<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996 Commission File Number 0-13396
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
CNB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1450605
------------ ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
County National Bank
Market and Second Streets
P.O. Box 42
Clearfield, Pennsylvania 16830
(Address of principal executive offices)
Registrant's telephone number, including area code, (814) 765-9621
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock: $4.00 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
The number of shares outstanding of the issuer's common stock as of June
30, 1996:
COMMON STOCK: $4.00 PAR VALUE - 1,722,834 SHARES
1
<PAGE>
INDEX
PART I.
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Sequential
Page Number
- -----------
<S> <C>
PAGE 3. Notes to Consolidated Financial Statements
PAGE 4. Management's Discussion and Analysis of Financial Condition and Results of Operations
PAGE 7. Table 1 - Consolidated Balance Sheets - June 30, 1996
PAGE 9. Table 2 - Consolidated Statement of Cash Flows - June 30, 1996
PAGE 13. Table 3Q - Consolidated Statement of Income - Quarter ending June 30, 1996
PAGE 14. Table 3-Y Consolidated Statement of Income for Six Months Ending June 30, 1996
PAGE 15. Table 4 - Consolidated Yield Comparisons
</TABLE>
PART II.
OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C>
PAGE 17. ITEM 4 Submission of matters to a vote of security holders
PAGE 17. ITEM 5 Other Information
PAGE 17. ITEM 6 Exhibits and Reports on Form 8K
PAGE 17. Signatures
</TABLE>
2
<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 three and six month periods ended June 30, 1996 and
1995 include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair statement of the results for the period. This information
should be read in conjunction with the Corporation's Annual Report to
shareholders and Form 10-K for the period ended December 31, 1995.
The financial performance reported for the Corporation as of June 30, 1996 is
not necessarily the result to be expected for the full year. The results contain
no extraordinary income (loss) for changes in accounting or other events.
Tax provisions for interim financial statements are based on the estimated
tax rates for the full fiscal year. The estimated effective tax rate differs
from the statutory tax rate principally due to tax-free interest income on
certain loans and investments which qualify for such treatment.
ACCOUNTING GUIDELINES
SFAS No. 106: Post Retirement Benefits
- ---------------------------------------
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standard (SFAS) No. 106 "Employers Accounting for Postretirement
Benefits Other Than Pension", which requires the accrual of expected costs of
providing for certain postretirement benefits during the years the employee
provided services. The Corporation's cash flows were not affected by
implementation of this standard but the Corporation is accruing $40,256 for this
year's service and interest cost and amortizing $7,566 of its transition
obligation.
The average annual assumed rates of increases in the per capita cost of
covered benefits range from 10% in 1996 to 8% in 1998 and beyond. The
healthcare cost trend rate assumption has a significant effect on the amounts
reported. These rates have been determined to be in line with industry practice
by both management and the company's external accountants. The discount rate
used in determining the accumulated postretirement benefit was 6.50 percent.
SFAS No. 109: Accounting for Income Taxes
- ------------------------------------------
The Corporation adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" in 1993. This statement requires the use of the
liability method to account for deferred income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities. These are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
3
<PAGE>
SFAS No. 114 & SFAS No. 118: Accounting for the Impairment of a Loan
- ---------------------------------------------------------------------
In May, 1993 the Financial Accounting Standards (FASB) issue Statement No.
114 "Accounting by Creditors for the Impairment of a Loan" which is effective
for the fiscal years beginning after December 15, 1994. This guideline was
subsequently amended by a second Statement of Financial Accounting Standard No.
118 "Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures". The statement provides guidelines on how to determine if the loan
is impaired, how to measure the impairment based on the type of loan and how to
recognize interest based on the stream of cash flows which are expected to be
received.
The Corporation's accounting policy for loans is to quarterly examine non-
accruing loans on a case-by-case basis and to determine if there is the
possibility that the Bank has little or no chance of recovering its principal.
In a case where there is a collateral shortfall and no foreseeable repayment
stream, the loan is charged-off. If a borrower has some ability to meet part of
its obligation, but total repayment is in serious question, Management may
decide to restructure the terms of repayment. In such an instance, pro forma
financials are performed on the borrower and if the financial strength of the
borrower warrants it, management will restructure the loan using SFAS No. 114
and SFAS No. 118 guidelines.
The Corporation adopted these accounting standards in the first quarter of
1995. One loan which had been on non-accrual status since early 1994 had
emerged from a Chapter 11 filing with a court approved restructuring plan.
Management waited seven months to determine if the new terms would be met. In
August of last year, after sufficient payment history had been established,
management applied the standards of No. 114 and No. 118 to this borrowing.
SFAS No. 115: Accounting for Certain Debt and Equity Securities
- -----------------------------------------------------------------
At the time of acquisition, management classifies debt securities as either
held to maturity, available for sale or trading securities in compliance with
SFAS No. 115. Debt securities are classified as held to maturity when the
Corporation has the positive intent and ability to hold the securities to
maturity. Held to maturity securities are stated at amortized cost. Debt
securities that the Corporation does not have the positive intent (i.e. the
liquidity portfolio) and ability to hold to maturity, and all marketable equity
securities, are classified as available for sale or trading and carried at fair
value. Unrealized gains and losses, net of tax, on securities classified as
available for sale are carried as a separate component of shareholders' equity.
Unrealized gains and losses on securities classified as trading will be reported
in earnings. Management has not classified any debt or equity securities as
trading.
The amortized cost of debt securities classified as held to maturity or
available for sale is adjusted for the amortization of premiums and the
accretion of discounts to maturity or, in the case of mortgage-backed securities
and collateralized mortgage obligations, over the estimated life of the
security. Such amortization is included in interest income from investments.
Realized gains and losses and declines in value judged to be other than
temporary are included in other income. The cost of securities sold is based on
the specific identification method.
The Corporation nor Bank engages in securities trading and therefore this
category has not been used. Management has decided that the Bank's liquidity
investments are designated as "Available For Sale" and portfolio investments are
purchased for holding until the security matures. Additionally, equity
securities held in the parent company are all considered "Available For Sale.
As of June 30, 1996, the Corporation had an after-tax unrealized loss in the
"Available For Sale" category of $28,000.
4
<PAGE>
CONCLUSION
The accompanying financial statements have been prepared pursuant to rules
and regulations of the Securities and Exchange Commission (SEC). Because this
report is based on an interim period, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The registrant believes that the disclosures made are adequate to make the
information presented a fair representation of the corporation's financial
status.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
MARKET AREA ECONOMIC CONDITIONS
CNB Financial Corporation and its subsidiary, County National Bank ("the
Bank") are headquartered in Clearfield, Pennsylvania in the north-central region
of the state. Due to the small population of the area, little specific economic
analysis is available. Despite the Corporation's relative proximity to State
College, the demographic and economic characteristics are significantly
different. Specific economic data on the county is provided on an aggregated
basis by the Pennsylvania Bureau of Research Statistics. Therefore employment
and other indicators difficult to ascertain on this specific area.
Historically, the region has followed national indicators with a very slight lag
period between national growth and contractions.
Industry in the area is dominated by trucking companies, coal producers,
timber/paper companies and specialized metal companies. The industries provide
some stability to the region while building and construction vary greatly by
season and serve to distort true unemployment and economic reporting.
Also, the area is home to a nationally known retailer's northeast
distribution center. This has added stability to the economy in the area. The
area's housing market has been characterized as there being a shortage of
middle-income housing. This is evidenced in generally rising in housing prices.
Moderate housing construction is visible and the Corporation's market area is
believed to be growing though no formal documents are available to substantiate
this report.
ASSETS
- ------
Total assets (shown in Table 1 "Consolidated Balance Sheet") have grown 9.1%
since one year ago to $303.1 million. Much of the growth has occurred in the
loan portfolios with approximately equal percentage increases in the mix of
commercial, consumer and real estate related loans. Total gross loans were
$204.9 million on June 30, 1996 compared to $190.7 million twelve months ago.
The growth in loans has been supported by $29 million in higher core deposit
growth and retained earnings.
The Corporation's interest earning assets consist of deposits with other
banks, federal funds sold, short term investments, investment securities and
loans. Management uses the short term liquid assets to balance changes in
either loans or core deposits. Over the past year, the increase in assets has
been funded mainly by core deposit growth.
Bank premises and equipment increases reflect the investment the Corporation
has made in its expanded headquarters facility in Clearfield, Pennsylvania, as
well as the proportionately large increase in microcomputer communications and
software.
Additionally, the Bank opened a leased branch on November 15, 1995 in
Bradford, McKean County, Pennsylvania and opened a de novo branch in Houtzdale,
Clearfield County, on January 10, 1996. The Bank opened a remote ATM at the
University of Pittsburgh - Bradford on March 12, 1996.
6
<PAGE>
TABLE 1
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
CNB FINANCIAL CORPORATION: June 30, 1996
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, except percent data)
June 30 Dec.31 June 30
1996 1995 1995
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks........................ $10,924 $9,110 $9,151
Deposits with Other Banks...................... 14 19 18
Federal Funds Sold............................. 3,200
Investment Securities Available for sale....... 60,411 51,007 45,329
Investment Securities Held to Maturity,
fair value of $21,383 at June 30, 1996,
$25,541 at December 31, 1995 and 29,806
at June 30, 1995............................... 20,254 24,921 28,461
Loans.......................................... 204,889 203,706 190,727
Less: Unearned Discount...................... 3,323 3,668 3,463
Less: Allowance for Loan Losses.............. 2,330 2,145 2,243
------- -------- -------
NET LOANS.................................... 199,236 197,893 185,021
Premises and Equipment......................... 8,025 7,783 6,291
Accrued Interest and Other Assets.............. 4,270 3,591 3,606
-------- -------- --------
TOTAL ASSETS................................. $303,134 $297,523 $277,877
LIABILITIES
Deposits:
Non-interest bearing depostits............... $28,925 $25,705 $25,223
Interest bearing deposits.................... 230,409 230,082 205,100
------- ------- -------
TOTAL DEPOSITS............................... 259,334 255,787 230,323
Other Borrowings............................... 4,396 2,846 10,093
Accrued Interest and Other Liabilities......... 1,417 1,347 1,386
------- ------- -------
TOTAL LIABILITIES............................ 265,147 259,980 241,802
SHAREHOLDERS' EQUITY
Common Stock $4.00 Per Value
Authorized 2,500,000 Shares
(Issued 1,728,000)......................... 6,912 6,912 6,912
Retained Earnings............................ 31,203 30,142 29,110
Treasury Stock, At Cost (5,166).............. (100) (100) (100)
Net unrealized securities gains (losses)..... (28) 589 153
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY................... 37,987 37,513 36,075
------- ------- -------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY..... $303,134 $297,523 $277,877
</TABLE>
7
<PAGE>
Accrued interest and other assets rose slightly over the past twelve months.
Normal fluctuations in interest receipts and pre-paid expenses will influence
changes in these accounts.
LIABILITIES
- -----------
Total deposits on June 30, 1996 were $259.3 million, an increase of $29.0
million over June 30, 1995. Deposit growth has occurred primarily in a deposit
product called "The Prime Money Fund" which pays interest on an indexed rate and
is competitive with interest earned on short term mutual funds.
Other consumer deposit categories have grown by approximately 3.0% as
compared to this time last year. The Bank gathers deposits from its local
communities and does not solicit funds from outside its market areas.
The Bank does belong to the Federal Home Loan Bank of Pittsburgh and
maintained an average borrowing capacity with that institution in 1995 of
approximately $66 million. However, given the growth in consumer deposits the
Bank does not generally access this facility. An analysis of the sources and
uses of funds is shown in Table 2 "Statement of Consolidated Cash Flow".
LIQUIDITY AND INTEREST RATE SENSITIVITY
- ---------------------------------------
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest rate sensitive
earning assets and interest rate sensitive liabilities so that earnings are not
excessively influenced by changes in interest rates. Liquidity management
involves the ability to meet the cash demands of customers who may be either
depositors wanting to withdraw funds or borrowers needing assurance that
sufficient funds will be available to meet their credit needs. Interest rate
risk management seeks to avoid instability in net interest margins and to
enhance consistent growth of net interest income through periods of volatile
interest rates.
Sources of asset liquidity are investment securities maturing in one year or
less, time deposits with banks and federal funds sold. In extreme shortages of
liquidity, "Investments Available for Sale" can be liquidated with no capital
impairment due to SFAS No. 115 accounting practices. These assets totaled $60.4
million at June 30, 1996 compared to $45.3 million on June 30, 1995.
Contractual payments of principal and interest as well as some early pay-off of
loans also provide a source of liquidity. Principal payments of $47.5 million
are contractually due within one year as compared to $43 million as of June 30,
1995. Liquidity requirements can also be met by aggressively pricing deposits
in the market place, buying federal funds and by selling securities under an
agreement to repurchase at some future date. The Bank has arranged large back-
up facilities at both Federal Reserve Bank of Philadelphia and the Federal Home
Loan Bank of Pittsburgh. As of June 30, 1996, the Bank had $18 million in lines
of credit available with correspondent commercial banks. Also, the Bank has an
available credit line with the Federal Home Loan Bank in the amount of $73
million and a $9 million line with the Federal Reserve Bank of Philadelphia.
The reader is again referred to Table 2 "Statement of Consolidated Cash Flows".
Management regularly monitors the relationship between interest earning
assets and interest bearing liabilities maturing or repricing to reduce an
imbalance between such assets and liabilities. In doing this, management seeks
to avoid fluctuating net interest margins in periods of changing interest rates.
The Bank's ratio of interest-rate sensitive assets to interest-rate sensitive
liabilities maturing or repricing within one year was 71.8% compared to 129% on
June 30, 1995.
8
<PAGE>
TABLE 2
CONSOLIDATED STATEMENT OF CASHFLOWS
<TABLE>
<CAPTION>
CNB FINANCIAL CORPORATION: June 30, 1996
Consolidated Statements of Cash Flows
(Dollars in thousands)
Six Months Ended June 30...
Cash flows from operating activities: 1996 1995
------------ -----------
<S> <C> <C>
Net Income.......................................................... $2,129 $1,786
Adjustments to reconcile net income to
net cash provided by operations:
Provisions for loan losses...................................... 250 250
Depreciation.................................................... 317 247
Amortization and accretion of net deferred loan fees............ (391) (77)
Amortization and accretion of premiums and discounts
on investments................................................ 67 155
Security Losses................................................. 13 3
Changes in:
Interest receivable............................................. (29) 133
Other assets.................................................... (322) (350)
Interest payable................................................ (40) 114
Other liabilities............................................... 110 415
Net cash provided by operating activities........................... 2,104 2,676
Cash flows from investing activities:
Proceeds from maturities of:
Investment securities........................................... 5,644 10,273
Securities available for sale................................... 6,523 5,355
Purchase of:
Investment securities........................................... (998) (5,015)
Securities available for sale................................... (16,905) (12,110)
Net principal disbursed on loan................................... (1,202) (5,438)
Purchase of Federal Home Loan Bank Stock.......................... (81) (14)
Purchase of premises and equipment................................ (560) (1,394)
Proceeds from sale of foreclosed assets........................... 54 11
Net cash used in investing activities............................. (7,525) (8,332)
Cash flows from financing activities:
Net change In:
Checking, money market and savings account...................... 2,556 (9,630)
Certificates of deposit......................................... 991 9,314
Repayment of Federal Home Loan Bank Advances...................... (21) (20)
Other borrowed funds.............................................. 1,572 6,427
Cash dividends paid............................................... 1,068 (999)
Net cash (used in) provided by financing activities................. (4,030) (5,092)
Net (decrease) in cash and cash equivalents......................... (1,391) (564)
Cash and cash equivalents at beginning of year...................... 12,329 9,715
Cash and cash equivalents at end of period.......................... $10,938 $9,151
Noncash Investing Activities:
(Decrease) Increase in net unrealized gain/loss on
securities available for sale................................... $ (617) $ 774
</TABLE>
9
<PAGE>
Some changes in assumptions and methodology account for the wide period-to-
period swing.
The Board of Directors, working through management, adopted a separate
Interest Rate Risk Policy on September 26, 1995. This policy sets specific
limits, responsibilities and reporting to provide for stability in earnings
under fluctuating interest rates. This policy provides for what management
believes is only the most prudent measures to be taken by a community bank to
avoid earnings instability.
CAPITAL RESOURCES
- -----------------
The Corporation's capital position, of $38 million on June 30, 1996, is an
above average capital position as compared to other bank holding companies of
similar size. Capital adequacy for a financial institution is its ability to
support asset growth and to sufficiently protect itself and depositors against
business risk. The Corporation has relied on earnings to increase equity, while
providing what management believes is an acceptable return on invested capital
to its shareholders.
The Federal Reserve Board standards classify capital into two tiers, referred
to as Tier 1 and Tier 2. Tier 1 capital consists of common shareholders'
equity, noncumulative perpetual preferred stock, and minority interests less
goodwill. Tier 2 capital consists of the allowance for possible loan and lease
losses (subject to a maximum), perpetual preferred stock (not used in Tier 1),
hybrid capital instruments, term subordinate debt and intermediate-term (limited
life) preferred stock. All banks are required to meet a minimum ratio of 8% of
qualifying total capital to risk-adjusted total assets with at least 5.5% Tier 1
capital. Capital that qualifies as Tier 2 capital is limited to 100% of Tier 1
capital.
In addition to the above referenced risk based capital requirements, the
Federal Reserve also requires a minimum leverage capital ratio of 3% of Tier 1
capital to total assets less any goodwill.
The table below summarizes the Corporation's regulatory capital ratios at June
30, 1996 and 1995:
<TABLE>
<CAPTION>
2nd Qtr. 2nd Qtr. Regulatory
1996 1995 Minimums
---- ---- ----------
<S> <C> <C> <C>
Tier 1 Risk-Based Capital Ratio 15.07% 19.47% 5.5%
Total Risk-Based Capital Ratio 16.04% 20.75% 8.0%
Leverage Ratio 12.06% 13.03% 3.0%
</TABLE>
REGULATORY MATTERS
- ------------------
The Corporation and the Bank are subject to the regulations of certain
federal agencies. Regulators often make recommendations during the course of
their examination that relate to the normal operations of the Corporation and
the Bank. Management reviews all such recommendations promptly and initiates
corrective action. The primary regulator, the Comptroller of the Currency,
conducted a safety and soundness review during July 1995 and their results
included several recommendations to improve the overall operations of the Bank,
but found no significant deficiencies in the Bank's reported results or
functionality. The Federal Reserve Bank of Philadelphia concluded an
examination of the Corporation during the third quarter of 1994. The agency
noted no substantial deficiencies at that time. Presently, management is
unaware of any recommendation by these regulatory authorities, that, if
implemented, would likely have a material effect on the liquidity, capital or
operations of the Corporation and the Bank.
10
<PAGE>
CONCENTRATION OF CREDIT RISK AND ASSET QUALITY
- ----------------------------------------------
The Corporation, specifically the Bank, generates profits primarily through
lending and investing activities. The risk of loss from lending and investing
activities include the possibility that a loss may occur from the failure of a
borrower or one of its affiliates to perform according to their terms of the
loan or investment agreement. This possibility of loss is known as credit risk.
Credit risk is increased by lending and / or investing activities that
concentrate financial institution's earning assets in such a way as to expose
the institution to a material loss from any single occurrence or group of
related occurrences. This can occur through lending heavily to one borrower, an
industry segment or heavy concentration in a particular type of lending.
The Bank monitors credit risk by limiting concentrations within various
industries and single borrowers by established legal lending limits. Management
also seeks to keep a stable allocation among the various loan types. The Bank
firmly follows all regulatory limits of credits to a single borrower. In
addition, the Bank monitors the local economic conditions and the financial
performance of its larger credit customers in an effort to promptly identify and
address deteriorating industries.
Management uses a variety of reports to gauge local economic conditions.
One important source of information is the quarterly subscription to PNC Bank
Economics Division's "National Economic Outlook" which includes focus on both
Pennsylvania and some Metropolitan Statistical Areas in the state. Visible
signs of modest growth are evident in new construction and the prices in the
housing market. The formal loan review process provides the best defense
against credit losses by providing early warning of a company's financial
deterioration or improvement.
The Bank's loan policy states the loans over 90 days past due be placed on
non-accrual status. However, policy allows that if the loan is sufficiently
collateralized and in the process of collection, the loan review officer may
allow the loan to continue accruing based on the expected full return of the
Bank's monies when the collateral is liquidated. The table below compares 90
days and over delinquencies by type of loan for June 30, 1996 and June 30, 1995.
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
Over 90 Days Over 90 Days Over 90 Days Over 90 Days
Accruing Non-Accruing Accruing Non-Accruing
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Commercial Loans $352,162 $0 $ 872,064 $793,158
Mortgage Loans 361,365 0 358,767 114,387
Installment Loans 244,951 0 125,181 0
-------- -- ---------- --------
TOTAL $958,478 $0 $1,356,012 $907,545
</TABLE>
11
<PAGE>
RESULTS OF OPERATIONS
The "Consolidated Statement of Income" (Table 3-Q) compares the three month
period ending June 30, 1996 and 1995. Table 3-Y compares income for the first
six months of operation during the current fiscal year compared with that period
in 1995. The table summarizes at the bottom that the Corporation has earned
$0.63 per share in the second quarter of 1996 compared to $0.54 per share one
year ago. On a fiscal year basis, the Corporation has earned $1.24 per share in
1996 compared to $1.04 in 1995.
NET INTEREST INCOME
- -------------------
Operating results are substantially dependent on net interest income. Net
interest income is the difference between interest earned on loans and
investments and interest paid on deposits and borrowings. Operating results are
also affected by the levels of non-interest income and expense.
Total interest income for the quarter of $5.654 million reflects a 7.2%
increase or $379,000 more interest income when compared with the same three
months of 1995. This interest income increase for the quarter comes despite
relatively large fluctuations in interest rates and represents active management
of the margin by executive management. Table 5 "Yield Comparisons" highlights
effective interest rates on interest bearing assets and liabilities.
Total interest expense of $2.363 million for the quarter reflects an
increase of 6.0% from interest expense of $2.23 million for the same quarter of
1995. The increase represents a marked shift by consumers from lower yielding
non-maturity accounts to longer term, higher rate certificates of deposit and
the inflow into the Prime Money Fund account which pays a higher rate than the
traditional Money Market accounts.
Table 4 "Yield Comparisons" shows that the yield on earning assets have
risen from 8.23% on June 30, 1995 to 8.30% on June 30, 1996. However, interest
expense has increased from 4.04% to 4.14% during the same period. The increase
in net interest income is attributable to higher earning assets, in the loan and
investment categories.
PROVISION FOR POSSIBLE LOAN LOSSES
- ----------------------------------
The provision for possible loan losses was $125,000 for the second quarter
of 1996, the same as for the second quarter of 1995. Management has seen
decreasing trends in charge-offs and increased recoveries over the past eight
quarters. The present allowance for loan losses of $2.33 million represents
1.14% of outstanding loans compared to $2.2 million or 1.17% of loans on June
30, 1996. Non-performing assets (NPA), which include non-accrual loans and
other real estate owned were $102,100 at end of quarter. This gives an NPA to
loan loss reserve ratio of 0.04% at the period end. The greater provision for
loan losses as compared to actual loan losses is intended to reach a goal
management has set which will place the company in the high performing
percentiles for peer comparison, and provide an extra measure of reserves in the
event of an economic downturn.
Management performs quarterly adequacy analysis on the loan loss reserve.
The loan review officer determines adequacy by following the BC-201 Qualitative
factors and eight quarters of loan loss experience. The officer's analysis is
performed by the separate loan categories; Commercial and Industrial Loans,
Commercial Real Estate Loans, Residential Real Estate, Consumer Installment and
Credit Card Loans. The officer's report is presented to the Bank's board of
director's for approval and a subcommittee of the Board meets to review his
detailed accounts.
12
<PAGE>
TABLE 3-Q
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
CNB FINANCIAL CORPORATION: June 30, 1996
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data) THREE MONTHS ENDED JUNE 30 ...
INTEREST INCOME 1996 1995
---------- ----------
<S> <C> <C>
Loans including Fees.......................................... $4,428 $4,157
Deposits with Other Banks..................................... - -
Federal Funds Sold............................................ 23 55
Other Short Term Investments.................................. - -
Investment Securities:
Taxable Securities: Available for Sale...................... 671 548
Tax-Exempt Securities: Available for Sale................... 200 65
Taxable Securities: Being Held to Maturity.................. 196 226
Tax-Exempt Securities: Being Held to Maturity............... 127 224
Interest on restructured loans................................ 9 -
Interest on other assets...................................... - -
------- -------
TOTAL INTEREST INCOME....................................... $5,654 $5,275
INTEREST EXPENSE
Deposits...................................................... $2,319 $2,192
Borrowed Funds................................................ 44 37
-- --
TOTAL INTEREST EXPENSE...................................... $2,363 $2,229
Net Interest Income......................................... $3,291 $3,046
Provision for possible loan losses.......................... 125 125
--- ---
NET INTEREST INCOME AFTER PROVISION........................... $3,166 $2,921
NON-INTEREST INCOME
Fiduciary Commissions and Fees................................ $197 $131
Service charges on deposit accounts........................... 176 151
Other service charges and fees................................ 91 160
Securities gains (losses)..................................... - (2)
Gains (losses) on Sale of Assets.............................. 5 -
Other income.................................................. 76 78
-- --
TOTAL NON-INTEREST INCOME................................... $545 $518
NON-INTEREST EXPENSE
Salaries...................................................... $980 $915
Employee benefits............................................. 311 298
Net occupancy expense......................................... 347 303
Other Operating Expense....................................... 555 733
--- ---
TOTAL NON-INTEREST EXPENSE.................................. 2,193 2,249
Income Before Federal Income Taxes............................ $1,518 $1,190
Applicable Taxes.............................................. 433 268
====================================
NET INCOME.................................................. $1,085 $922
====================================
Per Share Data
- --------------
Primary
Net Income $0.63 $0.54
Cash dividends paid $0.31 $0.29
- ------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
TABLE 3-Y
<TABLE>
<CAPTION>
CNB FINANCIAL CORPORATION, June 30, 1996
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data) SIX MONTHS ENDED
June 30
INTEREST INCOME 1996 1995
-------- --------
<S> <C> <C>
Loans including Fees................................................. $8,925 $8,110
Deposits with Other Banks............................................ 1 1
Federal Funds Sold................................................... 81 58
Other Short Term Investments......................................... -- --
Investment Securities:
Taxable Securities Available for Sale.............................. 1,292 1,080
Tax-Exempt Securities: Available for Sale......................... 372 124
Taxable Securities: Being Held to Maturity........................ 412 472
Tax-Exempt Securities: Being Held to Maturity..................... 269 467
Interest on restructured loans....................................... 23 --
Interest on other assets............................................. -- --
------- -------
TOTAL INTEREST INCOME.............................................. $11,375 $10,312
INTEREST EXPENSE
Deposits............................................................. $4,751 $4,097
Borrowed Funds....................................................... 81 118
-- ---
TOTAL INTEREST EXPENSE............................................. $4,832 $4,215
Net Interest Income................................................ $6,543 $6,097
Provision for possible loan losses................................. 250 250
--- ---
NET INTEREST INCOME AFTER PROVISION.................................. $6,293 $5,847
NON-INTEREST INCOME
Fiduciary Commissions and Fees....................................... $426 $261
Service charges on deposit securities................................ 305 270
Other service charges and fees....................................... 185 219
Securities gains (losses)............................................ (13) (3)
Gains (losses) on Sale of Assets..................................... 7 --
Other income......................................................... 129 183
--- ---
TOTAL NON-INTEREST INCOME.......................................... $1,038 $930
NON-INTEREST EXPENSE
Salaries............................................................. $1,944 $1,770
Employee benefits.................................................... 626 583
Net occupancy expense................................................ 700 614
Other Operating Expense.............................................. 1,119 1,422
----- -----
TOTAL NON-INTEREST EXPENSE......................................... 4,389 4,389
Income Before Federal Income Taxes................................... $2,942 $2,388
Applicable Taxes..................................................... 813 602
========================
NET INCOME......................................................... $2,129 $1,786
========================
Per Share Data
- --------------
Primary
Net Income $1.24 $1.04
Cash dividends paid $0.62 $0.58
</TABLE>
14
<PAGE>
TABLE 4
CONSOLIDATED YIELD COMPARISONS
<TABLE>
<CAPTION>
CNB Financial Corporation June 30, 1996
Average Balances and Net Interest Margin
(Dollars in thousands)
June 30, 1996 December 31, 1995 June 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Average Annual Interest Average Annual Interest Average Annual Interest
Balance Rate Inc./Exp. Balance Rate Inc./Exp. Balance Rate Inc./Exp.
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits
with banks 815 6.95% 51 $18 2.42% 50 518 8.91% 51
Federal funds sold and
warranties purchased
under agreements
to recall 2,933 5.54% $1 1,450 5.59% 51 2,007 5.80% 58
Other short-term investment
Investment Securities:
Taxable 55,739 6.13% 1,704 54,681 6.07% 3,319 53,531 5.81% 1,552
Tax-Exempt (1) 24,099 8.08% 971 21,495 8.62 1,853 20,301 8.84% 895
- -----------------------------------------------------------------------------------------------------------------------------------
Total Securities 52,506 6,68% 2,757 77,644 6.77% 5,253 75,857 6.62% 2,506
Loans
Commercial 47,872 8.37% 1,999 44,621 8.56% 3,818 41,363 8.71% 1,797
Mortgage 97,495 9.57% 4,797 89,215 9.03% 8,057 87,734 8.91% 3,900
Installment 54,742 7.88% 2,152 54,293 9.16% 4,974 53,639 9.02% 2,413
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans (2) 200,115 8.97% 8,943 188,129 8.96% 16,849 182,736 8.90% 8,110
Total earning assets 252,921 8.30% 11,705 265,773 8.32% 22,102 258,593 8.23% 10,616
Non Interest Bearing Assets
Cash & Due From Banks 8,025 7,467 7,490 0 7,487 0
Premises & Equipment 7,931 5,733 6,482 0 5,733 0
Other Assets 3,313 2,396 2,902 0 2,396 0
Allowance for Possible
Loan Losses (2,237) (3,253) (2,173) 0 (2,153) 0
- -----------------------------------------------------------------------------------------------------------------------------------
Total Non-interest earning
assets 17,032 -- 0 14,691 -- 0 13,443 -- 0
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $299,983 $11,706 $280,464 $22,102 $272,036 $10,616
=======================================================================================================
Liabilities and Shareholders' Equity
Interest-Bearing Deposits
Demand - interest-bearing $77,156 3.18% $1,224 $56,284 1.98% $1,115 $48,560 1.96% $475
Savings 37,000 4.45% 821 38,716 2.72% 1,052 40,966 2.74% 560
Time 116,526 4.66% 2,706 116,239 5.83% 6,778 115,809 5.30% 3,062
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 230,687 4.13% 4,751 211,239 4.23% 8,945 205,335 4.00% 4,097
Short-term borrowings 3,318 4.90% 81 5,229 5.32% 278 3,897 6.07% 118
Long-term borrowings 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 234,000 4.14% 4,832 216,468 4.26% 9,223 209,232 4.04% 4,215
Demand - non-interest-
bearing 26,117 -- 0 25,788 -- 0 25,890 -- 0
Other liabilities 1,952 -- 0 1,766 -- 0 1,782 -- 0
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 262,069 3.70% 4,832 244,022 3.78% 9,223 236,907 3.57% 4,215
Shareholders' equity 37,884 -- 0 36,442 -- 0 35,129 -- 0
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $299,953 $4,832 $280,464 $9,223 $272,036 $4,215
=======================================================================================================
Interest income/earning assets 8.30% $11,705 8.32% $22,102 8.23% $10,616
Interest expense/Interest
bearing liability 4.14% 4,832 4.26% 9,223 4.04% 4,215
- -----------------------------------------------------------------------------------------------------------------------------------
Net Interest Spread 4.16% $6,873 4.06% $12,879 4.19% $6,401
=======================================================================================================
Interest income/Interest
Earning Assets 8.30% $11,705 8.32% $22,102 8.23% $10,616
Interest expense/Interest
Earning Assets 3.43% 4,832 3.47% 9,223 3.27% 4,215
- -----------------------------------------------------------------------------------------------------------------------------------
Net Interest Margin 4.87% $6,873 4.86% $12,879 4.96% $6,401
=======================================================================================================
</TABLE>
(1) The amounts are reflected on a fully tax equivalent basis using the federal
statutory rate of 34% in 1996, adjusted for certain tax preferences.
(2) Average outstanding includes the average balance outstanding of all non-
accrual loans. Loans consist of the average of total loans less average
unearned income. The amount of loss from included in the interest income on
loans is not material.
15
<PAGE>
NON-INTEREST INCOME
- -------------------
Total other income for the second quarter of 1996 of $545,000 is $27,000
more than during the same period in 1995. Increased service charge revenues,
higher fiduciary fees and higher credit card fees account for the added
revenues.
NON-INTEREST EXPENSE
- --------------------
The Corporation's second quarter operating expenses were lower by $56,000
over the second quarter of 1995. In the second quarter of 1995, the Corporation
incurred several large non-recurring expenses related to changes in the Bank's
data processing and management information system. Increases in the salary and
benefit categories reflect the personnel hired to operate the two new branch
offices opened since late last year. Merit and cost of living adjustments for
existing personnel are also reflected in those costs. Occupancy expense was
higher in the second quarter of 1996 compared to the same period last year due
to the amortization of costs related to the expansion of the Corporation's
headquarters. Management does include these costs in estimates of future
earnings.
The Corporation's expenses to date as compared to the first six months of
1995 reflect no increase in costs. As mentioned, one-time expenses in 1995
make period to period comparisons difficult as does the fact that in 1996 the
Bank has expensed only $2,000 to insure its deposits compared to the $260,000
recognized in the first half of 1995. The determination and subsequent action
by the Federal Deposit Insurance Corporation in September 1995 is discussed in
previous filings.
NET INCOME
- ----------
Net income for the second quarter of 1996 was $1,085,000 or $.63 per share.
This compares to net income and earnings per share for the same quarter in 1995
of $922,000 and $.54 per share.
The Corporation's second quarter earnings contain no extra-ordinary income
or expense. The increased income over last year comes from higher net interest
income from a higher earning asset base. The net interest spread, however, is
slightly lower than the same period in 1995. Fee income levels are also higher,
particularly in the fiduciary income and credit card fees. No service charge
price increases have been implemented since the last reporting period.
Return on average assets to date in 1996 is 1.42% and return on average
equity is 11.85%.
INCOME TAXES
- ------------
The provision for income taxes of $433,000 for the second quarter of 1996
is $165,000 more than the same period in 1995. Comparing the first two quarters
of 1996 to the same period last year, the Corporation has accrued $211,000 more
expense for taxes in 1996.
16
<PAGE>
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS FOR SECURITY HOLDERS VOTE
1. The Annual Shareholders Meeting was held on April 16,
1996 at the Headquarters Building at 1 Market St.,
Clearfield, PA 16830
a. The total number of voting shares was 1,282,116.
b. The following named persons were elected Class 1
Directors to serve until the Annual Meeting in 1999.
William F. Falger
James J. Leitzinger
Jeffrey S. Powell
Peter F. Smith
L.E. Soult, Jr.
c. The following directors continued their terms;
Robert E. Brown, Richard D. Gathagan, Dennis L.
Merrey, James P. Moore William R. Owens, Robert C.
Penoyer, Carl J. Peterson, Edward B. Reighard,
Robert G. Spencer, and Joseph L. Waroquier, Sr.
ITEM 5. OTHER INFORMATION
There were no reports on Form 8-K for the period ended June
30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNB FINANCIAL CORPORATION
(Registrant)
DATE: August 5, 1996 /s/ James P. Moore
--------------------- -----------------------------
James P. Moore
President and Director
(Principal Executive Officer)
DATE: August 5, 1996 /s/ J. Matthew McEnroe
--------------------- -----------------------------
J. Matthew McEnroe
Treasurer,
Principal Financial Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 10,924
<INT-BEARING-DEPOSITS> 14
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,411
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 20,254
<LOANS> 201,566
<ALLOWANCE> 2,330
<TOTAL-ASSETS> 303,134
<DEPOSITS> 259,334
<SHORT-TERM> 4,396
<LIABILITIES-OTHER> 1,417
<LONG-TERM> 0
0
0
<COMMON> 6,912
<OTHER-SE> 31,075
<TOTAL-LIABILITIES-AND-EQUITY> 303,134
<INTEREST-LOAN> 8,948
<INTEREST-INVEST> 2,345
<INTEREST-OTHER> 82
<INTEREST-TOTAL> 11,375
<INTEREST-DEPOSIT> 4,751
<INTEREST-EXPENSE> 81
<INTEREST-INCOME-NET> 6,543
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (13)
<EXPENSE-OTHER> 4,389
<INCOME-PRETAX> 2,942
<INCOME-PRE-EXTRAORDINARY> 2,942
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,129
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.24
<YIELD-ACTUAL> 8.30
<LOANS-NON> 0
<LOANS-PAST> 1,685
<LOANS-TROUBLED> 684
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,145
<CHARGE-OFFS> 107
<RECOVERIES> 42
<ALLOWANCE-CLOSE> 2,330
<ALLOWANCE-DOMESTIC> 2,330
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
