SOURCE: CNB Financial Corporation

CNB Financial

October 20, 2016 11:15 ET

CNB Financial Corporation Reports Third Quarter 2016 Earnings

CLEARFIELD, PA--(Marketwired - October 20, 2016) - CNB Financial Corporation ("CNB") (NASDAQ: CCNE), the parent company of CNB Bank, today announced its earnings for the third quarter and first nine months of 2016. Highlights include the following:

  • Net income of $6.4 million, or $0.44 per share, in the third quarter of 2016, compared to net income of $5.5 million, or $0.38 per share, in the third quarter of 2015.
  • Pre-tax income of $9.0 million for the three months ended September 30, 2016, compared to pre-tax income of $7.5 million for the three months ended September 30, 2015, excluding the effects of realized gains on the sale of available-for-sale securities and certain one-time costs as described in the financial tables.
  • Net income of $15.5 million, or $1.07 per share, for the nine months ended September 30, 2016, compared to net income of $16.7 million, or $1.16 per share, for the nine months ended September 30, 2015.
  • Pre-tax income of $23.2 million for the nine months ended September 30, 2016, compared to pre-tax income of $22.3 million for the nine months ended September 30, 2015, excluding the effects of realized gains on the sale of available-for-sale securities and certain one-time costs as described in the financial tables.
  • Loans of $1.80 billion as of September 30, 2016, including loans acquired from Lake National Bank of $126.1 million, compared to loans of $1.52 billion as of September 30, 2015.
  • Deposits of $2.02 billion as of September 30, 2016, including deposits acquired from Lake National Bank of $139.6 million, compared to deposits of $1.85 billion as of September 30, 2015.
  • Tangible book value per share of $11.97 as of September 30, 2016, an increase of 1.4% over tangible book value per share of $11.80 as of September 30, 2015, even after considering intangible assets associated with the acquisition of Lake National Bank.
  • Non-performing assets of $16.5 million, or 0.65% of total assets as of September 30, 2016, compared to $12.9 million, or 0.57% of total assets, as of September 30, 2015.

CNB acquired Lake National Bank ("LNB") on July 15, 2016. Under the terms of the merger agreement, LNB merged with and into CNB Bank, with CNB being the surviving corporation of the merger. Cash consideration paid to LNB shareholders was $24.75 million, and goodwill of $12.0 million was recorded in the combination.

In September 2016, CNB completed a private placement of $50 million, in aggregate principal amount, of fixed-to-floating rate subordinated notes. These subordinated notes were designed to qualify as Tier 2 capital under the Federal Reserve's capital guidelines and were given an investment grade rating of BBB- by Kroll Bond Rating Agency. CNB injected the net proceeds from the subordinated notes into its bank subsidiary, CNB Bank, and intends to use the capital for general corporate purposes, including loan growth, additional liquidity, and working capital.

"The successful closing of our previously announced acquisition of Lake National Bank is already providing CNB with enhanced commercial lending opportunities in the greater Cleveland market, and our entry into the Buffalo market is ahead of plan." Joseph B. Bower, Jr., President and CEO, went on to say, "The issuance of subordinated notes at the end of the third quarter and resulting increase in regulatory capital will facilitate the continued expansion of our franchise in both new and legacy markets."

Net Interest Margin

Net interest margin on a fully tax equivalent basis was 3.76% for the nine months ended September 30, 2016, compared to 3.74% for the nine months ended September 30, 2015. Net accretion included in loan interest income in the first nine months of 2016 related to acquired loans was $694 thousand, resulting in an increase in the net interest margin of 4 basis points. Net accretion included in loan interest income in the first nine months of 2015 related to acquired loans was $1.9 million, resulting in an increase in the net interest margin of 12 basis points.

Consistent with the trends across the financial services industry during this historically low interest rate environment, during 2015 and the first nine months of 2016, CNB experienced continued pressure on its net interest margin as a result of loans repricing downward and new loans with market yields significantly below historical averages. Throughout the current interest rate cycle, CNB has been able to gradually lower its cost of funds, primarily through disciplined deposit pricing and refinancing of long-term borrowings. The cost of interest-bearing liabilities was 65 basis points during the first nine months of 2016, compared to 72 basis points during the first nine months of 2015.

Asset Quality

During the three and nine months ended September 30, 2016, CNB recorded a provision for loan losses of $622 thousand and $2.0 million, as compared to a provision for loan losses of $463 thousand and $1.9 million for the three and nine months ended September 30, 2015. Net chargeoffs during the three and nine months ended September 30, 2016 were $907 thousand and $3.1 million, as compared to $731 thousand and $2.0 million for the three and nine months ended September 30, 2015. As a result of the purchase accounting requirements associated with a business combination, the allowance for loan losses previously recorded by LNB did not carry over to the financial statements of CNB. Instead, CNB recorded a fair value adjustment to the loans acquired from LNB resulting in a reduction in the loan balance of $4.3 million, which will be accreted into loan income in proportion to the reduction of the loan principal balances.

The increase in chargeoffs was primarily attributable to consumer loans held in CNB's consumer discount company, Holiday Financial Services Corporation. There were no new impaired commercial loan relationships that required a significant loss reserve in the first nine months of 2016. In addition, one impaired commercial and industrial loan that had a loss reserve of $671 thousand at June 30, 2016 was repaid in full in July 2016, resulting in no loss to CNB.

Non-Interest Income

Non-interest income was $4.5 million and $13.1 million for the three and nine months ended September 30, 2016, compared to $4.0 million and $12.4 million for the three and nine months ended September 30, 2015. In the second quarter of 2016, CNB realized gains on the sale of available-for-sale securities in the amount of $1.0 million, including $922 thousand on the sale of two structured pooled trust preferred securities that had no carrying value due to other-than-temporary impairment charges recorded in previous periods.

Non-Interest Expenses

Total non-interest expenses were $17.1 million and $50.7 million during the three and nine months ended September 30, 2016, compared to $15.0 million and $43.4 million during the three and nine months ended September 30, 2015. Throughout 2015 and the first nine months of 2016, CNB made numerous infrastructure, personnel, and technology investments to facilitate its continued growth. In order to better serve our customers and improve operational efficiencies, CNB completed a core processing system upgrade in May 2016. Included in non-interest expenses in 2016 are $3.6 million of non-recurring items, with costs associated with our core processing system upgrade of $1.6 million, merger related expenses of $481 thousand, and a prepayment penalty associated with the early payoff of long-term borrowings of $1.5 million. The borrowings totaled $40 million and carried interest rates ranging from 3.97% to 4.60%, and the resulting interest expense savings are projected at $870 thousand for 2016 and $1.0 million for 2017.

Salaries and benefits expense increased $2.2 million, or 10.1%, during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. As of September 30, 2016, CNB had 471 full-time equivalent staff, compared to 430 full-time equivalent staff as of September 30, 2015. The staff added during this period included both customer-facing personnel such as business development and wealth management officers, as well as support department personnel. In addition, CNB retained 20 employees in connection with its acquisition of Lake National Bank.

About CNB Financial Corporation

CNB Financial Corporation is a financial holding company with consolidated assets of approximately $2.5 billion that conducts business primarily through CNB Bank, CNB Financial Corporation's principal subsidiary. CNB Bank is a full-service bank engaging in a full range of banking activities and services, including trust and wealth management services, for individual, business, governmental, and institutional customers. CNB Bank operations include a private banking division, three loan production offices, 31 full-service offices in Pennsylvania and northeast Ohio, including ERIEBANK, a division of CNB Bank, and 9 full-service offices in central Ohio conducting business as FCBank, a division of CNB Bank. More information about CNB and CNB Bank may be found on the internet at www.cnbbank.bank.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to CNB's financial condition, liquidity, results of operations, future performance and business. These forward-looking statements are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that are not historical facts. Forward-looking statements include statements with respect to beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors (some of which are beyond CNB's control). Forward-looking statements often include the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future conditional verbs such as "may," "will," "should," "would" and "could." CNB's actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. For more information about factors that could cause actual results to differ from those discussed in the forward-looking statements, please refer to the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of and the forward-looking statement disclaimers in CNB's annual and quarterly reports.

The forward-looking statements are based upon management's beliefs and assumptions and are made as of the date of this press release. CNB undertakes no obligation to publicly update or revise any forward-looking statements included in this press release or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise, except to the extent required by law. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this press release might not occur and you should not put undue reliance on any forward-looking statements.

 
Financial Tables
 
The following tables supplement the financial highlights described previously for CNB Financial Corporation.
     
   (unaudited)  (unaudited)
   Three Months Ended  Nine Months Ended
   September 30,  September 30,
(Dollars in thousands, except share and per share data)                  
   2016  2015  % change  2016  2015  % change
Income Statement                      
Interest income  $24,956  $22,237  12.2%  $69,495  $65,184  6.6%
Interest expense   3,025   3,199  -5.4%   9,219   9,405  -2.0%
 Net interest income   21,931   19,038  15.2%   60,276   55,779  8.1%
Provision for loan losses   622   463  34.3%   2,038   1,892  7.7%
 Net interest income after provision for loan losses   21,309   18,575  14.7%   58,238   53,887  8.1%
                       
Non-interest income                      
 Service charges on deposit accounts   1,162   1,171  -0.8%   3,149   3,282  -4.1%
 Other service charges and fees   653   838  -22.1%   1,837   2,223  -17.4%
 Wealth and asset management fees   795   711  11.8%   2,298   2,228  3.1%
 Net realized gains on available-for-sale securities   2   73  -97.3%   1,007   564  78.5%
 Net realized and unrealized gains (losses) on trading securities   235   (260)  NA   265   (321)  NA
 Mortgage banking   388   164  136.6%   706   484  45.9%
 Bank owned life insurance   281   288  -2.4%   807   853  -5.4%
 Other   957   1,009  -5.2%   3,000   3,065  -2.1%
                       
  Total non-interest income   4,473   3,994  12.0%   13,069   12,378  5.6%
                       
Non-interest expenses                      
 Salaries and benefits   8,506   7,572  12.3%   23,905   21,710  10.1%
 Net occupancy expense of premises   2,212   1,764  25.4%   5,932   5,357  10.7%
 FDIC insurance premiums   387   338  14.5%   1,049   957  9.6%
 Core Deposit Intangible amortization   347   259  34.0%   779   777  0.3%
 Prepayment penalties - long-term borrowings   -   -  NA   1,506   -  NA
 Core processing conversion costs   42   -  NA   1,597   -  NA
 Merger costs   266   -  NA   481   -  NA
 Other   5,336   5,073  5.2%   15,414   14,565  5.8%
  Total non-interest expenses   17,096   15,006  13.9%   50,663   43,366  16.8%
                       
Income before income taxes   8,686   7,563  14.8%   20,644   22,899  -9.8%
Income tax expense   2,270   2,041  11.2%   5,144   6,210  -17.2%
Net income  $6,416  $5,522  16.2%  $15,500  $16,689  -7.1%
Average diluted shares outstanding   14,381,888   14,334,888      14,368,013   14,366,180   
                       
Diluted earnings per share  $0.44  $0.38  15.8%  $1.07  $1.16  -7.8%
Cash dividends per share  $0.165  $0.165  0.0%  $0.495  $0.495  0.0%
                       
Payout ratio   38%   43%      46%   43%   
                       
Average Balances                      
Loans, net of unearned income  $1,801,675  $1,500,716     $1,677,554  $1,428,890   
Total earning assets   2,343,221   2,115,811      2,230,574   2,078,060   
Total assets   2,533,904   2,253,337      2,386,184   2,219,653   
Total deposits   2,031,639   1,868,824      1,928,603   1,856,366   
Shareholders' equity   215,342   199,328      211,363   196,207   
                       
Performance Ratios (quarterly information annualized)                      
Return on average assets   1.01%   0.98%      0.87%   1.00%   
Return on average equity   11.92%   11.08%      9.78%   11.34%   
Net interest margin (FTE)   3.88%   3.75%      3.76%   3.74%   
                       
Loan Charge-Offs                      
Net loan charge-offs  $907  $731     $3,072  $2,029   
Net loan charge-offs / average loans   0.20%   0.19%      0.24%   0.19%   
                 
                 
The following is a non-GAAP disclosure of pre-tax net income excluding the effects of net realized gains on the sale of available for sale securities and one-time expenses including prepayment penalties on long-term borrowings, core processing conversion costs, and merger costs:
 
   (unaudited)  (unaudited)
   Three Months Ended  Nine Months Ended
   September 30,  September 30,
   (Dollars in thousands)
   2016  2015  % change  2016  2015  % change
                       
Pre-tax net income, GAAP basis  $8,686  $7,563  14.8%  $20,644  $22,899  -9.8%
Net realized (gains) losses on available-for-sale securities   (2)   (73)  -97.3%   (1,007)   (564)  78.5%
Prepayment penalties - long-term borrowings   -   -  NA   1,506   -  NA
Core processing conversion costs   42   -  NA   1,597   -  NA
Merger costs   266   -  NA   481   -  NA
Pre-tax net income, non-GAAP  $8,992  $7,490  20.1%  $23,221  $22,335  4.0%
                 
                 
  (unaudited)     (unaudited)      
  September 30  December 31,  September 30,  % change versus
  2016  2015  2015  12/31/15  9/30/15
  (Dollars in thousands, except share and per share data)      
Ending Balance Sheet              
Loans, net of unearned income $1,800,640  $1,577,798  $1,516,121  14.1%  18.8%
Loans held for sale  2,814   1,381   551  103.8%  410.7%
Investment securities  511,388   550,619   591,822  -7.1%  -13.6%
FHLB and other equity interests  18,334   15,921   13,438  15.2%  36.4%
Other earning assets  2,117   3,959   4,589  -46.5%  -53.9%
 Total earning assets  2,335,293   2,149,678   2,126,521  8.6%  9.8%
                  
Allowance for loan losses  (15,703)   (16,737)   (17,236)  -6.2%  -8.9%
Goodwill  39,185   27,194   27,194  44.1%  44.1%
Core deposit intangible  3,200   2,395   2,626  33.6%  21.9%
Other assets  177,969   122,606   120,617  45.2%  47.5%
 Total assets $2,539,944  $2,285,136  $2,259,722  11.2%  12.4%
                  
Non interest-bearing deposits $293,049  $263,639  $270,816  11.2%  8.2%
Interest-bearing deposits  1,730,732   1,551,414   1,576,876  11.6%  9.8%
 Total deposits  2,023,781   1,815,053   1,847,692  11.5%  9.5%
                  
Borrowings  205,202   220,515   166,030  -6.9%  23.6%
Subordinated debt  70,620   20,620   20,620  242.5%  242.5%
Other liabilities  24,852   27,035   25,529  -8.1%  -2.7%
                  
Common stock  -   -   -  NA  NA
Additional paid in capital  77,543   77,827   77,677  -0.4%  -0.2%
Retained earnings  131,643   123,301   120,170  6.8%  9.5%
Treasury stock  (163)   (1,114)   (1,146)  -85.4%  -85.8%
Accumulated other comprehensive income  6,466   1,899   3,150  240.5%  NA
 Total shareholders' equity  215,489   201,913   199,851  6.7%  7.8%
                   
 Total liabilities and shareholders' equity $2,539,944  $2,285,136  $2,259,722  11.2%  12.4%
                  
Ending shares outstanding  14,465,210   14,408,430   14,406,481      
                  
Book value per share $14.90  $14.01  $13.87      
Tangible book value per share (*) $11.97  $11.96  $11.80      
                  
Capital Ratios                 
Tangible common equity / tangible assets (*)  6.93%   7.64%   7.63%      
Tier 1 leverage ratio  7.71%   8.73%   8.64%      
Common equity tier 1 ratio  9.43%   10.90%   11.17%      
Tier 1 risk based ratio  10.52%   12.14%   12.46%      
Total risk based ratio  14.11%   13.18%   13.58%      
                  
Asset Quality                 
Non-accrual loans $15,325  $12,159  $12,161      
Loans 90+ days past due and accruing  70   105   193      
 Total non-performing loans  15,395   12,264   12,354      
Other real estate owned  1,147   925   563      
 Total non-performing assets $16,542  $13,189  $12,917      
                  
Loans modified in a troubled debt restructuring (TDR):                 
 Performing TDR loans $8,870  $9,304  $8,108      
 Non-performing TDR loans **  3,202   5,637   5,833      
  Total TDR loans $12,072  $14,941  $13,941      
                  
Non-performing assets / Loans + OREO  0.92%   0.84%   0.85%      
Non-performing assets / Total assets  0.65%   0.58%   0.57%      
Allowance for loan losses / Loans  0.87%   1.06%   1.14%      
                  
* - Tangible common equity, tangible assets and tangible book value per share are non-GAAP financial measures calculated using GAAP amounts. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets from the calculation of stockholders' equity. Tangible assets is calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets. Tangible book value per share is calculated by dividing tangible common equity by the number of shares outstanding. CNB believes that these non-GAAP financial measures provide information to investors that is useful in understanding its financial condition. Because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies. A reconciliation of these non-GAAP financial measures is provided below (dollars in thousands, except per share data).
** - Nonperforming TDR loans are also included in the balance of non-accrual loans in the previous table.
     
              
   (Dollars in thousands, except share and per share data)  
   (unaudited)       (unaudited)  
   September 30   December 31,   September 30,  
   2016   2015   2015  
                 
Shareholders' equity  $215,489   $201,913   $199,851  
 Less goodwill   39,185    27,194    27,194  
 Less core deposit intangible   3,200    2,395    2,626  
Tangible common equity  $173,104   $172,324   $170,031  
                 
Total assets  $2,539,944   $2,285,136   $2,259,722  
 Less goodwill   39,185    27,194    27,194  
 Less core deposit intangible   3,200    2,395    2,626  
Tangible assets  $2,497,559   $2,255,547   $2,229,902  
                 
Ending shares outstanding   14,465,210    14,408,430    14,406,481  
                 
Tangible book value per share  $11.97   $11.96   $11.80  
Tangible common equity/Tangible assets   6.93 %  7.64 %  7.63 %

Contact Information

  • Contact:
    Brian W. Wingard
    Treasurer
    (814) 765-9621