<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1995
------------------------------------
or
_____ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to ________________
Commission file number 0-13396
CNB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-01450605
- -----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Market and Second Streets, Clearfield, Pennsylvania 16830
---------------------------------------------------------
(Address of principal executive offices)
814-765-9621
------------
(Registrant's telephone number, including area code)
______________________________________________________________________________
(Former name, former address and
former fiscal year, if changed since last report)
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 period 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 _____
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1995
- --------------------- ----------------------------
Common stock, par value 1,722,834
$4.00 per share
<PAGE>
CNB FINANCIAL CORPORATION
FORM 10-Q
<TABLE>
<CAPTION>
INDEX Page
-----
<S> <C> <C>
Part I. Financial Information
Consolidated Balance Sheets - June 30, 1995 3
and December 31, 1994
Consolidated Statement of Income - Three Months 4
Ended June 30, 1995 and 1994
Consolidated Statement of Income - Six Months 5
Ended June 30, 1995 and 1994
Consolidated Statement of Cash Flows 6
for Six Months Ended June 30, 1995 and 1994
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Part II. Other Information
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8K 14
Signatures 14
</TABLE>
<PAGE>
CNB Financial Corporation June 30, 1995
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, except percent data)
<TABLE>
<CAPTION>
June 30 Dec. 31 June 30 12 month
1995 1994 1994 change
ASSETS --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Cash and Due from Banks................................... $ 9,151 $ 9,390 $ 7,611 20.23%
Deposits with Other Banks................................. 18 18 1,011 -98.22%
Federal Funds Sold........................................ ------ 325 ------ 0.00%
Investment Securities Available for sale 45,328 37,361 39,904 13.59%
Investment Securities Held to Maturity, fair value of
$29,806at March 31, 1995, $33,888 at December 31,
1994 and $41,653 at March 31, 1994........................ 28,461 33,953 38,354 -25.79%
Loans 190,726 184,785 181,196 5.26%
Less: Unearned Discount................................ 3,463 2,996 2,991 15.78%
Allowance for Loan Losses............................. 2,242 2,033 1,925 16.47%
------- -------- --------
NET LOANS............................................... 185,021 179,756 176,280 4.96%
Premises and Equipment.................................... 6,291 5,143 4,335 45.12%
Accrued Interest and Other Assets......................... 3,607 3,752 3,980 -9.37%
------- -------- --------
TOTAL ASSETS............................................ $277,877 $269,698 $271,475 2.36%
LIABILITIES
Deposits:
Non-interest bearing deposits........................... 25,223 $ 28,046 $ 25,731 -1.97%
Interest bearing deposits............................... 205,100 202,595 202,278 1.40%
------- -------- --------
TOTAL DEPOSITS.......................................... 230,323 230,641 228,009 1.01%
Other Borrowings.......................................... 10,092 3,685 8,724 15.68%
Accrued Interest and Other Liabilities.................... 1,386 857 1,012 36.96%
------- -------- --------
TOTAL LIABILITIES....................................... 241,801 235,183 237,745 1.71%
SHAREHOLDERS' EQUITY
Common Stock $4.00 Par Value
Authorized 2,500,000 Shares (issued 1,728,000) 6,912 6,912 6,912 0.00%
Retained Earnings....................................... 29,110 28,324 27,210 6.98%
Treasury Stock, At Cost (5,166) (100) (100) (100) 0.00%
Net unrealized securities losses........................ 153 (621) (292) -152.40%
------- -------- --------
TOTAL SHAREHOLDERS' EQUITY.............................. 36,076 34,515 33,730 6.95%
------- -------- --------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY................ $277,877 $269,698 $271,475 2.36%
</TABLE>
<PAGE>
CNB Financial Corporation June 30, 1995
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE
INTEREST INCOME 1995 1994
-------- --------
<S> <C> <C> <C>
Loans including Fees........................................... $8,110 $7,027 15.41%
Deposits with Other Banks...................................... 1 87 -98.85%
Federal Funds Sold............................................. 58 34 71.47%
Other Short Term Investments................................... -- -- 0.00%
Investment Securities:
Taxable Securities: Available for Sale...................... 1,048 908
Tax-Exempt Securities: Available for Sale................... 124 11 1027.27%
Taxable Securities: Being Held to Maturity.................. 427 580 -18.62%
Tax-Exempt Securities: Being Held to Maturity............... 467 631 -25.99%
Interest on restructured loans................................. -- -- 0.00%
Interest on other assets....................................... 32 -- 0.00%
-- -----
TOTAL INTEREST INCOME....................................... $10,312 $9,278 11.15%
INTEREST EXPENSE
Deposits....................................................... $4,097 $3,406 20.27%
Borrowed Funds................................................. 118 71 66.62%
--- -- ------
TOTAL INTEREST EXPENSE...................................... $4,215 $3,477 21.24%
Net Interest Income......................................... $6,097 $5,801 5.09%
Provision for possible loan losses............................. 250 263 -5.06%
--- --- ------
NET INTEREST INCOME AFTER PROVISION ........................ $5,847 $5,538 5.59%
NON-INTEREST INCOME
Fiduciary Commissions and Fees................................. $261 $208 25.63%
Service charges on deposit accounts............................ 270 157 72.17%
Other service charges and fees................................. 220 123 78.86%
Securities gains (losses)...................................... (2) 00.00%
Gains (losses) on Sale of Assets............................... -- -- 00.00%
Other income................................................... 179 240 -25.42%
--- --- -------
TOTAL NON-INTEREST INCOME................................... $930 $728 27.69%
NON-INTEREST EXPENSE
Salaries....................................................... $1,770 $1,620 9.28%
Employee benefits.............................................. 583 609 -4.20%
Net occupancy expense.......................................... 548 516 6.28%
Other Operating Expense........................................ 1,487 1,292 15.12%
TOTAL NON-INTEREST EXPENSE.................................. 4,390 4,037 8.75%
Income Before Federal Income Taxes............................. $2,390 $2,229 7.22%
Applicable Taxes............................................... 602 564 6.81%
====================================
NET INCOME.................................................. $1,786 $1,665 7.29%
====================================
Per Share Data
- --------------
Primary
Net Income $1.04 $0.97 7.22%
Cash dividends paid $0.29 $0.27 7.41%
Average Primary Common Shares Outstanding 1,722,834 1,722,834
</TABLE>
<PAGE>
CNB Financial Corporation June 30, 1995
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) TREEE MONTHS ENDED
JUNE
INTEREST INCOME 1995 1994
------ ------
<S> <C> <C> <C>
Loans including Fees............................................................ $4,157 $3,582 16.05%
Deposits with Other Banks....................................................... 0 33 -98.79%
Federal Funds Sold.............................................................. 55 15 268.67%
Other Short Term Investments.................................................... ---- --- 0.00%
Investment Securities:
Taxable Securities: Available for Sale........................................ 516 475
Tax-Exempt Securities: Available for Sale..................................... 65 11 490.91%
Taxable Securities: Being Held to Maturity.................................... 200 281 -28.83%
Tax-Exempt Securities: Being Held to Maturity................................. 250 306 -18.30%
Interest on restructured loans.................................................. ----- ----- 0.00%
Interest on other assets........................................................ 32 ----- 0.00%
-- ----- -----
TOTAL INTEREST INCOME......................................................... $5,275 $4,703 12.17%
INTEREST EXPENSE
Deposits........................................................................ $2,192 $1,721 27.35%
Borrowed Funds.................................................................. 38 37 1.89%
-- -- -----
TOTAL INTEREST EXPENSE........................................................ $2,228 1,758 26.76%
Net Interest Income........................................................... $3,048 $2,945 3.49%
Provision for possible loan losses.............................................. 125 132 -5.53%
--- --- ------
NET INTEREST INCOME AFTER PROVISION........................................... $2,922 $2,813 3.87%
NON-INTEREST INCOME
Fiduciary Commissions and Fees................................................... $131 $90 45.89%
Service charges on deposit accounts.............................................. 151 97 55.98%
Other service charges and fees................................................... 161 69 133.33%
Securities gains (losses)........................................................ (3) 1 -400.00%
Gains (losses) on Sale of Assets................................................. ----- ----- 0.00%
Other income..................................................................... 76 120 -36.67%
--- --- ------
TOTAL NON-INTEREST INCOME...................................................... $518 $377 37.29%
NON-INTEREST EXPENSE
Salaries......................................................................... $915 $811 12.87%
Employee benefits................................................................ 298 294 1.50%
Net occupancy expense............................................................ 238 259 -7.95%
Other Operating Expense.......................................................... 798 637 25.34%
TOTAL NON-INTEREST EXPENSE..................................................... 2,250 2,001 12.46%
Income Before Federal Income Taxes............................................... $1,191 $1,189 0.19%
Applicable Taxes................................................................. 269 311 -13.57%
----- ----- 0.00%
==========================================
NET INCOME..................................................................... $922 $878 5.06%
==========================================
Per Share Data
- --------------
Primary
Income Before Effect of Cumulative Change in Accounting Method $0.54 $0.51 5.88%
Cumulative change in accounting method for recognition of FASB 106 ----- $0.00 0.00%
----- ----- -----
Net Income $0.54 $0.51 5.88%
Cash dividends paid $0.29 $0.27 7.41%
Average Primary Common Shares Outstanding 1,722,834 1,722,834
</TABLE>
<PAGE>
CNB Financial Corporation June 30, 1995
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30
Cash flows from operating activities 1995 1994
---------- ---------
<S> <C> <C>
Net Income................................................ $1,786 $1,665
Adjustments to reconcile net income to
net cash provided by operations:
Provision for loan losses............................. 250 263
Depreciation.......................................... 247 228
Amortization and accretion of net deferred loan fees.. (77) (109)
Amortization and accretion of premiums and discounts
on investments...................................... 155 179
Changes in:
Interest receivable..................................... 133 (65)
Other assets............................................ (350) (526)
Interest payable........................................ 114 (21)
Other liabilities....................................... 415 11
Net cash provided by operating activities................. 2,673 1,625
Cash flows from investing activities:
Proceeds from maturities of:
Investment securities................................. 10,273 5,835
Securities available for sale......................... 5,355 8,772
Purchase of:
Investment securities................................. (5,012) (1,827)
Securities available for sale......................... (12,110) (11,222)
Net principal disbursed on loan......................... (5,438) (10,074)
(Redemption) Purchase of Federal Home Loan Bank Stock (14) (20)
Purchase of premises and equipment...................... (1,394) (202)
Proceeds from the sale of foreclosed assets............. 11 211
Net cash used in investing activities..................... (8,329) (8,527)
Cash flows from financing activities:
Net change in:
Checking, money market and savings accounts........... (9,630) 2,038
Certificates of deposit............................... 9,314 (356)
(Repayment) Proceeds-Federal Home Loan Bank Advances (20) 4,905
Other borrowed funds.................................... 6,427 (97)
Cash dividends paid..................................... (999) (930)
Net cash (used in) provided by financing activities....... 5,092 5,560
Net (decrease) in cash and cash equivalents............... (564) (1,342)
Cash and cash equivalents at beginning of year............ 9,715 8,953
Cash and cash equivalents at end of period................ $9,151 $7,611
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (including amount credited directly to
certificate accounts)............................... 4,330 3,498
Income taxes.......................................... 711 680
Real estate acquired in settlement of loans............. 0 51
</TABLE>
<PAGE>
CNB FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
-----------
SCOPE
-----
In the opinion of Management of the registrant, the accompanying consolidated
financial statements for the six month period ended June 30, 1995 and 1994
include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair statement of the results for the period. This information
should be read in conjunction with the Corporation's Annual Report and Form 10-K
for the period ended December 31, 1994.
The financial results reported for the Corporation's first and second fiscal
quarters of 1995 are not necessarily the results to be expected for the full
year. The financial results contain two one-time events; one represents a
$53,000.00 gain on the sale of higher education loans to the Student Loan
Marketing Association (SLMA) and a $45,000.00 one-time expense for travel
related to the Corporation's data processing conversion. The results contain no
extraordinary income (loss) for changes in accounting.
Tax provisions for interim financial statements are based on the estimated tax
rates for the full fiscal year. The estimated effective tax rate differs from
the statutory tax rate principally due to tax-free interest income on certain
loans and investments which qualify for such treatment.
ACCOUNTING GUIDELINES
---------------------
SFAS No. 106: Post Retirement Benefits
- ---------------------------------------
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standard (SFAS) No. 106 "Employers Accounting for Postretirement
Benefits Other Than Pension", which requires the accrual of expected costs of
providing for certain postretirement benefits during the years the employee
provided services. The corporation previously expensed the cost of these
benefits, which are principally healthcare, as claims were incurred. The
Corporation elected to recognize this obligation of approximately $456,276 over
the participant's average remaining service period of twenty-one years. The
Corporation's cash flows are not affected by implementation of this standard but
the Corporation is accruing $47,271 for this year's service and interest cost
and amortizing $21,727 of its transition obligation.
The average annual assumed rates of increases in the per capita cost of covered
benefits range from 12% in 1995 to 8% in 1998 and beyond. The healthcare cost
trend rate assumption has a significant effect on the amounts reported. These
rates have been determined to be in line with industry practice by both
management and Ernst and Young, LLP, the company's external accountants. The
discount rate used in determining the accumulated postretirement benefit was
7.75 percent.
SFAS No. 109 "Accounting for Income Taxes
- -----------------------------------------
The Corporation adopted SFAS No. 109 "Accounting for Income Taxes" effective
January 1, 1993. SFAS No. 109 required the use of the liability method to
account for deferred income taxes. Under this method, deferred tax assets and
liabilities were determined on differences between financial reporting and tax
bases. Procedures determined the current enacted tax rates and laws which would
be in effect when the differences were expected to be recognized. Previously,
deferred income taxes were accounted for using the deferred method.
<PAGE>
As permitted by SFAS No. 109, the Corporation elected not to restate the
Financial Statements of any prior periods, however, the Corporation did
recognize a one-time increase in net income in 1993 of $225,597, or $.13 per
share in that year.
SFAS No. 114 & SFAS No. 118: Accounting for the Impairment of a Loan
- ---------------------------------------------------------------------
In May, 1993 the Financial Accounting Standards (FASB) issue Statement No. 114
"Accounting by Creditors for the Impairment of a Loan" which is effective for
the fiscal years beginning after December 15, 1994. This guideline was
subsequently amended by a second Statement of Financial Accounting Standard No.
118 "Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures". The guidelines are designed to set standards in determining
whether a loan is impaired, how to measure the impairment based on the type of
loan and how to recognize interest based on the stream of cash flows which are
expected to be received.
The Corporation adopted these standards during the first quarter of this year.
The Corporation has one loan that is currently on non-accrual status which is
available for treatment under these procedures. This loan totaling $820,000 has
emerged from Chapter 11 and when sufficient history has been established to
begin accruing interest on this loan, the Corporation will apply these standards
and make the necessary adjustments. That adjustment is not expected to have a
material effect on the earnings or the financial condition of the company.
SFAS No. 115: Accounting for Certain Debt and Equity Securities
- ----------------------------------------------------------------
Also in May 1993, the FASB issued Statement 115 "Accounting for Certain
Investments in Debt and Equity Securities" which is effective for fiscal years
beginning after December 15, 1993. Statement No. 115 addresses the definition
of, accounting for, and disclosure of debt and equity securities. In accordance
with the statement, securities are to be classified into, and accounted for,
based on three distinct categories: securities held to maturity, securities
available for sale and trading securities.
On January 1, 1994 the Corporation began accounting for its investment portfolio
under the guidelines set forth under SFAS 115. In accordance with the
accounting procedures set forth, the company has designated all of its
investments holdings into either the "Available for Sale" or "Held to Maturity"
categories. Although the accounting procedures specify a third category for
"Trading Securities" the company does not engage in securities trading and
therefore this category is not used. Management has decided that the Bank's
liquidity investments are designated as "Available for Sale" and portfolio
investments are purchased for holding until the security matures. Additionally,
equity securities held in the parent company are all considered available for
sale. As of June 30, 1995, the corporation had a pre-tax unrealized gain in the
"Available for Sale" category of $231,000.
CONCLUSION
----------
The accompanying financial statements have been prepared pursuant to rules and
regulations of the SEC. As a result, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The registrant believes that the disclosures made are adequate to make the
information presented a fair representation of the corporation's financial
status.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
ASSETS
- ------
Total assets have grown 2.4% since one year ago to $277.9 million. The
growth has occurred in the loan portfolios with approximately equal percentage
increases in the mix of commercial, consumer and real estate related loans.
Total gross loans were $190.7 million on June 30, 1995 compared to $181.2
million twelve months ago. The growth in loans has been supported by a lower
investment portfolio, higher core deposits, retained earnings and borrowed
federal funds.
The Corporation's interest earning assets consist of deposits with other
banks, federal funds sold, short term investments, investment securities and
loans. Management uses the short term liquid assets to balance changes in either
loans or core deposits. Over the past year, the increase in loans has been
funded by $4.4 million of maturing investments, a $2.2 million increase in
federal funds purchased, $2.0 million increase in customer deposits and a $2.3
million increase in retained profits.
The Corporation entered into an agreement early this year with the Student
Loan Marketing Association (SLMA) to sell our current student loans. On May 1,
1995 the Bank sold $4.7 million of higher education loans and recognized a
$53,000 premium on the sale. Under this agreement, the Bank will still be an
active lender to qualifying students. However, due to the increasing
complexities of accounting for student loans, and the uncertainties of how the
program will be administered, Management decided it would be best able to serve
our customers' needs if a third party were to handle the ongoing servicing of
the loans.
Bank premises and equipment increases reflect the opening of a supermarket
branch in St. Marys, PA which went into operation on August 13, 1994. These
increases also reflect the expansion of our headquarters to properties adjacent
to our main office in Clearfield, PA. The total capital outlay for this
expansion is approximately $2.4 million. This will be financed by cash flow. To
date, the bank has expended a total of $1.6 million for this project.
Accrued interest and other assets dropped slightly over the past twelve
months. Normal fluctuations in interest receipts and pre-paid expenses will
influence changes in these accounts.
LIABILITIES
- -----------
Total deposits on June 30, 1995 were $230.3 million, an increase of $2.0
million over June 30, 1994 and a decrease of $300,000 from the year-end. Deposit
growth occurred primarily in certificates of deposits while savings deposits and
demand deposits have decreased slightly over June 30,
<PAGE>
1994. General deposit declines or slow growth rates have occurred industry-wide
as consumers seek higher returns in non-traditional financial vehicles such as
mutual funds.
LIQUIDITY AND INTEREST RATE SENSITIVITY
- ---------------------------------------
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest-sensitive earning
assets and interest rate sensitive liabilities. Liquidity management involves
the ability to meet the cash flow requirements of customers who may be either
depositors wanting to withdraw funds or borrowers needing assurance that
sufficient funds will be available to meet their credit needs. Interest risk
management seeks to avoid instability in net interest margins and to enhance
consistent growth of net interest income through periods of volatile interest
rates .
Sources of asset liquidity are investment securities maturing in one year
or less, time deposits with banks and federal funds sold. In extreme shortages
of liquidity, "Investments Available for Sale" can be liquidated with no capital
impairment due to SFAS No. 115 accounting guidelines. These assets totaled $45.3
million at June 30, 1995 compared to $39.9 million on June 30, 1994. Contractual
payments of principal and interest as well as some early pay-off of loans also
provide a source of liquidity. Principal payments of $43.0 million are
anticipated within one year as compared to $38.2 million as of June 30, 1994.
Liquidity requirements can also be met by aggressively pricing deposits in the
market place, buying federal funds and by selling securities under an agreement
to repurchase at some future date. Additionally, the Bank has arranged a large
back-up facility at both Federal Reserve Bank of Philadelphia and the Federal
Home Loan Bank of Pittsburgh. As of June 30, 1995, the Bank had $11.0 million in
unused lines of credit available with correspondent commercial banks. Also, the
Bank has an available credit line with the Federal Home Loan Bank in the amount
of $61.0 million and a $9 million line with the Federal Reserve Bank of
Philadelphia.
Management regularly monitors the relationship between interest-earning
assets and interest bearing liabilities maturing or repricing during similar
intervals. Management also implements actions designed to reduce an imbalance
between such assets and liabilities. In doing this, management seeks to avoid
fluctuating net interest margins in periods of changing interest rates. The
Bank's ratio of interest-rate sensitive assets to interest-rate sensitive
liabilities maturing or repricing within one year was 1.29% on June 30, 1995,
compared to 1.19% at June 30, 1994.
CAPITAL RESOURCES
- -----------------
The Corporation's capital position, of $36.1 million on June 30, 1995, is
an above average capital position as compared to other bank holding companies of
similar size. Capital adequacy for a financial institution is its ability to
support asset growth and to sufficiently protect itself and depositors against
business risk. The Corporation has relied on retained earnings to increase
equity, while providing what management believes is an acceptable return on
invested capital to its shareholders.
<PAGE>
The Federal Reserve Board standards classify capital into two tiers,
referred to as Tier 1 and Tier 2. Tier 1 capital consists of common
shareholders' equity, noncumulative and cumulative perpetual preferred stock,
and minority interests less goodwill. Tier 2 capital consists of the allowance
for possible loan losses, perpetual preferred stock (not used in Tier 1), hybrid
capital instruments, term subordinate debt and intermediate-term preferred
stock. All banks are required to meet a minimum ratio of 8% of qualifying total
capital to risk-adjusted total assets with at least 5.5% Tier 1 capital.
Capital that qualifies as Tier 2 capital is limited to 100% of Tier 1 capital.
In addition to the above risk based capital requirements the Federal Reserve
also requires a minimum leverage capital of 3% of Tier 1 capital to total assets
less any goodwill.
The table below summarizes the Corporation's regulatory capital ratios at
June 30, 1995 and 1994:
<TABLE>
<CAPTION>
2nd Qtr. 2nd Qtr.
1995 1994 Regulatory
---- ----
Minimum
-------
<S> <C> <C> <C>
Tier 1 Risk-Based Capital Ratio 19.02% 19.0% 5.5%
Total Risk-Based Capital Ratio 20.21% 20.0% 8.0%
Leverage Ratio 12.98% 12.5% 3.0%
</TABLE>
REGULATORY MATTERS
- ------------------
The Corporation and its Subsidiary (the Bank) are subject to the
regulations of certain federal agencies. Regulators often make recommendations
during the course of their examination that relate to the normal operations of
the Corporation and the Bank. Management reviews all such recommendations
promptly and initiates corrective action. Our primary regulator, the Comptroller
of the Currency, is conducting a safety and soundness review during July, 1995
and their results will be discussed in the next scheduled report. The
Comptroller of the Currency and the Federal Reserve Bank of Philadelphia
concluded examinations during the third quarter of last year. Both agencies
noted no substantial deficiencies at that time. Presently, management is unaware
of any recommendation by these regulatory authorities, that, if implemented,
would likely have a material effect on the liquidity, capital or operations of
the Corporation and Subsidiary.
CONCENTRATION OF CREDIT RISK
- ----------------------------
The Corporation, in its role as a financial institution, generates profits
primarily through lending and investing activities. The risk of loss from
lending and investing activities include the possibility that a loss may occur
from the failure of a borrower or one of its affiliates to perform according to
the terms of the loan or investment agreement. This possibility of loss is known
as credit risk.
Credit risk is increased by lending and/or investing activities that
concentrate financial institution's earning assets in such a way as to expose
the institution to a material loss from any single occurrence or
<PAGE>
group of related occurrences. This can occur through lending heavily to one type
of industry or heavy concentration in a particular type of lending.
The Bank monitors credit risk by limiting concentrations within various
industries and single borrowers by establishing lending concentration limits.
Management also seeks to keep a stable allocation among the various loan types.
The Bank firmly follows all regulatory limits of credits to a single borrower.
In addition, the Bank monitors the local economic conditions, in an effort to
promptly identify and address deteriorating industries.
RESULTS OF OPERATIONS
- ---------------------
Operating results are substantially dependent on net interest income. Net
interest income is the difference between interest earned on loans and
investments and interest paid on deposits and borrowings. Operating results are
also affected by the levels of non-interest income and expense.
NET INTEREST INCOME
- -------------------
Total interest income for the quarter of $5.275 million reflects a 12.2%
increase or $572,000 more interest income when compared with the same three
months of 1994. This interest income increase for the quarter comes despite
relative large fluctuations in interest rates and represents active management
of the margin by executive management. The ability to reprice approximately $10
million of maturing investments at rates substantially higher than two years ago
was also an influencing factor.
Total interest expense of $2.29 million for the quarter reflects an
increase of 26.8% from interest expense of $1.76 million for the same quarter of
1994. The increase represents a marked shift by consumers from lower yielding
non-maturity accounts to longer term, higher rate certificates of deposit.
Additionally, eighteen and twenty-four month certificates of deposits originated
in late 1993 and 1994 are renewing at rates earning at least 1% higher than were
maturing.
Net interest income for the six months ending June 30, 1995 totaled $6.1
million for an increase of 5.1% over the same six months one year ago. This
increase is attributable to the quick response pricing managers take, in light
of changing rates and the close management of repricing assets and liabilities.
PROVISION FOR POSSIBLE LOAN LOSSES
- ----------------------------------
The provision for possible loan losses was $12,500 less in 1995 for the
same period last year as management has seen decreasing trends in charge-offs
and increased recoveries over the past eight quarters. The present allowance for
loan losses of $2.243 million represents 1.19% of outstanding loans compared to
$1.9 million or 1.07% on June 30, 1994. Non-performing assets (NPA), which
include non-accrual loans and other real estate owned were $853,000 at end of
quarter. This gives an NPA to loan loss reserve ratio of 0.38% at the period
end. The greater provision for loan losses as compared to actual loan losses is
intended to reach a goal management has set which will place the company in the
high performing percentiles for peer comparison.
<PAGE>
NON-INTEREST INCOME
- -------------------
Total other income for the second quarter of 1995 of $518,000 is $141,000
more than during the same period in 1994. As mentioned earlier, $53,000 of gain
on sale of higher education loans was recognized in May of this year and is
included in this total. Increased service charge revenues on new transaction
accounts and higher fiduciary fees account for the remaining added revenues.
NON-INTEREST EXPENSE
- --------------------
Total other expenses rose in the second quarter of 1995 by $248,000 over
expenses of the second quarter of 1994. The large increase in the expenses for
the quarter are mainly related to the implementation of the Bank's new data
processing and management information system. The Bank expended more than
$50,000 for overtime to the training of its employees and the considerable
overtime of the operations support personnel. Additionally, the Bank expensed
$45,000 of travel costs for its new processor's staff in preparation for the
data processing conversion. In connection with the conversion, higher than usual
supplies and postage were also incurred.
NET INCOME
- ----------
Net income for the second quarter 1995 was $922,000 or $.54 per share. This
compares to net income and earnings per share for the same quarter in 1994 of
$878,000 and $.51 per share.
At mid-year, the Corporation has earned $1.786 million compared with $1.665
million during the same six months of 1994. This 7.27% increase is due to
higher net interest margins and increased customers in flat fee based demand
accounts. Year to date the Corporation has earned $1.04 per share and paid cash
dividends of $.58 per share. In 1994 the Corporation had earned $.97 per share
and paid cash dividends of $.54 per share.
Return on average assets through June 30, 1995 and average equity was 1.31%
and 10.14% respectively for the first six months of 1995.
INCOME TAXES
- ------------
The provision for income taxes of $268,000 for the second quarter of 1995
is $43,000 less than the same period in 1994. On a year-to-date basis, the
Corporation has accrued $602,000 in federal income taxes which is $38,000 more
than last year.
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) There were no reports on Form 8-K
for the quarter ended June 30,
1995.
S I G N A T U R E S
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 8, 1995 /s/ James P. Moore
-------------------------- ------------------------------
James P. Moore
President and Director
(Principal Executive Officer)
Date: August 8, 1995 /s/ J. Matthew McEnroe
-------------------------- ------------------------------
J. Matthew McEnroe
Assistant Secretary
and Treasurer
(Principal Accounting Officer)
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<PAGE>
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<PERIOD-START> JAN-01-1995
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