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 June 30, 1997 Commission File Number 0-13396
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- -------------
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
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock: $4.00 Par Value
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 June
30, 1997:
COMMON STOCK: $4.00 PAR VALUE - 1,722,834 SHARES
INDEX
PART I.
FINANCIAL INFORMATION
Sequential
Page Number
- -----------
PAGE 3. Notes to Consolidated Financial Statements
PAGE 5. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PAGE 11. Table 1 - Consolidated Balance Sheets - June 30, 1997
PAGE 12. Table 2 - Consolidated Statements of Cash Flows - June 30, 1997
PAGE 13. Table 3Q - Consolidated Statements of Income - Quarter ending June
30, 1997
PAGE 14. Table 3Y - Consolidated Statements of Income For Six Months
Ending June 30, 1997
PAGE 15. Table 4 - Consolidated Yield Comparisons
PART II.
OTHER INFORMATION
PAGE 16. ITEM 4 Submission of Matters for Security Holders Vote
PAGE 16. ITEM 5 Other Information
PAGE 16. ITEM 6 Exhibits and Reports on Form 8-K
PAGE 16. Signatures
2
CNB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
In the opinion of Management of the registrant, the accompanying
consolidated financial statements for the three and six month periods ended June
30, 1997 and 1996 include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair statement of the results for the period. 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, 1996.
The preperation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results will differ from those estimates and such
differences may be material to the financial statements.
The financial performance reported for the Corporation as of June 30,
1997 is not necessarily the result to be expected for the full year. The results
contain no extraordinary income (loss) for changes in accounting or other
events.
Tax provisions for interim financial statements are based on the
estimated tax rates for the full fiscal year. The estimated effective tax rate
differs from the statutory tax rate principally due to tax-free interest income
on certain loans and investments which qualify for such treatment.
ACCOUNTING POLICIES
ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses is established through provisions for loan
losses which are charged against income. Loans which are deemed to be
uncollectible are charged against the allowance account. Subsequent recoveries,
if any, are credited to the allowance account.
Management determines the adequacy of the reserves based on historical
patterns of charge-offs and recoveries, industry experience, and other
qualitative factors relevant to the collectability of the loan portfolio. While
management believes that the allowance is adequate to absorb estimated potential
loan losses, future adjustments may be necessary in circumstances that differ
substantially from the assumptions used in evaluating the adequacy of the
allowance for loan losses.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 128: Earnings per Share
- --------------------------------
SFAS No. 128, "Earnings per Share", is effective for periods ending after
December 15, 1997, with retroactive presentation for all periods required. SFAS
No. 128 specifies revised computation, presentation and disclosure requirements
for earnings per share. Under the provisions of SFAS No. 128, primary and fully
diluted earnings per share will be replaced with basic and diluted amounts.
3
SFAS No. 129: Disclosure of Information About Capital Structure
- ---------------------------------------------------------------
SFAS No. 129, "Disclosure of Information About Capital Structure", is
effective for financial statements for periods ending after December 15, 1997.
This statement requires disclosure of rights and privileges of various
securities outstanding.
SFAS No. 130: Reporting Comprehensive Income
- --------------------------------------------
SFAS No. 130, "Reporting Comprehensive Income", is effective for fiscal
years beginning after December 15, 1997. This statement establishes standards
for reporting and display of comprehensive income and its components.
Comprehensive income includes net income and all other changes in shareholder's
equity except those resulting from investments and distributions to owners.
SFAS No. 131: Disclosures about Segments of an Enterprise and Related
- ---------------------------------------------------------------------
Information
- -----------
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", is effective for financial statements for periods beginning after
December 15, 1997. This statement requires financial and descriptive
information about an entity's operating segments to be included in the annual
financial statements.
None of these standards when implemented are expected to materially
impact the reported financial position or results of operations of the
(Corporation).
CONCLUSION
The accompanying financial statements have been prepared pursuant to
rules and regulations of the Securities and Exchange Commission (SEC) and in
compliance with generally accepted accounting practices. 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. The registrant
believes that the disclosures made are adequate to make the information
presented a fair representation of the Corporation's financial
status.
4
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 Company is presented to provide insight into management's
assessment of financial results. The company's only 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, Centre, Elk, 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").
On December 16, 1996 the Bank acquired three full-service banking offices
and one limited service banking office and the corresponding customer lists for
those offices from an unaffiliated institution (referred hereafter as
"Acquisition"). The offices are located in west central Pennsylvania in the
communities of Clearfield, Philipsburg, and DuBois. Two of the full-service
offices have been closed, one in Clearfield and the second in Philipsburg, and
service transferred to existing banking offices in those communities. The
remaining full-service office in DuBois and the limited service office in
Philipsburg continue to operate as branches of the bank.
OVERVIEW OF BALANCE SHEET
Total assets increased from $327,008,000 at December 31, 1996 to
$352,437,000 at June 30, 1997 a growth rate of 7.8%. The increase in assets can
be attributed primarily to the generation of approximately $17 million in new
deposits related to the branch locations and customer lists acquired in the
Acquisition made in the fourth quarter of 1996. Total deposits increased
$30,825,000 (or 11.4%) in the six months ended June 30, 1997, while total
borrowings decreased $5,806,000 (or 39.6%) to $8,850,000. The Company invested
these deposits primarily in loans up $25,033,000 (or 11.2%) and to repay other
borrowings in the amount of $5,806,000.
CASH AND CASH EQUIVALENTS
Cash and Cash equivalents totaled $14,525,000 at June 30, 1997compared to
$10,938,000 on June 30, 1996. The quarter ending on a Monday resulted in the
due from bank amount being larger than normal for the period ending date.
Management believes the liquidity needs of the Company are satisfied by
the current balance of cash and cash equivalents, readily available access to
traditional funding sources, and the portion of the investment and loan
portfolios that matures within one year. These sources of funds will enable the
Company to meet cash obligations and off-balance sheet commitments as they come
due.
INVESTMENT SECURITIES
Investment securities declined $2,822,000 since December 31, 1996, with
funds utilized to meet loan demand. Of the Company's total investment portfolio
of $75,874,000 as of June 30, 1997 $62,471,000 (or 82.3%) is classified as
available for sale with the balance of $13,403,000 classified as held to
maturity.
Management monitors the earnings performance and the effectiveness of the
liquidity of the investment portfolio on a regular basis through Asset /
Liability Committee ("ALCO") meetings. The ALCO also reviews and manages
interest rate risk for the Company. Through active balance sheet management and
analysis of the investment securities portfolio, the Company maintains
sufficient liquidity to satisfy depositor requirements and various credit needs
of its customers.
LOANS
The Company's loan volume continues to grow and reflects the additional
credit opportunities in the markets served. The Company's lending is focused in
the west central Pennsylvania market and
5
consists principally of retail lending, which includes single family residential
mortgages and other consumer lending, and also commercial lending primarily to
locally owned small businesses. The Company's lending market has grown as a
result of the Acquisition and the entry into the DuBois market. This market has
yielded $2.0 million in new loan outstandings in the first six months of 1997.
Management expects this market to continue to provide significant loan growth
over the next several quarters.
The following table details total outstanding loans at the specified
dates:
June 30, December 31, June 30,
1997 1996 1996
(000's) (000's) (000's)
--------------- ------------------ -------------------
Commercial, Financial, and Agricultural $ 57,403 $ 45,037 $ 44,985
Commercial Mortgage 31,450 31,451 31,822
Residential Mortgage 108,864 100,402 85,188
Consumer Installment 41,407 43,448 42,894
Lease Receivables 12,409 6,069 ----
--------------- ------------------ -------------------
$251,533 $226,407 $204,889
At June 30, 1997, the Company had $251,533,000 in loans and leases
outstanding up $25,126,000 (or 11.1%) over December 31, 1996 and up $46,644,000
(or 22.8%) over June 30, 1996. This growth pattern is the result of continued
commercial lending opportunities resulting from customer dissatisfaction with
several superregional banks located within the market as well as continued
market penetration into recently added markets in Elk and McKean counties.
Residential mortgage activity has slowed somewhat but continues to be strong
aided by the Company's First Time Home Buyers mortgage product which has been
available for the past 24 months. Consumer loans appear stagnant but are
actually increasing when lease receivables are included in the total.
Conventional auto financing is being replaced with an ever greater number of
leases. Management feels that this trend will continue over the next several
quarters.
LOAN CONCENTRATION
The Company does not have a concentration of its loan portfolio in any one
industry. The Company monitors loan concentrations by individual industries in
order to track potential risk exposures resulting from industry related
downturns. Residential real estate lending continues to be the largest
component of the loan portfolio representing 43.3% of total loans. Commercial
lending, including commercial mortgages, is the next largest component
representing 35.3% of the portfolio.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The Allowance for Loan and Lease Losses as a percentage of loans decreased
from 1.09% at year end 1996 to 0.99% at June 30, 1997. The dollar amount of the
reserve increased $24,000 for the six months ended June 30, 1997, provision for
loan and lease losses totaled $300,000, while gross chargeoffs were $338,000 and
recoveries amounted to $62,000. This level of chargeoffs is significantly
higher than those experienced in the first six of 1996 when chargeoffs were
$107,000 with recoveries of $42,000.
This trend is consistent with the trend nationwide in the financial
services industry. It is the result of increased consumer credit problems often
resulting in bankruptcies. Management of the Company has implemented increased
loan collection activities which has resulted in decreased levels of loan
delinquency.
Management believes that as a result of these efforts loan and lease
losses will be reduced in the second half of the year. Non-performing assets
(NPA), which include loans 90 or more days past due, non-accrual loans and other
real estate owned were $1,009,000 or 0.29% of total assets on June 30, 1997,
compared to $1,380,000 or 0.41% on March 31, 1997 and $1,264,000 or 0.39% on
December 31, 1996.
The adequacy of the allowance for loan and lease losses is subject to a
formal analysis by the loan review staff of the Bank and is deemed to be
adequate to absorb inherent losses in the portfolio.
6
FUNDING SOURCES
The Company 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 Company reaching $300,881,000 at June 30,
1997, an increase of 11.3% since year-end 1996. Deposit growth occurred
primarily through the Acquisition.
The Company borrowed $5.0 million under a term borrowing from the Federal
Home Loan Bank during the second quarter in order to meet funding needs
resulting from loan demand. This event increased borrowings to $8,850,000 as of
June 30, 1997 from $3,592,000 on March 31, 1997, however, the total is less than
the $14,656,000 outstanding at year-end 1996. Management plans to maintain
access to short-term and long-term FHLB borrowings as an appropriate funding
source.
During the second quarter the Company achieved deposit growth of
$9,005,000 compared to $21,820,000 during the first quarter. The significant
first quarter growth was primarily the result of deposits generated by the
Acquisition. Growth in the second quarter continued to result from the
Acquisition and is expected to continue into the third and fourth quarters.
Also, as a result of the Acquisition, the Company has experienced a change
in the mix of its deposit base. Of the total deposit growth of $30,771,000 in
the first two quarters $29,513,000 or 95.9% has come in the time deposit
category. This results in time deposits representing 42.9% of total deposits as
of June 30, 1997 compared to 36.9% as of year-end 1996. Management expects this
shift in deposit mix to continue, however, at a lesser rate, as deposits
continue to be acquired from the Acquisition.
CAPITAL / STOCKHOLDERS' EQUITY
The Company's Capital continues to provide a strong base for profitable
growth. Total Stockholders' Equity was $40,667,000 at June 30, 1997 compared to
$39,716,000 at year-end 1996, an increase of $951,000 (or 2.4%). Equity growth
was the result of an increase in retained earnings of $735,000 and an increase
of $216,000 in the net unrealized holding gain on available-for-sale securities.
Approximately 65% of the investment securities in the Company's portfolio
are classified as available-for-sale making this portion of the Company's
balance sheet more sensitive to the changing market value of investments. In
the first six months of 1997, interest rates fluctuated in a rather narrow range
ending the second quarter at relatively same level as the beginning of the year.
Management feels the status of the investment markets do not substantially
affect the Company's equity.
In the first six months of 1997, the Company earned $1,908,000 and
declared dividends of $1,172,000, a dividend payout ratio of 61.4% of net
income. In the second quarter, net income and dividends declared totaled
$1,039,000 and $586,000, respectively, a dividend payout ratio of 56.4%.
Management feels that the second quarter payout ratio is acceptable for the
Company and anticipates similar payout ratios in the future.
The Company has also complied with the standards of capital adequacy
mandated by the banking industry. 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 either 0% (lowest risk assets), 20%, 50%, or
100% (highest risk assets), is assigned to each asset on the balance sheet. The
Company's total risk-based capital ratio of 16.39% at June 30, 1997 is well
above the minimum standard of 8%. The Company's Tier 1 capital ratio of 15.35%
also above the regulatory minimum of 4%. The leverage ratio at June 30, 1997,
was 10.76 and also above the minimum standard of 4%. The Company is deemed to
be well capitalized under regulatory industry standards. The ratios provide
quantitative data demonstrating the strength and future opportunities for use of
the Company's capital base. Management continues to evaluate risk-based capital
ratios and the capital position of the Company as part of its strategic decision
making process.
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 12 of
the accompanying financial statements provide analysis of the Company's cash and
cash equivalents. Additionally, management considers that
7
portion of the loan portfolio that matures within one year and maturities within
one year in the investment portfolio as part of the Company's liquid assets. The
Company's liquidity is monitored by the ALCO which establishes and monitors
ranges of acceptable liquidity. Management feels the Company's current liquidity
position is acceptable.
The interest rate sensitivity position at June 30, 1997, indicated the
Company was liability sensitive in the short-term and asset sensitive for
periods longer than one year. Management measures the potential impact of
significant changes in interest rates on both the earnings and equity of the
Company. By the use of computer generated models, the potential impact of these
changes has been determined to be acceptable with modest affects on net income
and equity given an interest rate shock of an increase or decrease in rates of
2.0%. Management continues to monitor the interest rate sensitivity through the
ALCO and uses this data to make appropriate strategic decisions.
RESULTS OF OPERATIONS
OVERVIEW OF THE INCOME STATEMENT
For the six months ended June 30, 1997, the Company earned $1,908,00 in
net income, a decrease of 8.5% from $2,086,000 in net income, before the
cumulative effect of a change in accounting principle in the same period last
year. For the quarter ended June 30, 1997, the Company recorded net income of
$1,039,000, a 2.1% decrease from $1,062,000 in the second quarter of 1996.
Net income decreased in the second quarter and year to date as a primarily
result of increased operating expenses related to the Acquisition. This
decrease was anticipated by management and is the consequence of the nature of
Acquisition which resulted in the Bank taking over the four acquired branches
and hiring the employees and over time acquiring the customers and their
respective deposits. Therefore, the Company experienced an immediate increase
in operating expenses without a comparable increase in operating revenues. In
addition, the Company began amortizing the premium paid for the customer lists
which added an operating expense previously not incurred. The Bank has since
closed two of the acquired branch facilities and assimilated the corresponding
employees into other positions resulting from growth or attrition. Not
withstanding these increased costs, management is confident that the Company's
financial performance targets will be met for the full year of 1997.
INTEREST INCOME AND EXPENSE
Net interest income totaled $3,593,000 in the second quarter, an increase
of 9.2% over the second quarter of 1996 and totaled $6,973,000 for the first
six months of 1997, an increase of 6.6% over the same period of the prior year.
Continued growth in loans has been the primary factor in this increase which has
been mitigated somewhat by higher interest costs for deposits resulting from a
shift in deposit mix to higher cost time deposits. Total interest income
increased during the quarter by $773,000 or 13.7% while interest expense
increased by $471,000 or 19.9% when compared to the second quarter of 1996.
Total interest income for the first six months of 1997 increased by $1,147,000
or 10.1% while interest expense increased by $717,000 or 14.8% when compared to
the first six months of 1996.
The Company recorded a provision for loan and lease losses in the second
quarter of $150,000 up from $125,000 from the second quarter of 1996 and
$300,000 for the first six months of 1997 compared to $250,000 for the first six
months of 1996. Management intends to maintain this provision at the same level
in the third quarter, however, an increased provision in the fourth quarter may
be considered depending on continued loan growth and the level of losses.
NON-INTEREST INCOME
Non-interest income declined $21,000 or 4.1% in the second quarter,
however, it still shows an increase of $101,000 or 10.4% for the first six
months of the year when compared to the same periods last year. The small
decline in the second quarter is the result of decreased fiduciary income and
other operating income which were not fully offset by an increase in service
charges. Service charges on deposit accounts have increased $54,000 or 30.7%
for the quarter and $106,000 or 34.8% for the year to date when compared to the
same period in 1996. This increase in fee income is primarily a result of the
growth in the
8
number of customer accounts. Management anticipates that total non-interest
income will trend upward over the remaining two quarters of 1997.
NON-INTEREST EXPENSE
Non-interest expense increased $387,000 or 17.6% during the second quarter
compared to the second quarter of 1996 and $833,000 or 19.0% in the first six
months of 1997 compared to the same period of the prior year. Much of this
increase is attributable to increased employee costs and occupancy expense
related to branches acquired late in the fourth quarter of 1996. In addition,
included in total non-interest expense is the amortization of the premium paid
for the customer lists acquired in the transaction which added an additional
operating expense in 1997 which was not present in 1996. This intangible
expense amounted to $158,000 for the first two quarters of 1997.
In order to reduce operating costs, management made the decision the
second quarter to close one of the branches acquired in acquisition and
consolidate its operation into nearby existing branches of the Bank. This
office in Philipsburg was closed effective July 30, 1997, and the property
related to the branch has been offered for sale. It is anticipated that the
closing will not result in the write-down of any asset values.
In addition to increased employee and occupancy expense there were certain
one time costs relating to the Acquisition which occurred in the first quarter
of 1997 which did not reoccur in the second quarter. This resulted in non-
interest expense declining in the second quarter when compared to the first
quarter by $62,000 or 2.3%.
RETURN ON ASSETS
For the quarter ended June 30, 1997, return on average assets ("ROA")
totaled 1.18% down from 1.45% recorded in the same period of the prior year.
For the six months ended June 30, 1997, ROA was 1.12% compared to 1.42% in 1996.
Decreased ROA can be attributed to increased operating costs resulting
from the Acquisition. Management believes ROA levels will increase over the
remainder of 1997.
RETURN ON EQUITY
The Company's return on average stockholder's equity ("ROE") in the second
quarter was 10.33%, compared to 11.50% for the same period last year. This
decrease can be attributed primarily to increased equity from retained earnings
and net unrealized holding gain coupled with a small decline in net income.
Management expects improvement in ROE through the remainder of 1997. The
acquisition and its resulting deposits are providing increased revenue potential
without increasing stockholder's equity. The Company is well capitalized under
regulatory industry standards.
FEDERAL INCOME TAX EXPENSE
Federal income taxes decreased from $421,000 in second quarter 1996 to
$313,000 in 1997. For the six months ended June 30, 1997, federal income taxes
totaled $617,000, a decrease of $174,000 (or 22.0%) compared to the same period
a year earlier. This decrease can be attributed to the Company's lower pre-tax
income during the periods.
FUTURE OUTLOOK
Second quarter results showed improvement over the first quarter and were
in line with management expectations. Management continues to focus on asset
growth resulting from ongoing generation of new deposits from the customer lists
acquired via the Acquisition in the fourth quarter of 1996. Management
anticipates that this deposit growth will carry forward into the second half of
the year. Management is particularly encouraged by the growth in the DuBois
market which represents a new
9
community to be served by the Bank. Planning is in progress on the design of a
new banking facility for that location with a projected opening date of mid-
summer of 1998.
Loan growth in the second quarter remained strong and has exceeded
management's expectations. While loan demand is good, competitive pressure from
other financing sources has not resulted in increased loan yields. Management
believes loan growth will continue through the remainder of 1997. The Company's
loan to deposit ratio has remained relatively unchanged at the end of the second
quarter at 82.5% compared to 82.6% at year end 1996. Due to strong loan demand,
management expects the loan to deposit ratio to increase moderately over the
next six months.
Consumer loan charge-offs in the second quarter continued to comprise the
majority of the Company's recent charge-offs. In the second quarter, total net
chargeoffs were $203,632, of which consumer net charge-offs totaled $139,857.
Future provision for loan and lease losses will be affected by the charge-off
activity in all loan categories. Management feels the current reserve for loan
losses is adequate to cover potential chargeoffs as they occur.
Enhanced non-interest income and controlled non-interest expense are
important factors in the success of the Company 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 six months ended June 30, 1997 the
Company's efficiency ratio was 60.51%, compared to 55.84% for the same period
last year.
The efficiency ratio was negatively impacted by increased non-interest
expense resulting from higher levels of salaries and benefits and occupancy
expense relating to the branch acquisitions in late 1996. Management believes
that the efficiency ratio will continue to improve during the second half of
1997 as both interest income and non-interest income increase while operating
expenses stabilize.
The interest rate environment will continue to play an important role in
the future earnings of the Company. The net interest margin has been declining
as more higher cost time deposits continue to be obtained as a result of the
Acquisition. However, overall net interest income continues to increase due to
growth in interest earning assets. Management expects little further decline in
the net interest margin and further growth in net interest income in the
remainder of 1997.
Management concentrates on return on average assets and earnings per share
evaluations, plus other methods, to measure and direct the performance of the
Company. While past results are not an indication of future earnings,
management feels the Company is positioned to enhance performance of normal
operations through the remainder of 1997.
"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 Company's
Securities and Exchange Commission filings.
10
TABLE 1
CONSOLIDATED BALANCE SHEETS
CNB FINANCIAL CORPORATION: June 30, 1997
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, except percent data)
June 30, Dec. 31 June 30,
ASSETS 1997 1996 1996*
-------- -------- --------
Cash and Due from Banks........................................ $ 13,936 $ 10,806 $ 10,924
Deposits with Other Banks...................................... 14 14 14
Federal Funds Sold............................................. 575 0 0
Investment Securities Available for sale 62,471 61,309 60,411
Investment Securities Held to Maturity, fair value of $13,603
at June 30, 1997, $17,717 at December 31, 1996 and
$20,537 at June 30, 1996....................................... 13,403 17,387 20,254
Loans and Leases............................................... 251,533 226,407 204,889
Less: Unearned Discount..................................... 3,397 3,304 3,323
Less: Allowance for Loan Losses.............................. 2,497 2,473 2,330
-------- -------- --------
NET LOANS.................................................... 245,639 220,630 199,236
Premises and Equipment......................................... 9,172 9,312 8,025
Accrued Interest Receivable.................................... 2,251 2,181 2,126
Other Assets and Intangibles................................... 4,976 5,369 2,315
-------- -------- --------
TOTAL ASSETS................................................. $352,437 $327,008 $303,305
LIABILITIES
Deposits:
Non-interest bearing deposits................................ $ 30,960 $ 30,812 $ 28,925
Interest bearing deposits.................................... 269,921 239,244 230,409
-------- -------- --------
TOTAL DEPOSITS............................................... 300,881 270,056 259,334
Other Borrowings............................................... 8,850 14,656 4,396
Accrued Interest and Other Liabilities......................... 2,039 2,580 1,475
-------- -------- --------
TOTAL LIABILITIES............................................ $311,770 $287,292 $265,205
SHAREHOLDERS' EQUITY
Common Stock $4.00 Par Value
Authorized 2,500,000 Shares (issued 1,728,000).............. $ 6,912 $ 6,912 $ 6,912
Retained Earnings............................................ 33,024 32,289 31,316
Treasury Stock, At Cost (5,166 Shares)....................... (100) (100) (100)
Net unrealized securities gains (losses)..................... 831 615 (28)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY................................... 40,667 39,716 38,100
-------- -------- --------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY..................... $352,437 $327,008 $303,305
* June 1996 amounts have been restated to reflect the cumulative effect of the
change in accounting for trust fee income.
11
TABLE 2
CONSOLIDATED STATEMENTS OF CASHFLOWS
CNB FINANCIAL CORPORATION: June 30, 1997
Consolidated Statements of Cash Flows
(Dollars in thousands)
Six Months Ended June 30...
Cash flows from operating activities: 1997 1996*
---------- -----------
NetIncome ................................................................ $ 1,908 $ 2,242
Adjustments to reconcile net income to
net cash provided by operations:
Provision for loan losses ............................................ 300 250
Depreciation ......................................................... 371 317
Amortization and accretion of net deferred loan fees ................. (350) (391)
Amortization and accretion of premiums and discounts on investments .... 15 67
Security Losses (Gains) .............................................. (59) 13
Gain on sale of loans ................................................ 22 19
Changes in:
Interest receivable .................................................. (70) (29)
Other assets and intangibles ......................................... 239 (426)
Interest payable ..................................................... 112 (40)
Other liabilities .................................................... (653) 101
Net cash provided by operating
activities ............................................................... 1,835 2,123
Cash flows from investing activities:
Proceeds from maturities of:
Securities held to maturity ........................................ 3,990 5,644
Securities available for sale ...................................... 3,279 6,523
Proceeds from sales of:
Securities available for sale ...................................... 1,981 0
Loans .............................................................. 1,481 1,525
Purchase of:
Securities held to maturity ........................................ 0 (998)
Securities available for sale ...................................... (6,116) (16,905)
Net principal disbursed on loans ....................................... (26,562) (2,746)
(Purchase) of Federal Reserve Bank Stock ............................... (39) 0
Purchase of Federal Home Loan Bank Stock ............................... 240 (81)
Purchase of premises and equipment ..................................... (231) (560)
Proceeds from the sale of foreclosed assets ............................ 0 54
Net cash used in investing
activities ............................................................... (21,977) (7,544)
Cash flows from financing activities:
Net change in:
Checking, money market and savings accounts ........................ 522 2,556
Certificates of deposit ............................................ 30,303 991
Other borrowed funds ............................................... (771) 1,572
Cash dividends paid .................................................... (1,172) (1,068)
Proceeds from Federal Home Loan Bank Advances .......................... 5,000 0
Principal reduction in Federal Home Loan Bank advances ................. (10,035) (21)
Net cash provided by financing
activities ............................................................... 23,847 4,030
Net increase (decrease) in cash and cash equivalents .................... 3,705 (1,391)
Cash and cash equivalents at beginning of year ........................... 10,820 $ 12,329
Cash and cash equivalents at end of period ............................... $ 14,525 $ 10,938
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (including amount credited directly to certificate
accounts).......................................................... $ 5,661 $ 4,852
Income Taxes ........................................................ $ 456 $ 760
Noncash Investing Activities:
Inc.(Dec.) in net unrealized gain on securities available
for sale ........................................................ $ 327 $ (617)
Real estate acquired in settlement of loans.......................... $ - $ -
* June 1996 amounts have been restated to reflect the cumulative effect of the
change in accounting for trust fee income.
12
TABLE 3-Q
CONSOLIDATED STATEMENTS OF INCOME
CNB FINANCIAL CORPORATION: June 30, 1997
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
THREE MONTHS ENDED JUNE 30...
INTEREST INCOME 1997 1996*
------- -------
Loans including Fees.............................................. $5,269 $4,437
Deposits with Other Banks......................................... 0 0
Federal Funds Sold................................................ 40 23
Investment Securities:
Taxable Securities: Available for Sale......................... 660 671
Tax-Exempt Securities: Available for Sale...................... 225 200
Taxable Securities: Being Held to Maturity..................... 133 196
Tax-Exempt Securities: Being Held to Maturity.................. 100 127
------ ------
TOTAL INTEREST INCOME.......................................... $6,427 $5,654
INTEREST EXPENSE
Deposits.......................................................... $2,758 $2,319
Borrowed Funds.................................................... 76 44
------ ------
TOTAL INTEREST EXPENSE......................................... $2,834 $2,363
Net Interest Income............................................ $3,593 $3,291
Provision for possible loan losses............................. 150 125
------ ------
NET INTEREST INCOME AFTER PROVISION............................... $3,443 $3,166
OTHER INCOME
Trust & Asset Management Fees..................................... $ 130 $ 162
Service charges on deposit accounts............................... 230 176
Other service charges and fees.................................... 104 91
Securities gains (losses)......................................... (19) 0
Gains on Sale of Loans............................................ 20 0
Other income...................................................... 24 81
------ ------
TOTAL OTHER INCOME............................................. $ 489 $ 510
OTHER EXPENSES
Salaries.......................................................... $1,164 $ 980
Employee benefits................................................. 226 311
Net occupancy expense............................................. 405 347
Other Operating Expense........................................... 785 555
------ ------
TOTAL OTHER EXPENSES........................................... $2,580 $2,193
Income Before Income Taxes and Cumulative Effect of Change
In Accounting Principle........................................... $1,352 $1,483
Applicable Income Taxes........................................... 313 421
------ ------
Income Before Cumulative Effect of Change in
Accounting Principle.............................................. 1,039 1,062
Cumulative Effect of Change in Accounting Principle, after Taxes.. 0 0
------ ------
NET INCOME..................................................... $1,039 $1,062
====== ======
Per Share Data
Income Before Cumulative Effect of Accounting Change.............. $0.60 $0.62
Cumulative Effect of Change in Accounting Principle............... 0.00 0.00
------ ------
Net Income........................................................ 0.60 0.62
Cash Dividends Per Share.......................................... 0.34 0.31
* June 1996 amounts have been restated to reflect the cumulative effect
of the change in accounting for trust fee income.
13
TABLE 3-Y
CONSOLIDATED STATEMENTS OF INCOME
CNB FINANCIAL CORPORATION: June 30, 1997
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
SIX MONTHS ENDED JUNE 30...
INTEREST INCOME 1997 1996*
------- --------
Loans including Fees.............................................. $10,177 $ 8,948
Deposits with Other Banks......................................... 0 1
Federal Funds Sold................................................ 56 81
Investment Securities:
Taxable Securities: Available for Sale......................... 1,341 1,292
Tax-Exempt Securities: Available for Sale...................... 450 372
Taxable Securities: Being Held to Maturity..................... 292 412
Tax-Exempt Securities: Being Held to Maturity.................. 206 269
------- -------
TOTAL INTEREST INCOME.......................................... $12,522 $11,375
INTEREST EXPENSE
Deposits.......................................................... $ 5,347 $ 4,751
Borrowed Funds.................................................... 202 81
------- -------
TOTAL INTEREST EXPENSE......................................... $ 5,549 $ 4,832
Net Interest Income............................................ $ 6,973 $ 6,543
Provision for possible loan losses............................. 300 250
------- -------
NET INTEREST INCOME AFTER PROVISION............................... $ 6,673 $ 6,293
OTHER INCOME
Trust & Asset Management Fees..................................... $ 289 $ 361
Service charges on deposit accounts............................... 411 305
Other service charges and fees.................................... 206 185
Securities gains (losses)......................................... 59 (13)
Gains on Sale of Loans............................................ 22 19
Other income...................................................... 87 116
------- -------
TOTAL OTHER INCOME............................................. $ 1,074 $ 973
OTHER EXPENSES
Salaries.......................................................... $ 2,278 $ 1,944
Employee benefits................................................. 465 626
Net occupancy expense............................................. 841 700
Other Operating Expense........................................... 1,638 1,119
------- -------
TOTAL OTHER EXPENSES........................................... $ 5,222 $ 4,389
Income Before Income Taxes and Cumulative Effect of Change
In Accounting Principle........................................... $ 2,525 $ 2,877
Applicable Income Taxes........................................... 617 791
------- -------
Income Before Cumulative Effect of Change in
Accounting Principle.............................................. 1,908 2,086
Cumulative Effect of Change in Accounting Principle, after Taxes.. 0 156
------- -------
NET INCOME..................................................... $ 1,908 $ 2,242
======= =======
Per Share Data
Income Before Cumulative Effect of Accounting
Change............................................................ $1.11 $1.21
Cumulative Effect of Change in Accounting
Principle......................................................... 0.00 0.09
------- -------
Net Income........................................................ $1.11 $1.30
Cash Dividends Per Share.......................................... $0.68 $0.62
* June 1996 amounts have been restated to reflect the cumulative effect of the
change in accounting for trust fee income.
14
TABLE 4
CONSOLIDATED YIELD COMPARISONS
CNB Financial Corporation
Average Balances and
Net Interest Margin
(Dollars in thousands)
June 30, 1997 December 31, 1996 June 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Average Annual Interest Average Annual Interest Average Annual Interest
Balance Rate Inc./Exp. Balance Rate Inc./Exp. Balance Rate Inc./Exp.
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Interest-bearing deposits
with banks $ 14 0.00% $ 0 $ 14 0.00% $ 0 $ 15 1.33% $ 1
Federal funds sold and
securities
purchased under
agreements to resell 2,183 5.13% 56 1,597 5.45% 87 2,933 5.52% 81
Investment Securities:
Taxable 53,456 6.11% 1,633 55,861 6.17% 3,445 54,870 6.21% 1,704
Tax-Exempt (1) 25,099 7.92% 994 24,740 7.92% 1,962 24,099 8.08% 971
-------- ---- ------- -------- ---- ------- -------- ---- -------
Total Investments 80,752 6.65% 2,683 82,212 6.68% 5,494 81,917 6.73% 2,757
Loans
Commercial 54,831 8.11% 2,222 47,679 8.14% 3,882 48,429 8.26% 1,999
Mortgage 131,879 8.67% 5,720 116,233 8.96% 10,415 110,881 9.01% 4,993
Installment 48,885 9.14% 2,235 42,009 9.36% 3,934 41,357 9.46% 1,956
-------- ---- ------- -------- ---- ------- -------- ---- -------
Total loans (2) 235,595 8.64% 10,177 205,921 8.85% 18,231 200,667 8.92% 8,948
Total earning assets 316,347 8.13% 12,860 288,133 8.23% 23,725 282,584 8.28% 11,705
Non Interest Bearing Assets
Cash & Due From Banks 9,559 0 8,579 0 8,025 0
Premises & Equipment 9,301 0 8,297 0 7,931 0
Other Assets 6,398 0 2,965 0 3,650 0
Allowance for Possible
Loan (2,519) 0 (2,301) 0 (2,237) 0
-------- ---- ------- -------- ---- ------- -------- ---- -------
Total Non-interest 22,739 -- 0 17,540 -- 0 17,369 -- 0
earning assets
-------- ---- ------- -------- ---- ------- -------- ---- -------
Total Assets $339,086 $12,860 $305,673 $23,725 $299,953 $ 11,705
======== ==== ======= ======== ==== ======= ======== ==== ========
Liabilities and
Shareholders' Equity
Interest-Bearing Deposits
Demand -
interest-bearing $ 83,678 3.01% $ 1,258 $ 76,496 3.13% $ 2,397 $ 77,156 3.17% $ 1,224
Savings 35,922 1.66% 298 36,266 1.66% 601 36,332 1.64% 298
Time 139,815 5.42% 3,791 117,339 5.47% 6,423 117,194 5.51% 3,229
-------- ---- ------- -------- ---- ------- -------- ---- -------
Total interest-bearing
deposits 259,415 4.12% 5,347 230,101 4.09% 9,421 230,682 4.12% 4,751
Short-term borrowings 5,120 5.16% 132 7,186 5.23% 376 3,318 4.88% 81
Long-term borrowings 2,143 6.53% 70 0 0 0 0
-------- ---- ------- -------- ---- ------- -------- ---- -------
Total interest-bearing 266,678 4.16% 5,549 237,287 4.13% 9,797 234,000 4.13% 4,832
liabilities
Demand - 29,732 -- 0 27,852 -- 0 26,117 -- 0
non-interest-bearing
Other liabilities 2,698 -- 0 2,054 -- 0 1,952 -- 0
-------- ---- ------- -------- ---- ------- -------- ---- -------
Total Liabilities 299,108 3.71% 5,549 267,193 3.67% 9,797 262,069 3.69% 4,832
Shareholders' equity 39,978 -- 0 38,480 -- 0 37,884 -- 0
-------- ---- ------- -------- ---- ------- -------- ---- -------
Total Liabilities and
Shareholders' Equity $339,086 $ 5,549 $305,673 $ 9,797 $299,953 $ 4,832
======== ==== ======= ======== ==== ======= ======== ==== ========
Interest income/earning
assets 8.13% $12,860 8.23% $ 23,725 8.28% $ 11,705
Interest expense/interest bearing
liabilities 4.16% 5,549 4.13% 9,797 4.13% 4,832
---- ------- ---- ------- ---- -------
Net Interest Spread 3.97% $ 7,311 4.10% $ 13,928 4.15% $ 6,873
==== ======= ==== ======= ==== ========
Interest Income/Interest Earning
Assets 8.13% $12,860 8.23% $ 23,725 8.28% $ 11,705
Interest expense/Interest Earning
Assets 3.45% 5,549 3.40% 9,797 3.42% 4,832
---- ------- ---- ------- ---- -------
Net Interest Margin 4.68% $ 7,311 4.83% $ 13,928 4.86% $ 6,873
==== ======= ==== ======= ==== ========
15
PART II OTHER INFORMATION
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 June 30, 1997.
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: August 14, 1997 /s/ James P. Moore
--------------- -------------------
James P. Moore
President and Director
(Principal Executive Officer)
DATE: August 14, 1997 /s/ William F. Falger
--------------- ----------------------
William F. Falger
Executive Vice President and Director
(Principal Financial Officer)
(Principal Accounting Officer)
16