CNB Financial Corp. Reports Third Quarter Earnings for 2012

CLEARFIELD – CNB Financial Corp. (“CNB”) (NASDAQ: CCNE), the parent company of CNB Bank, has announced its earnings for the third quarter and first nine months of 2012. Highlights include the following:

• Net income of $4.6 million for the three months ended Sept. 30, 2012, or $0.37 per share, a 12.2 percent increase in net income and a 12.1 percent increase in diluted earnings per share over the three months ended Sept. 30, 2011.
• Net income of $13.2 million for the nine months ended Sept. 30, 2012, or $1.06 per share, a 17.9 percent increase in net income and a 16.5 percent increase in diluted earnings per share over the nine months ended Sept. 30, 2011.
• Annualized returns on average assets and equity of 1.04 percent and 12.70 percent, respectively, for the nine months ended Sept. 30, 2012 compared to returns on average assets and equity of 1.01 percent and 12.54 percent, respectively, for the nine months ended Sept. 30, 2011.
• Net interest income for the three months ended Sept. 30, 2012 of $13.7 million, an increase of 3.0 percent over the $13.3 million for the quarter ended June 30, 2012 and an increase of 10.4 percent over the third quarter of 2011. Net interest income of $39.6 million for the nine months ended Sept. 30, 2012 was an 11.3 percent increase compared to the nine months ended Sept. 30, 2011.
• Total loans of $910.2 million at Sept. 30, 2012, an increase of $74.6 million, or 8.9 percent, compared to Sept. 30, 2011.
• Deposits of $1.48 billion at Sept. 30, 2012, an increase of $182.7 million, or 14.1 percent, compared to Sept. 30, 2011.
• Total non-performing assets of $19.5 million, or 1.12 percent of total assets as of Sept. 30, 2012.

Joseph B. Bower Jr., president and chief executive officer, said, “Although our balance sheet growth was not as significant as the first six months of 2012, we increased both loans and deposits during the third quarter. In addition, the improvement in our net interest margin during the third quarter reverses the trend of net interest margin compression that we’ve been experiencing for several quarters.”

Net Interest Income and Margin

During the nine months ended Sept. 30, 2012, net interest income increased $4.0 million, or 11.3 percent, compared to the nine months ended Sept. 30, 2011. Net interest margin on a fully tax equivalent basis was 3.49 percent for the nine months ended Sept. 30, 2012, compared to 3.59 percent for the nine months ended Sept. 30, 2011. Net interest margin was 3.47 percent in the first and second quarters of 2012 and 3.53 percent in the third quarter of 2012, as CNB was able to attract and deploy low cost core deposits into loans within our markets.

Although the yield on earnings assets decreased from 4.88 percent during the nine months ended Sept. 30, 2011 to 4.45 percent during the nine months ended Sept. 30, 2012, CNB’s average earning assets increased from $1.38 billion to $1.61 billion, or 16.2 percent, resulting in an increase in interest income of $2.3 million, or 4.6 percent.

Due to growth in core deposits, interest-bearing liabilities have increased significantly during the last twelve months. Interest-bearing deposits as of Sept. 30, 2012 grew $165.9 million, or 14.5 percent, as compared to Sept. 30, 2011. However, interest expense for the nine months ended Sept. 30, 2012 decreased by $1.8 million, or 13.3 percent, compared to the nine months ended Sept. 30, 2011, as a result of decreases in the cost of core deposits. CNB’s strong and growing deposit base and low cost of funds have, along with the increase in average earnings assets described above, offset the decline in yield on earning assets, resulting in the increase in net interest income.

Asset Quality

During the nine months ended Sept. 30, 2012, CNB recorded a provision for loan losses of $4.0 million, as compared to a provision for loan losses of $2.7 million for the nine months ended Sept. 30, 2011. During the quarter ended Sept. 30, 2012, CNB recorded a provision for loan losses of $1.2 million, as compared to a provision for loan losses of $904,000 during the quarter ended Sept. 30, 2011.

In May of 2012, CNB management determined that one relationship comprising a commercial loan of $2.4 million and two consumer loans totaling $200,000 had become impaired. CNB charged off the balances of the consumer loans and recorded a specific allocation of $1.1 million for the commercial loan based on CNB’s evaluation of the borrowers’ ability and willingness to repay the loan. As a result, the provision for loan losses increased by $1.3 million during the nine months ended Sept. 30, 2012. CNB charged off $750,000 related to the commercial loan in the third quarter of 2012. In September of 2012, one relationship comprising two commercial mortgage loans totaling $1.7 million that had previously been modified in a troubled debt restructuring defaulted under its restructured terms, resulting in an increase in the provision for loan losses during the three and nine months ended Sept. 30, 2012 of $503,000. It is possible that further deterioration with respect to these loan relationships may occur in the future.

In October of 2012, an impaired commercial loan was partially repaid, resulting in an additional charge off of $109,000 and a reduction in nonperforming assets of $1.8 million.

Non-Interest Income

Excluding the effects of the securities transactions described below, non-interest income was $7.9 million for the nine months ended Sept. 30, 2012, compared to $7.7 million for the nine months ended Sept. 30, 2011. Net realized gains on available-for-sale securities were $1.4 million during the nine months ended Sept. 30, 2012, compared to $158,000 during the nine months ended Sept. 30, 2011. Net realized and unrealized gains (losses) on securities for which fair value was elected were $455,000 and ($216,000) during the nine months ended Sept. 30, 2012 and 2011, respectively. An other-than-temporary impairment charge of $398,000 was recorded in earnings on structured pooled trust preferred securities during the nine months ended Sept. 30, 2011.

Non-Interest Expenses

Total non-interest expenses increased $2.3 million, or 9.3 percent, during the nine months ended Sept. 30, 2012 compared to the nine months ended Sept. 30, 2011. Salaries and benefits expenses increased $1.3 million, or 10.4 percent, during the nine months ended Sept. 30, 2012 compared to the nine months ended Sept. 30, 2011, in part due to routine merit increases, an increase in average full-time equivalent employees, and increases in certain employee benefit expenses, such as health insurance costs, which continue to increase in line with market conditions. In addition, other non-interest expenses increased from $7.6 million for the nine months ended Sept. 30, 2011 to $8.7 million for the nine months ended Sept. 30, 2012 as a result of CNB’s continued growth.

Total non-interest expenses on an annualized basis in relation to CNB’s average asset size declined from 2.22% for the nine months ended Sept. 30, 2011 to 2.12 percent for the nine months ended Sept. 30, 2012.

About CNB Financial Corp.

CNB Financial Corp. is a financial holding company with consolidated assets of approximately $1.7 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 loan production office, a private banking division and 28 full-service offices in Pennsylvania, including ERIEBANK, a division of CNB Bank. More information about CNB and CNB Bank may be found on the internet at www.bankcnb.com.

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