Clearfield, Pennsylvania – January 19, 2023
CNB Financial Corporation ("CNB" or "The Corporation") (NASDAQ: CCNE), the parent company of CNB Bank, today announced its earnings for the twelve and three months ended December 31, 2022.
Executive Summary
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Net income available to common shareholders ("earnings") was $58.9 million, or $3.26 per diluted share, for the twelve months ended December 31, 2022, compared to $53.4 million, or $3.16 per diluted share, for the twelve months ended December 31, 2021, reflecting increases of $5.5 million, or 10.3%, and $0.10 per diluted share, or 3.2%. The 2022 full-year earnings per share was partially impacted as a result of the dilutive effect of the Corporation's common stock offering completed in September of 2022, resulting in the issuance of 4,257,446 shares of common stock at $23.50 per share and net proceeds of $94.1 million after deducting the underwriting discount and customary offering expenses.
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Earnings for the three months ended December 31, 2022 were $14.8 million, or $0.70 per diluted share, compared to $13.6 million, or $0.80 per diluted share, for the three months ended December 31, 2021. The increase in earnings of $1.3 million, or 9.2%, for the three months ended December 31, 2022 compared to the same period in the prior year resulted primarily from growth in commercial loans and year-over-year increases in the balance of investment securities, stable credit quality, and an asset-sensitive balance sheet supporting increased net interest income in the current rising rate environment. The decrease in diluted earnings per share of $0.10, or 12.5%, for the three months ended December 31, 2022 compared to the same period in the prior year is due to the additional shares issued in the common equity capital raise in the third quarter 2022, as discussed above, which had a significant impact on the weighted average number of shares outstanding for the Corporation, in the fourth quarter of 2022.
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Processing fees on Paycheck Protection Program ("PPP") loans (“PPP-related fees”) totaled approximately $1.9 million for the twelve months ended December 31, 2022, compared to $8.7 million for the twelve months ended December 31, 2021. PPP-related fees totaled approximately $19 thousand for the three months ended December 31, 2022, compared to $1.9 million for the three months ended December 31, 2021. At December 31, 2022, remaining deferred PPP-related fees totaled approximately $3 thousand.
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At December 31, 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 $4.1 billion, representing an increase of $654.5 million, or 18.9%, from December 31, 2021. This favorable loan growth, which was experienced across the Corporation's footprint, continued to reflect the Corporation's ongoing expansion in the Cleveland and Southwest Virginia regions, as well as new opportunities from its new loan production office in Rochester, New York, combined with growth in the portfolio related to its Private Banking division.
- For the twelve months ended December 31, 2022, the Corporation's balance sheet reflected an increase in syndicated lending balances of $30.9 million compared to December 31, 2021. The syndicated loan portfolio totaled $156.6 million, or 3.7% of total loans, excluding PPP-related loans, at December 31, 2022, compared to $125.8 million, or 3.5% of total loans, excluding PPP-related loans, at December 31, 2021.
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At December 31, 2022, total deposits were $4.6 billion, reflecting a decrease of $93.2 million, or 2.0%, from December 31, 2021. The decrease in deposit balances was primarily the result of increased utilization of liquidity by our customers as well as some reductions in excess balances from certain customers with a higher level of interest rate sensitivity. While deposit balances decreased, the total number of deposit households increased by 2.2% from December 31, 2021 to December 31, 2022.
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At December 31, 2022, short-term borrowings from the Federal Home Bank of Pittsburgh ("FHLB") totaled approximately $132.4 million, compared to no borrowings at December 31, 2021. The increase in short-term borrowings resulted primarily from the fourth quarter growth in loans outpacing the growth in deposit balances for the same period.
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Total nonperforming assets were approximately $23.5 million, or 0.43% of total assets, as of December 31, 2022, compared to $20.3 million, or 0.38% of total assets, as of December 31, 2021. For the three months ended December 31, 2022, net loan charge-offs were $821 thousand, or 0.08% (annualized) of average total loans and loans held for sale, compared to $456 thousand, or 0.05% (annualized) of average total loans and loans held for sale, during the three months ended December 31, 2021.
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Pre-provision net revenue ("PPNR"), a non-GAAP measure, was $86.8 million for the twelve months ended December 31, 2022, compared to $76.8 million for the twelve months ended December 31, 2021, reflecting an increase of $10.0 million, or 13.1%.1 PPNR was $22.8 million for the three months ended December 31, 2022, compared to $18.5 million for the three months ended December 31, 2021, reflecting an increase of $4.3 million, or 23.2%.1 The increase in PPNR for the twelve and three months ended December 31, 2022 was primarily driven by growth in loans and expansion of the Corporation's net interest margin.
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.
Michael D. Peduzzi, President and CEO, stated, "I am pleased to report that our results for 2022 represent record full-year earnings for the Corporation. Our performance reflects the dedicated, collective efforts of our commercial business development officers, retail office and client service personnel, wealth management and treasury services professionals, and corporate support teams. Our strategy of operating multiple relevant banking brands and divisions across four states efficiently under one bank charter greatly supported our double-digit percentage loan growth and increases in fee-based revenues. Importantly, we maintained our underwriting and pricing discipline reflected by sound asset quality measures and a strong net interest margin. With our business development professionals being strongly connected in the markets across our footprint, and the addition in 2023 of our new women’s banking division, Impressia Bank, we believe we remain well-positioned for continued qualitative growth."
Other Balance Sheet Highlights
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As of December 31, 2022, the total balance of investments classified as held-to-maturity was $404.8 million. There were no securities classified as held-to-maturity at December 31, 2021. During 2022, as a result of the Corporation’s asset/liability and capital management strategies, securities with a combined amortized cost of $220.8 million and a fair value of $213.7 million were transferred from available-for-sale to held-to-maturity. These held-to-maturity portfolio bonds continue to support 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 2022 were also classified as held-to-maturity securities.
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Book value per common share was $22.39 at December 31, 2022, representing a decrease of 2.0% from $22.85 at December 31, 2021. Tangible book value per common share, a non-GAAP measure, was $20.30 as of December 31, 2022, reflecting an increase of 0.4% from a tangible book value per common share of $20.22 as of December 31, 2021.1 The changes in book value per common share and tangible book value per common share compared to the prior year were mostly due to a $52.1 million increase in accumulated other comprehensive loss primarily from the temporary unrealized valuation changes in the available-for-sale investment portfolio. The after-tax impact of these unrealized losses was substantially, but not completely, offset by a $46.3 million increase in retained earnings. Book value and tangible book value also benefited from the issuance price of the shares added from the previously discussed common equity capital raise completed in September of 2022. In addition, tangible book value per common share benefited from a lower core deposit intangible balance at December 31, 2022.
Performance Ratios
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Annualized return on average equity was 13.86% and 12.45% for the twelve and three months ended December 31, 2022, respectively, compared to 13.39% and 13.17% for the twelve and three months ended December 31, 2021, respectively.
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Annualized return on average tangible common equity, a non-GAAP measure, was 16.64% and 14.54% for the twelve and three months ended December 31, 2022, respectively, compared to 16.23% and 15.87% for the comparable periods in 2021, respectively.1
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While the previously discussed common equity capital raise completed in the third quarter of 2022 significantly enhanced the Corporation’s capital position, it also impacted the performance ratios for the twelve and three months ended December 31, 2022 and the related comparison to prior periods.
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The Corporation's efficiency ratio was 61.32% and 61.87% for the twelve and three months ended December 31, 2022, respectively, compared to 60.26% and 63.68% for the twelve and three months ended December 31, 2021, respectively. The efficiency ratio on a fully tax-equivalent basis, a non-GAAP ratio, was 60.87% and 61.40% for the twelve and three months ended December 31, 2022, respectively, compared to 59.76% and 63.19% for the twelve and three months ended December 31, 2021, respectively.1 The increase for the twelve months ended December 31, 2022 was 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 and connectivity capabilities. In addition, the fourth quarter of 2021 included approximately $2.3 million in additional personnel costs primarily from higher incentive compensation accruals and certain retirement benefit expenses.
Revenue
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Net interest income combined with non-interest income ("total revenue") was $224.4 million for the twelve months ended December 31, 2022, representing an increase of $31.2 million, or 16.2%, from the twelve months ended December 31, 2021, primarily due to the following:
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Net interest income of $189.7 million for the twelve months ended December 31, 2022 increased $29.9 million, or 18.7%, from the twelve months ended December 31, 2021, primarily as a result of loan growth throughout 2022 and the benefits of the impact of rising interest rates in 2022 resulting in greater income on variable-rate loans, coupled with net growth in the Corporation's investment portfolio. Included in net interest income were PPP-related fees, which totaled approximately $1.9 million for the twelve months ended December 31, 2022, compared to $8.7 million for the twelve months ended December 31, 2021.
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Net interest margin was 3.83% and 3.35% for the twelve months ended December 31, 2022 and 2021, respectively. Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.82% and 3.38% for the twelve months ended December 31, 2022 and 2021, respectively.1
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The yield on earning assets of 4.30% for the twelve months ended December 31, 2022 increased 51 basis points from 3.79% for the twelve months ended December 31, 2021, primarily as a result of loan growth, the repricing of variable rate loans, and the Corporation's redeployment of excess cash at the Federal Reserve to investment securities, partially offset by lower PPP-related fees in 2022 compared to 2021.
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The cost of interest-bearing liabilities increased 10 basis points from 0.52% for the twelve months ended December 31, 2021 to 0.62% for the twelve months ended December 31, 2022, primarily as a result of the Corporation’s targeted interest-bearing deposit rate increases.
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Total revenue was $59.8 million for the three months ended December 31, 2022, representing an increase of $8.9 million, or 17.4%, compared to the three months ended December 31, 2021, primarily due to the following:
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Net interest income of $50.8 million for the three months ended December 31, 2022 increased $8.8 million, or 20.9%, from the three months ended December 31, 2021, primarily as a result of loan growth and the net benefit of higher interest rates on both variable-rate loans and new loan production. Included in net interest income were PPP-related fees, which totaled approximately $19 thousand for the three months ended December 31, 2022, compared to $1.9 million for the three months ended December 31, 2021.
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Net interest margin was 4.07% and 3.38% for the three months ended December 31, 2022 and 2021, respectively. Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 4.03% and 3.41% for the three months ended December 31, 2022 and 2021, respectively.
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The yield on earning assets of 4.95% for the three months ended DNet interest margin was 4.07% and 3.38% for the three months ended December 31, 2022 and 2021, respectively. Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 4.03% and 3.41% for the three months ended December 31, 2022 and 2021, respectively.1 ecember 31, 2022 increased 120 basis points from 3.75% for the three months ended December 31, 2021, primarily as a result of loan growth and the Corporation redeploying excess cash at the Federal Reserve to investment securities. Net interest income also reflected the net benefit of higher interest rates, partially offset by lower PPP-related fees in 2022 compared to 2021.
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The cost of interest-bearing liabilities increased 77 basis points from 0.43% for the three months ended December 31, 2021 to 1.20% for the three months ended December 31, 2022, primarily as a result of the Corporation’s targeted interest-bearing deposit rate increases and short-term borrowings through the FHLB.
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Total non-interest income was $34.8 million for the twelve months ended December 31, 2022, representing an increase of $1.3 million, or 4.0%, from the same period in 2021. Included in non-interest income for the twelve months ended December 31, 2022 and 2021 was $651 thousand and $783 thousand, respectively, in net realized gains on available-for-sale securities. Non-interest income excluding realized gains on available-for-sale securities, a non-GAAP measure, for the twelve months ended December 31, 2022, increased $1.5 million, or 4.5%, from the same period in 2021.1 During the twelve months ended December 31, 2022, Wealth and Asset Management fees increased $432 thousand, or 6.4%, compared to the twelve months ended December 31, 2021, as the Corporation benefited from an increased number of wealth management relationships. Other notable increases during the twelve months ended December 31, 2022 included increased income from service charges on deposits, other service charges and fees, pass-through income from small business investment companies ("SBICs") and bank owned life insurance mostly due to an $883 thousand gain resulting from death benefit proceeds. These were partially offset by unrealized losses on equity securities and decreased mortgage banking activity.
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Total non-interest income was $9.0 million for the three months ended December 31, 2022, representing an increase of $83 thousand, or 0.9%, from the same period in 2021. The increase was primarily the result of income from service charges and fees and pass-through income from SBICs, partially offset by decreased mortgage banking activity.
Non-Interest Expense
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For the twelve months ended December 31, 2022, total non-interest expense was $137.6 million, reflecting an increase of $21.2 million, or 18.2%, from the twelve months ended December 31, 2021, primarily as a result of (i) expansion of the Corporation's workforce in its growth regions of Cleveland, Southwest Virginia, and Rochester, (ii) increased investments in technology aimed at enhancing both customer experience and expanding service delivery channels, and (iii) the Corporation’s sales management and increased legal and professional expenses.
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.For the three months ended December 31, 2022, total non-interest expense was $37.0 million, reflecting an increase of $4.6 million, or 14.0%, from the three months ended December 31, 2021, primarily as a result of the same expense drivers as discussed above.
Income Taxes
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Income tax expense was $15.0 million, representing a 19.2% effective tax rate, and $13.1 million, representing a 18.5% effective tax rate, for the twelve months ended December 31, 2022 and 2021, respectively.
Asset Quality
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Total nonperforming assets were $23.5 million, or 0.43% of total assets, as of December 31, 2022, compared to $20.3 million, or 0.38% of total assets, as of December 31, 2021.
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The allowance for credit losses measured as a percentage of total loans was 1.02% as of December 31, 2022, compared to 1.03% as of December 31, 2021. In addition, the allowance for credit losses as a percentage of nonaccrual loans was 207.0% as of December 31, 2022, compared to 193.6% as of December 31, 2021.
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Provision for credit losses was $8.6 million and $3.0 million for the twelve and three months ended December 31, 2022, respectively, compared to $6.0 million and $814 thousand for the twelve and three months ended December 31, 2021, respectively. Included in the provision for credit losses for the twelve and three months ended December 31, 2022 was $603 thousand expense and a $38 thousand benefit, respectively, related to the allowance for unfunded commitments compared to no accrual towards the allowance for unfunded commitments for the twelve and three months ended December 31, 2021.
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For the twelve months ended December 31, 2022, net loan charge-offs were $2.1 million, or 0.05% of average total loans including loans held for sale, compared to $2.8 million, or 0.08%, during the twelve months ended December 31, 2021.
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For the three months ended December 31, 2022, net loan charge-offs were $821 thousand, or 0.08% (annualized) of average total loans including loans held for sale, compared to $456 thousand, or 0.05% (annualized), during the three months ended December 31, 2021.
Capital
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As of December 31, 2022, the Corporation’s total shareholders’ equity was $530.8 million, representing an increase of $87.9 million, or 19.9%, from December 31, 2021, primarily due to the $94.1 million increase in additional paid in capital as a result of the Corporation's common stock offering and the increase from the Corporation's earnings, partially offset by both common and preferred dividends paid during the year, and a significant increase in accumulated other comprehensive loss during the year resulting primarily from the temporary unrealized reduction in the value of the available-for-sale investment portfolio during the twelve months ended December 31, 2022.
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As of December 31, 2022, the Corporation’s ratio of common shareholders' equity to total assets was 8.64% compared to 7.23% at December 31, 2021. As of December 31, 2022, the Corporation’s ratio of tangible common equity to tangible assets, a non-GAAP measure, was 7.90% compared to 6.45% at December 31, 2021. This increase was the result of the above-noted impacts of the Corporation's common stock offering and an increase in retained earnings, partially offset by an increase in accumulated other comprehensive loss during the twelve months ended December 31, 2022.1
About CNB Financial Corporation
CNB Financial Corporation is a financial holding company with consolidated assets of approximately $5.5 billion. CNB Financial Corporation conducts business primarily through its principal subsidiary, CNB Bank. CNB Bank is a full-service bank engaging in a full range of banking activities and services, including trust and wealth management services, for individual, business, governmental, and institutional customers. CNB Bank operations include a private banking division, three loan production offices, one drive-up office, one mobile office and 47 full-service offices in Pennsylvania, Ohio, New York and Virginia. CNB Bank’s divisions include ERIEBANK, based in Erie, Pennsylvania, with offices in Northwest Pennsylvania and Northeast Ohio; FCBank, based in Worthington, Ohio, with offices in Central Ohio; BankOnBuffalo, based in Buffalo, New York, with offices in Western New York; Ridge View Bank, with loan production offices in the Southwest Virginia region; and Impressia Bank which will operate in CNB Bank’s primary market areas. CNB Bank is headquartered in Clearfield, Pennsylvania, with offices in Central and North Central Pennsylvania. Additional information about CNB Financial Corporation may be found at www.CNBBank.bank.
Forward-Looking Statements
This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to CNB’s financial condition, liquidity, results of operations, future performance and business. These forward-looking statements are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that are not historical facts. Forward-looking statements include statements with respect to beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors (some of which are beyond CNB’s control). Forward-looking statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would” and “could.” CNB’s actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. Such known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, include, but are not limited to, (i) adverse changes or conditions in capital and financial markets; (ii) changes in interest rates; (iii) the duration and scope of a pandemic, including the ongoing COVID-19 pandemic, and the local, national and global impact of a pandemic;; (iv) changes in general business, industry or economic conditions or competition; (v) changes in any applicable law, rule, regulation, policy, guideline or practice governing or affecting financial holding companies and their subsidiaries or with respect to tax or accounting principles or otherwise; (vi) higher than expected costs or other difficulties related to integration of combined or merged businesses; (vii) the effects of business combinations and other acquisition transactions, including the inability to realize our loan and investment portfolios; (viii) changes in the quality or composition of our loan and investment portfolios; (ix) adequacy of loan loss reserves; (x) increased competition; (xi) loss of certain key officers; (xii) deposit attrition; (xiii) rapidly changing technology; (xiv) unanticipated regulatory or judicial proceedings and liabilities and other costs; (xv) changes in the cost of funds, demand for loan products or demand for financial services; and (xvi) other economic, competitive, governmental or technological factors affecting our operations, markets, products, services and prices. Such developments could have an adverse impact on CNB's financial position and results of operations. For more information about factors that could cause actual results to differ from those discussed in the forward-looking statements, please refer to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of and the forward-looking statement disclaimers in CNB’s annual and quarterly reports filed with the Securities and Exchange Commission.
The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of this press release. CNB undertakes no obligation to publicly update or revise any forward-looking statements included in this press release or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise, except to the extent required by law. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this press release might not occur and you should not put undue reliance on any forward-looking statements.