UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly period ending March 31, 1996
Commission File Number 33-45522
CNB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
New York 22-3203747
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 Church Street, Canajoharie N.Y. 13317
(Address of principal executive offices - Zip code)
Registrant's telephone number, include area code (518) 673-3243
Indicated by a 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 period that the bank
was required to file such reports), and (2) has been subjected to such filing
requirements for the past 90 days.
Yes X No
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares outstanding
Class on March 31, 1996
----- ----------------------------
Common Stock, $2.50 par value 2,667,410 Shares
-1-
<PAGE>
PART I. FINANCIAL INFORMATION Page
Item 1. Consolidated Financial Statements
1. Consolidated Statement of Condition 3.
2. Consolidated Statement of Operations 4.
3. Consolidated Statement of Changes in
Stockholders' Equity 5.
4. Consolidated Statement of Cash Flows 6.
5. Notes to Consolidated Financial Statements 7.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and reports on Form 8-K
SIGNATURES
-2-
<PAGE>
PART 1. Financial Information
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
CNB FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CONDITION March 31, December 31,
1996 1995
In thousands (unaudited)
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 23,982 $ 16,200
Federal funds sold 4,425 8,000
Trading account securities 5,704 --
Investment securities available for sale 125,615 120,858
Investment securities held to maturity, market value of
$98,659 in 1996 and $98,259 in 1995 95,621 94,592
Loans, net of allowance for possible loan losses
and unearned income 308,729 308,154
Accrued interest receivable 5,124 4,609
Premises and equipment 6,865 5,923
Deferred taxes 4,506 3,763
Other assets 2,824 2,693
-------- --------
TOTAL ASSETS $583,395 $564,792
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Noninterest-bearing deposits $43,421 $47,234
Interest-bearing deposits 469,706 449,077
-------- --------
Total Deposits 513,127 496,311
Federal funds purchased and securities
sold under agreements to repurchase 9,265 7,963
Interest, taxes and other liabilities 7,001 6,465
Long-term borrowings 6,545 6,620
-------- --------
Total Liabilities 535,938 517,359
-------- --------
Stockholders' Equity:
Common stock, $2.50 par, 10,000,000 shares authorized,
2,672,872 shares issued and 2,667,410 shares outstanding in 1996;
2,671,875 shares issued and 2,665,379 shares outstanding in 1995 6,682 6,680
Capital in excess of par value 10,363 10,346
Retained earnings 31,666 30,243
Security valuation adjustment (1,101) 339
Treasury Stock, at cost, 5,462 shares and 6,496 shares in
1996 and 1995, respectively (153) (175)
-------- --------
Total Stockholders' Equity 47,457 47,433
-------- --------
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $583,395 $564,792
======== ========
</TABLE>
-3-
<PAGE>
CNB FINANCIAL CORP.
CONSOLIDATED STATEMENT OF OPERATIONS Three months ended
March 31,
1996 1995
In thousands (except per share data) (unaudited)
- - --------------------------------------------------------------------------
INTEREST INCOME:
Loans, including fees $ 7,553 $ 7,085
Investment securities 3,791 3,128
Federal funds sold and other 160 86
-------- --------
11,504 10,299
-------- --------
INTEREST EXPENSE:
Deposits 5,205 4,070
Borrowings 244 241
-------- -------
5,449 4,311
-------- -------
NET INTEREST INCOME 6,055 5,988
Provision for loan losses 275 150
NET INTEREST INCOME AFTER PROVISION ------- -------
FOR LOAN LOSSES 5,780 5,838
------- -------
OTHER INCOME:
Service charges on deposit accounts 295 190
Gain from sale of investment securities 460 33
Other 268 222
------- -------
1,023 445
------- -------
OTHER EXPENSE:
Salaries and employee benefits 2,112 1,982
Occupancy and equipment expense 436 367
Other 1,669 1,585
------- -------
4,217 3,934
------- -------
Income before income taxes 2,586 2,349
Income taxes 723 655
------- -------
NET INCOME 1,863 1,694
======= =======
EARNINGS PER SHARE $0.69 $0.64
======= =======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (IN THOUSANDS) 2,693 2,666
======= =======
-4-
<PAGE>
CNB FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCK HOLDERS' EQUITY
<TABLE>
<CAPTION>
(unaudited)
Additional Securities
Common Paid in Retained Valuation Teasury
In thousands Stock Capital Earnings Adjustment Stock Total
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 6,661 $ 10,239 $ 25,592 ($ 2,594) -- $ 39,898
Net income - 1995 -- -- 6,572 -- -- $ 6,572
Cash dividends -- -- (1,921) -- -- ($ 1,921)
Common stock issued 19 107 -- -- -- $ 126
Securities valuation adjustment -- -- -- $ 2,933 -- $ 2,933
Treasury Stock Purchased -- -- -- -- (175) (175)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1995 6,680 10,346 30,243 339 (175) 47,433
Net income - 1995 -- -- 1,863 -- -- 1,863
Cash dividends -- -- (440) -- -- (440)
Common stock issued 2 17 -- -- -- 19
Securities valuation adjustment -- -- -- (1,440) -- (1,440)
Treasury stock sold -- -- -- -- 22 22
-------- -------- -------- -------- -------- --------
BALANCE MARCH 31, 1996 $ 6,682 $ 10,363 $ 31,666 ($ 1,101) ($ 153) $ 47,457
======== ======== ======== ======== ======== ========
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
CNB FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS Three months ended March 31,
1996 1995
In thousands (unaudited)
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Interest received $10,989 $ 9,527
Fees and service charges 565 424
Interest paid (5,791) (4,284)
Cash paid to suppliers and employees (4,114) (4,652)
Income taxes paid (200) --
Trading portfolio activity, net (5,704) --
------- -------
Net cash (used in) and provided by operating activities (4,255) 1,015
------- -------
Cash flows from investing activities:
Purchase of investment securities:
Held to maturity (3,565) (10,508)
Available for sale (35,552) (13,015)
Proceeds from sales of investment securities:
Held to maturity -- --
Available for sale 24,735 13,332
Proceeds from maturities of investment securities:
Held to maturity 2,510 1,367
Available for sale 4,627 2,603
Net increase in loans (850) (207)
Purchase of premises and equipment (1,087) (86)
------- -------
Net cash flows used in investing activities (9,182) (6,514)
------- -------
Cash flows from financing activities:
Net increase in deposits 16,816 41,729
Net increase (decrease) in short term borrowings 1,303 (11,412)
Payments on long term funds borrowed (76) (71)
Dividends paid (440) (400)
Proceeds from issuance of common stock 19 72
Treasury stock sold 22 --
------- -------
Net cash flows from financing activities 17,644 29,918
------- -------
Net increase in cash and cash equivalents 4,207 24,419
Cash and cash equivalents at beginning of year 24,200 11,492
------- -------
Cash and cash equivalents at end of quarter 28,407 35,911
======= =======
Reconciliation of net income to cash provided by operating activities:
Net income 1,863 1,694
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 145 146
Provision for loan loss 275 150
Trading portfolio net purchases (5,704) --
Gain on securities (724) (33)
Increase in interest receivable (515) (772)
Increase in accrued expenses 536 237
Increase in other assets (131) (407)
-------- -------
($ 4,255) $ 1,015
======== =======
</TABLE>
-6-
<PAGE>
CNB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
1. FINANCIAL
The accompanying unaudited consolidated financial statements present the
consolidated statements of condition, operations, stockholders' equity, and cash
flows of CNB Financial Corp. for the three months ended March 31, 1996 and 1995.
The interim consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and conform to instructions to
Form 10-Q and Rules 10-01 of Regulation S-X. However, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for fair presentation have been included. Operating results for the three month
period ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996.
<PAGE>
CNB FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis sets forth the major factors which
affected the Corporation's results of operations and financial condition
reflected in the unaudited financial statements for the quarters ended March 31,
1996 and 1995.
The Corporation reported net income of $1,863,000 for three months ended March
31, 1996. The earnings, compared to the $1,694,000 earned for the same period
last year, are up $169,000 or 10%. Net income per share was $.69 and $.64 for
the respective periods.
RESULTS OF OPERATIONS
Interest income increased from $10,299,000 to $11,504,000, $1,205,000 (12%). The
increase is attributed to the increase in total earning assets offset by a
slight decrease in yield from 8.62% to 8.52% for the current period. Interest
expense increased from $4,311,000 to $5,449,000, $1,138,000 (26%). The average
cost of funds increased to 4.60% up from 4.14% for the quarter ended March 31,
1995. The increase in average cost is attributable to the higher interest rates
paid on time deposits and the corresponding shift from regular savings to
certificates of deposit.
The resulting net interest income increased by $67,000 for the comparable
quarters. The net interest rate spread declined from 4.48% in the first quarter
of 1995, to 3.92% in the current quarter.
The provision for loan losses was increased from $150,000 to $275,000 during the
quarter. The allowance for loan losses increased to $8,468,000 on March 31, 1996
from $8,288,000 on March 31, 1995 while the non-performing loans increased from
$3,202,000 to $3,929,000 (23%) during the quarter.
The allowance for loan losses was as follows:
Quarter Ended Year Ended
March. 31, 1996 Dec. 31, 1995
--------------- -------------
Balance, beginning of year $8,463,000 $8,292,000
Additions:
Charged to expense 275,000 965,000
---------- -----------
8,738,000 9,257,000
---------- ----------
Charge offs 418,000 1,315,000
Recoveries 148,000 521,000
---------- ----------
Net loans charged off 270,000 794,000
---------- ----------
Balance, end of period $8,468,000 $8,463,000
========== ==========
Other income increased from $445,000 to $1,023,000, $578,000. The major
increases were in service fees and security gains.
Other expenses rose by $283,000 (7%) during the period. Employee costs increased
$130,000 and problem loan expenses $134,000.
The income tax provision increased from $655,000 to $723,000 due to higher
taxable income.
<PAGE>
During the first quarter of 1996, Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation" became effective. SFAS
No. 123 establishes a fair value based method of accounting for employee stock
options or similar equity instruments and encourages, but does not require, all
companies to adopt that method of accounting for their employee stock
compensation plans. SFAS No. 123 allows companies to continue to measure
compensation cost for employee stock options or similar equity instruments using
the method prescribed by Accounting Principles Board Opinion (APBO) No. 25,
"Accounting for Stock Issued to Employees." The Company has elected to continue
measuring compensation cost for employee stock compensation plans in accordance
with the provisions of APBO No. 25. Accordingly, this Statement had no impact on
the results of operations for the period.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 1995 TO MARCH 31, 1996
Consolidated total assets increased to $583,395,000 at March 31, 1996; compared
to $564,792,000 at December 31, 1995, an increase of $18,603,000, or 3.3%.
Investment securities in the Held-to-Maturity account have increased from
$94,592,000 to $95,621,000, $1,029,000 and the corresponding market values have
increased from $98,259,000 to $98,659,000, or $400,000. The Available-for-Sale
portfolio (at market value) increased from $120,858,000 to $125,615,000, or
$4,757,000 (4%).
Net loans remained constant for both reporting periods $308,729,000 vs.
$308,154,000. The mix of loans also remained consistent during the period. The
allowance for loan losses represented 2.67% coverage of total loans and 216% of
non-performing loans at March 31, 1996 vs. 2.67% and 213% at December 31, 1995.
Total deposits increased $16,816,000 (3%) from December 31, 1995 to March 31,
1996. There were no overnight borrowings at the quarter end or December 31,
1995.
At March 31, 1996, the Corporation had total shareholder' equity of $47,457,000,
an increase of only $24,000 from year end. The total net increase in retained
earnings for the quarter was $1,423,000. The market value of the available for
sale portion of the investment portfolio declined by $1,440,000 during the
quarter. Central National Bank, the subsidiary, had total equity of $42,087,000
and a core capital ratio of 7.33%, compared to $42,108,000 and 7.58% at
year-end.
Liquidity involves the ability to raise funds to support asset growth, meet
deposit withdrawals, maintain reserve requirements, and sustain operations. This
is accomplished through maturities of bonds and loans, deposit growth, purchase
of federal funds and selling securities under agreements to repurchase.
Management considers all of these factors in evaluating liquidity requirements
and believes its present position to be adequate.
<PAGE>
PART II -- Other Information
Item 1 -- Legal Proceedings
None
Item 2 -- Changes in Securities
None
Item 3 -- Defaults on Senior Securities
None
Item 4 -- Submission of Matters to Vote of Security Holders
The following proposal has been submitted by Morris Massry, residing at 33
Centerview Drive, Troy, New York, for consideration at the Annual Meeting. Mr.
Massry holds 195,960 shares (7.36%) of Company Common Stock. His resolution as
submitted reads as follows:
WHEREAS, since the date of the CNB Financial Corp. (the "Corporation")
public stock offering and the contemporaneous NASDAQ listing of the
Corporation's common stock in 1994 (the "Public Offering"), individuals other
than officers and directors of the Corporation and its wholly-owned subsidiary
Central National Bank (the "Bank") have become owners of a substantial
percentage of the Corporation's shares; and
WHEREAS, all current members of the Corporation's Board of Directors have
been Directors for a number of years preceding the Public Offering; and
WHEREAS, Morris Massry is currently the owner of approximately seven
percent (7%) of the Corporation's shares and would like to have outside
shareholders specifically represented on the Board.
NOW, THEREFORE, it is
RESOLVED, that the bylaws of the Corporation be amended to provide that the
Corporation's Board of Directors shall at all times contain a member who was not
a Director at any time prior to April 7, 1994, the date of the Corporation's
Prospectus pursuant to which it conducted the Public Offering.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "AGAINST" THE
ADOPTION OF THIS PROPOSAL FOR THE REASONS SET FORTH BELOW.
The proposal put forward by Mr. Massry is inappropriate and fails to
disclose essential facts which the Company believes shareholders should consider
when reviewing this proposal. In addition, he completely ignores the outstanding
performance of your Company during the period in question.
Mr. Massry states that the current Board of Directors does not adequately
represent the interests of shareholders who acquired their stock after April 7,
1994, the date the Company commenced its 1994 community stock offering. In
response to the statement that the Board has not
<PAGE>
represented the interests of new shareholders, we respectfully remind Mr. Massry
that the post-split price of stock purchased in the public offering was $16.50
per share and the value of these shares, as determined by over-the-counter
trading on February 29, 1996, is $30.00 per share. Further, over the long-term,
earnings per share have increased significantly going from $1.52 for the year
ending December 31, 1991 to $2.45 for the year ending December 31, 1995.
We believe the Company's record performance for 1995 demonstrates the
Board's and management's efforts to serve the interest of all shareholders.
Further, we note that each Director of the Company is legally obligated to act
in the best interests of all shareholders. To suggest that the Board does not
adequately represent one group of shareholders based upon when those
shareholders purchased their stock is totally without merit. You can be assured
that your Board has a duty and personal commitment to represent the interest of
all shareholders, regardless of when they purchased their stock or how many
shares they own.
More importantly, Mr. Massry has failed to disclose in his proposal that he
approached the Company's management on several occasions in 1995 seeking a
position on the Board of Directors for either himself or his designee. It was
only when the Company informed Mr. Massry that it would not agree to nominating
Mr. Massry or his designee to the Board that he submitted his proposal. It has
been and will continue to be the policy of the Company to nominate new directors
as appropriate based on a variety of factors including relevant experience,
personal skills, relevant contacts and relationships with geographic markets
served by the Company, and the desire to reserve space for directors from banks
which the Company hopes to acquire in the future. In our opinion, Mr. Massry's
proposal is a continuation of his desire to have his personal interest
represented on the Board.
WE URGE YOU TO VOTE "NO" AGAINST THIS SHAREHOLDER PROPOSAL AS A SHOW OF
YOUR SUPPORT FOR YOUR CURRENT BOARD OF DIRECTORS.
Item 5 -- Other Information
None
Item 6 -- Exhibits and Reports on Form 8-K
None
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 CORP.
Registrant
Date: May 10, 1996 By: DONALD L. BRASS
----------------------------------
Donald L. Brass
President
Date: May 10, 1996 By: PETER J. CORSO
----------------------------------
Peter J. Corso
Vice President
