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