-scale regional or national basis and possess greater resources than those of the Corporation.
Moreover, other bills may be introduced in Congress which would further regulate, deregulate or restructure the financial services industry, including proposals to substantially reform the regulatory framework. It is not possible to predict whether any such proposals will be enacted into law or, even if enacted, what effect such action may have on our business and earnings.
Moreover, other bills may be introduced in Congress which would further regulate, deregulate or restructure the financial services industry, including proposals to substantially reform the regulatory framework.
Other Federal Laws and Regulations State usury and other credit laws limit the amount of interest and various other charges collected or contracted by a bank on loans. The Bank is also subject to lending limits on loans to one borrower and regulatory guidance on concentrations of credit.
The Bank is also subject to lending limits on loans to one borrower and regulatory guidance on concentrations of credit.
The Corporation expects this trend of state-level activity in those areas to continue, and continues to monitor developments in the states in which the Corporation’s customers are located. 2 Table of Contents Competition The financial services industry in the Corporation’s service area continues to be extremely competitive, both among commercial banks and with other financial service providers such as consumer finance companies, thrifts, investment firms, mutual funds, and credit unions.
Competition The financial services industry in the Corporation’s service area continues to be extremely competitive, both among commercial banks and with other financial service providers such as consumer finance companies, thrifts, investment firms, mutual funds, and credit unions. The increased competition has resulted from changes in legal and regulatory guidelines as well as from economic conditions.
Restrictions on Transactions with Affiliates and Insiders The Bank is subject to the restrictions of Sections 23A and 23B of the Federal Reserve Act and the implementing Regulation W. The Bank's "affiliates" for purposes of these sections include, among other potential entities, the Corporation and its direct subsidiaries.
The Bank's "affiliates" for purposes of these sections include, among other potential entities, the Corporation and its direct subsidiaries.
Among the instruments of monetary policy used by the Federal Reserve Board to implement these objectives are open-market operations in U.S. Government securities and federal funds, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits.
Governmental Policies Our earnings are significantly affected by the monetary and fiscal policies of governmental authorities, including the Federal Reserve Board. Among the instruments of monetary policy used by the Federal Reserve Board to implement these objectives are open-market operations in U.S.
The Bank intends to launch Impressia Bank, a division of the Bank, in the first quarter of 2023. Designed for women by women, Impressia Bank will be a full-service banking division of the Bank dedicated to the professional and financial development and advancement of women business owners and women leaders.
Impressia Bank (“Impressia”) launched in May 2023 and is the sixth bank division of the Bank, and is dedicated to the professional and financial development and advancement of women business owners and leaders.
The Corporation emphasizes relevant governance and diversity and inclusion principles in strategic planning, human capital management and leadership development (which includes recruiting and retaining employees).
In addition to the above-described Board attributes, the Corporation emphasizes relevant governance principles in strategic planning, human capital management and leadership development (which includes recruiting and retaining employees), and vendor management, as relationships with third parties represent critical connections to and extensions of the values and operating principles of the Corporation and Board.
The payment of dividends by the Bank and the Corporation may also be affected by other factors, such as the requirement to maintain adequate capital above regulatory requirements. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice.
The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. A depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized.
Notably, the Corporation’s Martin Luther King, Jr. "Take the Day On" efforts resulted in the support of 30 community organizations and 249 volunteer hours recorded. Employees collected donations and delivered them to local organizations in need during this national day of service, which typically serves as a bank holiday.
Employees collected donations and delivered them to local organizations in need during this national day of service, which typically serves as a bank holiday. 10 Table of Contents Throughout its history, the Corporation has focused on strengthening the communities it serves.
The underrepresented minority groups include individuals who self-identify as an ethnicity other than white, LGBTQAI+ or military veteran. 10 Table of Contents As a result of broadening our recruitment efforts to increase the diversity of our teams, for the year ended December 31, 2022, 45 people out of 196 total hires for the Corporation identified as an underrepresented group.
As a result of broadening the Corporation's recruitment efforts to increase the diversity of its teams, for the year ended December 31, 2023, 33 people out of 167 total hires for the Corporation identified as being from an underrepresented group.
The Corporation increased the percentage of underrepresented hires from 19.5% of total new hires in 2021 to 22.7% in 2022, allowing us to continue to improve our overall diversity workforce profile, as our regional banks' workforce profiles are moving towards better alignment with the overall demographics of their respective communities.
The Corporation's efforts to identify qualified candidates from underrepresented minority group has allowed the Corporation to continue to improve its overall diversity workforce profile, as the Corporation's regional banks’ employee teams are moving towards better alignment with the overall demographics of the respective communities they serve.
The Corporation implemented the Capital Rules on January 1, 2015, and continues to exceed all estimated well-capitalized regulatory requirements on a fully phased-in basis. In July 2019, the Office of the Comptroller of the Currency, the Federal Reserve Board and the FDIC adopted a final rule intended to simply the Capital Rules described above for non-advanced approaches institutions.
In July 2019, the OCC, the Federal Reserve Board and the FDIC adopted a final rule intended to simplify the Capital Rules described above for non-advanced approaches rule institutions, including provisions related to these deductions and adjustments. Institutions were required to implement the provisions of the simplification rule by April 1, 2020.
In addition, 11% of the Corporation's workforce self-identified as a member of an underrepresented minority group.
In addition, 14% of the Corporation’s workforce self-identified as a member of an underrepresented minority group. The Corporation identifies its underrepresented minority groups as those including individuals who self-identify as an ethnicity other than white, LGBTQ+, or are a military veteran or active military reservist.
The Corporation expanded its efforts surrounding its financial literacy outreach in 2022, conducting five Financial Reality Fairs in various regions throughout the footprint we serve. The fairs teach real-life budgeting skills to high school students, many of whom are in low-to-moderate income households. The fairs included seven high schools and almost 1,000 students.
The Corporation expanded its efforts surrounding its financial literacy outreach in 2023, conducting six Financial Reality Fairs in various regions throughout the footprint the Corporation serves. The fairs included eleven high schools and almost 1,500 students. One hundred and sixteen employees donated over 1,428 hours of volunteer time and leveraged partnerships with thirty-one community organizations.
The FDIC adopted a final rule effective June 26, 2020, and applied as of April 1, 2020, to mitigate the effect on deposit insurance assessments of a bank’s participation in the Paycheck Protection Program, the Paycheck Protection Program Liquidity Facility and the Money Market Mutual Fund Liquidity Facility in connection with the COVID-19 pandemic. 6 Table of Contents Financial Privacy and Data Security The Corporation is subject to federal laws, including the Gramm-Leach-Bliley Act, and certain state laws containing consumer privacy protection provisions.
Financial Privacy and Data Security The Corporation is subject to federal laws, including the Gramm-Leach-Bliley Act, and certain state laws containing consumer privacy protection provisions.
Strategic Planning and Related Training The Corporation has established a formal Strategic Plan, and the framework of the Strategic Plan establishes that principles of inclusion and diversity encompass and integrate with the other objectives of the Strategic Plan, including exceptional experiences, demonstrated leadership, adaptable technology, and long-term growth.
Strategic Planning and Related Training The Corporation has established a formal Strategic Plan, and the framework of the Strategic Plan considers the core values and principles that have been fundamental to the Corporation's long-term success. These attributes include respect, integrity, accountability, leadership, professionalism, collaboration, client-focused, innovation, inclusion, and volunteerism.
Federal banking agencies have also adopted guidelines for establishing information security standards and programs to protect such information. Further, pursuant to interpretive guidance issued under the Gramm-Leach-Bliley Act and certain state laws, financial institutions are required to notify customers of security breaches that result in unauthorized access to their nonpublic personal information.
Federal banking agencies have also adopted guidelines for establishing information security standards and programs to protect such information.
Removed
Cybersecurity Following a cybersecurity incident in the fourth quarter of 2020 that resulted in potential unauthorized access to personally identifiable information, the Corporation has continued to enhance its data security systems, technology platforms, employee education, and risk management processes in an effort to underpin its business strategy.
Added
The Corporation must obtain permission from or provide notice to the Federal Reserve Board prior to engaging in most new business activities.
Removed
Although the Corporation’s core systems were not compromised and the Corporation has not experienced any material losses, the Corporation is committed to implementing strategies to prevent and/or mitigate future cyber attacks.
Added
Identity Theft The Fair Credit Reporting Act’s Red Flags Rule requires financial institutions with covered accounts (e.g., consumer bank accounts and loans) to develop, implement, and administer an identity theft prevention program.
Removed
Federal regulators issued two statements regarding cybersecurity: (i) a statement indicating that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institutions; and (ii) a statement indicating the expectation of a financial institution's management to maintain a sufficient business continuity planning process to ensure rapid recovery, resumption, and maintenance of the financial institution's operations after a cyber-attack involving destructive malware.
Added
This program must include reasonable policies and procedures to detect suspicious patterns or practices that indicate the possibility of identity theft, such as inconsistencies in personal information or changes in account activity.
Removed
A financial institution is also expected to develop appropriate processes to: (a) enable recovery of data and business operations, (b) address rebuilding network capabilities, and (c) restore data if the financial institution or any of its critical service providers fall victim to this type of cyber-attack.
Added
Under the Capital Rules, for most banking organizations, including the Corporation, the most common form of Additional Tier 1 capital is non-cumulative perpetual preferred stock, and the most common forms of Tier 2 capital are subordinated notes and a portion of the allocation for allowance for credit losses, in each case, subject to the Capital Rules’ specific requirements.
Removed
If the Corporation does not comply with this regulatory guidance, it could be subject to various regulatory sanctions, as well as financial penalties. In November 2021, the federal bank regulatory agencies issued a final rule requiring banking organizations that experience a computer-security incident to notify certain entities.
Added
Pursuant to the Capital Rules, effective January 1, 2015, the minimum capital ratios are as follows: • 4.5% CET1 to risk-weighted assets; • 6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets; • 8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and • 4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (called “leverage ratio”).
Removed
A computer-security incident occurs when actual or potential harm to the confidentiality, integrity or availability of information or the information system occurs, or there is a violation or imminent threat of a violation to banking security policies and procedures. The affected bank must notify its respective federal regulator of the computer-security incident that has occurred.
Added
The Capital Rules also include a “capital conservation buffer,” composed entirely of CET1, in addition to these minimum risk-weighted asset ratios (which are each of the first three ratios described above, but not the leverage ratio). The capital conservation buffer is designed to absorb losses during periods of economic stress.
Removed
These notifications are intended to promote early awareness of threats to banking organizations and will help banks react to those threats before they manifest into bigger incidents. This rule also requires bank service providers to notify their customers of a computer-security incident. State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

45 edited+14 added−16 removed94 unchanged
Biggest changeIf such an increase or decrease were to occur, our interest payments that are higher or lower than if LIBOR were to remain available in its current form. 15 Table of Contents We have a number of loans, derivative contracts, borrowings, and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR.
Biggest changeWe have a number of loans, derivative contracts, borrowings, and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. With the transition from LIBOR to SOFR as the preferred alternative to LIBOR, we have transitioned and amended our contracts and financial instruments to reference the SOFR rate where required.
Management and the Corporation's Board of Directors, through the Asset-Liability Committee ("the ALCO"), monitor liquidity and the ALCO establishes and monitors acceptable liquidity ranges. The Bank actively manages its liquidity position through target ratios. Continual monitoring of these ratios, both historical and through forecasts under multiple rate scenarios, allows the Bank to employ strategies necessary to maintain adequate liquidity.
The Corporation's management and Board of Directors, through the Asset-Liability Committee (the "ALCO"), monitor liquidity and the ALCO establishes and monitors acceptable liquidity ranges. The Bank actively manages its liquidity position through target ratios. Continual monitoring of these ratios, both historical and through forecasts under multiple rate scenarios, allows the Bank to employ strategies necessary to maintain adequate liquidity.
Depending on the nature of the pool of financial assets with similar risk characteristics, the models utilized by the Corporation to estimate expected credit losses include a discounted cash flow ("DCF") model that discounts instrument-level contractual cash flows, adjusted for prepayments and curtailments, incorporating loss expectations, and a weighted average remaining maturity ("WARM") model which contemplates expected losses at a pool-level, utilizing historic loss information.
Depending on the nature of the pool of financial assets with similar risk characteristics, the models utilized by the Corporation to estimate expected credit losses include a discounted cash flow ("DCF") model that discounts instrument-level contractual cash flows, adjusted for prepayments and curtailments, incorporating loss expectations, and a weighted average remaining maturity model which contemplates expected losses at a pool-level, utilizing historic loss information.
A pandemic, such as the ongoing COVID-19 pandemic, and emergence of new variants could negatively impact the global economy, disrupt financial markets and international trade, and result in varying unemployment levels, all of which could negatively impact our business, results of operations, cash flows, and financial condition.
A pandemic, such as the COVID-19 pandemic, and emergence of new variants could negatively impact the global economy, disrupt financial markets and international trade, and result in varying unemployment levels, all of which could negatively impact our business, results of operations, cash flows, and financial condition.
The unsoundness of other financial institutions with which the Corporation does business could adversely affect the Corporation’s business, financial condition or results of operations. Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.
The soundness of other financial institutions with which the Corporation does business could adversely affect the Corporation’s business, financial condition or results of operations. Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.
These factors include the Corporation’s: • past and future dividend practice; • financial condition, performance, creditworthiness, and prospects; • quarterly variations in the Corporation’s operating results or the quality of the Corporation’s assets; 16 Table of Contents • operating results that vary from the expectations of management, securities analysts, and investors; • changes in expectations as to the Corporation’s future financial performance; • announcements of innovations, new products, strategic developments, significant contracts, acquisitions, and other material events by the Corporation or its competitors; • the operating and securities price performance of other companies that investors believe are comparable to the Corporation; • future sales of the Corporation’s equity or equity-related securities; • the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and developments with respect to financial institutions generally; and • instability in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity or real estate valuations or volatility, budget deficits or sovereign debt level concerns and other geopolitical, regulatory or judicial events.
These factors include the Corporation’s: • past and future dividend practice; • financial condition, performance, creditworthiness, and prospects; • quarterly variations in the Corporation’s operating results or the quality of the Corporation’s assets; • operating results that vary from the expectations of management, securities analysts, and investors; • changes in expectations as to the Corporation’s future financial performance; • announcements of innovations, new products, strategic developments, significant contracts, acquisitions, and other material events by the Corporation or its competitors; • the operating and securities price performance of other companies that investors believe are comparable to the Corporation; • future sales of the Corporation’s equity or equity-related securities; • the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and developments with respect to financial institutions generally; and • instability in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity or real estate valuations or volatility, budget deficits or sovereign debt level concerns and other geopolitical, regulatory or judicial events.
Inflation has significantly increased since the start of 2021 and continues to remain at elevated levels compared to recent years, which has led to increased costs for businesses and consumers.
Inflation has significantly increased since the start of 2021 and continues to remain at elevated levels compared to recent years prior to 2021, which has led to increased costs for businesses and consumers.
Pandemic outbreaks could lead (and the current outbreak of COVID-19 has led) governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to mitigate its spread, including restrictions on freedom of movement and business operations such as issuing guidelines, travel bans, border closings, business closures and quarantine orders.
Pandemic outbreaks could lead (and the outbreak of COVID-19 led) governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to mitigate its spread, including restrictions on freedom of movement and business operations such as issuing guidelines, travel bans, border closings, business closures and quarantine orders.
As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative to LIBOR in derivatives and other financial contracts.
The Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative to LIBOR in derivatives and other financial contracts.
Any change in current accounting principles or interpretations of these principles could impact the Corporation’s assessment of fair value and thus its determination of other-than-temporary impairment of the securities in its investment securities portfolio. 14 Table of Contents The Bank may be required to record other-than-temporary impairment charges on its investment securities if they suffer declines in value that are considered other-than-temporary.
Any change in current accounting principles or interpretations of these principles could impact the Corporation’s assessment of fair value and thus its determination of other-than-temporary impairment of the securities in its investment securities portfolio. The Bank may be required to record other-than-temporary impairment charges on its investment securities if they suffer declines in value that are considered other-than-temporary.
Although the Bank may acquire any real estate or other assets that secure defaulted loans through foreclosures or other similar remedies, the amounts owed under the defaulted loans may exceed the value of the assets acquired. The allowance for credit losses is subject to a formal analysis by the Credit Administration and Finance Departments of the Corporation.
Although the Bank may acquire any real estate or other assets that secure defaulted loans through foreclosures or other similar remedies, the amounts owed under the defaulted loans may exceed the value of the assets acquired. 13 Table of Contents The allowance for credit losses is subject to a formal analysis by the Credit Administration and Finance Departments of the Corporation.
Any of the foregoing provisions may have the effect of deterring takeovers or delaying changes in control or management of the Corporation. The price of the Corporation’s common stock may fluctuate significantly, and this may make it difficult for you to resell shares of common stock owned by you at times or at prices you find attractive.
Any of the foregoing provisions may have the effect of deterring takeovers or delaying changes in control or management of the Corporation. 16 Table of Contents The price of the Corporation’s common stock may fluctuate significantly, and this may make it difficult for you to resell shares of common stock owned by you at times or at prices you find attractive.
Many factors affect the Bank’s ability to meet liquidity needs, including variations in the markets served by its network of offices, its mix of assets and liabilities, reputation and standing in the marketplace, and general economic conditions. 12 Table of Contents The Bank’s primary source of funding is customer deposits, gathered throughout its network of banking offices.
Many factors affect the Bank’s ability to meet liquidity needs, including variations in the markets served by its network of offices, its mix of assets and liabilities, reputation and standing in the marketplace, and general economic conditions. The Bank’s primary source of funding is customer deposits, gathered throughout its network of banking offices.
The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on its business and financial condition. 21 Table of Contents The Corporation's risk management framework may not be effective in mitigating risk and loss.
The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on its business and financial condition. The Corporation's risk management framework may not be effective in mitigating risk and loss.
As cyber threats continue to evolve, the Corporation may be required to expend further significant resources to continue to modify or enhance its protective measures or to investigate and remediate future information security vulnerabilities. While we have purchased cybersecurity insurance, there are no assurances that the coverage would be adequate in relation to any incurred losses.
As cyber threats continue to evolve, the Corporation may be required to expend further significant resources to continue to modify or enhance its protective measures or to investigate and remediate future information security vulnerabilities. 20 Table of Contents While we have purchased cybersecurity insurance, there are no assurances that the coverage would be adequate in relation to any incurred losses.
The Corporation's models for estimating the allowance for credit losses consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. 13 Table of Contents The Bank monitors delinquencies and losses on a monthly basis.
The Corporation's models for estimating the allowance for credit losses consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The Bank monitors delinquencies and losses on a monthly basis.
Losses arising from environmental liabilities could have a material adverse impact on the Corporation’s business, financial condition, results of operations, or liquidity. Replacement of the LIBOR benchmark interest rate could adversely affect our business, financial condition, and results of operations.
Losses arising from environmental liabilities could have a material adverse impact on the Corporation’s business, financial condition, results of operations, or liquidity. 15 Table of Contents Replacement of the LIBOR benchmark interest rate could adversely affect our business, financial condition, and results of operations.
A failure in or breach of the Corporation’s or any of its subsidiaries’ operational or security systems or infrastructure, or those of third party vendors and other service providers, including as a result of cyber attacks, could disrupt the Corporation’s or any of its subsidiaries’ businesses, result in the unauthorized disclosure or misuse of confidential or proprietary information, damage its reputation, increase its costs, or cause losses.
A failure in or breach of the Corporation’s or any of its subsidiaries’ information technology network and systems, or those of third party vendors and other service providers, including as a result of cyber attacks, could disrupt the Corporation’s or any of its subsidiaries’ businesses, result in the unauthorized disclosure or misuse of confidential or proprietary information, damage its reputation, increase its costs, or cause losses.
Although to date the Corporation has not experienced any material losses relating to cyber attacks or other information security breaches, there can be no assurance that it or its subsidiaries will not suffer such losses in the future and our information systems remain a target of cyber attacks.
Although to date the Corporation has not experienced any material losses relating to cyber attacks or cybersecurity incidents, there can be no assurance that it or its subsidiaries will not suffer such losses in the future and our information systems remain a target of cyber attacks.
These types of losses may have a material adverse effect on the Corporation’s business, financial condition or results of operation. The Corporation’s operations may be adversely affected if its external vendors do not perform as expected or if its access to third-party services is interrupted.
The Corporation could incur losses to its securities portfolio as a result of these issues. These types of losses may have a material adverse effect on the Corporation’s business, financial condition or results of operation. The Corporation’s operations may be adversely affected if its external vendors do not perform as expected or if its access to third-party services is interrupted.
In deciding whether to extend credit or enter into other transactions with customers and counterparties, we rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information.
The Corporation depends on the accuracy and completeness of information about customers and counterparties. In deciding whether to extend credit or enter into other transactions with customers and counterparties, we rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information.
Federal and state governments could pass legislation responsive to current credit conditions which could cause the Corporation to experience higher credit losses. The Corporation could experience higher credit losses because of federal or state legislation or regulatory action that reduces the amount the Bank’s borrowers are otherwise contractually required to pay under existing loan contracts.
The Corporation could experience higher credit losses because of federal or state legislation or regulatory action that reduces the amount the Bank’s borrowers are otherwise contractually required to pay under existing loan contracts.
Significant fluctuations in interest rates could have a material adverse impact on the Corporation’s business, financial condition, results of operations, or liquidity. In response to high inflation, the Federal Reserve significantly increased the benchmark federal funds rate during 2022 and has signaled its intention to continue with additional increases in 2023. These actions have significantly increased interest rates.
Significant fluctuations in interest rates could have a material adverse impact on the Corporation’s business, financial condition, results of operations, or liquidity. In response to high inflation, the Federal Reserve significantly increased the benchmark federal funds rate since early 2022. These actions have significantly increased interest rates.
Compliance with such regulation may increase its costs and limit its ability to pursue business opportunities. • Market developments may affect customer confidence levels and may cause increases in loan delinquencies and default rates, which management expects would adversely impact the Bank’s charge-offs and provision for credit losses. • Market developments may adversely affect the Bank’s securities portfolio by causing other-than-temporary-impairments, prompting write-downs and securities losses. • Competition in the banking and financial services industry could intensify as a result of the consolidation of financial services companies in connection with current market conditions.
Compliance with such regulation may increase its costs and limit its ability to pursue business opportunities. • Market developments may affect customer confidence levels and may cause increases in loan delinquencies and default rates, which management expects would adversely impact the Bank’s charge-offs and provision for credit losses. • Market developments may adversely affect the Bank’s securities portfolio by causing other-than-temporary-impairments, prompting write-downs and securities losses. • Competition in the banking and financial services industry could intensify as a result of the consolidation of financial services companies in connection with current market conditions. 12 Table of Contents The Corporation may not be able to meet its cash flow needs on a timely basis at a reasonable cost, and the Corporation’s cost of funds for banking operations may significantly increase as a result of general economic conditions, interest rates and competitive pressures.
The Corporation’s investment securities portfolio has risks beyond its control that can significantly influence the portfolio’s fair value. These factors include, but are not limited to, rating agency downgrades of the securities, defaults of the issuers of the securities, lack of market pricing of the securities, and continued instability in the credit markets.
The Corporation’s investment securities portfolio has risks beyond its control that can significantly influence the portfolio’s fair value. These factors include, but are not limited to, changes in interest rates, changes in prepayment speeds, changes in general economic conditions, rating agency downgrades of the securities, defaults of the issuers of the securities and market liquidity.
Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the Corporation in substantial and unpredictable ways.
These regulations affect the Corporation’s lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the Corporation in substantial and unpredictable ways.
As a result, defaults by, or even rumors or questions about, one or more financial institutions, or the financial industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or other institutions. Many of these transactions expose the Corporation to credit or investment risk in the event of default by the Corporation’s counterparty.
As a result, defaults by, or even rumors or questions about, one or more financial institutions, or the financial industry generally, have led to, or could in the future lead to, market-wide liquidity problems and could lead to losses or defaults by us or other institutions.
This impact could lead to decreased loan demand and increase the number of borrowers who fail to pay the Bank interest or principal on their loans, and accordingly, could have a material adverse effect on the Corporation’s business, financial condition, results of operations, or liquidity. 17 Table of Contents Severe weather, flooding and other effects of climate change and other natural disasters, such as earthquakes, could adversely affect our financial condition, results of operations or liquidity.
This impact could lead to decreased loan demand and increase the number of borrowers who fail to pay the Bank interest or principal on their loans, and accordingly, could have a material adverse effect on the Corporation’s business, financial condition, results of operations, or liquidity.
The Corporation’s investment securities portfolio is subject to credit risk, market risk, and liquidity risk, and declines in value in its investment securities portfolio may require it to record impairment charges that could have a material adverse effect on its results of operations and financial condition.
For further information on risk relating to interest rates, refer to Part I, Item 7a, "Quantitative and Qualitative Disclosures about Market Risk," herein. 14 Table of Contents The Corporation’s investment securities portfolio is subject to credit risk, market risk, and liquidity risk, and declines in value in its investment securities portfolio may require it to record impairment charges that could have a material adverse effect on its results of operations and financial condition.
For example, in deciding whether to extend credit to clients, we may assume that a customer's audited financial statements conform to GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Our earnings are significantly affected by our ability to properly originate, underwrite and service loans.
For example, in deciding whether to extend credit to clients, we may assume that a customer's audited financial statements conform to U.S. generally accepted accounting principles ("GAAP") and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer.
In addition, the Corporation’s credit risk may be exacerbated if the collateral it holds cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or other exposure to the Corporation. The Corporation could incur losses to its securities portfolio as a result of these issues.
Many of these transactions expose the Corporation to credit or investment risk in the event of default by the Corporation’s counterparty. In addition, the Corporation’s credit risk may be exacerbated if the collateral it holds cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or other exposure to the Corporation.
Even if these events do not directly impact our properties or our customers’ properties, they may impact us and our customers through increased insurance, energy or other costs.
These events can force property closures, result in property damage and/or result in delays in expansion, development or renovation of our properties and those of our customers. Even if these events do not directly impact our properties or our customers’ properties, they may impact us and our customers through increased insurance, energy or other costs.
Given the evolving nature of security threats and evolving safeguards, there can be no assurance that any preventive, protective, or remedial measures are or will be adequate to address threats that arise.
Given the evolving nature of security threats and evolving safeguards, there can be no assurance that any preventive, protective, or remedial data security measures that we or our third party service providers implement are or will be adequate to detect or prevent all cybersecurity incidents.
Our branch locations and our customers’ properties may be adversely impacted by flooding, wildfires, high winds and other effects of severe weather conditions that may be caused or exacerbated by climate change. These events can force property closures, result in property damage and/or result in delays in expansion, development or renovation of our properties and those of our customers.
Our branch locations and our customers’ properties may be adversely impacted by flooding, wildfires, prolonged periods of extreme temperature, high winds and other effects of severe weather conditions that may be caused or exacerbated by climate change.
The Bank is not immune to negative consequences arising from overall economic weakness and, in particular, a sharp downturn in the local real estate markets served by the Bank. While the Bank’s loan portfolio has not shown significant signs of credit quality deterioration despite continued challenges in the U.S. economy, we cannot assure you that no deterioration will occur.
While the Bank’s loan portfolio has not shown significant signs of credit quality deterioration despite continued challenges in the U.S. economy, we cannot assure you that no deterioration will occur. An economic recession in the markets served by the Bank, and the nation as a whole, could negatively impact household and corporate incomes.
While the Corporation has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur. See the section captioned "Supervision and Regulation" in Part I, Item 1 of this report for further information.
While the Corporation has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur.
Furthermore, because a substantial portion of the Bank’s loan portfolio is secured by real estate in these areas, the value of the associated collateral is also subject to regional real estate market conditions.
Furthermore, because a substantial portion of the Bank’s loan portfolio is secured by real estate in these areas, the value of the associated collateral is also subject to regional real estate market conditions. 17 Table of Contents The Bank is not immune to negative consequences arising from overall economic weakness and, in particular, a sharp downturn in the local real estate markets served by the Bank.
Although the Corporation has business continuity plans and other safeguards in place, disruptions or failures in the physical infrastructure or operating systems that support its businesses and customers, or cyber attacks or security breaches of its networks, systems or devices on which employees' or customers’ personal information is stored and that customers use to access the Corporation’s and its subsidiaries products and services could result in customer attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect the Corporation’s results of operations or financial condition.
Although the Corporation has business continuity plans and other safeguards in place, any such cybersecurity incident, including those impacting personal information, could result in customer attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect the Corporation’s results of operations or financial condition.
Risks Related to Legal and Compliance Matters The Corporation is subject to extensive government regulation and supervision, which may affect its ability to conduct its business and may negatively impact its financial results. The Corporation, primarily through the Bank and its non-bank subsidiary, is subject to extensive federal and state regulation and supervision.
They could also cause a reduction in demand for lending or other services that we provide. Risks Related to Legal and Compliance Matters The Corporation is subject to extensive government regulation and supervision, which may affect its ability to conduct its business and may negatively impact its financial results.
Periodically, the Corporation utilizes term borrowings from the Federal Home Loan Bank (the "FHLB") of Pittsburgh, of which the Bank is a member, and other lenders to meet funding obligations. The Bank’s securities and loan portfolios provide a source of contingent liquidity that could be accessed in a reasonable time period through sales.
The Bank’s securities and loan portfolios provide a source of contingent liquidity that could be accessed in a reasonable time period through sales.
Since proposed alternative rates (including SOFR) are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design, and hedging strategies. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation.
The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design, and hedging strategies. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation and could have a material adverse effect on our business, financial condition and results of operations.
The Corporation, primarily through the Bank, depends on its ability to continuously process, record and monitor a large number of customer transactions. The Corporation also collects and processes regulated personal data of employees and customers, and as such, public and regulatory expectations regarding operational and information security have increased over time.
The Corporation, primarily through the Bank, depends on its information technology networks and systems to continuously process, record and monitor a large number of customer transactions and to process, transmit and store proprietary and confidential information, including personal information of employees and customers.
Banking regulations are primarily intended to protect depositors’ funds, the Federal Deposit Insurance Fund and the safety and soundness of the banking system as a whole, not stockholders. These regulations affect the Corporation’s lending practices, capital structure, investment practices, dividend policy and growth, among other things.
The Corporation, primarily through the Bank and its non-bank subsidiary, is subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, the Federal Deposit Insurance Fund and the safety and soundness of the banking system as a whole, not stockholders.
Moreover, as cyber attacks increase in frequency and magnitude, we may be unable to obtain cybersecurity insurance in amounts and on terms we view as adequate for our operations. 20 Table of Contents A pandemic, including the ongoing COVID-19 pandemic, and measures intended to prevent its spread, could have a material adverse effect on our business, results of operations, cash flows, and financial condition.
A pandemic and measures intended to prevent its spread, could have a material adverse effect on our business, results of operations, cash flows, and financial condition.
Accordingly, its and its subsidiaries’ operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, vulnerabilities, disruptions and breakdowns.
Accordingly, the Corporation’s and its subsidiaries’ information technology networks and systems must continue to be safeguarded and monitored for potential failures, vulnerabilities, disruptions and breakdowns. We face cybersecurity threats, including system, network or internet failures, cyber-attacks, ransomware and other malware, social engineering, phishing schemes and workforce member error, negligence, or fraud.
Removed
The Corporation may not be able to meet its cash flow needs on a timely basis at a reasonable cost, and the Corporation’s cost of funds for banking operations may significantly increase as a result of general economic conditions, interest rates and competitive pressures.
Added
Periodically, the Corporation utilizes term borrowings from the Federal Home Loan Bank (the "FHLB") of Pittsburgh, of which the Bank is a member, and other lenders to meet funding obligations. In addition, the Bank also maintains borrowing capacity with the Federal Reserve Bank of Philadelphia.
Removed
For further information on risk relating to interest rates, refer to Part I, Item 7a, "Quantitative and Qualitative Disclosures about Market Risk," herein.
Added
In March 2021, the United Kingdom’s Financing Conduct Authority and the Intercontinental Exchange Benchmark Administration, the administrator for the London Interbank Offered Rate (“LIBOR”), concurrently announced that certain settings of LIBOR would no longer be published on a representative basis after December 31, 2021, and the most commonly used U.S. dollar LIBOR settings would no longer be published on a representative basis after June 30, 2023.
Removed
Recent lack of market activity with respect to certain of the securities has, in certain circumstances, required the Corporation to base its fair market valuation on unobservable inputs.
Added
Since proposed alternative rates (including SOFR) are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The future performance of SOFR, including how changes in SOFR rates may differ from other rates during different economic conditions, cannot be predicted based on the limited historical performance.
Removed
The Corporation has engaged valuation experts to price these certain securities using proprietary models, which incorporate assumptions that market participants would use in pricing the securities, including bid/ask spreads and liquidity and credit premiums.
Added
Further, we cannot predict how SOFR will perform in comparison to LIBOR in changing market conditions, what the effect of such rate’s implementation may be on the markets for floating-rate financial instruments or whether such rates will be vulnerable to manipulation.
Removed
In 2017, the United Kingdom’s Financial Conduct Authority ("FCA"), which regulates the London Interbank Offered Rate ("LIBOR"), announced that the FCA intends to stop persuading or compelling banks to submit the rates required to calculate LIBOR after 2021.
Added
Severe weather, flooding and other effects of climate change and other natural disasters, such as earthquakes, could adversely affect our financial condition, results of operations or liquidity.
Removed
The U.S. bank regulators issued a Statement on LIBOR Transition on November 30, 2020 encouraging banks to transition away from U.S. Dollar (USD) LIBOR as soon as practicable and in any event by December 31, 2021 for new contracts. LIBOR is currently anticipated to be fully phased out by June 30, 2023.
Added
Our earnings are significantly affected by our ability to properly originate, underwrite and service loans.
Removed
We are not able to predict with certainty when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR.
Added
Furthermore, increased regulation of data collection, use and retention practices, including self-regulation and industry standards, changes in existing laws and regulations, enactment of new laws and regulations, increased enforcement activity, and changes in interpretation of laws, could increase our cost of compliance and operation, limit our ability to grow our business or otherwise harm the Corporation.
Removed
The transition from LIBOR, or any changes or reforms to the determination or supervision of LIBOR, could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us, could create considerable costs and additional risk and could have an adverse impact on our overall financial condition or results of operations.
Added
While we may be entitled to damages if our third party service providers fail to satisfy their security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award.
Removed
Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.
Added
Moreover, as cyber attacks increase in frequency and magnitude, we may be unable to obtain cybersecurity insurance in amounts and on terms we view as adequate for our operations. Further information relating to cybersecurity risk management is discussed in Item 1C. “Cybersecurity” of this report.
Removed
An economic recession in the markets served by the Bank, and the nation as a whole, could negatively impact household and corporate incomes.
Added
Our business and financial performance could be adversely affected, directly or indirectly, by terrorist activities, international hostilities or domestic civil unrest. Neither the occurrence nor the potential impact of geopolitical instabilities, terrorist activities, international hostilities or other extraordinary events beyond the Corporation’s control can be predicted.
Removed
The preparation of the Corporation’s financial statements requires the use of estimates that could significantly vary from actual results, which could have a material adverse effect on the Corporation’s business, financial condition, results of operations, or liquidity.
Added
However, these occurrences could adversely impact us, for example, by preventing us from conducting our business in the ordinary course. Also, their impact on our borrowers, depositors, other customers, suppliers or other counterparties could result in indirect adverse effects on us.
Removed
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make significant estimates that affect the financial statements. For example, one of these significant estimates is the allowance for credit losses.
Added
Other indirect adverse consequences from these occurrences could result from impacts to the financial markets, the economy in general or in any region, or key parts of the infrastructure (such as the power grid) on which we and our customers rely.
Removed
Due to the inherent nature of estimates, the Corporation cannot provide absolute assurance that it will not significantly increase the allowance for credit losses and/or sustain credit losses that are significantly higher than the provided allowance, which could have a material adverse effect on the Corporation’s business, financial condition, results of operations or liquidity.
Added
These types of indirect effects, whether specific to our counterparties or more generally applicable, could lead, for example, to an increase in delinquencies, bankruptcies or defaults that could result in the Corporation experiencing higher levels of nonperforming assets, net charge-offs and provisions for credit losses.
Removed
The Corporation’s financial results may be subject to the impact of changes in accounting standards or interpretation in new or existing standards. From time to time the Financial Accounting Standards Board ("FASB"), and the SEC change accounting regulations and reporting standards that govern the preparation of the Corporation’s financial statements.
Added
See the section captioned "Supervision and Regulation" in Part I, Item 1 of this report for further information. 21 Table of Contents Federal and state governments could pass legislation responsive to current credit conditions which could cause the Corporation to experience higher credit losses.
Removed
In addition, the FASB, SEC, and bank regulators may revise their previous interpretations regarding existing accounting regulations and the application of these accounting standards. These revisions in their interpretations are out of the Corporation’s control and may have a material impact on its financial statements. The Corporation depends on the accuracy and completeness of information about customers and counterparties.
Removed
However, even security measures that are appropriate, reasonable, and/or in accordance with applicable legal requirements may not be able to fully protect our operational or security systems or infrastructure and the data contained therein, or our data that is contained in our subsidiaries’ or third parties’ systems.

Item 2. Properties

Properties — owned and leased real estate

4 edited+0 added−0 removed1 unchanged
Biggest changeBankOnBuffalo, a division of the Bank, operates in the New York counties of Erie and Niagara. Ridge View Bank, a division of the Bank, operates in Southwest, Virginia. Impressia Bank, a division of the Bank, will operate in the Bank’s primary market areas.
Biggest changeBankOnBuffalo, 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 the Virginia counties of Botetourt, Craig, Franklin, and Roanoke. Impressia Bank, a division of the Bank, operates in the Bank’s primary market areas.
There are no encumbrances on the offices owned and the rental expense on the leased property is immaterial in relation to operating expenses. The initial lease terms range from three to twenty years.
There are no encumbrances on the offices owned and the rental expense on the leased property is immaterial in relation to operating expenses. The initial lease terms range from two to twenty years.
ITEM 2. PROPERTIES The headquarters of the Corporation and the Bank are located at 1 South Second Street, Clearfield, Pennsylvania, in a building owned by the Corporation. The Bank operates 47 full-service offices at December 31, 2022. Of these 47 offices, 23 are owned and 23 are leased from independent owners and one is leased from the Corporation.
ITEM 2. PROPERTIES The headquarters of the Corporation and the Bank are located at 1 South Second Street, Clearfield, Pennsylvania, in a building owned by the Corporation. The Bank operates 51 full-service offices at December 31, 2023. Of these 51 offices, 24 are owned and 26 are leased from independent owners and one is leased from the Corporation.
Holiday has nine full-service offices, of which eight are leased from independent owners and one is leased from the Corporation. The Bank’s primary market area of the Pennsylvania counties of Blair, Cambria, Cameron, Centre, Clearfield, Crawford, Elk, Indiana, Jefferson and McKean.
Holiday has nine full-service offices, of which eight are leased from independent owners and one is leased from the Corporation. The CNB Bank franchise's primary market areas are the Pennsylvania counties of Blair, Cambria, Centre, Clearfield, Elk, Indiana, Jefferson, and McKean.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed0 unchanged
Biggest changeITEM 3. LEGAL PROCEEDINGS There are no material 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 4. MINE SAFETY DISCLOSURES None. 22 Table of Contents PART II.
Biggest changeITEM 3. LEGAL PROCEEDINGS There are no material 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 4. MINE SAFETY DISCLOSURES None. 23 Table of Contents PART II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+4 added−0 removed0 unchanged
Biggest changeDepending on market conditions and other factors, these repurchases may be commenced or suspended without prior notice. As of December 31, 2022, there were 500,000 shares remaining for repurchase under the program.
Biggest changeOn May 9, 2023, the Corporation's Board of Directors amended the Repurchase Plan to extend its duration to May 17, 2024. Common stock repurchases under the Repurchase Plan may be conducted through open market purchases or, privately negotiated transactions. Depending on market conditions and other factors, these repurchases may be commenced or suspended without prior notice.
Issuer Purchases of Equity Securities 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 quarter ended December 31, 2022.
Issuer Purchases of Equity Securities 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 quarter ended December 31, 2023.
Additionally, during the quarter ended December 31, 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. 23 Table of Contents Share Return Performance Set forth below is a chart comparing the Corporation’s cumulative return to stockholders against the cumulative return of the NASDAQ Composite Index and a peer group index of banking organizations for the five-year period commencing December 31, 2017 and ending December 31, 2022.
Additionally, during the quarter ended December 31, 2023, 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. 24 Table of Contents Share Return Performance Set forth below is a chart comparing the Corporation’s cumulative return to stockholders against the cumulative return of the NASDAQ Composite Index and a peer group index of banking organizations for the five-year period commencing December 31, 2018 and ending December 31, 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Global Select Market of NASDAQ under the symbol "CCNE." As of December 31, 2022, the number of shareholders of record of the Corporation’s common stock was 7,023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Global Select Market of NASDAQ under the symbol "CCNE." As of December 31, 2023, the number of shareholders of record of the Corporation’s common stock was 7,184.
Period Total Number of Shares Purchased Average Price Paid per 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 October 1 – 31, 2022 — $ — — 500,000 (1) November 1 – 30, 2022 — — — 500,000 (1) December 1 – 31, 2022 — — — 500,000 (1) (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.
Period Total Number of Shares Purchased Average Price Paid per 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) October 1 – 31, 2023 — $ — — 173,541 November 1 – 30, 2023 — — — 173,541 December 1 – 31, 2023 — — — 173,541 (1) On May 17, 2022, the Corporation's Board of Directors authorized a common stock repurchase plan (the "Repurchase Plan") pursuant to which the Corporation is authorized to repurchase 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 Corporation received acknowledgement of the repurchase program from the Federal Reserve Bank) through and including May 17, 2023 through open market purchases, privately negotiated transactions.
The repurchases of common stock, if any, were originally authorized to be made during the period beginning on June 2, 2022 (the date on which the Corporation received acknowledgement of the repurchase program from the Federal Reserve Bank) through and including May 17, 2023.
CNB Financial Corporation Period Ending Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 CNB Financial Corporation 100.00 89.51 130.62 88.06 112.68 103.95 NASDAQ Composite Index 100.00 97.16 132.81 192.47 235.15 158.65 KBW NASDAQ Bank Index 100.00 82.29 112.01 100.46 138.97 109.23 Source : S&P Global Market Intelligence © 2023 ITEM 6. RESERVED
CNB Financial Corporation Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 CNB Financial Corporation 100.00 145.93 98.38 125.89 116.13 114.26 NASDAQ Composite Index 100.00 136.69 198.10 242.03 163.28 236.17 KBW NASDAQ Bank Index 100.00 136.13 122.09 168.88 132.75 131.57 Source: S&P Global Market Intelligence © 2024 ITEM 6. RESERVED
Added
Dividends As discussed under "The Corporation’s ability to pay dividends is limited by law and regulations" included in Item 1A. Risk Factors in Part I, the amount and timing of dividends is subject to the discretion of the Board of Directors and depends upon business conditions and regulatory requirements.
Added
The Board of Directors has the discretion to change the dividend at any time for any reason. The Board of Directors presently intends to continue the policy of paying quarterly cash dividends.
Added
The amount of any future dividends will depend on economic and market conditions, the Corporation's financial condition and operating results and other factors, including applicable government regulations and policies.
Added
As of December 31, 2023, there were 173,541 shares remaining for repurchase under the program.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

107 edited+41 added−25 removed73 unchanged
Biggest changeNote 20, "Off-Balance Sheet Commitments and Contingencies," in the consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments of the Corporation. 34 Table of Contents Year Ended December 31, 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 $ (70) $ — $ 22,970 — % Owner-occupied, nonfarm nonresidential properties 213 (574) 428,377 (0.13) Agricultural production and other loans to farmers (15) — 2,245 — Commercial and Industrial 2,564 40 680,368 0.01 Obligations (other than securities and leases) of states and political subdivisions 1,028 (377) 138,604 (0.27) Other loans 81 — 12,187 — Other construction loans and all land development and other land loans 524 (282) 246,583 (0.11) Multifamily (5 or more) residential properties (435) — 218,285 — Non-owner occupied, nonfarm nonresidential properties (2,128) (49) 627,595 (0.01) 1-4 Family Construction 76 — 30,513 — Home equity lines of credit 186 (2) 106,214 — Residential Mortgages secured by first liens 2,436 (32) 795,747 — Residential Mortgages secured by junior liens 308 (3) 55,063 (0.01) Other revolving credit plans 49 (28) 25,751 (0.11) Automobile 154 (23) 23,027 (0.10) Other consumer 637 (1,053) 42,634 (2.47) Credit cards 120 (94) 9,532 (0.99) Overdrafts 275 (278) 224 (124.11) Total $ 6,003 $ (2,755) $ 3,465,919 (0.08) % Year Ended December 31, 2020 Provision (Benefit) for Credit Loss Expense Net (Charge-Offs) Recoveries Average Loans Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans Farmland $ (30) $ — $ 27,359 — % Owner-occupied, nonfarm nonresidential properties 2,031 (49) 396,881 (0.01) Agricultural production and other loans to farmers (6) — 3,185 — Commercial and Industrial 5,283 (2,740) 644,793 (0.42) Obligations (other than securities and leases) of states and political subdivisions 207 — 147,851 — Other loans 19 — 10,546 — Other construction loans and all land development and other land loans (1,504) 125 191,984 0.07 Multifamily (5 or more) residential properties 1,301 — 184,980 — Non-owner occupied, nonfarm nonresidential properties 3,266 (1,470) 532,088 (0.28) 1-4 Family Construction 61 — 24,893 — Home equity lines of credit 367 (5) 103,723 — Residential Mortgages secured by first liens 2,366 (220) 691,294 (0.03) Residential Mortgages secured by junior liens 148 (156) 55,018 (0.28) Other revolving credit plans (51) (116) 27,102 (0.43) Automobile 99 (27) 26,419 (0.10) Other consumer 1,364 (1,383) 38,679 (3.58) Credit cards 179 (139) 8,126 (1.71) Overdrafts 254 (250) 250 (100.00) Total loans $ 15,354 $ (6,430) $ 3,115,171 (0.21) % 35 Table of Contents During the year ended December 31, 2022, the Corporation recorded a provision for credit losses of $8.6 million, as compared to a provision for credit losses of $6.0 million for the year ended December 31, 2021.
Biggest changeYear Ended December 31, 2021 Provision (Benefit) for Credit Loss Expense Net (Charge-Offs) Recoveries Average Loans Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans Farmland $ (70) $ — $ 22,970 — % Owner-occupied, nonfarm nonresidential properties 213 (574) 428,377 (0.13) Agricultural production and other loans to farmers (15) — 2,245 — Commercial and Industrial 2,564 40 680,368 0.01 Obligations (other than securities and leases) of states and political subdivisions 1,028 (377) 138,604 (0.27) Other loans 81 — 12,187 — Other construction loans and all land development and other land loans 524 (282) 246,583 (0.11) Multifamily (5 or more) residential properties (435) — 218,285 — Non-owner occupied, nonfarm nonresidential properties (2,128) (49) 627,595 (0.01) 1-4 Family Construction 76 — 30,513 — Home equity lines of credit 186 (2) 106,214 — Residential Mortgages secured by first liens 2,436 (32) 795,747 — Residential Mortgages secured by junior liens 308 (3) 55,063 (0.01) Other revolving credit plans 49 (28) 25,751 (0.11) Automobile 154 (23) 23,027 (0.10) Other consumer 637 (1,053) 42,634 (2.47) Credit cards 120 (94) 9,532 (0.99) Overdrafts 275 (278) 224 (124.11) Total loans $ 6,003 $ (2,755) $ 3,465,919 (0.08) % 36 Table of Contents During the year ended December 31, 2023, the Corporation recorded a provision for credit losses of $6.0 million compared to $8.6 million for the year ended December 31, 2022.
The 2022 full-year earnings per share was partially impacted by the effect of the Corporation's common stock offering completed in September of 2022, resulting in the issuance of 4,257,446 shares of common stock at $23.50 per share and net proceeds of $94.1 million after deducting the underwriting discount and customary offering expenses.
The 2022 full-year earnings per share was partially impacted by the effect of the Corporation's common stock offering completed in September 2022, resulting in the issuance of 4,257,446 shares of common stock at $23.50 per share and net proceeds of $94.1 million after deducting the underwriting discount and customary offering expenses.
As disclosed in "Allowance for Credit Losses" discussion above, management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts, and other significant qualitative and quantitative factors.
As disclosed in "Allowance for Credit Losses" discussion above, management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, reasonable and supportable forecasts, and other significant qualitative and quantitative factors.
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 AFS.
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 AFS debt securities.
In addition to these internal portfolio transfers, some of the investment purchases made by the Corporation during 2022 were also classified as HTM securities. The Corporation’s objective is to maintain the investment securities portfolio at an appropriate level to balance the earnings and liquidity provided by the portfolio.
In addition to these internal portfolio transfers, some of the investment purchases made by the Corporation during 2022 were also classified as HTM debt securities. The Corporation’s objective is to maintain the investment securities portfolio at an appropriate level to balance the earnings and liquidity provided by the portfolio.
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.
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 significant classified assets and nonaccrual loans annually.
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.
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 debt securities and amortized cost of HTM debt securities. Average yield has been computed using amortized cost average balance for AFS and HTM debt securities.
Non-interest income excluding net realized gains on AFS securities, a non-GAAP measure, for the year ended December 31, 2022 and the year ended December 31, 2021, increased $1.5 million, or 4.5%, from the same period in 2021.
Non-interest income excluding net realized gains on AFS debt securities, a non-GAAP measure, for the year ended December 31, 2022 and the year ended December 31, 2021, increased $1.5 million, or 4.5%, from the same period in 2021.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented to provide insight into management’s assessment of financial results and should be read in conjunction with the following parts of this Annual Report on Form 10-K: Part I, Item 1 "Business," Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," and Part II, Item 8 "Financial Statements and Supplementary Data." This section of this Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented to provide insight into management’s assessment of financial results and should be read in conjunction with the following parts of this Annual Report on Form 10-K: Part I, Item 1 "Business," Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," and Part II, Item 8 "Financial Statements and Supplementary Data." This section of this Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
The "watchlist" is comprised of all credits risk rated special mention, substandard and doubtful. 31 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.
The "watchlist" is comprised of all credits risk rated special mention, substandard and doubtful. 32 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.
The qualitative factors applied at December 31, 2022, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management's assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of allowance for credit loss calculated by the model.
The qualitative factors applied at December 31, 2023, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management's assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of allowance for credit loss calculated by the model.
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. December 31, 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.
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. December 31, 2023 Within One Year After One But Within Five Years After Five But Within Ten Years After Ten Years Total $ Amt. Yield $ Amt. Yield $ Amt.
The forecast and reversion to mean time period used for each economic index at December 31, 2022 were four quarters and eight quarters, respectively. Prepayment and curtailment assumptions are based on the Corporation's historical experience over the trailing 12 months and are adjusted by management as deemed necessary. The prepayment and curtailment assumptions vary based on segment.
The forecast and reversion to mean time period used for each economic index at December 31, 2023 were four quarters and eight quarters, respectively. Prepayment and curtailment assumptions are based on the Corporation's historical experience over the trailing 12 months and are adjusted by management as deemed necessary. The prepayment and curtailment assumptions vary based on segment.
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. 25 Table of Contents In addition to the Bank, the Corporation has four other subsidiaries.
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. 26 Table of Contents In addition to the Bank, the Corporation has four other subsidiaries.
The table below provides an allocation of the allowance for credit losses on loans by loan portfolio segment at December 31, 2022 and 2021; however, allocation of a portion of the allowance to one segment does not preclude its availability to absorb losses in other segments.
The table below provides an allocation of the allowance for credit losses on loans by loan portfolio segment at December 31, 2023 and 2022; however, allocation of a portion of the allowance to one segment does not preclude its availability to absorb losses in other segments.
Additional details about our subordinated debentures and notes are included in Note 12, "Borrowings" in the accompanying notes to consolidated financial statements. Liquidity and Capital Resources Liquidity Liquidity measures an organization’s ability to meet its cash obligations as they come due.
Additional details about our subordinated debentures and notes are included in Note 10, "Borrowings" in the accompanying notes to consolidated financial statements. Liquidity and Capital Resources Liquidity Liquidity measures an organization’s ability to meet its cash obligations as they come due.
Liability liquidity is provided by access to funding sources which include core deposits, correspondent banks and other wholesale funding sources. 37 Table of Contents 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.
Liability liquidity is provided by access to funding sources which include core deposits, correspondent banks and other wholesale funding sources. 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 following table presents average balances of certain measures of our financial condition and net interest margin for the specified years. December 31, 2022 December 31, 2021 December 31, 2020 Average Balance Annual Rate Interest Inc./ Exp. Average Balance Annual Rate Interest Inc./ Exp. Average Balance Annual Rate Interest Inc./ Exp.
The following table presents average balances of certain measures of our financial condition and net interest margin for the specified years. December 31, 2023 December 31, 2022 December 31, 2021 Average Balance Annual Rate Interest Inc./ Exp. Average Balance Annual Rate Interest Inc./ Exp. Average Balance Annual Rate Interest Inc./ Exp.
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 consolidated financial statements provides more detail concerning the loan portfolio of 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 3, "Loans Receivable and Allowance for Credit Losses," to the consolidated financial statements provides more detail concerning the loan portfolio of the Corporation.
There are inherent uncertainties related to these factors and the Corporation's judgment in applying them to the analysis of goodwill impairment. Future changes in economic and operating conditions could result in goodwill impairment in subsequent periods. 47 Table of Contents Non-GAAP Financial Measures The following tables reconcile the non-GAAP financial measures to their most directly comparable measures under GAAP.
There are inherent uncertainties related to these factors and the Corporation's judgment in applying them to the analysis of goodwill impairment. Future changes in economic and operating conditions could result in goodwill impairment in subsequent periods. Non-GAAP Financial Measures The following tables reconcile the non-GAAP financial measures to their most directly comparable measures under GAAP.
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.
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.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021. 24 Table of Contents Dollar amounts in tables are stated in thousands, except for per share amounts.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022. 25 Table of Contents Dollar amounts in tables are stated in thousands, except for per share amounts.
For the year ended December 31, 2022, the allowance for credit losses increased due to the growth in the Corporation's loan portfolio, including growth in new market areas. This was partially offset by improvements in the Corporation's historical loss rates, as well as the impact of net charge-offs.
For the year ended December 31, 2023, the allowance for credit losses increased primarily due to the growth in the Corporation's loan portfolio, including growth in new market areas. This was partially offset by improvements in the Corporation's historical loss rates, as well as the impact of net charge-offs.
The adequacy of the allowance for credit losses is subject to a formal analysis by the Credit Administration and Finance Departments of the Corporation. For additional information regarding the Corporation's accounting policies related to credit losses, refer to Note 1, "Summary of Significant Accounting Policies" and Note 4, "Loans and Allowance for Credit Losses" in these consolidated financial statements.
The adequacy of the allowance for credit losses is subject to a formal analysis by the Credit Administration and Finance Departments of the Corporation. For additional information regarding the Corporation's accounting policies related to credit losses, refer to Note 1, "Summary of Significant Accounting Policies" and Note 3, "Loans and Allowance for Credit Losses" to these consolidated financial statements.
Included in net interest income were PPP-related fees, which totaled approximately $1.9 million for the year ended December 31, 2022, compared to $8.7 million for the year ended December 31, 2021. Net interest margin was 3.83% and 3.35% for the twelve months ended December 31, 2022 and 2021, respectively.
Included in net interest income were PPP-related fees, which totaled approximately $1.9 million for the year ended December 31, 2022, compared to $8.7 million for the year ended December 31, 2021. Net interest margin was 3.83% and 3.35% for the years ended December 31, 2022 and 2021, respectively.
For the Corporation, these estimates and assumptions include accounting for the allowance for credit losses and goodwill. 45 Table of Contents Allowance for Credit Losses The Corporation's allowance for credit losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of its consolidated financial statements.
For the Corporation, these estimates and assumptions include accounting for the allowance for credit losses and goodwill. Allowance for Credit Losses The Corporation's allowance for credit losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of its consolidated financial statements.
The increase for the twelve months ended December 31, 2022 was primarily a result of expected increasing costs associated with the Corporation’s expanding franchise investments into the Cleveland and Southwest Virginia markets, coupled with its continued strategic investments in technologies focused on customer sales management and connectivity capabilities. .
The increase for the year ended December 31, 2022 was primarily a result of expected increasing costs associated with the Corporation’s expanding franchise investments into the Cleveland, Ohio and Southwest Virginia markets, coupled with its continued strategic investments in technologies focused on customer sales management and connectivity capabilities.
Upon completion of the construction period the loans are reclassified to their permanent financing loan segment. 30 Table of Contents Loan Concentration At December 31, 2022, no industry concentration existed which exceeded 10% of the total loan portfolio.
Upon completion of the construction period the loans are reclassified to their permanent financing loan segment. 31 Table of Contents Loan Concentration At December 31, 2023, no industry concentration existed which exceeded 10% of the total loan portfolio.
The taxable equivalent adjustment to net interest income for the years ended December 31, 2022, 2021 and 2020 were $1.2 million, $953 thousand and $1.4 million, respectively. (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.
The taxable equivalent adjustment to net interest income for the years ended December 31, 2023, 2022, and 2021 were $997 thousand, $1.2 million and $953 thousand, respectively. (3) Average loans receivable outstanding includes the average balance outstanding of all nonaccrual loans. Loans receivable consist of the average of total loans receivable less average unearned income.
(2) Changes in interest income on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21% for the year ended December 31, 2022 and 2021. 41 Table of Contents Results of Operations Year Ended December 31, 2022 vs.
(2) Changes in interest income on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21% for the year ended December 31, 2023 and 2022. 42 Table of Contents Results of Operations Year Ended December 31, 2023 vs.
Non-Interest Expense For the year ended December 31, 2022, total non-interest expense was $137.6 million, reflecting an increase of $21.2 million, or 18.2%, from the year ended December 31, 2021, primarily as a result of (i) expansion of the Corporation's workforce in its growth regions of Cleveland, Southwest Virginia, and Rochester, (ii) increased investments in technology aimed at enhancing both customer experience and expanding service delivery channels, and (iii) the Corporation's sales management and increased legal and professional expenses. 43 Table of Contents Year Ended December 31, 2021 vs.
Non-Interest Expense For the year ended December 31, 2022, total non-interest expense was $137.6 million, reflecting an increase of $21.2 million, or 18.2%, from the year ended December 31, 2021, primarily as a result of (i) expansion of the Corporation's workforce in its growth regions of Cleveland, Ohio, Southwest Virginia, and Rochester, New York, (ii) increased investments in technology aimed at both enhancing customer experience and expanding service delivery channels, and (iii) the Corporation's sales management and increased legal and professional expenses.
Year Ended December 31, 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 $ — $ 32,075 — % Owner-occupied, nonfarm nonresidential properties (428) (6) 467,606 — Agricultural production and other loans to farmers (3) — 1,254 — Commercial and Industrial 965 (36) 762,585 — Obligations (other than securities and leases) of states and political subdivisions 214 — 149,253 — Other loans 307 — 16,861 — Other construction loans and all land development and other land loans 1,055 — 334,450 — Multifamily (5 or more) residential properties 64 — 227,715 — Non-owner occupied, nonfarm nonresidential properties 1,171 1 697,930 — 1-4 Family Construction 169 — 41,849 — Home equity lines of credit (8) 12 115,682 0.01 Residential Mortgages secured by first liens 1,564 (23) 874,675 — Residential Mortgages secured by junior liens 489 — 63,362 — Other revolving credit plans 236 (42) 29,398 (0.14) Automobile 34 (26) 20,677 (0.13) Other consumer 1,653 (1,534) 50,196 (3.06) Credit cards 36 (61) 11,872 (0.51) Overdrafts 460 (423) 282 (150.00) Total $ 7,986 $ (2,138) $ 3,897,722 (0.05) % (1) Excludes provision for credit losses totaling $603 thousand, related to unfunded commitments.
Note 18, "Off-Balance Sheet Commitments and Contingencies," in the consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments of the Corporation. 35 Table of Contents Year Ended December 31, 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 $ — $ 32,075 — % Owner-occupied, nonfarm nonresidential properties (428) (6) 467,606 — Agricultural production and other loans to farmers (3) — 1,254 — Commercial and Industrial 965 (36) 762,585 — Obligations (other than securities and leases) of states and political subdivisions 214 — 149,253 — Other loans 307 — 16,861 — Other construction loans and all land development and other land loans 1,055 — 334,450 — Multifamily (5 or more) residential properties 64 — 227,715 — Non-owner occupied, nonfarm nonresidential properties 1,171 1 697,930 — 1-4 Family Construction 169 — 41,849 — Home equity lines of credit (8) 12 115,682 0.01 Residential Mortgages secured by first liens 1,564 (23) 874,675 — Residential Mortgages secured by junior liens 489 — 63,362 — Other revolving credit plans 236 (42) 29,398 (0.14) Automobile 34 (26) 20,677 (0.13) Other consumer 1,653 (1,534) 50,196 (3.06) Credit cards 36 (61) 11,872 (0.51) Overdrafts 460 (423) 282 (150.00) Total $ 7,986 $ (2,138) $ 3,897,722 (0.05) % (1) Excludes provision for credit losses totaling $603 thousand related to unfunded commitments.
Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.82% and 3.38% for the twelve months ended December 31, 2022 and 2021, respectively.
Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.82% and 3.38% for the years ended December 31, 2022 and 2021, respectively.
The Corporation’s material contractual obligations as of December 31, 2022 consist of (i) long-term borrowings - Note 12, "Borrowings," (ii) operating leases - Note 9, "Leases," (iii) time deposits with stated maturity dates - Note 11, "Deposits," and (iv) commitments to extend credit and standby letters of credit - Note 20, "Off-Balance Sheet Activities." Shareholders’ Equity, Capital Ratios and Metrics Shareholders' Equity On September 21, 2022, the Corporation successfully completed a common stock offering resulting in the issuance of 4,257,446 shares of common stock at $23.50 per share and net proceeds of $94.1 million after the deducting the underwriting discount and customary offering expenses.
The Corporation’s material contractual obligations as of December 31, 2023 consist of (i) long-term borrowings - Note 10, "Borrowings," (ii) operating leases - Note 7, "Leases," (iii) time deposits with stated maturity dates - Note 9, "Deposits," and (iv) commitments to extend credit and standby letters of credit - Note 18, "Off-Balance Sheet Activities." 39 Table of Contents Shareholders’ Equity, Capital Ratios and Metrics Shareholders' Equity On September 21, 2022, the Corporation successfully completed a common stock offering resulting in the issuance of 4,257,446 shares of common stock at $23.50 per share and net proceeds of $94.1 million after deducting the underwriting discount and customary offering expenses.
December 31, 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.
December 31, 2023 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.
Note 3, "Securities," in the consolidated financial statements provides more detail concerning the composition of the Corporation’s investment securities portfolio and the process for evaluating securities for impairment. The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of securities AFS as of December 31, 2022.
Note 2, "Securities," in the consolidated financial statements provides more detail concerning the composition of the Corporation’s investment securities portfolio and the process for evaluating securities for impairment. The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of AFS debt securities as of December 31, 2023.
The terms of these borrowings are detailed in Note 12, "Borrowings," to the consolidated financial statements. There were $132.4 million in short-term FHLB borrowings as of December 31, 2022, compared to zero at December 31, 2021.
The terms of these borrowings are detailed in Note 10, "Borrowings," to the consolidated financial statements. There were zero in short-term FHLB borrowings as of December 31, 2023, compared to $132.4 million at December 31, 2022.
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. 38 Table of Contents As of December 31, 2022 all of the Corporation's capital ratios exceeded regulatory "well-capitalized" levels.
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 December 31, 2023, all of the Corporation's capital ratios exceeded regulatory "well-capitalized" levels.
The adjustment to the average balance for securities in the calculation of average yield for the years ended December 31, 2022, 2021 and 2020 were $(40.3) million, $9.9 million and $18.9 million, respectively. (5) Includes loans held for sale.
The adjustment to the average balance for securities in the calculation of average yield for the years ended December 31, 2023, 2022, and 2021 were $(61.1) million, $(40.3) million and $9.9 million, respectively. (5) Includes loans held for sale.
Premises and Equipment During the years ended December 31, 2022 and 2021, the Corporation invested $12.3 million and $6.5 million, respectively, in its physical infrastructure through the purchase of land, buildings, and equipment. Bank Owned Life Insurance The Corporation has periodically purchased Bank Owned Life Insurance ("BOLI").
Premises and Equipment During the years ended December 31, 2023 and 2022, the Corporation invested $10.8 million and $12.3 million, respectively, in its physical infrastructure through the purchase of land, buildings, and equipment. Bank Owned Life Insurance The Corporation has periodically purchased Bank Owned Life Insurance ("BOLI").
In accordance with U.S. generally accepted accounting principles, these assets are not included on the Corporation's balance sheet. The Corporation is also party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of the Corporation's clients. These financial instruments include commitments to extend credit and standby letters of credit.
In accordance with GAAP, these assets are not included on the Corporation's balance sheet. The Corporation is also party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of the Corporation's clients. These financial instruments include commitments to extend credit and standby letters of credit.
In determining the appropriate estimate for the allowance for credit losses, management considers a number of factors relative to both individually evaluated credits in the loan portfolio and macro-economic factors relative to the economy of the U.S. as a whole and the economies of the areas in which the Corporation does business.
In determining the appropriate estimate for the allowance for credit losses, management considers a number of factors relative to both individually evaluated credits in the loan portfolio and macro-economic factors relative to the economy of the U.S. as a whole and the economies of the areas in which the Corporation does business. 46 Table of Contents Management performs a quarterly evaluation of the adequacy of the allowance for credit losses.
Further discussion of these commitments is included Note 20, "Off-Balance Sheet Commitments and Contingencies." Critical Accounting Policies and Estimates The Corporation's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. and follow general practices within the industries in which the Corporation operates.
Further discussion of these commitments is included Note 18, "Off-Balance Sheet Commitments and Contingencies." Critical Accounting Policies and Estimates The Corporation's consolidated financial statements are prepared in accordance with accounting principles GAAP and follow general practices within the industries in which the Corporation operates.
Note 4, "Loans Receivable and Allowance for Credit Losses," to the consolidated financial statements provides further disclosure of loan balances by portfolio segment as of December 31, 2022 and 2021, as well as the nature and scope of loans modified in a troubled debt restructuring during 2022 and 2021 and the related effect on provision for credit expense and allowance for credit losses. 33 Table of Contents Additional information related to credit loss expense and net (charge-offs) recoveries at December 31, 2022, 2021 and 2020 is presented in the tables below.
Note 3, "Loans Receivable and Allowance for Credit Losses," to the consolidated financial statements provides further disclosure of loan balances by portfolio segment as of December 31, 2023 and 2022, as well as the nature and scope of loan modifications to borrowers experiencing financial difficulty and loans modified in a troubled debt restructuring during 2023 and 2022, respectively, and the related effect on provision for credit expense and allowance for credit losses. 34 Table of Contents Additional information related to credit loss expense and net (charge-offs) recoveries at December 31, 2023, 2022, and 2021 is presented in the tables below.
The evaluation of qualitative factors is inherently imprecise and requires significant management judgment. 46 Table of Contents While management utilizes its best judgment and information available, the adequacy of the allowance for credit loss is determined by certain factors outside of the Corporation's control, such as the performance of the Corporation's portfolios, changes in the economic environment including economic uncertainty, changes in interest rates, and the view of the regulatory authorities toward classification of assets and the level of allowance for credit loss.
While management utilizes its best judgment and information available, the adequacy of the allowance for credit loss is determined by certain factors outside of the Corporation's control, such as the performance of the Corporation's portfolios, changes in the economic environment including economic uncertainty, changes in interest rates, and the view of the regulatory authorities toward classification of assets and the level of allowance for credit loss.
The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. See Note 1, "Summary of Significant Accounting Policies," and Note 4, "Loans Receivable and Allowance for Credit Losses," for more information about pooling of loans for the allowance for credit losses.
The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. See Note 1, "Summary of Significant Accounting Policies," and Note 3, "Loans Receivable and Allowance for Credit Losses," to the consolidated financial statements for more information about pooling of loans for the allowance for credit losses.
Year Ended December 31, 2021 Overview of the Statements of Income and Comprehensive Income Net income available to common shareholders ("earnings") was $58.9 million, or $3.26 per diluted share, for the twelve months ended December 31, 2022, compared to $53.4 million, or $3.16 per diluted share, for the twelve months ended December 31, 2021, reflecting increases of $5.5 million, or 10.3%, and $0.10 per diluted share, or 3.2%.
Year Ended December 31, 2021 Overview of the Statements of Income and Comprehensive Income Earnings were $58.9 million, or $3.26 per diluted share, for the year ended December 31, 2022, compared to $53.4 million, or $3.16 per diluted share, for the year ended December 31, 2021, reflecting increases of $5.5 million, or 10.3%, and $0.10 per diluted share, or 3.2%.
Non-GAAP measures reflected within the discussion below include: • Tangible book value per common share; • Tangible common equity/tangible assets; • Adjusted allowance/loans receivable, net of Paycheck Protection Program ("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 available-for-sale ("AFS") securities.
Non-GAAP measures reflected within the discussion below include: • Tangible book value per common 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 available-for-sale ("AFS") securities.
It was incorporated under the laws of the Commonwealth of Pennsylvania in 1983 for the purpose of engaging in the business of a financial holding company. The Corporation’s subsidiary, the Bank, provides financial services to individuals and businesses primarily within its primary market area of the Pennsylvania counties of Blair, Cambria, Cameron, Centre, Clearfield, Crawford, Elk, Indiana, Jefferson and McKean.
It was incorporated under the laws of the Commonwealth of Pennsylvania in 1983 for the purpose of engaging in the business of a financial holding company. The Corporation’s subsidiary, the Bank, provides financial services to individuals and businesses. The CNB Bank franchise's primary market areas are the Pennsylvania counties of Blair, Cambria, Centre, Clearfield, Elk, Indiana, Jefferson, and McKean.
Such known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, include, but are not limited to, (i) adverse changes or conditions in capital and financial markets; (ii) changes in interest rates; (iii) the duration and scope of a pandemic, including the ongoing COVID-19 pandemic, and the local, national and global impact of a pandemic; (iv) changes in general business, industry or economic conditions or competition; (v) changes in any applicable law, rule, regulation, policy, guideline or practice governing or affecting financial holding companies and their subsidiaries or with respect to tax or accounting principles or otherwise; (vi) higher than expected costs or other difficulties related to integration of combined or merged businesses; (vii) the effects of business combinations and other acquisition transactions, including the inability to realize our loan and investment portfolios; (viii) changes in the quality or composition of our loan and investment portfolios; (ix) adequacy of loan loss reserves; (x) increased competition; (xi) loss of certain key officers; (xii) deposit attrition; (xiii) rapidly changing technology; (xiv) unanticipated regulatory or judicial proceedings and liabilities and other costs; (xv) changes in the cost or sources of funds, demand for loan and deposit products or demand for financial services; and (xvi) other economic, competitive, governmental or technological factors affecting our operations, markets, products, services and prices.
Such known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, include, but are not limited to, (i) adverse changes or conditions in capital and financial markets, including actual or potential stresses in the banking industry; (ii) changes in the interest rate environment; (iii) the credit risks of lending activities, including our ability to estimate credit losses and the allowance for credit losses, as well as the effects of changes in the level of, and trends in, loan delinquencies and write-offs; (iv) effectiveness of our data security controls in the face of cyber attacks and any reputational risks following a cybersecurity incident; (v) the duration and scope of a pandemic, and the local, national and global impact of a pandemic; (vi) changes in general business, industry or economic conditions or competition; (vii) changes in any applicable law, rule, regulation, policy, guideline or practice governing or affecting financial holding companies and their subsidiaries or with respect to tax or accounting principles or otherwise; (viii) higher than expected costs or other difficulties related to integration of combined or merged businesses; (ix) the effects of business combinations and other acquisition transactions, including the inability to realize our loan and investment portfolios; (x) changes in the quality or composition of our loan and investment portfolios; (xi) adequacy of loan loss reserves; (xii) increased competition; (xiii) loss of certain key officers; (xiv) deposit attrition; (xv) rapidly changing technology; (xvi) unanticipated regulatory or judicial proceedings and liabilities and other costs; (xvii) changes in the cost of funds, demand for loan products or demand for financial services; and (xviii) other economic, competitive, governmental or technological factors affecting our operations, markets, products, services and prices.
Management performs a quarterly evaluation of the adequacy of the allowance for credit losses. Management considers a variety of factors in establishing this estimate. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions.
Management considers a variety of factors in establishing this estimate. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions. The evaluation is comprised of specific and pooled components.
The net proceeds from the capital raise will be used for general corporate purposes, including working capital and funding the Corporation's organic growth across its multiple geographic markets, or evaluating potential acquisition opportunities. As of December 31, 2022, the Corporation’s total shareholders’ equity was $530.8 million, representing an increase of $87.9 million, or 19.9%, from December 31, 2021.
The net proceeds from the capital raise will be used for general corporate purposes, including working capital and funding the Corporation's organic growth across its multiple geographic markets, or evaluating potential acquisition opportunities. As of December 31, 2023, the Corporation’s total shareholders’ equity was $571.2 million, representing an increase of $40.5 million, or 7.6%, from December 31, 2022.
Included in the provision for credit losses for the year ended December 31, 2022 was $603 thousand expense related to the allowance for unfunded commitments compared to no accrual towards the allowance for unfunded commitments for the year ended December 31, 2021.
Included in the provision for credit losses for the year ended December 31, 2023, was a $156 thousand expense related to the allowance for unfunded commitments compared to a $603 thousand expense for the year ended December 31, 2022.
Government Sponsored Entities 3.44 Residential and multi-family mortgage 5.13 Total 3.85 The portfolio contains no holdings of a single issuer that exceeds 10% of shareholders’ equity other than U.S. government sponsored entities.
Government Sponsored Entities 2.54 Residential and multi-family mortgage 6.42 Total 3.40 The portfolio contains no holdings of a single issuer that exceeds 10% of shareholders’ equity other than U.S. government sponsored entities.
The Corporation’s expected material cash requirements for the twelve months ended December 31, 2023 and thereafter consist of withdrawals by depositors, credit commitments to borrowers, shareholder dividends, share repurchases, operating expenses and capital expenditures.
The Corporation’s expected material cash requirements for the year ended December 31, 2024 and thereafter consist of withdrawals by depositors, credit commitments to borrowers, shareholder dividends, share repurchases, operating expenses and capital expenditures that are pursuant to the Corporation's strategic initiatives.
The Corporation’s capital ratios and book value per common share at December 31, 2022 and 2021 were as follows: December 31, 2022 December 31, 2021 Total risk-based capital ratio 16.08 % 14.92 % Tier 1 capital ratio 13.24 % 11.79 % Common equity tier 1 ratio 11.42 % 9.65 % Leverage ratio 10.74 % 8.22 % Tangible common equity/tangible assets (1) 7.90 % 6.45 % Book value per common share $ 22.39 $ 22.85 Tangible book value per common share (1) $ 20.30 $ 20.22 (1) Tangible common equity, tangible assets and tangible book value per common share are non-GAAP financial measures calculated using GAAP amounts.
The Corporation’s capital ratios and book value per common share at December 31, 2023 and 2022 were as follows: December 31, 2023 December 31, 2022 Total risk-based capital ratio 15.99 % 16.08 % Tier 1 capital ratio 13.20 % 13.24 % Common equity tier 1 ratio 11.49 % 11.42 % Leverage ratio 10.54 % 10.74 % Common shareholders' equity/total assets 8.93 % 8.64 % Tangible common equity/tangible assets (1) 8.22 % 7.90 % Book value per common share $ 24.57 $ 22.39 Tangible book value per common share (1) $ 22.46 $ 20.30 (1) Tangible common equity, tangible assets and tangible book value per common share are non-GAAP financial measures calculated using GAAP amounts.
Management believes the charges to the provision for credit losses in 2021 were appropriate and the allowance for credit losses was adequate to absorb losses in the loan portfolio at December 31, 2021. 44 Table of Contents Non-Interest Income Total non-interest income was $33.4 million for the year ended December 31, 2021 compared to $28.1 million from the same period in 2020, reflecting an increase of $5.4 million, or 19.2%.
Management believes the charges to the provision for credit losses in 2022 were appropriate and the allowance for credit losses was adequate to absorb losses in the loan portfolio at December 31, 2022. 45 Table of Contents Non-Interest Income Total non-interest income was $34.8 million for the year ended December 31, 2022, representing an increase of $1.3 million, or 4.0%, from the same period in 2021.
The syndicated loan portfolio totaled $156.6 million, or 3.7% of total loans, excluding PPP-related loans, at December 31, 2022, compared to $125.8 million, or 3.5% of total loans, excluding PPP-related loans, at December 31, 2021.
The syndicated loan portfolio totaled $108.7 million, or 2.43% of total loans, excluding PPP-related loans, at December 31, 2023, compared to $156.6 million, or 3.66% of total loans, excluding PPP-related loans at December 31, 2022.
The efficiency ratio on a fully tax-equivalent basis, a non-GAAP ratio, was 60.87% and 61.40% for the twelve and three months ended December 31, 2022, respectively, compared to 59.76% and 63.19% for the twelve and three months ended December 31, 2021, respectively.
The Corporation's efficiency ratio was 61.32% for the year ended December 31, 2022, compared to 60.26% for the year ended December 31, 2021, respectively. The efficiency ratio on a fully tax-equivalent basis, a non-GAAP ratio, was 60.87% for the year ended December 31, 2022, compared to 59.76% for the year ended December 31, 2021, respectively.
Other notable increases during the year ended December 31, 2022 included increased income from service charges on deposits, other service charges and fees, pass-through income from small business investment companies ("SBICs") and bank owned life insurance mostly due to an $883 thousand gain resulting from death benefit proceeds.
Other notable increases during the year ended December 31, 2022 included increased income from service charges on deposits, other service charges and fees, pass-through income from SBICs and bank owned life insurance mostly due to an $883 thousand gain resulting from death benefit proceeds. These were partially offset by unrealized losses on equity securities and decreased mortgage banking activity.
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 totaled $381.0 million and $707.6 million at December 31, 2022 and 2021, respectively.
The Corporation currently expects that these sources of funds will enable it to meet cash obligations and off-balance sheet commitments as they come due. In addition to the above noted liquidity sources, the Corporation maintains access to the Federal Reserve discount window.
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.
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 in the "Non-GAAP Financial Measures" section in Item 7.
Weighted Average Modified Duration (in Years) U.S. Government Sponsored Entities 1.06 State and Political Subdivisions 6.18 Residential and multi-family mortgage 5.76 Corporate notes and bonds 5.02 Pooled SBA 2.97 Total 5.65 The following table summarizes the weighted average modified duration of securities HTM as of December 31, 2022. Weighted Average Modified Duration (in Years) U.S.
Weighted Average Modified Duration (in Years) U.S. Government Sponsored Entities 0.37 State and Political Subdivisions 5.70 Residential and multi-family mortgage 6.00 Corporate notes and bonds 4.38 Pooled SBA 2.57 Total 5.53 The following table summarizes the weighted average modified duration of HTM debt securities as of December 31, 2023. Weighted Average Modified Duration (in Years) U.S.
Financial Condition The following table presents ending balances, growth, and the percentage change of certain measures of our financial condition for specified years (dollars in millions): 2022 Balance 2021 Balance $ Change vs. prior year % Change vs. prior year Total assets $ 5,475.2 $ 5,328.9 $ 146.2 2.7 % Total loans, net of allowance for credit losses 4,231.7 3,597.2 634.5 17.6 Total securities 785.8 707.6 78.2 11.1 Total deposits 4,622.4 4,715.6 (93.2) (2.0) Total shareholders’ equity 530.8 442.8 87.9 19.9 26 Table of Contents Cash and Cash Equivalents Cash and cash equivalents totaled $106.3 million at December 31, 2022, including $43.4 million held at the Federal Reserve.
Financial Condition The following table presents ending balances, growth, and the percentage change of certain measures of our financial condition for specified years (dollars in millions): 2023 Balance 2022 Balance $ Change vs. prior year % Change vs. prior year Total assets $ 5,753.0 $ 5,475.2 $ 277.8 5.1 % Total loans, net of allowance for credit losses 4,422.6 4,231.7 190.9 4.5 Total securities 740.2 785.8 (45.6) (5.8) Total deposits 4,998.8 4,622.4 376.3 8.1 Total shareholders’ equity 571.2 530.8 40.5 7.6 27 Table of Contents Cash and Cash Equivalents Cash and cash equivalents totaled $222.0 million at December 31, 2023, including $164.4 million held at the Federal Reserve.
If actual results differ significantly from management's assumptions, the Corporation's allowance for credit loss may not be sufficient to cover inherent losses in the Corporation's loan portfolio, resulting in additions to the Corporation's allowance for credit loss and an increase in the provision for credit losses.
If actual results differ significantly from management's assumptions, the Corporation's allowance for credit loss may not be sufficient to cover inherent losses in the Corporation's loan portfolio, resulting in additions to the Corporation's allowance for credit loss and an increase in the provision for credit losses. 47 Table of Contents Fair Value Measurements The Corporation uses fair value measurements to record certain financial instruments and to determine fair value disclosures.
BankOnBuffalo, a division of the Bank, operates in the New York counties of Erie and Niagara. Ridge View Bank, a division of the Bank, operates in Southwest, Virginia. Impressia Bank, a division of the Bank, will operate in the Bank’s primary market areas beginning in the first quarter of 2023.
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 the Virginia counties of Botetourt, Craig, Franklin, and Roanoke. Impressia Bank, a division of the Bank, operates in the Bank’s primary market areas.
The decrease in deposits was driven primarily by the impact of competitive pricing pressures due to the rapid increase in interest rates, as well as customers experiencing substantial increases in costs due to inflation.
The increase in deposits was primarily driven by the impact of competitive pricing pressures due to the rapid increase in interest rates.
The policies cover executive officers and a select group of other employees with the Bank being named as beneficiary. Earnings from BOLI assist the Corporation in offsetting its benefit costs.
The policies cover executive officers and a select group of other employees with the Bank being named as beneficiary. Earnings from BOLI assist the Corporation in offsetting its benefit costs. The Corporation made no purchases of BOLI during the year ended December 31, 2023, while the Corporation made $11.6 million purchases of BOLI during the year ended December 31, 2022.
As disclosed in "Allowance for Credit Losses" discussion above, management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, reasonable and supportable forecasts, and other significant qualitative and quantitative factors. 42 Table of Contents Management believes the charges to the provision for credit losses in 2022 were appropriate and the allowance for credit losses was adequate to absorb losses in the loan portfolio at December 31, 2022.
As disclosed in "Allowance for Credit Losses" discussion above, management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, reasonable and supportable forecasts, and other significant qualitative and quantitative factors.
A reconciliation of these non-GAAP financial measures is provided. 39 Table of Contents Average Balances, Interest Rates and Yields The loan 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.
Management's Discussion and Analysis of Financial Condition and Results of Operations. 40 Table of Contents Average Balances, Interest Rates and Yields The loan 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.
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. 29 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 December 31, 2022.
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.
Fair Value Measurements The Corporation uses fair value measurements to record certain financial instruments and to determine fair value disclosures. AFS securities, mortgage loans held for sale, and interest rate swap agreements are financial instruments recorded at fair value on a recurring basis.
Equity securities, AFS debt securities, mortgage loans held for sale, and interest rate swap agreements are financial instruments recorded at fair value on a recurring basis. Additionally, from time to time, the Corporation may be required to record at fair value other financial assets on a nonrecurring basis.
December 31, December 31, 2022 2021 Calculation of tangible book value per common share and tangible common equity / tangible assets (non-GAAP): Shareholders' equity $ 530,762 $ 442,847 Less: preferred equity 57,785 57,785 Common shareholders' equity 472,977 385,062 Less: goodwill 43,749 43,749 Less: core deposit intangible 364 460 Tangible common equity (non-GAAP) $ 428,864 $ 340,853 Total assets $ 5,475,179 $ 5,328,939 Less: goodwill 43,749 43,749 Less: core deposit intangible 364 460 Tangible assets (non-GAAP) $ 5,431,066 $ 5,284,730 Ending shares outstanding 21,121,346 16,855,062 Book value per common share (GAAP) $ 22.39 $ 22.85 Tangible book value per common share (non-GAAP) $ 20.30 $ 20.22 Common shareholders' equity / Total assets (GAAP) 8.64 % 7.23 % Tangible common equity / Tangible assets (non-GAAP) 7.90 % 6.45 % December 31, December 31, 2022 2021 Calculation of allowance for credit losses / total loans, net of PPP-related loans (non-GAAP): Total allowance for credit losses $ 43,436 $ 37,588 Total loans $ 4,275,178 $ 3,634,792 Less: PPP-related loans 159 45,203 Adjusted total loans, net of PPP-related loans (non-GAAP) $ 4,275,019 $ 3,589,589 Allowance for credit losses / total loans (GAAP) 1.02 % 1.03 % Adjusted allowance for credit losses / total loans, net of PPP-related loans (non-GAAP) 1.02 % 1.05 % 48 Table of Contents Twelve Months Ended December 31, 2022 2021 Calculation of net interest margin: Interest income $ 213,738 $ 179,600 Interest expense 24,079 19,820 Net interest income $ 189,659 $ 159,780 Average total earning assets $ 4,954,547 $ 4,768,040 Net interest margin (GAAP) (annualized) 3.83 % 3.35 % Calculation of net interest margin (fully tax equivalent basis) (non-GAAP): Interest income $ 213,738 $ 179,600 Tax equivalent adjustment (non-GAAP) 1,235 953 Adjusted interest income (fully tax equivalent basis) (non-GAAP) 214,973 180,553 Interest expense 24,079 19,820 Net interest income (fully tax equivalent basis) (non-GAAP) $ 190,894 $ 160,733 Average total earning assets $ 4,954,547 $ 4,768,040 Less: average mark to market adjustment on investments (non-GAAP) (40,271) 9,879 Adjusted average total earning assets, net of mark to market (non-GAAP) $ 4,994,818 $ 4,758,161 Net interest margin, fully tax equivalent basis (non-GAAP) (annualized) 3.82 % 3.38 % Twelve Months Ended December 31, 2022 2021 Calculation of PPNR (non-GAAP): (1) Net interest income $ 189,659 $ 159,780 Add: Non-interest income 34,766 33,434 Less: Non-interest expense 137,622 116,433 PPNR (non-GAAP) $ 86,803 $ 76,781 (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. 49 Table of Contents Twelve Months Ended December 31, 2022 2021 Calculation of efficiency ratio: Non-interest expense $ 137,622 $ 116,433 Non-interest income $ 34,766 $ 33,434 Net interest income 189,659 159,780 Total revenue $ 224,425 $ 193,214 Efficiency ratio 61.32 % 60.26 % Calculation of efficiency ratio (fully tax equivalent basis) (non-GAAP): Non-interest expense $ 137,622 $ 116,433 Less: core deposit intangible amortization 96 107 Adjusted non-interest expense (non-GAAP) $ 137,526 $ 116,326 Non-interest income $ 34,766 $ 33,434 Net interest income 189,659 159,780 Less: tax exempt investment and loan income, net of TEFRA (non-GAAP) 5,011 4,973 Add: tax exempt investment and loan income (fully tax equivalent basis) (non-GAAP) 6,509 6,416 Adjusted net interest income (fully tax equivalent basis) (non-GAAP) 191,157 161,223 Adjusted net revenue (fully tax equivalent basis) (non-GAAP) $ 225,923 $ 194,657 Efficiency ratio (fully tax equivalent basis) (non-GAAP) 60.87 % 59.76 % Twelve Months Ended December 31, 2022 2021 Calculation of return on average tangible common equity (non-GAAP): Net income $ 63,188 $ 57,707 Less: preferred stock dividends 4,302 4,302 Net income available to common shareholders $ 58,886 $ 53,405 Average shareholders' equity $ 455,748 $ 431,062 Less: average goodwill & intangibles 44,163 44,265 Less: average preferred equity 57,785 57,785 Tangible common shareholders' equity (non-GAAP) $ 353,800 $ 329,012 Return on average equity (GAAP) (annualized) 13.86 % 13.39 % Return on average common equity (GAAP) (annualized) 12.92 % 12.39 % Return on average tangible common equity (non-GAAP) (annualized) 16.64 % 16.23 % Twelve Months Ended December 31, 2022 2021 Calculation of non-interest income excluding net realized gains on available-for-sale securities (non-GAAP): Non-interest income $ 34,766 $ 33,434 Less: net realized gains on available-for-sale securities 651 783 Adjusted non-interest income (non-GAAP) $ 34,115 $ 32,651 50 Table of Contents
December 31, December 31, 2023 2022 Calculation of tangible book value per common share and tangible common equity / tangible assets (non-GAAP): Shareholders' equity $ 571,247 $ 530,762 Less: preferred equity 57,785 57,785 Common shareholders' equity 513,462 472,977 Less: goodwill and other intangibles 43,874 43,749 Less: core deposit intangible 280 364 Tangible common equity (non-GAAP) $ 469,308 $ 428,864 Total assets $ 5,752,957 $ 5,475,179 Less: goodwill and other intangibles 43,874 43,749 Less: core deposit intangible 280 364 Tangible assets (non-GAAP) $ 5,708,803 $ 5,431,066 Ending shares outstanding 20,896,439 21,121,346 Book value per common share (GAAP) $ 24.57 $ 22.39 Tangible book value per common share (non-GAAP) $ 22.46 $ 20.30 Common shareholders' equity / Total assets (GAAP) 8.93 % 8.64 % Tangible common equity / Tangible assets (non-GAAP) 8.22 % 7.90 % 48 Table of Contents Years Ended December 31, 2023 2022 Calculation of net interest margin: Interest income $ 293,696 $ 213,738 Interest expense 103,867 24,079 Net interest income $ 189,829 $ 189,659 Average total earning assets $ 5,232,117 $ 4,954,547 Net interest margin (GAAP) 3.63 % 3.83 % Calculation of net interest margin (fully tax equivalent basis) (non-GAAP): Interest income $ 293,696 $ 213,738 Tax equivalent adjustment (non-GAAP) 997 1,235 Adjusted interest income (fully tax equivalent basis) (non-GAAP) 294,693 214,973 Interest expense 103,867 24,079 Net interest income (fully tax equivalent basis) (non-GAAP) $ 190,826 $ 190,894 Average total earning assets $ 5,232,117 $ 4,954,547 Less: average mark to market adjustment on investments (non-GAAP) (61,089) (40,271) Adjusted average total earning assets, net of mark to market (non-GAAP) $ 5,293,206 $ 4,994,818 Net interest margin, fully tax equivalent basis (non-GAAP) 3.61 % 3.82 % Years Ended December 31, 2023 2022 Calculation of PPNR (non-GAAP): (1) Net interest income $ 189,829 $ 189,659 Add: Non-interest income 33,335 34,766 Less: Non-interest expense 145,342 137,622 PPNR (non-GAAP) $ 77,822 $ 86,803 (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. 49 Table of Contents Years Ended December 31, 2023 2022 Calculation of efficiency ratio: Non-interest expense $ 145,342 $ 137,622 Non-interest income $ 33,335 $ 34,766 Net interest income 189,829 189,659 Total revenue $ 223,164 $ 224,425 Efficiency ratio 65.13 % 61.32 % Calculation of efficiency ratio (fully tax equivalent basis) (non-GAAP): Non-interest expense $ 145,342 $ 137,622 Less: core deposit intangible amortization 84 96 Adjusted non-interest expense (non-GAAP) $ 145,258 $ 137,526 Non-interest income $ 33,335 $ 34,766 Net interest income 189,829 189,659 Less: tax exempt investment and loan income, net of TEFRA (non-GAAP) 5,425 5,011 Add: tax exempt investment and loan income (fully tax equivalent basis) (non-GAAP) 7,635 6,509 Adjusted net interest income (fully tax equivalent basis) (non-GAAP) 192,039 191,157 Adjusted net revenue (fully tax equivalent basis) (non-GAAP) $ 225,374 $ 225,923 Efficiency ratio (fully tax equivalent basis) (non-GAAP) 64.45 % 60.87 % Years Ended December 31, 2023 2022 Calculation of return on average tangible common equity (non-GAAP): Net income $ 58,020 $ 63,188 Less: preferred stock dividends 4,302 4,302 Net income available to common shareholders $ 53,718 $ 58,886 Average shareholders' equity $ 550,333 $ 455,748 Less: average goodwill & intangibles 44,193 44,163 Less: average preferred equity 57,785 57,785 Tangible common shareholders' equity (non-GAAP) $ 448,355 $ 353,800 Return on average equity (GAAP) 10.54 % 13.86 % Return on average common equity (GAAP) 9.76 % 12.92 % Return on average tangible common equity (non-GAAP) 11.98 % 16.64 % Years Ended December 31, 2023 2022 Calculation of non-interest income excluding net realized gains on available-for-sale securities (non-GAAP): Non-interest income $ 33,335 $ 34,766 Less: net realized gains on available-for-sale securities 52 651 Adjusted non-interest income (non-GAAP) $ 33,283 $ 34,115 50 Table of Contents
ASSETS: Securities: Taxable (1) (4) $ 768,959 1.80 % $ 14,560 $ 624,330 1.70 % $ 10,500 $ 505,770 2.35 % $ 11,510 Tax-exempt (1) (2) (4) 35,965 2.87 1,080 42,658 3.43 1,403 55,460 3.32 1,772 Equity securities (1) (2) 8,248 2.13 176 8,136 3.58 291 12,814 5.89 755 Total securities (4) 813,172 1.85 15,816 675,124 1.83 12,194 574,044 2.53 14,037 Loans receivable: Commercial (2) (3) 1,429,634 5.08 72,684 1,284,750 4.95 63,642 1,230,615 4.80 59,016 Mortgage (2) (3) (5) 2,355,662 4.78 112,583 2,080,000 4.51 93,738 1,783,980 4.76 84,857 Consumer (3) 112,426 10.48 11,778 101,169 9.98 10,098 100,576 9.71 9,766 Total loans receivable (3) 3,897,722 5.06 197,045 3,465,919 4.83 167,478 3,115,171 4.93 153,639 Other earning assets 243,653 1.16 2,112 626,997 0.14 881 402,861 0.21 852 Total earning assets 4,954,547 4.30 $ 214,973 4,768,040 3.79 $ 180,553 4,092,076 4.14 $ 168,528 Noninterest-bearing assets: Cash and due from banks 51,670 48,673 42,001 Premises and equipment 89,940 79,807 75,516 Other assets 227,991 199,107 166,511 Allowance for credit losses (39,935) (36,727) (28,962) Total noninterest-bearing assets 329,666 290,860 255,066 TOTAL ASSETS $ 5,284,213 $ 5,058,900 $ 4,347,142 LIABILITIES AND SHAREHOLDERS’ EQUITY: Demand—interest-bearing $ 1,061,452 0.20 $ 2,131 $ 978,279 0.18 $ 1,783 $ 755,200 0.24 $ 1,781 Savings 2,383,918 0.54 12,772 2,309,560 0.22 5,164 1,923,214 0.66 12,775 Time 351,272 1.40 4,930 445,488 1.82 8,115 445,408 2.15 9,586 Total interest-bearing deposits 3,796,642 0.52 19,833 3,733,327 0.40 15,062 3,123,822 0.77 24,142 Short-term borrowings 8,793 4.20 369 — — — — — — Long-term borrowings — — — — — — 220,849 2.04 4,507 Finance lease liabilities 426 4.69 20 507 4.54 23 587 4.60 27 Subordinated notes and debentures 104,432 3.69 3,857 108,963 4.35 4,735 70,620 5.35 3,780 Total interest-bearing liabilities 3,910,293 0.62 $ 24,079 3,842,797 0.52 $ 19,820 3,415,878 0.95 $ 32,456 Demand—noninterest-bearing 847,793 724,839 516,724 Other liabilities 70,379 60,202 56,377 Total liabilities 4,828,465 4,627,838 3,988,979 Shareholders’ equity 455,748 431,062 358,163 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 5,284,213 $ 5,058,900 $ 4,347,142 Interest income/Earning assets 4.30 % $ 214,973 3.79 % $ 180,553 4.14 % $ 168,528 Interest expense/Interest-bearing liabilities 0.62 24,079 0.52 19,820 0.95 32,456 Net interest spread 3.68 % $ 190,894 3.27 % $ 160,733 3.19 % $ 136,072 Interest income/Earning assets 4.30 % $ 214,973 3.79 % $ 180,553 4.14 % $ 168,528 Interest expense/Earning assets 0.48 24,079 0.41 19,820 0.80 32,456 Net interest margin (fully tax-equivalent) 3.82 % $ 190,894 3.38 % $ 160,733 3.34 % $ 136,072 40 Table of Contents (1) Includes unamortized discounts and premiums.
ASSETS: Securities: Taxable (1) (4) $ 720,818 1.89 % $ 14,766 $ 768,959 1.80 % $ 14,560 $ 624,330 1.70 % $ 10,500 Tax-exempt (1) (2) (4) 30,153 2.59 844 35,965 2.87 1,080 42,658 3.43 1,403 Equity securities (1) (2) 10,005 5.09 509 8,248 2.13 176 8,136 3.58 291 Total securities (4) 760,976 1.96 16,119 813,172 1.85 15,816 675,124 1.83 12,194 Loans receivable: Commercial (2) (3) 1,501,202 6.63 99,587 1,429,634 5.08 72,684 1,284,750 4.95 63,642 Mortgage (2) (3) (5) 2,765,484 5.77 159,606 2,355,662 4.78 112,583 2,080,000 4.51 93,738 Consumer (3) 129,655 11.47 14,868 112,426 10.48 11,778 101,169 9.98 10,098 Total loans receivable (3) 4,396,341 6.23 274,061 3,897,722 5.06 197,045 3,465,919 4.83 167,478 Other earning assets 74,800 6.03 4,513 243,653 1.16 2,112 626,997 0.14 881 Total earning assets 5,232,117 5.57 $ 294,693 4,954,547 4.30 $ 214,973 4,768,040 3.79 $ 180,553 Noninterest-bearing assets: Cash and due from banks 54,824 51,670 48,673 Premises and equipment 107,635 89,940 79,807 Other assets 251,725 227,991 199,107 Allowance for credit losses (44,930) (39,935) (36,727) Total noninterest-bearing assets 369,254 329,666 290,860 TOTAL ASSETS $ 5,601,371 $ 5,284,213 $ 5,058,900 LIABILITIES AND SHAREHOLDERS’ EQUITY: Demand—interest-bearing $ 853,632 0.54 % $ 4,626 $ 1,061,452 0.20 % $ 2,131 $ 978,279 0.18 % $ 1,783 Savings 2,666,905 2.92 77,782 2,383,918 0.54 12,772 2,309,560 0.22 5,164 Time 517,017 2.97 15,362 351,272 1.40 4,930 445,488 1.82 8,115 Total interest-bearing deposits 4,037,554 2.42 97,770 3,796,642 0.52 19,833 3,733,327 0.40 15,062 Short-term borrowings 35,224 5.07 1,787 8,793 4.20 369 — — — Finance lease liabilities 339 4.42 15 426 4.69 20 507 4.54 23 Subordinated notes and debentures 104,735 4.10 4,295 104,432 3.69 3,857 108,963 4.35 4,735 Total interest-bearing liabilities 4,177,852 2.49 $ 103,867 3,910,293 0.62 $ 24,079 3,842,797 0.52 $ 19,820 Demand—noninterest-bearing 793,713 847,793 724,839 Other liabilities 79,473 70,379 60,202 Total liabilities 5,051,038 4,828,465 4,627,838 Shareholders’ equity 550,333 455,748 431,062 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 5,601,371 $ 5,284,213 $ 5,058,900 Interest income/Earning assets 5.57 % $ 294,693 4.30 % $ 214,973 3.79 % $ 180,553 Interest expense/Interest-bearing liabilities 2.49 103,867 0.62 24,079 0.52 19,820 Net interest spread 3.08 % $ 190,826 3.68 % $ 190,894 3.27 % $ 160,733 Interest income/Earning assets 5.57 % $ 294,693 4.30 % $ 214,973 3.79 % $ 180,553 Interest expense/Earning assets 1.96 103,867 0.48 24,079 0.41 19,820 Net interest margin (fully tax-equivalent) 3.61 % $ 190,826 3.82 % $ 190,894 3.38 % $ 160,733 (1) Includes unamortized discounts and premiums. 41 Table of Contents (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 degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market data. For financial instruments that trade actively and have quoted market prices or observable market data, there is minimal subjectivity involved in measuring fair value.
For financial instruments that trade actively and have quoted market prices or observable market data, there is minimal subjectivity involved in measuring fair value. When observable market prices and data are not fully available, management judgment is necessary to estimate fair value. In addition, changes in the market conditions may reduce the availability of quoted prices or observable data.
Non-Interest Income Total non-interest income was $34.8 million for the year ended December 31, 2022, representing an increase of $1.3 million, or 4.0%, from the same period in 2021. Included in non-interest income for the years ended December 31, 2022 and 2021 was $651 thousand and $783 thousand, respectively, in net realized gains on AFS securities.
Included in non-interest income for the years ended December 31, 2022 and 2021 was $651 thousand and $783 thousand, respectively, in net realized gains on AFS debt securities.
When observable market prices and data are not fully available, management judgment is necessary to estimate fair value. In addition, changes in the market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable.
For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, we use valuation techniques that require more management judgment to estimate the appropriate fair value measurement.
Additionally, from time to time, the Corporation may be required to record at fair value other financial assets on a nonrecurring basis. These nonrecurring fair value adjustments typically involve write-downs of, or specific reserves against, individual assets. GAAP establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value.
These nonrecurring fair value adjustments typically involve write-downs of, or specific reserves against, individual assets. GAAP establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used in the measurement are observable or unobservable.
Therefore, when market data is not available, we use valuation techniques that require more management judgment to estimate the appropriate fair value measurement. Fair value is discussed further in Note 1, "Summary of Significant Accounting Policies" and in Note 6, "Fair Value Measurements." Goodwill Certain intangible assets generated in connection with acquisitions are periodically assessed for impairment.
Fair value is discussed further in Note 1, "Summary of Significant Accounting Policies" and in Note 4, "Fair Value". Goodwill Certain intangible assets generated in connection with acquisitions are periodically assessed for impairment.
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 December 31, 2022.
Refer to the accompanying notes to consolidated financial statements elsewhere in this report for the expected timing of such payments as of December 31, 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+11 added−7 removed0 unchanged
Biggest changeITEM 7A. 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.
Biggest changeManagement’s Discussion and Analysis of Financial Condition and Results of Operations, of this report, and other cautionary statements set forth elsewhere in this report. As a financial institution, the Corporation's primary source of market risk exposure is interest rate risk, which influences fluctuations in the Corporation's future earnings due to changes in interest rates.
December 31, 2022 December 31, 2021 Change in Basis Points % Change in Net Interest Income Change in Basis Points % Change in Net Interest Income 400 4.8% 400 23.7% 300 4.9 300 17.4 200 5.5 200 12.1 100 5.8 100 6.5 (100) (1.7) (100) (4.8) (200) (6.1) (200) (9.0) At December 31, 2022, the Corporation has approximately $2.0 billion in outstanding loan balances that are rate sensitive over the next twelve months. 51 Table of Contents
December 31, 2023 December 31, 2022 Change in Basis Points % Change in Net Interest Income Change in Basis Points % Change in Net Interest Income 300 2.6 300 4.9 200 3.8 200 5.5 100 4.6 100 5.8 (100) (3.8) (100) (1.7) (200) (6.5) (200) (6.1) (300) (12.8) (300) (12.5) At December 31, 2023, the Corporation has approximately $2.1 billion in outstanding loan balances that are rate sensitive over the next twelve months. 51 Table of Contents
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.
These assumptions are subject to uncertainty due to the timing, magnitude, and frequency of rate changes, market conditions, and management strategies.
Removed
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.
Added
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The disclosures set forth in this item are qualified by Item 1A. Risk Factors and the section captioned “Forward-Looking Statements and Factors that Could Affect Future Results” included in Item 7.
Removed
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.
Added
This risk is closely correlated to the repricing characteristics of the Corporation's portfolio of assets and liabilities, with each asset or liability repricing either at maturity or during the instrument's life cycle.
Removed
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.
Added
The Corporation’s interest rate risk measurement philosophy focuses on maintaining an appropriate balance between the theoretical and the practical, especially given that the primary objective of the Corporation’s overall asset/liability management process is to assess the level of interest rate risk in the Corporation’s balance sheet.
Removed
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.
Added
Therefore, the Corporation models a set of interest rate scenarios capturing the financial effects of a range of plausible rate scenarios. The collective impact of these scenarios is designed to enable the Corporation to understand the nature and extent of its sensitivity to interest rate changes.
Removed
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.
Added
Doing so necessitates an assessment of rate changes over varying time horizons and of varying/sufficient degrees such that the impact of embedded options within the balance sheet are sufficiently examined.
Removed
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 December 31, 2022 and 2021, all interest rate risk levels according to the model were within the tolerance limits of ALCO-approved policy.
Added
The Corporation has designed its interest rate risk measurement activities to include the following core elements: (i) interest rate ramps and shocks, (ii) parallel and non-parallel yield curve shifts, and (iii) a set of alternative rate scenarios, the nature of which change based upon prevailing market conditions.
Removed
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. The 300 and 400 basis point declining interest rate scenarios have been excluded in the following table.
Added
The Corporation’s primary tools in managing Interest Rate Risk (“IRR”) are income simulation models. The income simulation models are utilized to quantify the potential impact of changing interest rates on earnings and to identify expected earnings trends given longer-term rate cycles. Standard gap reports are also utilized to provide supporting detailed information.
Added
The Corporation also recognizes that a sustained environment of higher/lower interest rates will affect the underlying value of the Corporation’s assets, liabilities and off-balance sheet instruments since the present value of their future cash flows (and the cash flows themselves) change when interest rates change.
Added
In order to monitor the long-term structural and economic position of the balance sheet, the ALCO reviews the Economic Value of Equity measure on a quarterly basis. IRR considerations include inherent assumptions and estimates, including the maturity and repricing characteristics of assets and liabilities, prepayments on amortizing assets, non-maturing deposit sensitivity, and loan and deposit pricing.
Added
The following table demonstrate the annualized result of an interest rate simulation and the estimated effect that a parallel interest rate shift, or “shock,” in the yield curve and subjective adjustments in deposit pricing might have on the Corporation’s projected net interest income over the next 12 months.
Added
This simulation assumes that there is no growth in interest-earning assets or interest-bearing liabilities over the next 12 months. The changes to net interest income shown below are in compliance with the Corporation’s policy guidelines.

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