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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly period ending September 30, 1997
Commission File Number 33-45522
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CNB FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
NEW YORK 22-3203747
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 CHURCH STREET, CANAJOHARIE N.Y. 13317
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(Address of principal executive offices - Zip code)
Registrant's telephone number, include area code (518) 673-3243
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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 September 30, 1997
------------------------------ ------------------------------
Common Stock, $2.50 par value 3,837,741 Shares
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<PAGE>
PART I. FINANCIAL INFORMATION Page
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Item 1. Consolidated Interim Financial Statements
1. Consolidated Statements of Condition 3.
2. Consolidated Statements of Operations 4.
3. Consolidated Statements of Changes in
Stockholders' Equity 5.
4. Consolidated Statements 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
1
<PAGE>
PART 1. Financial Information
Item 1. Consolidated Interim Financial Statements
<TABLE>
<CAPTION>
CNB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CONDITION September 30, December 31,
1997 1996
In thousands (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 22,261 $ 15,536
Federal funds sold 14,530 700
Investment securities available for sale 130,592 130,973
Investment securities held to maturity, fair value of
$115,920 in 1997 and $108,380 in 1996 110,899 104,770
Loans, net of allowance for loan losses
and unearned income 331,813 312,643
Accrued interest receivable 5,514 4,914
Premises and equipment 9,706 9,673
Deferred taxes 2,883 3,543
Other assets 3,880 2,875
--------- ---------
TOTAL ASSETS $ 632,078 $ 585,627
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Noninterest-bearing deposits $ 52,587 $ 50,313
Interest-bearing deposits 502,254 458,904
--------- ---------
Total Deposits 554,841 509,217
Federal funds purchased and securities
sold under agreements to repurchase 10,280 13,854
Interest, taxes and other liabilities 6,707 6,852
Long-term borrowings 7,013 7,313
--------- ---------
Total Liabilities 578,841 537,236
--------- ---------
Stockholders' Equity:
Common stock, $2.50 par, 10,000,000 shares authorized,
3,875,171 shares and 3,870,596 shares, issued in 1997 and 1996, respectively 9,688 9,676
Additional paid - in capital 5,879 5,842
Retained earnings 38,550 34,170
Net unrealized gain (loss) on securities available for sale, net of tax 13 (1,274)
Treasury Stock, at cost, 37,430 and 1,250 shares in 1997 and 1996, respectively (893) (23)
--------- ---------
Total Stockholders' Equity 53,237 48,391
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 632,078 $ 585,627
========= =========
See accompanying notes to unaudited consolidated interim financial statements.
2
<PAGE>
CNB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Nine months ended
September 30, September 30,
---------------------------- ---------------------------
In thousands (except per share data) 1997 1996 1997 1996
------------------------------------------------- ---------- ----------- ---------- ----------
(UNAUDITED)
INTEREST AND DIVIDEND INCOME:
Loans, including fees $ 7,972 $ 7,658 $22,966 $22,759
Investment securities 4,117 3,992 12,756 11,805
Federal funds sold and other 127 145 346 466
------- ------- ------- -------
12,216 11,795 36,068 35,030
------- ------- ------- -------
INTEREST EXPENSE:
Deposits 5,347 5,053 15,756 15,459
Borrowings 322 287 872 792
------- ------- ------- -------
5,669 5,340 16,628 16,251
------- ------- ------- -------
NET INTEREST INCOME 6,547 6,455 19,440 18,779
Provision for loan losses 0 170 125 510
NET INTEREST INCOME AFTER PROVISION ------- ------- ------- -------
FOR LOAN LOSSES 6,547 6,285 19,315 18,269
------- ------- ------- -------
OTHER INCOME:
Service charges on deposit accounts 439 369 1,240 1,008
Net gain from securities transactions 36 42 324 555
Other 391 295 993 818
------- ------- ------- -------
866 706 2,557 2,381
------- ------- ------- -------
Other expense:
Salaries and employee benefits 2,107 2,176 6,508 6,474
Occupancy and equipment expense 414 513 1,326 1,362
Data Processing 357 311 1,081 910
Other 1,689 1,385 4,660 4,381
------- ------- ------- -------
4,567 4,385 13,575 13,127
------- ------- ------- -------
Income before income taxes 2,846 2,606 8,297 7,523
Income taxes 850 707 2,485 2,063
------- ------- ------- -------
NET INCOME $ 1,996 $ 1,899 $ 5,812 $ 5,460
======= ======= ======= =======
EARNINGS PER SHARE $ 0.52 $ 0.47 $ 1.50 $ 1.37
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF COMMON SHARE
OUTSTANDING 3,850 3,999 3,862 3,999
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CNB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCK HOLDERS' EQUITY (unaudited)
A.F.S.
Additional Securities
Common Paid in Retained Valuation Treasury
In thousands Stock Capital Earnings Adjustment Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $6,680 $10,346 $30,243 $339 ($175) $ 47,433
Net income - 1996 -- -- 7,157 -- -- 7,157
Cash dividends, $.53 per share -- -- (2,080) -- -- (2,080)
Stock retirement (250) (1,399) (1,150) -- 2,799 --
Issuance of shares for options
and Dividend Reinvestment Plan 21 120 -- -- 452 593
Change in net unrealized gain (loss)
on securities available for sale, net of tax -- -- -- (1,613) -- (1,613)
Three-for-two stock split 3,225 (3,225) -- -- -- --
Purchase of treasury stock -- -- -- -- (3,099) (3,099)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1996 9,676 5,842 34,170 (1,274) (23) 48,391
-------- -------- -------- -------- -------- --------
Net income - 1997 -- -- 5,812 -- -- 5,812
Cash dividends, $.37 per share -- -- (1,432) -- -- (1,432)
Issuance of shares for options
and Dividend Reinvestment Plan 12 37 -- -- 357 406
Change in net unrealized gain (loss)
on securities available for sale, net of tax -- -- -- 1,287 -- 1,287
Purchase of treasury stock -- -- -- -- (1,227) (1,227)
-------- -------- -------- -------- -------- --------
BALANCE SEPTEMBER 30, 1997 $ 9,688 $ 5,879 $ 38,550 $ 13 ($ 893) $ 53,237
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
CNB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended September 30,
-------------------------------
1997 1996
In thousands (unaudited)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Interest received $35,468 $34,136
Fees and service charges 2,192 2,381
Interest paid (16,525) 16,797)
Cash paid to suppliers and employees (14,332) 11,936)
Income taxes paid (2,185) (1,979)
Trading portfolio activity, net 3 (268)
------- ------
Net cash provided by operating activities 4,621 5,537
------- ------
Cash flows from investing activities:
Purchase of investment securities:
Held to maturity (18,688) 15,195)
Available for sale (69,180) 71,054)
Proceeds from sales of investment securities:
Held to maturity - -
Available for sale 62,663 50,504
Proceeds from maturities of investment securities:
Held to maturity 13,250 8,021
Available for sale 8,475 10,368
Net increase in loans (19,295) (4,725)
Purchase of premises and equipment (788) (4,088)
------- -------
Net cash used in investing activities (23,563) 26,169)
------- -------
Cash flows from financing activities:
Net increase in deposits 45,624 25,443
Net (decrease) increase in short term borrowings (3,574) 1,948
Payments on long term funds borrowed (300) (228)
Bonds issued - 1,000
Dividends paid (1,432) (1,334)
Proceeds from issuance of common stock 49 122
Purchase of treasury stock (1,227) -
Payment to retire common stock - (2,799)
Issuance of shares for the Dividend Reinvestment Program 357 61
------- -------
Net cash provided by financing activities 39,497 24,213
------- -------
Net increase in cash and cash equivalents 20,555 3,581
Cash and cash equivalents at beginning of the period 16,236 24,200
------- -------
Cash and cash equivalents at end of the period 36,791 27,781
======= =======
Reconciliation of net income to net cash provided by operating activities:
Net income 5,812 5,460
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 755 511
Provision for loan loss 125 510
Trading portfolio net purchases 3 (268)
Gain on securities (324) (555)
Increase in interest receivable (600) (894)
(Decrease) increase in accrued expenses (145) 644
(Increase) decrease in other assets (1,005) 129
------- -------
$ 4,621 $ 5,537
======= =======
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
5
<PAGE>
CNB Financial Corp.
Notes to Unaudited Consolidated Interim Financial Statements
September 30, 1997
1. Financial
The accompanying unaudited consolidated interim financial statements present the
consolidated statements of condition as of September 30. 1997, and December 31,
1996, the consolidated statements of operations for the three months and nine
months ended September 30, 1997, and 1996, the consolidated statements of
stockholders' equity for the nine months ended September 30, 1997, and the year
ended December 31, 1996, and the consolidated statements of cash flow for the
nine months ended September 30, 1997, and 1996.
The 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 nine month period
ended September 30, 1997 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1997. The accompanying unaudited
consolidated interim financial statements should be read in conjunction with the
CNB Financial Corp. December 31, 1996, consolidated financial statements,
including the notes thereto, which are included in CNB Financial Corp.'s 1996
Annual Report on Form 10-K.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share, which is required to be adopted on December 31, 1997
with all prior periods being restated. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options
will be excluded. This statement is not expected to change materially earnings
per share as reported in prior periods.
6
<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 consolidated interim financial statements for the
three months and nine months ended September 30, 1997 and 1996.
Information in this MD&A includes forward-looking statements within the meaning
of the federal securities laws. Because such forward-looking statements involve
certain risks and uncertainties, the Corporation's actual results and the timing
of certain events could differ materially from those discussed herein.
The Corporation reported net income of $5,812,000 for nine months ended
September 30, 1997. The earnings compared to the $5,460,000 earned for the same
period last year, are up $352,000 or 6%. Earnings per share was $1.50 and $1.37
for the respective periods.
Net income for the quarter ended September 30, 1997 was $1,996,000 compared to
$1,899,000 for the same period in 1996, an increase of $97,000 or 5%. Earnings
per share was $.52 for the quarter and $.47 for the same quarter of last year.
Results of Operations
Nine Months Ending September 30, 1997 vs September 30, 1996
Interest income increased from $35,030,000 to $36,092,000 . The increase
resulted from increases in average earnings assets of $22,621,000 but a decrease
in average yield from 8.45% to 8.36%.
The increases in average earning assets include growth in the loan portfolio of
$7,792,000 and securities of $16,940,000. The decrease in yield is a reflection
of general overall rate decreases which have created lower rates on new loans
and securities plus lower rates on the floating rate items.
Total interest expense increased $377,000 (2%) for the nine month period ended
September 30, 1997 compared to the same period in 1996. The increase in interest
expense was due to the $23,994,000 (5%) increase in average deposits. The
average cost of funds for the periods decreased from 4.10% for the nine months
ended September 30, 1996 to 4.02% for the nine months ended September 30, 1997.
Net interest income increased by $685,000 (4%) for the nine months ended
September 30, 1997 when compared to the same period of 1996.
The Corporation recorded a loan loss provision of $125,000 for the nine months
ended September 30, 1997, a decrease of $385,000 from the $510,000 recorded for
the same period of 1996. Non-accrual loans at September 30, 1997 were $2,196,000
(less than 1% of the total loan portfolio), compared to $3,519,000 at September
30, 1996, a decrease of 38%.
7
<PAGE>
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Balance, beginning of period $8,367,000 $8,463,000
Additions:
Charged to expense 125,000 635,000
--------- ----------
8,492,000 9,098,000
--------- ----------
Charge offs 1,020,000 1,297,000
Recoveries 1,096,000 566,000
---------- ----------
Net loans charged off (recovered) (76,000) 731,000
---------- ----------
Balance, end of period $8,568,000 $8,367,000
---------- ----------
</TABLE>
Other income excluding security transactions increased $383,000 (21%) for the
nine month period ended September 30, 1997, compared to the corresponding period
for 1996. The increase is primarily due to higher fee income ($207,000) on the
demand deposit accounts.
Other expenses increased $448,000 (3%) for the corresponding nine month period.
The increase is primarily related to increases in professional fees and data
processing costs.
The provision for income taxes for the nine month period was $2,485,000 compared
to $2,063,000 for last year, the effective rates for each period were 30% and
27.4%, respectively. The effective tax rate for 1996 was lower due to the
recovery of Federal taxes resulting from audits of the 1993 and 1994 tax
returns.
Three Month Period July 1, 1997 to September 30, 1997 compared to the comparable
period last year
Total interest income increased from $11,795,000 to $12,240,000, or $445,000
(4%). The increase is attributable to the growth in earning assets during the
period. Interest expense during the period increased from $5,340,000 to
$5,669,000, (6%). The yield on the earning assets remained constant (8.41% vs.
8.44%). The average cost of funds during the quarter increased from 4.00% to
4.09%, a increase of 9 basis points when compared to the same period last year.
The net interest income for the quarter increased $116,000 from $6,455,000 to
$6,571,000 or 2%.
There was no provision for loan losses during the quarter, $170,000 was provided
during the same quarter of last year. This year net charge offs during the
quarter were $98,000.
Other income, excluding security gains, increased $142,000 (21%) from $664,000
to $806,000. The major increases were in deposit account service fees.
Other expenses rose by $182,000 (4%) during the period. Professional fees and
data processing costs are primarily responsible for the increase.
The effective tax rate for each period was 29.9% and 27.1%, respectively,
8
<PAGE>
Financial Condition, Liquidity and Capital Resources
Changes in Financial Condition from
December 31,1996 to September 30,1997
Consolidated total assets increased to $632,078,000 at September 30, 1997;
compared to $585,627,000 at December 31, 1996, an increase of $46,451,000, or
8%.
Investment securities in the Held-to-Maturity account have increased from
$104,770,000 to $110,899,000, or $6,129,000 (6%) and the corresponding market
values from $108,380,000 to $115,920,000, or $7,540,000 (7%). The
Available-for-Sale portfolio has decreased from $130,973,000 to $130,592,000,
$381,000. The increase in the Held-to-Maturity section was in municipal
securities ($6,827,000). In the Available-for-Sale portion, Corporate bonds were
increased by $13,597,000 while US Government Agency bonds decreased by
$13,548,000 during the period.
Net loans increased by $19,170,000 or 6%. Total loans were $340,381,000 up from
$321,010,000 at December 31, 1996. The allowance for loan losses at September
30, 1997 was $8,568,000, a $201,000 (2%) increase from $8,367,000 at December
31, 1996. As of September 30, 1997 the allowance for loan losses represented
2.52% of total loans and 241% of the non-performing loans, this compares to
2.61% and 187% at December 31, 1996. Charged off loans for the nine months were
$1,020,000 compared to $1,297,000 for the year ended December 31, 1996.
Recoveries for the nine month period were $1,096,000 versus $566,000 for the
year 1996.
Non-accrual loans have decreased from $3,253,000 to $2,196,000, a total of
$1,057,000 or 32% during the first nine months of 1997. Past due loans over 90
days and still accruing increased $126,000 (10%) to $1,352,000.
Total deposits increased from $509,217,000 to $554,841,000, $45,624,000 (9%).
The increase in deposits is consistent with the increase in money available to
the school districts from tax receipts.
At September 30, 1997, total stockholders equity has increased by $4,846,000
from December 31, 1996. Primarily responsible for the increase was net earnings
of $5,812,000 of which $1,432,000 was paid to the stockholders in the form of
dividends. On February 18, 1997, the Board of Directors authorized the
repurchase of up to 236,000 of its outstanding shares in the open market during
the period of March 15, 1997, to March 15, 1998. During the period 36,800 shares
of stock were purchased at cost of $1,227,000, bringing the total shares
repurchased to 38,800. At September 30, 1997, 37,430 shares remained in the
treasury. The market valuation adjustment for securities this year has added
$1,287,000 to the equity account. The sole subsidiary, Central National Bank,
Canajoharie, had total equity of $44,426,000, core capital of 7.58% at September
30, 1996, compared to $42,108,000 and 7.58% at December 31, 1995.
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, borrowings on lines of credit, 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.
9
<PAGE>
CNB Financial Corp.
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
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: November 14, 1997 By:/s/ DONALD L. BRASS
-----------------------------
Donald L. Brass
President
Date: November 14, 1997 By:/s/ PETER J. BRASS
-----------------------------
Peter J. Corso
Executive Vice President
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 22,261
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 14,530
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 130,592
<INVESTMENTS-CARRYING> 110,899
<INVESTMENTS-MARKET> 115,920
<LOANS> 331,813
<ALLOWANCE> 0
<TOTAL-ASSETS> 632,078
<DEPOSITS> 554,841
<SHORT-TERM> 10,280
<LIABILITIES-OTHER> 6,707
<LONG-TERM> 7,013
0
0
<COMMON> 9,688
<OTHER-SE> 43,549
<TOTAL-LIABILITIES-AND-EQUITY> 632,078
<INTEREST-LOAN> 22,966
<INTEREST-INVEST> 12,756
<INTEREST-OTHER> 346
<INTEREST-TOTAL> 36,068
<INTEREST-DEPOSIT> 15,756
<INTEREST-EXPENSE> 16,628
<INTEREST-INCOME-NET> 19,440
<LOAN-LOSSES> 125
<SECURITIES-GAINS> 324
<EXPENSE-OTHER> 13,575
<INCOME-PRETAX> 8,297
<INCOME-PRE-EXTRAORDINARY> 8,297
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,812
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
