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

The ratings are supported by a solid core funding profile comprised of a large heritage market deposit base, with minimal reliance on wholesale funding as reflected by its better than peer loan-to-core deposit ratio and a core funding ratio that has consistently tracked in the low to mid 90% range over a multi-year period. Although below peer averages, the NIB deposit mix appears durable and has held up well despite pressures within the greater macro-economic environment, which we attribute to the resilience of the company’s footprint. CCNE has experienced NIM compression stemming from rising funding costs that have outpaced the increase in earning asset yields, thus weighing on the company’s performance in recent years. However, earnings remain in line with peer averages attributable to the company’s still comparatively higher NIM, in part, due to its higher-yielding loan portfolio, and historically greater loan concentration in the earning asset mix (though this has tracked lower and more in line with peers in recent periods at 78% at 1Q25). Moreover, while the proportion of noninterest income to total revenue (historically 15%-17%) 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. Additionally, the recently announced transaction with ESSA Bancorp, Inc. (NASDAQ: ESSA) is expected to bolster the earnings profile, in part, due to repositioning of acquired assets, to include approximately $200 million in loan sales, in addition to expanding its footprint across PA providing opportunities for loan growth along with the potential to leverage its business lines. The company 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 a common stock issuance in 2022, improvements in capital metrics have been viewed favorably. Though we expect proforma CET1 to decline to 10.7% at the close of the transaction, the combined entity’s improved earnings profile should enable the meaningful rebuild of capital, with ratios expected to track in line with the rated peer group by YE26.

Rating Sensitivities

A rating upgrade is unlikely over the intermediate term. However, demonstrating substantial and consistent outperformance in earnings, including higher contribution from fee revenues and lower-cost funding measures, while sustaining above peer capital ratios may lead to positive rating momentum over the longer term. Degradation in credit quality measures, including credit losses meaningfully above historical levels, persistent earnings pressures that result in weaker than peer trends, or a decline in capital metrics materially below the peer range could result in negative rating migration.

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