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CNB Financial Corp
CCNE
#6244
Rank
$0.92 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$31.35
Share price
2.89%
Change (1 day)
48.93%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. CNB Financial Corp
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2021 Q2

CNB Financial Corp - 10-Q quarterly report FY2021 Q2


Text size:
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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, 2021
or 
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-39472
CNB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1450605
(State or other jurisdiction of
incorporation or organization)		 (I.R.S. Employer
Identification No.)
 
1 South Second Street
P.O. Box 42
Clearfield, Pennsylvania 16830
(Address of principal executive offices)
Registrant’s telephone number, including area code, (814) 765-9621
Securities registered pursuant to Section 12(b) of the Act:
Title of ClassTrading Symbol(s)Name of each exchange on which registered
Common Stock, no par valueCCNEThe 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)CCNEPThe 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 2, 2021:
COMMON STOCK, NO PAR VALUE PER SHARE: 16,892,537 SHARES

Table of Contents
INDEX
PART I.
FINANCIAL INFORMATION
 
 Page Number
Consolidated Balance Sheets – September 30, 2021 (unaudited) and December 31, 2020 (audited)
1 
Consolidated Statements of Income – Three and nine months ended
September 30, 2021 and 2020 (unaudited)
2 
Consolidated Statements of Comprehensive Income – Three and nine months ended
September 30, 2021 and 2020 (unaudited)
3 
Consolidated Statements of Cash Flows – Nine months ended
September 30, 2021 and 2020 (unaudited)
4 
Consolidated Statements of Changes in Shareholders' Equity - Three and nine months ended
September 30, 2021 and 2020 (unaudited)
6 
Notes to Consolidated Financial Statements
8 
43 
64 
65 
PART II.
OTHER INFORMATION
66 
66 
66 
66 
66 
66 
67 
68 

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, the speed and effectiveness of vaccine and treatment developments and their deployment, including public adoption rates of COVID-19 vaccines, 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, 2020 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) the duration and scope of the COVID-19 pandemic and the local, national and global impact of COVID-19; (ii) actions governments, businesses and individuals take in response to the pandemic; (iii) the speed and effectiveness of vaccine and treatment developments and deployment; (iv) variations of COVID-19, such as the Delta variant, and the response thereto, (v) the pace of recovery when the COVID-19 pandemic subsides; (vi) changes in general business, industry or economic conditions or competition; (vii) changes in any applicable law, rule, regulation, policy, guideline or practice governing or affecting financial holding companies and their subsidiaries or with respect to tax or accounting principles or otherwise; (viii) adverse changes or conditions in capital and financial markets; (ix) changes in interest rates; (x) higher than expected costs or other difficulties related to integration of combined or merged businesses; (xi) the effects of business combinations and other acquisition transactions, including the inability to realize our loan and investment portfolios; (xii) changes in the quality or composition of our loan and investment portfolios; (xiii) adequacy of loan loss reserves; (xiv) increased competition; (xv) loss of certain key officers; (xvi) deposit attrition; (xvii) rapidly changing technology; (xviii) unanticipated regulatory or judicial proceedings and liabilities and other costs; (xix) changes in the cost of funds, demand for loan products or demand for financial services; and (xx) 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)(audited)
September 30, 2021December 31, 2020
ASSETS
Cash and due from banks$49,897 $44,368 
Interest bearing deposits with other banks687,153 488,326 
Total cash and cash equivalents737,050 532,694 
Debt securities available for sale, at fair value (amortized cost of $727,205 and $565,493 as of September 30, 2021 and December 31, 2020, respectively)
732,793 584,908 
Trading securities9,941 6,649 
Loans held for sale3,415 8,514 
Loans3,511,125 3,371,789 
Less: allowance for credit losses(37,230)(34,340)
Net loans3,473,895 3,337,449 
FHLB, other equity, and restricted equity interests22,259 21,018 
Premises and equipment, net61,284 60,064 
Operating lease assets19,652 18,407 
Bank owned life insurance99,083 76,471 
Mortgage servicing rights1,661 1,527 
Goodwill43,749 43,749 
Core deposit intangible485 567 
Accrued interest receivable and other assets41,019 37,382 
Total Assets$5,246,286 $4,729,399 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Non-interest bearing demand deposits$774,851 $627,114 
Interest bearing demand deposits1,031,488 951,903 
Savings2,350,266 2,126,183 
Certificates of deposit437,023 476,544 
Total deposits4,593,628 4,181,744 
Subordinated notes and debentures154,212 70,620 
Operating lease liabilities20,847 19,449 
Accrued interest payable and other liabilities39,910 41,449 
Total liabilities4,808,597 4,313,262 
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, 2021 and December 31, 2020, respectively
57,785 57,785 
Common stock, $0 par value; authorized 50,000,000 shares; issued 16,978,057 shares at September 30, 2021 and December 31, 2020, respectively
0 0 
Additional paid in capital127,124 127,518 
Retained earnings249,978 218,727 
Treasury stock, at cost (88,363 and 145,049 shares for September 30, 2021 and December 31, 2020, respectively)
(1,535)(2,967)
Accumulated other comprehensive income (loss)4,337 15,074 
Total shareholders’ equity437,689 416,137 
Total Liabilities and Shareholders’ Equity$5,246,286 $4,729,399 
See Notes to Consolidated Financial Statements

1
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,
 2021202020212020
INTEREST AND DIVIDEND INCOME:
Loans including fees$42,020 $39,034 $123,693 $109,106 
Securities:
Taxable3,125 2,857 8,465 9,727 
Tax-exempt268 303 889 1,143 
Dividends35 162 224 543 
Total interest and dividend income45,448 42,356 133,271 120,519 
INTEREST EXPENSE:
Deposits3,433 5,578 11,785 19,418 
Borrowed funds and finance lease liabilities 6 1,172 18 3,666 
Subordinated notes and debentures (includes $73, $68, $204 and $154
accumulated other comprehensive income reclassification for change
in fair value of interest rate swap agreements, respectively)
1,714 942 3,747 2,839 
Total interest expense5,153 7,692 15,550 25,923 
NET INTEREST INCOME40,295 34,664 117,721 94,596 
PROVISION FOR CREDIT LOSS EXPENSE1,100 3,306 5,189 12,065 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSS EXPENSE39,195 31,358 112,532 82,531 
NON-INTEREST INCOME:
Service charges on deposit accounts1,595 1,201 4,389 3,652 
Other service charges and fees614 652 1,705 1,848 
Wealth and asset management fees1,734 1,414 5,021 4,081 
Net realized gains on available-for-sale securities (includes $0, $0, $0 and $2,190
accumulated other comprehensive income reclassifications for net realized gains
on available-for-sale securities, respectively)
0 0 0 2,190 
Net realized and unrealized gains (losses) on trading securities7 202 477 (80)
Mortgage banking844 1,089 2,615 2,090 
Bank owned life insurance558 425 2,002 1,290 
Card processing and interchange income1,958 1,606 5,871 4,059 
Other1,104 189 2,430 961 
Total non-interest income8,414 6,778 24,510 20,091 
NON-INTEREST EXPENSES:
Salaries and benefits15,351 12,508 43,442 34,578 
Net occupancy expense2,950 2,870 9,154 8,942 
Amortization of core deposit intangible26 26 82 178 
Technology expense2,894 1,475 8,452 4,024 
State and local taxes1,050 925 3,096 2,409 
Legal, professional, and examination fees735 602 2,785 1,927 
Advertising488 600 1,318 1,410 
FDIC insurance premiums647 726 1,820 1,966 
Card processing and interchange expenses728 804 2,816 2,192 
Merger costs, prepayment penalties and branch closure costs0 4,673 0 5,207 
Other4,330 3,159 11,003 9,476 
Total non-interest expenses29,199 28,368 83,968 72,309 
INCOME BEFORE INCOME TAXES18,410 9,768 53,074 30,313 
INCOME TAX EXPENSE (includes $(15), $(14), $(43) and $428
income tax expense from reclassification items, respectively)
3,503 1,983 9,996 5,469 
NET INCOME14,907 7,785 43,078 24,844 
PREFERRED STOCK DIVIDENDS1,076 0 3,226 0 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS13,831 7,785 39,852 24,844 
EARNINGS PER COMMON SHARE:
Basic$0.82 $0.47 $2.36 $1.57 
Diluted$0.82 $0.47 $2.36 $1.57 
DIVIDENDS PER COMMON SHARE:
Cash dividends per share$0.17 $0.17 $0.51 $0.51 
See Notes to Consolidated Financial Statements
2
Table of Contents
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
Dollars in thousands
Three months ended September 30,Nine months ended September 30,
 2021202020212020
NET INCOME$14,907 $7,785 $43,078 $24,844 
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, $(1), $(7) and $105, respectively
(5)2 26 (399)
Reclassification adjustment for losses recognized in earnings, net of tax $(15), $(14), $(43) and $(32), respectively
58 54 161 122 
53 56 187 (277)
Net change in unrealized gains on securities available for sale:
Unrealized holding gains (losses) arising during the period, net of tax of $970, $272, $2,903 and $(2,843), respectively
(3,660)(1,015)(10,924)10,707 
Reclassification adjustment for realized gains included in net income, net of tax of $0, $0, $0 and $460, respectively
0 0 0 (1,730)
(3,660)(1,015)(10,924)8,977 
Other comprehensive income (loss)(3,607)(959)(10,737)8,700 
COMPREHENSIVE INCOME$11,300 $6,826 $32,341 $33,544 
See Notes to Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Dollars in thousands
Nine months ended September 30,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$43,078 $24,844 
Adjustments to reconcile net income to net cash provided by operations:
Provision for credit loss expense5,189 12,065 
Depreciation and amortization of premises and equipment, operating leases assets,
core deposit intangible, and mortgage servicing rights		5,075 4,433 
Amortization (accretion) of securities, deferred loan fees and costs,
net yield and credit mark on acquired loans, and unearned income		(1,251)(1,390)
Net amortization of deferred costs on borrowings101 0 
Accretion of deferred PPP processing fees(6,817)(683)
Net realized gains on sales of available-for-sale securities0 (2,190)
Net realized and unrealized (gains) losses on trading securities(477)80 
Gain on sale of loans(2,315)(1,801)
Net losses (gains) on dispositions of premises and equipment and foreclosed assets245 1,101 
Proceeds from sale of loans67,739 63,517 
Origination of loans held for sale(69,311)(64,447)
Income on bank owned life insurance(1,548)(1,290)
Gain on bank owned life insurance (death benefit proceeds in excess of cash surrender value)(454)0 
Stock-based compensation expense1,124 1,123 
Stock-based contribution expense75 0 
Changes in:
Accrued interest receivable and other assets(2,870)(7,771)
Accrued interest payable, lease liabilities, and other liabilities1,070 (8,182)
NET CASH PROVIDED BY OPERATING ACTIVITIES38,653 19,409 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities, prepayments and calls of available-for-sale securities124,140 112,683 
Proceeds from sales of available-for-sale securities0 57,185 
Purchase of available-for-sale securities(290,130)(170,571)
Proceeds from sale of trading securities0 5,935 
Purchase of trading securities(292)(2,370)
Proceeds from loans held for sale previously classified as portfolio loans1,627 0 
Loan origination and payments, net(126,411)(224,448)
Purchase of BOLI(22,000)0 
Proceeds from death benefit of BOLI policies1,390 0 
Net cash from business combinations0 72,852 
Redemption (purchase) of FHLB, other equity, and restricted equity interests(1,241)1,471 
Purchase of premises and equipment(5,358)(3,784)
Proceeds from the sale of premises and equipment and foreclosed assets591 680 
NET CASH USED BY INVESTING ACTIVITIES(317,684)(150,367)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in:
Checking, money market and savings accounts451,405 540,588 
Certificates of deposit(39,521)(39,686)
Purchase of treasury stock(161)(1,306)
Cash dividends paid, common stock(8,601)(8,108)
Cash dividends paid, preferred stock(3,226)0 
Proceeds from common stock offering, net of issuance costs0 3,257 
Proceeds from preferred stock offering, net of issuance costs0 57,760 
Proceeds from issuance of subordinated notes, net of issuance costs83,491 0 
Repayment of long-term borrowings0 (290,565)
Proceeds from long-term borrowings0 231,985 
NET CASH PROVIDED BY FINANCING ACTIVITIES483,387 493,925 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS204,356 362,967 
CASH AND CASH EQUIVALENTS, Beginning532,694 192,974 
CASH AND CASH EQUIVALENTS, Ending$737,050 $555,941 
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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)
Dollars in thousands
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest$15,296 $26,006 
Income taxes9,846 5,124 
SUPPLEMENTAL NONCASH DISCLOSURES:
Transfers to other real estate owned$1,450 $274 
Transfers from loans held for sale to loans held for investment9,335 0 
Transfers from loans held for investment to loans held for sale2,484 0 
Grant of restricted stock awards from treasury stock1,285 934 
Grant of performance based restricted stock awards from treasury stock262 217 
Contribution of stock from treasury stock81 0 
See Notes to Consolidated Financial Statements
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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, 2021$57,785 $126,875 $239,017 $(1,672)$7,944 $429,949 
Net income14,907 14,907 
Other comprehensive loss(3,607)(3,607)
Restricted stock award grants (2,203 shares)
(57)57 0 
Stock-based compensation expense312 312 
Contribution of treasury stock (3,000 shares)
(81)81 0 
Stock-based contribution expense75 75 
Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting (28 shares)
(1)(1)
Preferred cash dividend declared(1,076)(1,076)
Cash dividends declared ($0.17 per common share)
(2,870)(2,870)
Balance, September 30, 2021$57,785 $127,124 $249,978 $(1,535)$4,337 $437,689 
Balance, July 1, 2020$0 $102,374 $213,327 $(2,027)$16,598 $330,272 
Net income7,785 7,785 
Other comprehensive loss(959)(959)
Restricted stock award grants (1,808 shares)
(42)42 0 
Stock-based compensation expense288 288 
Issuance of common stock, net of issuance costs (0 shares)
(56)(56)
Purchase of treasury stock (66,000 shares)
(981)(981)
Issuance of preferred equity, net of issuance costs57,760 57,760 
Acquisition of Bank of Akron24,667 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 


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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited) (continued)
Dollars in thousands, except share and per share data
Preferred
Stock		Additional
Paid-In
Capital		Retained
Earnings		Treasury
Stock		Accumulated
Other
Comprehensive
Income (Loss)		Total
Share-
holders’
Equity
Balance, January 1, 2021$57,785 $127,518 $218,727 $(2,967)$15,074 $416,137 
Net income43,078 43,078 
Other comprehensive loss(10,737)(10,737)
Forfeiture of restricted stock award grants (1,578 shares)
35 (35)0 
Restricted stock award grants (52,309 shares)
(1,285)1,285 0 
Performance based restricted stock award grants (10,587 shares)
(262)262 0 
Stock-based compensation expense1,124 1,124 
Contribution of treasury stock (3,000 shares)
(81)81 0 
Stock-based contribution expense75 75 
Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting (6,691 shares)
(141)(141)
Purchase of treasury stock for the purpose of tax withholding related to performance based restricted stock award vesting (941 shares)
(20)(20)
Preferred cash dividend declared(3,226)(3,226)
Cash dividends declared ($0.51 per common share)
(8,601)(8,601)
Balance, September 30, 2021$57,785 $127,124 $249,978 $(1,535)$4,337 $437,689 
Balance, January 1, 2020$0 $99,335 $201,503 $(2,811)$6,939 $304,966 
Net income24,844 24,844 
Other comprehensive income8,700 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 expense1,123 1,123 
Issuance of common stock, net of issuance costs (115,790 shares)
3,257 3,257 
Purchase of treasury stock (66,000 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 costs57,760 57,760 
Acquisition of Bank of Akron24,667 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 
See Notes to Consolidated Financial Statements
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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, 2021 and for the three month period ended September 30, 2021 and 2020 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 month and nine months ended September 30, 2021 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, 2020 (the "2020 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 worldwide spread of COVID-19 has created significant uncertainty in the global economy. There have been no comparable recent events that provide guidance as to the effects the global COVID-19 pandemic may have, and, as a result, the ultimate impact of the COVID-19 pandemic and the extent to which the COVID-19 pandemic and the related government responses impact the Corporation’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and difficult to predict.

Use of Estimates

To prepare financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"), management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided and future results could differ.

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.

The COVID-19 pandemic could cause a 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.

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.
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Determining the appropriateness of the allowance for credit losses on loans is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses on loans in those future periods. Should economic conditions worsen, the Corporation could experience further increases in its required allowance for credit 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.

2.    RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted in 2021

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

Accounting Pronouncements Pending Adoption

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.

3.    BUSINESS COMBINATIONS

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

Pursuant to the Merger Agreement, for each share of Bank of Akron common stock, Bank of 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 also received cash in lieu of fractional shares. Elections were subject to proration procedures whereby at least 75% of the shares of Bank 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 Bank of 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.

Bank of Akron's results of operations were included in the Corporation's results of operations beginning July 17, 2020. The Corporation incurred no merger-related expenses during the three and nine months ended September 30, 2021 and $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.

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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 $5.0 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 banks10,148 
Investment securities29,407 
Loans, net of allowance for credit losses on PCD loans319,063 
Premises and equipment, net4,265 
Core deposit intangible613 
Deferred tax assets2,777 
Bank owned life insurance8,187 
Accrued interest receivable and other assets5,307 
Total assets acquired$458,597 
Liabilities assumed
Deposits$419,475 
Accrued interest payable and other liabilities3,348 
Total liabilities assumed422,823 
Total fair value of identifiable net assets35,774 
Total merger consideration40,793 
Goodwill recognized$5,019 

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.

The calculation of goodwill is subject to change for up to one year after the closing date of transaction as additional information relative to the closing date estimates and uncertainties becomes available. There were no adjustments recorded to goodwill or closing date fair values subsequent to December 31, 2020 and the measurement period closed in July 2021.

Financial assets acquired in a business combination after January 1, 2020 are recorded in accordance with ASC Topic 326, after which acquired assets are separated into two types. Purchased credit deteriorated ("PCD") assets are acquired assets that, as of the acquisition date, have experienced a more-than-insignificant deterioration in credit quality since origination. Non-PCD assets are acquired assets that have experienced no or insignificant deterioration in credit quality since origination. To distinguish between the two types of acquired assets, the Corporation evaluates risk characteristics that have been determined to be indicators of deteriorated credit quality. In the case of loans, the determining criteria may involve general characteristics, such as loan payment history or changes in creditworthiness since the loan was originated, while others are relevant to recent economic conditions, such as borrowers in industries impacted by the COVID-19 pandemic.

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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

Bank of Akron’s loan portfolio was recorded at fair value at the date of acquisition. A valuation of Bank 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-PCD loans and PCD loans. The non-PCD loans were pooled based on similar characteristics, such as loan type, fixed or adjustable interest rates, payment type, index rate and caps/floors, and nonaccrual status. The PCD loans were valued on a pooled basis and at the loan level with similar characteristics noted above.

Premises and Equipment

Fair values are based upon appraisal values. In addition to owned properties, Bank of 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.

4.    SECURITIES

Securities available for sale at September 30, 2021 and December 31, 2020 are as follows:
 September 30, 2021December 31, 2020
 AmortizedUnrealizedFairAmortizedUnrealizedFair
 CostGainsLossesValueCostGainsLossesValue
U.S. Gov’t sponsored entities$147,445 $4,301 $(1,170)$150,576 $150,404 $6,698 $(60)$157,042 
State & political subdivisions107,856 2,194 (1,219)108,831 67,819 3,186 (122)70,883 
Residential & multi-family mortgage427,675 5,765 (4,631)428,809 306,054 9,276 (138)315,192 
Corporate notes & bonds23,426 92 (279)23,239 15,221 105 (400)14,926 
Pooled SBA20,803 546 (11)21,338 24,975 912 (1)25,886 
Other0 0 0 0 1,020 0 (41)979 
Total$727,205 $12,898 $(7,310)$732,793 $565,493 $20,177 $(762)$584,908 

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The following is a schedule of the contractual maturity of securities available for sale at September 30, 2021:
Amortized
Cost		Fair
Value
1 year or less$27,799 $27,993 
1 year – 5 years101,918 104,449 
5 years – 10 years139,493 140,640 
After 10 years9,517 9,564 
278,727 282,646 
Residential & multi-family mortgage427,675 428,809 
Pooled SBA20,803 21,338 
Total debt securities$727,205 $732,793 

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.

Information pertaining to security sales on available for sale securities is as follows:
ProceedsGross
Gains		Gross
Losses
Three months ended September 30, 2021$0 $0 $0 
Three months ended September 30, 2020$0 $0 $0 
Nine months ended September 30, 2021$0 $0 $0 
Nine months ended September 30, 2020$57,185 $2,257 $67 

The tax provision related to these net realized gains was $0 for the three and nine months ended September 30, 2021 and $0 and $460 during the three and nine months ended September 30, 2020, respectively.

On September 30, 2021 and December 31, 2020, securities carried at $437,547 and $453,407, respectively, were pledged to secure public deposits and for other purposes as provided by law.

At September 30, 2021 and December 31, 2020, 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.

Securities with unrealized losses at September 30, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:
September 30, 2021
 Less than 12 Months12 Months or MoreTotal
Description of SecuritiesFair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
U.S. Gov’t sponsored entities$42,009 $(849)$19,722 $(321)$61,731 $(1,170)
State & political subdivisions47,042 (1,102)2,136 (117)49,178 (1,219)
Residential & multi-family mortgage231,371 (4,081)19,024 (550)250,395 (4,631)
Corporate notes & bonds3,164 (102)3,823 (177)6,987 (279)
Pooled SBA2,461 (11)162 0 2,623 (11)
$326,047 $(6,145)$44,867 $(1,165)$370,914 $(7,310)
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December 31, 2020
 Less than 12 Months12 Months or MoreTotal
 Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
U.S. Gov’t sponsored entities$24,991 $(60)0 0 $24,991 $(60)
State & political subdivisions3,854 (19)164 (103)4,018 (122)
Residential & multi-family mortgage44,092 (119)3,277 (19)47,369 (138)
Corporate notes & bonds0 0 4,545 (400)4,545 (400)
Pooled SBA525 (1)0 0 525 (1)
Other0 0 979 (41)979 (41)
$73,462 $(199)$8,965 $(563)$82,427 $(762)

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, 2021 and December 31, 2020, 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, 2021 and December 31, 2020 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, 2021 and December 31, 2020, 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.

Trading securities at September 30, 2021 and December 31, 2020 are as follows:
September 30, 2021December 31, 2020
Corporate equity securities$6,451 $4,343 
Mutual funds2,607 1,283 
Certificates of deposit296 404 
Corporate notes and bonds587 569 
U.S. Government sponsored entities0 50 
Total$9,941 $6,649 

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5.    LOANS

Total net loans at September 30, 2021 and December 31, 2020 are summarized as follows:
September 30, 2021Percentage
of Total		December 31, 2020Percentage
of Total
Farmland
$23,417 0.7 %$23,316 0.7 %
Owner-occupied, nonfarm nonresidential properties
421,439 12.0 %407,924 12.1 %
Agricultural production and other loans to farmers
1,387 0.0 %2,664 0.1 %
Commercial and Industrial 1
663,769 18.9 %663,550 19.7 %
Obligations (other than securities and leases) of states and political subdivisions
139,253 4.0 %132,818 3.9 %
Other loans
12,087 0.3 %11,961 0.4 %
Other construction loans and all land development and other land loans280,262 8.0 %205,734 6.1 %
Multifamily (5 or more) residential properties
213,906 6.1 %212,815 6.3 %
Non-owner occupied, nonfarm nonresidential properties
645,951 18.4 %640,945 19.0 %
1-4 Family Construction31,775 0.9 %27,768 0.8 %
Home equity lines of credit107,225 3.1 %109,444 3.2 %
Residential Mortgages secured by first liens810,190 23.1 %777,030 23.0 %
Residential Mortgages secured by junior liens57,342 1.6 %53,726 1.6 %
Other revolving credit plans26,226 0.7 %25,507 0.8 %
Automobile22,311 0.6 %25,344 0.8 %
Other consumer45,003 1.3 %42,792 1.3 %
Credit cards9,313 0.3 %8,115 0.2 %
Overdrafts269 0.0 %336 0.0 %
Total loans$3,511,125 100.0 %$3,371,789 100.0 %
Less: Allowance for credit losses(37,230)(34,340)
Loans, net$3,473,895 $3,337,449 
Net deferred loan origination fees (costs) included in the above loan table$7,872 $8,789 
1 PPP loans, net of deferred PPP processing fees, both those disbursed in 2020 and those disbursed in 2021, are included in the Commercial and Industrial classification.

The Corporation’s outstanding loans and related unfunded commitments are primarily concentrated within central and northwest Pennsylvania, central and northeast Ohio, and western New York. 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.

As a result of the adoption of ASC 326 effective January 1, 2020, there is a lack of comparability in both the allowance and provisions for credit losses for the periods presented. Beginning with the quarter ended December 31, 2020, the Corporation adopted ASC 326 and subsequent results are presented using the current expected credit losses (“CECL”) methodology. Prior to the quarter ended December 31, 2020, the results were reported in accordance with the incurred loss methodology and have not been restated.

PPP loans, both those disbursed in 2020 and those disbursed in 2021, are included in the commercial and industrial classification and, as the PPP loans are fully guaranteed by the Small Business Administration, no required allowance for credit losses was recorded against the PPP loans, net of deferred PPP processing fees, outstanding of $85,354 and $222,972 as of September 30, 2021 and 2020, respectively.

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Transactions in the allowance for credit losses for the three months ended September 30, 2021 were as follows:
Beginning
Allowance		(Charge-offs)RecoveriesProvision (Benefit) for Credit Loss ExpenseEnding Allowance
Farmland
$124 $0 $0 $(26)$98 
Owner-occupied, nonfarm nonresidential properties
2,880 0 3 154 3,037 
Agricultural production and other loans to farmers
12 0 0 (5)7 
Commercial and Industrial
7,312 (23)52 989 8,330 
Obligations (other than securities and leases) of states and political subdivisions
2,325 (157)0 (289)1,879 
Other loans
117 0 0 (15)102 
Other construction loans and all land development and other land loans2,364 (282)0 287 2,369 
Multifamily (5 or more) residential properties
2,314 0 0 (219)2,095 
Non-owner occupied, nonfarm nonresidential properties
10,162 (18)0 (2,865)7,279 
1-4 Family Construction110 0 0 116 226 
Home equity lines of credit1,029 (7)1 197 1,220 
Residential Mortgages secured by first liens4,398 (5)2 2,030 6,425 
Residential Mortgages secured by junior liens408 (3)0 144 549 
Other revolving credit plans459 (5)4 70 528 
Automobile241 (12)0 49 278 
Other consumer2,402 (268)25 331 2,490 
Credit cards68 (5)6 43 112 
Overdrafts183 (127)41 109 206 
Total loans$36,908 $(912)$134 $1,100 $37,230 

Transactions in the allowance for credit losses for the nine months ended September 30, 2021 were as follows:
Beginning
Allowance		(Charge-offs)RecoveriesProvision (Benefit) for Credit Loss ExpenseEnding Allowance
Farmland
$221 $0 $0 $(123)$98 
Owner-occupied, nonfarm nonresidential properties
3,700 (531)8 (140)3,037 
Agricultural production and other loans to farmers
24 0 0 (17)7 
Commercial and Industrial
6,233 (93)72 2,118 8,330 
Obligations (other than securities and leases) of states and political subdivisions
998 (407)0 1,288 1,879 
Other loans
68 0 0 34 102 
Other construction loans and all land development and other land loans1,956 (282)0 695 2,369 
Multifamily (5 or more) residential properties
2,724 0 0 (629)2,095 
Non-owner occupied, nonfarm nonresidential properties
8,658 (18)0 (1,361)7,279 
1-4 Family Construction82 0 0 144 226 
Home equity lines of credit985 (7)3 239 1,220 
Residential Mortgages secured by first liens4,539 (75)34 1,927 6,425 
Residential Mortgages secured by junior liens241 (3)0 311 549 
Other revolving credit plans507 (28)9 40 528 
Automobile132 (17)3 160 278 
Other consumer2,962 (829)120 237 2,490 
Credit cards66 (77)17 106 112 
Overdrafts244 (318)120 160 206 
Total loans$34,340 $(2,685)$386 $5,189 $37,230 

The Corporation's allowance for credit losses is influenced by loan volumes, risk rating migration, delinquency status and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. For the three and nine months ended September 30, 2021, the allowance for credit losses increased due to the growth in the Corporation's loan portfolio, changes in historical loss rates and quantitative inputs including the unemployment forecast and prepayment speeds, coupled with qualitative adjustments in the Corporation's residential and consumer loan portfolios, growth in new market areas, as well as continued uncertainty with the pandemic and economic environment, partially offset by the impact of net charge-offs and improvements or resolutions in the Corporation's individually evaluated loans.

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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		ConsumerCredit
Cards		OverdraftsTotal
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)
Recoveries15 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		ConsumerCredit
Cards		OverdraftsTotal
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)
Recoveries40 177 67 126 13 135 558 
Provision for loan losses4,032 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 

The unpaid principal balance of impaired loans includes the Corporation’s recorded investment in the loan and amounts that have been recorded as charge-offs.
 Three months ended September 30, 2020Nine months ended September 30, 2020
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 $3,341 $78 $78 
Commercial mortgage$4,002 $0 $0 4,166 41 41 
Residential real estate$819 $11 $11 641 16 16 
With no related allowance recorded:
Commercial, industrial and agricultural$5,623 $51 $51 6,392 142 142 
Commercial mortgage$14,758 $59 $59 12,178 283 283 
Residential real estate$112 $4 $4 56 6 6 
Total$27,723 $158 $158 $26,774 $566 $566 

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The following tables presents the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of September 30, 2021 and December 31, 2020, respectively:
September 30, 2021
NonaccrualNonaccrual With No Allowance for Credit LossLoans Past Due over 89 Days Still Accruing
Farmland
$992 $992 $0 
Owner-occupied, nonfarm nonresidential properties
1,344 1,244 0 
Commercial and Industrial
5,796 1,249 0 
Obligations (other than securities and leases) of states and political subdivisions
269 269 0 
Other construction loans and all land development and other land loans516 77 0 
Multifamily (5 or more) residential properties
1,155 5 0 
Non-owner occupied, nonfarm nonresidential properties
5,390 3,763 0 
Home equity lines of credit780 780 39 
Residential Mortgages secured by first liens3,098 3,098 652 
Residential Mortgages secured by junior liens157 157 0 
Other revolving credit plans9 9 0 
Other consumer498 498 0 
Credit cards0 0 33 
Total loans$20,004 $12,141 $724 
December 31, 2020
NonaccrualNonaccrual With No Allowance for Credit LossLoans Past Due over 89 Days Still Accruing
Farmland
$1,844 $633 $0 
Owner-occupied, nonfarm nonresidential properties
1,781 967 0 
Commercial and Industrial
6,657 959 0 
Other construction loans and all land development and other land loans2,349 77 0 
Multifamily (5 or more) residential properties
288 0 0 
Non-owner occupied, nonfarm nonresidential properties
11,932 9,466 0 
Home equity lines of credit685 685 0 
Residential Mortgages secured by first liens4,175 3,495 283 
Residential Mortgages secured by junior liens114 114 0 
Other revolving credit plans6 6 0 
Automobile32 32 0 
Other consumer496 496 8 
Credit cards0 0 34 
Total loans$30,359 $16,930 $325 

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

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2021:
Real Estate CollateralNon-Real Estate Collateral
Farmland
$945 $0 
Owner-occupied, nonfarm nonresidential properties
218 17 
Commercial and Industrial
0 2,415 
Obligations (other than securities and leases) of states and political subdivisions
269 0 
Other construction loans and all land development and other land loans439 0 
Multifamily (5 or more) residential properties
1,150 0 
Non-owner occupied, nonfarm nonresidential properties
3,410 0 
Residential Mortgages secured by first liens441 0 
Total loans$6,872 $2,432 

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The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2020:
Real Estate CollateralNon-Real Estate Collateral
Farmland
$1,793 $0 
Owner-occupied, nonfarm nonresidential properties
285 587 
Commercial and Industrial
594 5,600 
Other construction loans and all land development and other land loans2,272 0 
Multifamily (5 or more) residential properties
288 0 
Non-owner occupied, nonfarm nonresidential properties
9,072 880 
Residential Mortgages secured by first liens1,135 0 
Total loans$15,439 $7,067 

The following table presents the aging of the amortized cost basis in past-due loans as of September 30, 2021 by class of loans:
30 - 59
Days Past Due		60 - 89
Days Past Due		Greater Than 89
Days Past Due		Total Past DueLoans Not Past DueTotal
Farmland
$163 $388 $0 $551 $22,866 $23,417 
Owner-occupied, nonfarm nonresidential properties
533 0 826 1,359 420,080 421,439 
Agricultural production and other loans to farmers
0 0 0 0 1,387 1,387 
Commercial and Industrial
370 25 212 607 663,162 663,769 
Obligations (other than securities and leases) of states and political subdivisions
0 0 0 0 139,253 139,253 
Other loans
0 0 0 0 12,087 12,087 
Other construction loans and all land development and other land loans0 0 77 77 280,185 280,262 
Multifamily (5 or more) residential properties
0 0 209 209 213,697 213,906 
Non-owner occupied, nonfarm nonresidential properties
0 0 1,827 1,827 644,124 645,951 
1-4 Family Construction0 0 0 0 31,775 31,775 
Home equity lines of credit385 38 152 575 106,650 107,225 
Residential Mortgages secured by first liens1,350 592 1,841 3,783 806,407 810,190 
Residential Mortgages secured by junior liens25 0 11 36 57,306 57,342 
Other revolving credit plans100 7 0 107 26,119 26,226 
Automobile24 5 0 29 22,282 22,311 
Other consumer290 163 217 670 44,333 45,003 
Credit cards55 1 33 89 9,224 9,313 
Overdrafts0 0 0 0 269 269 
Total loans$3,295 $1,219 $5,405 $9,919 $3,501,206 $3,511,125 

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The following table presents the aging of the amortized cost basis in past-due loans as of December 31, 2020 by class of loans:
30 - 59
Days Past Due		60 - 89
Days Past Due		Greater Than 89
Days Past Due		Total Past DueLoans Not Past DueTotal
Farmland
$195 $0 $1,211 $1,406 $21,910 $23,316 
Owner-occupied, nonfarm nonresidential properties
10 885 732 1,627 406,297 407,924 
Agricultural production and other loans to farmers
0 0 0 0 2,664 2,664 
Commercial and Industrial
476 335 3,887 4,698 658,852 663,550 
Obligations (other than securities and leases) of states and political subdivisions
0 0 0 0 132,818 132,818 
Other loans
0 0 0 0 11,961 11,961 
Other construction loans and all land development and other land loans0 0 1,917 1,917 203,817 205,734 
Multifamily (5 or more) residential properties
0 0 0 0 212,815 212,815 
Non-owner occupied, nonfarm nonresidential properties
314 156 10,184 10,654 630,291 640,945 
1-4 Family Construction0 0 0 0 27,768 27,768 
Home equity lines of credit166 235 486 887 108,557 109,444 
Residential Mortgages secured by first liens2,834 629 1,911 5,374 771,656 777,030 
Residential Mortgages secured by junior liens8 0 66 74 53,652 53,726 
Other revolving credit plans36 19 0 55 25,452 25,507 
Automobile73 0 9 82 25,262 25,344 
Other consumer246 132 245 623 42,169 42,792 
Credit cards72 39 34 145 7,970 8,115 
Overdrafts0 0 0 0 336 336 
Total loans$4,430 $2,430 $20,682 $27,542 $3,344,247 $3,371,789 

Troubled Debt Restructurings

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

As of September 30, 2021 and December 31, 2020, the terms of certain loans were 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 Corporation had an amortized cost in troubled debt restructurings of $15,302 and $15,088 as of September 30, 2021 and December 31, 2020, respectively. The Corporation has allocated $1,181 and $779 of allowance for those loans as of September 30, 2021 and December 31, 2020, respectively.

There were no loans modified as troubled debt restructurings during the three months ended September 30, 2021. There were three loans modified as troubled debt restructurings during the nine months ended September 30, 2021:
Nine Months Ended September 30, 2021
Number of
Loans		Pre-Modification
Outstanding Recorded
Investment		Post-Modification
Outstanding Recorded
Investment
Commercial and Industrial
1 $578 $578 
Multifamily (5 or more) residential properties
1 717 717 
Non-owner occupied, nonfarm nonresidential properties
1 1,604 1,604 
Total loans3 $2,899 $2,899 
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There was one loan modified as a troubled debt restructuring during the three months ended September 30, 2020.
 Three months ended September 30, 2020
 Number of
Loans		Pre-Modification Outstanding Recorded Investment
Balance		Post-Modification Outstanding Recorded Investment
Reserve
Commercial mortgages1 $46 $46 
Total1 $46 $46 

There were ten loans modified as troubled debt restructurings during the nine months ended September 30, 2020.
 Nine months ended September 30, 2020
 Number of
Loans		Pre-Modification Outstanding Recorded Investment
Balance		Post-Modification Outstanding Recorded Investment
Reserve
Commercial, industrial and agricultural8 $1,593 $1,593 
Commercial mortgages1 46 46 
Residential real estate1 116 116 
Total10 $1,755 $1,755 

The troubled debt restructurings described above increased the allowance for credit losses by an immaterial amount for the three and nine months ended September 30, 2021 and 2020, respectively.

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, 2021 and September 30, 2020. There were no principal balances forgiven in connection with the loan restructurings.

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 categorizes 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 analyzes loans individually to classify the loans as to credit risk.

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.




20
Table of Contents
The following tables represent the Corporation's credit risk profile by risk rating. Loans not rated as special mention, substandard, or doubtful are considered to be pass rated loans.
September 30, 2021
Non-Pass Rated
PassSpecial MentionSubstandardDoubtfulTotal Non-PassTotal
Farmland
$20,911 $1,514 $992 $0 $2,506 $23,417 
Owner-occupied, nonfarm nonresidential properties
404,770 6,574 10,095 0 16,669 421,439 
Agricultural production and other loans to farmers
1,387 0 0 0 0 1,387 
Commercial and Industrial
640,507 8,724 13,115 1,423 23,262 663,769 
Obligations (other than securities and leases) of states and political subdivisions
138,984 0 269 0 269 139,253 
Other loans
12,087 0 0 0 0 12,087 
Other construction loans and all land development and other land loans275,222 4,495 545 0 5,040 280,262 
Multifamily (5 or more) residential properties
212,750 0 1,156 0 1,156 213,906 
Non-owner occupied, nonfarm nonresidential properties
612,906 7,434 25,611 0 33,045 645,951 
Total loans$2,319,524 $28,741 $51,783 $1,423 $81,947 $2,401,471 

December 31, 2020
Non-Pass Rated
PassSpecial MentionSubstandardDoubtfulTotal Non-PassTotal
Farmland
$20,316 $1,156 $1,844 $0 $3,000 $23,316 
Owner-occupied, nonfarm nonresidential properties
391,899 2,826 13,199 0 16,025 407,924 
Agricultural production and other loans to farmers
2,664 0 0 0 0 2,664 
Commercial and Industrial
637,071 11,368 15,111 0 26,479 663,550 
Obligations (other than securities and leases) of states and political subdivisions
132,110 0 708 0 708 132,818 
Other loans
11,961 0 0 0 0 11,961 
Other construction loans and all land development and other land loans198,206 5,611 1,917 0 7,528 205,734 
Multifamily (5 or more) residential properties
211,563 0 1,252 0 1,252 212,815 
Non-owner occupied, nonfarm nonresidential properties
594,603 12,496 33,846 0 46,342 640,945 
Total loans$2,200,393 $33,457 $67,877 $0 $101,334 $2,301,727 









21
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The following tables detail the amortized cost of loans, by year of origination (for term loans) and by risk grade within each portfolio segment as of September 30, 2021. The current period originations may include modifications, extensions and renewals.
Term Loans Amortized Cost Basis by Origination Year
20212020201920182017PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
Farmland
Risk rating
Pass$7,400 $1,744 $3,291 $3,633 $588 $3,668 $587 $0 $20,911 
Special mention0 0 0 0 394 1,120 0 0 1,514 
Substandard0 0 0 0 47 945 0 0 992 
Doubtful0 0 0 0 0 0 0 0 0 
Total$7,400 $1,744 $3,291 $3,633 $1,029 $5,733 $587 $0 $23,417 
Owner-occupied, nonfarm nonresidential properties
Risk rating
Pass$94,875 $87,579 $80,317 $34,805 $43,282 $55,306 $8,606 $0 $404,770 
Special mention0 0 911 4,332 139 1,182 10 0 6,574 
Substandard525 902 2,258 650 358 5,214 188 0 10,095 
Doubtful0 0 0 0 0 0 0 0 0 
Total$95,400 $88,481 $83,486 $39,787 $43,779 $61,702 $8,804 $0 $421,439 
Agricultural production and other loans to farmers
Risk rating
Pass$133 $128 $80 $200 $0 $11 $835 $0 $1,387 
Special mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 0 0 0 0 
Doubtful0 0 0 0 0 0 0 0 0 
Total$133 $128 $80 $200 $0 $11 $835 $0 $1,387 
Commercial and Industrial
Risk rating
Pass$279,839 $91,409 $38,688 $17,815 $13,268 $6,183 $193,305 $0 $640,507 
Special mention0 384 861 967 175 874 5,463 0 8,724 
Substandard621 810 1,907 472 102 3,632 5,571 0 13,115 
Doubtful0 0 0 0 0 1,423 0 0 1,423 
Total$280,460 $92,603 $41,456 $19,254 $13,545 $12,112 $204,339 $0 $663,769 
Obligations (other than securities and leases) of states and political subdivisions
Risk rating
Pass$27,893 $16,938 $8,910 $22,504 $20,303 $37,882 $4,554 $0 $138,984 
Special mention0 0 0 0 0 0 0 0 0 
Substandard0 269 0 0 0 0 0 0 269 
Doubtful0 0 0 0 0 0 0 0 0 
Total$27,893 $17,207 $8,910 $22,504 $20,303 $37,882 $4,554 $0 $139,253 
Other loans
Risk rating
Pass$594 $7,456 $596 $2 $0 $0 $3,439 $0 $12,087 
Special mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 0 0 0 0 
Doubtful0 0 0 0 0 0 0 0 0 
Total$594 $7,456 $596 $2 $0 $0 $3,439 $0 $12,087 

22
Table of Contents
Term Loans Amortized Cost Basis by Origination Year
20212020201920182017PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
Other construction loans and all land development and other land loans
Risk rating
Pass$61,332 $154,174 $41,789 $11,252 $882 $1,035 $4,758 $0 $275,222 
Special mention1,500 0 656 0 2,339 0 0 0 4,495 
Substandard0 0 0 29 439 0 77 0 545 
Doubtful0 0 0 0 0 0 0 0 0 
Total$62,832 $154,174 $42,445 $11,281 $3,660 $1,035 $4,835 $0 $280,262 
Multifamily (5 or more) residential properties
Risk rating
Pass$59,809 $58,167 $32,515 $8,303 $38,416 $13,188 $2,352 $0 $212,750 
Special mention0 0 0 0 0 0 0 0 0 
Substandard0 6 693 253 204 0 0 0 1,156 
Doubtful0 0 0 0 0 0 0 0 0 
Total$59,809 $58,173 $33,208 $8,556 $38,620 $13,188 $2,352 $0 $213,906 
Non-owner occupied, nonfarm nonresidential properties
Risk rating
Pass$131,098 $135,960 $88,632 $66,343 $49,630 $131,164 $10,079 $0 $612,906 
Special mention0 0 433 1,017 191 5,343 450 0 7,434 
Substandard834 0 3,867 1,667 7,155 11,748 340 0 25,611 
Doubtful0 0 0 0 0 0 0 0 0 
Total$131,932 $135,960 $92,932 $69,027 $56,976 $148,255 $10,869 $0 $645,951 

23
Table of Contents
The following tables detail the amortized cost of loans, by year of origination (for term loans) and by risk grade within each portfolio segment as of December 31, 2020. The current period originations may include modifications, extensions and renewals.
Term Loans Amortized Cost Basis by Origination Year
20202019201820172016PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
Farmland
Risk rating
Pass$1,617 $4,448 $3,767 $3,648 $894 $5,280 $662 $0 $20,316 
Special mention1,156 0 0 0 0 0 0 0 1,156 
Substandard0 0 0 51 582 1,211 0 0 1,844 
Doubtful0 0 0 0 0 0 0 0 0 
Total$2,773 $4,448 $3,767 $3,699 $1,476 $6,491 $662 $0 $23,316 
Owner-occupied, nonfarm nonresidential properties
Risk rating
Pass$86,694 $109,228 $52,818 $56,948 $26,119 $50,839 $9,253 $0 $391,899 
Special mention0 452 74 541 318 1,310 131 0 2,826 
Substandard1,021 2,449 2,438 938 3,675 2,430 248 0 13,199 
Doubtful0 0 0 0 0 0 0 0 0 
Total$87,715 $112,129 $55,330 $58,427 $30,112 $54,579 $9,632 $0 $407,924 
Agricultural production and other loans to farmers
Risk rating
Pass$267 $155 $601 $0 $54 $0 $1,587 $0 $2,664 
Special mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 0 0 0 0 
Doubtful0 0 0 0 0 0 0 0 0 
Total$267 $155 $601 $0 $54 $0 $1,587 $0 $2,664 
Commercial and Industrial
Risk rating
Pass$318,323 $54,620 $46,854 $32,426 $7,197 $7,265 $170,386 $0 $637,071 
Special mention127 1,017 3,489 712 300 1,033 4,690 0 11,368 
Substandard801 1,916 1,212 112 37 4,858 6,175 0 15,111 
Doubtful0 0 0 0 0 0 0 0 0 
Total$319,251 $57,553 $51,555 $33,250 $7,534 $13,156 $181,251 $0 $663,550 
Obligations (other than securities and leases) of states and political subdivisions
Risk rating
Pass$10,722 $12,279 $35,176 $20,891 $19,365 $24,789 $8,888 $0 $132,110 
Special mention0 0 0 0 0 0 0 0 0 
Substandard708 0 0 0 0 0 0 0 708 
Doubtful0 0 0 0 0 0 0 0 0 
Total$11,430 $12,279 $35,176 $20,891 $19,365 $24,789 $8,888 $0 $132,818 
Other loans
Risk rating
Pass$7,268 $1,237 $386 $0 $0 $0 $3,070 $0 $11,961 
Special mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 0 0 0 0 
Doubtful0 0 0 0 0 0 0 0 0 
Total$7,268 $1,237 $386 $0 $0 $0 $3,070 $0 $11,961 

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Term Loans Amortized Cost Basis by Origination Year
20202019201820172016PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
Other construction loans and all land development and other land loans
Risk rating
Pass$119,380 $52,078 $19,977 $2,300 $28 $1,895 $2,548 $0 $198,206 
Special mention1,417 672 29 3,303 0 190 0 0 5,611 
Substandard0 0 0 0 0 1,840 77 0 1,917 
Doubtful0 0 0 0 0 0 0 0 0 
Total$120,797 $52,750 $20,006 $5,603 $28 $3,925 $2,625 $0 $205,734 
Multifamily (5 or more) residential properties
Risk rating
Pass$73,572 $39,633 $26,230 $49,178 $4,086 $16,957 $1,907 $0 $211,563 
Special mention0 0 0 0 0 0 0 0 0 
Substandard6 753 288 205 0 0 0 0 1,252 
Doubtful0 0 0 0 0 0 0 0 0 
Total$73,578 $40,386 $26,518 $49,383 $4,086 $16,957 $1,907 $0 $212,815 
Non-owner occupied, nonfarm nonresidential properties
Risk rating
Pass$161,045 $127,518 $89,520 $55,966 $44,959 $105,962 $9,633 $0 $594,603 
Special mention99 895 2,111 3,969 835 4,137 450 0 12,496 
Substandard0 12,325 326 7,584 722 12,289 600 0 33,846 
Doubtful0 0 0 0 0 0 0 0 0 
Total$161,144 $140,738 $91,957 $67,519 $46,516 $122,388 $10,683 $0 $640,945 

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

September 30, 2021December 31, 2020
PerformingNonperformingTotalPerformingNonperformingTotal
1-4 Family Construction$31,775 $0 $31,775 $27,768 $0 $27,768 
Home equity lines of credit106,445 780 107,225 108,759 685 109,444 
Residential Mortgages secured by first liens807,092 3,098 810,190 772,572 4,458 777,030 
Residential Mortgages secured by junior liens57,185 157 57,342 53,612 114 53,726 
Other revolving credit plans26,217 9 26,226 25,501 6 25,507 
Automobile22,311 0 22,311 25,312 32 25,344 
Other consumer44,505 498 45,003 42,288 504 42,792 
Total loans$1,095,530 $4,542 $1,100,072 $1,055,812 $5,799 $1,061,611 

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The following tables detail the amortized cost of loans, by year of origination (for term loans) and by payment activity within each portfolio segment as of September 30, 2021. The current period originations may include modifications, extensions and renewals.
Term Loans Amortized Cost Basis by Origination Year
20212020201920182017PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
1-4 Family Construction
Payment performance
Performing$19,385 $10,746 $1,279 $67 $0 $0 $298 $0 $31,775 
Nonperforming0 0 0 0 0 0 0 0 0 
Total$19,385 $10,746 $1,279 $67 $0 $0 $298 $0 $31,775 
Home equity lines of credit
Payment performance
Performing$12,717 $17,171 $10,366 $10,216 $7,147 $41,470 $7,358 $0 $106,445 
Nonperforming0 0 0 0 385 395 0 0 780 
Total$12,717 $17,171 $10,366 $10,216 $7,532 $41,865 $7,358 $0 $107,225 
Residential mortgages secured by first lien
Payment performance
Performing$179,087 $183,988 $118,206 $69,709 $78,933 $173,295 $3,874 $0 $807,092 
Nonperforming0 149 155 31 193 2,529 41 0 3,098 
Total$179,087 $184,137 $118,361 $69,740 $79,126 $175,824 $3,915 $0 $810,190 
Residential mortgages secured by junior liens
Payment performance
Performing$16,814 $12,542 $8,181 $4,828 $4,128 $9,983 $709 $0 $57,185 
Nonperforming0 0 0 0 87 70 0 0 157 
Total$16,814 $12,542 $8,181 $4,828 $4,215 $10,053 $709 $0 $57,342 
Other revolving credit plans
Payment performance
Performing$3,372 $3,538 $3,963 $3,062 $3,007 $9,275 $0 $0 $26,217 
Nonperforming0 0 0 4 0 5 0 0 9 
Total$3,372 $3,538 $3,963 $3,066 $3,007 $9,280 $0 $0 $26,226 
Automobile
Payment performance
Performing$6,278 $6,272 $5,326 $2,848 $834 $753 $0 $0 $22,311 
Nonperforming0 0 0 0 0 0 0 0 0 
Total$6,278 $6,272 $5,326 $2,848 $834 $753 $0 $0 $22,311 
Other consumer
Payment performance
Performing$21,705 $13,573 $5,673 $1,729 $381 $1,444 $0 $0 $44,505 
Nonperforming86 162 134 42 12 62 0 0 498 
Total$21,791 $13,735 $5,807 $1,771 $393 $1,506 $0 $0 $45,003 

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The following tables detail the amortized cost of loans, by year of origination (for term loans) and by payment activity within each portfolio segment as of December 31, 2020. The current period originations may include modifications, extensions and renewals.
Term Loans Amortized Cost Basis by Origination Year
20202019201820172016PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
1-4 Family Construction
Payment performance
Performing$16,081 $11,547 $140 $0 $0 $0 $0 $0 $27,768 
Nonperforming0 0 0 0 0 0 0 0 0 
Total$16,081 $11,547 $140 $0 $0 $0 $0 $0 $27,768 
Home equity lines of credit
Payment performance
Performing$19,764 $12,823 $12,842 $8,793 $8,182 $42,514 $3,841 $0 $108,759 
Nonperforming0 0 0 302 33 350 0 0 685 
Total$19,764 $12,823 $12,842 $9,095 $8,215 $42,864 $3,841 $0 $109,444 
Residential mortgages secured by first lien
Payment performance
Performing$211,910 $136,181 $93,588 $99,520 $62,312 $163,556 $5,505 $0 $772,572 
Nonperforming0 84 887 143 61 3,261 22 0 4,458 
Total$211,910 $136,265 $94,475 $99,663 $62,373 $166,817 $5,527 $0 $777,030 
Residential mortgages secured by junior liens
Payment performance
Performing$14,552 $12,255 $7,031 $5,660 $3,347 $10,389 $378 $0 $53,612 
Nonperforming0 0 0 0 19 95 0 0 114 
Total$14,552 $12,255 $7,031 $5,660 $3,366 $10,484 $378 $0 $53,726 
Other revolving credit plans
Payment performance
Performing$4,088 $4,516 $3,320 $3,149 $1,301 $9,127 $0 $0 $25,501 
Nonperforming0 0 4 0 0 2 0 0 6 
Total$4,088 $4,516 $3,324 $3,149 $1,301 $9,129 $0 $0 $25,507 
Automobile
Payment performance
Performing$8,965 $8,595 $4,652 $1,635 $764 $701 $0 $0 $25,312 
Nonperforming0 4 0 6 0 22 0 0 32 
Total$8,965 $8,599 $4,652 $1,641 $764 $723 $0 $0 $25,344 
Other consumer
Payment performance
Performing$24,857 $11,183 $3,579 $796 $218 $1,655 $0 $0 $42,288 
Nonperforming82 264 75 13 0 70 0 0 504 
Total$24,939 $11,447 $3,654 $809 $218 $1,725 $0 $0 $42,792 

 September 30, 2021December 31, 2020
Credit card
Payment performance
Performing$9,280 $8,081 
Nonperforming33 34 
Total$9,313 $8,115 

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Purchased Credit Deteriorated Loans

The Corporation has purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The carrying amount of those loans is as follows:
 July 17, 2020
Purchase price of loans at acquisition$21,768 
Allowance for credit losses at acquisition980 
Non-credit discount / (premium) at acquisition1,063 
Par value of acquired loans at acquisition$23,811 

The Corporation’s portfolio of residential real estate and consumer loans maintained within Holiday Financial Services Corporation 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, included in other consumer loans above, is summarized as follows at September 30, 2021 and December 31, 2020: 
September 30, 2021December 31, 2020
Gross other consumer$27,588 $27,998 
Less: other consumer unearned discounts(5,276)(5,181)
Total automobile and other consumer loans, net of unearned discounts$22,312 $22,817 

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.

LeasesClassificationSeptember 30, 2021December 31, 2020
Assets:
Operating lease assetsOperating lease assets$19,652 $18,407 
Finance lease assets
Premises and equipment, net (1)
375 429 
Total leased assets$20,027 $18,836 
Liabilities:
Operating lease liabilitiesOperating lease liabilities$20,847 $19,449 
Finance lease liabilitiesAccrued interest payable and other liabilities489 550 
Total leased liabilities$21,336 $19,999 
(1) Finance lease assets are recorded net of accumulated amortization of $841 as of September 30, 2021 and $787 as of December 31, 2020.

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The components of the Corporation's net lease expense for the three and nine months ended September 30, 2021 and 2020, respectively, were as follows:
Three months ended September 30,Nine months ended September 30,
Lease CostClassification2021202020212020
Operating lease costNet occupancy expense$451 $435 $1,328 $1,349 
Variable lease costNet occupancy expense10 26 45 67 
Finance lease cost:
Amortization of leased assetsNet occupancy expense18 18 54 54 
Interest on lease liabilitiesInterest expense - borrowed funds6 6 18 20 
Sublease income (1)
Net occupancy expense(17)(25)(55)(67)
Net lease cost$468 $460 $1,390 $1,423 
(1) Sublease income excludes rental income from owned properties.

The following table sets forth future minimum rental payments under noncancellable leases with terms in excess of one year as of September 30, 2021:
Maturity of Lease Liabilities as of September 30, 2021
Operating Leases (1)
Finance LeasesTotal
2021$428 $26 $454 
20221,766 105 1,871 
20231,655 105 1,760 
20241,621 105 1,726 
20251,614 105 1,719 
After 202521,528 105 21,633 
Total lease payments28,612 551 29,163 
Less: Interest7,765 62 7,827 
Present value of lease liabilities$20,847 $489 $21,336 
(1) Operating lease payments include payments related to options to extend lease terms that are reasonably certain of being exercised and exclude $6,587 of legally binding minimum lease payments for leases signed, but not yet commenced.

Lease terms and discount rates related to the Corporation's lease liabilities as of September 30, 2021 and December 31, 2020 were as follows:
Lease Term and Discount RateSeptember 30, 2021December 31, 2020
Weighted-average remaining lease term (years)
Operating leases18.819.0
Finance leases5.36.0
Weighted-average discount rate
Operating leases3.45 %3.46 %
Finance leases4.49 %4.49 %

Other information related to the Corporation's lease liabilities as of September 30, 2021 and 2020 was as follows:
Other InformationSeptember 30, 2021September 30, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$699 $695 

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7.    DEPOSITS

Total deposits at September 30, 2021 and December 31, 2020 are summarized as follows:
September 30, 2021December 31, 2020Percentage
Change
Non-interest bearing demand deposits$774,851 $627,114 23.6 %
Interest bearing demand deposits1,031,488 951,903 8.4 %
Savings2,350,266 2,126,183 10.5 %
Certificates of deposit437,023 476,544 (8.3)%
Total$4,593,628 $4,181,744 9.8 %

8.    BORROWINGS

At September 30, 2021 and December 31, 2020, the Corporation had available one $10,000 unsecured line of credit with an unaffiliated institution. Borrowings under the line of credit bear interest at a variable rate equal to three-month LIBOR plus 2.75%. There were no borrowings under the line of credit at September 30, 2021 and December 31, 2020.

FHLB Borrowings

At September 30, 2021, the Bank had a borrowing capacity with the FHLB of $879,246 secured by a pledge of certain loans with a balance of $1,245,840. At September 30, 2021 and December 31, 2020, the Bank had no advances from the FHLB. During 2020 the Corporation prepaid the entire balance of its borrowings from the FHLB, totaling $190,401.

At September 30, 2021 and December 31, 2020, municipal deposit letters of credit issued by the FHLB on behalf of the Bank naming applicable municipalities as beneficiaries were $27,750 and $57,250, respectively. The letters of credit were utilized in place of securities pledged to the municipalities for their deposits maintained at the Bank.

Other Borrowings

At September 30, 2021 and December 31, 2020, the Bank had no outstanding borrowings from unaffiliated institutions under overnight borrowing agreements.

Subordinated Debentures

In 2007, the Corporation issued two $10,000 floating rate trust preferred securities as part of a pooled offering of such securities. The interest rate on each offering is determined quarterly and floats based on the three-month LIBOR plus 1.55%. The all-in rate was 1.67% at September 30, 2021 and 1.80% at December 31, 2020. The Corporation issued subordinated debentures to the trusts in exchange for the proceeds of the offerings, which debentures represent the sole assets of the trusts. The subordinated debentures must be redeemed no later than 2037. The Corporation may redeem the debentures, in whole or in part, at face value at any time. The Corporation has the option to defer interest payments from time to time for a period not to exceed five consecutive years. Although the trusts are variable interest entities, the Corporation is not the primary beneficiary. As a result, because the trusts are not consolidated with the Corporation, the Corporation does not report the securities issued by the trusts as liabilities. Instead, the Corporation reports as liabilities the subordinated debentures issued by the Corporation and held by the trusts, since the liabilities are not eliminated in consolidation. The trust preferred securities were designated to qualify as Tier 1 capital under the Federal Reserve’s capital guidelines.

Subordinated Notes

In September 2016, the Corporation sold $50,000 aggregate principal amount of its fixed-to-floating rate subordinated notes to eligible purchasers in a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and the provisions of Rule 506 of Regulation D thereunder. The notes will mature in October 2026, and initially bear interest at a fixed rate of 5.75% per annum, payable semi-annually in arrears, to, but excluding, October 15, 2021, and thereafter to, but excluding, the maturity date or earlier redemption, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month LIBOR rate plus 4.55%. These subordinated notes were designed to qualify as Tier 2 capital under the Federal Reserve’s capital guidelines and were given an investment grade rating of BBB- by Kroll Bond Rating Agency. As discussed in more detail in Note 14, subsequent to September 30, 2021, the Corporation redeemed all of the outstanding $50,000 aggregate principal amount.

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In June 2021, the Corporation sold $85,000 aggregate principal amount of its fixed-to-floating rate subordinated notes to eligible purchasers in a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act and the provisions of Rule 506 of Regulation D thereunder. The notes will mature in June 2031, and initially bear interest at a fixed rate of 3.25% per annum, payable semi-annually in arrears, to, but excluding, June 15, 2026, and thereafter to, but excluding, the maturity date or earlier redemption, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month average Secured Overnight Financing Rate (“SOFR”) plus 2.58%. The net proceeds from the sale were approximately $83,500, after deducting offering expenses. These subordinated notes were designed to qualify as Tier 2 capital under the Federal Reserve’s capital guidelines and were given an investment grade rating of BBB- by Kroll Bond Rating Agency.

Maturity Schedule of All Borrowed Funds

The following is a schedule of maturities of all borrowed funds as of September 30, 2021:
2021$0 
20220 
20230 
20240 
20250 
Thereafter154,212 
Total borrowed funds$154,212 

9.    STOCK COMPENSATION

The Corporation has a stock incentive plan, which is administered by a committee of the Board of Directors and which permits the Corporation to provide various types of stock-based compensation to its key employees, directors, and/or consultants, including time-based and performance-based shares of restricted stock. The Corporation 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, 2021, 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 month period ended September 30, 2021 and 2020.

Compensation expense for the restricted stock awards is recognized over the requisite service period based on the fair value of the shares at the date of grant on a straight-line basis. Non-vested restricted stock awards are recorded as a reduction of additional paid-in-capital in shareholders’ equity until earned. Compensation expense resulting from time-based, performance-based and director restricted stock awards was $312 and $1,124 for the three and nine months ended September 30, 2021, respectively, and $288 and 1,123 for the three and nine months ended September 30, 2020, respectively. The total income tax benefit related to the recognized compensation cost of vested restricted stock awards was $65 and $236 for the three and nine months ended September 30, 2021, respectively, and $60 and $235 for the three and nine months ended September 30, 2020, respectively.

A summary of changes in time-based unvested restricted stock awards for the three months ended September 30, 2021 follows:
SharesPer Share Weighted Average Grant Date Fair Value
Unvested at beginning of period66,801 $24.02 
Granted2,203 24.30 
Vested(361)16.60 
Unvested at end of period68,643 $24.07 

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A summary of changes in time-based unvested restricted stock awards for the nine months ended September 30, 2021 follows:
SharesPer Share Weighted Average Grant Date Fair Value
Unvested at beginning of period56,306 $27.14 
Granted37,423 21.28 
Forfeited(1,578)26.82 
Vested(23,508)26.80 
Unvested at end of period68,643 $24.07 

The above table excludes 14,886 shares in restricted stock awards that were granted at a weighted average fair value of $21.03 and immediately vested. There was $1,258 and $1,055 of total unrecognized compensation cost related to unvested restricted stock awards, as of September 30, 2021 and December 31, 2020, respectively. The fair value of shares vested was $9 and $814 during the three and nine months ended September 30, 2021, respectively, and $3 and 1,109 during the three and nine months ended September 30, 2020, respectively.

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 2021, awards with a maximum of 18,210 shares in aggregate were granted to key employees. In 2020, awards with a maximum of 18,100 shares in aggregate were granted to key employees. In 2019, awards with a maximum of 16,681 shares in aggregate were granted to key employees.

In 2020, the 2018 PBRSAs were fully earned and in 2021, 10,587 shares were fully distributed. The fair value of the shares distributed in 2021 was $223.

10.    EARNINGS PER COMMON SHARE

Basic earnings per common share is computed by dividing net income, excluding net earnings allocated to participating securities, by the weighted average number of shares outstanding during the applicable period, excluding outstanding participating securities. Diluted earnings per common share is computed using the weighted average number of shares determined for the basic computation plus the dilutive effect of potential common shares issuable under certain stock compensation plans. For the three and nine months ended September 30, 2021 and 2020, 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.

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The computation of basic and diluted earnings per common share is shown below:
Three months ended September 30,Nine months ended September 30,
 2021202020212020
Basic earnings per common share computation:
Net income per consolidated statements of income$13,831 $7,785 $39,852 $24,844 
Net earnings allocated to participating securities(47)(24)(139)(82)
Net earnings allocated to common stock$13,784 $7,761 $39,713 $24,762 
Distributed earnings allocated to common stock$2,859 $2,863 $8,577 $8,079 
Undistributed earnings allocated to common stock10,925 4,898 31,136 16,683 
Net earnings allocated to common stock$13,784 $7,761 $39,713 $24,762 
Weighted average common shares outstanding, including shares considered participating securities16,887 16,616 16,875 15,785 
Less: Average participating securities(54)(47)(56)(50)
Weighted average shares16,833 16,569 16,819 15,735 
Basic earnings per common share$0.82 $0.47 $2.36 $1.57 
Diluted earnings per common share computation:
Net earnings allocated to common stock$13,784 $7,761 $39,713 $24,762 
Weighted average common shares outstanding for basic earnings per common share16,833 16,569 16,819 15,735 
Add: Dilutive effects of performance based-shares0 0 0 0 
Weighted average shares and dilutive potential common shares16,833 16,569 16,819 15,735 
Diluted earnings per common share$0.82 $0.47 $2.36 $1.57 

11.    DERIVATIVE INSTRUMENTS

On September 7, 2018, the Corporation executed an interest rate swap agreement with a 5-year term and an effective date of September 15, 2018 in order to hedge cash flows associated with $10 million of a subordinated trust preferred security that was issued by the Corporation during 2007 and elected cash flow hedge accounting for the agreement. The Corporation’s objective in using this derivative is to add stability to interest expense and to manage its exposure to interest rate risk. The interest rate swap involves the receipt of variable-rate amounts in exchange for fixed-rate payments from September 15, 2018 to September 15, 2023 without the exchange of the underlying notional amount. At September 30, 2021, the variable rate on the subordinated trust preferred security was 1.67% (LIBOR plus 155 basis points) and the Corporation was paying 4.53% (2.98% fixed rate plus 155 basis points).

As of September 30, 2021 and December 31, 2020, 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, 2021 and December 31, 2020 and for the three and nine months ended September 30, 2021 and 2020:
  Fair value as of
Balance Sheet
Location		September 30, 2021December 31, 2020
Interest rate contractsAccrued interest and
other liabilities		$(532)$(768)

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For the Three Months
Ended September 30, 2021		(a)(b)(c)(d)(e)
Interest rate contracts$53 Interest expense –
subordinated notes and debentures		$(73)Other
income		$0 
For the Nine Months
Ended September 30, 2021		(a)(b)(c)(d)(e)
Interest rate contracts$187 Interest expense –
subordinated notes and debentures		$(204)Other
income		$0 
For the Three Months
Ended September 30, 2020		(a)(b)(c)(d)(e)
Interest rate contracts$56 Interest expense –
subordinated notes and 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 notes and debentures		$(153)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 notes and debentures. Such amounts reclassified from accumulated other comprehensive income (loss) to interest expense in the next twelve months are expected to be $286.

As of September 30, 2021 and December 31, 2020, a cash collateral balance in the amount of $1,050 and $1,050, 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.

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 $3,373 as of September 30, 2021 and $4,873 as of December 31, 2020. 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.

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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, 2021 and December 31, 2020:
Notional
Amount		Weighted
Average
Maturity
(in years)		Weighted
Average
Fixed Rate		Weighted Average
Variable Rate		Fair
Value
September 30, 2021
3rd Party interest rate swaps
$33,101 6.04.12 %
1 month LIBOR + 2.27%
$2,569 (a) 
Customer interest rate swaps(33,101)6.04.12 %
1 month LIBOR + 2.27%
(2,569)(b) 
December 31, 2020
3rd Party interest rate swaps
$34,089 6.74.13 %
1 month LIBOR + 2.27%
$4,017 (a) 
Customer interest rate swaps(34,089)6.74.13 %
1 month LIBOR + 2.27%
(4,017)(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

12.    FAIR VALUE

Fair Value Measurement

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following three levels of inputs are used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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

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

Derivatives: 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).

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

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Assets and liabilities measured at fair value on a recurring basis are as follows at September 30, 2021 and December 31, 2020:
  Fair Value Measurements at September 30, 2021 Using:
Quoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable Inputs
DescriptionTotal(Level 1)(Level 2)(Level 3)
Assets:
Securities Available For Sale:
U.S. Government sponsored entities$150,576 $0 $150,576 $0 
States and political subdivisions108,831 0 108,831 0 
Residential and multi-family mortgage428,809 20,016 408,793 0 
Corporate notes and bonds23,239 0 23,239 0 
Pooled SBA21,338 0 21,338 0 
Total Securities Available For Sale$732,793 $20,016 $712,777 $0 
Interest Rate swaps$2,569 $0 $2,569 $0 
Trading Securities:
Corporate equity securities$6,451 $6,451 $0 $0 
Mutual funds2,607 2,607 0 0 
Certificates of deposit296 296 0 0 
Corporate notes and bonds587 587 0 0 
Total Trading Securities$9,941 $9,941 $0 $0 
Liabilities:
Interest rate swaps$(3,101)$0 $(3,101)$0 

  Fair Value Measurements at December 31, 2020 Using:
  Quoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable Inputs
DescriptionTotal(Level 1)(Level 2)(Level 3)
Assets:
Securities Available For Sale:
U.S. Government sponsored entities$157,042 $0 $157,042 $0 
States and political subdivisions70,883 0 70,819 64 
Residential and multi-family mortgage315,192 15,039 300,153 0 
Corporate notes and bonds14,926 0 14,926 0 
Pooled SBA25,886 0 25,886 0 
Other979 979 0 0 
Total Securities Available For Sale$584,908 $16,018 $568,826 $64 
Interest Rate swaps$4,017 $0 $4,017 $0 
Trading Securities:
Corporate equity securities$4,343 $4,343 $0 $0 
Mutual funds1,283 1,283 0 0 
Certificates of deposit404 404 0 0 
Corporate notes and bonds569 569 0 0 
U.S. Government sponsored entities50 0 50 0 
Total Trading Securities$6,649 $6,599 $50 $0 
Liabilities:
Interest rate swaps$(4,785)$0 $(4,785)$0 


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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) for the three months ended September 30, 2021:

Corporate Notes and Bonds
Balance, July 1, 2021$9,826 
Purchases0 
Total gains or (losses):
Included in other comprehensive income (loss)(76)
Settlements0 
Transfers into Level 30 
Transfers out of Level 3$(9,750)
Balance, September 30, 2021$0 

The Corporation's corporate notes and bonds with a fair value of $9,750 for the three months ended September 30, 2021 were transferred out of Level 3 and into Level 2 because of available observable market data for these investments.

The table below presents a reconciliation of the fair value of securities available for sale measured on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2021:
States and Political SubdivisionsCorporate Notes and Bonds
Balance, January 1, 2021$64 $0 
Purchases0 8,250 
Total gains or (losses):
Included in other comprehensive income (loss)0 0 
Settlements64 0 
Transfers into Level 30 
Transfers out of Level 30 $(8,250)
Balance, September 30, 2021$0 $0 

The Corporation's corporate notes and bonds with a fair value of $8,250 for the nine months ended September 30, 2021 were transferred out of Level 3 and into Level 2 because of available observable market data for these investments.

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Assets and liabilities measured at fair value on a non-recurring basis are as follows at September 30, 2021 and December 31, 2020:
  Fair Value Measurements at September 30, 2021 Using
DescriptionTotalQuoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Assets:
Collateral-dependent loans:
Farmland$591 0 0 $591 
Owner-occupied, nonfarm nonresidential properties224 0 0 224 
Commercial and industrial1,547 0 0 1,547 
Other construction loans and all land development loans and other land loans225 0 0 225 
Multifamily (5 or more) residential properties646 0 0 646 
Non-owner occupied, nonfarm nonresidential2,971 0 0 2,971 
Obligations (other than securities and leases) of states and political subdivisions
269 0 0 269 

  Fair Value Measurements at December 31, 2020 Using
DescriptionTotalQuoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Assets:
Collateral-dependent loans:
Farmland$659 0 0 $659 
Owner-occupied, nonfarm nonresidential properties329 0 0 329 
Commercial and industrial3,680 0 0 3,680 
Other construction loans and all land development loans and other land loans1,790 0 0 1,790 
Non-owner occupied, nonfarm nonresidential9,622 0 0 9,622 
Residential mortgages secured by first liens659 0 0 659 

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

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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, 2021:
Fair
value		Valuation
Technique		Unobservable InputsRange
(Weighted
Average)
Collateral-dependent loans:
Farmland$591 Valuation of third party appraisal on underlying collateralLoss severity rates
60% (60%)
Owner-occupied, nonfarm nonresidential properties224 Valuation of third party appraisal on underlying collateralLoss severity rates
0%-60% (56%)
Commercial and industrial1,547 Valuation of third party appraisal on underlying collateralLoss severity rates
0%-50% (35%)
Other construction loans and all land development loans and other land loans225 Valuation of third party appraisal on underlying collateralLoss severity rates
25%-25% (25%)
Multifamily (5 or more) residential properties646 Valuation of third party appraisal on underlying collateralLoss severity rates
0%-58% (22%)
Non-owner occupied, nonfarm nonresidential2,971 Valuation of third party appraisal on underlying collateralLoss severity rates
25%-60% (34%)
Obligations (other than securities and leases) of states and political subdivisions
269 Valuation of third party appraisal on underlying collateralLoss severity rates
0% (0%)

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, 2020:
Fair
value		Valuation
Technique		Unobservable InputsRange
(Weighted
Average)
Collateral-dependent loans:
Farmland$659 Valuation of third party appraisal on underlying collateralLoss severity rates
45%-54% (47%)
Owner-occupied, nonfarm nonresidential properties329 Valuation of third party appraisal on underlying collateralLoss severity rates
60%-90% (80%)
Commercial and industrial3,680 Valuation of third party appraisal on underlying collateralLoss severity rates
0%-100% (39%)
Other construction loans and all land development loans and other land loans1,790 Valuation of third party appraisal on underlying collateralLoss severity rates
25%-41% (28%)
Non-owner occupied, nonfarm nonresidential9,622 Valuation of third party appraisal on underlying collateralLoss severity rates
25%-100% (29%)
Residential mortgages secured by first liens659 Valuation of third party appraisal on underlying collateralLoss severity rates
31% (31%)

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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, 2021:
 CarryingFair Value Measurement Using:Total
 AmountLevel 1Level 2Level 3Fair Value
ASSETS
Cash and cash equivalents$737,050 $737,050 $0 $0 $737,050 
Securities available for sale$732,793 $20,016 $712,777 $0 $732,793 
Trading securities$9,941 $9,941 $0 $0 $9,941 
Loans held for sale$3,415 $0 $3,478 $0 $3,478 
Net loans$3,473,895 $0 $0 $3,497,209 $3,497,209 
FHLB and other restricted interests$22,259 n/an/an/an/a
Interest rate swaps$2,569 $0 $2,569 $0 $2,569 
Accrued interest receivable$17,226 $67 $2,385 $14,774 $17,226 
LIABILITIES
Deposits$(4,593,628)$(4,156,609)$(444,679)$0 $(4,601,288)
Subordinated notes and debentures$(154,212)$0 $(140,046)$0 $(140,046)
Interest rate swaps$(3,101)$0 $(3,101)$0 $(3,101)
Accrued interest payable$(1,350)$0 $(1,350)$0 $(1,350)

The following table presents the carrying amount and fair value of financial instruments at December 31, 2020:
 CarryingFair Value Measurement Using:Total
 AmountLevel 1Level 2Level 3Fair Value
ASSETS
Cash and cash equivalents$532,694 $532,694 $0 $0 $532,694 
Securities available for sale584,908 16,018 568,826 64 584,908 
Trading securities6,649 6,599 50 0 6,649 
Loans held for sale8,514 0 8,617 0 8,617 
Net loans3,337,449 0 0 3,339,482 3,339,482 
FHLB and other restricted interests21,018 n/an/an/an/a
Interest rate swaps4,017 0 4,017 0 4,017 
Accrued interest receivable17,659 61 2,152 15,446 17,659 
LIABILITIES
Deposits$(4,181,744)$(3,705,200)$(488,000)$0 $(4,193,200)
Subordinated notes and debentures(70,620)0 (62,583)0 (62,583)
Interest rate swaps(4,785)0 (4,785)0 (4,785)
Accrued interest payable(1,096)0 (1,096)0 (1,096)

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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13.    REVENUE FROM CONTRACTS WITH CUSTOMERS

All of the Corporation’s revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest Income. The following table presents the Corporation's Non-Interest Income by revenue stream and reportable segment for the three and nine months ended September 30, 2021 and 2020. Items outside the scope of ASC 606 are noted as such.
Three months ended September 30,Nine months ended September 30,
2021202020212020
Non-interest Income
Service charges on deposit accounts$1,595 $1,201 $4,389 $3,652 
Wealth and asset management fees1,734 1,414 5,021 4,081 
Mortgage banking (1)
844 1,089 2,615 2,090 
Card processing and interchange income1,958 1,606 5,871 4,059 
Net gains (losses) on sales of securities (1)
0 0 0 2,190 
Other income
2,283 1,468 6,614 4,019 
Total non-interest income
$8,414 $6,778 $24,510 $20,091 
(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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14.    SUBSEQUENT EVENTS

On October 15, 2021, the Corporation completed its redemption of $50,000 aggregate principal amount of its 5.75% Fixed-to-Floating Rate Subordinated Notes due October 15, 2026 (the “2026 Notes”), representing all of the outstanding 2026 Notes. The 2026 Notes were redeemed pursuant to their terms at a price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, October 15, 2021. The total aggregate redemption price was $50,719, which amount included an accrued interest payment of $719. The Corporation financed the redemption with cash on hand, including the net proceeds from the issuance and sale of $85,000 aggregate principal amount of the Corporation’s 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031.
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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 terms “we”, “us” and “our” refer to CNB Financial Corporation and its subsidiaries. The financial condition and results of operations of the Corporation and its consolidated subsidiaries are not necessarily indicative of future performance.

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

In addition to the Bank, the Corporation has four other subsidiaries. CNB Securities Corporation is incorporated in Delaware and currently maintains investments in debt and equity securities. CNB Insurance Agency, incorporated in Pennsylvania, provides for the sale of nonproprietary annuities and other insurance products. CNB Risk Management, Inc., 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, incorporated in Pennsylvania, offers small balance unsecured loans and secured loans, primarily collateralized by automobiles and equipment, to borrowers with higher risk characteristics.

The following discussion should be read in conjunction with the Corporation’s Consolidated Financial Statements and Notes thereto for the year ended December 31, 2020, included in its Annual Report on Form 10-K for the year ended December 31, 2020, and in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 1 of this report. Operating results for three and nine months ended September 30, 2021 are not necessarily indicative of the results for the full year ending December 31, 2021, or any future period.

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:

•Tangible book value per share;
•Tangible equity/tangible assets;
•Tangible common equity/tangible assets;
•Pre-provision net revenue ("PPNR");
•Non-interest income excluding realized gains on available for sale securities;
•Net interest margin (fully tax equivalent basis);
•Efficiency ratio;
•Return on average tangible equity; and
•Return on average tangible common equity

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In addition, non-GAAP evaluations on the impact of PPP-related loans (as defined below), merger costs, branch closure costs and FHLB prepayment penalties on various metrics of the Corporation’s financial performance include calculations related to return on average equity, return on average tangible equity, return on average tangible common equity, tangible equity/tangible assets, tangible common equity/tangible assets and allowance for credit losses/loans. 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 considers return on average equity, earnings per common share, asset quality, and other metrics as key measures of the financial performance of the Corporation. The interest rate environment will continue to play an important role in the future earnings of the Corporation. 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 COVID-19 and the related public health measures undertaken, will continue to have, 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. Communication protocols remain in place and management will continue to evaluate these protocols based on developments regarding the pandemic;

•Restricted all non-essential travel and instituted a mandatory quarantine period for anyone who has traveled to certain impacted areas. While non-essential business travel remains restricted, the Corporation continues to monitor and update its quarantine protocols based on governmental guidelines;

•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 enforcing safe practices in order to serve its consumer and business customers. In addition, the Corporation continues 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, which 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, while enforcing safe practices for our employees; and

•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.

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While non-interest costs are expected to increase with the growth of the Corporation, management’s growth strategies are also expected to result in an increase in earning assets as well as enhanced revenue, which is expected to more than offset increases in non-interest expenses in 2021 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 to review on a regular basis.

CUSTOMER SUPPORT STRATEGIES AND LOAN PORTFOLIO PROFILE

The Corporation is participating in the Paycheck Protection Program (“PPP”) established under the Coronavirus Aid, Relief, and Economics Security Act of 2020 (the “CARES Act”) for loans provided under the auspices of the Small Business Administration (“SBA”). Under PPP, the Corporation provides loans primarily to its existing loan and/or deposit customers based on a pre-determined SBA-developed formula intended to incentivize small business owners to continue to employ their employees during the COVID-19 pandemic. Loans provided pursuant to PPP are subject to certain specified rates and processing fees, among other items. As of September 30, 2021, the Corporation had outstanding $89.2 million in PPP loans, or 869 PPP loan relationships, at a rate of 1.00% and deferred PPP processing fees of approximately $3.8 million. For the three and nine months ended September 30, 2021, the Corporation recognized $2.4 million and $6.8 million in deferred PPP processing fees ("PPP-related fees"), respectively. The outstanding balance of PPP loans at September 30, 2021 is (i) $522 thousand, comprised of 23 loans from the Corporation's participation in the PPP in 2020, and (ii) $88.6 million, or 846 loans, from the Corporation’s participation in the PPP in the first nine months of 2021.

The Corporation also deferred loan payments for its commercial and consumer customers, as determined on a case-by-case basis by the financial needs of each customer. As of September 30, 2021, loans with deferred loan payment arrangements, totaled $24.0 million, or 0.7% of total loans outstanding, consisting of 8 loans, totaling $23.9 million, for which principal and interest were deferred, and 1 loan, totaling $20 thousand, for which principal only was deferred. The Corporation believes that the majority of such loans to resume regular contractual payments by the end of 2021. Loan payment deferrals by loan type were as follows:

•Commercial and industrial loans – 3 loans, totaling $4.5 million;
•Commercial real estate loans – 2 loans, totaling $18.9 million;
•Residential mortgage loans – 3 loans, totaling $602 thousand; and
•Consumer loans - 1 loan, totaling $9 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 the pandemic. At September 30, 2021, the Corporation had loan concentrations for these industries as follows:

•Hotels/Motels – $199.7 million, or 5.8% of total loans outstanding, excluding PPP-related loans; and
•Restaurants/Fast Foods – $31.2 million, or 0.9% of total loans outstanding, excluding PPP-related loans.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents totaled $737.1 million at September 30, 2021, including additional excess liquidity of $682.5 million held at the Federal Reserve. Cash and cash equivalents totaled $532.7 million at December 31, 2020. The increase in liquidity is primarily the result of the impact of government stimulus initiatives and organic growth in deposits.

Management believes the liquidity needs of the Corporation are satisfied primarily 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.

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SECURITIES

Securities available for sale and trading securities totaled $742.7 million and $591.6 million at September 30, 2021 and December 31, 2020, 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. Note 4, "Securities," in the consolidated financial statements provides more detail concerning the composition of the Corporation’s securities portfolio and the process for evaluating securities for 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.

LOANS

The Corporation's total loan portfolio reached $3.5 billion as of September 30, 2021, including $85.4 million in PPP loans, net of PPP deferred processing fees (such loans, the "PPP-related loans"). Compared to December 31, 2020, total loans increased approximately $139.3 million.

Excluding the impact of PPP loans, net of PPP deferred processing fees (such loans, the "PPP-related loans"), the Corporation's loan portfolio had net growth of 6.5%, or 8.7% annualized, from December 31, 2020. The net organic growth for the first nine months of 2021 was $135.0 million, or 4.2% (5.6% annualized) primarily driven by the Corporation's continued expansion in the Cleveland, Buffalo and Ridge View regions, and Private Banking division. In addition, as part of the liquidity management strategies first implemented by the Corporation in 2020, the first nine months of 2021 reflect an increase in syndicated lending activities of $74.5 million. The syndicated loan portfolio totaled $96.6 million, or 2.8% of total loans, excluding PPP-related loans, at September 30, 2021.

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 CREDIT LOSSES

The allowance for credit losses on loans represents management’s estimate of expected credit losses over the estimated life of our existing portfolio of loans. The allowance for credit losses is a valuation account that is deducted from the loan's amortized cost basis to present the net amount expected to be collected on the loans.

The expense for credit loss recorded through earnings is the amount necessary to maintain the allowance for credit losses on loans at the amount of expected credit losses inherent within the loan portfolio. Loans are recorded as charge offs against the allowance when management confirms a loan balance is uncollectable. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts, as well as other significant quantitative and qualitative factors.

Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, changes in environmental conditions, delinquency level, segment growth rates and changes in duration within new markets, or other relevant factors.

Beginning with the quarter ended December 31, 2020 the Corporation adopted ASU 2016-13, effective January 1, 2020. Although the Corporation's adoption of CECL was effective January 1, 2020, the results from quarters prior to the quarter ended December 31, 2020, were based on the incurred loss methodology and these results have not been restated to reflect the CECL methodology. Results for September 30, 2021 and December 31, 2020 (as reflected in the tables below) are presented based on the CECL methodology.


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The following table below presents activity within the allowance account for the nine months ended September 30, 2021:

Beginning
Allowance		(Charge-offs)RecoveriesNet (Charge-Offs) RecoveriesProvision (Benefit) for Credit Loss ExpenseEnding Allowance
Farmland
$221 $0 $0 $0 $(123)$98 
Owner-occupied, nonfarm nonresidential properties
3,700 (531)8 (523)(140)3,037 
Agricultural production and other loans to farmers
24 0 0 0 (17)7 
Commercial and Industrial
6,233 (93)72 (21)2,118 8,330 
Obligations (other than securities and leases) of states and political subdivisions
998 (407)0 (407)1,288 1,879 
Other loans
68 0 0 0 34 102 
Other construction loans and all land development and other land loans1,956 (282)0 (282)695 2,369 
Multifamily (5 or more) residential properties
2,724 0 0 0 (629)2,095 
Non-owner occupied, nonfarm nonresidential properties
8,658 (18)0 (18)(1,361)7,279 
1-4 Family Construction82 0 0 0 144 226 
Home equity lines of credit985 (7)3 (4)239 1,220 
Residential Mortgages secured by first liens4,539 (75)34 (41)1,927 6,425 
Residential Mortgages secured by junior liens241 (3)0 (3)311 549 
Other revolving credit plans507 (28)9 (19)40 528 
Automobile132 (17)3 (14)160 278 
Other consumer2,962 (829)120 (709)237 2,490 
Credit cards66 (77)17 (60)106 112 
Overdrafts244 (318)120 (198)160 206 
Total loans$34,340 $(2,685)$386 $(2,299)$5,189 $37,230 
Loans$3,511,125 
Allowance to loans1.06 %
Allowance to loans, net of PPP-related loans (1)
1.09 %
Annualized percentage of net charge-offs during the period to average loans outstanding0.09 %
Nonperforming assets22,087 
Nonperforming assets as a percentage of total assets0.42 %
(1) A reconciliation of this non-GAAP financial measures is provided in the "Non-GAAP Financial Measures" section.






















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The following table below presents activity within the allowance account for the twelve months ended December 31, 2020:

Beginning
Allowance
(Before ASC 326 Adoption)		Impact of ASC 326 AdoptionInitial Allowance on Loans Purchased with Credit Deterioration(Charge-offs)RecoveriesNet (Charge-Offs) RecoveriesProvision (Benefit) for Credit Loss ExpenseEnding Allowance (After ASC 326 Adoption)
Farmland
$190 $61 $0 $0 $0 $0 $(30)$221 
Owner-occupied, nonfarm nonresidential properties
2,390 (754)82 (61)12 (49)2,031 3,700 
Agricultural production and other loans to farmers
25 5 0 0 0 0 (6)24 
Commercial and Industrial
4,105 (631)216 (2,779)39 (2,740)5,283 6,233 
Obligations (other than securities and leases) of states and political subdivisions
1,022 (231)0 0 0 0 207 998 
Other loans
41 8 0 0 0 0 19 68 
Other construction loans and all land development and other land loans2,327 780 228 0 125 125 (1,504)1,956 
Multifamily (5 or more) residential properties
1,087 312 24 0 0 0 1,301 2,724 
Non-owner occupied, nonfarm nonresidential properties
3,980 2,547 335 (1,522)52 (1,470)3,266 8,658 
1-4 Family Construction56 (35)0 0 0 0 61 82 
Home equity lines of credit180 421 22 (6)1 (5)367 985 
Residential Mortgages secured by first liens1,220 1,100 73 (285)65 (220)2,366 4,539 
Residential Mortgages secured by junior liens114 135 0 (158)2 (156)148 241 
Other revolving credit plans296 378 0 (137)21 (116)(51)507 
Automobile156 (96)0 (29)2 (27)99 132 
Other consumer1,960 1,021 0 (1,513)130 (1,383)1,364 2,962 
Credit cards84 (58)0 (153)14 (139)179 66 
Overdrafts240 0 0 (435)185 (250)254 244 
Total loans$19,473 $4,963 $980 $(7,078)$648 $(6,430)$15,354 $34,340 
Loans$3,371,789 
Allowance to loans1.02 %
Allowance to loans, net of PPP-related loans (1)
1.07 %
Annualized percentage of net charge-offs during the period to average loans outstanding0.21 %
Nonperforming assets31,546 
Nonperforming assets as a percentage of total assets0.67 %
(1) A reconciliation of this non-GAAP financial measures is provided in the "Non-GAAP Financial Measures" section.























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The following table below presents activity within the allowance account for the nine months ended September 30, 2020:
Nine months ending
September 30, 2020
Balance at beginning of period$19,473 
Charge-offs:
Commercial, industrial and agricultural(2,710)
Commercial mortgages(522)
Residential real estate(231)
Consumer(1,310)
Credit cards(120)
Overdrafts(316)
(5,209)
Recoveries:
Commercial, industrial and agricultural40 
Commercial mortgages177 
Residential real estate67 
Consumer126 
Credit cards13 
Overdraft deposit accounts135 
558 
Net charge-offs(4,651)
Provision for loan losses12,065 
Balance at end of period$26,887 
Loans, net of unearned$3,345,810 
Allowance to net loans0.80 %
Allowance to loans, net of PPP-related loans (1)
0.86 %
Annualized percentage of net charge-offs during the period to average loans outstanding0.20 %
Nonperforming assets$27,986 
Nonperforming assets as a percentage of total assets0.59 %
(1) A reconciliation of this non-GAAP financial measures is provided in the "Non-GAAP Financial Measures" section.

The allowance for credit losses measured as a percentage of loans as of September 30, 2021 was 1.06% compared to 1.02% as of December 31, 2020. Total loans at September 30, 2021 and December 31, 2020 include approximately $85.4 million and $155.5 million in PPP-related loans, respectively. Excluding PPP-related loans, which had no required allowance for credit losses allocated to the loan portfolio, the allowance for credit losses measured as a percentage of loans was 1.09% as of September 30, 2021 compared to 1.07% as of December 31, 2020.

The adequacy of the allowance for credit losses is subject to a formal analysis by the Corporation's Allowance for Credit Losses Committee, Credit Administration and Finance Departments of the Corporation. Management believes the provision for credit losses recorded during the nine months ended September 30, 2021, in conjunction with the resultant allowance for credit losses at September 30, 2021, were sufficient to support credit losses expected in its loan portfolio at September 30, 2021.

DEPOSITS

The Corporation considers deposits to be its primary source of funding in support of growth in assets. At September 30, 2021, deposits totaled approximately $4.6 billion, reflecting an increase of approximately $411.9 million, or 9.8%, from total deposits of $4.2 billion at December 31, 2020, primarily as a result of organic growth and the impact of government stimulus initiatives.

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, 2021 and December 31, 2020 there were no borrowings from the FHLB. Additionally, at September 30, 2021, subordinated debt totaled $154.2 million comprised of $133.6 million in subordinated notes and $20.6 million in trust preferred securities. At December 31, 2020, subordinated debt totaled $70.6 million comprised of $50.0 million in subordinated notes and $20.6 million in trust preferred securities.

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During the second quarter of 2021, the Corporation sold $85.0 million aggregate principal amount of its 3.25% fixed-to-floating rate subordinated notes due 2031 (the “2031 Notes”) to certain eligible purchasers in a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act, and the provisions of Rule 506 of Regulation D thereunder. The 2031 Notes mature in June 2031 and will bear interest (i) at a fixed rate of 3.25% per annum from and including the original issue date to but excluding June 15, 2026 or the earlier redemption date, payable semi-annually in arrears, and (ii) from and excluding the maturity date or earlier redemption date, at the rate per year, reset quarterly, equal to the sum of the then current three-month average Secured Overnight Financing Rate (SOFR), determined on the determination date of the applicable interest period, plus 258 basis points, payable quarterly in arrears. The 2031 Notes were designed to qualify as Tier 2 capital under the Federal Reserve’s capital guidelines and received an investment grade rating of BBB- by Kroll Bond Rating Agency.

On October 15, 2021, the Corporation completed the redemption of $50 million aggregate principal amount of its 2026 Notes, representing all outstanding 2026 Notes. The 2026 Notes were redeemed pursuant to their terms at a price equal to 100% of the principal amount, plus accrued and unpaid interest up to, but excluding, October 15, 2021. The Corporation financed the redemption of the 2026 Notes with cash on hand, including net proceeds from the issuance and sale of $85.0 million aggregate principal amount of its 2031 Notes completed in June 2021.

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 strategies, management continues to focus on maintaining a robust level of short-term and long-term borrowing capacity as an available source of liquidity.

SHAREHOLDERS’ EQUITY AND CAPITAL RATIOS AND METRICS

The Corporation’s capital continues to provide a source of strength for the Corporation's profitability and long-term growth strategies. Total shareholders’ equity was $437.7 million at September 30, 2021, reflecting an increase of $21.6 million, or 5.2%, from $416.1 million at December 31, 2020. This increase was the result of organic growth in earnings combined with a reduction in treasury stock, partially offset by decreases in additional paid in capital, accumulated other comprehensive income and payment of dividends to our common and preferred shareholders during the nine months ended September 30, 2021.

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

As of September 30, 2021, the Corporation’s ratio of tangible equity to tangible assets and tangible common equity to tangible assets of 7.56% and 6.45%, respectively, reflected the impact of approximately $85.4 million in PPP-related loans as well as the Corporation's significant excess liquidity. Excluding PPP-related loans and excess liquidity of $682.5 million at September 30, 2021, the Corporation’s adjusted ratio of tangible equity to tangible assets and tangible common equity to tangible assets of 8.87% and 7.57%, respectively, represent a decrease from the September 30, 2020 adjusted ratios of 9.36% and 7.90%, respectively, primarily as a result of the adoption of CECL and the decrease in accumulated other comprehensive income, partially offset by increases in retained earnings, net of dividends.
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September 30, 2021December 31, 2020
Total risk-based capital ratio16.76 %14.32 %
Tier 1 capital ratio12.05 %11.91 %
Common equity tier 1 ratio9.80 %9.50 %
Leverage ratio8.11 %8.11 %
Tangible equity/tangible assets (1)
7.56 %7.94 %
Tangible equity/tangible assets, net of PPP-related loans and excess liquidity (1)
8.87 %9.19 %
Tangible common equity/tangible assets (1)
6.45 %6.70 %
Tangible common equity/tangible assets, net of PPP-related loans and excess liquidity (1)
7.57 %7.76 %
Book value per common share$22.49 $21.29 
Tangible book value per common share (1)
$19.87 $18.66 
(1) Tangible equity, tangible common equity, tangible assets and tangible book value per common share are non-GAAP financial measures calculated using GAAP amounts. Tangible equity is calculated by excluding the balance of goodwill and other intangible assets from the calculation of shareholders’ equity. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets and preferred equity from the calculation of shareholders’ equity. Tangible assets is calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets. Tangible book value per common share is calculated by dividing tangible common equity by the number of shares outstanding. The Corporation believes that these non-GAAP financial measures provide information to investors that is useful in understanding its financial condition. Because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies. A reconciliation of these non-GAAP financial measures is provided.

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 primary 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 and commensurate with the Corporation’s current and expected liquidity requirements.

At September 30, 2021, the Corporation’s cash position totaled approximately $737.1 million, including excess liquidity of $682.5 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, 2021 was approximately $879.2 million.

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, 2021 and December 31, 2020:
 September 30, 2021December 31, 2020
 Fixed RateVariable RateFixed RateVariable Rate
Commitments to make loans$50,110 $281,412 $52,073 $266,336 
Unused lines of credit13,954 637,290 24,328 673,919 
Standby letters of credit15,485 1,706 15,301 1,597 

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The fixed rate loan commitments at September 30, 2021 have interest rates ranging from 1.47% to 16.00% and maturities ranging from six months to approximately 42 years. The fixed rate loan commitments at December 31, 2020 have interest rates ranging from 1.24% to 18.00% and maturities ranging from four months to 35 years.

The Corporation makes investments in limited partnerships, including certain small business investment corporations and low income housing partnerships. Capital contributions for investments in small business corporations, reported in FHLB and other equity interests on the consolidated balance sheet, as of September 30, 2021 and December 31, 2020 were $13,169 and $11,835, respectively. Unfunded capital commitments in investments in small business corporations totaled $9,331 and $3,665 as of September 30, 2021 and December 31, 2020, respectively.

The carrying value of investments in the low income housing partnerships, reported in FHLB and other equity interests on the consolidated balance sheet, as of September 30, 2021 and December 31, 2020 were $5,448 and $6,015, respectively. The related amortization for the three and nine months ended September 30, 2021 was $189 and $568, respectively, and the related amortization for the three and nine months ended September 30, 2020 was $135 and $475, respectively.

Unfunded commitments, reported in accrued interest payable and other liabilities on the consolidated balance sheet, as of September 30, 2021 and December 31, 2020 were $2,826 and $3,624, respectively.
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CONSOLIDATED YIELD COMPARISONS
AVERAGE BALANCES AND NET INTEREST MARGIN FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2021 AND 2020

The loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses for loans. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures.

For the Three Months Ended,
 September 30, 2021September 30, 2020
Average
Balance		Annual
Rate		Interest
Inc./Exp.		Average
Balance		Annual
Rate		Interest
Inc./Exp.
ASSETS:
Securities:
Taxable (1)
$652,625 1.75 %$2,827 $515,944 2.15 %$2,677 
Tax-Exempt (1) (2)
43,929 3.15 %334 47,984 3.26 %375 
Equity Securities (1) (2)
7,769 1.99 %39 12,329 5.84 %181 
Total securities704,323 1.83 %3,200 576,257 2.32 %3,233 
Loans:
Commercial (2)
1,269,813 5.02 %16,059 1,322,390 4.34 %14,436 
Mortgage (2)
2,108,339 4.44 %23,600 1,863,421 4.79 %22,417 
Consumer100,408 10.23 %2,588 98,039 9.84 %2,426 
Total loans (3)
3,478,560 4.82 %42,247 3,283,850 4.76 %39,279 
Other earning assets706,891 0.17 %298 581,219 0.12 %180 
Total earning assets4,889,774 3.72 %$45,745 4,441,326 3.84 %$42,692 
Non interest-bearing assets:
Cash and due from banks48,200 44,786 
Premises and equipment79,978 77,176 
Other assets206,539 177,120 
Allowance for credit losses(37,468)(25,249)
Total non interest-bearing assets297,249 273,833 
TOTAL ASSETS$5,187,023 $4,715,159 
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Demand—interest-bearing$998,485 0.17 %$421 $829,603 0.21 %$429 
Savings2,348,375 0.18 %1,095 2,080,778 0.52 %2,696 
Time442,989 1.72 %1,917 468,166 2.08 %2,453 
Total interest-bearing deposits3,789,849 0.36 %3,433 3,378,547 0.66 %5,578 
Long-term borrowings and finance lease liabilities496 4.80 %6 246,321 1.89 %1,172 
Subordinated notes and debentures154,187 4.41 %1,714 70,620 5.31 %942 
Total interest-bearing liabilities3,944,532 0.52 %$5,153 3,695,488 0.83 %$7,692 
Demand—non interest-bearing744,563 587,405 
Other liabilities60,106 58,175 
Total liabilities4,749,201 4,341,068 
Shareholders’ equity437,822 374,091 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$5,187,023 $4,715,159 
Interest income/Earning assets3.72 %$45,745 3.84 %$42,692 
Interest expense/Interest-bearing liabilities0.52 %5,153 0.83 %7,692 
Net interest spread3.20 %$40,592 3.01 %$35,000 
Interest income/Earning assets3.72 %45,745 3.84 %42,692 
Interest expense/Earning assets0.42 %5,153 0.69 %7,692 
Net interest margin3.30 %$40,592 3.15 %$35,000 
(1) Includes unamortized discounts and premiums. Average balance is computed using the fair value of securities. The average yield has been computed using the 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 nonaccrual 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, 2021 AND 2020

The loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses for loans. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures.

For the Nine Months Ended,
 September 30, 2021September 30, 2020
Average
Balance		Annual
Rate		Interest
Inc./Exp.		Average
Balance		Annual
Rate		Interest
Inc./Exp.
ASSETS:
Securities:
Taxable (1)
$602,485 1.72 %$7,618 $498,475 2.50 %$9,030 
Tax-Exempt (1) (2)
44,290 3.49 %1,107 58,041 3.35 %1,402 
Equity Securities (1) (2)
7,573 4.43 %251 13,267 6.09 %605 
Total securities654,348 1.87 %8,976 569,783 2.67 %11,037 
Loans:
Commercial (2)
1,277,670 4.96 %47,382 1,210,359 4.48 %40,567 
Mortgage (2)
2,057,129 4.53 %69,642 1,724,241 4.80 %61,990 
Consumer99,164 9.91 %7,352 100,390 9.66 %7,260 
Total loans (3)
3,433,963 4.84 %124,376 3,034,990 4.88 %109,817 
Other earning assets624,430 0.13 %611 346,896 0.27 %697 
Total earning assets4,712,741 3.81 %$133,963 3,951,669 4.13 %$121,551 
Non interest-bearing assets:
Cash and due from banks46,793 40,412 
Premises and equipment78,949 74,786 
Other assets194,893 161,232 
Allowance for credit losses(36,432)(22,760)
Total non interest-bearing assets284,203 253,670 
TOTAL ASSETS$4,996,944 $4,205,339 
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Demand—interest-bearing$960,383 0.19 %$1,342 $718,408 0.25 %$1,368 
Savings2,284,358 0.24 %4,037 1,854,490 0.78 %10,876 
Time454,176 1.89 %6,406 434,991 2.20 %7,174 
Total interest-bearing deposits3,698,917 0.43 %11,785 3,007,889 0.86 %19,418 
Long-term borrowings and finance lease liabilities517 4.65 %18 251,170 1.95 %3,666 
Subordinated notes and debentures107,755 4.66 %3,747 70,620 5.37 %2,839 
Total interest-bearing liabilities3,807,189 0.55 %$15,550 3,329,679 1.04 %$25,923 
Demand—non interest-bearing703,777 479,414 
Other liabilities58,059 56,686 
Total liabilities4,569,025 3,865,779 
Shareholders’ equity427,919 339,560 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$4,996,944 $4,205,339 
Interest income/Earning assets3.81 %$133,963 4.13 %$121,551 
Interest expense/Interest-bearing liabilities0.55 %15,550 1.04 %25,923 
Net interest spread3.26 %$118,413 3.09 %$95,628 
Interest income/Earning assets3.81 %133,963 4.13 %121,551 
Interest expense/Earning assets0.44 %15,550 0.88 %25,923 
Net interest margin3.37 %$118,413 3.25 %$95,628 
(1) Includes unamortized discounts and premiums. Average balance is computed using the fair value 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 nonaccrual 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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RESULTS OF OPERATIONS
Three Months Ended September 30, 2021 and 2020

OVERVIEW

The Corporation’s operating results for the three months ended September 30, 2021 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.

Net income was $14.9 million, or $0.82 per diluted common share, for the quarter ended September 30, 2021, compared to $7.8 million, or $0.47 per diluted share, for the same period in 2020, reflecting increases of $7.1 million, or 91.5%, and $0.35 per diluted share, or 74.5%. Included in net income for the quarter ended September 30, 2020 was the after-tax impact of $3.8 million, or $0.23 per diluted share, in merger costs, prepayment penalties and branch closure costs.

Provision for credit losses was $1.1 million for the three months ended September 30, 2021 compared to $3.3 million for the three months ended September 30, 2020. The third quarter of 2021 provision for credit losses reflects a reserve requirement resulting from growth in the Corporation's loan portfolio, changes in historical loss rates and quantitative inputs including the unemployment forecast and prepayment speeds, coupled with qualitative adjustments in the Corporation's residential and consumer loan portfolios, growth in new market areas, as well as continued uncertainty with the pandemic and economic environment, and the impact of net charge-offs, partially offset by improvements or resolutions in the Corporation's individually evaluated loans.

PPNR income was $19.5 million for the three months ended September 30, 2021, compared to $13.1 million for the three months ended September 30, 2020, reflecting an increase of $6.4 million, or 49.2%. PPNR for the three months ended September 30, 2020 included $4.7 million in merger costs, prepayment penalties and branch closure costs.

Total revenue (comprised of net interest income plus non-interest income) was $48.7 million for the three months ended September 30, 2021, reflecting an increase of $7.3 million, or 17.5%, from the three months ended September 30, 2020, primarily as a result of growth in average earning assets of approximately $448.4 million, or 10.1%, coupled with an increase of 15 basis points in net interest margin during the same period.

Total non-interest expense was $29.2 million, reflecting an increase of $831 thousand, or 2.9%, from the three months ended September 30, 2020. Included in non-interest expense for the three months ended September 30, 2020 is $4.7 million in merger costs, prepayment penalties and branch closure costs. Salaries and benefits increased $2.8 million from the three months ended September 30, 2020 primarily as a result of hiring additional personnel in the Corporation's growth regions of Cleveland and Buffalo, as well as the Corporation's latest expansion in Roanoke, VA through its de novo brand, Ridge View Bank, merit increases for existing employees, higher incentive compensation and higher benefit costs. Additionally, technology expense increased $1.4 million from the three months ended September 30, 2020 as a result of increased investments in technology aimed at enhancing customer experience. Finally, other expenses increased $1.2 million from the three months ended September 30, 2020. There were no significant increases or decreases in the individual components of other expenses.

Annualized return on average equity was 13.51% for the three months ended September 30, 2021, compared to 8.28% for the three months ended September 30, 2020. Annualized return on average tangible equity was 15.03% for the three months ended September 30, 2021, compared to 9.39% for the three months ended September 30, 2020. Annualized return on average tangible common equity was 16.34% and 10.08% for the same periods in 2021 and 2020, respectively. Excluding after-tax merger costs, prepayment penalties and branch closure costs, annualized adjusted return on average equity, average tangible equity and average tangible common equity were 12.32%, 13.98% and 15.00% for the three months ended September 30, 2020. Efficiency ratio was 59.47% for the three months ended September 30, 2021, compared to 67.71% for the comparable period in 2020. Included in the efficiency ratio for the three months ended September 30, 2020 was $4.7 million in merger costs, prepayment penalties and branch closure costs. The increases in the Corporation’s performance metrics from September 30, 2020 to September 30, 2021 were primarily due to growth in average earning assets, an increase in net interest margin, and a well-controlled level of operating efficiency.

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NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income of $40.3 million for the three months ended September 30, 2021, an increase of $5.6 million, or 16.2%, from the three months ended September 30, 2020, primarily as a result of loan growth, various deposit pricing and liquidity strategies and PPP-related fees, which were approximately $2.4 million for the three months ended September 30, 2021, compared to $683 thousand for the three months ended September 30, 2020.

Net interest margin on a fully tax-equivalent basis was 3.30% and 3.15% for the three months ended September 30, 2021 and 2020, respectively. The yield on earning assets of 3.72% for the three months ended September 30, 2021 decreased 12 basis points from 3.84% for the three months ended September 30, 2020, primarily as a result of the lower interest rate environment and higher level of excess cash at the Federal Reserve. The cost of interest-bearing liabilities decreased 31 basis points from 0.83% for the three months ended September 30, 2020 to 0.52% for the three months ended September 30, 2021, primarily as a result of the Corporation’s targeted deposit rate reductions and the repayment of the Corporation's remaining FHLB borrowings in the fourth quarter of 2020.

NON-INTEREST INCOME

Total non-interest income was $8.4 million for the three months ended September 30, 2021, an increase of $1.6 million, or 24.1%, from the same period in 2020. During the three months ended September 30, 2021, Wealth and Asset Management fees increased $320 thousand, or 22.6%, compared to the three months ended September 30, 2020. Other significant improvements during the three months ended September 30, 2021 included increased income from investments in Small Business Investment Company ("SBIC") funds, charges on deposits and card processing and interchange income, resulting from increased business activity.

NON-INTEREST EXPENSES

For the three months ended September 30, 2021, total non-interest expense was $29.2 million, reflecting an increase of $831 thousand, or 2.9%, from the three months ended September 30, 2020. Included in non-interest expense for the three months ended September 30, 2020 is $4.7 million in merger costs, prepayment penalties and branch closure costs. Salaries and benefits increased $2.8 million from the three months ended September 30, 2020 primarily as a result of hiring additional personnel in the Corporation's growth regions of Cleveland and Buffalo, as well as the Corporation's latest expansion in Roanoke, VA through its de novo brand, Ridge View Bank, merit increases for existing employees, higher incentive compensation and higher benefit costs. Additionally, technology expense increased $1.4 million from the three months ended September 30, 2020 as a result of increased investments in technology aimed at enhancing customer experience. Finally, other expenses increased $1.2 million from the three months ended September 30, 2020. There were no significant increases or decreases in the individual components of other expenses. Accordingly, the efficiency ratio was 59.47% for the three months ended September 30, 2021, compared to 67.71% during the comparable period in 2020. Included in the efficiency ratio for the three months ended September 30, 2020 is $4.7 million in merger costs, prepayment penalties and branch closure costs.

INCOME TAX EXPENSE

Income tax expense was $3.5 million for the three months ended September 30, 2021 an increase of $1.5 million, or 76.7%, from the three months ended September 30, 2020. Our effective tax rate was 19.0% for the three months ended September 30, 2021, compared to 20.3% for the three months ended September 30, 2020. The decrease in the effective tax rate was primarily attributable to the change in mix of taxable and tax-exempt activities. The effective tax rates for the periods differed from the federal statutory rate of 21.0% at September 30, 2021 and 2020 primarily due to our 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, 2021 and 2020

OVERVIEW

The Corporation’s operating results for the nine months ended September 30, 2021 were impacted by the COVID-19 pandemic, as discussed in more detail above in "Results of Operations - Three Months Ended September 30, 2021 and 2020."

Net income was $43.1 million, or $2.36 per diluted common share, for the nine months ended September 30, 2021, compared to $24.8 million, or $1.57 per diluted share, for the same period in 2020, reflecting increases of $18.2 million, or 73.4%, and $0.79 per diluted share, or 50.3%. Included in net income for the nine months ended September 30, 2020 was the after-tax impact of $4.3 million, or $0.27 per diluted share, in merger costs, prepayment penalties and branch closure costs.

Provision for credit losses of $5.2 million for the first nine months of 2021 decreased $6.9 million, or 57.0%, from the comparable period in 2020. The provision for credit losses for the nine months ended September 30, 2020 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 COVID-19 pandemic of approximately $1.7 million, (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. The nine months ended September 30, 2021 provision for credit losses reflects a reserve requirement resulting from growth in the Corporation's loan portfolio, changes in historical loss rates and quantitative inputs including the unemployment forecast and prepayment speeds, coupled with qualitative adjustments in the Corporation's residential and consumer loan portfolios, growth in new market areas, as well as continued uncertainty with the pandemic and economic environment, and the impact of net charge-offs, partially offset by improvements or resolutions in the Corporation's individually evaluated loans.Net charge-offs in the first nine months of 2021 and 2020 were $2.3 million and $4.7 million, respectively. Net charge-offs of the Bank totaled $1.6 million and $3.6 million during the nine months ended September 30, 2021 and 2020, or 0.06% and 0.16%, respectively, of average Bank loans.

PPNR income was $58.3 million for the nine months ended September 30, 2021, as compared to $42.4 million for the nine months ended September 30, 2020, reflecting an increase of $15.9 million, or 37.5%. Included in PPNR for the nine months ended September 30, 2020 was $5.2 million in merger costs, prepayment penalties and branch closure costs.

Total revenue (comprised of net interest income plus non-interest income) was $142.2 million for the nine months ended September 30, 2021, an increase of $27.5 million, or 24.0%, from the nine months ended September 30, 2020, primarily as a result of growth in average earning assets of approximately $761.1 million or 19.3%, and an increase of 12 basis points in net interest margin during the same period.

Total non-interest expense was $84.0 million, for the nine months ended September 30, 2021, an increase of $11.7 million, or 16.1%, from the nine months ended September 30, 2020. Included in non-interest expense for the nine months ended September 30, 2020 was $5.2 million in merger costs, prepayment penalties and branch closure costs. Salaries and benefits increased $8.9 million from the nine months ended September 30, 2020 primarily as a result the acquisition of Bank of Akron, hiring additional personnel in the Corporation's growth regions of Cleveland and Buffalo, as well as the Corporation's latest expansion in Roanoke, VA through its de novo brand, Ridge View Bank, merit increases for existing employees, higher incentive compensation and higher benefit costs. Additionally, technology expense increased $4.4 million from the nine months ended September 30, 2020 as a result of increased investments in technology aimed at enhancing customer experience. Finally, other expenses increased $1.5 million from the nine months ended September 30, 2020 primarily as a result of market value appreciation in the Corporation’s deferred compensation plans.

Annualized return on average equity was 13.46% for the nine months ended September 30, 2021, compared to 9.77% for the nine months ended September 30, 2020. Annualized return on average tangible equity was 15.01% for the nine months ended September 30, 2021, compared to 11.10% for the nine months ended September 30, 2020. Annualized return on average tangible common equity was 16.35% and 11.39% for the same periods in 2021 and 2020, respectively. Excluding after-tax merger costs, prepayment penalties and branch closure costs, annualized adjusted return on average equity, average common equity and average tangible common equity were 11.47%, 13.03% and 13.37% for the nine months ended September 30, 2020 Efficiency ratio was 58.53% for the nine months ended September 30, 2021 compared to 62.15% for the comparable period in 2020. The efficiency ratio for the nine months ended September 30, 2020 included $5.2 million in merger costs, prepayment penalties and branch closure costs.


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NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income was $117.7 million for the nine months ended September 30, 2021, an increase of $23.1 million, or 24.4%, from the nine months ended September 30, 2020,primarily as a result of loan growth, various deposit pricing and liquidity strategies and PPP-related fees, which totaled for the nine months ended September 30, 2021 approximately $6.8 million, compared to $683 thousand for the nine months ended September 30, 2020.

Net interest margin on a fully tax-equivalent basis was 3.37% and 3.25% for the nine months ended September 30, 2021 and 2020, respectively. The yield on earning assets of 3.81% for the nine months ended September 30, 2021 decreased 32 basis points from 4.13% for the nine months ended September 30, 2020, primarily as a result of the lower interest rate environment and higher level of excess cash at the Federal Reserve. The cost of interest-bearing liabilities decreased 49 basis points from 1.04% for the nine months ended September 30, 2020 to 0.55% for the nine months ended September 30, 2021, primarily as a result of the Corporation’s targeted deposit rate reductions and the repayment of the Corporation's remaining FHLB borrowings in the fourth quarter of 2020.

NON-INTEREST INCOME

Total non-interest income was $24.5 million for the nine months ended September 30, 2021, an increase of $4.4 million, or 22.0%, from the same period in 2020. Included in non-interest income for the nine months ended September 30, 2020 was $2.2 million in net realized gains on available for sale securities. Excluding the impact of the realized gains on available for sale securities for the nine months ended September 30, 2020, total non-interest income for the nine months ended September 30, 2021, increased $6.6 million, or 36.9%, from the same period in 2020. The increase was partially driven by growth in Wealth and Asset Management fees, as assets under management increased by $94.4 million, or 8.2%, from September 30, 2020, to $1.2 billion as of September 30, 2021. Other significant factors that contributed to the increase included mortgage banking, income from investments in SBIC funds, card processing and interchange income from increased business activity as well as an increase in net realized and unrealized gains on trading securities.

NON-INTEREST EXPENSES

For the nine months ended September 30, 2021, total non-interest expense was $84.0 million, an increase of $11.7 million, or 16.1%, from the nine months ended September 30, 2020. Included in non-interest expense for the nine months ended September 30, 2020 is $5.2 million in merger costs, prepayment penalties and branch closure costs. Salaries and benefits increased $8.9 million from the nine months ended September 30, 2020 primarily as a result the acquisition of Bank of Akron, hiring additional personnel in the Corporation's growth regions of Cleveland and Buffalo, as well as the Corporation's latest expansion in Roanoke, VA through its de novo brand, Ridge View Bank, merit increases for existing employees, higher incentive compensation and higher benefit costs. Additionally, technology expense increased $4.4 million from the nine months ended September 30, 2020 as a result of increased investments in technology aimed at enhancing customer experience. Finally, other expenses increased $1.5 million from the nine months ended September 30, 2020 primarily as a result of market value appreciation in the Corporation’s deferred compensation plans.


INCOME TAX EXPENSE

Income tax expense was $10.0 million for the nine months ended September 30, 2021 an increase of $4.5 million, or 82.8%, from the nine months ended September 30, 2020. Our effective tax rate was 18.8% for the nine months ended September 30, 2021 compared to 18.0% for the nine months ended September 30, 2020. Included in the 18.0% effective tax rate for the nine month ended September 30, 2020 were merger costs, prepayment penalties and branch closure costs, which reduced the effective tax rate. The effective tax rates for the periods differed from the federal statutory rate of 21.0% at September 30, 2021 and 2020 primarily due to our tax-exempt income from securities and loans, as well as earnings from bank owned life insurance.

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CRITICAL ACCOUNTING POLICIES

The Corporation’s accounting and reporting policies are in accordance with GAAP and conform to general practices within the financial services industry. Accounting and reporting practices for the allowance for credit losses and 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 and intangibles that was recorded, required the use of material estimates. Application of assumptions different than those used by management could result in material changes in the Corporation’s financial position or results of operations. Note 1 (Summary of Significant Accounting Policies), Note 2 (Business Combinations) Note 3 (Securities) and Note 4 (Loans) of the 2020 Form 10-K provide additional detail with regard to the Corporation’s accounting for the allowance for credit 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, 2020.


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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.

(unaudited)
September 30,December 31,
20212020
Calculation of tangible book value per share and tangible common equity/tangible assets:
Shareholders' equity$437,689 $416,137 
Less: preferred equity57,785 57,785 
Less: goodwill43,749 43,749 
Less: core deposit intangible485 567 
Tangible common equity$335,670 $314,036 
Total assets$5,246,286 $4,729,399 
Less: goodwill43,749 43,749 
Less: core deposit intangible485 567 
Tangible assets$5,202,052 $4,685,083 
Ending shares outstanding16,889,694 16,833,008 
Tangible book value per common share$19.87 $18.66 
Tangible common equity/Tangible assets6.45 %6.70 %
Calculation of tangible equity/tangible assets:
Shareholders' equity$437,689 $416,137 
Less: goodwill43,749 43,749 
Less: core deposit intangible485 567 
Tangible equity$393,455 $371,821 
Tangible assets$5,202,052 $4,685,083 
Tangible equity/Tangible assets7.56 %7.94 %
Calculation of tangible common equity/tangible assets, net of PPP-related loans and excess liquidity at the Federal Reserve:
Tangible common equity$335,670 $314,036 
Tangible assets$5,202,052 $4,685,083 
Less: PPP-related loans85,354 155,529 
Less: Excess liquidity at the Federal Reserve682,475 482,503 
Adjusted tangible assets$4,434,223 $4,047,051 
Adjusted tangible common equity/tangible assets7.57 %7.76 %
Calculation of tangible equity/tangible assets, net of PPP-related loans and excess liquidity at the Federal Reserve:
Tangible equity$393,455 $371,821 
Adjusted tangible assets$4,434,223 $4,047,051 
Adjusted tangible equity/tangible assets8.87 %9.19 %

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(unaudited)(unaudited)
September 30,December 31,September 30,
202120202020
Calculation of allowance / loans, net of PPP-related loans:
Total allowance for credit losses (2)
$37,230 $34,340 $26,887 
Total loans net of unearned income$3,511,125 $3,371,789 $3,345,810 
Less: PPP-related loans85,354 155,529 222,972 
Adjusted total loans, net of unearned income, PPP-related loans (non-GAAP)$3,425,771 $3,216,260 $3,122,838 
Adjusted allowance / loans, net of PPP-related loans (non-GAAP) (2)
1.09 %1.07 %0.86 %

(unaudited)(unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
Calculation of net interest margin (fully tax equivalent basis):
Interest income (fully tax equivalent basis) (non-GAAP)$45,745 $42,692 $133,963 $121,551 
Interest expense (fully tax equivalent basis) (non-GAAP)5,153 7,692 15,550 25,923 
Net interest income (fully tax equivalent basis) (non-GAAP)$40,592 $35,000 $118,413 $95,628 
Average total earning assets$4,889,774 $4,441,326 $4,712,741 $3,951,669 
Less: average mark to market adjustment on investments10,029 21,859 10,879 18,589 
Adjusted average total earning assets, net of mark to market (non-GAAP)$4,879,745 $4,419,467 $4,701,862 $3,933,080 
Net interest margin, fully tax equivalent basis (non-GAAP) (annualized)3.30 %3.15 %3.37 %3.25 %

(unaudited)(unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
Calculation of efficiency ratio:
Non-interest expense$29,199 $28,368 $83,968 $72,309 
Less: core deposit intangible amortization26 26 82 178 
Adjusted non-interest expense (non-GAAP)$29,173 $28,342 $83,886 $72,131 
Non-interest income$8,414 $6,778 $24,510 $20,091 
Net interest income$40,295 $34,664 $117,721 $94,596 
Less: tax exempt investment and loan income, net of TEFRA (non-GAAP)1,185 1,375 3,710 4,351 
Add: tax exempt investment and loan income (non-GAAP) (tax-equivalent)1,532 1,792 4,796 5,730 
Adjusted net interest income (non-GAAP)40,642 35,081 118,807 95,975 
Adjusted net revenue (non-GAAP) (tax-equivalent)$49,056 $41,859 $143,317 $116,066 
Efficiency ratio59.47 %67.71 %58.53 %62.15 %
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(unaudited)(unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
Calculation of PPNR:
Net interest income$40,295 $34,664 $117,721 $94,596 
Add: Non-interest income8,414 6,778 24,510 20,091 
Less: Non-interest expense29,199 28,368 83,968 72,309 
PPNR (non-GAAP)$19,510 $13,074 $58,263 $42,378 
(1) Management believes that this is an important metric as it illustrates the underlying performance of the Corporation, it enables investors and others to assess the Corporation's ability to generate capital to cover credit losses through the credit cycle and provides consistent reporting with a key metric used by bank regulatory agencies.

(unaudited)(unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
Calculation of adjusted return on average equity:
Net income$14,907 $7,785 $43,078 $24,844 
Add: merger costs, prepayment penalties and branch closure costs (net of tax)0 3,803 0 4,322 
Adjusted net income$14,907 $11,588 $43,078 $29,166 
Average shareholders' equity$437,822 $374,091 $427,919 $339,560 
Adjusted return on average equity13.51 %12.32 %13.46 %11.47 %

(unaudited)(unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
Calculation of return on average tangible equity:
Net income$14,907 $7,785 $43,078 $24,844 
Average tangible shareholders' equity393,571 329,859 383,641 298,922 
Return on average tangible equity (non-GAAP) (annualized)15.03 %9.39 %15.01 %11.10 %
Calculation of adjusted return on average tangible equity:
Net income available to common stockholders$14,907 $7,785 $43,078 $24,844 
Add: merger costs, prepayment penalties and branch closure costs (net of tax)0 3,803 0 4,322 
Adjusted net income available to common stockholders$14,907 $11,588 $43,078 $29,166 
Average common shareholders' equity393,571 329,859 383,641 298,922 
Adjusted return on average common equity (non-GAAP) (annualized)15.03 %13.98 %15.01 %13.03 %

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(unaudited)(unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
Calculation of return on average tangible common equity:
Net income available to common stockholders$13,831 $7,785 $39,852 $24,844 
Average tangible common shareholders' equity335,786 307,257 325,856 291,333 
Return on average tangible common equity (non-GAAP) (annualized)16.34 %10.08 %16.35 %11.39 %
Calculation of adjusted return on average tangible common equity:
Net income available to common stockholders$13,831 $7,785 $39,852 $24,844 
Add: merger costs, prepayment penalties and branch closure costs (net of tax)0 3,803 0 4,322 
Adjusted net income available to common stockholders$13,831 $11,588 $39,852 $29,166 
Average tangible common shareholders' equity335,786 307,257 325,856 291,333 
Adjusted return on average tangible common equity (non-GAAP) (annualized)16.34 %15.00 %16.35 %13.37 %

(unaudited)(unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
Calculation of non-interest income excluding net realized gains on available-for-sale securities:
Non-interest income$8,414 $6,778 $24,510 $20,091 
Less: net realized gains on available-for-sale securities0 0 0 2,190 
Adjusted non-interest income$8,414 $6,778 $24,510 $17,901 


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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, 2021, all interest rate risk levels according to the model were within the tolerance limits of ALCO-approved policy. In addition, the table does not take into consideration changes that management would make to realign its assets and liabilities in the event of an unexpected changing interest rate environment. Due to the current low interest rate environment, the 300 and 400 basis point declining interest rate scenarios have been excluded from the table.
September 30, 2021
Change in
Basis Points		 % Change in Net
Interest Income
400 24.6%
300 18.0%
20012.4%
100 6.3%
(100) (6.3)%
(200)(10.7)%

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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, 2021 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 2020 Form 10-K.

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

The following table provides information with respect to any purchase of shares of the Corporation’s common stock made by or on behalf of the Corporation for the three months ended September 30, 2021.
PeriodTotal Number of Shares PurchasedAverage Price Paid per Common ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number (or approximate dollar value) of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 1 – 31, 20210 $0 0 183,131 
August 1 – 31, 20210 0 0 183,131 
September 1 – 30, 20210 0 0 183,131 
 
(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, 2021, there were 183,131 shares remaining in the program.

Additionally, during the quarter ended September 30, 2021, certain employees surrendered shares of common stock owned by them to satisfy their statutory minimum U.S. federal and state tax obligations associated with the vesting of shares of restricted common stock issued under the CNB Financial Corporation 2019 Omnibus Incentive Plan.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.
ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.
ITEM 5. OTHER INFORMATION

None.
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ITEM 6. EXHIBITS
Exhibit No.  Description
10.1
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
104Cover 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 4, 2021   /s/ Joseph B. Bower, Jr.
   Joseph B. Bower, Jr.
   President and Chief Executive Officer
   (Principal Executive Officer)
DATE: November 4, 2021   /s/ Tito L. Lima
   Tito L. Lima
   Treasurer
   (Principal Financial and Accounting Officer)

68

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