UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~September~~June 30, ~~2022~~2023


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

For the transition period from ___________ to _____________

Commission file number 0-11733

CITY HOLDING COMPANY

(Exact name of registrant as specified in its charter)


West Virginia			55-0619957
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

25 Gatewater Road,	Charleston,	West Virginia	25313
(Address of Principal Executive Offices)			(Zip Code)

(304) 769-1100

Registrant's telephone number, including area code

(Former name, former address and former fiscal year, if changed since last report)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $2.50 par value	CHCO	NASDAQ Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large Accelerated Filer	x	Accelerated filer	o
Non accelerated filer	o	Smaller reporting company	☐
		Emerging growth company	☐

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

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

The registrant had outstanding ~~14,855,734~~15,006,655 shares of common stock as of ~~November~~August 1 ~~1, 2022.~~, 2023.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain forward-looking statements that are included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements express only management's beliefs regarding future results or events and are subject to inherent uncertainty, risks, and changes in circumstances, many of which are outside of management's control. Uncertainty, risks, changes in circumstances and other factors could cause the Company's (as hereinafter defined) actual results to differ materially from those projected in the forward-looking statements. Factors that could cause actual results to differ from those discussed in such forward-looking statements include, but are not limited to, those set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021~~2022 under “ITEM 1A Risk Factors” and the following: (1) general economic conditions, especially in the communities and markets in which we conduct our ~~business;~~business; (2) the uncertainties on the Company’s business, results of operations and financial condition, caused by the COVID-19 pandemic, which will depend on several factors, including the scope and duration of the pandemic, its continued influence on financial markets, the effectiveness of the Company’s work from home arrangements and staffing levels in operational facilities, the impact of market participants on which the Company relies and actions taken by governmental authorities and other third parties in response to the pandemic; (3) credit risk, including risk that negative credit quality trends may lead to a deterioration of asset quality, risk that our allowance for credit losses may not be sufficient to absorb actual losses in our loan portfolio, and risk from concentrations in our loan portfolio; ~~(4)~~(3) changes in the real estate market, including the value of collateral securing portions of our loan portfolio; ~~(5)~~(4) changes in the interest rate environment; ~~(6)~~(5) operational risk, including cybersecurity risk and risk of fraud, data processing system failures, and network breaches; ~~(7)~~(6) changes in technology and increased competition, including competition from non-bank financial institutions; ~~(8)~~(7) changes in consumer preferences, spending and borrowing habits, demand for our products and services, and customers' performance and creditworthiness; ~~(9)~~(8) difficulty growing loan and deposit balances; ~~(10)~~(9) our ability to effectively execute our business plan, including with respect to future acquisitions; ~~(11)~~(10) changes in regulations, laws, taxes, government policies, monetary policies and accounting policies affecting bank holding companies and their ~~subsidiaries; (12)~~subsidiaries, including changes in deposit insurance premium levels; (11) deterioration in the financial condition of the U.S. banking system may impact the valuations of investments the Company has made in the securities of other financial institutions; ~~(13)~~(12) regulatory enforcement actions and adverse legal actions; ~~(14)~~(13) difficulty attracting and retaining key employees; ~~(15) changes in global geopolitical conditions; (16)~~and (14) other economic, competitive, technological, operational, governmental, regulatory, and market factors affecting our operations. Forward-looking statements made herein reflect management's expectations as of the date such statements are made. Such information is provided to assist stockholders and potential investors in understanding current and anticipated financial operations of the Company and is included pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances that arise after the date such statements are made.

Table of Contents

Index

City Holding Company and Subsidiaries


PART I	Financial Information	Pages

Item 1.	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets	2
	Consolidated Statements of Income	3
	Consolidated Statements of Comprehensive Income (Loss) ~~Income~~	5
	Consolidated Statements of Changes in Shareholders’ Equity	67
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	910
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3540
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5259
Item 4.	Controls and Procedures	5259

PART II	Other Information

Item 1.	Legal Proceedings	5259
Item 1A.	Risk Factors	5259
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5360
Item 3.	Defaults Upon Senior Securities	5360
Item 4.	Mine Safety Disclosures	5360
Item 5.	Other Information	5360
Item 6.	Exhibits	5461

Signatures		5562

Table of Contents

Part I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Table of Contents

Consolidated Balance Sheets

City Holding Company and Subsidiaries

(in thousands)


		(Unaudited)						(Unaudited)
		September 30, 2022		December 31, 2021				June 30, 2023				December 31, 2022
Assets	Assets			Assets
Cash and due from banks	Cash and due from banks	$	65,051			$	101,804		Cash and due from banks	$	66,350			$	68,333
Interest-bearing deposits in depository institutions	Interest-bearing deposits in depository institutions	233,302		532,827		Interest-bearing deposits in depository institutions		164,931				131,667
Cash and Cash Equivalents	Cash and Cash Equivalents	298,353		634,631		Cash and Cash Equivalents		231,281				200,000

Investment securities available for sale, at fair value		1,489,392		1,408,165
Investment securities available for sale, at fair value (amortized cost $1,586,870 and $1,673,864, net of allowance for credit losses of $0 at June 30, 2023 and December 31, 2022, respectively)						Investment securities available for sale, at fair value (amortized cost $1,586,870 and $1,673,864, net of allowance for credit losses of $0 at June 30, 2023 and December 31, 2022, respectively)		1,419,933				1,505,520
Other securities	Other securities	24,372		25,531		Other securities		29,262				23,807
Total Investment Securities	Total Investment Securities	1,513,764		1,433,696		Total Investment Securities		1,449,195				1,529,327

Gross loans	Gross loans	3,628,752		3,543,814		Gross loans		3,922,142				3,646,258
Allowance for credit losses	Allowance for credit losses	(17,011)		(18,166)		Allowance for credit losses		(22,751)				(17,108)
Net Loans	Net Loans	3,611,741		3,525,648		Net Loans		3,899,391				3,629,150

Bank owned life insurance	Bank owned life insurance	121,283		120,978		Bank owned life insurance		117,173				120,674
Premises and equipment, net	Premises and equipment, net	71,686		74,071		Premises and equipment, net		73,118				70,786
Accrued interest receivable	Accrued interest receivable	17,256		15,627		Accrued interest receivable		17,973				18,287
Deferred tax assets, net	Deferred tax assets, net	49,888		63		Deferred tax assets, net		46,944				44,884
Goodwill and other intangible assets, net	Goodwill and other intangible assets, net	116,081		117,121		Goodwill and other intangible assets, net		163,426				115,735
Other assets	Other assets	147,716		81,860		Other assets		148,333				149,263
Total Assets	Total Assets	$	5,947,768	$	6,003,695	Total Assets		$	6,146,834			$	5,878,106

Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Noninterest-bearing	Noninterest-bearing	$	1,429,281	$	1,373,125	Noninterest-bearing		$	1,373,106			$	1,351,415
Interest-bearing:	Interest-bearing:					Interest-bearing:
Demand deposits	Demand deposits	1,160,970		1,135,848		Demand deposits		1,337,445				1,233,482
Savings deposits	Savings deposits	1,427,785		1,347,448		Savings deposits		1,343,571				1,396,869
Time deposits	Time deposits	939,769		1,068,915		Time deposits		960,941				888,100
Total Deposits	Total Deposits	4,957,805		4,925,336		Total Deposits		5,015,063				4,869,866

Securities sold under agreements to repurchase		304,807		312,458
Customer repurchase agreements						Customer repurchase agreements		271,714				290,964
FHLB long-term advances						FHLB long-term advances		100,000				—
Other liabilities	Other liabilities	136,868		84,796		Other liabilities		123,865				139,424
Total Liabilities	Total Liabilities	5,399,480		5,322,590		Total Liabilities		5,510,642				5,300,254

Commitments and contingencies - see Note H
Commitments and contingencies - see Note I						Commitments and contingencies - see Note I

Shareholders’ Equity	Shareholders’ Equity					Shareholders’ Equity
Preferred stock, par value $25 per share: 500,000 shares authorized; none issued	Preferred stock, par value $25 per share: 500,000 shares authorized; none issued	—		—		Preferred stock, par value $25 per share: 500,000 shares authorized; none issued		—				—
Common stock, par value $2.50 per share: 50,000,000 shares authorized; 19,047,548 shares issued at September 30, 2022 and December 31, 2021, less 4,191,814 and 3,985,690 shares in treasury, respectively		47,619		47,619
Common stock, par value $2.50 per share: 50,000,000 shares authorized; 19,047,548 shares issued at June 30, 2023 and December 31, 2022, less 4,040,493 and 4,259,399 shares in treasury, respectively						Common stock, par value $2.50 per share: 50,000,000 shares authorized; 19,047,548 shares issued at June 30, 2023 and December 31, 2022, less 4,040,493 and 4,259,399 shares in treasury, respectively		47,619				47,619
Capital surplus	Capital surplus	170,138		170,942		Capital surplus		176,746				170,980
Retained earnings	Retained earnings	685,657		641,826		Retained earnings		744,248				706,696
Cost of common stock in treasury	Cost of common stock in treasury	(209,644)		(193,542)		Cost of common stock in treasury		(201,973)				(215,955)
Accumulated other comprehensive (loss) income:	Accumulated other comprehensive (loss) income:					Accumulated other comprehensive (loss) income:
Unrealized (loss) gain on securities available-for-sale		(141,997)		17,745
Unrealized (loss) on securities available-for-sale						Unrealized (loss) on securities available-for-sale		(127,026)				(128,066)
Underfunded pension liability	Underfunded pension liability	(3,485)		(3,485)		Underfunded pension liability		(3,422)				(3,422)
Total Accumulated Other Comprehensive (Loss) Income	Total Accumulated Other Comprehensive (Loss) Income	(145,482)		14,260		Total Accumulated Other Comprehensive (Loss) Income		(130,448)				(131,488)
Total Shareholders’ Equity	Total Shareholders’ Equity	548,288		681,105		Total Shareholders’ Equity		636,192				577,852
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	5,947,768	$	6,003,695	Total Liabilities and Shareholders’ Equity		$	6,146,834			$	5,878,106

To be read with the attached notes to consolidated financial statements.

Table of Contents

Consolidated Statements of Income (Unaudited)

City Holding Company and Subsidiaries

(in thousands, except earnings per share data)


Interest Income	Interest Income	Three months ended September 30,				Nine months ended September 30,				Interest Income	Three months ended June 30,				Six months ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022

Interest and fees on loans	Interest and fees on loans	$	38,493	$	33,961	$	103,575	$	101,399	Interest and fees on loans	$	52,352	$	33,208	$	99,356	$	65,082
Interest and dividends on investment securities:	Interest and dividends on investment securities:									Interest and dividends on investment securities:
Taxable	Taxable	9,556		6,144		23,327		17,318		Taxable	11,794		7,547		23,567		13,770
Tax-exempt	Tax-exempt	1,228		1,257		3,650		3,801		Tax-exempt	950		1,205		2,112		2,421
Interest on deposits in depository institutions	Interest on deposits in depository institutions	1,530		196		2,549		476		Interest on deposits in depository institutions	2,585		782		4,176		1,020
Total Interest Income	Total Interest Income	50,807		41,558		133,101		122,994		Total Interest Income	67,681		42,742		129,211		82,293

Interest Expense	Interest Expense									Interest Expense
Interest on deposits	Interest on deposits	1,585		1,955		4,433		7,695		Interest on deposits	8,567		1,328		14,257		2,849
Interest on short-term borrowings		440		115		677		357
Interest on customer repurchase agreements										Interest on customer repurchase agreements	2,963		124		5,344		238
Interest on FHLB long-term advances										Interest on FHLB long-term advances	649		—		649		—
Total Interest Expense	Total Interest Expense	2,025		2,070		5,110		8,052		Total Interest Expense	12,179		1,452		20,250		3,087
Net Interest Income	Net Interest Income	48,782		39,488		127,991		114,942		Net Interest Income	55,502		41,290		108,961		79,206
Provision for (recovery of) credit losses	Provision for (recovery of) credit losses	730		(725)		(26)		(3,165)		Provision for (recovery of) credit losses	425		—		3,343		(756)
Net Interest Income After Provision for (Recovery of) Credit Losses	Net Interest Income After Provision for (Recovery of) Credit Losses	48,052		40,213		128,017		118,107		Net Interest Income After Provision for (Recovery of) Credit Losses	55,077		41,290		105,618		79,962

Non-Interest Income	Non-Interest Income									Non-Interest Income
Gains on sale of investment securities, net	Gains on sale of investment securities, net	—		—		—		312		Gains on sale of investment securities, net	—		—		773		—
Unrealized gains (losses) recognized on equity securities still held, net	Unrealized gains (losses) recognized on equity securities still held, net	1		93		(1,322)		452		Unrealized gains (losses) recognized on equity securities still held, net	(294)		(601)		67		(1,324)
Service charges	Service charges	7,487		6,706		21,281		18,482		Service charges	6,906		7,067		13,469		13,792
Bankcard revenue	Bankcard revenue	7,052		6,791		20,558		20,225		Bankcard revenue	7,190		7,062		13,793		13,506
Trust and investment management fee income	Trust and investment management fee income	2,158		2,172		6,455		6,217		Trust and investment management fee income	2,339		2,100		4,591		4,297
Bank owned life insurance	Bank owned life insurance	754		747		3,746		3,147		Bank owned life insurance	3,208		978		4,012		2,992
Other income	Other income	792		1,438		2,825		3,190		Other income	952		1,243		2,278		2,034
Total Non-Interest Income	Total Non-Interest Income	18,244		17,947		53,543		52,025		Total Non-Interest Income	20,301		17,849		38,983		35,297

Non-Interest Expense	Non-Interest Expense									Non-Interest Expense
Salaries and employee benefits	Salaries and employee benefits	17,398		15,321		49,386		46,551		Salaries and employee benefits	18,429		16,413		36,102		31,990
Occupancy related expense	Occupancy related expense	2,664		2,507		7,993		7,654		Occupancy related expense	2,811		2,620		5,451		5,329
Equipment and software related expense	Equipment and software related expense	2,949		2,554		8,452		7,753		Equipment and software related expense	2,883		2,732		5,975		5,501
FDIC insurance expense	FDIC insurance expense	416		396		1,259		1,183		FDIC insurance expense	690		409		1,135		844
Advertising	Advertising	854		804		2,603		2,509		Advertising	974		951		1,734		1,749
Bankcard expenses	Bankcard expenses	1,405		1,549		4,676		4,879		Bankcard expenses	1,736		1,665		3,245		3,271
Postage, delivery, and statement mailings	Postage, delivery, and statement mailings	578		573		1,765		1,733		Postage, delivery, and statement mailings	596		551		1,243		1,187
Office supplies	Office supplies	466		406		1,303		1,169		Office supplies	591		427		1,011		837
Legal and professional fees	Legal and professional fees	532		610		1,584		1,874		Legal and professional fees	558		525		1,028		1,052
Telecommunications	Telecommunications	651		790		1,988		2,156		Telecommunications	623		754		1,229		1,338
Repossessed asset (gains) losses, net of expenses		(3)		(108)		4		(28)
Repossessed asset losses (gains), net of expenses										Repossessed asset losses (gains), net of expenses	22		(32)		38		8
Merger related expenses										Merger related expenses	—		—		5,645		—
Other expenses	Other expenses	3,591		3,776		10,701		11,128		Other expenses	4,848		3,674		9,548		7,110
Total Non-Interest Expense	Total Non-Interest Expense	31,501		29,178		91,714		88,561		Total Non-Interest Expense	34,761		30,689		73,384		60,216
Income Before Income Taxes	Income Before Income Taxes	34,795		28,982		89,846		81,571		Income Before Income Taxes	40,617		28,450		71,217		55,043
Income tax expense		7,421		6,250		18,438		16,877
Net Income Available to Common Shareholders		$	27,374	$	22,732	$	71,408	$	64,694

Table of Contents


Income tax expense										Income tax expense	7,884		5,767		14,143		11,018
Net Income Available to Common Shareholders										Net Income Available to Common Shareholders	$	32,733	$	22,683	$	57,074	$	44,025

Average shares outstanding, basic	Average shares outstanding, basic	14,776		15,279		14,878		15,501		Average shares outstanding, basic	14,994		14,888		14,897		14,930
Effect of dilutive securities	Effect of dilutive securities	24		23		23		25		Effect of dilutive securities	18		21		22		24
Average shares outstanding, diluted	Average shares outstanding, diluted	14,800		15,302		14,901		15,526		Average shares outstanding, diluted	15,012		14,909		14,919		14,954

Basic earnings per common share	Basic earnings per common share	$	1.84	$	1.47	$	4.75	$	4.13	Basic earnings per common share	$	2.16	$	1.51	$	3.80	$	2.92
Diluted earnings per common share	Diluted earnings per common share	$	1.83	$	1.47	$	4.75	$	4.13	Diluted earnings per common share	$	2.16	$	1.51	$	3.79	$	2.92

To be read with the attached notes to consolidated financial statements.

Table of Contents

Consolidated Statements of Comprehensive Income (Loss) ~~Income~~(Unaudited)

City Holding Company and Subsidiaries

(in thousands)


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,									June 30,
		2022		2021		2022		2021			2023		2022		2023		2022

Net income available to common shareholders	Net income available to common shareholders	$	27,374	$	22,732	$	71,408	$	64,694	Net income available to common shareholders	$	32,733	$	22,683	$	57,074	$	44,025

Available-for-Sale Securities	Available-for-Sale Securities									Available-for-Sale Securities
Unrealized (losses) gains on available-for-sale securities arising during the period	Unrealized (losses) gains on available-for-sale securities arising during the period	(81,133)		(9,666)		(210,741)		(20,752)		Unrealized (losses) gains on available-for-sale securities arising during the period	(18,492)		(51,806)		2,140		(129,608)
Reclassification adjustment for gains	Reclassification adjustment for gains	—		—		—		(312)		Reclassification adjustment for gains	—		—		(773)		—
Other comprehensive (loss) income before income taxes	Other comprehensive (loss) income before income taxes	(81,133)		(9,666)		(210,741)		(21,064)		Other comprehensive (loss) income before income taxes	(18,492)		(51,806)		1,367		(129,608)
Tax effect	Tax effect	19,634		2,317		50,999		5,048		Tax effect	4,433		12,537		(327)		31,365
Other comprehensive (loss) income, net of tax	Other comprehensive (loss) income, net of tax	(61,499)		(7,349)		(159,742)		(16,016)		Other comprehensive (loss) income, net of tax	(14,059)		(39,269)		1,040		(98,243)

Comprehensive (Loss) Income, Net of Tax		$	(34,125)	$	15,383	$	(88,334)	$	48,678
Comprehensive Income (Loss), Net of Tax										Comprehensive Income (Loss), Net of Tax	$	18,674	$	(16,586)	$	58,114	$	(54,218)

To be read with the attached notes to consolidated financial statements.

Table of Contents

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

City Holding Company and Subsidiaries

Three Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(in thousands, except share amounts)

Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity
Balance at June 30, 2021 $ 47,619 $ 169,674 $ 613,553 $ (157,936) $ 22,566 $ 695,476
Net income — — 22,732 — — 22,732
Other comprehensive loss — — — — (7,349) (7,349)
Cash dividends declared ($0.58 per share) — — (8,822) — — (8,822)
Stock-based compensation expense — 652 — — — 652
Restricted awards granted — — — — — —
Exercise of 1,408 stock options — (26) — 111 — 85
Purchase of 336,793 treasury shares — — — (25,478) — (25,478)
Balance at September 30, 2021 $ 47,619 $ 170,300 $ 627,463 $ (183,303) $ 15,217 $ 677,296


	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at March 31, 2022	$	47,619	$	170,206	$	654,138	$	(194,819)	$	(44,714)	$	632,430
Net income	—		—		22,683		—		—		22,683
Other comprehensive loss	—		—		—		—		(39,269)		(39,269)
Cash dividends declared ($0.60 per share)	—		—		(8,888)		—		—		(8,888)
Stock-based compensation expense	—		687		—		—		—		687
Restricted awards granted	—		(951)		—		951		—		—
Exercise of 13,078 stock options	—		(385)		—		1,046		—		661
Purchase of 208,243 treasury shares	—		—		—		(16,311)		—		(16,311)
Balance at June 30, 2022	$	47,619	$	169,557	$	667,933	$	(209,133)	$	(83,983)	$	591,993


		Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity			Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at June 30, 2022		$	47,619	$	169,557	$	667,933	$	(209,133)	$	(83,983)	$	591,993
Balance at March 31, 2023														Balance at March 31, 2023	$	47,619	$	177,529	$	721,727	$	(179,436)	$	(116,389)	$	651,050
Net income	Net income	—		—		27,374		—		—		27,374		Net income	—		—		32,733		—		—		32,733
Other comprehensive loss	Other comprehensive loss	—		—		—		—		(61,499)		(61,499)		Other comprehensive loss	—		—		—		—		(14,059)		(14,059)
Cash dividends declared ($0.65 per share)	Cash dividends declared ($0.65 per share)	—		—		(9,650)		—		—		(9,650)		Cash dividends declared ($0.65 per share)	—		—		(10,212)		—		—		(10,212)
Stock-based compensation expense	Stock-based compensation expense	—		754		—		—		—		754		Stock-based compensation expense	—		633		—		—		—		633
Restricted awards granted	Restricted awards granted	—		(163)		—		163		—		—		Restricted awards granted	—		(1,416)		—		1,416		—		—
Exercise of 556 stock options		—		(10)		—		46		—		36
Purchase of 8,971 treasury shares		—		—		—		(720)		—		(720)
Balance at September 30, 2022		$	47,619	$	170,138	$	685,657	$	(209,644)	$	(145,482)	$	548,288

Purchase of 269,338 treasury shares														Purchase of 269,338 treasury shares	—		—		—		(23,953)		—		(23,953)
Balance at June 30, 2023														Balance at June 30, 2023	$	47,619	$	176,746	$	744,248	$	(201,973)	$	(130,448)	$	636,192

~~See~~To be read with the attached notes to consolidated financial ~~statements.~~

statements

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Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

City Holding Company and Subsidiaries

~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(in thousands, except share amounts)

Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity
Balance at December 31, 2020 $ 47,619 $ 171,304 $ 589,988 $ (139,038) $ 31,233 $ 701,106
Net income — — 64,694 — — 64,694
Other comprehensive loss — — — — (16,016) (16,016)
Cash dividends declared ($1.74 per share) — — (27,219) — — (27,219)
Stock-based compensation expense — 2,430 — — — 2,430
Restricted awards granted — (1,860) — 1,860 — —
Exercise of 13,098 stock options — (1,574) — 2,196 — 622
Purchase of 628,809 treasury shares — — — (48,321) — (48,321)
Balance at September 30, 2021 $ 47,619 $ 170,300 $ 627,463 $ (183,303) $ 15,217 $ 677,296


	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at December 31, 2021	$	47,619	$	170,942	$	641,826	$	(193,542)	$	14,260	$	681,105
Net income	—		—		44,025		—		—		44,025
Other comprehensive loss	—		—		—		—		(98,243)		(98,243)
Cash dividends declared ($1.20 per share)	—		—		(17,918)		—		—		(17,918)
Stock-based compensation expense	—		1,658		—		—		—		1,658
Restricted awards granted	—		(2,658)		—		2,658		—		—
Exercise of 13,078 stock options	—		(385)		—		1,046		—		661
Purchase of 246,450 treasury shares	—		—		—		(19,295)		—		(19,295)
Balance at June 30, 2022	$	47,619	$	169,557	$	667,933	$	(209,133)	$	(83,983)	$	591,993

Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity
Balance at December 31, 2021 $ 47,619 $ 170,942 $ 641,826 $ (193,542) $ 14,260 $ 681,105
Net income — — 71,408 — — 71,408
Other comprehensive loss — — — — (159,742) (159,742)
Cash dividends declared ($1.85 per share) — — (27,577) — — (27,577)
Stock-based compensation expense — 2,412 — — — 2,412
Restricted awards granted — (2,821) — 2,821 — —
Exercise of 13,634 stock options — (395) — 1,092 — 697
Purchase of 255,421 treasury shares — — — (20,015) — (20,015)
Balance at September 30, 2022 $ 47,619 $ 170,138 $ 685,657 $ (209,644) $ (145,482) $ 548,288


	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at December 31, 2022	$	47,619	$	170,980	$	706,696	$	(215,955)	$	(131,488)	$	577,852
Adoption of ASU No. 2022-02	—		—		175		—		—		175
Balances at January 1, 2023	47,619		170,980		706,871		(215,955)		(131,488)		578,027
Net income	—		—		57,074		—		—		57,074
Other comprehensive income	—		—		—		—		1,040		1,040
Cash dividends declared ($1.30 per share)	—		—		(19,697)		—		—		(19,697)
Stock-based compensation expense	—		1,726		—		—		—		1,726
Restricted awards granted	—		(3,534)		—		3,534		—		—
Purchase of 487,587 treasury shares	—		—		—		(44,056)		—		(44,056)
Acquisition of Citizens Commerce Bancshares, Inc.	—		7,574		—		54,504		—		62,078
Balance at June 30, 2023	$	47,619	$	176,746	$	744,248	$	(201,973)	$	(130,448)	$	636,192

To be read with the attached notes to consolidated financial statements.

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Consolidated Statements of Cash Flows (Unaudited)

City Holding Company and Subsidiaries

(in thousands)


		Nine months ended September 30,					Six months ended June 30,
		2022		2021			2023		2022
Net income	Net income	$	71,408	$	64,694	Net income	$	57,074	$	44,025
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and (accretion), net	Amortization and (accretion), net	8,607		6,225		Amortization and (accretion), net	4,711		6,213
Recovery of credit losses		(26)		(3,165)
Provision for (recovery of) credit losses						Provision for (recovery of) credit losses	3,343		(756)
Depreciation of premises and equipment	Depreciation of premises and equipment	4,033		4,373		Depreciation of premises and equipment	2,349		2,716
Deferred income tax expense		1,181		1,805
Deferred income tax (benefit) expense						Deferred income tax (benefit) expense	(864)		634
Net periodic employee benefit cost	Net periodic employee benefit cost	192		443		Net periodic employee benefit cost	26		128
Pension contributions		—		(1,000)
Unrealized and realized investment securities losses (gains), net		1,322		(763)
Unrealized and realized investment securities (gains) losses, net						Unrealized and realized investment securities (gains) losses, net	(840)		1,324
Stock-compensation expense	Stock-compensation expense	2,412		2,430		Stock-compensation expense	1,726		1,658
Excess tax expense (benefit) from stock-compensation	Excess tax expense (benefit) from stock-compensation	189		(397)		Excess tax expense (benefit) from stock-compensation	203		(91)
Increase in value of bank-owned life insurance	Increase in value of bank-owned life insurance	(3,746)		(3,147)		Increase in value of bank-owned life insurance	(4,012)		(2,992)
Loans held for sale	Loans held for sale					Loans held for sale
Loans originated for sale	Loans originated for sale	(29,139)		(28,601)		Loans originated for sale	(6,397)		(23,467)
Proceeds from the sale of loans originated for sale	Proceeds from the sale of loans originated for sale	29,422		28,591		Proceeds from the sale of loans originated for sale	6,499		23,512
Gain on sale of loans	Gain on sale of loans	(283)		(271)		Gain on sale of loans	(102)		(224)
Change in accrued interest receivable	Change in accrued interest receivable	(1,629)		(431)		Change in accrued interest receivable	1,181		(715)
Change in other assets	Change in other assets	(11,312)		(6,486)		Change in other assets	9,764		(11,350)
Change in other liabilities	Change in other liabilities	9,136		9,393		Change in other liabilities	(7,350)		4,781
Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	81,767		73,693		Net Cash Provided by Operating Activities	67,311		45,396

Net (increase) decrease in loans		(85,289)		99,342
Net decrease (increase) in loans						Net decrease (increase) in loans	(23,077)		(22,554)
Securities available-for-sale	Securities available-for-sale					Securities available-for-sale
Purchases	Purchases	(488,401)		(438,625)		Purchases	(21,781)		(362,820)
Proceeds from sales of securities available-for-sale						Proceeds from sales of securities available-for-sale	85,559		—
Proceeds from maturities and calls	Proceeds from maturities and calls	177,875		213,579		Proceeds from maturities and calls	63,728		131,306
Other investments	Other investments					Other investments
Purchases	Purchases	(280)		(116)		Purchases	(5,950)		(258)
Proceeds from sales	Proceeds from sales	116		4,756		Proceeds from sales	66		83
Proceeds from maturities and calls						Proceeds from maturities and calls	498		—
Purchases of premises and equipment	Purchases of premises and equipment	(1,677)		(2,931)		Purchases of premises and equipment	(1,727)		(1,050)
Proceeds from the disposals of premises and equipment	Proceeds from the disposals of premises and equipment	189		367		Proceeds from the disposals of premises and equipment	282		64
Proceeds from bank-owned life insurance policies	Proceeds from bank-owned life insurance policies	3,623		2,148		Proceeds from bank-owned life insurance policies	206		3,624
Payments for low income housing tax credits	Payments for low income housing tax credits	(2,144)		(1,692)		Payments for low income housing tax credits	(4,144)		(832)
Net Cash Used in Investing Activities		(395,988)		(123,172)
Acquisition of Citizens Commerce Bancshares, Inc.						Acquisition of Citizens Commerce Bancshares, Inc.	14,013		—
Net Cash Provided by (Used in) Investing Activities						Net Cash Provided by (Used in) Investing Activities	107,673		(252,437)

Net increase in non-interest-bearing deposits		56,156		134,474
Net (decrease) increase in non-interest-bearing deposits						Net (decrease) increase in non-interest-bearing deposits	(38,604)		158,535
Net (decrease) increase in interest-bearing deposits	Net (decrease) increase in interest-bearing deposits	(23,625)		100,931		Net (decrease) increase in interest-bearing deposits	(115,286)		58,098
Net (decrease) increase in short-term borrowings	Net (decrease) increase in short-term borrowings	(7,651)		686		Net (decrease) increase in short-term borrowings	(25,750)		89,910
Proceeds from long-term debt						Proceeds from long-term debt	100,000		—
Purchases of treasury stock	Purchases of treasury stock	(20,015)		(48,321)		Purchases of treasury stock	(44,056)		(19,295)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	697		622		Proceeds from exercise of stock options	—		661
Lease payments	Lease payments	(572)		(632)		Lease payments	(405)		(382)
Dividends paid	Dividends paid	(27,047)		(27,391)		Dividends paid	(19,602)		(18,138)
Net Cash (Used in) Provided by Financing Activities	Net Cash (Used in) Provided by Financing Activities	(22,057)		160,369		Net Cash (Used in) Provided by Financing Activities	(143,703)		269,389
(Decrease) Increase in Cash and Cash Equivalents		(336,278)		110,890
Increase in Cash and Cash Equivalents						Increase in Cash and Cash Equivalents	31,281		62,348
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	634,631		528,659		Cash and cash equivalents at beginning of period	200,000		634,631
Cash and Cash Equivalents at End of Period	Cash and Cash Equivalents at End of Period	$	298,353	$	639,549	Cash and Cash Equivalents at End of Period	$	231,281	$	696,979

Supplemental Cash Flow Information:
Cash paid for interest $ 5,299 $ 9,111
Cash paid for income taxes 17,834 14,400

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Supplemental Cash Flow Information:
Cash paid for interest	$	18,509	$	3,257
Cash paid for income taxes	17,309		10,828
Acquisition
Identifiable assets acquired (net of purchase consideration)	$	320,453	$	—
Liabilities assumed	(307,111)		—
Goodwill	40,458		—
Core deposit intangible	8,278		—

To be read with the attached notes to consolidated financial statements.

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Notes to Consolidated Financial Statements (Unaudited)

~~September~~June 30, ~~2022~~2023

Note A –- Background and Basis of Presentation

City Holding Company ("City Holding"), a West Virginia corporation headquartered in Charleston, West Virginia, is a registered financial holding company under the Bank Holding Company Act and conducts its principal activities through its wholly-owned subsidiary, City National Bank of West Virginia ("City National"). City National is a retail and consumer-oriented community bank with 9499 banking offices in West Virginia (58), Kentucky ~~(19)~~(24), Virginia (13) and southeastern Ohio (4). City National provides credit, deposit, and trust and investment management services to its customers in a broad geographical area that includes many rural and small community markets in addition to larger cities including Charleston (WV), Huntington (WV), Martinsburg (WV), Ashland (KY), Lexington (KY), Winchester (VA) and Staunton (VA). In addition to its branch network, City National's delivery channels include automated-teller-machines ("ATMs"), interactive-teller machines ("ITMs"), mobile banking, debit cards, interactive voice response systems, and Internet technology. The Company’s business activities are currently limited to one reportable business segment, which is community banking.

On ~~October 18, 2022,~~March 10, 2023, the Company ~~announced that City Holding had signed a definitive agreement in which City Holding will acquire~~acquired 100% of the outstanding common shares of Citizens Commerce Bancshares, Inc., ("Citizens") ~~the parent company of~~and its principal banking subsidiary, Citizens Commerce Bank ~~Inc.,~~of Versailles, Kentucky. ~~Upon completion of~~See Note C for additional information on the merger, the subsidiary bank of Citizens will merge with and into City National. The merger is expected to close in the first quarter of 2023, pending customary closing conditions, including receipt of required regulatory approvals and the approval by the shareholders of Citizens.acquisition.

The accompanying consolidated financial statements, which are unaudited, include all of the accounts of City Holding and its wholly-owned subsidiaries (collectively, the "Company"). All material intercompany transactions have been eliminated. The consolidated financial statements include all adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations and financial condition for each of the periods presented. Such adjustments are of a normal recurring nature. The results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 are not necessarily indicative of the results of operations that can be expected for the year ending December 31, ~~2022.~~2023. The Company’s accounting and reporting policies conform with generally accepted accounting principles for interim financial information, with the instructions to Form 10-Q and Article 10 of Regulation S-X, and with Industry Guide 3, Statistical Disclosure by Bank Holding Companies. Such policies require management to make estimates and develop assumptions that affect the amounts reported in the consolidated financial statements and related footnotes. Actual results could differ from management’s estimates.

The consolidated balance sheet as of December 31, ~~2021~~2022 has been derived from audited financial statements included in the Company’s ~~2021~~2022 Annual Report to Shareholders. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in the ~~2021~~2022 Annual Report of the Company.

~~Certain amounts in the financial statements have been reclassified. Such reclassifications had no impact on shareholders’ equity or net income for any period.~~

Note B - Recent Accounting Pronouncements

Recently Adopted

In October 2018, the FASB issued ASU No. 2018-16, "Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes." This amendment permits the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the UST, the LIBOR swap rate, the OIS rate based on the Federal Funds Effective Rate, and the SIFMA Municipal Swap Rate. This ASU became effective for the Company on January 1, 2019 with anticipation the LIBOR index would be phased out by the end of 2021. In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This amendment provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and is effective as of March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU No. 2021-01, "Reference Rate Reform (Topic 848): Scope," which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ~~Management has~~

~~Table~~In December 2022, the FASB issued ASU No. 2022-06, "Reference Rate Reform (Topic 848): Deferral of ~~Contents~~

~~reviewed all contracts, identified those that~~the Sunset Date of Topic 848," which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be ~~affected, and will transition~~permitted to apply the ~~LIBOR based loans to SOFR, or another index, by June 30, 2023.~~

relief in Topic 848. The adoption of ASU No. 2020-04 did not have a material impact on the Company's financial statements.

~~Pending Adoption~~

In March 2022, the FASB issued ASU No. 2022-01, "Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method." The amendments in this update allow nonprepayable financial assets to be included in a closed

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portfolio hedged using the portfolio layer method. This expanded scope permits an entity to apply the same portfolio hedging method to both prepayable and nonprepayable financial assets, thereby allowing consistent accounting for similar hedges. This ASU ~~will become~~became effective for the Company on January 1, 2023. The adoption of ASU No. 2022-01 isdid not ~~expected to~~ have a material impact on the Company's financial statements.

In March 2022, the FASB issued ASU No. 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." The amendments in this update eliminate the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The amendments in this update also require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. This ASU became effective for the Company on January 1, 2023. The Company adopted ASU No. 2022-02 using the modified retrospective method, which resulted in a $0.2 million adjustment to shareholders' equity and the allowance for credit losses. See Note F for additional information.

Pending Adoption

In March 2023, the FASB issued ASU No. 2023-02, "Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures using the Proportional Amortization Method." The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. This ASU will become effective for the Company on January 1, ~~2023.~~2024. The adoption of ASU No. ~~2022-02~~2023-02 is not expected to have a material impact on the Company's financial statements.

Note C –- Acquisition and Preliminary Purchase Price Allocation

On March 10, 2023, the Company acquired 100% of the outstanding common shares of Citizens Commerce Bancshares, Inc. ("Citizens") and its principal banking subsidiary, Citizens Commerce Bank of Versailles, Kentucky, in order to strengthen the Company's market presence in the Lexington, Kentucky area. The acquisition of Citizens was structured as a stock transaction in which the Company issued approximately 0.7 million shares, valued at approximately $62.1 million.

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The following table summarizes the consideration paid for Citizens and the amounts of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):


Consideration:
Common stock	$	61,570
Stock option buyout	495
Cash	13
	62,078

Identifiable assets:
Cash and cash equivalents	14,013
Investment securities	41,008
FHLB stock	620
Loans	251,406
Fixed assets	3,237
Bank owned life insurance	2,966
Deferred tax assets, net	1,481
Other assets	5,722
Total identifiable assets	320,453

Identifiable liabilities:
Deposits	299,250
Short-term borrowings	6,500
Other liabilities	1,361
Total identifiable liabilities	307,111

Net identifiable assets (liabilities)	13,342
Goodwill	40,458
Core deposit intangible	8,278
	$	62,078

Investment Securities

The gain on the sale of investment securities recognized in the first six months of 2023 was primarily due to the sale of Citizens investment portfolio of approximately $41 million shortly after the acquisition date.

Acquired Loans

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows. However, the Company believes that there was not deterioration of credit at the date of acquisition. As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit deteriorated loans, which have shown evidence of credit deterioration since origination. Receivables acquired that were not subject to these requirements include non-impaired loans with a fair value of $246.4 million on the date of acquisition.

In connection with the completion of the acquisition of Citizens during the six months ended June 30, 2023, the Company recorded $2.0 million of credit loss expense associated with loans acquired from Citizens in its total provision for credit losses.

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The fair value of purchased financial assets with credit deterioration ("PCD") was $4.9 million on the date of acquisition. The gross contractual amounts receivable relating to the purchased financial asset with credit deterioration was $8.5 million. The Company estimates, on the date of acquisition, that $3.6 million of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.

Acquired Deposits

The fair values of non-time deposits approximated their carrying value at the acquisition date. For time deposits, the fair values were estimated based on discounted cash flows, using interest rates that were being offered at the time of acquisition compared to the contractual interest rates. Based on this analysis, management recorded a premium on time deposits acquired of $0.6 million which is being amortized over 5 years.

Core Deposit Intangible

The Company believes that the customer relationships with the deposits acquired have an intangible value. In connection with the acquisition, the Company recorded a core deposit intangible asset of $8.3 million. The core deposit intangible asset represents the value that the acquiree had with their deposit customers. The fair value was estimated based on a discounted cash flow methodology that considered the type of deposit, deposit retention and the cost of the deposit base. The core deposit intangible is being amortized over 10 years.

Goodwill

Under GAAP, management has up to twelve months following the date of the acquisition to finalize the fair value of acquired assets and liabilities. The measurement period ends as soon as the Company receives information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. Any subsequent adjustments to the fair value of the acquired assets and liabilities, intangible assets or other purchase accounting adjustments will result in adjustments to the goodwill recorded. Among the items that are still preliminary at June 30, 2023 is the finalization of the final tax return, which management anticipates completing during 2023. Given the form of the transaction, the $40.5 million goodwill preliminarily recorded in conjunction with the Citizens acquisition is not expected to be deductible for tax purposes. The following table summarizes adjustments to goodwill subsequent to December 31, 2022 (in thousands):


	Goodwill
Balance at December 31, 2022	$	108,941
Adjustment to goodwill acquired in conjunction with the acquisition of Citizens	40,458
Balance at June 30, 2023	$	149,399

Merger Related Costs

During the six months ended June, 2023, the Company incurred $5.6 million of merger-related costs in connection with the acquisition of Citizens, primarily for professional fees ($1.6 million), severance ($1.4 million), and data processing costs ($1.3 million).

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Note D - Investments

The aggregate carrying and approximate fair values of investment securities follow (in thousands). Fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable financial instruments.


		September 30, 2022								December 31, 2021									June 30, 2023								December 31, 2022
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Securities available-for-sale:	Securities available-for-sale:																	Securities available-for-sale:
Obligations of states and	Obligations of states and																	Obligations of states and
political subdivisions	political subdivisions	$	282,823	$	28	$	32,855	$	249,996	$	263,809	$	8,622	$	215	$	272,216	political subdivisions	$	245,922	$	160	$	20,481	$	225,601	$	292,293	$	346	$	24,324	$	268,315
Mortgage-backed securities:	Mortgage-backed securities:																	Mortgage-backed securities:
U.S. government agencies	U.S. government agencies	1,354,218		70		150,486		1,203,802		1,080,381		18,739		4,809		1,094,311		U.S. government agencies	1,300,980		214		142,736		1,158,458		1,342,666		299		140,686		1,202,279
Private label	Private label	7,813		—		485		7,328		8,555		553		—		9,108		Private label	7,288		—		498		6,790		7,695		—		464		7,231
Trust preferred securities	Trust preferred securities	4,585		—		640		3,945		4,570		—		367		4,203		Trust preferred securities	4,595		—		403		4,192		4,590		—		762		3,828
Corporate securities	Corporate securities	27,155		—		2,834		24,321		27,292		1,047		12		28,327		Corporate securities	28,085		—		3,193		24,892		26,620		—		2,753		23,867
Total Securities Available-for-Sale	Total Securities Available-for-Sale	$	1,676,594	$	98	$	187,300	$	1,489,392	$	1,384,607	$	28,961	$	5,403	$	1,408,165	Total Securities Available-for-Sale	$	1,586,870	$	374	$	167,311	$	1,419,933	$	1,673,864	$	645	$	168,989	$	1,505,520

The Company's other investment securities include marketable equity securities, non-marketable equity securities and certificates of deposits held for investment. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company held ~~$7.9 million and $9.2~~$7.6 million in marketable equity ~~securities, respectively.~~securities. Changes in the fair value of the marketable equity securities are recorded in "unrealized gains (losses) recognized on equity securities still held" in the consolidated statements of income. The Company's non-marketable securities consist of securities with limited marketability, such as stock in the Federal Reserve Bank ("FRB") or the Federal Home Loan Bank ("FHLB"). At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company held ~~$15.5~~$21.4 million and ~~$15.3~~$15.5 million, respectively, in non-marketable equity securities. These securities are carried at cost due to the restrictions placed on their transferability. At ~~both September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company held ~~$1.0~~$0.2 million and $0.7 million in certificates of deposits held for ~~investment.~~investment, respectively.

The Company's mortgage-backed U.S. government agency securities consist of both residential and commercial securities, all of which are guaranteed by Fannie Mae ("FNMA"), Freddie Mac ("FHLMC"), or Ginnie Mae ("GNMA"). At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 there were no securities of any non-governmental issuer whose aggregate carrying value or estimated fair value exceeded 10% of shareholders' equity.

~~Table of Contents~~

Certain investment securities owned by the Company were in an unrealized loss position (i.e., amortized cost basis exceeded the estimated fair value of the securities) as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022. The following table shows the gross unrealized losses and fair value of the Company’s investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):


		September 30, 2022													June 30, 2023
		Less Than Twelve Months				Twelve Months or Greater				Total					Less Than Twelve Months				Twelve Months or Greater				Total
		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss			Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Securities available-for-sale:	Securities available-for-sale:													Securities available-for-sale:
Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	229,688	$	29,945	$	12,884	$	2,910	$	242,572	$	32,855	Obligations of states and political subdivisions	$	43,264	$	1,102	$	169,087	$	19,379	$	212,351	$	20,481
Mortgage-backed securities:	Mortgage-backed securities:													Mortgage-backed securities:
U.S. Government agencies	U.S. Government agencies	644,366		81,602		264,596		68,884		908,962		150,486		U.S. Government agencies	105,588		16,261		746,989		126,475		852,577		142,736
Private label	Private label	7,213		485		—		—		7,213		485		Private label	—		—		6,690		498		6,690		498
Trust preferred securities	Trust preferred securities	—		—		3,945		640		3,945		640		Trust preferred securities	—		—		4,192		403		4,192		403
Corporate securities	Corporate securities	30,222		2,741		905		93		31,127		2,834		Corporate securities	11,204		1,359		13,688		1,834		24,892		3,193
Total available-for-sale	Total available-for-sale	$	911,489	$	114,773	$	282,330	$	72,527	$	1,193,819	$	187,300	Total available-for-sale	$	160,056	$	18,722	$	940,646	$	148,589	$	1,100,702	$	167,311

December 31, 2021
Less Than Twelve Months Twelve Months or Greater Total
Estimated Fair Value Unrealized Loss Estimated Fair Value Unrealized Loss Estimated Fair Value Unrealized Loss
Securities available-for-sale:
Obligations of states and political subdivisions $ 13,277 $ 152 $ 2,420 $ 63 $ 15,697 $ 215
Mortgage-backed securities:
U.S. Government agencies 521,407 4,802 23,295 7 544,702 4,809
Trust preferred securities — — 4,203 367 4,203 367
Corporate securities 988 12 — — 988 12
Total available-for-sale $ 535,672 $ 4,966 $ 29,918 $ 437 $ 565,590 $ 5,403

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	December 31, 2022
	Less Than Twelve Months				Twelve Months or Greater				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Securities available-for-sale:
Obligations of states and political subdivisions	$	203,173	$	21,929	$	13,359	$	2,395	$	216,532	$	24,324
Mortgage-backed securities:
U.S. Government agencies	533,611		50,268		376,778		90,418		910,389		140,686
Private label	7,126		464		—		—		7,126		464
Trust preferred securities	—		—		3,828		762		3,828		762
Corporate securities	22,972		2,648		895		105		23,867		2,753
Total available-for-sale	$	766,882	$	75,309	$	394,860	$	93,680	$	1,161,742	$	168,989

As of ~~September~~June 30, ~~2022,~~2023, management does not intend to sell any impaired security and it is not more than likely that it will be required to sell any impaired security before the recovery of its amortized cost basis. The unrealized losses on debt securities are primarily the result of interest rate changes, credit spread fluctuations on agency-issued mortgage-related securities, general financial market uncertainty and market volatility. These conditions should not prohibit the Company from receiving its contractual principal and interest payments on its debt securities. The fair value is expected to recover as the securities approach their maturity date or repricing date. As of ~~September~~June 30, ~~2022,~~2023, management believes the unrealized losses detailed in the table above are temporary and therefore no allowance for credit losses has been recognized on the Company’s securities. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss will be recognized in net income in the period the other-than-temporary impairment is identified, while any noncredit loss will be recognized in other comprehensive income. During the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, the Company had no credit-related net investment impairment losses.

The amortized cost and estimated fair value of debt securities at ~~September~~June 30, ~~2022,~~2023, by contractual maturity, is shown in the following table (in thousands). Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. Mortgage-backed securities have been allocated to their respective maturity groupings based on their contractual maturity.


		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
Available-for-Sale Debt Securities	Available-for-Sale Debt Securities					Available-for-Sale Debt Securities
Due in one year or less	Due in one year or less	$	29,703	$	3,460	Due in one year or less	$	1,814	$	1,796
Due after one year through five years	Due after one year through five years	535,293		45,750		Due after one year through five years	51,378		47,776
Due after five years through ten years	Due after five years through ten years	682,768		477,125		Due after five years through ten years	511,736		472,381
Due after ten years	Due after ten years	428,830		963,057		Due after ten years	1,021,942		897,980
Total	Total	$	1,676,594	$	1,489,392	Total	$	1,586,870	$	1,419,933

~~Table of Contents~~

Gross gains and gross losses recognized by the Company from investment security transactions are summarized in the table below (in thousands):


		Three months ended September 30,				Nine months ended September 30,					Three months ended June 30,				Six months ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Gross realized gains on securities sold	Gross realized gains on securities sold	$	—	$	—	$	—	$	312	Gross realized gains on securities sold	$	—	$	—	$	975	$	—
Gross realized losses on securities sold	Gross realized losses on securities sold	—		—		—		—		Gross realized losses on securities sold	—		—		(202)		—
Net investment security gains	Net investment security gains	$	—	$	—	$	—	$	312	Net investment security gains	$	—	$	—	$	773	$	—

Gross unrealized gains recognized on equity securities still held	Gross unrealized gains recognized on equity securities still held	$	105	$	100	$	119	$	481	Gross unrealized gains recognized on equity securities still held	$	8	$	2	$	368	$	42
Gross unrealized losses recognized on equity securities still held	Gross unrealized losses recognized on equity securities still held	(104)		(7)		(1,441)		(29)		Gross unrealized losses recognized on equity securities still held	(302)		(603)		(301)		(1,366)
Net unrealized losses recognized on equity securities still held		$	1	$	93	$	(1,322)	$	452
Net unrealized gains recognized on equity securities still held										Net unrealized gains recognized on equity securities still held	$	(294)	$	(601)	$	67	$	(1,324)

The carrying value of securities pledged to secure public deposits and for other purposes as required or permitted by law approximated ~~$680~~$759 million and ~~$711~~$886 million at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

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Note ~~D –~~E - Loans

The following table summarizes the Company’s major classifications for loans (in thousands):


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
Commercial and industrial	Commercial and industrial	$	375,735	$	346,184	Commercial and industrial	$	417,847	$	373,890

1-4 Family	1-4 Family	109,710		107,873		1-4 Family	123,701		116,192
Hotels	Hotels	355,001		311,315		Hotels	324,745		340,404
Multi-family	Multi-family	186,440		215,677		Multi-family	191,483		174,786
Non Residential Non-Owner Occupied	Non Residential Non-Owner Occupied	569,369		639,818		Non Residential Non-Owner Occupied	673,921		585,964
Non Residential Owner Occupied	Non Residential Owner Occupied	177,673		204,233		Non Residential Owner Occupied	222,852		174,961
Commercial real estate	Commercial real estate	1,398,193		1,478,916		Commercial real estate	1,536,702		1,392,307

Residential real estate	Residential real estate	1,678,770		1,548,965		Residential real estate	1,746,618		1,693,523
Home equity	Home equity	130,837		122,345		Home equity	151,012		134,317
Consumer	Consumer	41,902		40,901		Consumer	65,201		48,806
Demand deposit account (DDA) overdrafts	Demand deposit account (DDA) overdrafts	3,315		6,503		Demand deposit account (DDA) overdrafts	4,762		3,415
Gross loans	Gross loans	3,628,752		3,543,814		Gross loans	3,922,142		3,646,258
Allowance for credit losses	Allowance for credit losses	(17,011)		(18,166)		Allowance for credit losses	(22,751)		(17,108)
Net loans	Net loans	$	3,611,741	$	3,525,648	Net loans	$	3,899,391	$	3,629,150

Construction loans included in:	Construction loans included in:					Construction loans included in:
Commercial real estate	Commercial real estate	$	4,125	$	11,783	Commercial real estate	$	3,361	$	4,130
Residential real estate	Residential real estate	19,333		17,252		Residential real estate	20,470		21,122

The Company’s commercial and residential real estate construction loans are primarily secured by real estate within the Company’s principal markets. These loans were originated under the Company’s loan policies, which are focused on the risk characteristics of the loan portfolio, including construction loans. In the judgment of the Company's management, adequate consideration has been given to these loans in establishing the Company's allowance for credit losses.

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Note ~~E –~~F - Allowance For Credit Losses

The following table summarizes the activity in the allowance for credit losses, by portfolio loan classification, for the ~~three and nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (in thousands). The allocation of a portion of the allowance in one portfolio segment does not preclude its availability to absorb losses in other portfolio segments.


		Beginning Balance		Charge-offs		Recoveries		(Recovery of) provision for credit losses		Ending Balance			Beginning Balance		Impact of Adopting ASU 2022-02		PCD Loan Reserves		Charge-offs		Recoveries		Provision for (recovery of) credit losses		Ending Balance
Nine months ended September 30, 2022
Six months ended June 30, 2023												Six months ended June 30, 2023
Commercial and industrial	Commercial and industrial	$	3,480	$	(445)	$	240	$	137	$	3,412	Commercial and industrial	$	3,568	12		—		(69)		$	169	$	650	$	4,330

1-4 Family	1-4 Family	598		(24)		40		(66)		548		1-4 Family	566		(1)		—		(80)		30		83		598
Hotels	Hotels	2,426		—		—		111		2,537		Hotels	2,332		—		—		(40)		—		(159)		2,133
Multi-family	Multi-family	483		—		—		(59)		424		Multi-family	380		—		500		—		—		129		1,009
Non Residential Non-Owner Occupied	Non Residential Non-Owner Occupied	2,319		—		47		(236)		2,130		Non Residential Non-Owner Occupied	2,019		—		1,536		—		156		1,075		4,786
Non Residential Owner Occupied	Non Residential Owner Occupied	1,485		—		—		(113)		1,372		Non Residential Owner Occupied	1,315		—		775		—		—		288		2,378
Commercial real estate	Commercial real estate	7,311		(24)		87		(363)		7,011		Commercial real estate	6,612		(1)		2,811		(120)		186		1,416		10,904

Residential real estate	Residential real estate	5,716		(199)		50		(513)		5,054		Residential real estate	5,427		(138)		—		(52)		15		321		5,573
Home equity	Home equity	517		(90)		22		(101)		348		Home equity	290		(46)		—		(267)		16		415		408
Consumer	Consumer	106		(48)		76		(37)		97		Consumer	110		(2)		—		(171)		51		346		334
DDA overdrafts	DDA overdrafts	1,036		(1,951)		1,153		851		1,089		DDA overdrafts	1,101		—		—		(807)		713		195		1,202
		$	18,166	$	(2,757)	$	1,628	$	(26)	$	17,011		$	17,108	$	(175)	$	2,811	$	(1,486)	$	1,150	$	3,343	$	22,751

Nine months ended September 30, 2021
Six months ended June 30, 2022												Six months ended June 30, 2022
Commercial and industrial	Commercial and industrial	$	3,644	$	(245)	$	140	$	(177)	$	3,362	Commercial and industrial	$	3,480	—		—		(34)		$	91	$	(18)	$	3,519

1-4 Family	1-4 Family	771		(35)		100		(225)		611		1-4 Family	598		—		—		(24)		34		(34)		574
Hotels	Hotels	3,347		(2,075)		—		(39)		1,233		Hotels	2,426		—		—		—		—		82		2,508
Multi-family	Multi-family	674		—		—		(176)		498		Multi-family	483		—		—		—		—		(23)		460
Non Residential Non-Owner Occupied	Non Residential Non-Owner Occupied	3,223		(1)		43		(434)		2,831		Non Residential Non-Owner Occupied	2,319		—		—		—		44		(267)		2,096
Non Residential Owner Occupied	Non Residential Owner Occupied	2,982		—		54		(407)		2,629		Non Residential Owner Occupied	1,485		—		—		—		—		(90)		1,395
Commercial real estate	Commercial real estate	10,997		(2,111)		197		(1,281)		7,802		Commercial real estate	7,311		—		—		(24)		78		(332)		7,033

Residential real estate	Residential real estate	8,093		(197)		120		(2,042)		5,974		Residential real estate	5,716		—		—		(106)		49		(665)		4,994
Home equity	Home equity	630		(119)		84		(123)		472		Home equity	517		—		—		(19)		20		(180)		338
Consumer	Consumer	163		(229)		215		1		150		Consumer	106		—		—		(32)		47		(43)		78
DDA Overdrafts	DDA Overdrafts	1,022		(1,516)		1,028		457		991		DDA Overdrafts	1,036		—		—		(1,235)		770		482		1,053
		$	24,549	$	(4,417)	$	1,784	$	(3,165)	$	18,751		$	18,166	$	—	$	—	$	(1,450)	$	1,055	$	(756)	$	17,015

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		Beginning Balance		Charge-offs		Recoveries		(Recovery of) provision for credit losses		Ending Balance			Beginning Balance		Impact of Adopting ASU 2022-02		PCD Loan Reserves		Charge-offs		Recoveries		Provision for (recovery of) credit losses		Ending Balance
Three months ended September 30, 2022
Three months ended June 30, 2023												Three months ended June 30, 2023
Commercial and industrial	Commercial and industrial	$	3,519	$	(411)	$	149	$	155	$	3,412	Commercial and industrial	$	4,289	—		—		(69)		$	86	$	24	$	4,330

1-4 Family	1-4 Family	574		—		6		(32)		548		1-4 Family	613		—		—		(77)		16		46		598
Hotels	Hotels	2,508		—		—		29		2,537		Hotels	2,184		—		—		(40)		—		(11)		2,133
Multi-family	Multi-family	460		—		—		(36)		424		Multi-family	1,027		—		—		—		—		(18)		1,009
Non Residential Non-Owner Occupied	Non Residential Non-Owner Occupied	2,096		—		3		31		2,130		Non Residential Non-Owner Occupied	4,924		—		—		—		12		(150)		4,786
Non Residential Owner Occupied	Non Residential Owner Occupied	1,395		—		—		(23)		1,372		Non Residential Owner Occupied	2,437		—		—		—		—		(59)		2,378
Commercial real estate	Commercial real estate	7,033		—		9		(31)		7,011		Commercial real estate	11,185		—		—		(117)		28		(192)		10,904

Residential real estate	Residential real estate	4,994		(93)		1		152		5,054		Residential real estate	5,481		—		—		(20)		5		107		5,573
Home equity	Home equity	338		(71)		2		79		348		Home equity	400		—		—		(200)		12		196		408
Consumer	Consumer	78		(16)		29		6		97		Consumer	371		—		—		(109)		28		44		334
DDA overdrafts	DDA overdrafts	1,053		(716)		383		369		1,089		DDA overdrafts	998		—		—		(357)		315		246		1,202
		$	17,015	$	(1,307)	$	573	$	730	$	17,011		$	22,724	$	—	$	—	$	(872)	$	474	$	425	$	22,751

Three months ended September 30, 2021
Three months ended June 30, 2022												Three months ended June 30, 2022
Commercial and industrial	Commercial and industrial	$	3,356	$	—	$	69	$	(63)	$	3,362	Commercial and industrial	$	3,458	—		—		—		$	32	$	29	$	3,519

1-4 Family	1-4 Family	697		—		7		(93)		611		1-4 Family	574		—		—		(24)		5		19		574
Hotels	Hotels	1,488		(392)		—		137		1,233		Hotels	2,545		—		—		—		—		(37)		2,508
Multi-family	Multi-family	562		—		—		(64)		498		Multi-family	477		—		—		—		—		(17)		460
Non Residential Non-Owner Occupied	Non Residential Non-Owner Occupied	3,009		—		6		(184)		2,831		Non Residential Non-Owner Occupied	2,281		—		—		—		20		(205)		2,096
Non Residential Owner Occupied	Non Residential Owner Occupied	2,611		—		5		13		2,629		Non Residential Owner Occupied	1,382		—		—		—		—		13		1,395
Commercial real estate	Commercial real estate	8,367		(392)		18		(191)		7,802		Commercial real estate	7,259		—		—		(24)		25		(227)		7,033

Residential real estate	Residential real estate	6,791		(18)		29		(828)		5,974		Residential real estate	5,039		—		—		(56)		4		7		4,994
Home equity	Home equity	535		(47)		58		(74)		472		Home equity	410		—		—		(19)		3		(56)		338
Consumer	Consumer	178		(3)		72		(97)		150		Consumer	86		—		—		(9)		19		(18)		78
DDA Overdrafts	DDA Overdrafts	789		(633)		307		528		991		DDA Overdrafts	1,028		—		—		(604)		364		265		1,053
		$	20,016	$	(1,093)	$	553	$	(725)	$	18,751		$	17,280	$	—	$	—	$	(712)	$	447	$	—	$	17,015

During the six months ended June 30, 2023, the Company recorded $2.8 million of allowance for credit losses due to acquired Citizens PCD loans. Further, in connection with the completion of the acquisition of Citizens during the six months ended June 30, 2023, the Company recorded $2.0 million of provision for credit losses associated with loans acquired from Citizens. In addition, the provision for credit losses for the six months ended June 30, 2023 included $0.9 million that was primarily related to the downgrade of two commercial loans.

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factors. The Company's estimate of future economic conditions utilized in its provision estimate is primarily dependent on expected unemployment ranges over a two-year period. Beyond two years, a straight line reversion to historical average loss rates is applied over the life of the loan pool in the migration methodology. The vintage methodology applies future average loss rates based on net losses in historical periods where the unemployment rate was within the forecasted range.

Individual credits in excess of $1 million are selected at least annually for detailed loan reviews, which are utilized by management to assess the risk in the portfolio and the appropriateness of the allowance.

Non-Performing Loans

Interest income on loans is accrued and credited to operations based upon the principal amount outstanding, using methods that generally result in level rates of return. Loan origination fees, and certain direct costs, are deferred and amortized as an adjustment to the yield over the term of the loan. The accrual of interest generally is discontinued when a loan becomes 90 days past due as to principal or interest for all loan types. However, any loan may be placed on non-accrual status if the Company receives information that indicates a borrower is unable to meet the contractual terms of its respective loan

~~Table of Contents~~

agreement. Other indicators considered for placing a loan on non-accrual status include the borrower’s involvement in bankruptcies, foreclosures, repossessions, litigation and any other situation resulting in doubt as to whether full collection of contractual principal and interest is attainable. When interest accruals are discontinued, unpaid interest recognized in income in the current year is reversed, and interest accrued in prior years is charged to the allowance for credit losses. Management may elect to continue the accrual of interest when the net realizable value of collateral exceeds the principal balance and related accrued interest, and the loan is in the process of collection.

Generally for all loan classes, interest income during the period the loan is non-performing is recorded on a cash basis after recovery of principal is reasonably assured. Cash payments received on nonperforming loans are typically applied directly against the outstanding principal balance until the loan is fully repaid. Generally, loans are restored to accrual status when the obligation is brought current, the borrower has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

The following table presents the amortized cost basis of loans on non-accrual status and loans past due over 90 days still accruing as of ~~September~~June 30, ~~2022~~2023 (in thousands):


		Non-accrual With No		Non-accrual With		Loans Past Due			Non-accrual With No		Non-accrual With		Loans Past Due
		Allowance for				Over 90 Days			Allowance for				Over 90 Days
		Credit Losses				Still Accruing			Credit Losses				Still Accruing
Commercial & Industrial	Commercial & Industrial	$	—	$	785	$	—	Commercial & Industrial	$	—	$	741	$	—

1-4 Family	1-4 Family	—		1,012		—		1-4 Family	—		742		—
Hotels	Hotels	—		114		—		Hotels	—		—		—
Multi-family	Multi-family	—		—		—		Multi-family	—		—		—
Non Residential Non-Owner Occupied	Non Residential Non-Owner Occupied	—		842		—		Non Residential Non-Owner Occupied	—		753		—
Non Residential Owner Occupied	Non Residential Owner Occupied	—		325		—		Non Residential Owner Occupied	—		326		—
Commercial Real Estate	Commercial Real Estate	—		2,293		—		Commercial Real Estate	—		1,821		—

Residential Real Estate	Residential Real Estate	127		1,962		—		Residential Real Estate	—		2,774		208
Home Equity	Home Equity	—		140		—		Home Equity	—		24		7
Consumer	Consumer	—		—		—		Consumer	—		35		—
Total	Total	$	127	$	5,180	$	—	Total	$	—	$	5,395	$	215

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The following table presents the amortized cost basis of loans on non-accrual status and loans past due over 90 days still accruing as of December 31, ~~2021~~2022 (in thousands):


		Non-accrual With No		Non-accrual With		Loans Past Due			Non-accrual With No		Non-accrual With		Loans Past Due
		Allowance for				Over 90 Days			Allowance for				Over 90 Days
		Credit Losses				Still Accruing			Credit Losses				Still Accruing
Commercial & Industrial	Commercial & Industrial	$	—	$	996	$	43	Commercial & Industrial	$	—	$	1,015	$	—

1-4 Family	1-4 Family	—		1,016		—		1-4 Family	—		937		—
Hotels	Hotels	—		113		—		Hotels	—		115		—
Multi-family	Multi-family	—		—		—		Multi-family	—		—		—
Non Residential Non-Owner Occupied	Non Residential Non-Owner Occupied	—		652		—		Non Residential Non-Owner Occupied	—		816		—
Non Residential Owner Occupied	Non Residential Owner Occupied	—		592		—		Non Residential Owner Occupied	—		298		—
Commercial Real Estate	Commercial Real Estate	—		2,373		—		Commercial Real Estate	—		2,166		—

Residential Real Estate	Residential Real Estate	63		2,746		—		Residential Real Estate	228		1,741		164
Home Equity	Home Equity	—		40		—		Home Equity	—		55		—
Consumer	Consumer	—		—		—		Consumer	—		—		23
Total	Total	$	63	$	6,155	$	43	Total	$	228	$	4,977	$	187

The Company recognized no interest income on ~~nonaccrual~~non-accrual loans during each of the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.

There were no individually evaluated impaired collateral-dependent loans as of ~~September~~June 30, ~~2022~~2023 or December 31, ~~2021.~~2022. Changes in the fair value of the collateral for collateral-dependent loans are reported as a provision for credit loss ~~expense~~ or a ~~reversal~~recovery of credit loss ~~expense~~ in the period of change.

The Company would have recognized less than $0.2 million of interest income during each of the three and nine months ended September 30, 2022 and 2021 if such loans had been current in accordance with their original terms. There were no significant commitments to provide additional funds on non-accrual or individually evaluated loans at ~~September~~June 30, ~~2022.~~2023.

Generally, all loan types are considered past due when the contractual terms of a loan are not met and the borrower is 30 days or more past due on a payment. Furthermore, residential and home equity loans are generally subject to charge-off when the loan becomes 120 days past due, depending on the estimated fair value of the collateral less cost to dispose, versus the outstanding loan balance. Commercial loans are generally charged off when the loan becomes 120 days past due. Open-end consumer loans are generally charged off when the loan becomes 180 days past due.

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The following tables present the aging of the amortized cost basis in past-due loans as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 by class of loan (in thousands):


		September 30, 2022															June 30, 2023
		30-59		60-89		90+		Total		Current		Non-		Total			30-59		60-89		90+		Total		Current		Non-		Total
		Past Due								Loans		accrual		Loans			Past Due								Loans		accrual		Loans
Commercial and industrial	Commercial and industrial	$	221	$	—	$	—	$	221	$	374,729	$	785	$	375,735	Commercial and industrial	$	117	$	25	$	—	$	142	$	416,964	$	741	$	417,847

1-4 Family	1-4 Family	46		—		—		46		108,652		1,012		109,710		1-4 Family	105		—		—		105		122,854		742		123,701
Hotels	Hotels	—		—		—		—		354,887		114		355,001		Hotels	—		—		—		—		324,745		—		324,745
Multi-family	Multi-family	37		—		—		37		186,403		—		186,440		Multi-family	—		—		—		—		191,483		—		191,483
Non Residential Non-Owner Occupied	Non Residential Non-Owner Occupied	138		—		—		138		568,389		842		569,369		Non Residential Non-Owner Occupied	131		1		—		132		673,036		753		673,921
Non Residential Owner Occupied	Non Residential Owner Occupied	—		—		—		—		177,348		325		177,673		Non Residential Owner Occupied	—		—		—		—		222,526		326		222,852
Commercial real estate	Commercial real estate	221		—		—		221		1,395,679		2,293		1,398,193		Commercial real estate	236		1		—		237		1,534,644		1,821		1,536,702

Residential real estate	Residential real estate	2,841		611		—		3,452		1,673,229		2,089		1,678,770		Residential real estate	5,330		346		208		5,884		1,737,960		2,774		1,746,618
Home Equity	Home Equity	359		162		—		521		130,176		140		130,837		Home Equity	688		90		7		785		150,203		24		151,012
Consumer	Consumer	27		—		—		27		41,875		—		41,902		Consumer	57		—		—		57		65,109		35		65,201
Overdrafts	Overdrafts	496		65		—		561		2,754		—		3,315		Overdrafts	332		9		—		341		4,421		—		4,762
Total	Total	$	4,165	$	838	$	—	$	5,003	$	3,618,442	$	5,307	$	3,628,752	Total	$	6,760	$	471	$	215	$	7,446	$	3,909,301	$	5,395	$	3,922,142


		December 31, 2021															December 31, 2022
		30-59		60-89		90+		Total		Current		Non-		Total			30-59		60-89		90+		Total		Current		Non-		Total
		Past Due								Loans		accrual		Loans			Past Due								Loans		accrual		Loans
Commercial and industrial	Commercial and industrial	$	116	$	177	$	43	$	336	$	344,852	$	996	$	346,184	Commercial and industrial	$	201	$	33	$	—	$	234	$	372,641	$	1,015	$	373,890

1-4 Family	1-4 Family	21		—		—		21		106,836		1,016		107,873		1-4 Family	17		—		—		17		115,238		937		116,192
Hotels	Hotels	—		—		—		—		311,202		113		311,315		Hotels	—		—		—		—		340,289		115		340,404
Multi-family	Multi-family	—		—		—		—		215,677		—		215,677		Multi-family	—		—		—		—		174,786		—		174,786
Non Residential Non-Owner Occupied	Non Residential Non-Owner Occupied	—		—		—		—		639,166		652		639,818		Non Residential Non-Owner Occupied	—		—		—		—		585,148		816		585,964
Non Residential Owner Occupied	Non Residential Owner Occupied	—		—		—		—		203,641		592		204,233		Non Residential Owner Occupied	505		188		—		693		173,970		298		174,961
Commercial real estate	Commercial real estate	21		—		—		21		1,476,522		2,373		1,478,916		Commercial real estate	522		188		—		710		1,389,431		2,166		1,392,307

Residential real estate	Residential real estate	5,166		156		—		5,322		1,540,834		2,809		1,548,965		Residential real estate	6,843		84		164		7,091		1,684,463		1,969		1,693,523
Home Equity	Home Equity	592		26		—		618		121,687		40		122,345		Home Equity	622		28		—		650		133,612		55		134,317
Consumer	Consumer	59		1		—		60		40,841		—		40,901		Consumer	52		25		23		100		48,706		—		48,806
Overdrafts	Overdrafts	485		4		—		489		6,014		—		6,503		Overdrafts	386		5		—		391		3,024		—		3,415
Total	Total	$	6,439	$	364	$	43	$	6,846	$	3,530,750	$	6,218	$	3,543,814	Total	$	8,626	$	363	$	187	$	9,176	$	3,631,877	$	5,205	$	3,646,258

~~Troubled Debt~~Loan Restructurings ~~("TDRs")~~

The ~~Company’s policy on loan modifications typically does not allow for modifications that would be considered a concession from~~Company adopted the ~~Company. However, when there is a modification,~~accounting guidance in ASU No. 2022-02, effective as of January 1, 2023, which eliminates the recognition and measurement of troubled debt restructurings ("TDRs"). Due to the removal of the TDR designation, the Company evaluates ~~each modification~~all loan restructurings according to the accounting guidance for loan modifications to determine if the ~~modification constitutes~~restructuring results in a ~~troubled debt restructuring (“TDR”) in accordance with ASU 2011-02, whereby~~new loan or a ~~modification of a loan would be considered a TDR when both~~continuation of the ~~following conditions are met: (1) a borrower is~~existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and ~~(2)~~combinations of the ~~modification constitutes a concession. These modifications range from partial deferrals (interest only)~~listed modifications. Therefore, the disclosures related to ~~full deferrals (principal and interest). When determining whether the borrower is experiencing financial difficulties, the~~loan restructurings are only for

1722

Table of Contents

~~Company reviews whether~~modifications that directly affect cash flows. During the debtor is currently in payment default on any of its debt or whether it is probable that the debtor would be in payment default in the foreseeable future without the modification. Other indicators of financial difficulty include whether the debtor has declared or is in the process of declaring bankruptcy, the debtor’s ability to continue as a going concern, or the debtor’s projected cash flow to service its debt (including principalthree and ~~interest) in accordance with the contractual terms for the foreseeable future, without a modification.~~

~~The following table sets forth the Company’s TDRs (in thousands). Substantially all of the Company's TDRs are accruing interest.~~

September 30, 2022 December 31, 2021
Commercial and industrial $ 354 $ 414
   1-4 Family 104 112
   Hotels — —
   Multi-family — 1,802
   Non Residential Non-Owner Occupied — —
   Non Residential Owner Occupied — —
Commercial real estate 104 1,914
Residential real estate 15,657 16,943
Home equity 1,614 1,784
Consumer 68 225
Total 17,797 $ 21,280

~~The Company has allocated $0.3 million of the allowance for credit losses for these loans as of both September~~six months ended June 30, ~~2022 and December 31, 2021. As of September 30, 2022,~~2023, the Company ~~has not committed to lend any additional amounts in relation to these~~had no loan modifications that were considered restructured loans.

~~The following table presents loans by class, modified as TDRs,~~A loan that ~~occurred during~~is considered a restructured loan may be subject to the ~~three~~individually evaluated loan analysis, otherwise, the restructured loan will remain in the appropriate segment in the Allowance for Credit Losses model and ~~nine months ended~~

~~September 30, 2022 and 2021, respectively (dollars~~associated reserves will be adjusted based on changes in ~~thousands):~~

Three Months Ended
September 30, 2022 September 30, 2021
Pre- Post- Pre- Post-
Modification Modification Modification Modification
Outstanding Outstanding Outstanding Outstanding
Number of Recorded Recorded Number of Recorded Recorded
Contracts Investment Investment Contracts Investment Investment
Commercial and industrial — $ — $ — 1 $ 430 $ 430
   1-4 Family — — — — — —
   Hotels — — — — — —
   Multi-family — — — — — —
   Non Owner Non-Owner Occupied — — — — — —
   Non Owner Owner Occupied — — — — — —
Commercial real estate — — — — — —
Residential real estate 4 366 366 2 147 147
Home equity — — — — — —
Consumer — — — — — —
Total 4 $ 366 $ 366 3 $ 577 $ 577
the discounted cash flows resulting from the modification of the restructured loan.

~~Table of Contents~~

Nine Months Ended
September 30, 2022 September 30, 2021
Pre- Post- Pre- Post-
Modification Modification Modification Modification
Outstanding Outstanding Outstanding Outstanding
Number of Recorded Recorded Number of Recorded Recorded
Contracts Investment Investment Contracts Investment Investment
Commercial and industrial — $ — $ — 1 $ 430 $ 430
   1-4 Family — — — — — —
   Hotels — — — — — —
   Multi-family — — — — — —
   Non Owner Non-Owner Occupied — — — — — —
   Non Owner Owner Occupied — — — — — —
Commercial real estate — — — — — —
Residential real estate 12 1,277 1,277 11 705 705
Home equity 1 30 30 — — —
Consumer — — — — — —
Total 13 $ 1,307 $ 1,307 12 $ 1,135 $ 1,135

The TDRs above increased the allowance for credit losses by less than $0.1 million in each of the nine months ended September 30, 2022 and 2021 and resulted in no material charge-offs during those same time periods.

~~The Company had no material TDRs that subsequently defaulted during 2022.~~

Most TDRs above are reported due to filing Chapter 7 bankruptcy. Regulatory guidance requires that loans be accounted for as collateral-dependent loans when borrowers have filed Chapter 7 bankruptcy, the debt has been discharged by the bankruptcy court and the borrower has not reaffirmed the debt. The filing of bankruptcy is deemed to be evidence that the borrower is in financial difficulty and the discharge of debt by the bankruptcy court is deemed to be a concession granted to the borrower.

~~COVID-19 Pandemic~~

In March of 2020, in response to the COVID-19 pandemic, regulatory guidance was issued that clarified the accounting for loan modifications. Modifications of loan terms do not automatically result in a TDR. Short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not considered TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extension of repayment terms, or other delays that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time of modification. In addition, modifications or deferrals pursuant to the CARES Act do not represent TDRs. However, these deferrals do not absolve the company from performing its normal risk rating and therefore a loan could be current and have a less than satisfactory risk rating.

Through September 30, 2022, the Company granted deferrals of approximately $142 million to its mortgage customers. These deferral arrangements ranged from 30 days to 90 days. As of September 30, 2022, approximately $0.1 million of these loans were still deferring, while approximately $142 million have resumed making their normal loan payment. As of September 30, 2022, approximately $3 million of the loans previously deferred were previously and currently considered TDRs due to Chapter 7 bankruptcies. As of September 30, 2022, all outstanding commercial deferrals had resumed making their normal loan payment.

Credit Quality Indicators

All commercial loans within the portfolio are subject to internal risk rating. All non-commercial loans are evaluated based on payment history. The Company’s internal risk ratings for commercial loans are: Exceptional, Good, Acceptable,

~~Table of Contents~~

Pass/Watch, Special Mention, Substandard and Doubtful. Each internal risk rating is defined in the loan policy using the following criteria: balance sheet yields; ratios and leverage; cash flow spread and coverage; prior history; capability of management; market position/industry; potential impact of changing economic, legal, regulatory or environmental conditions; purpose; structure; collateral support; and guarantor support. Risk grades are generally assigned by the primary lending officer and are periodically evaluated by the Company’s internal loan review process. Based on an individual loan’s risk grade, estimated loss percentages are applied to the outstanding balance of the loan to determine the amount of expected loss.

The Company categorizes loans into risk categories based on relevant information regarding the customer’s debt service ability, capacity and overall collateral position, along with other economic trends and historical payment performance. The risk rating for each credit is updated when the Company receives current financial information, the loan is reviewed by the Company’s internal loan review and credit administration departments, or the loan becomes delinquent or impaired. The risk grades are updated a minimum of annually for loans rated Exceptional, Good, Acceptable, or Pass/Watch. Loans rated Special Mention, Substandard or Doubtful are reviewed at least quarterly. The Company uses the following definitions for its risk ratings:


Risk Rating			Description
Pass Ratings:
(a) Exceptional			Loans classified as exceptional are secured with liquid collateral conforming to the internal loan policy. Loans rated within this category pose minimal risk of loss to the bank.
(b) Good			Loans classified as good have similar characteristics that include a strong balance sheet, satisfactory debt service coverage ratios, strong management and/or guarantors, and little exposure to economic cycles. Loans in this category generally have a low chance of loss to the bank.
(c) Acceptable			Loans classified as acceptable have acceptable liquidity levels, adequate debt service coverage ratios, experienced management, and have average exposure to economic cycles. Loans within this category generally have a low risk of loss to the bank.
(d) Pass/watch			Loans classified as pass/watch have erratic levels of leverage and/or liquidity, cash flow is volatile and the borrower is subject to moderate economic risk. A borrower in this category poses a low to moderate risk of loss to the bank.
Special mention			Loans classified as special mention have a potential weakness(es) that deserves management’s close attention. The potential weakness could result in deterioration of the loan repayment or the bank’s credit position at some future date. A loan rated in this category poses a moderate loss risk to the bank.
Substandard			Loans classified as substandard reflect a customer with a well-defined weakness that jeopardizes the liquidation of the debt. Loans in this category have the possibility that the bank will sustain some loss if the deficiencies are not corrected and the bank’s collateral value is weakened by the financial deterioration of the borrower.
Doubtful			Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristics that make collection of the full contract amount highly improbable. Loans rated in this category are most likely to cause the bank to have a loss due to a collateral shortfall or a negative capital position.

2023

Table of Contents

Based on the most recent analysis performed, the risk category of loans by class of loans at ~~September~~June 30, 2023 and December 31, 2022 is as follows (in thousands):, with the loans acquired from Citizens categorized by their origination date:

Revolving
Term Loans Loans
Amortized Cost Basis by Origination Year and Risk Level Amortized
September 30, 2022 2022 2021 2020 2019 2018 Prior Cost Basis Total
Commercial and industrial
Pass $ 44,014 $ 92,804 $ 62,781 $ 27,681 $ 20,657 $ 11,699 $ 106,925 $ 366,561
Special mention — — 415 10 — 20 3,245 3,690
Substandard 962 221 466 1,294 287 1,585 669 5,484
Total $ 44,976 $ 93,025 $ 63,662 $ 28,985 $ 20,944 $ 13,304 $ 110,839 $ 375,735
December 31, 2021
Commercial and industrial
Pass $ 87,148 $ 82,946 $ 41,908 $ 27,355 $ 23,895 $ 6,755 $ 65,775 $ 335,782
Special mention 3 480 17 — 21 — 3,324 3,845
Substandard 319 1,531 1,574 510 395 1,550 678 6,557
Total $ 87,470 $ 84,957 $ 43,499 $ 27,865 $ 24,311 $ 8,305 $ 69,777 $ 346,184

September 30, 2022
Commercial real estate -
1-4 Family
Pass $ 21,898 $ 21,944 $ 13,001 $ 8,832 $ 5,042 $ 24,303 $ 11,042 $ 106,062
Special mention 231 172 117 — — 855 — 1,375
Substandard 85 — 267 62 — 1,859 — 2,273
Total $ 22,214 $ 22,116 $ 13,385 $ 8,894 $ 5,042 $ 27,017 $ 11,042 $ 109,710
December 31, 2021
Commercial real estate -
1-4 Family
Pass $ 26,425 $ 16,163 $ 10,659 $ 6,208 $ 4,250 $ 28,734 $ 10,877 $ 103,316
Special mention — 122 — — — 718 — 840
Substandard — 276 158 — 722 2,561 — 3,717
Total $ 26,425 $ 16,561 $ 10,817 $ 6,208 $ 4,972 $ 32,013 $ 10,877 $ 107,873


													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
June 30, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
Commercial and industrial
Pass	$	42,882	$	51,976	$	89,094	$	57,019	$	24,315	$	20,250	$	100,274	$	385,810
Special mention	369		1,566		785		2,770		—		—		21,849		27,339
Substandard	—		946		146		849		1,078		1,636		43		4,698
Total	$	43,251	$	54,488	$	90,025	$	60,638	$	25,393	$	21,886	$	122,166	$	417,847
YTD Gross Charge-offs	$	—	$	—	$	33	$	—	$	—	$	—	$	36	$	69



													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2022	2022		2021		2020		2019		2018		Prior		Cost Basis		Total
Commercial and industrial
Pass	$	51,268	$	91,097	$	60,251	$	26,356	$	19,497	$	6,917	$	109,645	$	365,031
Special mention	—		—		392		9		—		19		3,245		3,665
Substandard	955		203		1,025		1,175		224		1,533		79		5,194
Total	$	52,223	$	91,300	$	61,668	$	27,540	$	19,721	$	8,469	$	112,969	$	373,890

~~Table of Contents~~

Revolving
Term Loans Loans
Amortized Cost Basis by Origination Year and Risk Level Amortized
September 30, 2022 2022 2021 2020 2019 2018 Prior Cost Basis Total
Commercial real estate -
Hotels
Pass $ 86,192 $ 36,413 $ 12,455 $ 60,927 $ 20,708 $ 83,168 $ 327 $ 300,190
Special mention — — — 24,384 — — — 24,384
Substandard 120 29 3,252 — — 27,026 — 30,427
Total $ 86,312 $ 36,442 $ 15,707 $ 85,311 $ 20,708 $ 110,194 $ 327 $ 355,001
December 31, 2021
Commercial real estate -
Hotels
Pass $ 38,197 $ 16,183 $ 64,107 $ 21,222 $ 41,526 $ 55,895 $ 279 $ 237,409
Special mention 103 — 29,914 — — — — 30,017
Substandard 398 140 15,413 — 5,601 22,337 — 43,889
Total $ 38,698 $ 16,323 $ 109,434 $ 21,222 $ 47,127 $ 78,232 $ 279 $ 311,315

September 30, 2022
Commercial real estate -
Multi-family
Pass $ 13,223 $ 21,941 $ 66,147 $ 37,963 $ 2,208 $ 44,434 $ 465 $ 186,381
Special mention — — — — — — — —
Substandard — — — — — 59 — 59
Total $ 13,223 $ 21,941 $ 66,147 $ 37,963 $ 2,208 $ 44,493 $ 465 $ 186,440
December 31, 2021
Commercial real estate -
Multi-family
Pass $ 20,434 $ 78,837 $ 53,033 $ 2,264 $ 19,783 $ 38,918 $ 540 $ 213,809
Special mention — — 1,802 — — — — 1,802
Substandard — — — — — 66 — 66
Total $ 20,434 $ 78,837 $ 54,835 $ 2,264 $ 19,783 $ 38,984 $ 540 $ 215,677



													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
June 30, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
Commercial real estate -
1-4 Family
Pass	$	14,116	$	32,420	$	19,138	$	11,962	$	8,249	$	25,096	$	9,840	$	120,821
Special mention	—		223		—		111		—		777		—		1,111
Substandard	—		79		—		257		48		1,385		—		1,769
Total	$	14,116	$	32,722	$	19,138	$	12,330	$	8,297	$	27,258	$	9,840	$	123,701
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	80	$	—	$	80

~~Table of Contents~~

Revolving
Term Loans Loans
Amortized Cost Basis by Origination Year and Risk Level Amortized
September 30, 2022 2022 2021 2020 2019 2018 Prior Cost Basis Total
Commercial real estate -
Non Residential Non-Owner Occupied
Pass $ 73,299 $ 110,169 $ 90,963 $ 69,769 $ 88,428 $ 127,688 $ 2,794 $ 563,110
Special mention — 112 173 179 — — — 464
Substandard — 623 1 1,339 2,154 1,678 — 5,795
Total $ 73,299 $ 110,904 $ 91,137 $ 71,287 $ 90,582 $ 129,366 $ 2,794 $ 569,369
December 31, 2021
Commercial real estate -
Non Residential Non-Owner Occupied
Pass $ 144,927 $ 135,423 $ 85,296 $ 99,618 $ 33,770 $ 130,342 $ 2,655 $ 632,031
Special mention 119 183 186 257 — 138 — 883
Substandard 640 16 1,365 2,134 22 2,727 — 6,904
Total $ 145,686 $ 135,622 $ 86,847 $ 102,009 $ 33,792 $ 133,207 $ 2,655 $ 639,818
September 30, 2022
Commercial real estate -
Non Residential Owner Occupied
Pass $ 15,163 $ 36,723 $ 17,627 $ 23,224 $ 18,251 $ 45,742 $ 3,356 $ 160,086
Special mention — — — 335 — 506 114 955
Substandard 959 194 111 2,123 595 11,651 999 16,632
Total $ 16,122 $ 36,917 $ 17,738 $ 25,682 $ 18,846 $ 57,899 $ 4,469 $ 177,673
December 31, 2021
Commercial real estate -
Non Residential Owner Occupied
Pass $ 46,445 $ 28,535 $ 25,647 $ 22,197 $ 15,296 $ 37,809 $ 2,509 $ 178,438
Special mention — 30 2,744 42 319 2,295 — 5,430
Substandard 201 113 2,373 635 6,679 9,498 866 20,365
Total $ 46,646 $ 28,678 $ 30,764 $ 22,874 $ 22,294 $ 49,602 $ 3,375 $ 204,233

~~Table of Contents~~

Revolving
Term Loans Loans
Amortized Cost Basis by Origination Year and Risk Level Amortized
September 30, 2022 2022 2021 2020 2019 2018 Prior Cost Basis Total
Commercial real estate -
Total
Pass $ 209,774 $ 227,190 $ 200,192 $ 200,717 $ 134,638 $ 325,335 $ 17,983 $ 1,315,829
Special mention 231 284 290 24,897 — 1,362 114 27,178
Substandard 1,165 846 3,632 3,523 2,748 42,272 1,000 55,186
Total $ 211,170 $ 228,320 $ 204,114 $ 229,137 $ 137,386 $ 368,969 $ 19,097 $ 1,398,193
December 31, 2021
Commercial real estate -
Total
Pass $ 276,429 $ 275,141 $ 238,742 $ 151,509 $ 114,626 $ 291,696 $ 16,860 $ 1,365,003
Special mention 222 334 34,647 299 319 3,151 — 38,972
Substandard 1,238 546 19,308 2,769 13,023 37,191 866 74,941
Total $ 277,889 $ 276,021 $ 292,697 $ 154,577 $ 127,968 $ 332,038 $ 17,726 $ 1,478,916
September 30, 2022
Residential real estate
Performing $ 343,469 $ 346,053 $ 278,231 $ 126,762 $ 89,007 $ 401,056 $ 92,102 $ 1,676,680
Non-performing — 204 — 683 11 916 276 2,090
Total $ 343,469 $ 346,257 $ 278,231 $ 127,445 $ 89,018 $ 401,972 $ 92,378 $ 1,678,770
December 31, 2021
Residential real estate
Performing $ 375,465 $ 326,107 $ 155,829 $ 110,551 $ 87,870 $ 389,519 $ 100,815 $ 1,546,156
Non-performing — — 232 29 120 692 1,736 2,809
Total $ 375,465 $ 326,107 $ 156,061 $ 110,580 $ 87,990 $ 390,211 $ 102,551 $ 1,548,965

September 30, 2022
Home equity
Performing $ 13,409 $ 7,597 $ 5,176 $ 3,147 $ 2,010 $ 5,567 $ 93,793 $ 130,699
Non-performing — — — — — — 138 138
Total $ 13,409 $ 7,597 $ 5,176 $ 3,147 $ 2,010 $ 5,567 $ 93,931 $ 130,837
December 31, 2021
Home equity
Performing $ 9,008 $ 6,474 $ 3,582 $ 2,949 $ 1,431 $ 8,176 $ 90,685 $ 122,305
Non-performing — — — — — — 40 40
Total $ 9,008 $ 6,474 $ 3,582 $ 2,949 $ 1,431 $ 8,176 $ 90,725 $ 122,345

Table of Contents

Revolving
Term Loans Loans
Amortized Cost Basis by Origination Year and Risk Level Amortized
September 30, 2022 2022 2021 2020 2019 2018 Prior Cost Basis Total
Consumer
Performing $ 15,923 $ 8,913 $ 6,232 $ 4,960 $ 2,606 $ 1,800 $ 1,468 $ 41,902
Non-performing — — — — — — — —
Total $ 15,923 $ 8,913 $ 6,232 $ 4,960 $ 2,606 $ 1,800 $ 1,468 $ 41,902
December 31, 2021
Consumer
Performing $ 13,584 $ 9,545 $ 8,313 $ 4,920 $ 1,324 $ 1,624 $ 1,591 $ 40,901
Non-performing — — — — — — — —
Total $ 13,584 $ 9,545 $ 8,313 $ 4,920 $ 1,324 $ 1,624 $ 1,591 $ 40,901



													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2022	2022		2021		2020		2019		2018		Prior		Cost Basis		Total
Commercial real estate -
1-4 Family
Pass	$	31,331	$	21,640	$	12,565	$	8,609	$	4,826	$	22,949	$	11,107	$	113,027
Special mention	228		—		115		—		—		836		—		1,179
Substandard	83		—		264		56		—		1,583		—		1,986
Total	$	31,642	$	21,640	$	12,944	$	8,665	$	4,826	$	25,368	$	11,107	$	116,192


													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
June 30, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
Commercial real estate -
Hotels
Pass	$	8,517	$	83,971	$	34,707	$	3,568	$	59,410	$	99,832	$	310	$	290,315
Special mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		4,075		23,919		6,436		—		34,430
Total	$	8,517	$	83,971	$	34,707	$	7,643	$	83,329	$	106,268	$	310	$	324,745
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	40	$	—	$	40



													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2022	2022		2021		2020		2019		2018		Prior		Cost Basis		Total
Commercial real estate -
Hotels
Pass	$	85,590	$	35,849	$	12,275	$	60,429	$	14,921	$	90,686	$	323	$	300,073
Special mention	—		—		—		—		—		—		—		—
Substandard	—		—		3,593		24,229		—		12,509		—		40,331
Total	$	85,590	$	35,849	$	15,868	$	84,658	$	14,921	$	103,195	$	323	$	340,404

Table of Contents



													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
June 30, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
Commercial real estate -
Multi-family
Pass	$	2,893	$	21,103	$	28,583	$	65,180	$	39,785	$	32,616	$	1,323	$	191,483
Special mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Total	$	2,893	$	21,103	$	28,583	$	65,180	$	39,785	$	32,616	$	1,323	$	191,483
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—



													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2022	2022		2021		2020		2019		2018		Prior		Cost Basis		Total
Commercial real estate -
Multi-family
Pass	$	13,761	$	21,312	$	65,542	$	37,698	$	2,189	$	33,560	$	724	$	174,786
Special mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Total	$	13,761	$	21,312	$	65,542	$	37,698	$	2,189	$	33,560	$	724	$	174,786






													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
June 30, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
Commercial real estate -
Non Residential Non-Owner Occupied
Pass	$	30,872	$	146,949	$	123,450	$	76,398	$	72,911	$	179,771	$	8,213	$	638,564
Special mention	—		—		106		1,821		170		25,094		76		27,267
Substandard	1,254		—		579		2,451		1,404		2,402		—		8,090
Total	$	32,126	$	146,949	$	124,135	$	80,670	$	74,485	$	207,267	$	8,289	$	673,921
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Table of Contents



													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2022	2022		2021		2020		2019		2018		Prior		Cost Basis		Total
Commercial real estate -
Non Residential Non-Owner Occupied
Pass	$	110,501	$	108,290	$	89,943	$	68,027	$	87,413	$	113,287	$	2,781	$	580,242
Special mention	—		110		170		176		—		—		—		456
Substandard	—		601		—		1,330		2,089		1,244		2		5,266
Total	$	110,501	$	109,001	$	90,113	$	69,533	$	89,502	$	114,531	$	2,783	$	585,964



													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
June 30, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
Commercial real estate -
Non Residential Owner Occupied
Pass	$	19,237	$	31,842	$	44,475	$	17,755	$	23,595	$	60,487	$	3,722	$	201,113
Special mention	—		—		2,709		1,115		2,078		465		—		6,367
Substandard	—		929		387		108		1,795		11,039		1,114		15,372
Total	$	19,237	$	32,771	$	47,571	$	18,978	$	27,468	$	71,991	$	4,836	$	222,852
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—



													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2022	2022		2021		2020		2019		2018		Prior		Cost Basis		Total
Commercial real estate -
Non Residential Owner Occupied
Pass	$	21,782	$	36,186	$	17,216	$	22,274	$	17,622	$	39,861	$	3,238	$	158,179
Special mention	—		—		—		329		—		493		113		935
Substandard	943		193		110		2,479		772		10,350		1,000		15,847
Total	$	22,725	$	36,379	$	17,326	$	25,082	$	18,394	$	50,704	$	4,351	$	174,961

Table of Contents


													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
June 30, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
Commercial real estate -
Total
Pass	$	75,635	$	316,284	$	250,353	$	174,863	$	203,949	$	397,803	$	23,409	$	1,442,296
Special mention	—		223		2,815		3,047		2,248		26,336		76		34,745
Substandard	1,254		1,008		966		6,891		27,166		21,262		1,114		59,661
Total	$	76,889	$	317,515	$	254,134	$	184,801	$	233,363	$	445,401	$	24,599	$	1,536,702
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	120	$	—	$	120


													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2022	2022		2021		2020		2019		2018		Prior		Cost Basis		Total
Commercial real estate -
Total
Pass	$	262,965	$	223,277	$	197,541	$	197,037	$	126,971	$	300,343	$	18,173	$	1,326,307
Special mention	228		110		285		505		—		1,329		113		2,570
Substandard	1,026		794		3,967		28,094		2,861		25,686		1,002		63,430
Total	$	264,219	$	224,181	$	201,793	$	225,636	$	129,832	$	327,358	$	19,288	$	1,392,307


													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
June 30, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
Residential real estate
Performing	$	104,691	$	414,599	$	328,118	$	263,028	$	116,507	$	438,035	$	78,866	$	1,743,844
Non-performing	—		—		722		92		726		899		335		2,774
Total	$	104,691	$	414,599	$	328,840	$	263,120	$	117,233	$	438,934	$	79,201	$	1,746,618
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	52	$	—	$	52

													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2022	2022		2021		2020		2019		2018		Prior		Cost Basis		Total
Residential real estate
Performing	$	405,059	$	336,462	$	270,197	$	122,559	$	86,317	$	382,652	$	88,308	$	1,691,554
Non-performing	—		207		—		755		79		738		190		1,969
Total	$	405,059	$	336,669	$	270,197	$	123,314	$	86,396	$	383,390	$	88,498	$	1,693,523

Table of Contents



													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
June 30, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
Home equity
Performing	$	11,868	$	15,532	$	6,744	$	4,316	$	2,700	$	4,981	$	104,847	$	150,988
Non-performing	—		—		—		—		—		—		24		24
Total	$	11,868	$	15,532	$	6,744	$	4,316	$	2,700	$	4,981	$	104,871	$	151,012
YTD Gross Charge-offs	$	—	$	32	$	—	$	—	$	—	$	35	$	200	$	267



													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2022	2022		2021		2020		2019		2018		Prior		Cost Basis		Total
Home equity
Performing	$	16,670	$	7,394	$	5,000	$	3,035	$	1,823	$	5,116	$	95,224	$	134,262
Non-performing	—		—		—		—		—		—		55		55
Total	$	16,670	$	7,394	$	5,000	$	3,035	$	1,823	$	5,116	$	95,279	$	134,317



													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
June 30, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
Consumer
Performing	$	24,255	$	23,235	$	6,204	$	4,174	$	3,282	$	2,471	$	1,544	$	65,165
Non-performing	—		—		—		—		—		36		—		36
Total	$	24,255	$	23,235	$	6,204	$	4,174	$	3,282	$	2,507	$	1,544	$	65,201
YTD Gross Charge-offs	$	—	$	—	$	36	$	—	$	3	$	127	$	5	$	171



													Revolving
	Term Loans												Loans
	Amortized Cost Basis by Origination Year and Risk Level												Amortized
December 31, 2022	2022		2021		2020		2019		2018		Prior		Cost Basis		Total
Consumer
Performing	$	25,296	$	7,954	$	5,482	$	4,299	$	2,246	$	2,064	$	1,465	$	48,806
Non-performing	—		—		—		—		—		—		—		—
Total	$	25,296	$	7,954	$	5,482	$	4,299	$	2,246	$	2,064	$	1,465	$	48,806

Table of Contents

Note ~~F –~~G - Derivative Instruments

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company primarily utilizes non-hedging derivative financial instruments with commercial banking customers to facilitate their interest rate management strategies. For these instruments, the Company acts as an intermediary for its customers and has offsetting contracts with financial institution counterparties. Changes in the fair value of these underlying derivative contracts generally offset each other and do not significantly impact the Company's results of operations.

The following table summarizes the notional and fair value of these derivative instruments (in thousands):


		September 30, 2022				December 31, 2021					June 30, 2023				December 31, 2022
		Notional Amount		Fair Value		Notional Amount		Fair Value			Notional Amount		Fair Value		Notional Amount		Fair Value

Non-hedging interest rate derivatives:	Non-hedging interest rate derivatives:									Non-hedging interest rate derivatives:
Customer counterparties:	Customer counterparties:									Customer counterparties:
Loan interest rate swap - assets	Loan interest rate swap - assets	$	3,316	$	16	$	532,136	$	20,614	Loan interest rate swap - assets	$	27,463	$	1,458	$	28,238	$	1,298
Loan interest rate swap - liabilities	Loan interest rate swap - liabilities	650,074		69,345		138,138		3,560		Loan interest rate swap - liabilities	586,928		57,812		619,150		63,758

Non-hedging interest rate derivatives:	Non-hedging interest rate derivatives:									Non-hedging interest rate derivatives:
Financial institution counterparties:	Financial institution counterparties:									Financial institution counterparties:
Loan interest rate swap - assets	Loan interest rate swap - assets	662,005		70,894		147,644		3,867		Loan interest rate swap - assets	604,928		59,204		637,150		65,217
Loan interest rate swap - liabilities	Loan interest rate swap - liabilities	3,316		16		535,577		20,679		Loan interest rate swap - liabilities	27,463		1,458		28,238		1,298

The following table summarizes the change in fair value of these derivative instruments (in thousands):


		Three months ended September 30,				Nine months ended September 30,					Three months ended June 30,				Six months ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Change in Fair Value Non-Hedging Interest Rate Derivatives:	Change in Fair Value Non-Hedging Interest Rate Derivatives:									Change in Fair Value Non-Hedging Interest Rate Derivatives:
Other income (expense) - derivative assets	Other income (expense) - derivative assets	$	26,296	$	(3,999)	$	44,821	$	(22,138)	Other income (expense) - derivative assets	$	10,653	$	15,448	$	(5,477)	$	18,524
Other (expense) income - derivative liabilities	Other (expense) income - derivative liabilities	(26,296)		3,999		(44,821)		22,138		Other (expense) income - derivative liabilities	(10,653)		(15,448)		5,477		(18,524)
Other income (expense) - derivative liabilities	Other income (expense) - derivative liabilities	422		59		1,310		411		Other income (expense) - derivative liabilities	131		311		(67)		888

Certain financial instruments, including derivatives, may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements. The Company's derivative transactions with financial institution counterparties are generally executed under International Swaps and Derivative Association ("ISDA") master agreements which include "right of setoff" provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Nonetheless, the Company does not generally offset financial instruments for financial reporting purposes.

~~Table of Contents~~

Pursuant to the Company's agreements with certain of its derivative financial institution counterparties, the Company may receive collateral or post collateral, which may be in the form of cash or securities, based upon mark-to-mark positions. The Company has ~~posted~~received collateral with a value of ~~$92.1~~$75.7 million and ~~$34.8~~$83.0 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

Loans associated with a customer counterparty loan interest rate swap agreement may be subject to a make whole penalty upon termination of the agreement. The dollar amount of the make whole penalty varies based on the remaining term of the agreement and market rates at that time. The make whole penalty is secured by equity in the specific collateral securing the loan. The Company estimates the make whole penalty when determining if there is sufficient collateral to pay off both the potential make whole penalty and the outstanding loan balance at the origination of the loan. In the event of a customer default, the make whole penalty is capitalized into the existing loan balance; however, no guarantees can be made that the collateral will be sufficient to cover both the make whole provision and the outstanding loan balance at the time of foreclosure.

Fair Value Hedges

During the year ended December 31, 2020, the Company entered into a series of fair value hedge agreements to reduce the interest rate risk associated with the change in fair value of certain securities. The total notional amount of these agreements was $150 million and the amortized cost of the hedged assets was $~~336.2~~313.7 million and $~~363.6~~330.0 million as of ~~September~~June 30, ~~2022~~2023 and

Table of Contents

December 31, ~~2021,~~2022, respectively. During the ~~three and nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, the fair value hedge agreements were effective. The gains or losses on these hedges are recognized in current earnings as fair value changes. The fair value of these hedges was $16.3 million and $4.3 million at September 30, 2022 and December 31, 2021, respectively, and was included within other assets in the consolidated balance sheets.

The following table summarizes the financial statement impact of these derivative instruments (in thousands):


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
Investment securities available for sale, at fair value	Investment securities available for sale, at fair value	$	(16,323)	$	(4,711)	Investment securities available for sale, at fair value	$	(14,429)	$	(15,394)
Other assets	Other assets	16,269		4,308		Other assets	14,384		15,262
Cumulative adjustment to Interest and dividends on investment securities	Cumulative adjustment to Interest and dividends on investment securities	54		403		Cumulative adjustment to Interest and dividends on investment securities	45		132

During the six months ended June 30, 2023, the Company entered into a fair value hedge agreement to reduce the interest rate risk associated with the change in fair value of certain loans. The total notional amount of these agreements was $100 million. During the six months ended June 30, 2023, the fair value hedge agreements were effective. The gains or losses on these hedges are recognized in current earnings as fair value changes.

The following table summarizes the financial statement impact of these derivative instruments (in thousands):


	June 30, 2023
Gross loans	$	(2,066)
Other assets	2,050
Cumulative adjustment to Interest and fees on loans	16

Note ~~G –~~H - Employee Benefit Plans

Restricted Shares, Restricted Stock Units, Performance Share Units

The Company records compensation expense with respect to restricted shares, restricted stock units and performance share units in an amount equal to the fair value of the common stock covered by each award on the date of grant. These awards become fully vested after various periods of continued employment from the respective dates of grant. The Company is entitled to an income tax deduction in an amount equal to the taxable income reported by the holders of the restricted shares when the restrictions are released and the shares are issued. Compensation is being charged to expense over the respective vesting periods.

Restricted shares are forfeited if the ~~awardee~~awarded officer or employee terminates his employment with the Company prior to the lapsing of restrictions. The Company records forfeitures of restricted stock as treasury share repurchases and any compensation cost previously recognized is reversed in the period of forfeiture. Recipients of restricted shares do not pay any cash consideration to the Company for the shares, and, except for restricted stock units and performance share units, have the right to vote all shares subject to such grant and receive all dividends with respect to such shares, whether or not the shares have vested. For restricted shares and performance share units that have performance-based criteria, management has evaluated those criteria and has determined that, as of ~~September~~June 30, ~~2022,~~2023, the criteria were probable of being met.

~~Table of Contents~~

A summary of the Company’s restricted shares activity and related information is presented below:


		Nine months ended September 30,							Six months ended June 30,
		2022			2021				2023			2022
		Restricted Awards	Average Market Price at Grant		Restricted Awards	Average Market Price at Grant			Restricted Awards	Average Market Price at Grant		Restricted Awards	Average Market Price at Grant
Outstanding at January 1	Outstanding at January 1	146,755	$	72.16	158,554	$	67.40	Outstanding at January 1	140,606	$	73.87	146,755	$	72.16
Granted	Granted	38,512	77.21		43,451	76.37		Granted	35,663	91.90		33,159	77.54
Vested	Vested	(43,135)	71.89		(54,400)	60.69		Vested	(43,417)	73.02		(41,635)	72.54
Outstanding at September 30		142,132	$	73.86	147,605	$	72.23
Outstanding at June 30								Outstanding at June 30	132,852	$	78.06	138,279	$	73.58

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Information regarding stock-based compensation associated with restricted shares is provided in the following table (in thousands):


		Three months ended September 30,				Nine months ended September 30,					Three months ended June 30,				Six months ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Stock-based compensation expense associated with restricted shares	Stock-based compensation expense associated with restricted shares	$	738	$	717	$	2,083	$	2,192	Stock-based compensation expense associated with restricted shares	$	633	$	683	$	1,341	$	1,345

At period-end:	At period-end:					September 30, 2022				At period-end:					June 30, 2023
Unrecognized stock-based compensation expense associated with restricted shares	Unrecognized stock-based compensation expense associated with restricted shares					$	5,365			Unrecognized stock-based compensation expense associated with restricted shares					$	5,759
Weighted average period (in years) in which the above amount is expected to be recognized	Weighted average period (in years) in which the above amount is expected to be recognized					2.9				Weighted average period (in years) in which the above amount is expected to be recognized					3.15

Shares issued in conjunction with restricted stock awards are issued from available treasury shares. If no treasury shares are available, new shares would be issued from available authorized shares. During the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, all shares issued in connection with restricted stock awards were issued from available treasury stock.

Benefit Plans

The Company provides retirement benefits to its employees through the City Holding Company 401(k) Plan and Trust (the “401(k) Plan”), which is intended to be compliant with Employee Retirement Income Security Act (ERISA) section 404(c). The Company also maintains a frozen defined benefit pension plan (the “Defined Benefit Plan”), which was inherited from the Company's acquisition of the plan sponsor (Horizon Bancorp, Inc.).

The following table presents the components of the Company's net periodic benefit cost, which is included in the line item "other expenses" in the consolidated statements of income (in thousands):

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Components of net periodic cost:
Interest cost $ 90 $ 83 $ 271 $ 248
Expected return on plan assets (221) (237) (664) (646)
Net amortization and deferral 195 280 585 841
Net Periodic Pension Cost $ 64 $ 126 $ 192 $ 443

~~Note H –Commitments and Contingencies~~

~~COVID-19~~

The ongoing COVID-19 pandemic continues to create disruptions to the global economy and to the lives of individuals throughout the world. Given the ongoing and dynamic nature of the circumstances, it is not possible to accurately predict the extent, severity or duration of these conditions or when normal economic and operating conditions will resume. For this reason, the extent to which the COVID-19 pandemic affects the Company's business, operations and financial condition, as well as its regulatory capital and liquidity ratios, is highly uncertain and unpredictable and depends on, among other things, new information that may emerge concerning the scope, duration and severity of the COVID-19 pandemic, actions taken by


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Components of net periodic cost:
Interest cost	$	137	$	90	$	274	$	180
Expected return on plan assets	(210)		(221)		(420)		(442)
Net amortization and deferral	86		195		172		390
Net Periodic Pension Cost	$	13	$	64	$	26	$	128

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~~governmental authorities~~

Note I - Commitments and other parties in response to the pandemic, the scale of distribution and public acceptance of vaccines for COVID-19 and the effectiveness of such vaccines in stemming or stopping the spread of COVID-19 and the rise of any variants or new strains of the COVID-19 virus. Even after the COVID-19 pandemic subsides, it will likely take time for the U.S. economy to recover, and the length of the recovery period is unknown. The Company's business could be materially and adversely affected during any such recovery period.Contingencies

Credit-Related Financial Instruments

The Company is a party to certain financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. The Company has entered into agreements with certain customers to extend credit or provide a conditional commitment to provide payment on drafts presented in accordance with the terms of the underlying credit documents. The Company also provides overdraft protection to certain demand deposit customers that represent an unfunded commitment. Overdraft protection commitments, which are included with other commitments below, are uncollateralized and are paid at the Company’s discretion. Conditional commitments generally include standby and commercial letters of credit. Standby letters of credit represent an obligation of the Company to a designated third party contingent upon the failure of a customer of the Company to perform under the terms of the underlying contract between the customer and the third party. Commercial letters of credit are issued specifically to facilitate trade or commerce. Under the terms of a commercial letter of credit, drafts will be drawn when the underlying transaction is consummated, as intended, between the customer and a third party. The majority of the Company's commitments have variable interest rates. The funded portion of these financial instruments is reflected in the Company’s balance sheet, while the unfunded portion of these commitments is not reflected in the balance sheet.

The table below presents a summary of the contractual obligations of the Company resulting from significant commitments (in thousands):


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
Commitments to extend credit:	Commitments to extend credit:					Commitments to extend credit:
Home equity lines	Home equity lines	$	230,237	$	221,119	Home equity lines	$	249,262	$	232,295
Commercial real estate	Commercial real estate	66,925		50,760		Commercial real estate	58,494		53,226
Other commitments	Other commitments	237,371		242,250		Other commitments	304,940		257,222
Standby letters of credit	Standby letters of credit	5,136		6,023		Standby letters of credit	5,279		5,205
Commercial letters of credit	Commercial letters of credit	1,981		173		Commercial letters of credit	2,026		2,006

Loan commitments and standby and commercial letters of credit have credit risks essentially the same as those involved in extending loans to customers and are subject to the Company’s standard credit policies. Collateral is obtained based on management’s credit assessment of the customer. Management does not anticipate any material losses as a result of these commitments.

Litigation

In addition, the Company is engaged in various legal actions that it deems to be in the ordinary course of business. As these legal actions are resolved, the Company could realize positive and/or negative impact to its financial performance in the period in which these legal actions are ultimately resolved. There can be no assurance that current legal actions will have an immaterial impact on financial results, either positive or negative, or that no material legal actions may be presented in the future.

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Note ~~I –~~J - Accumulated Other Comprehensive (Loss) Income

The activity in accumulated other comprehensive (loss) income is presented in the tables below (in thousands). All amounts are shown net of tax, which is calculated using a combined federal and state income tax rate approximating 24%.


		Three months ended September 30,						Nine months ended September 30,							Three months ended June 30,						Six months ended June 30,

		Defined						Defined							Defined						Defined
		Benefit		Securities				Benefit		Securities					Benefit		Securities				Benefit		Securities
		Pension		Available-				Pension		Available-					Pension		Available-				Pension		Available-
		Plan		-for-Sale		Total		Plan		-for-Sale		Total			Plan		-for-Sale		Total		Plan		-for-Sale		Total
2022
2023														2023
Beginning Balance	Beginning Balance	$	(3,485)	$	(80,498)	$	(83,983)	$	(3,485)	$	17,745	$	14,260	Beginning Balance	$	(3,422)	$	(112,967)	$	(116,389)	$	(3,422)	$	(128,066)	$	(131,488)

Other comprehensive loss before reclassifications		—		(61,499)		(61,499)		—		(159,742)		(159,742)
Other comprehensive (loss) income before reclassifications														Other comprehensive (loss) income before reclassifications	—		(14,059)		(14,059)		—		1,628		1,628
Amounts reclassified from other comprehensive income														Amounts reclassified from other comprehensive income	—		—		—		—		(588)		(588)
		—		(61,499)		(61,499)		—		(159,742)		(159,742)			—		(14,059)		(14,059)		—		1,040		1,040

Ending Balance	Ending Balance	$	(3,485)	$	(141,997)	$	(145,482)	$	(3,485)	$	(141,997)	$	(145,482)	Ending Balance	$	(3,422)	$	(127,026)	$	(130,448)	$	(3,422)	$	(127,026)	$	(130,448)

2021
2022														2022
Beginning Balance	Beginning Balance	$	(5,661)	$	28,227	$	22,566	$	(5,661)	$	36,894	$	31,233	Beginning Balance	$	(3,485)	$	(41,229)	$	(44,714)	$	(3,485)	$	17,745	$	14,260

Other comprehensive loss before reclassifications		—		(7,349)		(7,349)		—		(15,779)		(15,779)
Amounts reclassified from other comprehensive income		—		—		—		—		(237)		(237)
Other comprehensive loss														Other comprehensive loss	—		(39,269)		(39,269)		—		(98,243)		(98,243)
		—		(7,349)		(7,349)		—		(16,016)		(16,016)			—		(39,269)		(39,269)		—		(98,243)		(98,243)

Ending Balance	Ending Balance	$	(5,661)	$	20,878	$	15,217	$	(5,661)	$	20,878	$	15,217	Ending Balance	$	(3,485)	$	(80,498)	$	(83,983)	$	(3,485)	$	(80,498)	$	(83,983)


		Amounts reclassified from Other Comprehensive (Loss) Income										Amounts reclassified from Other Comprehensive (Loss) Income
		Three months ended				Nine months ended				Affected line item		Three months ended				Six months ended				Affected line item
		September 30,								in the Consolidated Statements		June 30,								in the Consolidated Statements
		2022		2021		2022		2021		of Income		2023		2022		2023		2022		of Income

Securities available-for-sale:	Securities available-for-sale:										Securities available-for-sale:
Net securities gains reclassified into earnings	Net securities gains reclassified into earnings	$	—	$	—	$	—	$	312	Gains on sale of investment securities, net	Net securities gains reclassified into earnings	$	—	$	—	$	773	$	—	Gains on sale of investment securities, net
Related income tax expense	Related income tax expense	—		—		—		(75)		Income tax expense	Related income tax expense	—		—		(185)		—		Income tax expense
Net effect on accumulated other comprehensive (loss) income	Net effect on accumulated other comprehensive (loss) income	$	—	$	—	$	—	$	237		Net effect on accumulated other comprehensive (loss) income	$	—	$	—	$	588	$	—

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Note ~~J –~~K - Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share using the two class method (in thousands, except per share data):


		Three months ended September 30,				Nine months ended September 30,					Three months ended June 30,				Six months ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Net income available to common shareholders	Net income available to common shareholders	$	27,374	$	22,732	$	71,408	$	64,694	Net income available to common shareholders	$	32,733	$	22,683	$	57,074	$	44,025
Less: earnings allocated to participating securities	Less: earnings allocated to participating securities	(255)		(220)		(679)		(618)		Less: earnings allocated to participating securities	(291)		(203)		(505)		(403)
Net earnings allocated to common shareholders	Net earnings allocated to common shareholders	$	27,119	$	22,512	$	70,729	$	64,076	Net earnings allocated to common shareholders	$	32,442	$	22,480	$	56,569	$	43,622

Distributed earnings allocated to common stock	Distributed earnings allocated to common stock	$	9,564	$	8,726	$	27,220	$	26,177	Distributed earnings allocated to common stock	$	9,668	$	8,837	$	19,336	$	17,671
Undistributed earnings allocated to common stock	Undistributed earnings allocated to common stock	17,555		13,786		43,509		37,899		Undistributed earnings allocated to common stock	22,774		13,643		37,233		25,951
Net earnings allocated to common shareholders	Net earnings allocated to common shareholders	$	27,119	$	22,512	$	70,729	$	64,076	Net earnings allocated to common shareholders	$	32,442	$	22,480	$	56,569	$	43,622

Average shares outstanding	Average shares outstanding	14,776		15,279		14,878		15,501		Average shares outstanding	14,994		14,888		14,897		14,930
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Employee stock awards	Employee stock awards	24		23		23		25		Employee stock awards	18		21		22		24
Shares for diluted earnings per share	Shares for diluted earnings per share	14,800		15,302		14,901		15,526		Shares for diluted earnings per share	15,012		14,909		14,919		14,954

Basic earnings per share	Basic earnings per share	$	1.84	$	1.47	$	4.75	$	4.13	Basic earnings per share	$	2.16	$	1.51	$	3.80	$	2.92
Diluted earnings per share	Diluted earnings per share	$	1.83	$	1.47	$	4.75	$	4.13	Diluted earnings per share	$	2.16	$	1.51	$	3.79	$	2.92

Anti-dilutive options are not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares and therefore, the effect would have been anti-dilutive. Anti-dilutive options were not significant for any of the periods shown above.

Note ~~K –~~L - Fair Value Measurements

Fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

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

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

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

The Company bases fair value of assets and liabilities on quoted market prices, prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data. If such information is not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty creditworthiness, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities

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measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Financial Assets and Liabilities

The Company used the following methods and significant assumptions to estimate fair value for financial assets and liabilities measured on a recurring basis.

Securities Available for Sale. Securities available for sale are reported at fair value utilizing Level 1, Level 2, and Level 3 inputs. The fair value of securities available for sale is determined by utilizing a market approach by obtaining quoted prices on nationally recognized securities exchanges (other than forced or distressed transactions) that occur in sufficient volume or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. If such measurements are unavailable, the security is classified as Level 3. Significant judgment is required to make this determination.

The Company utilizes a third party pricing service provider to value its Level 1 and Level 2 investment securities. Annually, the Company obtains an independent auditor’s report from its third party pricing service provider regarding its controls over investment securities. On a quarterly basis, the Company reprices its debt securities with a third party that is independent of the primary pricing service provider to verify the reasonableness of the fair values.

Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The Company utilizes a market approach by obtaining dealer quotations to value its customer interest rate swaps. The Company’s derivatives are included within "other assets" and "other liabilities" in the accompanying consolidated balance sheets. Derivative assets are typically secured through securities with financial counterparties or cross collateralization with a borrowing customer. Derivative liabilities are typically secured by the Company pledging securities to financial counterparties or, in the case of a borrowing customer, by the right of setoff. The Company considers factors such as the likelihood of default by itself and its counterparties, right of setoff, and remaining maturities in determining the appropriate fair value adjustments. All derivative counterparties approved by the Company's Asset and Liability Committee ("ALCO") are regularly reviewed, and appropriate business action is taken to adjust the exposure to certain counterparties, if necessary. Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of marketable collateral securing the position. This approach used to estimate impacted exposures to counterparties is also used by the Company to estimate its own credit risk in derivative liability positions. To date, no material losses have been incurred due to a counterparty's inability to pay any undercollateralized position. There was no significant change in the value of derivative assets and liabilities attributed to credit risk that would have resulted in a derivative credit risk valuation adjustment at ~~September~~June 30, ~~2022.~~2023.

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The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis. Financial assets measured at fair value on a nonrecurring basis include individually evaluated loans reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 3 inputs based on observable market data for both real estate collateral and non-real estate collateral. The following table presents assets and liabilities measured at fair value (in thousands):


		Total		Level 1		Level 2		Level 3		Total Gains (Losses)			Total		Level 1		Level 2		Level 3		Total Gains (Losses)
September 30, 2022
June 30, 2023												June 30, 2023
Recurring fair value measurements	Recurring fair value measurements											Recurring fair value measurements
Financial Assets	Financial Assets											Financial Assets
Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	249,996	$	—	$	249,996	$	—			Obligations of states and political subdivisions	$	225,601	$	—	$	225,601	$	—
Mortgage-backed securities:	Mortgage-backed securities:											Mortgage-backed securities:
U.S. Government agencies	U.S. Government agencies	1,203,802		—		1,203,802		—				U.S. Government agencies	1,158,458		—		1,158,458		—
Private label	Private label	7,328		—		4,759		2,569				Private label	6,790		—		4,712		2,078
Trust preferred securities	Trust preferred securities	3,945		—		3,945		—				Trust preferred securities	4,192		—		4,192		—
Corporate securities	Corporate securities	24,321		—		24,321		—				Corporate securities	24,892		—		24,892		—
Marketable equity securities	Marketable equity securities	7,889		3,986		3,903		—				Marketable equity securities	7,637		3,551		4,086		—
Certificates of deposit held for investment	Certificates of deposit held for investment	996		—		996		—				Certificates of deposit held for investment	249		—		249		—
Derivative assets	Derivative assets	87,243		—		87,243		—				Derivative assets	77,148		—		77,148		—
Financial Liabilities	Financial Liabilities											Financial Liabilities
Derivative liabilities	Derivative liabilities	69,361		—		69,361		—				Derivative liabilities	59,270		—		59,270		—

Nonrecurring fair value measurements	Nonrecurring fair value measurements											Nonrecurring fair value measurements
Non-Financial Assets	Non-Financial Assets											Non-Financial Assets
Other real estate owned	Other real estate owned	1,071		—		—		1,071		(20)		Other real estate owned	874		—		—		874		29

December 31, 2021
December 31, 2022												December 31, 2022
Recurring fair value measurements	Recurring fair value measurements											Recurring fair value measurements
Financial Assets	Financial Assets											Financial Assets
Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	272,216	$	—	$	272,216	$	—			Obligations of states and political subdivisions	$	268,315	$	—	$	268,315	$	—
Mortgage-backed securities:	Mortgage-backed securities:											Mortgage-backed securities:
U.S. Government agencies	U.S. Government agencies	1,094,311		—		1,094,311		—				U.S. Government agencies	1,202,279		—		1,202,279		—
Private label	Private label	9,108		—		5,647		3,461				Private label	7,231		—		4,772		2,459
Trust preferred securities	Trust preferred securities	4,203		—		4,203		—				Trust preferred securities	3,828		—		3,828		—
Corporate securities	Corporate securities	28,327		—		28,327		—				Corporate securities	23,867		—		23,867		—
Marketable equity securities	Marketable equity securities	9,211		4,134		5,077		—				Marketable equity securities	7,569		3,851		3,718		—
Certificates of deposit held for investment	Certificates of deposit held for investment	996		—		996		—				Certificates of deposit held for investment	747		—		747		—
Derivative assets	Derivative assets	29,029		—		29,029		—				Derivative assets	81,838		—		81,838		—
Financial Liabilities	Financial Liabilities											Financial Liabilities
Derivative liabilities	Derivative liabilities	24,283		—		24,283		—				Derivative liabilities	65,056		—		65,056		—

Nonrecurring fair value measurements	Nonrecurring fair value measurements											Nonrecurring fair value measurements
Financial Assets
Loans individually evaluated		$	—	$	—	$	—	$	—	$	(478)
Non-Financial Assets	Non-Financial Assets											Non-Financial Assets
Other real estate owned	Other real estate owned	1,319		—		—		1,319		(2)		Other real estate owned	909		—		—		909		(90)

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The Company's financial assets and liabilities measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3) include individually evaluated loans that were remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for credit losses based upon the fair value of the underlying collateral (in thousands). The fair value of individually evaluated loans is estimated using one of several methods, including collateral value, liquidation value and discounted cash flows. The significant unobservable inputs used in the fair value measurement of collateral for collateral-dependent individually evaluated loans primarily relate to discounts applied to the customers’ reported amount of collateral. The amount of collateral discount depends upon the marketability of the underlying collateral. During the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, collateral discounts ranged from 10% to 30%. During the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, the Company had no Level 2 financial assets and liabilities that were measured on a nonrecurring basis.

Non-Financial Assets and Liabilities

The Company has no non-financial assets or liabilities measured at fair value on a recurring basis. Certain non-financial assets measured at fair value on a non-recurring basis include other real estate owned (“OREO”), which is measured at the lower of cost or fair value.

Fair Value of Financial Instruments

ASC Topic 825 “Financial Instruments,” as amended, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including discount rates and estimate of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. ASC Topic 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

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The following table represents the estimates of fair value of financial instruments (in thousands). For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as noninterest-bearing demand, interest-bearing demand and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.


		Carrying Amount		Fair Value		Level 1		Level 2		Level 3			Carrying Amount		Fair Value		Level 1		Level 2		Level 3
September 30, 2022
June 30, 2023												June 30, 2023
Assets:												Assets:
Cash and cash equivalents												Cash and cash equivalents	$	231,281	$	231,281	$	231,281	$	—	$	—
Securities available-for-sale												Securities available-for-sale	1,419,933		1,419,933		—		1,417,855		2,078
Marketable equity securities												Marketable equity securities	7,637		7,637		3,551		4,086		—
Net loans												Net loans	3,899,391		3,754,410		—		—		3,754,410
Accrued interest receivable												Accrued interest receivable	17,973		17,973		17,973		—		—
Derivative assets												Derivative assets	77,148		77,148		—		77,148		—

Liabilities:												Liabilities:
Deposits												Deposits	5,015,063		4,577,560		3,641,957		935,603		—
Customer repurchase agreements												Customer repurchase agreements	271,714		271,714		—		271,714		—
Long-term debt												Long-term debt	100,000		100,000		—		100,000		—
Accrued interest payable												Accrued interest payable	2,781		2,781		2,781		—		—
Derivative liabilities												Derivative liabilities	59,270		59,270		—		59,270		—

December 31, 2022												December 31, 2022
Assets:	Assets:											Assets:
Cash and cash equivalents	Cash and cash equivalents											Cash and cash equivalents	$	200,000	$	200,000	$	200,000	$	—	$	—
Securities available-for-sale	Securities available-for-sale	1,489,392		1,489,392		—		1,486,823		2,569		Securities available-for-sale	1,505,520		1,505,520		—		1,503,061		2,459
Marketable equity securities	Marketable equity securities	7,889		7,889		3,986		3,903		—		Marketable equity securities	7,569		7,569		3,851		3,718		—
Net loans	Net loans	3,611,741		3,521,447		—		—		3,521,447		Net loans	3,629,150		3,491,318		—		—		3,491,318
Accrued interest receivable	Accrued interest receivable	17,256		17,256		17,256		—		—		Accrued interest receivable	18,287		18,287		18,287		—		—
Derivative assets	Derivative assets	87,243		87,243		—		87,243		—		Derivative assets	81,838		81,838		—		81,838		—

Liabilities:	Liabilities:											Liabilities:
Deposits	Deposits	4,957,805		4,958,800		4,018,036		940,764		—		Deposits	4,869,866		4,867,883		3,981,766		886,117		—
Short-term debt	Short-term debt	304,807		304,807		—		304,807		—		Short-term debt	290,964		290,964		—		290,964		—
Accrued interest payable	Accrued interest payable	474		474		474		—		—		Accrued interest payable	953		953		953		—		—
Derivative liabilities	Derivative liabilities	69,361		69,361		—		69,361		—		Derivative liabilities	65,057		65,057		—		65,057		—

December 31, 2021
Assets:
Cash and cash equivalents		$	634,631	$	634,631	$	634,631	$	—	$	—
Securities available-for-sale		1,408,165		1,408,165		—		1,404,704		3,461
Marketable equity securities		9,211		9,211		4,134		5,077		—
Net loans		3,525,648		3,456,539		—		—		3,456,539
Accrued interest receivable		15,627		15,627		15,627		—		—
Derivative assets		29,029		29,029		—		29,029		—

Liabilities:
Deposits		4,925,336		4,926,724		3,856,421		1,070,303		—
Short-term debt		312,458		312,458		—		312,458		—
Accrued interest payable		600		600		600		—		—
Derivative liabilities		24,283		24,283		—		24,283		—

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Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies and Estimates

The accounting policies of the Company conform with U.S. generally accepted accounting principles and require management to make estimates and develop assumptions that affect the amounts reported in the financial statements and related footnotes. These estimates and assumptions are based on information available to management as of the date of the financial statements. Actual results could differ significantly from management’s estimates. As this information changes, management’s estimates and assumptions used to prepare the Company’s financial statements and related disclosures may also change. The most significant accounting policies followed by the Company are presented in Note One to the audited financial statements included in the Company’s ~~2021~~2022 Annual Report to Shareholders. The information included in this Quarterly Report on Form 10-Q, including the Consolidated Financial Statements, Notes to Consolidated Financial Statements, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, should be read in conjunction with the financial statements and notes thereto included in the ~~2021~~2022 Annual Report of the Company. Based on the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for credit losses and income taxes to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new information becomes available.

Allowance for Credit Losses

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off in the future. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level, or term, as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. These evaluations are conducted at least quarterly and more frequently if deemed necessary. Additionally, all commercial loans within the portfolio are subject to internal risk grading. Risk grades are generally assigned by the primary lending officer and are periodically evaluated by the Company’s internal loan review process.

In evaluating the appropriateness of its allowance for credit losses, the Company stratifies the loan portfolio into six major groupings. The Company has identified the following portfolio segments and measures the allowance for credit losses using the following methods:


Portfolio Segment			Measurement Method
Commercial and industrial			Migration
Commercial real estate:
1-4 family			Migration
Hotels			Migration
Multi-family			Migration
Non Residential Non-Owner Occupied			Migration
Non Residential Owner Occupied			Migration
Residential real estate			Vintage
Home equity			Vintage
Consumer			Vintage

Migration is an analysis that tracks a closed pool of loans for a configurable period of time and calculates a loss ratio on only those loans in the pool at the start date based on outstanding balance. Vintage is a predictive loss model that includes a reasonable approximation of probable and estimable future losses by tracking each loan's net losses over the life of the loan as compared to its original balance. For demand deposit overdrafts, the allowance for credit losses is measured using the historical loss rate. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. When management determines that foreclosure is probable, the expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

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Expected credit losses are estimated over the contractual term of the loan, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a ~~troubled-debt restructuring~~restructured loan will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

The Company uses a number of economic variables in its scenarios to estimate the ~~allowance~~Allowance for credit losses (ACL), with the most significant drivers being an unemployment rate forecast and qualitative adjustments. In the ~~September~~June 30, ~~2022~~2023 estimate, the Company assumed a 2-year unemployment forecast range of ~~3.8% to 5.0% compared to a forecast range of~~ 3.7% to ~~5.0% in the June 30, 2022 estimate. Based on sensitivity of the portfolio, the change had no impact on the reserve allocation. In the December~~4.9%, changed from 3.6% to 4.9% at March 31, ~~2021 estimate the Company assumed a forecast range of 3.5% to 5.2%.~~2023. Historical loss rates from periods where the average unemployment rate matches the forecast range are considered when calculating the forecast period loss rate. Based on sensitivity of the portfolio, the change had no material impact on the reserve.

Based on sensitivity analysis of all portfolios, a 0.0050% change (slight improvement or decline on bank's scale) in all 11 qualitative risk factors (where assigned) would have a ~~$1.9~~$2.0 million impact on the reserve allocation. Changing each factor by 0.01% (moderate improvement or decline) would have a ~~$3.8~~$4.1 million, impact. Management recognizes that these are extreme scenarios and it is very unlikely that all risk factors would change by 0.005% or 0.01% simultaneously. For the ~~September~~June 30, ~~2022~~2023 estimate, management maintained all qualitative factor adjustments assigned in the previous quarter.

Income Taxes

The Company is subject to federal and state income taxes in the jurisdictions in which it conducts business. In computing the provision for income taxes, management must make judgments regarding interpretation of laws in those jurisdictions. Because the application of tax laws and regulations for many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities. On a quarterly basis, the Company estimates its annual effective tax rate for the year and uses that rate to provide for income taxes on a year-to-date basis. The amount of unrecognized tax benefits could change over the next twelve months as a result of various factors. However, management cannot currently estimate the range of possible change. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and various state taxing authorities for the years ended December 31, ~~2018~~2019 and forward.

The effective tax rate is calculated by taking the statutory rate and adjusting for permanent and discrete items. The discrete items can vary between periods but historically have remained consistent.

Acquisition and Preliminary Purchase Price Allocation

The calculation of the Company's acquisition and preliminary purchase price allocation is considered a critical accounting estimate as it involves a significant level of estimation and uncertainty, particularly in relation to the fair value and goodwill calculations. Under GAAP, management has up to twelve months following the date of the acquisition to finalize the fair value of acquired assets and liabilities. The measurement period ends as soon as the Company receives information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. Any subsequent adjustments to the fair value of the acquired assets and liabilities, intangible assets or other purchase accounting adjustments will result in adjustments to the goodwill recorded.

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Financial Summary

~~Nine~~Six months ended ~~September~~June 30, ~~2022~~2023 vs. ~~2021~~2022

The Company's financial performance is summarized in the following table:


		Nine months ended September 30,							Six months ended June 30,
		2022			2021				2023			2022

Net income available to common shareholders (in thousands)	Net income available to common shareholders (in thousands)	$	71,408		$	64,694		Net income available to common shareholders (in thousands)	$	57,074		$	44,025
Earnings per common share, basic	Earnings per common share, basic	$	4.75		$	4.13		Earnings per common share, basic	$	3.80		$	2.92
Earnings per common share, diluted	Earnings per common share, diluted	$	4.75		$	4.13		Earnings per common share, diluted	$	3.79		$	2.92
Dividend payout ratio	Dividend payout ratio	38.9		%	42.1		%	Dividend payout ratio	34.3		%	41.1		%
ROA*	ROA*	1.59		%	1.47		%	ROA*	1.89		%	1.47		%
ROE*	ROE*	15.0		%	12.3		%	ROE*	18.3		%	13.6		%
ROATCE*	ROATCE*	18.3		%	14.8		%	ROATCE*	23.7		%	16.6		%
Average equity to average assets ratio	Average equity to average assets ratio	10.6		%	11.9		%	Average equity to average assets ratio	10.4		%	10.8		%

*ROA (Return on Average Assets) is a measure of the effectiveness of asset utilization. ROE (Return on Average Equity) is a measure of the return on shareholders' investment. ROATCE (Return on Average Tangible Common Equity) is a measure of the return on shareholders' equity, less intangible assets.

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The Company's net interest income for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 increased ~~$13.0~~$29.8 million compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 (see Net Interest Income). The Company recorded a ~~recovery of~~provision for credit losses of ~~$0.03~~$3.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to a recovery of credit losses of ~~$3.2~~$0.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 (see Allowance for Credit Losses). As further discussed under the caption Non-Interest Income and Non-Interest Expense, non-interest income increased ~~$1.5~~$3.6 million and non-interest expense increased ~~$3.2~~$13.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 from the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

Financial Summary

Three months ended ~~September~~June 30, ~~2022~~2023 vs. ~~2021~~2022

The Company's financial performance is summarized in the following table:


		Three months ended September 30,							Three months ended June 30,
		2022			2021				2023			2022

Net income available to common shareholders (in thousands)	Net income available to common shareholders (in thousands)	$	27,374		$	22,732		Net income available to common shareholders (in thousands)	$	32,733		$	22,683
Earnings per common share, basic	Earnings per common share, basic	$	1.84		$	1.47		Earnings per common share, basic	$	2.16		$	1.51
Earnings per common share, diluted	Earnings per common share, diluted	$	1.83		$	1.47		Earnings per common share, diluted	$	2.16		$	1.51
Dividend payout ratio	Dividend payout ratio	35.4		%	39.4		%	Dividend payout ratio	30.0		%	39.8		%
ROA*	ROA*	1.83		%	1.53		%	ROA*	2.12		%	1.51		%
ROE*	ROE*	17.7		%	13.1		%	ROE*	20.4		%	14.7		%
ROATCE*	ROATCE*	21.8		%	15.7		%	ROATCE*	27.4		%	18.1		%
Average equity to average assets ratio	Average equity to average assets ratio	10.3		%	11.7		%	Average equity to average assets ratio	10.4		%	10.3		%

The Company's net interest income for the three months ended ~~September~~June 30, ~~2022~~2023 increased ~~$9.3~~$14.2 million compared to the three months ended ~~September~~June 30, ~~2021~~2022 (see Net Interest Income). The Company recorded a ~~$0.7~~$0.4 provision for credit losses for the three months ended ~~September~~June 30, ~~2022~~2023 compared to ~~a $0.7 million recovery of~~no provision for credit losses for the three months ended ~~September~~June 30, ~~2021~~2022 (see Allowance for Credit Losses). As further discussed under the caption Non-Interest Income and Non-Interest Expense, ~~non-interest~~non-

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interest income increased ~~$0.3~~$2.5 million and non-interest expense increased ~~$2.3~~$4.1 million for the three months ended ~~September~~June 30, ~~2022~~2023 from the three months ended ~~September~~June 30, ~~2021.~~2022.

Balance Sheet Analysis

Selected balance sheet fluctuations from the year ended December 31, ~~2021~~2022 are summarized in the following table (in millions):


		September 30,		December 31,							June 30,	December 31,
		2022		2021		$ Change		% Change			2023	2022	$ Change		% Change

Investment securities		$	1,513.8	$	1,433.7	$	80.1	5.6	%
Cash and cash equivalents										Cash and cash equivalents	231.3	200.0	$	31.3	15.7	%
Total investment securities										Total investment securities	1,449.2	1,529.3	$	(80.1)	(5.2)	%
Gross loans	Gross loans	3,628.8		3,543.8		85.0		2.4	%	Gross loans	3,922.1	3,646.3	275.8		7.6	%
Goodwill and other intangible assets, net										Goodwill and other intangible assets, net	163.4	115.7	47.7		41.2	%

Total deposits	Total deposits	4,957.8		4,925.3		32.5		0.7	%	Total deposits	5,015.1	4,869.9	145.2		3.0	%
FHLB long-term advances										FHLB long-term advances	100.0	—	100.0		N/A

~~Investment securities~~Cash and cash equivalents increased ~~$80.1~~$31.3 million ~~(5.6%~~(15.7%) from December 31, ~~2021~~2022 to ~~$1.5 billion~~$231.3 million at ~~September~~June 30, ~~2022, as the Company elected~~2023, due to ~~invest a portion of its excess deposits into~~cash acquired from Citizens, decrease in investment ~~securities.~~balances, increase in deposit balances and increase in FHLB long-term advances which are partially offset by an increase in gross loans.

~~Gross loans increased $85.0~~Total investment securities decreased $80.1 million ~~(2.4%~~(5.2%) from December 31, ~~2021~~2022 to ~~$3.63~~$1.45 billion at ~~September~~June 30, ~~2022.~~ 2023, due to maturities and calls.

Gross loans increased $275.8 million (7.6%) from December 31, 2022 to $3.92 billion at June 30, 2023 primarily due to the Company’s acquisition of Citizens ($254.7 million). Excluding ~~outstanding PPP loans (included in~~ the ~~commercial and industrial loan category),~~acquisition, total loans increased ~~$91.5~~$21.2 million, ~~(2.6%~~(0.6%), from December 31, ~~2021~~2022 to ~~$3.63~~$3.67 billion at ~~September~~June 30, ~~2022. Residential~~2023. Commercial and industrial loans increased $29.3 million (7.8%), consumer loans increased $13.3 million (27.3%), and residential real estate loans increased ~~$129.8~~$9.7 million ~~(8.4%) and commercial and industrial loans (excluding PPP loans) increased $36.1 million (10.6%~~(0.6%). These increases were partially offset by ~~lower~~a decrease in commercial real estate loans ~~($80.7 million, or 5.5%).~~

~~Table~~ of ~~Contents~~$35.4 million.

~~Total deposits~~Goodwill and other intangible assets, net, increased ~~$32.5~~$47.7 million ~~(0.7%~~(41.2%) from December 31, ~~2021~~2022 to ~~$4.96~~$163.4 million at June 30, 2023, due to the acquisition of Citizens.

Total deposits increased $145.2 million (3.0%) from December 31, 2022 to $5.0 billion at ~~September~~June 30, 2023 due to the Company's acquisition of Citizens ($298.7 million). Excluding the acquisition, depository balances declined $153.5 million, or 3.2% from the quarter ended December 31, 2022. Savings deposit balances ~~increased $80.3~~decreased $123.9 million and noninterest-bearing demand deposit balances ~~increased $56.2 million, and demand deposit balances increased $25.1~~decreased $36.2 million. These ~~increases~~decreases were partially offset by ~~a $129.1 million decrease~~an increase in time deposit ~~balances.~~balances of $5.7 million and interest-bearing demand deposit balances of $0.9 million.

FHLB long-term advances increased $100.0 million from December 31, 2022 to June 30, 2023. During the second quarter of 2023, the Company borrowed $100.0 million from the Federal Home Loan Bank at a weighted average rate of 4.01%.

Net Interest Income

~~Nine~~Six months ended ~~September~~June 30, ~~2022~~2023 vs. ~~2021~~2022

The Company’s net interest income increased from $79.2 million for the six months ended June 30, 2022 to $109.0 million for the six months ended June 30, 2023. The Company’s tax equivalent net interest income increased ~~$13.0~~$29.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. An increase in average investment securities ($~~214~~38.7 million) resulted in ~~$3.5~~$9.4 million in additional interest income. AnThe acquisition of Citizens added $3.9 million of net interest income during the six months ended June 30, 2023. Due to increases in the Federal Funds rate, net interest income increased by $26.8 million due to an increase in loan yields (net of loan fees and accretion) of 150 basis points and by $9.1 million due to an increase in investment yields of 17120 basis points. In addition, an increase of 396 basis points ~~and 19 basis points, respectively, due to recent increases~~ in the ~~Federal Funds rate, added $4.3 million and $2.3 million in interest income, respectively. The~~ yield on deposits in depository institutions increased ~~by 69 basis points which increased~~ net interest income by ~~$2.2 million. Lower rates paid on time deposits (a decrease of 35 basis points) and lower time deposit balances decreased interest expense by $2.6~~$3.8 million and ~~$1.0~~an increase in average loans ($94.7 million) added $2.0 million ~~respectively.~~to interest income These increases were partially offset by ~~lower loan fees~~ an increase in the cost of interest bearing liabilities (86 basis points)

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which decreased net interest income by ~~$1.8 million (due to a decrease in PPP loan fees) and lower accretion, which decreased interest income by $0.7~~$16.2 million. The Company’s reported net interest margin increased from ~~2.87%~~2.93% for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 to ~~3.14%~~4.02% for the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023.

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Table One

Average Balance Sheets and Net Interest Income

(in thousands)


Assets	Assets	Nine months ended September 30,												Assets	Six months ended June 30,
		2022						2021							2023						2022
		Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate

Loan portfolio(1):	Loan portfolio(1):													Loan portfolio(1):
Residential real estate(2)	Residential real estate(2)	$	1,728,557	$	49,299	3.81	%	$	1,669,324	$	48,801	3.91	%	Residential real estate(2)	$	1,869,375	$	41,707	4.50	%	$	1,697,727	$	31,892	3.79	%
Commercial, financial, and agriculture(2)	Commercial, financial, and agriculture(2)	1,788,784		52,044		3.89		1,833,744		50,044		3.65		Commercial, financial, and agriculture(2)	1,866,177		56,001		6.05		1,801,999		31,952		3.58
Installment loans to individuals(2),(3)	Installment loans to individuals(2),(3)	44,122		1,921		5.82		50,898		2,140		5.62		Installment loans to individuals(2),(3)	63,229		1,648		5.26		43,916		1,238		5.68
Previously securitized loans(4)		***		311		***		***		414		***

Total loans	Total loans	3,561,463		103,575		3.89		3,553,966		101,399		3.81		Total loans	3,798,781		99,356		5.27		3,543,642		65,082		3.70
Securities:	Securities:													Securities:
Taxable	Taxable	1,279,086		23,327		2.44		1,043,269		17,318		2.22		Taxable	1,312,118		23,567		3.62		1,238,361		13,770		2.24
Tax-exempt~~(5)~~(4)	Tax-exempt~~(5)~~(4)	221,035		4,620		2.79		243,146		4,811		2.65		Tax-exempt~~(5)~~(4)	188,984		2,674		2.85		223,992		3,065		2.76
Total securities	Total securities	1,500,121		27,947		2.49		1,286,415		22,129		2.30		Total securities	1,501,102		26,241		3.53		1,462,353		16,835		2.32
Deposits in depository institutions	Deposits in depository institutions	422,714		2,549		0.81		562,272		474		0.11		Deposits in depository institutions	192,266		4,176		4.38		490,445		1,020		0.42
Total interest-earning assets	Total interest-earning assets	5,484,298		134,071		3.27		5,402,653		124,002		3.07		Total interest-earning assets	5,492,149		129,773		4.76		5,496,440		82,937		3.04
Cash and due from banks	Cash and due from banks	95,105						91,073						Cash and due from banks	69,931						102,171
Bank premises and equipment	Bank premises and equipment	72,964						76,481						Bank premises and equipment	72,441						73,354
Goodwill and intangible assets	Goodwill and intangible assets	116,643						118,084						Goodwill and intangible assets	144,305						116,818
Other assets	Other assets	251,071						214,872						Other assets	320,646						237,115
Less: allowance for credit losses	Less: allowance for credit losses	(17,807)						(22,989)						Less: allowance for credit losses	(20,608)						(18,103)
Total assets	Total assets	$	6,002,274					$	5,880,174					Total assets	$	6,078,864					$	6,007,795

Liabilities	Liabilities													Liabilities
Interest-bearing demand deposits	Interest-bearing demand deposits	$	1,149,899	$	550	0.06	%	$	1,057,452	$	373	0.05	%	Interest-bearing demand deposits	$	1,282,009	$	4,514	0.71	%	$	1,149,277	$	278	0.05	%
Savings deposits	Savings deposits	1,415,563		715		0.07		1,275,211		516		0.05		Savings deposits	1,371,077		3,290		0.48		1,407,416		357		0.05
Time deposits(2)	Time deposits(2)	1,005,356		3,168		0.42		1,181,166		6,806		0.77		Time deposits(2)	932,606		6,453		1.40		1,026,149		2,214		0.44
Short-term borrowings		278,211		677		0.33		292,845		357		0.16
Customer repurchase agreements														Customer repurchase agreements	288,092		5,344		3.74		282,228		238		0.17
FHLB long-term advances														FHLB long-term advances	33,149		649		3.95		—		—		—
Total interest-bearing liabilities	Total interest-bearing liabilities	3,849,029		5,110		0.18		3,806,674		8,052		0.28		Total interest-bearing liabilities	3,906,933		20,250		1.05		3,865,070		3,087		0.16
Noninterest-bearing demand deposits	Noninterest-bearing demand deposits	1,429,887						1,289,247						Noninterest-bearing demand deposits	1,420,221						1,417,060
Other liabilities	Other liabilities	86,585						82,953						Other liabilities	122,709						79,610
Stockholders’ equity	Stockholders’ equity	636,773						701,300						Stockholders’ equity	629,001						646,055
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	6,002,274					$	5,880,174					Total liabilities and stockholders’ equity	$	6,078,864					$	6,007,795
Net interest income	Net interest income			$	128,961					$	115,950			Net interest income			$	109,524					$	79,850
Net yield on earning assets	Net yield on earning assets					3.14	%					2.87	%	Net yield on earning assets					4.02	%					2.93	%

3945

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(1)	(1)	For purposes of this table, non-accruing loans have been included in average balances and the following amounts (in thousands) of net loan fees have been included in interest income:							(1)	For purposes of this table, non-accruing loans have been included in average balances and the following amounts (in thousands) of net loan fees have been included in interest income:

		Loan fees (includes PPP fees)	$	609			$	2,443		Loan fees, net	$	911	$	301

(2)	(2)	Included in the above table are the following amounts (in thousands) for the accretion of the fair value adjustments related to the Company's acquisitions:							(2)	Included in the above table are the following amounts (in thousands) for the accretion of the fair value adjustments related to the Company's acquisitions:

			2022		2021						2023		2022
		Residential real estate	$	231	472					Residential real estate	$	117	167
		Commercial, financial and agriculture	507		956					Commercial, financial and agriculture	855		404
		Installment loans to individuals	41		72					Installment loans to individuals	11		34
		Time deposits	62		145					Time deposits	164		41
			$	841	$	1,645					$	1,147	$	646

(3)	(3)	Includes the Company’s consumer and DDA overdrafts loan categories.							(3)	Includes the Company’s consumer and DDA overdrafts loan categories.
(4)	(4)	Effective January 1, 2012, the carrying value of the Company's previously securitized loans was reduced to $0.							(4)	Computed on a fully federal tax-equivalent basis assuming a tax rate of approximately 21%.
(5)		Computed on a fully federal tax-equivalent basis assuming a tax rate of approximately 21%.

Table Two

Rate/Volume Analysis of Changes in Interest Income and Interest Expense

(in thousands)


		Nine months ended September 30, 2022 vs. 2021							Six months ended June 30, 2023 vs. 2022
Interest-earning assets:	Interest-earning assets:	Increase (Decrease) Due to Change In:						Interest-earning assets:	Increase (Decrease) Due to Change In:
		Volume		Rate		Net			Volume		Rate		Net

Loan portfolio	Loan portfolio							Loan portfolio
Residential real estate	Residential real estate	$	1,732	$	(1,234)	$	498	Residential real estate	$	3,224	$	6,591	$	9,815
Commercial, financial, and agriculture	Commercial, financial, and agriculture	(1,227)		3,227		2,000		Commercial, financial, and agriculture	1,138		22,911		24,049
Installment loans to individuals	Installment loans to individuals	(285)		66		(219)		Installment loans to individuals	544		(134)		410
Previously securitized loans		—		(103)		(103)

Total loans	Total loans	220		1,956		2,176		Total loans	4,906		29,368		34,274
Securities:	Securities:							Securities:
Taxable	Taxable	3,915		2,094		6,009		Taxable	820		8,977		9,797
Tax-exempt(1)	Tax-exempt(1)	(437)		246		(191)		Tax-exempt(1)	(479)		88		(391)
Total securities	Total securities	3,478		2,340		5,818		Total securities	341		9,065		9,406
Deposits in depository institutions	Deposits in depository institutions	(118)		2,193		2,075		Deposits in depository institutions	(620)		3,776		3,156
Total interest-earning assets	Total interest-earning assets	$	3,580	$	6,489	$	10,069	Total interest-earning assets	$	4,627	$	42,209	$	46,836
Interest-bearing liabilities:	Interest-bearing liabilities:							Interest-bearing liabilities:
Interest-bearing demand deposits	Interest-bearing demand deposits	$	33	$	144	$	177	Interest-bearing demand deposits	$	32	$	4,203	$	4,235
Savings deposits	Savings deposits	57		142		199		Savings deposits	(9)		2,942		2,933
Time deposits	Time deposits	(1,013)		(2,625)		(3,638)		Time deposits	(202)		4,441		4,239
Short-term borrowings		(18)		338		320
Customer repurchase agreements								Customer repurchase agreements	5		5,101		5,106
FHLB long-term advances								FHLB long-term advances	649		—		649
Total interest-bearing liabilities	Total interest-bearing liabilities	(941)		(2,001)		(2,942)		Total interest-bearing liabilities	475		16,687		17,162
Net Interest Income	Net Interest Income	$	4,521	$	8,490	$	13,011	Net Interest Income	$	4,152	$	25,522	$	29,674

(1)Computed on a fully federal tax-equivalent basis assuming a tax rate of approximately 21%.

Net Interest Income

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~~Net Interest Income~~

Three months ended ~~September~~June 30, ~~2022~~2023 vs. ~~2021~~2022

The Company’s net interest income increased from $41.3 million for the three months ended June 30, 2022 to $55.5 million for the three months ended June 30, 2023.The Company’s tax equivalent net interest income increased $14.1 million, or 34.0%, from ~~$39.8~~$41.6 million for the ~~third~~second quarter of ~~2021~~2022 to ~~$49.1~~$55.8 million for the ~~third~~second quarter of ~~2022. Net~~2023. The acquisition of Citizens added $2.9 million of net interest income during the quarter ended June 30, 2023. Due to increases in the Federal Funds rate, net interest income increased by ~~$4.9~~$13.5 million ~~and $2.4 million, respectively,~~ due to an increase in loan yields (net of loan fees and accretion) of 149 basis points and by $4.0 million due to an increase in investment yields of 55108 basis points. In addition, an increase of 392 basis points ~~and 58 basis points, respectively, due to recent increases~~ in the Federal Funds rate. An increase in average investment securities ($192 million) and average loan balances ($61 million) increased interest income by $1.0 million and $0.7 million, respectively. In addition, the yield on deposits in depository institutions increased ~~by 196 basis points which increased~~ net interest income by ~~$1.4 million.~~$2.2 million and an increase in average loans ($81.9 million) added $0.8 million to interest income These increases were partially offset by ~~lower loan fees,~~an increase in the cost of interest bearing liabilities (106 basis points) which decreased net interest income by ~~$0.8~~$9.9 million. The Company’s reported net interest margin increased from ~~2.89%~~3.04% for the ~~third~~second quarter of ~~2021~~2022 to ~~3.57%~~4.00% for the ~~third~~second quarter of ~~2022.~~2023.

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Table One

Average Balance Sheets and Net Interest Income

(in thousands)


Assets	Three months ended June 30,
	2023						2022
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate

Loan portfolio(1):
Residential real estate(2)	$	1,894,269	$	21,702	4.60	%	$	1,730,617	$	16,156	3.74	%
Commercial, financial, and agriculture(2)	1,933,238		29,754		6.17		1,785,511		16,421		3.69
Installment loans to individuals(2),(3)	68,777		898		5.24		43,585		631		5.81
Total loans	3,896,284		52,354		5.39		3,559,713		33,208		3.74
Securities:
Taxable	1,301,063		11,794		3.64		1,269,049		7,548		2.39
Tax-exempt(4)	174,410		1,203		2.77		215,603		1,526		2.84
Total securities	1,475,473		12,997		3.53		1,484,652		9,074		2.45
Deposits in depository institutions	224,064		2,585		4.63		441,239		781		0.71
Total interest-earning assets	5,595,821		67,936		4.87		5,485,604		43,063		3.15
Cash and due from banks	71,949						102,532
Bank premises and equipment	73,450						72,887
Goodwill and intangible assets	163,847						116,645
Other assets	313,925						256,354
Less: allowance for credit losses	(23,046)						(17,755)
Total assets	$	6,195,946					$	6,016,267

Liabilities
Interest-bearing demand deposits	$	1,328,520	$	2,773	0.84	%	$	1,156,200	$	148	0.05	%
Savings deposits	1,365,894		1,942		0.57		1,430,121		182		0.05
Time deposits(2)	962,299		3,852		1.61		1,004,356		999		0.40
Customer repurchase agreements	294,255		2,963		4.04		288,031		123		0.17
FHLB long-term advances	65,934		649		3.95		—		—		—
Total interest-bearing liabilities	4,016,902		12,179		1.22		3,878,708		1,452		0.15
Noninterest-bearing demand deposits	1,419,771						1,435,256
Other liabilities	116,083						85,075
Shareholders’ equity	643,190						617,228
Total liabilities and shareholders’ equity	$	6,195,946					$	6,016,267
Net interest income			$	55,757					$	41,611
Net yield on earning assets					4.00	%					3.04	%

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(1)	For purposes of this table, non-accruing loans have been included in average balances and the following amounts (in thousands) of net loan fees have been included in interest income:

		2023		2022
	Loan fees, net	$	393	$	3

(2)	Included in the above table are the following amounts (in thousands) for the accretion of the fair value adjustments related to the Company's acquisitions:

		2023		2022
	Residential real estate	$	78	$	77
	Commercial, financial and agriculture	709		118
	Installment loans to individuals	8		15
	Time deposits	154		21
		$	949	$	231

(3)	Includes the Company’s consumer and DDA overdrafts loan categories.
(4)	Computed on a fully federal tax-equivalent basis assuming a tax rate of 21%.

Table Two

Rate/Volume Analysis of Changes in Interest Income and Interest Expense

(in thousands)


	Three months ended June 30, 2023 vs. 2022
Interest-earning assets:	Increase (Decrease) Due to Change In:
	Volume		Rate		Net

Loan portfolio
Residential real estate	$	1,528	$	4,018	$	5,546
Commercial, financial, and agriculture	1,359		11,974		13,333
Installment loans to individuals	365		(98)		267
Total loans	3,252		15,894		19,146
Securities:
Taxable	190		4,056		4,246
Tax-exempt(1)	(292)		(31)		(323)
Total securities	(102)		4,025		3,923
Deposits in depository institutions	(384)		2,188		1,804
Total interest-earning assets	$	2,766	$	22,107	$	24,873
Interest-bearing liabilities:
Interest-bearing demand deposits	$	22	$	2,603	$	2,625
Savings deposits	(8)		1,768		1,760
Time deposits	(42)		2,895		2,853
Customer repurchase agreements	3		2,837		2,840
Long-term debt	649		0		649
Total interest-bearing liabilities	$	624	$	10,103	$	10,727
Net Interest Income	$	2,142	$	12,004	$	14,146

(1) Computed on a fully federal taxable equivalent using a tax rate of 21%.

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Non-GAAP Financial Measures

Management of the Company uses measures in its analysis of the Company's performance other than those in accordance with generally accepted accounting principles in the United States of America ("GAAP"). These measures are useful when evaluating the underlying performance of the Company's operations. The Company's management believes that these non-GAAP measures enhance comparability of results with prior periods and demonstrate the effects of significant gains and charges in the current period. The Company's management believes that investors may use these non-GAAP financial measures to evaluate the Company's financial performance without the impact of those items that may obscure trends in the Company's performance. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they comparable to non-GAAP financial measures that may be presented by other companies. The following table reconciles fully taxable equivalent net interest income with net interest income as derived from the Company's financial statements, as well as other non-GAAP measures (dollars in thousands):


	Three months ended June 30,						Six months ended June 30,
	2023			2022				2023			2022

Net interest income ("GAAP")	$	55,502		$	41,290			$	108,961		$	79,206
Taxable equivalent adjustment	255			321				563			644
Net interest income, fully taxable equivalent	$	55,757		$	41,611			$	109,524		$	79,850

Equity to assets ("GAAP")	10.35		%	9.48		%
Effect of goodwill and other intangibles, net	(2.45)			(1.72)
Tangible common equity to tangible assets	7.90		%	7.76		%

Return on average tangible equity ("GAAP")	27.4		%	18.1		%		23.7		%	16.6		%
Impact of merger related expenses	—			—				1.8			—
Impact of merger related provision	—			—				0.7			—
Return on tangible equity, excluding merger related expenses and provision	27.4		%	18.1		%		26.2		%	16.6		%

Return on assets ("GAAP")	2.12		%	1.51		%		1.89		%	1.47		%
Impact of merger related expenses	—			—				0.15			—
Impact of merger related provision	—			—				0.05			—
Return on assets, excluding merger related expenses and provision	2.12		%	1.51		%		2.09		%	1.47		%

Efficiency ratio	44.6		%	50.5		%		49.0		%	51.1		%
Impact of merger expenses	—			—				3.8			—
Efficiency ratio, net of merger expenses	44.6		%	50.5		%		45.2		%	51.1		%

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Loans

Allowance for Credit Losses


Portfolio Segment			Measurement Method
Commercial and industrial			Migration
Commercial real estate:
1-4 family			Migration
Hotels			Migration
Multi-family			Migration
Non Residential Non-Owner Occupied			Migration
Non Residential Owner Occupied			Migration
Residential real estate			Vintage
Home equity			Vintage
Consumer			Vintage

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Expected credit losses are estimated over the contractual term of the loan, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a restructured loan will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

The Company uses a number of economic variables in its scenarios to estimate the Allowance for credit losses (ACL), with the most significant drivers being an unemployment rate forecast and qualitative adjustments. In the June 30, 2023 estimate, the Company assumed a 2-year unemployment forecast range of 3.7% to 4.9%, changed from 3.6% to 4.9% at March 31, 2023. Historical loss rates from periods where the average unemployment rate matches the forecast range are considered when calculating the forecast period loss rate. Based on sensitivity of the portfolio, the change had no material impact on the reserve.

Based on sensitivity analysis of all portfolios, a 0.0050% change (slight improvement or decline on bank's scale) in all 11 qualitative risk factors (where assigned) would have a $2.0 million impact on the reserve allocation. Changing each factor by 0.01% (moderate improvement or decline) would have a $4.1 million, impact. Management recognizes that these are extreme scenarios and it is very unlikely that all risk factors would change by 0.005% or 0.01% simultaneously. For the June 30, 2023 estimate, management maintained all qualitative factor adjustments assigned in the previous quarter.

Income Taxes

Acquisition and Preliminary Purchase Price Allocation

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Financial Summary

Six months ended June 30, 2023 vs. 2022

The Company's financial performance is summarized in the following table:


	Six months ended June 30,
	2023			2022

Net income available to common shareholders (in thousands)	$	57,074		$	44,025
Earnings per common share, basic	$	3.80		$	2.92
Earnings per common share, diluted	$	3.79		$	2.92
Dividend payout ratio	34.3		%	41.1		%
ROA*	1.89		%	1.47		%
ROE*	18.3		%	13.6		%
ROATCE*	23.7		%	16.6		%
Average equity to average assets ratio	10.4		%	10.8		%

The Company's net interest income for the six months ended June 30, 2023 increased $29.8 million compared to the six months ended June 30, 2022 (see Net Interest Income). The Company recorded a provision for credit losses of $3.3 million for the six months ended June 30, 2023 compared to a recovery of credit losses of $0.8 million for the six months ended June 30, 2022 (see Allowance for Credit Losses). As further discussed under the caption Non-Interest Income and Non-Interest Expense, non-interest income increased $3.6 million and non-interest expense increased $13.2 million for the six months ended June 30, 2023 from the six months ended June 30, 2022.

Financial Summary

Three months ended June 30, 2023 vs. 2022

The Company's financial performance is summarized in the following table:


	Three months ended June 30,
	2023			2022

Net income available to common shareholders (in thousands)	$	32,733		$	22,683
Earnings per common share, basic	$	2.16		$	1.51
Earnings per common share, diluted	$	2.16		$	1.51
Dividend payout ratio	30.0		%	39.8		%
ROA*	2.12		%	1.51		%
ROE*	20.4		%	14.7		%
ROATCE*	27.4		%	18.1		%
Average equity to average assets ratio	10.4		%	10.3		%

The Company's net interest income for the three months ended June 30, 2023 increased $14.2 million compared to the three months ended June 30, 2022 (see Net Interest Income). The Company recorded a $0.4 provision for credit losses for the three months ended June 30, 2023 compared to no provision for credit losses for the three months ended June 30, 2022 (see Allowance for Credit Losses). As further discussed under the caption Non-Interest Income and Non-Interest Expense, non-

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interest income increased $2.5 million and non-interest expense increased $4.1 million for the three months ended June 30, 2023 from the three months ended June 30, 2022.

Balance Sheet Analysis

Selected balance sheet fluctuations from the year ended December 31, 2022 are summarized in the following table (in millions):


	June 30,	December 31,
	2023	2022	$ Change		% Change

Cash and cash equivalents	231.3	200.0	$	31.3	15.7	%
Total investment securities	1,449.2	1,529.3	$	(80.1)	(5.2)	%
Gross loans	3,922.1	3,646.3	275.8		7.6	%
Goodwill and other intangible assets, net	163.4	115.7	47.7		41.2	%

Total deposits	5,015.1	4,869.9	145.2		3.0	%
FHLB long-term advances	100.0	—	100.0		N/A

Cash and cash equivalents increased $31.3 million (15.7%) from December 31, 2022 to $231.3 million at June 30, 2023, due to cash acquired from Citizens, decrease in investment balances, increase in deposit balances and increase in FHLB long-term advances which are partially offset by an increase in gross loans.

Total investment securities decreased $80.1 million (5.2%) from December 31, 2022 to $1.45 billion at June 30, 2023, due to maturities and calls.

Gross loans increased $275.8 million (7.6%) from December 31, 2022 to $3.92 billion at June 30, 2023 primarily due to the Company’s acquisition of Citizens ($254.7 million). Excluding the acquisition, total loans increased $21.2 million, (0.6%), from December 31, 2022 to $3.67 billion at June 30, 2023. Commercial and industrial loans increased $29.3 million (7.8%), consumer loans increased $13.3 million (27.3%), and residential real estate loans increased $9.7 million (0.6%). These increases were partially offset by a decrease in commercial real estate loans of $35.4 million.

Goodwill and other intangible assets, net, increased $47.7 million (41.2%) from December 31, 2022 to $163.4 million at June 30, 2023, due to the acquisition of Citizens.

Total deposits increased $145.2 million (3.0%) from December 31, 2022 to $5.0 billion at June 30, 2023 due to the Company's acquisition of Citizens ($298.7 million). Excluding the acquisition, depository balances declined $153.5 million, or 3.2% from the quarter ended December 31, 2022. Savings deposit balances decreased $123.9 million and noninterest-bearing demand deposit balances decreased $36.2 million. These decreases were partially offset by an increase in time deposit balances of $5.7 million and interest-bearing demand deposit balances of $0.9 million.

Net Interest Income

Six months ended June 30, 2023 vs. 2022

The Company’s net interest income increased from $79.2 million for the six months ended June 30, 2022 to $109.0 million for the six months ended June 30, 2023. The Company’s tax equivalent net interest income increased $29.7 million for the six months ended June 30, 2023. An increase in average investment securities ($38.7 million) resulted in $9.4 million in additional interest income. The acquisition of Citizens added $3.9 million of net interest income during the six months ended June 30, 2023. Due to increases in the Federal Funds rate, net interest income increased by $26.8 million due to an increase in loan yields (net of loan fees and accretion) of 150 basis points and by $9.1 million due to an increase in investment yields of 120 basis points. In addition, an increase of 396 basis points in the yield on deposits in depository institutions increased net interest income by $3.8 million and an increase in average loans ($94.7 million) added $2.0 million to interest income These increases were partially offset by an increase in the cost of interest bearing liabilities (86 basis points)

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which decreased net interest income by $16.2 million. The Company’s reported net interest margin increased from 2.93% for the six months ended June 30, 2022 to 4.02% for the six months ended June 30, 2023.

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Table One

Average Balance Sheets and Net Interest Income

(in thousands)


Assets	Six months ended June 30,
	2023						2022
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate

Loan portfolio(1):
Residential real estate(2)	$	1,869,375	$	41,707	4.50	%	$	1,697,727	$	31,892	3.79	%
Commercial, financial, and agriculture(2)	1,866,177		56,001		6.05		1,801,999		31,952		3.58
Installment loans to individuals(2),(3)	63,229		1,648		5.26		43,916		1,238		5.68

Total loans	3,798,781		99,356		5.27		3,543,642		65,082		3.70
Securities:
Taxable	1,312,118		23,567		3.62		1,238,361		13,770		2.24
Tax-exempt(4)	188,984		2,674		2.85		223,992		3,065		2.76
Total securities	1,501,102		26,241		3.53		1,462,353		16,835		2.32
Deposits in depository institutions	192,266		4,176		4.38		490,445		1,020		0.42
Total interest-earning assets	5,492,149		129,773		4.76		5,496,440		82,937		3.04
Cash and due from banks	69,931						102,171
Bank premises and equipment	72,441						73,354
Goodwill and intangible assets	144,305						116,818
Other assets	320,646						237,115
Less: allowance for credit losses	(20,608)						(18,103)
Total assets	$	6,078,864					$	6,007,795

Liabilities
Interest-bearing demand deposits	$	1,282,009	$	4,514	0.71	%	$	1,149,277	$	278	0.05	%
Savings deposits	1,371,077		3,290		0.48		1,407,416		357		0.05
Time deposits(2)	932,606		6,453		1.40		1,026,149		2,214		0.44
Customer repurchase agreements	288,092		5,344		3.74		282,228		238		0.17
FHLB long-term advances	33,149		649		3.95		—		—		—
Total interest-bearing liabilities	3,906,933		20,250		1.05		3,865,070		3,087		0.16
Noninterest-bearing demand deposits	1,420,221						1,417,060
Other liabilities	122,709						79,610
Stockholders’ equity	629,001						646,055
Total liabilities and stockholders’ equity	$	6,078,864					$	6,007,795
Net interest income			$	109,524					$	79,850
Net yield on earning assets					4.02	%					2.93	%

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(1)	For purposes of this table, non-accruing loans have been included in average balances and the following amounts (in thousands) of net loan fees have been included in interest income:

	Loan fees, net	$	911	$	301

(2)	Included in the above table are the following amounts (in thousands) for the accretion of the fair value adjustments related to the Company's acquisitions:

		2023		2022
	Residential real estate	$	117	167
	Commercial, financial and agriculture	855		404
	Installment loans to individuals	11		34
	Time deposits	164		41
		$	1,147	$	646

(3)	Includes the Company’s consumer and DDA overdrafts loan categories.
(4)	Computed on a fully federal tax-equivalent basis assuming a tax rate of approximately 21%.

Table Two

Rate/Volume Analysis of Changes in Interest Income and Interest Expense

(in thousands)


	Six months ended June 30, 2023 vs. 2022
Interest-earning assets:	Increase (Decrease) Due to Change In:
	Volume		Rate		Net

Loan portfolio
Residential real estate	$	3,224	$	6,591	$	9,815
Commercial, financial, and agriculture	1,138		22,911		24,049
Installment loans to individuals	544		(134)		410

Total loans	4,906		29,368		34,274
Securities:
Taxable	820		8,977		9,797
Tax-exempt(1)	(479)		88		(391)
Total securities	341		9,065		9,406
Deposits in depository institutions	(620)		3,776		3,156
Total interest-earning assets	$	4,627	$	42,209	$	46,836
Interest-bearing liabilities:
Interest-bearing demand deposits	$	32	$	4,203	$	4,235
Savings deposits	(9)		2,942		2,933
Time deposits	(202)		4,441		4,239
Customer repurchase agreements	5		5,101		5,106
FHLB long-term advances	649		—		649
Total interest-bearing liabilities	475		16,687		17,162
Net Interest Income	$	4,152	$	25,522	$	29,674

(1)Computed on a fully federal tax-equivalent basis assuming a tax rate of approximately 21%.

Net Interest Income

Table of Contents

Three months ended June 30, 2023 vs. 2022

The Company’s net interest income increased from $41.3 million for the three months ended June 30, 2022 to $55.5 million for the three months ended June 30, 2023. The Company’s tax equivalent net interest income increased $14.1 million, or 34.0%, from $41.6 million for the second quarter of 2022 to $55.8 million for the second quarter of 2023. The acquisition of Citizens added $2.9 million of net interest income during the quarter ended June 30, 2023. Due to increases in the Federal Funds rate, net interest income increased by $13.5 million due to an increase in loan yields (net of loan fees and accretion) of 149 basis points and by $4.0 million due to an increase in investment yields of 108 basis points. In addition, an increase of 392 basis points in the yield on deposits in depository institutions increased net interest income by $2.2 million and an increase in average loans ($81.9 million) added $0.8 million to interest income These increases were partially offset by an increase in the cost of interest bearing liabilities (106 basis points) which decreased net interest income by $9.9 million. The Company’s reported net interest margin increased from 3.04% for the second quarter of 2022 to 4.00% for the second quarter of 2023.

Table of Contents

Table One

Average Balance Sheets and Net Interest Income

(in thousands)


Assets	Assets	Three months ended September 30,												Assets	Three months ended June 30,
		2022						2021							2023						2022
		Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate

Loan portfolio(1):	Loan portfolio(1):													Loan portfolio(1):
Residential real estate(2)	Residential real estate(2)	$	1,792,365	$	17,640	3.90	%	$	1,648,921	$	15,813	3.80	%	Residential real estate(2)	$	1,894,269	$	21,702	4.60	%	$	1,730,617	$	16,156	3.74	%
Commercial, financial, and agriculture(2)	Commercial, financial, and agriculture(2)	1,759,567		20,092		4.53		1,836,604		17,344		3.75		Commercial, financial, and agriculture(2)	1,933,238		29,754		6.17		1,785,511		16,421		3.69
Installment loans to individuals(2),(3)	Installment loans to individuals(2),(3)	44,591		683		6.08		49,972		714		5.67		Installment loans to individuals(2),(3)	68,777		898		5.24		43,585		631		5.81
Previously securitized loans(4)		***		78		***		***		91		***
Total loans	Total loans	3,596,523		38,493		4.25		3,535,497		33,962		3.81		Total loans	3,896,284		52,354		5.39		3,559,713		33,208		3.74
Securities:	Securities:													Securities:
Taxable	Taxable	1,359,207		9,557		2.79		1,136,519		6,144		2.14		Taxable	1,301,063		11,794		3.64		1,269,049		7,548		2.39
Tax-exempt(5)		215,219		1,555		2.87		245,551		1,590		2.57
Tax-exempt(4)														Tax-exempt(4)	174,410		1,203		2.77		215,603		1,526		2.84
Total securities	Total securities	1,574,426		11,112		2.80		1,382,070		7,734		2.22		Total securities	1,475,473		12,997		3.53		1,484,652		9,074		2.45
Deposits in depository institutions	Deposits in depository institutions	289,460		1,529		2.10		544,843		196		0.14		Deposits in depository institutions	224,064		2,585		4.63		441,239		781		0.71
Total interest-earning assets	Total interest-earning assets	5,460,409		51,134		3.72		5,462,410		41,892		3.04		Total interest-earning assets	5,595,821		67,936		4.87		5,485,604		43,063		3.15
Cash and due from banks	Cash and due from banks	81,202						101,058						Cash and due from banks	71,949						102,532
Bank premises and equipment	Bank premises and equipment	72,196						75,956						Bank premises and equipment	73,450						72,887
Goodwill and intangible assets	Goodwill and intangible assets	116,297						117,719						Goodwill and intangible assets	163,847						116,645
Other assets	Other assets	278,527						220,420						Other assets	313,925						256,354
Less: allowance for credit losses	Less: allowance for credit losses	(17,224)						(20,407)						Less: allowance for credit losses	(23,046)						(17,755)
Total assets	Total assets	$	5,991,407					$	5,957,156					Total assets	$	6,195,946					$	6,016,267

Liabilities	Liabilities													Liabilities
Interest-bearing demand deposits	Interest-bearing demand deposits	$	1,151,122	$	272	0.09	%	$	1,093,243	$	127	0.05	%	Interest-bearing demand deposits	$	1,328,520	$	2,773	0.84	%	$	1,156,200	$	148	0.05	%
Savings deposits	Savings deposits	1,431,591		358		0.10		1,315,462		169		0.05		Savings deposits	1,365,894		1,942		0.57		1,430,121		182		0.05
Time deposits(2)	Time deposits(2)	964,447		956		0.39		1,126,553		1,659		0.58		Time deposits(2)	962,299		3,852		1.61		1,004,356		999		0.40
Short-term borrowings		270,310		440		0.65		282,722		115		0.16
Customer repurchase agreements														Customer repurchase agreements	294,255		2,963		4.04		288,031		123		0.17
FHLB long-term advances														FHLB long-term advances	65,934		649		3.95		—		—		—
Total interest-bearing liabilities	Total interest-bearing liabilities	3,817,470		2,026		0.21		3,817,980		2,070		0.22		Total interest-bearing liabilities	4,016,902		12,179		1.22		3,878,708		1,452		0.15
Noninterest-bearing demand deposits	Noninterest-bearing demand deposits	1,455,123						1,356,745						Noninterest-bearing demand deposits	1,419,771						1,435,256
Other liabilities	Other liabilities	100,303						86,263						Other liabilities	116,083						85,075
Shareholders’ equity	Shareholders’ equity	618,511						696,168						Shareholders’ equity	643,190						617,228
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	5,991,407					$	5,957,156					Total liabilities and shareholders’ equity	$	6,195,946					$	6,016,267
Net interest income	Net interest income			$	49,108					$	39,822			Net interest income			$	55,757					$	41,611
Net yield on earning assets	Net yield on earning assets					3.57	%					2.89	%	Net yield on earning assets					4.00	%					3.04	%

4248

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(1)	(1)	For purposes of this table, non-accruing loans have been included in average balances and the following amounts (in thousands) of net loan fees have been included in interest income:					(1)	For purposes of this table, non-accruing loans have been included in average balances and the following amounts (in thousands) of net loan fees have been included in interest income:

									2023		2022
		Loan fees, net (includes PPP fees)	$	308	$	1,120		Loan fees, net	$	393	$	3

(2)	(2)	Included in the above table are the following amounts (in thousands) for the accretion of the fair value adjustments related to the Company's acquisitions:					(2)	Included in the above table are the following amounts (in thousands) for the accretion of the fair value adjustments related to the Company's acquisitions:

			2022		2021				2023		2022
		Residential real estate	$	64	$	154		Residential real estate	$	78	$	77
		Commercial, financial and agriculture	103		265			Commercial, financial and agriculture	709		118
		Installment loans to individuals	7		21			Installment loans to individuals	8		15
		Time deposits	21		48			Time deposits	154		21
			$	195	$	488			$	949	$	231

(3)		Includes the Company’s consumer and DDA overdrafts loan categories.
~~(4)~~(3)	~~(4)~~(3)	Effective January 1, 2012, the carrying value of the Company's previously securitized loans was reduced to $0.					~~(4)~~(3)	Includes the Company’s consumer and DDA overdrafts loan categories.
~~(5)~~(4)	~~(5)~~(4)	Computed on a fully federal tax-equivalent basis assuming a tax rate of 21%.					~~(5)~~(4)	Computed on a fully federal tax-equivalent basis assuming a tax rate of 21%.

Table ~~Four~~Two

Rate/Volume Analysis of Changes in Interest Income and Interest Expense

(in thousands)


		Three months ended September 30, 2022 vs. 2021							Three months ended June 30, 2023 vs. 2022
Interest-earning assets:	Interest-earning assets:	Increase (Decrease) Due to Change In:						Interest-earning assets:	Increase (Decrease) Due to Change In:
		Volume		Rate		Net			Volume		Rate		Net

Loan portfolio	Loan portfolio							Loan portfolio
Residential real estate	Residential real estate	$	1,376	$	451	$	1,827	Residential real estate	$	1,528	$	4,018	$	5,546
Commercial, financial, and agriculture	Commercial, financial, and agriculture	(728)		3,476		2,748		Commercial, financial, and agriculture	1,359		11,974		13,333
Installment loans to individuals	Installment loans to individuals	(77)		46		(31)		Installment loans to individuals	365		(98)		267
Previously securitized loans		—		(13)		(13)
Total loans	Total loans	571		3,960		4,531		Total loans	3,252		15,894		19,146
Securities:	Securities:							Securities:
Taxable	Taxable	1,204		2,209		3,413		Taxable	190		4,056		4,246
Tax-exempt(1)	Tax-exempt(1)	(196)		161		(35)		Tax-exempt(1)	(292)		(31)		(323)
Total securities	Total securities	1,008		2,370		3,378		Total securities	(102)		4,025		3,923
Deposits in depository institutions	Deposits in depository institutions	(92)		1,425		1,333		Deposits in depository institutions	(384)		2,188		1,804
Total interest-earning assets	Total interest-earning assets	$	1,487	$	7,755	$	9,242	Total interest-earning assets	$	2,766	$	22,107	$	24,873
Interest-bearing liabilities:	Interest-bearing liabilities:							Interest-bearing liabilities:
Interest-bearing demand deposits	Interest-bearing demand deposits	$	7	$	138	$	145	Interest-bearing demand deposits	$	22	$	2,603	$	2,625
Savings deposits	Savings deposits	15		174		189		Savings deposits	(8)		1,768		1,760
Time deposits	Time deposits	(239)		(464)		(703)		Time deposits	(42)		2,895		2,853
Short-term borrowings		(5)		330		325
Customer repurchase agreements								Customer repurchase agreements	3		2,837		2,840
Long-term debt								Long-term debt	649		0		649
Total interest-bearing liabilities	Total interest-bearing liabilities	$	(222)	$	178	$	(44)	Total interest-bearing liabilities	$	624	$	10,103	$	10,727
Net Interest Income	Net Interest Income	$	1,709	$	7,577	$	9,286	Net Interest Income	$	2,142	$	12,004	$	14,146

(1) Computed on a fully federal taxable equivalent using a tax rate of 21%.

4349

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Non-GAAP Financial Measures


		Three months ended September 30,						Nine months ended September 30,				Three months ended June 30,								Six months ended June 30,
		2022			2021			2022		2021				2023			2022				2023			2022

Net interest income (GAAP)		$	48,782		$	39,488		$	127,991	$	114,942
Net interest income ("GAAP")													Net interest income ("GAAP")	$	55,502		$	41,290			$	108,961		$	79,206
Taxable equivalent adjustment	Taxable equivalent adjustment	326			334			970		1,008			Taxable equivalent adjustment	255			321				563			644
Net interest income, fully taxable equivalent	Net interest income, fully taxable equivalent	$	49,108		$	39,822		$	128,961	$	115,950		Net interest income, fully taxable equivalent	$	55,757		$	41,611			$	109,524		$	79,850
Less accretion income		(195)			(488)			(841)		(1,643)
Net interest income excluding accretion income		$	48,913		$	39,334		$	128,120	$	114,307

Equity to assets (GAAP)		9.22		%	11.37		%
Equity to assets ("GAAP")													Equity to assets ("GAAP")	10.35		%	9.48		%
Effect of goodwill and other intangibles, net	Effect of goodwill and other intangibles, net	(1.81)			(1.78)								Effect of goodwill and other intangibles, net	(2.45)			(1.72)
Tangible common equity to tangible assets	Tangible common equity to tangible assets	7.41		%	9.59		%						Tangible common equity to tangible assets	7.90		%	7.76		%

Return on average tangible equity ("GAAP")													Return on average tangible equity ("GAAP")	27.4		%	18.1		%		23.7		%	16.6		%
Impact of merger related expenses													Impact of merger related expenses	—			—				1.8			—
Impact of merger related provision													Impact of merger related provision	—			—				0.7			—
Return on tangible equity, excluding merger related expenses and provision													Return on tangible equity, excluding merger related expenses and provision	27.4		%	18.1		%		26.2		%	16.6		%

Return on assets ("GAAP")													Return on assets ("GAAP")	2.12		%	1.51		%		1.89		%	1.47		%
Impact of merger related expenses													Impact of merger related expenses	—			—				0.15			—
Impact of merger related provision													Impact of merger related provision	—			—				0.05			—
Return on assets, excluding merger related expenses and provision													Return on assets, excluding merger related expenses and provision	2.12		%	1.51		%		2.09		%	1.47		%

Efficiency ratio													Efficiency ratio	44.6		%	50.5		%		49.0		%	51.1		%
Impact of merger expenses													Impact of merger expenses	—			—				3.8			—
Efficiency ratio, net of merger expenses													Efficiency ratio, net of merger expenses	44.6		%	50.5		%		45.2		%	51.1		%

4450

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Loans

~~Table Five~~

~~Loan Portfolio~~

~~The composition of the Company's loan portfolio as of the dates indicated follows (in thousands):~~
September 30, 2022 December 31, 2021 September 30, 2021
Commercial and industrial 375,735 346,184 353,046
  1-4 Family 109,710 107,873 108,913
  Hotels 355,001 311,315 297,341
  Multi-family 186,440 215,677 215,307
  Non Residential Non-Owner Occupied 569,369 639,818 664,365
  Non Residential Owner Occupied 177,673 204,233 205,579
Commercial real estate 1,398,193 1,478,916 1,491,505
Residential real estate 1,678,770 1,548,965 1,506,572
Home equity 130,837 122,345 124,806
Consumer 41,902 40,901 43,296
DDA overdrafts 3,315 6,503 2,700
Total loans $ 3,628,752 $ 3,543,814 $ 3,521,925

~~Loan balances increased $84.9 million from December 31, 2021 to September 30, 2022.~~

The commercial and industrial ("C&I") loan portfolio consists of loans to corporate borrowers that are primarily in small to mid-size industrial and commercial companies. Collateral securing these loans includes equipment, machinery, inventory, receivables and vehicles. C&I loans are considered to contain a higher level of risk than other loan types, although care is taken to minimize these risks. Numerous risk factors impact this portfolio, including industry specific risks such as the economy, new technology, labor rates and cyclicality, as well as customer specific factors, such as cash flow, financial structure, operating controls and asset quality. C&I loans increased $29.6 million from ~~December 31, 2021~~ to ~~September 30, 2022. Excluding PPP loans of $6.6 million at December 31, 2021, C&I loans increased $36.1 million from December 31, 2021 to September 30, 2022.~~

Commercial real estate loans consist of commercial mortgages, which generally are secured by nonresidential and multi-family residential properties, including hotel/motel and apartment lending. Commercial real estate loans are to many of the same customers and carry similar industry risks as C&I loans. Commercial real estate loans decreased $80.7 million from December 31, 2021 to September 30, 2022. At September 30, 2022, $4.1 million of the commercial real estate loans were for commercial properties under construction.

~~In order to group loans with similar risk characteristics, the portfolio is further segmented by product types:~~

◦Commercial 1-4 Family loans increased $1.8 million from December 31, 2021 to September 30, 2022. Commercial 1-4 Family loans consist of residential single-family, duplex, triplex, and fourplex rental properties and totaled $109.7 million at of September 30, 2022. Risk characteristics are driven by rental housing demand as well as economic and employment conditions. These properties exhibit greater risk than multi-family properties due to fewer income sources.

◦Hotel loans increased $43.7 million from December 31, 2021 to September 30, 2022. The Hotel portfolio is comprised of all lodging establishments and totaled $355.0 million as of September 30, 2022. Risk characteristics relate to the demand for travel.

◦Multi-family loans decreased $29.2 million from December 31, 2021 to September 30, 2022. Multi-family consists of 5 or more family residential apartment lending. The portfolio totaled $186.4 million as of September 30, 2022. Risk characteristics are driven by rental housing demand as well as economic and employment conditions.

◦Non-residential commercial real estate includes properties such as retail, office, warehouse, storage, healthcare, entertainment, religious, and other nonresidential commercial properties. The non-residential product type is further segmented into owner- and non-owner occupied properties. Nonresidential non-owner occupied commercial real estate

~~Table of Contents~~

totaled $569.4 million at September 30, 2022 and decreased $70.4 million from December 31, 2021 to September 30, 2022. Nonresidential owner-occupied commercial real estate totaled $177.7 million at September 30, 2022 and decreased $26.6 million from December 31, 2021. Risk characteristics relate to levels of consumer spending and overall economic conditions.

Residential real estate loans increased $129.8 million from December 31, 2021 to September 30, 2022. Residential real estate loans represent loans to consumers that are secured by a first lien on residential property. Residential real estate loans provide for the purchase or refinance of a residence and first-lien home equity loans allow consumers to borrow against the equity in their home. These loans primarily consist of single family 3, 5 and 7 year adjustable rate mortgages with terms that amortize up to 30 years. The Company also offers fixed-rate residential real estate loans that are sold in the secondary market that are not included on the Company's balance sheet; the Company does not retain the servicing rights to these loans. Residential mortgage loans are generally underwritten to comply with Fannie Mae guidelines, while the home equity loans are underwritten with typically less documentation, but with lower loan-to-value ratios and shorter maturities. At September 30, 2022, $19.3 million of the residential real estate loans were for properties under construction.

Home equity loans increased $8.5 million during the first nine months of 2022. The Company's home equity loans represent loans to consumers that are secured by a second (or junior) lien on a residential property. Home equity loans allow consumers to borrow against the equity in their home without paying off an existing first lien. These loans consist of home equity lines of credit ("HELOC") and amortized home equity loans that require monthly installment payments. Home equity loans are underwritten with less documentation, lower loan-to-value ratios and for shorter terms than residential mortgage loans. The amount of credit extended is directly related to the value of the real estate at the time the loan is made.

~~Consumer loans may be secured by automobiles, boats, recreational vehicles and other personal property or they may b~~e unsecured. The Company monitors the risk associated with these types of loans by monitoring such factors as portfolio growth, lending policies and economic conditions. Underwriting standards are continually evaluated and modified based upon these factors. Consumer loans increased $1.0 million during the first nine months of 2022.

Allowance for Credit Losses


Portfolio Segment			Measurement Method
Commercial and industrial			Migration
Commercial real estate:
1-4 family			Migration
Hotels			Migration
Multi-family			Migration
Non Residential Non-Owner Occupied			Migration
Non Residential Owner Occupied			Migration
Residential real estate			Vintage
Home equity			Vintage
Consumer			Vintage

Table of Contents

Expected credit losses are estimated over the contractual term of the loan, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a restructured loan will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

Based on sensitivity analysis of all portfolios, a 0.0050% change (slight improvement or decline on bank's scale) in all 11 qualitative risk factors (where assigned) would have a $2.0 million impact on the reserve allocation. Changing each factor by 0.01% (moderate improvement or decline) would have a $4.1 million, impact. Management recognizes that these are extreme scenarios and it is very unlikely that all risk factors would change by 0.005% or 0.01% simultaneously. For the June 30, 2023 estimate, management maintained all qualitative factor adjustments assigned in the previous quarter.

Income Taxes

Acquisition and Preliminary Purchase Price Allocation

Table of Contents

Financial Summary

Six months ended June 30, 2023 vs. 2022

The Company's financial performance is summarized in the following table:


	Six months ended June 30,
	2023			2022

Net income available to common shareholders (in thousands)	$	57,074		$	44,025
Earnings per common share, basic	$	3.80		$	2.92
Earnings per common share, diluted	$	3.79		$	2.92
Dividend payout ratio	34.3		%	41.1		%
ROA*	1.89		%	1.47		%
ROE*	18.3		%	13.6		%
ROATCE*	23.7		%	16.6		%
Average equity to average assets ratio	10.4		%	10.8		%

Financial Summary

Three months ended June 30, 2023 vs. 2022

The Company's financial performance is summarized in the following table:


	Three months ended June 30,
	2023			2022

Net income available to common shareholders (in thousands)	$	32,733		$	22,683
Earnings per common share, basic	$	2.16		$	1.51
Earnings per common share, diluted	$	2.16		$	1.51
Dividend payout ratio	30.0		%	39.8		%
ROA*	2.12		%	1.51		%
ROE*	20.4		%	14.7		%
ROATCE*	27.4		%	18.1		%
Average equity to average assets ratio	10.4		%	10.3		%

Table of Contents

interest income increased $2.5 million and non-interest expense increased $4.1 million for the three months ended June 30, 2023 from the three months ended June 30, 2022.

Balance Sheet Analysis

Selected balance sheet fluctuations from the year ended December 31, 2022 are summarized in the following table (in millions):


	June 30,	December 31,
	2023	2022	$ Change		% Change

Cash and cash equivalents	231.3	200.0	$	31.3	15.7	%
Total investment securities	1,449.2	1,529.3	$	(80.1)	(5.2)	%
Gross loans	3,922.1	3,646.3	275.8		7.6	%
Goodwill and other intangible assets, net	163.4	115.7	47.7		41.2	%

Total deposits	5,015.1	4,869.9	145.2		3.0	%
FHLB long-term advances	100.0	—	100.0		N/A

Total investment securities decreased $80.1 million (5.2%) from December 31, 2022 to $1.45 billion at June 30, 2023, due to maturities and calls.

Gross loans increased $275.8 million (7.6%) from December 31, 2022 to $3.92 billion at June 30, 2023 primarily due to the Company’s acquisition of Citizens ($254.7 million). Excluding the acquisition, total loans increased $21.2 million, (0.6%), from December 31, 2022 to $3.67 billion at June 30, 2023. Commercial and industrial loans increased $29.3 million (7.8%), consumer loans increased $13.3 million (27.3%), and residential real estate loans increased $9.7 million (0.6%). These increases were partially offset by a decrease in commercial real estate loans of $35.4 million.

Goodwill and other intangible assets, net, increased $47.7 million (41.2%) from December 31, 2022 to $163.4 million at June 30, 2023, due to the acquisition of Citizens.

Net Interest Income

Six months ended June 30, 2023 vs. 2022

The Company’s net interest income increased from $79.2 million for the six months ended June 30, 2022 to $109.0 million for the six months ended June 30, 2023. The Company’s tax equivalent net interest income increased $29.7 million for the six months ended June 30, 2023. An increase in average investment securities ($38.7 million) resulted in $9.4 million in additional interest income. The acquisition of Citizens added $3.9 million of net interest income during the six months ended June 30, 2023. Due to increases in the Federal Funds rate, net interest income increased by $26.8 million due to an increase in loan yields (net of loan fees and accretion) of 150 basis points and by $9.1 million due to an increase in investment yields of 120 basis points. In addition, an increase of 396 basis points in the yield on deposits in depository institutions increased net interest income by $3.8 million and an increase in average loans ($94.7 million) added $2.0 million to interest income These increases were partially offset by an increase in the cost of interest bearing liabilities (86 basis points)

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Table One

Average Balance Sheets and Net Interest Income

(in thousands)


Assets	Six months ended June 30,
	2023						2022
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate

Loan portfolio(1):
Residential real estate(2)	$	1,869,375	$	41,707	4.50	%	$	1,697,727	$	31,892	3.79	%
Commercial, financial, and agriculture(2)	1,866,177		56,001		6.05		1,801,999		31,952		3.58
Installment loans to individuals(2),(3)	63,229		1,648		5.26		43,916		1,238		5.68

Total loans	3,798,781		99,356		5.27		3,543,642		65,082		3.70
Securities:
Taxable	1,312,118		23,567		3.62		1,238,361		13,770		2.24
Tax-exempt(4)	188,984		2,674		2.85		223,992		3,065		2.76
Total securities	1,501,102		26,241		3.53		1,462,353		16,835		2.32
Deposits in depository institutions	192,266		4,176		4.38		490,445		1,020		0.42
Total interest-earning assets	5,492,149		129,773		4.76		5,496,440		82,937		3.04
Cash and due from banks	69,931						102,171
Bank premises and equipment	72,441						73,354
Goodwill and intangible assets	144,305						116,818
Other assets	320,646						237,115
Less: allowance for credit losses	(20,608)						(18,103)
Total assets	$	6,078,864					$	6,007,795

Liabilities
Interest-bearing demand deposits	$	1,282,009	$	4,514	0.71	%	$	1,149,277	$	278	0.05	%
Savings deposits	1,371,077		3,290		0.48		1,407,416		357		0.05
Time deposits(2)	932,606		6,453		1.40		1,026,149		2,214		0.44
Customer repurchase agreements	288,092		5,344		3.74		282,228		238		0.17
FHLB long-term advances	33,149		649		3.95		—		—		—
Total interest-bearing liabilities	3,906,933		20,250		1.05		3,865,070		3,087		0.16
Noninterest-bearing demand deposits	1,420,221						1,417,060
Other liabilities	122,709						79,610
Stockholders’ equity	629,001						646,055
Total liabilities and stockholders’ equity	$	6,078,864					$	6,007,795
Net interest income			$	109,524					$	79,850
Net yield on earning assets					4.02	%					2.93	%

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(1)	For purposes of this table, non-accruing loans have been included in average balances and the following amounts (in thousands) of net loan fees have been included in interest income:

	Loan fees, net	$	911	$	301

(2)	Included in the above table are the following amounts (in thousands) for the accretion of the fair value adjustments related to the Company's acquisitions:

		2023		2022
	Residential real estate	$	117	167
	Commercial, financial and agriculture	855		404
	Installment loans to individuals	11		34
	Time deposits	164		41
		$	1,147	$	646

(3)	Includes the Company’s consumer and DDA overdrafts loan categories.
(4)	Computed on a fully federal tax-equivalent basis assuming a tax rate of approximately 21%.

Table Two

Rate/Volume Analysis of Changes in Interest Income and Interest Expense

(in thousands)


	Six months ended June 30, 2023 vs. 2022
Interest-earning assets:	Increase (Decrease) Due to Change In:
	Volume		Rate		Net

Loan portfolio
Residential real estate	$	3,224	$	6,591	$	9,815
Commercial, financial, and agriculture	1,138		22,911		24,049
Installment loans to individuals	544		(134)		410

Total loans	4,906		29,368		34,274
Securities:
Taxable	820		8,977		9,797
Tax-exempt(1)	(479)		88		(391)
Total securities	341		9,065		9,406
Deposits in depository institutions	(620)		3,776		3,156
Total interest-earning assets	$	4,627	$	42,209	$	46,836
Interest-bearing liabilities:
Interest-bearing demand deposits	$	32	$	4,203	$	4,235
Savings deposits	(9)		2,942		2,933
Time deposits	(202)		4,441		4,239
Customer repurchase agreements	5		5,101		5,106
FHLB long-term advances	649		—		649
Total interest-bearing liabilities	475		16,687		17,162
Net Interest Income	$	4,152	$	25,522	$	29,674

(1)Computed on a fully federal tax-equivalent basis assuming a tax rate of approximately 21%.

Net Interest Income

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Three months ended June 30, 2023 vs. 2022

The Company’s net interest income increased from $41.3 million for the three months ended June 30, 2022 to $55.5 million for the three months ended June 30, 2023. The Company’s tax equivalent net interest income increased $14.1 million, or 34.0%, from $41.6 million for the second quarter of 2022 to $55.8 million for the second quarter of 2023. The acquisition of Citizens added $2.9 million of net interest income during the quarter ended June 30, 2023. Due to increases in the Federal Funds rate, net interest income increased by $13.5 million due to an increase in loan yields (net of loan fees and accretion) of 149 basis points and by $4.0 million due to an increase in investment yields of 108 basis points. In addition, an increase of 392 basis points in the yield on deposits in depository institutions increased net interest income by $2.2 million and an increase in average loans ($81.9 million) added $0.8 million to interest income These increases were partially offset by an increase in the cost of interest bearing liabilities (106 basis points) which decreased net interest income by $9.9 million. The Company’s reported net interest margin increased from 3.04% for the second quarter of 2022 to 4.00% for the second quarter of 2023.

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Table One

Average Balance Sheets and Net Interest Income

(in thousands)


Assets	Three months ended June 30,
	2023						2022
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate

Loan portfolio(1):
Residential real estate(2)	$	1,894,269	$	21,702	4.60	%	$	1,730,617	$	16,156	3.74	%
Commercial, financial, and agriculture(2)	1,933,238		29,754		6.17		1,785,511		16,421		3.69
Installment loans to individuals(2),(3)	68,777		898		5.24		43,585		631		5.81
Total loans	3,896,284		52,354		5.39		3,559,713		33,208		3.74
Securities:
Taxable	1,301,063		11,794		3.64		1,269,049		7,548		2.39
Tax-exempt(4)	174,410		1,203		2.77		215,603		1,526		2.84
Total securities	1,475,473		12,997		3.53		1,484,652		9,074		2.45
Deposits in depository institutions	224,064		2,585		4.63		441,239		781		0.71
Total interest-earning assets	5,595,821		67,936		4.87		5,485,604		43,063		3.15
Cash and due from banks	71,949						102,532
Bank premises and equipment	73,450						72,887
Goodwill and intangible assets	163,847						116,645
Other assets	313,925						256,354
Less: allowance for credit losses	(23,046)						(17,755)
Total assets	$	6,195,946					$	6,016,267

Liabilities
Interest-bearing demand deposits	$	1,328,520	$	2,773	0.84	%	$	1,156,200	$	148	0.05	%
Savings deposits	1,365,894		1,942		0.57		1,430,121		182		0.05
Time deposits(2)	962,299		3,852		1.61		1,004,356		999		0.40
Customer repurchase agreements	294,255		2,963		4.04		288,031		123		0.17
FHLB long-term advances	65,934		649		3.95		—		—		—
Total interest-bearing liabilities	4,016,902		12,179		1.22		3,878,708		1,452		0.15
Noninterest-bearing demand deposits	1,419,771						1,435,256
Other liabilities	116,083						85,075
Shareholders’ equity	643,190						617,228
Total liabilities and shareholders’ equity	$	6,195,946					$	6,016,267
Net interest income			$	55,757					$	41,611
Net yield on earning assets					4.00	%					3.04	%

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(1)	For purposes of this table, non-accruing loans have been included in average balances and the following amounts (in thousands) of net loan fees have been included in interest income:

		2023		2022
	Loan fees, net	$	393	$	3

(2)	Included in the above table are the following amounts (in thousands) for the accretion of the fair value adjustments related to the Company's acquisitions:

		2023		2022
	Residential real estate	$	78	$	77
	Commercial, financial and agriculture	709		118
	Installment loans to individuals	8		15
	Time deposits	154		21
		$	949	$	231

(3)	Includes the Company’s consumer and DDA overdrafts loan categories.
(4)	Computed on a fully federal tax-equivalent basis assuming a tax rate of 21%.

Table Two

Rate/Volume Analysis of Changes in Interest Income and Interest Expense

(in thousands)


	Three months ended June 30, 2023 vs. 2022
Interest-earning assets:	Increase (Decrease) Due to Change In:
	Volume		Rate		Net

Loan portfolio
Residential real estate	$	1,528	$	4,018	$	5,546
Commercial, financial, and agriculture	1,359		11,974		13,333
Installment loans to individuals	365		(98)		267
Total loans	3,252		15,894		19,146
Securities:
Taxable	190		4,056		4,246
Tax-exempt(1)	(292)		(31)		(323)
Total securities	(102)		4,025		3,923
Deposits in depository institutions	(384)		2,188		1,804
Total interest-earning assets	$	2,766	$	22,107	$	24,873
Interest-bearing liabilities:
Interest-bearing demand deposits	$	22	$	2,603	$	2,625
Savings deposits	(8)		1,768		1,760
Time deposits	(42)		2,895		2,853
Customer repurchase agreements	3		2,837		2,840
Long-term debt	649		0		649
Total interest-bearing liabilities	$	624	$	10,103	$	10,727
Net Interest Income	$	2,142	$	12,004	$	14,146

(1) Computed on a fully federal taxable equivalent using a tax rate of 21%.

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Non-GAAP Financial Measures


	Three months ended June 30,						Six months ended June 30,
	2023			2022				2023			2022

Net interest income ("GAAP")	$	55,502		$	41,290			$	108,961		$	79,206
Taxable equivalent adjustment	255			321				563			644
Net interest income, fully taxable equivalent	$	55,757		$	41,611			$	109,524		$	79,850

Equity to assets ("GAAP")	10.35		%	9.48		%
Effect of goodwill and other intangibles, net	(2.45)			(1.72)
Tangible common equity to tangible assets	7.90		%	7.76		%

Return on average tangible equity ("GAAP")	27.4		%	18.1		%		23.7		%	16.6		%
Impact of merger related expenses	—			—				1.8			—
Impact of merger related provision	—			—				0.7			—
Return on tangible equity, excluding merger related expenses and provision	27.4		%	18.1		%		26.2		%	16.6		%

Return on assets ("GAAP")	2.12		%	1.51		%		1.89		%	1.47		%
Impact of merger related expenses	—			—				0.15			—
Impact of merger related provision	—			—				0.05			—
Return on assets, excluding merger related expenses and provision	2.12		%	1.51		%		2.09		%	1.47		%

Efficiency ratio	44.6		%	50.5		%		49.0		%	51.1		%
Impact of merger expenses	—			—				3.8			—
Efficiency ratio, net of merger expenses	44.6		%	50.5		%		45.2		%	51.1		%

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Loans

Table Three

Loan Portfolio

The composition of the Company's loan portfolio as of the dates indicated follows (in thousands):


	June 30, 2023		December 31, 2022		June 30, 2022
Commercial and industrial	$	417,847	$	373,890	$	360,481

1-4 Family	123,701		116,192		108,765
Hotels	324,745		340,404		337,910
Multi-family	191,483		174,786		203,856
Non Residential Non-Owner Occupied	673,921		585,964		551,240
Non Residential Owner Occupied	222,852		174,961		180,188
Commercial real estate	1,536,702		1,392,307		1,381,959

Residential real estate	1,746,618		1,693,523		1,651,005
Home equity	151,012		134,317		125,742
Consumer	65,201		48,806		44,580
DDA overdrafts	4,762		3,415		2,991
Total loans	$	3,922,142	$	3,646,258	$	3,566,758

Loan balances increased $21.2 million from December 31, 2022 to June 30, 2023, excluding $254.7 million of loans acquired from Citizens.

The commercial and industrial ("C&I") loan portfolio consists of loans to corporate borrowers that are primarily in small to mid-size industrial and commercial companies. Collateral securing these loans includes equipment, machinery, inventory, receivables and vehicles. C&I loans are considered to contain a higher level of risk than other loan types, although care is taken to minimize these risks. Numerous risk factors impact this portfolio, including industry specific risks such as the economy, new technology, labor rates and cyclicality, as well as customer specific factors, such as cash flow, financial structure, operating controls and asset quality. C&I loans increased $29.3 million from December 31, 2022 to June 30, 2023, excluding $14.7 million of C&I loans acquired from Citizens.

Commercial real estate loans consist of commercial mortgages, which generally are secured by nonresidential and multi-family residential properties, including hotel/motel and apartment lending. Commercial real estate loans are to many of the same customers and carry similar industry risks as C&I loans. Commercial real estate loans decreased $35.4 million from December 31, 2022 to June 30, 2023, excluding $179.8 million of commercial real estate loans acquired from Citizens. At June 30, 2023, $3.4 million of the commercial real estate loans were for commercial properties under construction.

In order to group loans with similar risk characteristics, the portfolio is further segmented by product types:

◦Commercial 1-4 Family loans increased $1.2 million from December 31, 2022 to June 30, 2023, excluding $6.3 million of commercial 1-4 family loans acquired from Citizens. Commercial 1-4 Family loans consist of residential single-family, duplex, triplex, and fourplex rental properties and totaled $123.7 million at of June 30, 2023. Risk characteristics are driven by rental housing demand as well as economic and employment conditions. These properties exhibit greater risk than multi-family properties due to fewer income sources.

◦Hotel loans decreased $15.7 million from December 31, 2022 to June 30, 2023. The Hotel portfolio is comprised of all lodging establishments and totaled $324.7 million as of June 30, 2023. Risk characteristics relate to the demand for travel.

◦Multi-family loans increased $0.4 million from December 31, 2022 to June 30, 2023, excluding $16.3 million of multi-family loans acquired from Citizens. Multi-family consists of 5 or more family residential apartment lending. The portfolio totaled $191.5 million as of June 30, 2023. Risk characteristics are driven by rental housing demand as well as economic and employment conditions.

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segmented into owner- and non-owner occupied properties. Nonresidential non-owner occupied commercial real estate totaled $673.9 million at June 30, 2023 and decreased $22.1 million from December 31, 2022 to June 30, 2023, excluding $110.1 million nonresidential owner-occupied loans acquired from Citizens. Nonresidential owner-occupied commercial real estate totaled $222.9 million at June 30, 2023 and increased $0.7 million from December 31, 2022, excluding $47.2 million of nonresidential owner-occupied loans acquired from Citizens. Risk characteristics relate to levels of consumer spending and overall economic conditions.

Residential real estate loans increased $9.7 million from December 31, 2022 to June 30, 2023, excluding $43.4 million of residential real estate loans acquired from Citizens. Residential real estate loans represent loans to consumers that are secured by a first lien on residential property. Residential real estate loans provide for the purchase or refinance of a residence and first-lien home equity loans allow consumers to borrow against the equity in their home. These loans primarily consist of single family 3, 5 and 7 year adjustable rate mortgages with terms that amortize up to 30 years. The Company also offers fixed-rate residential real estate loans that are sold in the secondary market that are not included on the Company's balance sheet; the Company does not retain the servicing rights to these loans. Residential mortgage loans are generally underwritten to comply with Fannie Mae guidelines, while the home equity loans are underwritten with typically less documentation, but with lower loan-to-value ratios and shorter maturities. At June 30, 2023, $20.5 million of the residential real estate loans were for properties under construction.

Home equity loans increased $3.0 million during the first six months of 2023, excluding $13.7 million of home equity loans acquired from Citizens. The Company's home equity loans represent loans to consumers that are secured by a second (or junior) lien on a residential property. Home equity loans allow consumers to borrow against the equity in their home without paying off an existing first lien. These loans consist of home equity lines of credit ("HELOC") and amortized home equity loans that require monthly installment payments. Home equity loans are underwritten with less documentation, lower loan-to-value ratios and for shorter terms than residential mortgage loans. The amount of credit extended is directly related to the value of the real estate at the time the loan is made.

Consumer loans may be secured by automobiles, boats, recreational vehicles and other personal property or they may be unsecured. The Company monitors the risk associated with these types of loans by monitoring such factors as portfolio growth, lending policies and economic conditions. Underwriting standards are continually evaluated and modified based upon these factors. Consumer loans increased $13.3 million during the first six months of 2023, excluding $3.0 million of consumer loans acquired from Citizens.

Allowance for Credit Losses

Management systematically monitors the loan portfolio and the appropriateness of the allowance for credit losses on a quarterly basis to provide for expected losses inherent in the portfolio. Management assesses the risk in each loan type based on historical trends, the general economic environment of its local markets, individual loan performance and other relevant factors. The Company's estimate of future economic conditions utilized in its provision estimate is primarily dependent on expected unemployment ranges over a two-year period. Beyond two years, a straight line reversion to historical average loss rates is applied over the life of the loan pool in the migration methodology. The vintage methodology applies future average loss rates based on net losses in historical periods where the unemployment rate was within the forecasted range. As a result of the Company’s quarterly analysis of the adequacy of the ~~ACL,~~Allowance for Credit Losses, the Company recorded a ~~$0.7~~$0.4 million provision for credit losses in the ~~third~~second quarter of ~~2022, compared to~~2023. The company did not record a ~~recovery of~~provision for credit losses in the second quarter of ~~$0.7 million for the comparable period in 2021.~~2022.

Determination of the ~~ACL~~Allowance for Credit Losses is subjective in nature and requires management to periodically reassess the validity of its assumptions. Differences between actual losses and estimated losses are assessed such that management can timely modify its evaluation model to ensure that adequate provision has been made for risk in the total loan portfolio.

Based on the Company’s analysis of the adequacy of the allowance for credit losses and in consideration of the known factors utilized in computing the allowance, management believes that the allowance for credit losses as of ~~September~~June 30, ~~2022~~2023 is adequate to provide for expected losses inherent in the Company’s loan portfolio. Future provisions for credit losses will be dependent upon trends in loan balances including the composition of the loan portfolio, changes in loan quality and loss experience trends, and recoveries of previously charged-off loans, among other factors.

4652

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Table ~~Six~~Four

Allocation of the Allowance for Credit Losses

The allocation of the allowance for credit losses is shown in the table below (in thousands). The allocation of a portion of the allowance in one portfolio loan classification does not preclude its availability to absorb losses in other portfolio segments.


		As of September 30,				As of December 31,			As of June 30,				As of December 31,
		2022		2021					2023		2022
Commercial and industrial	Commercial and industrial	$	3,412	$	3,362	$	3,480	Commercial and industrial	$	4,330	$	3,519	$	3,568

1-4 Family	1-4 Family	548		618		598		1-4 Family	598		574		566
Hotels	Hotels	2,537		2,206		2,426		Hotels	2,133		2,508		2,332
Multi-family	Multi-family	424		496		483		Multi-family	1,009		460		380
Non Residential Non-Owner Occupied	Non Residential Non-Owner Occupied	2,130		2,827		2,319		Non Residential Non-Owner Occupied	4,786		2,096		2,019
Non Residential Owner Occupied	Non Residential Owner Occupied	1,372		1,655		1,485		Non Residential Owner Occupied	2,378		1,395		1,315
Commercial real estate	Commercial real estate	7,011		7,802		7,311		Commercial real estate	10,904		7,033		6,612
Residential real estate	Residential real estate	5,054		5,974		5,716		Residential real estate	5,573		4,994		5,427
Home equity	Home equity	348		472		517		Home equity	408		338		290
Consumer	Consumer	97		150		106		Consumer	334		78		110
DDA overdrafts	DDA overdrafts	1,089		991		1,036		DDA overdrafts	1,202		1,053		1,101
Allowance for Credit Losses	Allowance for Credit Losses	$	17,011	$	18,751	$	18,166	Allowance for Credit Losses	$	22,751	$	17,015	$	17,108

The ~~ACL decreased~~Allowance for Credit Losses increased from ~~$18.2~~$17.1 million at December 31, ~~2021~~2022 to ~~$17.0~~$22.8 million at ~~September~~June 30, ~~2022.~~2023, due to the following factors. The ~~allowance~~Company recorded $2.8 million associated with acquired Citizens PCD loans. Further, in connection with the completion of the acquisition of Citizens during the six month ended J, 2023, the Company recorded $2.0 million of provision for credit losses associated with loans acquired from Citizens. In addition, the provision for credit losses for the six months ended June 30, 2023, included $0.9 million that was primarily related to the ~~residential real estate loan portfolio decreased from $5.7 million at December 31, 2021 to $5.1 million at September 30, 2022~~ ~~largely due to the repayment~~downgrade of ~~a loan from a previous acquisition and release of the associated credit mark.~~two commercial loans.

Non-Interest Income and Non-Interest Expense

~~Nine~~Six months ended ~~September~~June 30, ~~2022~~2023 vs. ~~2021~~2022

(in millions)
Nine months ended September 30,
2022 2021 $ Change % Change
Net investment securities (losses) gains $ (1.3) $ 0.8 $ (2.1) (262.5) %
Non-interest income, excluding net investment securities (losses) gains 54.9 51.3 3.6 7.0
Non-interest expense 91.7 88.6 3.1 3.5


	Six months ended June 30,
	2023		2022		$ Change		% Change
Net investment securities gains (losses)	$	0.8	$	(1.3)	$	2.1	161.5	%
Non-interest income, excluding net investment securities (losses) gains	38.1		36.6		1.5		4.1
Non-interest expense, less merger-related expenses	67.7		60.2		7.5		12.5

Non-Interest Income: Non-interest income was ~~$53.5~~$38.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, as compared to ~~$52.0~~$35.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company reported ~~$1.3~~$0.8 million of unrealized fair value ~~losses~~gains compared to ~~$0.8~~$1.3 million unrealized fair value ~~gains~~losses on the Company's equity securities and gains on sale of the Company's equity securities during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. Excluding these items, non-interest income increased from ~~$51.3~~$36.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 to $~~54.9~~38.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. This increase was largely attributable to an increase in ~~service charges ($2.8 million, or 15.1%),~~ bank owned life insurance ($~~0.6~~1.0 million, or ~~19.0%~~34.1%), trust and investment management fee income ($0.3 million, or 6.8%), and bankcard revenue ($0.3 million, or ~~1.6%~~2.1%), partially offset by a ~~$0.4 million~~ decrease in ~~other income.~~service charges ($0.3 million, or 2.3%).

Non-Interest Expense: Non-interest expenses, less merger related expenses increased ~~$3.1~~$7.5 million ~~(3.5%~~(12.5%), from ~~$88.6~~$60.2 million in the first ~~nine~~six months of ~~2021~~2022 to ~~$91.7~~$67.7 million in the first ~~nine~~six months of ~~2022~~2023 mainly due to an increase in salaries and employee benefits ($~~2.8~~4.1 million) ~~due to~~as a result of increased health insurance, increased incentive compensation and

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higher salary adjustments during ~~2022.~~ 2023 and other expenses ($2.4 million) as a result of increased amortization of core deposit intangibles ($1.0 million) due to to acquisition of Citizens in March 2023

Income Tax Expense: The Company’s effective income tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~20.5%~~19.9% compared to ~~20.7%~~20.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

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Non-Interest Income and Non-Interest Expense

Three months ended ~~September~~June 30, ~~2022~~2023 vs. ~~2021~~2022

(in millions)

Three months ended September 30,
2022 2021 $ Change % Change
Net investment securities (losses) gains $ — $ 0.1 $ (0.1) (100.0) %
Non-interest income, excluding net investment securities (losses) gains 18.2 17.8 0.4 2.2 %
Non-interest expense 31.5 29.2 2.3 7.9 %


	Three months ended June 30,
	2023		2022		$ Change		% Change
Net investment securities gains (losses)	$	(0.3)	$	(0.6)	0.3		50.0	%
Non-interest income, excluding net investment securities gains (losses)	20.6		18.5		$	2.1	11.4	%
Non-interest expense, less merger-related expenses	34.8		30.7		4.1		13.4	%

Non-Interest Income: Non-interest income was ~~$18.2~~$20.3 million ~~for~~during the ~~third~~ quarter ~~of 2022~~ended June 30, 2023, as compared to $17.9 million ~~for~~during the ~~third~~quarter ended June 30, 2022. During the second quarter of ~~2021. During the third quarter of 2021,~~2023, the Company reported ~~$0.1~~$0.3 million of unrealized fair value ~~gains~~losses on the Company’s equity ~~securities.~~ securities as compared to $0.6 million of unrealized fair value losses on the Company’s equity securities during the second quarter of 2022.

Exclusive of these ~~gains,~~items, non-interest income increased $2.1 million, or 11.4%, from ~~$17.8~~$18.5 million for the ~~third~~second quarter of ~~2021~~2022 to ~~$18.2~~$20.6 million for the ~~third~~second quarter of ~~2022.~~2023. This increase was largely attributable to an increase of $2.2 million in bank owned life insurance due to higher ~~service charges ($0.8~~death benefit proceeds and an increase of $0.2 million, or ~~11.6%)~~11.4%, in trust and ~~bankcard revenues ($0.3 million, or 3.8%).~~investment management fee income. These increases were partially offset by a decrease in other income ~~($0.6 million)~~of $0.3 million and a decrease in service fees of $0.2 million, or 2.3%. Citizens’ contribution to non-interest income for the quarter ended June 30, 2023 was less than $0.1 million.

Non-Interest Expense: Non-interest expenses increased ~~$2.3~~$4.1 million, ~~(8.0%)~~or 13.3%, from ~~$29.2~~$30.7 million in the ~~third~~second quarter of ~~2021~~2022 to ~~$31.5~~$34.8 million in the ~~third~~second quarter of ~~2022.~~2023. This increase was ~~primarily~~largely due to an increase in salaries and employee benefits of ~~$2.1~~$2.0 million due to the acquisition of Citizens ($0.6 million), salary adjustments, and increased health insurance cost. In addition, other expenses increased ~~incentive compensation~~$1.2 million, and ~~higher salary adjustments during 2022.~~FDIC insurance expenses increased $0.3 million.

Income Tax Expense: The Company's effective income tax rate for the three months ended ~~September~~June 30, 2023 and June 30, 2022 ~~and September 30, 2021~~ was ~~21.3%~~19.4%, and ~~21.6%~~20.3%, respectively.

Risk Management

Market risk is the risk of loss due to adverse changes in current and future cash flows, fair values, earnings or capital due to adverse movements in interest rates and other factors, including foreign exchange rates, underlying credit risk and commodity prices. Because the Company has no significant foreign exchange activities and holds no commodities, interest rate risk represents the primary market risk factor affecting the Company’s balance sheet and net interest margin. Significant changes in interest rates by the Federal Reserve could result in similar changes in ~~LIBOR and~~ SOFR interest rates, prime rates, and other benchmark interest rates that could affect the estimated fair value of the Company’s investment securities portfolio, interest paid on the Company’s short-term and long-term borrowings, interest earned on the Company’s loan portfolio and interest paid on its deposit accounts. The Company utilizes derivative instruments, primarily in the form of interest rate swaps, to help manage its interest rate risk on commercial loans.

The Company’s ~~Asset and Liability Committee (“ALCO”)~~ALCO has been delegated the responsibility of managing the Company’s interest-sensitive balance sheet accounts to maximize earnings while managing interest rate risk. ALCO, comprised of various members of executive and senior management, is also responsible for establishing policies to monitor and limit the Company’s exposure to interest rate risk and to manage the Company’s liquidity position. ALCO satisfies its responsibilities through at least quarterly meetings during which product pricing issues, liquidity measures, and interest sensitivity positions are monitored.

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In order to measure and manage its interest rate risk, the Company uses an asset/liability management and simulation software model to periodically update the interest sensitivity position of the Company’s balance sheet. The model is also used to perform analyses that measure the impact on net interest income and capital as a result of various changes in the interest rate environment. Such analyses quantify the effects of various interest rate scenarios on projected net interest income.

The Company’s policy objective is to avoid negative fluctuations in net income or the economic value of equity of more than 15% within a 12-month period, assuming an immediate parallel increase or decrease of 100 to 300 basis points. The Company measures the long-term risk associated with sustained increases and decreases in rates through analysis of the impact to changes in rates on the economic value of equity.

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The following table summarizes the sensitivity of the Company’s net income to various interest rate scenarios. The results of the sensitivity analyses presented below differ from the results used internally by ALCO in that, in the analyses below, interest rates are assumed to have an immediate and sustained parallel shock. The Company recognizes that rates are volatile, but rarely move with immediate and parallel effects. Internally, the Company considers a variety of interest rate scenarios that are deemed possible while considering the level of risk it is willing to assume in “worst-case” scenarios such as shown by the following:


Immediate Basis Point Change in Interest Rates	Immediate Basis Point Change in Interest Rates	Implied Federal Funds Rate Associated with Change in Interest Rates		Estimated Increase or Decrease in Net Income Over 12 Months		Immediate Basis Point Change in Interest Rates	Implied Federal Funds Rate Associated with Change in Interest Rates		Estimated Increase or Decrease in Net Income Over 12 Months
September 30, 2022
June 30, 2023						June 30, 2023
+300	+300	6.25	%	-2.3	%	+300	8.25	%	-2.5	%
+200	+200	5.25		-0.4		+200	7.25		-1.1
+100	+100	4.25		+1.2		+100	6.25		—
-100	-100	2.25		-6.3		-100	4.25		-4.4
-200	-200	1.25		-17.0		-200	3.25		-11.2
-300						-300	2.25		-18.2

December 31, 2021
+400		4.25	%	+13.4	%
December 31, 2022						December 31, 2022
+300	+300	3.25		+14.1		+300	7.50	%	-4.5	%
+200	+200	2.25		+12.5		+200	6.50		-2.6
+100	+100	1.25		+8.5		+100	5.50		-1.2
-100						-100	3.50		-5.5
-200						-200	2.50		-14.4
-300						-300	1.50		-19.3

These estimates are highly dependent upon assumptions made by management, including, but not limited to, assumptions regarding the manner in which interest-bearing demand deposit and savings deposit accounts reprice in different interest rate scenarios, changes in the composition of deposit balances, pricing behavior of competitors, prepayments of loans and deposits under alternative rate environments, and new business volumes and pricing. As a result, there can be no assurance that the estimates above will be achieved in the event that interest rates increase or decrease during the remainder of ~~2022~~2023 and beyond. The estimates above do not necessarily imply that the Company will experience increases in net income if market interest rates rise. The table above indicates how the Company’s net income behaves relative to an increase in rates compared to what would otherwise occur if rates remain stable.

Based upon the estimates above, the Company believes that its net income is positively correlated with increasing rates as compared to the level of net income the Company would expect if interest rates remain flat.

Liquidity and Capital Resources

Liquidity

The Company evaluates the adequacy of liquidity at both the City Holding level and at the City National level. At the City Holding level, the principal source of cash is dividends from City National. Dividends paid by City National to City Holding are subject to certain legal and regulatory limitations. Generally, any dividends in amounts that exceed the earnings retained by City National in the current year plus retained net profits for the preceding two years must be approved by regulatory authorities. At ~~September~~June 30, ~~2022,~~2023, City National could pay dividends up to ~~$88.8~~$83.8 million plus net profits for the remainder of ~~2022,~~2023, as defined by statute, up to the dividend declaration date without prior regulatory permission.

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Additionally, City Holding anticipates continuing the payment of dividends on its common stock, which are expected to approximate $~~38.6~~39.0 million on an annualized basis over the next 12 months based on common shares outstanding at ~~September~~June 30, ~~2022.~~2023. However, dividends to shareholders can, if necessary, be suspended. In addition to these anticipated cash needs, City Holding has operating expenses and other contractual obligations, which are estimated to require $~~1.4~~1.5 million of additional cash over the next 12 months. As of ~~September~~June 30, ~~2022,~~2023, City Holding reported a cash balance of $~~10.2~~13.2 million and management believes that City Holding’s available cash balance, together with cash dividends from City National, will be adequate to satisfy its funding and cash needs over the next 12 months.

As illustrated in the consolidated statements of cash flows, the Company generated $67.3 million of cash from operating activities during the first six months of 2023, primarily from interest income received on loans and investments, net of interest expense paid on deposits and borrowings. The Company generated $107.7 million of cash in investing activities during the first six months of 2023, primarily due to proceeds from sales of securities available-for-sale of $85.6 million, proceeds from maturities and calls of $63.7 million and the acquisition of Citizens of $14.0 million. These increases were partially offset by a increase in loans of $23.1 million and purchases of available-for-sale securities of $21.8 million. The Company used $143.7 million of cash in financing activities during the first six months of 2023, principally as a result of a decrease in interest-bearing deposits of $115.3 million, purchases of treasury stock of $44.1 million, and a decrease in non-interest-bearing deposits of $38.6 million. These decreases were partially offset by an increase in proceeds from FHLB long-term advances of $100.0 million.

City National manages its liquidity position in an effort to effectively and economically satisfy the funding needs of its customers and to accommodate the scheduled repayment of borrowings. Funds are available to City National from a number of sources, including depository relationships, sales and maturities within the investment securities portfolio, and borrowings from the ~~FHLB~~Federal Reserve Bank and ~~other financial institutions.~~the FHLB. As of ~~September~~June 30, ~~2022,~~2023, City National’s assets are significantly funded by deposits

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and capital. Additionally, City National maintains borrowing facilities with the ~~FHLB~~Federal Reserve Bank and ~~other financial institutions~~the FHLB that are accessed as necessary to fund operations and to provide contingency ~~funding~~funding mechanisms. As of ~~September~~June 30, ~~2022,~~2023, City National ~~has~~had outstanding borrowings totaling $100 million from these facilities and had the capacity to borrow ~~$2.1~~an additional $2.4 billion from ~~the FHLB and other financial institutions under~~these existing borrowing facilities. ~~City National maintains a contingency funding plan, incorporating these borrowing facilities, to address liquidity needs in the event of an institution-specific or systemic financial industry crisis.~~ Also, although it has no current intention to do so, City National could liquidate its unpledged securities, if necessary, to provide an additional funding source.Approximately $0.8 billion of City National’s investment securities were unpledged at June 30, 2023. City National also segregates certain mortgage loans, mortgage-backed securities, and other investment securities in a separate subsidiary so that it can separately monitor the asset quality of these primarily mortgage-related assets, which could be used to raise cash through securitization transactions or obtain additional equity or debt financing if necessary.

The Company manages its asset and liability mix to balance its desire to maximize net interest income against its desire to minimize risks associated with capitalization, interest rate volatility, and liquidity. With respect to liquidity, the Company has chosen a conservative posture and believes that its liquidity position is strong. The Company’s net loan to asset ratio is ~~60.7%~~63.4% as of ~~September~~June 30, ~~2022~~2023 and deposit balances fund ~~83.4%~~81.6% of total assets. The Company has obligations to extend credit, but these obligations are primarily associated with existing home equity loans that have predictable borrowing patterns across the portfolio. The Company has investment security balances with carrying values that totaled ~~$1.5~~$1.4 billion at ~~September~~June 30, ~~2022,~~2023, and that exceeded the Company’s non-deposit sources of borrowing, which totaled ~~$304.8~~$371.7 million. Further, the Company’s deposit mix has a high proportion of transaction and savings accounts that fund ~~67.6%~~66.0% of the Company’s total assets. As interest rates increase, deposit balances may decline or the composition of the deposit portfolio may shift to higher yielding deposit products, such as money market accounts or time deposits.

As ~~illustrated in~~ the ~~consolidated statements~~following table reflects, less than 15% (estimated) of cash flows, the Company generated $81.8 million of cash from operating activities during the first nine months of 2022, primarily from interest income received on loans and investments, net of interest expense paid on deposits and borrowings. The Company used $396.0 million of cash in investing activities during the first nine months of 2022, primarily due to purchases of securities available-for-sale of $488.1 million and an increase in loans of $85.3 million. This decrease was partially offset by proceeds from maturities and calls of securities available-for-sale of ~~$177.9 million. The Company used $22.1 million of cash in financing activities during the first nine months of 2022, principally as a result of dividends paid to~~ the Company's ~~common stockholders~~deposits were uninsured (either with balances above $250,000 or not collateralized by investment securities) as of $27.0 million, a decrease in interest-bearing deposits of $23.6 million, purchases of treasury stock of $20.0 million and a decrease in short-term borrowings of $7.7 million. This decrease was partially offset by an increase in non-interest-bearing deposits of $56.2 million.June 30, 2023.

Estimated Uninsured Deposits by Deposit Type


	June 30, 2023		December 31, 2022
Noninterest-Bearing Demand Deposits	17	%	20	%

Interest-Bearing Deposits
Demand Deposits	7	%	10	%
Savings Deposits	11	%	14	%
Time Deposits	14	%	13	%
Total Deposits	12	%	14	%

The amounts listed above represent management's best estimate as of the respective period shown.

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Capital Resources

Shareholders' equity ~~decreased $132.8~~increased $58.3 million ~~for~~for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, primarily due to ~~other comprehensive loss~~the common stock issued in connection with acquisition of ~~$159.7~~Citizens of $62.1 million, ~~due to the unrealized loss on the Company's investments,~~net income of $57.1 million, and stock based compensation expense of $1.7 million. These increases were partially offset by the repurchase of ~~255,421~~487,587 common shares at a weighted average price of ~~$78.36~~$90.35 per share ($~~20.0~~44.1 million) as part of a one million share repurchase ~~plans~~plan authorized by the Board of Directors in ~~March 2021 and~~ May 2022, and cash dividends declared of ~~$27.6~~$19.6 million. ~~These decreases were partially offset by net income of $71.4 million and stock based related compensation expense of $2.4 million.~~

The Basel III Capital Rules require City Holding and City National to maintain minimum CET 1, Tier 1 and Total Capital ratios, along with a capital conservation buffer, effectively resulting in new minimum capital ratios (which are shown in the table below). The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to City Holding Company or City National Bank.

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The Company’s regulatory capital ratios for both City Holding and City National are illustrated in the following tables

(in thousands):


September 30, 2022		Actual				Minimum Required - Basel III				Required to be Considered Well Capitalized
		Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio
June 30, 2023														June 30, 2023	Actual				Minimum Required - Basel III				Required to be Considered Well Capitalized
															Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio

CET I Capital	CET I Capital													CET I Capital
City Holding Company	City Holding Company	$	582,213	15.8	%	$	257,566	7.0	%	$	239,168	6.5	%	City Holding Company	$	605,661	15.5	%	$	273,971	7.0	%	$	254,402	6.5	%
City National Bank	City National Bank	537,037		14.7	%	256,119		7.0	%	237,825		6.5	%	City National Bank	577,578		14.8	%	272,878		7.0	%	253,387		6.5	%
Tier I Capital	Tier I Capital													Tier I Capital
City Holding Company	City Holding Company	582,213		15.8	%	312,758		8.5	%	294,361		8.0	%	City Holding Company	605,661		15.5	%	332,679		8.5	%	313,110		8.0	%
City National Bank	City National Bank	537,038		14.7	%	311,002		8.5	%	292,708		8.0	%	City National Bank	577,578		14.8	%	331,352		8.5	%	311,861		8.0	%
Total Capital	Total Capital													Total Capital
City Holding Company	City Holding Company	596,708		16.2	%	386,349		10.5	%	367,951		10.0	%	City Holding Company	626,730		16.0	%	410,956		10.5	%	391,387		10.0	%
City National Bank	City National Bank	551,531		15.1	%	384,179		10.5	%	365,885		10.0	%	City National Bank	598,648		15.4	%	409,317		10.5	%	389,826		10.0	%
Tier I Leverage Ratio	Tier I Leverage Ratio													Tier I Leverage Ratio
City Holding Company	City Holding Company	582,213		9.7	%	239,172		4.0	%	298,965		5.0	%	City Holding Company	605,661		9.8	%	247,250		4.0	%	309,062		5.0	%
City National Bank	City National Bank	537,037		9.1	%	237,487		4.0	%	296,858		5.0	%	City National Bank	577,578		9.4	%	246,929		4.0	%	308,661		5.0	%


December 31, 2021		Actual				Minimum Required - Basel III				Required to be Considered Well Capitalized
		Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio
December 31, 2022														December 31, 2022	Actual				Minimum Required - Basel III				Required to be Considered Well Capitalized
															Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio

CET I Capital	CET I Capital													CET I Capital
City Holding Company	City Holding Company	$	555,532	16.1	%	$	241,772	7.0	%	$	224,503	6.5	%	City Holding Company	$	598,068	16.2	%	$	257,965	7.0	%	$	239,538	6.5	%
City National Bank	City National Bank	492,721		14.4	%	240,392		7.0	%	223,221		6.5	%	City National Bank	508,586		13.9	%	256,520		7.0	%	238,197		6.5	%
Tier I Capital	Tier I Capital													Tier I Capital
City Holding Company	City Holding Company	555,532		16.1	%	293,581		8.5	%	276,311		8.0	%	City Holding Company	598,068		16.2	%	313,243		8.5	%	294,817		8.0	%
City National Bank	City National Bank	492,721		14.4	%	291,905		8.5	%	274,734		8.0	%	City National Bank	508,586		13.9	%	311,488		8.5	%	293,166		8.0	%
Total Capital	Total Capital													Total Capital
City Holding Company	City Holding Company	570,336		16.5	%	362,659		10.5	%	345,389		10.0	%	City Holding Company	612,654		16.6	%	386,947		10.5	%	368,521		10.0	%
City National Bank	City National Bank	507,526		14.8	%	360,588		10.5	%	343,418		10.0	%	City National Bank	523,172		14.3	%	384,780		10.5	%	366,457		10.0	%
Tier I Leverage Ratio	Tier I Leverage Ratio													Tier I Leverage Ratio
City Holding Company	City Holding Company	555,532		9.4	%	235,403		4.0	%	294,254		5.0	%	City Holding Company	598,068		10.0	%	238,954		4.0	%	298,692		5.0	%
City National Bank	City National Bank	492,721		8.5	%	233,342		4.0	%	291,678		5.0	%	City National Bank	508,586		8.6	%	237,973		4.0	%	297,466		5.0	%

As of ~~September~~June 30, ~~2022,~~2023, management believes that City Holding Company and its banking subsidiary, City National, were “well capitalized.” City Holding is subject to regulatory capital requirements administered by the Federal Reserve, while City National is subject to regulatory capital requirements administered by the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”). Regulatory agencies can initiate certain mandatory actions if either City Holding or City National fails to meet the minimum capital requirements, as shown above. As of ~~September~~June 30, ~~2022,~~2023, management believes that City Holding and City National have met all capital adequacy requirements.

In November 2019, the federal banking regulators published final rules implementing a simplified measure of capital adequacy for certain banking organizations that have less than $10 billion in total consolidated assets. Under the final rules, which went into effect on January 1, 2020, depositoryDepository institutions and depository institution holding companies that have less

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than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, off–balance–sheet exposures of 25% or less of total consolidated assets and trading assets plus trading liabilities of 5% or less of total consolidated

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assets, are deemed “qualifying community banking organizations” and are eligible to opt into the “community bank leverage ratio framework.” A qualifying community banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% is considered to have satisfied the generally applicable risk–based and leverage capital requirements under the Basel III Rules and, if applicable, is considered to have met the “well capitalized” ratio requirements for purposes of its primary federal regulator’s prompt corrective action rules, discussed below. The final rules include a two–quarter grace period during which a qualifying community banking organization that temporarily fails to meet any of the qualifying criteria, including the greater–than–9% leverage capital ratio requirement, is generally still deemed “well capitalized” so long as the banking organization maintains a leverage capital ratio greater than 8%. A banking organization that fails to maintain a leverage capital ratio greater than 8% is not permitted to use the grace period and must comply with the generally applicable requirements under the Basel III Rules and file the appropriate regulatory reports.rules. The Company and its subsidiary bank do not have any immediate plans to elect to use the community bank leverage ratio framework but may make such an election in the future.

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

The information called for by this item is provided under the caption “Risk Management” under Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 4 - Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic SEC filings. There has been no change in the Company’s internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2022~~2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II - OTHER INFORMATION

Item 1.Legal Proceedings

The Company is engaged in various legal actions that it deems to be in the ordinary course of business. As these legal actions are resolved, the Company could realize positive and/or negative impact to its financial performance in the period in which these legal actions are ultimately resolved. There can be no assurance that current actions will have immaterial results, either positive or negative, or that no material actions may be presented in the future.

Item 1A. Risk Factors

Readers should carefully consider the risk factors previously disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022 as well as the following additional risk factor.

~~General Risk Factors~~

~~Foreign conflicts in Europe could negatively affect our commercial customers and expose us~~Risks Related to ~~increased risk related to cyberattacks.~~

~~On February 24, 2022, Russian forces launched a military invasion of Ukraine. In response,~~Recent Events Impacting the United States and certain European Union countries imposed significant economic sanctions on Russia and Russia has responded with counter- sanctions. As a result, the Russian/Ukraine conflict has disrupted international commerce, exacerbated already existing supply chain disruptions, and negatively affected the global economy. Such economic disruptions may negatively impact our commercial customers, which could lead to increased commercial loan losses. Additionally, there is concern that cyberattacks could intensify globally as the war in Ukraine continues, and though we may not be directly impacted by such attacks, our customers, vendors, and other financial services providers may be, which could decrease customer confidence and the demand for our services.Financial Services Industry

Recent events impacting the financial services industry, including the failures of Silicon Valley Bank, Signature Bank and First Republic Bank, have decreased confidence in banks among consumer and commercial depositors, other counterparties and investors, as well as caused significant disruption, volatility and reduced valuations of equity and other securities of banks and bank holding companies in the capital markets.These events are occurring during a period of continued interest rate increases by the Federal Reserve which, among other things, have resulted in unrealized losses in longer-duration securities held by banks, increased competition for bank deposits and the possibility of an increase in the risk of a potential recession.These recent events have, and could continue to, adversely impact the market price and volatility of the Company's common stock.

These recent events may also result in potentially adverse changes to laws and/or regulations governing banks and bank holding companies or result in the imposition of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on the Company's business.Inability to access short-term funding or loss of client deposits could increase the cost of funding, limit access to capital markets or negatively impact the Company's overall liquidity, capitalization, and overall economic outcomes.The Company may be impacted by concerns by depositors, investors and other counterparties regarding the soundness or creditworthiness of other financial institutions, which could cause substantial and cascading disruption within the financial markets and increase Company expenses.The cost of resolving the recent bank failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments.

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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

On May 25, 2022, the Board of Directors of the Company authorized the Company to buy back up to 1,000,000 shares of its common stock (approximately 7% of outstanding shares) in open market transactions at prices that are accretive to the earnings per share of continuing shareholders. No time limit was placed on the duration of the share repurchase program. As part of this authorization, the Company terminated its previous repurchase program that was approved in March 2021. The following table sets forth information regarding the Company's common stock repurchases transacted during the quarter ended ~~September~~June 30, ~~2022:~~2023:

Total Number

Maximum Number

Total Number

Maximum Number

of Shares Purchased

of Shares that May

of Shares Purchased

of Shares that May

as Part of Publicly

Yet Be Purchased

as Part of Publicly

Yet Be Purchased

Total Number of

Average Price

Announced Plans

Under the Plans

Total Number of

Average Price

Announced Plans

Under the Plans

Period

Shares Purchased

Paid per Share

or Programs

Period

Shares Purchased

Paid per Share

or Programs

July 1 - July 31, 2022*

8,971

80.24

940,344

885,986

April 1 - April 30, 2023

190,039

89.74

1,417,724

408,606

May 1 - May 31, 2023*

79,299

87.00

1,497,023

329,307

*There were no common stock repurchases in ~~August or September 2022.~~June 2023.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

None.

Item 5.Other Information

~~None.~~During the three months ended June 30, 2023, none of our directors or officers informed us of the adoption, modification or termination of a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as those terms are defined in Regulation S-K, Item 408.

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Item 6.Exhibits

The exhibits required to be filed or furnished with this Form 10-Q are attached hereto or incorporated herein by reference as shown in the following "Exhibit Index."

Exhibit Index

The following exhibits are filed herewith or are incorporated herein by reference.


			2(a)			Agreement and Plan of Merger, dated October 18, 2022, by and among City Holding Company and Citizens Commerce Bancshares, Inc. (attached to, and incorporated by reference from, City Holding Company’s Form 8-K dated October 18, 2022, and filed with the Securities and Exchange Commission on October 18, 2022).
			2(b )2(b)			Agreement and Plan of Merger, dated July 11, 2018, by and among Poage Bankshares, Inc., Town Square Bank, City Holding Company and City National Bank of West Virginia (attached to, and incorporated by reference from, City Holding Company’s Form 8-K dated July 11, 2018, and filed with the Securities and Exchange Commission on July 12, 2018).
			2(c )2(c)			Agreement and Plan of Merger, dated July 11, 2018, by and among Farmers Deposit Bancorp, Inc., Farmers Deposit Bank, City Holding Company and City National Bank of West Virginia (attached to, and incorporated by reference from, City Holding Company’s Form 8-K dated July 11, 2018, and filed with the Securities and Exchange Commission on July 12, 2018).
			3(a)			Amended and Restated Articles of Incorporation of City Holding Company (attached to, and incorporated by reference from City Holding Company's Form 10-Q Quarterly Report for the quarter ending September 30, 2021, filed November 4, 2021 with the Securities Exchange Commission).
			3(b)			Amended and Restated Bylaws of City Holding Company, revised December 18, 2019 (attached to, and incorporated by reference from, City Holding Company’s Current Report on Form 8-K filed December 20, 2019 with the Securities and Exchange Commission).
			4(a)			Rights Agreement dated as of June 13, 2001 (attached to, and incorporated by reference from, City Holding Company's Form 8–A, filed June 22, 2001, with the Securities and Exchange Commission).
			4(b)			Amendment No. 1 to the Rights Agreement dated as of November 30, 2005 (attached to, and incorporated by reference from, City Holding Company’s Amendment No. 1 on Form 8-A, filed December 21, 2005, with the Securities and Exchange Commission).
			10(a)			Change in Control Agreement for David L. Bumgarner, effective as of May 4, 2022.
			10(b)			Change in Control Agreement for Jeffrey D. Legge, effective as of May 4, 2022.
			10(c)			Change in Control Agreement for Michael T. Quinlan, Jr., effective as of May 4, 2022.
			31(a)			Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Charles R. Hageboeck.
			31(b)			Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for David L. Bumgarner.
			32(a)			Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Charles R. Hageboeck.
			32(b)			Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for David L. Bumgarner.
			101			Interactive Data File - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
			101.SCH			XBRL Taxonomy Extension Schema*
			101.CAL			XBRL Taxonomy Extension Calculation Linkbase*
			101.DEF			XBRL Taxonomy Extension Definition Linkbase*
			101.LAB			XBRL Taxonomy Extension Label Linkbase*
			101.PRE			XBRL Taxonomy Extension Presentation Linkbase*
			104			Cover Page Interactive Data file (formatted as inline XBRL and contained in Exhibit 101).
			* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

5461

Table of Contents

SIGNATURES

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


			City Holding Company
			(Registrant)

			/s/ Charles R. Hageboeck
			Charles R. Hageboeck
			President and Chief Executive Officer
			(Principal Executive Officer)

			/s/ David L. Bumgarner
			David L. Bumgarner
			Executive Vice President, Chief Financial Officer and Principal Accounting Officer
			(Principal Financial Officer)

Date: ~~November~~August 3, ~~2022~~2023

5562


Supplemental Cash Flow Information:
Cash paid for interest	$	5,299	$	9,111
Cash paid for income taxes	17,834		14,400


	Three Months Ended
	September 30, 2022					September 30, 2021
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
		Outstanding		Outstanding			Outstanding		Outstanding
	Number of	Recorded		Recorded		Number of	Recorded		Recorded
	Contracts	Investment		Investment		Contracts	Investment		Investment
Commercial and industrial	—	$	—	$	—	1	$	430	$	430

1-4 Family	—	—		—		—	—		—
Hotels	—	—		—		—	—		—
Multi-family	—	—		—		—	—		—
Non Owner Non-Owner Occupied	—	—		—		—	—		—
Non Owner Owner Occupied	—	—		—		—	—		—
Commercial real estate	—	—		—		—	—		—

Residential real estate	4	366		366		2	147		147
Home equity	—	—		—		—	—		—
Consumer	—	—		—		—	—		—
Total	4	$	366	$	366	3	$	577	$	577