-----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, DikGBpBXQSpPhvbdkELqzRcCVwVNVmnGnaJ7m2nCZ5ghpm04z7jYB3rKYlAr4t4d DJT0T+l0yML+9uQ7/B/Whg== 0000950109-96-004907.txt : 19960808 0000950109-96-004907.hdr.sgml : 19960808 ACCESSION NUMBER: 0000950109-96-004907 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960807 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: 96604795 BUSINESS ADDRESS: STREET 1: 1 SOUTH SECOND STREET STREET 2: P.O. BOX 42 CITY: CLEARFIELD STATE: PA ZIP: 16830 BUSINESS PHONE: 814-765-9621 MAIL ADDRESS: STREET 1: 1 SOUTH SECOND 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 June 30, 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 June 30, 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 - June 30, 1996 PAGE 9. Table 2 - Consolidated Statement of Cash Flows - June 30, 1996 PAGE 13. Table 3Q - Consolidated Statement of Income - Quarter ending June 30, 1996 PAGE 14. Table 3-Y Consolidated Statement of Income for Six Months Ending June 30, 1996 PAGE 15. Table 4 - Consolidated Yield Comparisons
PART II. OTHER INFORMATION
PAGE 17. ITEM 4 Submission of matters to a vote of security holders PAGE 17. ITEM 5 Other Information PAGE 17. ITEM 6 Exhibits and Reports on Form 8K PAGE 17. 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 and six month periods ended June 30, 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 to shareholders and Form 10-K for the period ended December 31, 1995. The financial performance reported for the Corporation as of June 30, 1996 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 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 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 and 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. 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. 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 (i.e. the liquidity portfolio) 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 are 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 June 30, 1996, the Corporation had an after-tax unrealized loss in the "Available For Sale" category of $28,000. 4 CONCLUSION The accompanying financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (SEC). 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. 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 is provided on an aggregated basis by the Pennsylvania Bureau of Research Statistics. Therefore employment and other indicators difficult to ascertain 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, timber/paper companies and specialized metal 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. Also, the area is home to a nationally known retailer's northeast distribution center. This has added stability to the economy in the area. The area's housing market has been characterized as there being a shortage of middle-income housing. This is evidenced in generally rising 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 9.1% since one year ago to $303.1 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. Total gross loans were $204.9 million on June 30, 1996 compared to $190.7 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 assets has been funded mainly by core deposit growth. 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: June 30, 1996 Consolidated Balance Sheets (Unaudited) (Dollars in thousands, except percent data) June 30 Dec.31 June 30 1996 1995 1995 ---------- ----------- --------- ASSETS Cash and Due from Banks........................ $10,924 $9,110 $9,151 Deposits with Other Banks...................... 14 19 18 Federal Funds Sold............................. 3,200 Investment Securities Available for sale....... 60,411 51,007 45,329 Investment Securities Held to Maturity, fair value of $21,383 at June 30, 1996, $25,541 at December 31, 1995 and 29,806 at June 30, 1995............................... 20,254 24,921 28,461 Loans.......................................... 204,889 203,706 190,727 Less: Unearned Discount...................... 3,323 3,668 3,463 Less: Allowance for Loan Losses.............. 2,330 2,145 2,243 ------- -------- ------- NET LOANS.................................... 199,236 197,893 185,021 Premises and Equipment......................... 8,025 7,783 6,291 Accrued Interest and Other Assets.............. 4,270 3,591 3,606 -------- -------- -------- TOTAL ASSETS................................. $303,134 $297,523 $277,877 LIABILITIES Deposits: Non-interest bearing depostits............... $28,925 $25,705 $25,223 Interest bearing deposits.................... 230,409 230,082 205,100 ------- ------- ------- TOTAL DEPOSITS............................... 259,334 255,787 230,323 Other Borrowings............................... 4,396 2,846 10,093 Accrued Interest and Other Liabilities......... 1,417 1,347 1,386 ------- ------- ------- TOTAL LIABILITIES............................ 265,147 259,980 241,802 SHAREHOLDERS' EQUITY Common Stock $4.00 Per Value Authorized 2,500,000 Shares (Issued 1,728,000)......................... 6,912 6,912 6,912 Retained Earnings............................ 31,203 30,142 29,110 Treasury Stock, At Cost (5,166).............. (100) (100) (100) Net unrealized securities gains (losses)..... (28) 589 153 ------- ------- ------- TOTAL SHAREHOLDERS' EQUITY................... 37,987 37,513 36,075 ------- ------- ------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY..... $303,134 $297,523 $277,877
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 June 30, 1996 were $259.3 million, an increase of $29.0 million over June 30, 1995. Deposit growth has occurred 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 grown by approximately 3.0% 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 growth in consumer deposits the Bank does not generally access this facility. 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 rate 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 demands 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 rate 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 practices. These assets totaled $60.4 million at June 30, 1996 compared to $45.3 million on June 30, 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 $47.5 million are contractually due within one year as compared to $43 million as of June 30, 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. The Bank has arranged large back- up facilities at both Federal Reserve Bank of Philadelphia and the Federal Home Loan Bank of Pittsburgh. As of June 30, 1996, the Bank had $18 million in 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 to 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 71.8% compared to 129% on June 30, 1995. 8 TABLE 2 CONSOLIDATED STATEMENT OF CASHFLOWS
CNB FINANCIAL CORPORATION: June 30, 1996 Consolidated Statements of Cash Flows (Dollars in thousands) Six Months Ended June 30... Cash flows from operating activities: 1996 1995 ------------ ----------- Net Income.......................................................... $2,129 $1,786 Adjustments to reconcile net income to net cash provided by operations: Provisions for loan losses...................................... 250 250 Depreciation.................................................... 317 247 Amortization and accretion of net deferred loan fees............ (391) (77) Amortization and accretion of premiums and discounts on investments................................................ 67 155 Security Losses................................................. 13 3 Changes in: Interest receivable............................................. (29) 133 Other assets.................................................... (322) (350) Interest payable................................................ (40) 114 Other liabilities............................................... 110 415 Net cash provided by operating activities........................... 2,104 2,676 Cash flows from investing activities: Proceeds from maturities of: Investment securities........................................... 5,644 10,273 Securities available for sale................................... 6,523 5,355 Purchase of: Investment securities........................................... (998) (5,015) Securities available for sale................................... (16,905) (12,110) Net principal disbursed on loan................................... (1,202) (5,438) Purchase of Federal Home Loan Bank Stock.......................... (81) (14) Purchase of premises and equipment................................ (560) (1,394) Proceeds from sale of foreclosed assets........................... 54 11 Net cash used in investing activities............................. (7,525) (8,332) Cash flows from financing activities: Net change In: Checking, money market and savings account...................... 2,556 (9,630) Certificates of deposit......................................... 991 9,314 Repayment of Federal Home Loan Bank Advances...................... (21) (20) Other borrowed funds.............................................. 1,572 6,427 Cash dividends paid............................................... 1,068 (999) Net cash (used in) provided by financing activities................. (4,030) (5,092) Net (decrease) in cash and cash equivalents......................... (1,391) (564) Cash and cash equivalents at beginning of year...................... 12,329 9,715 Cash and cash equivalents at end of period.......................... $10,938 $9,151 Noncash Investing Activities: (Decrease) Increase in net unrealized gain/loss on securities available for sale................................... $ (617) $ 774
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 what management believes is only the most prudent measures to be taken by a community bank to avoid earnings instability. CAPITAL RESOURCES - ----------------- The Corporation's capital position, of $38 million on June 30, 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 and lease losses (subject to a maximum), 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 June 30, 1996 and 1995:
2nd Qtr. 2nd Qtr. Regulatory 1996 1995 Minimums ---- ---- ---------- Tier 1 Risk-Based Capital Ratio 15.07% 19.47% 5.5% Total Risk-Based Capital Ratio 16.04% 20.75% 8.0% Leverage Ratio 12.06% 13.03% 3.0%
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 Bank, but found no significant deficiencies in the Bank's reported results or functionality. The Federal Reserve Bank of Philadelphia concluded an examination of the Corporation 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, specifically the Bank, 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 borrower, an industry segment 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 and the financial performance of its larger credit customers 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 Metropolitan Statistical Areas in the state. Visible signs of modest growth are evident in 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 and in the process of collection, 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 June 30, 1996 and June 30, 1995.
1996 1995 -------------------------- -------------------------- Over 90 Days Over 90 Days Over 90 Days Over 90 Days Accruing Non-Accruing Accruing Non-Accruing ------------ ------------ ------------ ------------ Commercial Loans $352,162 $0 $ 872,064 $793,158 Mortgage Loans 361,365 0 358,767 114,387 Installment Loans 244,951 0 125,181 0 -------- -- ---------- -------- TOTAL $958,478 $0 $1,356,012 $907,545
11 RESULTS OF OPERATIONS The "Consolidated Statement of Income" (Table 3-Q) compares the three month period ending June 30, 1996 and 1995. Table 3-Y compares income for the first six months of operation during the current fiscal year compared with that period in 1995. The table summarizes at the bottom that the Corporation has earned $0.63 per share in the second quarter of 1996 compared to $0.54 per share one year ago. On a fiscal year basis, the Corporation has earned $1.24 per share in 1996 compared to $1.04 in 1995. 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 $5.654 million reflects a 7.2% increase or $379,000 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 5 "Yield Comparisons" highlights effective interest rates on interest bearing assets and liabilities. Total interest expense of $2.363 million for the quarter reflects an increase of 6.0% from interest expense of $2.23 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 8.23% on June 30, 1995 to 8.30% on June 30, 1996. However, interest expense has increased from 4.04% to 4.14% during the same period. The increase in net interest income is attributable to higher earning assets, in the loan and investment categories. PROVISION FOR POSSIBLE LOAN LOSSES - ---------------------------------- The provision for possible loan losses was $125,000 for the second quarter of 1996, the same as for the second 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 $2.33 million represents 1.14% of outstanding loans compared to $2.2 million or 1.17% of loans on June 30, 1996. Non-performing assets (NPA), which include non-accrual loans and other real estate owned were $102,100 at end of quarter. This gives an NPA to loan loss reserve ratio of 0.04% 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, and provide an extra measure of reserves in the event of an economic downturn. 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. The officer's report is presented to the Bank's board of director's for approval and a subcommittee of the Board meets to review his detailed accounts. 12 TABLE 3-Q CONSOLIDATED STATEMENT OF INCOME
CNB FINANCIAL CORPORATION: June 30, 1996 Consolidated Statements of Income (Unaudited) (Dollars in thousands, except per share data) THREE MONTHS ENDED JUNE 30 ... INTEREST INCOME 1996 1995 ---------- ---------- Loans including Fees.......................................... $4,428 $4,157 Deposits with Other Banks..................................... - - Federal Funds Sold............................................ 23 55 Other Short Term Investments.................................. - - Investment Securities: Taxable Securities: Available for Sale...................... 671 548 Tax-Exempt Securities: Available for Sale................... 200 65 Taxable Securities: Being Held to Maturity.................. 196 226 Tax-Exempt Securities: Being Held to Maturity............... 127 224 Interest on restructured loans................................ 9 - Interest on other assets...................................... - - ------- ------- TOTAL INTEREST INCOME....................................... $5,654 $5,275 INTEREST EXPENSE Deposits...................................................... $2,319 $2,192 Borrowed Funds................................................ 44 37 -- -- TOTAL INTEREST EXPENSE...................................... $2,363 $2,229 Net Interest Income......................................... $3,291 $3,046 Provision for possible loan losses.......................... 125 125 --- --- NET INTEREST INCOME AFTER PROVISION........................... $3,166 $2,921 NON-INTEREST INCOME Fiduciary Commissions and Fees................................ $197 $131 Service charges on deposit accounts........................... 176 151 Other service charges and fees................................ 91 160 Securities gains (losses)..................................... - (2) Gains (losses) on Sale of Assets.............................. 5 - Other income.................................................. 76 78 -- -- TOTAL NON-INTEREST INCOME................................... $545 $518 NON-INTEREST EXPENSE Salaries...................................................... $980 $915 Employee benefits............................................. 311 298 Net occupancy expense......................................... 347 303 Other Operating Expense....................................... 555 733 --- --- TOTAL NON-INTEREST EXPENSE.................................. 2,193 2,249 Income Before Federal Income Taxes............................ $1,518 $1,190 Applicable Taxes.............................................. 433 268 ==================================== NET INCOME.................................................. $1,085 $922 ==================================== Per Share Data - -------------- Primary Net Income $0.63 $0.54 Cash dividends paid $0.31 $0.29 - ------------------------------------------------------------------------------------------------------
13 TABLE 3-Y
CNB FINANCIAL CORPORATION, June 30, 1996 Consolidated Statements of Income (Unaudited) (Dollars in thousands, except per share data) SIX MONTHS ENDED June 30 INTEREST INCOME 1996 1995 -------- -------- Loans including Fees................................................. $8,925 $8,110 Deposits with Other Banks............................................ 1 1 Federal Funds Sold................................................... 81 58 Other Short Term Investments......................................... -- -- Investment Securities: Taxable Securities Available for Sale.............................. 1,292 1,080 Tax-Exempt Securities: Available for Sale......................... 372 124 Taxable Securities: Being Held to Maturity........................ 412 472 Tax-Exempt Securities: Being Held to Maturity..................... 269 467 Interest on restructured loans....................................... 23 -- Interest on other assets............................................. -- -- ------- ------- TOTAL INTEREST INCOME.............................................. $11,375 $10,312 INTEREST EXPENSE Deposits............................................................. $4,751 $4,097 Borrowed Funds....................................................... 81 118 -- --- TOTAL INTEREST EXPENSE............................................. $4,832 $4,215 Net Interest Income................................................ $6,543 $6,097 Provision for possible loan losses................................. 250 250 --- --- NET INTEREST INCOME AFTER PROVISION.................................. $6,293 $5,847 NON-INTEREST INCOME Fiduciary Commissions and Fees....................................... $426 $261 Service charges on deposit securities................................ 305 270 Other service charges and fees....................................... 185 219 Securities gains (losses)............................................ (13) (3) Gains (losses) on Sale of Assets..................................... 7 -- Other income......................................................... 129 183 --- --- TOTAL NON-INTEREST INCOME.......................................... $1,038 $930 NON-INTEREST EXPENSE Salaries............................................................. $1,944 $1,770 Employee benefits.................................................... 626 583 Net occupancy expense................................................ 700 614 Other Operating Expense.............................................. 1,119 1,422 ----- ----- TOTAL NON-INTEREST EXPENSE......................................... 4,389 4,389 Income Before Federal Income Taxes................................... $2,942 $2,388 Applicable Taxes..................................................... 813 602 ======================== NET INCOME......................................................... $2,129 $1,786 ======================== Per Share Data - -------------- Primary Net Income $1.24 $1.04 Cash dividends paid $0.62 $0.58
14 TABLE 4 CONSOLIDATED YIELD COMPARISONS
CNB Financial Corporation June 30, 1996 Average Balances and Net Interest Margin (Dollars in thousands) June 30, 1996 December 31, 1995 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 815 6.95% 51 $18 2.42% 50 518 8.91% 51 Federal funds sold and warranties purchased under agreements to recall 2,933 5.54% $1 1,450 5.59% 51 2,007 5.80% 58 Other short-term investment Investment Securities: Taxable 55,739 6.13% 1,704 54,681 6.07% 3,319 53,531 5.81% 1,552 Tax-Exempt (1) 24,099 8.08% 971 21,495 8.62 1,853 20,301 8.84% 895 - ----------------------------------------------------------------------------------------------------------------------------------- Total Securities 52,506 6,68% 2,757 77,644 6.77% 5,253 75,857 6.62% 2,506 Loans Commercial 47,872 8.37% 1,999 44,621 8.56% 3,818 41,363 8.71% 1,797 Mortgage 97,495 9.57% 4,797 89,215 9.03% 8,057 87,734 8.91% 3,900 Installment 54,742 7.88% 2,152 54,293 9.16% 4,974 53,639 9.02% 2,413 - ----------------------------------------------------------------------------------------------------------------------------------- Total loans (2) 200,115 8.97% 8,943 188,129 8.96% 16,849 182,736 8.90% 8,110 Total earning assets 252,921 8.30% 11,705 265,773 8.32% 22,102 258,593 8.23% 10,616 Non Interest Bearing Assets Cash & Due From Banks 8,025 7,467 7,490 0 7,487 0 Premises & Equipment 7,931 5,733 6,482 0 5,733 0 Other Assets 3,313 2,396 2,902 0 2,396 0 Allowance for Possible Loan Losses (2,237) (3,253) (2,173) 0 (2,153) 0 - ----------------------------------------------------------------------------------------------------------------------------------- Total Non-interest earning assets 17,032 -- 0 14,691 -- 0 13,443 -- 0 - ----------------------------------------------------------------------------------------------------------------------------------- Total Assets $299,983 $11,706 $280,464 $22,102 $272,036 $10,616 ======================================================================================================= Liabilities and Shareholders' Equity Interest-Bearing Deposits Demand - interest-bearing $77,156 3.18% $1,224 $56,284 1.98% $1,115 $48,560 1.96% $475 Savings 37,000 4.45% 821 38,716 2.72% 1,052 40,966 2.74% 560 Time 116,526 4.66% 2,706 116,239 5.83% 6,778 115,809 5.30% 3,062 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 230,687 4.13% 4,751 211,239 4.23% 8,945 205,335 4.00% 4,097 Short-term borrowings 3,318 4.90% 81 5,229 5.32% 278 3,897 6.07% 118 Long-term borrowings 0 0 0 0 0 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 234,000 4.14% 4,832 216,468 4.26% 9,223 209,232 4.04% 4,215 Demand - non-interest- bearing 26,117 -- 0 25,788 -- 0 25,890 -- 0 Other liabilities 1,952 -- 0 1,766 -- 0 1,782 -- 0 - ----------------------------------------------------------------------------------------------------------------------------------- Total Liabilities 262,069 3.70% 4,832 244,022 3.78% 9,223 236,907 3.57% 4,215 Shareholders' equity 37,884 -- 0 36,442 -- 0 35,129 -- 0 - ----------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $299,953 $4,832 $280,464 $9,223 $272,036 $4,215 ======================================================================================================= Interest income/earning assets 8.30% $11,705 8.32% $22,102 8.23% $10,616 Interest expense/Interest bearing liability 4.14% 4,832 4.26% 9,223 4.04% 4,215 - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest Spread 4.16% $6,873 4.06% $12,879 4.19% $6,401 ======================================================================================================= Interest income/Interest Earning Assets 8.30% $11,705 8.32% $22,102 8.23% $10,616 Interest expense/Interest Earning Assets 3.43% 4,832 3.47% 9,223 3.27% 4,215 - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest Margin 4.87% $6,873 4.86% $12,879 4.96% $6,401 =======================================================================================================
(1) The amounts are reflected on a fully tax equivalent basis using the federal statutory rate of 34% in 1996, 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 loss from included in the interest income on loans is not material. 15 NON-INTEREST INCOME - ------------------- Total other income for the second quarter of 1996 of $545,000 is $27,000 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 second quarter operating expenses were lower by $56,000 over the second quarter of 1995. In the second quarter of 1995, the Corporation incurred several large non-recurring expenses related to changes in the Bank's data processing and management information system. 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 second 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 six months of 1995 reflect no increase in costs. As mentioned, one-time expenses in 1995 make period to period comparisons difficult as does the fact that in 1996 the Bank has expensed only $2,000 to insure its deposits compared to the $260,000 recognized in the first half of 1995. 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 second quarter of 1996 was $1,085,000 or $.63 per share. This compares to net income and earnings per share for the same quarter in 1995 of $922,000 and $.54 per share. The Corporation's second 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 to date in 1996 is 1.42% and return on average equity is 11.85%. INCOME TAXES - ------------ The provision for income taxes of $433,000 for the second quarter of 1996 is $165,000 more than the same period in 1995. Comparing the first two quarters of 1996 to the same period last year, the Corporation has accrued $211,000 more expense for taxes in 1996. 16 PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS FOR SECURITY HOLDERS VOTE 1. The Annual Shareholders Meeting was held on April 16, 1996 at the Headquarters Building at 1 Market St., Clearfield, PA 16830 a. The total number of voting shares was 1,282,116. b. The following named persons were elected Class 1 Directors to serve until the Annual Meeting in 1999. William F. Falger James J. Leitzinger Jeffrey S. Powell Peter F. Smith L.E. Soult, Jr. c. The following directors continued their terms; Robert E. Brown, Richard D. Gathagan, Dennis L. Merrey, James P. Moore William R. Owens, Robert C. Penoyer, Carl J. Peterson, Edward B. Reighard, Robert G. Spencer, and Joseph L. Waroquier, Sr. ITEM 5. OTHER INFORMATION There were no reports on Form 8-K for the period ended June 30, 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: August 5, 1996 /s/ James P. Moore --------------------- ----------------------------- James P. Moore President and Director (Principal Executive Officer) DATE: August 5, 1996 /s/ J. Matthew McEnroe --------------------- ----------------------------- J. Matthew McEnroe Treasurer, Principal Financial Officer 17 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 10,924 14 0 0 60,411 0 20,254 201,566 2,330 303,134 259,334 4,396 1,417 0 0 0 6,912 31,075 303,134 8,948 2,345 82 11,375 4,751 81 6,543 0 (13) 4,389 2,942 2,942 0 0 2,129 1.24 1.24 8.30 0 1,685 684 0 2,145 107 42 2,330 2,330 0 0
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