<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998 Commission File Number 0-13396
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
CNB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1450605
------------ ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
County National Bank
1 South Second Street
P.O. Box 42
Clearfield, Pennsylvania 16830
(Address of principal executive offices)
Registrant's telephone number, including area code, (814) 765-9621
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock: $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
--- ---
The number of shares outstanding of the issuer's common stock as of June
30, 1998:
COMMON STOCK: $1.00 PAR VALUE - 3,445,668 SHARES
<PAGE>
INDEX
PART I.
FINANCIAL INFORMATION
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 10. Table 1 - Consolidated Balance Sheets - June 30, 1998
PAGE 11. Table 2Q - Consolidated Statements of Income - Quarter ending
June 30, 1998
PAGE 12. Table 2Y - Consolidated Statements of Income For Six Months Ending
June 30, 1998
PAGE 13. Table 3 - Consolidated Statements of Cash Flows - June 30, 1998
PAGE 14. Table 4 - Consolidated Yield Comparisons
PART II.
OTHER INFORMATION
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
2
<PAGE>
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 six month periods ended
June 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 six month period ended June 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 six
month periods ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
------------ ----------
<S> <C> <C>
Net income $2,372 $1,908
Other comprehensive income:
Unrealized gains or loss on available for sale securities 630 328
Less: reclassification adjustment for gain included in net
income 130 59
------------ ----------
Total other comprehensive income 500 269
Applicable income taxes 170 91
------------ ----------
Net other comprehensive income 330 178
------------ ----------
Comprehensive income $2,702 $2,086
============ ==========
</TABLE>
3
<PAGE>
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 is in fair demand
and values have been rising throughout the region.
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
-------
4.7% since year end 1997 and 10.7% over June 30, 1997 to $390.3 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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents totaled $16,037,000 at June 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 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 $20,509,000 since December 31, 1997. Of
the Corporation's total investment portfolio of $97,541,000 as of June 30, 1998,
$88,600,000 (or 90.8%) is classified as available for sale with the balance of
$8,941,000 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.
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.
4
<PAGE>
LOANS
The Corporation's loan volume continued to be strong through the final
six months of 1997. Loan demand has leveled off, however, in 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 June 30, 1998, the Corporation had $260,175,000 in loans and leases
outstanding up $14,900,000 (or 6.1%) since June 30, 1997 and down $877,000 (or
0.3%) since December 31, 1997. The decline in loans since year end 1997 is
related to increased underwriting standards and an overall decrease of demand in
our market area throughout the first six months of 1998.
LOAN CONCENTRATION
The Corporation monitors loan concentration by individual industries in
order to track potential risk exposures resulting from industry related
downturns. At June 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 1.01% at June 30, 1997 and 1.08% at December 31, 1997 to 1.16% at
June 30, 1998. The dollar amount of the reserve increased $192,000 since year
end 1997. The gross charge-offs for the six months of 1998 were $255,000 while
recoveries were $72,000. The level of charge-offs has improved over those
experienced in the first six months of 1997 when charge-offs were $338,000 with
recoveries of $62,000.
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 (0.10%) were very high compared to prior periods
(0.06%). The current year is trending downward at 0.07% 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 $939,000 or 0.24% of total assets
on June 30, 1998 compared to $1,008,000 or 0.29% on June 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 June 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 $324,617,000 at June
30, 1998. Deposit growth has been marginal since year end 1997 primarily
resulting from management's decision to better control the cost of funding.
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.
5
<PAGE>
The Corporation continues to experience a change in the mix of its
deposit base. The mix is continually changing to a larger pool of time deposits
at 44.9% of all deposits at June 30, 1998 compared to 42.9% at June 30, 1997.
However, this shift has significantly declined throughout the second quarter as
it dropped from 54.0% at March 31, 1998. Management expects that the major
increase in time deposits has passed and 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 $43,527,000 at June 30, 1998
compared to $42,208,000 at year-end 1997, an increase of $1,319,000 (or 3.1%).
The Corporation earned $1,296,000 and $2,372,000 for the second quarter and the
first six months of 1998, respectively. Dividends of $1,240,000 have been
declared for 1998 for a payout ratio of 52.3% of net income.
Approximately 91% 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 second quarter of 1998 have been trending downward
allowing the Bank's bond portfolio to maintain market value gains. Also, the
equity markets have continued their growth providing the Corporation further
appreciation in its 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 16.23% at June 30, 1998 is well
above the minimum standard of 8%. The Corporation's Tier 1 capital ratio of
15.07% is above the regulatory minimum of 4%. The leverage ratio at June 30,
1998 was 10.26%, 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 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
<PAGE>
RESULTS OF OPERATIONS
OVERVIEW OF THE INCOME STATEMENT
The Corporation earned $1,296,000 and $2,372,000 for the second quarter
and first six months of 1998, respectively, which shows increases of 24.7% and
24.3% over $1,039,000 and $1,908,000 for the same periods last year. Net income
for 1998 has benefited over 1997 from a larger base of earning assets,
$45,204,000 or 14.0%. In addition, the Bank has stabilized the costs of an
acquisition in December 1996, which is reflected in an improved efficiency ratio
of 58.41% at June 30, 1998 compared to 62.67% at June 30, 1997.
INTEREST INCOME AND EXPENSE
Net interest income totaled $3,925,000 in the second quarter, an increase
of 9.2% over the second quarter of 1997 and totaled $7,689,000 for the first six
months of 1998, an increase of 10.3% 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 $805,000 or 12.5% while interest expense
increased by $473,000 or 16.7% when compared to the second quarter of 1997.
Total interest income for the first six months of 1998 increased by $1,732,000
or 13.8% while interest expense increased by $1,016,000 or 18.3% when compared
to the first six months of 1997. As previously mentioned, the trend towards
higher cost time deposits has stabilized, thus causing an increase in the net
interest margin through the year.
The Corporation recorded a provision for loan and lease losses in the
second quarter of $150,000 matching the second quarter of 1997 and $375,000 for
the first six months of 1998 compared to $300,000 for the first six months of
1997. Management intends to maintain this provision at the same level in the
third quarter.
NON-INTEREST INCOME
Non-interest income increased $227,000 or 46.4% in the second quarter of
1998 when compared to the second quarter of 1997 and increased $279,000 for the
six 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 six months, account service
charges totaled $530,000 up $119,000 (or 29.0%) over last year. Trust & asset
management fees have increased $59,000 or 20% for the six 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 $119,000 or 4.6% during the second quarter
of 1998 and $191,000 or 3.7% in the first six 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 $410,000 or 14.9%
over the first six months of 1997. This was anticipated as our employee benefit
package was forecasted to increase in 1998. These increases were offset by a
decrease of $224,000 or 13.7% in other expenses attributable to increased
internal efficiencies related to general supplies and operational practices.
The Corporation has begun construction of a new facility in the DuBois
market area to replace a currently leased property. This will cause a slight
increase in the occupancy expenses when the project is opened later in the third
quarter of 1998.
RETURN ON ASSETS
For the quarter ended June 30, 1998, the Corporation's return on average
assets ("ROA") totaled 1.36% up from the 1.18% recorded in the first quarter of
1997. For the six months ended June 30, 1998, ROA was 1.24% compared to 1.12%
in 1997.
7
<PAGE>
Increased ROA can be attributed to increased net interest income and
controlled operating expenses. Management expects the continued increase of ROA
throughout the remainder of 1998 resulting from an improving net interest margin
and efficiencies that have been realized subsequent to the acquired growth in
1997.
RETURN ON EQUITY
The Corporation's return on average shareholder's equity ("ROE") in the
first six months was 10.99% compared to 9.55% 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 increased to $496,000 in the second quarter of 1998
compared to $313,000 in the second quarter of 1997. For the six months ended,
June 30, 1998, federal income taxes totaled $882,000 an increase of $265,000 or
43.0% over the prior year. The increase in the first quarter reflects higher
pre-tax income in the period when compared to the same quarter of the prior
year. The effective tax rate for the six months is 27.1% compared to 24.4% 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 care
processing. These vendors are in the process of remediation and will shortly
begin the testing phase. Communication with outside vendors has provided the
Corporation with positive feedback as to Year 2000 compliance which should pose
no additional costs.
Most of the costs incurred in addressing this problem are expected to be
expensed as incurred. The financial impact to the Corporation of Year 2000
compliance has not been and is not anticipated to be material to the
Corporation's financial position or results of operations in any given year.
FUTURE OUTLOOK
Second quarter results showed improvement over the first quarter and were
better than management expectations. 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 and St. Marys markets
served by the Bank.
Loan demand was again weak in the second quarter and continued to be
lower than management's expectations. 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 second quarter at 80.4% compared to 81.7%
at the end of the first quarter. Management expects the loan to deposit ratio
to remain relatively stable during 1998.
8
<PAGE>
Consumer loan charge-offs in the second quarter continued to comprise the
majority of the Corporation's recent charge-offs. In the second quarter, total
net charge-offs were $183,249 of which consumer net charge-offs totaled
$132,890. The 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 better
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 six months ended June 30, 1998, the
Corporation's efficiency ratio was 56.70% compared to 60.77% for the same period
last year.
The efficiency ratio has improved as the level of non-interest expense
has stabilized and non-interest income has increased. Management believes that
this trend will continue until the efficiency ratio returns to pre-1997 levels.
The interest rate environment will continue to play an important role in
the future earnings of the Corporation. The net interest margin has been
improving 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.
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
<PAGE>
TABLE 1
CONSOLIDATED BALANCE SHEETS
CNB FINANCIAL CORPORATION
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, Dec. 31 June 30,
ASSETS 1998 1997 1997
-------- ------- -------
<S> <C> <C> <C>
Cash and Due from Banks.................................................... $6,231 $9,555 $13,904
Interest Bearing Deposits with Other Banks................................. 4,606 31 46
Federal Funds Sold......................................................... 5,200 8,850 575
Investment Securities Available for sale 88,600 63,521 62,471
Investment Securities Held to Maturity, fair value of $9,105
at June 30, 1998, $13,704 at December 31, 1997 and
$14,710 at March 31, 1997 ................................................. 8,941 13,511 14,510
Loans and Leases........................................................... 267,142 267,608 251,169
Less: Unearned Discount................................................. 3,926 3,707 3,397
Less: Allowance for Loan and Lease Losses................................ 3,041 2,849 2,497
-------- ------- -------
NET LOANS................................................................ 260,175 261,052 245,275
Premises and Equipment, net................................................ 9,661 8,795 9,172
Accrued Interest Receivable................................................ 2,165 2,199 2,233
Other Assets and Intangibles, net.......................................... 4,691 5,353 4,251
-------- ------- -------
TOTAL ASSETS............................................................. $390,270 $372,867 $352,437
======== ======= =======
LIABILITIES
Deposits:
Non-interest bearing deposits............................................ $34,080 $32,893 $30,960
Interest bearing deposits................................................ 290,537 286,580 269,921
-------- ------- -------
TOTAL DEPOSITS........................................................... 324,617 319,473 300,881
Other Borrowings........................................................... 18,033 8,071 8,850
Accrued Interest and Other Liabilities..................................... 4,093 3,115 2,039
-------- ------- -------
TOTAL LIABILITIES........................................................ 346,743 $330,659 $311,770
======== ======= =======
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........................................................ 35,378 34,246 33,024
Treasury Stock, At Cost (10,332 Shares for 1998 and 5,166 Shares
for 1997).............................................................. (100) (100) (100)
Accumulated other comprehensive income................................... 1,337 1,150 831
-------- ------- -------
TOTAL SHAREHOLDERS' EQUITY............................................... 43,527 42,208 40,667
-------- ------- -------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY................................. $390,270 $372,867 $352,437
======== ======= =======
</TABLE>
10
<PAGE>
TABLE 2-Q
CONSOLIDATED STATEMENTS OF INCOME
CNB FINANCIAL CORPORATION: June 30, 1998
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) THREE MONTHS ENDED JUNE 30
INTEREST AND DIVIDEND INCOME 1998 1997
---------------- ----------------
<S> <C> <C>
Loans including Fees.................................................... $5,781 $5,269
Deposits with Other Banks............................................... 1 0
Federal Funds Sold...................................................... 44 40
Investment Securities:
Taxable.............................................................. 1,014 755
Tax-Exempt........................................................... 338 326
Dividends............................................................ 54 37
---------------- ----------------
TOTAL INTEREST AND DIVIDEND INCOME.................................. $7,232 $6,427
---------------- ----------------
INTEREST EXPENSE
Deposits................................................................ $3,063 $2,758
Borrowed Funds.......................................................... 244 76
---------------- ----------------
TOTAL INTEREST EXPENSE............................................... $3,307 $2,834
Net Interest Income.................................................. $3,925 $3,593
Provision for possible loan losses................................... 150 150
---------------- ----------------
NET INTEREST INCOME AFTER PROVISION..................................... $3,775 $3,443
---------------- ----------------
OTHER INCOME
Trust & Asset Management Fees........................................... $ 194 $ 130
Service charges on deposit accounts..................................... 288 230
Other service charges and fees.......................................... 100 104
Realized Securities gains (losses)...................................... 78 (19)
Gains on Sale of Loans.................................................. 17 20
Other................................................................... 39 24
---------------- ----------------
TOTAL OTHER INCOME................................................... $ 716 $ 489
---------------- ----------------
OTHER EXPENSES
Salaries................................................................ $1,217 $1,164
Employee benefits....................................................... 381 226
Net occupancy expense of premises....................................... 415 405
Other................................................................... 686 785
---------------- ----------------
TOTAL OTHER EXPENSES................................................. $2,699 $2,580
---------------- ----------------
Income Before Income Taxes.............................................. $1,792 $1,352
Applicable Income Taxes................................................. 496 313
---------------- ----------------
NET INCOME........................................................... $1,296 $1,039
================ ================
EARNINGS PER SHARE, BASED ON WEIGHTED
AVERAGE SHARES OUTSTANDING *
Net Income.............................................................. 0.38 0.30
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
CNB FINANCIAL CORPORATION: June 30, 1998
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) SIX MONTHS ENDED JUNE 30
INTEREST AND DIVIDEND INCOME 1998 1997
---------------- ----------------
<S> <C> <C>
Loans including Fees..................................................... $11,526 $10,177
Deposits with Other Banks................................................ 4 0
Federal Funds Sold....................................................... 140 56
Investment Securities:
Taxable............................................................... 1,810 1,553
Tax-Exempt............................................................ 670 656
Dividends............................................................. 104 80
---------------- ----------------
TOTAL INTEREST AND DIVIDEND INCOME.................................... $14,254 $12,522
---------------- ----------------
INTEREST EXPENSE
Deposits................................................................. $ 6,142 $ 5,347
Borrowed Funds........................................................... 423 202
---------------- ----------------
TOTAL INTEREST EXPENSE................................................ $ 6,565 $ 5,549
Net Interest Income................................................... $ 7,689 $ 6,973
Provision for possible loan losses.................................... 375 300
---------------- ----------------
NET INTEREST INCOME AFTER PROVISION...................................... $ 7,314 $ 6,673
---------------- ----------------
OTHER INCOME
Trust & Asset Management Fees............................................ $ 348 $ 289
Service charges on deposit accounts...................................... 530 411
Other service charges and fees........................................... 205 206
Realized Securities gains (losses)....................................... 130 59
Gains on Sale of Loans................................................... 21 22
Other.................................................................... 119 87
---------------- ----------------
TOTAL OTHER INCOME.................................................... $ 1,353 $ 1,074
---------------- ----------------
OTHER EXPENSES
Salaries................................................................. $ 2,408 $ 2,278
Employee benefits........................................................ 745 465
Net occupancy expense of premises........................................ 846 841
Other.................................................................... 1,414 1,638
---------------- ----------------
TOTAL OTHER EXPENSES.................................................. $ 5,413 $ 5,222
---------------- ----------------
Income Before Income Taxes............................................... $ 3,254 $ 2,525
Applicable Income Taxes.................................................. 882 617
---------------- ----------------
NET INCOME............................................................ $ 2,372 $ 1,908
================ ================
EARNINGS PER SHARE, BASED ON WEIGHTED
AVERAGE SHARES OUTSTANDING *
Net Income............................................................... $0.69 $0.55
Cash Dividends Per Share................................................. $0.36 $0.34
</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
CNB FINANCIAL CORPORATION
Consolidated Statements of Cash Flows (unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30
Cash flows from operating activities: 1998 1997
------------- ----------------
<S> <C> <C>
Net Income ............................................................. $2,372 $1,908
Adjustments to reconcile net income to
net cash provided by operations:
Provision for loan losses........................................... 375 300
Depreciation and amortization....................................... 559 371
Amortization and accretion and deferred loan fees .................. (207) (350)
Deferred Taxes...................................................... 568 15
Security Gains...................................................... (130) (59)
Gain on sale of loans............................................... (21) 22
Net gains on dispositions of acquired property ...................... (98) 0
Proceeds from sale of loans.......................................... 8,597 1,481
Changes in:
Interest receivable................................................. 34 (70)
Other assets and intangibles........................................ (8,136) 239
Interest payable.................................................... (12) 112
Other liabilities................................................... 325 (653)
------------- ----------------
Net cash provided by operating activities............................... 4,226 3,316
Cash flows from investing activities:
Proceeds from maturities of:
Securities held to maturity....................................... 5,067 3,990
Securities available for sale..................................... 11,902 3,279
Proceeds from sales of:
Securities available for sale..................................... 3,589 1,981
Purchase of:
Securities available for sale..................................... (40,350) (6,116)
Net principal disbursed on loans...................................... 925 (26,562)
(Purchase) Redemption of Federal Home Loan Bank Stock (499) 201
Purchase of premises and equipment.................................... (1,267) (231)
Proceeds from the sale of foreclosed assets........................... 142 0
------------- ----------------
Net cash used in investing activities................................... (20,491) (23,458)
Cash flows from financing activities:
Net change in:
Checking, money market and savings accounts....................... 7,171 522
Certificates of deposit........................................... (2,027) 30,303
Cash dividends paid............................................... (1,240) (1,172)
Net advances (repayments) from other borrowings ...................... 9,962 (5,806)
------------- ----------------
Net cash provided by financing activities............................... 13,866 23,847
Net increase (decrease) in cash and cash equivalents................... (2,399) 3,705
Cash and cash equivalents at beginning of year.......................... 18,436 10,820
------------- ----------------
Cash and cash equivalents at end of period.............................. $16,037 $14,525
============= ================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (including amount credited directly to
certificate accounts)............................................. $6,565 $5,661
Income Taxes....................................................... $360 $456
Noncash Investing Activities:
Inc.(Dec.) in net unrealized gain on securities
available for sale............................................... $187 $327
</TABLE>
13
<PAGE>
TABLE 4
CONSOLIDATED YIELD COMPARISONS
CNB Financial Corporation
Average Balances and Net Interest Margin
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, 1998
- -------------------------------------------------------------------------------------------------------------------
Average Annual Interest
Balance Rate Inc./Exp.
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Interest-bearing deposits with banks $3,185 0.25% $4
Federal funds sold and securities
purchased under agreements to resell 5,004 5.60% 140
Investment Securities:
Taxable 58,639 6.17% 1,810
Tax-Exempt (1) 25,544 7.95% 1,015
Equity Investments 5,218 3.99% 104
- -------------------------------------------------------------------------------------------------------------------
Total Investments 97,590 6.30% 3,073
Loans
Commercial (1) 54,427 8.52% 2,318
Mortgage (1) 152,961 8.87% 6,781
Installment 39,117 9.55% 1,868
Leasing 17,300 7.73% 669
- -------------------------------------------------------------------------------------------------------------------
Total loans (2) 263,805 8.82% 11,636
Total earning assets 361,395 8.14% 14,709
Non Interest Bearing Assets
Cash & Due From Banks 6,315 0
Premises & Equipment 9,407 0
Other Assets 8,099 0
Allowance for Possible Loan Losses (2,953) 0
- -------------------------------------------------------------------------------------------------------------------
Total Non-interest earning assets 20,868 -- 0
- -------------------------------------------------------------------------------------------------------------------
Total Assets $382,263 $14,709
========================================================
Liabilities and Shareholders' Equity
Interest-Bearing Deposits
Demand - interest-bearing $82,279 2.75% $1,133
Savings 33,136 1.69% 280
Time 171,960 5.49% 4,719
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 287,375 4.27% 6,132
Short-term borrowings 1,447 5.39% 39
Long-term borrowings 14,135 5.43% 384
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 302,957 4.33% 6,555
Demand - non-interest-bearing 32,067 0
Other liabilities 4,059 0
- -------------------------------------------------------------------------------------------------------------------
Total Liabilities 339,083 6,555
Shareholders' equity 43,180 -- 0
- -------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $382,263 $6,555
========================================================
Interest income/earning assets 8.14% 14,709
Interest expense/interest bearing liabilities 4.33% 6,555
- -------------------------------------------------------------------------------------------------------------------
Net Interest Spread 3.81% $8,154
=================================
Interest Income/Interest Earning Assets 8.14% $14,709
Interest expense/Interest Earning Assets 3.63% 6,555
- -------------------------------------------------------------------------------------------------------------------
Net Interest Margin 4.51% $8,154
=================================
<CAPTION>
June 30, 1997
- -------------------------------------------------------------------------------------------------------------------
Average Annual Interest
Balance Rate Inc./Exp.
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Interest-bearing deposits with banks $14 0.00% $0
Federal funds sold and securities
purchased under agreements to resell 2,183 5.13% 56
Investment Securities:
Taxable 49,495 6.28% 1,553
Tax-Exempt (1) 24,709 8.05% 994
Equity Investments 3,501 4.57% 80
- -------------------------------------------------------------------------------------------------------------------
Total Investments 79,902 6.72% 2,683
Loans
Commercial (1) 50,686 8.31% 2,222
Mortgage (1) 129,694 8.80% 5,720
Installment 41,517 9.17% 1,928
Leasing 6,179 6.07% 307
- -------------------------------------------------------------------------------------------------------------------
Total loans (2) 235,595 8.64% 10,177
Total earning assets 315,497 8.15% 12,860
Non Interest Bearing Assets
Cash & Due From Banks 9,559 0
Premises & Equipment 9,301 0
Other Assets 7,248 0
Allowance for Possible Loan Losses (2,519) 0
- -------------------------------------------------------------------------------------------------------------------
Total Non-interest earning assets 23,589 -- 0
- -------------------------------------------------------------------------------------------------------------------
Total Assets $339,086 $12,860
========================================================
Liabilities and Shareholders' Equity
Interest-Bearing Deposits
Demand - interest-bearing $83,678 3.01% $1,258
Savings 35,922 1.66% 298
Time 139,815 5.42% 3,791
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 259,415 4.12% 5,347
Short-term borrowings 5,120 5.16% 132
Long-term borrowings 2,143 6.53% 70
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 266,678 4.16% 5,549
Demand - non-interest-bearing 29,732 -- 0
Other liabilities 2,698 -- 0
- -------------------------------------------------------------------------------------------------------------------
Total Liabilities 299,108 3.71% 5,549
Shareholders' equity 39,978 -- 0
- -------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $339,086 $5,549
========================================================
Interest income/earning assets 8.15% $12,860
Interest expense/interest bearing liabilities 4.16% 5,549
- -------------------------------------------------------------------------------------------------------------------
Net Interest Spread 3.99% $7,311
=====================================
Interest Income/Interest Earning Assets 8.15% $12,860
Interest expense/Interest Earning Assets 3.45% 5,549
- -------------------------------------------------------------------------------------------------------------------
Net Interest Margin 4.70% $7,311
=====================================
</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 June 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: August 10, 1998 /s/ James P. Moore
--------------- -------------------------
James P. Moore
President and Director
(Principal Executive Officer)
DATE: August 10, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,231
<INT-BEARING-DEPOSITS> 4,606
<FED-FUNDS-SOLD> 5,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88,600
<INVESTMENTS-CARRYING> 8,941
<INVESTMENTS-MARKET> 9,105
<LOANS> 263,216
<ALLOWANCE> 3,041
<TOTAL-ASSETS> 390,270
<DEPOSITS> 324,617
<SHORT-TERM> 18,033
<LIABILITIES-OTHER> 4,093
<LONG-TERM> 0
1,237
35,378
<COMMON> 3,456
<OTHER-SE> 3,456
<TOTAL-LIABILITIES-AND-EQUITY> 390,270
<INTEREST-LOAN> 11,526
<INTEREST-INVEST> 2,584
<INTEREST-OTHER> 144
<INTEREST-TOTAL> 14,254
<INTEREST-DEPOSIT> 6,142
<INTEREST-EXPENSE> 423
<INTEREST-INCOME-NET> 7,689
<LOAN-LOSSES> 375
<SECURITIES-GAINS> 130
<EXPENSE-OTHER> 5,413
<INCOME-PRETAX> 3,254
<INCOME-PRE-EXTRAORDINARY> 3,254
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,372
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
<YIELD-ACTUAL> 8.14
<LOANS-NON> 311
<LOANS-PAST> 519
<LOANS-TROUBLED> 568
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,849
<CHARGE-OFFS> 255
<RECOVERIES> 72
<ALLOWANCE-CLOSE> 3,041
<ALLOWANCE-DOMESTIC> 3,041
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
