CNB Financial Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021. Amounts are in millions of dollars except per-share data and ratios. CNB is a Pennsylvania-based financial holding company operating a regional bank, wealth-management business and consumer-finance subsidiary.
Financial results and key metrics
| Metric | Q1 2022 | Q1 2021 or prior quarter-end |
|---|---|---|
| Interest and dividend income | $46.3 | $44.3 |
| Net interest income | $42.6 | $39.1 |
| Provision for credit losses | $1.6 | $2.1 |
| Non-interest income | $9.7 | $8.2 |
| Non-interest expense | $31.9 | $27.8 |
| Net income | $15.2 | $14.2 |
| Net income available to common shareholders | $14.2 | $13.1 |
| Diluted EPS | $0.84 | $0.78 |
| Net interest margin, fully tax-equivalent | 3.48% | 3.56% |
| Efficiency ratio (non-GAAP) | 60.53% | 58.18% |
| Cash and cash equivalents | $405.0 | $732.2 at Dec. 31, 2021 |
| Total loans | $3,756.4 | $3,634.8 at Dec. 31, 2021 |
| Total deposits | $4,690.9 | $4,715.6 at Dec. 31, 2021 |
| Total shareholders’ equity | $425.9 | $442.8 at Dec. 31, 2021 |
- Net income available to common shareholders rose 8.1% year over year. Management attributed performance to commercial loan growth, stable credit quality and higher non-interest income.
- Net interest income increased 8.9%, while the fully tax-equivalent net interest margin declined 8 basis points. Lower interest expense and loan growth helped offset lower asset yields and reduced Paycheck Protection Program (PPP) fee income.
- Non-interest income increased 17.2%, including $0.7 million of realized securities gains. Excluding those gains, it rose 9.3%. Non-interest expense increased 14.7%, including personnel costs in expansion markets and technology investment.
- Operating cash flow was $3.8 million, compared with $11.1 million a year earlier. Investing activities used $300.6 million, chiefly reflecting $213.9 million of held-to-maturity securities purchases and net loan growth. Cash and cash equivalents declined $327.2 million during the quarter.
- Loans grew $121.6 million from year-end; excluding syndicated and PPP-related loans, management reported growth of $127.0 million, or 3.7%. Deposits decreased $24.8 million, or about 0.5%.
- Provision for credit losses was $1.6 million, including $0.6 million for unfunded commitments. Net charge-offs were $0.5 million, or 0.06% annualized of average loans. The allowance was $38.1 million, equal to 1.01% of loans.
Balance sheet, capital and liquidity
- At March 31, cash and cash equivalents were $405.0 million, including $352.9 million of excess liquidity held at the Federal Reserve. Management cited deposits, cash, maturing assets and borrowing access as liquidity sources; stated available FHLB borrowing capacity was approximately $990.3 million. There were no FHLB advances or borrowings on the $10 million unsecured line.
- Interest-bearing deposits totaled $3.9 billion. Subordinated debentures and notes totaled approximately $104.4 million; the $83.7 million subordinated notes mature in 2031 and reset to a floating rate beginning in 2026.
- Regulatory capital ratios remained above “well-capitalized” levels: total risk-based capital 14.44%, Tier 1 leverage 8.30%, common equity Tier 1 9.37%, and Tier 1 risk-based 11.40%.
- Accumulated other comprehensive loss widened to $27.3 million from $0.4 million at year-end, primarily reflecting market-value declines in securities. AFS securities had $36.8 million of gross unrealized losses; HTM securities had a $11.9 million fair-value shortfall to amortized cost. Management considered these losses temporary and said it did not intend, nor expect to be required, to sell the securities before recovery.
- During Q1, CNB transferred $101.1 million of securities from AFS to HTM and also purchased securities classified as HTM. This accounting classification affects how subsequent fair-value changes are reported; it does not eliminate market-value exposure.
Outlook, commentary and risks
- No quantified full-year earnings or margin guidance is provided. Management said it expects to continue pursuing loan-growth objectives in 2022, supported by market expansion and core-customer acquisition. It expects growth strategies to increase earning assets and revenue sufficiently to more than offset higher non-interest costs.
- Management identified interest rates and competition as important influences on future earnings. Its rate-sensitivity model estimated a 9.0% increase in one-year net interest income under an immediate 100-basis-point rise and a 3.3% decrease under a 100-basis-point decline; management cautioned that actual results may differ materially.
- Risks include uncertain COVID-19 and broader economic effects, interest-rate and funding-cost changes, deposit attrition, credit quality and reserve estimates, competition, regulation, technology, and integration or acquisition-related challenges. Management cited continued uncertainty around the pandemic and macroeconomic environment.
- Nonperforming assets were $20.1 million, or 0.38% of total assets, broadly stable with year-end. Nonaccrual loans were $19.4 million. Commercial real estate, commercial and industrial, and residential lending are significant portfolio exposures; the largest loan categories include first-lien residential mortgages and commercial real estate.
- Management reported no material change in risk factors from the 2021 Form 10-K and no pending legal proceeding expected to materially affect the company. It stated disclosure controls were effective and no significant change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Whether loan growth and deposit trends continue, especially given the quarter’s lower cash balance and deposit decrease.
- How rising rates affect net interest margin, deposit pricing, securities values and the company’s modeled interest-rate sensitivity.
- Whether the securities’ unrealized losses remain temporary and how the AFS-to-HTM strategy affects reported equity and liquidity flexibility.
- Credit quality, delinquency and criticized-loan trends, allowance adequacy, and the growth in troubled debt restructurings.
- Whether revenue growth can offset higher personnel and technology expenses, and whether the stated loan-growth outlook is achieved.
- The effects of PPP fee runoff and the contribution of realized securities gains to reported non-interest income.