<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 March 31, 1999 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 March
31, 1999:
COMMON STOCK: $1.00 PAR VALUE - 3,425,555 SHARES
1
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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 11. Table 1 - Consolidated Balance Sheets - March 31, 1999
PAGE 12. Table 2 - Consolidated Statements of Income - Quarter ending March
31, 1999
PAGE 13. Table 3 - Consolidated Statements of Cash Flows - Quarter ending
March 31, 1999
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
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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 three month periods ended March 31,
1999 and 1998 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 three month period ended March 31, 1999 is not
necessarily indicative of 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, 1998.
COMPREHENSIVE INCOME
Total comprehensive income for the periods ended March 31, 1999 and 1998
were $712,000 and $1,254,000.
SUBSEQUENT EVENTS
The Corporation's subsidiary County National Bank has entered into a
definitive agreement to purchase four branches from PNC Bank. Details of this
transaction were included in the SEC Form-8K filed May 10, 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Derivative Instruments
- -------------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. It is effective for
fiscal years beginning after June 15, 1999 with earlier adoption permitted. The
Corporation does not currently utilize derivative instruments. This statement
is not expected to materially affect the financial position or operating results
of the Corporation.
Accounting for Internal Use Computer Software
- ---------------------------------------------
The Accounting Standards Executive Committee issued SOP 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use",
effective beginning January 1, 1999. The SOP provides guidance for the
accounting of costs related to developing, obtaining, modifying and / or
implementing internal use software. SOP 98-1 requires companies to capitalize
costs incurred in designing, coding, installing and testing of software. All
other costs are to be expensed as incurred. The implementation of the SOP will
not materially affect the financial condition, equity or operating results of
the Corporation.
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 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, Jefferson, 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 mixed with unemployment rates
running high in most of our market areas except Centre County and somewhat lower
in Elk County. Actual ratings (as of February 1999) by county are as follows:
Cameron 9.6%; Centre 3.2%; Clearfield 9.7%; Elk 6.8% Jefferson 8.3%; and McKean
7.0%.
On February 12, 1999, the Bank acquired a full service office in
Punxsutawney, PA from an unaffiliated institution (referred to hereafter as the
acquisition). The purchase included $10.7 million in loans, $35.5 million in
deposits and certain fixed assets associated with the office. The facility will
continue to operate as a full service branch of the Bank.
OVERVIEW OF BALANCE SHEET
Total assets (shown in Table 1 "Consolidated Balance Sheet") have grown
-------
4.9% since year end 1998 and 19.4% over March 31, 1998 to $458.1 million. The
growth has occurred primarily through the acquisition previously mentioned. The
following comments will further explain the details of asset growth.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents totaled $20,401,000 at March 31, 1999 compared
to $23,101,000 on December 31, 1998. This decrease was primarily the result of
the growth in the investment portfolio of which a portion was funded from these
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 matures 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 $8,328,000 since December 31, 1998. Of
the Corporation's total investment portfolio of $116,131,000 as of March 31,
1999, $108,451,000 (or 93.4%) is classified as available for sale with the
balance of $7,680,000 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 the first quarter of 1999, this strategy was
implemented with a $5 million borrowing utilized to take advantage of pricing
differences in borrowings and trust preferred securities against the same
pricing index.
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
4
<PAGE>
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 various credit needs of its customers.
LOANS
The Corporation's internal loan volume was level through the first
quarter of 1999. The loan growth that occurred was a result of the acquisition
of $10.7 million that was purchased. Also, volumes were sufficient to replace
loan paydowns and or payoffs. 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 March 31, 1999, the Corporation had $299,132,000 in loans and leases
outstanding up $36,974,000 (or 14.1%) since March 31, 1998. This growth pattern
is the result of our increased penetration into the commercial lending
opportunities within our market. Our focus on commercial lending has expanded
over the past year with additional staff increases to handle more small business
loans. This focus has resulted in an increase in commercial loans of 14.2%
since March 31, 1998.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The Allowance for Loan and Lease Losses as a percentage of loans
decreased from 1.14% at March 31, 1998 and increased from 1.07% at December 31,
1998 to 1.09% at March 31, 1999. The dollar amount of the reserve increased
$168,000 since year end 1998. The increase is a result of the net reserve
expensed during the quarter and an adjustment made to the loans that were
acquired during the quarter. The gross charge-offs for the first quarter of
1999 were $143,000 while recoveries were $44,000. This level of charge-offs is
an increase when compared to the first quarter of 1998 when charge-offs were
$113,000 with recoveries of $30,000. However, net charge-offs remain consistent
with prior periods.
This trend is consistent with the financial services industry nationwide.
It is the result of increased consumer credit problems often resulting in
bankruptcies. Management of the Corporation has implemented increased loan
collection activities which has resulted in lower levels of loan delinquency.
Management continues to closely monitor loan delinquency and loan losses.
Non-performing assets, which include loans 90 or more days past due, non-accrual
loans and other real estate owned were $1,800,000 or 0.39% of total assets on
March 31, 1999 compared to $783,000 or 0.20% on March 31, 1998.
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 is deemed to be
adequate to absorb inherent losses in the portfolio as of March 31, 1999.
Review the annual report, SEC form 10K, for the process and methodology
supporting the loan loss provision.
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 $386,829,000 at March
31, 1999. Deposit growth of 4.3% since year end 1998 primarily resulted from
the acquisition which offset a runoff of a large short-term deposit received in
December of 1998.
The Corporation utilizes term borrowings from the Federal Home Loan Bank
(FHLB) to meet funding needs not accommodated by deposit growth. During the
first three months of 1999, the Corporation borrowed $5 million as mentioned on
page 4 in the investment securities section. Management plans to maintain
access to short and long-term FHLB borrowings as an appropriate funding source.
5
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SHAREHOLDERS' EQUITY
The Corporation's capital continues to provide a strong base for
profitable growth. Total Shareholders' Equity was $44,199,000 at March 31, 1999
compared to $44,781,000 at December 31, 1998 a decrease of $582,000 (or 1.3%)
and $42,841,000 at March 31, 1998, an increase of $1,358,000 (or 3.2%). In the
first three months of 1999, the Corporation earned $989,000 and declared
dividends of $685,000, a dividend payout ratio of 69.3% of net income. Also,
the Corporation increased treasury stock by $615,000.
Approximately 93% 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 the changing market value of
investments. Interest rates in the first quarter of 1999 have increased,
causing the Bank's bond portfolio to experience a decrease in its market value
gains. Also, the financial services sector of the equity markets have leveled
off in their growth giving the Corporation no appreciation in value, during the
period, in 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 12.53% at March 31, 1999 is well
above the minimum standard of 8%. The Corporation's Tier 1 capital ratio of
11.38% is above the regulatory minimum of 4%. The leverage ratio at March 31,
1999 was 8.04%, 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 discussion of which can be found in the SEC
Form-10K filed for the period ended December 31, 1998.
RESULTS OF OPERATIONS
OVERVIEW OF THE INCOME STATEMENT
For the three months ended March 31, 1999, the Corporation earned
$989,000 in net income, a decrease of 8.1% from $1,076,000 in net income in the
same period last year. Net income in the first quarter has been affected by the
acquisition through one time costs associated with the operation of the branch
and its customers. In addition, the Bank is absorbing the amortization expense
from the premium paid in the form of goodwill.
6
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INTEREST INCOME AND EXPENSE
Net interest income totaled $4,019,000 in the first quarter, an increase
of 6.8% over the first quarter of 1998. The bank experienced an increase in
earning assets in the past twelve months of 18.1% which came through strong loan
growth during the third and fourth quarters of 1998. Along with the
acquisition, this created a resulting increase in overall interest income.
However, the net interest margin was hindered from a diminishing loan to deposit
ratio as deposit growth exceeded loan growth for the period. Total interest
income increased during the quarter by $693,000 or 9.9% while interest expense
increased by $438,000 or 13.4% when compared to the first quarter of 1998. The
growth of interest income was impaired by the write-off of premiums paid on
collaterialized mortgage obligations in the investment portfolio. The rapid
write-down of the premium has occurred due to the drop in interest rates since
the time of purchase. The overall affect of the write-down is $254,000 or a
decrease in yield on earning assets of .24%.
The Corporation recorded a provision for loan and lease losses in the
first quarter of $150,000 compared to $225,000 from the first quarter of 1998.
During the first quarter of 1998, the Corporation made a one time provision of
$75,000 in anticipation of losses that were inherent in the portfolio at that
time.
NON-INTEREST INCOME
Non-interest income increased $48,000 or 7.5% in the first quarter of
1999 when compared to the first quarter of 1998. Increased deposit account
service charges have been the primary source of the growth in non-interest
income. In the first quarter, account service charges totaled $308,000 up
$66,000 (or 27.3%) over last year's first quarter. These increases in fee
income were the result of the growth in the number of customers and related
deposit accounts over the past twelve months. Also, trust and asset management
fees have increased 20.1% over the first quarter of 1998 to $185,000. This
increase results from an increase in the market values of our customer accounts
and overall growth of the assets held under management. The increases compared
with the prior period are adversely affected by a decrease in security gains of
$52,000.
NON-INTEREST EXPENSE
Non-interest expense increased $621,000 or 22.9% during the first quarter
when compared to the first quarter of 1998. This increased level of non-
interest expense is partly attributable to the acquisition that occurred in
February 1999. The associated costs incurred through the first three months of
1999 were $132,000. Also, the Bank has experienced increases in data processing
of 28.1% or $53,000.
On April 27, 1999 the Corporation signed a definitive merger agreement
with the First National Bank of Spangler, headquartered in Spangler, PA. This
will provide an increase of assets of $33,000,000 and deposits of $26,644,000,
based on December 31, 1998. The merger will create higher non-interest costs in
the future. The merger is expected to occur during the third quarter of 1999.
The Corporation anticipates accounting for this transaction as a pooling of
interest.
RETURN ON ASSETS
For the quarter ended March 31, 1999, the Corporation's return on average
assets ("ROA") totaled 0.89% down from the 1.14% recorded in the first quarter
of 1998.
Decreased ROA can be attributed to the increase in non-interest expenses.
Management expects ROA to increase throughout the remaining three quarters of
1999 resulting from enhanced net interest income and operating efficiencies when
compared to the first quarter of 1999.
7
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RETURN ON EQUITY
The Corporation's return on average shareholder's equity ("ROE") in the
first quarter was 9.15% compared to 10.05% for the first quarter of 1998. The
decrease again can be attributed primarily to increased non-interest expenses as
discussed above.
Management expects improvement in ROE during 1999 and anticipates further
increases with earnings growth. The Corporation is currently well capitalized
under regulatory industry standards.
FEDERAL INCOME TAX EXPENSE
Federal income taxes decreased to $230,000 in the first quarter of 1999
compared to $386,000 in the first quarter of 1998. The decrease in the first
quarter primarily reflects lower pre-tax income in the period when compared to
the same quarter of the prior year, as well as a $150,000 (or 38%) increase in
tax free income.
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).
Potential impacts to the Corporation may arise from software, computer hardware,
and other equipment both within the Corporation's direct control and outside of
the Corporation's ownership, which the Corporation electronically interfaces
with.
The Corporation has developed and implemented a plan for this issue with
the following major components: Assessment; Remediation; Testing; and
Implementation. The Corporation uses third party vendors for its core
processing, item processing and trust processing needs. The following table
depicts the status for the Corporation during each phase and for its various
exposure types:
<TABLE>
<CAPTION>
Resolution
Phases Assessment Remediation Testing Implementation
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Information 100% Complete 95% Complete 95% Complete 90% Complete
Technology Expected Expected Expected
(PC's, Servers, Completion by Completion by Completion by
etc.) June 1, 1999 June 1, 1999 June 1, 1999
- ---------------------------------------------------------------------------------------------------
Operating 100% Complete 100% Complete 95% Complete 95% Complete
Equipment with Expected Expected
Embedded chips Completion by Completion by
or software June 1, 1999 June 1, 1999
- ---------------------------------------------------------------------------------------------------
Products The Corporation does not sell or deliver software or hardware items to its
customers.
- ---------------------------------------------------------------------------------------------------
Third Party
Vendors:
Core Processing 100% Complete 100% Complete 95% Complete 100% Complete
Expected
Completion by
May 1, 1999
Item Processing 100% Complete 100% Complete 100% Complete 100% Complete
Trust Processing 100% Complete 100% Complete 100% Complete 100% Complete
</TABLE>
8
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Other important segments of the Plan for Year 2000 are to identify
customers whose possible lack of Year 2000 preparedness might expose the
Corporation to financial loss. Our major customers have been reviewed through
discussions and questionnaires for their Year 2000 preparedness. This has
become a factor in the risk weighting characteristics of our loan portfolio.
The Corporation has been in the process of educating and evaluating all
customers on the Year 2000 and their own readiness. During this process, a
public relations / education plan has been developed for 1999 to inform
customers and the general public about the Year 2000 and the Corporation's
ability to handle the issue.
The Corporation has budgeted total Year 2000 costs not to exceed
$100,000. This estimated cost is based upon currently available information and
includes expenses for the review and testing by third parties, including
government entities. Of the estimated costs of $100,000, $14,000 of capitalized
costs and approximately $25,000 expensed costs have been spent to date. The
remaining $61,000 is expected to be approximately $54,000 of capital costs and
$7,000 of expenses. There can be no guarantee, however, that hardware,
software, and systems created by third parties will be free of unfavorable Year
2000 issues and therefore not present a material impact upon the Corporation.
The cost estimate may change as the Corporation progresses in its Year 2000 plan
and further information associated with and concerning third parties is
obtained. At this time, no significant projects have been delayed as a result
of the Corporation's Year 2000 effort.
As a precautionary measure, the Corporation has developed a Year 2000
contingency plan. This plan was created to provide for operating procedures in
the event that a failure would occur even after the above five phases were
performed positively. This document while currently complete will be
continually updated as 1999 progresses and more information is provided by third
parties as well as through in house testing.
The federal banking agencies have been conducting Year 2000 compliance
examinations for several months. The failure to implement an adequate Year 2000
program can be identified as an unsafe and unsound banking practice. The
Corporation and the Bank are subject to supervision by the Office of the
Comptroller of the Currency (OCC). Failure to adequately prepare for Year 2000
issues could negatively impact the Corporation's banking operations, including
the imposition of restriction upon its operations by the OCC.
Despite the Corporation's activities as detailed above, pertaining to the
Year 2000, there can be no assurance that partial or total systems interruptions
or the costs necessary to update hardware and software would not have a material
adverse effect upon the Corporation's business, financial condition, results of
operations, and business prospects. Forward looking statements about the Year
2000 should be read in conjunction with the Corporation's disclosures under the
heading: "Safe Harbor" statement under the Private Securities Litigation Reform
Act of 1995.
FUTURE OUTLOOK
First quarter results showed reductions over the prior year's first
quarter and were below management's expectations. Management continues to focus
on asset growth from general growth via increased market share as well as
external opportunities through acquisition. The goal of asset growth is general
increase in shareholder value as well as favorable results in long-term
profitability.
Loan demand was moderate in the first quarter as per management's
expectations. Loan growth is expected to continue at a moderate pace throughout
the remainder of the year. The Corporation's loan to deposit ratio has declined
at the end of the first quarter to 76.5% compared to 78.1% at year-end 1998 as
funds from the acquisition have yet to be deployed into the market in consumer
and small commercial loans. Management expects the loan to deposit ratio to
increase during 1999.
Consumer loan charge-offs in the first quarter continued to comprise the
majority of the Corporation's recent charge-offs. In the first quarter, total
net charge-offs were $99,000 of which consumer net charge-offs totaled $92,000.
The level of net charge-offs has stabilized. Management believes that the
increased efforts of loan review and collections and our quality underwriting
standards will give the Bank continued good charge-off experience when compared
to peer institutions.
9
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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 three months ended March 31, 1999, the
Corporation's efficiency ratio was 63.38% compared to 62.20% for the same period
last year.
The efficiency ratio has declined as the level of non-interest expense
has increased over the quarter more rapidly than non-interest income has
increased. Management believes controlling the operating costs of the
Corporation is imperative to the future increased profitability derived from
core earnings. A strong focus by management will be placed on noninterest
expenses during the remainder of 1999 as the Bank will undergo a profitability
enhancement program.
The interest rate environment will continue to play an important role in
the future earnings of the Corporation. The net interest margin has tightened
as the interest rate cycle we are in causes competitive pressures in the form of
reduced lending rates. Overall net interest income continues to increase due to
growth in interest earning assets. Management expects further growth in net
interest income for the remainder of 1999.
Management concentrates on return on average equity and earnings per
share evaluations, 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 1999.
"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.
10
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TABLE 1
CONSOLIDATED BALANCE SHEETS
CNB FINANCIAL CORPORATION
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, Dec. 31 March 31,
ASSETS 1999 1998 1998
---------- --------- -----------
<S> <C> <C> <C>
Cash and Due from Banks............................................. $ 9,972 $ 10,370 $ 9,543
Interest bearing deposits with other banks.......................... 259 256 265
Federal Funds Sold.................................................. 10,170 12,475 3,500
Investment Securities Available for sale............................ 108,451 100,121 81,319
Investment Securities Held to Maturity, fair value of $7,823
at March 31, 1999, $7,867 at December 31, 1998 and
$11,972 at March 31, 1998 .......................................... 7,680 7,682 11,792
Loans and Leases.................................................... 304,018 292,959 265,941
Less: Unearned Discount.......................................... 4,886 4,570 3,783
Less: Allowance for Loan Losses................................... 3,268 3,100 2,991
--------- -------- --------
NET LOANS......................................................... 295,864 285,289 259,167
Premises and Equipment.............................................. 10,158 10,257 9,514
Accrued Interest Receivable......................................... 2,625 2,454 2,289
Loans held for sale................................................. 3,879 4,299 2,287
Intangible, net..................................................... 7,244 2,522 2,758
Other Assets........................................................ 1,802 1,127 1,303
--------- -------- --------
TOTAL ASSETS...................................................... $458,104 $436,852 $383,737
LIABILITIES
Deposits:
Non-interest bearing deposits..................................... $ 39,632 $ 36,612 $ 32,156
Interest bearing deposits......................................... 347,197 334,202 287,709
--------- -------- --------
TOTAL DEPOSITS.................................................... 386,829 370,814 319,865
Other Borrowings.................................................. 21,734 16,378 16,832
Accrued Interest and Other Liabilities............................ 5,342 4,879 4,199
--------- -------- --------
TOTAL LIABILITIES................................................. $413,905 $392,071 $340,896
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 $ 3,456 $ 3,456
Additional paid in Capital........................................ 3,462 3,456 3,456
Retained Earnings................................................. 36,816 36,512 34,701
Treasury Stock, At Cost .......................................... (727) (112) (100)
(30,445 Shares for 1999, 11,106 for December 1998, and 10,332
shares for March 31, 1998)
Accumulated other comprehensive income............................ 1,192 1,469 1,328
--------- -------- --------
TOTAL SHAREHOLDERS' EQUITY........................................ 44,199 44,781 42,841
--------- -------- --------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY.......................... $458,104 $436,852 $383,737
</TABLE>
11
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TABLE 2
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
CNB FINANCIAL CORPORATION: March 31, 1999 Consolidated Statements
of Income (Unaudited) (Dollars in thousands, except per share data) THREE MONTHS ENDED MARCH 31
INTEREST INCOME 1999 1998
-------------- --------------
<S> <C> <C>
Loans including Fees................................................... $6,186 $5,745
Deposits with Other Banks.............................................. 3 3
Federal Funds Sold..................................................... 121 96
Investment Securities:
Taxable............................................................. 876 796
Tax-Exempt.......................................................... 473 332
Dividends........................................................... 56 50
-------------- --------------
TOTAL INTEREST INCOME $7,715 $7,022
INTEREST EXPENSE
Deposits............................................................... $3,425 $3,079
Borrowed Funds......................................................... 271 179
-------------- --------------
TOTAL INTEREST EXPENSE $3,696 $3,258
Net Interest Income................................................. $4,019 $3,764
Provision for possible loan losses.................................. 150 225
-------------- --------------
NET INTEREST INCOME AFTER PROVISION.................................... $3,869 $3,539
OTHER INCOME
Trust & Asset Management Fees.......................................... $ 185 $ 154
Service charges on deposit accounts.................................... 308 242
Other service charges and fees......................................... 85 105
Securities gains....................................................... 0 52
Gains on Sale of Loans................................................. 26 4
Other income........................................................... 81 80
-------------- --------------
TOTAL OTHER INCOME.................................................. $ 685 $ 637
OTHER EXPENSES
Salaries............................................................... $1,323 $1,191
Employee benefits...................................................... 447 364
Net occupancy expense.................................................. 450 431
Amortization........................................................... 171 79
Other.................................................................. 944 649
-------------- --------------
TOTAL OTHER EXPENSES................................................ $3,335 $2,714
Income Before Income Taxes............................................. $1,219 $1,462
Applicable Income Taxes................................................ 230 386
-------------- --------------
NET INCOME.......................................................... $ 989 $1,076
============== ==============
Per Share Data *
- -----------------------
Net Income............................................................. 0.29 0.31
Cash Dividends Per Share............................................... 0.20 0.18
</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)
Three months ended March 31,
<S> <C> <C>
Cash flows from operating activities: 1999 1998
----------------- ------------------
Net Income $ 989 $ 1,076
Adjustments to reconcile net income to
net cash provided by operations:
Provision for loan losses.............................. 150 225
Depreciation and amortization.......................... 389 272
Amortization and accretion and deferred loan fees...... 172 56
Deferred Taxes......................................... (166) 168
Security ( Gains) Losses............................... 0 (52)
Gain on sale of loans.................................. (26) (4)
Net losses on dispositions of acquired property......... 30 0
Changes in:
Proceeds from sale of loans............................. 6,471 1,910
Origination of loans for sale........................... (6,025)
Interest receivable.................................... (207) (90)
Other assets and intangibles........................... (5,686) (3,075)
Interest payable....................................... 256 5
Other liabilities...................................... 516 652
----------------- ------------------
Net cash provided by operating activities.................. (3,137) 1,143
Cash flows from investing activities:
Proceeds from maturities of:
Securities held to maturity.......................... 0 2,180
Securities available for sale........................ 6,708 8,583
Proceeds from sales of securities available for sale 154 155
Purchase of:
Securities available for sale........................ (15,895) (26,278)
Net principal disbursed on loans......................... (10,612) 1,802
(Purchase) of Federal Home Loan Bank Stock............... 0 (460)
Purchase of premises and equipment....................... (119) (912)
Proceeds from the sale of foreclosed assets.............. 124 126
----------------- ------------------
Net cash used in investing activities...................... (19,640) (14,804)
Cash flows from financing activities:
Net change in:
Checking, money market and savings accounts.......... (14,058) 171
Certificates of deposit.............................. 30,073 221
Acquisition of treasury stock......................... (615) 0
Sale of treasury stock............................... 6 0
Cash dividends paid.................................. (685) (620)
Net advances (repayments) from other borrowings.......... 5,356 8,761
----------------- ------------------
Net cash provided by financing activities.................. 20,077 8,533
Net increase (decrease) in cash and cash equivalents...... (2,700) (5,128)
Cash and cash equivalents at beginning of year............. 23,101 18,436
----------------- ------------------
Cash and cash equivalents at end of period................. $ 20,401 $ 13,308
================= ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (including amount credited directly to
certificate accounts)................................ $ 3,952 $ 3,263
Income Taxes.......................................... $ 125 $ 235
Noncash Investing Activities:
Inc.(Dec.) in net unrealized gain on securities
available for sale.................................. ($277) $ 178
</TABLE>
13
<PAGE>
TABLE 4
CONSOLIDATED YIELD COMPARISONS
<TABLE>
<CAPTION>
CNB Financial Corporation
Average Balances and Net
Interest Margin
(Dollars in thousands)
March 31, 1999 March 31, 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 $ 267 4.49% $ 3 $ 250 4.80% $ 3
Federal funds sold and securities
purchased under agreements to 10,124 4.78% 121 7,151 5.37% 96
resell
Investment Securities:
Taxable 67,215 5.21% 876 51,772 6.07% 786
Tax-Exempt (1) 37,648 7.04% 663 25,296 7.72% 488
Equity Investments (1) 5,521 4.78% 66 4,730 5.07% 60
- ------------------------------------------------------------------------------------------------------------------------------
Total Investments 120,775 5.73% 1,729 89,199 6.43% 1,433
Loans
Commercial (1) 61,945 8.11% 1,256 54,232 8.49% 1,151
Mortgage (1) 170,046 8.54% 3,630 153,693 8.78% 3,374
Installment 38,015 8.91% 847 40,143 9.62% 965
Leasing 26,437 7.60% 502 16,320 7.60% 310
- ------------------------------------------------------------------------------------------------------------------------------
Total loans (2) 296,443 8.41% 6,235 264,388 8.77% 5,800
Total earning assets 417,218 7.64% 7,964 353,587 8.18% 7,233
Non Interest Bearing Assets
Cash & Due From Banks 10,008 0 9,308 0
Premises & Equipment 10,225 0 9,263 0
Other Assets 10,812 0 8,221 0
Allowance for Possible Loan Losses (3,153 0 (2,915) 0
- ------------------------------------------------------------------------------------------------------------------------------
Total Non-interest earning assets 27,892 -- 0 23,877 -- 0
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets $445,110 $7,964 $377,464 $7,233
===================================================================
Liabilities and Shareholders' Equity
Interest-Bearing Deposits
Demand - interest-bearing $112,099 2.82% $ 790 $ 81,548 2.75% $ 560
Savings 59,030 3.20% 472 55,814 3.33% 464
Time 166,209 5.21% 2,163 149,891 5.48% 2,055
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 337,338 4.06% 3,425 287,253 4.29% 3,079
Short-term borrowings 1,453 4.96% 18 727 6.05% 11
Long-term borrowings 19,906 5.08% 253 12,240 5.49% 168
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 358,697 4.12% 3,696 300,220 4.34% 3,258
Demand - non-interest-bearing 35,974 0 30,613 0
Other liabilities 6,106 0 3,824 0
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 400,777 3,696 334,657 3,258
Shareholders' equity 44,333 -- 0 42,807 -- 0
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $445,110 $3,696 $377,464 $3,258
====================================================================
Interest income/earning assets 7.64% 7,964 8.18% 7,233
Interest expense/interest bearing
liabilities 4.12% 3,696 4.34% 3,258
- ------------------------------------------------------------------------------------------------------------------------------
Net Interest Spread 3.51% $4,268 3.84% $3,975
====================================================================
Interest Income/Interest Earning Assets 7.64% $7,964 8.18% $7,233
Interest expense/Interest Earning
Assets 3.54% 3,696 3.69% 3,258
- ------------------------------------------------------------------------------------------------------------------------------
Net Interest Margin 4.09% $4,268 4.50% $3,975
====================================================================
</TABLE>
(1) The amounts are reflected on a fully tax equity basis using the federal
statutory rate of 34% in 1999 and 1998, 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 in 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 March 31, 1999.
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: May 7, 1999 /s/ James P. Moore
----------- ------------------
James P. Moore
President and Director
(Principal Executive Officer)
DATE: May 7, 1999 /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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,972
<INT-BEARING-DEPOSITS> 259
<FED-FUNDS-SOLD> 10,170
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,451
<INVESTMENTS-CARRYING> 7,680
<INVESTMENTS-MARKET> 7,823
<LOANS> 299,132
<ALLOWANCE> 3,268
<TOTAL-ASSETS> 458,104
<DEPOSITS> 386,829
<SHORT-TERM> 21,734
<LIABILITIES-OTHER> 5,342
<LONG-TERM> 0
0
0
<COMMON> 3,456
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 458,104
<INTEREST-LOAN> 6,186
<INTEREST-INVEST> 1,405
<INTEREST-OTHER> 124
<INTEREST-TOTAL> 7,715
<INTEREST-DEPOSIT> 3,425
<INTEREST-EXPENSE> 271
<INTEREST-INCOME-NET> 4,019
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,335
<INCOME-PRETAX> 1,219
<INCOME-PRE-EXTRAORDINARY> 1,219
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 989
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 7.64
<LOANS-NON> 393
<LOANS-PAST> 1,107
<LOANS-TROUBLED> 522
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,179
<CHARGE-OFFS> 143
<RECOVERIES> 44
<ALLOWANCE-CLOSE> 3,268
<ALLOWANCE-DOMESTIC> 3,268
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
