CNB Financial Corporation Reports Second Quarter Earnings for 2014

CNB Financial Corporation (“CNB”) (NASDAQ: CCNE), the parent company of CNB Bank, today announced its earnings for the second quarter of 2014. Highlights include the following:

  • Net income of $5.6 million, or $0.39 per share, in the second quarter of 2014, compared to net income of $3.0 million, or $0.24 per share, in the second quarter of 2013.
  • Net income of $10.8 million, or $0.75 per share, for the six months ended June 30, 2014, compared to net income of $7.2 million, or $0.58 per share, for the six months ended June 30, 2013.
  • Annualized returns on average assets and equity of 1.01% and 12.28%, respectively, for the six months ended June 30, 2014.
  • Including loans acquired from FC Banc Corp. with an acquisition date fair value of approximately $248 million, loans of $1.31 billion at June 30, 2014 compared to loans of $983 million at June 30, 2013.
  • Including deposits acquired from FC Banc Corp. with an acquisition date fair value of approximately $332 million, deposits of $1.85 billion at June 30, 2014 compared to deposits of $1.55 billion at June 30, 2013.
  • Total non-performing assets of $13.4 million, or 0.62% of total assets, as of June 30, 2014, compared to $20.0 million, or 1.10% of total assets, as of June 30, 2013.

Joseph B. Bower, Jr., President and CEO commented, “Our second quarter earnings of $5.6 million is an 8.7% increase from the first quarter, and our year-to-date annualized return on average equity of 12.28% represents a strong return for our shareholders. We continue to expand our footprint in our markets. We have opened a new CNB loan production office in Blair County, PA and will open a full service office for FC Bank in Dublin, OH in August. We have begun construction on our fifth location in Erie County, PA for ERIEBANK. This expansion of our footprint should help us maintain our positive organic growth into 2015.”

Net Interest Income and Margin

Net interest margin on a fully tax equivalent basis was 3.79% for the six months ended June 30, 2014, compared to 3.38% for the six months ended June 30, 2013. Net accretion included in loan interest income in the first six months of 2014 related to loans acquired in the fourth quarter of 2013 was $1.2 million, resulting in an increase in the net interest margin of 12 basis points. Changes in average earning assets, interest-bearing liabilities, and resulting interest income and expense from the first six months of 2013 to the first six months of 2014 are primarily a result of the acquisition of FC Banc Corp. in the fourth quarter of 2013.

Asset Quality

During the three and six months ended June 30, 2014, CNB recorded a provision for loan losses of $1.5 million and $2.5 million, as compared to a provision for loan losses of $3.1 million and $4.0 million for the three and six months ended June 30, 2013. Net chargeoffs during the three and six months ended June 30, 2014 were $767 thousand and $1.3 million, as compared to $1.5 million and $2.6 million for the three and six months ended June 30, 2013.

During the second quarter, CNB increased its reserve for one impaired commercial mortgage loan having a carrying value of $695 thousand that was previously modified in a troubled debt restructuring, resulting in an increase in the provision for loan losses of $484 thousand. In addition, a commercial mortgage loan with a carrying value of $1.9 million became impaired during the second quarter, resulting in an increase in the provision for loan losses of $307 thousand.

Non-Interest Income

Non-interest income was $3.5 million and $6.7 million for the three and six months ended June 30, 2014, compared to $3.8 million and $6.8 million for the three and six months ended June 30, 2013. Non-interest income as a percentage of average assets declined from 0.76% during the first six months of 2013 to 0.63% during the first six months of 2014, primarily due to a decrease in realized gains on available for sale securities of $124 thousand, a decrease in net unrealized gains on trading securities of $257 thousand, a decrease in mortgage banking income of $168 thousand, and a decrease in bank owned life insurance income of $598 thousand. During the quarter ended June 30, 2013, CNB recorded bank owned life insurance income of $576 thousand representing the excess of the face value of certain policies over their cash surrender values resulting from the recognition of a death benefit. Wealth and asset management fees increased from $1.1 million during the six months ended June 30, 2013 to $1.4 million during the six months ended June 30, 2014 due to increases in assets under management resulting from CNB’s strategic focus to grow its Wealth and Asset Management Division.

Non-Interest Expenses

Total non-interest expenses were $12.6 million and $25.9 million during the three and six months ended June 30, 2014, compared to $10.8 million and $20.5 million for the three and six months ended June 30, 2013. Non-interest expenses for the three and six months ended June 30, 2014 include amortization of a core deposit intangible asset of $301 thousand and $604 thousand associated with CNB’s acquisition of FC Banc Corp. in the fourth quarter of 2013. Non-interest expenses for the three and six months ended June 30, 2013 include merger-related expenses of $828 thousand and $931 thousand.

Salaries and benefits expenses increased $2.7 million, or 26.1%, during the six months ended June 30, 2014 compared to the six months ended June 30, 2013, due to an increase in average full-time equivalent employees resulting primarily from the acquisition of FC Banc Corp., routine merit increases, and increases in certain employee benefit expenses, such as health insurance premiums, which continue to increase in line with market conditions. Net occupancy expenses increased $923 thousand, or 35.5% during the six months ended June 30, 2014 compared to the six months ended June 30, 2013, as a result of anticipated increases in repair, maintenance, and utility expenses, increases in depreciation expense for recently completed projects and asset purchases, and the addition of eight branch locations from the acquisition of FC Banc Corp. Other non-interest expenses increased $2.0 million, or 33.7%, during the six months ended June 30, 2014 compared to the six months ended June 30, 2013, primarily as a result of the acquisition of FC Banc Corp.

About CNB Financial Corporation

CNB Financial Corporation is a financial holding company with consolidated assets of approximately $2.2 billion that conducts business primarily through CNB Bank, CNB’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, a loan production office in Hollidaysburg, Pennsylvania, and 28 full-service offices in Pennsylvania, including ERIEBANK, a division of CNB Bank, as well as 8 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.bankcnb.com.

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 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 EndedSix Months Ended
June 30,June 30,
(Dollars in thousands, except share and per share data)

2014

2013

%
change

2014

2013

%
change

Income Statement

Interest income $ 21,418 $ 16,758 27.8 % $ 42,855 $ 33,462 28.1 %
Interest expense 2,9752,932 1.5 % 6,1326,185 -0.9 %
Net interest income 18,443 13,826 33.4 % 36,723 27,277 34.6 %
Provision for loan losses 1,5013,115 -51.8 % 2,5204,045 -37.7 %
Net interest income after provision for loan losses 16,94210,711 58.2 % 34,20323,232 47.2 %
Non-interest income
Wealth and asset management fees 753 538 40.0 % 1,425 1,112 28.1 %
Service charges on deposit accounts 1,145 1,019 12.4 % 2,186 1,961 11.5 %
Other service charges and fees 670 524 27.9 % 1,238 954 29.8 %
Net realized gains on available-for-sale securities 138 252 -45.2 % 204 328 -37.8 %
Net realized and unrealized gains on trading securities 99 28 253.6 % 74 331 -77.6 %
Mortgage banking 183 271 -32.5 % 358 526 -31.9 %
Bank owned life insurance 239 815 -70.7 % 479 1,077 -55.5 %
Other 287324 -11.4 % 755553 36.5 %
Total non-interest income 3,5143,771 -6.8 % 6,7196,842 -1.8 %
Non-interest expenses
Salaries and benefits 6,443 5,332 20.8 % 13,278 10,529 26.1 %
Net occupancy expense of premises 1,760 1,281 37.4 % 3,521 2,598 35.5 %
FDIC insurance premiums 344 319 7.8 % 684 598 14.4 %
Merger costs - 828 NA - 931 NA
Intangible amortization 301 - NA 604 - NA
Other 3,7603,033 24.0 % 7,7825,819 33.7 %
Total non-interest expenses 12,60810,793 16.8 % 25,86920,475 26.3 %
Income before income taxes 7,848 3,689 112.7 % 15,053 9,599 56.8 %
Income tax expense 2,231738 202.3 % 4,2702,351 81.6 %
Net income $5,617$2,951 90.3 % $10,783$7,248 48.8 %
Average diluted shares outstanding 14,391,053 12,453,608 14,392,668 12,449,403
Diluted earnings per share $ 0.39 $ 0.24 62.5 % $ 0.75 $ 0.58 29.3 %
Cash dividends per share $ 0.165 $ 0.165 0.0 % $ 0.33 $ 0.33 0.0 %
Payout ratio 42 % 69 % 44 % 57 %

Average Balances

Loans, net of unearned income $ 1,304,937 $ 965,456 $ 1,298,461 $ 949,004
Total earning assets 2,014,229 1,735,613 2,001,968 1,712,256
Total assets 2,153,843 1,823,596 2,140,034 1,806,535
Total deposits 1,838,799 1,537,747 1,828,567 1,529,125
Shareholders' equity 178,633 142,596 175,624 144,391

Performance Ratios (quarterly information annualized)

Return on average assets 1.04 % 0.65 % 1.01 % 0.80 %
Return on average equity 12.58 % 8.28 % 12.28 % 10.04 %
Net interest margin (FTE) 3.79 % 3.35 % 3.79 % 3.38 %

Loan Charge-Offs

Net loan charge-offs $ 767 $ 1,512 $ 1,348 $ 2,605
Net loan charge-offs / average loans 0.24 % 0.63 % 0.21 % 0.55 %
(unaudited)(unaudited)(unaudited)
June 30,March 31,December 31,June 30,% change versus

2014

2014

2013

2013

3/31/14

6/30/13

(Dollars in thousands, except share and per share data)

Ending Balance Sheet

Loans, net of unearned income $ 1,308,331 $ 1,294,096 $ 1,295,363 $ 982,947 1.1 % 33.1 %
Loans held for sale 942 329 487 53 186.3 % 1677.4 %
Investment securities 699,848 691,935 690,118 729,027 1.1 % -4.0 %
FHLB and other equity interests 9,040 7,519 7,533 7,565 20.2 % 19.5 %
Other earning assets 3,2183,3114,1394,298 -2.8 % -25.1 %
Total earning assets 2,021,379 1,997,190 1,997,640 1,723,890 1.2 % 17.3 %
Allowance for loan losses (17,415 ) (16,674 ) (16,234 ) (15,500 ) 4.4 % 12.4 %
Goodwill 27,194 27,194 27,194 10,946 0.0 % 148.4 %
Core deposit intangible 3,979 4,280 4,583 - -7.0 % NA
Other assets 121,528122,071118,10690,109 -0.4 % 34.9 %
Total assets$2,156,665$2,134,061$2,131,289$1,809,4451.1%19.2%
Non interest-bearing deposits $ 225,366 $ 221,831 $ 221,293 $ 176,700 1.6 % 27.5 %
Interest-bearing deposits 1,625,6811,606,8271,614,0211,369,846 1.2 % 18.7 %
Total deposits 1,851,047 1,828,658 1,835,314 1,546,546 1.2 % 19.7 %
Borrowings 85,608 91,149 87,950 100,477 -6.1 % -14.8 %
Subordinated debt 20,620 20,620 20,620 20,620 0.0 % 0.0 %
Other liabilities 22,204 21,353 22,494 10,822 4.0 % 105.2 %
Common stock - - - - NA NA
Additional paid in capital 77,766 77,641 77,923 43,950 0.2 % 76.9 %
Retained earnings 103,075 99,845 97,066 92,080 3.2 % 11.9 %
Treasury stock (1,671 ) (113 ) (633 ) (1,222 ) 1378.8 % 36.7 %
Accumulated other comprehensive loss (1,984)(5,092)(9,445)(3,828) -61.0 % -48.2 %
Total shareholders' equity 177,186172,281164,911130,980 2.8 % 35.3 %
Total liabilities and shareholders' equity $2,156,665$2,134,061$2,131,289$1,809,4451.1%19.2%
Ending shares outstanding 14,371,983 14,464,842 14,427,780 12,511,095
Book value per share $ 12.33 $ 11.91 $ 11.43 $ 10.47
Tangible book value per share (*) $ 10.16 $ 9.73 $ 9.23 $ 9.59

Capital Ratios

Tangible common equity / tangible assets (*) 6.87 % 6.70 % 6.34 % 6.67 %
Leverage ratio 8.13 % 8.14 % 7.96 % 7.94 %
Tier 1 risk based ratio 12.83 % 12.75 % 12.51 % 13.86 %
Total risk based ratio 14.07 % 13.99 % 13.72 % 15.11 %

Asset Quality

Non-accrual loans $ 11,667 $ 11,644 $ 11,573 $ 19,582
Loans 90+ days past due and accruing 705456344212
Total non-performing loans 12,372 12,100 11,917 19,794
Other real estate owned 9951,047986174
Total non-performing assets $13,367$13,147$12,903$19,968
Loans modified in a troubled debt restructuring (TDR):
Performing TDR loans $ 7,782 $ 7,893 $ 8,006 $ 8,102
Non-performing TDR loans ** 3,9654,0604,1302,128
Total TDR loans $11,747$11,953$12,136$10,230
Non-performing assets / Loans + OREO 1.02 % 1.02 % 1.00 % 2.03 %
Non-performing assets / Total assets 0.62 % 0.62 % 0.61 % 1.10 %
Allowance for loan losses / Loans 1.33 % 1.29 % 1.25 % 1.58 %

* - 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)(unaudited)
June 30,March 31,December 31,June 30,

2014

2014

2013

2013

Shareholders' equity $ 177,186 $ 172,281 $ 164,911 $ 130,980
Less goodwill 27,194 27,194 27,194 10,946
Less core deposit intangible 3,9794,2804,583-
Tangible common equity $146,013$140,807$133,134$120,034
Total assets $ 2,156,665 $ 2,134,061 $ 2,131,289 $ 1,809,445
Less goodwill 27,194 27,194 27,194 10,946
Less core deposit intangible 3,9794,2804,583-
Tangible assets $2,125,492$2,102,587$2,099,512$1,798,499
Ending shares outstanding 14,371,983 14,464,842 14,427,780 12,511,095
Tangible book value per share $ 10.16 $ 9.73 $ 9.23 $ 9.59
Tangible common equity/Tangible assets 6.87 % 6.70 % 6.34 % 6.67 %

Contacts:

CNB Financial Corporation
Brian W. Wingard, Treasurer, 814-765-9621

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