UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly period endingJune 30, 1998
Commission File Number 33-45522
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CNB FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
New York 22-3203747
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 Church Street, Canajoharie N.Y. 13317
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(Address of principal executive offices - Zip code)
Registrant's telephone number, include area code (518) 673-3243
Indicated by a check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the bank
was required to file such reports), and (2) has been subjected to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares outstanding
Class on July 31, 1998
--------------------------- ------------------------------
Common Stock, $1.25 par value 7,659,179
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<PAGE>
PART I. FINANCIAL INFORMATION Page
Item 1. Consolidated Interim Financial Statements (unaudited)
1. Consolidated Balance Sheets 3.
2. Consolidated Statements of Income 4.
3. Consolidated Statements of Cash Flows 5.
4. Notes to Consolidated Interim Financial Statements 6.-7.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8.-12.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12.
Item 2. Changes in Securities 12.
Item 3. Defaults Upon Senior Securities 12.
Item 4. Submission of Matters to a Vote of Security Holders 12.
Item 5. Other Information 13.
Item 6. Exhibits and reports on Form 8-K 13.
SIGNATURES
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<PAGE>
Part 1. Financial Information
Item 1. Consolidated Interim Financial Statements
CNB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks $ 18,431 $ 19,498
Federal funds sold 0 0
--------- ---------
Cash and cash equivalents 18,431 19,498
Trading securities 645 1,119
Securities available for sale, at fair value 167,950 144,077
Investment securities held to maturity, at amortized cost 111,637 110,324
Net loans receivable 360,139 338,332
Accrued interest receivable 5,605 5,325
Premises and equipment, net 10,468 10,005
Other real estate owned and repossessed assets 1,084 1,372
Other assets 5,725 4,337
--------- ---------
TOTAL ASSETS $ 681,684 $ 634,389
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits 57,289 49,358
Interest-bearing deposits 530,016 489,114
--------- ---------
Total deposits 587,305 538,472
--------- ---------
Short-term borrowings:
Securities sold under agreements to repurchase 14,120 17,330
Borrowings from the Federal Home Loan Bank of New York 9,525 10,400
Borrowings from the U.S. Treasury 517 503
--------- ---------
Total short-term borrowings 24,162 28,233
--------- ---------
Long-term borrowings 6,702 6,931
Other liabilities 7,474 6,147
--------- ---------
Total Liabilities 625,643 579,783
Stockholders' equity:
Common stock, $1.25 par value, 20,000,000 shares authorized
(7,794,332 issued in 1998 and 7,752,340 shares issued in 1997) 9,743 9,690
Additional paid-in capital 6,128 5,891
Retained earnings 42,067 39,564
Accumulated other comprehensive income:
Net unrealized gain on securities available for sale
and securities available for sale transferred to investment
securities held to maturity, net of tax 210 393
Treasury stock, at cost (140,950 shares in 1998 and 76,144 shares in 1997) (2,107) (932)
--------- ---------
Total stockholders' equity 56,041 54,606
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 681,684 $ 634,389
========= =========
</TABLE>
Share data has been adjusted for the June 1998 two-for-one stock split.
See accompanying notes to consolidated interim financial statements.
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<PAGE>
CNB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
----- ----- ----- ----
(unaudited)
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans, including fees $ 8,304 $ 7,540 $16,175 14,912
Securities:
Taxable 4,172 3,717 7,974 7,093
Nontaxable 886 788 1,728 1,535
Federal funds sold and other 127 137 157 228
------- ------- ------- -------
13,489 12,182 26,034 23,768
------- ------- ------- -------
Interest expense:
Deposits 6,461 5,356 12,207 10,322
Short-term borrowings 229 229 476 434
Long-term borrowings 97 101 195 203
------- ------- ------- -------
6,787 5,686 12,878 10,959
------- ------- ------- -------
Net interest income 6,702 6,496 13,156 12,809
Provision for loan losses 140 0 290 125
------- ------- ------- -------
Net interest income after provision for loan losses 6,562 6,496 12,866 12,684
Other income:
Service charges on deposit accounts 469 431 916 788
Net gain on securities transactions 142 27 236 288
Other 370 300 828 666
------- ------- ------- -------
981 758 1,980 1,742
------- ------- ------- -------
Other expenses:
Salaries and employee benefits 2,290 2,146 4,470 4,401
Occupancy and equipment 521 493 1,046 936
Data processing 518 359 1,036 724
Professional fees 334 185 614 382
FDIC deposit insurance and related costs 16 16 34 32
Advertising and marketing 108 178 182 369
Postage and courier 172 143 301 275
Office supplies and stationary 112 118 247 241
Other real estate owned and repossessed assets 259 190 534 398
Other 769 572 1,546 1,217
------- ------- ------- -------
5,099 4,400 10,009 8,975
------- ------- ------- -------
Income before income tax expense 2,444 2,854 4,837 5,451
Income tax expense 638 856 1,261 1,635
------- ------- ------- -------
Net income $ 1,806 $ 1,998 $ 3,576 3,816
======= ======= ======= =======
Earnings per share:
Basic $ 0.24 $ 0.26 $ 0.47 $ 0.49
Diluted $ 0.23 $ 0.26 $ 0.46 $ 0.49
</TABLE>
Share data has been adjusted for the June 1998 two-for-one stock split.
See accompanying notes to consolidated interim financial statements.
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<PAGE>
CNB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net Income $ 3,576 $ 3,816
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 656 509
Provision for loan losses 290 125
Net gain on securities transactions (236) (288)
Net loss on sales and writedowns of other real estate
owned and repossessed assets 181 152
Purchases of trading securities (9,760) (4,781)
Proceeds from sales of trading securities 10,330 4,784
Increase in accrued interest receivable (280) (305)
Net change in other assets and other liablilties 40 (1,352)
--------- ---------
Net cash provided by operating activities 4,797 2,660
--------- ---------
Cash flows from investing activities:
Purchase of securities:
Available for sale (101,320) (42,821)
Held to maturity (15,068) (15,129)
Proceeds from sales of securities:
Available for sale 46,801 43,742
Proceeds from maturities and calls of securities:
Available for sale 30,502 2,681
Held to maturity 13,755 5,310
Net loans made to customers (22,588) (10,361)
Proceeds from sales of other real estate owned and
repossessed assets 598 632
Capital expenditures (1,119) (558)
--------- ---------
Net cash used in investing activities (48,439) (16,504)
--------- ---------
Cash flows from financing activities:
Net increase in deposits 48,833 18,123
Net (decrease) increase in short term borrowings (4,071) 3,166
Payments on long-term borrowings (229) (220)
Dividends paid (1,073) (925)
Proceeds from issuance of shares for options and dividend reinvestment plan 290 243
Purchase of treasury stock (1,175) (218)
--------- ---------
Net cash provided by financing activities 42,575 20,169
--------- ---------
Net (decrease) increase in cash and cash equivalents (1,067) 6,325
Cash and cash equivalents at beginning of period 19,498 16,236
--------- ---------
Cash and cash equivalents at end of period $ 18,431 $ 22,561
========= =========
</TABLE>
See accompanying notes to consolidated interim financial statements.
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<PAGE>
CNB Financial Corp.
Notes to Consolidated Interim Financial Statements
(UNAUDITED)
1. FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated interim financial statements included
the accounts of CNB Financial Corp. (the Company) and its wholly owned
subsidiaries, Central National Bank, Canajoharie and Central Asset Management
(CAM). The unaudited consolidated interim financial statements have been
prepared according to the rules of the Securities and Exchange Commission. In
the opinion of the Company, the unaudited consolidated interim financial
statements contain all adjustments necessary to present fairly the financial
position as of June 30, 1998, the results of operations for the three and six
months ended June 30, 1998 and 1997, and cash flows for the six months ended
June 30, 1998 and 1997. All adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to rules and regulations applicable to
interim financial statements.
The accompanying unaudited consolidated interim financial statements should be
read in conjunction with the CNB Financial Corp. consolidated year-end financial
statements, including notes thereto, which are included in the CNB Financial
Corp. 1997 Annual Report on Form 10-K.
All share and per share data has been adjusted for the two-for-one stock split
approved by the stockholders at the May 1998 Annual Meeting and paid on June 30,
1998.
2. EARNINGS PER SHARE
On December 31, 1997, the Company adopted the provisions of SFAS No. 128,
"Earnings per Share." SFAS No. 128 establishes standards for computing and
presenting earnings per share (EPS). This Statement supersedes Accounting
Principles Board Opinion No. 15, "Earnings per Share," and related
interpretations. SFAS No. 128 requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures and specifies additional disclosure requirements.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity (such as the Company's stock options). All prior
period EPS data has been restated to conform to the provisions of this
Statement.
The following table provides the calculation of basic and diluted EPS for the
three and six months ended June 30:
<TABLE>
<CAPTION>
Weighted Weighted
Average Per Share Average Per Share
(in thousands, except per share data) Income Shares Amount Income Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------
Three Months Ended 6/30/98 Six Months Ended 6/30/98
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income available
To common stockholders $1,806 7,670 $0.24 $3,576 7,662 $0.47
Effective of Dilutive Securities:
Stock options 38 42
Dilutive EPS $1,806 7,708 $0.23 $3,576 7,704 $0.46
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Weighted Weighted
Average Per Share Average Per Share
(in thousands, except per share data) Income Shares Amount Income Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------
Three Months Ended 6/30/97 Six Months Ended 6/30/97
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income available
To common stockholders $1,998 7,733 $0.26 $3,816 7,744 $0.49
Effective of Dilutive Securities:
Stock options 44 38
Dilutive EPS $1,998 7,777 $0.26 $3,816 7,782 $0.49
</TABLE>
3. COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income". This statement establishes standards for
reporting and display of comprehensive income and its components. Comprehensive
income includes the reported net income of a company adjusted for items that are
currently accounted for as direct entries to equity, such as the mark to market
adjustment on securities available for sale. At the Company, comprehensive
income represents net income plus other comprehensive income, which consists of
the change in the net unrealized gain or loss on securities available for sale
and securities available for sale transferred to investment securities held to
maturity, net of tax, for the period. Accumulated other comprehensive income
represents the net unrealized gain or loss on securities available for sale and
securities available for sale transferred to investment securities held to
maturity, net of tax, as of the consolidated balance sheet dates.
Total comprehensive income for the three months ended June 30, 1998 and 1997 was
$1.5 million and $3.3 million, respectively. Total comprehensive income for the
six months ended June 30, 1998 and 1997 was $3.4 million and $4.2 million,
respectively.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits," which amends the disclosure
requirements of SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Statement No. 132
standardizes the disclosure requirement of Statements No. 87 and No. 106 to the
extent practicable and recommends a parallel format for presenting information
about pensions and other postretirement benefits. This Statement is applicable
to all entities and addresses disclosure only. The Statement does not change any
of the measurement or recognition provisions provided for in Statement No. 87,
No. 88, or No. 106. The Statement is effective for fiscal years beginning after
December 15, 1997. Management anticipates providing the required disclosures in
the December 31, 1998 consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. This Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. Management is
currently evaluating the impact of this Statement on the Company's consolidated
financial statements.
7
<PAGE>
ITEM 2. MANAGEMENT' S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNB Financial Corp.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Thousands)
General
The purpose of this discussion and analysis is to focus on significant changes
in the financial condition and the results of operations of the Company. This
discussion and analysis is intended to supplement and highlight information
contained in the accompanying unaudited consolidated interim financial
statements as of June 30, 1998 and for the three and six month periods ended
June 30, 1998 and 1997.
This discussion and analysis contains certain forward-looking statements within
the meaning of the federal securities laws. These forward-looking statements are
not guarantees of future performance and are subject to various factors that
could cause actual results to differ materially from these estimates. These
factors include changes in general economic and market conditions and the
development of an interest rate environment that adversely impacts the interest
rate spread or other income anticipated from the Company's operations and
assets.
Summary
Net income for the three months ended June 30, 1998, was $1,806, a 10% decrease
from the $1,998 earned in the same period last year. Diluted earnings per share
of $0.23 were down from the $0.26 earned in the second quarter of 1997. For the
six months ended June 30, 1998, earnings decreased by $240, from $3,816 in 1997
to $3,576 this year. Diluted earnings per share were down $0.03 from $0.49 to
$0.46.
Total assets at June 30, 1998 grew to $681,684, an increase of 7% from the 1997
year-end total of $634,389. Net loans increased to $360,139, up 6% from the
$338,332 reported at December 31, 1997. The available-for-sale portion of the
securities portfolio increased by 17% from December 31, 1997 to $167,950. At
June 30, 1998, there was a net unrealized gain of $434 in the available-for-sale
portfolio compared to a net unrealized gain of $720 at December 31, 1997. The
held-to-maturity portfolio had a net increase of $1,313 (1%) from $110,324 at
December 31, 1997 to $111,637 at June 30, 1998.
The growth in total assets during the six months ended June 30, 1998 was funded
primarily through a $48,833 (9%) increase in deposits. The increase in deposits
also allowed for a $4,071 (14%) decrease in short-term borrowings from December
31, 1997.
Stockholders' equity of $56,041 increased by $1,435 (3%) during the six months
ended June 30, 1998. The increase in stockholders' equity was primarily due to
the Company's earnings ($3,576) offset by dividends paid ($1,073) and the
purchase of treasury stock ($1,175).
Results of Operations
Six Months Ending June 30, 1998
compared to the comparable period last year
Total interest and dividend income for the period increased $2,266 (10%) from
$23,768 to $26,034. The increase in income was primarily from a 13% increase in
average earning assets which offset a 27 basis point drop in the average tax
equivalent yield from 8.57% to 8.30%. The tax equivalent yield on the security
portfolio decreased 31 basis points from 7.72% in 1997 to 7.41% in the current
year. Paydowns
8
<PAGE>
on mortgage-backed products and the call of higher coupon agency bonds are
responsible for the decline in yield. The 24 basis point drop in loan yields
from 9.31%, for six months ended June 30, 1997 to 9. 07 % in the current year,
is the result of the highly competitive rate environment, refinancing of real
estate loans, and generally lowers interest rate environment.
Interest expense increased by $1,919 (18%), to $12,878 from $10,959. The average
balance of interest bearing deposits increased 13% or $61,513; $54,729 of the
increase was in time deposits when compared to the same period of last year.
The average rate paid on deposits increased 21 basis points from 4.34% to 4.55%.
A loan loss provision of $290 was recorded in the first half of 1998, compared
to $125 in the same period last year. The lower provision in 1997 was directly
attributed to a large recovery received during the 1997 period.
Activity in the allowance for loan losses was as follows:
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
------------- -----------------
Balance, beginning of period $8,378 $8,367
Provision 290 275
Charge-offs (537) (1,531)
Recoveries 263 1,267
------ ------
Balance, end of period $8,394 $8,378
===== ======
Other income increased $238 (14%) from the 1997 to 1998 period. Fee income (ATM
and NSF), which increased a combined total of $127, was primarily responsible
for the increase in other income.
Other expenses increased $1,034 (12%) from the 1997 to 1998 period. Major
expense increases include, data processing costs $313 (new hardware, software,
and core processing costs), professional fees $232 (use of consultants regarding
various strategic and organizational issues, as well as operational issues of
the Company), and problem loan expenses $202 (ORE, repossession, and foreclosure
costs).
Income tax expense decreased $374 for the six-month period ended June 30, 1998
due primarily to a decrease in income before income tax expense as well as the
tax benefits associated with a newly-formed subsidiary of the Bank.
9
<PAGE>
Results of Operations
Three Months Ending June 30, 1998
compared to the comparable period last year
Total interest and dividend income for the period increased $1,307 (11%) from
$12,182 to $13,489. The increase in interest and dividend income was primarily
from an 18% increase in average earning assets which offset a 51 basis point
drop in the average tax equivalent yield from 8.77% to 8.26%.
The average tax equivalent yield on loans decreased to 9.12% in the second
quarter of 1998 from 9.43% in the same period of 1997. The 31 basis point drop
in the average tax equivalent yield in 1998 is attributable to the lower
interest rates prevalent due to the increased competition in the market place
and the generally lower interest rate environment in 1998 vs. 1997. The security
portfolio tax equivalent yield decreased from 7.96% to 7.30% due to the increase
in paydowns on mortgage-backed products and the call of high coupon agency
bonds.
Interest expense increased 19% to $6,787 during the period ended June 30, 1998.
The average balance of interest-bearing deposits increased 20% or $92,985 when
compared to the same quarter of 1997. Included in this increase was an increase
of $75,567 in time deposits. The average rate paid on deposits increased 4 basis
points from 4.56% in the second quarter of 1997 to 4.60% in the same quarter of
1998.
A loan loss provision of $140 was recorded in the second quarter of 1998 while
none was recorded in the comparable quarter of last year. Non-performing loans
at June 30, 1998 were $6,828, an increase of 52% from the balance of $4,493 at
December 31, 1997. An increase in non-performing commercial real estate loans
accounted for the majority of the increase in non-performing loans. A more
detailed discussion of non-performing loans appears under the section "Changes
in Financial Condition from December 31, 1997 to June 30, 1998."
Other income increased over the two quarters ($981 vs. $758) with security gains
accounting for $115 of the increase.
Other expenses increased $699 (16%) from $4,400 to $5,099 in the second quarter
of 1998. The major item contributing to this increase was an increase in data
processing costs of $159 (44%); $73 of the increase related to depreciation on
new hardware and software and $68 related to increased costs for core
processing. Professional fees during the quarter increased to $334 from $185
($149) due to costs incurred in assisting management in addressing various
strategic and organizational issues, as well as operational issues of the
Company. ORE (other real estate) expense and repossession expenses increased $69
to $259 dues primarily to increased maintenance, repossession and foreclosure
expenses. Telephone service costs (a component of other expenses) increased $96
due primarily to increase costs incurred in conjunction with the wide area
network now in use.
Income tax expense decreased $218 to $638 for the quarter ended June 30, 1998,
due primarily to a decrease in income before income tax expense, as well as the
tax benefits associated with a newly-formed subsidiary of the Bank.
10
<PAGE>
Financial Condition, Liquidity and Capital Resources
Changes in Financial Condition from
December 31,1997 to June 30, 1998
Consolidated total assets increased to $681,684 at June 30, 1998, compared to
$634,389 at December 31, 1997, an increase of $47,295, or 7%.
Securities in the available-for-sale portion of the portfolio increased $23,873
to $167,950. The increase was due mainly to the purchase of collateralized
mortgage obligations. The held-to-maturity portfolio increased by $1,313 and
there was one security for $645 in the trading securities portfolio at June 30,
1998.
Net loans increased by $21,807 (6%), and the allowance for loan losses increased
by $16. As of June 30, 1998 the allowance for loan losses ($8,394) represents
2.28% of total loans and 123% of non-performing loans. This compares to 2.42%
and 186% at December 31, 1997.
Non-accrual loans have increased $1,359 (64%) from $2,107 to $3,466 during the
period. The major increases in non-accrual loans took place in the real estate
sectors of the portfolio. Commercial real estate non-accruals increased by $561
(3 loans), farm real estate by $363 (3 loans), and residential real estate by
$314 (9 loans) during the six-month period. Past due loans over 90 days and
still accruing increased during the period by $976 (41%) to $3,362. The increase
is caused by a small number of loans which management is heavily involved in an
effort to bring current during the quarter. Management believes that current
economic conditions of the market area in commercial and agricultural business
lines have effected the upward trend in non-performing loans. This increasing
trend is not expected to continue in the second half of the year.
Total deposits increased from $538,472 to $587,305 or $48,833 (9%). The largest
increase during the period was in time deposits, which increased $37,834 (17%),
and demand deposit accounts, which increased $7,931 (16%).
At June 30, 1998, total stockholders' equity increased by $1,435 from December
31, 1997. Net income for the period was $3,576 of which $1,073 was paid back to
the stockholders in the form of dividends and $1,175 was used to purchase
treasury stock.
The Company's Board of Directors authorized the repurchase of 472,000
outstanding shares at its February 1997 meeting. During 1997, 84,230 shares were
repurchased at a cost of $1,018. On February 27, 1998, the Company announced its
intention to extend the repurchase program and to purchase up to 664,122 shares
of its stock in the open market during the period from March 16, 1998 to March
15, 1999. The shares will be purchased at prevailing market prices from time to
time depending on market conditions. The repurchased shares will be held in
treasury stock but may be reissued in the future in connection with the
Company's Dividend Reinvestment Plan, to satisfy the issuing of stock options,
or for other corporate purposes. During the six months ended June 30, 1998,
64,806 shares (net of issuances to the dividend reinvestment program) were
repurchased at a cost of $1,175.
Liquidity involves the ability to raise funds to support asset growth, meet
deposit withdrawals, maintain reserve requirements, and sustain operations. This
is accomplished through maturities of bonds and loans, deposit growth, purchase
of federal funds, borrowings on lines of credit, and selling securities under
agreements to repurchase. Management considers all of these factors in
evaluating liquidity requirements and believes its present position to be
adequate.
11
<PAGE>
IMPACT OF THE YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The "year
2000" issue is pervasive and complex, as virtually every computer operation will
be affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Company has 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's interest rate risk position
since December 31, 1997. Other types of market risk, such as foreign currency
exchange rate risk and commodity price risk, do not arise in the normal course
of the Company's business activities.
CNB Financial Corp.
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities and Use of Proceeds
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Annual Meeting of CNB Financial Corp. was held on May 21, 1998.
At the meeting, J. Carl Barbic and Donald L. Brass were elected
directors with terms expiring in 2001. In favor of: 6,823,492,
withheld: 17,836.
12
<PAGE>
The stockholders approved an amendment to the Certificate of
Incorporation to increase the number of authorized shares from
10,000,000 to 20,000,000.
In addition, a two-for-one stock split and a change in the par value
of the common stock from $2.50 to $1.25 per share was approved by
vote of the stockholders. In favor of: 3,404,400, against: 10,232,
withheld: 4,429.
Item 5 - Other Information
None
Item 6 - Exhibits and reports on Form 8-K
Exhibit 27 - Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNB FINANCIAL CORP.
Registrant
Date: _________, 1998 By: /s/ DONALD L. BRASS
-----------------------------
Donald L. Brass
President
Date: __________ 1998 By: /s/ PETER J. CORSO
-----------------------------
Peter J. Corso
Executive Vice President
13
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