CNB Financial Corp - 10-Q quarterly report FY2020 Q3

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2020


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

For the transition period from to

Commission File Number 000-13396

CNB FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


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

1 South Second Street

P.O. Box 42

Clearfield, Pennsylvania 16830

(Address of principal executive offices)

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

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

Title of Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

CCNE

The NASDAQ Stock Market LLC

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

CCNEP

The NASDAQ Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

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

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

The number of shares outstanding of the issuer’s common stock as of November 3, 2020:

COMMON STOCK, NO PAR VALUE PER SHARE: 16,833,015 SHARES

Table of Contents

INDEX

PART I.

FINANCIAL INFORMATION


			Page Number

ITEM 1 – Financial Statements

Consolidated Balance Sheets – September 30, 2020 (unaudited) and December 31, 2019 (audited)			1

Consolidated Statements of Income – Three and nine months ended September 30, 2020 and 2019 (unaudited)			2

Consolidated Statements of Comprehensive Income – Three and nine months ended September 30, 2020 and 2019 (unaudited)			3

Consolidated Statements of Cash Flows – Nine months ended September 30, 2020 and 2019 (unaudited)			4

Consolidated Statements of Changes in Stockholders' Equity - Three and nine months ended September 30, 2020 and 2019 (unaudited)			5

Notes to Consolidated Financial Statements			6

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			32

ITEM 3 – Quantitative and Qualitative Disclosures about Market Risk			52

ITEM 4 – Controls and Procedures			53

PART II. OTHER INFORMATION

ITEM 1 – Legal Proceedings			54

ITEM 1A – Risk Factors			54

ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds			55

ITEM 3 – Defaults Upon Senior Securities			55

ITEM 4 – Mine Safety Disclosures			55

ITEM 5 – Other Information			55

ITEM 6 – Exhibits			56

Signatures			57

Table of Contents

Forward-Looking Statements

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

Currently, one of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on the financial condition, results of operations, cash flows and performance of the Corporation, our customers and the global economy and financial markets. The extent to which the COVID-19 pandemic impacts us will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic and its impact on our customers and demand for financial services, the actions governments, businesses and individuals take in response to the pandemic, the impact of the COVID-19 pandemic and actions taken in response to the pandemic on global and regional economies, national and local economic activity, and the pace of recovery when the COVID-19 pandemic subsides, among others. Moreover, investors are cautioned to interpret many of the risks identified under the section entitled “Risk Factors” in our Form 10-K for the year ended December 31, 2019 as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic.

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

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

Table of Contents

Part I Financial Information

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

Dollars in thousands, except share data


	(unaudited)
	September 30, 2020		December 31, 2019
ASSETS
Cash and due from banks	$	42,090	$	42,373
Interest bearing deposits with other banks	513,851		150,601
Total cash and cash equivalents	555,941		192,974
Securities available for sale	584,857		542,313
Trading securities	6,164		9,809
Loans held for sale	3,668		930
Loans	3,350,734		2,809,197
Less: unearned discount	(4,924)		(5,162)
Less: allowance for loan losses	(26,887)		(19,473)
Net loans	3,318,923		2,784,562
FHLB, other equity, and restricted equity interests	26,815		27,868
Premises and equipment, net	59,455		54,867
Operating lease assets	17,475		18,422
Bank owned life insurance	76,015		66,538
Mortgage servicing rights	1,331		1,573
Goodwill	44,775		38,730
Core deposit intangible	595		160
Accrued interest receivable and other assets	38,461		24,913
Total Assets	$	4,734,475	$	3,763,659
LIABILITIES AND SHAREHOLDERS’ EQUITY
Non-interest bearing deposits	$	602,902	$	382,259
Interest bearing deposits	3,419,803		2,720,068
Total deposits	4,022,705		3,102,327

FHLB and other long term borrowings	169,327		227,907
Subordinated debentures	70,620		70,620
Operating lease liabilities	18,469		19,363
Accrued interest payable and other liabilities	37,451		38,476
Total liabilities	4,318,572		3,458,693
Preferred stock, Series A non-cumulative perpetual, $0 par value; $1,000 liquidation preference; authorized 60,375 shares; issued 60,375 shares at September 30, 2020 and no shares issued at December 31, 2019	57,760		0
Common stock, $0 par value; authorized 50,000,000 shares; issued 16,978,057 shares at September 30, 2020 and 15,360,946 shares at December 31, 2019	0		0
Additional paid in capital	127,231		99,335
Retained earnings	218,239		201,503
Treasury stock, at cost (144,967 and 112,961 shares for September 30, 2020 and December 31, 2019, respectively)	(2,966)		(2,811)
Accumulated other comprehensive income (loss)	15,639		6,939
Total shareholders’ equity	415,903		304,966
Total Liabilities and Shareholders’ Equity	$	4,734,475	$	3,763,659

See Notes to Consolidated Financial Statements

Table of Contents

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Dollars in thousands, except per share data



	Three Months Ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
INTEREST AND DIVIDEND INCOME:
Loans including fees	$	39,034	$	36,165	$	109,106	$	103,284
Securities:
Taxable	2,857		3,093		9,727		9,226
Tax-exempt	303		562		1,143		1,843
Dividends	162		265		543		767
Total interest and dividend income	42,356		40,085		120,519		115,120
INTEREST EXPENSE:
Deposits	5,578		7,798		19,418		21,586
Borrowed funds	1,172		1,399		3,666		4,101
Subordinated debentures (includes $68, $11, $154 and $31 accumulated other comprehensive income reclassification for change in fair value of interest rate swap agreements, respectively)	942		987		2,839		2,980
Total interest expense	7,692		10,184		25,923		28,667
NET INTEREST INCOME	34,664		29,901		94,596		86,453
PROVISION FOR LOAN LOSSES	3,306		2,118		12,065		5,212
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	31,358		27,783		82,531		81,241
NON-INTEREST INCOME:
Service charges on deposit accounts	1,201		1,676		3,652		4,726
Other service charges and fees	652		761		1,848		2,155
Wealth and asset management fees	1,414		1,238		4,081		3,482
Net realized gains on available-for-sale securities (includes $0, $0, $2,190 and $148 accumulated other comprehensive income reclassifications for net realized gains on available-for-sale securities, respectively)	0		0		2,190		148
Net realized and unrealized gains (losses) on trading securities	202		197		(80)		1,651
Mortgage banking	1,089		408		2,090		1,017
Bank owned life insurance	425		315		1,290		1,002
Card processing and interchange income	1,606		1,195		4,059		3,445
Other	189		486		961		1,595
Total non-interest income	6,778		6,276		20,091		19,221
NON-INTEREST EXPENSES:
Salaries and benefits	12,508		11,633		34,578		34,040
Net occupancy expense	2,870		2,683		8,942		8,244
Amortization of core deposit intangible	26		139		178		470
Data processing	1,475		1,329		4,024		3,951
State and local taxes	925		956		2,409		2,678
Legal, professional, and examination fees	602		702		1,927		1,825
Advertising	600		626		1,410		1,510
FDIC insurance premiums	726		107		1,966		902
Card processing and interchange expenses	804		749		2,192		2,180
Merger costs, prepayment penalties and branch closure costs	4,673		0		5,207		0
Other	3,159		2,520		9,476		8,803
Total non-interest expenses	28,368		21,444		72,309		64,603
INCOME BEFORE INCOME TAXES	9,768		12,615		30,313		35,859
INCOME TAX EXPENSE (includes $(14), $(2), $428 and $25 income tax expense from reclassification items, respectively)	1,983		2,258		5,469		6,262
NET INCOME	$	7,785	$	10,357	$	24,844	$	29,597
EARNINGS PER COMMON SHARE:
Basic	$	0.47	$	0.68	$	1.57	$	1.94
Diluted	$	0.47	$	0.68	$	1.57	$	1.94
DIVIDENDS PER COMMON SHARE:
Cash dividends per share	$	0.17	$	0.17	$	0.51	$	0.51

See Notes to Consolidated Financial Statements

Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

Dollars in thousands



	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
NET INCOME	$	7,785	$	10,357	$	24,844	$	29,597
Other comprehensive income (loss), net of tax:
Net change in fair value of interest rate swap agreements designated as cash flow hedges:
Unrealized gain (loss) on interest rate swaps, net of tax $(1), $14, $105 and $87, respectively	2		(54)		(399)		(326)
Reclassification adjustment for losses recognized in earnings, net of tax $(14), $(2), $(32) and $(7), respectively	54		9		122		24
	56		(45)		(277)		(302)
Net change in unrealized gains on securities available for sale:
Unrealized holding gains (losses) arising during the period, net of tax of $272, $(659), $(2,843) and $(3,441), respectively	(1,015)		2,477		10,707		12,945

Reclassification adjustment for realized gains included in net income, net of tax of $0, $0, $460 and $31, respectively	0		0		(1,730)		(117)
	(1,015)		2,477		8,977		12,828


Other comprehensive income (loss)	(959)		2,432		8,700		12,526
COMPREHENSIVE INCOME	$	6,826	$	12,789	$	33,544	$	42,123

See Notes to Consolidated Financial Statements

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Dollars in thousands



	Nine months ended September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	24,844	$	29,597
Adjustments to reconcile net income to net cash provided by operations:
Provision for loan losses	12,065		5,212
Depreciation and amortization of premises and equipment, operating leases assets, core deposit intangible, and mortgage servicing rights	4,433		4,156
Amortization and accretion of securities premiums and discounts, deferred loan fees and costs, net yield and credit mark on acquired loans, and unearned income	(1,390)		(540)
Amortization and accretion of deferred PPP processing fees	(683)		0
Net realized gains on sales of available-for-sale securities	(2,190)		(148)
Net realized and unrealized (gains) losses on trading securities	80		(1,651)
Gain on sale of loans	(1,801)		(696)
Net losses (gains) on dispositions of premises and equipment and foreclosed assets	1,101		(353)
Proceeds from sale of loans	63,517		29,729
Origination of loans held for sale	(64,447)		(30,107)
Income on bank owned life insurance	(1,290)		(1,002)
Stock-based compensation expense	1,123		1,109
Changes in:
Accrued interest receivable and other assets	(7,771)		(895)
Accrued interest payable, lease liabilities, and other liabilities	(8,182)		(3,278)
NET CASH PROVIDED BY OPERATING ACTIVITIES	19,409		31,133
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities, prepayments and calls of available-for-sale securities	112,683		63,835
Proceeds from sales of available-for-sale securities	57,185		11,403
Purchase of available-for-sale securities	(170,571)		(72,542)
Proceeds from sale of trading securities	5,935		764
Purchase of trading securities	(2,370)		(415)
Loan origination and payments, net	(224,448)		(279,901)
Net cash from business combinations	72,852		0
Redemption (purchase) of FHLB, other equity, and restricted equity interests	1,471		(393)
Purchase of premises and equipment	(3,784)		(6,720)
Proceeds from the sale of premises and equipment and foreclosed assets	680		725
NET CASH USED BY INVESTING ACTIVITIES	(150,367)		(283,244)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in:
Checking, money market and savings accounts	540,588		286,141
Certificates of deposit	(39,686)		(21,332)

Purchase of treasury stock	(1,306)		(1,319)
Cash dividends paid, common stock	(8,108)		(7,765)

Proceeds from common stock offering, net of issuance costs	3,257		0
Proceeds from preferred stock offering, net of issuance costs	57,760		0
Repayment of long-term borrowings	(290,565)		(45,385)
Proceeds from long-term borrowings	231,985		30,353
Net change in short-term borrowings	0		18,016
NET CASH PROVIDED BY FINANCING ACTIVITIES	493,925		258,709
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	362,967		6,598
CASH AND CASH EQUIVALENTS, Beginning	192,974		45,563
CASH AND CASH EQUIVALENTS, Ending	$	555,941	$	52,161
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	26,006	$	28,304
Income taxes	5,124		5,014
SUPPLEMENTAL NONCASH DISCLOSURES:
Transfers to other real estate owned	$	274	$	1,473
Grant of restricted stock awards from treasury stock	934		1,076
Grant of performance based restricted stock awards from treasury stock	217		0
Right of use assets obtained in exchange for lease liabilities	182		17,674

See Notes to Consolidated Financial Statements

Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

Dollars in thousands, except share and per share data


	Preferred Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Share- holders’ Equity
Balance, July 1, 2020	$	0	$	102,374	$	213,327	$	(2,027)	$	16,598	$	330,272
Net income					7,785						7,785
Other comprehensive income									(959)		(959)

Restricted stock award grants (1,808 shares)			(42)				42				0

Stock-based compensation expense			288								288
Issuance of common stock, net of issuance costs			(56)								(56)
Purchase of treasury stock (66,600 shares)							(981)				(981)


Issuance of preferred equity, net of issuance costs	57,760										57,760
Acquisition of Bank of Akron			24,667								24,667
Cash dividends declared ($0.17 per common share)					(2,873)						(2,873)
Balance, September 30, 2020	$	57,760	$	127,231	$	218,239	$	(2,966)	$	15,639	$	415,903

Balance, July 1, 2019	$	0	$	97,414	$	185,838	$	(2,735)	$	6,098	$	286,615
Net income					10,357						10,357
Other comprehensive income									2,432		2,432
Forfeiture of restricted stock award grants (2,699 shares)			55				(71)				(16)
Performance based restricted stock award grants (798 shares)			(21)				21				0

Stock-based compensation expense			242								242

Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting (217 shares)							(6)				(6)
Purchase of treasury stock for the purpose of tax withholding related to performance based restricted stock award vesting (294 shares)							(8)				(8)
Cash dividends declared ($0.17 per common share)					(2,583)						(2,583)
Balance, September 30, 2019	$	0	$	97,690	$	193,612	$	(2,799)	$	8,530	$	297,033


	Preferred Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Share- holders’ Equity
Balance, January 1, 2020	$	0	$	99,335	$	201,503	$	(2,811)	$	6,939	$	304,966
Net income					24,844						24,844
Other comprehensive income									8,700		8,700

Restricted stock award grants (36,968 shares)			(934)				934				0
Performance based restricted stock award grants (8,351 shares)			(217)				217				0
Stock-based compensation expense			1,123								1,123
Issuance of common stock, net of issuance costs (115,790 shares)			3,257								3,257
Purchase of treasury stock (66,600 shares)							(981)				(981)
Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting (7,267 shares)							(212)				(212)
Purchase of treasury stock for the purpose of tax withholding related to performance based restricted stock award vesting (3,458 shares)							(113)				(113)
Issuance of preferred equity, net of issuance costs	57,760										57,760
Acquisition of Bank of Akron			24,667								24,667
Cash dividends declared ($0.51 per common share)					(8,108)						(8,108)
Balance, September 30, 2020	$	57,760	$	127,231	$	218,239	$	(2,966)	$	15,639	$	415,903

Balance, January 1, 2019	$	0	$	97,602	$	171,780	$	(2,556)	$	(3,996)	$	262,830
Net income					29,597						29,597
Other comprehensive income									12,526		12,526
Forfeiture of restricted stock award grants (2,699 shares)			55				(71)				(16)
Restricted stock award grants (39,790 shares)			(1,055)				1,055				0
Performance based restricted stock award grants (798 shares)			(21)				21				0
Stock-based compensation expense			1,109								1,109
Purchase of treasury stock (40,000 shares)							(994)				(994)
Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting (9,088 shares)							(246)				(246)
Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting (294 shares)							(8)				(8)
Cash dividends declared ($0.51 per common share)					(7,765)						(7,765)
Balance, September 30, 2019	$	0	$	97,690	$	193,612	$	(2,799)	$	8,530	$	297,033

See Notes to Consolidated Financial Statements

Table of Contents

CNB FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION

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

In the opinion of management of the registrant, the accompanying consolidated financial statements as of September 30, 2020 and for the three and nine month periods ended September 30, 2020 and 2019 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations for the periods presented. The financial performance reported for CNB Financial Corporation (the "Corporation") for the three and nine month periods ended September 30, 2020 is not necessarily indicative of the results to be expected for the full year. This information should be read in conjunction with the Corporation’s Annual Report on Form 10-K for the period ended December 31, 2019 (the "2019 Form 10-K"). All dollar amounts are stated in thousands, except share and per share data and other amounts as indicated. Certain amounts appearing in the consolidated financial statements and notes thereto for prior periods have been reclassified to conform with the current presentation. The reclassifications had no effect on net income or shareholders’ equity as previously reported.

Risks and Uncertainties

The outbreak of the novel strain of coronavirus, or COVID-19, has adversely impacted a broad range of industries in which the Corporation's clients operate and could impair their ability to fulfill their financial obligations to the Corporation. On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic, indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed, with the goal of decreasing the rate of new infections. The spread of the COVID-19 outbreak has caused significant disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Corporation operates. While there has been no material impact to the Corporation’s employees to date, the COVID-19 pandemic could also potentially create widespread business continuity issues for the Corporation.

The federal government has taken several actions designed to mitigate the economic impact. Most notably, the Coronavirus Aid, Relief and Economic Security ("CARES") Act, which was signed into law at the end of March 2020, allocated $2 trillion for COVID-19 related relief and initiatives. Among other things, the CARES Act provides direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The CARES Act also includes extensive emergency funding for hospitals and providers. In addition to the general impact of the COVID-19 pandemic, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts are expected to have a material impact on the Corporation's operations.

The Corporation's business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. If the global response to contain the COVID-19 pandemic requires further restricted measures or is unsuccessful, the Corporation could experience a material adverse effect on its business, financial condition, results of operations and cash flows. Since the extent to which the COVID-19 pandemic impacts its operations will depend on future developments that are highly uncertain, the Corporation cannot estimate the impact on its business, financial condition or near or long-term financial or operational results with reasonable certainty. Accordingly, the Corporation is disclosing potentially material items of which it is aware.

Asset valuation: Currently, the Corporation does not expect the COVID-19 pandemic to affect its ability to account timely for the assets on its balance sheet; however, this could change in future periods due to any number of potential impacts from the COVID-19 pandemic.

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The COVID-19 pandemic could cause a further and sustained decline in the Corporation's stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform a goodwill impairment test, resulting in an impairment charge being recorded for that period. In the event that the Corporation concludes that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital. As of September 30, 2020, the Corporation performed an analysis of its goodwill, taking into account the effect that the COVID-19 pandemic continues to have on the economy, and determined its goodwill was not impaired.

Lending operations and accommodations to borrowers: In keeping with regulatory guidance to continue to assist borrowers during the COVID-19 pandemic, and as detailed in the CARES Act, the Corporation implemented a payment deferral program for its lending clients that are adversely affected by the pandemic. Depending on the demonstrated need of the client, the Corporation is deferring either the full loan payment or the principal component of the loan payment. As of October 31, 2020, the deferred loan payment commitments were 250 loans, totaling $169.3 million, comprised of (i) 190 loans, totaling $147.4 million, for which principal and interest were deferred, and (ii) 60 loans, totaling $21.9 million, for which principal only was deferred. In accordance with the CARES Act and March 2020 interagency guidance, these deferrals are not considered troubled debt restructurings. It is possible that these deferrals could be extended further under the CARES Act; however, the volume of these future potential extensions is unknown.

The Corporation participated in the Paycheck Protection Program ("PPP") established by the CARES Act for loans provided under the auspices of the Small Business Administration ("SBA"). Under this program, the Corporation lent money primarily to its existing loan and/or deposit customers, based on a predetermined SBA-developed formula, intended to incentivize small business owners to retain their employees. These loans carry a customer rate of 1.00% plus a processing fee that varies depending on the balance of the loan at origination and have a two-year maturity. As of September 30, 2020, the Corporation had outstanding approximately $231 million, or 2,044 PPP loan relationships, under this program, at a rate of 1.00% coupled with deferred processing fees of approximately $8.5 million. As of April 16, 2020, the SBA funds allocated in the original PPP authorization were fully utilized. Additional funding was made available on April 24, 2020 under the Paycheck Protection Program and Health Care Enhancement Act ("PPP Enhancement Act"). The PPP Enhancement Act authorized additional funding under the CARES Act of $310 billion for PPP loans to be issued by financial institutions through the SBA. The Corporation provided additional loans with funds from the PPP Enhancement Act. It is the Corporation's understanding that loans funded through the PPP program are fully guaranteed by the U.S. government. Should those circumstances change, the Corporation could be required to establish additional allowance for loan loss through additional provision for loan loss expense charged to earnings.

Credit: The Corporation is working with customers directly affected by the COVID-19 pandemic. The Corporation has offered assistance in accordance with regulator guidelines. As a result of the current economic slowdown related to the COVID-19 pandemic, the Corporation is engaging in more frequent communication with borrowers to better understand their situation and the challenges faced, allowing it to respond proactively as needs and issues arise. Should economic conditions worsen, the Corporation could experience further increases in its required allowance for loan losses and record additional provision expense. It is possible that the Corporation's asset quality measures could worsen at future measurement periods if the effects of the COVID-19 pandemic are prolonged.

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2. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the FASB issued an Accounting Standards Update ("ASU") 2016-13, "Financial Instruments – Credit Losses" which will require recognition of an entity’s current estimate of all expected credit losses for assets measured at amortized cost. The amendment requires the measurement of all expected credit losses for financial assets held at the reporting date, based on historical credit loss experience, current market conditions, and reasonable and supportable forecast. This eliminates the probable incurred recognition threshold in current GAAP. The update will be effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2018. In November 2018, the FASB issued ASU 2018-19, "Codification Improvements to Topic 326, Financial Instruments – Credit Losses." The amendment clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20 and should be accounted for in accordance with Topic 842, "Leases." In April 2019, ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments," was issued to address certain codification improvements and to provide certain accounting policy electives related to accrued interest as well as disclosure related to credit losses, among other things. In May 2019, ASU 2019-05, "Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief," was issued to provide transition relief in connection with the adoption of ASU 2016-03 whereby entities would have the option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis.

The CARES Act provides financial institutions with the option to delay the adoption of ASU No. 2016-13, "Financial Instruments – Credit Losses," until the earlier of December 31, 2020 or until the national emergency related to the COVID-19 pandemic is terminated. Given the complexity of the processes necessary to properly evaluate, document and implement the current expected credit losses methodology, combined with the extraneous circumstances impacted on its employees, caused by the spread of the coronavirus, the Corporation opted to delay the adoption of ASU No. 2016-13 and recorded its provision for loan losses under the incurred loss model that existed prior to ASU 2016-13.

Prior to passage of the CARES Act, based upon the Corporation's fourth quarter parallel run, assessment of the composition, characteristics and credit quality of the Corporation's loan and investment securities portfolio, as well as the economic conditions in effect as of the adoption date, management estimates the adoption of ASU 2016-13 will result in an increase of approximately 20-30% to the Corporation's allowance for credit losses, as reported in its Annual Report Form 10-K for the fiscal year ended December 31, 2019. The adjustment to record the allowance for credit losses may fall outside of management’s estimated increase based on completion of the Corporation's evaluation of qualitative factors and forecasts adjustments to estimate expected credit losses inherent in the loan portfolio.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"). ASU 2017-04 simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the previous two-step impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the prior requirement to calculate a goodwill impairment charge using Step 2, which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount. ASU 2017-04 was effective for the Corporation on January 1, 2020 and did not have a material impact on the Corporation's financial statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." ASU 2018-13 modifies disclosure requirements on fair value measurements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU 2018-13 was effective for the Corporation on January 1, 2020 and did not have a material impact on the Corporation's financial statement disclosures.

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In August 2018, the FASB issued ASU 2018-14, "Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU 2018-14 amends ASC 715-20, "Compensation - Retirement Benefits - Defined Benefit Plans - General." The amended guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include (a) the amounts in accumulated Other Comprehensive Income expected to be recognized in net periodic benefit costs over the next fiscal year, and (b) the effects of a one percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for post-retirement health care benefits. Additional disclosures include descriptions of significant gains and losses affecting the benefit obligation for the period. ASU 2018-14 was effective for the Corporation on January 1, 2020 and did not have a material impact on the Corporation's financial statement disclosures.

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" ("ASU 2018-15"). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. ASU 2018-15 was effective for the Corporation on January 1, 2020 and did not have a material impact on the Corporation's financial statements.

In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Corporation is currently evaluating the impact of the reference rate reform on the Corporation's consolidated financial statements.

In March 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System (the "Federal Reserve") and the Federal Deposit Insurance Corporation (the "FDIC") issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by the COVID-19 pandemic. The interagency statement was effective immediately and impacted accounting for loan modifications. Under Accounting Standards Codification 310-40, "Receivables - Troubled Debt Restructurings by Creditors" ("ASC 310-40"), a restructuring of debt constitutes a troubled debt restructuring ("TDR") if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to the COVID-19 pandemic to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. See Note 1 of the footnotes to the consolidated financial statements for disclosure of the impact to date.

3. BUSINESS COMBINATIONS

On July 17, 2020, the Corporation completed its previously announced acquisition of Bank of Akron ("Akron"), pursuant to that certain Agreement and Plan of Merger, dated as of December 18, 2019 (the "Merger Agreement"), by and among the Corporation, CNB Bank and Akron. Under the terms of the Merger Agreement, Akron merged with and into CNB Bank (the "Merger"), with CNB Bank continuing as the surviving entity. Banking offices of Akron will operate under the trade name BankOnBuffalo, a division of CNB Bank.

Pursuant to the Merger Agreement, for each share of Akron common stock, Akron shareholders were entitled to elect to receive either (x) $215.00 in cash or (y) 6.6729 shares of the Corporation's common stock and shall receive cash in lieu of fractional shares. Elections were subject to proration procedures whereby at least 75% of the shares of Akron common stock were exchanged for shares of the Corporation's common stock. Based on the elections and proration procedures, the total consideration payable to Akron shareholders was approximately $40.8 million, comprised of approximately $16.1 million in cash and 1,501,321 shares of the Corporation's common stock, net of fractional shares, valued at approximately $24.7 million based on the July 17, 2020 closing price of $16.43 per share of the Corporation's common stock.

Akron's results of operations were included in the Corporation's results beginning July 17, 2020. The Corporation incurred $3.4 million and $3.9 million of merger-related expenses during the three and nine months ended September 30, 2020, consisting largely of professional services of attorneys, accountants, investment bankers and other advisors. There were no merger-related expenses incurred during three and nine months ended September 30, 2019.

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	July 17, 2020
Merger consideration
Value of stock consideration assigned to Akron common shares exchanged for stock paid to shareholders	$	24,667
Value of cash consideration for Akron common stock exchanged for cash	16,126
Total merger consideration	$	40,793

Core deposit intangible ("CDI") of $613 thousand and goodwill of $6.0 million were recognized as a result of the acquisition. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities. Goodwill recognized in this transaction is not deductible for income tax purposes.


	July 17, 2020
Identifiable net assets acquired, at fair value
Assets acquired
Cash and due from banks	$	78,830
Interest bearing deposits with other banks	10,148
Investment securities	29,407
Loans	319,063
Premises and equipment, net	4,265
Core deposit intangible	613
Deferred tax assets	1,751
Bank owned life insurance	8,187
Accrued interest receivable and other assets	5,309
Total assets acquired	$	457,573
Liabilities assumed
Deposits	$	419,476
Accrued interest payable and other liabilities	3,348
Total liabilities assumed	422,824
Total fair value of identifiable net assets	34,749
Total merger consideration	40,793
Goodwill recognized	$	6,044

The Corporation accounted for this transaction under the acquisition method of accounting in accordance with ASC 805, Business Combinations, which requires purchased assets and liabilities assumed and consideration exchanged to be recorded at their respective estimated fair values at the date of acquisition. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions at the time of the acquisition and other future events that are highly subjective in nature and subject to refinement for up to one year after the closing date of acquisition as additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier.

As of September 30, 2020, the final purchase price remains subject to final adjustments and fair value measurements remain preliminary due to the timing of the acquisition. The Corporation continues to review information relating to events or circumstances existing at the acquisition date and expects to finalize its analysis of the acquired assets and assumed liabilities over the next few months, but not later than one year after the acquisition. Management anticipates that this review could result in adjustments to the acquisition date valuation amounts presented herein but does not anticipate that these adjustments, if any, would be material.

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Securities

The estimated fair values of the securities were calculated utilizing Level 2 inputs. The securities acquired are bought and sold in active markets. Prices for these instruments were obtained through security industry sources that actively participate in the buying and selling of securities.

Loans

Akron’s loan portfolio was recorded at fair value at the date of acquisition. A valuation of Akron’s loan portfolio was performed as of the acquisition date in accordance with ASC 820 to assess the fair value of the loan portfolio, considering adjustments for market discount rates, credit, and liquidity. The loan portfolio was segmented into two groups: non-purchase credit impaired ("PCI") loans and PCI loans. The non-PCI loans were pooled based on similar characteristics, such as loan type, fixed or adjustable interest rates, payment type, index rate and caps/floors, and non-accrual status. The PCI loans were valued at the loan level with similar characteristics noted above. The fair value was calculated using a discounted cash flow analysis. Non-PCI loans and PCI loans had a fair value of $314.7 million and $4.4 million, respectively, at the acquisition date, resulting in a combined fair value credit discount of $7.6 million and a combined fair value interest rate premium of $1.9 million. The related contractual principal balances totaled $318.8 million and $6.0 million, for non-PCI loans and PCI loans, respectively. In accordance with U.S. GAAP, there was no carryover of the allowance for credit losses that had been previously recorded by Akron.

Premises and Equipment

Fair values are based upon appraisal values. In addition to owned properties, Akron operated one property subject to a lease agreement.

Core deposit intangible

The CDI on non-maturing deposits was determined by evaluating the underlying characteristics of the deposit relationships, including customer attrition, deposit interest rates and maintenance costs, fee income and costs of alternative funding using the discounted cash flow approach. The core deposit intangibles represent the costs saved by the Corporation between maintaining the existing deposits and obtaining alternative funds over the life of the deposit base.

Fixed maturity deposits

In determining the fair value of certificates of deposit, the cash flows of the contractual interest payments during the specific period of the certificates of deposit and scheduled principal payout were discounted to present value at market-based interest rates.

Supplemental Pro Forma Financial Information

The following table presents certain unaudited pro forma financial information for illustrative purposes only, for the three and nine months ended September 30, 2020 and 2019, respectively, as if Akron had been acquired on January 1, 2019. This unaudited pro forma information combines the historical results of Akron with the Corporation’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information does not consider any changes to the provision expense resulting from recording loan assets at fair value, cost savings or business synergies. As a result, actual amounts would have differed from the unaudited pro forma information presented and the differences could be significant.


	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Net interest income	$	34,903	$	30,617	$	96,266	$	88,601
Net income	$	7,974	$	10,923	$	26,164	$	31,294
Basic earnings per common share	$	0.47	$	0.66	$	1.55	$	1.88
Diluted earnings per common share	$	0.47	$	0.66	$	1.55	$	1.88

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4. SECURITIES

Securities available for sale at September 30, 2020 and December 31, 2019 are as follows:


	September 30, 2020								December 31, 2019
	Amortized		Unrealized				Fair		Amortized		Unrealized				Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. Gov’t sponsored entities	$	162,450	$	7,358	$	(99)	$	169,709	$	124,189	$	2,924	$	(19)	$	127,094
State & political subdivisions	63,930		3,161		(139)		66,952		101,177		3,288		(102)		104,363
Residential & multi-family mortgage	296,689		9,967		(347)		306,309		273,404		4,117		(885)		276,636
Corporate notes & bonds	13,735		49		(382)		13,402		8,350		14		(282)		8,082
Pooled SBA	26,562		942		(1)		27,503		25,063		274		(163)		25,174
Other	1,020		0		(38)		982		1,020		0		(56)		964
Total	$	564,386	$	21,477	$	(1,006)	$	584,857	$	533,203	$	10,617	$	(1,507)	$	542,313

At September 30, 2020 and December 31, 2019, there were no holdings of securities of any one issuer, other than the U.S. Government sponsored entities, in an amount greater than 10% of shareholders’ equity. The Corporation’s residential and multi-family mortgage securities are issued by government sponsored entities.

Trading securities at September 30, 2020 and December 31, 2019 are as follows:


	September 30, 2020		December 31, 2019
Corporate equity securities	$	3,964	$	7,946
Mutual funds	1,060		807
Certificates of deposit	417		350
Corporate notes and bonds	672		655
U.S. Government sponsored entities	51		51
Total	$	6,164	$	9,809

Securities with unrealized losses at September 30, 2020 and December 31, 2019, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

September 30, 2020


	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Gov’t sponsored entities	$	24,953	$	(99)	$	0	$	0	$	24,953	$	(99)
State & political subdivisions	2,664		(10)		684		(129)		3,348		(139)
Residential & multi-family mortgage	31,615		(323)		3,783		(24)		35,398		(347)
Corporate notes & bonds	271		(1)		4,528		(381)		4,799		(382)
Pooled SBA	179		(1)		0		0		179		(1)
Other	0		0		982		(38)		982		(38)
	$	59,682	$	(434)	$	9,977	$	(572)	$	69,659	$	(1,006)

December 31, 2019


	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Gov’t sponsored entities	$	7,040	$	(3)	$	14,989	$	(16)	$	22,029	$	(19)
State & political subdivisions	826		(5)		684		(97)		1,510		(102)
Residential & multi-family mortgage	41,841		(346)		32,555		(539)		74,396		(885)
Corporate notes & bonds	0		0		4,718		(282)		4,718		(282)
Pooled SBA	8,560		(80)		6,075		(83)		14,635		(163)
Other	0		0		964		(56)		964		(56)
	$	58,267	$	(434)	$	59,985	$	(1,073)	$	118,252	$	(1,507)

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The Corporation evaluates securities for other-than-temporary impairment on a quarterly basis, or more frequently when economic or market conditions warrant such an evaluation.

At September 30, 2020 and December 31, 2019, management performed an assessment for possible other-than-temporary impairment of the Corporation’s debt securities, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. Based on the results of the assessment, management believes impairment of these debt securities at September 30, 2020 and December 31, 2019 to be temporary.

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

As of September 30, 2020 and December 31, 2019, management concluded that the securities described in the previous paragraph were not other-than-temporarily impaired for the following reasons:

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

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

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

On September 30, 2020 and December 31, 2019, securities carried at $460,503 and $405,200, respectively, were pledged to secure public deposits and for other purposes as provided by law.

The following is a schedule of the contractual maturity of securities available for sale at September 30, 2020:


	Amortized Cost		Fair Value
1 year or less	$	52,808	$	53,170
1 year – 5 years	116,868		120,786
5 years – 10 years	62,300		67,633
After 10 years	8,139		8,474
	240,115		250,063
Residential & multi-family mortgage	296,689		306,309
Pooled SBA	26,562		27,503
Other	1,020		982
Total debt securities	$	564,386	$	584,857

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

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Information pertaining to security sales on available for sale securities is as follows:


	Proceeds		Gross Gains		Gross Losses
Three months ended September 30, 2020	$	0	$	0	$	0
Three months ended September 30, 2019	$	0	$	0	$	0
Nine months ended September 30, 2020	$	57,185	$	2,257	$	67
Nine months ended September 30, 2019	$	11,403	$	152	$	4

The tax provision related to these net realized gains was zero and $460 for the three and nine months ended September 30, 2020, respectively, and zero and $31 during the three and nine months ended September 30, 2019, respectively.

5. LOANS

Total net loans at September 30, 2020 and December 31, 2019 are summarized as follows:


	September 30, 2020		December 31, 2019
Commercial, industrial and agricultural	$	1,312,395	$	1,046,665
Commercial mortgages	993,986		814,002
Residential real estate	940,559		814,030
Consumer	95,848		124,785
Credit cards	7,766		7,569
Overdrafts	180		2,146
Less: unearned discount	(4,924)		(5,162)
allowance for loan losses	(26,887)		(19,473)
Loans, net	$	3,318,923	$	2,784,562

At September 30, 2020 and December 31, 2019, net unamortized loan fees of $12,466 and $3,092, respectively, have been included in the carrying value of loans.

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

Pursuant to the Corporation’s lending policies, management considers a variety of factors when determining whether to extend credit to a customer, including loan-to-value ratios, FICO scores, quality of the borrower’s financial statements, and the ability to obtain personal guarantees.

Commercial, industrial and agricultural loans comprised 39% and 37% of the Corporation’s total loan portfolio at September 30, 2020 and December 31, 2019, respectively. Commercial mortgage loans comprised 30% and 29% of the Corporation’s total loan portfolio at September 30, 2020 and December 31, 2019, respectively. Management assigns a risk rating to all commercial loans at loan origination. The loan-to-value policy guidelines for commercial, industrial and agricultural loans are generally a maximum of 80% of the value of business equipment, a maximum of 70% of the value of accounts receivable, and a maximum of 60% of the value of business inventory at loan origination. The loan-to-value policy guideline for commercial mortgage loans is generally a maximum of 85% of the appraised value of the real estate.

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Residential real estate loans comprised 28% and 29% of the Corporation’s total loan portfolio at September 30, 2020 and December 31, 2019, respectively. The loan-to-value policy guidelines for residential real estate loans vary depending on the collateral position and the specific type of loan. Higher loan-to-value terms may be approved with the appropriate private mortgage insurance coverage. The Corporation also originates and prices loans for sale into the secondary market. Loans so originated are classified as loans held for sale and are excluded from residential real estate loans reported above. The rationale for these sales is to mitigate interest rate risk associated with holding lower rate, long-term residential mortgages in the loan portfolio and to generate fee revenue from sales and servicing the loan. The Corporation also offers a variety of unsecured and secured consumer loan and credit card products which represented less than 3% of the total loan portfolio at both September 30, 2020 and December 31, 2019. Terms and collateral requirements vary depending on the size and nature of the loan.

Transactions in the allowance for loan losses for the three months ended September 30, 2020 were as follows:


	Commercial, Industrial and Agricultural		Commercial Mortgages		Residential Real Estate		Consumer		Credit Cards		Overdrafts		Total
Allowance for loan losses, July 1, 2020	$	9,802	$	9,628	$	2,676	$	2,140	$	114	$	169	$	24,529
Charge-offs	(62)		(522)		(69)		(305)		(48)		(102)		(1,108)
Recoveries	15		3		64		45		2		31		160
Provision for loan losses	(106)		2,052		941		329		75		15		3,306
Allowance for loan losses, September 30, 2020	$	9,649	$	11,161	$	3,612	$	2,209	$	143	$	113	$	26,887

Transactions in the allowance for loan losses for the nine months ended September 30, 2020 were as follows:


	Commercial, Industrial and Agricultural		Commercial Mortgages		Residential Real Estate		Consumer		Credit Cards		Overdrafts		Total
Allowance for loan losses, January 1, 2020	$	8,287	$	6,952	$	1,499	$	2,411	$	84	$	240	$	19,473
Charge-offs	(2,710)		(522)		(231)		(1,310)		(120)		(316)		(5,209)
Recoveries	40		177		67		126		13		135		558
Provision for loan losses	4,032		4,554		2,277		982		166		54		12,065
Allowance for loan losses, September 30, 2020	$	9,649	$	11,161	$	3,612	$	2,209	$	143	$	113	$	26,887

Transactions in the allowance for loan losses for the three months ended September 30, 2019 were as follows:


	Commercial, Industrial and Agricultural		Commercial Mortgages		Residential Real Estate		Consumer		Credit Cards		Overdrafts		Total
Allowance for loan losses, July 1, 2019	$	8,108	$	9,538	$	1,403	$	2,141	$	87	$	160	$	21,437
Charge-offs	(160)		(2,650)		(38)		(547)		(3)		(113)		(3,511)
Recoveries	5		65		5		58		6		24		163
Provision (benefit) for loan losses	997		30		116		693		15		267		2,118
Allowance for loan losses, September 30, 2019	$	8,950	$	6,983	$	1,486	$	2,345	$	105	$	338	$	20,207

Transactions in the allowance for loan losses for the nine months ended September 30, 2019 were as follows:


	Commercial, Industrial and Agricultural		Commercial Mortgages		Residential Real Estate		Consumer		Credit Cards		Overdrafts		Total
Allowance for loan losses, January 1, 2019	$	7,341	$	7,490	$	2,156	$	2,377	$	103	$	237	$	19,704
Charge-offs	(160)		(2,652)		(282)		(1,609)		(55)		(329)		(5,087)
Recoveries	13		66		72		132		12		83		378
Provision (benefit) for loan losses	1,756		2,079		(460)		1,445		45		347		5,212
Allowance for loan losses, September 30, 2019	$	8,950	$	6,983	$	1,486	$	2,345	$	105	$	338	$	20,207

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The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and is based on the Corporation’s impairment method as of September 30, 2020 and December 31, 2019. The recorded investment in loans excludes accrued interest and unearned discounts due to their insignificance.

September 30, 2020


	Commercial, Industrial and Agricultural		Commercial Mortgages		Residential Real Estate		Consumer		Credit Cards		Overdrafts		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,001	$	882	$	109	$	0	$	0	$	0	$	1,992
Collectively evaluated for impairment	8,151		9,970		3,503		2,209		143		113		24,089
Acquired with deteriorated credit quality	0		0		0		0		0		0		0
Modified in a troubled debt restructuring	497		309		0		0		0		0		806
Total ending allowance balance	$	9,649	$	11,161	$	3,612	$	2,209	$	143	$	113	$	26,887
Loans:
Individually evaluated for impairment	$	2,367	$	12,022	$	1,177	$	0	$	0	$	0	$	15,566
Collectively evaluated for impairment	1,301,810		974,660		939,273		95,848		7,766		180		3,319,537
Acquired with deteriorated credit quality	3,839		822		0		0		0		0		4,661
Modified in a troubled debt restructuring	4,379		6,482		109		0		0		0		10,970
Total ending loans balance	$	1,312,395	$	993,986	$	940,559	$	95,848	$	7,766	$	180	$	3,350,734

December 31, 2019


	Commercial, Industrial and Agricultural		Commercial Mortgages		Residential Real Estate		Consumer		Credit Cards		Overdrafts		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	645	$	1,264	$	34	$	0	$	0	$	0	$	1,943
Collectively evaluated for impairment	7,614		5,358		1,465		2,411		84		240		17,172
Acquired with deteriorated credit quality	0		0		0		0		0		0		0
Modified in a troubled debt restructuring	28		330		0		0		0		0		358
Total ending allowance balance	$	8,287	$	6,952	$	1,499	$	2,411	$	84	$	240	$	19,473
Loans:
Individually evaluated for impairment	$	8,078	$	2,410	$	465	$	0	$	0	$	0	$	10,953
Collectively evaluated for impairment	1,035,494		804,360		813,565		124,785		7,569		2,146		2,787,919
Acquired with deteriorated credit quality	0		523		0		0		0		0		523
Modified in a troubled debt restructuring	3,093		6,709		0		0		0		0		9,802
Total ending loans balance	$	1,046,665	$	814,002	$	814,030	$	124,785	$	7,569	$	2,146	$	2,809,197

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The following tables present information related to loans individually evaluated for impairment, including loans modified in troubled debt restructurings, by portfolio segment as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019:

September 30, 2020


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial, industrial and agricultural	$	2,847	$	2,767	$	1,498
Commercial mortgage	5,166		3,673		1,191
Residential real estate	1,197		1,177		109
With no related allowance recorded:
Commercial, industrial and agricultural	4,177		3,979		0
Commercial mortgage	17,262		14,831		0
Residential real estate	115		109		0
Total	$	30,764	$	26,536	$	2,798

December 31, 2019


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial, industrial and agricultural	$	2,657	$	1,476	$	673
Commercial mortgage	6,541		4,349		1,594
Residential real estate	485		465		34

With no related allowance recorded:
Commercial, industrial and agricultural	9,845		9,695		0
Commercial mortgage	4,903		4,770		0
Residential real estate	0		0		0

Total	$	24,431	$	20,755	$	2,301

The unpaid principal balance of impaired loans includes the Corporation’s recorded investment in the loan and amounts that have been charged off.


	Three months ended September 30, 2020						Three months ended September 30, 2019
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Commercial, industrial and agricultural	$	2,409	$	33	$	33	$	1,480	$	32	$	32
Commercial mortgage	$	4,002	$	0	$	0	7,024		12		12
Residential real estate	$	819	$	11	$	11	245		8		8
With no related allowance recorded:
Commercial, industrial and agricultural	$	5,623	$	51	$	51	3,977		42		42
Commercial mortgage	$	14,758	$	59	$	59	2,435		29		29
Residential real estate	$	112	$	4	$	4	236		0		0
Total	$	27,723	$	158	$	158	$	15,397	$	123	$	123

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	Nine months ended September 30, 2020						Nine months ended September 30, 2019
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Commercial, industrial and agricultural	$	3,341	$	78	$	78	$	1,819	$	74	$	74
Commercial mortgage	4,166		41		41		7,145		100		100
Residential real estate	641		16		16		122		8		8
With no related allowance recorded:
Commercial, industrial and agricultural	6,392		142		142		3,676		128		128
Commercial mortgage	12,178		283		283		3,250		62		62
Residential real estate	56		6		6		368		11		11
Total	$	26,774	$	566	$	566	$	16,380	$	383	$	383

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of September 30, 2020 and December 31, 2019:


	September 30, 2020				December 31, 2019
	Nonaccrual		Past Due Over 90 Days Still on Accrual		Nonaccrual		Past Due Over 90 Days Still on Accrual
Commercial, industrial and agricultural	$	6,983	$	189	$	11,644	$	0
Commercial mortgages	14,199		0		4,533		0
Residential real estate	5,183		58		4,724		59
Consumer	479		0		835		0
Credit cards	0		18		0		2
Total	$	26,844	$	265	$	21,736	$	61

Nonaccrual loans and loans past due over 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following table presents the aging of the recorded investment in past due loans as of September 30, 2020 and December 31, 2019 by class of loans.

September 30, 2020


	30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total
Commercial, industrial and agricultural	$	673	$	317	$	3,596	$	4,586	$	1,307,809	$	1,312,395
Commercial mortgages	476		722		2,403		3,601		990,385		993,986
Residential real estate	1,729		1,322		2,918		5,969		934,590		940,559
Consumer	375		129		198		702		95,146		95,848
Credit cards	57		49		18		124		7,642		7,766
Overdrafts	0		0		0		0		180		180
Total	$	3,310	$	2,539	$	9,133	$	14,982	$	3,335,752	$	3,350,734

December 31, 2019


	30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total
Commercial, industrial and agricultural	$	1,273	$	548	$	3,784	$	5,605	$	1,041,060	$	1,046,665
Commercial mortgages	162		183		2,594		2,939		811,063		814,002
Residential real estate	3,383		1,270		2,714		7,367		806,663		814,030
Consumer	412		311		415		1,138		123,647		124,785
Credit cards	48		54		2		104		7,465		7,569
Overdrafts	0		0		0		0		2,146		2,146
Total	$	5,278	$	2,366	$	9,509	$	17,153	$	2,792,044	$	2,809,197

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Troubled Debt Restructurings

The terms of certain loans have been modified as troubled debt restructurings. The modification of the terms of such loans included either or both of the following: a reduction of the stated interest rate of the loan or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk.

The following table presents the number of loans, loan balances, and specific reserves for loans that have been restructured in a troubled debt restructuring as of September 30, 2020 and December 31, 2019.


	September 30, 2020					December 31, 2019
	Number of Loans	Loan Balance		Specific Reserve		Number of Loans	Loan Balance		Specific Reserve
Commercial, industrial and agricultural	17	$	4,379	$	497	10	$	3,093	$	28
Commercial mortgages	14	6,482		309		13	6,709		330
Residential real estate	1	109		0		0	0		0
Consumer	0	0		0		0	0		0
Credit cards	0	0		0		0	0		0
Total	32	$	10,970	$	806	23	$	9,802	$	358

There were one and ten loans modified as troubled debt restructurings during the three and nine months ended September 30, 2020, respectively, and one loan modified as troubled debt restructurings during the three and nine months ended September 30, 2019.


	Three months ended September 30, 2020
	Number of Loans	Pre-Modification Outstanding Recorded Investment Balance		Post-Modification Outstanding Recorded Investment Reserve
Commercial, industrial and agricultural	0	$	0	$	0
Commercial mortgages	1	46		46
Residential real estate	0	0		0
Consumer	0	0		0
Credit cards	0	0		0
Total	1	$	46	$	46


	Nine months ended September 30, 2020
	Number of Loans	Pre-Modification Outstanding Recorded Investment Balance		Post-Modification Outstanding Recorded Investment Reserve
Commercial, industrial and agricultural	8	$	1,593	$	1,593
Commercial mortgages	1	46		46
Residential real estate	1	116		116
Consumer	0	0		0
Credit cards	0	0		0
Total	10	$	1,755	$	1,755


	Three and nine months ended September 30, 2019
	Number of Loans	Pre-Modification Outstanding Recorded Investment Balance		Post-Modification Outstanding Recorded Investment Reserve
Commercial, industrial and agricultural	0	$	0	$	0
Commercial mortgages	1	383		383
Residential real estate	0	0		0
Consumer	0	0		0
Credit cards	0	0		0
Total	1	$	383	$	383

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A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no loans modified as troubled debt restructurings for which there was a payment default within a twelve-month cycle following the modification during the three and nine months ended September 30, 2020 and September 30, 2019. There were no principal balances forgiven in connection with the loan restructurings.

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

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

Credit Quality Indicators

The Corporation classifies commercial, industrial and agricultural loans and commercial mortgage loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.

The Corporation uses the following definitions for risk ratings:

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

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

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

Loans not rated as special mention, substandard, or doubtful are considered to be pass rated loans. All loans included in the following tables have been assigned a risk rating within 12 months of the balance sheet date.

September 30, 2020


	Pass		Special Mention		Substandard		Doubtful		Total
Commercial, industrial and agricultural	$	1,263,928	$	18,849	$	29,618	$	0	$	1,312,395
Commercial mortgages	947,943		11,131		34,912		0		993,986
Total	$	2,211,871	$	29,980	$	64,530	$	0	$	2,306,381

December 31, 2019


	Pass		Special Mention		Substandard		Doubtful		Total
Commercial, industrial and agricultural	$	1,004,445	$	16,696	$	25,524	$	0	$	1,046,665
Commercial mortgages	780,798		18,837		14,367		0		814,002
Total	$	1,785,243	$	35,533	$	39,891	$	0	$	1,860,667

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The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential real estate, consumer, and credit card loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential, consumer, and credit card loans based on payment activity as of September 30, 2020 and December 31, 2019:


	September 30, 2020						December 31, 2019
	Residential Real Estate		Consumer		Credit Cards		Residential Real Estate		Consumer		Credit Cards
Performing	$	935,318	$	95,369	$	7,748	$	809,247	$	123,950	$	7,567
Nonperforming	5,241		479		18		4,783		835		2
Total	$	940,559	$	95,848	$	7,766	$	814,030	$	124,785	$	7,569

The Corporation’s portfolio of residential real estate and consumer loans maintained within Holiday Financial Services Corporation (“Holiday”) are considered to be subprime loans. Holiday is a subsidiary that offers small balance unsecured and secured loans, primarily collateralized by automobiles and equipment, to borrowers with higher risk characteristics than are typical in the Bank’s consumer loan portfolio.

Holiday’s loan portfolio is summarized as follows at September 30, 2020 and December 31, 2019:


	September 30, 2020		December 31, 2019
Consumer	$	26,885	$	28,122
Less: unearned discount	(4,924)		(5,162)
Total	$	21,961	$	22,960

6. LEASES

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

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


Leases	Classification	September 30, 2020		December 31, 2019
Assets:
Operating lease assets	Operating lease assets	$	17,475	$	18,422
Finance lease assets	Premises and equipment, net (1)	447		501
Total leased assets		$	17,922	$	18,923

Liabilities:
Operating lease liabilities	Operating lease liabilities	$	18,469	$	19,363
Finance lease liabilities	Accrued interest payable and other liabilities	570		629
Total leased liabilities		$	19,039	$	19,992

(1) Finance lease assets are recorded net of accumulated amortization of $769 as of September 30, 2020 and $715 as of December 31, 2019.

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The components of the Corporation's net lease expense for the three and nine months ended September 30, 2020 and 2019 were as follows:


		Three months ended September 30,				Nine months ended September 30,
Lease Cost	Classification	2020		2019		2020		2019
Operating lease cost	Net occupancy expense	$	435	$	423	$	1,349	$	1,228
Variable lease cost	Net occupancy expense	26		33		67		82
Finance lease cost:
Amortization of leased assets	Net occupancy expense	18		18		54		54
Interest on lease liabilities	Interest expense - borrowed funds	6		7		20		23
Sublease income (1)	Net occupancy expense	(25)		(21)		(67)		(62)
Net lease cost		$	460	$	460	$	1,423	$	1,325

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

The following table sets forth future minimum rental payments under noncancelable leases with terms in excess of one year as of September 30, 2020:


Maturity of Lease Liabilities as of September 30, 2020	Operating Leases		Finance Leases		Total
2020	$	388	$	26	$	414
2021	1,555		105		1,660
2022	1,601		105		1,706
2023	1,490		105		1,595
2024	1,455		105		1,560
After 2024	19,171		210		19,381
Total lease payments	25,660		656		26,316
Less: Interest	7,191		86		7,277
Present value of lease liabilities	$	18,469	$	570	$	19,039

Lease terms and discount rates related to the Corporation's lease liabilities as of September 30, 2020 and December 31, 2019 were as follows:


Lease Term and Discount Rate	September 30, 2020		December 31, 2019
Weighted-average remaining lease term (years)
Operating leases	18.4		18.7
Finance leases	6.3		7.0

Weighted-average discount rate
Operating leases	3.52	%	3.52	%
Finance leases	4.49	%	4.49	%

Other information related to the Corporation's lease liabilities as of June 30, 2020 and 2019 was as follows:


Other Information	September 30, 2020		September 30, 2019

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	695	$	557

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7. DEPOSITS

Total deposits at September 30, 2020 and December 31, 2019 are summarized as follows:


	September 30, 2020		December 31, 2019		Percentage Change
Checking, non-interest bearing	$	602,902	$	382,259	57.7	%
Checking, interest bearing	847,498		628,579		34.8	%
Savings accounts	2,092,938		1,663,673		25.8	%
Certificates of deposit	479,367		427,816		12.0	%
Total	$	4,022,705	$	3,102,327	29.7	%

8. STOCK COMPENSATION

The Corporation has a stock incentive plan, which is administered by a committee of the Board of Directors and which permits the Corporation to provide various types of stock-based compensation to its key employees, directors, and/or consultants, including time-based and performance-based shares of restricted stock. The Corporation previously maintained the CNB Financial Corporation 2009 Stock Incentive Plan, which terminated in accordance with its terms on February 10, 2019, and currently maintains the CNB Financial Corporation 2019 Omnibus Incentive Plan (the "2019 Stock Incentive Plan"), which was approved by the Corporation’s shareholders and became effective on April 16, 2019.

For key employees, the vesting of time-based restricted stock is one-third, one-fourth, or one-fifth of the granted restricted shares per year, beginning one year after the grant date, with 100% vesting on the third, fourth or fifth anniversary of the grant date, respectively. Prior to 2018, for non-employee directors, the vesting schedule was one-third of the granted restricted shares per year, beginning one year after the grant date, with 100% vested on the third anniversary of the grant date. Beginning in 2018, stock compensation received by non-employee directors vests immediately. At September 30, 2020, there was no unrecognized compensation cost related to stock-based compensation awarded under this plan and, except for the time-based and performance-based restricted stock awards disclosed below and in previous filings, no other stock-based compensation was granted during the three or nine month periods ended September 30, 2020 and 2019.

In addition to the time-based restricted stock disclosed above, the Corporation’s Board of Directors grants performance-based restricted stock awards (“PBRSAs”) to key employees. The number of PBRSAs will depend on certain performance conditions earned over a three year period and are also subject to service-based vesting. In 2020, awards with a maximum of 18,100 shares in aggregate were granted to key employees. In 2019, awards with a maximum of 16,681 shares in aggregate were granted to key employees. In 2018, awards with a maximum of 15,657 shares in aggregate were granted to key employees.

Compensation expense for the restricted stock awards is recognized over the requisite service period noted above based on the fair value of the shares at the date of grant. Nonvested restricted stock awards are recorded as a reduction of additional paid-in-capital in shareholders’ equity until earned. Compensation expense resulting from time-based, performance-based and director restricted stock awards was $288 and $1,123 for the three and nine months ended September 30, 2020, respectively, and $242 and $1,109 for the three and nine months ended September 30, 2019, respectively. There was $1,235 and $1,026 of total unrecognized compensation cost related to unvested restricted stock awards, as of September 30, 2020 and December 31, 2019, respectively. The total income tax benefit related to the recognized compensation cost of vested restricted stock awards was $60 and $235 for the three and nine months ended September 30, 2020, respectively, and $51 and $233 for the three and nine months ended June 30, 2019, respectively.

A summary of changes in time-based nonvested restricted stock awards for the three months ended September 30, 2020 follows:


	Shares	Per Share Weighted Average Grant Date Fair Value
Nonvested at beginning of period	55,466	$	27.47
Granted	1,808	16.60

Vested	(150)	18.40
Nonvested at end of period	57,124	$	27.15

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A summary of changes in time-based nonvested restricted stock awards for the nine months ended September 30, 2020 follows:


	Shares	Per Share Weighted Average Grant Date Fair Value
Nonvested at beginning of period	58,370	$	24.96
Granted	25,466	28.64

Vested	(26,712)	23.98
Nonvested at end of period	57,124	$	27.15

The above table excludes 11,502 shares in restricted stock awards that were granted at a weighted average fair value of $29.56 and immediately vested. Compensation expense resulting from the immediately vested shares was $0 and $340 for the three and nine months ended September 30, 2020, respectively, and is included in the amounts discussed above.

The fair value of shares vested was $3 and $1,109 during the three and nine months ended September 30, 2020, respectively, and $18 and $1,346 for the three and nine months ended September 30, 2019, respectively.

9. EARNINGS PER COMMON SHARE

Basic earnings per common share is computed by dividing net income, excluding net earnings allocated to participating securities, by the weighted average number of shares outstanding during the applicable period, excluding outstanding participating securities. Diluted earnings per common share is computed using the weighted average number of shares determined for the basic computation plus the dilutive effect of potential common shares issuable under certain stock compensation plans. For the three and nine months ended September 30, 2020 and 2019, there were no outstanding stock options to include in the diluted earnings per common share calculations and the impact of performance-based shares was immaterial.

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

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


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Basic earnings per common share computation:
Net income per consolidated statements of income	$	7,785	$	10,357	$	24,844	$	29,597
Net earnings allocated to participating securities	(24)		(37)		(82)		(114)
Net earnings allocated to common stock	$	7,761	$	10,320	$	24,762	$	29,483
Distributed earnings allocated to common stock	$	2,863	$	2,573	$	8,079	$	7,734
Undistributed earnings allocated to common stock	4,898		7,747		16,683		21,749
Net earnings allocated to common stock	$	7,761	$	10,320	$	24,762	$	29,483
Weighted average common shares outstanding, including shares considered participating securities	16,616		15,197		15,785		15,218
Less: Average participating securities	(47)		(51)		(50)		(58)
Weighted average shares	16,569		15,146		15,735		15,160
Basic earnings per common share	$	0.47	$	0.68	$	1.57	$	1.94
Diluted earnings per common share computation:
Net earnings allocated to common stock	$	7,761	$	10,320	$	24,762	$	29,483
Weighted average common shares outstanding for basic earnings per common share	16,569		15,146		15,735		15,160
Add: Dilutive effects of performance based-shares	0		0		0		0
Weighted average shares and dilutive potential common shares	16,569		15,146		15,735		15,160
Diluted earnings per common share	$	0.47	$	0.68	$	1.57	$	1.94

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10. DERIVATIVE INSTRUMENTS

On September 7, 2018, the Corporation executed an interest rate swap agreement with a 5-year term and an effective date of September 15, 2018 in order to hedge cash flows associated with $10 million of a subordinated note that was issued by the Corporation during 2007 and elected cash flow hedge accounting for the agreement. The Corporation’s objective in using this derivative is to add stability to interest expense and to manage its exposure to interest rate risk. The interest rate swap involves the receipt of variable-rate amounts in exchange for fixed-rate payments from September 15, 2018 to September 15, 2023 without the exchange of the underlying notional amount. At September 30, 2020, the variable rate on the subordinated debt was 1.80% (LIBOR plus 155 basis points) and the Corporation was paying 4.53% (2.98% fixed rate plus 155 basis points).

As of September 30, 2020 and December 31, 2019, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations. Additionally, the Corporation does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.

The following tables provide information about the amounts and locations of activity related to the interest rate swaps designated as cash flow hedges within the Corporation’s consolidated balance sheet and statement of income as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019:


		Fair value as of
	Balance Sheet Location	September 30, 2020		December 31, 2019
Interest rate contracts	Accrued interest and other liabilities	$	(834)	$	(485)


For the Three Months Ended September 30, 2020	(a)		(b)	(c)		(d)	(e)
Interest rate contracts	$	56	Interest expense – subordinated debentures	$	(67)	Other income	$	0
For the Nine Months Ended September 30, 2020	(a)		(b)	(c)		(d)	(e)
Interest rate contracts	$	(277)	Interest expense – subordinated debentures	$	(153)	Other income	$	0
For the Three Months Ended September 30, 2019	(a)		(b)	(c)		(d)	(e)
Interest rate contracts	$	(45)	Interest expense – subordinated debentures	$	(11)	Other income	$	0
For the Nine Months Ended September 30, 2019	(a)		(b)	(c)		(d)	(e)
Interest rate contracts	$	(302)	Interest expense – subordinated debentures	$	(31)	Other income	$	0

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

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

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

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

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

Amounts reported in accumulated other comprehensive income (loss) related to the interest rate swap will be reclassified to interest expense as interest payments are made on the subordinated debentures. Such amounts reclassified from accumulated other comprehensive income (loss) to interest expense in the next twelve months are expected to be $273.

As of September 30, 2020 and December 31, 2019, a cash collateral balance in the amount of $1,050 and $750, respectively, was maintained with a counterparty to the interest rate swaps. These balances are included in interest bearing deposits with other banks on the consolidated balance sheets.

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

The Corporation pledged cash collateral to another financial institution with a balance $4,700 as of September 30, 2020 and $2,000 as of December 31, 2019. This balance is included in interest bearing deposits with other banks on the consolidated balance sheets. The Corporation may require its customers to post cash or securities as collateral on its program of back-to-back swaps depending upon the specific facts and circumstances surrounding each loan and individual swap. In addition, certain language is included in the International Swaps and Derivatives Association agreement and loan documents where, in default situations, the Corporation is permitted to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability. The Corporation may be required to post additional collateral to swap counterparties in the future in proportion to potential increases in unrealized loss positions.

The following table provides information about the amounts and locations of activity related to the back-to-back interest rate swaps within the Corporation’s consolidated balance sheet as of September 30, 2020 and December 31, 2019:


	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
September 30, 2020
3rd Party interest rate swaps	$	34,416	7.0	4.13	%	1 month LIBOR + 2.27%	$	4,493	(a)
Customer interest rate swaps	(34,416)		7.0	4.13	%	1 month LIBOR + 2.27%	(4,493)		(b)
December 31, 2019
3rd Party interest rate swaps	$	35,382	7.7	4.13	%	1 month LIBOR + 2.27%	$	1,877	(a)
Customer interest rate swaps	(35,382)		7.7	4.13	%	1 month LIBOR + 2.27%	(1,877)		(b)

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

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

11. FAIR VALUE

Fair Value Measurement

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy has also been established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs are used to measure fair value:

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

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

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

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

The Corporation’s derivative instruments are interest rate swaps that are similar to those that trade in liquid markets. As such, significant fair value inputs can generally be verified and do not typically involve significant management judgments (Level 2 inputs).

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals prepared by third-parties. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Management also adjusts appraised values based on the length of time that has passed since the appraisal date and other factors. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Assets and liabilities measured at fair value on a recurring basis are as follows at September 30, 2020 and December 31, 2019:


			Fair Value Measurements at September 30, 2020 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Securities Available For Sale:
U.S. Government sponsored entities	$	169,709	$	0	$	169,709	$	0
States and political subdivisions	66,952		0		66,530		422
Residential and multi-family mortgage	306,309		5,130		301,179		0
Corporate notes and bonds	13,402		0		13,402		0
Pooled SBA	27,503		0		27,503		0
Other	982		982		0		0
Total Securities Available For Sale	$	584,857	$	6,112	$	578,323	$	422
Interest Rate swaps	$	4,493	$	0	$	4,493	$	0
Trading Securities:
Corporate equity securities	$	3,964	$	3,964	$	0	$	0
Mutual funds	1,060		1,060		0		0
Certificates of deposit	417		417		0		0
Corporate notes and bonds	672		672		0		0
U.S. Government sponsored entities	51		0		51		0
Total Trading Securities	$	6,164	$	6,113	$	51	$	0
Liabilities:
Interest rate swaps	$	(5,327)	$	0	$	(5,327)	$	0

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			Fair Value Measurements at December 31, 2019 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Securities Available For Sale:
U.S. Government sponsored entities	$	127,094	$	0	$	127,094	$	0
States and political subdivisions	104,363		0		104,363		0
Residential and multi-family mortgage	276,636		0		273,841		2,795
Corporate notes and bonds	8,082		0		8,082		0
Pooled SBA	25,174		0		25,174		0
Other	964		964		0		0
Total Securities Available For Sale	$	542,313	$	964	$	538,554	$	2,795
Interest Rate swaps	$	1,877	$	0	$	1,877	$	0
Trading Securities:
Corporate equity securities	$	7,946	$	7,946	$	0	$	0
Mutual funds	807		807		0		0
Certificates of deposit	350		350		0		0
Corporate notes and bonds	655		655		0		0
U.S. Government sponsored entities	51		0		51		0
Total Trading Securities	$	9,809	$	9,758	$	51	$	0
Liabilities:
Interest rate swaps	$	(2,362)	$	0	$	(2,362)	$	0

The table below presents a reconciliation of the fair value of securities available for sale measured on a recurring basis using significant unobservable inputs (Level 3) as of September 30, 2020:


	States and Political Subdivisions		Residential & Multi-Family Mortgage
Balance, January 1, 2020	$	0	$	2,795
Purchases	422		0
Total gains or (losses):
Included in other comprehensive income (loss)	0		0
Transfers out of Level 3	0		$	(2,795)
Balance, September 30, 2020	$	422	$	0

Assets and liabilities measured at fair value on a non-recurring basis are as follows at September 30, 2020 and December 31, 2019:


			Fair Value Measurements at September 30, 2020 Using:
			Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs	Significant Unobservable Inputs
Description	Total		(Level 1)	(Level 2)	(Level 3)
Assets:
Impaired loans:
Commercial, industrial and agricultural	$	2,519	0	0	$	2,519
Commercial mortgages	$	11,140	0	0	$	11,140

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			Fair Value Measurements at December 31, 2019 Using
			Quoted Prices in		Significant
			Active Markets for	Significant Other	Unobservable
			Identical Assets	Observable Inputs	Inputs
Description	Total		(Level 1)	(Level 2)	(Level 3)
Assets:
Impaired loans:
Commercial, industrial and agricultural	$	2,910	0	0	$	2,910
Commercial mortgages	$	1,147	0	0	$	1,147

The estimated fair values of impaired collateral dependent loans such as commercial or residential mortgages are determined primarily through third-party appraisals. When a collateral dependent loan, such as a commercial or residential mortgage loan, becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal, and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral and a further reduction for estimated costs to sell the property is applied, which results in an amount that is considered to be the estimated fair value. If a loan becomes impaired and the appraisal of related loan collateral is outdated, management applies an appropriate adjustment factor based on its experience with current valuations of similar collateral in determining the loan’s estimated fair value and resulting allowance for loan losses. Third-party appraisals are not customarily obtained in respect of unimpaired loans, unless in management’s view changes in circumstances warrant obtaining an updated appraisal.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at September 30, 2020:

Fair
value

Valuation Technique

Unobservable Inputs

Range
(Weighted Average)

Impaired loans – commercial, industrial and agricultural

$2,519

Collateral based measurements

Discount to reflect current market conditions and ultimate collectability

0%-100% (49%)

Impaired loans – commercial mortgages

$11,140

Collateral based measurements

Discount to reflect current market conditions and ultimate collectability

0%-44% (25%)

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2019:

Fair
value

Valuation Technique

Unobservable Inputs

Range
(Weighted Average)

Impaired loans – commercial, industrial and agricultural

$2,910

Collateral based measurements

Discount to reflect current market conditions and ultimate collectability

0%-100% (54%)

Impaired loans – commercial mortgages

$1,147

Collateral based measurements

Discount to reflect current market conditions and ultimate collectability

25%-100% (52%)

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Fair Value of Financial Instruments

The following table presents the carrying amount and fair value of financial instruments at September 30, 2020:


	Carrying		Fair Value Measurement Using:						Total
	Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS
Cash and cash equivalents	$	555,941	$	555,941	$	0	$	0	$	555,941
Securities available for sale	584,857		6,112		578,323		422		584,857
Trading securities	6,164		6,113		51		0		6,164
Loans held for sale	3,668		0		3,697		0		3,697
Net loans	3,318,923		0		0		3,290,329		3,290,329
FHLB and other restricted interests	26,815		n/a		n/a		n/a		n/a

Interest rate swaps	4,493		0		4,493		0		4,493
Accrued interest receivable	21,299		33		3,103		18,161		21,297
LIABILITIES
Deposits	$	(4,022,705)	$	(3,543,338)	$	(494,056)	$	0	$	(4,037,394)
FHLB and other borrowings	(169,327)		0		(174,846)		0		(174,846)
Subordinated debentures	(70,620)		0		(62,394)		0		(62,394)
Interest rate swaps	(5,327)		0		(5,327)		0		(5,327)
Accrued interest payable	(1,514)		0		(1,514)		0		(1,514)

The following table presents the carrying amount and fair value of financial instruments at December 31, 2019:


	Carrying		Fair Value Measurement Using:						Total
	Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS
Cash and cash equivalents	$	192,974	$	192,974	$	0	$	0	$	192,974
Securities available for sale	542,313		964		538,554		2,795		542,313
Trading securities	9,809		9,758		51		0		9,809
Loans held for sale	930		0		933		0		933
Net loans	2,784,562		0		0		2,765,133		2,765,133
FHLB and other restricted interests	27,868		n/a		n/a		n/a		n/a

Interest rate swaps	1,877		0		1,877		0		1,877
Accrued interest receivable	11,486		6		3,238		8,242		11,486
LIABILITIES
Deposits	$	(3,102,327)	$	(2,674,511)	$	(432,287)	$	0	$	(3,106,798)
FHLB and other borrowings	(227,907)		0		(230,679)		0		(230,679)
Subordinated debentures	(70,620)		0		(64,084)		0		(64,084)
Interest rate swaps	(2,362)		0		(2,632)		0		(2,632)
Accrued interest payable	(1,597)		0		(1,597)		0		(1,597)

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

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

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12. REVENUE FROM CONTRACTS WITH CUSTOMERS

All of the Corporation’s revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest Income. The following table presents the Corporation's Non-Interest Income by revenue stream and reportable segment for the three and nine months ended September 30, 2020 and 2019. Items outside the scope of ASC 606 are noted as such.


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Non-interest Income
Service charges on deposit accounts	$	1,201	$	1,676	$	3,652	$	4,726
Wealth and asset management fees	1,414		1,238		4,081		3,482
Mortgage banking (1)	1,089		408		2,090		1,017
Card processing and interchange income	1,606		1,195		4,059		3,445
Net gains (losses) on sales of securities (1)	0		0		2,190		148
Other income	1,468		1,759		4,019		6,403
Total non-interest income	$	6,778	$	6,276	$	20,091	$	19,221

(1)Not within scope of ASU 2014-9

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

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

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

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

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

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

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ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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

In addition to the Bank, the Corporation has four other subsidiaries. CNB Securities Corporation is incorporated in Delaware and currently maintains investments in debt and equity securities. CNB Insurance Agency, incorporated in Pennsylvania, provides for the sale of nonproprietary annuities and other insurance products. CNB Risk Management, Inc., incorporated in Delaware, is a captive insurance company that insures against certain risks unique to the operations of the Corporation and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace. Holiday 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. The financial condition and results of operations of the Corporation and its consolidated subsidiaries are not necessarily indicative of future performance.

When we use the terms “we”, “us” and “our”, we mean CNB Financial Corporation and its subsidiaries. Management’s discussion and analysis should be read in conjunction with the Corporation’s consolidated financial statements and related notes.

The following discussion should be read in conjunction with the Corporation’s Consolidated Financial Statements and Notes thereto for the year ended December 31, 2019, included in its Annual Report on Form 10-K for the year ended December 31, 2019, and in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 1 of this report. Operating results for nine months ended September 30, 2020 are not necessarily indicative of the results for the full year ending December 31, 2020, or any future period. The average balances, average yields, return on average assets, return on average equity, net interest margin and total net loan charge-offs to average loans annualized return calculations were refined. Prior periods were adjusted to be comparative to the current period. The impact of the change was immaterial.

GENERAL OVERVIEW

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

Non-GAAP measures reflected within the discussion below include evaluations on the impact of PPP-related assets, merger costs, branch closure costs and FHLB prepayment penalties on various metrics of the Corporation’s financial performance, including calculations related to:

•Tangible common equity/tangible assets;

•Average loans and average earning assets utilized in the calculation of yield on loans, yield on earning assets and net interest margin;

•Return on average assets, return on average common equity and return on average tangible common equity;

•Efficiency ratio;

•Earnings per share;

•Non-performing assets/total assets and allowance for loan losses/loans.

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A reconciliation of these non-GAAP financial measures is provided below in the "Non-GAAP Financial Measures" section (dollars in thousands, except per share data).

Management looks to return on average equity, earnings per common share, asset quality, and other metrics to measure the performance of the Corporation. The interest rate environment will continue to play an important role in the future earnings of the Corporation. In order to address the challenging interest rate and competitive environments, the Corporation continues to evaluate, develop and implement strategies necessary to support its ongoing financial performance objectives.

In addition, the global outbreak of a novel strain of coronavirus (COVID-19) and the public health measures that have been undertaken in response have had significant repercussions across regional and global economies and financial markets. The COVID-19 pandemic, its associated responsive measures and the resulting economic slowdown have disrupted our business and are expected to continue to have a significant impact on our business, financial performance and operating results. Since we cannot estimate when the COVID-19 pandemic and the associated responsive measures will end, we cannot estimate the ultimate operational and financial impact of COVID-19 on our business. However, management will continue to proactively implement strategies to mitigate the impact of the pandemic on the Corporation’s business, risk profile and financial performance.

To address the challenges arising as a result of the COVID-19 pandemic, and in order to continue to deliver essential services to the communities the Corporation serves while maintaining a high level of safety for customers and employees, the Corporation implemented its Pandemic Response Plan. Among other things, significant actions taken include:

•Implemented communication plans to ensure employees, customers and critical vendors are kept abreast of developments affecting the Corporation's operations;

•Restricted all non-essential travel and instituted a mandatory quarantine period for anyone who has traveled to certain impacted areas;

•Temporarily closed all branch lobbies to non-employees, except for certain limited cases by appointment only. Based on updated governmental guidelines, the Corporation re-opened its branch lobbies, while continuing to enforce safe practices while serving its consumer and business customers. In addition, the Corporation continued to offer its customers alternatives through its drive-through capabilities, network of ATMs, internet banking, mobile application and telephone customer service capabilities;

•Expanded remote-access availability for the Corporation's workforce to work from home or other remote locations. The Corporation has taken appropriate efforts to ensure that activities are performed in accordance with the Corporation's compliance and information security policies are designed to ensure customer data and other information is properly safeguarded;

•Instituted mandatory social distancing policies for those employees not working remotely. Members of branch and operation teams were split into separate teams to provide a higher level of safety for employees and redundancy for key functions across the Corporation. Based upon updated governmental guidelines, the Corporation has reintegrated its branch teams and the majority of its operation teams.

•To ensure the safety of its customers and employees, the Corporation continues to monitor the COVID-19 pandemic closely and update its response plan accordingly.

Non-interest costs are expected to increase with the growth of the Corporation; however, management’s growth strategies are also expected to result in an increase in earning assets as well as enhanced non-interest income, which is expected to more than offset increases in non-interest expenses in 2020 and beyond. Although the Corporation's discussion regarding its financial performance distinguishes between certain markets and Private Banking, it does not meet the criteria for discrete segment reporting of its operating results. Management's conclusion was based on the limited level of financial information available to segregate operating results, coupled with the fact that no operating results are available for the Corporation's Chief Operating Decision Maker (CODM) to review on a regular basis. All dollar amounts are stated in thousands, except share and per share data and other amounts as indicated.

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CUSTOMER SUPPORT STRATEGIES AND LOAN PORTFOLIO PROFILE

The Corporation participated in the PPP for loans provided under the auspices of the SBA. Under this program, the Corporation lent money primarily to its existing loan and/or deposit customers, based on a predetermined SBA-developed formula, intended to incentivize small business owners to retain their employees. These loans carry a customer rate of 1.00% plus a processing fee that varies depending on the balance of the loan at origination. As of September 30, 2020, the Corporation had outstanding $231 million, or 2,044 PPP loan relationships, at a rate of 1.00% together with deferred PPP processing fees of approximately $8.5 million. For the three and nine months ended September 30, 2020, the Corporation recognized $683 thousand in deferred PPP processing fees.

In addition to participating in the PPP, the Corporation deferred loan payments for several of its commercial and consumer customers, as determined by the financial needs of each customer. As of October 31, 2020, the deferred loan payment commitments remaining were $169.3 million, or 5.1% of total loans outstanding, consisting of 190 loans, or $147.4 million, for which principal and interest were deferred, and 60 loans, or $21.9 million, for which principal only was deferred. Loan payment deferrals by loan type were as follows:

•Commercial and industrial loans – 79 loans, totaling $32.2 million;

•Commercial real estate loans – 52 loans, totaling $124.8 million;

•Residential mortgage loans – 109 loans, totaling $12.2 million; and

•Consumer loans – 10 loans, totaling $78 thousand.

The Corporation tracks lending exposure by industry classification to determine potential risk associated with industry concentrations, if any, that could lead to additional credit loss exposure. As a result of the COVID-19 pandemic, the Corporation has determined the Hotels/Motels and Restaurants/Fast Foods industries represent a potentially higher level of credit risk, as many of these customers have incurred a significant negative impact to their businesses as a result of governmental stay-at-home orders as well as travel limitations. At September 30, 2020, the Corporation had loan concentrations for these industries as follows, excluding PPP-related loans:

•Hotels/Motels – $203 million, or 6.5% of total loans outstanding, excluding PPP-related loans; and

•Restaurants/Fast Foods – $29.7 million, or 1.0% of total loans outstanding, excluding PPP-related loans.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents totaled $556 million at September 30, 2020 compared to $193 million at December 31, 2019. Cash and cash equivalents fluctuate based on the timing and amount of liquidity events that occur in the normal course of business.

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

SECURITIES

Securities available for sale and trading securities totaled $591 million and $552 million at September 30, 2020 and December 31, 2019, respectively. The Corporation’s objective is to maintain the securities portfolio at an appropriate level to balance the earnings and liquidity provided by the portfolio. As of September 30, 2020 and December 31, 2019, the securities portfolio as a percentage of total assets was 12.5% and 14.7%, respectively. Note 4 to the consolidated financial statements provides more detail concerning the composition of the Corporation’s securities portfolio and the process for evaluating securities for other-than-temporary impairment.

The Corporation generally buys into the market over time and does not attempt to "time" its transactions. In doing this, the highs and lows of the market are averaged into the portfolio and the overall effect of different rate environments is minimized.

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

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LOANS

The Corporation's total loan portfolio, net of unearned discount, reached $3.3 billion as of September 30, 2020, including $319.1 million of acquired loans from Bank of Akron, net of fair value adjustments, and $223 million in PPP loans, net of deferred PPP processing fees. Compared to December 31, 2019, total loans increased approximately $541.8 million, primarily as a result of the acquired loans from Bank of Akron and PPP-related loans. Lending efforts consist principally of commercial and retail lending, which includes single family residential mortgages and other consumer loans. The Corporation views commercial lending as its competitive advantage and continues to focus on this area by hiring and retaining experienced loan officers and supporting them with robust credit analysis.

ALLOWANCE FOR LOAN LOSSES

Pursuant to the CARES Act, financial institutions were given the option to delay the adoption of ASU No. 2016-13, "Financial Instruments – Credit Losses," until the earlier of December 31, 2020 or until the national emergency related to the COVID-19 pandemic is terminated. Given the complexity of the processes necessary to properly evaluate, document and implement the current expected credit losses methodology, combined with the extraneous circumstances impacted on its employees, caused by the spread of the coronavirus, the Corporation opted to delay the adoption of ASU No. 2016-13.

The allowance for loan losses is considered to be appropriate by management and reflects an adequate reserve for probable, incurred losses. The allowance is established through provision expense related to the loan portfolio as well as overdrafts in deposit accounts. Provision expense is charged against current income in the Statement of Income. Loans and overdrafts deemed not collectible are charged off against the allowance while any subsequent collections are recorded as recoveries and increase the allowance. Management’s judgment on the adequacy of the allowance is based on the evaluation of individual loans, the overall risk characteristics of various portfolio segments, historical loss experience, the impact of economic conditions on borrowers, and other relevant factors.

In determining the allocation of the allowance for loan losses, the Corporation considers economic trends, historical patterns and specific credit reviews. In addition, in the first quarter of 2020, the Corporation developed a qualitative factor specific to the COVID-19 pandemic as discussed in more detail below.

With regard to the credit reviews, a "watchlist" is evaluated on a monthly basis to determine potential losses within the commercial loan portfolio. The "watchlist" is comprised of all credits risk rated special mention, substandard and doubtful. Consumer and mortgage loans are allocated using historical credit loss experience.

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The following table below presents activity within the allowance account for the specified periods:


	Nine months ending September 30, 2020			Year ending December 31, 2019			Nine months ending September 30, 2019
Balance at beginning of period	$	19,473		$	19,704		$	19,704
Charge-offs:
Commercial, industrial and agricultural	(2,710)			(205)			(160)
Commercial mortgages	(522)			(3,391)			(2,652)
Residential real estate	(231)			(386)			(282)
Consumer	(1,310)			(2,200)			(1,609)
Credit cards	(120)			(116)			(55)
Overdrafts	(316)			(453)			(329)
	(5,209)			(6,751)			(5,087)
Recoveries:
Commercial, industrial and agricultural	40			17			13
Commercial mortgages	177			124			66
Residential real estate	67			73			72
Consumer	126			154			132
Credit cards	13			15			12
Overdraft deposit accounts	135			113			83
	558			496			378
Net charge-offs	(4,651)			(6,255)			(4,709)
Provision for loan losses	12,065			6,024			5,212
Balance at end of period	$	26,887		$	19,473		$	20,207
Loans, net of unearned	$	3,345,810		$	2,804,035		$	2,749,502
Allowance to net loans	0.80		%	0.69		%	0.73		%
Net charge-offs to average loans (annualized)	0.20		%	0.24		%	0.24		%
Nonperforming assets	$	27,986		$	23,430		$	16,832
Nonperforming % of total assets	0.59		%	0.62		%	0.48		%

Allowance to net loans (1) (2)	0.86		%	0.69		%	0.73		%
Net charge-offs to average loans (annualized) (1)	0.21		%	0.24		%	0.24		%
Nonperforming % of total assets (1)	0.65		%	0.62		%	0.48		%
(1) Excludes PPP-related assets
(2) Loans related to the Bank of Akron acquisition included $7.1 million in fair value credit discounts, net of amounts recognized in the third quarter 2020. The $7.1 million includes fair value general credit discounts and purchase credit impaired discounts.

The adequacy of the allowance for loan losses is subject to a formal analysis by the Credit Administration and Finance Departments of the Corporation. As part of the formal analysis, delinquencies and losses are monitored monthly. The loan portfolio is divided into several categories in order for management to more effectively analyze the entire loan pool. The first step in the evaluation process is a selection of classified loans which contain a specific credit loss reserve. The remaining loans are pooled, by category, into the following segments:

Reviewed

•Commercial, industrial and agricultural

•Commercial mortgages

Homogeneous

•Residential real estate

•Consumer

•Credit cards

•Overdrafts

The reviewed loan pools are further segregated into four categories: pass rated (delineated by risk rating), special mention, substandard, and doubtful. Historical loss factors are calculated for each pool, excluding overdrafts, based on a weighted average quarterly loss rate for the most recent eight quarters, subject to a floor. The homogeneous pools are evaluated based on a weighted average quarterly loss rate for the most recent eight quarters, subject to a floor.

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The historical loss factors for both the reviewed and homogeneous pools are adjusted based on the following six qualitative factors:

•levels of and trends in delinquencies,

•trends in volume and terms of loans;

•effects of any changes in lending policies and procedures;

•experience and ability of management;

•national and local economic trends and conditions; and

•concentrations of credit.

The methodology described above was developed based upon the experience of the Corporation’s management team, guidance from the regulatory agencies, expertise of an independent third-party loan review provider, and discussions with peers. The resulting factors are applied to the pool balances in order to estimate the probable risk of loss within each pool. Prudent business practices dictate that the level of the allowance, as well as any corresponding charges to the provision for loan losses, should be commensurate with identified areas of risk within the loan portfolio and the attendant risks inherent therein. The quality of the credit risk management function and the overall administration of this vital segment of the Corporation’s assets are critical to the ongoing success of the Corporation.

The previously mentioned analysis considered numerous historical and other factors to evaluate the adequacy of the allowance and any resultant provision for loan losses. Management paid special attention to a section of the analysis that compared and plotted the actual level of the allowance against the aggregate amount of loans adversely classified in order to compute the estimated probable losses associated with those loans. By noting the "spread" at that time, as well as prior periods, management can evaluate the current adequacy of the allowance as well as trends which may be developing. The volume and composition of the Corporation’s loan portfolio continue to reflect growth in commercial loans, primarily commercial real estate, as well as commercial, industrial and agricultural loans.

As mentioned in the "Loans" section of this analysis, management considers commercial lending to be a competitive advantage and continues to focus on this area as part of its strategic growth initiatives. However, management recognizes and considers the fact that risk is more pronounced in these types of credits and is, to a greater degree than with other loans, driven by the economic environment in which the debtor’s business operates.

The increase in the allowance for loan losses from December 31, 2019 to September 30, 2020 resulted primarily from updates to the qualitative factors related to the economic environment and related unemployment figures, in addition to a continuing update of the qualitative factor related specifically to the COVID-19 pandemic. As part of its ongoing evaluation of the allowance for loan losses, the Corporation evaluates, on at least a quarterly basis, all significant components of the allowance for loan losses, including historical loss factors, qualitative factors and other relevant factors to ensure it adequately represents management’s current estimation of probable incurred losses within the loan portfolio. Partially offsetting the increase in the allowance for loan losses, the second quarter of 2020 included a charge-off of approximately $2.6 million that had been specifically reserved during the first quarter of 2020 related to a secured commercial and industrial loan relationship with a borrower who is now deceased, as discussed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019. In addition, the third quarter of 2020 included a net charge-off totaling $522 thousand related to the resolution of one commercial real estate loan which had been previously assigned a specific loan loss reserve.

The increase in non-performing assets from December 31, 2019 is primarily due to one commercial real estate loan relationship totaling approximately $9.7 million. During the three months ended March 31, 2020, this loan was downgraded to substandard and placed on non-accrual as a result of a covenant violation. Management performed an evaluation of the collateral supporting the loan and concluded no specific loan loss reserve was required at the time.

The allowance for loan losses at September 30, 2020 also included a qualitative factor specifically related to the COVID-19 pandemic and the potential impact this pandemic may have on the national and local economies, as well as our loan portfolio overall. As of September 30, 2020, this qualitative factor totaled approximately $1.7 million, which was reflected in the Corporation’s provision expense for the nine months ended September 30, 2020 and the related allowance for loan losses at September 30, 2020. This factor related specifically to COVID-19 related deferred loans previously discussed. The Corporation will continue to evaluate this factor and update its analysis, as necessary, as developments related to the COVID-19 pandemic and its impact on the economy evolve.

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The remaining change in provision for loan losses during the nine months ended September 30, 2020, compared to the same period in 2019, reflects routine adjustments to reserves on impaired loans coupled with a lower reserve requirement resulting from a lower growth level in the Corporation's loan portfolio compared to historical levels.

Management believes the provision for loan losses recorded during the nine months ended September 30, 2020, in conjunction with the resultant allowance for loan losses at September 30, 2020, was sufficient to support probable incurred credit losses embedded in its loan portfolio at September 30, 2020.

DEPOSITS

The Corporation considers deposits to be its primary source of funding in support of growth in assets. At September 30, 2020, total deposits of $4.0 billion, including $419.5 million of acquired deposits from Bank of Akron, net of fair value adjustments, and an estimated $231 million in PPP deposits. Compared to the quarter ended December 31, 2019, total deposits increased approximately $920.4 million, or 30.0%. In addition to the impact of the acquired deposits from Bank of Akron as well as estimated PPP deposits, as discussed above, deposits across our regions and our Private Banking division increased approximately $269.9 million, or 11.6%, annualized growth rate.

OTHER FUNDING SOURCES

The Corporation also considers other funding sources, such as short-term borrowings and term debt, when evaluating funding needs. As of September 30, 2020 borrowings from the FHLB totaled approximately $163 million all of which has a contractual maturity beyond twelve months. Compared to December 31, 2019, borrowings from the FHLB decreased $58.6 million. Additionally, at September 30, 2020 and December 31, 2019, subordinated debt totaled $70.6 million comprised of $50.0 million in subordinated debt and $20.6 million in trust preferred securities.

Periodically, the Corporation utilizes borrowings from the FHLB and other lenders as a supplemental strategy to meet funding obligations or match fund certain assets. As part of the Corporation's liquidity management, management continues to focus on maintaining a robust level of short-term and long-term borrowing capacity as an available funding source.

SHAREHOLDERS’ EQUITY AND CAPITAL RATIOS AND METRICS

The Corporation’s capital continues to provide a source of strength for the Corporation's growth, strategies and profitability. Total shareholders’ equity was $416 million at September 30, 2020, reflecting an increase of $110.9 million, or 36.4%, from $305 million at December 31, 2019, as a result of an increase in additional paid in capital related to the Bank of Akron acquisition combined with the issuance of preferred equity (net of issuance costs), a common stock offering through an "at-the-market" equity offering program (net of issuance costs), an increase in accumulated other comprehensive income and growth in organic earnings, partially offset by the payment of common stock dividends to our shareholders during the nine months ended September 30, 2020.

During the second quarter of 2020, the Corporation announced the termination of its "at-the-market" equity offering program (the "ATM Program"), pursuant to which the Corporation could offer and sell up to an aggregate gross sales price of $40,000,000 of its shares of common stock, no par value per share, through Keefe, Bruyette & Woods, Inc., the sales agent. The Corporation elected to terminate the ATM Program due to market conditions and to limit uncertainty and unfavorable dilution for its shareholders during this period of global economic volatility. Prior to termination, the Corporation had sold 168,358 shares of its common stock, raising approximately $5.1 million in gross proceeds.

During the three months ended September 30, 2020, the Corporation raised $57.8 million, net of issuance costs, from the issuance of depositary shares, each representing a 1/40th ownership interest in a share of the Corporation's 7.125% Series A fixed-to-floating rate non-cumulative perpetual preferred stock, no par value, with a liquidation preference of $1,000 per share of preferred stock.

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

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The Corporation’s Tier 1 Leverage ratio of 8.39% at September 30, 2020, includes the impact of average PPP-related loans, net of deferred PPP processing fees, of $220 million. Excluding this impact, the estimated Tier 1 Leverage ratio for the three months ended September 30, 2020, is 8.82%, compared to 7.86% at December 31, 2019. As of September 30, 2020 all of the Corporation’s regulatory capital ratios reflected increases from December 31, 2019.

As of September 30, 2020, the Corporation’s Tangible Common Equity/Tangible Assets ratio reflects the impact of the PPP of approximately $223 million in PPP-related loans, net of deferred PPP processing fees. Excluding PPP-related loans, net of deferred PPP processing fees, the Corporation’s Tangible Common Equity/Tangible Assets ratio of 7.00% decreased 14 bps from December 31, 2019, primarily as a result of the impact of the acquisition of Bank of Akron, partially offset by a net increase in earnings, net of dividends, and an increase in accumulated other comprehensive income.


	As Reported			Excluding PPP-related assets			As Reported
	September 30, 2020			September 30, 2020			December 31, 2019
Total risk-based capital ratio	14.51		%	14.51		%	12.51		%
Tier 1 capital ratio	12.05		%	12.05		%	10.03		%
Common equity tier 1 ratio	9.57		%	9.57		%	9.32		%
Leverage ratio	8.39		%	8.82		%	7.86		%
Tangible common equity/tangible assets (1)	6.67		%	7.00		%	7.14		%
Book value per common share	$	21.28		$	21.28		$	20.00
Tangible book value per common share (1)	$	18.58		$	18.58		$	17.45

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

LIQUIDITY

Liquidity measures an organization’s ability to meet its cash obligations as they come due. The consolidated statements of cash flows included in the accompanying financial statements provide analysis of the Corporation’s cash and cash equivalents and the sources and uses of cash. Additionally, the portion of the loan portfolio that matures within one year and securities with maturities within one year in the investment portfolio are considered part of the Corporation’s liquid assets. Liquidity is monitored by both management and the ALCO, which establishes and monitors ranges of acceptable liquidity. Management believes that the Corporation’s current liquidity position is acceptable.

At September 30, 2020, the Corporation’s cash position totaled approximately $556 million, including additional excess liquidity of $509 million held at the Federal Reserve, reflecting, in management's view, a strong liquidity level. In addition to its cash position, the Corporation’s borrowing capacity with the FHLB at September 30, 2020 was approximately $488 million.

Although the COVID-19 pandemic did not have a material negative impact on the Corporation’s liquidity in the first nine months of 2020, management believes the continuation of the pandemic and its related effect on the U.S. and global economies could introduce added pressure on the Corporation’s liquidity position and financial performance. In an effort to proactively manage against such risks, the Corporation took the following actions during the first nine months of 2020:

•As a result of the strong growth in deposits in the fourth quarter of 2019, the Corporation’s liquidity position increased to levels that were significantly higher than its historical levels. During the first nine months of 2020, as the economic and market risk of the COVID-19 pandemic increased, the Corporation continued to focus on its liquidity management and the maintenance of its overall liquidity position at elevated levels;

•During the first quarter of 2020, management implemented a daily liquidity tracking process aimed at detecting any underlying trends at a regional as well as consolidated level. This process provided management with an effective tool that could be used to anticipate any potential adverse impact on the Corporation’s ability to meet its cash obligations as they come due;

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•In connection with the daily liquidity monitoring process, the Corporation continuously evaluated utilization trends in commercial and home equity lines of credit to anticipate any potential additional demands on the Corporation’s cash obligations;

•On a daily basis, the Corporation monitored fluctuations in its deposit portfolio at a regional level, and customer level, if warranted, to understand better any potential change in customer sentiment with respect to their deposits with the Corporation;

•Subsequent to March 31, 2020, the Corporation began participating in the Payroll Protection Program Liquidity Facility ("PPPLF"), with a goal to borrow under this program an amount equivalent to the total amount the Corporation funded under the PPP. As required under the PPPLF program, any borrowings under this program are to be repaid commensurate with payments, forgiveness and/or payoffs under the PPP. In the third quarter of 2020, the Corporation paid off the associated borrowings with the PPPLF program.

•The Corporation continues to evaluate and revise, as appropriate, its liquidity management processes based on facts and circumstances related to the COVID-19 pandemic and its impact on the overall economic environment.

OFF-BALANCE SHEET ACTIVITIES

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These financial instruments are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amount of financial instruments with off balance sheet risk was as follows at September 30, 2020 and December 31, 2019:


	September 30, 2020				December 31, 2019
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	46,578	$	266,835	$	21,375	$	184,106
Unused lines of credit	24,875		679,577		14,637		446,407
Standby letters of credit	15,561		1,597		14,503		824

The fixed rate loan commitments at September 30, 2020 have interest rates ranging from 1.24% to 18.00% and maturities ranging from four months to 35 years. The fixed rate loan commitments at December 31, 2019 have interest rates ranging from 2.53% to 18.00% and maturities ranging from one year to 30 years.

The Corporation makes investments in limited partnerships, including certain small business investment corporations and low income housing partnerships. As of September 30, 2020 and December 31, 2019, unfunded capital commitments totaled $4,336 and $5,831, respectively, for the small business investment corporations and $3,962 and $4,190, respectively, for the low income housing partnerships. At September 30, 2020 and December 31, 2019, capital contributions to the small business investment corporations were $11,164 and $9,669, respectively, and capital contributions to the low income housing partnerships were $5,038 and $4,810, respectively.

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CONSOLIDATED YIELD COMPARISONS

AVERAGE BALANCES AND NET INTEREST MARGIN FOR THE THREE MONTHS ENDED

SEPTEMBER 30, 2020 AND 2019



	September 30, 2020						September 30, 2019
	Average Balance		Annual Rate		Interest Inc./Exp.		Average Balance		Annual Rate		Interest Inc./Exp.
ASSETS:
Securities:
Taxable (1)	$	515,944	2.15	%	$	2,677	$	447,936	2.76	%	$	3,056
Tax-Exempt (1,2)	47,984		3.26	%	375		83,060		3.33	%	680
Equity Securities (1,2)	12,329		5.84	%	181		18,533		6.27	%	293
Total securities	576,257		2.32	%	3,233		549,529		2.97	%	4,029
Loans:
Commercial (2)	1,322,390		4.34	%	14,436		1,011,725		5.28	%	13,477
Mortgage (2)	1,863,421		4.79	%	22,417		1,567,186		5.13	%	20,248
Consumer	98,039		9.84	%	2,426		104,779		10.06	%	2,657
Total loans (3)	3,283,850		4.76	%	39,279		2,683,690		5.38	%	36,382
Other earning assets	581,219		0.12	%	180		4,997		2.94	%	37
Total earning assets	4,441,326		3.84	%	$	42,692	3,238,216		4.97	%	$	40,448
Total earning assets, net of PPP-related assets	3,920,422						3,238,216
Non interest-bearing assets:
Cash and due from banks	44,786						32,092
Premises and equipment	77,176						69,526
Other assets	177,120						137,546
Allowance for loan losses	(25,249)						(21,958)
Total non interest-bearing assets	273,833						217,206
TOTAL ASSETS	$	4,715,159					$	3,455,422
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Demand—interest-bearing	$	829,603	0.21	%	$	429	$	585,048	0.43	%	$	630
Savings	2,080,778		0.52	%	2,696		1,477,377		1.41	%	5,250
Time	468,166		2.08	%	2,453		361,765		2.10	%	1,918
Total interest-bearing deposits	3,378,547		0.66	%	5,578		2,424,190		1.28	%	7,798
Short-term borrowings	0		0.00	%	0		38,702		2.43	%	237
Long-term borrowings	246,321		1.89	%	1,172		210,189		2.19	%	1,162
Subordinated debentures	70,620		5.31	%	942		70,620		5.54	%	987
Total interest-bearing liabilities	3,695,488		0.83	%	$	7,692	2,743,701		1.47	%	$	10,184
Demand—non interest-bearing	587,405						366,424
Other liabilities	58,175						52,387
Total liabilities	4,341,068						3,162,512
Shareholders’ equity	374,091						292,910
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	4,715,159					$	3,455,422
Interest income/Earning assets			3.84	%	$	42,692			4.97	%	$	40,448
Interest expense/Interest-bearing liabilities			0.83	%	7,692				1.47	%	10,184
Net interest spread			3.01	%	$	35,000			3.50	%	$	30,264
Interest income/Earning assets			3.84	%	42,692				4.97	%	40,448
Interest expense/Earning assets			0.69	%	7,692				1.25	%	10,184
Net interest margin			3.15	%	$	35,000			3.72	%	$	30,264

Net interest margin, net of PPP-related assets			3.50	%					3.72	%

(1)Includes unamortized discounts and premiums. Average balance is computed using the amortized cost of securities. The average yield has been computed using the historical amortized cost average balance for available for sale securities.

(2)Average yields are stated on a fully taxable equivalent basis.

(3)Average outstanding includes the average balance outstanding of all non-accrual loans. Loans consist of the average of total loans less average unearned income. The amount of loan fees included in the interest income on loans is not material.

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CONSOLIDATED YIELD COMPARISONS

AVERAGE BALANCES AND NET INTEREST MARGIN FOR THE NINE MONTHS ENDED

SEPTEMBER 30, 2020 AND 2019



	September 30, 2020						September 30, 2019
	Average Balance		Annual Rate		Interest Inc./Exp.		Average Balance		Annual Rate		Interest Inc./Exp.
ASSETS:
Securities:
Taxable (1)	$	498,475	2.50	%	$	9,030	$	430,757	2.81	%	$	9,226
Tax-Exempt (1,2)	58,041		3.35	%	1,402		88,581		3.41	%	2,226
Equity Securities (1,2)	13,267		6.09	%	605		18,331		6.18	%	847
Total securities	569,783		2.67	%	11,037		537,669		3.03	%	12,299
Loans:
Commercial (2)	1,210,359		4.48	%	40,567		971,580		5.34	%	25,365
Mortgage (2)	1,724,241		4.80	%	61,990		1,518,400		5.07	%	37,295
Consumer	100,390		9.66	%	7,260		94,954		10.64	%	4,896
Total loans (3)	3,034,990		4.88	%	109,817		2,584,934		5.38	%	67,556
Other earning assets	346,896		0.27	%	697		6,418		4.40	%	211
Total earning assets	3,951,669		4.13	%	$	121,551	3,129,021		4.98	%	$	116,236
Total earning assets, net of PPP-related assets	3,641,127						3,129,021
Non interest-bearing assets:
Cash and due from banks	40,412						32,434
Premises and equipment	74,786						68,009
Other assets	161,232						136,792
Allowance for loan losses	(22,760)						(20,804)
Total non interest-bearing assets	253,670						216,431
TOTAL ASSETS	$	4,205,339					$	3,345,452
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Demand—interest-bearing	$	718,408	0.25	%	$	1,368	$	576,816	0.43	%	$	1,834
Savings	1,854,490		0.78	%	10,876		1,402,286		1.37	%	14,344
Time	434,991		2.20	%	7,174		360,631		2.00	%	5,408
Total interest-bearing deposits	3,007,889		0.86	%	19,418		2,339,733		1.21	%	21,586
Short-term borrowings	0		0.00	%	0		21,421		2.65	%	425
Long-term borrowings	251,170		1.95	%	3,666		229,592		2.14	%	3,676
Subordinated debentures	70,620		5.37	%	2,839		70,620		5.64	%	2,980
Total interest-bearing liabilities	3,329,679		1.04	%	$	25,923	2,661,366		1.44	%	$	28,667
Demand—non interest-bearing	479,414						355,799
Other liabilities	56,686						48,455
Total liabilities	3,865,779						3,065,620
Shareholders’ equity	339,560						279,832
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	4,205,339					$	3,345,452
Interest income/Earning assets			4.13	%	$	121,551			4.98	%	$	116,236
Interest expense/Interest-bearing liabilities			1.04	%	25,923				1.44	%	28,667
Net interest spread			3.09	%	$	95,628			3.54	%	$	87,569
Interest income/Earning assets			4.13	%	121,551				4.98	%	116,236
Interest expense/Earning assets			0.88	%	25,923				1.23	%	28,667
Net interest margin			3.25	%	$	95,628			3.75	%	$	87,569

Net interest margin, net of PPP-related assets			3.50	%					3.75	%

(2)Average yields are stated on a fully taxable equivalent basis.

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RESULTS OF OPERATIONS

Three Months Ended September 30, 2020 and 2019

OVERVIEW

The Corporation’s operating results for the three months ended September 30, 2020 were impacted by the COVID-19 pandemic. In an effort to proactively support the U.S. economy, the Federal Reserve cut its interest rates by 150 basis points in March 2020, which had an impact on the Corporation’s net interest margin and net interest income for the quarter. In addition, the Corporation’s loan and deposit growth for the third quarter of 2020 were adversely impacted by governmental stay-at-home orders as well as travel limitations. Lastly, in an effort to quantify the potential impact of the COVID-19 pandemic on its loan portfolio, the Corporation implemented a qualitative factor specifically related to the pandemic as described in more detail below.

The third quarter of 2020 includes costs related to the Corporation’s completion of its acquisition of Bank of Akron, whereby Bank of Akron merged with and into CNB Bank. In addition, during the third quarter the Corporation incurred costs related to its closure of three CNB Bank branches and the prepayment of $30.0 million in borrowings from the FHLB. The cumulative after-tax impact of the merger-related costs, prepayment penalties and branch closures costs was approximately $3.8 million, or $0.23 per diluted share, for the three months ended September 30, 2020.

Net income was $7.8 million, or $0.47 per diluted share, for the quarter ended September 30, 2020. Excluding after-tax merger costs, prepayment penalties and branch closure costs, net income was $11.6 million, or $0.70 per diluted share, for the three months ended September 30, 2020, compared to $10.4 million, or $0.68 per diluted share, for the same period in 2019, reflecting increases of $1.2 million, or 11.9%, and $0.02 per diluted share, or 2.9%.

The provision expense was $3.3 million for the three months ended September 30, 2020, primarily due to adjustments to the qualitative factors to reflect the Corporation's outlook on unemployment, the economy and the COVID-19 specific qualitative factor related to deferred loans.

Excluding merger costs, prepayment penalties and branch closure costs, income before provision expense and income taxes was $17.7 million for the quarter ended September 30, 2020, an increase of approximately $3.0 million, or 20.5%, from the same period in 2019.

Total revenue (comprised of net interest income plus non-interest income) was $41.4 million for the three months ended September 30, 2020, reflecting an increase of $5.3 million, or 14.6%, from the three months ended September 30, 2019, while total non-interest expense was $28.4 million for the same period. Excluding merger costs, prepayment penalties and branch closure costs, total non-interest expense was $23.7 million for the three months ended September 30, 2020, resulting in an increase of $2.3 million, or 10.5%, from the three months ended September 30, 2019. Included in the $2.3 million increase in non-interest expense was approximately $621 thousand resulting from operating costs from the acquisition of Bank of Akron.

While annualized return on average common equity was 8.81% for the three months ended September 30, 2020, annualized return on average tangible common equity was 10.08% for the same period. Excluding after-tax merger costs, prepayment penalties and branch closure costs, annualized adjusted return on average tangible common equity was 15.00% for the three months ended September 30, 2020, compared to 16.19% for the three months ended September 30, 2019. Efficiency ratio was 67.71% for the three months ended September 30, 2020. Excluding after-tax merger costs, prepayment penalties and branch closure costs, the efficiency ratio was 56.54% for the three months ended September 30, 2020, compared to 58.15% for the comparable period in 2019.

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income for the three months ended September 30, 2020 increased to $34.7 million, representing a 15.9% increase from the three months ended September 30, 2019, primarily as a result of an overall growth of $682.2 million, or 21.1%, in average earning assets, excluding PPP-related assets, partially offset by a decrease of 22 basis points in net interest margin on a fully tax-equivalent basis, excluding PPP-related assets and $683 thousand in PPP-related processing fees.

Net interest margin on a fully tax-equivalent basis was 3.15% and 3.72% for the three months ended September 30, 2020 and 2019, respectively, including $522 million for the three months ended September 30, 2020, in average PPP-related assets. Excluding PPP-related assets and PPP-related processing fees, the net interest margin on a fully-tax equivalent basis was 3.50% for the three months ended September 30, 2020.

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The yield on earning assets of 3.84% for the three months ended September 30, 2020, included $522 million in PPP-related assets. Excluding the PPP-related assets and PPP-related processing fees, the yield on earning assets was 4.29% for the three months ended September 30, 2020, a decrease of 68 basis points from 4.97% for the three months ended September 30, 2019, primarily as a result of the lower interest rate environment. The cost of interest-bearing liabilities decreased 64 basis points from 1.47% for the three months ended September 30, 2019, to 0.83% for the three months ended September 30, 2020, primarily as a result of the Corporation’s targeted deposit rate reductions.

PROVISION FOR LOAN LOSSES

During the quarter ended September 30, 2020, the Corporation recorded a provision for loan losses of $3.3 million, as compared to a provision for loan losses of $2.1 million for the quarter ended September 30, 2019, as discussed in more detail above under Allowance for Loan Losses.

NON-INTEREST INCOME

Total non-interest income was $6.8 million for the three months ended September 30, 2020, an increase of $502 thousand, or 8.0%, from the same period in 2019. The increase was primarily due to continued growth in Wealth and Asset Management fees and increased mortgage banking income, partially offset by a decrease in service charges on deposits and other fees resulting from lower business activity and the Corporation’s response to the pandemic.

NON-INTEREST EXPENSES

For the three months ended September 30, 2020, total non-interest expense was $28.4 million. Excluding merger costs, prepayment penalties and branch closure costs, total non-interest expense was $23.7 million for the three months ended September 30, 2020, reflecting an increase of $2.3 million, or 10.5%, from the three months ended September 30, 2019. Included in the $2.3 million increase in non-interest expense was approximately $621 thousand resulting from operating costs from the acquisition of Bank of Akron. Accordingly, the adjusted efficiency ratio was 56.54%, for the three months ended September 30, 2020, compared to 58.15% during the comparable period in 2019. The improvement in efficiency ratio resulted from an overall lower level of business activity resulting from the pandemic coupled with the Corporation’s internal cost management initiatives focusing on travel restrictions, a hiring freeze, lower marketing expenditures and other expense management initiatives.

INCOME TAX EXPENSE

Income tax expense of $2.0 million for the three months ended September 30, 2020 decreased $275 thousand, or 12.2%, from the three months ended September 30, 2019. Our effective tax rate was 20.3% for the three months ended September 30, 2020 compared to 17.9% for the three months ended September 30, 2019. The effective rates for the periods differed from the federal statutory rate of 21.0% at September 30, 2020 and 2019 principally as a result of tax-exempt income from securities and loans, as well as earnings from bank-owned life insurance.

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RESULTS OF OPERATIONS

Nine Months Ended September 30, 2020 and 2019

OVERVIEW

The Corporation’s operating results for the nine months ended September 30, 2020 were impacted by the COVID-19 pandemic, as discussed in more detail above in "Results of Operations - Three Months Ended September 30, 2020 and 2019." The nine months ended September 30, 2020 includes costs related to the Corporation’s completion of its acquisition of Bank of Akron. In addition, during the nine months ended September 30, 2020 the Corporation incurred costs related to its closure of three CNB Bank branches and the prepayment of $30.0 million in borrowings from the FHLB. The cumulative after-tax impact of the merger-related costs, prepayment penalties and branch closures costs was approximately $4.3 million, or $0.27 per diluted share for the nine months ended September 30, 2020.

Net income was $24.8 million, or $1.57 per diluted share, for the nine months ended September 30, 2020. Income before provision expense and income taxes was $42.4 million for the nine months ended September 30, 2020. Excluding after-tax merger costs, prepayment penalties and branch closure costs, net income was $29.2 million, or $1.85 per diluted share, for the nine months ended September 30, 2020, compared to $29.6 million, or $1.94 per diluted share, for the same period in 2019, reflecting decreases of $431 thousand, or 1.5%, and $0.09 per diluted share, or 4.9%.

For the nine months ended September 30, 2020, excluding the impact of merger costs, prepayment penalties and branch closure costs, income before provision expense and income taxes was $47.6 million, representing an increase of approximately $6.5 million, or 15.9%, from the same period in 2019.

Total revenue (comprised of net interest income plus non-interest income) was $114.7 million for the nine months ended September 30, 2020, an increase of $9.0 million, or 8.5%, from the nine months ended September 30, 2019, while total non-interest expense was $72.3 million. Excluding merger costs, prepayment penalties and branch closure costs, total non-interest expense was $67.1 million for the nine months ended September 30, 2020, an increase of $2.5 million, or 3.9%, from the nine months ended September 30, 2019. Provision for loan losses of $12.1 million for the first nine months of 2020 increased $6.9 million, or 131.5%, from the comparable period in 2019.

While annualized return on average common equity was 10.00% for the nine months ended September 30, 2020, annualized return on average tangible common equity was 11.39% for the same period. Excluding after-tax merger costs, prepayment penalties and branch closure costs, annualized adjusted return on average tangible common equity was 13.37% for the nine months ended September 30, 2020, compared to 16.45% for the nine months ended September 30, 2019. Efficiency ratio was 62.15% for the nine months ended September 30, 2020. Excluding after-tax merger costs, prepayment penalties and branch closure costs, the efficiency ratio was 57.66% for the nine months ended September 30, 2020, compared to 59.71% for the comparable period in 2019.

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income for the nine months ended September 30, 2020 increased 9.4% to $94.6 million from the nine months ended September 30, 2019, driven by an overall growth of $512 million, or 16.4%, in average earning assets, excluding PPP-related assets, partially offset by a reduction of 25 basis points in net interest margin on a fully tax-equivalent basis, excluding PPP-related assets and approximately $683 thousand in PPP-related processing fees.

Net interest margin on a fully tax-equivalent basis was 3.25% and 3.75% for the nine months ended September 30, 2020 and 2019, respectively, including $310 million for the nine months ended September 30, 2020 in average PPP-related assets. Excluding PPP-related assets, the net interest margin on a fully-tax equivalent basis was 3.50% for the nine months ended September 30, 2020.

The yield on earning assets of 4.13% for the nine months ended September 30, 2020 included $310 million in PPP-related assets. Excluding PPP-related assets and PPP-related processing fees, the yield on earning assets was 4.46% for the nine months ended September, 30, 2020, a decrease of 51 basis points from 4.97% for the nine months ended September 30, 2019, primarily as a result of the lower interest rate environment. The cost of interest-bearing liabilities decreased 40 basis points to 1.04% for the nine months ended September 30, 2020 from 1.44% for the nine months ended September 30, 2019 primarily as a result of the Corporation’s targeted deposit rate reductions.

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PROVISION FOR LOAN LOSSES

During the nine months ended September 30, 2020, the Corporation recorded a provision for loan losses of $12.1 million, as compared to a provision for loan losses of $5.2 million for the nine months ended September 30, 2019. As discussed above under "Allowance for Loan Losses," the provision expense of $12.1 million included: (i) a provision expense of approximately $2.6 million related to a specific loan loss reserve for a loan relationship moved to non-accrual at December 31, 2019, combined with (ii) a new qualitative factor specifically related to the ongoing deferred loans as a result of the COVID-19 pandemic of approximately $1.7 million and (iii) adjustments to the qualitative factors to reflect the Corporation's outlook on unemployment and the economy, partially offset by (iv) a lower allowance requirement as a result of lower growth in total loans compared to historical levels.

Net charge-offs in the first nine months of 2020 and 2019 were $4.7 million. Net charge-offs of the Bank totaled $3.6 million and $3.3 million during the nine months ended September 30, 2020 and 2019, or 0.16% and 0.17%, respectively, of average Bank loans. Holiday recorded net charge-offs totaling $1.1 million and $1.4 million during the nine months ended September 30, 2020 and 2019, respectively. Please refer to "Provision for Loan Losses" above for the three months ended September 30, 2020 and 2019 for additional detail on provision expense and net charge-offs.

Management believes the provision for loan losses was appropriate and the allowance for loan losses is adequate to absorb probable incurred losses in our portfolio as of September 30, 2020.

NON-INTEREST INCOME

Total non-interest income was $20.1 million for the nine months ended September 30, 2020, reflecting an increase of $870 thousand, or 4.5%, from the same period in 2019. Total non-interest income includes net realized and unrealized losses on trading securities, which combined totaled $2.1 million for the nine months ended September 30, 2020 compared to $1.8 million for the nine months ended September 30, 2019.

NON-INTEREST EXPENSES

For the nine months ended September 30, 2020, total non-interest expense was $72.3 million. Excluding merger costs, prepayment penalties and branch closure costs, total non-interest expense was $67.1 million for the nine months ended September 30, 2020, resulting in an increase of $2.5 million, or 3.9%, from the nine months ended September 30, 2019.

INCOME TAX EXPENSE

Income tax expense of $5.5 million for the nine months ended September 30, 2020 decreased $793 thousand, or 12.7%, from the nine months ended September 30, 2019. Our effective tax rate was 18.0% for the nine months ended September 30, 2020 compared to 17.5% for the nine months ended September 30, 2019. The effective tax rates for the periods differed from the federal statutory rate of 21.0% at September 30, 2020 and 2019 principally as a result of tax-exempt income from securities and loans, as well as earnings from bank owned life insurance.

CRITICAL ACCOUNTING POLICIES

The Corporation’s accounting and reporting policies are in accordance with GAAP and conform to general practices within the financial services industry. Accounting and reporting practices for the allowance for loan losses and fair value of securities are deemed critical since they involve the use of estimates and require significant management judgments. In addition, the fair value of assets acquired and liabilities assumed in connection with business combinations, including the associated goodwill that was recorded, required the use of material estimates. Application of assumptions different than those used by management could result in material changes in the Corporation’s financial position or results of operations. Note 1 (Summary of Significant Accounting Policies), Note 2 (Business Combinations) Note 3 (Securities) and Note 4 (Loans) of the 2019 Form 10-K provide additional detail with regard to the Corporation’s accounting for the allowance for loan losses, the fair value of securities, business combinations and loans. There have been no other significant changes in the application of accounting policies since December 31, 2019.

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NON-GAAP FINANCIAL MEASURES

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


Calculation of tangible book value per common share and tangible common equity/tangible assets:
	September 30, 2020			December 31, 2019
Shareholders’ equity	$	415,903		$	304,966
Less preferred equity	57,760			0
Less goodwill	44,775			38,730
Less core deposit intangible	595			160
Tangible common equity	$	312,773		$	266,076
Total assets	$	4,734,475		$	3,763,659
Less goodwill	44,775			38,730
Less core deposit intangible	595			160
Tangible assets	$	4,689,105		$	3,724,769
Ending shares outstanding	16,833,090			15,247,985
Tangible book value per common share	$	18.58		$	17.45
Tangible common equity/tangible assets	6.67		%	7.14		%


Calculation of tangible common equity/tangible assets, net of PPP-related loans and net of deferred PPP processing fees:	September 30, 2020			December 31, 2019
Tangible common equity	$	312,773		$	266,076

Tangible assets	$	4,689,105		$	3,724,769
Less: PPP-related loans, net of deferred PPP processing fees	222,972			0
Adjusted tangible assets	$	4,466,133		$	3,724,769

Adjusted tangible common equity/tangible assets	7.00		%	7.14		%

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	(unaudited)						(unaudited)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Calculation of average loans, net of unearned income and PPP-related loans, net of PPP deferred processing fees:
Average loans, net of unearned	$	3,283,850		$	2,683,690		$	3,034,990		$	2,584,934
Less: average PPP loans, net of deferred PPP processing fees	220,488			0			132,385			0
Adjusted average loans, net of unearned income and PPP (non-GAAP)	$	3,063,362		$	2,683,690		$	2,902,605		$	2,584,934

Calculation of average total earning assets, net of PPP-related assets:
Average total earning assets	$	4,441,326		$	3,238,216		$	3,951,669		$	3,129,021
Less: average PPP loans, net of deferred PPP processing fees	220,488			0			132,385			0
Less: estimated average PPP deposits held at the Federal Reserve	228,938			0			135,254			0
Less: average PPPLF deposits held at the Federal Reserve	71,478			0			42,903			0
Adjusted average total earning assets, net of PPP-related assets (non-GAAP)	$	3,920,422		$	3,238,216		$	3,641,127		$	3,129,021

Calculation of average total assets, net of PPP-related assets:
Average total assets	$	4,715,159		$	3,455,422		$	4,205,339		$	3,345,452
Less: average PPP loans, net of deferred PPP processing fees	220,488			0			132,385			0
Less: estimated average PPP deposits held at the Federal Reserve	228,938			0			135,254			0
Less: average PPPLF deposits held at the Federal Reserve	71,478			0			42,903			0
Adjusted average total assets, net of PPP-related assets (non-GAAP)	$	4,194,255		$	3,455,422		$	3,894,797		$	3,345,452

Calculation of average yield on earning assets, net of unearned income, PPP-related assets and PPP-related processing fees:
Investment income (tax equivalent)	$	3,233		$	4,029		$	11,037		$	12,088
Add: loan income (tax equivalent)	39,279			36,382			109,817			103,937
Add: other earning asset income (tax equivalent)	180			37			697			211
Less: PPP- related processing fees	678			0			683			0
Total income related to earning assets (tax equivalent) (non-GAAP)	$	42,014		40,448			$	120,868		$	116,236

Adjusted average total earning assets, net of PPP-related assets (non-GAAP)	$	3,920,422		$	3,238,216		$	3,641,127		$	3,129,021
Less: average mark to market adjustment on investments (non-GAAP)	21,859			10,770			18,589			3,446
Adjusted average total earning assets, net of market to market, PPP-related assets (non-GAAP)	$	3,898,563		$	3,227,446		$	3,622,538		3,125,575
Adjusted average yield on earning assets, net of unearned income, PPP-related assets and PPP-related processing fees (non-GAAP) (annualized)	4.29		%	4.97		%	4.46		%	4.97		%




	(unaudited)				(unaudited)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Calculation of adjusted efficiency ratio, net of merger costs, prepayment penalties and branch closure costs:
	2020		2019		2020		2019
Non-interest expense	$	28,368	$	21,444	$	72,309	$	64,603
Less: core deposit intangible amortization	26		139		178		470

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Less: merger costs, prepayment penalties and branch closure costs	4,673			0			5,207			0
Adjusted non-interest expense (non-GAAP)	$	23,669		$	21,305		$	66,924		$	64,133

Non-interest income	$	6,778		$	6,276		$	20,091		$	19,221

Net interest income	$	34,664		$	29,901		$	94,596		$	86,453
Less: tax exempt investment and loan income, net of TEFRA (non-GAAP)	1,375			1,733			4,351			5,058
Add: tax exempt investment and loan income (non-GAAP) (tax-equivalent)	1,792			2,194			5,730			6,797
Adjusted net interest income (non-GAAP)	35,081			30,362			95,975			88,192
Adjusted net revenue (non-GAAP) (tax-equivalent)	$	41,859		$	36,638		$	116,066		$	107,413
Adjusted efficiency ratio, net of merger costs, prepayment penalties and branch closure costs	56.54		%	58.15		%	57.66		%	59.71		%

Calculation of adjusted return on average total assets, net of merger costs, prepayment penalties, branch closure costs and PPP-related assets:
Net Income	$	7,785		$	10,357		$	24,844		$	29,597
Add: merger costs, prepayment penalties and branch closure costs (net of tax)	3,803			0			4,322			0
Adjusted net income (non-GAAP)(net of tax)	$	11,588		$	10,357		$	29,166		$	29,597
Average total assets	$	4,715,159		$	3,455,422		$	4,205,339		$	3,345,452
Less: average PPP loans, net of deferred PPP processing fees	220,488			0			132,385			0
Less: average estimated PPP related deposits	228,938			0			135,254			0
Less: average PPPLF excess funds held at the Federal Reserve	71,478			0			42,903			0
Adjusted average total assets (non-GAAP)	$	4,194,255		$	3,455,422		$	3,894,797		$	3,345,452
Adjusted return on average total assets, net of merger costs, prepayment penalties, branch closure costs and PPP-related assets (non-GAAP)(annualized)	1.10		%	1.19		%	1.00		%	1.18		%

Calculation of adjusted return on average common equity, net of merger costs, prepayment penalties and branch closure costs:
Net Income	$	7,785		$	10,357		$	24,844		$	29,597
Add: merger costs, prepayment penalties and branch closure costs (net of tax)	3,803			0			4,322			0
Adjusted net income (non-GAAP)(net of tax)	$	11,588		$	10,357		$	29,166		$	29,597
Average shareholders' common equity	$	351,489		$	292,910		$	331,971		$	279,832
Adjusted return on average common equity, net of merger costs, prepayment penalties and branch closure costs (non-GAAP)(annualized)	13.12		%	14.03		%	11.74		%	14.14		%

Calculation of adjusted return on average tangible common equity, net of merger costs, prepayment penalties and branch closure costs:
Net Income	$	7,785		$	10,357		$	24,844		$	29,597
Add: merger costs, prepayment penalties and branch closure costs (net of tax)	3,803			0			4,322			0
Adjusted net income (non-GAAP)(net of tax)	$	11,588		$	10,357		$	29,166		$	29,597
Average tangible common shareholders' equity	$	307,257		$	253,836		$	291,333		$	240,597
Adjusted return on average tangible common equity, net of merger costs, prepayment penalties and branch closure costs (non-GAAP)(annualized)	15.00		%	16.19		%	13.37		%	16.45		%

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	(unaudited)				(unaudited)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Calculation of adjusted earnings per common share, net of merger costs, prepayment penalties and branch closure costs:
	2020		2019		2020		2019
Net earnings allocated to common stock	$	7,761	$	10,320	$	24,762	$	29,483
Add: Merger costs, prepayment penalties and branch closure costs, after-tax allocated to common stock	3,793		0		4,308		0
Adjusted net earnings allocated to common stock (non-GAAP)	$	11,554	$	10,320	$	29,070	$	29,483

Weighted average common shares outstanding	16,616		15,197		15,785		15,218
Less: Average participating shares	47		51		50		58
Add: Dilutive shares	0		0		0		0
Weighted average shares and dilutive potential common shares	16,569		15,146		15,735		15,160

Adjusted diluted earnings per common share, net of merger costs, prepayment penalties and branch closure costs	$	0.70	$	0.68	$	1.85	$	1.94

Calculation of income before provision and income tax expense (1):
Net income	$	7,785	$	10,357	$	24,844	$	29,597
Add: Provision expense	3,306		2,118		12,065		5,212
Add: Income tax expense	1,983		2,258		5,469		6,262
Net income before provision and income tax expense (non-GAAP)	$	13,074	$	14,733	$	42,378	$	41,071

Calculation of income before provision, income tax, merger costs, prepayment penalties and branch closure costs (1):
Net income before provision and income tax expense (non-GAAP)	$	13,074	$	14,733	$	42,378	$	41,071
Add: Merger costs, prepayment penalties and branch closure costs	4,673		0		5,207		0
Net income before provision, income tax, merger costs, prepayment penalties and branch closure costs (non-GAAP)	$	17,747	$	14,733	$	47,585	$	41,071

Calculation of non-interest expenses excluding merger costs, prepayment penalties and branch closure costs:
Non-interest expense	$	28,368	$	21,444	$	72,309	$	64,603
Less: Merger costs, prepayment penalties and branch closure costs	4,673		0		5,207		0
Non-interest expense excluding merger costs, prepayment penalties and branch closure costs (non-GAAP)	$	23,695	$	21,444	$	67,102	$	64,603

(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.

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	(unaudited)						(unaudited)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Calculation of net interest margin (fully tax equivalent basis):
Interest income (fully tax equivalent basis) (non-GAAP)	$	42,692		$	40,448		$	121,551		$	116,236
Interest expense (fully tax equivalent basis) (non-GAAP)	7,692			10,184			25,923			28,667
Net interest income (fully tax equivalent basis) (non-GAAP)	$	35,000		$	30,264		$	95,628		$	87,569

Average total earning assets	$	4,441,326		$	3,238,216		$	3,951,669		$	3,129,021
Less: average mark to market adjustment on investments	21,859			10,770			18,589			3,446
Adjusted average total earning assets, net of mark to market (non-GAAP)	$	4,419,467		$	3,227,446		$	3,933,080		$	3,125,575

Net interest margin, fully tax equivalent basis (non-GAAP) (annualized)	3.15		%	3.72		%	3.25		%	3.75		%

Calculation of net interest margin (fully tax equivalent basis), net of PPP-related assets and PPP processing fees:
Net interest income (fully tax equivalent basis) (non-GAAP)	$	35,000		$	30,264		$	95,628		$	87,569
Less: Recognized PPP processing fees	678			0			683			0
Adjusted interest income (fully tax equivalent basis), net of PPP processing fees (non-GAAP)	$	34,322		$	30,264		$	94,945		$	87,569
Adjusted average total earning assets, net of market to market, PPP-related assets (non-GAAP)	$	3,898,563		$	3,227,446		$	3,622,538		$	3,125,575

Net interest margin, fully tax equivalent basis, net of PPP-related assets and PPP processing fees (non-GAAP) (annualized)	3.50		%	3.72		%	3.50		%	3.75		%



	(unaudited)						(unaudited)
	September 30,			December 31,			September 30,
	2020			2019			2019

Calculation of non-performing assets / Total assets, net of PPP-related assets:
Non-performing assets	$	27,986		$	23,430		$	16,832

Total assets	$	4,734,475		$	3,763,659		$	3,541,170
Less: PPP-related loans, net of deferred PPP processing fees	222,972			0			0
Less: estimated PPP deposits held at the Federal Reserve	231,484			0			0

Adjusted total assets, net of PPP and PPPLF (non-GAAP)	$	4,280,019		$	3,763,659		$	3,541,170

Adjusted non-performing assets / total assets, net of PPP-related assets (non-GAAP)	0.65		%	0.62		%	0.48		%

Calculation of allowance / loans, net of PPP-related loans and deferred PPP processing fees:
Total allowance for loan losses	$	26,887		$	19,473		$	20,207

Total loans net of unearned income	$	3,345,810		$	2,804,035		$	2,749,502
Less: PPP-related loans, net of deferred PPP processing fees	222,972			0			0
Adjusted total loans, net of unearned income, PPP-related loans and deferred PPP processing fees (non-GAAP)	$	3,122,838		$	2,804,035		$	2,749,502

Adjusted allowance / loans, net of PPP-related loans deferred PPP processing fees (non-GAAP)	0.86		%	0.69		%	0.73		%

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ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

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

Management reviews interest rate risk on a quarterly basis and reports to the ALCO. This review includes earnings shock scenarios whereby interest rates are immediately increased and decreased by 100, 200, 300 and 400 basis points. These scenarios, detailed in the table below, indicate that there would not be a significant variance in net interest income over a one-year period due to interest rate changes; however, actual results could vary significantly. At September 30, 2020, all interest rate risk levels according to the model were within the tolerance limits of ALCO-approved policy. In addition, the table does not take into consideration changes that management would make to realign its assets and liabilities in the event of an unexpected changing interest rate environment. Due to the current low interest rate environment, the 300 and 400 basis point declining interest rate scenarios have been excluded from the table.


September 30, 2020
Change in Basis Points						% Change in Net Interest Income
400						(3.5)%
300						(3.6)%
200						(2.9)%
100						(3.3)%
(100)						(2.7)%
(200)						(5.7)%

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ITEM 4

CONTROLS AND PROCEDURES

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

There was no significant change in the Corporation’s internal control over financial reporting that occurred during the quarter ended September 30, 2020 that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in Part I, Item 1A of the 2019 Form 10-K, and Part II, Item 1A of the Corporation's Quarter Reports for the quarters ended March 31, 2020 and June 30, 2020:

The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations and financial condition, and such effects will depend on future developments, that are highly uncertain and difficult to predict.

Since first being reported in December 2019, the novel strain of coronavirus (COVID-19) has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.

Global health concerns relating to the COVID-19 pandemic outbreak and related government actions taken to reduce the spread of the virus have significantly and adversely affected the macroeconomic environment, and the outbreak has significantly increased economic uncertainty and reduced economic activity. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place or total lock-down orders and business limitations and shutdowns. Such measures have significantly contributed to rising unemployment and negatively impacted consumer and business spending. The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the pandemic, including the passage of the CARES Act, but there can be no assurance that such steps will be effective or achieve their desired results in a timely fashion.

The COVID-19 pandemic continues to adversely impact our business, workforce, as well as the operations of our borrowers, customers and business partners. In particular, we may experience financial losses due to a number of operational factors impacting us or our borrowers, customers or business partners, including but not limited to:

•credit losses resulting from financial stress being experienced by our borrowers as a result of the outbreak and related governmental actions, particularly in the hospitality, energy and restaurant industries, but across other industries as well;

•declines in collateral values;

•third party disruptions, including outages at network providers and other suppliers;

•increased cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online and remote activity; and

•operational failures due to changes in our normal business practices necessitated by the outbreak and related governmental actions.

These factors may persist for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 pandemic has subsided.

The COVID-19 pandemic has caused us to modify our business practices (including restricting employee travel and developing work from home and social distancing plans for our employees), and we may take further actions as may be required by government authorities or as we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the pandemic or will otherwise be satisfactory to government authorities.

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The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on future developments, each of which is highly uncertain and difficult to predict, including, but not limited to, the duration and spread of the pandemic, its severity, the various responsive measures, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of the global economic impact of the pandemic, including the availability of and access to credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.

The ultimate impact of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. Nevertheless, any of the negative effects of the COVID-19 pandemic, including those described above, alone or in combination with others, may have a material adverse effect on our results of operations, financial condition and cash flows. Any of these negative impacts, alone or in combination with others, could exacerbate many of the risk factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019.

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

The following table provides information with respect to any purchase of shares of the Corporation’s common stock made by or on behalf of the Corporation for the three months ended September 30, 2020.


Period	Total Number of Shares Purchased	Average Price Paid per Common Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or approximate dollar value) of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 1 – 31, 2020	0	$	0	0	249,731
August 1 – 31, 2020	0	0		0	249,731
September 1 – 30, 2020	66,600	14.72		66,600	183,131

(1)The Corporation’s stock repurchase program, which was approved by the Corporation's Board of Directors on November 12, 2014, authorizes the repurchase of up to 500,000 shares of common stock. The program will remain in effect until fully utilized or until modified, suspended or terminated. As of September 30, 2020, there were 183,131 shares remaining in the program.

Additionally, during the quarter ended September 30, 2020, 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 2019 Stock Incentive Plan.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


Exhibit No.						Description

3.1						Statement with Respect to Shares of 7.125% Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock, effective as of August 25, 2020 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on August 25, 2020)

4.1						Form of Certificate representing the 7.125% Series A Fixed-Rated Non-Cumulative Perpetual Preferred Stock (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on August 25, 2020)

4.2						Deposit Agreement, dated August 25, 2020, among CNB Financial Corporation, American Stock Transfer & Trust Company, LLC, and the holders from time to time of the depositary receipts described therein (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on August 25, 2020)

4.3						Form of Depositary Receipt representing the Depositary Shares (included as Exhibit A to Exhibit 4.3 of the Registration Statement on Form 8-A filed on August 25, 2020)

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

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

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

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

101.INS						Inline XBRL Instance Document

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definitions Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

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SIGNATURES

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

CNB FINANCIAL CORPORATION

(Registrant)

DATE: November 5, 2020

/s/ Joseph B. Bower, Jr.

Joseph B. Bower, Jr.

President and Chief Executive Officer

(Principal Executive Officer)

DATE: November 5, 2020

/s/ Tito L. Lima

Tito L. Lima

Treasurer

(Principal Financial and Accounting Officer)

CNB Financial Corp - 10-Q quarterly report FY2020 Q3

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