Clearfield, Pennsylvania – July 19, 2022
CNB Financial Corporation ("CNB" or the "Corporation") (NASDAQ: CCNE), the parent company of CNB Bank, today announced its earnings for the quarter and six months ended June 30, 2022.
Joseph B. Bower, Jr., President and CEO, stated, "Loan growth continues to exceed our already robust projections for 2022, resulting in higher earnings and profitability. Through our multi-bank branding approach, shareholders and communities continue to benefit. Our Region Presidents’ autonomy and local decision making is truly community based banking."
Executive Summary
• Net income available to common shareholders was $14.4 million, or $0.85 per diluted share, for the three months June 30, 2022, compared to $12.9 million, or $0.76 per diluted share, for the three months ended June 30, 2021, reflecting increases of $1.4 million, or 11.2%, and $0.09 per diluted share, or 11.8%. Earnings for the quarter ended June 30, 2022 benefited primarily from growth in commercial loans and investment securities, stable credit quality, and an asset sensitive balance sheet supporting increased net interest income in the current rising rate environment.
- Processing fees on Paycheck Protection Program ("PPP") loans (“PPP-related fees”) totaled approximately $559 thousand for the three months ended June 30, 2022, compared to $1.6 million for the three months ended June 30, 2021. At June 30, 2022, remaining deferred PPP-related fees totaled approximately $96 thousand.
• Net income available to common was $28.5 million, or $1.69 per diluted share, for the six months ended June 30, 2022, compared to $26.0 million, or $1.54 per diluted share, for the six months ended June 30, 2021, reflecting increases of $2.5 million, or 9.7%, and $0.15 per diluted share, or 9.7%.
- PPP-related fees totaled approximately $1.8 million for the six months ended June 30, 2022, compared to $4.4 million for the six months ended June 30, 2021.
• At June 30, 2022, loans, excluding the impact of (i) syndicated loans, and (ii) PPP loans, net of PPP-related fees (such loans being referred to as the "PPP-related loans"), totaled $3.8 billion, representing an increase of $290.5 million, or 8.4% (16.9% annualized), from December 31, 2021. The growth was primarily driven by the Corporation's ongoing expansion in the Cleveland and Southwest Virginia regions, combined with continued loan growth in its Private Banking division, and increased lending opportunities in all other regions in which the Corporation operates.
- As part a continued targeted liquidity management strategy to invest excess funds in credit-quality assets, for the six months ended June 30, 2022, the Corporation's balance sheet reflected an increase in syndicated lending balances of $27.4 million compared to December 31, 2021. The syndicated loan portfolio totaled $153.2 million, or 3.9% of total loans, excluding PPP-related loans, at June 30, 2022. The Corporation expects the level of this syndicated loan portfolio to remain stable or decrease going forward.
• At June 30, 2022, total deposits were $4.7 billion, reflecting a decrease of $13.8 million, or 0.3%, from December 31, 2021. While noninterest-bearing deposits increased approximately $59.1 million, or 7.5%, total interest-bearing deposits, decreased approximately $72.9 million, or 1.9%, from December 31, 2021.
• Total nonperforming assets totaled approximately $20.7 million, or 0.39% of total assets, as of June 30, 2022, compared to $20.3 million, or 0.38% of total assets, as of December 31, 2021, and decreased from $33.2 million, or 0.64% of total assets, as of June 30, 2021. In addition, for the three months ended June 30, 2022, net loan charge-offs were $479 thousand, or 0.05% of average total loans and loans held for sale, compared to $614 thousand, or 0.07% of average total loans and loans held for sale, during the three months ended June 30, 2021.
• Pre-provision net revenue ("PPNR"), a non-GAAP measure, was $21.8 million for the three months ended June 30, 2022, compared to $19.2 million for the three months ended June 30, 2021, reflecting an increase of $2.6 million, or 13.8%.1
• PPNR, a non-GAAP measure, was $42.2 million for the six months ended June 30, 2022, compared to $38.8 million for the six months ended June 30, 2021, reflecting an increase of $3.5 million, or 8.9%.
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1 This release contains references to certain financial measures that are not defined under U.S. Generally Accepted Accounting Principles ("GAAP"). Management believes that these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results of operations with prior periods and show the effects of significant gains and charges in the periods presented. A reconciliation of these non-GAAP financial measures is provided in the "Non-GAAP Reconciliations" section.
Balance Sheet and Liquidity Highlights
• At June 30, 2022, the Corporation’s cash and equivalents position was approximately $284.2 million, including excess liquidity of $217.8 million held at the Federal Reserve, reflecting, in management's view, a strong liquidity level.
• During January 2022, investments with an amortized cost of approximately $100.6 million and a fair value of $101.1 million were transferred from available-for-sale to held-to-maturity as a result of the Corporation's asset/liability management strategies. The transfer included $95.7 million of U.S. Government agency securities and $4.9 million of U.S. Treasury notes. During April 2022, mortgage backed securities with an amortized cost of approximately $120.2 million and a fair value of $112.6 million were transferred from available-for-sale to held-to-maturity as a result of the Corporation's asset/liability management strategies. These bonds continue to provide liquidity through pledging and can be utilized as collateral against borrowings. In addition to these internal portfolio transfers, some of the investment purchases made by the Corporation during the first half of 2022 were also classified as held-to-maturity securities. As of June 30, 2022, the total balance of investments classified as held-to-maturity was $413.3 million. There were no securities classified as held-to-maturity at either December 31, 2021 or June 30, 2021.
• Book value per common share was $21.70 at June 30, 2022, representing a decrease of 1.5% from $22.04 at June 30, 2021. Tangible book value per common share, a non-GAAP measure, was $19.08 as of June 30, 2022, reflecting a decrease of 1.8% from a tangible book value per common share of $19.42 as of June 30, 2021.
1 The decreases in book value per common share and tangible book value per common share were mostly due to a $49.3 million decrease in accumulated other comprehensive income primarily from the temporary unrealized valuation changes in the available-for-sale investment portfolio, which was substantially, but not completely, offset by a $44.2 million increase in retained earnings.
Performance Ratios
• Annualized return on average equity was 14.55% and 14.26% for the three and six months ended June 30, 2022, respectively.
• Annualized return on average tangible common equity, a non-GAAP measure, was 17.81% and 17.34% for the three and six months ended June 30, 2022, respectively, compared to 16.06% and 16.38% for the comparable periods in 2021, respectively.1
• Efficiency ratio, a non-GAAP ratio, was 59.47% and 59.99% for the three and six months ended June 30, 2022, respectively, compared to 57.91% and 58.04% for the three and six months ended June 30, 2021, respectively. The increases for the 2022 periods were primarily a result of expected increasing costs associated with the Corporation’s expanding franchise investments into the Cleveland and Southwest Virginia markets, coupled with its continued strategic investments in technologies focused on customer sales management, while expanding and improving customer connectivity capabilities.
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Revenue
• Total revenue (comprised of net interest income plus non-interest income) was $54.4 million for the three months ended June 30, 2022, an increase of $8.3 million, or 17.9%, compared to the three months ended June 30, 2021, primarily due to the following:
- Net interest income of $46.3 million for the three months ended June 30, 2022 increased $8.0 million, or 20.9%, from the three months ended June 30, 2021, primarily as a result of loan growth and the net benefit of higher interest rates. Included in net interest income were PPP-related fees, which totaled approximately $559 thousand for the three months ended June 30, 2022, compared to $1.6 million for the three months ended June 30, 2021.
- Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.73% and 3.28% for the three months ended June 30, 2022 and 2021, respectively.1
- The yield on earning assets of 4.01% for the three months ended June 30, 2022 increased 29 basis points from 3.72% for the three months ended June 30, 2021, primarily as a result of the Corporation redeploying excess cash at the Federal Reserve to investment securities and loan growth. Net interest income also reflected the net benefit of higher interest rates, partially offset by lower PPP-related fees in 2022 compared to 2021. The cost of interest-bearing liabilities decreased 20 basis points from 0.55% for the three months ended June 30, 2021 to 0.35% for the three months ended June 30, 2022, primarily as a result of the Corporation’s targeted deposit rate reductions.
• Total revenue (comprised of net interest income plus non-interest income) was $106.7 million for the six months ended June 30, 2022, an increase of $13.2 million, or 14.1%, from the six months ended June 30, 2021, primarily due to the following:
- Net interest income of $88.9 million for the six months ended June 30, 2022 increased $11.5 million, or 14.8%, from the six months ended June 30, 2021, primarily as a result of loan growth and the benefits of higher interest rates in 2022 from variable-rate loans and new investments. Included in net interest income were PPP-related fees, which totaled approximately $1.8 million for the six months ended June 30, 2022, compared to $4.4 million for the six months ended June 30, 2021.
- Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.61% and 3.42% for the six months ended June 30, 2022 and 2021, respectively.
- The yield on earning assets of 3.90% for the six months ended June 30, 2022 increased 3 basis points from 3.87% for the six months ended June 30, 2021, primarily as a result of the Corporation redeploying excess cash at the Federal Reserve to investment securities and loan growth. Net interest income also reflected the net benefit of higher interest rates, partially offset by lower PPP-related fees in 2022 compared to 2021. The cost of interest-bearing liabilities decreased 20 basis points from 0.56% for the six months ended June 30, 2021 to 0.36% for the six months ended June 30, 2022, primarily as a result of the Corporation’s targeted deposit rate reductions.
• Total non-interest income was $8.1 million for the three months ended June 30, 2022, representing an increase of $289 thousand, or 3.7%, from the same period in 2021. The increase was primarily comprised of a $508 thousand increase in income from charges on deposits and an $886 thousand increase in bank owned life insurance mostly due to an $830 gain resulting from death benefit proceeds. These increases were partially offset by a $991 increase in unrealized losses on equity securities and a $244 decrease in mortgage banking activity.
• Total non-interest income was $17.8 million for the six months ended June 30, 2022, representing an increase of $1.7 million, or 10.6%, from the same period in 2021. Included in non-interest income for the six months ended June 30, 2022 was $651 thousand in net realized gains on available-for-sale securities. Excluding the impact of the realized gains on available-for-sale securities, a non-GAAP measure, for the six months ended June 30, 2022, total non-interest income increased $1.1 million or 6.5%, from the same period in 2021.1 During the six months ended June 30, 2022, Wealth and Asset Management fees increased $299 thousand, or 9.1%, compared to the six months ended June 30, 2021. Other notable increases during the six months ended June 30, 2022 included increased income from charges on deposits and pass through income from small business investment companies ("SBIC"). These were partially offset by unrealized losses on equity securities and decreased mortgage banking activity.
Non-Interest Expense
• For the three months ended June 30, 2022, total non-interest expense was $32.6 million, reflecting an increase of $5.6 million, or 20.9%, from the three months ended June 30, 2021. The second quarter of 2022 included the expenses related to expanding the Corporation's remote workforce and additional personnel in the Corporation's growth regions of Cleveland and Southwest Virginia, as well as increased investments in technology aimed at enhancing both customer experience and the Corporation’s sales management. Also, included in the second quarter of 2022 is approximately $1.3 million in accelerated retirement benefit expenses related to a pending executive retirement, coupled with additional personnel costs primarily from increased incentive compensation accruals related to a higher financial performance level.
• For the six months ended June 30, 2022, total non-interest expense was $64.5 million, reflecting an increase of $9.7 million, or 17.8%, from the six months ended June 30, 2021, primarily as a result of the same drivers discussed above.
Income Taxes
• Income tax expense was $7.0 million, representing a 18.5% effective tax rate, and $6.5 million, representing a 18.7% effective tax rate, for the six months ended June 30, 2022 and 2021, respectively.
Asset Quality
• Total nonperforming assets were $20.7 million, or 0.39% of total assets, as of June 30, 2022, compared to $20.3 million, or 0.38% of total assets, as of December 31, 2021, and $33.2 million, or 0.64% of total assets as of June 30, 2021. The reduction in non-performing assets compared to June 30, 2021 resulted primarily from the resolution of an $8.7 million commercial real estate loan relationship and a $1.4 million non-performing commercial real estate loan relationship with no additional loss to the Corporation in the fourth quarter of 2021.
• The allowance for credit losses measured as a percentage of total loans was 1.04% as of June 30, 2022, compared to 1.03% as of December 31, 2021 and 1.06% as of June 30, 2021. In addition, the allowance for credit losses as a percentage of nonaccrual loans was 213.9% as of June 30, 2022, compared to 193.6% at December 31, 2021 and 114.3% as of June 30, 2021.
• Provision for credit losses was $2.9 million and $4.5 million for the three and six months ended June 30, 2022, respectively, compared to $2.0 million and $4.1 million for June 30, 2021, respectively. The increase in provision for the three months ended June 30, 2022 was primarily due to the growth in commercial loans. Included in the provision for credit losses for the six months ended June 30, 2022 was $586 thousand related to the allowance for unfunded commitments compared to no accrual towards the allowance for unfunded commitments for the six months ended June 30, 2021.
• For the three months ended June 30, 2022, net loan charge-offs were $479 thousand, or 0.05% (annualized) of average total loans including loans held for sale, compared to $614 thousand, or 0.07% (annualized), during the three months ended June 30, 2021.
• For the six months ended June 30, 2022, net loan charge-offs were $1.0 million, or 0.05% (annualized) of average total loans including loans held for sale, compared to $1.5 million, or 0.09% (annualized), during the six months ended June 30, 2021.
Capital
• As of June 30, 2022, the Corporation’s total shareholders’ equity was $423.6 million, representing a decrease of $19.3 million, or 4.3%, from December 31, 2021, mostly due to a decrease in accumulated other comprehensive income, resulting primarily from the temporary unrealized reduction in the value of the available-for-sale investment portfolio exceeding the amount added to retained earnings during the six months ended June 30, 2022.
• Regulatory capital ratios for the Corporation continue to exceed regulatory “well-capitalized” levels as of June 30, 2022. • As of June 30, 2022, the Corporation’s ratio of tangible common equity to tangible assets, a non-GAAP measure, was 6.12%, and reflected the above-noted impact of the Corporation's decrease in accumulated other comprehensive income.
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