-----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, GrY+5CleH3EDi3MdCbrMsBPH4SdZ2Ek4kyjmKm1L2XR5QYqvOxb0slAOiTOhv9Tm tJZ6OAC13vnVsQ8Kc1ErIw== 0000950132-97-000634.txt : 19970815 0000950132-97-000634.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950132-97-000634 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD 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: 97663023 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, 1997 Commission File Number 0-13396 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- ------------- CNB FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Pennsylvania 25-1450605 ------------ ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) County National Bank 1 South Second Street P.O. Box 42 Clearfield, Pennsylvania 16830 (Address of principal executive offices) Registrant's telephone number, including area code, (814) 765-9621 Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common Stock: $4.00 Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- The number of shares outstanding of the issuer's common stock as of June 30, 1997: COMMON STOCK: $4.00 PAR VALUE - 1,722,834 SHARES INDEX PART I. FINANCIAL INFORMATION Sequential Page Number - ----------- PAGE 3. Notes to Consolidated Financial Statements PAGE 5. Management's Discussion and Analysis of Financial Condition and Results of Operations PAGE 11. Table 1 - Consolidated Balance Sheets - June 30, 1997 PAGE 12. Table 2 - Consolidated Statements of Cash Flows - June 30, 1997 PAGE 13. Table 3Q - Consolidated Statements of Income - Quarter ending June 30, 1997 PAGE 14. Table 3Y - Consolidated Statements of Income For Six Months Ending June 30, 1997 PAGE 15. Table 4 - Consolidated Yield Comparisons PART II. OTHER INFORMATION PAGE 16. ITEM 4 Submission of Matters for Security Holders Vote PAGE 16. ITEM 5 Other Information PAGE 16. ITEM 6 Exhibits and Reports on Form 8-K PAGE 16. Signatures 2 CNB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) BASIS OF PRESENTATION In the opinion of Management of the registrant, the accompanying consolidated financial statements for the three and six month periods ended June 30, 1997 and 1996 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results for the period. This information should be read in conjunction with the Corporation's Annual Report to shareholders and Form 10-K for the period ended December 31, 1996. The preperation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results will differ from those estimates and such differences may be material to the financial statements. The financial performance reported for the Corporation as of June 30, 1997 is not necessarily the result to be expected for the full year. The results contain no extraordinary income (loss) for changes in accounting or other events. Tax provisions for interim financial statements are based on the estimated tax rates for the full fiscal year. The estimated effective tax rate differs from the statutory tax rate principally due to tax-free interest income on certain loans and investments which qualify for such treatment. ACCOUNTING POLICIES ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is established through provisions for loan losses which are charged against income. Loans which are deemed to be uncollectible are charged against the allowance account. Subsequent recoveries, if any, are credited to the allowance account. Management determines the adequacy of the reserves based on historical patterns of charge-offs and recoveries, industry experience, and other qualitative factors relevant to the collectability of the loan portfolio. While management believes that the allowance is adequate to absorb estimated potential loan losses, future adjustments may be necessary in circumstances that differ substantially from the assumptions used in evaluating the adequacy of the allowance for loan losses. RECENT ACCOUNTING PRONOUNCEMENTS SFAS No. 128: Earnings per Share - -------------------------------- SFAS No. 128, "Earnings per Share", is effective for periods ending after December 15, 1997, with retroactive presentation for all periods required. SFAS No. 128 specifies revised computation, presentation and disclosure requirements for earnings per share. Under the provisions of SFAS No. 128, primary and fully diluted earnings per share will be replaced with basic and diluted amounts. 3 SFAS No. 129: Disclosure of Information About Capital Structure - --------------------------------------------------------------- SFAS No. 129, "Disclosure of Information About Capital Structure", is effective for financial statements for periods ending after December 15, 1997. This statement requires disclosure of rights and privileges of various securities outstanding. SFAS No. 130: Reporting Comprehensive Income - -------------------------------------------- SFAS No. 130, "Reporting Comprehensive Income", is effective for fiscal years beginning after December 15, 1997. This statement establishes standards for reporting and display of comprehensive income and its components. Comprehensive income includes net income and all other changes in shareholder's equity except those resulting from investments and distributions to owners. SFAS No. 131: Disclosures about Segments of an Enterprise and Related - --------------------------------------------------------------------- Information - ----------- SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", is effective for financial statements for periods beginning after December 15, 1997. This statement requires financial and descriptive information about an entity's operating segments to be included in the annual financial statements. None of these standards when implemented are expected to materially impact the reported financial position or results of operations of the (Corporation). CONCLUSION The accompanying financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (SEC) and in compliance with generally accepted accounting practices. Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The registrant believes that the disclosures made are adequate to make the information presented a fair representation of the Corporation's financial status. 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION The following discussion and analysis of the consolidated financial statements of the Company is presented to provide insight into management's assessment of financial results. The company's only subsidiary County National Bank (the "Bank") provides financial services to individuals and businesses within the Bank's market area made up of the west central Pennsylvania counties of Clearfield, Centre, Elk, and McKean. County National Bank is a member of the Federal Reserve System and subject to regulation, supervision and examination by the Office of the Comptroller of the Currency ("OCC"). On December 16, 1996 the Bank acquired three full-service banking offices and one limited service banking office and the corresponding customer lists for those offices from an unaffiliated institution (referred hereafter as "Acquisition"). The offices are located in west central Pennsylvania in the communities of Clearfield, Philipsburg, and DuBois. Two of the full-service offices have been closed, one in Clearfield and the second in Philipsburg, and service transferred to existing banking offices in those communities. The remaining full-service office in DuBois and the limited service office in Philipsburg continue to operate as branches of the bank. OVERVIEW OF BALANCE SHEET Total assets increased from $327,008,000 at December 31, 1996 to $352,437,000 at June 30, 1997 a growth rate of 7.8%. The increase in assets can be attributed primarily to the generation of approximately $17 million in new deposits related to the branch locations and customer lists acquired in the Acquisition made in the fourth quarter of 1996. Total deposits increased $30,825,000 (or 11.4%) in the six months ended June 30, 1997, while total borrowings decreased $5,806,000 (or 39.6%) to $8,850,000. The Company invested these deposits primarily in loans up $25,033,000 (or 11.2%) and to repay other borrowings in the amount of $5,806,000. CASH AND CASH EQUIVALENTS Cash and Cash equivalents totaled $14,525,000 at June 30, 1997compared to $10,938,000 on June 30, 1996. The quarter ending on a Monday resulted in the due from bank amount being larger than normal for the period ending date. Management believes the liquidity needs of the Company are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources, and the portion of the investment and loan portfolios that matures within one year. These sources of funds will enable the Company to meet cash obligations and off-balance sheet commitments as they come due. INVESTMENT SECURITIES Investment securities declined $2,822,000 since December 31, 1996, with funds utilized to meet loan demand. Of the Company's total investment portfolio of $75,874,000 as of June 30, 1997 $62,471,000 (or 82.3%) is classified as available for sale with the balance of $13,403,000 classified as held to maturity. Management monitors the earnings performance and the effectiveness of the liquidity of the investment portfolio on a regular basis through Asset / Liability Committee ("ALCO") meetings. The ALCO also reviews and manages interest rate risk for the Company. Through active balance sheet management and analysis of the investment securities portfolio, the Company maintains sufficient liquidity to satisfy depositor requirements and various credit needs of its customers. LOANS The Company's loan volume continues to grow and reflects the additional credit opportunities in the markets served. The Company's lending is focused in the west central Pennsylvania market and 5 consists principally of retail lending, which includes single family residential mortgages and other consumer lending, and also commercial lending primarily to locally owned small businesses. The Company's lending market has grown as a result of the Acquisition and the entry into the DuBois market. This market has yielded $2.0 million in new loan outstandings in the first six months of 1997. Management expects this market to continue to provide significant loan growth over the next several quarters. The following table details total outstanding loans at the specified dates:
June 30, December 31, June 30, 1997 1996 1996 (000's) (000's) (000's) --------------- ------------------ ------------------- Commercial, Financial, and Agricultural $ 57,403 $ 45,037 $ 44,985 Commercial Mortgage 31,450 31,451 31,822 Residential Mortgage 108,864 100,402 85,188 Consumer Installment 41,407 43,448 42,894 Lease Receivables 12,409 6,069 ---- --------------- ------------------ ------------------- $251,533 $226,407 $204,889
At June 30, 1997, the Company had $251,533,000 in loans and leases outstanding up $25,126,000 (or 11.1%) over December 31, 1996 and up $46,644,000 (or 22.8%) over June 30, 1996. This growth pattern is the result of continued commercial lending opportunities resulting from customer dissatisfaction with several superregional banks located within the market as well as continued market penetration into recently added markets in Elk and McKean counties. Residential mortgage activity has slowed somewhat but continues to be strong aided by the Company's First Time Home Buyers mortgage product which has been available for the past 24 months. Consumer loans appear stagnant but are actually increasing when lease receivables are included in the total. Conventional auto financing is being replaced with an ever greater number of leases. Management feels that this trend will continue over the next several quarters. LOAN CONCENTRATION The Company does not have a concentration of its loan portfolio in any one industry. The Company monitors loan concentrations by individual industries in order to track potential risk exposures resulting from industry related downturns. Residential real estate lending continues to be the largest component of the loan portfolio representing 43.3% of total loans. Commercial lending, including commercial mortgages, is the next largest component representing 35.3% of the portfolio. ALLOWANCE FOR LOAN AND LEASE LOSSES The Allowance for Loan and Lease Losses as a percentage of loans decreased from 1.09% at year end 1996 to 0.99% at June 30, 1997. The dollar amount of the reserve increased $24,000 for the six months ended June 30, 1997, provision for loan and lease losses totaled $300,000, while gross chargeoffs were $338,000 and recoveries amounted to $62,000. This level of chargeoffs is significantly higher than those experienced in the first six of 1996 when chargeoffs were $107,000 with recoveries of $42,000. This trend is consistent with the trend nationwide in the financial services industry. It is the result of increased consumer credit problems often resulting in bankruptcies. Management of the Company has implemented increased loan collection activities which has resulted in decreased levels of loan delinquency. Management believes that as a result of these efforts loan and lease losses will be reduced in the second half of the year. Non-performing assets (NPA), which include loans 90 or more days past due, non-accrual loans and other real estate owned were $1,009,000 or 0.29% of total assets on June 30, 1997, compared to $1,380,000 or 0.41% on March 31, 1997 and $1,264,000 or 0.39% on December 31, 1996. The adequacy of the allowance for loan and lease losses is subject to a formal analysis by the loan review staff of the Bank and is deemed to be adequate to absorb inherent losses in the portfolio. 6 FUNDING SOURCES The Company considers deposits, short-term borrowings, and term debt when evaluating funding sources. Traditional deposits continue to be the most significant source of funds for the Company reaching $300,881,000 at June 30, 1997, an increase of 11.3% since year-end 1996. Deposit growth occurred primarily through the Acquisition. The Company borrowed $5.0 million under a term borrowing from the Federal Home Loan Bank during the second quarter in order to meet funding needs resulting from loan demand. This event increased borrowings to $8,850,000 as of June 30, 1997 from $3,592,000 on March 31, 1997, however, the total is less than the $14,656,000 outstanding at year-end 1996. Management plans to maintain access to short-term and long-term FHLB borrowings as an appropriate funding source. During the second quarter the Company achieved deposit growth of $9,005,000 compared to $21,820,000 during the first quarter. The significant first quarter growth was primarily the result of deposits generated by the Acquisition. Growth in the second quarter continued to result from the Acquisition and is expected to continue into the third and fourth quarters. Also, as a result of the Acquisition, the Company has experienced a change in the mix of its deposit base. Of the total deposit growth of $30,771,000 in the first two quarters $29,513,000 or 95.9% has come in the time deposit category. This results in time deposits representing 42.9% of total deposits as of June 30, 1997 compared to 36.9% as of year-end 1996. Management expects this shift in deposit mix to continue, however, at a lesser rate, as deposits continue to be acquired from the Acquisition. CAPITAL / STOCKHOLDERS' EQUITY The Company's Capital continues to provide a strong base for profitable growth. Total Stockholders' Equity was $40,667,000 at June 30, 1997 compared to $39,716,000 at year-end 1996, an increase of $951,000 (or 2.4%). Equity growth was the result of an increase in retained earnings of $735,000 and an increase of $216,000 in the net unrealized holding gain on available-for-sale securities. Approximately 65% of the investment securities in the Company's portfolio are classified as available-for-sale making this portion of the Company's balance sheet more sensitive to the changing market value of investments. In the first six months of 1997, interest rates fluctuated in a rather narrow range ending the second quarter at relatively same level as the beginning of the year. Management feels the status of the investment markets do not substantially affect the Company's equity. In the first six months of 1997, the Company earned $1,908,000 and declared dividends of $1,172,000, a dividend payout ratio of 61.4% of net income. In the second quarter, net income and dividends declared totaled $1,039,000 and $586,000, respectively, a dividend payout ratio of 56.4%. Management feels that the second quarter payout ratio is acceptable for the Company and anticipates similar payout ratios in the future. The Company has also complied with the standards of capital adequacy mandated by the banking industry. Bank regulators have established "risk-based" capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets banks hold in their portfolios. A weight category of either 0% (lowest risk assets), 20%, 50%, or 100% (highest risk assets), is assigned to each asset on the balance sheet. The Company's total risk-based capital ratio of 16.39% at June 30, 1997 is well above the minimum standard of 8%. The Company's Tier 1 capital ratio of 15.35% also above the regulatory minimum of 4%. The leverage ratio at June 30, 1997, was 10.76 and also above the minimum standard of 4%. The Company is deemed to be well capitalized under regulatory industry standards. The ratios provide quantitative data demonstrating the strength and future opportunities for use of the Company's capital base. Management continues to evaluate risk-based capital ratios and the capital position of the Company as part of its strategic decision making process. LIQUIDITY AND INTEREST RATE SENSITIVITY Liquidity measures an organizations' ability to meet cash obligations as they come due. The Consolidated Statement of Cash Flows presented on page 12 of the accompanying financial statements provide analysis of the Company's cash and cash equivalents. Additionally, management considers that 7 portion of the loan portfolio that matures within one year and maturities within one year in the investment portfolio as part of the Company's liquid assets. The Company's liquidity is monitored by the ALCO which establishes and monitors ranges of acceptable liquidity. Management feels the Company's current liquidity position is acceptable. The interest rate sensitivity position at June 30, 1997, indicated the Company was liability sensitive in the short-term and asset sensitive for periods longer than one year. Management measures the potential impact of significant changes in interest rates on both the earnings and equity of the Company. By the use of computer generated models, the potential impact of these changes has been determined to be acceptable with modest affects on net income and equity given an interest rate shock of an increase or decrease in rates of 2.0%. Management continues to monitor the interest rate sensitivity through the ALCO and uses this data to make appropriate strategic decisions. RESULTS OF OPERATIONS OVERVIEW OF THE INCOME STATEMENT For the six months ended June 30, 1997, the Company earned $1,908,00 in net income, a decrease of 8.5% from $2,086,000 in net income, before the cumulative effect of a change in accounting principle in the same period last year. For the quarter ended June 30, 1997, the Company recorded net income of $1,039,000, a 2.1% decrease from $1,062,000 in the second quarter of 1996. Net income decreased in the second quarter and year to date as a primarily result of increased operating expenses related to the Acquisition. This decrease was anticipated by management and is the consequence of the nature of Acquisition which resulted in the Bank taking over the four acquired branches and hiring the employees and over time acquiring the customers and their respective deposits. Therefore, the Company experienced an immediate increase in operating expenses without a comparable increase in operating revenues. In addition, the Company began amortizing the premium paid for the customer lists which added an operating expense previously not incurred. The Bank has since closed two of the acquired branch facilities and assimilated the corresponding employees into other positions resulting from growth or attrition. Not withstanding these increased costs, management is confident that the Company's financial performance targets will be met for the full year of 1997. INTEREST INCOME AND EXPENSE Net interest income totaled $3,593,000 in the second quarter, an increase of 9.2% over the second quarter of 1996 and totaled $6,973,000 for the first six months of 1997, an increase of 6.6% over the same period of the prior year. Continued growth in loans has been the primary factor in this increase which has been mitigated somewhat by higher interest costs for deposits resulting from a shift in deposit mix to higher cost time deposits. Total interest income increased during the quarter by $773,000 or 13.7% while interest expense increased by $471,000 or 19.9% when compared to the second quarter of 1996. Total interest income for the first six months of 1997 increased by $1,147,000 or 10.1% while interest expense increased by $717,000 or 14.8% when compared to the first six months of 1996. The Company recorded a provision for loan and lease losses in the second quarter of $150,000 up from $125,000 from the second quarter of 1996 and $300,000 for the first six months of 1997 compared to $250,000 for the first six months of 1996. Management intends to maintain this provision at the same level in the third quarter, however, an increased provision in the fourth quarter may be considered depending on continued loan growth and the level of losses. NON-INTEREST INCOME Non-interest income declined $21,000 or 4.1% in the second quarter, however, it still shows an increase of $101,000 or 10.4% for the first six months of the year when compared to the same periods last year. The small decline in the second quarter is the result of decreased fiduciary income and other operating income which were not fully offset by an increase in service charges. Service charges on deposit accounts have increased $54,000 or 30.7% for the quarter and $106,000 or 34.8% for the year to date when compared to the same period in 1996. This increase in fee income is primarily a result of the growth in the 8 number of customer accounts. Management anticipates that total non-interest income will trend upward over the remaining two quarters of 1997. NON-INTEREST EXPENSE Non-interest expense increased $387,000 or 17.6% during the second quarter compared to the second quarter of 1996 and $833,000 or 19.0% in the first six months of 1997 compared to the same period of the prior year. Much of this increase is attributable to increased employee costs and occupancy expense related to branches acquired late in the fourth quarter of 1996. In addition, included in total non-interest expense is the amortization of the premium paid for the customer lists acquired in the transaction which added an additional operating expense in 1997 which was not present in 1996. This intangible expense amounted to $158,000 for the first two quarters of 1997. In order to reduce operating costs, management made the decision the second quarter to close one of the branches acquired in acquisition and consolidate its operation into nearby existing branches of the Bank. This office in Philipsburg was closed effective July 30, 1997, and the property related to the branch has been offered for sale. It is anticipated that the closing will not result in the write-down of any asset values. In addition to increased employee and occupancy expense there were certain one time costs relating to the Acquisition which occurred in the first quarter of 1997 which did not reoccur in the second quarter. This resulted in non- interest expense declining in the second quarter when compared to the first quarter by $62,000 or 2.3%. RETURN ON ASSETS For the quarter ended June 30, 1997, return on average assets ("ROA") totaled 1.18% down from 1.45% recorded in the same period of the prior year. For the six months ended June 30, 1997, ROA was 1.12% compared to 1.42% in 1996. Decreased ROA can be attributed to increased operating costs resulting from the Acquisition. Management believes ROA levels will increase over the remainder of 1997. RETURN ON EQUITY The Company's return on average stockholder's equity ("ROE") in the second quarter was 10.33%, compared to 11.50% for the same period last year. This decrease can be attributed primarily to increased equity from retained earnings and net unrealized holding gain coupled with a small decline in net income. Management expects improvement in ROE through the remainder of 1997. The acquisition and its resulting deposits are providing increased revenue potential without increasing stockholder's equity. The Company is well capitalized under regulatory industry standards. FEDERAL INCOME TAX EXPENSE Federal income taxes decreased from $421,000 in second quarter 1996 to $313,000 in 1997. For the six months ended June 30, 1997, federal income taxes totaled $617,000, a decrease of $174,000 (or 22.0%) compared to the same period a year earlier. This decrease can be attributed to the Company's lower pre-tax income during the periods. FUTURE OUTLOOK Second quarter results showed improvement over the first quarter and were in line with management expectations. Management continues to focus on asset growth resulting from ongoing generation of new deposits from the customer lists acquired via the Acquisition in the fourth quarter of 1996. Management anticipates that this deposit growth will carry forward into the second half of the year. Management is particularly encouraged by the growth in the DuBois market which represents a new 9 community to be served by the Bank. Planning is in progress on the design of a new banking facility for that location with a projected opening date of mid- summer of 1998. Loan growth in the second quarter remained strong and has exceeded management's expectations. While loan demand is good, competitive pressure from other financing sources has not resulted in increased loan yields. Management believes loan growth will continue through the remainder of 1997. The Company's loan to deposit ratio has remained relatively unchanged at the end of the second quarter at 82.5% compared to 82.6% at year end 1996. Due to strong loan demand, management expects the loan to deposit ratio to increase moderately over the next six months. Consumer loan charge-offs in the second quarter continued to comprise the majority of the Company's recent charge-offs. In the second quarter, total net chargeoffs were $203,632, of which consumer net charge-offs totaled $139,857. Future provision for loan and lease losses will be affected by the charge-off activity in all loan categories. Management feels the current reserve for loan losses is adequate to cover potential chargeoffs as they occur. Enhanced non-interest income and controlled non-interest expense are important factors in the success of the Company and is measured in the financial services industry by the efficiency ratio, calculated according to the following: non-interest expense (less amortization of intangibles) as a percentage of fully tax equivalent net interest income and non-interest income (less non-recurring income). For the six months ended June 30, 1997 the Company's efficiency ratio was 60.51%, compared to 55.84% for the same period last year. The efficiency ratio was negatively impacted by increased non-interest expense resulting from higher levels of salaries and benefits and occupancy expense relating to the branch acquisitions in late 1996. Management believes that the efficiency ratio will continue to improve during the second half of 1997 as both interest income and non-interest income increase while operating expenses stabilize. The interest rate environment will continue to play an important role in the future earnings of the Company. The net interest margin has been declining as more higher cost time deposits continue to be obtained as a result of the Acquisition. However, overall net interest income continues to increase due to growth in interest earning assets. Management expects little further decline in the net interest margin and further growth in net interest income in the remainder of 1997. Management concentrates on return on average assets and earnings per share evaluations, plus other methods, to measure and direct the performance of the Company. While past results are not an indication of future earnings, management feels the Company is positioned to enhance performance of normal operations through the remainder of 1997. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements in this Form 10-Q which are not historical fact are forward looking statements that involve risks and uncertainties, including, but not limited to, the interest rate environment, the effect of federal and state banking and tax regulations, the effect of economic conditions, the impact of competitive products and pricing, and other risks detailed in the Company's Securities and Exchange Commission filings. 10 TABLE 1 CONSOLIDATED BALANCE SHEETS CNB FINANCIAL CORPORATION: June 30, 1997 Consolidated Balance Sheets (Unaudited) (Dollars in thousands, except percent data)
June 30, Dec. 31 June 30, ASSETS 1997 1996 1996* -------- -------- -------- Cash and Due from Banks........................................ $ 13,936 $ 10,806 $ 10,924 Deposits with Other Banks...................................... 14 14 14 Federal Funds Sold............................................. 575 0 0 Investment Securities Available for sale 62,471 61,309 60,411 Investment Securities Held to Maturity, fair value of $13,603 at June 30, 1997, $17,717 at December 31, 1996 and $20,537 at June 30, 1996....................................... 13,403 17,387 20,254 Loans and Leases............................................... 251,533 226,407 204,889 Less: Unearned Discount..................................... 3,397 3,304 3,323 Less: Allowance for Loan Losses.............................. 2,497 2,473 2,330 -------- -------- -------- NET LOANS.................................................... 245,639 220,630 199,236 Premises and Equipment......................................... 9,172 9,312 8,025 Accrued Interest Receivable.................................... 2,251 2,181 2,126 Other Assets and Intangibles................................... 4,976 5,369 2,315 -------- -------- -------- TOTAL ASSETS................................................. $352,437 $327,008 $303,305 LIABILITIES Deposits: Non-interest bearing deposits................................ $ 30,960 $ 30,812 $ 28,925 Interest bearing deposits.................................... 269,921 239,244 230,409 -------- -------- -------- TOTAL DEPOSITS............................................... 300,881 270,056 259,334 Other Borrowings............................................... 8,850 14,656 4,396 Accrued Interest and Other Liabilities......................... 2,039 2,580 1,475 -------- -------- -------- TOTAL LIABILITIES............................................ $311,770 $287,292 $265,205 SHAREHOLDERS' EQUITY Common Stock $4.00 Par Value Authorized 2,500,000 Shares (issued 1,728,000).............. $ 6,912 $ 6,912 $ 6,912 Retained Earnings............................................ 33,024 32,289 31,316 Treasury Stock, At Cost (5,166 Shares)....................... (100) (100) (100) Net unrealized securities gains (losses)..................... 831 615 (28) -------- -------- -------- TOTAL SHAREHOLDERS' EQUITY................................... 40,667 39,716 38,100 -------- -------- -------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY..................... $352,437 $327,008 $303,305
* June 1996 amounts have been restated to reflect the cumulative effect of the change in accounting for trust fee income. 11 TABLE 2 CONSOLIDATED STATEMENTS OF CASHFLOWS CNB FINANCIAL CORPORATION: June 30, 1997 Consolidated Statements of Cash Flows (Dollars in thousands)
Six Months Ended June 30... Cash flows from operating activities: 1997 1996* ---------- ----------- NetIncome ................................................................ $ 1,908 $ 2,242 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses ............................................ 300 250 Depreciation ......................................................... 371 317 Amortization and accretion of net deferred loan fees ................. (350) (391) Amortization and accretion of premiums and discounts on investments .... 15 67 Security Losses (Gains) .............................................. (59) 13 Gain on sale of loans ................................................ 22 19 Changes in: Interest receivable .................................................. (70) (29) Other assets and intangibles ......................................... 239 (426) Interest payable ..................................................... 112 (40) Other liabilities .................................................... (653) 101 Net cash provided by operating activities ............................................................... 1,835 2,123 Cash flows from investing activities: Proceeds from maturities of: Securities held to maturity ........................................ 3,990 5,644 Securities available for sale ...................................... 3,279 6,523 Proceeds from sales of: Securities available for sale ...................................... 1,981 0 Loans .............................................................. 1,481 1,525 Purchase of: Securities held to maturity ........................................ 0 (998) Securities available for sale ...................................... (6,116) (16,905) Net principal disbursed on loans ....................................... (26,562) (2,746) (Purchase) of Federal Reserve Bank Stock ............................... (39) 0 Purchase of Federal Home Loan Bank Stock ............................... 240 (81) Purchase of premises and equipment ..................................... (231) (560) Proceeds from the sale of foreclosed assets ............................ 0 54 Net cash used in investing activities ............................................................... (21,977) (7,544) Cash flows from financing activities: Net change in: Checking, money market and savings accounts ........................ 522 2,556 Certificates of deposit ............................................ 30,303 991 Other borrowed funds ............................................... (771) 1,572 Cash dividends paid .................................................... (1,172) (1,068) Proceeds from Federal Home Loan Bank Advances .......................... 5,000 0 Principal reduction in Federal Home Loan Bank advances ................. (10,035) (21) Net cash provided by financing activities ............................................................... 23,847 4,030 Net increase (decrease) in cash and cash equivalents .................... 3,705 (1,391) Cash and cash equivalents at beginning of year ........................... 10,820 $ 12,329 Cash and cash equivalents at end of period ............................... $ 14,525 $ 10,938 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (including amount credited directly to certificate accounts).......................................................... $ 5,661 $ 4,852 Income Taxes ........................................................ $ 456 $ 760 Noncash Investing Activities: Inc.(Dec.) in net unrealized gain on securities available for sale ........................................................ $ 327 $ (617) Real estate acquired in settlement of loans.......................... $ - $ -
* June 1996 amounts have been restated to reflect the cumulative effect of the change in accounting for trust fee income. 12 TABLE 3-Q CONSOLIDATED STATEMENTS OF INCOME CNB FINANCIAL CORPORATION: June 30, 1997 Consolidated Statements of Income (Unaudited) (Dollars in thousands, except per share data)
THREE MONTHS ENDED JUNE 30... INTEREST INCOME 1997 1996* ------- ------- Loans including Fees.............................................. $5,269 $4,437 Deposits with Other Banks......................................... 0 0 Federal Funds Sold................................................ 40 23 Investment Securities: Taxable Securities: Available for Sale......................... 660 671 Tax-Exempt Securities: Available for Sale...................... 225 200 Taxable Securities: Being Held to Maturity..................... 133 196 Tax-Exempt Securities: Being Held to Maturity.................. 100 127 ------ ------ TOTAL INTEREST INCOME.......................................... $6,427 $5,654 INTEREST EXPENSE Deposits.......................................................... $2,758 $2,319 Borrowed Funds.................................................... 76 44 ------ ------ TOTAL INTEREST EXPENSE......................................... $2,834 $2,363 Net Interest Income............................................ $3,593 $3,291 Provision for possible loan losses............................. 150 125 ------ ------ NET INTEREST INCOME AFTER PROVISION............................... $3,443 $3,166 OTHER INCOME Trust & Asset Management Fees..................................... $ 130 $ 162 Service charges on deposit accounts............................... 230 176 Other service charges and fees.................................... 104 91 Securities gains (losses)......................................... (19) 0 Gains on Sale of Loans............................................ 20 0 Other income...................................................... 24 81 ------ ------ TOTAL OTHER INCOME............................................. $ 489 $ 510 OTHER EXPENSES Salaries.......................................................... $1,164 $ 980 Employee benefits................................................. 226 311 Net occupancy expense............................................. 405 347 Other Operating Expense........................................... 785 555 ------ ------ TOTAL OTHER EXPENSES........................................... $2,580 $2,193 Income Before Income Taxes and Cumulative Effect of Change In Accounting Principle........................................... $1,352 $1,483 Applicable Income Taxes........................................... 313 421 ------ ------ Income Before Cumulative Effect of Change in Accounting Principle.............................................. 1,039 1,062 Cumulative Effect of Change in Accounting Principle, after Taxes.. 0 0 ------ ------ NET INCOME..................................................... $1,039 $1,062 ====== ====== Per Share Data Income Before Cumulative Effect of Accounting Change.............. $0.60 $0.62 Cumulative Effect of Change in Accounting Principle............... 0.00 0.00 ------ ------ Net Income........................................................ 0.60 0.62 Cash Dividends Per Share.......................................... 0.34 0.31
* June 1996 amounts have been restated to reflect the cumulative effect of the change in accounting for trust fee income. 13 TABLE 3-Y CONSOLIDATED STATEMENTS OF INCOME CNB FINANCIAL CORPORATION: June 30, 1997 Consolidated Statements of Income (Unaudited) (Dollars in thousands, except per share data)
SIX MONTHS ENDED JUNE 30... INTEREST INCOME 1997 1996* ------- -------- Loans including Fees.............................................. $10,177 $ 8,948 Deposits with Other Banks......................................... 0 1 Federal Funds Sold................................................ 56 81 Investment Securities: Taxable Securities: Available for Sale......................... 1,341 1,292 Tax-Exempt Securities: Available for Sale...................... 450 372 Taxable Securities: Being Held to Maturity..................... 292 412 Tax-Exempt Securities: Being Held to Maturity.................. 206 269 ------- ------- TOTAL INTEREST INCOME.......................................... $12,522 $11,375 INTEREST EXPENSE Deposits.......................................................... $ 5,347 $ 4,751 Borrowed Funds.................................................... 202 81 ------- ------- TOTAL INTEREST EXPENSE......................................... $ 5,549 $ 4,832 Net Interest Income............................................ $ 6,973 $ 6,543 Provision for possible loan losses............................. 300 250 ------- ------- NET INTEREST INCOME AFTER PROVISION............................... $ 6,673 $ 6,293 OTHER INCOME Trust & Asset Management Fees..................................... $ 289 $ 361 Service charges on deposit accounts............................... 411 305 Other service charges and fees.................................... 206 185 Securities gains (losses)......................................... 59 (13) Gains on Sale of Loans............................................ 22 19 Other income...................................................... 87 116 ------- ------- TOTAL OTHER INCOME............................................. $ 1,074 $ 973 OTHER EXPENSES Salaries.......................................................... $ 2,278 $ 1,944 Employee benefits................................................. 465 626 Net occupancy expense............................................. 841 700 Other Operating Expense........................................... 1,638 1,119 ------- ------- TOTAL OTHER EXPENSES........................................... $ 5,222 $ 4,389 Income Before Income Taxes and Cumulative Effect of Change In Accounting Principle........................................... $ 2,525 $ 2,877 Applicable Income Taxes........................................... 617 791 ------- ------- Income Before Cumulative Effect of Change in Accounting Principle.............................................. 1,908 2,086 Cumulative Effect of Change in Accounting Principle, after Taxes.. 0 156 ------- ------- NET INCOME..................................................... $ 1,908 $ 2,242 ======= ======= Per Share Data Income Before Cumulative Effect of Accounting Change............................................................ $1.11 $1.21 Cumulative Effect of Change in Accounting Principle......................................................... 0.00 0.09 ------- ------- Net Income........................................................ $1.11 $1.30 Cash Dividends Per Share.......................................... $0.68 $0.62
* June 1996 amounts have been restated to reflect the cumulative effect of the change in accounting for trust fee income. 14 TABLE 4 CONSOLIDATED YIELD COMPARISONS CNB Financial Corporation Average Balances and Net Interest Margin (Dollars in thousands)
June 30, 1997 December 31, 1996 June 30, 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Interest Average Annual Interest Average Annual Interest Balance Rate Inc./Exp. Balance Rate Inc./Exp. Balance Rate Inc./Exp. - ------------------------------------------------------------------------------------------------------------------------------------ Assets Interest-bearing deposits with banks $ 14 0.00% $ 0 $ 14 0.00% $ 0 $ 15 1.33% $ 1 Federal funds sold and securities purchased under agreements to resell 2,183 5.13% 56 1,597 5.45% 87 2,933 5.52% 81 Investment Securities: Taxable 53,456 6.11% 1,633 55,861 6.17% 3,445 54,870 6.21% 1,704 Tax-Exempt (1) 25,099 7.92% 994 24,740 7.92% 1,962 24,099 8.08% 971 -------- ---- ------- -------- ---- ------- -------- ---- ------- Total Investments 80,752 6.65% 2,683 82,212 6.68% 5,494 81,917 6.73% 2,757 Loans Commercial 54,831 8.11% 2,222 47,679 8.14% 3,882 48,429 8.26% 1,999 Mortgage 131,879 8.67% 5,720 116,233 8.96% 10,415 110,881 9.01% 4,993 Installment 48,885 9.14% 2,235 42,009 9.36% 3,934 41,357 9.46% 1,956 -------- ---- ------- -------- ---- ------- -------- ---- ------- Total loans (2) 235,595 8.64% 10,177 205,921 8.85% 18,231 200,667 8.92% 8,948 Total earning assets 316,347 8.13% 12,860 288,133 8.23% 23,725 282,584 8.28% 11,705 Non Interest Bearing Assets Cash & Due From Banks 9,559 0 8,579 0 8,025 0 Premises & Equipment 9,301 0 8,297 0 7,931 0 Other Assets 6,398 0 2,965 0 3,650 0 Allowance for Possible Loan (2,519) 0 (2,301) 0 (2,237) 0 -------- ---- ------- -------- ---- ------- -------- ---- ------- Total Non-interest 22,739 -- 0 17,540 -- 0 17,369 -- 0 earning assets -------- ---- ------- -------- ---- ------- -------- ---- ------- Total Assets $339,086 $12,860 $305,673 $23,725 $299,953 $ 11,705 ======== ==== ======= ======== ==== ======= ======== ==== ======== Liabilities and Shareholders' Equity Interest-Bearing Deposits Demand - interest-bearing $ 83,678 3.01% $ 1,258 $ 76,496 3.13% $ 2,397 $ 77,156 3.17% $ 1,224 Savings 35,922 1.66% 298 36,266 1.66% 601 36,332 1.64% 298 Time 139,815 5.42% 3,791 117,339 5.47% 6,423 117,194 5.51% 3,229 -------- ---- ------- -------- ---- ------- -------- ---- ------- Total interest-bearing deposits 259,415 4.12% 5,347 230,101 4.09% 9,421 230,682 4.12% 4,751 Short-term borrowings 5,120 5.16% 132 7,186 5.23% 376 3,318 4.88% 81 Long-term borrowings 2,143 6.53% 70 0 0 0 0 -------- ---- ------- -------- ---- ------- -------- ---- ------- Total interest-bearing 266,678 4.16% 5,549 237,287 4.13% 9,797 234,000 4.13% 4,832 liabilities Demand - 29,732 -- 0 27,852 -- 0 26,117 -- 0 non-interest-bearing Other liabilities 2,698 -- 0 2,054 -- 0 1,952 -- 0 -------- ---- ------- -------- ---- ------- -------- ---- ------- Total Liabilities 299,108 3.71% 5,549 267,193 3.67% 9,797 262,069 3.69% 4,832 Shareholders' equity 39,978 -- 0 38,480 -- 0 37,884 -- 0 -------- ---- ------- -------- ---- ------- -------- ---- ------- Total Liabilities and Shareholders' Equity $339,086 $ 5,549 $305,673 $ 9,797 $299,953 $ 4,832 ======== ==== ======= ======== ==== ======= ======== ==== ======== Interest income/earning assets 8.13% $12,860 8.23% $ 23,725 8.28% $ 11,705 Interest expense/interest bearing liabilities 4.16% 5,549 4.13% 9,797 4.13% 4,832 ---- ------- ---- ------- ---- ------- Net Interest Spread 3.97% $ 7,311 4.10% $ 13,928 4.15% $ 6,873 ==== ======= ==== ======= ==== ======== Interest Income/Interest Earning Assets 8.13% $12,860 8.23% $ 23,725 8.28% $ 11,705 Interest expense/Interest Earning Assets 3.45% 5,549 3.40% 9,797 3.42% 4,832 ---- ------- ---- ------- ---- ------- Net Interest Margin 4.68% $ 7,311 4.83% $ 13,928 4.86% $ 6,873 ==== ======= ==== ======= ==== ========
15 PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS FOR SECURITY HOLDERS VOTE None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K There were no reports for the period ended June 30, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CNB FINANCIAL CORPORATION (Registrant) DATE: August 14, 1997 /s/ James P. Moore --------------- ------------------- James P. Moore President and Director (Principal Executive Officer) DATE: August 14, 1997 /s/ William F. Falger --------------- ---------------------- William F. Falger Executive Vice President and Director (Principal Financial Officer) (Principal Accounting Officer) 16 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 13,936 14 575 0 62,471 13,403 13,603 248,136 2,497 352,437 300,881 8,850 2,039 0 0 0 6,912 33,855 352,437 10,177 2,289 56 12,522 5,347 202 6,973 0 59 5,222 1,908 1,908 0 0 1,908 1.11 1.11 8.13 228 748 626 0 2,473 338 62 2,497 2,497 0 0
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