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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-45522
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 incorporation) (IRS Employer
Identification Number)
24 Church Street, Canajoharie, New York 13317
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(Address of principal executive office including Zip Code)
Registrant's Telephone Number including Area Code: (518) 673-3243
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $2.50
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(Title of Class)
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 twelve months (or for such shorter period 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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to
this Form 10-K. [X]
As of March 15, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $67,947,957.
As of March 15, 1997, 3,870,930 shares of registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Part of 10-K into which incorporated
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Portions of the Annual Report to Shareholders I, II
for the year ended December 31, 1996
Portions of Proxy Statement for Annual Meeting III
of Shareholders to be held on May 15, 1997
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TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT 1996
CNB FINANCIAL CORP.
<TABLE>
<CAPTION>
PART I Page
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<S> <C> <C>
Item 1. Business.......................................................... 1
Item 2. Properties......................................................... 8
Item 3. Legal Proceedings.................................................. 10
Item 4. Submission of Matters to a Vote of Security Holders................ 10
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters............................................................ 10
Item 6. Selected Financial Data............................................ 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 11
Item 8. Financial Statements and Supplementary Data........................ 11
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... 11
PART III
Item 10. Directors and Executive Officers of the Registrant................. 11
Item 11. Executive Compensation............................................. 12
Item 12. Security Ownership of Certain Beneficial Owners and Management..... 12
Item 13. Certain Relationships and Related Transactions..................... 12
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 12
</TABLE>
<PAGE>
ITEM 1. Business
GENERAL
CNB Financial Corp. (Corporation) is a one bank holding company, registered
under the Bank Holding Company Act of 1956, as amended. It was organized under
the laws of the State of New York and became a bank holding company on January
5, 1993 through the consummation of a reorganization plan with Central National
Bank, Canajoharie, (Bank) which became the wholly owned subsidiary of the
Corporation. The Corporation maintains its headquarters in Canajoharie, New
York.
The principal business of the Corporation is to provide, through the Bank,
comprehensive banking services through its network of eighteen branches located
in six counties throughout Central New York.
In 1996 Central Asset Management, Inc. (CAM) was formed as a second subsidiary
of the Corporation. The main business activity of CAM is to offer investment
management services for a fee to a focused customer base of high net worth
individuals and businesses.
At December 31, 1996, the Corporation had assets of $585,627 million, deposits
of $509,217 million, loans of $321,010 million and shareholders' equity of
$48,391 million. A detailed discussion concerning the Corporation's financial
condition is contained in Part II of this report.
BANKING SERVICES
The Bank provides a wide range of retail and commercial banking services for
individuals and small to medium sized businesses primarily in its market area
including accepting time, demand and savings deposits, and making secured and
unsecured commercial, real estate and consumer loans. The Bank also makes
certain insurance and investment products available to its customers through a
third-party vendor. The Bank's lending activities are primarily in agricultural,
commercial, real estate and consumer loans and indirect financing to automobile
and manufactured housing dealers. Other services include safe deposit boxes,
travellers checks, money orders, wire transfers, drive-in facilities, 24-hour
depositories, ATM's and trust services. The Bank's retail approach is that of a
community-oriented bank focusing on development of long-term customer
relationships, personalized service, convenient locations, and meeting the needs
of individuals and businesses in its market area.
GROWTH STRATEGY
The Bank's continued growth is dependent on the Bank obtaining additional
customers. Toward this end, the Bank intends to continue expansion within its
existing markets, as well as certain potential markets contiguous to the current
service area. This growth may be accomplished by obtaining a greater market
share within the Bank's existing markets as well as opening or acquiring new
branches in both existing and new markets, and offering indirect consumer loan
products.
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COMPETITION
The banking business in the Bank's market area is highly competitive. The Bank
competes actively with national and state banks, savings banks, savings and loan
associations, credit unions, finance companies, money market funds, mortgage
banks, insurance companies, brokerage firms and other non-bank institutions that
provide one or more of the services offered.
The Bank has been able to compete effectively for deposits and loans because of
its image as a community-oriented bank, the loyalty of its customers, and its
emphasis on personalized banking services and local decision-making in its
branch offices.
CONCENTRATION OF CONSUMER LENDING
The Bank's lending activities focus on consumer loans with a concentration in
indirect financing provided through manufactured housing and automobile dealers.
At December 31, 1996, approximately 19% of the Bank's total loan portfolio was
concentrated in manufactured housing loans and approximately 7% was concentrated
in automobile loans. Accordingly, a substantial portion of the Bank's loan
portfolio is subject to the general risks associated with consumer lending. In
the opinion of the Bank's management, however, the established nature of the
individual dealers through which the Bank provides the indirect financing, as
well as the Bank's extensive experience in assessing the quality of such loans,
help offset the risks associated with these loans.
EXECUTIVE OFFICERS OF THE COMPANY AND BANK
The following table sets forth, as of December 31, 1996, selected information
about the principal officers of the Corporation, each of whom is elected by the
Board of Directors and each of whom holds office at the discretion of the Board
of Directors:
<TABLE>
<CAPTION>
Corporate
Held Employee Shares of
Name (Age) Office and Position Since Since(1) Stock(2)
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<S> <C> <C> <C> <C>
Donald L. Brass (48) President 1993 1993 16,950
Peter J. Corso (53) V.P. & Treasurer 1993 1993 5,655
Lawrence G. Knudsen (53) Secretary 1993 1993 3,416
Allan F. Woodmancy (56) Asst. Secretary 1996 1996 3,244
</TABLE>
(1) All officers were previously employed by the Bank in various capacities as
follows:
Mr. Brass, President and CEO, hired in 1989. Previously employed as
President of Moravia National Bank from 1987. He became CEO on January 1,
1992.
Mr. Corso, Executive Vice President and Chief Financial Officer, has been
employed by the Bank since 1986. He became Executive Vice President in
April 1992.
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Mr. Knudsen, Senior Vice President and Operations Officer, joined the Bank
in 1991 from Greater Providence Deposit.
Mr. Woodmancy, Senior Vice President and Senior Lending Officer, joined the
Bank in 1990 from Vanguard Federal Savings Bank.
(2) Adjusted for 3 for 2 stock split on January 15, 1997.
EMPLOYEES
As of December 31, 1996, the Bank employs 276 persons (full-time equivalent).
The Bank provides a variety of employment benefits and considers its
relationship with its employees to be good.
TRANSACTIONS WITH AFFILIATES
The Bank is subject to restrictions under federal law which limits the
extensions of credit to, and certain other transactions with, affiliates. Such
transactions by the Bank with the Corporation are limited in amount to 10
percent of the Bank's capital and surplus. Furthermore, such loans and
extensions of credit, as well as certain other transactions, are required to be
secured in accordance with specific statutory requirements.
Certain regulations require the maintenance of minimum risk-based capital
ratios, which are calculated with reference to risk-weighted assets. The Federal
Reserve Board and the OCC have established guidelines for both the Corporation
and the Bank, which are similar.
SUPERVISION AND REGULATION
GENERAL
The Corporation is a bank holding company subject to supervision and regulation
of the Board of Governors of the Federal Reserve System pursuant to the BHCA,
and files with the Federal Reserve Board an annual report and such additional
reports as the Federal Reserve Board may require. As a bank holding company, the
Corporation's activities and those of its banking subsidiary are limited to the
business of banking and activities closely related or incidental to banking.
The Office of the Comptroller of the Currency (OCC) is the primary bank
supervisor of the Bank. The deposits of the Bank are insured by, and therefore
are subject to the regulations of, the Federal Deposit Insurance Corporation
(FDIC), and are also subject to requirements and restrictions under federal and
state law, including requirements to maintain reserves against deposits,
restrictions on the types and amounts of loans that may be granted and the
interest that may be charged thereon, and limitations on the types of
investments that may be made and the types of services that may be offered.
Various consumer laws and regulations also affect the operations of the Bank.
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SECURITIES AND EXCHANGE COMMISSION
The Company is subject to the jurisdiction of the Securities and Exchange
Commission ("SEC") and of various state securities administrators for matters
relating to the offering, sale and issuance of its securities. In addition, the
Company is required to register its Common Stock with the SEC and is subject to
certain of the SEC's rules and regulations relating to periodic reporting,
reporting to its shareholders, proxy solicitation, insider trading, and tender
offers.
REGULATION OF THE COMPANY AS A BANK HOLDING COMPANY
The Company is registered as a bank holding company under the Bank Holding
Company Act of 1956 (the "BHCA") and as such is subject to regulation by the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
As a bank holding company, the Company is required to file with the Federal
Reserve Board an annual report of such additional information as the Federal
Reserve Board may require pursuant to the BHCA. The Federal Reserve Board may
also make examinations of the Company.
The BHCA requires the prior approval of the Federal Reserve Board in any case
where a bank holding company proposes to acquire direct or indirect ownership or
control of more than 5% of the voting shares of any bank (unless it owns a
majority of such bank's voting shares) or otherwise to control a bank (unless it
owns a majority of such bank's voting shares) or otherwise to control a bank or
to merge or consolidate with any other bank holding company. The BHCA would
prohibit the Federal Reserve Board from approving an application from the
Company to acquire shares of a bank located outside of New York, unless such an
acquisition is specifically authorized by statute of the state in which the bank
whose shares are to be acquired is located.
The BHCA also prohibits a bank holding company, with certain exceptions, from
acquiring more than 5% of the voting shares of any company that is not a bank
and from engaging in any business other than banking or managing or controlling
banks. Under the BHCA, the Federal Reserve Board is authorized to approve the
ownership of shares by a bank holding company in any company the activities of
which the Federal Reserve Board has determined to be so closely related to
banking or to managing or controlling banks as to be a proper incident thereto,
or to approved the conduct of such activities by the holding company, itself.
The Federal Reserve Board has by regulation determined that certain activities
are closely related to banking within the meaning of the BHCA.
OCC SUPERVISION
The Bank is supervised and regularly examined by the Office of the Comptroller
of the Currency ("OCC"). The various laws and regulations administered by the
OCC affect corporate practices such as payment of dividends, incurring debt and
acquisition of financial institutions and other companies, and affect business
practices, such as payment of interest on deposits, the charging of interest on
loans, types of business conducted and location of offices. There are no
regulatory orders or outstanding issues resulting from regulatory examinations
of the Bank. As a national bank, the Bank is not subject to New York banking
law.
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FDIC INSURANCE ASSESSMENTS
The Corporation's subsidiary bank is subject to FDIC deposit insurance
assessments. Pursuant to Section 7 of the Federal Deposit Insurance Act (12
U.S.C. 1817), as amended by Section 302 of the Federal Deposit Insurance
Corporation Act of 1991, each institution has been assigned a risk based
classification that is used to determine the annual assessment rate. Under this
system an insured institution will be assessed at rates ranging from 0% to 27%
depending on its capital and supervisory classifications. However, under Section
7 (b) (2) (A) (iii) of the FDI Act, the semiannual assessment for each member of
a deposit insurance fund shall not be less than $1,000 ($2,000 annual). The
Bank's premium for the assessment period beginning January 1, 1996, and ending
December 31, 1996, was $2,000.
ECONOMIC AND MONETARY POLICIES
The operations of the Company and the Bank are affected not only by general
economic conditions, but also by the economic and monetary policies of various
regulatory authorities. In particular, the Federal Reserve Board regulates
money, credit and interest rates in order to influence general economic
conditions. These policies have a significant influence on overall growth and
distribution of loans, investments and deposits, and affect interest rates
charged on loans or paid for time and savings deposits. Federal Reserve Board
monetary policies have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future.
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
Under the New York Business Corporation Law, the Company may pay dividends only
if the Company is not insolvent and the payment would not render it insolvent.
"Insolvent" means unable to pay debts as they become due in the usual course of
business. Dividends may only be paid out of earned (and, under limited
circumstances, capital) surplus, and the net assets of the Company remaining
after the payment of the dividend must be at least equal to the amount of its
stated capital.
In addition, the Company's ability to pay dividends to its shareholders is
limited by the Bank's ability to pay dividends to the Company as its sole
shareholder. The circumstances under which the Bank may pay dividends are
limited by federal statutes, regulations and policies. For example, as a
national bank subject to the jurisdiction of the Federal Reserve Board and the
OCC, the Bank must obtain approval for any dividend if the total of all
dividends declared in any calendar year would exceed the total of its net
profits, as defined by applicable regulations, for that year, combined with its
retained net profits for the preceding two years. Furthermore, the Bank may not
pay a dividend in an amount greater than its undivided profits then on hand
after deducting its losses and bad debts, as defined by applicable regulations.
At December 31, 1996, the Bank had $13,265,000 in retained earnings legally
available for the payment of dividends.
In addition, the Federal Reserve Board and the OCC are authorized to determine
under certain circumstances that the payment of dividends would be an unsafe or
unsound practice and to prohibit payment of such dividends. The payment of
dividends that deplete a bank's capital base could be deemed to constitute such
an unsafe or an unsound practice. The Federal Reserve Board has indicated that
banking organizations should generally pay dividends only out of current
operating earnings.
5
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BORROWINGS BY THE COMPANY
There are various legal restrictions on the extent to which the Company can
borrow or otherwise obtain credit from the Bank. In general, these restrictions
require that any such extensions of credit be secured by designated amounts of
specific collateral and are limited, as to the Company, to 10% of the Bank's
capital stock and surplus, and as to the Company and any of its non-banking
subsidiaries in the aggregate, to 20% of the Bank's capital stock and surplus.
Federal law also required that transactions between the Bank and the Company or
any non-banking subsidiaries of the Company, including extensions of credit,
sales of securities or assets and the provision of services, be conducted on
terms as least as favorable to the Bank as those that apply or would apply to
comparable transactions with unaffiliated parties.
CAPITAL REQUIREMENTS
Under Federal Reserve Board policy, a bank holding company is required to serve
as a source of financial and managerial strength to its subsidiary banks and may
not conduct its operations in an unsafe or unsound manner. In addition, it is
the Federal Reserve Board's policy that, in serving as a source of strength to
its subsidiary banks, a bank holding company should stand ready to use available
resources to provide adequate capital funds to its subsidiary banks. This
support may be required during periods of financial stress or adversity, in
circumstances where the Company might not do so absent such policy. A bank
holding company is expected to maintain the financial flexibility and
capital-raising capacity to obtain additional resources for assisting its
subsidiary banks. The failure of a bank holding company to serve as a source of
strength to its subsidiary banks would generally be considered by the Federal
Reserve Board to be an unsafe and unsound banking practice, a violation of
Federal Reserve Board regulation, or both.
The Federal Reserve Board has published risk-based capital guidelines in final
form which are applicable to bank holding companies. The Federal Reserve Board
guidelines define the components of capital, categorize assets into different
risk classes and include certain off-balance sheet items in the calculation of
risk-weighted assets. The minimum ratio of qualified total capital to
risk-weighted assets (including certain off-balance sheet items, such as standby
letters of credit) is 8.00%. At least half of the total capital must be
comprised of common equity, retained earnings and a limited amount of permanent
preferred stock, less goodwill ("Tier 1 capital"). The remainder ("Tier 2
capital") may consist of a limited amount of subordinated debt, other preferred
stock, certain other instruments and a limited amount of loan and lease loss
reserves. The sum of Tier 1 capital and Tier 2 capital is "total risk-based
capital." The Company's Tier 1 capital and total risk-based capital ratios as of
December 31, 1996 were 12.21% and 13.47%, respectively.
In addition, the Federal Reserve Board has established a minimum leverage ratio
of Tier 1 capital to quarterly average assets less goodwill ("Leverage Ratio")
of 3.00% for bank holding companies that meet certain specified criteria,
including that they have the highest regulatory rating. All other bank holding
companies will be required to maintain a Leverage Ratio of 3.00% plus an
additional cushion of at least 100 to 200 basis points. The Company's Leverage
Ratio as of December 31, 1996 was 8.30%. The guidelines also provide that
banking organizations experiencing internal growth or making acquisitions will
be expected to maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets. The Bank
is subject to the same OCC capital requirements as those that apply to the
Company.
6
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COMMUNITY REINVESTMENT ACT
Under the Community Reinvestment Act of 1977, the OCC is required to assess the
record of all financial institutions regulated by it to determine if these
institutions are meeting the credit needs of their communities (including low
and moderate income neighborhoods) and to take this record into account in its
evaluation of any application made by any such institution for, among other
things, approval of branch or other deposit facilities, office relocations, and
mergers or acquisitions of bank shares. The Financial Institutions Reform,
Recovery and Enforcement Act amended the Community Reinvestment Act to require,
among other things, that the OCC make available to the public an evaluation of
each bank's record of meeting the credit needs of its entire community,
including low and moderate income neighborhoods. This evaluation includes a
rating of "outstanding," "satisfactory," "needs to improve" or "substantial
noncompliance" and a statement describing the basis for the rating. The OCC has
assigned a rating of "satisfactory" to the Bank.
FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT
Recent federal legislation that affects the competitive environment for the
Corporation and its subsidiaries includes the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") which, among other things,
provides for the acquisition of thrift institutions by bank holding companies,
increases deposit insurance assessments for insured banks, broadens the
enforcement power of federal bank regulatory agencies, and provides that any
FDIC-insured depository institution may be liable for any loss incurred by the
FDIC, or any loss which the FDIC reasonably anticipates incurring, in connection
with the default of any commonly controlled FDIC-insured depository institution
or any assistance provided by the FDIC to any such institution in danger of
default.
RECENT STATUTORY CHANGES
On December 9, 1991, the President signed into law the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"). FDICIA substantially revises the
depository institution regulatory and funding provisions of the Federal Deposit
Insurance Act and makes revisions to several other federal banking statutes.
Among other things, FDICIA requires the federal banking regulators to take
prompt corrective action in respect of depository institutions that do not meet
minimum capital requirements. FDICIA establishes five capital categories: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized."
Under the regulations, a "well capitalized" institution has a minimum total
capital to total risk-weighted assets ratio of at least 10 percent, a minimum
Tier I capital to total risk-weighted assets ratio of at least 6 percent, a
minimum leverage ratio of at least 5 percent and is not subject to any written
order, agreement, or directive; an "adequately capitalized" institution has a
total capital to total risk-weighted assets ratio of at least 8 percent, a Tier
I capital to total risk-weighted assets ratio of at least 4 percent, and a
leverage ratio of at least 4 percent (3 percent if given the highest regulatory
rating and not experiencing significant growth), but does not qualify as "well
capitalized." An "undercapitalized" institution fails to meet any one of the
three minimum capital requirements. A "significantly undercapitalized"
institution has a total capital to total risk-weighted assets ratio of
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less than 6 percent, a Tier I capital to total risk-weighted assets ratio of
less than 3 percent or a Tier I leverage ratio of less than 3 percent. A
"critically undercapitalized" institution has a Tier I leverage ratio of 2
percent or less. Under certain circumstances, a "well capitalized," "adequately
capitalized" or "undercapitalized" institution may be required to comply with
supervisory actions as if the institution was in the next lowest capital
category. The Bank is currently classified as "well capitalized".
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of dividend) or paying any management fee to its
holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions will be subject to
restrictions on borrowing from the Federal Reserve System, effective December
19, 1993. In addition, undercapitalized depository institutions are subject to
growth and activity limitations and are required to submit "acceptable" capital
restoration plans. Such a plan will not be accepted unless, among other things,
the depository institution's holding company guarantees the capital plan, up to
an amount equal to the lesser of five percent of the depository institution's
assets at the time it becomes undercapitalized or the amount of the capital
deficiency when the institution fails to comply with the plan. The federal
banking agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to succeed
in restoring the depository institution's capital. If a depository institution
fails to submit an acceptable plan, it is treated as if it is significantly
undercapitalized and may be placed into conservatorship or receivership.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, more stringent requirements to
reduce total assets, cessation of receipt of deposits from correspondent banks,
further activity restricting prohibitions on dividends to the holding company
and requirements that the holding company divest its bank subsidiary, in certain
instances. Subject to certain exceptions, critically undercapitalized depository
institutions must have a conservator or receiver appointed for them within a
certain period after becoming critically undercapitalized.
STATISTICAL DISCLOSURE PURSUANT TO GUIDE 3
Information required is incorporated by reference to pages 8 through 21 of the
Registrant's 1996 Annual Report to Shareholders.
ITEM 2. Properties
The executive offices of the Corporation are located at 24 Church Street,
Canajoharie, New York.
The Administrative and Operations Complex of the Bank is located at 20 Mohawk
Street, Canajoharie, New York.
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The location of the Bank's offices, as well as certain information related to
these offices are set forth below:
Location Owned or Leased
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24 Church Street, Canajoharie, NY.................................... Owned
Main Street, Cherry Valley, NY....................................... Owned
Route 20, Duanesburg, NY............................................. Owned
West Street, Edmeston, NY............................................ Owned
Main Street, Fonda, NY............................................... Owned
Main Street, Middleburgh, NY......................................... Owned
Dutchtown Plaza, Palatine Bridge, NY................................. Leased
W. Main Street, St. Johnsville, NY................................... Owned
Corner Routes 10 & 20, Sharon Springs, NY............................ Owned
Canal Street, Fort Plain, NY......................................... Owned
E. Main Street, Cobleskill, NY....................................... Owned
Pyramid Mall, Johnstown, NY.......................................... Leased
E. Main Street, Richfield Springs, NY................................ Owned
339-341 Main Street, Schoharie, NY................................... Owned
Route 28 South, Cooperstown, NY...................................... *
Newport Street, Middleville, NY...................................... Owned
Route 30, Amsterdam, NY.............................................. Owned
Super Kmart, Route 30, Amsterdam, NY................................. Leased
* The Bank owns the building in which its Cooperstown office is located, but
leases the land pursuant to a long term lease
Properties and land owned and used by the Corporation at December 31, 1996, had
a net book value of $9.7 million.
The Administrative and Operations Complex was financed through issuance of
Taxable Industrial Revenue Bonds in 1995 and 1996. Final maturity on the bonds
is May 1, 2025, with a portion being redeemed annually. Interest on the bonds
will adjust weekly at a rate established by the Remarketing Agent.
The Bank leased properties from other parties for branch offices and operational
services. For the year ended December 31, 1996, rental fees of $519,000 were
paid on these facilities. See Note 4 (Premises and Equipment to the consolidated
financial statements which appears in 30).
The premises occupied or leased are considered to be well located and suitably
equipped to serve as banking facilities. In July, 1996, construction on the new
Administrative and Operations Complex was completed in Canajoharie, New York,
and occupied by the Bank.
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ITEM 3. Legal Proceedings
The Corporation is subject to various pending and threatened lawsuits in which
claims for monetary damages are asserted. Management, after consultation with
legal counsel, does not anticipate that the ultimate liability, if any, arising
out of other pending and threatened lawsuits will have a material effect on the
Corporation's results of operations or financial condition.
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE
PART II
ITEM 5. Market for Registrant's Common Stock and Related Stockholder Matters.
The Corporation's common stock commenced trading on the NASDAQ Stock Market on
May 16, 1994, up until that time there was never an organized public trading
market for the stock. The following table sets forth the high and low closing
prices of the common stock of the Company and the dividends paid thereon during
the periods indicated, adjusted for the three-for-two stock split of January 15,
1997.
High Low Dividend
-------- ------ --------
1996:
First Quarter 20 18-7/8 $.11
Second Quarter 19-13/16 18-5/16 .11
Third Quarter 18-13/16 17-5/8 .12
Fourth Quarter 18-7/8 17-5/8 .19
1995:
First Quarter 13-5/8 12 $.10
Second Quarter 14-1/2 13 .10
Third Quarter 15-1/8 13-1/2 .11
Fourth Quarter 19-5/8 15-5/16 .17
DIVIDEND POLICY
Since its formation in 1993, the Company, as the holding company of the Bank,
has continued the payment of cash dividends in keeping with the Bank's
historical payment of cash dividends. The Company (or the Bank prior to
formation of the Company) has paid consecutive annual cash dividends for more
than 40 years. It is the present intention of the Company's Board of Directors
to continue the dividend payment policy, although the payment of future
dividends must necessarily depend upon earnings, financial condition,
appropriate restrictions under applicable law and regulations, and other factors
relevant at the time the Board of Directors considers any declaration of
dividends. Cash available for the payment of dividends must initially come from
the dividends paid by the Bank to the Company. Therefore, the restrictions on
the Bank's dividend payments are directly applicable to the Company. Regulatory
restrictions on the ability of Bank and Company to pay dividends are set forth
in the "Supervision and Regulation - Limits on Dividends and Other Payments"
section at Item 1, above.
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ITEM 6. Selected Financial Data
The information required by this item appears on page 8 of the Registrant's 1996
Annual Report to Shareholders, under the caption "Financial Highlights"; and is
incorporated herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Financial Condition and Results of Operations
The information required by this item appears on pages 9 through 21 of the
Registrant's 1996 Annual Report to Shareholders, under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and is
incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
The consolidated financial statements, together with the report thereon of Price
Waterhouse LLP, dated January 30, 1997, appearing on pages 23 through 44 of the
CNB Financial Corp. 1996 Annual Report to Shareholders are incorporated by
reference in this Form 10-K Annual Report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information required by this item, to the extent not included under the
caption "Executive Officers of the registrant" in Part I of this report, or
below, will appear under the caption "Election of Directors" in the
Corporation's 1997 definitive proxy statement, for the annual meeting of
stockholders on May 15, 1997 and is incorporated herein by reference.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
- --------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Corporation's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock. Officers, directors and greater than ten
percent shareholders are required by SEC regulation to furnish the Corporation
with copies of all Section 16(a) forms they file.
To the Corporation's knowledge, based solely on review of the copies of such
reports furnished to the Corporation and written representatives that no other
reports were required, during the fiscal year ended December 31, 1996 all
Section 16(a) filing requirements applicable to its officers, directors and
greater then ten percent beneficial owners were satisfied.
11
<PAGE>
ITEM 11. Executive Compensation
The information required by this item will appear under the caption "Executive
Compensation" and "Transactions with directors and executive officers" in the
Corporation's 1996 definitive proxy statement, for the annual meeting of
stockholders on May 15, 1997 and is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item will appear under the caption "Common
stock ownership" in the Corporation's 1997 definitive proxy statement, for the
annual meeting of stockholders on May 15, 1997 and is incorporated herein by
reference.
ITEM 13. Certain Relationship and Related Transactions
The information required by this item will appear under the caption
"Transactions with directors and executive officers" in the Corporation's 1997
definitive proxy statement, for the annual meeting of stockholders on May 15,
1996 and is incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The following consolidated financial statements of CNB Financial Corp.
and subsidiaries are incorporated herein by reference to the indicated pages in
the Company's 1996 Annual Report to Shareholders.
FINANCIAL STATEMENT PAGE IN ANNUAL REPORT
- ------------------- ---------------------
Report of Independent Accountant 23
Consolidated Balance Sheet as of December 31,
1996 and 1995 24
Consolidated Statement of Income for the years
ended December 31, 1996, 1995 and 1994 25
Consolidated Statement of Changes in Shareholders'
Equity for the years ended December 31, 1996, 1995 and 1994 26
Consolidated Statement of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 27
Notes to Consolidated Financial Statements 28
12
<PAGE>
(2) Financial statement schedules are omitted because the required information
is either not applicable or is set forth elsewhere in the financial statements.
(3) List of Exhibits
Exhibit Number Referred
to in Item 601 of Description of
Regulation S-K Exhibit
- ----------------------- --------------
3A Certificate of Incorporation of Registrant,
previously filed with the Commission on March 4, 1992
as Exhibit B to the Company's Registration Statement
on Form S-4 (No. 33-45522), and incorporated herein
by reference.
3B Bylaws of Registrant, previously filed with the
Commission on March 4, 1992 as Exhibit C to the
Company's Registration Statement on Form S-4 (No.
33-45522), and incorporated herein by reference.
13 1996 Annual Report to Shareholders
24 Accountants Report: Manually signed Report of
Independent Accountants included at page 20 of
Exhibit 13 to manually signed copy of this Form 10-K
Annual Report.
(b) During the three-month period ended December 31, 1996, the Registrant filed
no current report on Form 8-K.
(c) See 14(a)(3) above.
(d) See 14(a)(2) above.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ DONALD L. BRASS
---------------------------
Donald L. Brass, President
Dated: March 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ DONALD L. BRASS President and Director 3/24/97
- --------------------------
Donald L. Brass
/s/ PETER J. CORSO Vice President and Treasurer 3/24/97
- --------------------------
Peter J. Corso
/s/ DAVID J. NOLAN Director 3/24/97
- --------------------------
David J. Nolan
/s/ J. CARL BARBIC Director 3/24/97
- --------------------------
J. Carl Barbic
/s/ ALLEN H. SAMUELS Director 3/24/97
- --------------------------
Allen H. Samuels
/s/ JOSEPH A. SANTANGELO Director 3/24/97
- --------------------------
Joseph A. Santangelo
/s/ C. WENDELL SMITH Director 3/24/97
- --------------------------
C. Wendell Smith
/s/ D. THEODORE ROBINSON Director 3/24/97
- --------------------------
D. Theodore Robinson
/s/ VANNESS ROBINSON Director 3/24/97
- --------------------------
VanNess Robinson
/s/ JOHN P. WOODS Director 3/24/97
- --------------------------
John P. Woods, Jr.
14
FINANCIAL REVIEW
(in thousands, except per share and ratio data)
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 46,995 $ 43,728 $ 35,709 $ 35,213 $ 36,943
Interest expense 21,755 20,089 13,540 13,257 16,994
Net interest income 25,240 23,639 22,169 21,956 19,949
Provision for possible loan losses 635 965 1,600 3,645 5,010
Net interest income after provision
for loan losses 24,605 22,674 20,569 18,311 14,939
Other operating income 2,955 2,707 1,673 1,592 2,669
Other expense 17,665 16,328 14,723 13,517 12,542
Income before income taxes 9,895 9,053 7,519 6,386 5,066
Income taxes 2,738 2,481 2,230 1,852 1,331
Net income 7,157 6,572 5,289 4,534 3,735
- -----------------------------------------------------------------------------------------------
PER SHARE DATA:
Net income $ 1.81 $ 1.63 $ 1.39 $ 1.29 $ 1.06
Cash dividends 0.53 0.48 0.43 0.40 0.37
Book value 12.50 11.83 9.98 9.91 8.73
(restated for 1/15/97 split)
- -----------------------------------------------------------------------------------------------
PERIOD END BALANCE SHEET SUMMARY:
Total assets $585,627 $564,792 $484,497 $452,423 $439,513
Investment securities 235,743 215,450 173,838 160,711 151,191
Loans (net of unearned income) 321,010 316,617 291,826 277,647 272,218
Allowance for possible loan losses 8,367 8,463 8,292 7,772 6,054
Deposits 509,217 496,311 416,964 396,948 385,959
Shareholders' equity 48,391 47,433 39,898 34,903 30,718
- -----------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS:
Return on average equity 14.97% 15.19% 13.69% 13.96% 12.33%
Return on average assets 1.22% 1.25% 1.12% 1.01% 0.89%
Dividends declared to income 29.06% 29.23% 31.86% 30.75% 34.59%
Loans to deposits 63.04% 63.79% 69.99% 69.95% 70.53%
Non-performing loans to total loans 1.40% 1.25% 1.11% 1.27% 1.69%
Net charge-offs to average loans 0.23% 0.26% 0.39% 0.74% 1.21%
Allowance for possible loan
losses to total loans outstanding 2.61% 2.67% 2.84% 2.80% 2.22%
Average shareholders' equity to
average total assets 8.15% 8.20% 8.18% 7.27% 7.19%
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in thousands, except per share and ratio data)
THE PURPOSE OF THIS DISCUSSION IS TO FOCUS ON SIGNIFICANT CHANGES IN THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY. THE DISCUSSION AND
ANALYSIS IS INTENDED TO SUPPLEMENT AND HIGHLIGHT INFORMATION CONTAINED IN THE
ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS AND THE SELECTED FINANCIAL DATA
PRESENTED ELSEWHERE IN THIS REPORT.
SUMMARY
Net income for 1996 was $7,157, a 9% increase over the previous high of
$6,572 in 1995. Net income for 1995 was 24% higher than 1994 net income of
$5,289. The earnings per share, after restatement for the three-for-two
January 15, 1997 stock split of $1.81, increased 11% in 1996 from the $1.63
earned in 1995. The 1995 net income was up 17% from the $1.39 earned in 1994.
Total assets for the year 1996 grew to $585,627, a 4% increase from the 1995
total of $564,792. For the year 1995, total assets grew 17% over the 1994
total of $484,497. Total loans increased to $321,010, 1% from the $316,617
reported in 1995. During 1995, total loans increased 8% from $291,826
reported in 1994. The available for sale portion of the investment portfolio
increased by $10,115 (8%) to $130,973. At December 31, 1996, there was a net
unrealized loss of $1,718 in the available for sale portfolio compared to a
net unrealized gain of $772 at December 31, 1995. The held to maturity
portfolio had a net increase of $10,178 (11%) from $94,592 to $104,770 at
December 31, 1996. There were no transfers between the portfolios during
1996. The securities in the available for sale portfolio increased by $55,867
(86%) and the held to maturity decreased by $14,255 (13%) during 1995.
Securities with a fair value of $33,117 were transferred from the held to
maturity portfolio to the available for sale portfolio during 1995. The
transfer was done in accordance with the Financial Accounting Standards Board
special report which allowed for a one-time transfer.
The growth in assets in 1996 was funded primarily through a $12,906 (3%)
increase in deposits, a $5,891 increase in repurchase agreements and a $1,000
increase in Industrial Revenue Bonds. The 1995 asset growth was funded mainly
through a $79,347 (19%) increase in deposits.
Stockholders' equity of $48,391 increased by $958 (2%) during 1996. In 1996,
99,960 shares were repurchased and retired at a total cost of $2,799. On
December 16, 1996, the Board of Directors approved a three-for-two stock
split which was paid on January 15, 1997. The split increased the number of
shares outstanding to 3,870,596. The per share information has been restated
to reflect this change.
RESULTS OF OPERATIONS
The net income for the year ended December 31, 1996 reached a record high of
$7,157. Net earnings for the year were 9% higher than the $6,572 earned in
1995 and 35% higher than the $5,289 earned in 1994. The earnings per share
for the last three years, after restatement for the three-for-two stock
split, were 1996-$1.81, 1995-$1.63, 1994-$1.39. The loan loss provision was
lowered by $330 to $635 in 1996 due to Management's assessment of the
adequacy of the allowance for loan losses. The 1995 and 1994 provisions were
$965 and $1,600, respectively. At December 31, 1996, the allowance for loan
losses was $8,367 or 187% of the non-performing loans vs. $8,463 or 213% of
non-performing loans in 1995.
INTEREST INCOME AND INTEREST EXPENSE
Interest income for 1996 was $46,995, up $3,267 (7%) from the $43,728 earned
in 1995. The interest income in 1995 was up $8,019 (22%) from the $35,709
earned in 1994. The increase in current year income was created through a 9%
increase in average earning assets which offset a 2% drop in overall yield.
The total yields on loans decreased to 9.63% in 1996, from 9.84% in 1995, after
increasing from 8.76% in 1994. The 21 basis point (2%) drop in yields was
attributable to the lower interest rates prevalent in 1996 from the increased
competition in the market place. The investment portfolio yield remained
unchanged from 1995 to 1996 at 7.61% as compared to 7.36% in 1994. In 1996,
the average taxable equivalent rate on earning assets was 8.71%, down
slightly from the 8.87% earned in 1995. The 1994 rate was 8.21%.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in thousands, except per share and ratio data)
Interest expense increased 8% to $21,755 in 1996, compared to $20,089 in 1995
and $13,540 in 1994. For the year 1996, the average balance on interest
paying deposit accounts increased $41,528 (10%). Included in this average
increase was $24,699 in certificates of deposit, $10,795 in money market
accounts and $6,093 in NOW accounts. The interest rates paid on total
deposits dropped 11 basis points from 4.62% in 1995 to 4.51% in 1996,
however, the volume increase in deposits generated an increase of $1,005 in
certificates of deposit, $392 in money market and $113 in NOW interest
expense. Deposit interest expense in 1995 increased $6,519 on a deposit
account increase of $48,095 from 1994.
The following table illustrates the average balances of total interest earning
assets and interest bearing liabilities for the periods indicated. The
average balances used for the purpose of these tables and other statistical
disclosures were calculated by using the daily average balances.
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES
(In thousands)
DECEMBER 31, 1996
AVERAGE BALANCE INCOME/EXPENSE YIELDS/RATES
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Loans taxable and non-taxable(1)(2) $316,425 $30,480 9.63%
Investment Securities(4)
Taxable 181,919 13,165 7.24%
Tax-exempt(2) 48,231 4,347 9.01%
230,150 17,512 7.61%
- -------------------------------------------------------------------------------------------------
Federal funds sold, repurchase agreements
and interest bearing accounts 11,452 605 5.28%
- -------------------------------------------------------------------------------------------------
Total interest earning assets 558,027 48,597 8.71%
Other assets 28,136
- -------------------------------------------------------------------------------------------------
Total assets $586,163
=================================================================================================
Liabilities and Stockholders' Equity:
Interest bearing deposits
NOW accounts $ 54,984 $ 985 1.79%
Money market accounts 51,044 2,153 4.22%
Savings 98,335 2,858 2.91%
Time, $100,000+ 98,448 5,482 5.57%
Other time 154,693 9,172 5.93%
- -------------------------------------------------------------------------------------------------
457,504 20,650 4.51%
Federal funds purchased and repurchase agreements 17,158 821 4.78%
FHLB and other borrowings 7,629 284 3.72%
- -------------------------------------------------------------------------------------------------
Total interest bearing liabilities 482,291 21,755 4.51%
- -------------------------------------------------------------------------------------------------
Noninterest bearing deposits 45,910
Other liabilities 10,165
Stockholders' equity 47,797
- -------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $586,163
=================================================================================================
Spread on interest-bearing funds 4.20%
=================================================================================================
Net interest income $ 26,842
=================================================================================================
Net interest margin(3) 4.81%
=================================================================================================
</TABLE>
(1) Interest income includes loan fees of $1,181, $1,094, and $979 in 1996,
1995, and 1994, respectively. Nonaccrual loans (averaging $3,440, $3,000 and
$3,344 in 1996, 1995 and 1994 respectively) are included in the average
balances.
(2) Interest income on tax-exempt assets has been adjusted for 34% tax rate.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in thousands, except per share and ratio data)
<TABLE>
<CAPTION>
(In thousands) (In thousands)
DECEMBER 31, 1995 DECEMBER 31, 1994
AVERAGE BALANCE INCOME/EXPENSE YIELDS/RATES AVERAGE BALANCE INCOME/EXPENSE YIELDS/RATES
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
$299,648 $ 29,476 9.84% $281,472 $24,647 8.76%
152,768 10,934 7.16% 127,311 8,571 6.73%
45,032 4,120 9.16% 41,334 3,837 9.28%
- -------------------------------------------------------------------------------------------------------------
197,800 15,054 7.61% 168,645 12,408 7.36%
13,210 755 5.72% 2,633 102 3.87%
- -------------------------------------------------------------------------------------------------------------
510,658 45,285 8.87% 452,750 37,157 8.21%
16,953 19,316
- -------------------------------------------------------------------------------------------------------------
$527,611 $472,066
=============================================================================================================
$ 48,891 $ 872 1.78% $ 50,954 $ 910 1.79%
40,249 1,761 4.38% 26,178 669 2.56%
98,394 2,928 2.98% 116,811 3,478 2.98%
95,128 5,458 5.74% 46,993 2,195 4.67%
133,314 8,191 6.14% 126,945 5,439 4.28%
- -------------------------------------------------------------------------------------------------------------
415,976 19,210 4.62% 367,881 12,691 3.45%
11,696 629 5.38% 16,098 652 4.06%
6,406 250 3.90% 3,960 197 4.97%
- -------------------------------------------------------------------------------------------------------------
434,078 20,089 4.62% 387,939 13,540 3.49%
- -------------------------------------------------------------------------------------------------------------
41,544 40,733
8,732 4,771
43,257 38,623
- -------------------------------------------------------------------------------------------------------------
$527,611 $472,066
=============================================================================================================
4.25% 4.72%
=============================================================================================================
$ 25,196 $23,617
=============================================================================================================
4.93% 5.22%
=============================================================================================================
</TABLE>
(3) Computed by dividing net interest by total interest earning assets.
(4) Average rates on available for sale securities are based on historical
average cost.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in thousands, except per share and ratio data)
VOLUME RATE ANALYSIS
<TABLE>
<CAPTION>
(In thousands) (In thousands)
1996 COMPARED TO 1995 1995 COMPARED TO 1994
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
VOLUME(3) RATE(2) TOTAL VOLUME(3) RATE(2) TOTAL
============================================================================================
<S> <C> <C> <C> <C> <C> <C>
Loans $ 1,650 $ (646) $ 1,004 $ 1,592 $ 3,237 $ 4,829
Investment
securities(1) 2,463 (5) 2,458 2,057 589 2,646
Federal funds sold (100) (50) (150) 409 244 653
- --------------------------------------------------------------------------------------------
Total interest
income 4,013 (701) 3,312 4,058 4,070 8,128
- --------------------------------------------------------------------------------------------
NOW 109 4 113 (37) (1) (38)
MMDA 472 (80) 392 360 732 1,092
Savings (2) (68) (70) (550) - (550)
Time $100,000 + 190 (166) 24 2,248 1,015 3,263
Other time 1,314 (333) 981 273 2,479 2,752
Federal funds
purchased and other
borrowings 341 (115) 226 (55) 85 300
- --------------------------------------------------------------------------------------------
Total interest
expense 2,424 (758) 1,666 2,239 4,310 6,549
- --------------------------------------------------------------------------------------------
Net change in
interest income $ 1,589 $ 57 $ 1,646 $ 1,819 $ (240) $ 1,579
============================================================================================
</TABLE>
(1) Interest income on tax-exempt assets has been adjusted for 34% federal tax
rate.
(2) The rate variance reflects the change in average rate multiplied by the
average balance outstanding.
(3) The volume variance reflects the change in average balance outstanding
multiplied by the average rate during the prior period.
INTEREST RATE SENSITIVITY
An important element of both earnings performance and liquidity is management
of interest rate sensitivity. Interest rate sensitivity management involves
comparison between the maturity and repricing dates of interest-earning
assets and interest-bearing liabilities, with the goal being to minimize the
impact on net interest income in periods of extreme fluctuations in interest
rates. The Company measures its interest rate risk through the use of
guidelines designed to measure the impact on the net interest margin due to a
2% change in the Fed funds rate over the year. Quarterly, the change in net
interest income, as well as several other strategic measurement ratios, are
presented to the Company's Asset/Liability Committee (ALCO) and Board of
Directors and compared to Company-established guidelines.
The Company consistently maintains the ratios within the acceptable ranges of
the guidelines established. On a weekly basis, the ALCO, which is comprised
of Senior Management, meets to monitor the interest and liquidity position.
A useful measure of the Company's interest rate risk is "interest sensitivity
gap" (GAP), the difference between interest sensitive assets and interest
sensitive liabilities in a specific time interval. The following table sets
forth the amount of assets and liabilities repricing at various time
intervals and the resulting GAP position of the Company on December 31, 1996.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in thousands, except per share and ratio data)
INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
(In thousands)
DECEMBER 31, 1996
WITHIN OVER 3 THROUGH ONE YEAR OVER
3 MONTHS 12 MONTHS THROUGH FIVE FIVE YEARS TOTAL
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earning Assets:
Investments (1) $ 40,126 $ 7,390 $ 29,140 $156,740 $233,396
Loans 71,450 90,652 74,827 81,241 318,170
- -------------------------------------------------------------------------------------------
Total $ 111,576 $ 98,042 $ 103,967 $237,981 $551,566
===========================================================================================
Interest Bearing
Liabilities:
NOW and savings $ 7,897 $ 23,691 $ 126,379 $ -- $157,967
Money market deposits 5,784 17,351 15,422 -- 38,557
Time and under $100,000
certificates of deposit 38,916 63,661 49,658 -- 152,235
Certificates of deposit
$100,000 and over 74,650 29,895 4,818 782 110,145
- -------------------------------------------------------------------------------------------
Total $ 127,247 $ 134,598 $ 196,277 $ 782 $458,904
===========================================================================================
Period GAP $ (15,671) $ (36,556) $ (92,310) $237,199 $ 92,662
Cumulative GAP $ (15,671) $ (52,227) $(144,537) $ 92,662
</TABLE>
(1) Excludes Federal Home Loan Bank and Federal Reserve Bank, equity and
preferred stock.
OTHER INCOME
Other income increased $248 from $2,707 in 1995 to $2,955 in 1996. Service
fees generated from demand deposit accounts generated $378 more in income in
1996. The High Performance Checking Program, which added 6,000 accounts
during 1996, was responsible for the increase in fees generated during the
year.
In 1995, other income increased by $1,034 from $1,673 in 1994 to $2,707. Gains
from the sale of securities accounted for $681 of the increase and demand
deposit service fees generated a $274 increase.
OPERATING EXPENSES
Operating expenses increased $1,337 (8%) from $16,328 in 1995 to $17,665 in
1996. Salaries increased $648 (11%) from $5,741 to $6,389. The increase in
salary expense was due to an increase in the number of people and incentive
pay increases. One new branch was opened in 1996; additional people were
hired in both loan origination and servicing. The increase in volume activity
added to the data processing and operations staffs. Employee benefits for the
year increased from $2,125 to $2,334 or 10%; the increases in profit sharing
and short term incentive expenses were partially offset by a decrease in the
deferred compensation expense.
Insurance expense for the year decreased $406 from $931 in 1995 to $525 in 1996.
The FDIC premiums were reduced in 1996 as a result of changes in the
regulation. Under the new system, insured institutions are assessed at rates
ranging from 0% to 27%, depending on its capital and supervisory
classifications. The Bank's premium for 1996 was reduced to $2, from $497 in
1995 and $913 in 1994.
Occupancy expenses increased $299 (23%) during 1996. The major items adding to
the increase include repairs and maintenance on the branch offices, rent on
property leased for the operations center and utility costs.
Data processing costs increased $250 (25%) to $1,267. The increases in this
category were the result of an additional $70 paid to the third party
processor for processing services and an additional $62 of amortization on PC
software.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in thousands, except per share and ratio data)
Other expenses increased $337 (6%) from $5,238 to $5,575. Primarily responsible
for the increase were expenses related to the write down of other assets,
other real estate costs, stationery and supplies, MasterCard/VISA processing
costs, and postage expense.
For 1995, operating expenses increased $1,605 (11%), from $14,723 to $16,328.
Salaries and employee benefits increased $678 as the operations and control
areas expanded. Other expenses grew by $517 (10%) with the start of the High
Performance Checking program adding $589 to total expense.
INCOME TAXES
The income tax provision is based on pre-tax income for financial reporting
purposes and includes an appropriate provision for the effect of any
temporary differences between assets and liabilities recognized for financial
reporting purposes and such amounts recognized for tax purposes. The
effective tax rates for 1996, 1995 and 1994 were 27.7%, 27.4% and 29.6%,
respectively.
SECURITIES
The Company's investment securities are classified in accordance with SFAS
No. 115, Accounting for Certain Investments in Debt Securities. SFAS No. 115
requires that all securities be classified into three categories: held to
maturity; available for sale; and trading. Debt securities for which the
Company has the positive intent and ability to hold to maturity are
classified as held to maturity and carried at amortized cost. Available for
sale securities and trading account securities are carried at estimated fair
value. Available for sale securities can be used as part of the
asset/liability management strategy and may be sold in response to, or in
anticipation of factors such as changes in market interest rates, changes in
security prepayment rates, liquidity considerations and regulatory capital
requirements. Unrealized gains and losses on available for sale securities
are reported as a separate component of stockholders' equity, net of the
income tax effect. Management anticipates fluctuations in stockholders'
equity due to changes in the estimated fair value of available for sale
securities. Unrealized gains and losses on trading account securities are
recognized in the consolidated statement of income.
At December 31, 1996, the net unrealized loss on the available for sale
portfolio totaled $1,718, compared to a net unrealized gain of $772 at year
end 1995. The $2,490 shift reflects the interest rate volatility that existed
during the last two years. Management monitors the fair value of the assets
and liabilities on a total balance sheet basis. These movements were offset
by unrecognized changes in value of other portions of the balance sheet.
During 1995, while the 30-year Treasury interest rates dropped from a 7.92%
yield in January to a 5.95% yield at December, the fourth quarter economic
indicators pointed towards renewed growth in 1996. The growth and uncertainty
to the extent of growth, would exert negative pressure on the bond market.
Management decided that the duration extension of the portfolio that took
place in 1995 should be reversed before the appreciation of the portfolio
diminished. This was evident in the first quarter of 1996 when the bond
market gave back 32% of its 1995 rally; a majority (76%) of our security
gains were taken at that time.
The decrease in portfolio size in the first quarter and the 2% growth over the
first six months were the result of execution of the bond strategy and the
liquidity requirements created by the delayed New York State budget. The
portfolio increases of $14,000 (6%) during the second half of 1996 were
attributed to the availability of excess liquidity and the desire to maintain
the high level of earning assets.
TREASURY YIELDS 1996
The following table lists the U.S. Treasury yields during 1996:
5 YEAR 30 YEAR
=====================================================================
January 1 5.37% 5.95%
March 31 6.04% 6.63%
June 30 6.51% 7.04%
September 30 6.38% 6.87%
December 31 6.21% 6.64%
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in thousands, except per share and ratio data)
INVESTMENT PORTFOLIO
The amortized cost and weighted average yield of the Company's investment
portfolio at December 31, 1996, by contractual maturity, are as follows:
(In thousands)
AMORTIZED AVERAGE
COST YIELD (2)
===============================================================================
AVAILABLE FOR SALE
Due in one year or less $ 4,177 6.92%
Due after one to five years 13,377 7.20%
Due after five to ten years 46,474 7.48%
Due after ten years 64,598 7.53%
- -------------------------------------------------------------------------------
Total(1) $128,626 7.28%
===============================================================================
HELD TO MATURITY
Due in one year or less $ 2,541 7.59%
Due after one to five years 22,441 7.62%
Due after five to ten years 58,909 9.14%
Due after ten years 20,879 9.67%
- -------------------------------------------------------------------------------
Total $104,770 8.88%
===============================================================================
(1) Excludes stock held in the Federal Home Loan Bank, Federal Reserve Bank,
equity and preferred stock.
(2) Average yield on tax exempt securities is calculated on a tax equivalent
basis.
INFLATION
A bank's asset and liability structure is substantially different from that
of an industrial company in that virtually all assets and liabilities are
monetary in nature. Management believes the impact of inflation on financial
results depends upon the ability to react to changes in interest rates and
reduce the inflationary impact. Management seeks to manage the relationship
between interest-sensitive assets and liabilities in order to protect against
wide interest rate fluctuations, including those resulting from inflation.
Various information shown elsewhere in this report will assist in an
understanding of how well the Company is positioned to react to changing
interest rates and inflationary trends. In particular, the summary of net
interest income, the maturity distribution, the composition of the loan and
security portfolios and the data on interest rate sensitivity should be
considered.
LOANS
The Company provides a full range of loan products through the branch offices
and main office functions. The main office is responsible for the larger
commercial, agricultural and various indirect consumer loans. The direct
lending activities of the branches are focused on individual and small to
medium size businesses within their market areas. Consistent with the focus
on providing community banking services, the Company does not attempt to
diversify geographically by making a significant amount of loans to borrowers
outside of the primary service area.
Loans minus unearned income and the allowance for loan losses were $312,643 at
December 31, 1996, an increase of $4,489 from the $308,154 at December 31,
1995. Net loans at December 31, 1995 were up $24,620 from the December 31,
1994 balance of $283,534.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in thousands, except per share and ratio data)
SUMMARY OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
(In thousands)
DECEMBER 31,
1996 1995 1994 1993 1992
=================================================================================================
<S> <C> <C> <C> <C> <C>
Installment and other
consumer loans $ 125,190 $ 125,091 $ 145,040 $ 154,811 $ 151,229
Real estate loans 134,340 129,863 90,344 77,201 73,126
Commercial loans 56,548 56,385 50,319 41,815 43,316
Tax exempt loans 4,932 5,278 6,123 3,820 4,547
- -------------------------------------------------------------------------------------------------
Total loans 321,010 316,617 291,826 277,647 272,218
- -------------------------------------------------------------------------------------------------
Allowance for possible loan losses (8,367) (8,463) (8,292) (7,772) (6,054)
- -------------------------------------------------------------------------------------------------
Total loans net of allowance $ 312,643 $ 308,154 $ 283,534 $ 269,875 $ 266,164
=================================================================================================
</TABLE>
Loan concentrations greater than 10% of the total loan portfolio for 1996 are as
follows: conventional real estate loans of $35,708 or 11.12%, indirect
manufactured housing of $56,300 or 17.54%, commercial mortgages of $39,600 or
12.34%, and commercial notes of $32,300 or 10.06%.
Commercial loans maturing within one year are $38,309; after one but within five
years $7,805 and after five years $10,434. Fixed rate commercial loans
repricing after one but within five years are $7,805 and those repricing
after five years are $10,434. All variable rate loans will reprice within one
year. Maturities are based on contract terms. It is the Company's policy that
loans unpaid at maturity may be renewed at Management's discretion, based on
then current market rates and terms.
ASSET QUALITY AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses represents Management's estimate of an
amount adequate to provide for potential losses inherent in the loan
portfolio. In its continuing evaluation of the allowance and its adequacy,
Management considers the Company's loan loss experience, the amount of
past-due and non-performing loans, current and anticipated economic
conditions, underlying collateral values securing loans and other factors
which affect the allowance for potential loan losses. Management monitors the
adequacy of the allowance for loan losses through the use of a model designed
to comply with the requirements of the OCC as published periodically in its
Banking Circular, the Instructions for Preparation of Reports of Condition
and Income, and the AICPA's Industry Audit Guide, Audits of Banks.
While it is the Company's policy to charge-off loans in the period in which a
loss is considered probable, there are additional factors impacting potential
future losses which cannot be quantified precisely or attributed to
particular loans or classes of loans. These factors include such items as the
general state of the economy. Management's judgment as to the adequacy of the
allowance is, therefore, necessarily approximate. The allowance is also
subject to regulatory examinations as to adequacy, which may include reviews
of the methodology used to arrive at the allowance and comparison of the
allowance to peer institutions. During the period from 1992 to 1996,
regulatory examinations of the Bank did not result in adjustments to the
allowance for loan losses as established by Management.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in thousands, except per share and ratio data)
The accrual of interest on commercial and real estate loans ceases whenever the
payments of principal or interest become 90 days past due or the valuation of
the collateral held materially deteriorates to the extent that the loan can
no longer be regarded as adequately secured. Accrual of interest on
residential mortgages ceases whenever payment of principal or interest
becomes 180 days delinquent. Consumer loans, whether secured or unsecured,
are charged off to the allowance for loan losses when they reach 120 days
delinquent. Total loans not accruing interest at December 31, 1996, were
$3,253, representing 1.0% of the total loan portfolio, and $3,078,
representing 1.0% of the loan portfolio, at December 31, 1995, or an increase
in nonaccruing loans of 6%.
The Company's historic levels of non-performing loans and losses have been above
industry averages, due in part to the institution's manufactured housing and
commercial lending portfolio, however, management believes that the allowance
for loan loss is sufficient to provide for losses inherent in the loan
portfolio.
NON-PERFORMING LOANS
<TABLE>
<CAPTION>
(In thousands)
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
=========================================================================================
<S> <C> <C> <C> <C> <C>
Loans accounted for on a
nonaccrual basis:
Notes $ 886 $ 441 $1,231 $1,774 $1,836
Mortgages 2,367 2,637 1,995 1,743 2,776
- -----------------------------------------------------------------------------------------
Total non-performing assets 3,253 3,078 3,226 3,517 4,612
- -----------------------------------------------------------------------------------------
Loans contractually past due 90 days
or more as to interest or principal
payments (not included in nonaccrual
loans above) 1,226 885 544 1,138 1,128
- -----------------------------------------------------------------------------------------
$4,479 $3,963 $4,655 $3,770 $5,740
=========================================================================================
</TABLE>
FOREGONE INTEREST
Information regarding foregone interest follows:
<TABLE>
<CAPTION>
(In thousands)
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
=================================================================================================
<S> <C> <C> <C> <C> <C>
Interest recognized $ 28 $ 5 $ - $ - $ -
Foregone interest 125 147 252 159 393
Interest income that
would have been
accrued at original terms $ 153 $ 152 $ 252 $ 159 $ 393
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in thousands, except per share and ratio data)
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following table summarizes the changes in the allowance for possible loan
losses:
<TABLE>
<CAPTION>
(In thousands)
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
=======================================================================================================
<S> <C> <C> <C> <C> <C>
Balance at the beginning
of the period $ 8,463 $ 8,292 $ 7,772 $ 6,054 $ 4,110
Provision charged to
operations 635 965 1,600 3,645 5,010
Charge-Offs:
Agricultural loans 184 35 48 150 366
Commercial loans 361 18 263 720 1,320
Credit cards 92 81 99 126 137
Consumer loans 660 1,181 1,200 1,634 1,067
- -------------------------------------------------------------------------------------------------------
Total charge-offs 1,297 1,315 1,610 2,630 3,490
- -------------------------------------------------------------------------------------------------------
Recoveries:
Agricultural loans 21 43 59 198 55
Commercial loans 203 118 117 47 73
Credit cards 35 39 34 50 21
Consumer loans 307 321 320 408 275
- -------------------------------------------------------------------------------------------------------
Total recoveries 566 521 530 703 424
- -------------------------------------------------------------------------------------------------------
Net charge-offs 731 794 1,080 1,927 3,066
- -------------------------------------------------------------------------------------------------------
Balance at end of period $ 8,367 $ 8,463 $ 8,292 $ 7,772 $ 6,054
=======================================================================================================
Ratio of charge-offs net
of recoveries to average
loans outstanding 0.23% 0.26% 0.39% 0.74% 1.21%
Allowance for possible
loan loss as a percentage
of total loans at year end 2.61% 2.67% 2.84% 2.80% 2.22%
</TABLE>
The allocation of the allowance for loan losses by loan category, as well as the
percentage of loans in each category to total loans, follows:
<TABLE>
<CAPTION>
(In thousands)
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans $1,666 38% $1,186 27% $1,429 28% $ 473 8% $ 940 18%
Installment and other
consumer loans 1,350 31% 1,688 39% 2,890 57% 3,195 57% 1,976 38%
Commercial loans 1,399 31% 1,461 34% 763 15% 1,945 35% 2,299 44%
Other qualitative
factors 3,952 - 4,128 - 3,210 - 2,159 - 839 -
- ------------------------------------------------------------------------------------------------------------------
$8,367 100% $8,463 100% $8,292 100% $7,772 100% $6,054 100%
==================================================================================================================
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in thousands, except per share and ratio data)
DEPOSITS
The Company's primary source of funds is its depository accounts. The deposit
base is comprised of demand deposits, savings and money market accounts and
other time deposits. The deposits are provided by individuals, local
governments and businesses located within the communities served.
AVERAGE DEPOSITS AND AVERAGE RATES PAID
The following table is a summary of average deposits and average rates paid:
<TABLE>
<CAPTION>
(In thousands)
YEAR ENDED DECEMBER 31,
1996 1995 1994
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
==================================================================================================================
Non-interest bearing
<S> <C> <C> <C> <C> <C> <C>
demand deposits $ 44,996 - $ 41,544 - $ 40,733 -
Interest bearing
demand deposits 106,028 2.96% 89,140 2.95% 77,132 2.05%
Savings deposits 98,335 2.91% 98,394 2.98% 116,811 2.98%
Time deposits 253,141 5.79% 228,442 5.97% 173,938 4.41%
- ------------------------------------------------------------------------------------------------------------------
$502,500 4.10% $457,520 4.20% $408,614 3.11%
==================================================================================================================
</TABLE>
The average total deposits grew by 9.83% in 1996 and 11.97% in 1995. The average
aggregate interest rate paid decreased in 1996 from 4.20% in 1995 to 4.10%.
The rate from 1994 to 1995 increased from 3.11% to the 4.20%.
DEPOSITS
The following table is a summary of deposits:
<TABLE>
<CAPTION>
(In thousands)
DECEMBER 31,
1996 1995 1994 1993 1992
========================================================================================================
<S> <C> <C> <C> <C> <C>
Non-interest
bearing deposits $ 50,313 $ 47,234 $ 48,706 $ 37,710 $ 38,127
- --------------------------------------------------------------------------------------------------------
Interest bearing deposits:
NOW accounts 59,527 46,862 49,402 48,754 46,575
Savings 98,440 94,582 107,478 117,799 104,341
Money market 38,557 38,964 22,442 27,007 29,922
Time deposits
over $100,000 110,145 117,189 62,659 43,435 38,644
Other time 152,235 151,480 126,277 122,243 128,350
- --------------------------------------------------------------------------------------------------------
Total time deposits 458,904 449,077 368,258 359,238 347,832
- --------------------------------------------------------------------------------------------------------
Total Deposits $509,217 $496,311 $416,964 $396,948 $385,959
========================================================================================================
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in thousands, except per share and ratio data)
BORROWINGS
The Company regularly has security repurchase agreements with several Bank
customers in the ordinary course of business. For liquidity management, lines
of credit have been established with correspondent banks to meet short term
needs.
The Company has $2,563 outstanding to the Federal Home Loan Bank. This FHLB
borrowing bears interest at 5.45% and matures during 2003.
In 1995 and 1996, the Company issued Industrial Revenue Bonds (IDA) to fund the
construction of its new administrative and operations complex. The note is
for $4,750 with a variable interest rate which adjusts weekly on the
commercial paper rate index. The note has payments due through 2025.
BORROWINGS
<TABLE>
<CAPTION>
(In thousands)
YEAR ENDED DECEMBER 31,
1996 1995 1994
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Securities sold under
agreements to repurchase $16,232 4.74% $11,278 5.20% $11,955 3.71%
Federal funds purchased 926 5.62% 418 5.83% 2,439 5.00%
FHLB borrowing 2,705 5.51% 4,331 5.58% 4,990 5.31%
Capital borrowing 4,288 5.13% 2,075 6.06% - -
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
BALANCE RATE BALANCE RATE BALANCE RATE
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Securities sold under
agreements to repurchase $13,854 4.75% $ 7,963 5.00% $ 462 5.25%
Federal funds purchased - - - - 5,000 5.00%
FHLB borrowing 2,563 5.45% 2,870 5.46% 13,149 5.81%
Capital borrowing 4,750 5.13% 3,750 5.95% - -
</TABLE>
MAXIMUM AMOUNT OUTSTANDING AT ANY MONTH'S END
YEAR ENDED DECEMBER 31,
1996 1995 1994
================================================================================
Securities sold under
agreements to repurchase $13,854 $12,037 $26,420
Federal funds purchased 6,000 - 8,000
FHLB borrowing 24,214 7,491 17,149
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in thousands, except per share and ratio data)
LIQUIDITY
Liquidity is the ability of the Company to convert assets into cash or cash
equivalents without significant loss and to raise additional funds by
increasing liabilities. Liquidity management involves maintaining the ability
to meet the day-to-day cash flow requirements of our customers, whether they
be depositors wishing to withdraw funds or borrowers requiring funds to meet
their credit needs.
Asset and liability management functions not only to assure adequate liquidity
in order to meet the needs of our customers, but also to maintain an
appropriate balance between interest-sensitive assets and interest-sensitive
liabilities in order to generate an appropriate return to shareholders. In
the banking environment, both assets and liabilities are considered sources
of liquidity funding and both are monitored on a daily basis.
The asset portion of the balance sheet provides liquidity primarily through loan
and mortgage backed security principal repayments, maturities and calls of
investment securities and sales from the available for sale portfolio.
For liquidity management, unused lines of credit totaling $37,425 were
maintained at year end 1996.
CAPITAL RESOURCES
The Company's capital position increased 2% from December 31, 1995, compared
to 19% growth in 1995 and 14% growth in 1994. In 1996, the Company added
$7,157 to equity through net income and returned $2,080 to its stockholders
in the form of dividends. Equity was also reduced by $2,799 due to the
repurchase of 99,960 shares of stock which were retired. The Company's goal
is to maintain a strong capital position to support its growth and expansion
activities, and improve operating efficiency and customer satisfaction.
Important indicators of capital adequacy for the Bank are: Tier I Capital, Total
Risk Based Capital and the Leverage ratio. Tier I Capital consists of common
stock and qualifying stockholders' equity. Total Risk-Based Capital consists
of Tier I Capital and a portion of the allowance for loan losses. The
Leverage ratio is calculated by dividing the quarterly average of assets less
goodwill into the Tier I Capital. The Bank regulator, the Office of the
Comptroller of the Currency, does not recognize the Statement of Financial
Accounting Standards No.115, fair value adjustment of the available for sale
investments, in the capital calculations. All of the Bank's ratios exceed the
required minimums.
The Company's Board of Directors authorized the repurchase of 236,000
outstanding shares at its February 18, 1997 meeting. The shares will be
repurchased at prevailing market prices during the period of March 15, 1997
to March 15, 1998.
FASB 125
In June 1996, a Statement of Financial Accounting Standards (SFAS) No. 125,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, was issued. This Statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The standards are based on
consistent application of a financial-components approach. Under this
Statement, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
increased, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished.
This Statement, as amended by SFAS No. 127, Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125, is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996, and is to be applied prospectively. The provisions
of this Statement will be adopted by the Bank if they are deemed to be
material.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
REPORT OF MANAGEMENT
TO OUR SHAREHOLDERS:
Management is responsible for the integrity and objectivity of the financial
statements and other information in this report. The statements were prepared
in accordance with generally accepted accounting principles and in the
judgment of management present fairly the Corporation's financial position
and results of operations. The financial information contained elsewhere in
this report is consistent with that in the financial statements. The
financial statements and other financial information in this report include
amounts that are based on management's best estimates and judgments and give
due consideration to materiality.
Management is responsible for maintaining a system of internal control and has
established a system of internal accounting control designed to provide
reasonable assurance that transactions are recorded properly to permit
preparation of financial statements, that transactions are executed in
accordance with management's authorizations and that assets are safeguarded
from significant loss or unauthorized use.
The Internal Audit Department of the Corporation reviews, evaluates, monitors
and makes recommendations on both administrative and accounting control,
acting as an integral but independent part of the system of internal
controls.
The independent accountants were engaged to perform an independent audit of the
consolidated financial statements. In determining the nature and extent of
their auditing procedures, they have evaluated the Corporation's accounting
policies and procedures and the effectiveness of the related internal control
system. The independent auditors provide an objective review of management's
responsibility to report operating results and financial condition.
The Board of Directors discharges its responsibility for the Corporation's
financial statements through its Audit Committee. The Audit Committee meets
periodically with the independent accountants, internal audit and management.
Both the independent accountants and internal auditors have direct access to
the Audit Committee.
/s/ Donald L. Brass /s/ Peter J. Corso
Donald L. Brass Peter J. Corso
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
To the Board of Directors and
Stockholders of CNB Financial Corp.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
CNB Financial Corp. and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Syracuse, New York
January 30, 1997
23
<PAGE>
FINANCIAL STATEMENTS
Balance Sheet
<TABLE>
<CAPTION>
(In thousands, except per share data)
DECEMBER 31,
1996 1995
=====================================================================================
<S> <C> <C>
ASSETS
Cash and due from banks $ 15,536 $ 16,200
Federal funds sold 700 8,000
Investment securities available for sale 130,973 120,858
Investment securities held to maturity, market value of
$108,380 in 1996 and $98,259 in 1995 104,770 94,592
Loans, net of allowance for possible loan losses 312,643 308,154
Accrued interest receivable 4,914 4,609
Premises and equipment 9,673 5,923
Deferred taxes 3,543 3,763
Other assets 2,875 2,693
- -------------------------------------------------------------------------------------
$585,627 $564,792
=====================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 50,313 $ 47,234
Interest-bearing deposits 458,904 449,077
- -------------------------------------------------------------------------------------
Total deposits 509,217 496,311
- -------------------------------------------------------------------------------------
Federal funds purchased and securities sold under
agreements to repurchase 13,854 7,963
Interest, taxes and other liabilities 6,852 6,465
Long-term borrowings 7,313 6,620
Total liabilities 537,236 517,359
Stockholders' equity:
Common stock, $2.50 par value, 5,000,000 shares
authorized; 3,870,596 and 2,671,875 shares issued
and outstanding in 1996 and 1995, respectively 9,676 6,680
Capital in excess of par value 5,842 10,346
Retained earnings 34,170 30,243
Security valuation adjustment (1,274) 339
Treasury stock, at cost, 833 and 6,496 shares, respectively (23) (175)
- -------------------------------------------------------------------------------------
Total stockholders' equity 48,391 47,433
Commitments and contingencies (Note 11) -- --
- -------------------------------------------------------------------------------------
$585,627 $564,792
=====================================================================================
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
FINANCIAL STATEMENTS
Statement of Income
(In thousands, except per share data)
YEAR ENDED DECEMBER 31,
1996 1995 1994
=============================================================================
Interest income:
Loans, including fees $30,356 $29,319 $24,503
Investment securities:
Treasury and government agency
securities and corporate bonds 13,165 10,934 8,571
State and municipal obligations 2,869 2,719 2,533
Federal funds sold and other 605 756 102
- -----------------------------------------------------------------------------
46,995 43,728 35,709
- -----------------------------------------------------------------------------
Interest expense:
Deposits 20,650 19,210 12,687
Borrowings 1,105 879 853
- -----------------------------------------------------------------------------
21,755 20,089 13,540
- -----------------------------------------------------------------------------
Net interest income 25,240 23,639 22,169
Provision for loan losses 635 965 1,600
- -----------------------------------------------------------------------------
Net interest income after provision
for loan losses 24,605 22,674 20,569
- -----------------------------------------------------------------------------
Other income:
Service charges on deposit accounts 1,368 990 716
Gain from sales of investment securities 602 721 40
Other 985 996 917
- -----------------------------------------------------------------------------
2,955 2,707 1,673
- -----------------------------------------------------------------------------
Other expense:
Salaries and employee benefits 8,723 7,866 7,188
Insurance 525 931 1,271
Occupancy 1,575 1,276 847
Data processing 1,267 1,017 696
Other 5,575 5,238 4,721
- -----------------------------------------------------------------------------
17,665 16,328 14,723
- -----------------------------------------------------------------------------
Income before income taxes 9,895 9,053 7,519
Income taxes 2,738 2,481 2,230
- -----------------------------------------------------------------------------
Net income $ 7,157 $ 6,572 $ 5,289
=============================================================================
Earnings per share $ 1.81 $ 1.63 $ 1.39
=============================================================================
Weighted average number of common shares
outstanding (in thousands) 3,965 4,031 3,815
=============================================================================
See accompanying notes to financial statements.
25
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In thousands, except per share data)
YEAR ENDED DECEMBER 31,
CAPITAL
IN EXCESS SECURITY
COMMON OF PAR RETAINED VALUATION TREASURY
STOCK VALUE EARNINGS ADJUSTMENT STOCK TOTAL
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1994 $ 5,868 $ 6,000 $ 21,988 $ 1,047 $ - $ 34,903
Net income - 1994 - - 5,289 - - 5,289
Cash dividends, $.43 per share - - (1,685) - - (1,685)
Stock offering 750 3,957 - - - 4,707
Issuance of shares for options
and Dividend Reinvestment Plan 43 282 - - - 325
Unrealized loss on investment
securities available for sale, net - - - (3,641) - (3,641)
- ------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 6,661 10,239 25,592 (2,594) - 39,898
- ------------------------------------------------------------------------------------------------------------
Net income - 1995 - - 6,572 - - 6,572
Cash dividends, $.48 per share - - (1,921) - - (1,921)
Purchase of treasury stock - - - - (175) (175)
Issuance of shares for options
and Dividend Reinvestment Plan 19 107 - - - 126
Unrealized gain on investment
securities available for sale, net - - - 2,933 - 2,933
- ------------------------------------------------------------------------------------------------------------
Balance 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)
Purchase of treasury stock - - - - (3,099) (3,099)
Stock retirement (250) (1,399) (1,150) - 2,799 -
Issuance of shares for options
and Dividend Reinvestment Plan 21 120 - - 452 593
Unrealized loss on investment
securities available for sale, net - - - (1,613) - (1,613)
Three-for-two stock split 3,225 (3,225) - - - -
- ------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 $ 9,676 $ 5,842 $ 34,170 $(1,274) $ (23) $ 48,391
============================================================================================================
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Statement of Cash Flows
<TABLE>
<CAPTION>
(In thousands, except per share data)
YEAR ENDED DECEMBER 31,
1996 1995 1994
==================================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $ 46,690 $ 43,194 $ 35,140
Fees and service charges 2,485 1,926 1,623
Interest paid (21,905) (19,417) (13,436)
Cash paid to suppliers and employees (16,281) (14,810) (15,160)
Income taxes paid (2,080) (2,763) (3,177)
Trading portfolio activity, net (268) 72 309
- --------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,641 8,202 5,299
- --------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of investment securities:
Available for sale (97,086) (89,809) (43,875)
Held to maturity (20,224) (35,558) (30,034)
Proceeds from sales of investment securities:
Available for sale 71,845 55,997 22,581
Proceeds from maturities of investment securities:
Available for sale 13,552 15,098 20,017
Held to maturity 10,046 17,396 12,744
Net increase in loans (5,125) (25,585) (15,259)
Purchases of premises and equipment (4,517) (2,382) (791)
- --------------------------------------------------------------------------------------------------
Net cash flows from investing activities (31,509) (64,843) (34,617)
- --------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 12,906 79,347 20,016
Net increase (decrease) in short-term borrowings 5,891 (11,489) 7,344
Proceeds from long-term borrowings 1,000 3,750 -
Payments on long-term borrowings (307) (289) (275)
Dividends paid (2,080) (1,921) (1,685)
Proceeds from issuance of common stock 141 126 5,032
Purchase of treasury stock (3,099) (175) -
Issuance of treasury stock 452 - -
- --------------------------------------------------------------------------------------------------
Net cash flows from financing activities 14,904 69,349 30,432
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (7,964) 12,708 1,114
Cash and cash equivalents at beginning of year 24,200 11,492 10,378
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 16,236 $ 24,200 $ 11,492
==================================================================================================
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CNB Financial
Corp. (the Company) and its wholly-owned subsidiaries, Central National Bank,
Canajoharie (the Bank), and Central Asset Management (CAM). All significant
intercompany balances and transactions are eliminated in consolidation.
NATURE OF OPERATIONS AND SIGNIFICANT ESTIMATES
The Bank operates 19 branches throughout six counties in Central New York
State. The Company's primary source of revenue is providing loans to
residential, agribusiness, individual and commercial entities in this region.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenue and expenses during the reporting period.
Although the Company has a diversified loan portfolio, its debtors' ability
to honor loan contracts is in part dependent upon the economic environment of
the region. Changes in estimates, assumptions and evaluations used in the
development of the accompanying financial statements could occur quickly
because of changing economic conditions and the economic prospects of
borrowers. As part of the normal lending process, the Company evaluates
various types of collateral pledged for loans. The Company's access to the
collateral is generally dependent upon properly fulfilling the foreclosure
process before ownership can be claimed.
INVESTMENT SECURITIES
The Company's investment securities are classified as follows:
HELD TO MATURITY - debt securities that the Company has the positive intent
and ability to hold to maturity are classified as held to maturity securities
and reported at amortized cost.
AVAILABLE FOR SALE - debt and equity securities with readily determinable
fair values not classified as either trading securities or held to maturity
securities are classified as available for sale and reported at fair value,
with unrealized gains and losses excluded from earnings and reported as a
separate component of shareholders' equity.
TRADING SECURITIES - debt and equity securities with readily determinable
fair values that are bought and held for the purpose of selling in the near
future. These securities are reported at fair value with unrealized gains and
losses included in earnings.
The specific identification cost method is used in determining the realized
gains and losses on sales of investment securities.
LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is established through a provision for
loan losses charged to operations. The total allowance for possible loan
losses is determined based upon management's evaluation of potential losses
in the loan portfolio, as well as prevailing and anticipated economic
conditions. On January 1, 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 114, Accounting for
Creditors for Impairment of a Loan as amended by SFAS No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures. The
Statements provide guidance in defining and measuring loan impairment. A loan
is considered impaired when it is probable that the Company will be unable to
collect all amounts of principal and interest under the original terms of the
agreement. Accordingly, the Company measures all non-accrual and restructured
commercial real estate and commercial loans individually, based on the
present value of expected future cash flows, discounted at the loan's
effective interest rate or, at the loan's observable market price or the fair
value of collateral. The Statements do not apply to large groups of small
balance, homogeneous loans such as residential real estate, instalment and
consumer loans, that are collectively evaluated for impairment. Adoption of
these Statements did not have a material impact on the consolidated financial
statements.
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Interest on loans is calculated using the level yield interest method. The
accrual of interest on impaired loans is discontinued when loans are
contractually ninety days past due or in management's opinion, the borrower
may be unable to meet payments as they become due. Interest received on
impaired loans is applied to reduce the carrying value of the loan or, if
principal is considered fully collectible, recognized as interest income.
When it becomes evident that the outstanding principal balance of the loan is
not fully collectible, the Company charges-off the loan balance to its
collectible amount against the allowance for loan losses. Loan fees received
at the inception of a loan are deferred and amortized over the life of the
loan.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method based on the estimated
useful lives of the assets. Buildings are generally depreciated over 15 to 39
years, with furniture, fixtures and equipment depreciated from three-to-five
years. Gains or losses realized on asset dispositions are reflected in the
statement of income. Maintenance and repairs are charged to operating expense
and improvements are capitalized.
STOCK-BASED COMPENSATION
SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does
not require, companies to record compensation cost for stock-based
compensation plans at fair value. The Company has elected to continue to
account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess,
if any, of the quoted market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock. SFAS No. 123
also calls for the pro forma disclosure of stock-based compensation expense
for those companies which elect to maintain their accounting policy under APB
25. The Company has calculated the pro forma stock-based compensation under
the guidelines set forth in SFAS No. 123 and has determined the effects to be
not material.
INCOME TAXES
The income tax provision included in the statement of income is based upon
pre-tax income for financial reporting purposes and includes an appropriate
provision for the effect of temporary differences between the amount of
assets and liabilities recognized for financial reporting purposes and such
amounts recognized for tax purposes.
STOCK COMPENSATION/STOCK SPLIT AND EARNINGS PER SHARE
All references in the consolidated financial statements referring to the
number of shares and per share amounts have been adjusted retroactively, for
the three-for-two stock split described in Note 7. Earnings per share are
based on the weighted average number of shares of common stock outstanding
plus common stock equivalents under the Company's stock option plan during
each year.
RECLASSIFICATIONS
Certain reclassifications have been made to prior period amounts in order to
conform with the current year presentation.
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS
2 INVESTMENT SECURITIES
The amortized cost and approximate fair values of investment securities
available for sale are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
=======================================================================================================
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 9,043 $ 4 $ 125 $ 8,922
U.S. Government agency securities 19,115 14 340 18,789
Mortgage backed securities 80,935 291 1,814 79,412
Corporate bonds 19,533 388 235 19,686
Federal Home Loan Bank stock 2,092 - - 2,092
Federal Reserve Bank stock 356 - - 356
Preferred stock 1,125 29 - 1,154
Equity securities 492 70 - 562
-------------------------------------------------------------------------------------------------------
$132,691 $ 796 $ 2,514 $ 130,973
=======================================================================================================
(In thousands)
DECEMBER 31, 1996
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
=======================================================================================================
U.S. Treasury securities $ 13,553 $ 278 $ - $ 13,831
U.S. Government agency securities 15,162 89 30 15,221
Mortgage backed securities 9,492 7 29 9,470
Corporate bonds 14,343 433 - 14,776
Collateralized mortgage obligations 65,739 956 932 65,763
Federal Home Loan Bank stock 1,441 - - 1,441
Federal Reserve Bank stock 356 - - 356
-------------------------------------------------------------------------------------------------------
$120,086 $ 1,763 $ 991 $120,858
=======================================================================================================
</TABLE>
The amortized cost and fair value of debt securities available for sale at
December 31, 1996, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
(In thousands)
DECEMBER 31, 1996
AMORTIZED FAIR
COST VALUE
=============================================================================
Due in one year or less $ 4,001 $ 4,001
Due after one year through five years 9,420 9,266
Due after five years through ten years 33,333 33,201
Due after ten years 937 929
-----------------------------------------------------------------------------
47,691 47,397
Mortgage backed securities 80,935 79,412
-----------------------------------------------------------------------------
$128,626 $126,809
=============================================================================
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The amortized cost and approximate fair values of investment securities held to
maturity are summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
DECEMBER 31, 1996
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
===============================================================================================
<S> <C> <C> <C> <C>
U.S. Government agency
securities $ 10,181 $ 27 $ 293 $ 9,915
Mortgage backed securities 29,278 197 408 29,067
State and municipal
obligations 49,690 3,489 183 52,996
Corporate and taxable
municipal bonds 15,621 1,047 266 16,402
-----------------------------------------------------------------------------------------------
$104,770 $4,760 $1,150 $108,380
===============================================================================================
(In thousands)
DECEMBER 31, 1995
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
===============================================================================================
U.S. Government agency
securities $ 3,996 $ 21 $ 263 $ 3,754
Mortgage backed securities 29,206 546 91 29,661
State and municipal
obligations 46,232 2,566 263 48,535
Corporate and taxable
municipal bonds 15,158 1,195 44 16,309
-----------------------------------------------------------------------------------------------
$ 94,592 $4,328 $ 661 $ 98,259
===============================================================================================
</TABLE>
The amortized cost and fair value of debt securities held to maturity at
December 31, 1996, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
(In thousands)
DECEMBER 31, 1996
AMORTIZED FAIR
COST VALUE
=============================================================================
Due in one year or less $ 2,328 $ 2,486
Due after one year through five years 20,108 21,192
Due after five years through ten years 49,701 52,213
Due after ten years 3,355 3,422
-----------------------------------------------------------------------------
75,492 79,313
Mortgage backed securities 29,278 29,067
-----------------------------------------------------------------------------
$104,770 $108,380
=============================================================================
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Gross gains of $1,437 and gross losses of $835 were realized on sales of
available for sale investment securities in 1996; gross gains of $901 and
gross losses of $180 were realized on sales of available for sale investment
securities in 1995; gross gains of $235 and gross losses of $195 were
realized on sales of investment securities in 1994.
Securities with a book value of $128,343 at December 31, 1996 were pledged to
secure funds borrowed from the Federal Reserve, public deposits and
repurchase agreements.
3 LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The composition of the loan portfolio is as follows:
(In thousands)
DECEMBER 31,
1996 1995
===========================================================================
Installment and other consumer loans $125,190 $125,091
Real estate loans 134,340 129,863
Commercial loans 56,548 56,385
Tax-exempt loans 4,932 5,278
---------------------------------------------------------------------------
321,010 316,617
Allowance for possible loan losses (8,367) (8,463)
---------------------------------------------------------------------------
Loans, net $312,643 $308,154
===========================================================================
The Company had impaired loans of $2,970 and $2,719 at December 31, 1996 and
1995, respectively. Included in this amount are impaired loans of $1,586 and
$1,035, respectively, which had an allowance for loan losses of $367 and
$157, respectively. Average impaired loans were $3,440 for 1996 and $2,823 in
1995. Interest income recognized on impaired loans totalled $28 for 1996 and
$5 for 1995. Loans on which the accrual of interest has been discontinued
amounted to $3,253 and $3,078 at December 31, 1996 and 1995, respectively.
Interest income on these nonaccrual loans is recorded only as received. The
income the Company would have earned had these loans been on accrual status
during 1996 and 1995 was $125 and $147, respectively. Other assets and real
estate acquired in the settlement of loans amounted to $1,348 and $1,300 at
December 31, 1996 and 1995, respectively.
A summary of the changes in the allowance for possible loan losses follows:
<TABLE>
<CAPTION>
(In thousands)
DECEMBER 31,
1996 1995 1994
==================================================================================
<S> <C> <C> <C>
Balance, beginning of year $ 8,463 $ 8,292 $ 7,772
Provision for loan losses 635 965 1,600
Net charge-offs
Loans charged off (1,297) (1,315) (1,610)
Recoveries on loans previously charged off 566 521 530
-----------------------------------------------------------------------------------
Net charge-offs (731) (794) (1,080)
-----------------------------------------------------------------------------------
Balance, end of year $ 8,367 $ 8,463 $ 8,292
==================================================================================
</TABLE>
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS
4 PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
(In thousands)
DECEMBER 31,
1996 1995
==========================================================================
Land $ 549 $ 549
Buildings and improvements 9,122 4,575
Furniture, fixtures and equipment 5,772 4,432
Construction-in-progress 286 1,656
--------------------------------------------------------------------------
15,729 11,212
Accumulated depreciation (6,056) (5,289)
--------------------------------------------------------------------------
Premises and equipment $ 9,673 $ 5,923
==========================================================================
In July 1996, the Company completed construction of its new operations center in
Canajoharie, New York. The total cost of the center was $4,300, which
includes $213 of capitalized interest cost.
5 INTEREST-BEARING DEPOSITS
The components of interest-bearing deposits are as follows:
(In thousands)
DECEMBER 31,
1996 1995
===========================================================================
NOW accounts $ 59,527 $ 46,862
Savings accounts 98,440 94,582
Money market accounts 38,557 38,964
Time deposits of $100,000 or more 110,145 117,189
Other time deposits 152,235 151,480
---------------------------------------------------------------------------
Total $458,904 $449,077
===========================================================================
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS
6 BORROWINGS
Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to ninety days from the transaction date.
Securities sold under repurchase agreements are held by an independent third
party custodian. Information concerning federal funds purchased and
securities sold under agreements to repurchase is summarized below:
(In thousands)
1996 1995
=============================================================================
Average daily balance during the year $ 17,158 $ 11,696
Average interest rate during the year 4.78% 5.38%
Maximum month-end balance during the year $ 19,854 $ 12,037
The Company has entered into transactions with a significant shareholder in
which securities are sold and agreed to be repurchased at a specific price at
a later date. This retail repurchase agreement resulted in approximately
$7,281 and $7,070 being due to the shareholder as of December 31, 1996 and
1995, respectively.
Long-term borrowings consist of a Federal Home Loan Bank (FHLB) borrowing of
$2,563 at December 31, 1996 and $2,870 at December 31, 1995, which bears
interest at 5.45% with payments due through 2003, and an Industrial
Development Agency (IDA) note of $4,750 at December 31, 1996 and $3,750 at
December 31, 1995, which bears interest at a variable commercial paper rate,
5.13% and 5.95% at December 31, 1996 and 1995, respectively, with payments
due through 2025. The amounts coming due over the next five years starting in
1997 and ending in 2001 for long term borrowings are $515, $515, $520, $520
and $530.
7 STOCKHOLDERS' EQUITY
On April 7, 1994, the Company commenced a stock offering of 150,000 shares of
its common stock on a priority basis to its stockholders and any remaining
shares to the public. All of the shares available were sold by the closing
date, May 13, 1994. From this offer, the Company increased its capital by
$4,707 ($4,950 less expenses).
On October 13, 1994, the stockholders approved a common stock split, payable
November 10, 1994, of one additional share of the Company's common stock for
each share owned by stockholders of record at the close of business on
October 31, 1994. The dividend was accounted for as a two-for-one stock split
and par value changed from $5.00 to $2.50 per share.
On December 17, 1996, the Board of Directors declared a three-for-two stock
split to holders of record as of December 31, 1996. The split was distributed
on January 15, 1997. The stock split has been recorded as of December 31,
1996 by a transfer of $3,225 from capital in excess of par to common stock,
representing $2.50 par value for each additional share issued. The number of
shares issued at December 31, 1996, after giving effect to the split, was
3,870,596 (2,580,397 immediately prior to the split). All share and per share
data, including stock option plan information, has been restated to reflect
the split.
In September of 1996, the Company repurchased 99,960 shares of stock for a total
of $2,799. These shares were retired at the request of the Board of
Directors. The excess repurchase price of the shares over the original issue
proceeds was charged to retained earnings in the third quarter.
The Company periodically purchases treasury stock on the open market to fund the
Dividend Reinvestment Plan and meet the requirements of the stock option
plan.
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS
8 STOCK OPTION PLAN
During 1994, the Company established an Incentive Stock Plan (the Plan) which
permits the issuance of options to selected employees. The Company has
reserved 150,000 shares of common stock for issuance under the Plan. Stock
options are nontransferable other than on death and are not exercisable prior
to six months from date of grant. A summary of the stock options follows:
<TABLE>
<CAPTION>
OPTION NO. OF
NO. OF PRICE PER (In thousands) SHARES
SHARES SHARE TOTAL EXERCISABLE
============================================================================================
<S> <C> <C> <C> <C>
Granted 57,000 $ 10.85 $ 618
Exercised (4,050) 10.85 (44)
--------------------------------------------------------------------------------------------
Outstanding at
December 31, 1994 52,950 10.85 574 52,950
Granted - - -
Exercised (6,450) 10.85 (70)
--------------------------------------------------------------------------------------------
Outstanding at
December 31, 1995 46,500 10.85 504 46,500
Granted 28,500 17.67 to 18.75 530
Exercised (12,750) 10.85 (138)
--------------------------------------------------------------------------------------------
Outstanding at
December 31, 1996 62,250 $10.85 to 18.75 $ 896 62,250
============================================================================================
</TABLE>
9 INCOME TAXES
The provision for income taxes charged to operations was as follows:
(In thousands)
YEAR ENDED DECEMBER 31,
1996 1995 1994
=================================================================
Current:
Federal $1,740 $2,410 $1,829
State 621 956 758
-----------------------------------------------------------------
2,361 3,366 2,587
-----------------------------------------------------------------
Deferred:
Federal 320 (752) (303)
State 57 (133) (54)
-----------------------------------------------------------------
377 (885) (357)
-----------------------------------------------------------------
$2,738 $2,481 $2,230
=================================================================
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Deferred tax assets (liabilities) are comprised of the following :
(In thousands)
DECEMBER 31,
1996 1995
====================================================================
Allowance for loan losses $ 2,774 $ 2,649
Deferred compensation 838 719
Deferred loan fees 137 184
Retirement accruals 288 233
Accrued liabilities 192 396
Security valuation adjustment 658 -
Other 220 128
--------------------------------------------------------------------
Gross deferred tax assets 5,107 4,309
--------------------------------------------------------------------
Leases (1,363) -
Depreciation (201) (98)
Security valuation adjustment - (150)
Other - (298)
--------------------------------------------------------------------
Gross deferred tax liabilities (1,564) (546)
--------------------------------------------------------------------
$ 3,543 $ 3,763
====================================================================
The provision for income taxes differs from the amount of tax determined by
applying the federal statutory income tax rate of 34% as a result of the
following differences:
(In thousands)
YEAR ENDED DECEMBER 31,
1996 1995 1994
===========================================================================
Pre-tax income at statutory rate $3,364 $3,078 $2,557
Tax-exempt income (945) (918) (874)
State income tax net of federal tax benefit 410 631 501
Other (91) (310) 46
---------------------------------------------------------------------------
$2,738 $2,481 $2,230
===========================================================================
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS
10 EMPLOYEE BENEFIT PLANS
EMPLOYEE PENSION BENEFITS
The Company has a noncontributory pension plan which covers substantially all
full-time employees. The benefit formula is based upon a percentage of final
average pay immediately prior to retirement.
The following table sets forth the plan's funded status and amounts recognized
in the Company's balance sheet.
(In thousands)
DECEMBER 31,
1996 1995
============================================================================
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $4,732 and $4,682 in 1996
and 1995, respectively $(4,889) $(4,837)
----------------------------------------------------------------------------
Projected benefit obligation (6,867) (6,649)
Plan assets at fair value 7,916 7,135
----------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 1,049 486
Unrecognized net (gain) loss (740) 18
Prior service cost not yet recognized in net
periodic pension cost 125 136
Unrecognized portion of net asset at transition (932) (1,019)
----------------------------------------------------------------------------
Pension liability recognized in the balance sheet $ (498) $ (379)
============================================================================
(In thousands)
YEAR ENDED DECEMBER 31,
1996 1995 1994
=========================================================================
Net pension expense included the
following components:
Service cost - benefits earned
during the period $ 460 $ 301 $ 352
Interest cost on projected benefit
obligation 470 415 389
Actual return on plan assets (1,049) (1,503) (63)
Amortization of initial unrecognized
obligation (87) (87) (87)
Amortization of unrecognized
prior service cost 11 11 11
Deferred gain (loss) 419 979 (498)
-------------------------------------------------------------------------
$ 224 $ 116 $ 104
=========================================================================
The unrecognized portion of net assets at transition is being amortized over a
period of 21 years. Plan assets are invested primarily in pooled investment
funds. A weighted-average discount rate of 7% for 1996, 7.5% for 1995, and 8%
for 1994, and a rate of increase in future compensation levels of 5% for
1996, 1995 and 1994 was used in determining the actuarial present value of
the projected benefit obligation. The expected long-term rate of return on
assets for 1996, 1995 and 1994 was 9%.
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS
EMPLOYEE SAVINGS PLAN
The Company maintains a profit sharing plan which covers all employees who
have met minimum eligibility requirements. As defined under the terms of the
plan, participants may elect to defer a portion of compensation through
contributions to the plan. Company contributions to the plan amounted to $729
in 1996, $566 in 1995 and $487 in 1994.
EMPLOYEE HEALTH CARE BENEFITS
Effective June 1994, the Bank ceased offering any postretirement benefit
payments for those employees who had not yet retired, and for those retirees
who had not yet reached age 65. The plan curtailment resulted in a gain of
$107, which was recognized in 1994. The remaining obligation of the Company
to its retirees is not material.
DEFERRED COMPENSATION PLAN
The Company also has deferred compensation or supplemental retirement
agreements with certain key officers. The cost of such plans is being accrued
over the remaining period of active employment. The Company has accrued
$2,400 and $2,027 at December 31, 1996 and 1995, respectively, to reflect its
liability under these agreements. Deferred compensation expense amounted to
$83 in 1996, $316 in 1995 and $375 in 1994. To fund these agreements, the
Company purchased whole-life insurance contracts on the related officers. The
Company paid whole-life premiums of approximately $190 in 1996, $159 in 1995,
and $141 in 1994. At December 31, 1996, the cash surrender value of these
policies was $583.
EMPLOYEE STOCK PURCHASE PLAN
Employees who work more than 1,000 hours per year and have completed one year
of service are eligible to participate in the Company's Employee Stock
Purchase Plan. Under the plan, common stock of the Company is purchased at
prevailing market prices and the Company distributes the shares purchased to
the participants upon request.
11 COMMITMENTS AND CONTINGENT LIABILITIES
(In thousands, except per share data)
In the normal course of business, there are outstanding various commitments and
contingent liabilities, such as guarantees and commitments to extend credit,
which are not reflected in the accompanying financial statements. The Bank's
exposure to credit loss in the event of nonperformance by the other party to
the financial instrument for loan commitments is represented by the
contractual amount of these instruments. The Bank uses the same credit
policies in making commitments as it does for on-balance sheet instruments.
Outstanding commitments totaled $29,762 at December 31, 1996.
The Bank is required to maintain a reserve balance, as established by the
Federal Reserve Bank of New York. The required average total reserve for the
most recent 14-day maintenance period for the year ended December 31, 1996
was $1,212, which was on deposit with the Federal Reserve Bank of New York.
The approval of banking regulatory authorities is required before dividends paid
by the Bank during the year can exceed certain prescribed limits. Undivided
profits of approximately $13,000 are free of limitations at December 31,
1996.
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS
12 STATEMENT OF CASH FLOWS
Cash equivalents include cash on hand, amounts due from banks and federal funds
sold. Generally, federal funds are purchased and sold for one-day periods.
(In thousands)
YEAR ENDED DECEMBER 31,
1996 1995 1994
=============================================================================
Reconciliation of net income to cash provided
by operating activities:
Net income $7,157 $6,572 $5,289
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 767 550 488
Provision for loan loss 635 965 1,600
Proceeds from trading portfolio, net (268) 72 309
Gain on sales of investment securities (602) (721) (40)
Deferred taxes provision 377 (885) (896)
Increase in interest receivable (305) (535) (569)
Decrease (increase) in other assets (182) 393 (1,076)
Increase (decrease) in interest, taxes and
other liabilities 387 1,441 (6)
Other 675 350 200
-----------------------------------------------------------------------------
$8,641 $8,202 $5,299
=============================================================================
Non cash investing activities include the acquisition of real estate and other
assets in the settlement of loans of $2,119 in 1996, $2,399 in 1995 and
$1,255 in 1994.
13 FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS
For the short-term instruments, the carrying value approximates fair value.
INVESTMENT SECURITIES
Fair values for investment securities are based on quoted market prices or
dealer quotes, where available. Where quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments.
LOANS
The fair value of loans is determined by utilizing a discounted cash flow
model which considers scheduled maturities, repricing characteristics,
prepayment assumptions and interest cash flows.
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ACCRUED INTEREST RECEIVABLE AND PAYABLE
For the short-term instruments, the carrying value approximates fair value.
DEPOSITS
The fair value of fixed maturity deposits is determined by utilizing a
discounted cash flow model which considers scheduled maturities, repricing
characteristics and interest cash flows. Demand deposits, savings accounts
and money market accounts are payable on demand; the carrying value
approximates fair value.
BORROWINGS
The fair value of borrowings has been estimated using discounted cash flow
analyses that apply interest rates currently being offered for borrowings
with similar terms.
COMMITMENTS
Fees charged for commitments to extend credit are not significant and are
offset by associated credit risk with respect to certain amounts expected to
be funded. Accordingly, the fair value of the financial instruments is
immaterial.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
(In thousands)
YEAR ENDED DECEMBER 31,
1996 1995
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
===================================================================================================
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 16,236 $ 16,236 $ 24,200 $ 24,200
Investment securities 235,743 238,650 215,450 219,117
Net loans 312,643 307,173 308,154 308,143
Accrued interest receivable 4,914 4,914 4,609 4,609
Financial liabilities:
Noninterest-bearing deposits 50,313 50,313 47,234 47,234
Interest-bearing deposits 458,904 457,057 449,077 449,567
Borrowings 21,167 20,483 14,583 14,173
Accrued interest payable 2,258 2,258 2,408 2,408
===================================================================================================
</TABLE>
The reported fair values of financial instruments are based on a variety of
factors. Accordingly, the fair values may not represent actual values of the
financial instruments that could have been realized as of year end or that
will be realized in the future.
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS
14 PARENT COMPANY FINANCIAL STATEMENTS
The following presents the condensed balance sheet of the Company and its
condensed statement of operations and of cash flows:
(In thousands)
DECEMBER 31,
1996 1995
=============================================================================
CONDENSED BALANCE SHEET
Assets:
Cash and other assets $ 1,179 $ 2,901
Investment securities available for sale 1,717 4,529
Premises and equipment 4,949 1,885
Investment in subsidiary 45,564 42,108
-----------------------------------------------------------------------------
$53,409 $51,423
=============================================================================
Liabilities and stockholders' equity:
Other liabilities $ 268 240
Long-term borrowing 4,750 3,750
Stockholders' equity 48,391 47,433
-----------------------------------------------------------------------------
$53,409 $51,423
=============================================================================
(In thousands)
YEAR ENDED DECEMBER 31,
1996 1995 1994
==========================================================================
CONDENSED STATEMENT OF INCOME
Operating income:
Dividends from subsidiary $2,089 $1,930 $1,760
Interest and fee income 617 399 144
--------------------------------------------------------------------------
Total operating income 2,706 2,329 1,904
Operating expenses 578 206 181
--------------------------------------------------------------------------
Income before equity in undistributed
net income of subsidiary 2,128 2,123 1,723
Equity in undistributed net income of
subsidiary 5,029 4,449 3,566
--------------------------------------------------------------------------
$7,157 $6,572 $5,289
==========================================================================
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(In thousands)
YEAR ENDED DECEMBER 31,
1996 1995 1994
====================================================================================
<S> <C> <C> <C>
CONDENSED STATEMENT OF CASH FLOWS
Net cash provided by operating activities $ 2,319 $ 2,400 $ 1,668
------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of available for sale investment securities (3,897) (6,048) (3,976)
Proceeds from sales of available for sale securities 4,262 - -
Maturity of available for sale investment securities 2,538 5,500 -
Purchases of premises and equipment (3,195) (1,885) -
Investment in subsidiary (84) - -
------------------------------------------------------------------------------------
Net cash flows from investing activities (376) (2,433) (3,976)
------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term borrowings 1,000 3,750 -
Dividends paid (2,080) (1,921) (1,685)
Proceeds from issuance of common stock 141 126 5,032
Purchase of treasury stock (3,099) (175) -
Issuance of treasury stock 452 - -
------------------------------------------------------------------------------------
Net cash flows from financing activities (3,586) 1,780 3,347
------------------------------------------------------------------------------------
Net (decrease) increase in cash (1,643) 1,747 1,039
Cash at beginning of year 2,822 1,075 36
------------------------------------------------------------------------------------
Cash at end of year $ 1,179 $ 2,822 $ 1,075
====================================================================================
</TABLE>
15 REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, banking
institutions must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by the regulation to ensure capital adequacy
require banking institutions to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1996, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1996, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized, a banking institution must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the institution's category. Actual capital
amounts and ratios are also presented in the table.
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(In thousands, except ratio data)
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT
ACTUAL ADEQUACY PURPOSES CORRECTION ACTION PROVISIONS
AS OF 12/31/96: AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
CNB FINANCIAL CORP. (CONSOLIDATED)
Total Capital (to Risk-
Weighted Assets) $ 54,793 13.47% > $ 32,547 > 8.0% > $ 40,683 > 10.0%
- - - -
Tier I Capital (to Risk-
Weighted Assets) 49,667 12.21% > 16,273 > 4.0% > 24,409 > 6.0%
- - - -
Tier I Capital (to Average
Assets) 49,667 8.30% > 23,946 > 4.0% > 29,933 > 5.0%
- - - -
CENTRAL NATIONAL BANK, CANAJOHARIE
Total Capital (to Risk-
Weighted Assets) $ 51,780 12.98% > $ 31,925 > 8.0% > $ 39,906 > 10.0%
- - - -
Tier I Capital (to Risk-
Weighted Assets) 46,750 11.71% > 15,963 > 4.0% > 23,944 > 6.0%
- - - -
Tier I Capital (to Average
Assets) 46,750 7.90% > 23,673 > 4.0% > 29,591 > 5.0%
- - - -
AS OF 12/31/95:
CNB FINANCIAL CORP. (CONSOLIDATED)
Total Capital (to Risk-
Weighted Assets) $ 51,973 13.44% > $ 30,941 > 8.0% > $ 38,676 > 10.0%
- - - -
Tier I Capital (to Risk-
Weighted Assets) 47,094 12.18% > 15,471 > 4.0% > 23,206 > 6.0%
- - - -
Tier I Capital (to Average
Assets) 47,094 9.02% > 22,274 > 4.0% > 27,843 > 5.0%
- - - -
CENTRAL NATIONAL BANK, CANAJOHARIE
Total Capital (to Risk-
Weighted Assets) $ 46,482 12.17% > $ 30,544 > 8.0% > $ 38,180 > 10.0%
- - - -
Tier I Capital (to Risk-
Weighted Assets) 41,644 10.91% > 15,272 > 4.0% > 22,908 > 6.0%
- - - -
Tier I Capital (to Average
Assets) 41,644 7.48% > 22,288 > 4.0% > 27,860 > 5.0%
- - - -
</TABLE>
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS
16 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth selected quarterly financial data for the years
ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(In thousands, except per share data)
1996 QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
=====================================================================================
<S> <C> <C> <C> <C>
Net interest income $ 6,055 $ 6,269 $ 6,455 $ 6,461
Provision for loan losses (275) (65) (170) (125)
-------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 5,780 6,204 6,285 6,336
Gain on sale of investment securities 460 53 42 47
Other income 563 599 664 527
Other expense (4,217) (4,525) (4,385) (4,538)
-------------------------------------------------------------------------------------
Income before income taxes 2,586 2,331 2,606 2,372
Income taxes (723) (633) (707) (675)
-------------------------------------------------------------------------------------
Net income $ 1,863 $ 1,698 $ 1,899 $ 1,697
=====================================================================================
Earnings per share $ .46 $ .42 $ .47 $ .46
=====================================================================================
1995 QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
=====================================================================================
Net interest income $ 5,988 $ 5,776 $ 5,890 $ 5,985
Provision for loan losses (150) (220) (275) (320)
-------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 5,838 5,556 5,615 5,665
Gain on sale of investment securities 33 334 177 177
Other income 412 472 564 538
Other expense (3,934) (4,308) (3,935) (4,151)
-------------------------------------------------------------------------------------
Income before income taxes 2,349 2,054 2,421 2,229
Income taxes (655) (571) (655) (600)
-------------------------------------------------------------------------------------
Net income $ 1,694 $ 1,483 $ 1,766 $ 1,629
=====================================================================================
Earnings per share $ .43 $ .37 $ .44 $ .39
=====================================================================================
</TABLE>
44
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 15,536
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 130,973
<INVESTMENTS-CARRYING> 104,770
<INVESTMENTS-MARKET> 108,380
<LOANS> 321,010
<ALLOWANCE> 8,367
<TOTAL-ASSETS> 585,627
<DEPOSITS> 509,217
<SHORT-TERM> 13,854
<LIABILITIES-OTHER> 6,852
<LONG-TERM> 7,313
0
0
<COMMON> 9,676
<OTHER-SE> 37,715
<TOTAL-LIABILITIES-AND-EQUITY> 585,627
<INTEREST-LOAN> 30,356
<INTEREST-INVEST> 16,034
<INTEREST-OTHER> 605
<INTEREST-TOTAL> 46,995
<INTEREST-DEPOSIT> 20,650
<INTEREST-EXPENSE> 1,105
<INTEREST-INCOME-NET> 25,240
<LOAN-LOSSES> 635
<SECURITIES-GAINS> 602
<EXPENSE-OTHER> 17,665
<INCOME-PRETAX> 9,895
<INCOME-PRE-EXTRAORDINARY> 7,157
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,157
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 2,253
<LOANS-PAST> 1,226
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 1,297
<RECOVERIES> 566
<ALLOWANCE-CLOSE> 8,367
<ALLOWANCE-DOMESTIC> 4,415
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,952
</TABLE>
