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 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 contains limited concentration and has become more geographically diversified. Management’s proactive decision to fortify capital with a common stock issuance in 3Q22 was viewed favorably, bolstering the CET1 ratio (11.2% at 2Q23) and the TCE ratio (8.0% at 2Q23) above the average for the rating category. KBRA expects capital protection to be maintained at levels commensurate or higher than peers on a more consistent basis going forward, which would further reinforce the ratings, particularly as RWA density has recently begun tracking slightly above peers and given a history of comparatively elevated loan growth. However, stock repurchases have been limited (cumulative payout ratio of <5% since YE18) with near-term appetite for buybacks appearing manageable. Earnings performance has exhibited stability in recent years, with core ROA largely ranging between 1.10% and 1.20% since 2018, in line with similarly rated peers. Driving earnings has been a comparatively higher NIM, reflecting shift in loan mix (greater commercial concentration in the earning asset mix) and historically above average loan yields, the latter partly afforded by pricing scale in underserved markets more so than higher risk-taking, in KBRA’s view. The rapidly rising funding costs stemming from ongoing Fed monetary policy tightening activities, as well as anticipated slowdown in loan growth will put downward pressure on NIM in the foreseeable future. However, we recognize a funding profile that currently reflects minimal noncore funding usage, a comparatively less price sensitive and large heritage market deposit base, loan to core deposit ratio below 100%, and relatively modest levels of uninsured deposits. Additionally, the NIB deposit mix, while lower than many peers, appears durable and has held up relatively well year-to-date. Moreover, while the proportion of noninterest income to revenues (historically 16%-18%) tracks slightly lower than many peers, contribution to the bottom line has been stable, moderately driven by non-lending correlated activities, particularly wealth management and card fees.

Rating Sensitivities

A rating upgrade is unlikely over the intermediate term. However, demonstrating substantial and consistent outperformance in earnings, particularly on a risk-weighted basis, 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 decline in the CET1 ratio materially below the peer range could result in negative rating migration.

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Methodologies

Financial Institutions: Bank & Bank Holding Company Global Rating Methodology

ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

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