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CNB FINANCIAL CORPPA

For the period ended Mar 31, 2024. Filed May 1, 2024.

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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.

Mar 31, 2024 · Filed May 1, 2024

CCNE$36.26+1.3%Stored close · as of Nov 9, 2026

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Notes to Condensed Consolidated Financial Statements

CNB FINANCIAL CORPORATION

NOTES TO CONDENSEDC ONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DISCLOSURE RULES

Nature of Operations

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

Basis of Presentation

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

In the opinion of management of the registrant, the accompanying condensed consolidated financial statements as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations for the periods presented. The financial performance reported for the Corporation for the three months ended March 31, 2024 is not necessarily indicative of the results to be expected for the full year.

This information should be read in conjunction with the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Form 10-K"). Certain amounts appearing in the condensed consolidated financial statements and notes thereto for prior periods may be reclassified to conform with the current presentation. If there are reclassifications, the reclassifications had no effect on net income or shareholders’ equity as previously reported. Dollar amounts in tables are stated in thousands, except for per share amounts.

Use of Estimates

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

Operating Segments

While the Corporation's Chief Operating Decision Maker ("CODM") monitors the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Corporation-wide basis, and operating divisions are aggregated intoone as operating results for all segments are similar. Accordingly, all of the financial services operations are considered by management to be aggregated inone reportable operating segment.

Goodwill Assessment

The Corporation's policy is to test goodwill for impairment annually on November 30 or on an interim basis if an event triggering impairment may have occurred. Management evaluated current conditions and concluded there have been no significant changes in the economic environment or future projections since the annual goodwill impairment test performed as of November 30, 2023 and therefore, believes that there isno impairment as of March 31, 2024. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes.

  1. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted in 2023

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." This ASU requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, "Revenue from Contracts with Customers." ASU 2021-08 was effective for the Corporation on January 1, 2023 and did not have a material impact on its condensed consolidated financial statements and related disclosures.

In March 2022, the FASB issued ASU 2022-01, "Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method." Under prior guidance, entities can apply the last-of-layer hedging method to hedge the exposure of a closed portfolio of prepayable financial assets to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 expands the last-of-layer method, which permits only one hedge layer, to allow multiple hedged layers of a single closed portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. ASU 2022-01 also (i) expands the scope of the portfolio layer method to include non-prepayable financial assets, (ii) specifies eligible hedging instruments in a single-layer hedge, (iii) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method and (iv) specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. ASU 2022-01 was effective for the Corporation on January 1, 2023 and did not have a material impact on its condensed consolidated financial statements and related disclosures.

In March 2022, the FASB issued ASU 2022-02, "Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." This ASU eliminates the separate recognition and measurement guidance for Troubled Debt Restructurings ("TDRs") by creditors. The elimination of the TDRs guidance may be adopted prospectively for loan modifications after adoption or on a modified retrospective basis, which would also apply to loans previously modified, resulting in a cumulative effect adjustment to retained earnings in the period of adoption for changes in the allowance for credit losses. ASU 2022-02 was effective for the Corporation on January 1, 2023 and did not have a material impact on its condensed consolidated financial statements and related disclosures.

In July 2023, FASB issued ASU 2023-03, "Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force ("EITF") Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock." This ASU amends the FASB Accounting Standards Codification for SEC updates pursuant to SEC Staff Accounting Bulletin No. 120; SEC Staff Announcement at the March 24, 2022 EITF Meeting; and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. The updates were effective immediately. These updates did not have a material impact on the Corporation's condensed consolidated financial statements and related disclosures.

Accounting Standards Adopted in 2024

In June 2022, FASB issued ASU 2022-03, "Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." In this ASU, a contractual restriction on the sale of an equity security is not considered in measuring the security's fair value. The ASU also requires certain disclosures for equity securities that are subject to contractual restrictions. This guidance was effective for the Corporation on January 1, 2024. These updates did not have a material impact on the Corporation's condensed consolidated financial statements and related disclosures.

In March 2023, FASB issued ASU 2023-01, "Leases (Topic 842): Common Control Arrangements." This ASU requires the Corporation to amortize leasehold improvements associated with common control leases over the useful life to the common control group. This guidance is effective for the Corporation on January 1, 2024. These updates did not have a material impact on the Corporation's condensed consolidated financial statements and related disclosures.

In March 2023, FASB issued ASU 2023-02, "Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." In this ASU, these amendments allow the Corporation to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. This guidance is effective for the Corporation on January 1, 2024.

These updates did not have a material impact on the Corporation's condensed consolidated financial statements and related disclosures.

Accounting Pronouncements Pending Adoption

In August 2023, FASB issued ASU 2023-05, "Business Combinations - Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement." ASU 2023-05 requires certain joint ventures to apply a new basis of accounting upon formation by recognizing and initially measuring most of their assets and liabilities at fair value. The objectives of the amendments are to provide decision-useful information to investors and other allocators of capital in a joint venture’s financial statements and also to reduce diversity in practice. ASU 2023-05 should be applied prospectively and is effective for all newly formed joint venture entities with a formation date on or after January 1, 2025. Early adoption is permitted, and joint ventures formed prior to the adoption date may elect to apply the new guidance retrospectively back to their original formation date. The Corporation is evaluating the effect that ASU 2023-05 will have on its condensed consolidated financial statements and related disclosures.

In October 2023, FASB issued ASU 2023-06, "Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative." The ASU amends the ASC to incorporate certain disclosure requirements from SEC Release No. 33-10532 - Disclosure Update and Simplification that was issued in 2018. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Corporation is evaluating the effect that ASU 2023-06 will have on its condensed consolidated financial statements and related disclosures.

In November 2023, FASB issued ASU 2023-07, "Improvements to Reportable Segment Disclosures (Topic 280)." This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the CODM and included within each reported measure of a segment's profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. The Corporation is evaluating the effect that ASU 2023-07 will have on its condensed consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, "Improvements to Income Tax Disclosures (Topic 740)." The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. The Corporation is evaluating the effect that ASU 2023-09 will have on its condensed consolidated financial statements and related disclosures.

In March 2024, the FASB issued ASU 2024-01, "Compensation - Stock Compensation (Topic 718)." The ASU adds an illustrative example to demonstrate how an entity should apply the scope guidance in paragraph 718-10-15-3 to determine whether profits interest and similar awards ("profits interest awards") should be accounted for in accordance with Topic 718, Compensation—Stock Compensation. The amendment in this ASU should be applied either (1) retrospectively to all prior periods presented in the financial statements or (2) prospectively to profits interest and similar awards granted or modified on or after the date at which the entity first applies the amendments. If the amendments are applied retrospectively, an entity is required to provide the disclosures in paragraphs 250-10-50-1 through 50-3 in the period of adoption. If the amendment is applied prospectively, an entity is required to disclose the nature of and reason for the change in accounting principle. The ASU is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is also permitted for interim and annual financial statements that have not yet been issued or made available for issuance. If an entity adopts the amendments in an interim period, it should adopt the amendment as of the beginning of the annual period that includes that interim period. The Corporation is evaluating the effect that ASU 2024-01 will have on its condensed consolidated financial statements and related disclosures.

In March 2024, the FASB issued ASU 2024-02, "Codification Improvements—Amendments to Remove References to the Concepts Statements." The ASU contains amendments to the FASB Accounting Standards Codification that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Concept Statements to provide guidance in certain topical areas. The amendment in this ASU should be applied using one of the following transition methods: (1) prospectively to all new transactions recognized on or after the date that the entity first applies the amendments; or (2) retrospectively to the beginning of the earliest comparative period presented in which the amendments were first applied. An entity should adjust the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) as of the beginning of the earliest comparative period presented. The ASU is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early application of the amendment is permitted for any fiscal year or interim period for which financial statements have not yet been issued, or made available for issuance. If an entity adopts the amendment in an interim period, it must adopt the amendment as of the beginning of the fiscal year that includes that interim period. The Corporation is evaluating the effect that ASU 2024-02 will have on its condensed consolidated financial statements and related disclosures.

Securities and Exchange Commission ("SEC") Disclosure Rules

In March 2024, the SEC adopted its final rule under SEC Release no. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors. In April 2024, the SEC stayed the final climate rule pending the completion of judicial review of an Eighth Circuit challenge seeking to vacate the rule. This rule would require registrants to disclose certain climate-related information in registration statements and annual reports. The disclosure requirements would apply to the Corporation’s fiscal year beginning January 1, 2026. The Corporation is currently evaluating the final rule to determine its impact on the Corporation’s disclosures.

  1. SECURITIES

Debt securities available-for-sale ("AFS") at March 31, 2024 and December 31, 2023 were as follows:

March 31, 2024
Amortized · Unrealized · Allowance For · Fair
CostGainsLossesCredit LossesValue
U.S. Government sponsored entities$19,506$—$(31)$—$19,475
State & political subdivisions104,9796(13,743)—91,242
Residential & multi-family mortgage220,199—(35,417)—184,782
Corporate notes & bonds48,2813(5,317)—42,967
Pooled SBA11,029—(930)—10,099
Total$403,994$9$(55,438)$—$348,565
December 31, 2023
Amortized · Unrealized · Allowance For · Fair
CostGainsLossesCredit LossesValue
U.S. Government sponsored entities$5,024$—$(36)$—$4,988
State & political subdivisions105,10222(13,315)—91,809
Residential & multi-family mortgage225,8711(34,353)—191,519
Corporate notes & bonds48,45913(5,333)—43,139
Pooled SBA11,347—(847)—10,500
Total$395,803$36$(53,884)$—$341,955

Debt securities held-to-maturity ("HTM") at March 31, 2024 and December 31, 2023 were as follows:

March 31, 2024
Amortized · Unrealized · Allowance For · Fair
CostGainsLossesCredit LossesValue
U.S. Government sponsored entities$298,024$—$(19,373)$—$278,651
Residential & multi-family mortgage83,682—(10,195)—73,487
Total$381,706$—$(29,568)$—$352,138
December 31, 2023
Amortized · Unrealized · Allowance For · Fair
CostGainsLossesCredit LossesValue
U.S. Government sponsored entities$302,945$—$(19,038)$—$283,907
Residential & multi-family mortgage86,023—(9,360)—76,663
Total$388,968$—$(28,398)$—$360,570

The Corporation elected to transfer 74 AFS securities with an aggregate fair value of $213.7 million to a classification of HTM during the twelve months ended December 31, 2022. In accordance with FASB ASC 320-10-55-24, the transfer from AFS to HTM must be recorded at the fair value of the AFS securities at the time of transfer. The net unrealized holding loss of $5.6 million, net of tax, at the date of transfer was retained in accumulated other comprehensive income (loss), with the associated pre-tax amount retained in the carrying value of the HTM securities. Such amounts will be amortized to comprehensive income over the remaining life of the securities.

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

ProceedsGrossGainsGrossLosses
Three months ended March 31, 2024$—$—$—
Three months ended March 31, 20239,65922—

The tax provision related to these net realized gains waszero for the three months ended March 31, 2024 and $5 thousand for the three months ended March 31, 2023.

The table below illustrates the maturity distribution of debt securities at amortized cost and fair value as of March 31, 2024:

Available-for-saleHeld-to-maturity
AmortizedCostFairValueAmortizedCostFairValue
1 year or less$18,688$18,582$87,559$85,994
1 year – 5 years50,84748,517172,326160,096
5 years – 10 years81,80470,46238,13932,561
After 10 years21,42716,123——
172,766153,684298,024278,651
Residential & multi-family mortgage220,199184,78283,68273,487
Pooled SBA11,02910,099——
Total debt securities$403,994$348,565$381,706$352,138

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

On March 31, 2024 and December 31, 2023, securities carried at $492.4 million and $489.0 million, respectively, were pledged to secure public deposits and for other purposes as provided by law.

At March 31, 2024 and December 31, 2023, there wereno 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.

AFS debt securities with unrealized losses at March 31, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

March 31, 2024

Less than 12 Months12 Months or MoreTotal
Description of SecuritiesFairValueUnrealizedLossFairValueUnrealizedLossFairValueUnrealizedLoss
U.S. Government sponsored entities$18,028$(7)$1,447$(24)$19,475$(31)
State & political subdivisions5,266(188)81,595(13,555)86,861(13,743)
Residential & multi-family mortgage112(3)184,580(35,414)184,692(35,417)
Corporate notes and bonds986(14)41,314(5,303)42,300(5,317)
Pooled SBA84(1)9,924(929)10,008(930)
$24,476$(213)$318,860$(55,225)$343,336$(55,438)

December 31, 2023

Less than 12 Months12 Months or MoreTotal
FairValueUnrealizedLossFairValueUnrealizedLossFairValueUnrealizedLoss
U.S. Government sponsored entities$2,487$(1)$1,956$(35)$4,443$(36)
State & political subdivisions749—84,828(13,315)85,577(13,315)
Residential & multi-family mortgage——191,436(34,353)191,436(34,353)
Corporate notes and bonds978(22)41,488(5,311)42,466(5,333)
Pooled SBA——10,409(847)10,409(847)
$4,214$(23)$330,117$(53,861)$334,331$(53,884)

HTM debt securities with unrealized losses at March 31, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

March 31, 2024

Less than 12 Months12 Months or MoreTotal
Description of SecuritiesFairValueUnrealizedLossFairValueUnrealizedLossFairValueUnrealizedLoss
U.S. Government sponsored entities$—$—$278,651$(19,373)$278,651$(19,373)
Residential & multi-family mortgage——73,487(10,195)73,487(10,195)
$—$—$352,138$(29,568)$352,138$(29,568)

December 31, 2023

Less than 12 Months12 Months or MoreTotal
FairValueUnrealizedLossFairValueUnrealizedLossFairValueUnrealizedLoss
U.S. Government sponsored entities$—$—$283,907$(19,038)$283,907$(19,038)
Residential & multi-family mortgage——76,663(9,360)76,663(9,360)
$—$—$360,570$(28,398)$360,570$(28,398)

At March 31, 2024 and December 31, 2023, management performed an assessment for possible impairment related to credit losses of the Corporation’s debt securities, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. Based on the results of the assessment, management believes there isno credit related impairment of these debt securities at March 31, 2024 and December 31, 2023.

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

As of March 31, 2024 and December 31, 2023, management concluded the debt securities described in the previous paragraphs were not impaired for reasons due to credit quality for the following reasons:

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

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

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

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

Equity securities at March 31, 2024 and December 31, 2023 were as follows:

March 31, 2024December 31, 2023
Corporate equity securities$5,416$5,341
Mutual funds2,2782,223
Money market funds13551,103
Corporate notes532634
Total$9,581$9,301
  1. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Total net loans receivable at March 31, 2024 and December 31, 2023 are summarized as follows:

March 31, 2024 · Percentageof Total · December 31, 2023 · Percentageof Total
Farmland$31,1450.7%$31,8690.7%
Owner-occupied, nonfarm nonresidential properties511,21911.5493,06411.0
Agricultural production and other loans to farmers1,759—1,652—
Commercial and Industrial658,79114.9726,44216.3
Obligations (other than securities and leases) of states and political subdivisions151,1393.4152,2013.4
Other loans25,1290.625,5070.6
Other construction loans and all land development and other land loans532,73012.0491,53911.0
Multifamily (5 or more) residential properties248,1235.6254,3425.7
Non-owner occupied, nonfarm nonresidential properties887,33620.0896,04320.1
1-4 Family Construction42,9191.051,2071.1
Home equity lines of credit133,2903.0130,7002.9
Residential Mortgages secured by first liens989,54422.3990,98622.2
Residential Mortgages secured by junior liens92,6142.191,0632.0
Other revolving credit plans38,3180.942,8771.0
Automobile23,4360.525,3150.6
Other consumer50,9681.251,5921.1
Credit cards12,6830.311,7850.3
Overdrafts255—292—
Total loans receivable$4,431,398100.0%$4,468,476100.0%
Less: Allowance for credit losses(45,832)(45,832)
Loans receivable, net$4,385,566$4,422,644
Net deferred loan origination fees included in the above table$1,984$2,448

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

Syndicated loans, net of deferred fees and costs, are included in the commercial and industrial classification and totaled $78.7 million and $108.7 million as of March 31, 2024 and December 31, 2023, respectively.

Transactions in the allowance for credit losses for the three months ended March 31, 2024 were as follows:

BeginningAllowance(Charge-offs)RecoveriesProvision (Benefit) for Credit Losses on Loans Receivable(1)Ending Allowance
Farmland$126$—$—$9$135
Owner-occupied, nonfarm nonresidential properties3,949(596)91,1114,473
Agricultural production and other loans to farmers7——18
Commercial and Industrial9,433(71)29(418)8,973
Obligations (other than securities and leases) of states and political subdivisions2,613——(76)2,537
Other loans387——(9)378
Other construction loans and all land development and other land loans4,033——2224,255
Multifamily (5 or more) residential properties1,030——371,067
Non-owner occupied, nonfarm nonresidential properties9,170——(385)8,785
1-4 Family Construction356——(53)303
Home equity lines of credit831—165897
Residential Mortgages secured by first liens8,050(64)—3828,368
Residential Mortgages secured by junior liens1,476——(45)1,431
Other revolving credit plans973(15)3(107)854
Automobile358(10)3(47)304
Other consumer2,653(517)275482,711
Credit cards95(29)52798
Overdrafts292(144)2582255
Total loans$45,832$(1,446)$102$1,344$45,832

(1)Excludes provision for credit losses related to unfunded commitments. Note 9, "Off-Balance Sheet Commitments and Contingencies," to the condensed consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments of the Corporation.

Transactions in the allowance for credit losses for the three months ended March 31, 2023 were as follows:

BeginningAllowance(Charge-offs)RecoveriesProvision (Benefit) for Credit Losses on Loans Receivable(1)Ending Allowance
Farmland$159$—$—$(30)$129
Owner-occupied, nonfarm nonresidential properties2,905(26)8(341)2,546
Agricultural production and other loans to farmers6——(3)3
Commercial and Industrial9,766(46)145(922)8,943
Obligations (other than securities and leases) of states and political subdivisions1,863——(15)1,848
Other loans456——138594
Other construction loans and all land development and other land loans3,253——1413,394
Multifamily (5 or more) residential properties2,353(65)—2472,535
Non-owner occupied, nonfarm nonresidential properties7,653——6068,259
1-4 Family Construction327——71398
Home equity lines of credit1,173—1(16)1,158
Residential Mortgages secured by first liens8,484(7)—3748,851
Residential Mortgages secured by junior liens1,035——2401,275
Other revolving credit plans722(22)5125830
Automobile271(5)—64330
Other consumer2,665(540)433932,561
Credit cards67(62)16773
Overdrafts278(160)4492254
Total loans$43,436$(933)$247$1,231$43,981

(1)Excludes provision for credit losses related to unfunded commitments. Note 9, "Off-Balance Sheet Commitments and Contingencies," to the condensed consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments of the Corporation.

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 months ended March 31, 2024, the allowance for credit losses remained unchanged. The growth in the Corporation's loan portfolio in new market areas was offset by improvements in the Corporation's historical loss rates, as well as the impact of net charge-offs. Significant uncertainty persists regarding the domestic and global economy, tightening credit conditions, persistent inflation, and higher interest rates. Management will continue to proactively evaluate its estimate of expected credit losses as new information becomes available.

Provision for credit losses was $1.3 million for the three months ended March 31, 2024, compared to $1.3 million for the three months ended March 31, 2023. Included in the provision for credit losses for the three months ended March 31, 2024 was a benefit of $24 thousand related to the allowance for unfunded commitments compared to $59 thousand provision towards the allowance for unfunded commitments for the three months ended March 31, 2023, respectively.

The following tables present the amortized cost basis of loans receivable on nonaccrual status and loans receivable past due over 89 days still accruing as of March 31, 2024 and December 31, 2023, respectively:

March 31, 2024
NonaccrualNonaccrual With No Allowance for Credit LossLoans Receivable Past Due over 89 Days Still Accruing
Farmland$734$734$—
Owner-occupied, nonfarm nonresidential properties2,0581,358—
Commercial and Industrial7,1864,382—
Other construction loans and all land development and other land loans1,606101—
Multifamily (5 or more) residential properties300300—
Non-owner occupied, nonfarm nonresidential properties9,0686,716—
Home equity lines of credit1,1241,124—
Residential Mortgages secured by first liens5,5515,152—
Residential Mortgages secured by junior liens236236—
Other revolving credit plans127127—
Automobile7373—
Other consumer688688—
Credit cards——49
Total$28,751$20,991$49
December 31, 2023
NonaccrualNonaccrual With No Allowance for Credit LossLoans Receivable Past Due over 89 Days Still Accruing
Farmland$1,083$1,083$—
Owner-occupied, nonfarm nonresidential properties2,6731,488—
Commercial and Industrial7,5124,389—
Other construction loans and all land development and other land loans1,653104—
Multifamily (5 or more) residential properties305305—
Non-owner occupied, nonfarm nonresidential properties9,0766,716—
Home equity lines of credit940940—
Residential Mortgages secured by first liens5,3164,90223
Residential Mortgages secured by junior liens123123—
Other revolving credit plans8181—
Automobile7979—
Other consumer798798—
Credit cards——32
Total$29,639$21,008$55

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

The following table presents the amortized cost basis of loans receivable that are individually evaluated and collateral-dependent by class of loans as of March 31, 2024:

Real Estate CollateralNon-Real Estate Collateral
Farmland$430$—
Owner-occupied, nonfarm nonresidential properties5,3764
Commercial and Industrial—7,668
Other construction loans and all land development and other land loans1,505—
Multifamily (5 or more) residential properties300—
Non-owner occupied, nonfarm nonresidential properties8,283—
Home equity lines of credit302—
Residential Mortgages secured by first liens1,050—
Total$17,246$7,672

The following table presents the amortized cost basis of loans receivable that are individually evaluated and collateral-dependent by class of loans as of December 31, 2023:

Real Estate CollateralNon-Real Estate Collateral
Farmland$736$—
Owner-occupied, nonfarm nonresidential properties6,8904
Commercial and Industrial5,4894,291
Other construction loans and all land development and other land loans1,549—
Multifamily (5 or more) residential properties305—
Non-owner occupied, nonfarm nonresidential properties8,291—
Home equity lines of credit308—
Residential Mortgages secured by first liens1,070—
Total$24,638$4,295

The following table presents the aging of the amortized cost basis in past-due loans receivable as of March 31, 2024 by class of loans:

30 - 59 Days Past Due60 - 89Days Past DueGreater Than 89Days Past DueTotal Past DueLoans Receivable Not Past DueTotal
Farmland$—$178$—$178$30,967$31,145
Owner-occupied, nonfarm nonresidential properties7464,5688036,117505,102511,219
Agricultural production and other loans to farmers————1,7591,759
Commercial and Industrial1,5504691522,171656,620658,791
Obligations (other than securities and leases) of states and political subdivisions————151,139151,139
Other loans————25,12925,129
Other construction loans and all land development and other land loans——1,5671,567531,163532,730
Multifamily (5 or more) residential properties—241300541247,582248,123
Non-owner occupied, nonfarm nonresidential properties——2,0312,031885,305887,336
1-4 Family Construction————42,91942,919
Home equity lines of credit484—360844132,446133,290
Residential Mortgages secured by first liens1,2361,2081,7064,150985,394989,544
Residential Mortgages secured by junior liens—1914416392,45192,614
Other revolving credit plans29—659438,22438,318
Automobile19546613923,29723,436
Other consumer41420836598749,98150,968
Credit cards12974918512,49812,683
Overdrafts————255255
Total$4,607$6,952$7,608$19,167$4,412,231$4,431,398

The following table presents the aging of the amortized cost basis in past-due loans receivable as of December 31, 2023 by class of loans:

30 - 59 Days Past Due60 - 89Days Past DueGreater Than 89Days Past DueTotal Past DueLoans Receivable Not Past DueTotal
Farmland$—$182$129$311$31,558$31,869
Owner-occupied, nonfarm nonresidential properties120—1,3901,510491,554493,064
Agricultural production and other loans to farmers————1,6521,652
Commercial and Industrial64379314757725,685726,442
Obligations (other than securities and leases) of states and political subdivisions————152,201152,201
Other loans————25,50725,507
Other construction loans and all land development and other land loans—411,6121,653489,886491,539
Multifamily (5 or more) residential properties——305305254,037254,342
Non-owner occupied, nonfarm nonresidential properties952992,0312,425893,618896,043
1-4 Family Construction————51,20751,207
Home equity lines of credit5826823391,603129,097130,700
Residential Mortgages secured by first liens2,3601,0941,6515,105985,881990,986
Residential Mortgages secured by junior liens21386011990,94491,063
Other revolving credit plans114411416942,70842,877
Automobile6256713425,18125,315
Other consumer4524533541,25950,33351,592
Credit cards110173215911,62611,785
Overdrafts————292292
Total$3,980$3,231$8,298$15,509$4,452,967$4,468,476

Loan Modifications

The Corporation adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

Occasionally, the Corporation modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

In some cases, the Corporation provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For the loans included in the "combination" columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction.

The following table presents the amortized cost basis of loans at March 31, 2024 that were both experiencing financial difficulty and modified during the three months ended March 31, 2024, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below:

Principal ForgivenessPayment DelayTerm ExtensionInterest Rate ReductionCombination Payment Delay and Term ExtensionTotal Class of Financing Receivable
Owner-occupied, nonfarm nonresidential properties$—$288$—$—$—0.1%
Commercial and Industrial——505——0.1
Total$—$288$505$—$——%

The following table presents the amortized cost basis of loans at March 31, 2023 that were both experiencing financial difficulty and modified during the three months ended March 31, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below:

Principal ForgivenessPayment DelayTerm ExtensionInterest Rate ReductionCombination Payment Delay and Term ExtensionTotal Class of Financing Receivable
Owner-occupied, nonfarm nonresidential properties$—$98$—$—$——%
Commercial and Industrial—2,5736123711220.5
Other construction loans and all land development and other land loans—1,538———0.4
Non-owner occupied, nonfarm nonresidential properties——1,562——0.2
Total$—$4,209$2,174$371$1220.2%

The Corporation hadno unfunded available credit to customers whose loan receivables are included in the previous tables.

The Corporation closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

The following table presents the performance of such loans that have been modified during the twelve months ended March 31, 2024:

Current30 - 59 Days Past Due60 - 89Days Past DueGreater Than 89Days Past DueTotal Past Due
Owner-occupied, nonfarm nonresidential properties$696$288$—$—$288
Commercial and Industrial3,705321——321
Non-owner occupied, nonfarm nonresidential properties6,696————
Residential Mortgages secured by first liens399————
Residential Mortgages secured by junior liens29————
Total$11,525$609$—$—$609

The following table presents the performance of such loans that have been modified during the three months ended March 31, 2023:

Current30 - 59 Days Past Due60 - 89Days Past DueGreater Than 89Days Past DueTotal Past Due
Owner-occupied, nonfarm nonresidential properties$—$98$—$—$98
Commercial and Industrial3,678————
Other construction loans and all land development and other land loans——1,538—1,538
Non-owner occupied, nonfarm nonresidential properties1,562————
Total$5,240$98$1,538$—$1,636

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months ended March 31, 2024:

Principal ForgivenessWeighted Average Term Extension(in years)Weighted Average Interest Rate Reduction
Commercial and Industrial$—1.00—%
Total$—1.00—%

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months ended March 31, 2023:

Principal ForgivenessWeighted Average Term Extension(in years)Weighted Average Interest Rate Reduction
Commercial and Industrial$—0.970.5%
Non-owner occupied, nonfarm nonresidential properties—0.50—%
Total$—0.65—%

The following table presents the amortized cost basis of loans that had a payment default during the three months ended March 31, 2024 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

Principal ForgivenessPayment DelayTerm ExtensionInterest Rate ReductionCombination Payment Delay and Term Extension
Owner-occupied, nonfarm nonresidential properties$—$308$—$—$—
Commercial and Industrial———301—
Total$—$308$—$301$—

There wereno loans that had a payment default during the three months ended March 31, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

If the Corporation determines that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off and the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

Credit Quality Indicators

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

The Corporation uses the following definitions for risk ratings:

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

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

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

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

March 31, 2024
Non-Pass Rated
PassSpecial MentionSubstandardDoubtfulTotal Non-PassTotal
Farmland$30,411$—$734$—$734$31,145
Owner-occupied, nonfarm nonresidential properties485,5351,93623,748—25,684511,219
Agricultural production and other loans to farmers1,759————1,759
Commercial and Industrial613,0593,47042,262—45,732658,791
Obligations (other than securities and leases) of states and political subdivisions138,098—13,041—13,041151,139
Other loans25,129————25,129
Other construction loans and all land development and other land loans531,163—1,567—1,567532,730
Multifamily (5 or more) residential properties243,224—4,899—4,899248,123
Non-owner occupied, nonfarm nonresidential properties868,7102,96515,661—18,626887,336
Total$2,937,088$8,371$101,912$—$110,283$3,047,371
December 31, 2023
Non-Pass Rated
PassSpecial MentionSubstandardDoubtfulTotal Non-PassTotal
Farmland$30,786$—$1,083$—$1,083$31,869
Owner-occupied, nonfarm nonresidential properties461,55420,17711,333—31,510493,064
Agricultural production and other loans to farmers1,652————1,652
Commercial and Industrial653,98152,03020,431—72,461726,442
Obligations (other than securities and leases) of states and political subdivisions139,01413,187——13,187152,201
Other loans25,507————25,507
Other construction loans and all land development and other land loans484,6205,3071,612—6,919491,539
Multifamily (5 or more) residential properties252,1991,346797—2,143254,342
Non-owner occupied, nonfarm nonresidential properties869,2643,00823,771—26,779896,043
Total$2,918,577$95,055$59,027$—$154,082$3,072,659

The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by risk grade within each portfolio segment as of March 31, 2024. Current period originations may include modifications.

Term Loans Amortized Cost Basis by Origination Year
20242023202220212020PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
Farmland
Risk rating
Pass$100$3,178$11,134$6,753$1,459$7,396$391$—$30,411
Special mention—————————
Substandard—————734——734
Total$100$3,178$11,134$6,753$1,459$8,130$391$—$31,145
Current period gross write offs$—$—$—$—$—$—$—$—$—
Owner-occupied, nonfarm nonresidential properties
Risk rating
Pass$29,488$63,525$114,581$102,559$43,393$115,634$16,355$—$485,535
Special mention—312243266—599516—1,936
Substandard868464,85669613,9023,200162—23,748
Total$29,574$64,683$119,680$103,521$57,295$119,433$17,033$—$511,219
Current period gross write offs$—$—$—$—$—$596$—$—$596
Agricultural production and other loans to farmers
Risk rating
Pass$—$658$32$84$56$162$767$—$1,759
Special mention—————————
Substandard—————————
Total$—$658$32$84$56$162$767$—$1,759
Current period gross write offs$—$—$—$—$—$—$—$—$—
Commercial and Industrial
Risk rating
Pass$26,414$65,309$140,056$109,566$30,645$18,931$222,138$—$613,059
Special mention—4180212601422,413—3,470
Substandard3211,8254044,300593,05132,302—42,262
Total$26,735$67,175$141,262$113,878$30,764$22,124$256,853$—$658,791
Current period gross write offs$—$—$50$—$—$21$—$—$71
Obligations (other than securities and leases) of states and political subdivisions
Risk rating
Pass$—$25,672$16,565$31,451$11,917$49,094$3,399$—$138,098
Special mention—————————
Substandard—————13,041——13,041
Total$—$25,672$16,565$31,451$11,917$62,135$3,399$—$151,139
Current period gross write offs$—$—$—$—$—$—$—$—$—
Other loans
Risk rating
Pass$431$3,396$12,201$4,950$1,692$281$2,178$—$25,129
Special mention—————————
Substandard—————————
Total$431$3,396$12,201$4,950$1,692$281$2,178$—$25,129
Current period gross write offs$—$—$—$—$—$—$—$—$—
Term Loans Amortized Cost Basis by Origination Year
20242023202220212020PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
Other construction loans and all land development and other land loans
Risk rating
Pass$19,659$131,605$284,697$70,597$10,266$7,089$7,250$—$531,163
Special mention—————————
Substandard—————1,50562—1,567
Total$19,659$131,605$284,697$70,597$10,266$8,594$7,312$—$532,730
Current period gross write offs$—$—$—$—$—$—$—$—$—
Multifamily (5 or more) residential properties
Risk rating
Pass$573$37,297$90,986$62,477$21,574$29,817$500$—$243,224
Special mention—————————
Substandard—2,140——2,759———4,899
Total$573$39,437$90,986$62,477$24,333$29,817$500$—$248,123
Current period gross write offs$—$—$—$—$—$—$—$—$—
Non-owner occupied, nonfarm nonresidential properties
Risk rating
Pass$9,141$198,263$295,587$149,332$38,517$171,997$5,873$—$868,710
Special mention————1,859676430—2,965
Substandard—7741,1264885,9115,6661,696—15,661
Total$9,141$199,037$296,713$149,820$46,287$178,339$7,999$—$887,336
Current period gross write offs$—$—$—$—$—$—$—$—$—

The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by risk grade within each portfolio segment as of December 31, 2023. Current period originations may include modifications.

Term Loans Amortized Cost Basis by Origination Year
20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
Farmland
Risk rating
Pass$3,153$11,393$6,845$1,465$815$6,813$302$—$30,786
Special mention—————————
Substandard——306——777——1,083
Total$3,153$11,393$7,151$1,465$815$7,590$302$—$31,869
Current period gross write offs$—$—$—$—$—$—$—$—$—
Owner-occupied, nonfarm nonresidential properties
Risk rating
Pass$62,529$121,722$103,698$44,286$45,749$73,649$9,921$—$461,554
Special mention3201,3041,18013,6234072103,133—20,177
Substandard848—6962926,7382,593166—11,333
Total$63,697$123,026$105,574$58,201$52,894$76,452$13,220$—$493,064
Current period gross write offs$—$—$—$—$—$26$—$—$26
Agricultural production and other loans to farmers
Risk rating
Pass$703$34$89$60$5$159$602$—$1,652
Special mention—————————
Substandard—————————
Total$703$34$89$60$5$159$602$—$1,652
Current period gross write offs$—$—$—$—$—$—$—$—$—
Commercial and Industrial
Risk rating
Pass$78,325$140,178$141,439$33,475$6,662$14,709$239,193$—$653,981
Special mention7,7187,8032,795651392133,489—52,030
Substandard—3854,2813963,4761,65510,238—20,431
Total$86,043$148,366$148,515$33,936$10,277$16,385$282,920$—$726,442
Current period gross write offs$50$—$—$191$—$—$151$—$392
Obligations (other than securities and leases) of states and political subdivisions
Risk rating
Pass$24,964$16,791$31,768$12,399$4,190$45,331$3,571$—$139,014
Special mention—————13,187——13,187
Substandard—————————
Total$24,964$16,791$31,768$12,399$4,190$58,518$3,571$—$152,201
Current period gross write offs$—$—$—$—$—$—$—$—$—
Other loans
Risk rating
Pass$3,649$12,211$5,289$1,809$288$—$2,261$—$25,507
Special mention—————————
Substandard—————————
Total$3,649$12,211$5,289$1,809$288$—$2,261$—$25,507
Current period gross write offs$—$—$—$—$—$—$—$—$—
Term Loans Amortized Cost Basis by Origination Year
20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
Other construction loans and all land development and other land loans
Risk rating
Pass$111,843$269,531$69,470$19,028$6,086$1,262$7,400$—$484,620
Special mention—5,307——————5,307
Substandard————1,549—63—1,612
Total$111,843$274,838$69,470$19,028$7,635$1,262$7,463$—$491,539
Current period gross write offs$—$—$—$—$—$—$—$—$—
Multifamily (5 or more) residential properties
Risk rating
Pass$37,366$95,635$63,203$24,527$10,928$19,786$754$—$252,199
Special mention1,346———————1,346
Substandard797———————797
Total$39,509$95,635$63,203$24,527$10,928$19,786$754$—$254,342
Current period gross write offs$—$—$—$—$—$65$—$—$65
Non-owner occupied, nonfarm nonresidential properties
Risk rating
Pass$192,826$297,394$151,365$39,585$54,388$125,532$8,174$—$869,264
Special mention———1,887—688433—3,008
Substandard7781,1344885,9113,26610,4841,710—23,771
Total$193,604$298,528$151,853$47,383$57,654$136,704$10,317$—$896,043
Current period gross write offs$—$358$—$—$88$—$248$—$694

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

March 31, 2024December 31, 2023
PerformingNonperformingTotalPerformingNonperformingTotal
1-4 Family Construction$42,919$—$42,919$51,207$—$51,207
Home equity lines of credit132,1661,124133,290129,760940130,700
Residential Mortgages secured by first liens983,9935,551989,544985,6475,339990,986
Residential Mortgages secured by junior liens92,37823692,61490,94012391,063
Other revolving credit plans38,19112738,31842,7968142,877
Automobile23,3637323,43625,2367925,315
Other consumer50,28068850,96850,79479851,592
Total$1,363,290$7,799$1,371,089$1,376,380$7,360$1,383,740

The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by payment activity within each portfolio segment as of March 31, 2024. Current period originations may include modifications.

Term Loans Amortized Cost Basis by Origination Year
20242023202220212020PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
1-4 Family Construction
Payment performance
Performing$736$19,157$12,475$10,031$—$520$—$—$42,919
Nonperforming—————————
Total$736$19,157$12,475$10,031$—$520$—$—$42,919
Current period gross write offs$—$—$—$—$—$—$—$—$—
Home equity lines of credit
Payment performance
Performing$7,487$28,498$30,033$10,769$8,399$34,892$6,853$5,235$132,166
Nonperforming—————13—1,1111,124
Total$7,487$28,498$30,033$10,769$8,399$34,905$6,853$6,346$133,290
Current period gross write offs$—$—$—$—$—$—$—$—$—
Residential mortgages secured by first lien
Payment performance
Performing$13,262$139,680$229,664$196,357$141,256$260,957$2,817$—$983,993
Nonperforming—4784508826043,10037—5,551
Total$13,262$140,158$230,114$197,239$141,860$264,057$2,854$—$989,544
Current period gross write offs$—$—$—$—$—$64$—$—$64
Residential mortgages secured by junior liens
Payment performance
Performing$5,304$27,446$26,004$13,585$6,867$11,921$1,251$—$92,378
Nonperforming—19137——3743—236
Total$5,304$27,465$26,141$13,585$6,867$11,958$1,294$—$92,614
Current period gross write offs$—$—$—$—$—$—$—$—$—
Other revolving credit plans
Payment performance
Performing$1,170$9,889$7,737$2,323$5,280$11,792$—$—$38,191
Nonperforming——2839—60——127
Total$1,170$9,889$7,765$2,362$5,280$11,852$—$—$38,318
Current period gross write offs$—$—$—$—$—$15$—$—$15
Automobile
Payment performance
Performing$1,123$11,474$6,056$2,073$1,182$1,455$—$—$23,363
Nonperforming——494164——73
Total$1,123$11,474$6,105$2,077$1,198$1,459$—$—$23,436
Current period gross write offs$—$7$—$3$—$—$—$—$10
Other consumer
Payment performance
Performing$7,086$23,040$10,206$4,319$2,845$2,784$—$—$50,280
Nonperforming—343195831057——688
Total$7,086$23,383$10,401$4,402$2,855$2,841$—$—$50,968
Current period gross write offs$—$254$205$49$4$5$—$—$517

The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by payment activity within each portfolio segment as of December 31, 2023. The current period originations may include modifications, extensions and renewals.

Term Loans Amortized Cost Basis by Origination Year
20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
1-4 Family Construction
Payment performance
Performing$23,465$14,915$10,079$1,206$685$58$799$—$51,207
Nonperforming—————————
Total$23,465$14,915$10,079$1,206$685$58$799$—$51,207
Current period gross write offs$—$—$—$—$—$—$—$—$—
Home equity lines of credit
Payment performance
Performing$27,110$32,027$11,437$9,844$6,781$30,467$7,479$4,615$129,760
Nonperforming—————14—926940
Total$27,110$32,027$11,437$9,844$6,781$30,481$7,479$5,541$130,700
Current period gross write offs$—$—$—$—$10$—$—$—$10
Residential mortgages secured by first lien
Payment performance
Performing$134,522$233,346$199,997$143,318$77,293$194,010$3,161$—$985,647
Nonperforming4971747876154922,73638—5,339
Total$135,019$233,520$200,784$143,933$77,785$196,746$3,199$—$990,986
Current period gross write offs$—$—$—$—$—$22$95$—$117
Residential mortgages secured by junior liens
Payment performance
Performing$28,685$27,032$14,027$7,102$3,888$8,833$1,373$—$90,940
Nonperforming—38———4243—123
Total$28,685$27,070$14,027$7,102$3,888$8,875$1,416$—$91,063
Current period gross write offs$—$—$—$—$—$—$—$—$—
Other revolving credit plans
Payment performance
Performing$8,684$8,027$2,732$11,274$1,634$10,445$—$—$42,796
Nonperforming—295——47——81
Total$8,684$8,056$2,737$11,274$1,634$10,492$—$—$42,877
Current period gross write offs$—$—$50$4$16$49$—$—$119
Automobile
Payment performance
Performing$12,545$6,800$2,597$1,472$1,025$797$—$—$25,236
Nonperforming1651—75———79
Total$12,561$6,851$2,597$1,479$1,030$797$—$—$25,315
Current period gross write offs$18$23$—$8$7$—$—$—$56
Other consumer
Payment performance
Performing$27,202$12,261$5,255$3,107$1,471$1,498$—$—$50,794
Nonperforming28333011612651——798
Total$27,485$12,591$5,371$3,119$1,477$1,549$—$—$51,592
Current period gross write offs$210$1,164$467$96$33$12$—$—$1,982
March 31, 2024December 31, 2023
Credit card
Payment performance
Performing$12,634$11,753
Nonperforming4932
Total$12,683$11,785
Current period gross write offs$29$189

Holiday’s loan portfolio, included in other consumer loans above, is summarized as follows at March 31, 2024 and December 31, 2023:

March 31, 2024December 31, 2023
Gross other consumer$28,962$31,242
Less: other consumer unearned discounts(5,086)(5,696)
Total other consumer loans, net of unearned discounts$23,876$25,546
  1. LEASES

Operating lease assets represent the Corporation's right to use an underlying asset during the lease term and operating lease liabilities represent the Corporation's 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 the Corporation's incremental borrowing rate at the lease commencement date. Operating lease cost, which is comprised of amortization of the operating lease asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in net occupancy expense in the condensed consolidated statements of income.

The Corporation leases certain full-service branch offices, land, and equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Most leases includeone 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.

LeasesClassificationMarch 31, 2024December 31, 2023
Assets:
Operating lease assetsOperating lease assets$35,775$35,699
Finance lease assetsPremises and equipment, net (1)197215
Total leased assets$35,972$35,914
Liabilities:
Operating lease liabilitiesOperating lease liabilities$37,832$37,650
Finance lease liabilitiesAccrued interest payable and other liabilities271294
Total leased liabilities$38,103$37,944

(1) Finance lease assets are recorded net of accumulated amortization of $1.0 million as of March 31, 2024 and $1.0 million as of December 31, 2023.

The components of the Corporation's net lease expense for the three months ended March 31, 2024 and 2023, respectively, were as follows:

Three Months Ended March 31,
Lease CostClassification20242023
Operating lease costNet occupancy expense$742$697
Variable lease costNet occupancy expense2722
Finance lease cost:
Amortization of leased assetsNet occupancy expense1818
Interest on lease liabilitiesInterest expense - borrowed funds34
Sublease income (1)Net occupancy expense(24)(23)
Net lease cost$766$718

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

The following table sets forth future minimum rental payments under noncancellable leases with initial terms in excess of one year as of March 31, 2024:

Maturity of Lease Liabilities as of March 31, 2024 · Operating Leases (1) · Finance Leases · Total
2024$1,922$78$2,000
20252,6361052,741
20262,6271052,732
20272,604—2,604
20282,625—2,625
After 202848,001—48,001
Total lease payments60,41528860,703
Less: Interest22,5831722,600
Present value of lease liabilities$37,832$271$38,103

(1) Operating lease payments include payments related to options to extend lease terms that are reasonably certain of being exercised and exclude $8.6 million of legally binding minimum lease payments for leases signed, but not yet commenced.

Lease terms and discount rates related to the Corporation's lease liabilities as of March 31, 2024 and December 31, 2023 were as follows:

Lease Term and Discount RateMarch 31, 2024December 31, 2023
Weighted-average remaining lease term (years)
Operating leases22.723.0
Finance leases2.73.0
Weighted-average discount rate
Operating leases4.06%4.05%
Finance leases4.49%4.49%

Other information related to the Corporation's lease liabilities as of March 31, 2024 and 2023, respectively, was as follows:

Other InformationMarch 31, 2024March 31, 2023
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$268$307
  1. DEPOSITS

The following table reflects time certificates of deposit accounts included in total deposits and their remaining maturities at March 31, 2024:

Time deposits maturing:
2024$373,105
2025135,638
202612,805
20276,214
20282,925
Thereafter2,084
$532,771

Certificates of deposits of $250 thousand or more totaled $104.2 million and $100.2 million at March 31, 2024 and December 31, 2023, respectively.

The Corporation had $206.8 million in brokered deposits as of March 31, 2024 compared to $208.3 million at December 31, 2023. In addition, the Corporation had $784.8 million and $739.3 million in reciprocal deposits at March 31, 2024 and December 31, 2023, respectively.

  1. BORROWINGS

At March 31, 2024 and December 31, 2023, the Corporation had availableone $10.0 million unsecured line of credit with an unaffiliated institution. Borrowings under the line of credit bear interest at a variable rate equal to the Secured Overnight Finance Rate ("SOFR") plus 2.85%. There wereno borrowings under the line of credit at March 31, 2024 and December 31, 2023.

FHLB Borrowings

The Bank has the ability to borrow funds from the Federal Home Loan Bank ("FHLB"). The Bank maintains a $250.0 million line-of-credit (Open Repo Plus) with the FHLB which is a revolving term commitment available on an overnight basis. The term of this commitment may not exceed 364 days and it reprices daily at market rates. Under terms of a blanket collateral agreement with the FHLB, the line-of-credit and long term advances are secured by FHLB stock and the Bank pledges its single-family residential mortgage loan portfolio, certain commercial real estate loans, and certain agriculture real estate loans as security for any advances.

Total loans pledged to the FHLB at March 31, 2024, and December 31, 2023 were $1.8 billion and $1.8 billion, respectively. The Bank could obtain advances of up to approximately $995.1 million from the FHLB at March 31, 2024 and $993.8 million at December 31, 2023.

At March 31, 2024 and December 31, 2023, outstanding advances from the FHLB were as follows.

March 31, 2024December 31, 2023
Open Repo borrowing at an interest rate of 5.67% and 5.68% at March 31, 2024 and December 31, 2023, respectfully. The maximum amount of the Open Repo borrowing available is $250,000.$—$—
Total$—$—

At March 31, 2024 and December 31, 2023, municipal deposit letters of credit issued by the FHLB on behalf of the Bank naming applicable municipalities as beneficiaries were $158.0 million and $155.7 million, respectively. The letters of credit were utilized in place of securities pledged to the municipalities for their deposits maintained at the Bank.

Federal Reserve Borrowings

In June 2023, the Bank was approved by the Federal Reserve Bank of Philadelphia (the "Federal Reserve") for its Borrower-in-Custody ("BIC") program. At March 31, 2024, the Bank had borrowing capacity through the Federal Reserve BIC program of $242.9 million. Borrowings under the BIC program are overnight advances with interest chargeable at the discount window ("primary credit") borrowing rate. At March 31, 2024, the Bank has pledged certain qualifying loans with an unpaid principal balance of $258.6 million and securities with a carrying value of $78.4 million as collateral.

At March 31, 2024 and December 31, 2023, the Bank hadno borrowings from the Federal Reserve BIC program, discount window andno borrowings under the Federal Reserve’s Bank Term Facility Program ("BTFP"), which opened March 12, 2023.

Other Borrowings

At March 31, 2024 and December 31, 2023, the Bank hadno outstanding borrowings from unaffiliated institutions under overnight borrowing agreements.

Subordinated Debentures

In 2007, the Corporation issuedtwo $10.0 million floating rate trust preferred securities as part of a pooled offering of such securities. The interest rate on each offering was determined quarterly and floated based upon three-month LIBOR plus 1.55%. Effective September 15, 2023, the interest rate calculation method was revised. The interest rate is now determined quarterly, and floats based on the three-month SOFR plus a credit spread adjustment of 0.26161% plus 1.55%. This change reflects the transition from LIBOR to SOFR as the reference rate. The all-in rate was 7.14% at March 31, 2024 and 7.20% at December 31, 2023. The Corporation issued subordinated debentures to the trusts in exchange for the proceeds of the offerings, which debentures represent the sole assets of the trusts. The subordinated debentures must be redeemed no later than 2037. The Corporation may redeem the debentures, in whole or in part, at face value at any time. The Corporation has the option to defer interest payments from time to time for a period not to exceed five consecutive years. Although the trusts are variable interest entities, the Corporation is not the primary beneficiary. As a result, because the trusts are not consolidated with the Corporation, the Corporation does not report the securities issued by the trusts as liabilities. Instead, the Corporation reports as liabilities the subordinated debentures issued by the Corporation and held by the trusts, since the liabilities are not eliminated in consolidation. The trust preferred securities were designated to qualify as Tier 1 capital under the Federal Reserve’s capital guidelines.

Subordinated Notes

In June 2021, the Corporation sold $85.0 million aggregate principal amount of its fixed-to-floating rate subordinated notes to eligible purchasers in a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act and the provisions of Rule 506 of Regulation D thereunder. The notes will mature in June 2031, and initially bear interest at a fixed rate of 3.25% per annum, payable semi-annually in arrears, to, but excluding, June 15, 2026, and thereafter to, but excluding, the maturity date or earlier redemption, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month average SOFR plus 2.58%. The net proceeds from the sale were approximately $83.5 million, after deducting offering expenses. These subordinated notes were designed to qualify as Tier 2 capital under the Federal Reserve’s capital guidelines and were given an investment grade rating of BBB- by Kroll Bond Rating Agency. The unamortized debt issuance costs were $0.7 million and $0.7 million as of March 31, 2024 and December 31, 2023, respectively.

  1. RELATED PARTY TRANSACTIONS

Some of the Corporation's directors, executive officers, and their related interests had transactions with the Bank in the ordinary course of business. All loan and deposit transactions were made on substantially the same terms, such as interest rates and collateral, as those prevailing at the time for comparable transactions. In the opinion of management, these transactions do not involve more than the normal risk of collectability nor do they present other unfavorable features. It is anticipated that similar transactions will be entered into in the future.

Loans to principal officers, directors, and their affiliates during the three months ended March 31, 2024 were as follows:

Beginning balance$40,129
New loans and advances67
Effect of changes in composition of related parties119
Repayments(5,163)
Ending balance$35,152

Deposits from directors, executive officers, and their affiliates were $9.9 million and $11.4 million at March 31, 2024 and December 31, 2023, respectively.

  1. OFF-BALANCE SHEET COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance Sheet Risk

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the condensed consolidated balance sheets. The Corporation's exposure to credit loss in the event of nonperformance by the other party of the financial instrument for commitments to extend credit and standby letters of credit is represented by the contract or notional amount of those instruments. The Corporation uses the same credit policies for underwriting all loans, including these commitments and conditional obligations.

As of March 31, 2024 and December 31, 2023, the Corporation did not own or trade other financial instruments with significant off-balance sheet risk including derivatives such as futures, forwards, option contracts and the like, although such instruments may be appropriate to use in the future to manage interest rate risk. See Note 12, "Derivative Instruments," for a description of interest rate derivatives entered into by the Corporation.

Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. The contract or notional amount of these instruments reflects the maximum amount of future payments that the Corporation could be required to pay under the guarantees if there were a total default by the guaranteed parties, without consideration for possible recoveries under recourse provisions or from collateral held or pledged. In addition, many of these commitments are expected to expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements.

The Corporation's maximum obligation to extend credit for loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding as of March 31, 2024 and December 31, 2023 were as follows:

March 31, 2024December 31, 2023
Fixed RateVariable RateFixed RateVariable Rate
Commitments to extended credit$107,587$346,930$111,526$370,437
Unused lines of credit22,066803,45111,219789,534
Standby letters of credit20,8323,26418,6492,480

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral that is held varies but may include securities, accounts receivable, inventory, property, plant and equipment, and residential and income-producing commercial properties.

Allowance for Credit Losses on Unfunded Loan Commitments

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

The following table presents activity in the allowance for credit losses on unfunded loan commitments for the three months ended March 31, 2024 and 2023, respectively:

Three Months Ended
March 31,
20242023
Beginning balance$759$603
Provision for credit losses on unfunded loan commitments (1)(24)59
Ending balance$735$662

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

Other Off-Balance Sheet Commitments

The Corporation makes investments in limited partnerships, including certain small business investment corporations and low income housing partnerships. Capital contributions for investments in small business companies ("SBIC") and other limited partnerships, reported in FHLB and other restricted stock holdings and investments on the condensed consolidated balance sheet, as of March 31, 2024 and December 31, 2023 were $22.2 million and $21.7 million, respectively. Unfunded capital commitments in investments in SBIC's and other limited partnerships totaled $6.3 million and $6.8 million as of March 31, 2024 and December 31, 2023, respectively. These investments are accounted for under the equity method of accounting.

Qualified Affordable Housing Project Investments

The carrying value of investments in the low income housing partnerships, reported in FHLB and other restricted stock holdings and investments on the condensed consolidated balance sheet, as of March 31, 2024 and December 31, 2023 were $3.6 million and $3.8 million, respectively. The related amortization for the three months ended March 31, 2024 and 2023 was $178 thousand and $186 thousand, respectively. Unfunded commitments, reported in accrued interest payable and other liabilities on the condensed consolidated balance sheets, as of March 31, 2024 and December 31, 2023 were $529 thousand and $796 thousand, respectively.

Litigation

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

  1. 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.

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

At March 31, 2024, there wasno 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 months ended March 31, 2024 and 2023.

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 $883 thousand for the three months ended March 31, 2024, and $616 thousand for the three months ended March 31, 2023, respectively. The total income tax benefit related to the recognized compensation cost of vested restricted stock awards was $185 thousand for the three months ended March 31, 2024, and $129 thousand for the three months ended March 31, 2023, respectively.

A summary of changes in time-based unvested restricted stock awards for the three months ended March 31, 2024 follows:

SharesPer Share Weighted Average Grant Date Fair Value
Unvested at beginning of period124,934$24.09
Granted112,82821.26
Forfeited(2,443)22.76
Vested(42,132)24.22
Unvested at end of period193,187$22.42

The above table excludes 18,029 shares in restricted stock awards that were granted to the Corporation's Board of Directors at a weighted average fair value of $21.35 and immediately vested. As of March 31, 2024 and December 31, 2023, there was $4.1 million and $2.1 million, respectively, of total unrecognized compensation cost related to non-vested shares granted under the 2019 Stock Incentive Plan. The fair value of shares vested was $1.4 million during the three months ended March 31, 2024, and $970 thousand during the three months ended March 31, 2023.

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 athree year period and are also subject to service-based vesting. In 2024, awards with a maximum of 29,992 shares in aggregate were granted to key employees. In 2023, awards with a maximum of 23,124 shares in aggregate were granted to key employees. In 2022, awards with a maximum of 13,761 shares in aggregate were granted to key employees.

In 2023, the 2021 PBRSAs were fully earned and in 2024,9,667 shares were fully distributed. The fair value of the shares distributed in 2024 was $206 thousand.

  1. EARNINGS PER COMMON SHARE

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the applicable period, excluding outstanding participating securities. Diluted earnings per common share is computed using the weighted average number of common shares determined for the basic computation plus the dilutive effect of potential common shares issuable under certain stock compensation plans. For the three months ended March 31, 2024 and 2023, there wereno outstanding stock options to include in the diluted earnings per common share calculations.

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

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

Three Months Ended March 31,
20242023
Basic earnings per common share computation:
Net income per condensed consolidated statements of income$11,525$15,414
Net earnings allocated to participating securities(92)(78)
Net earnings allocated to common stock$11,433$15,336
Distributed earnings allocated to common stock$3,646$3,673
Undistributed earnings allocated to common stock7,78711,663
Net earnings allocated to common stock$11,433$15,336
Weighted average common shares outstanding, including shares considered participating securities20,97921,143
Less: Average participating securities(155)(100)
Weighted average shares20,82421,043
Basic earnings per common share$0.55$0.73
Diluted earnings per common share computation:
Net earnings allocated to common stock$11,433$15,336
Weighted average common shares outstanding for basic earnings per common share20,82421,043
Add: Dilutive effect of stock compensation6335
Weighted average shares and dilutive potential common shares20,88721,078
Diluted earnings per common share$0.55$0.73
  1. DERIVATIVE INSTRUMENTS

On September 7, 2018, the Corporation executed an interest rate swap agreement with a 5-year term and an effective date of September 15, 2018 in order to hedge cash flows associated with $10.0 million of a subordinated trust preferred security that was issued by the Corporation during 2007 and elected cash flow hedge accounting for the agreement. The Corporation’s objective in using this derivative is to add stability to interest expense and to manage its exposure to interest rate risk. The interest rate swap involves the receipt of variable-rate amounts in exchange for fixed-rate payments from September 15, 2018 to September 15, 2023 without the exchange of the underlying notional amount. The swap expired on September 15, 2023 and was not renewed.

As of March 31, 2024 and December 31, 2023, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations. Additionally, the Corporation does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.

The following tables provide information about the amounts and locations of activity related to the interest rate swaps designated as cash flow hedges within the Corporation’s condensed consolidated statements of income for the three months ended March 31, 2024 and 2023:

For the Three MonthsEnded March 31, 2024(a)(b)(c)(d)(e)
Interest rate contracts$—Interest expense –subordinated notes and debentures$—Otherincome$—
For the Three MonthsEnded March 31, 2023(a)(b)(c)(d)(e)
Interest rate contracts$(37)Interest expense –subordinated notes and debentures$(45)Otherincome$—

(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)

Derivatives on Behalf of Customers

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 $483 thousand as of March 31, 2024 and $173 thousand as of December 31, 2023. This balance is included in cash and cash equivalents due from banks on the condensed consolidated balance sheets. The Corporation may require its customers to post cash or securities as collateral on its program of back-to-back swaps depending upon the specific facts and circumstances surrounding each loan and individual swap. In addition, certain language is included in the International Swaps and Derivatives Association agreement and loan documents where, in default situations, the Corporation is permitted to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability. The Corporation may be required to post additional collateral to swap counterparties in the future in proportion to potential increases in unrealized loss positions. Effective on September 30, 2023 the Corporation amended all of the back-to-back swap contracts to reference the 1-month SOFR plus a credit spread adjustment of 11.448 basis points "Fallback SOFR."

The following table provides information about the amounts and locations of activity related to the back-to-back interest rate swaps within the Corporation’s condensed consolidated balance sheet as of March 31, 2024 and December 31, 2023:

Fair Value
NotionalAmount · Asset · Liability
March 31, 2024$59,171$1,560(a)$1,560(b)
December 31, 2023$21,302$1,013(a)$1,013(b)

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

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

Risk Participation Agreements

The Corporation’s existing credit derivatives result from participations in or out of interest rate swaps provided by or to external lenders as part of loan participation arrangements, therefore, are not used to manage interest rate risk in the Corporation’s assets or liabilities. Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain lenders which participate in loans.

The Corporation entered into Risk Participation Agreement ("RPA") swaps with other financial institutions related to loans in which the Corporation is a participant in. The RPA provides credit protection to the financial institution should the borrower fail to perform on its interest rate derivative contract with the financial institution. The notional amount of this contingent agreement is $21.6 million as of March 31, 2024 and $14.0 million as of December 31, 2023.

The Corporation entered into RPA swaps with other financial institutions related to loans in which the Corporation is a participant out. The RPA provides credit protection to the Corporation should the borrower fail to perform on its interest rate derivative contract with the financial institution. The notional amount of this contingent agreement is $25.5 million as of March 31, 2024 andzero as of December 31, 2023.

The fair value of the RPAs swaps was $19 thousand and $49 thousand as of March 31, 2024 and December 31, 2023, respectively, and is reported in accrued interest payable and other liabilities within the condensed consolidated balance sheets.

  1. 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 for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

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

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

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

Assets and liabilities measured at fair value on a recurring basis are as follows at March 31, 2024 and December 31, 2023:

Fair Value Measurements at March 31, 2024 Using:
Quoted Prices in Active Markets for Identical Assets · Significant Other Observable Inputs · Significant Unobservable Inputs
DescriptionTotal(Level 1)(Level 2)(Level 3)
Assets:
Securities Available-For-Sale:
U.S. Government sponsored entities$19,475$14,482$4,993$—
States and political subdivisions91,242—91,242—
Residential and multi-family mortgage184,782—184,782—
Corporate notes and bonds42,967—42,967—
Pooled SBA10,099—10,099—
Total Securities Available-For-Sale$348,565$14,482$334,083$—
Interest Rate swaps$1,560$—$1,560$—
Equity Securities:
Corporate equity securities$5,416$5,416$—$—
Mutual funds2,2782,278——
Money market funds1,3551,355——
Corporate notes532—532—
Total Equity Securities$9,581$9,049$532$—
Liabilities:
Interest Rate Swaps$(1,560)$—$(1,560)$—
Fair Value Measurements at December 31, 2023 Using:
Quoted Prices in Active Markets for Identical Assets · Significant Other Observable Inputs · Significant Unobservable Inputs
DescriptionTotal(Level 1)(Level 2)(Level 3)
Assets:
Securities Available-For-Sale:
U.S. Government sponsored entities$4,988$4,988$—$—
States and political subdivisions91,809—91,809—
Residential and multi-family mortgage191,519—191,519—
Corporate notes and bonds43,139—43,139—
Pooled SBA10,500—10,500—
Total Securities Available-For-Sale$341,955$4,988$336,967$—
Interest Rate swaps$1,013$—$1,013$—
Equity Securities:
Corporate equity securities$5,341$5,341$—$—
Mutual funds2,2232,223——
Money market funds1,1031,103——
Corporate notes634—634—
Total Equity Securities$9,301$8,667$634$—
Liabilities:
Interest Rate Swaps$(1,013)$—$(1,013)$—

Assets and liabilities measured at fair value on a non-recurring basis are as follows at March 31, 2024 and December 31, 2023:

Fair Value Measurements at March 31, 2024 Using
DescriptionTotalQuoted Prices inActive Markets forIdentical Assets(Level 1)Significant OtherObservable Inputs(Level 2)SignificantUnobservableInputs(Level 3)
Assets:
Collateral-dependent loans receivable:
Farmland$430$—$—$430
Owner-occupied, nonfarm nonresidential properties4,080——4,080
Commercial and industrial4,696——4,696
Other construction loans and all land development loans and other land loans1,255——1,255
Multifamily (5 or more) residential properties300——300
Non-owner occupied, nonfarm nonresidential6,970——6,970
Home equity lines of credit302——302
Residential Mortgages secured by first liens839——839
Fair Value Measurements at December 31, 2023 Using
DescriptionTotalQuoted Prices inActive Markets forIdentical Assets(Level 1)Significant OtherObservable Inputs(Level 2)SignificantUnobservableInputs(Level 3)
Assets:
Collateral-dependent loans receivable:
Farmland$736$—$—$736
Owner-occupied, nonfarm nonresidential properties5,589——5,589
Commercial and industrial7,425——7,425
Other construction loans and all land development loans and other land loans1,299——1,299
Multifamily (5 or more) residential properties305——305
Non-owner occupied, nonfarm nonresidential7,216——7,216
Home equity lines of credit308——308
Residential mortgages secured by first liens871——871

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.

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 March 31, 2024:

FairvalueValuationTechniqueUnobservable InputsRange(WeightedAverage)
Collateral-dependent loans receivable:
Farmland$430Valuation of third party appraisal on underlying collateralLoss severity rates31% (31%)
Owner-occupied, nonfarm nonresidential properties4,080Valuation of third party appraisal on underlying collateralLoss severity rates0%-100% (31%)
Commercial and industrial4,696Valuation of third party appraisal on underlying collateralLoss severity rates4%-53% (20%)
Other construction loans and all land development loans and other land loans1,255Valuation of third party appraisal on underlying collateralLoss severity rates32% (32%)
Multifamily (5 or more) residential properties300Valuation of third party appraisal on underlying collateralLoss severity rates30% (30%)
Non-owner occupied, nonfarm nonresidential6,970Valuation of third party appraisal on underlying collateralLoss severity rates28%-49% (44%)
Home equity lines of credit302Valuation of third party appraisal on underlying collateralLoss severity rates17%-19% (17%)
Residential Mortgages secured by first liens839Valuation of third party appraisal on underlying collateralLoss severity rates19%-44% (33%)

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, 2023:

FairvalueValuationTechniqueUnobservable InputsRange(WeightedAverage)
Collateral-dependent loans receivable:
Farmland$736Valuation of third party appraisal on underlying collateralLoss severity rates29%-31% (30%)
Owner-occupied, nonfarm nonresidential properties5,589Valuation of third party appraisal on underlying collateralLoss severity rates9%-100% (14%)
Commercial and industrial7,425Valuation of third party appraisal on underlying collateralLoss severity rates8%-75% (31%)
Other construction loans and all land development loans and other land loans1,299Valuation of third party appraisal on underlying collateralLoss severity rates32% (32%)
Multifamily (5 or more) residential properties305Valuation of third party appraisal on underlying collateralLoss severity rates28% (28%)
Non-owner occupied, nonfarm nonresidential7,216Valuation of third party appraisal on underlying collateralLoss severity rates32%-48% (43%)
Home equity lines of credit308Valuation of third party appraisal on underlying collateralLoss severity rates15%-17% (15%)
Residential mortgages secured by first liens871Valuation of third party appraisal on underlying collateralLoss severity rates17%-42% (31%)

Fair Value of Financial Instruments

The following table presents the carrying amount and fair value of financial instruments at March 31, 2024:

Carrying · Fair Value Measurement Using: · Total
AmountLevel 1Level 2Level 3Fair Value
ASSETS
Cash and cash equivalents$301,453$301,453$—$—$301,453
Debt securities available-for-sale348,56514,482334,083—348,565
Debt securities held-to-maturity381,706104,088248,050—352,138
Equity securities9,5819,049532—9,581
Loans held for sale1,010—1,006—1,006
Net loans receivable4,385,566——4,268,9864,268,986
FHLB and other restricted stock holdings and investments31,017n/an/an/an/a
Interest rate swaps1,560—1,560—1,560
Accrued interest receivable24,9785032,35022,12524,978
LIABILITIES
Deposits$(5,037,553)$(4,504,782)$(535,525)$—$(5,040,307)
Subordinated notes and debentures(104,963)—(135,210)—(135,210)
Interest rate swaps(1,560)—(1,560)—(1,560)
Accrued interest payable(5,314)—(5,314)—(5,314)

The following table presents the carrying amount and fair value of financial instruments at December 31, 2023:

Carrying · Fair Value Measurement Using: · Total
AmountLevel 1Level 2Level 3Fair Value
ASSETS
Cash and cash equivalents$222,046$222,046$—$—$222,046
Debt securities available-for-sale341,9554,988336,967—341,955
Debt securities held-to-maturity388,968104,141256,429—360,570
Equity securities9,3018,667634—9,301
Loans held for sale675—677—677
Net loans receivable4,422,644——4,323,4764,323,476
FHLB and other restricted stock holdings and investments30,011n/an/an/an/a
Interest rate swaps1,013—1,013—1,013
Accrued interest receivable24,3184102,31921,58924,318
LIABILITIES
Deposits$(4,998,750)$(4,492,256)$(508,181)$—$(5,000,437)
Subordinated notes and debentures(104,887)—(134,298)—(134,298)
Interest rate swaps(1,013)—(1,013)—(1,013)
Accrued interest payable(3,550)—(3,550)—(3,550)

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

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

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The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.