SOURCE: CNB Financial Corporation

CNB Financial Corporation

January 27, 2017 16:00 ET

CNB Financial Corporation Reports Year End 2016 Earnings, Highlighted By Strong Organic Loan Growth

CLEARFIELD, PA--(Marketwired - January 27, 2017) - CNB Financial Corporation ("CNB") (NASDAQ: CCNE), the parent company of CNB Bank, today announced its earnings for the year ended December 31, 2016. Highlights include the following:

  • Loans of $1.87 billion as of December 31, 2016, including loans acquired from Lake National Bank, which closed in July 2016, of $122.3 million, compared to loans of $1.58 billion as of December 31, 2015. Organic loan growth in 2016 was 10.6%.
  • Deposits of $2.02 billion as of December 31, 2016, including deposits acquired from Lake National Bank of $139.8 million, compared to deposits of $1.82 billion as of December 31, 2015. Organic deposit growth in 2016 was 3.2%.
  • Net interest margin on a fully tax-equivalent basis of 3.78% for the year ended December 31, 2016, compared to 3.73% for the year ended December 31, 2015.
  • Net income of $20.5 million, or $1.42 per share, in 2016, compared to net income of $22.2 million, or $1.54 per share, in 2015.
  • Pre-tax income of $27.8 million in 2016, compared to pre-tax income of $30.4 million in 2015. Pre-tax income excluding the effects of realized gains on the sale of available-for-sale securities and certain one-time costs as disclosed in the non-GAAP reconciliation within the financial tables was $30.4 million in 2016, compared to $30.2 million in 2015.
  • Book value per share of $14.64 as of December 31, 2016 increased 4.5% compared to book value per share of $14.01 as of December 31, 2015.
  • Tangible book value per share of $11.76 as of December 31, 2016 decreased 1.7% compared to tangible book value per share of $11.96 as of December 31, 2015, primarily as a result of the additional intangible assets associated with the acquisition of Lake National Bank as disclosed in the non-GAAP reconciliation within the financial tables. In addition, approximately $0.14 per share of the tangible book value decline on a year-over-year basis is due to a reduction in accumulated other comprehensive income, largely a result of the higher interest rate environment.
  • Non-performing assets of $16.4 million, or 0.64% of total assets as of December 31, 2016, compared to $13.2 million, or 0.58% of total assets, as of December 31, 2015.

In the third quarter of 2016, CNB received regulatory approval to conduct business in the state of New York as Bank on Buffalo, a division of CNB Bank. CNB opened a loan production office in Buffalo, New York in May 2016 and has plans to open a full-service location in downtown Buffalo in the first quarter of 2017 and close the loan production office. Full-service locations in Williamsville, New York and Orchard Park, New York will open in the second quarter of 2017.

On January 20, 2017, CNB announced the sale of its bank branch located in Mt. Hope, Ohio with approximately $6.5 million of deposits and $7.5 million in loans to First Federal Community Bank of Dover, Ohio for a deposit premium of 8.0%. Consummation of the branch sale is subject to a number of closing conditions, including, but not limited to, the receipt of all required regulatory approvals, and is expected to be completed on or before May 31, 2017.

Joseph B. Bower, Jr., President and CEO, stated, "The fourth quarter gave us great loan growth of 15.6% annualized. The growth will provide a positive impact in the first quarter of 2017, but did create a substantial addition to our loan loss provision in the fourth quarter. With the majority of our infrastructure projects now in place, CNB is poised to direct our efforts toward increased profitability and return to more favorable returns of equity and assets. In addition, the shareholders saw a nice increase in share price during the fourth quarter, giving shareholders a total return in 2016 of 53%."

Net Interest Margin

Net interest margin on a fully tax equivalent basis was 3.84% and 3.78% for the three months and year ended December 31, 2016, compared to 3.73% for both the three months and year ended December 31, 2015. Net accretion included in loan interest income related to acquired loans was $1.1 million and $1.8 million for the three months and year ended December 31, 2016, resulting in an increase in the net interest margin of 20 basis points and 8 basis points, respectively. Net accretion included in loan interest income related to acquired loans was $358 thousand and $2.2 million for the three months and year ended December 31, 2015, resulting in an increase in the net interest margin of 8 basis points and 11 basis points, respectively. In late September 2016, CNB issued $50 million of subordinated debt to help support balance sheet growth. The interest expense on the subordinated debt was $783 thousand for the 3 months and year ended December 31, 2016.

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 69 basis points during the year ended December 31, 2016, compared to 71 basis points during the year ended December 31, 2015.

Asset Quality

During the year ended December 31, 2016, CNB recorded a provision for loan losses of $4.1 million, as compared to a provision for loan losses of $2.6 million for the year ended December 31, 2015. The provision for loan losses was $2.1 million and $668 thousand for the three months ended December 31, 2016 and 2015, respectively. Net chargeoffs during the year ended December 31, 2016 were $4.6 million, as compared to net chargeoffs of $3.2 million during the year ended December 31, 2015, and the ratio of net chargeoffs to average loans was 0.27% and 0.22% for the years ended December 31, 2016 and 2015, respectively.

The increase in chargeoffs in 2016 compared to 2015 was primarily attributable to consumer loans held in CNB's consumer discount company, Holiday Financial Services Corporation. CNB Bank net chargeoffs totaled $1.7 million and $1.5 million in 2016 and 2015, respectively. Holiday Financial Services Corporation net chargeoffs totaled $2.9 million and $1.7 million in 2016 and 2015, respectively.

During the fourth quarter of 2016, CNB identified a commercial real estate loan that, while performing in accordance with its contractual terms and current with scheduled principal and interest payments, is showing sufficient signs of weakness to be classified as impaired. As of December 31, 2016, the principal balance of the loan is $6.2 million, and the specific loan loss reserve recorded during the quarter is $1.0 million.

Non-Interest Income

Excluding the effects of securities transactions, non-interest income was $16.2 million for the year ended December 31, 2016, compared to $16.6 million for the year ended December 31, 2015. Net realized gains on available-for-sale securities were $1.0 million during the year ended December 31, 2016, compared to $666 thousand during the year ended December 31, 2015. Net realized and unrealized gains on trading securities were $503 thousand during the year ended December 31, 2016, compared to net realized and unrealized losses of $213 thousand during the year ended December 31, 2015.

Non-Interest Expenses

Throughout 2016 and 2015, CNB made numerous infrastructure, personnel, and technology investments to facilitate its continued growth. Total non-interest expenses were $16.5 million and $67.1 million during the three months and year ended December 31, 2016, compared to $15.4 million and $58.8 million during the three months and year ended December 31, 2015. 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 $3.7 million of non-recurring items, with costs associated with our core processing system upgrade of $1.7 million, merger related expenses of $486 thousand, and a prepayment penalty associated with the early payoff of long-term borrowings of $1.5 million. Costs for similar items in 2015 totaled $416 thousand in the aggregate.

Salaries and benefits expense increased $2.6 million, or 8.9%, during the year ended December 31, 2016 compared to the year ended December 31, 2015. As of December 31, 2016, CNB had 486 full-time equivalent staff, compared to 436 full-time equivalent staff as of December 31, 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.

During the fourth quarter of 2016, CNB recorded an expense related to its directors and executive deferred compensation plan of $560 thousand, compared to an expense of $108 thousand that was recorded for the first nine months of 2016. This increase is primarily attributable to the increase in CNB's stock price from $21.16 at September 30, 2016 to $26.74 at December 31, 2016 since the most significant component of the plan's valuation is phantom CNB stock.

About CNB Financial Corporation

CNB Financial Corporation is a financial holding company with consolidated assets of approximately $2.6 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, 9 full-service offices in central Ohio conducting business as FCBank, a division of CNB Bank, and a loan production office in Buffalo, New York conducting business as Bank on Buffalo, 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)      
   Three Months Ended   Twelve Months Ended  
   December 31,   December 31,  
(Dollars in thousands, except share and per share data)                     
             (unaudited)        
   2016  2015  % change   2016  2015  % change  
Income Statement                         
Interest income  $24,818  $21,994  12.8 % $94,315  $87,178  8.2 %
Interest expense   3,809   3,066  24.2 %  13,028   12,471  4.5 %
 Net interest income   21,009   18,928  11.0 %  81,287   74,707  8.8 %
Provision for loan losses   2,111   668  216.0 %  4,149   2,560  62.1 %
 Net interest income after provision for loan losses   18,898   18,260  3.5 %  77,138   72,147  6.9 %
                          
Non-interest income                         
 Service charges on deposit accounts   1,148   749  53.3 %  4,297   4,442  -3.3 %
 Other service charges and fees   702   1,160  -39.5 %  2,539   3,089  -17.8 %
 Wealth and asset management fees   789   866  -8.9 %  3,087   2,977  3.7 %
 Net realized gains on available-for-sale securities   -   102  NA    1,005   666  50.9 %
 Net realized and unrealized gains (losses) on trading securities   238   108  120.4 %  503   (213 )NA  
 Mortgage banking   389   262  48.5 %  1,095   746  46.8 %
 Bank owned life insurance   276   342  -19.3 %  1,083   1,194  -9.3 %
 Card processing and interchange income   897   875  2.5 %  3,396   3,417  -0.6 %
 Other   185   252  -26.6 %  686   776  -11.6 %
                          
  Total non-interest income   4,624   4,716  -2.0 %  17,691   17,094  3.5 %
                          
Non-interest expenses                         
 Salaries and benefits   8,289   7,853  5.6 %  32,194   29,563  8.9 %
 Net occupancy expense of premises   2,132   1,643  29.8 %  8,064   7,000  15.2 %
 FDIC insurance premiums   180   321  -43.9 %  1,229   1,278  -3.8 %
 Core Deposit Intangible amortization   346   230  50.4 %  1,125   1,008  11.6 %
 Prepayment penalties - long-term borrowings   -   -  NA    1,506   -  NA  
 Core processing conversion costs   96   108  -11.1 %  1,693   108  1467.6 %
 Merger costs   5   308  -98.4 %  486   308  57.8 %
 Card processing and interchange expenses   219   570  -61.6 %  1,889   2,295  -17.7 %
 Other   5,188   4,353  19.2 %  18,932   17,192  10.1 %
  Total non-interest expenses   16,455   15,386  6.9 %  67,118   58,752  14.2 %
                          
Income before income taxes   7,067   7,590  -6.9 %  27,711   30,489  -9.1 %
Income tax expense   2,027   2,082  -2.6 %  7,171   8,292  -13.5 %
Net income  $5,040  $5,508  -8.5 % $20,540  $22,197  -7.5 %
                          
Average diluted shares outstanding   14,394,109   14,345,926       14,374,260   14,338,737     
                          
Diluted earnings per share  $0.35  $0.38  -7.9 % $1.42  $1.54  -7.8 %
Cash dividends per share  $0.165  $0.165  0.0 % $0.660  $0.660  0.0 %
                          
Payout ratio   47 % 43 %     46 % 43 %   
                          
Average Balances                         
Loans, net of unearned income  $1,836,234  $1,553,980      $1,717,224  $1,460,163     
Total earning assets   2,353,892   2,130,412       2,261,403   2,093,852     
Total assets   2,522,410   2,268,570       2,420,240   2,231,881     
Total deposits   2,014,248   1,827,710       1,950,014   1,849,203     
Shareholders' equity   214,142   202,130       212,058   197,687     
                          
Performance Ratios (quarterly information annualized)                         
Return on average assets   0.80 % 0.97 %     0.85 % 0.99 %   
Return on average equity   9.41 % 10.90 %     9.69 % 11.23 %   
Net interest margin (FTE)   3.84 % 3.73 %     3.78 % 3.73 %   
                          
Loan Charge-Offs                         
Net loan charge-offs  $1,484  $1,167      $4,556  $3,196     
Net loan charge-offs / average loans   0.32 % 0.30 %     0.27 % 0.22 %   
                   

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)          
  Three Months Ended  Twelve Months Ended 
  December 31,  December 31, 
  (Dollars in thousands) 
  (unaudited) 
    
  2016 2015  % change  2016  2015  % change 
                      
Pre-tax net income, GAAP basis $7,067 $7,590  -6.9% $27,711  $30,489  -9.1%
Net realized (gains) losses on available-for-sale securities  -  (102) -100.0%  (1,005)  (666) 51.2%
Prepayment penalties - long-term borrowings  -  -  NA   1,506   -  NA 
Core processing conversion costs  96  108  -11.1%  1,693   108  1467.6%
Merger costs  5  308  -98.4%  486   308  57.8%
Pre-tax net income, non-GAAP $7,168 $7,904  -9.3% $30,391  $30,239  0.5%
                      
                      
   (unaudited)   (unaudited)              
   December 31   September 30   December 31,   % change versus  
   2016   2016   2015   9/30/16   12/31/15  
   (Dollars in thousands, except share and per share data)          
Ending Balance Sheet                        
Loans, net of unearned income  $1,870,870   $1,800,858   $1,577,798   3.9 % 18.6 %
Loans held for sale   10,194    2,814    1,381   262.3 % 638.2 %
Investment securities   500,693    511,388    550,619   -2.1 % -9.1 %
FHLB and other equity interests   19,186    18,334    15,921   4.6 % 20.5 %
Other earning assets   2,246    2,117    3,959   6.1 % -43.3 %
 Total earning assets   2,403,189    2,335,511    2,149,678   2.9 % 11.8 %
                         
Allowance for loan losses   (16,330 )  (15,703 )  (16,737 ) 4.0 % -2.4 %
Goodwill   38,730    38,967    27,194   -0.6 % 42.4 %
Core deposit intangible   2,854    3,200    2,395   -10.8 % 19.2 %
Other assets   145,378    177,969    122,606   -18.3 % 18.6 %
 Total assets  $2,573,821   $2,539,944   $2,285,136   1.3 % 12.6 %
                         
Non interest-bearing deposits  $289,922   $293,049   $263,639   -1.1 % 10.0 %
Interest-bearing deposits   1,727,600    1,730,732    1,551,414   -0.2 % 11.4 %
 Total deposits   2,017,522    2,023,781    1,815,053   -0.3 % 11.2 %
                         
Borrowings   237,004    205,202    220,515   15.5 % 7.5 %
Subordinated debt   70,620    70,620    20,620   0.0 % 242.5 %
Deposits held for sale   6,456    -    -   NA   NA  
Other liabilities   30,435    24,852    27,035   22.5 % 12.6 %
                         
Common stock   -    -    -   NA   NA  
Additional paid in capital   77,737    77,543    77,827   0.3 % -0.1 %
Retained earnings   134,295    131,643    123,301   2.0 % 8.9 %
Treasury stock   (127 )  (163 )  (1,114 ) -22.1 % -88.6 %
Accumulated other comprehensive income (loss)   (121 )  6,466    1,899   -101.9 % NA  
 Total shareholders' equity   211,784    215,489    201,913   -1.7 % 4.9 %
                         
 Total liabilities and shareholders' equity  $2,573,821   $2,539,944   $2,285,136   1.3 % 12.6 %
                         
Ending shares outstanding   14,467,815    14,465,210    14,408,430          
                         
Book value per share  $14.64   $14.90   $14.01          
Tangible book value per share (*)  $11.76   $11.98   $11.96          
                         
Capital Ratios                        
Tangible common equity / tangible assets (*)   6.72 %  6.94 %  7.64 %        
Tier 1 leverage ratio   7.87 %  7.71 %  8.73 %        
Common equity tier 1 ratio   9.28 %  9.43 %  10.90 %        
Tier 1 risk based ratio   10.33 %  10.52 %  12.14 %        
Total risk based ratio   13.83 %  14.11 %  13.18 %        
                         
Asset Quality                        
Non-accrual loans  $15,329   $15,325   $12,159          
Loans 90+ days past due and accruing   10    70    105          
 Total non-performing loans   15,339    15,395    12,264          
Other real estate owned   1,057    1,147    925          
 Total non-performing assets  $16,396   $16,542   $13,189          
                         
Loans modified in a troubled debt restructuring (TDR):                        
 Performing TDR loans  $8,710   $8,870   $9,304          
 Non-performing TDR loans (**)   3,120    3,202    5,637          
  Total TDR loans  $11,830   $12,072   $14,941          
                         
Non-performing assets / Loans + OREO   0.88 %  0.92 %  0.84 %        
Non-performing assets / Total assets   0.64 %  0.65 %  0.58 %        
Allowance for loan losses / Loans   0.87 %  0.87 %  1.06 %        
                   
 
* - 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)      
   December 31   September 30   December 31,  
   2016   2016   2015  
                 
Shareholders' equity  $211,784   $215,489   $201,913  
 Less goodwill   38,730    38,967    27,194  
 Less core deposit intangible   2,854    3,200    2,395  
Tangible common equity  $170,200   $173,322   $172,324  
                 
Total assets  $2,573,821   $2,539,944   $2,285,136  
 Less goodwill   38,730    38,967    27,194  
 Less core deposit intangible   2,854    3,200    2,395  
Tangible assets  $2,532,237   $2,497,777   $2,255,547  
                 
Ending shares outstanding   14,467,815    14,465,210    14,408,430  
                 
Tangible book value per share  $11.76   $11.98   $11.96  
Tangible common equity/Tangible assets   6.72 %  6.94 %  7.64 %
             

Contact Information

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