CNB Financial Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are to December 31, 2020. Unless otherwise noted, dollar amounts are in thousands. CNB is a regional banking company operating primarily in Pennsylvania, Ohio and western New York.
Financial performance and condition
| Metric | Q1 2021 | Comparable / prior period |
|---|---|---|
| Net interest income | $39.1 million | $30.0 million, Q1 2020 |
| Net interest margin, fully tax-equivalent | 3.56% | 3.49%, Q1 2020 |
| Non-interest income | $8.2 million | $5.4 million, Q1 2020 |
| Non-interest expense | $27.8 million | $21.7 million, Q1 2020 |
| Net income | $14.2 million | $8.8 million, Q1 2020 |
| Net income available to common stockholders | $13.1 million | $8.8 million, Q1 2020 |
| Diluted earnings per common share | $0.78 | $0.57, Q1 2020 |
| Cash and cash equivalents | $653.2 million | $532.7 million, Dec. 31, 2020 |
| Total loans | $3.40 billion | $3.37 billion, Dec. 31, 2020 |
| Total deposits | $4.36 billion | $4.18 billion, Dec. 31, 2020 |
Q1 operating cash flow was $11.1 million; investing activities used $62.8 million and financing activities provided $172.3 million. Cash increased $120.5 million during the quarter, principally reflecting deposit growth. CNB reported no FHLB borrowings at quarter-end and $70.6 million of subordinated debt. FHLB borrowing capacity was approximately $828.8 million.
The allowance for credit losses was $35.6 million, or 1.05% of loans (1.11% excluding PPP loans). Net charge-offs were $907 thousand. Nonperforming assets were $33.6 million, or 0.69% of total assets. Total shareholders’ equity was $417.6 million. The total risk-based capital ratio was 14.60%; tangible common equity to tangible assets was 6.50% (7.78% excluding PPP loans and excess Federal Reserve liquidity).
Material changes and drivers
- Net income increased 60.9% year over year and diluted EPS rose 36.8%. Net interest income increased 30.4%, reflecting 28.7% growth in average earning assets and a 7-basis-point improvement in net interest margin.
- Q1 2021 net interest income included approximately $2.7 million of recognized deferred PPP processing fees. The lower funding cost—0.57% versus 1.35% a year earlier—helped offset lower earning-asset yields.
- Non-interest income rose 53.6%, supported by mortgage banking, card processing and interchange, wealth fees, and bank-owned life insurance. Wealth assets under management increased 23.6% year over year to $1.2 billion.
- Non-interest expense increased 27.9%, reflecting the Bank of Akron acquisition, additional staff in growth markets, technology investment and deferred-compensation plan valuation changes. The efficiency ratio improved to 58.18% from 60.34%.
- Reported results include the Bank of Akron, acquired July 17, 2020; the Q1 2020 comparison predates that acquisition. The filing also notes that CECL-based credit-loss measures are not fully comparable with earlier periods using the incurred-loss method.
- Accumulated other comprehensive income declined by $9.1 million during Q1, primarily from unrealized losses on available-for-sale securities; comprehensive income was $5.1 million.
Outlook, risks and contingencies
CNB provided no specific numerical earnings guidance. Management expects non-interest costs to rise with growth, but expects growth initiatives to increase earning assets and non-interest income sufficiently to more than offset expense increases in 2021 and beyond. Management described liquidity as strong and adequate for expected needs.
- COVID-19 impacts remained uncertain. Management cited potential effects on customers, economic recovery, credit quality, funding costs, loan demand and financial markets, and stated that the ultimate impact could not be estimated reliably.
- Outstanding PPP loans were $201.2 million across 1,757 relationships. Payment deferrals covered $114.0 million of loans; management expected 79% to resume contractual payments by the end of Q3 2021 and the remainder by year-end.
- Management identified hotels/motels ($209.2 million) and restaurants/fast food ($30.7 million) as potentially higher-risk exposures, excluding PPP loans. The allowance included $2.3 million in specific reserves for three commercial relationships; management said the allowance was adequate at quarter-end but warned worsening conditions could require additional provision.
- Interest-rate sensitivity modeling estimated net interest income changes of +23.2% under a 400-basis-point increase and −10.7% under a 200-basis-point decrease over one year. Management cautioned that actual results could differ materially and that model assumptions are uncertain.
- The filing reported no material change in risk factors, no material pending litigation beyond routine proceedings, and no significant change in internal control over financial reporting.
Important facts for investors to verify
- How much future earnings depend on remaining PPP fees and the timing of PPP loan forgiveness or repayment.
- Whether deferred-payment loans resume payments as expected, and whether credit deterioration in commercial real estate or COVID-sensitive sectors leads to further reserves or charge-offs.
- Whether deposit growth and excess liquidity persist, and how the resulting asset mix affects net interest margin and returns.
- Whether revenue growth continues to outpace expenses, including acquisition-related and technology costs.
- How available-for-sale securities valuation changes and interest-rate movements affect equity, capital ratios and future net interest income.