ITEM 1A. RISK FACTORS
The Corporation’s financial condition and results of operations are subject to various risks inherent in its business. The material risks and uncertainties that management believes affect the Corporation are described below. If any of these risks actually occur, the Corporation’s business, financial condition, liquidity, results of operations and prospects could be materially and adversely affected. The following risks together with all of the other information in this Annual Report on Form 10-K should be considered.
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Economic Risks
Economic conditions could adversely affect our business and financial results.
The Corporation’s financial condition and results of operations are impacted by global markets and economic conditions over which the Corporation has no control. Periods of high inflation since the start of 2021 have led to increased costs for businesses and consumers. In addition, international trade disputes, including threatened or implemented tariffs imposed by the U.S. and threatened or implemented tariffs imposed by foreign countries in retaliation, could result in further inflationary pressures that impact costs. An economic downturn or recession, including deterioration in the economic conditions in the U.S., or a slowing or stalled recovery therefrom, may have a material adverse effect on our business, financial condition or results of operations. Poor economic conditions have in the past adversely affected, and may in the future affect, the demand for the Corporation’s products, the creditworthiness of the Corporation’s borrowers and the value of the Corporation’s investment securities and other interest-earning assets. In particular, the Corporation may face the following risks in connection with the economic or market environment:
•The Corporation’s and the Bank’s ability to borrow from other financial institutions or to access the debt or equity capital markets on favorable terms or at all could be adversely affected by disruptions in the capital markets or other events, including actions by rating agencies and deteriorating investor expectations.
•The Corporation faces increased regulation of the banking and financial services industry. Compliance with such regulation may increase its costs and limit its ability to pursue business opportunities.
•Market developments may affect customer confidence levels and may cause increases in loan delinquencies and default rates, which management expects would adversely impact the Bank’s charge-offs and provision for credit losses.
•Market developments may adversely affect the Bank’s securities portfolio by causing other-than-temporary-impairments, prompting write-downs and securities losses.
•Competition in the banking and financial services industry could intensify as a result of the consolidation of financial services companies in connection with current market conditions.
The Corporation may not be able to meet its cash flow needs on a timely basis at a reasonable cost, and the Corporation’s cost of funds for banking operations may significantly increase as a result of general economic conditions, interest rates and competitive pressures.
Liquidity is the ability to meet cash flow obligations as they come due and cash flow needs on a timely basis and at a reasonable cost. The liquidity of the Bank is used to make loans and to repay deposit and borrowing liabilities as they become due, or are demanded by customers and creditors. Many factors affect the Bank’s ability to meet liquidity needs, including variations in the markets served by its network of offices, its mix of assets and liabilities, reputation and standing in the marketplace, and general economic conditions.
The Bank’s primary source of funding is customer deposits, gathered throughout its network of banking offices. Periodically, the Corporation utilizes term borrowings from the Federal Home Loan Bank (the "FHLB") of Pittsburgh, of which the Bank is a member, and other lenders to meet funding obligations. In addition, the Bank also maintains borrowing capacity with the Federal Reserve Bank of Philadelphia (the "Federal Reserve Bank"). The Bank’s securities and loan portfolios provide a source of contingent liquidity that could be accessed in a reasonable time period through sales.
Significant changes in general economic conditions, market interest rates, competitive pressures or otherwise, could cause the Bank’s deposits to decrease relative to overall banking operations, and it would have to rely more heavily on brokered funds and borrowings in the future, which are typically more expensive than deposits.
The Corporation's management and Board of Directors, through the Asset/Liability Committee (the "ALCO"), monitor liquidity and the ALCO establishes and monitors acceptable liquidity ranges. The Bank actively manages its liquidity position through target ratios. Continual monitoring of these ratios, both historical and through forecasts under multiple rate scenarios, allows the Bank to employ strategies necessary to maintain adequate liquidity.
Changes in economic conditions, including consumer savings habits and availability of or access to capital, could potentially have a significant impact on the Bank’s liquidity position, which in turn could materially impact the Corporation’s financial condition, results of operations and cash flows.
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Credit and Interest Rate Risks
The Bank’s allowance for credit losses may not be adequate to cover loan losses which could have a material adverse effect on the Corporation’s business, financial condition and results of operations.
A significant source of risk for the Corporation arises from the possibility that losses will be sustained because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loan agreements. Most loans originated by the Bank are secured, but some loans are unsecured based upon management’s evaluation of the creditworthiness of the borrowers. With respect to secured loans, the collateral securing the repayment of these loans principally includes a wide variety of real estate, and to a lesser extent commercial and personal property, either of which may be insufficient to cover the obligations owed under such loans.
Collateral values and the financial performance of borrowers may be adversely affected by changes in prevailing economic, environmental and other conditions, including declines in the value of real estate, changes in interest rates and debt service levels, changes in oil and gas prices, changes in monetary and fiscal policies of the federal government, widespread disease, terrorist activity, environmental contamination and other external events, which are beyond the control of the Bank. In addition, collateral appraisals that are out of date or that do not meet industry recognized standards might create the impression that a loan is adequately collateralized when in fact it is not. Although the Bank may acquire any real estate or other assets that secure defaulted loans through foreclosures or other similar remedies, the amounts owed under the defaulted loans may exceed the value of the assets acquired.
The allowance for credit losses is subject to a formal analysis by the Credit Administration and Finance Departments of the Corporation. Following the issuance by the Financial Accounting Standards Board ("FASB") of Accounting Standards Update ("ASU") 2016-13, "Measurement of Credit Losses on Financial Instruments," the Corporation adjusted its loan allowance methodology to reflect the new standard, which requires periodic estimates of lifetime expected credit losses on financial assets and categorizes expected credit losses as allowances for credit losses under the current expected credit loss ("CECL") methodology. The Corporation measures expected credit losses of financial assets on a collective (pool) basis, when the financial assets share similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the models utilized by the Corporation to estimate expected credit losses include a discounted cash flow ("DCF") model that discounts instrument-level contractual cash flows, adjusted for prepayments and curtailments, incorporating loss expectations, and a weighted average remaining maturity model which contemplates expected losses at a pool-level, utilizing historic loss information. The Corporation's models for estimating the allowance for credit losses consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts.
The Bank monitors delinquencies and losses on a monthly basis. The Bank has adopted underwriting and credit monitoring policies and procedures, including the review of borrower financial statements and collateral appraisals, which management believes are appropriate to mitigate the risk of loss by assessing the likelihood of borrower nonperformance and the value of available collateral. The Bank also manages credit risk by diversifying its loan portfolio. An ongoing independent review, subsequent to management’s review, of individual credits is performed by an independent loan review function, which reports to the Loan Committee of the Corporation’s Board of Directors.
The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires the Corporation to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Although management believes that the processes in place for assessing the appropriate level of the allowance for credit losses are robust, such policies and procedures have limitations, including judgment errors in management’s risk analysis, and may not prevent unexpected losses in the future. Moreover, the CECL methodology may create more volatility in the level of our allowance for credit losses from quarter to quarter as changes in the level of allowance for credit losses will be dependent upon, among other things, macroeconomic forecasts and conditions, loan portfolio volumes and credit quality. These factors could have a material adverse effect on the Corporation’s business, financial condition and results of operations.
Interest rate volatility could significantly reduce the Corporation’s profitability.
The Corporation’s earnings largely depend on the relationship between the yield on its earning assets, primarily loans and investment securities, and the cost of funds, primarily deposits and borrowings. This relationship, commonly known as the net interest margin, is susceptible to significant fluctuation and is affected by economic and competitive factors that influence the yields and rates, and the volume and mix of the Bank’s interest earning assets and interest bearing liabilities.
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Interest rate risk can be defined as the sensitivity of net interest income and of the market value of financial instruments to the direction and frequency of changes in interest rates. Interest rate risk arises from the imbalance in the re-pricing, maturity, and/or cash flow characteristics of assets and liabilities. The Corporation is subject to interest rate risk to the degree that its interest bearing liabilities re-price or mature more slowly or more rapidly or on a different basis than its interest earning assets. Changes in interest rates, including those due to federal monetary policy, will affect the levels of income and expense recorded on a large portion of the Bank’s assets and liabilities, and fluctuations in interest rates will impact the market value of all interest sensitive assets. Significant fluctuations in interest rates could have a material adverse impact on the Corporation’s business, financial condition, results of operations, or liquidity.
Interest rates remain elevated compared to recent years and may increase. As interest rates rise, we experience competitive pressures to increase the rates we pay on deposits, which may decrease our net interest income. Furthermore, elevated interest rates increase our cost of new debt or preferred capital.
The Bank’s interest rate risk measurement and management techniques incorporate the re-pricing and cash flow attributes of its balance sheet and off-balance sheet instruments as they relate to current and potential changes in interest rates. The level of interest rate risk, measured in terms of the potential future effect on earnings, is determined through the use of static gap analysis and earnings simulation modeling under multiple interest rate scenarios. Management’s objectives are to measure, monitor, and develop strategies in response to the interest rate risk profile inherent in the Bank’s balance sheet in order to preserve the sensitivity of net interest income to actual or potential changes in interest rates. For further information on risk relating to interest rates, refer to Part I, Item 7a, "Quantitative and Qualitative Disclosures about Market Risk," herein.
The Corporation’s investment securities portfolio is subject to credit risk, market risk, and liquidity risk, and declines in value in its investment securities portfolio may require it to record impairment charges that could have a material adverse effect on its results of operations and financial condition.
The Corporation’s investment securities portfolio has risks beyond its control that can significantly influence the portfolio’s fair value. These factors include, but are not limited to, changes in interest rates, changes in prepayment speeds, changes in general economic conditions, rating agency downgrades of the securities, defaults of the issuers of the securities and market liquidity. Any change in current accounting principles or interpretations of these principles could impact the Corporation’s assessment of fair value and thus its determination of other-than-temporary impairment of the securities in its investment securities portfolio.
The Bank may be required to record other-than-temporary impairment charges on its investment securities if they suffer declines in value that are considered other-than-temporary. Numerous factors, including collateral deterioration underlying certain private label mortgage-backed securities, lack of liquidity for re-sales of certain investment securities, absence of reliable pricing information for certain investment securities, adverse changes in business climate, adverse actions by regulators, or unanticipated changes in the competitive environment could negatively affect the Bank’s securities portfolio in future periods. An other-than-temporary impairment charge could have a material adverse effect on the Corporation’s results of operations and financial condition.
A substantial decline in the value of the Bank’s FHLB common stock may adversely affect the Corporation’s results of operations, liquidity and financial condition.
As a requirement of membership in the FHLB of Pittsburgh, the Bank must own a minimum required amount of FHLB stock, calculated periodically based primarily on its level of borrowings from the FHLB. Borrowings from the FHLB represent the Bank’s primary source of short-term and long-term wholesale funding.
In an extreme situation, it is possible that the capitalization of an FHLB, including the FHLB of Pittsburgh, could be substantially diminished or reduced to zero. Consequently, given that there is no trading market for the Bank’s FHLB common stock, the Corporation’s management believes that there is a risk that the Corporation’s investment could be deemed impaired at some time in the future. If this occurs, it may adversely affect the Corporation’s results of operations and financial condition.
If the capitalization of the FHLB of Pittsburgh is substantially diminished, the Bank’s liquidity may be adversely impacted if it is not able to obtain alternative sources of funding.
There are 11 FHLB banks, including the FHLB of Pittsburgh, in the FHLB system. The 11 FHLB banks are jointly liable for the consolidated obligations of the FHLB system. To the extent that one FHLB bank cannot meet its obligations to pay its share of the system’s debt, other FHLB banks can be called upon to make the payment. The Corporation cannot assure you, however, that the FHLB system will be able to meet these obligations.
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The Bank could be held responsible for environmental liabilities relating to properties acquired through foreclosure, resulting in significant financial loss.
In the event the Bank forecloses on a defaulted commercial or residential mortgage loan to recover its investment, it may be subject to environmental liabilities in connection with the underlying real property, which could significantly exceed the value of the real property. Although the Bank exercises due diligence to discover potential environmental liabilities prior to acquiring any property through foreclosure, hazardous substances or wastes, contaminants, pollutants, or their sources may be discovered on properties during its ownership or after a sale to a third party. The Corporation cannot assure you that the Bank would not incur full recourse liability for the entire cost of any removal and cleanup on an acquired property, that the cost of removal and cleanup would not exceed the value of the property, or that the Bank could recover any of the costs from any third party. Losses arising from environmental liabilities could have a material adverse impact on the Corporation’s business, financial condition, results of operations, or liquidity.
Risks Related to an Investment in the Corporation’s Securities
Some provisions contained in the Corporation’s articles of incorporation and its bylaws and under Pennsylvania law could deter a takeover attempt or delay changes in control or management of the Corporation.
Certain anti-takeover provisions of the Pennsylvania Business Corporation Law of 1988, as amended, apply to Pennsylvania registered corporations (e.g., publicly traded companies) including, but not limited to, those relating to (1) control share acquisitions, (2) disgorgement of profits by certain controlling persons, (3) business combination transactions with interested shareholders, and (4) the rights of shareholders to demand fair value for their stock following a control transaction. Pennsylvania law permits corporations to opt-out of these anti-takeover provisions, but the Corporation has not done so. Such provisions could have the effect of deterring takeovers or delaying changes in control or management of the Corporation. Additionally, such provisions could limit the price that some investors might be willing to pay in the future for shares of the Corporation’s common stock.
For example, the Corporation’s amended and restated articles of incorporation require the affirmative vote of 66% of the outstanding shares entitled to vote to effect a business combination. In addition, the Corporation’s amended and restated articles of incorporation, subject to the limitations prescribed in such articles and subject to limitations prescribed by Pennsylvania law, authorize the Corporation’s Board of Directors, from time to time by resolution and without further shareholder action, to provide for the issuance of shares of preferred stock, in one or more series, and to fix the designation, powers, preferences and other rights of the shares and to fix the qualifications, limitations and restrictions thereof. As a result of its broad discretion with respect to the creation and issuance of preferred stock without shareholder approval, the Corporation's Board of Directors could adversely affect the voting power and other rights of the holders of common stock and, by issuing shares of preferred stock with certain voting, conversion and/or redemption rights, could discourage any attempt to obtain control of the Corporation.
The Corporation’s bylaws, as amended and restated, provide for the division of the Corporation’s Board of Directors into three classes of directors, with each serving staggered terms.
Any of the foregoing provisions may have the effect of deterring takeovers or delaying changes in control or management of the Corporation.
The price of the Corporation’s common stock may fluctuate significantly, and this may make it difficult for you to resell shares of common stock owned by you at times or at prices you find attractive.
The price of the Corporation’s common stock on the Global Select Market of The NASDAQ Stock Market LLC ("NASDAQ") constantly changes. The Corporation expects that the market price of its common stock will continue to fluctuate, and the Corporation cannot give you any assurances regarding any trends in the market prices for its common stock.
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The Corporation’s stock price may fluctuate as a result of a variety of factors, many of which are beyond its control. These factors include the Corporation’s:
•past and future dividend practice;
•financial condition, performance, creditworthiness, and prospects;
•quarterly variations in the Corporation’s operating results or the quality of the Corporation’s assets;
•operating results that vary from the expectations of management, securities analysts, and investors;
•changes in expectations as to the Corporation’s future financial performance;
•announcements of innovations, new products, strategic developments, significant contracts, acquisitions, and other material events by the Corporation or its competitors;
•the operating and securities price performance of other companies that investors believe are comparable to the Corporation;
•future sales of the Corporation’s equity or equity-related securities;
•the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and developments with respect to financial institutions generally; and
•instability in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity or real estate valuations or volatility, budget deficits or sovereign debt level concerns and other geopolitical, regulatory or judicial events.
The Corporation’s ability to pay dividends is limited by law and regulations.
The future declaration of dividends by the Corporation’s Board of Directors will depend on a number of factors, including capital requirements, regulatory limitations, the Corporation’s operating results and financial condition and general economic conditions. As a bank holding company, the Corporation’s principal assets and sources of income are derived from the Bank and, as a result, the Corporation’s ability to pay dividends depends primarily on the receipt of dividends from the Bank. Dividend payments from the Bank are subject to legal and regulatory limitations, generally based on retained earnings, imposed by bank regulatory agencies. The ability of the Bank to pay dividends is also subject to financial condition, regulatory capital requirements, capital expenditures, and other cash flow requirements. The Corporation cannot assure you that the Bank will be able to pay dividends to the Corporation in the future. If the Corporation were unable to receive dividends from the Bank, it would materially and adversely affect the Corporation’s liquidity and its ability to service its debt, pay its other obligations, or pay cash dividends on its common stock. The Corporation may decide to limit the payment of dividends to its stockholders even when the Corporation has the legal ability to pay them in order to retain earnings for use in the Corporation’s business.
Operational and Strategic Risks
The Bank’s loans are principally concentrated in certain areas of Pennsylvania, Ohio, New York and Virginia, and adverse economic conditions in those markets could adversely affect the Corporation’s business, financial condition and results of operations.
The Corporation’s success is dependent to a significant extent upon general economic conditions in the United States and, in particular, the local economies in Central, Northeast and Northwest Pennsylvania, Central and Northeast Ohio, Western New York and Southwest Virginia - the primary markets served by the Bank. The Bank is particularly exposed to real estate and economic factors in these geographic areas, as most of its loan portfolio is concentrated among borrowers in these markets. Furthermore, because a substantial portion of the Bank’s loan portfolio is secured by real estate in these areas, the value of the associated collateral is also subject to regional real estate market conditions.
The Bank is not immune to negative consequences arising from overall economic weakness and, in particular, a sharp downturn in the local real estate markets served by the Bank. While the Bank’s loan portfolio has not shown significant signs of credit quality deterioration despite continued challenges in the U.S. economy, we cannot assure you that no deterioration will occur. An economic recession in the markets served by the Bank, and the nation as a whole, could negatively impact household and corporate incomes. This impact could lead to decreased loan demand and increase the number of borrowers who fail to pay the Bank interest or principal on their loans, and accordingly, could have a material adverse effect on the Corporation’s business, financial condition, results of operations, or liquidity.
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Severe weather, flooding and other effects of climate change and other natural disasters, such as earthquakes, could adversely affect our financial condition, results of operations or liquidity.
Our branch locations and our customers’ properties may be adversely impacted by flooding, wildfires, prolonged periods of extreme temperature, high winds and other effects of severe weather conditions that may be caused or exacerbated by climate change. These events can force property closures, result in property damage and/or result in delays in expansion, development or renovation of our properties and those of our customers. Even if these events do not directly impact our properties or our customers’ properties, they may impact us and our customers through increased insurance, energy or other costs. In addition, changes in laws or regulations, including federal, state or city laws, relating to climate change could result in increased capital expenditures to improve the energy efficiency of our branch locations and/or our customers’ properties. We also face investor-related climate risks. Investors are increasingly taking into account environmental, social, and governance factors, including climate risks, in determining whether to invest in companies. Our reputation and investor relationships could be damaged as a result of our involvement with activities perceived to be causing or exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities in response to considerations relating to climate change.
The Corporation depends on the accuracy and completeness of information about customers and counterparties.
In deciding whether to extend credit or enter into other transactions with customers and counterparties, we rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information. We also rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to clients, we may assume that a customer's audited financial statements conform to U.S. generally accepted accounting principles ("GAAP") and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Our earnings are significantly affected by our ability to properly originate, underwrite and service loans. Our financial condition, results of operations and capital could be negatively impacted to the extent we incorrectly assess the creditworthiness of our borrowers, fail to detect or respond to deterioration in asset quality in a timely manner, or rely on financial statements that do not comply with GAAP or are materially misleading.
The risks presented by acquisitions could adversely affect our financial condition and results of operations.
Any acquisitions will be accompanied by the risks commonly encountered in acquisitions including, among other things: our ability to realize anticipated cost savings and avoid unanticipated costs relating to the merger, the difficulty of integrating operations and personnel, the potential disruption of our or the acquired company’s ongoing business, the inability of our management to maximize our financial and strategic position, the inability to maintain uniform standards, controls, procedures and policies, and the impairment of relationships with the acquired company’s employees and customers as a result of changes in ownership and management. These risks may prevent the Corporation from fully realizing the anticipated benefits of an acquisition or cause the realization of such benefits to take longer than expected.
Strong competition within the Corporation’s markets and technological change may have a material adverse impact on its profitability.
The Corporation competes with an ever-increasing array of financial service providers. As noted above, as a financial holding company and state-chartered financial institution, respectively, the Corporation and the Bank are subject to extensive regulation and supervision, including, in many cases, regulations that limit the type and scope of activities. The non-bank financial service providers that compete with the Corporation and the Bank may not be subject to such extensive regulation, supervision, and tax burden. Competition from nationwide banks, as well as local institutions, is strong in the Corporation’s markets.
The financial services industry is undergoing rapid technological change, and technological advances, including those related to artificial intelligence ("AI"), are likely to intensify competition. In addition to improving customer services, effective use of technology increases efficiency and enables financial institutions to reduce costs. Accordingly, the Corporation’s future success will depend in part on its ability to address customer needs by using technology. The Corporation cannot assure you that it will be able to successfully take advantage of technological changes or advances or develop and market new technology driven products and services to its customers. Failure to keep pace with technological change affecting the financial services industry could have a material adverse effect on the Corporation's financial condition, results of operations, or liquidity.
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Many regional, national, and international competitors have far greater assets and capitalization than the Corporation has and greater resources to invest in technology and access to capital markets and can consequently offer a broader array of financial services than the Corporation can. We cannot assure you that we will continue to be able to compete effectively with other financial institutions in the future. Developments increasing the nature or level of competition could have a material adverse effect on the Corporation’s business, financial condition, results of operations, or liquidity. For further information on competition, refer to Part I, Item 1, "Competition," herein.
The soundness of other financial institutions with which the Corporation does business could adversely affect the Corporation’s business, financial condition or results of operations.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial institutions are interrelated as a result of trading, clearing, counterparty, investment or other relationships. The Corporation routinely executes transactions with counterparties in the financial services industry such as commercial banks, brokers and dealers, investment banks and other institutional clients for a range of transactions including loan participations, derivatives, and hedging transactions. In addition, the Corporation invests in securities or loans originated or issued by financial institutions or supported by the loans they originate. As a result, defaults by, or even rumors or questions about, one or more financial institutions, or the financial industry generally, have led to, or could in the future lead to, market-wide liquidity problems and could lead to losses or defaults by us or other institutions. Many of these transactions expose the Corporation to credit or investment risk in the event of default by the Corporation’s counterparty. In addition, the Corporation’s credit risk may be exacerbated if the collateral it holds cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or other exposure to the Corporation. The Corporation could incur losses to its securities portfolio as a result of these issues. These types of losses may have a material adverse effect on the Corporation’s business, financial condition or results of operation.
The Corporation’s operations may be adversely affected if its external vendors do not perform as expected or if its access to third-party services is interrupted.
The Corporation relies on certain external vendors to provide products and services necessary to maintain the day-to-day operations of the Corporation. Some of the products and services provided by vendors include key components of our business infrastructure including data processing and storage and internet connections and network access, among other products and services. Accordingly, the Corporation’s operations are exposed to the risk that these vendors will not perform in accordance with the contracted arrangements or under service level agreements. The failure of an external vendor to perform in accordance with the contracted arrangements or under service level agreements, because of changes in the vendor’s organizational structure, financial condition, support for existing products and services or strategic focus or for any other reason, could disrupt the Corporation’s operations. If we are unable to find alternative sources for our vendors’ services and products quickly and cost-effectively, the failures of our vendors could have a material adverse impact on the Corporation’s business and, in turn, the Corporation’s financial condition and results of operations.
Additionally, our information technology and telecommunications systems interface with and depend on third-party systems, and we could experience service denials if demand for such services exceeds capacity, or such third-party systems fail or experience interruptions. If sustained or repeated, a system failure or service denial could result in a deterioration of our ability to process new and renewal loans, gather deposits and provide customer service, compromise our ability to operate effectively, damage our reputation, result in a loss of customer business and subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.
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A failure in or breach of the Corporation’s or any of its subsidiaries’ information technology network and systems, or those of third party vendors and other service providers, including as a result of cyber attacks, could disrupt the Corporation’s or any of its subsidiaries’ businesses, result in the unauthorized disclosure or misuse of confidential or proprietary information, damage its reputation, increase its costs, and/or cause losses.
The Corporation, primarily through the Bank, depends on its information technology networks and systems to continuously process, record and monitor a large number of customer transactions and to process, transmit and store proprietary and confidential information, including personal information of employees and customers. Accordingly, the Corporation’s and its subsidiaries’ information technology networks and systems must continue to be safeguarded and monitored for potential failures, vulnerabilities, disruptions and breakdowns. We face cybersecurity threats, including system, network or internet failures, cyber attacks, ransomware and other malware, social engineering, phishing schemes and workforce member error, negligence, or fraud. Although the Corporation has business continuity plans and other safeguards in place, any such cybersecurity incident, including those impacting personal information, could result in customer attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect the Corporation’s results of operations or financial condition. Further, adoption of AI tools by us or by third parties may pose new cybersecurity challenges. Threat actors may use AI tools to automate and enhance cybersecurity attacks against us. We use software and platforms designed to detect such cybersecurity threats, including AI-based tools, but these threats could become more sophisticated and harder to detect and counteract, which may pose significant risks to our data security and systems.
In addition, significant disruptions of our third party vendors’ and/or service providers’ security systems or infrastructure, or other similar data security incidents, could adversely affect our business operations and/or result in the loss, misappropriation, and/or unauthorized access, use or disclosure of, or the prevention of access to, regulated personal or confidential information, which could harm our business. While we may be entitled to damages if our third-party service providers fail to satisfy their security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award.
Given the evolving nature of security threats and evolving safeguards, there can be no assurance that any preventive, protective, or remedial data security measures that we or our third-party service providers implement are or will be adequate to detect or prevent all cybersecurity incidents. The Corporation continues to enhance its data security systems, technology platforms, employee education and risk management processes, in an effort to underpin its business strategy as well as in response to the evolving threat landscape and any incidents we experience. In connection with these efforts, we have incurred costs and expect to incur additional costs as we continue to enhance our data security infrastructure and take further steps to prevent unauthorized access to our systems and the data we maintain. In addition, any actual or perceived failure by the Corporation or our vendors or business partners to comply with our privacy, confidentiality, or data security-related legal or other obligations to third parties may result in claims by third parties that we have breached our privacy- or confidentiality-related obligations, which could materially and adversely affect our business and prospects.
The Corporation’s risk and exposure to these matters, including future "phishing" attempts like the 2020 incident, which was disclosed in the Corporation's Annual Form 10-K for the year ended December 31, 2020, remain heightened because of, among other things, the evolving nature of these threats, our plans to continue to implement our Internet banking and mobile banking channel strategies and develop additional remote connectivity solutions to serve our customers when and how they want to be served. As a result, cybersecurity and the continued development and enhancement of the Corporation’s controls, processes and practices designed to protect its and its subsidiaries systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for the Corporation. As cyber threats continue to evolve, the Corporation may be required to expend further significant resources to continue to modify or enhance its protective measures or to investigate and remediate future information security vulnerabilities.
Additionally, while we have implemented security measures that we believe are appropriate, a regulator could deem our security measures not to be appropriate given the lack of prescriptive measures in certain data protection laws. Furthermore, increased regulation of data collection, use and retention practices, including self-regulation and industry standards, changes in existing laws and regulations, enactment of new laws and regulations, increased enforcement activity, and changes in interpretation of laws, could increase our cost of compliance and operation, limit our ability to grow our business or otherwise harm the Corporation.
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While we have purchased cybersecurity insurance, there are no assurances that the coverage would be adequate in relation to any incurred losses. Moreover, as cyber attacks increase in frequency and magnitude, we may be unable to obtain cybersecurity insurance in amounts and on terms we view as adequate for our operations. Further information relating to cybersecurity risk management is discussed in Item 1C. "Cybersecurity" of this report.
A pandemic and measures intended to prevent its spread, could have a material adverse effect on our business, results of operations, cash flows, and financial condition.
A pandemic could negatively impact the global economy, disrupt financial markets and international trade, and result in varying unemployment levels, all of which could negatively impact our business, results of operations, cash flows, and financial condition. In response to pandemic outbreaks, governments and other authorities around the world, including federal, state and local authorities in the United States, have imposed, and may in the future impose measures intended to mitigate its spread, including restrictions on freedom of movement and business operations such as issuing guidelines, travel bans, border closings, business closures and quarantine orders.
Our business and financial performance could be adversely affected, directly or indirectly, by terrorist activities, international hostilities or domestic civil unrest.
Neither the occurrence nor the potential impact of geopolitical instabilities, terrorist activities, international hostilities or other extraordinary events beyond the Corporation’s control can be predicted. However, these occurrences could adversely impact us, for example, by preventing us from conducting our business in the ordinary course. Also, their impact on our borrowers, depositors, other customers, suppliers or other counterparties could result in indirect adverse effects on us. Other indirect adverse consequences from these occurrences could result from impacts to the financial markets, the economy in general or in any region, or key parts of the infrastructure (such as the power grid) on which we and our customers rely. These types of indirect effects, whether specific to our counterparties or more generally applicable, could lead, for example, to an increase in delinquencies, bankruptcies or defaults that could result in the Corporation experiencing higher levels of nonperforming assets, net charge-offs and provisions for credit losses. They could also cause a reduction in demand for lending or other services that we provide.
Our use of AI could expose us to various risks.
We have begun to utilize AI technologies in various aspects of our business, including internal training material creation. AI technologies are susceptible to errors and other malfunctions which could lead to operational challenges and reputational risks. In addition, we may be subject to increasing regulations related to our use of AI, including regulations related to privacy, data security, and intellectual property rights, which could expose us to legal risks.
Risks Related to Legal and Compliance Matters
The Corporation is subject to extensive government regulation and supervision, which may affect its ability to conduct its business and may negatively impact its financial results.
The Corporation, primarily through the Bank and its non-bank subsidiary, is subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, the Federal Deposit Insurance Fund and the safety and soundness of the banking system as a whole, not stockholders. These regulations affect the Corporation’s lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Furthermore, political and policy goals of elected officials may change over time, which could impact the rulemaking, supervision, examination and enforcement priorities of federal banking agencies. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the Corporation in substantial and unpredictable ways. Such changes could subject it to additional costs, limit the types of financial services and products the Corporation may offer, and/or limit the pricing it may charge on certain banking services, among other things.
Failure to comply with laws, including the Bank Secrecy Act and USA Patriot Act, regulations or policies could result in sanctions by regulatory agencies, restrictions, civil money penalties and/or reputation damage, which could have a material adverse effect on the Corporation’s business, financial condition and results of operations and/or cause the Corporation to lose its financial holding company status. While the Corporation has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur.
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As a result of our merger with ESSA, the Bank agreed to and assumed all obligations under the ESSA Consent Order. We could incur unanticipated costs and expenses to achieve compliance with the ESSA Consent Order. Actions taken to achieve compliance with the ESSA Consent Order may affect our business or financial performance and may require us to reallocate resources away from existing business or to undertake significant changes to our business, operations, products and services and risk management practices. In addition, although the ESSA Consent Order resolved all claims by the United States of America against ESSA Bank, we could be subject to other enforcement actions relating to the alleged violations resolved by the ESSA Consent Order.
See the section captioned "Supervision and Regulation" in Part I, Item 1 of this report for further information.
Federal and state governments could pass legislation responsive to current credit conditions which could cause the Corporation to experience higher credit losses.
The Corporation could experience higher credit losses because of federal or state legislation or regulatory action that reduces the amount the Bank’s borrowers are otherwise contractually required to pay under existing loan contracts. Also, the Corporation could experience higher credit losses because of federal or state legislation or regulatory action that limits the Bank’s ability to foreclose on property or other collateral or makes foreclosure less economically feasible. The Corporation cannot assure you that future legislation will not significantly and adversely impact its ability to collect on its current loans or foreclose on collateral.
General Risk Factors
The Corporation relies on its management and other key personnel, and the loss of any of them may adversely affect its operations.
The Corporation is and will continue to be dependent upon the services of its executive management team. In addition, it will continue to depend on its ability to retain and recruit key client relationship managers. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on its business and financial condition.
The Corporation's risk management framework may not be effective in mitigating risk and loss.
The Corporation maintains an enterprise risk management program that is designed to identify, quantify, monitor, report, and control the risks that it faces. These risks include, but are not limited to: strategic, interest-rate, credit, liquidity, operations, pricing, reputation, compliance, litigation, and cybersecurity. While the Corporation assesses and improves this program on an ongoing basis, there can be no assurance that its approach and framework for risk management and related controls will effectively mitigate all risk and limit losses in its business. If conditions or circumstances arise that expose flaws or gaps in the Corporation's risk-management program, or if its controls break down, the Corporation's results of operations and financial condition may be adversely affected.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 1C. CYBERSECURITY
Risk Management and Strategy
The Corporation maintains robust processes for assessing, identifying, and managing material risks from cybersecurity threats. The Corporation’s cybersecurity program is based on the Federal Financial Institutions Examination Council ("FFIEC") framework which tailors the National Institute of Standards and Technology ("NIST") Cybersecurity Framework to be more financial services focused. The risk of cybersecurity threats is integrated into the Corporation’s Enterprise Risk Management ("ERM") program, led by the Corporation’s Chief Risk Officer. The ERM program includes an annual risk prioritization process to identify key enterprise risks. Each key risk is assigned a risk owner to establish action plans and implement risk mitigation strategies. The Corporation’s cybersecurity threat risk action plan is managed at the enterprise level by the Chief Information Technology & Security Officer (the "CITSO"), the VP of Information Technology, and the VP of Information Security. Risk owners regularly monitor cybersecurity risks and the evolving threat landscape and review and update the cybersecurity threat risk action plan in response to newly identified threats or risk mitigation actions. To oversee and identify cybersecurity threat risks on a day-to-day basis, including from third party service providers, the Corporation maintains a third-party security operations center with round-the-clock monitoring, and the CITSO receives regular reports on industry activity. Management also assesses the cybersecurity proficiency of potential third-party suppliers before utilizing their services. The assessment identifies cybersecurity-related risks and makes recommendations to enhance the security of all new computing services. Management reassesses all suppliers on a regular interval.
The Corporation maintains a Cybersecurity Incident Response Plan (the "CSIRP"), which establishes an organizational framework and guidelines intended to facilitate an effective response and handling of cybersecurity incidents that could jeopardize the availability, integrity, or confidentiality of the Corporation’s assets. Pursuant to the CSIRP and its escalation protocols, designated personnel are responsible for assessing the severity of the incident and associated threat, containing the threat, remediating the threat, including recovery of data and access to systems, analyzing the reporting and disclosure obligations associated with the incident, and performing post-incident analysis and program improvements. While the particular personnel assigned to an incident response team will depend on the particular facts and circumstances, the CITSO and the VP of Information Security primarily lead these efforts.
The Corporation works closely with its internal auditors to assess, identify, and manage cybersecurity risks. In addition, the Corporation engages with third party cybersecurity specialists to provide an independent assessment of the Corporation’s cybersecurity programs and to prepare a 3-year plan to maintain compliance and operational excellence. Management periodically reviews the 3-year plan and modifies it in response to changes in the threat landscape or otherwise as needed.As of December 31, 2025, the Corporation has not experienced any known instances of material cybersecurity threats, including known third party provider incidents, during any of the prior three fiscal years that have materially affected the business strategy, results of operations or financial condition of the Corporation. However, there can be no assurance that the Corporation’s security efforts and measures or those of our third-party providers will be effective or that attempted security incidents or disruptions would not be successful or damaging. In addition, although the Corporation maintains cybersecurity insurance to provide some coverage for certain risks arising out of data and network breaches, there can be no assurance that the Corporation’ cybersecurity insurance coverage will be sufficient in the event of a cyber attack. See "Item 1A. Risk Factors" above for more information.
Governance
The Board of Directors is responsible for overseeing the assessment and management of enterprise-level risks that may impact the Corporation. The Audit Committee has primary responsibility for overseeing risk management, including oversight of risks from cybersecurity threats. The boards of directors of the Corporation and the Bank have also established an IT Committee, consisting of at least three independent directors, along with non-voting members from management, including the President and CEO, the Chief Financial Officer, the CITSO, the SVP of Operations, the VP of Information Technology, and the VP of Information Security. The IT Committee assists the boards of directors of the Corporation and CNB Bank in fulfilling their respective governance responsibilities for CNB’s information technology and related data security infrastructure under relevant regulatory safety and soundness requirements. Management, including the CITSO, reports on cybersecurity matters regularly to the Board, primarily through the Audit Committee and IT Committee, including an annual report regarding specific risks and mitigation efforts within the Bank and a 3-year cybersecurity threat assessment conducted by third party experts. Management provides benchmarking information and updates on key operational and compliance metrics to the Board of Directors. In addition, cybersecurity training is provided to the full Board of Directors to educate directors on the current cyber threat environment and measures companies can take to mitigate risk and impact of cyber attacks. Several members of the Board of Directors, including the Chairperson of the Audit Committee, also have cybersecurity experience.
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As described above, management is actively involved in assessing and managing the Bank’s material cybersecurity risks. The Corporation's incident response plan provides clear communication protocols, including with respect to members of senior management, which may include the CEO, the CFO, the Board of Directors, the Audit Committee and external legal counsel. In addition, the incident response plan considers communications and reporting to customers, regulators and law enforcement.
The CITSO, who reports directly to the CEO, is responsible for the oversight of the Corporation’s IT operation, including the cybersecurity program, and holds a Bachelor of Science degree in Information Technology and Security and a Master of Science in Information Security and Assurance. He also holds 20 industry recognized Technology and Security certifications. The VP of Information Security reports directly to the CITSO and has responsibility for leadership of the Bank’s cybersecurity program. He holds a bachelor’s degree in mathematics and computer science, as well as several industry recognized information security certifications. The VP of Information Technology reports directly to the CITSO and has responsibility for leadership of the Bank’s Information Technology program. He holds a bachelor’s degree in information technology and has worked in the technology field for 30 years with 18 of those years in a financial institution in various technology management, security, and audit roles.
ITEM 2. PROPERTIES
The headquarters of the Corporation and the Bank are located at 1 South Second Street, Clearfield, Pennsylvania, in a building owned by the Corporation. The Bank operates 75 full-service offices at December 31, 2025. Of these 75 offices, 39 are owned and 35 are leased from independent owners and one is leased from the Corporation. Holiday has six full-service offices, of which five are leased from independent owners and one is leased from the Corporation. The CNB Bank franchise's primary market areas are the Pennsylvania counties of Blair, Cambria, Centre, Clearfield, Elk, Indiana, Jefferson, and McKean. ERIEBANK, a division of the Bank, operates in the Pennsylvania counties of Crawford, Erie, and Warren and in the Ohio counties of Ashtabula, Cuyahoga, Geauga, Lake, and Lorain. FCBank, a division of the Bank, operates in the Ohio counties of Crawford, Delaware, Franklin, Knox, Marion, Morrow and Richland. BankOnBuffalo, a division of the Bank, operates in the New York counties of Erie, Niagara, and Ontario. Ridge View Bank, a division of the Bank, operates in the Virginia counties of Botetourt, Craig, Franklin, Montgomery, and Roanoke. ESSA Bank, a division of the Bank, operates in the Pennsylvania counties of Delaware, Chester, Lackawanna, Lehigh, Luzerne, Monroe, and Northampton. Impressia Bank, a division of the Bank, operates in the Bank’s primary market areas. There are no encumbrances on the offices owned and the rental expense on the leased property is immaterial in relation to operating expenses. The initial lease terms range from one to twenty years.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Corporation or any of its subsidiaries is a party, or of which any of their properties is the subject, except ordinary routine proceedings which are incidental to the business.
ITEM 4. MINE SAFETY DISCLOSURES
None.
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PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the Global Select Market of NASDAQ under the symbol "CCNE." As of December 31, 2025, the number of shareholders of record of the Corporation’s common stock was 14,185.
Issuer Purchases of Equity Securities
The following table provides information with respect to any purchase of shares of the Corporation’s common stock made by or on behalf of the Corporation for the quarter ended December 31, 2025.
(1) The Company's 2024 Common Share Repurchase Program expired on May 14, 2025. On June 23, 2025, the Corporation received acknowledgement from the Federal Reserve Bank of the Corporation's 2025 Common Share Repurchase Program (the "Plan"). The Corporation's Board of Directors previously approved the Plan, subject to the Federal Reserve Bank's response, authorizing the repurchase from time to time by the Corporation of up to 500,000 shares of the Corporation's common stock, no par value per share, provided that the aggregate purchase price of shares of common stock repurchased does not exceed $15,000,000. Pursuant to the Plan, repurchases of common stock, if any, are authorized to be made during the period beginning on June 23, 2025 (the date on which the Corporation received acknowledgement from the Federal Reserve Bank) through and including June 10, 2026, through open market purchases, privately negotiated transactions or in such other manner as will comply with the provisions of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder, subject to compliance with any material agreement to which the Corporation is a party. Depending on market conditions and other factors, these repurchases may be commenced or suspended without prior notice. As of December 31, 2025, there were 500,000 shares remaining for repurchase under the Plan
Additionally, during the quarter ended December 31, 2025, certain employees surrendered shares of common stock owned by them to satisfy their statutory minimum U.S. federal and state tax obligations associated with the vesting of shares of restricted common stock issued under the CNB Financial Corporation 2025 Omnibus Incentive Plan.
Dividends Restrictions
The Corporation is a legal entity separate and distinct from the Bank. Declaration and payment of cash dividends by the Corporation depends upon cash dividend payments to the Corporation by the Bank, which is our primary source of revenue and cash flow.
As a Pennsylvania state-chartered bank, the Bank is subject to regulatory restrictions on the payment and amounts of dividends under the Pennsylvania Banking Code. Further, the ability of banking subsidiaries to pay dividends is also subject to their profitability, financial condition, capital expenditures and other cash flow requirements.
The payment of dividends by the Bank and the Corporation may also be affected by other factors, such as the requirement to maintain adequate capital above regulatory requirements. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. A depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal banking agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. Federal banking regulators have the authority to prohibit banks and bank holding companies from paying a dividend if the regulators deem such payment to be an unsafe or unsound practice.
The amount and timing of dividends is subject to the discretion of the Board of Directors and depends upon business conditions and regulatory requirements. The Board of Directors has the discretion to change the dividend at any time for any reason. The Board of Directors presently intends to continue the policy of paying quarterly cash dividends. The amount of any future dividends will depend on economic and market conditions, the Corporation's financial condition and operating results and other factors, including applicable government regulations and policies.
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Share Return Performance
Set forth below is a chart comparing the Corporation’s cumulative return to stockholders against the cumulative return of the NASDAQ Composite Index and a peer group index of banking organizations for the five-year period commencing December 31, 2020 and ending December 31, 2025.
CNB Financial Corporation
Period Ending
Source: S&P Global Market Intelligence
© 2026
ITEM 6. RESERVED
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented to provide insight into management’s assessment of financial results and should be read in conjunction with the following parts of this Annual Report on Form 10-K: Part I, Item 1 "Business," Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," and Part II, Item 8 "Financial Statements and Supplementary Data." This section of this Annual Report on Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Form 10-K can be found in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024.
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Dollar amounts in tables are stated in thousands, except for per share amounts.
Forward-Looking Statements and Factors that Could Affect Future Results
The information below includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to CNB’s financial condition, liquidity, results of operations, future performance and business. These forward-looking statements are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that are not historical facts. Forward-looking statements include statements with respect to beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors (some of which are beyond CNB’s control). Forward-looking statements often include the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future conditional verbs such as "may," "will," "should," "would" and "could." CNB’s actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance.
Such known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, include, but are not limited to, (i) adverse changes or conditions in capital and financial markets, including actual or potential stresses in the banking industry; (ii) changes in interest rates; (iii) the credit risks of lending activities, including our ability to estimate credit losses and the allowance for credit losses, as well as the effects of changes in the level of, and trends in, loan delinquencies and write-offs; (iv) effectiveness of our data security controls in the face of cyber attacks and any reputational risks following a cybersecurity incident; (v) changes in general business, industry or economic conditions or competition; (vi) changes in any applicable law, rule, regulation, policy, guideline or practice governing or affecting financial holding companies and their subsidiaries or with respect to tax or accounting principles or otherwise; (vii) adverse economic effects from international trade disputes, including threatened or implemented tariffs imposed by the U.S. and threatened or implemented tariffs imposed by foreign countries in retaliation, or similar events impacting economic activity; (viii) higher than expected costs or other difficulties related to integration of combined or merged businesses; (ix) the effects of business combinations and other acquisition transactions, including the inability to realize our l and investment portfolios; (x) changes in the quality or composition of our loan and investment portfolios; (xi) adequacy of loan loss reserves; (xii) increased competition; (xiii) loss of certain key officers; (xiv) deposit attrition; (xv) rapidly changing technology; (xvi) unanticipated regulatory or judicial proceedings and liabilities and other costs; (xvii) changes in the cost of funds, demand for loan products or demand for financial services; and (xviii) other economic, competitive, governmental or technological factors affecting our operations, markets, products, services and prices. Such developments could have an adverse impact on CNB's financial position and results of operations.
The forward-looking statements contained herein are based upon management’s beliefs and assumptions. Any forward-looking statement made herein speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. CNB undertakes no obligation to publicly update or revise any forward-looking statements included in this Annual Report on Form 10-K, whether as a result of new information, future events or otherwise, except to the extent required by law. In light of these risks, uncertainties and assumptions, the forward-looking events discussed might not occur and you should not put undue reliance on any forward-looking statements.
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Overview
The Corporation is a financial holding company registered under the BHC Act. It was incorporated under the laws of the Commonwealth of Pennsylvania in 1983 for the purpose of engaging in the business of a financial holding company. The Corporation’s subsidiary, the Bank, provides financial services to individuals and businesses. The CNB Bank franchise's primary market areas are the Pennsylvania counties of Blair, Cambria, Centre, Clearfield, Elk, Indiana, Jefferson, and McKean. ERIEBANK, a division of the Bank, operates in the Pennsylvania counties of Crawford, Erie, and Warren and in the Ohio counties of Ashtabula, Cuyahoga, Geauga, Lake, and Lorain. FCBank, a division of the Bank, operates in the Ohio counties of Crawford, Delaware, Franklin, Knox, Marion, Morrow, and Richland. BankOnBuffalo, a division of the Bank, operates in the New York counties of Erie, Niagara, and Ontario. Ridge View Bank, a division of the Bank, operates in the Virginia counties of Botetourt, Craig, Franklin, New River Valley, and Roanoke. ESSA Bank, a division of the Bank, operates in the Pennsylvania counties of Delaware, Chester, Lackawanna, Lehigh, Luzerne, Monroe, and Northampton. Impressia Bank, a division of the Bank, operates in the Bank’s primary market areas. Although the Corporation’s strategies, through the Bank, are executed based on the divisions discussed above, the Bank is a single Pennsylvania-chartered bank whereby all divisions of the Bank conduct their business on a doing business as basis.
In addition to the Bank, the Corporation has four other subsidiaries. CNB Securities Corporation is incorporated in Delaware and currently maintains investments in debt and equity securities. CNB Insurance Agency, incorporated in Pennsylvania, provides for the sale of nonproprietary annuities and other insurance products. CNB Risk Management, Inc., incorporated in Delaware, is a captive insurance company that insures against certain risks unique to the operations of the Corporation and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace. Holiday, incorporated in Pennsylvania, offers small balance unsecured loans and secured loans, primarily collateralized by automobiles and equipment, to borrowers with higher risk characteristics.
Merger with ESSA Bancorp, Inc.
On July 23, 2025, the Corporation completed its previously announced acquisition of ESSA and its subsidiary bank, ESSA Bank, pursuant to the Merger Agreement. The Corporation’s acquisition of ESSA was an all-stock transaction. Under the terms of the Merger Agreement, ESSA merged with and into the Corporation, with the Corporation as the surviving entity, and immediately thereafter, ESSA Bank merged with and into the Bank, with the Bank as the surviving bank. Banking offices of ESSA Bank operate under the trade name ESSA Bank, a division of CNB Bank.
Pursuant to the Merger Agreement, each outstanding share of ESSA common stock was converted into the right to receive 0.8547 shares of the Corporation’s common stock. The total consideration paid to ESSA shareholders was approximately $202.6 million, comprised of approximately 8,359,430 shares of the Corporation's common stock, valued at approximately $202.5 million based on the July 23, 2025 closing price of $24.23 per share of the Corporation's common stock, and $21 thousand in cash in lieu of fractional shares.
Non-GAAP Financial Information
This report contains references to financial measures that are not defined in GAAP. Management uses non-GAAP financial information in its analysis of the Corporation’s performance. Management believes that these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results of operations with prior periods and show the effects of significant gains and charges in the periods presented. The Corporation’s management believes that investors may use these non-GAAP measures to analyze the Corporation’s financial performance without the impact of unusual items or events that may obscure trends in the Corporation’s underlying performance. This non-GAAP data should be considered in addition to results prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures and that different companies might calculate these measures differently.
Non-GAAP measures reflected within the discussion below also include adjusted calculations to exclude after-tax merger and integration costs ("merger transaction related expenses") related to the Corporation’s acquisition of ESSA.
Non-GAAP measures reflected within the discussion below include:
•Tangible book value per common share;
•Tangible common equity/tangible assets;
•Adjusted net income available to common shareholders;
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•Adjusted earnings per share;
•Merger transaction related expenses, net of tax;
•Net interest margin (fully tax equivalent basis) and Net interest margin excluding purchase accounting loan accretion (fully tax equivalent basis);
•Efficiency ratio (fully tax equivalent basis) and Adjusted efficiency ratio (fully tax equivalent basis);
•Pre-provision net revenue ("PPNR") and Adjusted PPNR; and
•Return on average tangible common equity and Adjusted return on average tangible common equity.
A reconciliation of these non-GAAP financial measures is provided below in the "Non-GAAP Financial Measures" section.
Primary Factors Used To Evaluate Performance
Management considers return on average assets, return on average equity, return on average tangible common equity, earnings per common share, tangible book value per common share, asset quality, net interest margin, and other metrics as key measures of the financial performance of the Corporation. The interest rate environment will continue to play an important role in the future earnings of the Corporation. To address the challenging interest rate and competitive environments, the Corporation continues to evaluate, develop and implement strategies necessary to support its ongoing financial performance objectives and future growth goals. Additionally, management frequently evaluates the potential impact of economic and geopolitical events that may have an impact on the credit risk profile of its customers and develops proactive strategies to mitigate such potential impacts on the Corporation’s loan portfolio.
Financial Condition
The following table presents ending balances, growth, and the percentage change of certain measures of our financial condition for specified years (dollars in millions):
2025Balance 2024Balance $ Changevs. prioryear % Changevs. prioryear
Cash and Cash Equivalents
Cash and cash equivalents totaled $527.9 million at December 31, 2025, including $441.5 million held at the Federal Reserve, compared to $443.0 million at December 31, 2024. These excess funds, when combined with collective contingent liquidity resources of $6.7 billion including (i) available borrowing capacity from the FHLB and the Federal Reserve, and (ii) available unused commitments from brokered deposit sources and other third-party funding channels, including previously established lines of credit from correspondent banks, result in total available liquidity sources for the Corporation as of December 31, 2025 to be approximately 5.4 times the estimated amount of adjusted uninsured deposit balances.
Management believes the liquidity needs of the Corporation are satisfied primarily by the current balance of cash and cash equivalents, customer and brokered deposits, FHLB financing, the portions of the securities and loan portfolios that mature within one year, and other third-party funding channels. The Corporation expects that these sources of funds will enable it to meet cash obligations and off-balance sheet commitments as they come due. In addition to the above noted liquidity sources, the Corporation maintains access to the Federal Reserve discount window.
Securities
AFS debt securities and equity securities totaled $595.2 million and $479.0 million at December 31, 2025 and 2024, respectively. Investments classified as held-to-maturity ("HTM") securities totaled $242.1 million and $306.1 million at December 31, 2025 and 2024, respectively.
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The Corporation’s objective is to maintain the investment securities portfolio at an appropriate level to balance the earnings and liquidity provided by the portfolio. Note 3, "Securities," to the consolidated financial statements provides more detail concerning the composition of the Corporation’s securities portfolio and the process for evaluating securities for impairment.
The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of AFS debt securities as of December 31, 2025. Weighted-average yields have been computed on a fully taxable-equivalent basis using a tax rate of 21%. Mortgage-backed securities are included in maturity categories based on their stated maturity date.
$ Amt. Yield $ Amt. Yield $ Amt. Yield $ Amt. Yield $ Amt. Yield
The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of HTM debt securities as of December 31, 2025.
$ Amt. Yield $ Amt. Yield $ Amt. Yield $ Amt. Yield $ Amt. Yield
The following table summarizes the weighted average modified duration of AFS debt securities as of December 31, 2025.
Weighted Average Modified Duration (in Years)
U.S. Government Sponsored Entities 5.91
State and Political Subdivisions 4.34
Residential and multi-family mortgage 4.33
Corporate notes and bonds 3.78
The following table summarizes the weighted average modified duration of HTM debt securities as of December 31, 2025.
Weighted Average Modified Duration (in Years)
U.S. Government Sponsored Entities 1.76
Residential and multi-family mortgage 4.79
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The portfolio contains no holdings of a single issuer that exceeds 10% of shareholders’ equity other than U.S. government sponsored entities.
The Corporation generally purchases debt securities over time and does not attempt to "time" its transactions, which allows for more efficient management of fluctuations in the interest rate environment. The Corporation's strategy given the current environment is to focus on lower risk securities and shorter durations that complement the current portfolio investment ladder, coupled with consistent reinvestment of cash flows to replace lower earning assets.
The Corporation monitors the earnings performance and the effectiveness of the liquidity of the securities portfolio on a regular basis through meetings of the ALCO. The ALCO also reviews and manages interest rate risk for the Corporation. Through active balance sheet management and analysis of the securities portfolio, a sufficient level of liquidity is maintained to satisfy depositor requirements and various credit needs of our customers.
Loans Receivable
Note 4, "Loans Receivable and Allowance for Credit Losses," to the consolidated financial statements provides more detail concerning the loan portfolio of the Corporation.
At December 31, 2025, loans totaled $6.4 billion, excluding $70.8 million of syndicated loans. Excluding $1.7 billion in loans, net of estimated purchase accounting fair value adjustments, acquired in the ESSA acquisition, organic loan growth for the full year was $218.8 million, or an increase of 4.83%, compared to December 31, 2024. The full-year increase in loans as of December 31, 2025, compared to December 31, 2024, was primarily driven by growth in the Ridge View Bank, BankOnBuffalo, and legacy CNB Bank and ERIEBANK markets and loan activity in CNB Bank's Private Banking division.
At December 31, 2025, the syndicated loan portfolio totaled $70.8 million, or 1.09% of total loans, compared to $79.9 million, or 1.73% of total loans, at December 31, 2024. The decrease in syndicated lending balances of $9.1 million compared to December 31, 2024 reflects net scheduled amortization and prepayments of credits in excess of added holdings, with no recorded charge-offs in the syndicated portfolio in 2025. The Corporation continues to focus on evaluating the level and composition of its syndicated loan portfolio to ensure it continues to provide strong credit quality, profitable use of excess liquidity, and a complement to the Corporation’s loan growth from its in-market customer relationships.
Loan Origination/Risk Management
The Corporation has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming, and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions. The Corporation has not underwritten any hybrid loans, payment option loans, or low documentation/no documentation loans. Variable rate loans are generally underwritten at the fully indexed rate. Loan underwriting policies and procedures have not changed materially between any periods presented. As discussed more fully above, syndicated loan purchases are underwritten utilizing the same process as the Corporation’s originated loans.
The Corporation continues to explore the credit and reputational risks associated with climate change and their potential impact on the foregoing, while closely monitoring regulatory developments on climate risk. This includes, among other things, researching and developing a formalized approach to considering climate change related risks in the Corporation's underwriting processes. This approach will be impacted, in part, by the accessibility and reliability of both customer climate risk data and climate risk data in general. One of the objectives of these efforts is to enable the Corporation to better understand the climate change related risks associated with the Corporation's customers' business activities and to be able to monitor their response to those risks and their ultimate impact on the Corporation's customers.
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Loan Portfolio Profile
As part of its lending policy and risk management activities, the Corporation tracks lending exposure by industry classification and type to determine potential risks associated with industry concentrations, and to identify any concentration risk issues that could lead to additional credit loss exposure. An important and recurring part of this process involves the Corporation’s continued measurement and evaluation of its exposure to the office, hospitality, and multifamily industries within its commercial real estate portfolio. Even given the Corporation’s historically sound underwriting protocols and high credit quality standards for borrowers in the commercial real estate industry segments, the Corporation monitors numerous relevant sensitivity elements, including occupancy, loan-to-value, absorption and cap rates, debt service coverage and covenant compliance, and developer/lessor financial strength both in the project and globally. At December 31, 2025, the Corporation had the following key metrics related to its office, hospitality and multifamily portfolios with such metrics including the impact on the respective portfolios of loans acquired during the third quarter of 2025 from the ESSA acquisition:
•Commercial office loans
◦There were 147 outstanding loans, totaling $150.4 million, or 2.32% of total loans outstanding;
◦There were no nonaccrual commercial office loans;
◦There were three past-due commercial office loans that totaled $2.3 million, or 1.54% of the total office loans outstanding; and
◦The average outstanding balance per commercial office loan was $1.0 million.
•Commercial hospitality loans
◦There were 153 outstanding loans, totaling $320.6 million, or 4.94% of total loans outstanding;
◦There were no nonaccrual commercial hospitality loans;
◦There were no past-due commercial hospitality loans; and
◦The average outstanding balance per commercial hospitality loan was $2.1 million.
•Commercial multifamily loans
◦There were 375 outstanding loans, totaling $601.4 million, or 9.26% of total loans outstanding;
◦There were two nonaccrual commercial multifamily loans that totaled $799 thousand, or 0.13% of total multifamily loans outstanding;
◦There was one past-due commercial multifamily loan that totaled $645 thousand, or 0.11% of total multifamily loans outstanding; and
◦The average outstanding balance per commercial multifamily loan was $1.6 million.
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The following table summarizes the geographic region (based upon metropolitan statistical areas) in which the commercial office, hospitality and multifamily loans were originated as of December 31, 2025:
Commercial Office
Geographic Region:
Allentown-Bethlehem-Easton, PA 8.67
Cincinnati, OH 7.25
Erie-Meadville, PA 3.99
All other geographical regions 35.35
Total Commercial Office 100.00 %
Commercial Hospitality
Geographic Region:
Cleveland, OH 9.40
Erie-Meadville, PA 5.98
All other geographical regions 34.79
Total Commercial Hospitality 100.00 %
Commercial Multifamily
Geographic Region:
Cleveland, OH 24.03 %
Allentown-Bethlehem-Easton, PA 16.59
Philadelphia, PA 10.22
All other geographical regions 20.61
Total Commercial Multifamily 100.00 %
The Corporation had no commercial office, hospitality or multifamily loan relationships considered by the banking regulators to be high volatility commercial real estate ("HVCRE") credits. No credits acquired from ESSA were considered HVCRE.
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Maturities and Sensitivities of Loans Receivable to Changes in Interest Rate
The following table presents the maturity distribution of the Corporation's loans receivable at December 31, 2025. The table also presents the portion of loans receivable that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index.
Loans Receivable with Fixed Interest Rate
Agricultural production and other loans to farmers 39 37 — 7 83
Loans to depository institutions — — — — —
Other revolving credit plans 5 3 6 1 15
Credit cards — — — — —
Overdrafts — — — — —
Loans Receivable with Variable or Floating Interest Rate
Agricultural production and other loans to farmers 686 426 4,794 — 5,906
Loans to depository institutions — 2,439 — — 2,439
Automobile — — — — —
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Loan Concentration
At December 31, 2025, no industry concentration existed which exceeded 10% of the total loan portfolio.
Loan Quality
The following table presents information concerning the loan portfolio delinquency and other nonperforming assets at December 31, 2025 and 2024:
Accrual loans greater than 90 days past due 42 653
Nonaccrual loans as a percentage of loans 0.61 % 1.22 %
Nonperforming assets as a percentage of total assets 0.50 % 0.96 %
Allowance for credit losses on loans $ 67,055 $ 47,357
Allowance for credit losses / Total loans 1.03 % 1.03 %
Total nonperforming assets were approximately $42.2 million, or 0.50% of total assets, as of December 31, 2025, compared to $59.5 million, or 0.96% of total assets, as of December 31, 2024. The decrease in nonperforming assets for the year ended December 31, 2025 was due to the resolution of several loans, coupled with paydowns on existing nonperforming assets, partially offset by certain nonperforming assets acquired in the ESSA acquisition. Management does not believe there is a risk of significant additional loss exposure beyond the specific reserves related to this loan relationship and is actively working with the borrower and their real estate broker to facilitate the sale of the property.
The Corporation has established written lending policies and procedures that require underwriting standards, loan documentation, and credit analysis standards to be met prior to funding a loan. Subsequent to the funding of a loan, ongoing review of credits is required. Credit reviews are performed five times per year by an outsourced loan review firm and cover approximately 65% of the commercial loan portfolio on an annual basis. In addition, the external independent loan review firm reviews past due loans and all significant classified assets and nonaccrual loans annually.
Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management has concerns about the ability of a borrower to continue to comply with contractual repayment terms because of the borrower’s potential operating or financial difficulties. Management monitors these "watchlist" loans monthly to determine potential losses within the commercial loan portfolio. The "watchlist" is comprised of all credits risk rated special mention, substandard and doubtful.
Allowance for Credit Losses
The amount of each allowance for credit losses account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions, and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant internal and external factors. While management utilizes its best judgment and information available, the ultimate adequacy of the Corporation's allowance for credit losses account is dependent upon a variety of factors beyond the Corporation's control, including the performance of the Corporation's loan portfolios, the economy, changes in interest rates, and the view of the regulatory authorities toward classification of assets. The adequacy of the allowance for credit losses is subject to a formal analysis by the Credit Administration and Finance Departments of the Corporation. For additional information regarding the Corporation's accounting policies related to credit losses, refer to Note 1, "Summary of Significant Accounting Policies" and Note 4, "Loans and Allowance for Credit Losses" to these consolidated financial statements.
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The table below provides an allocation of the allowance for credit losses on loans by loan portfolio segment at December 31, 2025 and 2024; however, allocation of a portion of the allowance to one segment does not preclude its availability to absorb losses in other segments.
Agricultural production and other loans to farmers 37 0.09 5,989 0.62
Agricultural production and other loans to farmers 37 0.14 6,492 0.57
The allowance for credit losses measured as a percentage of total loans was 1.03% as of December 31, 2025 and 2024.
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The Corporation's allowance for credit losses is influenced by loan volumes, risk rating migration, delinquency status and other internal and external conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions and other external factors.
For the year ended December 31, 2025, the increase in the allowance for credit losses was primarily driven by the ESSA acquisition, including the $18.2 million in PCD and Purchased Seasoned Loans ("PSL") allowance established on the acquisition date, as well as growth in the Corporation’s loan portfolio. Significant uncertainty continues to affect both the domestic and global economic outlook due to changes in U.S. tariffs and corresponding policy actions by trading partners, persistently elevated interest rates, fluctuating consumer confidence, and ongoing geopolitical conflicts. Management will continue to proactively reassess its estimate of expected credit losses as new information becomes available.
Note 4, "Loans Receivable and Allowance for Credit Losses," to the consolidated financial statements provides further disclosure of loan balances by portfolio segment as of December 31, 2025 and 2024.
Additional information related to credit loss expense and net (charge-offs) recoveries at December 31, 2025, 2024, and 2023 is presented in the tables below.
Farmland $ (5) $ — $ 29,606 — %
Agricultural production and other loans to farmers — — 6,366 —
Loans to depository institutions (38) — 7,090 —
Non-owner occupied, nonfarm nonresidential properties 2,284 — 1,166,508 —
(1) Excludes provision for credit losses totaling $208 thousand related to unfunded commitments. Note 19, "Off-Balance Sheet Commitments and Contingencies," in the consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments of the Corporation.
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Agricultural production and other loans to farmers 30 — 2,456 —
Multifamily (5 or more) residential properties 1,718 — 310,485 —
Residential Mortgages secured by junior liens (144) — 97,421 —
(1) Excludes provision for credit losses totaling $185 thousand related to unfunded commitments. Note 19, "Off-Balance Sheet Commitments and Contingencies," in the consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments of the Corporation.
Owner-occupied, nonfarm nonresidential properties 1,223 3 502,925 —
Agricultural production and other loans to farmers 1 — 1,255 —
Residential Mortgages secured by junior liens 452 — 84,803 —
(1) As previously disclosed in the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, and Note 1, "Summary of Significant Accounting Policies," immaterial revisions were made to the provision (benefit) for credit losses on loans receivable column disclosure as of December 31, 2023, to reflect the revisions for the applicable portfolio segments.
(2) Excludes provision for credit losses totaling $156 thousand related to unfunded commitments. Note 19, "Off-Balance Sheet Commitments and Contingencies," in the consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments of the Corporation.
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During the year ended December 31, 2025, the Corporation recorded a provision for credit losses of $8.9 million compared to $9.2 million for the year ended December 31, 2024. Included in the provision for credit losses for the year ended December 31, 2025 was a $208 thousand expense related to the allowance for unfunded commitments compared to a $185 thousand expense for the year ended December 31, 2024. Net charge-offs during the year ended December 31, 2025 were $7.2 million, or 0.13% of average total loans and loans held for sale, compared to $7.5 million, or 0.17% of average total loans and loans held for sale, during the year ended December 31, 2024.
Premises and Equipment
During the years ended December 31, 2025 and 2024, the Corporation invested $6.3 million and $16.3 million, respectively, in its physical infrastructure through the purchase of land, buildings, and equipment. The year ended December 31, 2025 includes premises and equipment related to the ESSA acquisition.
Bank Owned Life Insurance
The Corporation has periodically purchased Bank Owned Life Insurance ("BOLI"). The policies cover executive officers, directors and a select group of other employees with the Bank being named as beneficiary. Earnings from BOLI assist the Corporation in offsetting its benefit costs. The Corporation made no purchases of BOLI during the years ended December 31, 2025 and December 31, 2024, respectively.
Funding Sources
Deposits
The Corporation’s sources of funds are deposits, borrowings, amortization and repayment of loan principal, interest earned on or maturation of investment securities, and funds provided from operations. The Corporation considers deposits to be its primary source of funding in support of growth in assets.
At December 31, 2025, total deposits were $7.0 billion, reflecting an increase of $1.7 billion, or 30.8%, from December 31, 2024. Organic deposit growth for the full year of 2025, excluding $1.5 billion in deposits, net of estimated purchase accounting fair value adjustments, assumed in the ESSA acquisition and including $88.1 million in deposits classified as held for sale, total deposits increased $288.1 million, or 5.36%, compared to December 31, 2024. The $88.1 million in deposits classified as held for sale as of December 31, 2025 are associated with a planned sale of certain customer deposit accounts that are part of a broader strategic initiative to optimize the Corporation’s branch and market footprint following the ESSA acquisition. The increase in deposits was primarily attributable to retail account growth, as well as an increase in Treasury Management-sourced business including municipal deposits.
The following table sets forth the average balances of and the average rates paid on deposits for the period indicated.
Year Ended December 31,
AverageAmount AnnualRate AverageAmount AnnualRate AverageAmount AnnualRate
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The following table presents additional information about our December 31, 2025 and 2024 deposits:
Time deposits not covered by deposit insurance $ 75,807 $ 58,330
At December 31, 2025, the total estimated uninsured deposits for CNB Bank were approximately $2.0 billion, or approximately 28.13% of total CNB Bank deposits. However, when excluding affiliate company deposits of $18.4 million and pledged-investment collateralized deposits of $680.4 million, the adjusted amount and percentage of total estimated uninsured deposits was approximately $1.3 billion, or approximately 18.33% of total CNB Bank deposits as of December 31, 2025.
At December 31, 2024, the total estimated uninsured deposits for CNB Bank were approximately $1.5 billion, or approximately 27.71% of total CNB Bank deposits. However, when excluding affiliate company deposits of $101.9 million and pledged-investment collateralized deposits of $429.0 million, the adjusted amount and percentage of total estimated uninsured deposits was approximately $986.0 million, or approximately 18.01% of total CNB Bank deposits as of December 31, 2024.
Scheduled maturities of time deposits not covered by deposit insurance at December 31, 2025 were as follows:
Borrowings
Periodically, the Corporation utilizes term borrowings from the FHLB and other lenders to meet funding obligations or match fund certain loan assets. The terms of these borrowings are detailed in Note 11, "Borrowings," to the consolidated financial statements. There were $164 million in short term FHLB borrowings as of December 31, 2025, compared to zero at December 31, 2024. The increase in short-term borrowings at December 31, 2025 compared to December 31, 2024 was attributable to borrowings assumed with the ESSA acquisition.
In June 2021, the Corporation sold $85.0 million aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 (the "2031 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 2031 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. Additional details about our subordinated debentures and notes are included in Note 11, "Borrowings" in the accompanying notes to consolidated financial statements.
Liquidity and Capital Resources
Liquidity measures an organization’s ability to meet its cash obligations as they come due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds.
The Corporation’s expected material cash requirements for the year ended December 31, 2025 and thereafter consist of withdrawals by depositors, credit commitments to borrowers, shareholder dividends, share repurchases, operating expenses, and capital expenditures that are pursuant to the Corporation's strategic initiatives. The Corporation expects to satisfy these short-term and long-term cash requirements through deposit growth, principal and interest payments from loans and investment securities, maturing loans and investment securities, as well as by maintaining access to wholesale funding sources.
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The objective of the Corporation's liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund the Corporation's operations and to meet cash obligations and other commitments on a timely basis and at a reasonable cost. The Corporation seeks to achieve this objective and ensure that funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management, which includes managing the mix and time to maturity of financial assets and financial liabilities on its balance sheet. The Corporation's liquidity position is enhanced by its ability to raise additional funds as needed in the wholesale markets.
Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets include cash, interest-bearing deposits in banks, including the Federal Reserve, and AFS debt securities. Liability liquidity is provided by access to funding sources which include core deposits, correspondent banks and other wholesale funding sources.
The Corporation's liquidity position is continuously monitored and adjustments are made to balance sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in the Corporation's asset/liability management process. The Corporation regularly models liquidity stress scenarios to assess potential liquidity outflows or potential funding shortfalls resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into the Corporation's contingency funding plan, which provides the basis for the identification of its liquidity needs.
At December 31, 2025, the Corporation’s cash and cash equivalents position was approximately $527.9 million, including liquidity of $441.5 million held at the Federal Reserve. These excess funds, when combined with collective contingent liquidity resources of $6.4 billion including (i) available borrowing capacity from the FHLB and the Federal Reserve, and (ii) available unused commitments from brokered deposit sources and other third-party funding channels, including previously established lines of credit from correspondent banks, resulted in total available liquidity sources for the Corporation as of December 31, 2025 to be approximately 5.2 times the estimated amount of adjusted uninsured deposit balances.
The following table summarizes the Corporation's net available liquidity and borrowing capacities as of December 31, 2025:
Net Available
Federal Reserve borrowing capacity (2) 395,641
Other third-party funding channels (3) (4) 1,461,568
Total net available liquidity and borrowing capacity $ 6,351,471
(1) Availability contingent on the FHLB activity-based stock ownership requirement
(2) Includes access to discount window, BIC program and Bank Term Funding Program
(3) Availability contingent on internal borrowing guidelines
(4) Availability contingent on correspondent bank approvals at time of borrowing
As of December 31, 2025, management is not aware of any events that are reasonably likely to have a material adverse effect on the Corporation's liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on the Corporation.
In the ordinary course of business the Corporation has entered into contractual obligations and have made other commitments to make future payments. Refer to the accompanying notes to consolidated financial statements elsewhere in this report for the expected timing of such payments as of December 31, 2025. The Corporation’s material contractual obligations as of December 31, 2025 consist of (i) long-term borrowings - Note 11, "Borrowings," (ii) operating and finance leases - Note 8, "Leases," (iii) time deposits with stated maturity dates - Note 10, "Deposits," and (iv) commitments to extend credit and standby letters of credit - Note 19, "Off-Balance Sheet Commitments and Contingencies."
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Shareholders’ Equity, Capital Ratios and Metrics
Shareholders' Equity
As of December 31, 2025, the Corporation’s total shareholders’ equity was $872.1 million, representing an increase of $261.4 million, or 42.81%, from December 31, 2024. The increase resulted from an increase in additional paid in capital of $202.6 million related to the ESSA acquisition, and a decrease in accumulated other comprehensive loss, primarily from the after-tax impact of temporary unrealized valuation changes in the Corporation's available-for-sale investment portfolio, and growth in earnings, partially offset by the payment of common and preferred stock dividends to the Corporation's shareholders during the year ended December 31, 2025.
Preferred Stock
During the year ended December 31, 2020, the Corporation raised $57.8 million, net of issuance costs, from the issuance of depositary shares, each representing a 1/40th ownership interest in a share of the Corporation's 7.125% Series A fixed rate non-cumulative perpetual preferred stock, no par value, with a liquidation preference of $1,000 per share of preferred stock. The $57.8 million qualifies as Tier 1 capital for regulatory capital purposes.
Capital Ratios and Metrics
The Corporation has complied with the standards of capital adequacy mandated by government regulations. Bank regulators have established "risk-based" capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets banks hold in their portfolios. A weight category (0% for the lowest risk assets and increasing for each tier of higher risk assets) is assigned to each asset on the balance sheet.
As of December 31, 2025, all of the Corporation's capital ratios exceeded regulatory "well-capitalized" levels. The Corporation’s capital ratios and book value per common share at December 31, 2025 and 2024 were as follows:
Total risk-based capital ratio 14.78 % 16.16 %
Common shareholders' equity/total assets 9.70 % 8.93 %
Tangible common equity/tangible assets (1) 8.36 % 8.28 %
Book value per common share $ 27.63 $ 26.34
Tangible book value per common share (1) $ 23.48 $ 24.24
(1) Tangible common equity, tangible assets and tangible book value per common share are non-GAAP financial measures calculated using GAAP amounts. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets and preferred equity from the calculation of shareholders’ equity. Tangible assets are calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets. Tangible book value per common share is calculated by dividing tangible common equity by the number of shares outstanding. The Corporation believes that these non-GAAP financial measures provide information to investors that is useful in understanding its financial condition. Because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies. A reconciliation of these non-GAAP financial measures is provided in the "Non-GAAP Financial Measures" section in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
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Average Balances, Interest Rates and Yields
The loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses for loans. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. See Note 1, "Summary of Significant Accounting Policies," and Note 4, "Loans Receivable and Allowance for Credit Losses," to the consolidated financial statements for more information about pooling of loans for the allowance for credit losses.
The following table presents average balances of certain measures of our financial condition and net interest margin for the specified years.
ASSETS:
Securities:
Loans receivable:
Noninterest-bearing assets:
LIABILITIES AND SHAREHOLDERS’ EQUITY:
(1) Includes unamortized discounts and premiums.
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(2) Average yields are stated on a fully taxable equivalent basis (calculated using statutory rates of 21%) resulting from tax-free municipal securities in the investment portfolio and tax-free municipal loans in the commercial loan portfolio. The taxable equivalent adjustment to net interest income for the years ended December 31, 2025, 2024, and 2023 were $1.2 million, $955 thousand, and $997 thousand, respectively.
(3) Average loans receivable outstanding includes the average balance outstanding of all nonaccrual loans. Loans receivable consist of the average of total loans receivable less average unearned income. In addition, loans receivable interest income consists of loans receivable fees, including PPP deferred processing fees.
(4) Average balance is computed using the fair value of AFS debt securities and amortized cost of HTM debt securities. Average yield has been computed using amortized cost average balance for AFS and HTM debt securities. The adjustment to the average balance for securities in the calculation of average yield for the years ended December 31, 2025, 2024, and 2023 were $(41.2) million, $(53.1) million, and $(61.1) million, respectively.
(5) Includes loans held for sale.
Volume Analysis of Changes in Net Interest Income
The following table presents the change in net interest income for the years specified.
Analysis of Year-to-Year Changes in Net Interest Income
Increase (Decrease)Due to Change in (1) Increase (Decrease)Due to Change in (1)
Volume Rate Net Volume Rate Net
Assets
Securities:
Loans:
Liabilities and Shareholders’ Equity
Interest Bearing Deposits
(1) The change in interest due to both volume and rate have been allocated entirely to volume changes.
(2) Changes in interest income on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21% for the year ended December 31, 2025 and 2024.
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Results of Operations
Year Ended December 31, 2025 vs. Year Ended December 31, 2024
Overview of the Statements of Income and Comprehensive Income
Net income available to common shareholders ("earnings") was $61.8 million, or $2.49 per diluted share, for the year ended December 31, 2025. Excluding after-tax merger transaction related expenses, adjusted earnings were $73.4 million, or $2.95 per diluted share, for the year ended December 31, 2025, reflecting an increase of $23.2 million, or 46.06%, and $0.56 per diluted share, or 23.43%, compared to earnings of $50.3 million, or $2.39 per diluted share, for the year ended December 31, 2024. The full-year increase was primarily due to the overall impact of the acquisition of ESSA, coupled with an increase in net interest income, partially offset by an increase in non-interest expense, as discussed in more detail below. PPNR, a non-GAAP measure, was $91.3 million for the year ended December 31, 2025. Excluding merger and integration costs, adjusted PPNR was $105.1 million for the year ended December 31, 2025, compared to $76.6 million for the year ended December 31, 2024. The increase in year-to-date adjusted PPNR, when compared to the PPNR for the year ended December 31, 2024, was primarily due to the overall impact of incremental PPNR resulting from the acquisition of ESSA, coupled with an increase in net interest income across the legacy franchise for the year, partially offset by an increase in non-interest expense.
Return on average equity was 9.14% for the year ended December 31, 2025. Excluding after-tax merger transaction related expenses, return on average equity was 10.75% for the year ended December 31, 2025, compared to 9.21% for the year ended December 31, 2024. Return on average tangible common equity, a non-GAAP measure, was 10.59% for the year ended December 31, 2025. Excluding after-tax merger transaction related expenses, return on average tangible common equity was 12.58% for the year ended December 31, 2025, compared to 10.25% for the year ended December 31, 2024.
The Corporation's efficiency ratio was 67.64% for the year ended December 31, 2025, and 66.35% on a fully tax-equivalent basis, a non-GAAP measure. Excluding merger and integration costs, the efficiency ratio on a fully tax-equivalent basis was 61.49% for the year ended December 31, 2025, compared to 65.47% for the year ended December 31, 2024. The year-over-year decrease was primarily driven by higher net interest income, partially offset by higher non-interest expense, and also reflected the anticipated economies-of-scale operational efficiencies resulting from the ESSA acquisition.
Interest Income and Expense
Net interest income was $242.0 million for the year ended December 31, 2025 compared to $187.5 million for the year ended December 31, 2024. When comparing the year ended December 31, 2025 to the year ended December 31, 2024, the increase in net interest income of $54.6 million, or 29.11%, was due to investment and loan growth, coupled with the impact of the ESSA acquisition, including $6.6 million in purchase accounting loan accretion realized for the period from the July 23, 2025 acquisition date through December 31, 2025.
Net interest margin was 3.65% and 3.41% for the years ended December 31, 2025 and 2024, respectively. Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.65% and 3.39% for the years ended December 31, 2025 and 2024, respectively. Excluding the $6.6 million in purchase accounting loan accretion, net interest margin on a fully tax-equivalent basis for the year ended December 31, 2025 was 3.55%.
The yield on earning assets for the year ended December 31, 2025 was 5.90%, an increase of 2 basis points from December 31, 2024. The increase in yield compared to December 31, 2024 was primarily attributable to the $6.6 million in purchase accounting loan accretion.
Provision for Credit Losses
The Corporation recorded a provision for credit losses of $8.9 million in 2025 compared to $9.2 million in 2024. Included in the provision for credit losses for the year ended December 31, 2025 was a $208 thousand expense related to the allowance for unfunded commitments compared to $185 thousand for the year ended December 31, 2024. Net loan charge-offs were $7.2 million during the year ended December 31, 2025, compared to $7.5 million during the year ended December 31, 2024. As disclosed in "Allowance for Credit Losses" discussion above, management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, reasonable and supportable forecasts, and other significant qualitative and quantitative factors.
Management believes the charges to the provision for credit losses in 2025 were appropriate and the allowance for credit losses was adequate to absorb losses in the loan portfolio at December 31, 2025.
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Non-Interest Income
Total non-interest income was $40.2 million for the year ended December 31, 2025, compared to $39.1 million for the year ended December 31, 2024. This increase was primarily due to the overall impact of the acquisition of ESSA, organic increases in wealth and asset management fees and a $1.1 million transition fee for the Corporation moving its existing retail investment business platform to a new provider, an increase in bank owned life insurance benefits, primarily from the result of $1.0 million in death benefit proceeds, and net realized gain on available-for-sale securities, partially offset by a decrease in other non-interest income resulting from a $1.6 million loss on sale of certain commercial real estate loans and lower pass-through income from small business companies ("SBIC").
Non-Interest Expense
For the year ended December 31, 2025, total non-interest expense was $190.9 million. Excluding merger and integration costs, total non-interest expense was $177.1 million compared to $150.0 million for the year ended December 31, 2024. Excluding merger and integration costs, the increase of $27.1 million, or 18.04%, from the year ended December 31, 2024 was primarily driven by higher salaries and benefits. This reflects staff additions related to the ESSA acquisition, merit-based annual increases in base salaries, higher incentive compensation accruals (due to strong financial performance in 2025), increased retirement plan contribution accruals and higher health insurance costs. Occupancy expense also increased, largely due to higher rent associated with additional full-service office locations added both before and after the ESSA acquisition. Technology expense increased, primarily due to the above-mentioned ESSA acquisition and investments in automation applications. In addition, the full-year 2025 included increases in the amortization of core deposit intangibles and other non-interest expenses, which were impacted by business development activities.
Income Tax Expense
Income tax expense was $16.3 million in 2025, compared to $12.8 million in 2024. The effective tax rates were 19.81% and 18.98% for 2025 and 2024, respectively. The effective tax rate for the periods differed from the federal statutory rate of 21.0% principally as a result of tax-exempt income from securities and loans as well as earnings from bank owned life insurance.
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Year Ended December 31, 2024 vs. Year Ended December 31, 2023
Overview of the Statements of Income and Comprehensive Income
Earnings were $50.3 million, or $2.39 per diluted share, for the year ended December 31, 2024, compared to earnings of $53.7 million, or $2.55 per diluted share, for the year ended December 31, 2023. The decrease in diluted earnings per share in the year ended December 31, 2024 was primarily due to the rise in deposit costs year over year. In addition, during the year ended December 31, 2024, the Corporation repurchased 23,988 shares of common stock at a weighted average price per share of $18.33, compared to repurchases of 326,459 shares of common stock at a weighted average price per share of $20.08 during the year ended December 31, 2023. PPNR, a non-GAAP measure, was $76.6 million for the year ended December 31, 2024, compared to $77.8 million for the year ended December 31, 2023. The decrease in PPNR for the year ended December 31, 2024 compared to the year ended December 31, 2023, was primarily driven by the year-over-year increase in deposit costs combined with increases in certain personnel costs (primarily from new offices and personnel added in the recently added expansion markets of Cleveland, OH and Roanoke, VA) and the growth in technology expenses for recently completed full implementation of certain franchise-wide business development and customer management applications.
Return on average equity was 9.21% for the year ended December 31, 2024, compared to 10.54% for the year ended December 31, 2023. Return on average tangible common equity, a non-GAAP measure, was 10.25% for the year ended December 31, 2024, compared to 11.98% for the year ended December 31, 2023.
The Corporation's efficiency ratio was 66.20% for the year ended December 31, 2024, compared to 65.13% for the year ended December 31, 2023. The efficiency ratio on a fully tax-equivalent basis, a non-GAAP ratio, was 65.47% for the year ended December 31, 2024, compared to 64.45% the year ended December 31, 2023. The increase was primarily the result of rising deposit costs coupled with higher salaries and benefits and technology expenses.
Interest Income and Expense
Net interest income was $187.5 million for the year ended December 31, 2024, compared to $189.8 million for the year ended December 31, 2023. The decrease of $2.4 million, or 1.24%, was primarily due to an increase in the Corporation's interest expense as a result of targeted interest-bearing deposit rate increases to ensure both deposit growth and retention, more than offsetting the interest income growth from both year-over-year loan growth and the impact of higher interest rates for much of the 2024 year resulting in greater income on loans, coupled with a higher average balance of earnings excess liquidity maintained as interest-bearing deposits with the Federal Reserve.
Net interest margin was 3.41% and 3.63% for the years ended December 31, 2024 and 2023, respectively. Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.39% and 3.61% for the years ended December 31, 2024,and 2023, respectively.
The yield on earning assets for the year ended December 31, 2024 was 5.88%, an increase of 31 basis points from December 31, 2023. The increase was primarily a result of loan growth and the net benefit of higher interest rates on both variable-rate loans and new loan production. The yield on earning assets for the year ended December 31, 2023 included the previously mentioned $1.4 million, or three basis points, in one-time syndicated loan interest income.
Provision for Credit Losses
The Corporation recorded a provision for credit losses of $9.2 million in 2024 compared to $6.0 million in 2023. Included in the provision for credit losses for the year ended December 31, 2024 was a $185 thousand expense related to the allowance for unfunded commitments compared to $156 thousand for the year ended December 31, 2023. The $3.2 million increase in the provision expense for the year ended December 31, 2024 compared to the year ended December 31, 2023, was primarily a result of the higher loan portfolio growth. Net loan charge-offs were $7.5 million during the year ended December 31, 2024, compared to $3.4 million during the year ended December 31, 2023. As disclosed in "Allowance for Credit Losses" discussion above, management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, reasonable and supportable forecasts, and other significant qualitative and quantitative factors.
Management believes the charges to the provision for credit losses in 2024 were appropriate and the allowance for credit losses was adequate to absorb losses in the loan portfolio at December 31, 2024.
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Non-Interest Income
Total non-interest income was $39.1 million for the year ended December 31, 2024, compared to $33.3 million for the year ended December 31, 2023. During the year ended December 31, 2024, notable changes compared to the year ended December 31, 2023 included an increase in higher pass-through income from SBICs coupled with an increase in net realized and unrealized gains on equity securities and an increase in wealth and asset management fees.
Non-Interest Expense
For the year ended December 31, 2024, total non-interest expense was $150.0 million, compared to $145.3 million for the year ended December 31, 2023. The increase of $4.7 million, or 3.21%, from the year ended December 31, 2023 was primarily a result of an increase in salaries and benefits and technology expenses. The increase in salaries and benefits was driven by an increase in personnel costs related to annual merit increases and growth in the Corporation's staff and new offices in its expansion markets (Cleveland, OH and Roanoke, VA), while the increase in technology was primarily due to usage and licensing increases in year-over-year investments in applications aimed at enhancing both customer online banking capabilities, customer call center communications and in-branch technology delivery channels.
Income Tax Expense
Income tax expense was $12.8 million in 2024 compared to $13.8 million in 2023. The effective tax rates were 18.98% and 19.22% for 2024 and 2023, respectively. The effective tax rate for the periods differed from the federal statutory rate of 21.0% principally as a result of tax-exempt income from securities and loans as well as earnings from bank owned life insurance.
Off-Balance Sheet Arrangements
Assets under management and assets under custody are held in fiduciary or custodial capacity for the Corporation's clients. In accordance with GAAP, these assets are not included on the Corporation's balance sheet.
The Corporation is also party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of the Corporation's clients. These financial instruments include commitments to extend credit and standby letters of credit. Further discussion of these commitments is included Note 19, "Off-Balance Sheet Commitments and Contingencies."
Critical Accounting Policies and Estimates
The Corporation's consolidated financial statements are prepared in accordance with GAAP and follow general practices within the industries in which the Corporation operates. The most significant accounting policies used by the Corporation are presented in Note 1, "Summary of Significant Accounting Policies," to the consolidated financial statements. Application of these principles requires management to make estimates or judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates or judgments. In management’s opinion, some of these estimates and assumptions have a more significant impact than others on the Corporation's financial reporting. For the Corporation, these estimates and assumptions include accounting for the allowance for credit losses, fair value measurements, and goodwill.
Allowance for Credit Losses
The Corporation's allowance for credit losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of its consolidated financial statements. In determining the appropriate estimate for the allowance for credit losses, management considers a number of factors relative to both individually evaluated credits in the loan portfolio and macro-economic factors relative to the economy of the U.S. as a whole and the economies of the areas in which the Corporation does business.
Management performs a quarterly evaluation of the adequacy of the allowance for credit losses. Management considers a variety of factors in establishing this estimate. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions.
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The evaluation is comprised of specific and pooled components. The specific component is the Corporation's evaluation of credit loss on individually evaluated loans based on the fair value of the collateral less estimated selling costs if collateral dependent or based on the present value of expected future cash flows discounted at the loan's initial effective interest rate if not collateral dependent. The majority of the Corporation's loans subject to individual evaluation are considered collateral dependent. All other loans are evaluated collectively for credit loss by pooling loans based on similar risk characteristics.
As a significant percentage of the Corporation's loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the charge-offs for specific loans. Assumptions are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property securing a loan and the related allowance determined. Management carefully reviews the assumptions supporting such appraisals to determine that the resulting values reasonably reflect amounts realizable on the related loans.
The pooled component of the evaluation is determined by applying reasonable and supportable economic forecasts and historical averages to the remaining loans segmented by similar risk characteristics. The key assumptions used in projecting future loss rates include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. The assumptions are used to calculate and aggregate estimated cash flows for the time period that remains in each loan's contractual life. The cash flows are discounted back to the balance sheet date using each loan's effective yield, to arrive at a present value of future cash flows, which is compared to the amortized cost basis of the loan pool to determine the amount of allowance for credit loss required by the calculation.
One of the most significant judgments used in projecting loss rates when estimating the allowance for credit loss is the macro-economic forecast provided by a third party. The economic indices sourced from the macro-economic forecast and used in projecting loss rates are national unemployment rate and changes in home values. The economic index used in the calculation to which the calculation is most sensitive is the national unemployment rate. Changes in the macro-economic forecast, especially for the national unemployment rate, could significantly impact the calculated estimated credit losses between reporting periods.
Other key assumptions in the calculation of the allowance for credit loss include the forecast and reversion to mean time periods and prepayment and curtailment assumptions. The macro-economic forecast is applied for a reasonable and supportable time period before reverting to long-term historical averages for each economic index. The forecast and reversion to mean time period used for each economic index at December 31, 2025 were four quarters and eight quarters, respectively. Prepayment and curtailment assumptions are based on the Corporation's historical experience over the trailing 12 months and are adjusted by management as deemed necessary. The prepayment and curtailment assumptions vary based on segment.
The quantitative estimated losses are supplemented by more qualitative factors that impact potential losses. Qualitative factors include changes in underwriting standards, changes in lending staff, changes in environmental conditions, delinquency level, segment growth rates and changes in duration within new markets, or other relevant factors. The allowance for credit loss may be materially affected by these qualitative factors, especially during periods of economic uncertainty, for items not reflected in the lifetime credit loss calculation, but which are deemed appropriate by management's current assessment of the risks related to the loan portfolio and/or external factors. The qualitative factors applied at December 31, 2025, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management's assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of allowance for credit loss calculated by the model. The evaluation of qualitative factors is inherently imprecise and requires significant management judgment.
While management utilizes its best judgment and information available, the adequacy of the allowance for credit loss is determined by certain factors outside of the Corporation's control, such as the performance of the Corporation's portfolios, changes in the economic environment including economic uncertainty, changes in interest rates, and the view of the regulatory authorities toward classification of assets and the level of allowance for credit loss. Additionally, the level of allowance for credit loss may fluctuate based on the balance and mix of the loan portfolio. If actual results differ significantly from management's assumptions, the Corporation's allowance for credit loss may not be sufficient to cover inherent losses in the Corporation's loan portfolio, resulting in additions to the Corporation's allowance for credit loss and an increase in the provision for credit losses.
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Fair Value Measurements
The Corporation uses fair value measurements to record certain financial instruments and to determine fair value disclosures. Equity securities, AFS debt securities, mortgage loans held for sale, and interest rate swap agreements are financial instruments recorded at fair value on a recurring basis. Additionally, from time to time, the Corporation may be required to record at fair value other financial assets on a nonrecurring basis. These nonrecurring fair value adjustments typically involve write-downs of, or specific reserves against, individual assets. GAAP establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used in the measurement are observable or unobservable. Observable inputs reflect market-driven or market-based information obtained from independent sources, while unobservable inputs reflect our estimates about market data.
The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market data. For financial instruments that trade actively and have quoted market prices or observable market data, there is minimal subjectivity involved in measuring fair value. When observable market prices and data are not fully available, management judgment is necessary to estimate fair value. In addition, changes in the market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, we use valuation techniques that require more management judgment to estimate the appropriate fair value measurement. Fair value is discussed further in Note 1, "Summary of Significant Accounting Policies" and in Note 5, "Fair Value."
Business Combinations and Goodwill
For mergers and acquisitions, the Corporation is required to record the assets acquired, including identified intangible assets such as core deposit intangibles, and the liabilities assumed at their fair value. The difference between consideration and the net fair value of assets acquired is recorded as goodwill. Management uses significant estimates and assumptions to value such items, including projected cash flows, repayment rates, default rates and losses assuming default, discount rates, and realizable collateral values. The allowance for credit losses for PSL and PCD loans is recognized within acquisition accounting. Fair value adjustments are amortized or accreted into the income statement over the estimated life of the acquired assets or assumed liabilities. The purchase date valuations and any subsequent adjustments determine the amount of goodwill recognized in connection with the merger or acquisition. The use of different assumptions could produce significantly different valuation results, which could have material positive or negative effects on our results of operations. The carrying value of goodwill recorded must be reviewed for impairment on an annual basis, as well as on an interim basis if events or changes indicate that the asset might be impaired. An impairment loss must be recognized for any excess of carrying value over fair value of the goodwill.
The determination of fair values is based on valuations using management’s assumptions of future growth rates, future attrition, discount rates, multiples of earnings or other relevant factors. In addition, the Corporation engages third party specialists to assist in the development of fair values. Preliminary estimates of fair values may be adjusted for a period of time subsequent to the merger or acquisition date if new information is obtained about facts and circumstances that existed as of the merger or acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Adjustments recorded during this period are recognized in the current reporting period. Management uses various valuation methodologies to estimate the fair value of these assets and liabilities, and often involves a significant degree of judgment, particularly when liquid markets do not exist for the particular item being valued. Examples of such items include loans, deposits, identifiable intangible assets, and certain other assets and liabilities.
Changes in these factors, as well as downturns in economic or business conditions, could have a significant adverse impact on the carrying value of assets, including goodwill and liabilities, which could result in impairment losses affecting our financial statements as a whole and our banking subsidiary in which the goodwill resides.
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Non-GAAP Financial Measures
The following tables reconcile the non-GAAP financial measures to their most directly comparable measures under GAAP.
Twelve Months Ended
Calculation of net income available to common (GAAP):
Less: preferred stock dividends 4,302 4,302
Net income available to common shareholders $ 61,829 $ 50,273
Adjusted calculation of net income available to common (non-GAAP):
Net income available to common shareholders $ 61,829 $ 50,273
Add: merger transaction related expenses, net of tax (non-GAAP) 11,600 —
Twelve Months Ended
Calculation of merger transaction related expenses, net of tax (non-GAAP) (1):
Merger transaction related expenses - non deductible $ 3,234 $ —
Merger transaction related expenses - deductible 10,590 —
Statutory federal tax rate 21 % 21 %
Tax benefit (expense) of merger and integration costs (non-GAAP) 2,224 —
Merger transaction related expenses - deductible, net of tax 8,366 —
Merger transaction related expenses, net of tax (non-GAAP) $ 11,600 $ —
Years Ended
December 31,
Calculation of PPNR (non-GAAP): (1)
Adjusted calculation of PPNR (non-GAAP): (1)
Add: Merger and integration costs (non-GAAP) 13,824
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Twelve Months Ended
Basic earnings per common share computation:
Net income available to common shareholders $ 61,829 $ 50,273
Less: average participating securities 169 155
Basic earnings per common share $ 2.50 $ 2.39
Diluted earnings per common share computation:
Add: dilutive effect of stock compensation 83 62
Weighted average shares and dilutive potential common shares 24,669 20,900
Diluted earnings per common share $ 2.49 $ 2.39
Adjusted basic earnings per common share computation (non-GAAP):
Net income available to common shareholders $ 61,829 $ 50,273
Add: merger transaction related expenses, net of tax (non-GAAP) 11,600 —
Less: average participating securities 169 155
Adjusted basic earnings per common share (non-GAAP) $ 2.96 $ 2.39
Adjusted diluted earnings per common share computation (non-GAAP):
Add: dilutive effect of stock compensation 83 62
Weighted average shares and dilutive potential common shares 24,669 20,900
Adjusted diluted earnings per common share (non-GAAP) $ 2.95 $ 2.39
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December 31, December 31,
Book value per common share (GAAP) $ 27.63 $ 26.34
Tangible book value per common share (non-GAAP) $ 23.48 $ 24.24
Common shareholders' equity / Total assets (GAAP) 9.70 % 8.93 %
Tangible common equity / Tangible assets (non-GAAP) 8.36 % 8.28 %
Years Ended
December 31,
Calculation of net interest margin:
Net interest margin (GAAP) 3.65 % 3.41 %
Calculation of net interest margin (fully tax equivalent basis) (non-GAAP):
Tax equivalent adjustment (non-GAAP) 1,177 955
Adjusted interest income (fully tax equivalent basis) (non-GAAP) 393,522 326,425
Net interest income (fully tax equivalent basis) (non-GAAP) $ 243,213 $ 188,424
Net interest margin, fully tax equivalent basis (non-GAAP) 3.65 % 3.39 %
Net interest income (fully tax equivalent basis) (non-GAAP) $ 243,213 $ 188,424
Less: purchase accounting loan accretion (6,578) 0
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Years Ended
December 31,
Calculation of efficiency ratio:
Calculation of efficiency ratio (fully tax equivalent basis) (non-GAAP):
Less: core deposit intangible amortization 1,848 73
Less: tax exempt investment and loan income, net of TEFRA (non-GAAP) 6,551 5,635
Adjusted net revenue (fully tax equivalent basis) (non-GAAP) $ 284,916 $ 229,016
Efficiency ratio (fully tax equivalent basis) (non-GAAP) 66.35 % 65.47 %
Less: merger and integration costs (non-GAAP) 13,824 —
Adjusted net revenue (fully tax equivalent basis) (non-GAAP) $ 284,916 $ 229,016
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Years Ended
December 31,
Calculation of return on average tangible common equity (non-GAAP):
Less: preferred stock dividends 4,302 4,302
Net income available to common shareholders $ 61,829 $ 50,273
Tangible common shareholders' equity (non-GAAP) $ 583,908 $ 490,647
Return on average equity (GAAP) 9.14 % 9.21 %
Return on average common equity (GAAP) 9.29 % 9.40 %
Return on average tangible common equity (non-GAAP) 10.59 % 10.25 %
Adjusted calculation of return on average equity (non-GAAP):
Add: merger transaction related expenses, net of tax (non-GAAP) 11,600 —
Adjusted return on average equity (non-GAAP) (annualized) 10.75 % 9.21 %
Adjusted calculation of return on average tangible common equity (non-GAAP):
Net income available to common shareholders $ 61,829 $ 50,273
Add: merger transaction related expenses, net of tax (non-GAAP) 11,600 —
Adjusted net income available to common shareholders $ 73,429 $ 50,273
Average tangible common shareholders' equity (non-GAAP) $ 583,908 $ 490,647
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The disclosures set forth in this item are qualified by Item 1A. Risk Factors and the section captioned "Forward-Looking Statements and Factors that Could Affect Future Results" included in this report, and other cautionary statements set forth elsewhere in this report.
As a financial institution, the Corporation's primary source of market risk exposure is interest rate risk, which influences fluctuations in the Corporation's future earnings due to changes in interest rates. This risk is closely correlated to the repricing characteristics of the Corporation's portfolio of assets and liabilities, with each asset or liability repricing either at maturity or during the instrument's life cycle.
The Corporation’s interest rate risk measurement philosophy focuses on maintaining an appropriate balance between the theoretical and the practical, especially given that the primary objective of the Corporation’s overall asset/liability management process is to assess the level of interest rate risk in the Corporation’s balance sheet. Therefore, the Corporation models a set of interest rate scenarios capturing the financial effects of a range of plausible rate scenarios. The collective impact of these scenarios is designed to enable the Corporation to understand the nature and extent of its sensitivity to interest rate changes. Doing so necessitates an assessment of rate changes over varying time horizons and of varying/sufficient degrees such that the impact of embedded options within the balance sheet are sufficiently examined.