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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, 1997
[ ] 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
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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, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $111,841,812.
As of March 15, 1998, 3,835,959 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, 1997
Portions of Proxy Statement for Annual Meeting III
of Shareholders to be held on May 21, 1998
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT 1997
CNB FINANCIAL CORP.
PART I Page
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<S> <C> <C>
Item 1. Business............................................................. 1
Item 2. Properties........................................................... 8
Item 3. Legal Proceedings.................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders.................. 9
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............................................. 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........... 12
Item 8. Financial Statements and Supplementary Data.......................... 12
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................12
PART III
Item 10. Directors and Executive Officers of the Registrant................... 13
Item 11. Executive Compensation............................................... 13
Item 12. Security Ownership of Certain Beneficial Owners and Management....... 13
Item 13. Certain Relationships and Related Transactions....................... 13
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..... 14
</TABLE>
<PAGE>
ITEM 1. Business
GENERAL
CNB Financial Corp. (the 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 twenty 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, 1997, the Corporation had assets of $634.4 million, deposits of
$538.5 million, net loans of $338.3 million and stockholders' equity of $54.6
million. A detailed discussion concerning the Corporation's consolidated
financial condition and results of operations are 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,
travelers 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, 1997, approximately 18% of the Bank's total loan portfolio was
concentrated in manufactured housing loans and approximately 12% 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 CORPORATION AND BANK
The following table sets forth, as of December 31, 1997, 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
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Held Employee Shares of
Name (Age) Office and Position Since Since(1) Stock(2)
- ---------- ------------------- ----- ---------- --------
<S> <C> <C> <C> <C>
Donald L. Brass (49) President 1993 1993 19,950
Peter J. Corso (54) V.P. & Treasurer 1993 1993 7,905
Lawrence G. Knudsen (54) Secretary 1993 1993 3,358
Allan F. Woodmancy (57) Asst. Secretary 1996 1996 2,893
- ---------
</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 the 3-for-2 stock split paid on January 15, 1997.
EMPLOYEES
As of December 31, 1997, the Bank employs 268 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 Bank
Holding Company Act, 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 Corporation 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
Corporation 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 CORPORATION AS A BANK HOLDING 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
Corporation 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.
FDIC INSURANCE ASSESSMENTS AND RELATED COSTS
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 Federal Deposit Insurance Act, the semiannual
assessment for each member of a deposit insurance fund shall not be less than
$1,000 ($2,000 annual). Effective January 1, 1997, institutions insured by the
Bank Insurance Fund ("BIF")
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of the FDIC, such as the Bank, are also required to pay an assessment related to
the cost of Financing Corporation ("FICO") bonds, in accordance with the Deposit
Insurance Funds Act of 1996. The initial FICO annual assessment rate is
approximately 0.013% of deposits for all BIF-insured institutions and is not
tied to the FDIC risk-based insurance premium rates. The Bank's total FDIC
deposit insurance and related costs for 1997 was $64,000.
ECONOMIC AND MONETARY POLICIES
The operations of the Corporation 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 Corporation may pay dividends
only if the Corporation 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 Corporation remaining
after the payment of the dividend must be at least equal to the amount of its
stated capital.
In addition, the Corporation's ability to pay dividends to its shareholders is
limited by the Bank's ability to pay dividends to the Corporation 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, 1997, the Bank had $17,210,000 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.
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BORROWINGS BY THE CORPORATION
There are various legal restrictions on the extent to which the Corporation 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 Corporation, to 10% of the Bank's
capital stock and surplus, and as to the Corporation 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 Corporation
or any non-banking subsidiaries of the Corporation, 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 Corporation 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 8.0%. 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 the allowance for loan losses. The sum
of Tier 1 capital and Tier 2 capital is "total risk-based capital." The
Corporation's Tier 1 risk-based capital and total risk-based capital ratios as
of December 31, 1997 were 12.0% and 13.3%, 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 3.0% 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 3.0% plus an
additional cushion of at least 100 to 200 basis points. The Corporation's
Leverage Ratio as of December 31, 1997 was 8.4%. 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 Corporation.
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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
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.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
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 less than
6 percent, a Tier I capital to total risk-weighted assets ratio of less than 3
percent or a Tier
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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 1997 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.
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
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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
198 Second Avenue Extension, Gloversville, 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 and its subsidiaries at
December 31, 1997, had a net book value of $10.0 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 leases properties from unaffiliated parties for branch offices and
operational services. For the year ended December 31, 1997, rental fees of
$168,000 were paid on these facilities. See also note 4, "Premises and
Equipment," to the consolidated financial statements.
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.
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 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
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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 Corporation and the dividends paid thereon
during the periods indicated, adjusted for the three-for-two stock split paid on
January 15, 1997.
HIGH LOW DIVIDEND
---- --- --------
1997:
First Quarter 22 3/4 17 11/16 $.12
Second Quarter 24 21 1/2 .12
Third Quarter 25 1/4 22 1/4 .13
Fourth Quarter 30 25 1/2 .22
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
DIVIDEND POLICY
Since its formation in 1993, the Corporation, 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 Corporation (or the Bank prior to
formation of the Corporation) has paid consecutive annual cash dividends for
more than 40 years. It is the present intention of the Corporation'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 Corporation. Therefore, the restrictions
on the Bank's dividend payments are directly applicable to the Corporation.
Regulatory restrictions on the ability of Bank and Corporation 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 1997
Annual Report to Shareholders, under the caption "Financial Highlights"; and is
incorporated herein by reference. Selected unaudited quarterly financial data is
set forth in the table below.
1997
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- ------- ------- -------
Interest and dividend income 11,621 12,231 12,216 12,567
Interest expense 5,273 5,686 5,669 6,094
------ ------ ------ ------
Net interest income 6,348 6,545 6,547 6,473
Provision for loan losses 125 -- -- 150
------ ------ ------ ------
Net interest income after
provision for loan losses 6,223 6,545 6,547 6,323
Other income 958 733 866 1,217
Other expenses 4,584 4,424 4,567 4,936
------ ------ ------ ------
Income before income tax expense 2,597 2,854 2,846 2,604
Income tax expense 779 856 850 750
------ ------ ------ ------
Net income 1,818 1,998 1,996 1,854
====== ====== ====== ======
Earnings per share:
Basic 0.47 0.52 0.52 0.48
====== ====== ====== ======
Diluted 0.47 0.51 0.52 0.48
====== ====== ====== ======
1996
------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Interest and dividend income 11,504 11,731 11,795 11,855
Interest expense 5,449 5,462 5,340 5,503
------ ------ ------ ------
Net interest income 6,055 6,269 6,455 6,352
Provision for loan losses 275 65 170 125
------ ------ ------ ------
Net interest income after
provision for loan losses 5,780 6,204 6,285 6,227
Other income 1,023 652 706 797
Other expenses 4,217 4,525 4,385 4,652
------ ------ ------ ------
Income before income tax expense 2,586 2,331 2,606 2,372
Income tax expense 723 633 707 675
------ ------ ------ ------
Net income 1,863 1,698 1,899 1,697
====== ====== ====== ======
Earnings per share:
Basic 0.46 0.42 0.47 0.46
====== ====== ====== ======
Diluted 0.46 0.42 0.47 0.45
====== ====== ====== ======
11
<PAGE>
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 1997 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 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item appears on pages 12 and 13 of the
Registrant's 1997 Annual Report to Shareholders under the caption "Market Risk"
and is incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
The consolidated financial statements, together with the report thereon of KPMG
Peat Marwick LLP, dated February 2, 1998, appearing on pages 23 through 48 of
the 1997 Annual Report to Shareholders are incorporated herein by reference.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On August 25, 1997, the Board of Directors agreed to (i) engage KPMG Peat
Marwick LLP as the independent accountants for CNB Financial Corp. and (ii)
dismiss Price Waterhouse LLP as its independent accountants.
During the two fiscal years ended December 31, 1996, and the subsequent interim
period through August 25, 1997, (i) there were no disagreements with Price
Waterhouse LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements if
not resolved to the satisfaction of Price Waterhouse LLP would have caused them
to make reference in connection with its report to the subject matter of the
disagreement, and (ii) Price Waterhouse LLP has not advised the registrant of
any reportable events as defined in paragraph (A) through (D) of Regulation S-K
Item 304 (a) (1) (v).
The accountants' report of Price Waterhouse LLP on the consolidated financial
statements of CNB Financial Corp. and subsidiaries as of and for the years ended
December 31, 1996 and 1995 did not contain any adverse opinion or disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope, or
accounting principles. A letter from Price Waterhouse LLP is attached as Exhibit
16 on the previously filed Form 8-K dated August 25, 1997, and is incorporated
herein by reference.
KPMG Peat Marwick LLP was not previously engaged regarding the application of
accounting principles on a specific transaction or the type of audit opinion
that might be rendered on the consolidated financial statements.
12
<PAGE>
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 definitive proxy statement for the annual meeting of stockholders
on May 21, 1998 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 representations that no other
reports were required, during the fiscal year ended December 31, 1997 all
Section 16(a) filing requirements applicable to its officers, directors and
greater then ten percent beneficial owners were satisfied.
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 definitive proxy statement for the annual meeting of stockholders
on May 21, 1998 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 definitive proxy statement for the annual
meeting of stockholders on May 21, 1998 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
definitive proxy statement for the annual meeting of stockholders on May 21,
1998 and is incorporated herein by reference.
13
<PAGE>
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 Corporation's 1997 Annual Report to Shareholders.
CONSOLIDATED FINANCIAL STATEMENTS PAGE IN ANNUAL REPORT
- --------------------------------- ---------------------
Report of Independent Accountant 23
Consolidated Balance Sheets as of December 31,
1997 and 1996 24
Consolidated Statements of Income for the years
ended December 31, 1997, 1996 and 1995 25
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1997, 1996 and 1995 26
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 27
Notes to Consolidated Financial Statements 29
(2) Financial statement schedules are omitted because the required information
is either not applicable or is set forth elsewhere in the consolidated financial
statements.
(3) List of Exhibits
Exhibit Number Referred
to in Item 601 of Description of
Regulation S-K Exhibit
- ------------------------ --------------
3(i) Certificate of Incorporation of Registrant,
previously filed with the Commission on March 4,
1992 as Exhibit B to the Corporation's
Registration Statement on Form S-4 (No. 33-
45522), and incorporated herein by reference.
3(ii) Bylaws of Registrant, previously filed with the
Commission on March 4, 1992 as Exhibit C to the
Corporation's Registration Statement on Form S-4
(No. 33-45522), and incorporated herein by
reference.
10.1 Automatic Dividend Reinvestment and Stock Purchase
Plan of the Registrant, incorporated herein by
reference from Registrant's 1933 Act Registration
Statement on Form S-3 (file number 33-63176, filed
May 21, 1993).
14
<PAGE>
11 Statements regarding computation of per share
earnings (incorporated herein by reference to
footnote 14 in the consolidated financial
statements).
13 1997 Annual Report to Shareholders
16 Letter re: Change in Certifying Accountant
(incorporated herein by reference to Exhibit 16 on
the previously filed Form 8-K dated August 25,
1997).
21 Subsidiaries of the Registrant
23A Consent of KPMG Peat Marwick LLP
23B Consent of Price Waterhouse LLP
27 Financial Data Schedule (submitted with electronic
filing only)
(b) During the three-month period ended December 31, 1997, the Registrant filed
no current report on Form 8-K.
(c) See 14(a)(3) above.
(d) See 14(a)(2) above.
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, 1998
15
<PAGE>
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 3/24/98
- -----------------------------
Donald L. Brass
/s/ Peter J. Corso Vice President 3/24/98
- ----------------------------- and Treasurer
Peter J. Corso
/s/ David J. Nolan Director 3/24/98
- -----------------------------
David J. Nolan
/s/ J. Carl Barbic Director 3/24/98
- -----------------------------
J. Carl Barbic
/s/ Allen H. Samuels Director 3/24/98
- -----------------------------
Allen H. Samuels
/s/ Joseph A. Santangelo Director 3/24/98
- -----------------------------
Joseph A. Santangelo
/s/ C. Wendell Smith Director 3/24/98
- -----------------------------
C. Wendell Smith
/s/ VanNess Robinson Director 3/24/98
- -----------------------------
VanNess Robinson
/s/ John P. Woods Director 3/24/98
- -----------------------------
John P. Woods, Jr.
16
CNB FINANCIAL CORP.
1997 Annual Report
[GRAPHIC]
CNBF Stock Price
---- -----------
1/97 $18.83
6/97 $24.00
12/97 $30.00
Efficiency and Growth
Compounded Daily
<PAGE>
- --------------------------------------------------------------------------------
[BAR CHART]
NET INCOME
(IN MILLIONS)
1993 $4.5
1994 $5.3
1995 $6.6
1996 $7.2
1997 $7.7
[BAR CHART]
NET CHARGE-OFFS
TO AVERAGE LOANS
1993 .74%
1994 .39%
1995 .26%
1996 .23%
1997 .08%
[BAR CHART]
DIVIDENDS
(DOLLARS PER SHARE)
1993 $.40
1994 $.43
1995 $.48
1996 $.53
1997 $.59
MISSION STATEMENT
- --------------------------------------------------------------------------------
It is the mission of CNB Financial Corp. to operate in the best interest of
its shareholders and subsidiaries under the broad policy guidelines established
by the Board of Directors. We will continue our tradition of strength and
independence while optimizing total shareholder return. We will provide capital
access and coordinate management expertise among our subsidiaries. By
concentrating on service businesses, we will opportunistically but prudently add
subsidiaries while regularly evaluating our ability to expand the services
offered as changes in regulation allow.
PROFILE
- --------------------------------------------------------------------------------
Headquartered in Canajoharie, New York, CNB Financial Corp. is the holding
company for Central National Bank, Canajoharie, and Central Asset Management,
Inc. Listed on the NASDAQ under the symbol CNBF, CNB Financial Corp. was formed
in January 1993.
Central National Bank, established in 1855, provides a broad range of
deposit and loan products to area consumers, businesses and government entities.
The Bank operates 20 full-service branch offices throughout six counties in the
Mohawk Valley of New York.
CNB's newest subsidiary, Central Asset Management, began providing
investment advisory services during the fourth quarter of 1996.
----------------------------------------
CONTENTS:
Year in Review...................... 1
To Our Shareholders................. 6
Financial Review.................... 8
Management's Discussion
and Analysis........................ 9
Consolidated
Financial Statements................ 24
INSIDE BACK COVER
Corporate Directory and Information
----------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
COMMON SENSE...UNCOMMON GROWTH
At Central National Bank, our exceptional growth hasn't come so much by
grandiose promises or programs but rather by good, old-fashioned wisdom
bolstered by the finest in new technology to meet all our customers' diverse
needs.
CNB's unique combination of "high tech & high touch" has brought remarkable
returns year after record-breaking year in every key category, from total assets
and net income to dividends and earnings per share. We have every reason to look
for continued growth in the years ahead.
With assets now topping $630 million, CNB has set its sights on passing the
billion-dollar mark by the year 2000. Meanwhile, our "Year 2001 Project" focuses
on increased profitability and efficiency throughout the Bank. Toward these
ends, CNB is presently in the middle of an intense analysis of all operations to
identify the most effective technologies and procedures to employ.
Typically, companies wait for a downturn before looking hard at ways to
improve. CNB, on the other hand, has opted to study its already successful
operating systems and methodologies in search of potential refinements.
MORE WAYS TO MAKE MORE
In addition to an array of technological innovations, CNB continued
expansion of its product line and market base throughout 1997. Year-end brought
the opening of the Bank's 20th branch, in Gloversville, New York, as well as the
first anniversary of the CNB Administrative and Operations Complex.
With the assistance of an outside research firm, CNB aggressively pursued
more sophisticated customer demographic and psychographic data to better tailor
its promotions and services. Customers and prospects, meanwhile, reached out to
CNB in growing numbers, with more than 70,000 Internet users visiting the Bank's
website (www.canajocnb.com) last year alone.
[PHOTO]
CNB's middle management group meets regularly to analyze customer needs and
develop new means of further improving service.
[PHOTO]
CNB's 20th branch location was opened in Gloversville, New york last year.
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 1
<PAGE>
- --------------------------------------------------------------------------------
[PHOTO]
CNB is using smaller, more cost effective "dial-up" ATM units at six non-branch
locations.
[PHOTO]
The addition of special communications software in 1997 allows CNB loan
originators to easily access the Bank's full data base from virtually anywhere
in the world.
TECHNOLOGY WITH THE RIGHT TOUCH
From ATMs to WANs, CNB employed new technologies in 1997 to make customer
service as easy as ABC. In fact, Easy Teller(TM) is the name of the system
installed last year as a means of providing comprehensive receipts and other
conveniences to our customers.
Last year, CNB's basic ATM cards were replaced by VISA debit cards which
can be used worldwide just like the credit card, only the funds are taken
directly from the holder's checking account. The Bank is also using smaller
"dial-up" ATM units at six of our merchant customers. These hold the potential
to significantly broaden market penetration at about one-sixth the cost of
traditional ATMs.
CNB loan originators' use of laptop computers was further enhanced in 1997
by the addition of Citrix(C) communications software which allowed easy access
to the Bank's full data base from virtually anywhere in the world. As a
secondary market loan supplier, CNB can also immediately interface with various
mortgage corporations and receive electronic approval of customer applications
within minutes. Turnaround time to close loans has been reduced.
Last year also saw CNB position for several tech enhancements in 1998 and
beyond. Preparations were made for full imaging capabilities and a new core
processor. In addition, installation of a wide area network (WAN) for improved
communications between CNB headquarters and all its branches was completed.
Thinking ahead, CNB has developed an aggressive agenda to address the year 2000
issue. This includes communicating with our business associates, including
customers and vendors, to try to avoid potential disruptions to our business
activities.
AUTO BUSINESS IN HIGH GEAR
CNB experienced a banner year for car loan and leasing programs in 1997,
topping $20 million in auto leases alone. The Bank has gone from booking 30-40
leases monthly in 1996 to as many as 100 in some months last year. The number of
Bank personnel responsible for auto leasing has grown fourfold to handle the
increased demand.
- --------------------------------------------------------------------------------
2 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
Possibly the only community bank to offer auto leasing, CNB believes the
success of the lease program is directly tied to our customer-friendly, hometown
approach. The Bank receives a steady stream of word-of-mouth business because
people enjoy the local, personal touch without a lot of fees or harsh
restrictions.
LOAN LEADERS
Even in an overall "down" lending market, CNB last year exceeded 1996's
volume for closed loans, primarily due to new offerings available. The largest
supplier of secondary market "Farmer Mac" (Federal Agricultural Mortgage
Corporation) loans this side of the Mississippi River, CNB began providing loans
to hobby or part-time farms in 1997. The Bank also continued expansion of our ag
market area to include northern New York, with nearby out-of-state opportunities
also under consideration.
Recognizing the growth potential in our residential mortgage market, CNB
elected to become an FHA direct mortgage underwriter. This will enable the Bank
to offer more versatility and convenience to our mortgage customers.
TRAINING: ON THE RIGHT TRACK
Many CNB employees passed through the Bank's recently opened computer
training facility in 1997. With over 2,000 hours logged on, CNB is reaping rich
rewards in terms of greater confidence and productivity among our talented
personnel.
In addition to ongoing bank training in supervision and verbal
communications, many of our employees have earned certification through the
American Institute of Banking. It is expected that the operations analysis will
reveal further training needs. Plans are also underway to implement strong
sales-oriented instruction on a company-wide basis.
[PHOTO]
CNB is the largest supplier of secondary market "Farmer Mac" loans in the
eastern United States.
[PHOTO]
CNB's computer training facility provided various productivity-boosting programs
in 1997.
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 3
<PAGE>
- --------------------------------------------------------------------------------
[PHOTO]
C. Wendell Smith has been a CNB mainstay for nearly a half-century, including an
active role on the Bank's board of directors since 1986. A World War II veteran,
serving in the U.S. Navy, Wendell first joined the Bank as a teller in 1946.
Designated a chartered bank auditor by the Bank Administration Institute,
Wendell provided many years of outstanding leadership as CNB's senior vice
president and comptroller. He will retire from our board in early 1998.
[PHOTO]
Sue-Ann Wheadon was named "Outstanding Volunteer" by the New York State American
Institute of Banking last year. She is the first CNB employee to earn this
special honor.
CENTRAL ASSET MANAGEMENT: BEYOND BANKING
In 1997, Central Asset Management, Inc. (CAM) celebrated its first
anniversary as a wholly-owned investment advisory subsidiary of CNB. Factors
contributing to the celebration included 75% growth in assets under management,
an expanded workforce and annualized fees totaling more than $150,000.
CAM remains a unique venture among the banking industry, an object of
respect due to its most remarkable niche in the market- place. Employing the
brokerage services of Charles Schwab & Co., Inc., Central Asset Management
offers clients clear, accurate and timely reporting in conjunction with
consistently strong financial dividends.
A RECOGNIZED SUCCESS
CNB was commended by several outside sources for its varied accomplishments
in 1997. While earning the American Institute of Banking's volunteer of the year
award, CNB once again finished among the top ten of the Albany Times Union's
Super Star list of public companies.
In honor of more than 6,000 hours of community service by CNB employees
last year, the Bank was presented with the Fulton/Montgomery Counties
Cooperative Extension Community Leadership Award. CNB supported a total of 278
different organizations or events, with approximately one-quarter of our
employees involved in two or more community activities.
Any way you add it up, CNB means efficiency and growth... compounded daily.
- --------------------------------------------------------------------------------
4 CNB FINANCIAL CORP.
<PAGE>
President's Letter Page 6
Management Discussion Page 9
Consolidated Financial Statements and Notes Page 24
<PAGE>
- --------------------------------------------------------------------------------
[PHOTO]
Donald L. Brass
President
MESSAGE TO OUR SHAREHOLDERS
I am pleased to report that 1997 was another successful year for your
Company and its subsidiaries, Central National Bank, Canajoharie, and Central
Asset Management, Inc. Net income and diluted earnings per share were $7,666,000
and $1.98, up 7% and 10% respectively over the 1996 figures. These earnings
produced a return on average assets of 1.25%. Total assets increased
$48,314,000, or 8%, to $634,389,000.
Our capital ratios remain well above the regulatory capital requirements to
be considered "well capitalized." At year-end, our consolidated Tier I capital
ratio was 12.0%, the total capital ratio was 13.3%, and the leverage ratio was
8.4%.
Central National Bank, Canajoharie, the larger of our two subsidiaries, had
an excellent year. The franchise grew with the addition of our nineteenth and
twentieth offices: an in-store branch in Rotterdam in February and the
Gloversville office in December. The Bank also grew in the area of financial
performance. Total assets increased by 8%, to $628,275,000. Loans grew to more
than $338,000,000, up 8% over the previous year. Deposit levels also rose by 6%
to $539,040,000. The return on average assets for the Bank was 1.27%, up from
1.25%.
Our newest subsidiary, Central Asset Management, Inc., was formed in 1996
to provide investment advisory services. Although 1997 was its first full year
of operation, its growth made a significant contribution to the Company's bottom
line with $20 million in new assets under management and 72 new relationships.
Please refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" which appears later in this report for more
detailed information on our 1997 results.
Our shareholders enjoyed the benefits of several actions taken by the Board
of Directors to reward their loyal support. Solid earnings allowed our total
quarterly and special dividends to be increased by $0.06, to $0.59 per share, an
annual increase of 11.3%. A three-for-two stock split was paid on January 15,
1997. There was also a stock buyback program, through which 42,115 shares of CNB
Financial Corp. stock were repurchased. These events precipitated a rise in our
stock price from $17.66 per share immediately following the split to a high of
$30.00 which was reached on December 11, 1997.
In January of 1997, we were pleased to welcome VanNess D. Robinson to our
Board of Directors. Mr. Robinson is Chairman of the Board and Executive Vice
President of New York Central Mutual Fire Insurance Company and lives in
Edmeston, New York. We will regretfully bid farewell to C. Wendell Smith in May
as he retires from the Board after 49 years of service to Central National Bank,
first as an employee, later as an officer, and finally as a Director.
We look to 1998 as a year of transition. We will continue to focus on our
core businesses,
- --------------------------------------------------------------------------------
6 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
while looking at changes that will position the organization for excellence in
the new millennium. In order to achieve our long-term objectives, we embarked on
a profit enhancement program during 1997. The first phase of the program, that
of assessing the opportunities available to us, has been completed, and we are
now in the implementation stage.
We understand that people want to know their banker and like to feel that
Management is accessible. Those are goals that we are dedicated to meeting
through exceptional customer service. To assist our staff in meeting these
goals, we have renewed our commitment to training and will re-emphasize our
sales culture.
We know, also, that some of our customers enjoy and depend on the
convenience of technology. To be sure that we are able to provide these
individuals with superior service, we have taken a hard look at their needs and
placed particular emphasis on appropriate systems and strategies.
The year 1997 was a year of great accomplishments which set the stage for
further technological enhancement. Year 2000 considerations have been foremost
in our plans. We have developed an aggressive agenda, which provides ample time
for testing, to address the year 2000 issue. Many of our branch offices were
equipped with an automated teller system during the last few months of 1997.
This process will continue until each of our branch teller lines is automated
which should occur by March 1998. Our home page on the Internet
(www.canajocnb.com) extended our service area to include the world, with an
average of 276 "hits" per day. Our core computer system will undergo a
conversion in the fourth quarter of 1998 to ensure that each advancement is
supported by the main computer system.
We are very excited about all of our plans for 1998, but the
technology-related items have sparked our enthusiasm and created a stimulating
challenge for each of us. We will be able to provide Central National Bank ATMs
in non-branch locations. The installation of a Wide Area Network will allow
connectivity between all of our branch offices, the Administrative and
Operations Complex, and the Main Office. We will use 1998 to strengthen
efficiency while retaining our commitment to "community banking" service.
None of our plans would ever come to fruition without our outstanding staff
and the support of our loyal stockholders. I would like to acknowledge the
contributions of both of these groups and offer my thanks for their continuing
confidence, hard work and support. CNB Financial Corp. is committed to our
shareholders and employees as we look forward to another successful and
profitable year in 1998.
/s/ DONALD L. BRASS
- --------------------
Donald L. Brass
President
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 7
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL REVIEW
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest and dividend income $ 48,635 $ 46,885 $ 43,615 $ 35,709 $ 35,213
Interest expense 22,722 21,754 20,088 13,540 13,257
Net interest income 25,913 25,131 23,527 22,169 21,956
Provision for loan losses 275 635 965 1,600 3,645
Net interest income after provision
for loan losses 25,638 24,496 22,562 20,569 18,311
Other income 3,774 3,178 2,745 1,673 1,592
Other expenses 18,511 17,779 16,254 14,723 13,517
Income before income tax expense 10,901 9,895 9,053 7,519 6,386
Income tax expense 3,235 2,738 2,481 2,230 1,852
Net income 7,666 7,157 6,572 5,289 4,534
PER SHARE DATA(1):
Basic earnings per share $ 1.99 $ 1.81 $ 1.63 $ 1.39 $ 1.29
Diluted earnings per share 1.98 1.80 1.63 1.38 1.29
Cash dividends 0.59 0.53 0.48 0.43 0.40
Book value 14.23 12.50 11.83 9.98 9.91
PERIOD END BALANCE SHEET SUMMARY:
Total assets $634,389 $586,075 $564,792 $484,497 $452,423
Securities(2) 255,520 235,743 215,450 173,838 160,711
Total loans 346,710 321,243 316,617 291,826 277,647
Allowance for loan losses 8,378 8,367 8,463 8,292 7,772
Deposits 538,472 509,217 496,311 416,964 396,948
Stockholders' equity 54,606 48,391 47,433 39,898 34,903
SELECTED FINANCIAL RATIOS:
Return on average equity 14.99% 14.97% 15.19% 13.69% 13.96%
Return on average assets 1.25% 1.22% 1.25% 1.12% 1.01%
Dividends paid to net income 29.64% 29.06% 29.23% 31.86% 30.75%
Loans to deposits 64.39% 63.09% 63.79% 69.99% 69.95%
Non-performing loans to total loans 1.30% 1.39% 1.25% 1.11% 1.27%
Net charge-offs to average loans 0.08% 0.23% 0.26% 0.39% 0.74%
Allowance for loan losses to
total loans 2.42% 2.60% 2.67% 2.84% 2.80%
Average stockholders' equity to
average total assets 8.31% 8.15% 8.20% 8.18% 7.27%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been restated to reflect the three-for-two stock
split declared in December 1996.
(2) Includes securities available for sale, investment securities held to
maturity and trading securitites, if any.
- --------------------------------------------------------------------------------
8 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND RATIO DATA)
The purpose of this discussion and analysis 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.
This discussion and analysis contains certain forward-looking statements
within the meaning of the federal securities laws. These forward-looking
statements consist of estimates with respect to the financial condition and
results of operations of the Company. Such 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 affects the interest rate spread or
other income anticipated from the Company's operations and assets.
SUMMARY
Net income for 1997 was $7,666, a 7% increase over the previous high of
$7,157 in 1996. Net income for 1996 was 9% higher than 1995 net income of
$6,572. Diluted earnings per share, after restatement for the three-for-two
stock split declared on December 17, 1996, of $1.98 increased 10% in 1997 from
the $1.80 earned in 1996. Diluted earnings per share in 1996 was up 10% from the
$1.63 earned in 1995.
Total assets at December 31, 1997 grew to $634,389, an 8% increase from the
1996 year-end total of $586,075. During 1996, total assets grew 4% over the 1995
year-end total of $564,792. Total loans increased to $346,710, up 8% from the
$321,243 reported in 1996. During 1996, total loans increased 1% from the
$316,617 reported in 1995. The available-for-sale portion of the securities
portfolio increased by $13,104 (10%) to $144,077. At December 31, 1997, there
was a net unrealized gain of $720 in the available-for-sale portfolio compared
to a net unrealized loss of $1,718 at December 31, 1996. The held-to-maturity
portfolio had a net increase of $5,554 (5%) from $104,770 at December 31, 1996
to $110,324 at December 31, 1997. There were no transfers between the portfolios
during 1997. The securities in the available-for-sale portfolio increased by
$10,115 (8%) and the securities in the held-to-maturity portfolio increased by
$10,178 (11%) during 1996.
The growth in total assets in 1997 was funded primarily through a $29,255
(6%) increase in deposits and a $13,723 increase in short-term borrowings. The
1996 asset growth was funded mainly through a $12,906 (3%) increase in deposits.
Stockholders' equity of $54,606 increased by $6,215 (13%) during 1997. The
increase in stockholders' equity in 1997 was primarily due to the Company's
earnings and the increase in the net unrealized gain on securities, offset by
dividends paid and the purchase of treasury stock. On December 17, 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 issued to 3,870,596
at December 31, 1996. All per share data has been restated for the three-for-two
split in December 1996.
RESULTS OF OPERATIONS
Net income for the year ended December 31, 1997 reached a record high of
$7,666. Net income for the year was 7% higher than the $7,157 earned in 1996 and
17% higher than the $6,572 earned in 1995. Diluted earnings per share for the
last three years, after restatement for the three-for-two stock split, were
1997-$1.98, 1996-$1.80, 1995-$1.63. During 1997, the provision for loan losses
was $275, compared to $635 for 1996. The lower level of provision in 1997 was
due primarily to net charge-offs decreasing from $731 in 1996 to $264 in 1997
and Management's assessment of the adequacy of the allowance for loan losses.
The 1995 provision was $965. At December 31, 1997, the allowance for loan losses
was $8,378 or 186% of non-performing loans vs. $8,367 or 187% of non-performing
loans at December 31, 1996.
INTEREST INCOME AND INTEREST EXPENSE
Tax equivalent interest and dividend income for 1997 was $50,388, up $1,901
(4%) from the $48,487 earned in 1996. Tax equivalent interest and dividend
income in 1996 was up $3,199 (7%) from the $45,288 earned in 1995. The increase
in tax equivalent interest and dividend income was due primarily to a 5%
increase in average earning assets which offset an 11 basis point drop in the
average tax equivalent yield on earnings assets.
The average tax equivalent yield on loans decreased to 9.36% in 1997 from
9.60% in 1996 and 9.84% in 1995. The 24 basis point (3%) drop in the average tax
equivalent yield in 1997 was attributable to the lower interest rates prevalent
in 1997 from the increased competition in the market place. The securities
portfolio tax equivalent yield increased from 1996 to 1997 to 7.64% from 7.61%.
In 1995, the tax equivalent yield was also 7.61%. In 1997, the average tax
equivalent yield on earning assets was 8.58%, down 11 basis points from the
8.69% earned in 1996. The 1995 average tax equivalent yield was 8.87%.
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 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 4% to $22,722 in 1997, compared to $21,754 in
1996 and $20,088 in 1995. For the year 1997, the average balance on
interest-bearing deposit accounts increased $22,007 (5%). Included in this
average increase were $25,250 in time deposits of $100,000 or more and $6,784 in
NOW accounts. The average rate paid on deposits decreased 2 basis points from
4.51% in 1996 to 4.49% in 1997. Deposit interest expense in 1996 increased
$1,440 due primarily to an increase in average interest-bearing deposits from
$415,976 in 1995 to $457,504 in 1996.
The following table presents the total dollar amount of interest and
dividend income earned on average earning assets and the resultant yields, as
well as the total dollar amount of interest expense on average interest-bearing
liabilities and the resultant rates for the periods indicated. The average
balances used for these tables and other statistical disclosures were calculated
using daily averages. Tax exempt income has been adjusted to a tax equivalent
basis by tax affecting such income at the Federal tax rate. Non-accruing loans
have been included in loans with interest earned recognized on a cash basis
only. Securities include securities available for sale, investment securities
held to maturity, and trading securities, if any, all at amortized cost.
AVERAGE BALANCES AND INTEREST RATES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
AVERAGE BALANCE INCOME/EXPENSE YIELDS/RATES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Loans:
Taxable $325,886 $ 30,584 9.38%
Tax-exempt 4,591 347 7.56%
-------- -------- --------
Total loans 330,477 30,931 9.36%
-------- -------- --------
Securities:
Taxable 195,084 14,230 7.29%
Tax-exempt 54,147 4,808 8.88%
-------- -------- --------
Total securities 249,231 19,038 7.64%
-------- -------- --------
Federal funds sold and other 7,578 419 5.53%
-------- -------- --------
Total earning assets 587,286 50,388 8.58%
Other assets 28,105 ======== ========
--------
Total assets $615,391
========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing deposits:
NOW accounts $ 61,768 $ 1,112 1.80%
Money market 47,501 2,023 4.26%
Savings 98,664 2,808 2.85%
Time > $100,000 123,698 7,260 5.87%
--------
Other time 147,880 8,308 5.62%
-------- -------- --------
Total interest-bearing deposits 479,511 21,511 4.49%
-------- -------- --------
Short-term borrowings 16,189 810 5.00%
Long-term borrowings 7,104 401 5.64%
-------- -------- --------
Total borrowings 23,293 1,211 5.20%
-------- -------- --------
Total interest-bearing liabilities 502,804 22,722 4.52%
-------- -------- --------
Non-interest bearing deposits 50,287
Other liabilities 11,166
Stockholders' equity 51,134
--------
Total liabilities and
stockholders' equity $615,391
========
Net interest income (FTE) $ 27,666
========
Interest rate spread 4.06%
====
Net interest margin 4.71%
====
- ---------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
10 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 YEAR ENDED DECEMBER 31, 1995
AVERAGE BALANCE INCOME/EXPENSE YIELDS/RATES AVERAGE BALANCE INCOME/EXPENSE YIELDS/RATES
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans:
Taxable $311,376 $ 30,002 9.64% $294,143 $ 29,015 9.86%
Tax-exempt 5,049 364 7.21% 5,505 461 8.37%
-------- -------- ----- -------- -------- ------
Total loans 316,425 30,366 9.60% 299,648 29,476 9.84%
-------- -------- ----- -------- -------- ------
Securities:
Taxable 181,919 13,167 7.24% 152,768 10,934 7.16%
Tax-exempt 48,231 4,347 9.01% 45,032 4,120 9.15%
-------- -------- ----- -------- -------- ------
Total securities 230,150 17,514 7.61% 197,800 15,054 7.61%
-------- -------- ----- -------- -------- ------
Federal funds sold and other 558,027 48,487 8.69% $510,658 45,288 8.87%
-------- -------- ----- -------- -------- ------
Total earning assets 28,136
--------
Total assets $586,163 $527,611
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing deposits:
NOW accounts $ 54,984 $ 985 1.79% $ 48,891 $ 872 1.78%
Money market 51,044 2,153 4.22% 40,249 1,761 4.38%
Savings 98,335 2,858 2.91% 98,394 2,928 2.98%
Time > $100,000 98,448 5,482 5.57% 95,128 5,458 5.74%
Other time 154,693 9,172 5.93% 133,314 8,191 6.14%
-------- -------- ----- -------- -------- ------
Total interest-bearing deposits 457,504 20,650 4.51% 415,976 19,210 4.62%
-------- -------- ----- -------- -------- ------
Short-term borrowings 17,794 843 4.74% 13,688 713 5.21%
Long-term borrowings 6,993 261 3.73% 5,079 165 3.25%
-------- -------- ----- -------- -------- ------
Total borrowings 24,787 1,104 4.45% 18,767 878 4.68%
-------- -------- ----- -------- -------- ------
Total interest-bearing liabilities 482,291 21,754 4.51% 434,743 20,088 4.62%
-------- -------- ----- -------- -------- ------
Non-interest bearing deposits 45,910 41,544
Other liabilities 10,165 8,067
Stockholders' equity 47,797 43,257
Total liabilities and -------- --------
stockholders' equity $586,163 $527,611
======== ========
Net interest income (FTE) $ 26,733 $ 25,200
======== ========
Interest rate spread 4.18% 4.25%
==== ====
Net interest margin 4.79% 4.93%
==== ====
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 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
The table below sets forth certain information regarding changes in
interest and dividend income and interest expense of the Company for the periods
indicated. For each category of earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in volume multiplied by old rate) and (ii) changes in rates (changes in
rate multiplied by old volume). Increase and decreases due to both volume and
rate, which cannot be segregated, have been allocated proportionally to the
change due to volume and the change due to rate.
<TABLE>
<CAPTION>
1997 COMPARED TO 1996 1996 COMPARED TO 1995
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total loans $ 1,349 $ (784) $ 565 $ 1,622 $ (732) $ 890
Total securities 1,452 72 1,524 2,460 -- 2,460
Federal funds sold
and other (205) 17 (188) (101) (50) (151)
------- ------- ------- ------- ------- -------
Total interest and
dividend income 2,596 (695) 1,901 3,981 (782) 3,199
------- ------- ------- ------- ------- -------
NOW accounts 121 6 127 109 4 113
Money market (149) 19 (130) 472 (80) 392
Savings 10 (60) (50) 20 (90) (70)
Time > $100,000 1,406 372 1,778 190 (166) 24
Other time (404) (460) (864) 1,314 (333) 981
Short-term borrowings (76) 43 (33) 214 (84) 130
Long-term borrowings 4 136 140 62 34 96
------- ------- ------- ------- ------- -------
Total interest expense 912 56 968 2,381 (715) 1,666
------- ------- ------- ------- ------- -------
Net change in net
interest income $ 1,684 $ (751) $ 933 $ 1,600 $ (67) $ 1,533
======= ======= ======= ======= ======= =======
</TABLE>
MARKET RISK
Interest rate risk is the most significant market risk affecting the
Company. Other types of market risk, such as foreign currency exchange rate risk
and commodity risk, do not arise in the normal course of the Company's business
activities.
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 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 200 basis point 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 rate sensitivity 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 at December 31, 1997.
- --------------------------------------------------------------------------------
12 CNB FINANCIAL CORP.
<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>
WITHIN OVER 3 THROUGH ONE YEAR THROUGH OVER
3 MONTHS 12 MONTHS THREE YEARS THREE YEARS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earning Assets:
Securities $ 8,119 $ 6,173 $ 34,262 $ 203,365 $ 251,919
Loans 72,581 83,210 58,329 130,816
--------- --------- --------- --------- ---------
344,936
Total $ 80,700 $ 89,383 $ 92,591 $ 334,181 $ 596,855
========= ========= ========= ========= =========
Interest-Bearing Liabilities:
NOW and savings $ 8,157 $ 24,468 $ 130,498 $ -- $ 163,123
Money market deposits 6,006 18,020 16,017 -- 40,043
Time deposits under $100,000 45,296 73,996 46,891 5,394 171,577
Time deposits of $100,000 or more 66,374 37,638 8,638 1,721 114,371
Borrowings 27,508 725 -- 6,931 35,164
--------- --------- --------- --------- ---------
Total $ 153,341 $ 154,847 $ 202,044 $ 14,046 $ 524,278
========= ========= ========= ========= =========
Period GAP $ (72,641) $ (65,464) $(109,453) $ 320,135 $ 72,577
Cumulative GAP $ (72,641) $(138,105) $(247,558) $ 72,577
</TABLE>
At December 31, 1997, the Company had a cumulative three-month gap of
($72,641), a cumulative one-year gap of ($138,105), and a cumulative three-year
gap of ($247,558); that is, it had an excess of interest-bearing liabilities
over earning assets maturing or repricing within those periods. A negative gap
may enhance earnings in periods of declining interest rates in that, during such
periods, the interest expense paid on liabilities may decrease more rapidly than
the interest and dividend income earned on assets. Conversely, in a rising
interest rate environment, a negative gap may decrease earnings as the increase
in interest expense paid on liabilities may be greater than the increase in
interest and dividend income earned on assets. While a negative gap indicates
the amount of interest-bearing liabilities which may reprice before earning
assets, it does not indicate the extent to which they will reprice. Therefore,
at times, a negative gap may not produce higher margins in a declining rate
environment.
The gap analysis above has several significant limitations. These
limitations include the fact that it is a static measurement, it does not
capture basis risk, and it does not capture risk that varies non-proportionally
with interest rate movements. Also, the selection of the beginning and ending
dates of the time intervals used as gap buckets, as well as the size of the time
interval, can mask interest rate risk. In addition, assets and liabilities may
reprice earlier than their contractual maturities indicate.
OTHER INCOME
Other income increased $596 from $3,178 in 1996 to $3,774 in 1997. The main
reason for the increase was an increase in service charges on deposit accounts
and an increase in fees from fiduciary activities.
In 1996, other income increased by $433 from $2,745 in 1995 to $3,178 in
1996. The primary reason for the increase was an increase in service charges on
deposit accounts.
OTHER EXPENSES
Other expenses increased $732 (4%) from $17,779 in 1996 to $18,511 in 1997.
Occupancy and equipment expense increased $342 (22%) during 1997. The major
items contributing to this increase were increased depreciation expense on the
Administrative and Operations Complex opened in 1996 and furniture and equipment
as well as increased maintenance expense on machinery. Data processing costs
increased $376 (30%) to $1,643. The increase in this category was primarily the
result of an additional $218 in depreciation expense on data processing
equipment and an additional $96 paid to our third party processor. Professional
fees increased $413 due primarily to consulting costs incurred in assisting
Management in addressing various strategic and organizational issues, as well as
operational issues of the Company.
For 1996, total other expenses increased $1,525 (9%) from $16,254 to
$17,779. Salaries and benefits increased $857 (11%) due to an increase in the
number of loan origination and servicing staff, incentive pay awards in the
branch area, as well as an increase in profit sharing and short-term incentive
awards. Occupancy and equipment cost increased $298 due primarily to branch
repairs, utility cost increases and leased property for the Administrative and
Operations Complex.
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 13
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
INCOME TAXES
Income tax expense 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 1997, 1996 and 1995 were 29.68%, 27.67% and 27.41%, respectively.
SECURITIES
The Company's securities are classified in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires that
securities be classified into one of three categories: held-to-maturity;
available-for-sale; or 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 securities are carried at estimated fair value. Unrealized gains and
losses on available-for-sale securities are reported as a separate component of
stockholders' equity, net of tax, while unrealized gains and losses on trading
securities are reflected in earnings. All securities can be used as part of the
asset/liability management strategy and securities available for sale and
trading securities, if any, 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. Management
anticipates fluctuations in stockholders' equity due to changes in the estimated
fair value of available-for-sale securities.
At December 31, 1997, the net unrealized gain on the available-for-sale
portfolio totaled $720, compared to a net unrealized loss of $1,718 at year-end
1996. The $2,438 shift reflects the interest rate volatility that existed during
the last two years. Management monitors the fair value of assets and liabilities
on a total balance sheet basis. These movements were generally offset by
unrecognized changes in value of other portions of the balance sheet.
The amortized cost and weighted average yield of the Company's security
portfolios at December 31, 1997, by contractual maturity (collateralized
mortgage obligations and mortgage backed securities are included by final
contractual maturity), are as follows:
AMORTIZED AVERAGE
COST YIELD(2)
- --------------------------------------------------------------------------------
AVAILABLE-FOR-SALE
Due in one year or less $ 2,396 6.08%
Due after one to five years 13,895 6.30%
Due after five to ten years 35,527 7.18%
Due after ten years 87,966 7.65%
-------- ----
Total(1) $139,784 7.37%
======== ====
HELD-TO-MATURITY
Due in one year or less $ 2,503 8.01%
Due after one to five years 19,244 8.16%
Due after five to ten years 37,016 8.83%
Due after ten years 51,561 8.32%
-------- ----
Total $110,324 8.46%
======== ====
(1) Excludes Federal Home Loan Bank, Federal Reserve Bank and preferred stock.
(2) Average yield on tax exempt securities is calculated on a tax equivalent
basis.
Actual maturities may differ from those shown in the table above because
borrowers may have the right to call or prepay obligations with or without
prepayment penalties.
- --------------------------------------------------------------------------------
14 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
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 generally does not attempt to diversify
geographically by making a significant amount of loans to borrowers outside of
the primary service area.
Net loans receivable were $338,332 at December 31, 1997, an increase of
$25,456 from the $312,876 at December 31, 1996. Net loans receivable at December
31, 1996 were up $4,722 from the December 31, 1995 balance of $308,154.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Secured by real estate $ 146,376 $ 141,953 $ 137,373 $ 122,004 $ 112,435
Installment and other consumer 147,681 124,868 123,729 119,471 117,518
Commercial and agricultural 48,888 48,552 48,875 42,203 41,684
Tax-exempt 3,861 4,932 5,277 6,123 3,820
Net deferred loan fees/costs
and unearned discount (96) 938 1,363 2,025 2,190
--------- --------- --------- --------- ---------
Total loans 346,710 321,243 316,617 291,826 277,647
Allowance for loan losses (8,378) (8,367) (8,463) (8,292) (7,772)
--------- --------- --------- --------- ---------
Net loans receivable $ 338,332 $ 312,876 $ 308,154 $ 283,534 $ 269,875
========= ========= ========= ========= =========
</TABLE>
Loan concentrations greater than 10% of the total loan portfolio for 1997
are as follows: conventional real estate loans of $38,500 or 11.10%, indirect
manufactured housing of $56,400 or 16.27% and commercial mortgages of $42,900 or
12.37%.
Commercial and agricultural loans maturing within one year are $33,380,
after one but within five years $7,772 and after five years $7,736. Fixed rate
commercial and agricultural loans repricing after one but within five years are
$7,772 and those repricing after five years are $7,736. All variable rate loans
will reprice within one year. Maturities are based on contract terms.
ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents Management's estimate of an amount
adequate to provide for 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 loan losses. Management
monitors the adequacy of the allowance for loan losses through the use of an
estimation process 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 Audit and Accounting Guide,
Banks and Savings Institutions.
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 an estimate. 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.
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 15
<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 agricultural loans (including
those secured by real estate) generally 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 well secured and in the process of collection. 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 non-performing loans at December 31, 1997 were $4,493,
representing 1.3% of the total loan portfolio, as compared to $4,479 or 1.4% of
the loan portfolio at December 31, 1996.
The Company's historic levels of non-performing loans and charge-offs have
been above industry averages, due in part to the Company's manufactured housing
and commercial lending portfolios; however, Management believes that the
allowance for loan losses is sufficient to provide for losses inherent in the
loan portfolio.
NON-PERFORMING LOANS
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Secured by real estate $ 1,943 $ 2,367 $ 2,637 $ 1,995 $ 1,743
Other loans 164 886 441 1,231 1,774
-------- -------- -------- -------- --------
Total non-accrual loans 2,107 3,253 3,078 3,226 3,517
-------- -------- -------- -------- --------
Accruing loans contractually
past due 90 days or more 2,386 1,226 885 544 1,138
-------- -------- -------- -------- --------
Total non-performing loans $ 4,493 $ 4,479 $ 3,963 $ 3,770 $ 4,655
======== ======== ======== ======== ========
</TABLE>
Information regarding foregone interest on the above non-accrual loans
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest recognized $ 21 $ 28 $ 5 $ -- $ --
Foregone interest 190 125 147 252 159
------ ------ ------ ------ ------
Interest income that would
have been recognized
at original terms $ 211 $ 153 $ 152 $ 252 $ 159
====== ====== ====== ====== ======
</TABLE>
- --------------------------------------------------------------------------------
16 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
ALLOWANCE FOR LOAN LOSSES
The following table summarizes the changes in the allowance for loan
losses:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at the beginning of year $ 8,367 $ 8,463 $ 8,292 $ 7,772 $ 6,054
Provision charged to operations 275 635 965 1,600 3,645
Charge-offs:
Agricultural loans 77 184 35 48 150
Commercial loans 326 361 18 263 720
Credit cards 274 92 81 99 126
Consumer loans(1) 854 660 1,181 1,200 1,634
------- ------- ------- ------- -------
Total charge-offs 1,531 1,297 1,315 1,610 2,630
------- ------- ------- ------- -------
Recoveries:
Agricultural loans 16 21 43 59 198
Commercial loans 928 203 118 117 47
Credit cards 43 35 39 34 50
Consumer loans(1) 280 307 321 320 408
------- ------- ------- ------- -------
Total recoveries 1,267 566 521 530 703
------- ------- ------- ------- -------
Net charge-offs 264 731 794 1,080 1,927
------- ------- ------- ------- -------
Balance at end of year $ 8,378 $ 8,367 $ 8,463 $ 8,292 $ 7,772
======= ======= ======= ======= =======
Ratio of charge-offs net to
average loans outstanding 0.08% 0.23% 0.26% 0.39% 0.74%
Allowance for loan loss as a percentage
of total loans at year-end 2.42% 2.60% 2.67% 2.84% 2.80%
</TABLE>
(1) Includes residential real estate
The following table sets forth the allocation of the allowance for loan
losses by category, as well as the percentage of loans in each category to total
loans, as prepared by the Company. This allocation is based on Management's
assessment as of a given point in time of the risk characteristics of each of
the component parts of the total loan portfolio and is subject to changes as and
when the risk factors of each such component part change. The allocation is not
indicative of either the specific amounts or the loan categories in which future
charge-offs may be taken, nor should it be taken as an indicator of future loss
trends. The allocation of the allowance to each category does not restrict the
use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Secured by real estate $1,956 42% $1,666 44% $1,186 43% $1,429 42% $ 473 40%
Installment and
other consumer loans 1,114 44% 1,350 41% 1,688 42% 2,890 44% 3,195 45%
Commercial and
agricultural loans 2,300 14% 1,399 15% 1,461 15% 763 14% 1,945 15%
Other qualitative factors 3,008 -- 3,952 -- 4,128 -- 3,210 -- 2,159 --
-------------- ------------- ------------- ------------- --------------
$8,378 100% $8,367 100% $8,463 100% $8,292 100% $7,772 100%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 17
<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 (including NOW accounts), savings
and money market accounts and time deposits. Deposits are provided by
individuals, local governments and businesses located within the communities
served.
The following table is a summary of average deposits and average rates
paid:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 AVERAGE 1996 AVERAGE 1995 AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing deposits $ 50,287 -- $ 45,910 -- $ 41,544 --
NOW and money market accounts 109,269 2.87% 106,028 2.96% 89,140 2.95%
Savings accounts 98,664 2.85% 98,335 2.91% 98,394 2.98%
Time deposits 271,578 5.73% 253,141 5.79% 228,442 5.97%
------------------------- ------------------------ ---------------------
$ 529,798 4.06% $ 503,414 4.10% $ 457,520 4.20%
========================= ======================== =====================
</TABLE>
The following table is a summary of deposits:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-interest bearing deposits $ 49,358 $ 50,313 $ 47,234 $ 48,706 $ 37,710
Interest-bearing deposits:
NOW accounts 65,519 60,106 47,191 49,976 48,911
Savings accounts 97,604 98,440 95,193 108,139 117,234
Money market accounts 40,043 38,557 38,964 22,442 27,007
Time deposits of $100,000 or more 114,371 110,145 115,161 62,659 43,435
Other time deposits 171,577 151,656 152,568 125,042 122,651
----------- ----------- ----------- ----------- -----------
Total interest-bearing deposits 489,114 458,904 449,077 368,258 359,238
----------- ----------- ----------- ----------- -----------
Total deposits $ 538,472 $ 509,217 $ 496,311 $ 416,964 $ 396,948
=========== =========== =========== =========== ===========
</TABLE>
The contractual maturity for time deposits of $100,000 or more is as
follows at December 31, 1997:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Less than or equal to three months $ 66,373
Three months through six months 18,819
Six months through twelve months 18,819
Over twelve months 10,360
-----------
$ 114,371
===========
</TABLE>
- --------------------------------------------------------------------------------
18 CNB FINANCIAL CORP.
<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. Further information concerning
repurchase agreements is located in note 6 to the consolidated financial
statements. For liquidity management, lines of credit have also been established
with correspondent banks to meet short-term funding needs. See "Liquidity."
The Company has $2,241 in long-term borrowings with the Federal Home Loan
Bank of New York. This FHLB borrowing bears interest at 5.45%, amortizes monthly
and matures in 2003. In 1995 and 1996, the Company issued Industrial Revenue
Bonds (IDA) to fund the construction of its new Administrative and Operations
Complex. As of December 31, 1997, the remaining balance on the bonds was $4,690
and bears interest at a variable interest rate, which adjusts weekly based on a
commercial paper rate index. The bonds have annual principal payments due
through 2025. See also note 7 to the consolidated financial statements.
CAPITAL RESOURCES
Total stockholders' equity increased 13% from December 31, 1996 to December
31, 1997, compared to 2% growth during 1996 and 19% growth during 1995. In 1997,
the Company added $7,666 to equity through net income and returned $2,272 to its
stockholders in the form of dividends. The Company's goal is to maintain a
strong capital position to support its growth and expansion activities, 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 quarterly average assets (as defined)
less certain intangible assets into Tier I Capital. In accordance with
regulatory guidelines, regulatory capital does not include the net unrealized
gain or loss on securities available for sale included in equity. All of the
Bank's regulatory capital 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. During 1997, 42,115 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
332,061 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, such as acquisitions.
On February 27, 1998, the Board of Directors declared a two-for-one stock
split, contingent upon stockholder approval of an amendment to the Certificate
of Incorporation to change the par value of the Company's stock at the Annual
Meeting to be held in May 1998. Due to the contingency associated with the stock
split, the effects of the split will not be reflected in the consolidated
financial statements or in any per share data until the stockholders approve the
reduction in the par value of the Company's stock.
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 19
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
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 conducted a review of its computer systems to identify
applications that could be affected by the year 2000 issue and has developed an
implementation plan to address the issue. The Company is utilizing both internal
and external resources to identify, correct and reprogram, and test its systems
for year 2000 compliance. It is anticipated that all reprogramming efforts will
be completed by December 31, 1998, allowing adequate time for testing.
Management does not expect that costs related to becoming year 2000 compliant
will have a significant impact on its financial position or results of
operation.
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. In addition, should suppliers of critical
services fail in their efforts to become year 2000 compliant, or if significant
third party interfaces fail to be compatible with the Company's or fail to be
year 2000 compliant, it could have significant adverse effects on the operations
and financial results of the Company.
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 stockholders. 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, mortgage backed security and collateralized mortgage obligation principal
repayments, maturities and calls of securities and sales from the
available-for-sale and trading portfolios.
For liquidity management, unused lines of credit totaling $20,896 were
maintained at year-end 1997.
INFLATION
The consolidated financial statements and related consolidated financial
information presented in this annual report have been prepared in conformity
with generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services.
- --------------------------------------------------------------------------------
20 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
RECENT ACCOUNTING PRONOUNCEMENTS
FASB STATEMENT 125
In June 1996, the Financial Accounting Standards Board (FASB) issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components approach
that focuses on control. SFAS No. 125 also amends SFAS No. 115 to prevent a
security from being classified as held-to-maturity if the security can be
prepaid or settled in such a manner that the holder of the security would not
recover substantially all of its recorded investment. The extension of the SFAS
No. 115 approach to certain non-security financial assets and the amendment to
SFAS No. 115 were effective for financial assets held on or acquired after
January 1, 1997. The Company adopted SFAS No. 125 on January 1, 1997. The
adoption of SFAS No. 125 did not have a material impact on the Company's
consolidated financial statements.
FASB STATEMENT 128
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 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 adoption of this Statement did not have a material effect on the
Company's result of operations.
FASB STATEMENT 130
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components in financial statements. SFAS No. 130 states that
comprehensive income includes reported net income of a company, adjusted for
items that are currently accounted for as direct entries to equity, such as the
net unrealized gain or loss on securities available for sale. This Statement is
effective for both interim and annual periods beginning after December 15, 1997.
As required, the Company will adopt the reporting requirements of this Statement
in 1998.
FASB STATEMENT 131
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for
reporting by public companies about operating segments of their business. SFAS
No. 131 also establishes standards for related disclosures about products and
services, geographic areas, and major customers. This Statement is effective for
periods beginning after December 15, 1997. As required, the Company will adopt
the reporting requirements of this Statement in 1998. At this time, the Company
does not expect this Statement to significantly affect its reporting
requirements.
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 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
consolidated financial statements and other information in this report. The
consolidated financial statements were prepared in accordance with generally
accepted accounting principles and in the judgment of Management present fairly
the Corporation's consolidated financial position and results of operations. The
financial information contained elsewhere in this report is consistent with that
in the consolidated financial statements. The consolidated 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 consolidated 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, which acts as an integral, but independent, part of the system of
internal controls.
The independent auditors conduct an annual audit of the Corporation's
consolidated financial statements to enable them to express an opinion as to the
fair presentation of the statements. In connection with the audit, the
independent auditors consider internal control to the extent they consider
necessary to determine the nature, timing and extent of their auditing
procedures. The independent auditors also prepare recommendations regarding
internal control and other accounting and financial related matters. The
implementation of these recommendations by Management is monitored directly by
the Audit Committee of the Board of Directors.
The Board of Directors discharges its responsibility for the Corporation's
consolidated financial statements through its Audit Committee. The Audit
Committee meets periodically with the independent auditors, the Internal Auditor
and Management. Both the independent auditors and the Internal Auditor 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 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
CNB Financial Corp.
We have audited the consolidated balance sheet of CNB Financial Corp. and
subsidiaries (the Company) as of December 31, 1997, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit. The consolidated
financial statements of the Company as of December 31, 1996 and for the years
ended December 31, 1996 and 1995, were audited by other auditors whose report
thereon dated January 30, 1997, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CNB
Financial Corp. and subsidiaries as of December 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Albany, New York
February 2, 1998
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 23
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 19,498 $ 15,536
Federal funds sold -- 700
--------- ---------
Cash and cash equivalents 19,498 16,236
Trading securities 1,119 --
Securities available for sale, at fair value 144,077 130,973
Investment securities held to maturity, at amortized cost 110,324 104,770
Net loans receivable 338,332 312,876
Accrued interest receivable 5,325 4,914
Premises and equipment, net 10,005 9,673
Other real estate owned and repossessed assets 1,372 1,329
Other assets 4,337 5,304
--------- ---------
Total assets $ 634,389 $ 586,075
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits 49,358 50,313
Interest-bearing deposits 489,114 458,904
--------- ---------
Total deposits 538,472 509,217
--------- ---------
Short-term borrowings:
Securities sold under agreements to repurchase 17,330 13,854
Borrowings from Federal Home Loan Bank of New York 10,400 --
Borrowings from U.S. Treasury 503 656
--------- ---------
Total short-term borrowings 28,233 14,510
--------- ---------
Long-term borrowings 6,931 7,314
Other liabilities 6,147 6,643
--------- ---------
Total liabilities 579,783 537,684
--------- ---------
Commitments and contingent liabilities (note 12)
Stockholders' equity:
Common stock, $2.50 par value, 10,000,000 shares
authorized at Dec. 31, 1997 and 5,000,000 shares
authorized at Dec. 31, 1996 (3,876,170 shares issued
at Dec. 31, 1997 and 3,870,596 shares issued at Dec. 31, 1996) 9,690 9,676
Additional paid-in capital 5,891 5,842
Retained earnings 39,564 34,170
Net unrealized gain (loss) on securities available for sale
and securities available for sale transferred to investment
securities held to maturity, net of tax 393 (1,274)
Treasury stock, at cost (38,072 shares at Dec. 31, 1997 and
1,250 shares at Dec. 31, 1996) (932) (23)
--------- ---------
Total stockholders' equity 54,606 48,391
--------- ---------
Total liabilities and stockholders' equity $ 634,389 $ 586,075
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
24 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend income:
Loans, including fees $30,813 $30,242 $29,204
Securities:
Taxable 14,230 13,167 10,934
Nontaxable 3,173 2,869 2,719
Federal funds sold and other 419 607 758
------- ------- -------
48,635 46,885 43,615
------- ------- -------
Interest expense:
Deposits 21,511 20,650 19,210
Short-term borrowings 810 843 713
Long-term borrowings 401 261 165
------- ------- -------
22,722 21,754 20,088
------- ------- -------
Net interest income 25,913 25,131 23,527
Provision for loan losses 275 635 965
------- ------- -------
Net interest income after provision for loan losses 25,638 24,496 22,562
------- ------- -------
Other income:
Service charges on deposit accounts 1,697 1,368 990
Net gain on securities transactions 528 602 721
Other 1,549 1,208 1,034
------- ------- -------
3,774 3,178 2,745
------- ------- -------
Other expenses:
Salaries and employee benefits 8,697 8,723 7,866
Occupancy and equipment 1,881 1,539 1,241
Data processing 1,643 1,267 1,017
Professional fees 1,060 647 620
FDIC deposit insurance and related costs 64 2 497
Advertising and marketing 667 687 732
Postage and courier 561 488 404
Office supplies and stationery 493 641 485
Other real estate owned and repossessed assets 858 848 430
Other 2,587 2,937 2,962
------- ------- -------
18,511 17,779 16,254
------- ------- -------
Income before income tax expense 10,901 9,895 9,053
Income tax expense 3,235 2,738 2,481
------- ------- -------
Net income $ 7,666 $ 7,157 $ 6,572
======= ======= =======
Earnings per share:
Basic $ 1.99 $ 1.81 $ 1.63
======= ======= =======
Diluted $ 1.98 $ 1.80 $ 1.63
======= ======= =======
</TABLE>
Per share data has been adjusted for the three-for-two stock split declared in
December 1996.
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 25
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NET UNREALIZED
ADDITIONAL GAIN (LOSS) ON
COMMON PAID-IN RETAINED SECURITIES, TREASURY
STOCK CAPITAL EARNINGS NET OF TAX STOCK TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at Dec. 31, 1994 $ 6,661 $ 10,239 $ 25,592 $(2,594) $ -- $ 39,898
Net income -- -- 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
Adjustment of securities available
for sale to fair value, net of tax -- -- -- 2,874 -- 2,874
Decrease in net unrealized loss on
securities available for sale
transferred to investment securities
held to maturity, net of tax -- -- -- 59 -- 59
------- -------- -------- ------- ------- --------
Balance at Dec. 31, 1995 6,680 10,346 30,243 339 (175) 47,433
Net income -- -- 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
Adjustment of securities available
for sale to fair value, net of tax -- -- -- (1,642) -- (1,642)
Decrease in net unrealized loss on
securities available for sale
transferred to investment securities
held to maturity, net of tax -- -- -- 29 -- 29
Three-for-two stock split 3,225 (3,225) -- -- -- --
------- -------- -------- ------- ------- --------
Balance at Dec. 31, 1996 9,676 5,842 34,170 (1,274) (23) 48,391
Net income -- -- 7,666 -- -- 7,666
Cash dividends, $.59 per share -- -- (2,272) -- -- (2,272)
Purchase of treasury stock -- -- -- -- (1,432) (1,432)
Issuance of shares for options and
Dividend Reinvestment Plan 14 49 -- -- 523 586
Adjustment of securities available
for sale to fair value, net of tax -- -- -- 1,634 -- 1,634
Decrease in net unrealized loss on
securities available for sale
transferred to investment securities
held to maturity, net of tax -- -- -- 33 -- 33
------- -------- -------- ------- ------- --------
Balance at Dec. 31, 1997 $ 9,690 $ 5,891 $ 39,564 $ 393 $ (932) $ 54,606
======= ======== ======== ======= ======= ========
</TABLE>
Per share data has been adjusted for the three-for-two stock split declared in
December 1996.
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
26 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 7,666 $ 7,157 $ 6,572
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,100 767 550
Provision for loan losses 275 635 965
Deferred tax expense (benefit) 401 377 (885)
Net gain on securities transactions (528) (602) (721)
Net loss on sales and writedowns of other real
estate owned and repossessed assets 310 321 98
Purchases of trading securities (6,312) (11,013) (16,184)
Proceeds from sales of trading securities 5,209 10,745 16,311
Increase in accrued interest receivable (411) (305) (535)
Net change in other assets and other liabilities (701) (1,158) 53
--------- -------- --------
Net cash provided by operating activities 7,009 6,924 6,224
--------- -------- --------
Cash flows from investing activities:
Purchases of investment securities:
Available-for-sale (113,123) (97,086) (89,809)
Held-to-maturity (21,750) (20,224) (35,558)
Proceeds from sales of securities:
Available-for-sale 86,367 71,799 56,237
Proceeds from maturities and calls of securities:
Available-for-sale 16,602 13,552 15,098
Held-to-maturity 16,196 10,046 17,368
Net loans made to customers (26,788) (5,125) (25,585)
Proceeds from sales of other real estate owned
and repossessed assets 704 1,763 1,766
Capital expenditures (1,432) (4,517) (2,382)
--------- -------- --------
Net cash used in investing activities (43,224) (29,792) (62,865)
--------- -------- --------
Cash flows from financing activities:
Net increase in deposits 29,255 12,906 79,347
Net increase (decrease) in short-term borrowings 13,723 5,891 (11,489)
Proceeds from long-term borrowings -- 1,000 3,750
Payments on long-term borrowings (383) (307) (289)
Dividends paid (2,272) (2,080) (1,921)
Proceeds from issuance of shares for options
and Dividend Reinvestment Plan 586 593 126
Purchase of treasury stock (1,432) (3,099) (175)
--------- -------- --------
Net cash provided by financing activities 39,477 14,904 69,349
--------- -------- --------
Net increase (decrease) in cash and cash equivalents 3,262 (7,964) 12,708
Cash and cash equivalents at beginning of year 16,236 24,200 11,492
--------- -------- --------
Cash and cash equivalents at end of year $ 19,498 $ 16,236 $ 24,200
========= ======== ========
</TABLE>
(CONTINUED)
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 27
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS (contined)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Additional disclosures relative to cash flows:
Interest paid $22,538 $ 21,905 $19,417
======= ======== =======
Taxes paid $ 2,185 $ 2,080 $ 2,763
======= ======== =======
Supplemental schedule of non-cash investing and
financing activities:
Transfer of loans to other real estate owned
and repossessed assets $ 1,057 $ 2,119 $ 2,399
======= ======== =======
Adjustment of securities available for sale to
fair value, net of tax $ 1,634 $ (1,642) $ 2,874
======= ======== =======
Decrease in net unrealized loss on securities
available for sale transferred to investment
securities held to maturity, net of tax $ 33 $ 29 $ 59
======= ======== =======
Investment securities held to maturity transferred
to securities available for sale in accordance
with the FASB's Special Report
(estimated fair value of $33,117) $ -- $ -- $32,445
======= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
28 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of CNB Financial
Corp. (the Parent Company or 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. The accounting and reporting policies of the Company conform in
all material respects to generally accepted accounting principles and to general
practice within the banking industry. The Company utilizes the accrual method of
accounting for financial reporting purposes.
USE OF ESTIMATES
The preparation of the consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan losses
and the valuation of other real estate owned and repossessed assets acquired in
connection with foreclosures or insubstance foreclosures. In connection with the
determination of the allowance for loan losses and the valuation of other real
estate owned and repossessed assets, Management generally obtains independent
appraisals for properties.
Management believes that the allowance for loan losses is adequate and that
other real estate owned and repossessed assets are recorded at their fair value
less an estimate of the costs to sell the assets. While Management uses
available information to recognize losses on loans, other real estate owned and
repossessed assets, future additions to the allowance or write downs of other
real estate owned and repossessed assets may be necessary based on changes in
economic conditions. In addition, various regulatory agencies periodically
review the Bank's allowance for loan losses and other real estate owned and
repossessed assets. Such agencies may require the Bank to recognize additions to
the allowance or write downs of other real estate owned and repossessed assets
based on their judgments about information available to them at the time of
their examination which may not be currently available to Management.
The Bank operates twenty branches throughout six counties in Central New
York State. A substantial portion of the Company's assets are loans secured by
real estate located in these six counties. Accordingly, the ultimate
collectibility of a substantial portion of the Company's loan portfolio is
dependent upon economic conditions in these market areas. In addition, other
real estate owned and repossessed assets are also generally located in these six
counties.
CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 29
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TRADING SECURITIES, SECURITIES AVAILABLE FOR SALE, AND INVESTMENT SECURITIES
HELD TO MATURITY
Management determines the appropriate classification of securities at the
time of purchase. If Management has the positive intent and ability to hold debt
securities to maturity, they are classified as investment securities held to
maturity and are stated at amortized cost. However, if a security can be prepaid
or settled in such a manner that the holder of the security would not recover
substantially all of its recorded investment, such security cannot be classified
as held-to-maturity. If securities are purchased for the purpose of selling them
in the near term, they are classified as trading securities and are reported at
fair value with unrealized holding gains and losses reflected in current
earnings. All other debt and equity securities are classified as securities
available for sale and are reported at fair value, with net unrealized gains or
losses reported as a separate component of stockholders' equity, net of tax.
Realized gains and losses on the sale of securities are based on the net
proceeds and the amortized cost of the securities sold, using the specific
identification method. The cost of securities is adjusted for amortization of
premium and accretion of discount, which is calculated on an effective interest
method.
Unrealized losses on securities are charged to earnings when the decline in
fair value of a security is determined to be other than temporary.
Non-marketable equity securities, such as Federal Home Loan Bank of New
York stock and Federal Reserve Bank stock, are stated at cost since there is no
readily available market value. These investments are required for membership.
The investment in the Federal Home Loan Bank of New York stock is pledged to
secure Federal Home Loan Bank of New York borrowings.
Transfers from securities available for sale to investment securities held
to maturity are recorded at the securities' fair values on the date of the
transfer. Any net unrealized gains or losses continue to be reported in
stockholders' equity, net of tax, as long as the securities are carried in the
investment securities held-to-maturity portfolio, and are amortized over the
remaining life of the transferred securities as an adjustment to yield in a
manner consistent with the amortization of any premium or discount.
NET LOANS RECEIVABLE
Loans receivable are stated at the unpaid principal amount, net of unearned
income, net deferred loan fees and costs, and the allowance for loan losses.
Loans considered doubtful of collection by Management are placed on non-accrual
status for the recording of interest. Except in the case of consumer loans,
which are generally charged off when 120 days past due, loans are generally
placed on non-accrual status when principal and/or interest is 90 days or more
past due, except for those loans which, in Management's judgment, are well
secured and in the process of collection. Previously accrued income that has not
been collected is generally reversed from current income. Interest received on
non-accrual loans is applied to reduce the carrying amount of the loan or, if
principal is considered fully collectible, recognized as interest income. Loans
are removed from non-accrual status when they become current as to principal and
interest or when, in the opinion of Management, the loans are considered to be
fully collectible as to principal and interest. Loan fees received at the
inception of a loan and certain costs of origination are deferred and amortized
into interest income over the life of the loan.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased through a provision for loan
losses charged to operations. Loans are charged against the allowance for loan
losses when Management believes that collectibility of the principal is
unlikely. The allowance for loan losses is maintained at a level deemed
appropriate by Management based on an evaluation of the known and inherent risks
in the portfolio, past loan loss exposure, estimated value of underlying
collateral, and current and prospective economic conditions that may affect
borrowers' ability to pay.
- --------------------------------------------------------------------------------
30 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOAN IMPAIRMENT
In accordance with Statement of Financial Accounting Standards (SFAS) No.
114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No.
118, a loan (generally commercial-type loans) is considered impaired when it is
probable that the Company will be unable to collect all amounts of principal and
interest under the original contractual terms of the agreement or when a loan
(of any loan type) is restructured in a troubled debt restructuring subsequent
to the Company's adoption of these Statements. The allowance for loan losses
related to impaired loans is based on the discounted cash flows using the loan's
initial effective rate or the fair value of the collateral for certain loans
where repayment of the loan is expected to be provided solely by the underlying
collateral (collateral dependent loans). The Company's impaired loans are
generally collateral dependent. The Company considers estimated costs to sell,
on a discounted basis, when determining the fair value of collateral in the
measurement of impairment if those costs are expected to reduce the cash flows
available to repay or otherwise satisfy the loans.
Other real estate owned includes both formally foreclosed and insubstance
foreclosed real properties. In accordance with SFAS No. 114, a loan is
classified as an insubstance foreclosure when the Company has taken possession
of the collateral regardless of whether formal foreclosure proceedings have
taken place.
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 and improvements are generally depreciated
over 15 to 39 years, with furniture, fixtures and equipment depreciated from 3
to 5 years. Gains or losses realized on asset dispositions are reflected in the
consolidated statements of income. Maintenance and repairs are charged to
operating expense and improvements are capitalized.
STOCK BASED COMPENSATION
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees." Accordingly, compensation expense is recognized only
if the exercise price of the option is less than the fair value of the
underlying stock at the grant date. SFAS No. 123, "Accounting for Stock-Based
Compensation," encourages entities to recognize the fair value of all
stock-based awards on the date of grant as compensation expense over the vesting
period. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma disclosures of net income
and earnings per share as if the fair-value-based method defined in SFAS No. 123
had been applied to stock option grants made in 1995 and later years. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosures required by SFAS No. 123.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets are recognized subject to Management's judgment that
those assets will more likely than not be realized. A valuation allowance is
recognized if, based on an analysis of available evidence, Management believes
that all or a portion of the deferred tax assets will not be realized.
Adjustments to increase or decrease the valuation allowance are charged or
credited, respectively, to income tax expense. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 31
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 adoption of this Statement did not have a material effect on the
Company's results of operations.
FINANCIAL INSTRUMENTS
In the normal course of business, the Company is a party to certain
financial instruments with off-balance-sheet risk, such as commitments to extend
credit, unused lines of credit, letters of credit, and standby letters of
credit. The Company's policy is to record such instruments when funded.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities based on consistent
application of a financial-components approach that focuses on control. SFAS No.
125 also amends SFAS No. 115 to prevent a security from being classified as
held-to-maturity if the security can be prepaid or settled in such a manner that
the holder of the security would not recover substantially all of its recorded
investment. The extension of the SFAS No. 115 approach to certain non-security
financial assets and the amendment to SFAS No. 115 were effective for financial
assets held on or acquired after January 1, 1997. The Company adopted SFAS No.
125 on January 1, 1997. The adoption of SFAS No. 125 did not have a material
impact on the Company's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components in financial statements. SFAS No. 130 states that
comprehensive income includes reported net income of a company, adjusted for
items that are currently accounted for as direct entries to equity, such as the
net unrealized gain or loss on securities available for sale. This Statement is
effective for both interim and annual periods beginning after December 15, 1997.
As required, the Company will adopt the reporting requirements of this Statement
in 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for
reporting by public companies about operating segments of their business. SFAS
No. 131 also establishes standards for related disclosures about products and
services, geographic areas, and major customers. This Statement is effective for
periods beginning after December 15, 1997. As required, the Company will adopt
the reporting requirements of this Statement in 1998. At this time, the Company
does not expect this Statement to significantly affect its reporting
requirements.
RECLASSIFICATIONS
Amounts in the prior periods' consolidated financial statements are
reclassified whenever necessary to conform to the current period's presentation.
- --------------------------------------------------------------------------------
32 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SECURITIES
The amortized cost and approximate fair value of securities available for
sale at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1997
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Collateralized mortgage obligations $ 55,206 $ 488 $ 550 $ 55,144
Mortgage backed securities 8,876 59 26 8,909
U.S. Treasury securities 8,030 33 40 8,023
U.S. Government agency securities 26,618 121 15 26,724
Corporate debt securities 41,054 926 304 41,676
-------- ------ -------- --------
Total debt securities 139,784 1,627 935 140,476
Federal Home Loan Bank stock 2,092 -- -- 2,092
Federal Reserve Bank stock 356 -- -- 356
Preferred stock 1,125 28 -- 1,153
-------- ------ -------- --------
$143,357 $1,655 $ 935 $144,077
======== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1996
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Collateralized mortgage obligations $ 68,099 $ 286 $ 1,676 $ 66,709
Mortgage backed securities 12,836 5 138 12,703
U.S. Treasury securities 9,043 4 125 8,922
U.S. Government agency securities 19,115 14 340 18,789
Corporate debt securities 19,533 388 235 19,686
-------- ------ -------- --------
Total debt securities 128,626 697 2,514 126,809
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
======== ====== ======== ========
</TABLE>
The amortized cost and approximate fair value of debt securities available
for sale at December 31, 1997, 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.
<TABLE>
<CAPTION>
APPROXIMATE
AMORTIZED FAIR
(IN THOUSANDS) COST VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 2,396 $ 2,409
Due after one year through five years 11,043 11,025
Due after five years through ten years 30,657 30,673
Due after ten years 31,606 32,316
--------- ---------
75,702 76,423
Mortgage backed securities and collateralized
mortgage obligations 64,082 64,053
--------- ---------
$ 139,784 $ 140,476
========= =========
</TABLE>
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 33
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gross gains of $762,000 and gross losses of $234,000 were realized on sales
of trading securities and securities available for sale in 1997; gross gains of
$1,438,000 and gross losses of $836,000 were realized on sales of trading
securities and securities available for sale in 1996; gross gains of $901,000
and gross losses of $180,000 were realized on sales of trading securities and
securities available for sale in 1995.
The amortized cost and approximate fair value of investment securities held
to maturity at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1997
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
State and municipal obligations $ 56,844 $3,485 $ 79 $ 60,250
Mortgage backed securities 22,188 427 87 22,528
Collateralized mortgage obligations 2,802 66 -- 2,868
U.S. Government agency securities 12,112 207 96 12,223
Corporate and taxable municipal debt
securities 16,378 1,493 21 17,850
-------- ------ -------- --------
$110,324 $5,678 $ 283 $115,719
======== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1996
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
State and municipal obligations $ 49,690 $3,489 $ 183 $ 52,996
Mortgage backed securities 26,001 189 403 25,787
Collateralized mortgage obligations 3,277 8 5 3,280
U.S. Government agency securities 10,181 27 293 9,915
Corporate and taxable municipal debt
securities 15,621 1,047 266 16,402
-------- ------ -------- --------
$104,770 $4,760 $ 1,150 $108,380
======== ====== ======== ========
</TABLE>
The amortized cost and approximate fair value of debt securities held to
maturity at December 31, 1997, 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.
<TABLE>
<CAPTION>
APPROXIMATE
AMORTIZED FAIR
(IN THOUSANDS) COST VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 2,485 $ 2,484
Due after one year through five years 17,624 18,329
Due after five years through ten years 34,090 37,129
Due after ten years 31,135 32,381
-------- --------
85,334 90,323
Mortgage backed securities and collateralized
mortgage obligations 24,990 25,396
-------- --------
$110,324 $115,719
======== ========
</TABLE>
There were no sales of investment securities held to maturity during 1997,
1996, or 1995.
Securities with a carrying value of approximately $140.3 million and $128.3
million at December 31, 1997 and 1996, respectively, were pledged to secure
public deposits, repurchase agreements, and borrowings from the U.S. Treasury.
- --------------------------------------------------------------------------------
34 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. NET LOANS RECEIVABLE
The composition of the loan portfolio is as follows at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Loans secured by real estate:
One-to-four family mortgages $ 58,800 $ 61,413
Commercial 47,367 44,823
Agricultural 14,772 12,621
Construction 1,378 1,028
Home equity 24,059 22,068
--------- ---------
146,376 141,953
--------- ---------
Other loans:
Commercial 30,553 32,925
Agricultural 18,335 15,627
Manufactured housing 61,519 61,621
Lease receivables 23,524 13,144
Tax-exempt 3,861 4,932
Consumer 62,638 50,103
--------- ---------
200,430 178,352
--------- ---------
Less: Net deferred loan fees/costs and unearned discount (96) 938
Allowance for loan losses (8,378) (8,367)
--------- ---------
Net loans receivable $ 338,332 $ 312,876
========= =========
</TABLE>
A summary of the activity in the allowance for loan losses for the years
ended December 31 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 8,367 $ 8,463 $ 8,292
Provision for loan losses 275 635 965
Charge-offs (1,531) (1,297) (1,315)
Recoveries 1,267 566 521
------- ------- -------
Balance at end of year $ 8,378 $ 8,367 $ 8,463
======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 35
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth information with regard to non-performing
loans at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans in non-accrual status $2,107 $3,253 $3,078
Loans contractually past due 90 days
or more and still accruing interest 2,386 1,226 885
------ ------ ------
Total non-performing loans $4,493 $4,479 $3,963
====== ====== ======
</TABLE>
Accumulated interest on non-accrual loans, as shown above, of approximately
$190,000, $125,000, and $147,000, was not recognized in interest income during
the years ended December 31, 1997, 1996, and 1995, respectively. Approximately
$21,000, $28,000 and $5,000 of interest on non-accrual loans, as shown above,
was collected and recognized as interest income during the years ended December
31, 1997, 1996, and 1995, respectively.
The Company had impaired loans of $1,600,000 and $2,970,000 at December 31,
1997 and 1996, respectively. Included in this amount are impaired loans of
$1,203,000 and $1,586,000, respectively, which had an allowance for loan losses
of $170,000 and $367,000, respectively. Average impaired loans were $1,966,000
for 1997, $3,440,000 for 1996, and $2,823,000 for 1995. Interest income
recognized on impaired loans was not significant for 1997, 1996, and 1995.
Certain directors and executive officers of the Company were customers of
and had other transactions with the Company in the ordinary course of business.
Loans to these parties were made in the ordinary course of business at the
Company's normal credit terms, including interest rate and collateralization.
The aggregate of such loans totaled less than 5% of total stockholders' equity
at December 31, 1997 and 1996. (See also note 6.)
4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows at December 31:
(IN THOUSANDS) 1997 1996
- ----------------------------------------------------------------------------
Land $ 549 $ 549
Buildings and improvements 9,711 9,122
Furniture, fixtures and equipment 6,830 5,772
Construction-in-progress 44 286
-------- --------
17,134 15,729
Less accumulated depreciation (7,129) (6,056)
-------- --------
Total premises and equipment, net $ 10,005 $ 9,673
======== ========
In July 1996, the Company completed construction of its new Administrative
and Operations Complex in Canajoharie, New York. The total cost of the complex
was $4,300,000 which includes $213,000 of capitalized interest cost.
- --------------------------------------------------------------------------------
36 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. DEPOSITS
The components of interest-bearing deposits are as follows at December 31:
(IN THOUSANDS) 1997 1996
- -------------------------------------------------------------------------------
NOW accounts $ 65,519 $ 60,106
Savings accounts 97,604 98,440
Money market accounts 40,043 38,557
Time deposits of $100,000 or more 114,371 110,145
Other time deposits 171,577 151,656
-------- --------
Total $489,114 $458,904
======== ========
The approximate amount of contractual maturities of time deposit accounts
for the years subsequent to December 31, 1997 are as follows:
YEARS ENDED DECEMBER 31, (IN THOUSANDS)
- --------------------------------------------------------------------------------
1998 $ 214,134
1999 54,507
2000 8,558
2001 2,196
2002 2,505
THEREAFTER 4,048
-----------
$ 285,948
===========
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 37
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase generally mature within one
to three days from the transaction date, however, certain agreements are entered
into for longer terms. Control of the securities is maintained by the Company
during the term of the agreement. Information concerning securities sold under
agreements to repurchase for each of the last three years ended December 31 is
summarized below:
(DOLLARS IN THOUSANDS) 1997 1996 1995
- ------------------------------------------------------------------------------
Balance at year-end $17,330 $13,854 $ 7,963
Average daily balance during the year 14,345 16,232 11,279
Maximum month-end balance during the year 17,330 18,008 15,271
Weighted-average interest rate at year-end 5.04% 4.75% 5.00%
Weighted-average interest rate during the year 4.84% 4.74% 5.20%
- --------------------------------------------------------------------------------
The Company has entered into repurchase agreements with entities which have
certain executive officers who are significant stockholders and directors of the
Company. These repurchase agreements are entered into in the ordinary course of
business at market terms. These repurchase agreements resulted in approximately
$14,037,000 and $12,341,000 being due to these entities at December 31, 1997 and
1996, respectively.
7. LONG-TERM BORROWINGS
Long-term borrowings consist of a Federal Home Loan Bank (FHLB) borrowing
of $2,241,000 and $2,564,000 at December 31, 1997 and 1996, respectively, which
bears interest at 5.45% with monthly principal and interest payments due through
2003, and an Industrial Development Agency (IDA) note of $4,690,000 and
$4,750,000 at December 31, 1997 and 1996, respectively, which bears interest at
a variable commercial paper rate, with payments due through 2025. The
weighted-average interest rate on the IDA note was 5.72% during 1997. The amount
of principal payments coming due over the next five years starting in 1998 and
ending in 2002 for long-term borrowings is $401,000, $425,000, $445,000,
$477,000 and $504,000, with $4,679,000 in principal payments due thereafter.
8. STOCKHOLDER'S EQUITY
On February 27, 1998, the Board of Directors declared a two-for-one stock
split, contingent upon stockholder approval of an amendment to the Certificate
of Incorporation to change the par value of the Company's stock at the Annual
Meeting to be held in May 1998. Due to the contingency associated with the stock
split, the effects of the split will not be reflected in the consolidated
financial statements or in any per share data until the stockholders approve the
reduction in the par value of the Company's stock.
On December 17, 1996, the Board of Directors declared a three-for-two stock
split. The stock split was recorded as of December 31, 1996 by a transfer of
$3,225,000 from additional paid-in capital to common stock, representing the
$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 has been restated
to reflect the split.
In September of 1996, the Company repurchased 99,960 shares of stock for a
total of $2,799,000. These shares were retired at the request of the Board of
Directors. The excess of the repurchase price of the shares over the original
issue proceeds was charged to retained earnings in 1996.
- -------------------------------------------------------------------------------
38 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES
The following is a summary of the components of income tax expense for the
years ended December 31:
(IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------------------------------
Current tax expense:
Federal $ 2,085 $ 1,740 $ 2,410
State 749 621 956
------- ------- -------
2,834 2,361 3,366
Deferred tax expense (benefit) 401 377 (885)
------- ------- -------
$ 3,235 $ 2,738 $ 2,481
======= ======= =======
Income tax expense differs from the amount of tax determined by applying
the federal statutory income tax rate of 34% as a result of the following items:
(DOLLARS IN THOUSANDS) 1997 1996 1995
- -------------------------------------------------------------------------------
Pre-tax income at statutory rate $ 3,706 $ 3,364 $ 3,078
Tax exempt income on loans and securities (1,019) (945) (918)
State income tax, net of federal tax benefit 554 410 631
Other, net (6) (91) (310)
------- ------- -------
$ 3,235 $ 2,738 $ 2,481
======= ======= =======
Effective tax rate 29.7% 27.7% 27.4%
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31 are as
follows:
(IN THOUSANDS) 1997 1996
- --------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 3,251 $ 2,982
Repossessed assets 187 165
Deferred compensation 1,113 901
Deferred loan fees 102 147
Pension and postretirement benefits 326 310
Accrued liabilities 242 238
Other 174 119
------- -------
Gross deferred tax assets 5,395 4,862
------- -------
Deferred tax liabilities:
Leases (2,446) (1,465)
Depreciation on premises and equipment (245) (216)
Other (220) (296)
------- -------
Gross deferred tax liabilities (2,911) (1,977)
------- -------
Net deferred tax asset $ 2,484 $ 2,885
======= =======
In addition to the deferred tax assets and liabilities described above, the
Company had a deferred tax liability of $159,000 at December 31, 1997 and a
deferred tax asset of $658,000 at December 31, 1996, related to the net
unrealized gain or loss on securities available for sale and the net unrealized
loss on securities transferred from securities available for sale to investment
securities held to maturity in 1994.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. Based upon Management's consideration of the historical
level of taxable income in the prior years, as well as the time period that the
items giving rise to the deferred tax assets will turn around, no valuation
reserve is considered necessary as of December 31, 1997 and 1996.
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 39
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK OPTION PLAN
During 1994, the Company established a Stock Option 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 the date of grant. The term of the options is ten years. A summary of the
stock option activity follows:
WEIGHTED AVERAGE
NO. OF EXERCISE
SHARES PRICE
- --------------------------------------------------------------------------
Outstanding at December 31, 1994 52,950 $10.88
Granted -- --
Exercised (6,450) 10.88
------- ------
Outstanding at December 31, 1995 46,500 10.88
Granted 28,500 18.60
Exercised (12,750) 10.88
------- ------
Outstanding at December 31, 1996 62,250 14.41
Granted -- --
Exercised (5,250) 10.88
------- ------
Outstanding at December 31, 1997 57,000 $14.74
=== ==== ====== ======
As of December 31, 1997, 1996, and 1995, all options outstanding were
exercisable. The weighted average remaining contractual life of the options
outstanding at December 31, 1997 was 7.2 years.
All options have been granted at exercise prices equal to the fair value of
the common stock at the grant date. Therefore, in accordance with the provisions
of APB Opinion No. 25 related to fixed stock options, no compensation cost has
been recognized in the consolidated financial statements with respect to options
granted or exercised. Under the alternative fair-value-based method defined in
SFAS No. 123, the fair value of all fixed stock options on the grant date would
be recognized as compensation expense over the vesting period (in the Company's
case, six months). The estimated weighted average fair value of options granted
in 1996 was $3.41. The fair value of each option grant is estimated on the grant
date using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996: dividend yield of 3.3%;
expected volatility of 17.9%; risk free interest rate of 5.5%; and expected
option life of 4.9 years. Pro forma disclosures for the Company for the years
ending December 31, 1997 and 1996, assuming application of the fair value based
method defined in SFAS No. 123 for options awarded in 1995 and later, are as
follows:
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996
- --------------------------------------------------------------------------------
Net income:
As reported $ 7,666 $ 7,157
Pro forma 7,655 7,082
Basic earnings per share:
As reported 1.99 1.81
Pro forma 1.99 1.79
Diluted earnings per share:
As reported 1.98 1.80
Pro forma 1.97 1.78
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
40 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. EMPLOYEE BENEFIT PLANS
EMPLOYEE PENSION BENEFITS
The Company has a noncontributory pension plan which covers substantially
all full-time employees meeting certain eligibility requirements. The benefit
formula is based upon a percentage of final average pay immediately prior to
retirement. Plan benefits are funded through Company contributions at least
equal to the amounts required by law.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation including vested benefits of
$5,344 and $4,732 in 1997 and 1996, respectively $(5,476) $(4,889)
------- -------
Projected benefit obligation (7,510) (6,867)
Plan assets at fair value 8,906 7,916
------- -------
Plan assets in excess of projected benefit obligation 1,396 1,049
Unrecognized net gain (1,237) (740)
Prior service cost not yet recognized in net periodic
pension cost 114 125
Unrecognized portion of net asset at transition being
recognized over 21 years (845) (932)
------- -------
Pension liability included in other liabilities $ (572) $ (498)
======= =======
</TABLE>
The components of net pension expense are as follows for the years ended
December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 380 $ 460 $ 301
Interest cost on projected benefit obligation 477 470 415
Actual return on plan assets (1,477) (1,049) (1,503)
Amortization of initial unrecognized net asset at transition (87) (87) (87)
Amortization of unrecognized prior service cost 11 11 11
Amortization of unrecognized actuarial gain (12) -- --
Deferral of actual return on plan assets
versus actuarial long-term assumptions 782 419 979
------- ------- -------
$ 74 $ 224 $ 116
======= ======= =======
</TABLE>
Plan assets are invested primarily in pooled investment funds. A
weighted-average discount rate of 7.0% for 1997, 7.5% for 1996, and 7.5% for
1995, and a rate of increase in future compensation levels of 5.0% for 1997,
1996 and 1995 was used in determining the actuarial present value of the
projected benefit obligation. The expected long-term rate of return on assets
for 1997, 1996 and 1995 was 9.0%.
401(K) PLAN AND PROFIT SHARING PLAN
The Company maintains a 401(k) 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 their compensation through
contributions to the plan. The Company makes matching contributions equal to 30%
of the first 8% of the participant's contribution.
The Company also maintains a profit sharing plan with awards based on
certain pre-determined criteria set by the Board of Directors. The Company
contributes 50% of each employee's profit sharing award to the 401(k) plan. Each
employee may also elect to contribute any portion of the remaining 50% of the
profit sharing award to the 401(k) plan. The expense related to these plans
amounted to $724,000 in 1997, $729,000 in 1996, and $566,000 in 1995.
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 41
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EMPLOYEE STOCK PURCHASE PLAN
In conjunction with the Dividend Reinvestment Plan, the Company offers an
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. Under the
Plan, common stock of the Company is purchased at prevailing market prices and
distributed to the employees.
SALARY CONTINUATION AGREEMENTS
The Company also has salary continuation agreements with certain key
officers. The Company had accrued $1,422,000 and $1,427,000 at December 31, 1997
and 1996, respectively, to reflect its liability under these agreements. The
expense related to these agreements amounted to $100,000 in 1997, $83,000 in
1996, and $316,000 in 1995.
In connection with these agreements, the Company has purchased whole-life
insurance contracts on the related officers with the Company as beneficiary. The
Company paid whole-life premiums of approximately $162,000 in 1997, $190,000 in
1996, and $159,000 in 1995. At December 31, 1997 and 1996, the cash surrender
value of these policies was $893,000 and $713,000, respectively.
MANAGEMENT INCENTIVE PLAN
The Company has an annual incentive plan for certain key officers. Awards
under the plan are based on the Bank achieving certain pre-determined
performance targets set by the Board of Directors. The expense related to this
plan amounted to $216,000 in 1997, $299,000 in 1996, and $216,000 in 1995.
EMPLOYEE POSTRETIREMENT BENEFITS
Effective June 1994, the Company ceased offering any postretirement
benefits for those employees who had not yet retired and for those retirees who
had not yet reached age 65. The remaining obligation of the Company to its
retirees is not considered material to the consolidated financial statements.
12. COMMITMENTS AND CONTINGENT LIABILITIES
OFF-BALANCE SHEET FINANCING
The Company is a party to certain financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of its
customers. These financial instruments consist of commitments to extend credit,
unused lines of credit, letters of credit, and standby letters of credit. These
instruments involve, to varying degrees, elements of credit risk in excess of
the amounts recognized on the consolidated balance sheets. The contract amounts
of these instruments reflect the extent of involvement by the Company.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the commitment to extend credit is represented by the contractual
notional amount of those instruments. The Company uses the same credit policies
in making commitments as it does for on-balance-sheet instruments.
Unless otherwise noted, the Company does not require collateral or other
security to support off-balance-sheet financial instruments with credit risk.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being fully drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral,
if any, required by the Company upon the extension of credit is based on
Management's credit evaluation of the customer. Mortgage and construction loan
commitments are secured by a first or second lien on real estate. Collateral on
extensions of credit for commercial loans varies but may include accounts
receivable, inventory, property, plant and equipment, and income producing
commercial property.
Letters of credit and standby letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support borrowing arrangements. The
credit risk involved in issuing letters of credit and standby letters of credit
is essentially the same as that involved in extending loan facilities to
customers.
- --------------------------------------------------------------------------------
42 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contract amounts of financial instruments that represent credit risk as of
December 31, 1997 are as follows:
(IN THOUSANDS)
- --------------------------------------------------------------------------------
Commitments to extend credit and unused lines of credit $26,972
Letters of credit and standby letters of credit 1,475
-------
$28,447
=======
The Company does not engage in investments in futures contracts, forwards
(excluding forward sale commitments on residential mortgage loans), swaps,
option contracts or other derivative investments with similar characteristics.
The Company generally enters into rate lock agreements at the time that
residential mortgage loan applications are taken. These rate lock agreements fix
the interest rate at which the loan, if ultimately made, will be originated.
Such agreements may exist with borrowers with whom commitments to extend loans
have been made, as well as with individuals who have not yet received a
commitment. The Company generally makes its determination of whether or not to
identify a loan as held for sale at the time rate lock agreements are entered
into. Accordingly, the Company is exposed to interest rate risk to the extent
that a rate lock agreement is associated with a loan application or a loan
commitment which is intended to be held for sale, as well as with respect to
loans held for sale. In order to reduce the interest rate risk associated with
residential mortgage loans held for sale, as well as outstanding loan
commitments and uncommitted loan applications with rate lock agreements which
are intended to be held for sale, the Company enters into agreements to sell
loans in the secondary market to unrelated investors on a loan by loan basis.
LEASE COMMITMENTS
The Company leases certain branch facilities and office space under
noncancelable operating leases. A summary of the future minimum commitments
required under noncancelable operating leases as of December 31, 1997 are as
follows:
YEARS ENDING DECEMBER 31, (IN THOUSANDS)
- --------------------------------------------------------------------------------
1998 $ 293
1999 301
2000 301
2001 297
2002 265
THEREAFTER 4,327
-------
$ 5,784
=======
SERVICED LOANS
The total amount of loans serviced by the Company for unrelated third
parties was approximately $13.0 million and $9.9 million at December 31, 1997
and 1996, respectively.
RESERVE REQUIREMENT
The Bank is required to maintain certain reserves of vault cash and/or
deposits with the Federal Reserve Bank of New York. The amount of this reserve
requirement, included in cash and due from banks, was approximately $1,274,000
at December 31, 1997.
DIVIDEND RESTRICTIONS
The approval of banking regulatory authorities is required before dividends
paid by the Bank to the Parent Company during the year can exceed certain
prescribed limits. Undivided profits at the Bank of approximately $17,210,000
are free of limitations at December 31, 1997.
LEGAL PROCEEDINGS
The Company is, from time to time, a defendant in legal proceedings
relating to the conduct of its business. In the best judgment of Management, the
consolidated financial position of the Company will not be affected materially
by the outcome of any pending legal proceedings.
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 43
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. 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 an institution'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 regulations 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 1 capital (as
defined) to average assets (as defined). Management believes that, as of
December 31, 1997 and 1996, the Company and the Bank met all capital adequacy
requirements to which they were subject.
As of December 31, 1997, 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
1 risk-based, and Tier 1 leverage ratios as set forth in the table below. There
are no conditions or events since that notification that Management believes
have changed the Bank's category. Actual capital amounts and ratios as of
December 31 are presented in the table below.
<TABLE>
<CAPTION>
MINIMUM MINIMUM RATIOS
RATIOS FOR TO BE WELL
1997 1996 CAPITAL CAPITALIZED UNDER
ACTUAL ACTUAL ADEQUACY PROMPT CORRECTIVE
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO PURPOSES ACTION PROVISIONS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital (to Total Adjusted Average Assets):
Central National Bank, Canajoharie $ 52,212 8.2% $ 46,750 7.9% 4.0% 5.0%
CNB Financial Corp. (consolidated) 54,175 8.4% 49,667 8.3% 4.0%
Tier 1 Capital (to Risk-Weighted Assets):
Central National Bank, Canajoharie 52,212 11.7% 46,750 11.7% 4.0% 6.0%
CNB Financial Corp. (consolidated) 54,175 12.0% 49,667 12.2% 4.0%
Total Capital (to Risk-Weighted Assets):
Central National Bank, Canajoharie 57,809 13.0% 51,780 13.0% 8.0% 10.0%
CNB Financial Corp. (consolidated) 59,850 13.3% 54,793 13.5% 8.0%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
44 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. EARNNINGS PER SHARE
The following table provides the calculation of basic and diluted EPS for
the years ended December 31:
1997
WEIGHTED
AVERAGE PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME SHARES AMOUNT
- --------------------------------------------------------------------------------
Basic EPS:
Net income available
to common stockholders $7,666 3,856 $1.99
=====
Effect of Dilutive Securities:
Stock options -- 22
------ -----
Diluted EPS $7,666 3,878 $1.98
====== ===== =====
1996
WEIGHTED
AVERAGE PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME SHARES AMOUNT
- --------------------------------------------------------------------------------
Basic EPS:
Net income available
to common stockholders $7,157 3,965 $1.81
=====
Effect of Dilutive Securities:
Stock options -- 17
------ -----
Diluted EPS $7,157 3,982 $1.80
====== ===== =====
1995
WEIGHTED
AVERAGE PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME SHARES AMOUNT
- --------------------------------------------------------------------------------
Basic EPS:
Net income available
to common stockholders $6,572 4,031 $1.63
=====
Effect of Dilutive Securities:
Stock options -- 12
------ -----
Diluted EPS $6,572 4,043 $1.63
====== ===== =====
Options to purchase 24,750 shares of common stock at $18.75 per share were
outstanding during the second half of 1996, but were not included in the
computation of diluted EPS for the year ended December 31, 1996 because the
options' exercise price was greater than the average market price of the common
stock during the second half of 1996. All of these options were still
outstanding at December 31, 1997.
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 45
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. 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 AND ACCRUED INTEREST RECEIVABLE AND PAYABLE
For these short-term instruments, the carrying value approximates fair
value.
SECURITIES
Fair values for securities (including trading securities, securities
available for sale, and investment securities held to maturity) are based on
quoted market prices or dealer quotes, when available. When 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.
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. NOW accounts, noninterest-bearing
accounts, savings accounts and money market accounts are payable on demand, thus
the carrying value approximates fair value. The fair value estimates for
deposits do not include the benefit that results from the low-cost funding
provided by the deposit liabilities as compared to the cost of borrowing funds
in the market.
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 these financial instruments is
immaterial.
The estimated fair values of the Company's financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
CARRYING ESTIMATED FAIR CARRYING ESTIMATED FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 19,498 $ 19,498 $ 16,236 $ 16,236
Trading securities 1,119 1,119 --
Securities available for sale 144,077 144,077 130,973 130,973
Investment securities held to maturity 110,324 115,719 104,770 108,380
Net loans receivable(1) 338,332 337,292 312,876 310,633
Accrued interest receivable 5,325 5,325 4,914 4,914
Financial liabilities:
Noninterest-bearing deposits $ 49,358 $ 49,358 $ 50,313 $ 50,313
Interest-bearing deposits 489,114 491,013 458,904 457,057
Short-term borrowings 28,233 28,233 14,510 14,510
Long-term borrowings 6,931 6,589 7,314 6,630
Accrued interest payable 2,443 2,443 2,258 2,258
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Lease receivables, although excluded from the scope of SFAS No. 107, are
included in the estimated fair value at their carrying amounts.
Note: Trading securities represent the only trading financial instruments;
all other financial instruments are considered to be held for purposes other
than trading.
- --------------------------------------------------------------------------------
46 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the estimate of fair value
under SFAS No. 107.
16. PARENT COMPANY FINANCIAL STATEMENTS
The following presents the condensed balance sheets of the Parent Company
at December 31 and its condensed statements of income and cash flows for the
years ended December 31:
CONDENSED BALANCE SHEETS
(IN THOUSANDS) 1997 1996
- --------------------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 765 $ 1,179
Securities available for sale 1,153 1,717
Premises and equipment, net 4,899 4,949
Investment in subsidiaries 52,719 45,564
Other assets 18 22
------- -------
$59,554 $53,431
======= =======
Liabilities and stockholders' equity:
Long-term borrowings 4,690 4,750
Other liabilities 258 290
Stockholders' equity 54,606 48,391
------- -------
$59,554 $53,431
======= =======
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------------------------------
Income:
Dividends from bank subsidiary $2,289 $ 2,089 $1,930
Interest income 120 253 357
Net gain (loss) on securities transactions 182 (3) --
Other income 597 364 42
------ ------- ------
Total income 3,188 2,703 2,329
====== ======= ======
Expenses:
Interest 269 113 --
Other 568 462 206
------ ------- ------
Total expenses 837 575 206
====== ======= ======
Income before equity in undistributed earnings of
subsidiaries 2,351 2,128 2,123
Equity in undistributed earnings of subsidiaries 5,315 5,029 4,449
------ ------- ------
Net income $7,666 $ 7,157 $6,572
====== ======= ======
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. 47
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 7,666 $ 7,157 $ 6,572
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries (5,315) (5,029) (4,449)
Depreciation and amortization 251 131 20
Net (gain) loss on securities transactions (182) 3 --
Net change in other assets and other liabilities (8) 73 257
------- ------- -------
Net cash provided by operating activities 2,412 2,335 2,400
------- ------- -------
Cash flows from investing activities:
Purchases of securities available for sale (625) (3,897) (6,048)
Proceeds from sales of securities available for sale 1,299 4,262 --
Maturities of securities available for sale -- 2,538 5,500
Capital expenditures (197) (3,195) (1,885)
Investment in non-bank subsidiary (125) (100) --
------- ------- -------
Net cash provided by (used in) investing activities 352 (392) (2,433)
------- ------- -------
Cash flows from financing activities:
Proceeds from long-term borrowings -- 1,000 3,750
Payments on long-term borrowings (60) -- --
Dividends paid (2,272) (2,080) (1,921)
Proceeds from issuance of shares for options and
Dividend Reinvestment Plan 586 593 126
Purchase of treasury stock (1,432) (3,099) (175)
------- ------- -------
Net cash (used in) provided by financing activities (3,178) (3,586) 1,780
------- ------- -------
Net (decrease) increase in cash and cash equivalents (414) (1,643) 1,747
Cash and cash equivalents at beginning of year 1,179 2,822 1,075
------- ------- -------
Cash and cash equivalents at end of year $ 765 $ 1,179 $ 2,822
======= ======= =======
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
These condensed financial statements should be read in conjunction with the
Company's consolidated financial statements and notes thereto.
- --------------------------------------------------------------------------------
48 CNB FINANCIAL CORP.
<PAGE>
- --------------------------------------------------------------------------------
[PHOTO]
BOARD OF DIRECTORS
FROM LEFT:
DAVID J. NOLAN, VANNESS D. ROBINSON, C. WENDELL SMITH, JOHN P. WOODS, JR.,
DONALD L. BRASS, JOSEPH A. SANTANGELO, ALLEN H. SAMUELS
AND J. CARL BARBIC.
SHAREHOLDER INFORMATION
TRANSFER AGENT
Please direct questions about lost certificates, change of address, and
consolidation of accounts to CNB's transfer agent and registrar:
Central National Bank, Canajoharie
(Attn. Holly Craver)
24 Church Street
Canajoharie, New York 13317
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP
515 Broadway
Albany, New York 12207
Tel: 518-427-4600
FORM 10-K AND OTHER INFORMATION
Furnished to shareholders upon request.
Please call or write:
CNB Financial Corporation
24 Church Street
Canajoharie, NY 13317
Tel: 518-673-3243
Fax: 518-673-3433
COMMON STOCK DATA
CNB Financial Corp. trades on the
NASDAQ National Market System
(Symbol CNBF).
CORPORATE OFFICERS
[PHOTO]
DONALD L. BRASS
President and Chief Executive Officer
[PHOTO]
PETER J. CORSO
Executive Vice President and Chief Financial Officer
[PHOTO]
RICHMOND J. HULSE
Senior Vice President,
Investment Management and Trust
VISIT US ON
THE INTERNET AT:
http://www.canajocnb.com
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
BRANCHES
- --------------------------------------------------------------------------------
Amsterdam Gloversville
Amsterdam Super Kmart 198 2nd Avenue Extension
4930 State Highway 30 Gloversville, NY 12078
Amsterdam, NY 12010 (518) 725-9311
(518) 843-5253
Johnstown
106 Hannaford Plaza 210 N. Comrie Avenue
Amsterdam, NY 12010 Johnstown, NY 12095
(518) 842-2123 (518) 736-2200
Canajoharie Middleburgh
24 Church Street 165 Main Street
Canajoharie, NY 13317 Middleburgh, NY 12122
(518) 673-3243 (518) 827-4111
Cherry Valley Middleville
16 Main Street Newport Street
Cherry Valley, NY 13320 Middleville, NY 13406
(607) 264-8411 (315) 891-7502
Cobleskill Palatine Bridge
112-114 E. Main Street Dutchtown Plaza
Cobleskill, NY 12043 Palatine Bridge, NY 13317
(518) 234-4331 (518) 673-3201
Cooperstown Richfield Springs
One Commons Drive 34-38 Main Street
Route 28 S Richfield Springs, NY 13439
Cooperstown, NY 13326 (315) 858-2800
(607) 547-8301
Rotterdam
Duanesburg Rotterdam Wal-Mart
Route 20 Altamont Avenue & Crane Street
Duanesburg, NY 12056 Schenectady, NY 12303
(518) 895-2364 (518) 356-7140
Edmeston St. Johnsville
1 West Street 16 W. Main Street
Edmeston, NY 13335 St. Johnsville, NY 13452
(607) 965-8636 (518) 568-7612
Fonda Schoharie
41 W. Main Street 339-341 Main Street
Fonda, NY 12068 Schoharie, NY 12157
(518) 853-4621 (518) 295-7788
Fort Plain Sharon Springs
41 Canal Street Springs Corners
Fort Plain, NY 13339 Route 10 & 20
(518) 993-2393 Sharon Springs, NY 13459
(518) 284-2231
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP.
24 CHURCH STREET
CANAJOHARIE, NEW YORK 13317
- --------------------------------------------------------------------------------
CNB FINANCIAL CORP. SUBSIDIARIES
1. Central National Bank, Canajoharie
Incorporated in New York
2. Central Asset Management Inc.
Incorporated in New York
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
CNB Financial Corp.:
We consent to incorporation by reference in the registration statement (No.
33-63176) on Form S-3 of CNB Financial Corp. of our report dated February 2,
1998, relating to the consolidated balance sheet of CNB Financial Corp. and
subsidiaries as of December 31, 1997, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for the year ended
December 31, 1997, which report appears in the December 31, 1997 Annual Report
on Form 10-K of CNB Financial Corp.
/s/ KPMG Peat Marwick LLP
Albany, New York
March 30, 1998
Exhibit 23B
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement (No. 33-63176) Form S-3 of our report dated January 7, 1997, which
appears on page 23 of the 1996 Annual Report to Shareholders of CNB Financial
Corp., which is incorporated by reference in CNB Financial Corp.'s Annual Report
on Form 10-K for the year ended December 31, 1996.
/s/ PRICE WATERHOUSE LLP
--------------------------
Price Waterhouse LLP
Syracuse, New York
March 27, 1998
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<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
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