CNB Financial Corp/PA 2026 Q2 Earnings Call

Please go ahead. Good afternoon.

I'm Michael Peduzzi, the President and Chief Executive Officer of CNB Financial Corporation and its main operating entity, CNB Bank. I'm pleased to welcome you to this quarterly call to review our financial position and performance for the period ending June 30th, 2026. Joining me today is our Chief Financial Officer, Tito Lima, our Chief Operating Officer, Michael Noah, and our Chief Credit Officer, Greg Dixon. Following the overview and presentation of our financial highlights, we will have time available for questions from those calling in to today's presentation. I will begin by reviewing the key highlights of our performance and will provide a quick refresher on our franchise and operating model. I will then turn over the discussion to Tito Lima to address some of the more notable specific measures.

An underlying theme of our presentation will be the win-win results we have seen, including both the favorable realization of the projected benefits since our acquisition of ESSA in July 2025, and the parallel performance over that same period from the continued growth success in the core CNB Bank franchise and our legacy markets. Key goals of our franchise for both recent periods and as we look forward, is to both realize the benefits of the scale from adding such a qualitative franchise that is now our ESSA division, and promoting the sustainability of our earnings, revenues, and expense control. Evidencing this, our second quarter 2026 earnings per share on a fully diluted basis of $0.91 reflected a continued growth over $0.88 for the first quarter of 2026.

It was also a fourth consecutive quarter of EPS growth, exclusive of one-time merger related and GAAP adoption cost since the second quarter of 2025, when we earned $0.61 per share, which was the last full quarter before our merger with ESSA in July 2025. Year-over-year, the second quarter of 2026 represents a very favorable 49% EPS improvement over the second quarter of 2025. Operating revenues increased from over $61 million for the second quarter of 2025 to over $87 million for the second quarter of 2026, reflecting a 43% increase year-over-year. Our efficiency ratio on a fully tax equivalent basis favorably decreased from just under 65% for the second quarter of 2025 to approximately 56% for the second quarter of 2026.

As Tito Lima will discuss shortly, the year-over-year positive operating revenue, earnings accretion, and improved expense management with our greater scale aligns with what we projected when modeling the merger. We have performed even better than we modeled for the post-merger period because we have not only positively realized the expected accretion and efficiencies from the ESSA acquisition, in parallel, we have experienced sound growth in our core franchise in the five other banking divisions under CNB Bank. This gives us an opportunity to note, especially for our newest investors, that although our banking entity is operated under one charter as CNB Bank, in markets outside of our original Central Pennsylvania region, we operate with divisions doing business under more regionally focused or market legacy brands. As of now, the corporation has six different branded operating divisions.

The legacy CNB Bank operates in West Central Pennsylvania, headquartered in Clearfield and extending as far north as Bradford at the Pennsylvania/New York border, eastward to State College, and south to both Altoona and Westmoreland County in Pennsylvania. The other divisions of CNB Bank include a region of Northwestern Pennsylvania and Erie, extending across Northeast Ohio into the Greater Cleveland market, where we successfully operate in that region as ERIEBANK. In Western New York, extending from Buffalo to Rochester, we operate as BankOnBuffalo. In the Greater Columbus, Ohio market, where we entered more than 10 years back with the acquisition of the then Farmers Citizens Bank, we now operate as FCBank. In the Southern Virginia market, headquartered in Roanoke, Virginia, and extending to neighboring states, we operate as Ridge View Bank.

Of course, with our 2025 acquisition, we operate in Northeastern Pennsylvania as ESSA Bank, which covers not only ESSA's legacy market in East Stroudsburg, Pennsylvania, but also with meaningful retail and commercial presence in the Allentown, Bethlehem, Easton, and Wilkes-Barre, Scranton corridors. Tito, I think that gives our investors a quick summary of the key indicators of our current positive performance and an updated profile of our franchise and where we are able to generate our operating success. So now I'll ask you to share even greater details and insight into our critical financial measures.

Thank you, Mike. Good afternoon, everyone. Our second quarter of this year continued to demonstrate the strength of CNB's financial performance, credit quality, and capital build. I will start my remarks on slide four of the earnings supplement deck. Our earnings per common share of $0.91 for the second quarter of this year reflected an impressive increase of 13.7% on an annualized basis from last quarter, driven primarily by our net interest margin. Our return on tangible common equity for the second quarter of this year remained strong at 15.2% and exceeded the prior quarter level of 14.9%. In the meantime, our fully tax-equivalent net interest margin of 3.89% for the second quarter compared to 3.84% in our last quarter.

As it relates to capital, as a result of a continued strong level of earnings and profitability, CNB's tangible book value per common share increased at an annualized rate of 12.7% during the second quarter compared to the prior quarter. This level of growth, coupled with our dividend yield of approximately 2%, provides an attractive total return for our shareholders. Slide five, please. As it relates to growth, our originated loans, which excludes syndicated loans, grew at an annualized rate of 4.1% during the second quarter compared to our prior quarter. Even more impressively, the primary driver of originated loan growth was our commercial and industrial loan portfolio, which grew at an annualized rate of 18.2% in the second quarter compared to the prior quarter. As a result of our team's relentless focus on this highly profitable portion of our loan portfolio.

In relation to funding of our growth, deposits, including deposits held for sale, declined at an annualized rate of 3.8% from our last quarter, driven solely by our net interest margin strategy aimed at deploying excess liquidity towards exiting higher interest cost, single-thread deposit relationships. Excluding the impact of this corporate strategy, our deposits, including deposits held for sale, increased at an annualized rate of 4% in the second quarter compared to the last quarter. Even more impressively, our non-interest-bearing deposits grew at an annualized rate of 8.1% during the second quarter compared to the last quarter, driven primarily by growth in our treasury management business, which continues to deliver impressive levels of growth and profitability. As it relates to liquidity, our available liquidity continues to be strong at 4.8 times the level of adjusted uninsured deposits.

Mike, last but certainly not least, our overall credit quality profile remains strong and stable.

This concludes my remarks. Tito, thank you so much for this detail.

Yes, as fundamental to our strength in capital and liquidity management is our historical commitment and track record of sound credit quality. Just to review some key metrics related to this. Our ACL to loans was 1.04%, both in the second quarter and first quarter. Net charge-offs were nine basis points in Q2 and six basis points in Q1. Delinquency is relatively stable at 81 basis points for the second quarter and 80 basis points for the first quarter, with a very diligent collections team continuing to see opportunities for workouts and seeking to even further reduce these levels. Our non-performing assets to total assets was 69 basis points in the second quarter versus 58 points in the first quarter. The increase was more of a one-off credit than an industry or policy settings matter.