UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File Number 0-13396
CNB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1450605
------------ ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
County National Bank
1 South Second Street
P.O. Box 42
Clearfield, Pennsylvania 16830
(Address of principal executive offices)
Registrant's telephone number, including area code, (814) 765-9621
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the issuer's common stock as of May 9, 2001:
COMMON STOCK: $1.00 PAR VALUE - 3,668,916 SHARES
INDEX
PART I.
FINANCIAL INFORMATION
Sequential
Page Number
- -----------
PAGE 3. Consolidated Balance Sheets - March 31, 2001 and December 31, 2000
PAGE 4. Consolidated Statements of Income - Quarters ending March 31, 2001
and 2000
PAGE 5. Consolidated Statements of Comprehensive Income for the quarters
ending March 31, 2001 and 2000
PAGE 6. Consolidated Statements of Cash Flows - three months ending March 31,
2001 and 2000
PAGE 7. Notes to Consolidated Financial Statements
PAGE 8. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PAGE 11. Quantitative and Qualitative Disclosures About Market Risk
PART II.
OTHER INFORMATION
PAGE 14. ITEM 1. Legal Proceedings
PAGE 14. ITEM 2. Changes in Securities and Use of Proceeds
PAGE 14. ITEM 3. Defaults Upon Senior Securities
PAGE 14. ITEM 4. Submission of Matters for Security Holders Vote
PAGE 14. ITEM 5. Other Information
PAGE 14. ITEM 6. Exhibits and Reports on Form 8-K
PAGE 14. Signatures
2
CONSOLIDATED BALANCE SHEETS
CNB FINANCIAL CORPORATION
(Dollars in thousands)
March 31 Dec. 31,
ASSETS 2001 2000
----------- -----------
Cash and due from banks........................................... $ 13,360 $ 15,711
Interest bearing deposits with other banks........................ 14,525 2,262
----------- -----------
Total cash and cash equivalents................................. 27,885 17,973
Securities available for sale..................................... 149,435 136,250
Loans held for sale............................................... 3,868 2,494
Loans and leases.................................................. 364,298 369,878
Less: unearned discount........................................ 3,292 3,722
Less: allowance for loan and lease losses....................... 4,002 3,879
----------- -----------
NET LOANS....................................................... 357,004 362,277
FHLB and Federal Reserve stock.................................... 3,020 3,025
Premises and equipment, net....................................... 12,963 12,805
Accrued interest receivable and other assets...................... 6,898 6,412
Intangible assets, net............................................ 13,968 14,129
----------- -----------
TOTAL ASSETS.................................................... $575,041 $555,365
=========== ===========
LIABILITIES
Deposits:
Non-interest bearing deposits................................... $ 52,835 $ 52,757
Interest bearing deposits....................................... 440,514 432,460
----------- -----------
TOTAL DEPOSITS.................................................. 493,349 485,217
Other borrowings.................................................. 21,309 13,341
Accrued interest and other liabilities............................ 7,335 5,604
----------- -----------
TOTAL LIABILITIES............................................... 521,993 504,162
SHAREHOLDERS' EQUITY
Common stock $1.00 par value
Authorized 10,000,000 shares
Issued 3,693,500 shares......................................... 3,694 3,694
Additional paid in capital...................................... 3,757 3,742
Retained earnings............................................... 45,164 44,631
Treasury stock, at cost......................................... (670) (692)
(24,623 shares for March 2001, and 26,862 for December 2000)
Accumulated other comprehensive income.......................... 1,103 (172)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY...................................... 53,048 51,203
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY........................ $575,041 $555,365
=========== ===========
3
CONSOLIDATED STATEMENTS OF INCOME
CNB FINANCIAL CORPORATION
(Dollars in thousands, except per share data) Three Months Ended March 31,
2001 2000
--------- --------
INTEREST AND DIVIDEND INCOME
Loans including fees................................. $ 7,964 $7,874
Deposits with other banks............................ 54 19
Federal funds sold................................... 103 6
Investment securities:
Taxable........................................... 1,641 1,520
Tax-exempt........................................ 432 466
Dividends......................................... 145 84
--------- --------
TOTAL INTEREST AND DIVIDEND INCOME................ 10,339 9,969
--------- --------
INTEREST EXPENSE
Deposits............................................. 4,850 4,474
Borrowed funds....................................... 294 208
--------- --------
TOTAL INTEREST EXPENSE............................ 5,144 4,682
--------- --------
Net interest income............................... 5,195 5,287
Provision for loan losses......................... 270 180
--------- --------
NET INTEREST INCOME AFTER PROVISION.................. 4,925 5,107
--------- --------
NON-INTEREST INCOME
Trust & asset management fees........................ 223 232
Service charges on deposit accounts.................. 609 531
Other service charges and fees....................... 159 132
Securities gains(losses)............................. 0 (41)
Gains on sale of loans............................... 8 7
Other income......................................... 158 51
--------- --------
TOTAL NON-INTEREST INCOME......................... 1,157 912
--------- --------
NON-INTEREST EXPENSES
Salaries............................................. 1,479 1,495
Employee benefits.................................... 520 574
Net occupancy expense of premises.................... 633 640
Amortization of intangible........................... 438 463
Other................................................ 1,200 1,160
--------- --------
TOTAL NON-INTEREST EXPENSES....................... 4,270 4,332
--------- --------
Income before income taxes........................... 1,812 1,687
Applicable income taxes.............................. 430 440
--------- --------
NET INCOME........................................ $ 1,382 $1,247
========= ========
EARNINGS PER SHARE, BASED ON WEIGHTED
AVERAGE SHARES OUTSTANDING
Net income, basic............................... $0.38 $0.34
Net income, diluted............................ $0.38 $0.34
DIVIDENDS PER SHARE
Cash dividends per share $0.23 $0.21
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
CNB FINANCIAL CORPORATION
(Dollars in thousands)
Three Months Ended
March 31,
-------------------
2001 2000
-------------------
Net income $ 1,382 $ 1,247
Other comprehensive income, net of tax
Unrealized gains/(losses) on securities:
Unrealized gains/(losses) arising
during the period 1,275 (560)
Reclassified adjustment for
accumulated gains/(losses)
included in net income, net of tax - 27
-------------------
Other comprehensive income 1,275 (533)
-------------------
Comprehensive income $ 2,657 $ 714
===================
5
CONSOLIDATED STATEMENTS OF CASHFLOWS
CNB FINANCIAL CORPORATION
(Dollars in thousands)
Three Months Ended March 31,
Cash flows from operating activities: 2000 2000
--------- ---------
Net Income $ 1,382 $ 1,247
Adjustments to reconcile net income to
net cash provided by operations:
Provision for loan losses 270 180
Depreciation and amortization 723 733
Amortization and accretion and deferred loan fees (84) (100)
Deferred taxes (258) (219)
Security (gains)/losses 0 41
Gain on sale of loans (8) (7)
Proceeds from sale of loans 2,002 1,926
Origination of loans for sale. (3,368) (2,356)
Changes in:
Interest receivable and other assets (759) 692
Interest payable and other liabilities 1,333 (293)
-------- --------
Net cash from operating activities 1,233 1,844
Cash flows from investing activities:
Proceeds from maturities of:
Securities held to maturity 0 305
Securities available for sale 13,730 3,876
Proceeds from sales of securities available for sale 0 2,475
Purchase of:
Securities available for sale (25,012) (6,004)
Net principal disbursed on loans 5,116 (10,586)
Purchase of premises and equipment (443) (323)
Proceeds from the sale of foreclosed assets 0 165
-------- --------
Net cash from investing activities (6,609) (10,092)
Cash flows from financing activities:
Net change in:
Checking, money market and savings accounts 3,876 (6,899)
Certificates of deposit 4,256 (10,550)
Treasury stock 31 10
Cash dividends paid (843) (770)
Net advances from other borrowings 7,968 20,815
-------- --------
Net cash from financing activities 15,288 2,606
-------- --------
Net increase (decrease) in cash and cash equivalents 9,912 (5,642)
Cash and cash equivalents at beginning of year 17,973 21,214
-------- --------
Cash and cash equivalents at end of period $ 27,885 $ 15,572
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,183 $ 4,749
Income Taxes $0 $0
6
CNB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
pursuant to rules and regulations of the Securities and Exchange Commission
(SEC) and in compliance with generally accepted accounting principles. Because
this report is based on an interim period, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
In the opinion of the Management of the registrant, the accompanying
consolidated financial statements for the quarter ended March 31, 2001 and 2000
include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the financial condition and the results of
operations for the period. The financial performance reported for the
Corporation for the three-month period ended March 31, 2001 is not necessarily
indicative of the results to be expected for the full year. This information
should be read in conjunction with the Corporation's Annual Report to
shareholders and Form 10-K for the period ended December 31, 2000.
COMMON STOCK PLAN
The Corporation has a common stock plan for key employees and independent
directors. The Stock Incentive Plan, which is administered by a disinterested
committee of the Board of Directors, provides for 250,000 shares of common stock
in the form of qualified options, nonqualified options, stock appreciation
rights or restrictive stock. The Corporation applies Accounting Principles
Board Opinion 25 and related interpretations in accounting for its common stock
plan. Accordingly, no compensation expense has been recognized for the plans.
EARNINGS PER SHARE
Earnings per share (EPS) is calculated on the weighted average number of
common shares outstanding during the year. The weighted average shares used in
the calculation were 3,667,014 for basic and diluted in 2001 and 3,664,314 for
basic and diluted in 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Transfer and Servicing of Financial Assets and Extinguishments of
- --------------------------------------------------------------------------------
Liabilities
- -----------
In September 2000, the FASB issued statement No. 140, which replaces FASB
statement No.125, issued in June 1996. FAS No. 140 revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of the
provisions of FAS No. 125. The statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. FAS No. 140 is effective for transfers occurring after
March 31, 2001 and for disclosures relating to securitization transactions and
collateral for years ending after December 15, 2000. Implementation of FAS No.
140 will not have a material impact on the Corporation's financial condition or
results of operations.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
CONSOLIDATED YIELD COMPARISONS
CNB Financial Corporation
Average Balances and Net Interest Margin
(Dollars in thousands)
March 31, 2001 March 31, 2000
- ----------------------------------------------------------------------------------------------------------------------------
Average Annual Interest Average Annual Interest
Balance Rate Inc./Exp. Balance Rate Inc./Exp.
Assets
Interest-bearing deposits with banks $ 3,410 6.33% $ 54 $ 1,340 5.67% $ 19
Federal funds sold and securities
purchased under agreements to resell 7,761 5.31% 103 445 5.39% 6
Investment Securities:
Taxable 103,433 6.35% 1,641 98,496 6.17% 1,520
Tax-Exempt(1) 35,130 6.73% 591 37,485 6.88% 645
Equity Investments(1) 10,210 7.05% 180 6,755 5.86% 99
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments 159,944 6.42% 2,569 144,521 6.34% 2,289
Loans
Commercial(1) 80,031 8.74% 1,749 75,262 8.72% 1,640
Mortgage(1) 221,033 8.72% 4,819 214,701 8.58% 4,603
Installment 41,762 9.26% 967 48,233 9.29% 1,120
Leasing 25,650 7.49% 480 31,118 7.30% 568
- ----------------------------------------------------------------------------------------------------------------------------
Total loans(2) 368,476 8.70% 8,015 369,314 8.59% 7,931
Total earning assets 528,420 8.01% 10,584 513,835 7.96% 10,220
Non Interest Bearing Assets
Cash & Due From Banks 11,769 - 13,040 -
Premises & Equipment 12,967 - 12,939 -
Other Assets 20,642 - 20,998 -
Allowance for Possible Loan Losses (3,958) - (3,735) -
- ----------------------------------------------------------------------------------------------------------------------------
Total Non-interest earning assets 41,420 -- - 43,242 -- -
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets $569,840 $10,584 $557,077 $10,220
==========================================================================
Liabilities and Shareholders' Equity
Interest-Bearing Deposits
Demand - interest-bearing $117,811 2.29% $ 674 $118,526 2.46% $ 730
Savings 73,554 3.78% 695 72,610 3.64% 660
Time 245,814 5.66% 3,481 246,617 5.00% 3,084
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 437,179 4.44% 4,850 437,753 4.09% 4,474
Short-term borrowings 1,379 6.09% 21 8,546 5.85% 125
Long-term borrowings 19,889 5.49% 273 5,769 5.75% 83
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 458,447 4.49% 5,144 452,068 4.14% 4,682
Demand - non-interest-bearing 51,008 - 49,822 -
Other liabilities 7,294 - 5,114 -
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 516,749 5,144 507,004 4,682
Shareholders' equity 53,091 - 50,073 -
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $569,840 $ 5,144 $557,077 $ 4,682
==========================================================================
Interest income/earning assets 8.01% $10,584 7.96% $10,220
Interest expense/interest bearing liabilities 4.49% 5,144 4.14% 4,682
- ----------------------------------------------------------------------------------------------------------------------------
Net Interest Spread 3.52% $ 5,440 3.81% $ 5,538
===================== ===================
Interest Income/Interest Earning Assets 8.01% $10,584 7.96% $10,220
Interest expense/Interest Earning Assets 3.89% 5,144 3.64% 4,682
- ----------------------------------------------------------------------------------------------------------------------------
Net Interest Margin 4.12% $ 5,440 4.31% $ 5,538
===================== ===================
- ----------------------------------------------------------------------------------------------------------------------------
(1) The amounts are reflected on a fully tax equivalent basis using the federal
statutory rate of 34% in 2001 and 2000, adjusted
for certain tax exemptions
(2) Average outstanding includes the average balance outstanding of all non-
accrual loans. Loans consist of the average of total loans less average
unearned income. The amount of loan fees included in the interest income
on loans is not material.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The following discussion and analysis of the consolidated financial
statements of the Corporation is presented to provide insight into management's
assessment of financial results. The Corporation's subsidiary County National
Bank (the "Bank") provides financial services to individuals and businesses
within the Bank's market area made up of the west central Pennsylvania counties
of Clearfield, Cambria, Centre, Elk, Jefferson, and McKean. County National
Bank is a member of the Federal Reserve System and subject to regulation,
supervision and examination by the Office of the Comptroller of the Currency
("OCC").
The market area that County National Bank operates in is rural in nature.
The customer makeup consists of small business and individuals. The health of
the economy in the region has remained relatively stable. Unemployment in our
region has run consistently higher than the state average over time.
OVERVIEW OF BALANCE SHEET
Total assets (shown in "Consolidated Balance Sheet") have increased 3.5%
since year-end 2000 to $575.0 million. The increase has occurred primarily in
cash and investments. The following comments will further explain the details of
the asset fluctuation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents totaled $27,855,000 at March 31, 2001 compared to
$17,973,000 on December 31, 2000. This increase resulted from a significant
inflow of deposits mainly during March 2001. The Corporation will focus on
decreasing the cash balance and investing funds in higher yielding earning
assets during the second quarter.
Management believes the liquidity needs of the Corporation are satisfied by
the current balance of cash and cash equivalents, readily available access to
traditional funding sources, and the portion of the securities and loan
portfolios that mature within one year. These sources of funds will enable the
Corporation to meet cash obligations and off-balance sheet commitments as they
come due.
SECURITIES
Securities increased $13.2 million (or 9.7%) since December 31, 2000. The
increase resulted from an opportunity to borrow money from the Federal Home Loan
Bank and invest in $10 million of Corporate notes having the same duration. Also
aiding the increase was a change in the fair market valuation of the bond
portfolio. In a declining interest rate environment, bond prices generally
increase. This increase gave the Corporation an unrealized gain of $1,103,000,
an increase over year-end of $1.3 million. The Corporation generally buys into
the market over time and does not attempt to "time" its transactions. In doing
this, the highs and lows of the market are averaged into the portfolio and
minimizes the overall effect of different rate environments.
Management monitors the earnings performance and the effectiveness of the
liquidity of the securities portfolio on a regular basis through Asset/
Liability Committee ("ALCO") meetings. The ALCO also reviews and manages
interest rate risk for the Corporation. Through active balance sheet management
and analysis of the securities portfolio, the Corporation maintains sufficient
liquidity to satisfy depositor requirements and various credit needs of its
customers.
LOANS
The Corporation's loan demand was weak during the first quarter of 2001.
The Corporation's lending is focused in the west central Pennsylvania market and
consists principally of retail lending, which includes single-family residential
mortgages and other consumer lending, and commercial lending primarily to
locally-owned small businesses.
9
At March 31, 2001, the Corporation had $361,006,000 in loans and leases
outstanding, net of unearned discount, down $5,150,000 (or -1.4%) since December
31, 2000. The decrease was caused by a general decline in demand across all
categories of loans. While we remain dedicated to the success of commercial
lending, a stronger approach has been adopted toward secured consumer loans.
This strategy is part of an overall initiative to increase our market share of
households in loans and deposits.
ALLOWANCE FOR LOAN AND LEASE LOSSES AND NONPERFORMING ASSETS
The Allowance for Loan and Lease Losses as a percentage of loans increased
from 1.06% at December 31, 2000 to 1.11% at March 31, 2001. The dollar amount
of the reserve increased $123,000 since year-end 2000. The increase is a result
of the provision of $270,000 expensed during the three months less net charge-
offs. The gross charge-offs for the three months of 2001 were $193,000 while
recoveries were $46,000. This level of charge-offs is a decrease from the three
months of 2000 when charge-offs were $210,000 with recoveries of $25,000.
The adequacy of the allowance for loan and lease losses is subject to a
formal analysis by an independent loan review analyst, as well as our internal
credit administrator, and is deemed to be adequate to absorb probable losses in
the portfolio as of March 31, 2001. The Corporation has disclosed in its annual
report on Form 10-K the process and methodology supporting the loan loss
provision.
Management continues to closely monitor loan delinquency and loan losses.
Non-performing assets, which include loans 90 or more days past due, non-accrual
loans and other real estate owned were $2,355,000 or 0.65% of total loans on
March 31, 2001 compared to $2,571,000 or 0.70% on December 31, 2000.
FUNDING SOURCES
The Corporation considers deposits, short-term borrowings, and term debt
when evaluating funding sources. Traditional deposits continue to be the most
significant source of funds for the Corporation at $493,349,000 at March 31,
2001. Deposit increase of 1.7% since year-end 2000 is a result of the
previously mentioned strategy to focus on consumer households. Also adding to
the increase is the decline in value of the stock market which has appeared to
force some investors back to bank deposits.
The Corporation utilizes term borrowings from the Federal Home Loan Bank
(FHLB) to meet funding needs not accommodated by deposit growth. During 2001,
the Corporation borrowed $10 million to take advantage of opportunities existing
in the bond market. Management plans to maintain access to short and long-term
FHLB borrowings as an appropriate funding source.
SHAREHOLDERS' EQUITY
The Corporation's capital continues to provide a strong base for profitable
growth. Total Shareholders' Equity was $53,048,000 at March 31, 2001 compared
to $51,203,000 at December 31, 2000 an increase of $1,845,000 (or 3.6%). In the
first three months of 2001, the Corporation earned $1,382,000 and declared
dividends of $843,000, a dividend payout ratio of 61.0% of net income.
The investment securities in the Corporation's portfolio are classified as
available-for-sale making this portion of the Corporation's balance sheet more
sensitive to the changing market value of investments. Interest rates in the
first quarter of 2001 have been on a downward trend. This situation has caused
an increase in accumulated other comprehensive income which is included in
stockholders' equity of $1,275,000 since December 31, 2000.
The Corporation has also complied with the standards of capital adequacy
mandated by the banking regulators. Bank regulators have established "risk-
based" capital requirements designed to measure capital adequacy. Risk-based
capital ratios reflect the relative risks of various assets banks hold in their
portfolios. A weight category of 0% (lowest risk assets), 20%, 50%, or 100%
(highest risk assets), is assigned to each asset on the balance sheet. The
Corporation's total risk-based capital ratio of 11.57% at March 31, 2001 is
above the well-capitalized standard of 10%. The Corporation's Tier 1 capital
ratio of 10.48% is above the well-capitalized minimum of 6%. The leverage ratio
at March 31, 2001 was 6.95%, also above the well-capitalized standard of 5%.
The Corporation is well capitalized as measured by the federal regulatory
agencies. The ratios provide quantitative data demonstrating the strength and
future opportunities for use of the Corporation's capital base. Management
continues to evaluate risk-based capital ratios and the capital position of the
Corporation as part of its strategic decision making process.
10
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity measures an organizations' ability to meet cash obligations as
they come due. The Consolidated Statement of Cash Flows presented on page 6 of
the accompanying financial statements provides analysis of the Corporation's
cash and cash equivalents. Additionally, management considers that portion of
the loan and investment portfolio that matures within one year as part of the
Corporation's liquid assets. The Corporation's liquidity is monitored by the
ALCO Committee, which establishes and monitors ranges of acceptable liquidity.
Management feels the Corporation's current liquidity position is acceptable.
QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the course of conducting business activities, the Corporation is
exposed to market risk, principally interest rate risk, through the operation of
the Bank. Interest rate risk arises from market driven fluctuations in interest
rates, which affect cash flows, income, expense and values of all financial
instruments. Management and the ALCO Committee of the Board monitor the
Corporation's interest rate risk position. No material changes have occurred
during the period in the Bank's market risk strategy or position, a discussion
of which can be found in the SEC Form-10K filed for the period ended December
31, 2000.
11
RESULTS OF OPERATIONS
OVERVIEW OF THE INCOME STATEMENT
The Corporation had net income of $1,382,000 for the first quarter of 2001.
The earnings per diluted share for the period was $0.38. Net income was
$1,247,000 for the first quarter of 2000, which equated to earnings per diluted
share of $0.34.
INTEREST INCOME AND EXPENSE
Net interest income totaled $5,195,000 in the first quarter, a decrease of
1.7% over the first quarter of 2000. Total interest income increased during the
quarter by $370,000 or 3.7% while interest expense increased by $462,000 or 9.9%
when compared to the first quarter of 2000. Our cost of funds increased greater
than the yield on assets. The main cause of this is the growth in interest
bearing deposit accounts through the first quarter of 2001. The Corporation
expects to place these deposits dollars into higher yielding assets throughout
the second quarter.
PROVISION FOR LOAN LOSSES
The Corporation recorded a provision for loan and lease losses in the first
quarter of $270,000 compared to the first quarter of 2000 at $180,000. Based on
managements' evaluation of problem loans, increased charge-offs, expected growth
in the loan portfolio, and the overall effects of the economy managements'
analysis indicates the allowance provision appears to be adequate.
NON-INTEREST INCOME
Non-interest income increased $245,000 (or 26.9%) in the first quarter of
2001 when compared to the same period in 2000. Increased deposit account
service charges have been the primary source of the growth in non-interest
income. In the three months, account service charges totaled $609,000 up
$78,000 (or 14.7%) over last year. These increases in fee income were mainly
the result of growth in the number of customers and related deposit accounts
over the past twelve months. Also during 2000, there were $41,000 in security
losses compared to no securities gains or losses in 2001.
NON-INTEREST EXPENSE
Non-interest expense decreased $62,000 or 1.4% during the first quarter of
2001 when compared to the same period in 2000. This decreased level of non-
interest expense is attributable to adjustments made to our staffing levels that
occurred in the fourth quarter of 2000. These adjustments resulted in a
reduction of $70,000 in salary and benefit costs for the quarter compared to the
prior period.
RETURN ON ASSETS
For the three months ended March 31, 2001, the Corporation's annualized
return on average assets ("ROA") totaled 0.97% up from the 0.90% recorded in
2000. Operating cash earnings ROA, which represents earnings excluding one-time
merger related costs and amortization expense, for the three months of 2001 was
1.17% as compared to 1.12% in the same period for 2000.
RETURN ON EQUITY
The Corporation's annualized return on average shareholder's equity ("ROE")
in the first quarter was 10.47% compared to 10.34% for 2000. The decrease can be
attributed to the increase in equity as described in the shareholders'equity
section on page 11. Operating cash earnings ROE for the first quarter was
12.66% compared to 13.01% in 2000.
FEDERAL INCOME TAX EXPENSE
Federal income tax expense was $430,000 in the first quarter of 2001
compared to $440,000 in the first quarter of 2000. The decrease reflects a
managed tax expense through lower taxable income in the period when compared to
the same period in the prior year.
12
FUTURE OUTLOOK
Year-to-date results improved when compared to the prior year and were
consistent with management's expectations. Management continues to focus on
growth from increased market share. The goal of growth is to increase
shareholder value as well as provide favorable results in the long-term
profitability of the Corporation.
Loan demand was weak during the first quarter. Loan growth is expected to
provide for an increase in the range of 1% to 3% for the year over year-end
2000. The Corporation's loan to deposit ratio has decreased through the first
quarter to 72.36% compared to 74.66% at year-end 2000 as deposit growth has been
very good during the first quarter and is expected to remain strong throughout
2001.
Consumer loan charge-offs in the first quarter continued to comprise the
majority of the Corporation's recent charge-offs. In the first three months,
total net charge-offs were $147,000 of which consumer net charge-offs totaled
$81,000. Management believes that the increased efforts of loan review and
collections and our high underwriting standards will give the Bank favorable
charge-off history when compared to peer institutions.
Enhanced non-interest income and controlled non-interest expense are
important factors in the success of the Corporation and is measured in the
financial services industry by the efficiency ratio, calculated according to the
following: non-interest expense (less amortization of intangibles) as a
percentage of fully tax equivalent net interest income and non-interest income
(less non-recurring income). For the three months ended March 31, 2001, the
Corporation's efficiency ratio was 56.66% compared to 58.16% for the same period
last year.
The efficiency ratio improved as the level of non-interest income has
increased and the non-interest expense has declined over the year. Management
believes controlling the operating costs of the Corporation is imperative to the
future increased profitability derived from core earnings. A strong focus by
management continues to be placed on controlling non-interest expenses during
the remainder of 2001. Through the use of technology and more efficient
processes, our non-interest costs have been reduced to date and should remain
lower than 2000 throughout this year.
The interest rate environment will continue to play an important role in
the future earnings of the Corporation. The net interest margin has remained
the central focus of management as competitive pressures in the form of reduced
lending rates coupled with higher cost of funds has created pressure to the
margin. Overall interest income continues to increase due to growth in average
interest earning assets. Management expects further growth in interest income
coupled with reduced interest costs to provide the Corporation with improved net
interest income for the remainder of 2001.
Management concentrates on return on average equity and earnings per share
evaluations, plus other methods, to measure and direct the performance of the
Corporation. While past results are not an indication of future earnings,
management feels the Corporation is positioned to enhance performance of normal
operations through the remainder of 2001.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
The statements in this Form 10-Q which are not historical fact are forward
looking statements that involve risks and uncertainties, including, but not
limited to, the interest rate environment, the effect of federal and state
banking and tax regulations, the effect of economic conditions, the impact of
competitive products and pricing, and other risks detailed in the Corporation's
Securities and Exchange Commission filings.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS FOR SECURITY HOLDERS VOTE
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
There were no reports for the period ended March 31, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNB FINANCIAL CORPORATION
(Registrant)
DATE: May 10, 2001 /s/ William F. Falger
---------------------- ----------------------------
William F. Falger
President and Director
(Principal Executive Officer)
DATE: May 10, 2001 /s/ Joseph B. Bower, Jr.
--------------- -----------------------------
Joseph B. Bower, Jr.
Treasurer
(Principal Financial Officer)
(Principal Accounting Officer)
14