KBRA Affirms Ratings for CNB Financial Corporation

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Clearfield, Pennsylvania-based CNB Financial Corporation (NASDAQ: CCNE) (“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its subsidiary, CNB Bank. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

CCNE’s ratings are supported by a solid core-funding profile comprised of a large heritage market deposit base, with limited usage of wholesale funding as reflected by its below average loan to core deposit ratio and a core funding ratio that has consistently tracked in the low-mid 90% range over a multi-year period. Although lower than peers, the NIB deposit mix appears durable and has held up well despite pressures within the greater macro-economic environment. The company also maintains a modest level of uninsured deposits supported by supplemental liquidity. Despite the fact that NIM compression stemming from rising funding costs has weighed on the company's performance in recent quarters, earnings have continued to track above peer averages with management indicating a more stable NIM and thus steady returns over the near term. Further supporting CCNE's earnings power is its comparatively higher NIM as the company benefits from greater loan concentration in the earning asset mix and historically above average loan yields. Moreover, while the proportion of noninterest income to total revenue (historically 15%-18%) tracks slightly lower than peers, contribution to bottom line earnings has been stable, upheld by non-lending correlated activities, particularly wealth management and card fees. Moreover, CCNE has demonstrated solid asset quality performance over time, reflecting a nominal credit loss history underpinned by disciplined underwriting, effective credit administration, and a granular loan portfolio that has become more geographically diversified. Following management’s decision to bolster capital with a common stock issuance in 2022, capital metrics, specifically, improvements in the CET1 and TCE ratios, have been viewed favorably. KBRA expects capital metrics to be maintained at levels commensurate or higher than peers on a more consistent basis moving forward as management is targeting single digit loan growth. Additionally, stock repurchases have been limited with near-term appetite for buybacks appearing manageable.

Rating Sensitivities

The Stable Outlook reflects KBRA's view that a change in ratings is unlikely over the medium term. However, demonstration of substantial and consistent outperformance in earnings, including significantly higher contribution from fee revenues and lower-cost funding measures, while sustaining above peer capital ratios may lead to positive rating momentum over time. Conversely, degradation in credit quality measures, including credit losses meaningfully above historical levels or in relation to peers, persistent earnings pressures that result in weaker than peer trends, or a decline in capital metrics to materially below the peer range could result in negative rating migration.

To access rating and relevant documents, click here.

Methodologies