CNB Financial Corporation Reports Third Quarter 2016 Earnings
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CLEARFIELD, PA -- (Marketwired) -- 10/20/16 -- 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) % change versus
September 30 December 31, September 30, ----------------
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: Brian W. Wingard Treasurer (814) 765-9621
Source: CNB Financial Corporation
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