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 ending March 31, 1998
Commission File Number 33-45522
--------
CNB FINANCIAL CORP.
-------------------
(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
----------------------------------------
(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 April 30, 1998
--------------------------- ------------------------------
Common Stock, $2.50 par value 3,841,009 Shares
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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.-10.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 10.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10.
Item 2. Changes in Securities 11.
Item 3. Defaults Upon Senior Securities 11.
Item 4. Submission of Matters to a Vote of Security Holders 11.
Item 5. Other Information 11.
Item 6. Exhibits and reports on Form 8-K 11.
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>
March 31, December 31,
ASSETS 1998 1997
--------- ---------
(unaudited)
<S> <C> <C>
Cash and due from banks $ 20,382 $ 19,498
Federal funds sold 2,975 0
--------- ---------
Cash and cash equivalents 23,357 19,498
Trading securities -- 1,119
Securities available for sale, at fair value 168,021 144,077
Investment securities held to maturity, at amortized cost 111,931 110,324
Net loans receivable 348,867 338,332
Accrued interest receivable 6,048 5,325
Premises and equipment, net 10,582 10,005
Other real estate owned and repossessed assets 1,320 1,372
Other assets 4,470 4,337
--------- ---------
TOTAL ASSETS $ 674,596 $ 634,389
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits 52,852 49,358
Interest-bearing deposits 534,710 489,114
--------- ---------
Total deposits 587,562 538,472
--------- ---------
Short-term borrowings:
Securities sold under agreements to repurchase 16,159 17,330
Borrowings from the Federal Home Loan Bank of New York -- 10,400
Borrowings from the U.S. Treasury 525 503
--------- ---------
Total short-term borrowings 16,684 28,233
--------- ---------
Long-term borrowings 6,847 6,931
Other liabilities 7,969 6,147
--------- ---------
Total Liabilities 619,062 579,783
--------- ---------
Commitments and Contingent Liabilities
Stockholders' equity:
Common stock, $2.50 par value, 10,000,000 shares authorized
(3,887,418 issued in 1998 and 3,876,170 shares issued in 1997) 9,719 9,690
Additional paid-in capital 6,014 5,891
Retained earnings 40,797 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 489 393
Treasury stock, at cost (54,458 shares in 1998 and 38,072 shares in 1997) (1,485) (932)
--------- ---------
Total stockholders' equity 55,534 54,606
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 674,596 $ 634,389
========= =========
</TABLE>
See accompanying notes to consolidated interim financial statements.
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<PAGE>
CNB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Interest and dividend income:
Loans, including fees $ 7,871 7,372
Securities:
Taxable 3,802 3,376
Nontaxable 842 747
Federal funds sold and other 30 91
------- -------
12,546 11,586
------- -------
Interest expense:
Deposits 5,746 4,966
Short-term borrowings 247 205
Long-term borrowings 98 102
------- -------
6,092 5,273
------- -------
------- -------
Net interest income 6,454 6,313
Provision for loan losses 150 125
------- -------
Net interest income after provision for loan losses 6,304 6,188
Other income:
Service charges on deposit accounts 447 357
Net gain on securities transactions 94 261
Other 458 365
------- -------
999 984
------- -------
Other expenses:
Salaries and employee benefits 2,180 2,255
Occupancy and equipment 525 443
Data processing 518 365
Professional fees 280 197
FDIC deposit insurance and related costs 17 16
Advertising and marketing 74 191
Postage and courier 129 132
Office supplies and stationary 135 123
Other real estate owned and repossessed assets 275 208
Other 777 645
------- -------
4,909 4,574
------- -------
Income before income tax expense 2,393 2,598
Income tax expense 623 779
------- -------
Net income $ 1,770 1,819
======= =======
Earnings per share:
Basic $ 0.46 $ 0.47
Diluted $ 0.46 $ 0.47
</TABLE>
See accompanying notes to consolidated interim financial statements.
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<PAGE>
CNB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net Income $ 1,770 $ 1,818
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 329 259
Provision for loan losses 150 125
Net gain on securities transactions (94) (261)
Net loss on sales and writedowns of other real estate
owned and repossessed assets 94 96
Purchases of trading securities (816) --
Proceeds from sales of trading securities 1,963 --
Increase in accrued interest receivable (723) (623)
Net change in other assets and other liablilties 1,660 (57)
-------- --------
Net cash provided by operating activities 4,333 1,357
-------- --------
Cash flows from investing activities:
Purchase of securities:
Available for sale (50,324) (20,978)
Held to maturity (9,104) (9,595)
Proceeds from sales of securities:
Available for sale 14,315 21,586
Proceeds from maturities and calls of securities:
Available for sale 12,256 939
Held to maturity 7,497 1,451
Net loans made to customers (10,944) 2,529
Proceeds from sales of other real estate owned and
repossessed assets 217 40
Capital expenditures (906) (350)
-------- --------
Net cash used in investing activities (36,993) (4,378)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits 49,090 (498)
Net (decrease) increase in short term borrowings (11,549) 8,754
Payments on long-term borrowings (84) (79)
Dividends paid (534) (461)
Proceeds from issuance of shares for options and Dividend
Reinvestment Plan 149 115
Purchase of treasury stock (553) (86)
-------- --------
Net cash provided by financing activities 36,519 7,745
-------- --------
Net increase in cash and cash equivalents 3,859 4,724
Cash and cash equivalents at beginning of period 19,498 16,236
======== ========
Cash and cash equivalents at end of period $ 23,357 $ 20,960
======== ========
</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 March 31, 1998, and the results of operations and cash flows for
the three months ended March 31, 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.
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 months ended March 31:
1998
Weighted
Average Per Share
(in thousands, except per share data) Income Shares Amount
- --------------------------------------------------------------------------------
Basic EPS:
Net income available
To common stockholders $1,770 $3,831 $ .46
Effective of Dilutive Securities:
Stock options 23
Dilutive EPS $1,770 $3,854 $ .46
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<PAGE>
1998
Weighted
Average Per Share
(in thousands, except per share data) Income Shares Amount
- --------------------------------------------------------------------------------
Basic EPS:
Net income available
To common stockholders $1,818 $3,868 $ .47
Effective of Dilutive Securities:
Stock options 16
Dilutive EPS $1,818 $3,884 $ .47
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 March 31, 1998 and 1997
was $1.9 million and $891 thousand, 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 Settlement 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 Statement 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 Statements 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.
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<PAGE>
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS 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 March 31, 1998 and for the three months ended March 31, 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 March 31, 1998, was $1,770, a 3% decrease
from the $1,818 earned in the same period last year. Diluted earnings per share
of $0.46 were down from the $0.47 earned in the first quarter of 1997.
Total assets at March 31, 1998 grew to $674,596, an increase of 6% from the 1997
year-end total of $634,389. Net loans increased to $348,867, up 3% 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 $168,021. At
March 31, 1998, there was a net unrealized gain of $576 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 $1,607
(1%) from $110,324 at December 31, 1997 to $111,931 at March 31, 1998.
The growth in total assets during the quarter was funded primarily through a
$49,090 (9%) increase in deposits. The increase in deposits also allowed for a
$11,549 (41%) decrease in short-term borrowings from December 31, 1997.
Stockholders' equity of $55,534 increased by $928 (2%) during the period. The
increase in stockholders' equity for the quarter was primarily due to the
Company's earnings ($1,770) offset by dividends paid ($534) and the purchase of
treasury stock ($553).
Results of Operations
Three Months Ending March 31, 1998
compared to the comparable period last year
Total interest and dividend income for the period increased $960 (8%) from
$11,586 to $12,546. The increase in interest and dividend income was primarily
from an 11% increase in average earning assets which offset a 17 basis point
drop in the average tax equivalent yield from 8.55% to 8.38%.
The average tax equivalent yield on loans decreased to 8.97% in the first
quarter of 1998 from 9.24% in the
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<PAGE>
first quarter of 1997. The 27 basis point (3%) 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 generaly lower
interest rate environment in 1998 vs 1997. The security portfolio tax equivalent
yield decreased from 7.69% to 7.62% due to the increase in paydowns on mortgage
related bonds and the call of high coupon agency bonds.
Interest expense increased 16% to $6,092 during the period ended March 31, 1998.
The average balance of interest-bearing deposits increased 10% or $48,103 when
compared to the first quarter of 1997. Included in this increase was $43,730 in
time deposits. The average rate paid on deposits increased 20 basis points from
4.29% in the first quarter of 1997 to 4.49% in the first quarter of 1998.
A loan loss provision of $150 was recorded in the first quarter of 1998 compared
to $125 in the same period of 1997. Non-performing loans at March 31, 1998 were
$4,787, an increase of 7% from the balance of $4,493 at December 31, 1997.
Activity in the allowance for loan losses was as follows:
Quarter Ended Year Ended
March 31, 1998 December 31, 1997
-------------- -----------------
Balance, beginning of period $ 8,378 $ 8,367
Provision 150 275
Charge-offs (263) (1,531)
Recoveries 122 1,267
------- --------
Net charge-offs 141 264
------- --------
Balance, end of period $ 8,387 $ 8,378
======= ========
Other income remained constant over the two quarters ($999 vs. $983). Increases
in service fee income helped offset the decline in the net gain on securities
transactions.
Other expenses increased $335 (7%) from $4,574 to $4,909 in the first quarter of
1998. The major item contributing to this increase was an increase in data
processing costs of $153 (42%); $72 of the increase related to depreciation on
new hardware and software and $68 related to increased costs for core
processing. Occupancy and equipment expense for the first quarter of the year
was up $82 (19%) due to increased rent for the new offices in Rotterdam and
Gloversville as well as increases in repairs and maintenance and real estate
taxes. Professional fees during the quarter increased to $280 from $197 ($83)
due to costs associated with the profitability study currently in process. ORE
(other real estate) expense and repossession expenses increased $67 to $275 due
primarily to increased losses on the sale of assets as well as increases in
maintenance, repossession and foreclosure expenses.
Income tax expense decreased $156 to $623 for the quarter ended March 31, 1998,
due to a decrease in income before income tax expense.
Financial Condition, Liquidity and Capital Resources
Changes in Financial Condition from
December 31, 1997 to March 31, 1998
Consolidated total assets increased to $674,596 at March 31, 1998, compared to
$634,389 at December 31, 1997, an increase of $40,207, or 6%.
Investment securities in the available-for-sale portion of the portfolio
increased $23,944 to $168,021. The
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<PAGE>
increase was due mainly to the purchase of collateralized mortgage obligations.
The held-to-maturity portfolio increased by $1,607 and there were no items in
the trading account at March 31, 1998.
Net loans increased by $10,535 (3%), and the allowance for loan losses increased
by $9. As of March 31, 1998 the allowance for loan losses ($8,387) represents
2.35% of total loans and 175% of non-performing loans. This compares to 2.42%
and 186% at December 31, 1997.
Non-accrual loans have increased from $2,107 to $2,823; $716 (34%) during the
quarter. The major increases in non-accrual loans took place in the commercial
real estate sector of the portfolio with three loans totaling $620 going on
non-accrual status during the quarter. Past due loans over 90 days and still
accruing decreased during the quarter by $422 (18%) to $1,964.
Total deposits increased from $538,472 to $587,562 or $49,090 (9%). The largest
growth during the period was in municipal time deposits as money became
available from New York State.
At March 31, 1998, total stockholders' equity increased by $928 from December
31, 1997. Net income for the period was $1,770 of which $534 was paid back to
the stockholders in the form of dividends.
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. During the quarter ended
March 31, 1998, 16,386 shares were repurchased at a cost of $553.
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.
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.
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
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<PAGE>
Item 2 - Changes in Securities and Use of Proceeds
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and reports on Form 8-K
Extension of stock repurchase program and a 2-for-1 stock split
(incorporated herein by reference to previously filed Form 8-K
dated 3-5-98)
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: May 14, 1998 By:
--------------------------------
Donald L. Brass
President
Date: May 14, 1998 By:
--------------------------------
Peter J. Corso
Executive Vice President
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<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000883756
<NAME> CNB FINANCIAL CORP.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 20,382 20,960
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 2,975 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 168,021 128,286
<INVESTMENTS-CARRYING> 111,931 112,914
<INVESTMENTS-MARKET> 117,492 114,875
<LOANS> 357,254 309,812
<ALLOWANCE> 8,387 0
<TOTAL-ASSETS> 674,596 594,523
<DEPOSITS> 587,562 508,719
<SHORT-TERM> 16,684 22,672
<LIABILITIES-OTHER> 7,969 7,047
<LONG-TERM> 6,847 7,235
0 0
0 0
<COMMON> 9,719 9,677
<OTHER-SE> 45,815 39,173
<TOTAL-LIABILITIES-AND-EQUITY> 674,596 594,523
<INTEREST-LOAN> 7,871 7,407
<INTEREST-INVEST> 4,644 4,123
<INTEREST-OTHER> 30 91
<INTEREST-TOTAL> 12,546 11,621
<INTEREST-DEPOSIT> 5,746 4,966
<INTEREST-EXPENSE> 6,092 5,273
<INTEREST-INCOME-NET> 6,454 6,348
<LOAN-LOSSES> 150 125
<SECURITIES-GAINS> 94 261
<EXPENSE-OTHER> 4,909 4,584
<INCOME-PRETAX> 2,393 2,597
<INCOME-PRE-EXTRAORDINARY> 2,393 2,597
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,770 1,818
<EPS-PRIMARY> 0.46 0.47
<EPS-DILUTED> 0.46 0.47
<YIELD-ACTUAL> 4.29 4.76
<LOANS-NON> 2,823 2,439
<LOANS-PAST> 1,964 2,276
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 8,378 8,367
<CHARGE-OFFS> 263 377
<RECOVERIES> 122 89
<ALLOWANCE-CLOSE> 8,387 8,204
<ALLOWANCE-DOMESTIC> 8,387 8,204
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
