-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ultm7oKat8AcIlv3hIcWgD66fGXSIdOuk5YPZ5or7XMcLAyQw0uiD4VZ71p3BSZi /WLUEymEG4MsLvBPwgAfZQ== 0000950109-96-003116.txt : 19960517 0000950109-96-003116.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950109-96-003116 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CNB FINANCIAL CORP/PA CENTRAL INDEX KEY: 0000736772 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 251450605 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13396 FILM NUMBER: 96565211 BUSINESS ADDRESS: STREET 1: SECOND AND MARKET ST STREET 2: P.O. BOX 42 CITY: CLEARFIELD STATE: PA ZIP: 16830 BUSINESS PHONE: 814-765-9621 MAIL ADDRESS: STREET 1: SECOND AND MARKET STREET STREET 2: P.O. BOX 42 CITY: CLEARFIELD STATE: PA ZIP: 16830 10-Q 1 FORM 10-Q 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, 1996 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 Market and Second Streets 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 March 31, 1996: COMMON STOCK: $4.00 PAR VALUE - 1,722,834 SHARES 1 INDEX PART I. FINANCIAL INFORMATION Sequential Page Number - ----------- PAGE 3. Notes to Consolidated Financial Statements PAGE 4. Management's Discussion and Analysis of Financial Condition and Results of Operations PAGE 7. Table 1 - Consolidated Balance Sheets - March 31, 1996 PAGE 9. Table 2 - Consolidated Statement of Cash Flows - March 31, 1996 PAGE 13. Table 3 - Consolidated Statement of Income - March 31, 1996 PAGE 14. Table 4 - Consolidated Yield Comparisons PART II. OTHER INFORMATION PAGE 15. ITEM 5 Other Information PAGE 16. ITEM 6 Exhibits and Reports on Form 8K PAGE 16. Signatures 2 CNB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SCOPE In the opinion of Management of the registrant, the accompanying consolidated financial statements for the three month period ended March 31, 1996 and 1995 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 and Form 10-K for the period ended December 31, 1995. The financial results reported for the Corporation's first fiscal quarter of 1996 are not necessarily the results 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 GUIDELINES SFAS No. 106: Post Retirement Benefits - --------------------------------------- Effective January 1, 1993, the Corporation adopted Statement of Financial Accounting Standard (SFAS) No. 106 "Employers Accounting for Postretirement Benefits Other Than Pension", which requires the accrual of expected costs of providing for certain postretirement benefits during the years the employee provided services. The Corporation's cash flows were not affected by implementation of this standard but the Corporation is accruing $40,256 for this year's service and interest cost and amortizing $7,566 of its transition obligation. The average annual assumed rates of increases in the per capita cost of covered benefits range from 10% in 1996 to 8% in 1998 and beyond. The healthcare cost trend rate assumption has a significant effect on the amounts reported. These rates have been determined to be in line with industry practice by both management and Ernst and Young, LLP, the company's external accountants. The discount rate used in determining the accumulated postretirement benefit was 6.50 percent. SFAS No. 109: Accounting for Income Taxes - ------------------------------------------ The Corporation adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" in 1993. This statement requires the use of the liability method to account for deferred income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. These are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. 3 SFAS No. 114 & SFAS No. 118: Accounting for the Impairment of a Loan - --------------------------------------------------------------------- In May, 1993 the Financial Accounting Standards (FASB) issue Statement No. 114 "Accounting by Creditors for the Impairment of a Loan" which is effective for the fiscal years beginning after December 15, 1994. This guideline was subsequently amended by a second Statement of Financial Accounting Standard No. 118 "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures". The statement provides guidelines on how to determine if the loan is impaired, how to measure the impairment based on the type of loan and how to recognize interest based on the stream of cash flows which are expected to be received. The Corporation's accounting policy for loans is to quarterly examine non- accruing loans on a case-by-case basis to determine if there is the possibility that the Bank has little or no chance of recovering its principal. In a case where there is a collateral shortfall and no foreseeable repayment stream, the loan is charged-off. If a borrower has some ability to meet part of its obligation, but total repayment is in serious question, Management may decide to restructure the terms of repayment. In such an instance, pro forma financials are performed on the borrower and if the financial strength of the borrower warrants it, Management will restructure the loan using SFAS No. 114 and SFAS No. 118 guidelines. The Corporation adopted these accounting standards in the first quarter of 1995. One loan which had been on non-accrual status since early 1994 had emerged from a Chapter 11 filing with a court approved restructuring plan. Bank Management waited seven months to determine if the new terms would be met. In August of last year, after sufficient payment history had been established, management applied the standards of No. 114 and No. 118 to this borrowing. The balance then was $784,330. Management discounted the cash flows at the original note rate of 12% and charged-off $59,400. The Bank then began recognizing interest income at the new rate of 8.0% as allowed under Generally Accepted Accounting Practices. SFAS No. 115: Accounting for Certain Debt and Equity Securities - ----------------------------------------------------------------- At the time of acquisition, management classifies debt securities as either held to maturity, available for sale or trading securities in compliance with SFAS No. 115. Debt securities are classified as held to maturity when the Corporation has the positive intent and ability to hold the securities to maturity. Held to maturity securities are stated at amortized cost. Debt securities that the Corporation does not have the positive intent and ability to hold to maturity, and all marketable equity securities, are classified as available for sale or trading and carried at fair value. Unrealized gains and losses, net of tax, on securities classified as available for sale will be carried as a separate component of shareholders' equity. Unrealized gains and losses on securities classified as trading will be reported in earnings. Management has not classified any debt or equity securities as trading. The amortized cost of debt securities classified as held to maturity or available for sale is adjusted for the amortization of premiums and the accretion of discounts to maturity or, in the case of mortgage-backed securities and collateralized mortgage obligations, over the estimated life of the security. Such amortization is included in interest income from investments. Realized gains and losses and declines in value judged to be other than temporary are included in other income. The cost of securities sold is based on the specific identification method. The Corporation nor Bank engages in securities trading and therefore this category has not been used. Management has decided that the Bank's liquidity investments are designated as "Available For Sale" and portfolio investments are purchased for holding until the security matures. Additionally, equity securities held in the parent company are all considered "Available For Sale. As of March 31, 1996, the Corporation had an after-tax unrealized gain in the "Available For Sale" category of $339,000. 4 CONCLUSION The accompanying financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (SEC). As a result, 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. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION MARKET AREA ECONOMIC CONDITIONS CNB Financial Corporation and its subsidiary, County National Bank ("the Bank") are headquartered in Clearfield, Pennsylvania in the north-central region of the state. Due to the small population of the area, little specific economic analysis is available. Despite the Corporation's relative proximity to State College, the demographic and economic characteristics are significantly different. Specific economic data on the county has been discontinued by the Pennsylvania Bureau of Research Statistics. Therefore employment and other indicators are no longer available on this specific area. Historically, the region has followed national indicators with a very slight lag period between national growth and contractions. Industry in the area is dominated by trucking companies, coal producers and timber/paper companies. The industries provide some stability to the region while building and construction vary greatly by season and serve to distort true unemployment and economic reporting. With the recent location into the area of a nationally known retailer's northeast distribution center, the area's housing market has been characterized as there being a shortage of middle-income housing. This is evidenced in the general rise in housing prices. Moderate housing construction is visible and the Corporation's market area is believed to be growing though no formal documents are available to substantiate this report. ASSETS - ------ Total assets (shown in Table 1 "Consolidated Balance Sheet") have grown 12.1% since one year ago to $304.4 million. Much of the growth has occurred in the loan portfolios with approximately equal percentage increases in the mix of commercial, consumer and real estate related loans. The Bank has maintained a large amount of liquidity in the form of federal funds sold due to an expected outflow from its Prime Money Fund Account. Total gross loans were $202.5 million on March 31, 1996 compared to $185.4 million twelve months ago. The growth in loans has been supported by $29 million in higher core deposit growth and retained earnings. The Corporation's interest earning assets consist of deposits with other banks, federal funds sold, short term investments, investment securities and loans. Management uses the short term liquid assets to balance changes in either loans or core deposits. Over the past year, the increase in loans has been funded mainly by core deposit growth in the Bank's new deposit product called "The Prime Money Fund". This product has proved very successful in stemming the outflow of deposits into non-bank financial service companies. The Bank's product pays interest which is competitive with money market mutual funds. Bank premises and equipment increases reflect the investment the Corporation has made in its expanded headquarters facility in Clearfield, Pennsylvania, as well as the proportionately large increase in microcomputer communications and software. Additionally, the Bank opened a leased branch on November 15, 1995 in Bradford, McKean County, Pennsylvania and opened a de novo branch in Houtzdale, Clearfield County, on January 10, 1996. The Bank opened a remote ATM at the University of Pittsburgh - Bradford on March 12, 1996. 6 TABLE 1 CONSOLIDATED BALANCE SHEET CNB FINANCIAL CORPORATION: March 31, 1996 Consolidated Balance Sheets (Unaudited) (Dollars in thousands, except percent data)
March 31 Dec. 31 March 31 1996 1995 1995 ----------- ------------ ----------- ASSETS Cash and Due from Banks............................................ $8,200 $9,110 $7,492 Deposits with Other Banks.......................................... 14 19 18 Federal Funds Sold................................................. 8,625 3,200 2,550 Investment Securities Available for sale 57,418 51,007 42,056 Investment Securities Held to Maturity, fair value of $21,383 at March 31, 1996, $25,541 at December 31, 1995 and $29,806 at March 31, 1995 ......................................... 20,925 24,921 29,625 Loans 202,524 203,706 185,356 Less: Unearned Discount......................................... 3,512 3,668 3,275 Less: Allowance for Loan Losses.................................. 2,255 2,145 2,136 ------- ------- ------- NET LOANS........................................................ 196,757 197,893 179,945 Premises and Equipment............................................. 7,890 7,782 5,694 Accrued Interest and Other Assets.................................. 4,554 3,591 4,226 ------- ------- ------- TOTAL ASSETS..................................................... $304,383 $297,523 $271,606 LIABILITIES Deposits: Non-interest bearing deposits.................................... $26,947 $25,705 $24,878 Interest bearing deposits........................................ 234,263 230,082 207,175 ------- ------- ------- TOTAL DEPOSITS................................................... 261,210 255,787 232,053 Other Borrowings................................................... 3,372 2,846 2,743 Accrued Interest and Other Liabilities............................. 1,998 1,347 1,415 ------- ------- ------- TOTAL LIABILITIES................................................ 266,580 259,980 236,211 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................................................ 30,652 30,142 28,689 Treasury Stock, At Cost (5,166) (100) (100) (100) Net unrealized securities gains (losses)......................... 339 589 (106) ------- ------- ------- TOTAL SHAREHOLDERS' EQUITY....................................... 37,803 37,543 35,395 ------- ------- ------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY......................... $304,383 $297,523 $271,606
7 Accrued interest and other assets rose slightly over the past twelve months. Normal fluctuations in interest receipts and pre-paid expenses will influence changes in these accounts. LIABILITIES - ----------- Total deposits on March 31, 1996 were $261.2 million, an increase of $29.1 million over March 31, 1995. Deposit growth has occurring primarily in a deposit product called "The Prime Money Fund" which pays interest on an indexed rate and is competitive with interest earned on short term mutual funds. Other consumer deposit categories have remained at approximately the same volume levels as compared to this time last year. The Bank gathers deposits from its local communities and does not solicit funds from outside its market areas. The Bank does belong to the Federal Home Loan Bank of Pittsburgh and maintained an average borrowing capacity with that institution in 1995 of approximately $66 million. However, given the healthy growth in consumer deposits the Bank has not accessed this facility in almost two years. An analysis of the sources and uses of funds is shown in Table 2 "Statement of Consolidated Cash Flow". LIQUIDITY AND INTEREST RATE SENSITIVITY - --------------------------------------- The primary functions of asset/liability management are to assure adequate liquidity and maintain an appropriate balance between interest sensitive earning assets and interest rate sensitive liabilities so that earnings are not excessively influenced by changes in interest rates. Liquidity management involves the ability to meet the cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Interest risk management seeks to avoid instability in net interest margins and to enhance consistent growth of net interest income through periods of volatile interest rates. Sources of asset liquidity are investment securities maturing in one year or less, time deposits with banks and federal funds sold. In extreme shortages of liquidity, "Investments Available for Sale" can be liquidated with no capital impairment due to SFAS No. 115 accounting guidelines. These assets totaled $57.4 million at March 31, 1996 compared to $42.1 million on March 31, 1995. Contractual payments of principal and interest as well as some early pay-off of loans also provide a source of liquidity. Principal payments of $51 million are contractually due within one year as compared to $49 million as of March 31, 1995. Liquidity requirements can also be met by aggressively pricing deposits in the market place, buying federal funds and by selling securities under an agreement to repurchase at some future date. Additionally, the Bank has arranged a large back-up facility at both Federal Reserve Bank of Philadelphia and the Federal Home Loan Bank of Pittsburgh. As of March 31, 1996, the Bank had $18 million in unused lines of credit available with correspondent commercial banks. Also, the Bank has an available credit line with the Federal Home Loan Bank in the amount of $73 million and a $9 million line with the Federal Reserve Bank of Philadelphia. The reader is again referred to Table 2 "Statement of Consolidated Cash Flows". Management regularly monitors the relationship between interest earning assets and interest bearing liabilities maturing or repricing reduce an imbalance between such assets and liabilities. In doing this, management seeks to avoid fluctuating net interest margins in periods of changing interest rates. The Bank's ratio of interest-rate sensitive assets to interest-rate sensitive liabilities maturing or repricing within one year was 79.6% compared to 132% on March 31, 1995. 8 TABLE 2 CONSOLIDATED STATEMENT OF CASHFLOWS CNB FINANCIAL CORPORATION: March 31, 1996 Consolidated Statements of Cash Flows (Dollars in thousands)
Three Months Ended March 31... Cash flows from operating activities: 1996 1995 --------- ---------- Net Income............................................................. $1,044 $864 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses............................................ 125 125 Depreciation......................................................... 157 122 Amortization and accretion of net deferred loan fees................. (176) 5 Amortization and accretion of premiums and discounts on investments..................................................... 40 82 Security Losses...................................................... 13 -- Changes in: Interest receivable.................................................. (18) (119) Other assets......................................................... (746) (586) Interest payable..................................................... (41) 185 Other liabilities.................................................... 691 373 Net cash provided by operating activities.............................. 1,089 1,051 Cash flows from investing activities: Proceeds from maturities of: Investment securities............................................... 4,979 6,303 Securities available for sale....................................... 3,886 2,603 Purchase of: Investment securities............................................... (998) (2,017) Securities available for sale....................................... (10,699) (6,588) Net principal disbursed on loan....................................... 1,182 (319) Purchase of Federal Home Loan Bank Stock.............................. (81) (14) Purchase of premises and equipment.................................... (265) (672) Proceeds from the sale of foreclosed assets........................... 2 10 Net cash used in investing activities.................................. (1,994) (694) Cash flows from financing activities: Net change in: Checking, money market and savings accounts...................... 4,638 (6,740) Certificates of deposit.......................................... 785 8,152 Repayment of Federal Home Loan Bank Advances......................... (21) (20) Other borrowed funds................................................. 547 (922) Cash dividends paid.................................................. (534) (500) Net cash (used in) provided by financing activities.................... 5,415 (30) Net (decrease) in cash and cash equivalents............................ 4,510 327 Cash and cash equivalents at beginning of year......................... 12,329 9,715 Cash and cash equivalents at end of period............................. $16,839 $10,042 Noncash Investing Activities: (Decrease) Increase in net unrealized gain/loss on securities avaliable for sale................................... (377) 463
9 Some changes in assumptions and methodology account for the wide period-to- period swing. The Board of Directors, working through management, adopted a separate Interest Rate Risk Policy on September 26, 1995. This policy sets specific limits, responsibilities and reporting to provide for stability in earnings under fluctuating interest rates. This policy provides for only the most prudent measures to be taken by a community bank to avoid earnings instability. CAPITAL RESOURCES - ----------------- The Corporation's capital position, of $37.8 million on March 31, 1996, is an above average capital position as compared to other bank holding companies of similar size. Capital adequacy for a financial institution is its ability to support asset growth and to sufficiently protect itself and depositors against business risk. The Corporation has relied on earnings to increase equity, while providing what management believes is an acceptable return on invested capital to its shareholders. The Federal Reserve Board standards classify capital into two tiers, referred to as Tier 1 and Tier 2. Tier 1 capital consists of common shareholders' equity, noncumulative perpetual preferred stock, and minority interests less goodwill. Tier 2 capital consists of the allowance for possible loan losses, perpetual preferred stock (not used in Tier 1), hybrid capital instruments, term subordinate debt and intermediate-term (limited life) preferred stock. All banks are required to meet a minimum ratio of 8% of qualifying total capital to risk-adjusted total assets with at least 5.5% Tier 1 capital. Capital that qualifies as Tier 2 capital is limited to 100% of Tier 1 capital. In addition to the above referenced risk based capital requirements, the Federal Reserve also requires a minimum leverage capital ratio of 3% of Tier 1 capital to total assets less any goodwill. The table below summarizes the Corporation's regulatory capital ratios at March 31, 1996 and 1995
1st Qtr. 1st Qtr. Regulatory 1996 * 1995 Minimum ---- ---- ------- Tier 1 Risk-Based Capital Ratio 14.09% 19.47% 5.5% Total Risk-Based Capital Ratio 14.99% 20.75% 8.0% Leverage Ratio 11.88% 13.03% 3.0%
* Ratio is adjusted for all off-balance Committments. REGULATORY MATTERS - ------------------ The Corporation and the Bank are subject to the regulations of certain federal agencies. Regulators often make recommendations during the course of their examination that relate to the normal operations of the Corporation and the Bank. Management reviews all such recommendations promptly and initiates corrective action. The primary regulator, the Comptroller of the Currency, conducted a safety and soundness review during July 1995 and their results included several recommendations to improve the overall operations of the Corporation, but found no significant deficiencies in the Bank's reported results or functionality. The Federal Reserve Bank of Philadelphia concluded an examination during the third quarter of 1994. The agency noted no substantial deficiencies at that time. Presently, management is unaware of any recommendation by these regulatory authorities, that, if implemented, would likely have a material effect on the liquidity, capital or operations of the Corporation and the Bank. 10 CONCENTRATION OF CREDIT RISK AND ASSET QUALITY - ---------------------------------------------- The Corporation, in its role as a financial institution, generates profits primarily through lending and investing activities. The risk of loss from lending and investing activities include the possibility that a loss may occur from the failure of a borrower or one of its affiliates to perform according to their terms of the loan or investment agreement. This possibility of loss is known as credit risk. Credit risk is increased by lending and / or investing activities that concentrate financial institution's earning assets in such a way as to expose the institution to a material loss from any single occurrence or group of related occurrences. This can occur through lending heavily to one type of industry or heavy concentration in a particular type of lending. The Bank monitors credit risk by limiting concentrations within various industries and single borrowers by established legal lending limits. Management also seeks to keep a stable allocation among the various loan types. The Bank firmly follows all regulatory limits of credits to a single borrower. In addition, the Bank monitors the local economic conditions, in an effort to promptly identify and address deteriorating industries. Management uses a variety of reports to gauge local economic conditions. One important source of information is the quarterly subscription to PNC Bank Economics Division's "National Economic Outlook" which includes focus on both Pennsylvania and some Metropolitian Statistical Areas. Visible signs of modest growth are evident in the new construction and the prices in the housing market. The formal loan review process provides the best defense against credit losses by providing early warning of a company's financial deterioration or improvement. The Bank's loan policy states the loans over 90 days past due be placed on non-accrual status. However, policy allows that if the loan is sufficiently collateralized, the loan review officer may allow the loan to continue accruing based on the expected full return of the Bank's monies when the collateral is liquidated. The table below compares 90 days and over delinquencies by type of loan for March 31, 1996 and March 31, 1995.
1996 1995 --------------------------- --------------------------- Over 90 Days Over 90 Days Over 90 Days Over 90 Days Accruing Non-Accruing Accruing Non-Accruing -------- ------------ -------- ------------ Commercial Loans $ 265,852 $ 0 $ 181,103 $ 819,657 Mortgage Loans 238,373 0 352,311 120,388 Installment Loans 124,092 0 148,264 0 -------- ---- ---------- ---------- TOTAL $ 628,317 $ 0 $ 681,678 $ 940,045
11 RESULTS OF OPERATIONS The "Consolidated statement of income" (Table 3) compares the periods ending March 31, 1996 and 1995. The table summarizes at the bottom that the Corporation has earned $0.61 per share in the first quarter of 1996 compared to $0.51 per share one year ago. NET INTEREST INCOME - ------------------- Operating results are substantially dependent on net interest income. Net interest income is the difference between interest earned on loans and investments and interest paid on deposits and borrowings. Operating results are also affected by the levels of non-interest income and expense. Total interest income for the quarter of $5.721 million reflects a 13.6% increase or $684,000 more interest income when compared with the same three months of 1995. This interest income increase for the quarter comes despite relatively large fluctuations in interest rates and represents active management of the margin by executive management. Table 4 "Yield Comparisons" highlights effective interest rates on interest bearing assets and liabilities. Total interest expense of $2.469 million for the quarter reflects an increase of 24.3% from interest expense of $1.85 million for the same quarter of 1995. The increase represents a marked shift by consumers from lower yielding non-maturity accounts to longer term, higher rate certificates of deposit and the inflow into the Prime Money Fund account which pays a higher rate than the traditional Money Market accounts. Table 4 "Yield Comparisons" shows that the yield on earning assets have risen from 8.10% on March 31, 1995 to 8.32% on March 31, 1996. However, interest expense has from 3.81% to 4.21% during the same period. The increase in net interest income is attributable to higher earning assets, in the loan and investment categories. While, the loan categories are expected to grow, the investment portfolio is expected to drop by $8.5 million in the second quarter as known outflows in the consumer deposits are to be funded by a decrease in federal funds sold. PROVISION FOR POSSIBLE LOAN LOSSES - ---------------------------------- The provision for possible loan losses was $125,000 for the first quarter of 1996, the same as for the first quarter of 1995. Management has seen decreasing trends in charge-offs and increased recoveries over the past eight quarters. The present allowance for loan losses of $2.3 million represents 1.11% of outstanding loans compared to $2.13 million or 1.15% of loans on March 31, 1995. Non-performing assets (NPA), which include non-accrual loans and other real estate owned were $154,000 at end of quarter. This gives an NPA to loan loss reserve ratio of 0.07% at the period end. The greater provision for loan losses as compared to actual loan losses is intended to reach a goal management has set which will place the company in the high performing percentiles for peer comparison. Management performs quarterly adequacy analysis on the loan loss reserve. The loan review officer determines adequacy by following the BC-201 Qualitative factors and eight quarters of loan loss experience. The officer's analysis is performed by the separate loan categories; Commercial and Industrial Loans, Commercial Real Estate Loans, Residential Real Estate, Consumer Installment and Credit Card Loans. 12 TABLE 3 CONSOLIDATED STATEMENT OF INCOME CNB FINANCIAL CORPORATION: March 31, 1996 Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data) THREE MONTHS ENDED MARCH INTEREST INCOME 1996 1995 ---------- ---------- Loans including Fees................................................................. $4,497 $3,953 Deposits with Other Banks............................................................ 1 1 Federal Funds Sold................................................................... 58 3 Other Short Term Investments......................................................... -- -- Investment Securities: Taxable Securities: Available for Sale............................................ 621 532 Tax-Exempt Securities: Available for Sale......................................... 172 59 Taxable Securities: Being Held to Maturity........................................ 216 246 Tax-Exempt Securities: Being Held to Maturity..................................... 142 243 Interest on restructured loans....................................................... 14 -- Interest on other assets............................................................. -- -- --------- --------- TOTAL INTEREST INCOME............................................................. $5,721 $5,037 INTEREST EXPENSE Deposits............................................................................. $2,432 $1,905 Borrowed Funds....................................................................... 37 81 -- -- TOTAL INTEREST EXPENSE............................................................ $2,469 $1,986 Net Interest Income............................................................... $3,252 $3,051 Provision for possible loan losses................................................ 125 125 --- --- NET INTEREST INCOME AFTER PROVISION ................................................. $3,127 $2,926 NON-INTEREST INCOME Fiduciary Commissions and Fees....................................................... $229 $130 Service charges on deposit accounts.................................................. 129 119 Other service charges and fees....................................................... 94 59 Securities gains (losses)............................................................ (13) -- Gains (losses) on Sale of Assets..................................................... 2 -- Other income......................................................................... 53 104 -- --- TOTAL NON-INTEREST INCOME......................................................... $493 $412 NON-INTEREST EXPENSE Salaries............................................................................. $964 $855 Employee benefits.................................................................... 315 285 Net occupancy expense................................................................ 353 311 Other Operating Expense.............................................................. 564 689 --- --- TOTAL NON-INTEREST EXPENSE........................................................ 2,196 2,140 Income Before Federal Income Taxes................................................... $1,424 $1,198 Applicable Taxes..................................................................... 380 334 ================================= NET INCOME........................................................................ $1,044 $864 ================================= Per Share Data - -------------- Primary Net Income $0.61 $0.50 Cash dividends paid $0.31 $0.29
_______________________________________________________________________________ 13 TABLE 4 CONSOLIDATED YIELD COMPARISONS CNB Financial Corporation: March 31, 1996 Average Balances and Net Interest Margin (Dollars in thousands)
March 31, 1996 December 31, 1995 - ---------------------------------------------------------------------------------------------------------------------------------- Average Annual Interest Average Annual Interest Balance Rate Inc./Exp. Balance Rate Inc./Exp. - ---------------------------------------------------------------------------------------------------------------------------------- Assets Interest-bearing deposits with banks $15 3.61% $0 $18 2.42% $0 Federal funds sold and securities purchased under agreements to resell 4,607 5.05% 58 1,450 5.59% 81 Other short-term investments Investment Securities: Taxable 54,791 6.13% 837 54,681 6.07% 3,319 Tax-Exempt (1) 23,673 8.07% 476 21,495 8.62% 1,853 - --------------------------------------------------------------------------------------------------------------------------------- Total securities 83,086 6.62% 1,371 77,644 6.77% 5,253 Loans Commercial 49,442 8.40% 1,036 44,621 8.56% 3,818 Mortgage 95,859 9.41% 2,249 89,215 9.03% 8,057 Installment 55,226 8.90% 1,226 54,293 9.16% 4,974 - --------------------------------------------------------------------------------------------------------------------------------- Total loans (2) 200,527 9.02% 4,511 188,129 8.96% 16,849 Total earning assets 283,613 8.32% 5,882 265,773 8.32% 22,102 Non Interest Bearing Assets Cash & Due From Banks 7,844 0 7,480 0 Premises & Equipment 7,872 0 6,482 0 Other Assets 2,895 0 2,902 0 Allowance for Possible Loan Losses (2,195) 0 (2,173) 0 - --------------------------------------------------------------------------------------------------------------------------------- Total Non-interest earning assets 16,416 -- 0 14,691 -- 0 - --------------------------------------------------------------------------------------------------------------------------------- Total Assets $300,029 $5,882 $280,464 $22,102 ================================================================================== Liabilities and Shareholders' Equity Interest-Bearing Deposits Demand - interest-bearing $80,232 3.33% $666 $56,284 1.98% $1,115 Savings 36,161 1.64% 148 38,716 2.72% 1,052 Time 115,999 5.59% 1,618 116,239 5.83% 6,778 - --------------------------------------------------------------------------------------------------------------------------------- Total Interest-bearing deposit 232,392 4.20% 2,492 211,239 4.23% 8,945 Short-term borrowings 2,926 5.07% 37 5,229 5.32% 278 Long-term borrowings 0 0 0 0 - --------------------------------------------------------------------------------------------------------------------------------- Total Interest-bearing liabilities 235,318 4.21% 2,469 216,468 4.26% 9,223 Demand - non-interest-bearing 24,947 -- 0 25,788 -- 0 Other liabilities 1,889 -- 0 1,766 -- 0 - --------------------------------------------------------------------------------------------------------------------------------- Total Liabilities 262,154 3.78% 2,469 244,022 3.78% 9,233 Shareholders' equity 37,875 -- 0 36,442 -- 0 - --------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $300,029 $2,469 $280,464 $9,233 ================================================================================== Interest income/earning assets 8.32% $5,882 8.32% $22,102 Interest expense/interest bearing liabilities 4.21% 2,469 4.26% 9,223 - --------------------------------------------------------------------------------------------------------------------------------- Net Interest Spread 4.11% $3,413 4.06% $12,879 =============================== ======================= Interest Income/Interest Earning Assets 8.32% $5,882 8.32% $22,102 Interest expense/Interest Earning Assets 3.49% 2,469 3.47% 9,223 - --------------------------------------------------------------------------------------------------------------------------------- Net Interest Margin 4.83% $3,413 4.85% $12,879 =============================== ======================= March 31, 1995 - --------------------------------------------------------------------------------------------------------------- Average Annual Interest Balance Rate Inc./Exp. - --------------------------------------------------------------------------------------------------------------- Assets Interest-bearing deposits with banks $18 5.57% $0 Federal funds sold and securities purchased under agreements to resell 208 5.79% 3 Other short-term investments Investment Securities: Taxable 54,072 5.77% 778 Tax-Exempt (1) 20,612 8.91% 458 - --------------------------------------------------------------------------------------------------------------- Total securities 74,910 6.64% 1,239 Loans Commercial 41,553 8.18% 847 Mortgage 87,119 8.87% 1,927 Installment 53,419 8.85% 1,179 - --------------------------------------------------------------------------------------------------------------- Total loans (2) 182,091 8.71% 3,953 Total earning assets 257,001 8.10% 5,192 Non Interest Bearing Assets Cash & Due From Banks 7,296 0 Premises & Equipment 5,402 0 Other Assets 2,399 0 Allowance for Possible Loan Losses (2,075) 0 - --------------------------------------------------------------------------------------------------------------- Total Non-interest earning assets 13,022 -- 0 - --------------------------------------------------------------------------------------------------------------- Total Assets $270,023 $5,192 ===================================================== Liabilities and Shareholders' Equity Interest-Bearing Deposits Demand - interest-bearing $49,910 1.85% $230 Savings 40,621 2.25% 228 Time 112,507 5.16% 1,447 - --------------------------------------------------------------------------------------------------------------- Total Interest-bearing deposit 203,038 3.76% 1,905 Short-term borrowings 6,300 5.16% 81 Long-term borrowings 0 0 - --------------------------------------------------------------------------------------------------------------- Total Interest-bearing Liabilities 209,338 3.81% 1,986 Demand - non-interest-bearing 25,148 -- 0 Other liabilities 1,020 -- 0 - --------------------------------------------------------------------------------------------------------------- Total Liabilities 235,506 3.38% 1,986 Shareholders' equity 34,517 -- 0 - --------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $270,023 $1,986 ===================================================== Interest income/earning assets 8.10% $5,192 Interest expense/interest bearing liabilities 3.81% 1,986 - --------------------------------------------------------------------------------------------------------------- Net Interest Spread 4.30% $3,206 ==================================== Interest Income/Interest Earning Assets 8.10% $5,192 Interest expense/Interest Earning Assets 3.10% 1,986 - --------------------------------------------------------------------------------------------------------------- Net Interest Margin 5.00% $3,206 ====================================
(1) The amounts are reflected on a fully tax equivalent basis using the federal statutory rate of 34% in 1996 and 1995, adjusted for certain tax preferences. (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. 14 NON-INTEREST INCOME - ------------------- Total other income for the first quarter of 1996 of $493,000 is $81,000 more than during the same period in 1995. Increased service charge revenues, higher fiduciary fees and higher credit card fees account for the added revenues. NON-INTEREST EXPENSE - -------------------- The Corporation's first quarter operating expenses rose $56,000 over the first quarter of 1995. Increases in the salary and benefit categories reflect the personnel hired to operate the two new branch offices opened since late last year. Merit and cost of living adjustments for existing personnel are also reflected in those costs. Occupancy expense was higher in the first quarter of 1996 compared to the same period last year due to the amortization of costs related to the expansion of the Corporation's headquarters. Management does include these costs in estimates of future earnings. The Corporation's expenses to date as compared to the first three months of 1995 reflect a $128,000 decrease in the cost to insure the Bank's deposits. The determination and subsequent action by the Federal Deposit Insurance Corporation in September 1995 is discussed in previous filings. NET INCOME - ---------- Net income for the first quarter of 1996 was $1,044,000 or $.61 per share. This compares to net income and earnings per share for the same quarter in 1995 of $864,000 and $.50 per share. The Corporation's first quarter earnings contain no extra-ordinary income or expense. The increased income over last year comes from higher net interest income from a higher earning asset base. The net interest spread, however, is slightly lower than the same period in 1995. Fee income levels are also higher, particularly in the fiduciary income and credit card fees. No service charge price increases have been implemented since the last reporting period. Return on average assets in 1996 is 1.39% and return on average equity is 11.44%. INCOME TAXES - ------------ The provision for income taxes of $380,000 for the first quarter of 1996 is $46,000 more than the same period in 1995. 15 PART II OTHER INFORMATION ITEM 5. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (b) There were no reports on Form 8-K for the quarter ended March 31, 1996. 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 13, 1996 /s/ James P. Moore ------------------ ------------------- James P. Moore President and Director (Principal Executive Officer) DATE: May 13, 1996 /s/ J. Matthew McEnroe ------------------ ----------------------- J. Matthew McEnroe Treasurer, Principal Financial Officer 16 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 8,200 14 8,625 0 57,418 20,925 21,383 199,012 2,255 304,383 261,210 3,372 1,998 0 0 0 6,912 30,891 304,383 4,511 1,151 59 5,721 2,432 37 3,252 0 (13) 2,196 1,424 1,424 0 0 1,044 0.61 0.61 8.32 154 628 692 0 2,145 32 17 2,255 2,255 0 0
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