-----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, VixIzEaXvhXHwDT6sT5NoAN6g5nxN7xkMsOZswMn9R0mVK6/TNTg/HzrSoF/v0qM 8+BE+8HwTo8OV4VY02iWyg== 0000950132-98-000830.txt : 19981110 0000950132-98-000830.hdr.sgml : 19981110 ACCESSION NUMBER: 0000950132-98-000830 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981109 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: SEC FILE NUMBER: 000-13396 FILM NUMBER: 98740279 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 September 30, 1998 Commission File Number 0-13396
or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------------- ----------------------- CNB FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Pennsylvania 25-1450605 ------------ ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) County National Bank 1 South Second Street P.O. Box 42 Clearfield, Pennsylvania 16830 (Address of principal executive offices) Registrant's telephone number, including area code, (814) 765-9621 Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common Stock: $1.00 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 September 30, 1998: COMMON STOCK: $1.00 PAR VALUE - 3,445,668 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 10. Table 1 - Consolidated Balance Sheets - September 30, 1998 PAGE 11. Table 2Q - Consolidated Statements of Income - Quarter ending September 30, 1998 PAGE 12. Table 2Y - Consolidated Statements of Income For Nine Months Ending September 30, 1998 PAGE 13. Table 3 - Consolidated Statements of Cash Flows - September 30, 1998 PAGE 14. Table 4 - Consolidated Yield Comparisons
PART II. OTHER INFORMATION
PAGE 15. ITEM 4 Submission of Matters for Security Holders Vote PAGE 15. ITEM 5 Other Information PAGE 15. ITEM 6 Exhibits and Reports on Form 8-K PAGE 15. Signatures
2 CNB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (SEC) and in compliance with generally accepted accounting principles. Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The registrant believes that the disclosures made are adequate to make the information presented a fair representation of the Corporation's financial status. In the opinion of Management of the registrant, the accompanying consolidated financial statements for the quarters and nine month period ended September 30, 1998 and 1997 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations for the period. The financial performance reported for the Corporation for the nine month period ended September 30, 1998 is not necessarily the result to be expected for the full year. This information should be read in conjunction with the Corporation's Annual Report to shareholders and Form 10-K for the period ended December 31, 1997. SFAS No. 130: Reporting Comprehensive Income - -------------------------------------------- The Corporation adopted SFAS No. 130, "Reporting Comprehensive Income", effective January 1, 1998. This statement establishes standards for the reporting and display of comprehensive income and its components. Comprehensive income includes net income and all other changes in shareholder's equity except those resulting from investments and distributions to owners. The adoption of SFAS No. 130 had no impact on the Corporation's net income or shareholder's equity. Prior year financial statements have been restated to conform to the requirements of Statement 130. The statement requires that the accumulated other comprehensive income be descriptively labeled in the shareholder's equity section of the balance sheet. This descriptor replaces the net unrealized gain (loss) on available for sale securities that was previously reported. The following table reflects the statements of comprehensive income for the quarters ended September 30, 1998 and 1997.
Sept. 30 Sept. 30 1998 1997 ----------------- ---------------- Net income $3,506 $3,026 Other comprehensive income: Unrealized gains or loss on available for sale securities 414 843 Less: reclassification adjustment for gain included in net income 217 74 ------------- ---------------- Total other comprehensive income 197 769 Applicable income taxes 67 261 ------------- ---------------- Net other comprehensive income 130 508 ------------- ---------------- Comprehensive income $3,636 $3,534 ============= ================
3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION The following discussion and analysis of the consolidated financial statements of the Corporation is presented to provide insight into management's assessment of financial results. The Corporation's only subsidiary County National Bank (the "Bank") provides financial services to individuals and businesses within the Bank's market area made up of the west central Pennsylvania counties of Clearfield, Centre, Elk, and McKean. County National Bank is a member of the Federal Reserve System and subject to regulation, supervision and examination by the Office of the Comptroller of the Currency ("OCC"). The health of the economy in the region is somewhat mixed with unemployment rates (February, 1998) ranging from a low of 2.7% in Centre County to a high of 10.0% in Clearfield County. Other counties' rates in our market area are as follows: Cameron 7.9%; Elk 5.1%; Jefferson 8.0% and McKean 7.0%. While unemployment levels vary, the region is comparatively in better economic condition than in prior years. Residential housing throughout the region remains in fair demand. On April 21, 1998, the shareholders of the Corporation approved an amendment to the articles of incorporation to increase the number of authorized shares of common stock from 2,500,000 shares to 10,000,000 shares. At this time the par value was decreased from $4.00 to $1.00 per share. The amendment allowed the Corporation to affect a 2 for 1 stock split effective on April 30, 1998. The per share information disclosed on the consolidated statements of income has been restated to reflect the split. OVERVIEW OF BALANCE SHEET Total assets (shown in Table 1 "Consolidated Balance Sheet") have grown ------- 7.0% since year end 1997 and 9.1% over September 30, 1997 to $398.8 million. The growth in 1998 has occurred in the investment portfolio largely through the use of favorable funding rates at the Federal Home Loan Bank as well as increased loan demand beginning in the third quarter of 1998. Increased Loan demand has occurred mainly in the small business area. The change in loan volumes is discussed in the loan section. CASH AND CASH EQUIVALENTS Cash and cash equivalents totaled $12,611,000 at September 30, 1998 compared to $18,436,000 on December 31, 1997. The decrease was primarily the result of the growth in the investment portfolio of which a portion was funded from excess liquid assets. Management believes the liquidity needs of the Corporation are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources, and the portion of the investment and loan portfolios that mature and/or paydown within one year. These sources of funds will enable the Corporation to meet cash obligations and off-balance sheet commitments as they come due. INVESTMENT SECURITIES Investment securities increased $23,482,000 since December 31, 1997. Of the Corporation's total investment portfolio of $100,514,000 as of September 30, 1998, $92,574,000 (or 92.1%) is classified as available for sale with the balance of $7,940,000 classified as held to maturity. The increase is mainly from the Corporation's strategy to utilize favorable funding rates from the Federal Home Loan Bank of Pittsburgh to purchase investment securities. In 1998, this strategy was implemented with a $10 million borrowing which has subsequently benefited net interest income. The remaining increase was funded with excess liquidity in our cash position as mentioned above and through normal deposit growth of $13,466,000 or 4.2% since December 31, 1997. 4 Management monitors the earnings performance and the effectiveness of the liquidity of the investment portfolio on a regular basis through Asset / Liability Committee ("ALCO") meetings. The ALCO also reviews and manages interest rate risk for the Corporation. Through active balance sheet management and analysis of the investment securities portfolio, the Corporation maintains sufficient liquidity to satisfy depositor requirements and the various credit needs of its customers. LOANS Loan demand had leveled off throughout much of 1998 until the third quarter when demand began to strengthen. The loan growth for the third quarter was $7,708,000 or 2.9% over June 30, 1998. Management has made an effort towards better underwriting standards, particularly for consumer credit, with the intent of improving the quality of the balance sheet (see Allowance for Loan and Lease Losses for a discussion of credit quality). The Corporation's lending is focused in the west central Pennsylvania market and consists principally of retail lending, which includes single family residential mortgages and other consumer lending, and also commercial lending primarily to locally owned small businesses. At September 30, 1998, the Corporation had $267,524,000 in loans and leases outstanding up $13,348,000 (or 5.3%) since September 30, 1997 and $6,472,000 (or 2.5%) since December 31, 1997. LOAN CONCENTRATION The Corporation monitors loan concentration by individual industries in order to track potential risk exposures resulting from industry related downturns. At September 30, 1998, no concentration exists within our commercial or real estate loan portfolio as related to concentrations of 10% of the total loans. Residential real estate lending along with automobile financing continues to be the largest components of the loan portfolio. ALLOWANCE FOR LOAN AND LEASE LOSSES The Allowance for Loan and Lease Losses as a percentage of loans increased from 0.98% at September 30, 1997 and 1.08% at December 31, 1997 to 1.15% at September 30, 1998. The dollar amount of the reserve increased $274,000 since year end 1997. The gross charge-offs for the nine months of 1998 were $345,000 while recoveries were $94,000. The level of charge-offs has improved over those experienced in the first nine months of 1997 when charge- offs were $517,000 with recoveries of $102,000. Management of the Corporation has implemented increased loan collection activities which has resulted in decreased levels of loan delinquency and improved net charge-off levels. The net charge-off levels in 1997 as a percentage of gross loans (0.16%) were high compared to prior periods (0.06%). The current year is trending downward at 0.09% but has not yet improved to pre 1997 levels. Management continues to closely monitor loan delinquency and losses. Non-performing assets (NPA), which include loans 90 or more days past due, non- accrual loans and other real estate owned were $1,524,000 or 0.38% of total assets on September 30, 1998 compared to $1,363,000 or 0.37% on September 30, 1997. The adequacy of the allowance for loan and lease losses is subject to a formal analysis by the loan review staff of the Bank and presented to the Loan Review Committee of the Board and is deemed to be adequate to absorb inherent losses in the portfolio as of September 30, 1998. FUNDING SOURCES The Corporation considers deposits, short-term borrowings, and term debt when evaluating funding sources. Traditional deposits continue to be the most significant source of funds for the Corporation reaching $332,939,000 at September 30, 1998. Deposit growth has been marginal since year end 1997 primarily resulting from management's decision to better control the cost of funding. 5 The Corporation utilizes term borrowings from the Federal Home Loan Bank (FHLB) to meet funding needs not accommodated by deposit growth and to match fund certain long-term assets. During the first six months of 1998, the Corporation borrowed $10 million as mentioned on page 4 in the investment securities section. Management plans to maintain access to short-term and long- term FHLB borrowings as an alternate funding source. The Corporation continued to experience a change in the mix of its deposit base until the third quarter of 1998. The mix of time deposits is at 44.3% of all deposits at September 30, 1998 compared to 44.4% at September 30, 1997. However, this shift has significantly declined throughout the second and third quarters as it dropped from 54.0% at March 31, 1998. Management expects that the current mix will stabilize throughout 1998. SHAREHOLDERS' EQUITY The Corporation's capital continues to provide a strong base for profitable growth. Total Shareholders' Equity was $44,126,000 at September 30, 1998 compared to $42,208,000 at year-end 1997, an increase of $1,918,000 (or 4.5%). The Corporation earned $1,134,000 and $3,506,000 for the third quarter and the first nine months of 1998, respectively. Dividends of $1,861,000 have been declared for 1998 for a payout ratio of 53.1% of net income. Approximately 92% of the investment securities in the Corporation's portfolio are classified as available-for-sale making this portion of the Corporation's balance sheet more sensitive to changes in market values. Interest rates in the third quarter of 1998 have been moving downward allowing the Bank's bond portfolio to maintain market value gains. The equity markets have experienced a significant correction that has reduced the market value of the Corporation's equity holdings. The market value gain in bonds virtually offset the drop in market value gains in the equity holdings. The Corporation has also complied with the standards of capital adequacy mandated by the banking regulators. Bank regulators have established "risk- based" capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets banks hold in their portfolios. A weight category of either 0% (lowest risk assets), 20%, 50%, or 100% (highest risk assets), is assigned to each asset on the balance sheet. The Corporation's total risk-based capital ratio of 16.17% at September 30, 1998 is well above the minimum standard of 8%. The Corporation's Tier 1 capital ratio of 15.02% is above the regulatory minimum of 4%. The leverage ratio at September 30, 1998 was 10.48%, also above the minimum standard of 4%. The Corporation is deemed to be well capitalized under regulatory industry standards. The ratios provide quantitative data demonstrating the strength and future opportunities for use of the Corporation's capital base. Management continues to evaluate risk-based capital ratios and the capital position of the Corporation as part of its strategic decision making process. LIQUIDITY AND INTEREST RATE SENSITIVITY Liquidity measures an organizations' ability to meet cash obligations as they come due. The Consolidated Statement of Cash Flows presented on page 13 of the accompanying financial statements provide analysis of the Corporation's cash and cash equivalents. Additionally, management considers that portion of the loan and investment portfolio that matures and/or pays down within one year as part of the Corporation's liquid assets. The Corporation's liquidity is monitored by the ALCO which establishes and monitors ranges of acceptable liquidity. Management feels the Corporation's current liquidity position is acceptable. In the course of conducting business activities, the Corporation is exposed to market risk, principally interest rate risk, through the operation of the Bank. Interest rate risk arises from market driven fluctuations in interest rates which affect cash flows, income, expense and values of all financial instruments. Interest rate risk is monitored by management and the ALCO Committee of the Board. No material changes have occurred during the period in the Bank's market risk strategy, a detailed discussion of which can be found in the SEC Form 10-K filed for the period ended December 31, 1997. 6 RESULTS OF OPERATIONS OVERVIEW OF THE INCOME STATEMENT The Corporation earned $1,134,000 and $3,506,000 for the third quarter and first nine months of 1998, respectively, which shows increases of 1.40% and 15.9% over $1,118,000 and $3,026,000 for the same periods last year. Net income for 1998 has benefited over 1997 from a larger base of earning assets, an increase of $38,461,000 or 11.4%. INTEREST INCOME AND EXPENSE Net interest income totaled $3,882,000 in the third quarter, an increase of 4.7% over the third quarter of 1997 and totaled $11,571,000 for the first nine months of 1998, an increase of 8.3% over the same period of the prior year. Continued growth in loans has been the primary factor in this increase which has been mitigated somewhat by higher interest costs for deposits resulting from a shift in deposit mix to higher cost time deposits. Total interest income increased during the quarter by $551,000 or 8.2% while interest expense increased by $378,000 or 12.4% when compared to the third quarter of 1997. Total interest income for the first nine months of 1998 increased by $2,283,000 or 11.8% while interest expense increased by $1,394,000 or 16.22 when compared to the first nine months of 1997. As previously mentioned, the trend towards higher cost time deposits has stabilized, however this has been offset by lower average rates on earning assets. The tax equivalent net interest margin was 4.53%, 4.56%, and 4.53% for the third, second and first quarters of 1998 compared to 4.72% at September 31, 1997. The Corporation recorded a provision for loan and lease losses in the third quarter of $150,000 matching the third quarter of 1997 and $525,000 for the first nine months of 1998 compared to $450,000 for the first nine months of 1997. Management intends to maintain this provision at the same level in the fourth quarter. NON-INTEREST INCOME Non-interest income increased $259,000 or 45.8% in the third quarter of 1998 when compared to the third quarter of 1997 and increased $538,000 for the nine months of 1998 as compared to the same period in 1997. Increased deposit account service charges and trust & asset management fees have been the primary source of the growth in non-interest income. In the nine months, account service charges totaled $852,000 up $188,000 (or 28.3%) over last year. Trust & asset management fees have increased $113,000 or 25.3% for the nine months over the same period in 1997. The increases in fee income were the result of the growth in the number of customers and related deposit accounts as well as the growth in market values of trust accounts over the past twelve months. NON-INTEREST EXPENSE Non-interest expense increased $479,000 or 18.6% during the third quarter of 1998 and $670,000 or 8.6% in the first nine months of 1998 compared to the same periods of the prior year. This increased level of non-interest expense is attributable to salaries and benefits which have increased $667,000 or 16.3% over the first nine months of 1997. This was anticipated as our employee benefit package was forecasted to increase in 1998 in addition to normal performance adjustments for employees. The Corporation signed a purchase and assumption agreement on October 13, 1998 to assume the liabilities of the Punxsutawney, PA office of First Western Bank, N.A. The Branch size is approximately $37,000,000 in total deposits with approximately $11,500,000 in consumer and small business loans. This purchase will create significantly higher non interest costs in the future. The amortization of the premium will begin in February 1999. The costs will be offset by increased service charges as well as net interest income. 7 RETURN ON ASSETS For the quarter ended September 30, 1998, the Corporation's return on average assets ("ROA") totaled 1.17% down from the 1.25% recorded in the third quarter of 1997. For the nine months ended September 30, 1998, ROA was 1.21% compared to 1.16% in 1997. Increased ROA for the nine months is attributable to increased net interest income. The decline in the quarterly ROA both from the previous year and the second quarter of 1998 (1.36%) is attributed to the large increase in salaries and employee benefits as previously mentioned. RETURN ON EQUITY The Corporation's return on average shareholder's equity ("ROE") in the first nine months was 10.81% compared to 9.98% for the same period in 1997. The increase can be attributed primarily to increased profits as discussed above. Management recognizes continued improvement in ROE during 1998 and anticipates further increases with earnings growth. The Corporation is well capitalized under regulatory industry standards. FEDERAL INCOME TAX EXPENSE Federal income taxes decreased to $372,000 in the third quarter of 1998 compared to $435,000 in the third quarter of 1997. For the nine months ended, September 30, 1998, federal income taxes totaled $1,254,000 an increase of $202,000 or 19.2% over the prior year. The decrease in the third quarter reflects an increase in tax depreciation related to the leased assets created through our auto leasing program when compared to the same quarter of the prior year. The effective tax rate for the nine months is 26.3% compared to 25.8% in 1997. The increase is caused by increased earnings within our taxable interest income areas. Further increases for 1998 in the effective tax rate are expected to be minimal. YEAR 2000 Management is aware of the possibility of exposure by banks to a computer problem known as the "Year 2000 Issue" or the "Millennium Bug" ( the inability of some computer programs to distinguish between the year 1900 and the year 2000). The Corporation has assessed the extent of vulnerability of the Corporation's computer systems to the problem. Modifications or replacements of computer systems to attain Year 2000 compliance have begun, and the Corporation expects to attain Year 2000 compliance and institute appropriate testing of its modifications and replacements before the Year 2000 change date. The Corporation believes that, with modifications to existing software and conversions to new software, the Year 2000 problem will not pose a significant operational problem for the Corporation. The Corporation relies heavily on third party vendors to provide its core processing. These vendors are in the process of testing and will shortly begin the verification phase. Communication with outside vendors has provided the Corporation with positive feedback as to Year 2000 compliance which should pose minimal costs. The cost estimate for Year 2000 compliance in total is expected to be less than $100,000. Many of these costs are upgrades to systems that essentially provide better customer services and were scheduled for implementation within the next 1 or 2 years. FUTURE OUTLOOK Third quarter results showed a decline over the second quarter, which were well above management's expectations. This decline was expected due to several costs related to personnel as well as other non-interest expenses that were anticipated during the third quarter. Management continues to focus on quality asset growth from general growth via increased market share. Management continues to be encouraged by the growth in the DuBois, Bradford, and St. Marys markets served by the Bank. Loan demand began to strengthen in the third quarter. While loan growth is expected to occur throughout the remainder of the year, it is not expected to be as significant as the growth in 1997. The Corporation's loan to deposit ratio has remained relatively unchanged at the end of the third quarter 8 at 80.9% compared to 80.4% at the end of the second quarter. Management expects the loan to deposit ratio to remain relatively stable during the fourth quarter of 1998. Consumer loan charge-offs for the nine months ended September 30, 1998 continued to comprise the majority of the Corporation's recent charge-offs. In the nine months ended September 30, 1998, total net charge-offs were $250,862 of which consumer net charge-offs totaled $189,935. The overall level of charge- offs has declined and is stabilizing. Management believes that the increased efforts of loan review and collections as well as continued strengthening of our underwriting standards will give the Bank a more stable charge-off experience over the next several periods. Enhanced non-interest income and controlled non-interest expense are important factors in the success of the Corporation and is measured in the financial services industry by the efficiency ratio, calculated according to the following: non-interest expense (less amortization of intangibles) as a percentage of fully taxable net interest income and non-interest income (less non-recurring income). For the nine months ended September 30, 1998, the Corporation's efficiency ratio was 60.14% compared to 60.99% for the same period last year. The efficiency ratio should improve as the level of non-interest expense will stabilize and non-interest income increase. Management believes that the downward trend will continue over the next several months. The interest rate environment will continue to play an important role in the future earnings of the Corporation. The net interest margin has stabilized in 1998 as more higher cost time deposits continue to roll into lower cost products. Overall net interest income continues to increase due to growth in interest earning assets. Management expects the net interest margin to increase slightly and to see further growth in net interest income for the remainder of 1998. As previously mentioned, the Corporation purchased $37,000,000 in deposits or an increase of 11.1% of September 30, 1998 deposits and $11,500,000 in loans an increase of 4.3%. While this purchase is not effective until February of 1999, management expects a positive impact on the overall levels of net interest income. Management concentrates on return on average assets and earnings per share valuations, plus other methods, to measure and direct the performance of the Corporation. While past results are not an indication of future earnings, Management feels the Corporation is positioned to enhance performance of normal operations through the remainder of 1998. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements in this Form 10-Q which are not historical fact are forward looking statements that involve risks and uncertainties, including, but not limited to, the interest rate environment, the effect of federal and state banking and tax regulations, the effect of economic conditions, the impact of competitive products and pricing, and other risks detailed in the Corporation's Securities and Exchange Commission filings. 9 TABLE 1 CONSOLIDATED BALANCE SHEETS
CNB FINANCIAL CORPORATION Consolidated Balance Sheets (Unaudited) (Dollars in thousands) September 30 Dec. 31 September 30 1998 1997 1997 ------------- ----------- ------------- Cash and Due from Banks....................................................... $6,017 $9,555 $11,342 Interest Bearing Deposits with Other Banks.................................... 3,679 31 14 Federal Funds Sold............................................................ 2,915 8,850 8,325 Investment Securities Available for sale...................................... 92,574 63,521 61,387 Investment Securities Held to Maturity, fair value of $8,136 at September 30, 1998, $13,704 at December 31, 1997 and $13,713 at September 30, 1997................................................. 7,940 13,511 13,514 Loans and Leases.............................................................. 274,850 267,608 260,237 Less: Unearned Discount...................................................... 4,203 3,707 3,553 Less: Allowance for Loan and Lease Losses.................................... 3,123 2,849 2,508 ------------ ---------- ----------- NET LOANS.................................................................... 267,524 261,052 254,176 Premises and Equipment, net................................................... 9,978 8,795 8,963 Accrued Interest Receivable................................................... 2,415 2,199 2,255 Other Assets and Intangibles, net............................................. 5,777 5,353 5,472 ------------ ---------- ----------- TOTAL ASSETS................................................................. $398,819 $372,867 $365,448 ============ ========== =========== LIABILITIES Deposits: Non-interest bearing deposits................................................ $35,164 $32,893 $32,000 Interest bearing deposits.................................................... 297,775 286,580 280,330 ------------ ---------- ----------- TOTAL DEPOSITS............................................................... 332,939 319,473 312,330 Other Borrowings.............................................................. 16,991 8,071 9,078 Accrued Interest and Other Liabilities........................................ 4,763 3,115 2,499 ------------ ---------- ----------- TOTAL LIABILITIES............................................................ $354,693 $330,659 $323,907 ------------ ---------- ----------- SHAREHOLDERS EQUITY Common Stock $1.00 Par Value for 1998 and $4.00 for 1997 Authorized 10,000,000 Shares for 1998 and 2,500,000 for 1997 Issued 3,456,000 Shares for 1998 and 1,728,000 for 1997..................... $3,456 $6,912 $6,912 Additional paid in Capital.................................................. 3,456 - - Retained Earnings........................................................... 35,891 34,246 33,557 Treasury Stock, At Cost (10,332 Shares for 1998 and 5,166 Shares for 1997).. (100) (100) (100) Accumulated other comprehensive income...................................... 1,423 1,150 1,172 ------------ ---------- ----------- TOTAL SHAREHOLDERS EQUITY................................................... 44,126 42,208 41,541 ------------ ---------- ----------- ------------ ---------- ----------- TOTAL LIABILITIES & SHAREHOLDERS EQUITY $398,819 $372,867 $365,448 ============ ========== ===========
10 TABLE 2-Q CONSOLIDATED STATEMENTS OF INCOME
CNB FINANCIAL CORPORATION: September 30, 1998 Consolidated Statements of Income (Unaudited) (Dollars in thousands, except per share data) THREE MONTHS ENDED SEPT. 30 INTEREST AND DIVIDEND INCOME 1998 1997 ---------------- ---------------- Loans including Fees................................................... $5,794 $5,565 Deposits with Other Banks.............................................. 5 0 Federal Funds Sold..................................................... 89 98 Investment Securities: Taxable............................................................. 1,009 692 Tax-Exempt.......................................................... 350 319 Dividends........................................................... 58 80 ---------------- ---------------- TOTAL INTEREST AND DIVIDEND INCOME................................. $7,305 $6,754 ---------------- ---------------- INTEREST EXPENSE Deposits............................................................... $3,193 $2,931 Borrowed Funds......................................................... 230 114 ---------------- ---------------- TOTAL INTEREST EXPENSE.............................................. $3,423 $3,045 Net Interest Income................................................. $3,882 $3,709 Provision for possible loan losses.................................. 150 150 ---------------- ---------------- NET INTEREST INCOME AFTER PROVISION.................................... $3,732 $3,559 ---------------- ---------------- OTHER INCOME Trust & Asset Management Fees.......................................... $ 212 $ 158 Service charges on deposit accounts.................................... 322 253 Other service charges and fees......................................... 94 113 Realized Securities gains (losses)..................................... 87 15 Gains on Sale of Loans................................................. 1 2 Other.................................................................. 109 25 ---------------- ---------------- TOTAL OTHER INCOME.................................................. $ 825 $ 566 ---------------- ---------------- OTHER EXPENSES Salaries............................................................... $1,249 $1,157 Employee benefits...................................................... 363 198 Net occupancy expense of premises...................................... 424 389 Other.................................................................. 1,015 828 ---------------- ---------------- TOTAL OTHER EXPENSES................................................ $3,051 $2,572 ---------------- ---------------- Income Before Income Taxes............................................. $1,506 $1,553 Applicable Income Taxes................................................ 372 435 ---------------- ---------------- NET INCOME.......................................................... $1,134 $1,118 ================ ================ EARNINGS PER SHARE, BASED ON WEIGHTED AVERAGE SHARES OUTSTANDING * Net Income............................................................. 0.33 0.32 Cash Dividends Per Share............................................... 0.18 0.17
* Per Share Data are restated to reflect the 2 for 1 stock split effective on April 30, 1998. 11 TABLE 2-Y CONSOLIDATED STATEMENTS OF INCOME
CNB FINANCIAL CORPORATION: September 30, 1998 Consolidated Statements of Income (Unaudited) (Dollars in thousands, except per share data) NINE MONTHS ENDED SEPTEMBER 30 INTEREST AND DIVIDEND INCOME 1998 1997 ---------------- ---------------- Loans including Fees...................................................... $17,320 $15,742 Deposits with Other Banks................................................. 9 0 Federal Funds Sold........................................................ 229 154 Investment Securities: Taxable................................................................ 2,819 2,283 Tax-Exempt............................................................. 1,020 975 Dividends.............................................................. 162 122 ---------------- ---------------- TOTAL INTEREST AND DIVIDEND INCOME..................................... $21,559 $19,276 ---------------- ---------------- INTEREST EXPENSE Deposits.................................................................. $ 9,335 $ 8,278 Borrowed Funds............................................................ 653 316 ---------------- ---------------- TOTAL INTEREST EXPENSE................................................. $ 9,988 $ 8,594 Net Interest Income.................................................... $11,571 $10,682 Provision for possible loan losses..................................... 525 450 ---------------- ---------------- NET INTEREST INCOME AFTER PROVISION....................................... $11,046 $10,232 ---------------- ---------------- OTHER INCOME Trust & Asset Management Fees............................................. $ 560 $ 447 Service charges on deposit accounts....................................... 852 664 Other service charges and fees............................................ 299 319 Realized Securities gains (losses)........................................ 217 74 Gains on Sale of Loans.................................................... 22 24 Other..................................................................... 228 112 ---------------- ---------------- TOTAL OTHER INCOME..................................................... $ 2,178 $ 1,640 ---------------- ---------------- OTHER EXPENSES Salaries.................................................................. $ 3,657 $ 3,435 Employee benefits......................................................... 1,108 663 Net occupancy expense of premises......................................... 1,270 1,230 Other..................................................................... 2,429 2,466 ---------------- ---------------- TOTAL OTHER EXPENSES................................................... $ 8,464 $ 7,794 ---------------- ---------------- Income Before Income Taxes................................................ $ 4,760 $ 4,078 Applicable Income Taxes................................................... 1,254 1,052 ---------------- ---------------- NET INCOME............................................................. $ 3,506 $ 3,026 ================ ================ EARNINGS PER SHARE, BASED ON WEIGHTED AVERAGE SHARES OUTSTANDING * Net Income................................................................ $1.02 $0.88 Cash Dividends Per Share.................................................. $0.54 $0.51
* Per Share Data are restated to reflect the 2 for 1 stock split effective on April 30, 1998. 12 TABLE 3 CONSOLIDATED STATEMENTS OF CASHFLOWS
CNB FINANCIAL CORPORATION Consolidated Statements of Cash Flows (unaudited) (Dollars in thousands) Nine Months Ended Sept. 30. Cash flows from operating activities: 1998 1997 ----------------- ------------------ Net Income.................................................... $ 3,506 $ 3,026 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses................................. 525 450 Depreciation and amortization............................. 845 561 Amortization and accretion and deferred loan fees......... (230) (513) Deferred Taxes............................................ 1,054 0 Security Gains............................................ (217) (74) Gain on sale of loans..................................... (22) (24) Net gains on dispositions of acquired property............. (98) 0 Proceeds from sale of loans................................ 11,288 1,681 Changes in: Interest receivable....................................... (216) (73) Other assets and intangibles.............................. (11,979) 398 Interest payable.......................................... (16) 172 Other liabilities......................................... 470 (253) ----------------- ------------------ Net cash provided by operating activities..................... 4,910 5,351 Cash flows from investing activities: Proceeds from maturities of: Securities held to maturity............................. 6,067 4,990 Securities available for sale........................... 16,897 7,497 Proceeds from sales of: Securities available for sale........................... 3,988 1,981 Purchase of: Securities available for sale........................... (49,659) (9,854) Net principal disbursed on loans............................ (6,412) (36,031) (Purchase) of Federal Reserve Bank Stock.................... 0 (39) (Purchase) Redemption of Federal Home Loan Bank Stock....... (499) 240 Purchase of premises and equipment.......................... (1,784) (212) Proceeds from the sale of foreclosed assets................. 142 0 ----------------- ------------------ Net cash used in investing activities......................... (31,260) (31,428) Cash flows from financing activities: Net change in: Checking, money market and savings accounts............. 13,515 2,001 Certificates of deposit................................. (49) 40,273 Cash dividends paid..................................... (1,861) (1,758) Net advances (repayments) from other borrowings............. 8,920 (5,578) ----------------- ------------------ Net cash provided by financing activities..................... 20,525 34,938 Net increase (decrease) in cash and cash equivalents.......... (5,825) 8,861 Cash and cash equivalents at beginning of year................ 18,436 10,820 ----------------- ------------------ Cash and cash equivalents at end of period.................... $ 12,611 $ 19,681 ================= ================== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (including amount credited directly to certificate accounts)................................... $ 9,988 $ 8,766 Income Taxes............................................. $ 360 $ 1,155 Noncash Investing Activities: Inc.(Dec.) in net unrealized gain on securities available for sale..................................... $ 273 $ 557
13 TABLE 4 CONSOLIDATED YIELD COMPARISONS
CNB Financial Corporation Average Balances and Net Interest Margin (Dollars in thousands) September 30, 1998 September 30, 1998 - ---------------------------------------------------------------------------------------------------------------------------------- Average Annual Interest Average Annual Interest Balance Rate Inc./Exp. Balance Rate Inc./Exp. - -------------------------------------------------------------------------------------------------------------------------------- Assets Interest-bearing deposits with banks $ 3,554 0.34% $ 9 $ 14 0.00% $ 0 Federal funds sold and securities purchased under agreements to resell 5,474 5.58% 229 3,856 5.33% 154 Investment Securities: Taxable 61,016 6.16% 2,819 48,462 6.28% 2,283 Tax-Exempt (1) 26,000 7.23% 1,409 24,571 7.36% 1,356 Equity Investments (1) 5,480 4.87% 200 3,607 5.51% 149 - -------------------------------------------------------------------------------------------------------------------------------- Total Investments 101,524 6.13% 4,666 80,510 6.53% 3,942 Loans Commercial (1) 53,105 8.48% 3,378 56,856 8.08% 3,447 Mortgage (1) 154,576 8.85% 10,261 134,603 8.72% 8,807 Installment 38,581 9.45% 2,733 41,099 9.52% 2,933 Leasing 18,462 7.77% 1,076 9,031 7.78% 527 - -------------------------------------------------------------------------------------------------------------------------------- Total loans (2) 264,724 8.79% 17,448 241,589 8.67% 15,714 Total earning assets 366,248 8.05% 22,114 322,099 8.14% 19,656 Non Interest Bearing Assets Cash & Due From Banks 5,921 0 9,596 0 Premises & Equipment 9,565 0 9,234 0 Other Assets 8,036 0 7,346 0 Allowance for Possible Loan Losses (2,999) 0 (2,517) 0 - -------------------------------------------------------------------------------------------------------------------------------- Total Non-interest earning assets 20,523 -- 0 23,659 -- 0 - -------------------------------------------------------------------------------------------------------------------------------- Total Assets $386,771 $22,114 $345,758 $19,656 ============================================================================= Liabilities and Shareholders' Equity Interest-Bearing Deposits Demand - interest-bearing $ 85,035 2.84% $ 1,814 $ 83,440 2.96% $ 1,850 Savings 33,107 1.70% 423 35,635 1.71% 457 Time 172,380 5.49% 7,099 145,801 5.46% 5,971 - -------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 290,522 4.28% 9,336 264,876 4.17% 8,278 Short-term borrowings 1,196 5.46% 49 4,058 5.09% 155 Long-term borrowings 14,763 5.45% 603 3,461 6.20% 161 - -------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 306,481 4.35% 9,988 272,395 4.21% 8,594 Demand - non-interest-bearing 32,568 0 30,141 0 Other liabilities 4,283 0 2,803 0 - -------------------------------------------------------------------------------------------------------------------------------- Total Liabilities 343,332 3.88% 9,988 305,339 3.75% 8,594 Shareholders' equity 43,439 -- 0 40,419 -- 0 - -------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $386,771 $ 9,988 $345,758 $ 8,594 ============================================================================= Interest income/earning assets 8.05% 22,114 8.14% $19,656 Interest expense/interest bearing liabilities 4.35% 9,988 4.21% 8,594 - -------------------------------------------------------------------------------------------------------------------------------- Net Interest Spread 3.71% $12,126 3.93% $11,062 ========================== ======================= Interest Income/Interest Earning Assets 8.05% $22,114 8.14% $19,656 Interest expense/Interest Earning Assets 3.63% 9,988 3.56% 8,594 - -------------------------------------------------------------------------------------------------------------------------------- Net Interest Margin 4.42% $12,126 4.58% $11,062 ========================== =======================
(1) The amounts are reflected on a fully tax equivalent basis using the federal statutory rate of 34% in 1998 and 1997, 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 PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS FOR SECURITY HOLDERS VOTE None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K There were no reports for the period ended September 30, 1998. 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: November 6, 1998 /s/ James P. Moore ---------------- ------------------ James P. Moore President and Director (Principal Executive Officer) DATE: November 6, 1998 /s/ Joseph B. Bower, Jr. ---------------- ------------------------- Joseph B. Bower, Jr. Treasurer (Principal Financial Officer) (Principal Accounting Officer) 15 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 6,017 3,679 2,915 0 92,574 7,940 8,136 270,647 3,123 398,819 332,939 16,991 4,763 0 0 0 3,456 0 398,819 17,320 4,001 238 21,559 9,335 653 11,571 525 217 8,464 4,760 4,760 0 0 3,506 1.02 1.02 8.05 396 1,131 553 0 2,849 345 94 3,123 3,123 0 0
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