<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission File Number 0-13396
September 30, 1996
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
September 30, 1996:
COMMON STOCK: $4.00 PAR VALUE - 1,722,834 SHARES
1
<PAGE>
INDEX
PART I.
FINANCIAL INFORMATION
<TABLE>
<S> <C>
Sequential
Page Number
-----------
PAGE 3. Notes to Consolidated Financial Statements
PAGE 4. Management's Discussion and Analysis of Financial Condition and Results of Operations
PAGE 7. Table 1 - Consolidated Balance Sheets - September 30, 1996
PAGE 9. Table 2 - Consolidated Statement of Cash Flows - September 30, 1996
PAGE 13. Table 3Q - Consolidated Statement of Income - Quarter ending September 30, 1996
PAGE 14. Table 3-Y Consolidated Statement of Income for Nine months Ending September 30, 1996
PAGE 15. Table 4 - Consolidated Yield Comparisons
<CAPTION>
PART II.
OTHER INFORMATION
<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 nine month periods ended
September 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 September
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 Corporation'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) issued 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 and significantly delinquent 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. 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 are to 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 on a "worst yield basis". For securities purchased at
less than face value the discount is accreted to maturity , despite possible
call features. For securities purchased at a price in excess of their face
value, the premium is amortized to the earlier of call or put, rather than
maturity. In the case of mortgage-backed securities and collateralized mortgage
obligations discounts or premiums are realized 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 accounted
for under 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 September 30, 1996, the Corporation had an after-tax unrealized gain in the
"Available For Sale" category of $435,000.
4
<PAGE>
SFAS No. 121: Impairment of Long-Lived Assets and Long-Lived Assets to Be
- --------------------------------------------------------------------------
Disposed of
- -----------
The Corporation adopted SFAS No. 121 beginning January 1, 1996. This
accounting guideline provides standard accounting treatment for long-lived
assets received in a settlement of a loan. Management has concluded that
currently there are no assets in the Corporation which are subject to this
accounting standard.
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.
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 by the Pennsylvania
Bureau of Research Statistics.
New analyses by the Pennsylvania Department of Labor and Industry
provide an insight into the economic diversity of the Bank's markets. The August
1996 Labor Market Report shows that the Clearfield County unemployment rate was
6.9%, well above the state's 5.0% unemployment rate. However, in the contiguous
county of Elk, which is also in the Bank's market area, the unemployment rate
for August 1996 was 5.1%
Despite the sketchy economic data and regional disparities, new
businesses do continue to locate in the Bank's market region, and housing starts
are visibly higher than in past years. Housing prices continue to rise at a
consistent rate.
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 a general rise in housing prices.
Moderate housing construction is visible and the Corporation's market area is
believed to be growing.
ASSETS
- ------
Total assets (shown in Table 1 "Consolidated Balance Sheet") have grown
-------
8.27% since one year ago to $313.5 million. Much of the growth has occurred in
the loan portfolios, mainly in mortgage real estate lending. The loan volume
does include $2.2 million of vehicle leases which the Bank began offering in
early June of this year. Total gross loans were $214.1 million on September 30,
1996 compared to $196.4 million twelve months ago. The growth in loans has been
supported by $12.3 million in core deposit growth, retained earnings and an
increase in advances from the Federal Home Loan Bank of Pittsburgh.
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 on the
campus of the University of Pittsburgh - Bradford on March 12, 1996.
6
<PAGE>
TABLE 1
CONSOLIDATED BALANCE SHEET
CNB FINANCIAL CORPORATION: September 30, 1996
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, except percent data)
<TABLE>
<CAPTION>
September 30, Dec. 31 September 30,
1996 1995 1995
ASSETS --------------- --------------- ---------------
<S> <C> <C> <C>
Cash and Due from Banks................................................. $11,789 $9,110 $8,701
Deposits with Other Banks............................................... 14 19 20
Federal Funds Sold...................................................... 3,200 350
Investment Securities Available for sale................................ 61,825 51,007 47,537
Investment Securities Held to Maturity, fair value of
$18,479 at September 30, 1996, $25,541 at December
31, 1995 and $32,023 at September 30, 1995 ........................... 18,189 24,921 31,396
Loans 214,106 203,706 196,447
Less: Unearned Discount.............................................. 3,244 3,668 3,725
Less: Allowance for Loan Losses....................................... 2,370 2,145 2,177
-------- -------- --------
NET LOANS............................................................. 208,492 197,893 190,545
Premises and Equipment.................................................. 8,748 7,782 7,272
Accrued Interest and Other Assets....................................... 4,399 3,591 3,697
-------- -------- --------
TOTAL ASSETS.......................................................... $313,456 $297,523 $289,518
LIABILITIES
Deposits:
Non-interest bearing deposits......................................... $31,840 $25,705 $27,675
Interest bearing deposits............................................. 226,921 230,082 218,812
-------- -------- --------
TOTAL DEPOSITS........................................................ 258,761 255,787 246,487
Other Borrowings........................................................ 14,291 2,846 4,118
Accrued Interest and Other Liabilities.................................. 1,359 1,347 1,853
-------- -------- --------
TOTAL LIABILITIES..................................................... 274,411 259,980 252,458
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..................................................... 31,798 30,142 29,628
Treasury Stock, At Cost (5,166)....................................... (100) (100) (100)
Net unrealized securities gains (losses).............................. 435 589 620
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY............................................ 39,045 37,543 37,060
-------- -------- --------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY.............................. $313,456 $297,523 $289,518
</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 September 30, 1996 were $258.8 million, an increase
of $12.3 million over September 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
had a $10 million short term Federal Home Loan Bank of Pittsburgh advance on
September 30, 1996 to supplement its deposit base.
The Bank maintains additional borrowing capacity at the Federal Home
Loan Bank of Pittsburgh of approximately $66 million. 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 $61.8 million at September 30, 1996 compared to $47.5 million on
September 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 $54.1 million are contractually due within one year as compared to
$43 million as of September 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 maintains large back-up facilities at both Federal Reserve Bank of
Philadelphia and the Federal Home Loan Bank of Pittsburgh. As of September 30,
1996, the Bank had $15 million in lines of credit available with correspondent
commercial banks. Also, the Bank had a remaining available credit line with the
Federal Home Loan Bank in the amount of $66 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 79.3% compared to 79.8% on
September 30, 1995.
8
<PAGE>
TABLE 2
CONSOLIDATED STATEMENT OF CASHFLOWS
CNB FINANCIAL CORPORATION: September 30, 1996
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30...
1996 1995
Cash flows from operating activities: ---------------- -----------------
<S> <C> <C>
Net Income........................................................... $3,259 $2,803
Adjustments to reconcile net income to
net cash provided by operations:
Provision for loan losses........................................ 375 315
Depreciation..................................................... 494 393
Amortization and accretion of net deferred loan fees............. (583) (164)
Amortization and accretion of premiums and discounts
on investments............................................. 89 222
Security Losses (Gains)......................................... 13 (6)
Changes in:
Interest receivable.............................................. (33) (295)
Other assets..................................................... (183) (365)
Interest payable................................................. (72) 213
Other liabilities................................................ (83) 783
Net cash provided by operating activities............................ 3,276 3,899
Cash flows from investing activities:
Proceeds from maturities of:
Investment securities.......................................... 7,710 11,314
Securities available for sale.................................. 8,886 14,029
Purchase of:
Investment securities.......................................... (998) (9,024)
Securities available for sale.................................. (19,996) (22,307)
Net principal disbursed on loan.................................... (10,390) (10,847)
Purchase of Federal Home Loan Bank Stock........................... (596) (14)
Purchase of premises and equipment................................. (1,359) (2,521)
Proceeds from the sale of foreclosed assets........................ 122 28
Net cash used in investing activities................................ (16,621) (19,342)
Cash flows from financing activities:
Net change in:
Checking, money market and savings accounts.................... 4,195 7,453
Certificates of deposit........................................ (1,220) 8,393
Proceeds (Repayment) of Federal Home Loan Bank Advances............ 10,154 (20)
Other borrowed funds............................................... 1,292 453
Cash dividends paid................................................ (1,602) (1,500)
Net cash (used in) provided by financing activities.................. 12,819 14,779
Net (decrease) in cash and cash equivalents.......................... (526) (664)
Cash and cash equivalents at beginning of year....................... 12,329 9,715
Cash and cash equivalents at end of period........................... $11,803 $9,051
Noncash Investing Activities:
(Decrease) Increase in net unrealized gain on
securities avaliable for sale................................. $ (154) $1,240
</TABLE>
9
<PAGE>
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 $39 million on September 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
September 30, 1996 and 1995:
<TABLE>
<CAPTION>
3rd Qtr. 3rd Qtr. Regulatory
1996 1995 Minimums
---- ---- --------
<S> <C> <C> <C>
Tier 1 Risk-Based Capital Ratio 18.90% 17.65% 5.5%
Total Risk-Based Capital Ratio 20.05% 18.76% 8.0%
Leverage Ratio 12.46% 12.27% 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 and August of this year.
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 seeks to mitigate 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 that 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 September 30, 1996
and September 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 $ 539,437 $141,019 $1,467,471 $ 0
Mortgage Loans 797,962 89,328 227,458 114,388
Installment Loans 558,013 0 205,409 0
----------- ------------ ---------- -----------
TOTAL $1,895,412 $230,347 $1,900,338 $ 114,388
</TABLE>
11
<PAGE>
RESULTS OF OPERATIONS
The "Consolidated Statement of Income" (Table 3-Q) compares the three
---------
month period ending September 30, 1996 and 1995. Table 3-Y compares income for
---------
the first nine 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 $0.65 per share in the third quarter of 1996 compared to $0.59 per share
one year ago. On a fiscal year basis, the Corporation has earned $1.89 per share
in the first nine months in 1996 compared to $1.63 for the same period 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 $5.731 million reflects a 4.7%
increase or $258,000 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 4 "Yield Comparisons" highlights
effective interest rates on interest bearing assets and liabilities. Table 4
interest income totals differ from those in Tables 3Q and 3Y in that tax free
interest is converted to a fully taxable equivalent basis.
Total interest expense of $2.4 million for the quarter reflects a
decrease of 1.6% from interest expense of $2.44 million for the same quarter of
1995. The change represents lower interest expense on a large group of
certificate of deposits which carried a promotional rate. As these certificates
of deposits matured, the weighted average cost of interest bearing deposits
dropped from 4.16% to 4.12%, as shown in Table 4.
Table 4 "Yield Comparisons" shows that the yield on earning assets
dropped from 8.34% on September 30, 1995 to 8.28% on September 30, 1996. 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 third
quarter of 1996, $60,000 higher than the third 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 $2.37 million
represents 1.11% of outstanding loans compared to $2.2 million or 1.11% of loans
on September 30, 1995. Non-performing assets (NPA), which include non-accrual
loans and other real estate owned were $263,347 at end of quarter. This gives an
NPA to loan loss reserve ratio of 0.11% 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
periods of an economic downturn.
Management performs quarterly adequacy analysis on the loan loss
reserve. The loan review officer determines adequacy by following the
Comptroller of the Currency's BC-201 qualitative factors and eight quarters of
loan loss experience. The officer's analysis is performed by 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
CNB FINANCIAL CORPORATION: September 30, 1996
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPT. 30...
1996 1995
--------------------- ---------------------
<S> <C> <C>
INTEREST INCOME
Loans including Fees..................................... $4,514 $4,302
Deposits with Other Banks................................ -- --
Federal Funds Sold....................................... 1 1
Other Short Term Investments............................. -- --
Investment Securities:
Taxable Securities: Available for Sale................ 688 568
Tax-Exempt Securities: Available for Sale............. 223 111
Taxable Securities: Being Held to Maturity............ 184 277
Tax-Exempt Securities: Being Held to Maturity......... 103 209
Interest on restructured loans........................... 18 5
Interest on other assets................................. -- --
TOTAL INTEREST INCOME................................. $5,731 $5,473
INTEREST EXPENSE
Deposits................................................. $2,319 $2,324
Borrowed Funds........................................... 80 112
TOTAL INTEREST EXPENSE................................ $2,399 $2,436
Net Interest Income................................... $3,332 $3,037
Provision for possible loan losses.................... 125 65
NET INTEREST INCOME AFTER PROVISION ..................... $3,207 $2,972
NON-INTEREST INCOME
Fiduciary Commissions and Fees........................... $118 $129
Service charges on deposit accounts...................... 192 168
Other service charges and fees........................... 134 88
Securities gains (losses)................................ -- 10
Gains (losses) on Sale of Assets......................... -- --
Other income............................................. 70 26
TOTAL NON-INTEREST INCOME............................. $514 $421
NON-INTEREST EXPENSE
Salaries................................................. $1,021 $908
Employee benefits........................................ 168 274
Net occupancy expense.................................... 351 305
Other Operating Expense.................................. 651 612
TOTAL NON-INTEREST EXPENSE............................ 2,191 2,099
Income Before Federal Income Taxes....................... $1,530 $1,294
Applicable Taxes......................................... 400 277
===================================================
NET INCOME............................................ $1,130 $1,017
===================================================
Per Share Data
- --------------
Primary
Net Income $0.65 $0.59
Cash dividends paid $0.31 $0.29
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
TABLE 3-Y
CNB FINANCIAL CORPORATION: September 30, 1996
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT. 30...
1996 1995
------------------- -----------------
<S> <C> <C>
INTEREST INCOME
Loans including Fees.............................. $13,439 $12,412
Deposits with Other Banks......................... 1 1
Federal Funds Sold................................ 82 58
Other Short Term Investments...................... -- --
Investment Securities:
Taxable Securities: Available for Sale......... 1,980 1,648
Tax-Exempt Securities: Available for Sale...... 595 235
Taxable Securities: Being Held to Maturity..... 596 749
Tax-Exempt Securities: Being Held to Maturity.. 372 676
Interest on restructured loans.................... 41 6
Interest on other assets.......................... -- --
------- -------
TOTAL INTEREST INCOME.......................... $17,106 $15,785
INTEREST EXPENSE
Deposits.......................................... $7,070 $6,421
Borrowed Funds.................................... 161 230
TOTAL INTEREST EXPENSE......................... $7,231 $6,651
Net Interest Income............................ $9,875 $9,134
Provision for possible loan losses............. 375 315
--- ---
NET INTEREST INCOME AFTER PROVISION .............. $9,500 $8,819
NON-INTEREST INCOME
Fiduciary Commissions and Fees.................... $544 $390
Service charges on deposit accounts............... 497 438
Other service charges and fees.................... 319 307
Securities gains (losses)......................... (13) 7
Gains (losses) on Sale of Assets.................. -- --
Other income...................................... 205 209
--- ---
TOTAL NON-INTEREST INCOME...................... $1,552 $1,351
NON-INTEREST EXPENSE
Salaries.......................................... $2,965 $2,678
Employee benefits................................. 794 857
Net occupancy expense............................. 1,051 919
1,770 2,034
Other Operating Expense........................... ----- -----
TOTAL NON-INTEREST EXPENSE..................... 6,580 6,488
Income Before Federal Income Taxes................ $4,472 $3,682
Applicable Taxes.................................. 1,213 879
=================================================
NET INCOME..................................... $3,259 $2,803
=================================================
Per Share Data
Primary
Net Income $1.89 $1.63
Cash dividends paid $0.93 $0.87
</TABLE>
14
<PAGE>
TABLE 4
CONSOLIDATED YIELD COMPARISONS
CNB Financial Corporation: September 30, 1996
Average Balances and Net Interest Margin
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
- --------------------------------------------------------------------------------------------------------------------
Average Annual Interest Average Annual Interest
Balance Rate Inc./Exp. Balance Rate Inc./Exp.
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits with banks $14 4.77% $1 $18 2.42% $0
Federal funds sold and securities
purchased under agreements to resell 1,977 5.55% 82 1,450 5.59% 81
Other short-term investments
Investment Securities:
Taxable 55,891 6.16% 2,576 54,681 6.07% 3,319
Tax-Exempt (1) 24,612 7.96% 1,465 24,612 24,612 1,853
- --------------------------------------------------------------------------------------------------------------------
Total securities 82,494 6.68% 4,124 77,644 6.77% 5,253
Loans
Commercial 47,243 8.29% 2,931 44,621 8.56% 3,818
Mortgage 99,720 9.79% 7,304 89,215 9.03% 8,057
Installment 54,689 7.93% 3,245 54,293 9.16% 4,974
- --------------------------------------------------------------------------------------------------------------------
Total loans (2) 201,652 8.94% 13,480 188,129 8.96% 16,849
Total earning assets 284,146 8.28% 17,604 265,773 8.32% 22,102
Non Interest Bearing Assets
Cash & Due From Banks 8,268 -- 7,480 0
Premises & Equipment 8,080 -- 6,482 0
Other Assets 3,584 -- 2,902 0
Allowance for Possible Loan Losses (2,270) -- (2,173) 0
- --------------------------------------------------------------------------------------------------------------------
Total Non-interest earning assets 17,032 -- 0 14,691 -- 0
- --------------------------------------------------------------------------------------------------------------------
Total Assets $301,178 $17,604 $280,464 $22,102
========================================================================
Liabilities and Shareholders' Equity
Interest-Bearing Deposits
Demand - interest-bearing $75,930 3.14% $1,782 $56,284 1.98% $1,115
Savings 36,391 1.65% 450 38,716 2.72% 1,052
Time 117,452 5.51% 4,838 116,239 5.83% 6,778
- --------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 229,773 4.11% 7,070 211,239 4.23% 8,945
Short-term borrowings 4,680 4.60% 161 5,229 5.32% 278
Long-term borrowings 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 234,453 4.12% 7,231 216,468 4.26% 9,223
Demand - non-interest-bearing 27,076 -- 0 25,788 -- 0
Other liabilities 2,107 -- 0 1,766 -- 0
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities 263,636 3.67% 7,231 244,022 3.78% 9,223
Shareholders' equity 38,172 -- 0 36,442 -- 0
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $301,808 $7,231 $280,464 $9,223
========================================================================
Interest income/earning assets 8.28% $17,604 8.32% $22,102
Interest expense/interest bearing liabilities 4.12% 7,231 4.26% 9,223
- --------------------------------------------------------------------------------------------------------------------
Net Interest Spread 4.16% $10,373 4.06% $12,879
======================= ======================
Interest Income/Interest Earning Assets 8.24% $17,604 8.32% $22,102
Interest expense/Interest Earning Assets 3.40% 7,231 3.47% 9,223
- --------------------------------------------------------------------------------------------------------------------
Net Interest Margin 4.88% $10,373 4.85% $12,879
======================= ======================
<CAPTION>
September 30, 1995
- -------------------------------------------------------------------------------------
Average Annual Interest
Balance Rate Inc./Exp.
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Interest-bearing deposits with banks -- -- --
Federal funds sold and securities
purchased under agreements to resell 1,376 5.73% 59
Other short-term investments
Investment Securities:
Taxable 52,892 6.06% 2,397
Tax-Exempt (1) 21,103 8.74% 1,380
- --------------------------------------------------------------------------------
Total securities 75,371 6.80% 3,836
Loans
Commercial 43,025 8.59% 2,765
Mortgage 88,767 9.55% 6,338
Installment 53,379 8.30% 3,315
- --------------------------------------------------------------------------------
Total loans (2) 185,171 8.97% 12,418
Total earning assets 260,542 8.34% 16,254
Non Interest Bearing Assets
Cash & Due From Banks 7,404 --
Premises & Equipment 6,140 --
Other Assets 2,986 --
Allowance for Possible Loan Losses (2,172) --
- --------------------------------------------------------------------------------
Total Non-interest earning assets 14,358 -- --
- --------------------------------------------------------------------------------
Total Assets $274,900 $16,254
====================================
Liabilities and Shareholders' Equity
Interest-Bearing Deposits
Demand - interest-bearing $54,651 1.94% $791
Savings 39,797 2.55% 758
Time 111,739 5.76% 4,811
- --------------------------------------------------------------------------------
Total interest-bearing deposits 206,187 4.12% 6,360
Short-term borrowings 5,861 5.25% 230
Long-term borrowings 0 0
- --------------------------------------------------------------------------------
Total interest-bearing liabilities 212,048 4.16% 6,590
Demand - non-interest-bearing 25,526 -- 0
Other liabilities 1,221 -- 0
- --------------------------------------------------------------------------------
Total Liabilities 238,795 3.69% 6,590
Shareholders' equity 36,105 -- 0
- --------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $274,900 $6,590
====================================
Interest income/earning assets 8.34% $16,254
Interest expense/interest bearing liabilities 4.16% 6,590
- --------------------------------------------------------------------------------
Net Interest Spread 4.19% $9,664
==================
Interest Income/Interest Earning Assets 8.34% $10,616
Interest expense/Interest Earning Assets 3.38% 6,590
- --------------------------------------------------------------------------------
Net Interest Margin 4.96% $6,590
==================
</TABLE>
(1) The amounts are reflected on a fully tax equivalent basis using the federal
statutory rate of 34% in 1996 and 1995, adjusted for certain tax
preferences.
(2) Average outstanding includes the average balance outstanding of all non-
accrual loans. Loans consist of the average of total loans less average
unearned income. The amount of loan fees included in the interest income on
loans is not material.
15
<PAGE>
NON-INTEREST INCOME
- -------------------
Total other income for the third quarter of 1996 of $514,000 is $93,000
more than during the same period in 1995. Increased service charge revenues and
higher fiduciary fees account for the added revenues.
NON-INTEREST EXPENSE
- --------------------
The Corporation's third quarter operating expenses were higher by
$92,000 over the third quarter of 1995. 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
third 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 nine months
of 1995 reflect slight increases to 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
$244,000 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 third quarter of 1996 was $1,130,000 or $.65 per
share. This compares to net income and earnings per share for the same quarter
in 1995 of $1,017,000 and $.59 per share.
The Corporation's third 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 fiduciary income. No service charge price increases
have been implemented since the last reporting period.
Return on average assets to date in 1996 is 1.46% and return on average
equity is 11.95%.
INCOME TAXES
- ------------
The provision for income taxes of $400,000 for the third quarter of
1996 is $123,000 more than the same period in 1995. Comparing the first three
quarters of 1996 to the same period last year, the Corporation has accrued
$334,000 more expense for taxes in 1996.
16
<PAGE>
PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION
No Form 8-K's were filed for this period.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNB FINANCIAL CORPORATION
(Registrant)
DATE: November 6, 1996 /s/ James P. Moore
------------------------- -----------------------------
James P. Moore
President and Director
(Principal Executive Officer)
DATE: November 6, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,789
<INT-BEARING-DEPOSITS> 14
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 61,825
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 18,189
<LOANS> 210,862
<ALLOWANCE> 2,370
<TOTAL-ASSETS> 313,456
<DEPOSITS> 258,761
<SHORT-TERM> 14,291
<LIABILITIES-OTHER> 1,359
<LONG-TERM> 0
0
0
<COMMON> 6,912
<OTHER-SE> 32,133
<TOTAL-LIABILITIES-AND-EQUITY> 313,456
<INTEREST-LOAN> 13,480
<INTEREST-INVEST> 3,543
<INTEREST-OTHER> 83
<INTEREST-TOTAL> 17,106
<INTEREST-DEPOSIT> 7,070
<INTEREST-EXPENSE> 161
<INTEREST-INCOME-NET> 9,875
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (13)
<EXPENSE-OTHER> 6,580
<INCOME-PRETAX> 4,472
<INCOME-PRE-EXTRAORDINARY> 4,472
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,259
<EPS-PRIMARY> 0
<EPS-DILUTED> 1.89
<YIELD-ACTUAL> 8.28
<LOANS-NON> 230
<LOANS-PAST> 1,895
<LOANS-TROUBLED> 667
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,145
<CHARGE-OFFS> 218
<RECOVERIES> 68
<ALLOWANCE-CLOSE> 2,370
<ALLOWANCE-DOMESTIC> 2,370
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
