CNB Financial Corporation (“CNB”) (NASDAQ: CCNE), the parent company of CNB Bank, today 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 realized gains on the sale of available-for-sale securities of $155 thousand 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 thousand 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 realized 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 thousand 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% and 11.28%, respectively, for the six months ended June 30, 2017, compared to 0.79% and 8.68%, respectively, for the six months ended June 30, 2016. The annualized return on average tangible equity was 13.70% and 10.09% during the six months ended June 30, 2017 and 2016, respectively.
- Net interest margin of 3.70% 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% compared to book value per share of $14.64 as of December 31, 2016 and tangible book value per share of $13.04 as of June 30, 2017 increased 10.9% compared to tangible book value of $11.76 per share as of December 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% of total assets as of June 30, 2017, compared to $16.4 million, or 0.64% of total assets, as of December 31, 2016.
Joseph B. Bower, Jr., President and CEO, 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% 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 2017, CNB converted short-term borrowings having a maturity of two months or less and interest rates ranging from 1.30% to 1.38% 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%. 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 appropriately mitigate the interest rate risk associated with maintaining short-term borrowings in a rising interest rate environment.
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 thousand and $1.4 million for the three and six months ended June 30, 2016. Net chargeoffs during the three and six months ended June 30, 2017 were $411 thousand and $1.2 million, compared to net chargeoffs of $970 thousand and $2.2 million for the three and six months ended June 30, 2016. CNB Bank net chargeoffs totaled $58 thousand and $655 thousand during the six months ended June 30, 2017 and 2016, or .01% and .08%, respectively, of average CNB Bank loans. Holiday Financial Services Corporation is CNB’s consumer discount company and recorded net chargeoffs 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 thousand in the first quarter and $603 thousand in the second quarter, which was based on the most current financial information available from the borrower as of each period end.
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 thousand 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 thousand based on the 8% 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% from $1.5 million in the first six months of 2016 to $1.8 million in the first six months of 2017.
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 thousand, costs associated with our 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%, 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%, during the six months ended June 30, 2017 compared to the six months ended June 30, 2016. Holiday Financial Services Corporation incurred non-recurring occupancy expenses totaling $141 thousand 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, Pennsylvania; and Buffalo, New York that have been opened since the end of the second quarter of 2016.
About CNB Financial Corporation
CNB Financial Corporation is a financial holding company with consolidated assets of approximately $2.7 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, 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, 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
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.