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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly period ending September 30, 1998
Commission File Number 33-45522
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CNB FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
New York 22-3203747
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(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
24 Church Street, Canajoharie N.Y. 13317
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(Address of principal executive offices -- Zip code)
Registrant's telephone number, include area code (518) 673-3243
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Indicated by a check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the bank
was required to file such reports), and (2) has been subjected to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares outstanding
Class on September 30, 1996
----------------------------- ----------------------------
Common Stock, $1.25 par value 7,592,452
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-1-
<PAGE>
PART I. FINANCIAL INFORMATION Page
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Item 1. Consolidated Interim Financial Statements (unaudited)
1. Consolidated Balance Sheets ............................... 3.
2. Consolidated Statements of Income ......................... 4.
3. Consolidated Statements of Cash Flows ..................... 5.
4. Notes to Consolidated Interim Financial Statements ........ 6.-7.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............... 8.-12.
Item 3. Quantiative and Qualitative Disclosures About Market Risk .... 13.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................ 13.
Item 2. Changes in Securities and Use of Proceeds .................... 13.
Item 3. Defaults Upon Senior Securities .............................. 13.
Item 4. Submission of Matters to a Vote of Security Holders .......... 13.
Item 5. Other Information ............................................ 13.
Item 6. Exhibits and Reports on Form 8-K ............................. 13.
SIGNATURES
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<PAGE>
<TABLE>
CNB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks $ 23,688 $ 19,498
Federal funds sold 2,625 0
-------- --------
Cash and cash equivalents 26,313 19,498
Trading securities 0 1,119
Securities available for sale, at fair value 170,660 144,077
Investment securities held to maturity, at amortized cost 114,667 110,324
Net loans receivable 363,158 338,332
Accrued interest receivable 6,063 5,325
Premises and equipment, net 10,239 10,005
Other real estate owned and repossessed assets 1,187 1,372
Other assets 4,671 4,337
-------- ========
TOTAL ASSETS $696,958 $634,389
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits 62,309 49,358
Interest-bearing deposits 555,870 489,114
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Total deposits 618,179 538,472
-------- --------
Short-term borrowings:
Securities sold under agreements to repurchase 7,454 17,330
Borrowings from the Federal Home Loan Bank of New York 0 10,400
Borrowings from the U.S. Treasury 524 503
-------- --------
Total short-term borrowings 7,978 28,233
======== ========
Long-term borrowings 6,617 6,931
Other liabilities 8,117 6,147
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Total Liabilities 640,891 579,783
-------- --------
Stockholders' equity:
Common stock, $1.25 par value, 20,000,000 shares authorized
(7,795,427 issued in 1998 and 7,752,340 shares issued in 1997) 9,744 9,690
Additional paid-in capital 6,136 5,891
Retained earnings 43,352 39,564
Accumulated other comprehensive income:
Net unrealized gain on securities available for sale
and securities available for sale transferred to investment
securities held to maturity, net of tax 465 393
Treasury stock, at cost (222,041 shares in 1998 and 76,144 shares in 1997) (3,630) (932)
-------- --------
Total stockholders' equity 56,067 54,606
======== ========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $696,958 $634,389
======== ========
Share data has been adjusted for the June 1998 two-for-one
stock split. See accompanying notes to consolidated interim
financial statements.
</TABLE>
-3-
<PAGE>
<TABLE>
CNB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans, including fees $ 8,314 $ 7,929 $24,489 $22,841
Securities:
Taxable 3,788 3,313 11,762 10,406
Nontaxable 904 815 2,632 2,350
Federal funds sold and other 38 118 195 346
------- ------- ------- -------
13,044 12,175 39,078 35,943
------- ------- ------- -------
Interest expense:
Deposits 6,201 5,419 18,408 15,741
Short-term borrowings 218 151 694 585
Long-term borrowings 94 100 289 303
------- ------- ------- -------
6,513 5,670 19,391 16,629
------- ------- ------- -------
Net interest income 6,531 6,505 19,687 19,314
Provision for loan losses 320 0 610 125
------- ------- ------- -------
Net interest income after provision for
loan losses 6,211 6,505 19,077 19,189
------- ------- ------- -------
Other income:
Service charges on deposit accounts 491 433 1,407 1,221
Net gain on securities transactions 82 35 318 323
Other 447 401 1,275 1,067
------- ------- ------- -------
1,020 869 3,000 2,611
------- ------- ------- -------
Other expenses:
Salaries and employee benefits 2,141 2,107 6,611 6,508
Occupancy and equipment 468 430 1,514 1,366
Data processing 497 357 1,533 1,081
Professional fees 288 286 902 668
FDIC deposit insurance and related costs 17 16 51 48
Advertising and marketing 77 136 259 505
Postage and courier 140 145 441 420
Office supplies and stationary 194 121 441 362
Other real estate owned and repossessed assets 150 185 684 583
Other 764 745 2,309 1,962
------- ------- ------- -------
4,736 4,528 14,745 13,503
------- ------- ------- -------
Income before income tax expense 2,495 2,846 7,332 8,297
Income tax expense 643 850 1,904 2,485
------- ------- ------- -------
Net income $ 1,852 $ 1,996 $ 5,428 $ 5,812
======= ======= ======= =======
Earnings per share:
Basic $0.24 $0.26 $0.71 $0.75
Diluted $0.24 $0.26 $0.71 $0.75
</TABLE>
Per share data has been adjusted for the June 1998 two-for-one stock split.
See accompanying notes to consolidated interim financial statements.
-4-
<PAGE>
<TABLE>
CNB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
------------------------------
(UNAUDITED)
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net Income $ 5,428 $ 5,812
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,023 755
Provision for loan losses 610 125
Net gain on securities transactions (318) (323)
Net loss on sales and writedowns of other real estate
owned and repossessed assets 131 195
Purchases of trading securities (18,255) (4,781)
Proceeds from sales of trading securities 19,504 4,784
Increase in accrued interest receivable (738) (600)
Net change in other assets and other liablilties 1,563 (2,181)
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Net cash provided by operating activities 8,948 3,786
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Cash flows from investing activities:
Purchases of securities:
Available for sale (126,653) (69,180)
Held to maturity (22,521) (18,688)
Proceeds from sales of securities:
Available for sale 52,780 62,663
Proceeds from maturities and calls of securities:
Available for sale 47,551 8,475
Held to maturity 18,213 13,250
Net loans made to customers (26,386) (19,295)
Proceeds from sales of other real estate owned and
repossessed assets 1,004 835
Capital expenditures (1,219) (788)
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Net cash used in investing activities (57,231) (22,728)
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Cash flows from financing activities:
Net increase in deposits 79,707 45,624
Net decrease in short term borrowings (20,255) (3,574)
Payments on long-term borrowings (314) (300)
Dividends paid (1,640) (1,432)
Proceeds from issuance of shares for options and Dividend
Reinvestment Plan 298 406
Purchase of treasury stock (2,698) (1,227)
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Net cash provided by financing activities 55,098 39,497
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Net increase in cash and cash equivalents 6,815 20,555
Cash and cash equivalents at beginning of period 19,498 16,236
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Cash and cash equivalents at end of period $ 26,313 $ 36,791
========== ==========
</TABLE>
See accompanying notes to consolidated interim financial statements.
-5-
<PAGE>
CNB Financial Corp.
Notes to Consolidated Interim Financial Statements
1. FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated interim financial statements include the
accounts of CNB Financial Corp. (the Company) and its wholly owned subsidiaries,
Central National Bank, Canajoharie and Central Asset Management (CAM). The
unaudited consolidated interim financial statements have been prepared according
to the rules of the Securities and Exchange Commission. In the opinion of the
Company, the unaudited consolidated interim financial statements contain all
adjustments necessary to present fairly the financial position as of September
30, 1998, the results of operations for the three and nine months ended
September 30, 1998 and 1997, and cash flows for the nine months ended September
30, 1998 and 1997. All adjustments are of a normal recurring nature. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to rules and regulations applicable to interim
financial statements.
The accompanying unaudited consolidated interim financial statements should be
read in conjunction with the CNB Financial Corp. consolidated year-end financial
statements, including notes thereto, which are included in the CNB Financial
Corp. 1997 Annual Report on Form 10-K.
All share and per share data has been adjusted for the two-for-one stock split
approved by the stockholders at the May 1998 Annual Meeting and paid on June 30,
1998.
2. EARNINGS PER SHARE
On December 31, 1997, the Company adopted the provisions of SFAS No. 128,
"Earnings per Share." SFAS No. 128 establishes standards for computing and
presenting earnings per share (EPS). This Statement supersedes Accounting
Principles Board Opinion No. 15, "Earnings per Share," and related
interpretations. SFAS No. 128 requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures and specifies additional disclosure requirements.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity (such as the Company's stock options). All prior
period EPS data has been restated to conform to the provisions of this
Statement.
The following table provides the calculation of basic and diluted EPS for the
three and nine months ended September 30:
<TABLE>
<CAPTION>
Three Months Ended 9/30/98 Nine Months Ended 9/30/98
------------------------------ -------------------------------
Weighted Weighted
Average Per Share Average Per Share
(in thousands, except per share data) Income Shares Amount Income Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income available
to common stockholders $ 1,852 7,605 $ 0.24 $5,428 7,644 $0.71
Effective of Dilutive Securities:
Stock options 49 44
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Dilutive EPS $ 1,852 7,654 $ 0.24 $5,428 7,688 $0.71
=============================================================
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended 9/30/97 Nine Months Ended 9/30/97
------------------------------ -------------------------------
Weighted Weighted
Average Per Share Average Per Share
(in thousands, except per share data) Income Shares Amount Income Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Basic EPS:
Net income available
to common stockholders $ 1,996 7,699 $ 0.26 $5,812 7,725 $0.75
Effective of Dilutive Securities:
Stock options 23 21
-------------------------------------------------------------
Dilutive EPS $ 1,996 7,722 $ 0.26 $5,812 7,745 $0.75
=============================================================
</TABLE>
3. COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income". This statement establishes standards for
reporting and display of comprehensive income and its components. Comprehensive
income includes the reported net income of a company adjusted for items that are
currently accounted for as direct entries to equity, such as the mark to market
adjustment on securities available for sale. At the Company, comprehensive
income represents net income plus other comprehensive income, which consists of
the change in the net unrealized gain or loss on securities available for sale
and securities available for sale transferred to investment securities held to
maturity, net of tax, for the period. Accumulated other comprehensive income
represents the net unrealized gain or loss on securities available for sale and
securities available for sale transferred to investment securities held to
maturity, net of tax, as of the consolidated balance sheet dates.
Total comprehensive income for the three months ended September 30, 1998 and
1997 was $2.0 million and $2.9 million, respectively. Total comprehensive income
for the nine months ended September 30, 1998 and 1997 was $5.3 million and $6.8
million, respectively.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits," which amends the disclosure
requirements of SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Statement No. 132
standardizes the disclosure requirement of Statements No. 87 and No. 106 to the
extent practicable and recommends a parallel format for presenting information
about pensions and other postretirement benefits. This Statement is applicable
to all entities and addresses disclosure only. The Statement does not change any
of the measurement or recognition provisions provided for in Statement No. 87,
No. 88, or No. 106. The Statement is effective for fiscal years beginning after
December 15, 1997. Management anticipates providing the required disclosures in
the December 31, 1998 consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. This Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. Management is
currently evaluating the impact of this Statement on the Company's consolidated
financial statements.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNB Financial Corp.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Thousands)
General
The purpose of this discussion and analysis is to focus on significant changes
in the financial condition and the results of operations of the Company. This
discussion and analysis is intended to supplement and highlight information
contained in the accompanying unaudited consolidated interim financial
statements as of September 30, 1998 and for the three and nine month periods
ended September 30, 1998 and 1997.
This discussion and analysis contains certain forward-looking statements within
the meaning of the federal securities laws. These forward-looking statements are
not guarantees of future performance and are subject to various factors that
could cause actual results to differ materially from these estimates. These
factors include changes in general economic and market conditions and the
development of an interest rate environment that adversely impacts the interest
rate spread or other income anticipated from the Company's operations and
assets.
Summary
Net income for the three months ended September 30, 1998, was $1,852, a 7%
decrease from the $1,996 earned in the same period last year. Diluted earnings
per share of $0.24 were down from the $0.26 earned in the third quarter of 1997.
For the nine months ended September 30, 1998, earnings decreased by $384, from
$5,812 in 1997 to $5,428 this year. Diluted earnings per share were down $0.04
from $0.75 to $0.71.
Total assets at September 30, 1998 grew to $696,958, an increase of 10% from the
1997 year-end total of $634,389. Net loans increased to $363,158, up 7% from the
$338,332 reported at December 31, 1997. The available-for-sale portion of the
securities portfolio increased by 18% from December 31, 1997 to $170,660. At
September 30, 1998, there was a net unrealized gain of $791 in the
available-for-sale portfolio compared to a net unrealized gain of $720 at
December 31, 1997. The held-to-maturity portfolio had a net increase of $4,343
(4%) from $110,324 at December 31, 1997 to $114,667 at September 30, 1998.
The growth in total assets during the nine months ended September 30, 1998 was
funded primarily through a $79,707 (15%) increase in deposits. The increase in
deposits also allowed for a $20,255 (72%) decrease in short-term borrowings from
December 31, 1997.
Stockholders' equity of $56,067 increased by $1,461 (3%) during the nine months
ended September 30, 1998. The increase in stockholders' equity was primarily due
to the Company's earnings ($5,428) offset by dividends paid ($1,641) and the
purchase of treasury stock ($2,698).
8
<PAGE>
Results of Operations
Nine Months Ended September 30, 1998
compared to the comparable period last year
Total interest and dividend income for the period increased $3,135 (9%) from
$35,943 to $39,078. The increase in income was primarily from a 13% increase in
average earning assets which offset a 30 basis point drop in the average tax
equivalent yield from 8.62% to 8.32%. The tax equivalent yield on the security
portfolio decreased 31 basis points from 7.73% in 1997 to 7.42% in the current
year. Paydowns on mortgage-backed products and the call of higher coupon agency
bonds are responsible for the decline in yield. The 30 basis point drop in loan
yields from 9.35%, for nine months ended September 30, 1997 to 9.05% in the
current year, is the result of the highly competitive rate environment and
refinancing of real estate loans.
Interest expense increased by $2,762 (17%), to $19,391 from $16,629. The average
balance of interest bearing deposits increased 13% or $59,524; $48,588 of the
increase was in the average balance of time deposits when compared to the same
period of last year. As a result of the increase in time deposits, as compared
to less expensive deposit types, the average rate paid on interest bearing
deposits increased 17 basis points from 4.41% to 4.58%.
As a result of the foregoing changes in interest and dividend income and
interest expense, net interest income increased by $373, or 2%, to a total of
19,687 for the nine months ended September 30, 1998. The net interest margin
decreased to 4.33% in 1998, as compared to 4.77% in 1997.
A loan loss provision of $610 was recorded for the nine months ended September
30, 1998, compared to $125 in the same period last year. The lower provision in
1997 was directly attributed to a large recovery received during the 1997
period.
Activity in the allowance for loan losses was as follows:
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
------------------ -----------------
Balance, beginning of period $8,378 $8,367
Provision 610 275
Charge-offs (954) (1,531)
Recoveries 369 1,267
------ ------
Balance, end of period $8,403 $8,378
====== ======
Other income increased $389 (15%) from the 1997 to 1998 period. The increase in
other income is primarily attributable to an increase in service charges on
deposit accounts (primarily an increase in ATM convenience fees), an increase in
investment and trust management fees and an increase in other items related
primarily to mortgage banking related income.
Total other expenses increased $1,242 (9%) from the 1997 to 1998 period. Major
expense increases include, data processing costs $452 (new hardware, software,
and increases in core processing costs), professional fees $234 (use of
consultants regarding various strategic, operational, and organizational issues
of the Company), communication system enhancements, which is a component of
other expense, $152 (wide area network and online banking), and other real
estate owned and repossessed asset related expenses of $101.
Income tax expense decreased $581 for the nine-month period ended September 30,
1998 due primarily to a decrease in income before income tax expense.
9
<PAGE>
Results of Operations
Three Months Ended September 30, 1998
compared to the comparable period last year
Total interest and dividend income for the period increased $869 (7%) from
$12,175 to $13,044. The increase in interest and dividend income was primarily
from an 13% increase in average earning assets which offset a 39 basis point
drop in the average tax equivalent yield from 8.69% to 8.30%.
The average tax equivalent yield on loans decreased to 9.01% in the third
quarter of 1998 from 9.50% in the same period of 1997. The 49 basis point drop
in the average tax equivalent yield in the third quarter of 1998 is attributable
primarily to an increase in non-performing loans during the third quarter of
1998 when compared to the same period in 1997, the lower interest rates
prevalent due to the increased competition in the market place and the generally
lower interest rate environment in 1998 vs. 1997. The security portfolio tax
equivalent yield decreased from 7.66% to 7.37% due to the increase in paydowns
on mortgage-backed products and the call of high coupon agency bonds.
Interest expense increased 15% to $6,513 during the quarter ended September 30,
1998. The average balance of interest-bearing deposits increased 12% or $56,313
when compared to the same quarter of 1997. Included in this increase was an
increase of $39,582 in the average balance of time deposits. The average rate
paid on interest bearing deposits increased 11 basis points from 4.51% in the
third quarter of 1997 to 4.62% in the same quarter of 1998.
A loan loss provision of $320 was recorded in the third quarter of 1998 while
none was recorded in the comparable quarter of last year. Non-performing loans
at September 30, 1998 were $5,454, an increase of 21% from the balance of $4,493
at December 31, 1997. An increase in non-performing commercial real estate loans
accounted for the majority of the increase in non-performing loans. A more
detailed discussion of non-performing loans appears under the section "Changes
in Financial Condition from December 31, 1997 to September 30, 1998."
Total other income increased 17% from $869 for quarter ended September 30, 1997
to $1,020 in the same quarter of 1998. The increase in other income was
primarily attributable to an increase in ATM convenience fees, and an increase
in net gains from security transactions.
Total other expenses increased $208 (5%) from $4,528 to $4,736 in the third
quarter of 1998. The major item contributing to this increase was an increase in
data processing costs of $140 (39%); $74 of the increase related to depreciation
on new hardware and software and $67 related to increased processing costs.
Income tax expense decreased $207 to $643 for the quarter ended September 30,
1998, due primarily to a decrease in income before income tax expense.
10
<PAGE>
Financial Condition, Liquidity and Capital Resources
Changes in Financial Condition from
December 31,1997 to September 30, 1998
Consolidated total assets increased to $696,958 at September 30, 1998, compared
to $634,389 at December 31, 1997, an increase of $62,569, or 10%. The increase
in assets during the period was primarily funded by deposit growth.
Securities in the available-for-sale portion of the portfolio increased $26,583
to $170,660. The increase was due mainly to the purchase of collateralized
mortgage obligations. The held-to-maturity portfolio increased by $4,343 due
mainly to the purchase of municipal securities.
Net loans increased by $24,826 (7%), and the allowance for loan losses increased
by $25. The increase in net loans resulted mainly from increases in lease
receivables of $12,374, loans secured by residential and commercial real estate
of $6,602 and commercial and agricultural notes of $4,164. As of September 30,
1998 the allowance for loan losses ($8,403) represents 2.26% of total loans and
154% of non-performing loans. This compares to 2.42% and 186% at December 31,
1997.
Non-accrual loans have increased $1,767 from $2,107 to $3,874 during the period.
The major increases in non-accrual loans took place in the real estate sectors
of the portfolio. Commercial real estate and farm real estate non-accruals
increased by $1,307 and residential real estate increased by $422 during the
nine-month period. Past due loans over 90 days and still accruing decreased
during the period by $806 (34%) to $1,580. Management believes that current
economic conditions of the market area in commercial and agricultural business
lines have effected the upward trend in non-performing loans. This increasing
trend is not expected to continue in the last quarter of the year.
Total deposits increased from $538,472 to $618,179 or $79,707 (15%). The largest
increase during the period was in time deposits, which increased $35,691 (45%),
money market accounts, which increased $27,272 (34%), and demand deposit
accounts, which increased $12,951 (16%). The increase in deposits resulted
mainly from seasonal fluctuations in municipal deposits.
At September 30, 1998, total stockholders' equity increased by $1,461 from
December 31, 1997. Net income for the period was $5,428 of which $1,641 was paid
back to the stockholders in the form of dividends. Also impacting stockholders'
equity during the period was the purchase of treasury stock totaling $2,698.
The Company's Board of Directors authorized the repurchase of 472,000
outstanding shares at its February 1997 meeting. During 1997, 84,230 shares were
repurchased at a cost of $1,018. On February 27, 1998, the Company announced its
intention to extend the repurchase program and to purchase up to 664,122 shares
of its stock in the open market during the period from March 16, 1998 to March
15, 1999. The shares will be purchased at prevailing market prices from time to
time depending on market conditions. The repurchased shares will be held in
treasury stock but may be reissued in the future in connection with the
Company's Dividend Reinvestment Plan, to satisfy the issuing of stock options,
or for other corporate purposes. During the nine months ended September 30,
1998, 145,897 shares (net of issuances to the dividend reinvestment program)
were repurchased at a cost of $2,698.
Liquidity involves the ability to raise funds to support asset growth, meet
deposit withdrawals, maintain reserve requirements, and sustain operations. This
is accomplished through maturities of bonds and loans, deposit growth, purchase
of federal funds, borrowings on lines of credit, and selling securities under
agreements to repurchase. Management considers all of these factors in
evaluating liquidity requirements and believes its present position to be
adequate.
11
<PAGE>
IMPACT OF THE YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The "year
2000" issue is pervasive and complex, as virtually every computer operation will
be affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Company has established a Year 2000 project plan to address systems and
facilities changes necessary to properly recognize dates after 1999, has
assigned implementation responsibilities and has established a management and
Board reporting process. All of the Company's significant financial accounting
systems are provided under contract with major national banking systems
providers who are progressing under their own Year 2000 plans. Most significant
system changes are scheduled to be completed by December 31, 1998. The Company's
plan follows the five-step approach required by its regulators: Awareness,
Assessment, Modification, Verification, and Implementation. The costs of the
project, which are not expected to be significant, and the date on which the
Company plans to complete the Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events including continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those plans.
Additional information about the Company's Year 2000 status at September 30,
1998 was as follows:
Readiness: The Company's plans include both information technology ("IT") and
non-IT systems. Most of the Company's primary exposure relates to IT systems,
primarily exposure related to the vendor of its account processing systems. This
is a large national banking systems vendor; as of September 30, 1998 the vendor
reported that it had completed the remediation and implementation steps on the
account processing systems to be used by the Company. This vendor is initiating
internal testing and the Company is scheduled to perform its own test early in
the first quarter of 1999.
Costs: The Company has not incurred material costs related to its Year 2000
project plan and does not expect to incur significant expense too implement the
necessary corrective measures. No assurances can be given, however, that
significant expenses will not be incurred in future periods.
Risks: The most significant risk anticipated by the Company is the possibility
of interruptions to its account processing systems. Due to the progress
described above, the Company does not presently foresee any material
interruptions to the systems. The risks associated with the year 2000 issue go
beyond the Company's own ability to solve year 2000 problems. Should significant
commercial customers fail to address year 2000 issues effectively, their ability
to meet debt service requirements could be impaired, resulting in increased
credit risk and potential increases in loan charge-offs.
Contingency Plans: The Company has taken actions to comply with federal
regulatory requirements for Year 2000 contingency planning. The Company has
established a contingency planning team representing all of its major functional
areas. The Company has established a contingency plan timetable and is currently
developing risk analyses for its high priority business functions.
12
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's interest rate risk position
since December 31, 1997. Other types of market risk, such as foreign currency
exchange rate risk and commodity price risk, do not arise in the normal course
of the Company's business activities.
CNB Financial Corp.
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities and Use of Proceeds
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and reports on Form 8-K
Exhibit 27 - Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNB FINANCIAL CORP.
Registrant
Date: _________, 1998 By:_____________________________________
Donald L. Brass
President
Date: __________ 1998 By:_____________________________________
Peter J. Corso
Executive Vice President
13
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