Exhibit 99.1
Dear CNB Financial Corp. Shareholder:
During the second quarter of 2007, CNB Financial Corp. developed new products and services to better meet the needs of customers, completed the formation of a new advisory board, focused on initiatives to address the challenges of the interest rate environment and registered significant growth in loans, deposits and total assets.
Total assets grew to $292.5 million on June 30, 2007, 4% higher than the $281.4 million level at December 31, 2006. This growth was driven by a 7% increase in total loans which reached $214.5 million on June 30, 2007.
Total deposits have grown by 8% since December 31, 2006, reaching a level of $207.3 million on June 30, 2007. The growth in deposits was fueled by the introduction of the Commonwealth Choice Account in early April of this year. This account is a high-interest rate savings account for personal banking and commercial customers and has helped us meet the challenges of the current interest rate environment by reducing high cost deposit balances and increasing the balances of lower cost deposits. We will continue to explore new products and services that will help us stay competitive, reduce our relative interest costs and bring in new business during these market conditions. We are happy to report that the two new branches opened during 2006 are contributing significantly to our overall deposit growth and personalized customer service.
Strategies adopted during the quarter, including the introduction of the Commonwealth Choice Account mentioned above, acted to mitigate the effect of the difficult interest rate environment as evidenced by the net interest margin which declined by merely one basis point to 3.03% compared to the 3.04% registered during the first quarter of 2007. The resulting net interest income equaled $2.1 million for the quarter, which increased slightly from the prior quarter. For the first six months of the year, net interest income equaled $4.1 million, compared to the $4.3 million amount recorded during the same period of 2006.
Operating expenses (alternatively known as non-interest expense) equaled $2.1 million in the second quarter of 2007, an increase of 9% as compared to the same period of 2006. On a year to date basis, operating expenses have increased 10% since 2006. The increases are primarily attributable to the opening of two new branches during the latter part of 2006, expansion of the operations department facility and increased FDIC deposit insurance premium costs.
Net income equaled $81,000 and $140,000 for the three and six-month period ending June 30, 2007, respectively, compared to $129,000 and $346,000 for the same periods of 2006. Net income per basic and diluted share for the quarter ended June 30, 2007 totaled $.04 compared to $.06 for the same period of 2006. On a year-to-date basis, net income per basic and diluted share totaled $.06 compared to $.16 for the same period of last year.
One initiative under development is our new Remote Deposit Capture (RDC) product, which we are preparing to launch next month. This product will help us expand our geographic territory without the expense of physical branches as well as offer significant convenience to our clients, allowing them to make same-day deposits without having to travel to a branch.
During the quarter we also completed the formation of our new advisory board. Comprised of almost fifty business and community leaders from the greater Worcester area, the board will help us in our marketing efforts by proposing new ideas for generating business as well as referring associates and contacts to CNB. We held our first meeting in June and look forward to many more productive sessions focused on new marketing strategies and product ideas to further enhance customer service and tap into new business markets in the future.
Finally, we engaged a new auditing firm, Wolf & Company, P.C., one of the largest regional certified public accounting and business consulting firms in the Northeast, as our independent auditor. Wolf & Company has a stellar reputation and we are very pleased to have them on board.
As we look ahead, we are prepared to continuously address the market challenges until the rate environment begins to turn around. As always, we will keep you informed of our new programs, technology, and customer service enhancements.
Sincerely,
Charles R. Valade
President and CEO
Cary J. Corkin
Chairman of Board
Consolidated Balance Sheets (Unaudited)
ASSETS | June 30, | December 31, | June 30, | |||||||||
2007 | 2006 | 2007 | ||||||||||
Cash and Cash Equivalents | $ | 13,418,000 | $ | 6,736,000 | $ | 18,316,000 | ||||||
Investment Securities Available-for-Sale, (amortized cost of $48,339,000 as of June 30, 2007, $54,808,000 as of December 31, 2006) and $54,821,000 as of June 30, 2006) (Note 4) | 47,750,000 | 54,582,000 | 53,649,000 | |||||||||
Investment Securities Held-to-Maturity, (fair value of $9,910,000 as of June 30, 2007, $12,450,000 as of December 31, 2006 and $12,330,000 as of June 30, 2006) (Note 4) | 10,050,000 | 12,513,000 | 12,598,000 | |||||||||
Federal Reserve Bank Stock | 736,000 | 700,000 | 682,000 | |||||||||
Federal Home Loan Bank Stock | 3,052,000 | 3,070,000 | 2,530,000 | |||||||||
Loans | 214,470,000 | 200,668,000 | 196,681,000 | |||||||||
Less: Allowance for Loan Losses | (2,773,000 | ) | (2,807,000 | ) | (2,765,000 | ) | ||||||
Loans, Net | 211,697,000 | 197,861,000 | 193,916,000 | |||||||||
Premises and Equipment, Net | 2,487,000 | 2,521,000 | 2,017,000 | |||||||||
Accrued Interest Receivable | 1,140,000 | 1,297,000 | 1,119,000 | |||||||||
Deferred Tax Asset | 1,818,000 | 1,553,000 | 2,080,000 | |||||||||
Prepaid Expenses and Other Assets | 361,000 | 531,000 | 408,000 | |||||||||
$ | 292,509,000 | $ | 281,364,000 | $ | 287,315,000 | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
Liabilities: | ||||||||||||
Deposits | $ | 207,347,000 | $ | 191,807,000 | $ | 210,447,000 | ||||||
Federal Home Loan Bank Advances | 48,000,000 | 52,250,000 | 49,500,000 | |||||||||
Federal Funds Purchased | - | 500,000 | - | |||||||||
Subordinated Debentures | 7,732,000 | 7,732,000 | 7,732,000 | |||||||||
Securities Under Agreement to Repurchase | 6,860,000 | 5,946,000 | - | |||||||||
Accrued Expenses and Other Liabilities | 2,383,000 | 2,958,000 | 2,114,000 | |||||||||
Total Liabilities: | 272,322,000 | 261,193,000 | 269,793,000 | |||||||||
Commitments and Contingencies (Note 8) | ||||||||||||
Temporary Stockholders’ Equity (Note 6) | - | - | 164,000 | |||||||||
Stockholders' Equity: | ||||||||||||
Common Stock | ||||||||||||
Par Value: $1.00 | ||||||||||||
Shares Authorized: 10,000,000 as of June 30, 2007, December 31, 2006 and June 30, 2006 | ||||||||||||
Issued and Outstanding: 2,283,000 as of June 30, 2007, December 31, 2006 and 2,128,000 as of June 30, 2006 | 2,283,000 | 2,283,000 | 2,113,000 | |||||||||
Additional Paid-in Capital | 20,240,000 | 20,154,000 | 18,378,000 | |||||||||
Accumulated Deficit | (2,011,000 | ) | (2,151,000 | ) | (2,441,000 | ) | ||||||
Accumulated Other Comprehensive Loss net of taxes | (325,000 | ) | (115,000 | ) | (692,000 | ) | ||||||
Total Stockholders' Equity | 20,187,000 | 20,171,000 | 17,358,000 | |||||||||
$ | 292,509,000 | $ | 281,364,000 | $ | 287,315,000 |
Refer to the Company’s 10-QSBs dated June 30, 2007 and June 30, 2006 for the accompanying notes which are an integral part of these consolidated statements.
Consolidated Statements of Income (Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Interest and Dividend Income: | ||||||||||||||||
Interest and Fees on Loans | $ | 3,896,000 | $ | 3,438,000 | $ | 7,648,000 | $ | 6,609,000 | ||||||||
Interest and Dividends on Investments | 830,000 | 691,000 | 1,694,000 | 1,326,000 | ||||||||||||
Total Interest and Dividend Income | 4,726,000 | 4,129,000 | 9,342,000 | 7,935,000 | ||||||||||||
Interest Expense: | ||||||||||||||||
Interest Expense on Deposits | 1,836,000 | 1,510,000 | 3,521,000 | 2,742,000 | ||||||||||||
Interest Expense on Borrowings | 814,000 | 518,000 | 1,710,000 | 925,000 | ||||||||||||
Total Interest Expense | 2,650,000 | 2,028,000 | 5,231,000 | 3,667,000 | ||||||||||||
Net Interest Income | 2,076,000 | 2,101,000 | 4,111,000 | 4,268,000 | ||||||||||||
Provision for Loan Losses | - | 80,000 | 30,000 | 164,000 | ||||||||||||
Net Interest Income, After Provision for Loan Losses | 2,076,000 | 2,021,000 | 4,081,000 | 4,104,000 | ||||||||||||
Other Income: | ||||||||||||||||
Fees on Deposit Accounts | 53,000 | 53,000 | 103,000 | 105,000 | ||||||||||||
Loan Related Fees | 37,000 | 41,000 | 78,000 | 75,000 | ||||||||||||
Other | 26,000 | 27,000 | 54,000 | 59,000 | ||||||||||||
Total Other Income | 116,000 | 121,000 | 235,000 | 239,000 | ||||||||||||
Operating Expense: | ||||||||||||||||
Employee Compensation and Benefits | 1,106,000 | 1,039,000 | 2,196,000 | 2,042,000 | ||||||||||||
Occupancy and Equipment | 344,000 | 263,000 | 698,000 | 527,000 | ||||||||||||
Professional Fees | 183,000 | 156,000 | 323,000 | 322,000 | ||||||||||||
Marketing and Public Relations | 95,000 | 120,000 | 187,000 | 240,000 | ||||||||||||
Data Processing Expense | 109,000 | 96,000 | 233,000 | 186,000 | ||||||||||||
Other General and Administrative Expenses | 232,000 | 217,000 | 461,000 | 400,000 | ||||||||||||
Total Operating Expense | 2,069,000 | 1,891,000 | 4,098,000 | 3,717,000 | ||||||||||||
Income Before Taxes | 123,000 | 251,000 | 218,000 | 626,000 | ||||||||||||
Provision for Income Taxes | 42,000 | 122,000 | 78,000 | 280,000 | ||||||||||||
Net Income | $ | 81,000 | $ | 129,000 | $ | 140,000 | $ | 346,000 | ||||||||
Net Income per Basic Share | $ | 0.04 | $ | 0.06 | $ | 0.06 | $ | 0.16 | ||||||||
Net Income per Diluted Share | $ | 0.04 | $ | 0.06 | $ | 0.06 | $ | 0.16 | ||||||||
Weighted Average Shares - Basic | 2,283,000 | 2,122,000 | 2,283,000 | 2,118,000 | ||||||||||||
Weighted Average Shares - Diluted | 2,294,000 | 2,208,000 | 2,303,000 | 2,197,000 |
Refer to the Company’s 10-QSBs dated June 30, 2007 and June 30, 2006 for the accompanying notes which are an integral part of these consolidated statements.