CLEARFIELD – CNB Financial Corp. (“CNB”) (NASDAQ: CCNE), the parent company of CNB Bank, has announced its earnings for the second quarter and first six months of 2017. Highlights include the following:
- Net income of $6.7 million, or $0.44 per share, in the second quarter of 2017, compared to net income of $4.1 million, or $0.28 per share, in the second quarter of 2016. CNB recorded gains on the sale of available-for-sale securities of $155,000 and $1.0 million during the three months ended June 30, 2017 and 2016, respectively. CNB recorded a gain on the sale of a branch of $536,000 in the second quarter of 2017. In addition, CNB recorded prepayment penalties on long-term borrowings, core processing conversion expenses and merger expenses, totaling $3.2 million in the second quarter of 2016.
- Net income of $13.2 million, or $0.87 per share, during the six months ended June 30, 2017, compared to net income of $9.1 million, or $0.63 per share, during the six months ended June 30, 2016. CNB recorded gains on the sale of available-for-sale securities of $1.5 million and $1.0 million during the six months ended June 30, 2017 and 2016, respectively. CNB recorded a gain on the sale of a branch of $536,000 during the six months ended June 30, 2017. In addition, CNB recorded prepayment penalties on long-term borrowings, core processing conversion expenses and merger expenses totaling $3.3 million during the six months ended June 30, 2016.
- Annualized returns on average assets and equity of 1.00 percent and 11.28 percent, respectively, for the six months ended June 30, 2017, compared to 0.79 percent and 8.68 percent, respectively, for the six months ended June 30, 2016. The annualized return on average tangible equity was 13.70 percent and 10.09 percent during the six months ended June 30, 2017 and 2016, respectively.
- Net interest margin of 3.70 percent for both the six months ended June 30, 2017 and 2016.
- Loans of $2.02 billion as of June 30, 2017, including loans acquired from Lake National Bank, which closed in July 2016, of $122.3 million, compared to loans of $1.66 billion as of June 30, 2016. Organic loan growth in the first six months of 2017 was $147.3 million.
- Deposits of $2.08 billion as of June 30, 2017, including deposits acquired from Lake National Bank of $139.8 million, compared to deposits of $1.89 billion as of June 30, 2016.
- Book value per share of $15.72 as of June 30, 2017 increased 7.4 percent compared to book value per share of $14.64 as of Dec. 31, 2016 and tangible book value per share of $13.04 as of June 30, 2017 increased 10.9 percent, compared to tangible book value of $11.76 per share as of Dec. 31, 2016, primarily as a result of CNB’s common stock issuance in the first quarter of 2017.
- Non-performing assets of $21.2 million, or 0.79 percent of total assets as of June 30, 2017, compared to $16.4 million, or 0.64 percent of total assets, as of Dec. 31, 2016.
Joseph B. Bower Jr., president and chief executive officer, stated, “The second quarter net interest income showed solid improvement. We are pleased with the continued growth of loan interest income along with the expansion of our net interest margin when compared to the first quarter of 2017.”
Net Interest Margin
Net interest margin on a fully tax equivalent basis was 3.70 percent for both the six months ended June 30, 2017 and 2016, despite the inclusion of $1.5 million in interest expense for the six months ended June 30, 2017 from CNB’s $50 million issuance of subordinated debt in the third quarter of 2016 to help support balance sheet growth.
In June of 2017, CNB converted short-term borrowings having a maturity of two months or less and interest rates, ranging from 1.30 percent to 1.38 percent to longer term advances with the Federal Home Loan Bank of Pittsburgh.
The aggregate amount of such borrowings was $140 million, with a weighted average maturity of 3.7 years and a weighted average interest rate of 1.87 percent.
Although the effect will be to increase borrowing costs in the near term, management believes the execution of this strategy will result in a more effective duration match with CNB’s loan portfolio and will appropriately mitigate the interest rate risk associated with maintaining short-term borrowings in a rising interest rate environment.
Asset Quality
During the three and six months ended June 30, 2017, CNB recorded a provision for loan losses of $1.1 million and $2.2 million, as compared to a provision for loan losses of $220,000 and $1.4 million for the three and six months ended June 30, 2016.
Net charge-offs during the three and six months ended June 30, 2017 were $411,000 and $1.2 million, compared to net chargeoffs of $970,000 and $2.2 million for the three and six months ended June 30, 2016.
CNB Bank net charge-offs totaled $58,000 and $655,000 during the six months ended June 30, 2017 and 2016, or .01 percent and .08 percent, respectively, of average CNB Bank loans.
Holiday Financial Services Corp. is CNB’s consumer discount company and recorded net charge-offs, totaling $1.2 million and $1.5 million during the six months ended June, 2017 and 2016, respectively.
In the first quarter of 2017, one commercial real estate loan that was impaired at year end 2016 but still on accrual status was placed on nonaccrual status as a result of further deterioration in the financial condition of the borrower.
The additional provision for loan losses recorded in 2017 related to this loan was $1.2 million, including $553,000 in the first quarter and $603,000 in the second quarter, which was based on the most current financial information available from the borrower as of each period end.
Non-Interest Income
Net realized gains on available-for-sale securities for the six months ended June 30, 2017 were $1.5 million, including $1.4 million on the sale of two structured pooled trust preferred securities. Net realized gains on available-for-sale securities for the six months ended June 30, 2016 were $1.0 million, including $922,000 on the sale of two structured pooled trust preferred securities.
On May 19, 2017, CNB completed its previously announced sale of the Mt. Hope, Ohio branch to First Federal Community Bank. CNB transferred loans totaling $7.8 million and deposits totaling $7.4 million in conjunction with the sale of the branch and realized a gain of $536,000 based on the 8 percent deposit premium paid by First Federal Community Bank.
As a result of CNB’s continued focus on growing its Private Client Solutions division, wealth and asset management revenues increased 21.3 percent from $1.5 million in the first six months of 2016 to $1.8 million in the first six months of 2017.
Non-Interest Expenses
Total non-interest expenses were $17.8 million and $34.8 million during the three and six months ended June 30, 2017, compared to $18.8 million and $33.6 million during the three and six months ended June 30, 2016.
Included in non-interest expenses in 2016 were $3.3 million of non-recurring items, with merger related expenses of $215,000, costs associated with the core processing system upgrade of $1.6 million, and a prepayment penalty associated with the early payoff of long-term borrowings of $1.5 million.
Salaries and benefits expense increased $2.5 million, or 16.3 percent, during the six months ended June 30, 2017 compared to the six months ended June 30, 2016. As of June 30, 2017, CNB had 493 full-time equivalent staff, compared to 453 full-time equivalent staff as of June 30, 2016.
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 in the third quarter of 2016. Occupancy expenses increased $1.1 million, or 29.0 percent, during the six months ended June 30, 2017 compared to the six months ended June 30, 2016.
Holiday Financial Services Corp. incurred non-recurring occupancy expenses totaling $141,000 in 2017 as a result of the closure of two of its offices.
The remainder of the increase in occupancy expenses is attributable to the two locations acquired from Lake National Bank in Mentor, Ohio, as well as locations in Worthington, Ohio; Ashtabula, Ohio; Blair County, Pa.; and Buffalo, NY that have been opened since the end of the second quarter of 2016.
About CNB Financial Corporation
CNB Financial Corp. is a financial holding company with consolidated assets of approximately $2.7 billion that conducts business primarily through CNB Bank, CNB Financial Corp.’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, one loan production office, 33 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 full-service office in Buffalo, NY 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.