CNB Financial Corporation Reports Year End 2017 Earnings, Highlighted by Record Earnings and Strong Organic Loan Growth

Clearfield, Pennsylvania, UNITED STATES


CLEARFIELD, Pa., Feb. 02, 2018 (GLOBE NEWSWIRE) --

CNB Financial Corporation (“CNB”) (NASDAQ:CCNE), the parent company of CNB Bank, today reported net income of $23.9 million, or $1.57 per share, for 2017 compared to net income of $20.5 million, or $1.42 per share, in 2016. Excluding the impact of the revaluation of the deferred tax asset in the fourth quarter of 2017 discussed below, net income was $26.9 million, or $ 1.77 per share in 2017, an increase of 24.6% from $1.42 per share in 2016. Return on average assets and average equity for the year ended December 31, 2017 were 0.89% and 9.97%, respectively, compared to 0.85% and 9.69% in 2016. Excluding the impact of the revaluation of the deferred tax asset, returns on average assets and equity were 1.00% and 11.23%, respectively, for the year ended December 31, 2017.

For the quarter ended December, 31, 2017, CNB reported net income of $3.5 million, or $0.23 per diluted share. Excluding the impact of the revaluation of the deferred tax asset, net income was $6.5 million, or $0.43 per share, an increase of 22.9% from $0.35 per share in the fourth quarter of 2016.

Additional highlights as of and for the year ended December 31, 2017 include the following:

  • Loans of $2.15 billion as of December 31, 2017, compared to loans of $1.87 billion as of December 31, 2016. Organic loan growth in 2017 was 14.5%.
     
  • Deposits of $2.17 billion as of December 31, 2017, compared to deposits of $2.02 billion as of December 31, 2016. Organic deposit growth in 2017 was 7.4%.
     
  • Net interest margin on a fully tax-equivalent basis of 3.82% for the year ended December 31, 2017, compared to 3.78% for the year ended December 31, 2016.
     
  • Book value per share of $15.98 as of December 31, 2017 increased 9.2% compared to book value per share of $14.64 as of December 31, 2016. Tangible book value per share of $13.33 as of December 31, 2017 increased 13.4% compared to tangible book value per share of $11.76 as of December 31, 2016.
     
  • Non-performing assets of $19.8 million, or 0.71% of total assets as of December 31, 2017, compared to $16.4 million, or 0.64% of total assets, as of December 31, 2016.

Unaudited Financial Information

CNB’s fourth quarter and annual 2017 earnings were impacted by the recent reduction in the federal corporate income tax rate to 21%, effective January 1, 2018, from the 35% marginal tax rate in effect throughout 2017 and 2016. Fourth quarter and annual 2017 results include additional income tax expense related to a reduction in the carrying value of the net deferred tax asset, resulting in a reduction of $0.20 in diluted earnings per share. Management expects CNB’s future income tax provision will be lower as a result of the lower tax rate.

The effective tax rate for the year ended December 31, 2017 was 34.2%, compared to 25.9% for 2016, and the higher tax rate for 2017 resulted primarily from the additional tax provision related to the change in tax rate. Management estimates the effective tax rate for 2018 to be approximately 16%, reflecting the benefit of a lower corporate tax rate.

Joseph B. Bower, Jr., President and CEO, stated, “We are extremely pleased with a strong year of solid organic growth in both new and legacy markets. Excluding the revaluation of our deferred tax asset at the end of 2017, our performance metrics are up meaningfully from the prior year and we look forward to continued growth coupled with high performance in 2018. Despite the additional shares that resulted from raising common equity earlier in the year, a double digit increase in EPS reflects the successful execution of our strategy and we thank all our employees and valued customers for an extraordinary year.”

Net Interest Margin

Net interest margin on a fully tax equivalent basis was 3.81% and 3.82% for the three months and year ended December 31, 2017, compared to 3.84% and 3.78% for the three months and year ended December 31, 2016.

The yield on earning assets increased 16 basis points to 4.53% for the year ended December 31, 2017 from 4.37% for the year ended December 31, 2016. Total interest and dividend income increased to $108.9 million for the year ended December 31, 2017 from $94.3 million for the year ended December 31, 2016. In addition, CNB recorded $3.2 million and $783 thousand in interest expense for the years ended December 31, 2017 and 2016, respectively, resulting from the issuance of $50 million in subordinated debt on September 29, 2016 to help support balance sheet growth.

Asset Quality

During the year ended December 31, 2017, CNB recorded a provision for loan losses of $6.7 million, as compared to a provision for loan losses of $4.1 million for the year ended December 31, 2016. The provision for loan losses was $3.1 million and $2.1 million for the three months ended December 31, 2017 and 2016, respectively. Net chargeoffs were $3.3 million in 2017, as compared to net chargeoffs of $4.6 in 2016, and the ratio of net chargeoffs to average loans was 0.16% and 0.27% for the years ended December 31, 2017 and 2016, respectively.

CNB Bank net chargeoffs totaled $2.2 million and $1.7 million during the years ended December 31, 2017 and 2016, or 0.06% and 0.10%, respectively, of average CNB Bank loans. Holiday Financial Services Corporation, CNB’s consumer discount company, recorded net chargeoffs totaling $1.1 million and $2.9 million during the years ended December 31, 2017 and 2016, respectively.

In 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 $2.9 million, including $1.6 million in the fourth quarter of 2017, which was based on the most current financial information available from the borrower. In 2017, CNB also increased its provision for loan losses as a result of stronger organic loan growth compared to 2016.

Non-Interest Income

Net realized gains on available-for-sale securities were $1.5 million during the year ended December 31, 2017, compared to $1.0 million during the year ended December 31, 2016. Net realized and unrealized gains on trading securities were $881 thousand during the year ended December 31, 2017, compared to $503 thousand during the year ended December 31, 2016. Excluding the effects of securities transactions, non-interest income was $19.0 million for the year ended December 31, 2017, compared to $16.2 million for the year ended December 31, 2016.

As a result of CNB’s continued focus on growing its Private Client Solutions division, wealth and asset management revenues were $ 3.7 million in 2017, an increase of 20.6% from $3.1 million in 2016. During 2017, CNB recorded $1.7 million in income from bank owned life insurance policies, including $387 thousand representing the death proceeds on life insurance policies in excess of the cash surrender value, compared to $1.1 million in 2016.

Non-Interest Expenses

Total non-interest expenses were $17.6 million and $70.0 million during the three months and year ended December, 2017, compared to $16.5 million and $67.1 million during the three months and year ended December 31, 2016. Non-interest expenses in 2016 included $3.7 million of non -recurring items, which consisted of merger related expenses of $486 thousand, costs associated with our core processing system upgrade of $1.7 million, and a prepayment penalty associated with the early payoff of long-term borrowings of $1.5 million.

Salaries and benefits expense increased $ 3.8 million, or 11.9%, during the year ended December 31, 2017 compared to the year ended December 31, 2016. As of December 31, 2017, CNB had 512 full-time equivalent staff, compared to 486 full-time equivalent staff as of December 31, 2016. The staff added during this period included 28 employees for CNB’s newest division, BankOnBuffalo. Occupancy expenses increased $1.5 million, or 18.4%, during the year ended December 31, 2017 compared to the year ended December 31, 2016, resulting primarily from two locations acquired from Lake National Bank in Mentor, Ohio in July 2016, as well as branch locations that have been opened since the end of 2016 in Ashtabula, Ohio; Blair County, Pennsylvania; and three branch locations in western New York.

RECONCILIATION OF NON-U.S. GAAP MEASURE
(Dollars in Thousands, Except Per Share Data)

The table below provides a reconciliation of CNB’s fourth quarter and annual unaudited earnings results and earnings metrics under U.S. generally accepted accounting principles (U.S. GAAP) to the comparative results excluding the additional tax charge referred to above. Management believes disclosure of 2017 earnings results, adjusted to exclude the additional income tax provision resulting from the change in tax rate, provides useful information to investors for purposes of comparison with 2016 results.

  (unaudited)
      
  Three Months Ended
  Twelve Months Ended
   December 31,  December 31,
                    
            (unaudited)       
          %
         %
 2017 
  2016 
 change
  2017   2016  change
Net income, U.S. GAAP$3,451  $5,040  -31.5% $23,860  $20,540  16.2%
Additional income tax provision resulting from change in tax rate 3,009      NA   3,009      NA 
Net income, excluding effect of change in tax rate$6,460  $5,040  28.2% $26,869  $20,540  30.8%
                      
Diluted earnings per share, U.S. GAAP$0.23  $0.35  -34.3% $1.57  $1.42  10.6%
Effect of change in tax rate$0.20      NA  $0.20      NA 
Diluted earnings per share, excluding effect of change in tax rate$0.43  $0.35  22.9% $1.77  $1.42  24.6%
                      
Return on average assets, U.S. GAAP 0.50%  0.80% -37.5%  0.89%  0.85% 4.7%
Effect of change in tax rate 0.44%     NA   0.11%     NA 
Return on average assets, excluding effect of change in tax rate 0.94%  0.80% 17.5%  1.00%  0.85% 17.6%
                      
Return on average equity, U.S. GAAP 5.61%  9.41% -40.4%  9.97%  9.69% 2.9%
Effect of change in tax rate 4.89%     NA   1.26%     NA 
Return on average equity, excluding effect of change in tax rate 10.50%  9.41% 11.6%  11.23%  9.69% 15.9%
                      
                      

About CNB Financial Corporation

CNB Financial Corporation is a financial holding company with consolidated assets of approximately $2.8 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, 31 full-service offices in Pennsylvania and northeast Ohio, including ERIEBANK, a division of CNB Bank, 7 full-service offices and one loan production office in central Ohio conducting business as FCBank, a division of CNB Bank, and 3 full-service offices in northwest New York conducting business as BankOnBuffalo, 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)  
 Three Months Ended Twelve Months Ended
 December 31,  December 31,
(Dollars in thousands, except share and per share data)   
             (unaudited)       
         %
          %
  2017   2016  change
  2017   2016  change
Income Statement                      
                       
Interest income$  28,698  $  24,818  15.6%  $  108,874  $  94,315  15.4%
Interest expense 4,897   3,809  28.6%   17,365   13,028  33.3%
Net interest income 23,801   21,009  13.3%   91,509   81,287  12.6%
Provision for loan losses 3,105   2,111  47.1%   6,655   4,149  60.4%
Net interest income after provision for loan losses 20,696   18,898  9.5%   84,854   77,138  10.0%
                       
Non-interest income                      
Service charges on deposit accounts 1,310   1,148  14.1%   4,809   4,297  11.9%
Other service charges and fees 779   702  11.0%   2,454   2,539  -3.3%
Wealth and asset management fees 949   789  20.3%   3,724   3,087  20.6%
Net realized gains on available-for-sale securities -   -  NA    1,543   1,005  53.5%
Net realized and unrealized gains on trading securities 406   238  70.6%   881   503  75.1%
Mortgage banking 238   389  -38.8%   906   1,095  -17.3%
Bank owned life insurance 351   276  27.2%   1,659   1,082  53.3%
Card processing and interchange income 973   897  8.5%   3,763   3,396  10.8%
Gain on sale of branch -   -  NA    536   -  NA 
Other 535   185  189.2%   1,160   687  68.9%
                       
Total non-interest income 5,541   4,624  19.8%   21,435   17,691  21.2%
                       
Non-interest expenses                      
Salaries and benefits 9,018   8,289  8.8%   36,026   32,194  11.9%
Net occupancy expense of premises 2,530   2,132  18.7%   9,546   8,064  18.4%
FDIC insurance premiums 313   180  73.9%   1,182   1,229  -3.8%
Core Deposit Intangible amortization 262   346  -24.3%   1,229   1,125  9.2%
Prepayment penalties - long-term borrowings -   -  NA    -   1,506  NA 
Core processing conversion costs -   96  NA    -   1,693  NA 
Merger costs -   5  NA    -   486  NA 
Card processing and interchange expenses 539   219  146.1%   2,116   1,889  12.0%
Other 4,926   5,188  -5.1%   19,938   18,932  5.3%
Total non-interest expenses 17,588   16,455  6.9%   70,037   67,118  4.3%
                       
Income before income taxes 8,649   7,067  22.4%   36,252   27,711  30.8%
Income tax expense 5,198   2,027  156.4%   12,392   7,171  72.8%
Net income$  3,451  $  5,040  -31.5%  $  23,860  $  20,540  16.2%
                       
Average diluted shares outstanding 15,216,034   14,394,109       15,131,583   14,374,260    
                       
Diluted earnings per share$0.23  $0.35  -34.3%  $1.57  $1.42  10.6%
                       
Cash dividends per share$0.165  $0.165  0.0%  $0.66  $0.66  0.0%
                       
Payout ratio 72%  47%      42%  46%   
                       
Average Balances                      
Loans, net of unearned income$2,115,937  $1,836,234      $2,023,288  $1,717,224    
Total earning assets 2,557,294   2,353,892       2,503,107   2,261,403    
Total assets 2,735,462   2,522,410       2,677,531   2,420,240    
Total deposits 2,109,214   2,014,248       2,058,000   1,950,014    
Shareholders' equity 246,070   214,142       239,223   212,058    
Tangible shareholders' equity (*) 205,547   172,269       198,239   175,322    
                       
Performance Ratios (quarterly information annualized)                      
Return on average assets 0.50%  0.80%      0.89%  0.85%   
Return on average equity 5.61%  9.41%      9.97%  9.69%   
Return on average tangible equity (*) 6.72%  11.70%      12.04%  11.72%   
Net interest margin (FTE) 3.81%  3.84%      3.82%  3.78%   
                       
Loan Charge-Offs                      
Net loan charge-offs$1,261  $1,484      $  3,292  $4,556    
Net loan charge-offs / average loans 0.24%  0.32%      0.16%  0.27%   
                       
                       

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 the gain on the sale of a branch, as well as nonrecurring expenses including prepayment penalties on long-term borrowings, core processing conversion costs, and merger costs:

             
      (unaudited)
          
   Three Months Ended
  Twelve Months Ended 
       December 31,   December 31,  
                       
          (Dollars in thousands)
 
            (unaudited)         
         %         % 
   2017   2016 change  2017   2016 change 
Pre-tax net income, GAAP basis $8,649  $7,067 22.4% $36,252  $27,711  30.8% 
Net realized gains on available-for-sale securities  -   - NA   (1,543)  (1,005) 53.5% 
Gain on sale of branch  -   - NA   (536)  -  NA  
Prepayment penalties - long-term borrowings  -   - NA   -   1,506  NA  
Core processing conversion costs  -   96 NA   -   1,693  NA  
Merger costs  -   5 NA   -   486  NA  
Pre-tax net income, non-GAAP $8,649  $7,168 20.7% $34,173  $30,391  12.4% 
                       
                       


  (unaudited)  (unaudited)            
  December 31,   September 30,   December 31,  % change versus
 
  2017  2017   2016  9/30/2017 12/31/2016 
                   
Ending Balance Sheet                  
Loans, net of unearned income$2,145,959  $2,098,574  $1,873,536  2.3% 14.5% 
Loans held for sale 852   1,672   7,528  -49.0% -88.7% 
Investment securities 416,859   430,742   500,693  -3.2% -16.7% 
FHLB and other equity interests 21,517   26,145   19,186  -17.7% 12.1% 
Other earning assets 2,199   2,806   2,246  -21.6% -2.1% 
Total earning assets 2,587,386   2,559,939   2,403,189  1.1% 7.7% 
                   
Allowance for loan losses (19,693)  (17,849)  (16,330) 10.3% 20.6% 
Goodwill 38,730   38,730   38,730  0.0% 0.0% 
Core deposit intangible 1,625   1,888   2,854  -13.9% -43.1% 
                   
Other assets 160,725   162,361   145,378  -1.0% 10.6% 
Total assets$   2,768,773   $   2,745,069   $   2,573,821   0.9% 7.6% 
                   
Non interest-bearing deposits 321,858   313,543   289,922  2.7% 11.0% 
Interest-bearing deposits 1,845,957   1,747,067   1,727,600  5.7% 6.9% 
Total deposits 2,167,815   2,060,610   2,017,522  5.2% 7.4% 
                   
Borrowings 257,359   342,158   237,004  -24.8% 8.6% 
Subordinated debt 70,620   70,620   70,620  0.0% 0.0% 
Deposits held for sale -   -   6,456  NA  NA  
Other liabilities 29,069   27,233   30,435  6.7% -4.5% 
                   
Total shareholders' equity 243,910   244,448   211,784  -0.2% 15.2% 
                   
Total liabilities and shareholders' equity$   2,768,773    2,745,069  $   2,573,821   0.9% 7.6% 
                   
Ending shares outstanding 15,264,740   15,285,236   14,467,815        
                   
Book value per share$15.98  $15.99  $14.64        
Tangible book value per share (*)$13.33  $13.34  $11.76        
                   
Capital Ratios                  
Tangible common equity / tangible assets (*) 7.46%  7.54%  6.72%       
Tier 1 leverage ratio 8.47%  8.44%  7.87%       
Common equity tier 1 ratio 10.03%  10.14%  9.28%       
Tier 1 risk based ratio 10.99%  11.12%  10.33%       
Total risk based ratio 14.34%  14.45%  13.83%       
                   
Asset Quality                  
Non-accrual loans$18,561  $19,786  $15,329        
Loans 90+ days past due and accruing 485   592   10        
Total non-performing loans 19,046   20,378   15,339        
Other real estate owned 710   760   1,015        
Total non-performing assets$19,756  $21,138  $16,354        
                   
Loans modified in a troubled debt restructuring                  
(TDR):                  
Performing TDR loans$8,344  $8,655  $8,710        
Non-performing TDR loans ** 8,959   8,853   3,121        
Total TDR loans$17,303  $17,508  $11,831        
                   
Non-performing assets / Loans + OREO 0.92%  1.01%  0.87%       
Non-performing assets / Total assets 0.71%  0.77%  0.64%       
Allowance for loan losses / Loans 0.92%  0.85%  0.87%       
      

* - 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. Return on average tangible equity is calculated by dividing annualized net income by average tangible 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)     
  December 31,   September 30,   December 31 
  2017   2017   2016 
Shareholders' equity$243,910  $244,448  $211,784 
Less goodwill 38,730   38,730   38,730 
Less core deposit intangible 1,625   1,888   2,854 
Tangible common equity$203,555  $203,830  $170,200 
            
Total assets$2,768,773  $2,745,069  $2,573,821 
Less goodwill 38,730   38,730   38,730 
Less core deposit intangible 1,625   1,888   2,854 
Tangible assets$2,728,418  $2,704,451  $2,532,237 
            
Ending shares outstanding 15,264,740   15,285,236   14,467,815 
            
Tangible book value per share$13.33  $13.34  $11.76 
Tangible common equity/Tangible assets 7.46%  7.54%  6.72%
            


Contact:
Brian W. Wingard
Treasurer
(814) 765-9621