CLEARFIELD – CNB Financial Corp., the parent company of CNB Bank, has announced its earnings for the second quarter and first six months of 2013. Highlights include the following:
- Announced the acquisition of FC Banc Corp. and its subsidiary, The Farmers Citizens Bank, headquartered in Bucyrus, Ohio, expected to close in the fourth quarter of 2013.
- Excluding the effects of realized gains on the sale of available-for-sale securities and merger costs, pre-tax income of $4.3 million for the three months ended June 30, compared to pre-tax income of $5.2 million in the second quarter of 2012.
- Excluding the effects of realized gains on the sale of available-for-sale securities and merger costs, pre-tax income of $10.2 million for the six months ended June 30, compared to pre-tax income of $10.6 million for the six months ended June 30, 2012.
- Net interest income of $13.8 million for the second quarter of 2013, an increase of 4.2 percent over the second quarter of 2012.
- Net interest income of $27.3 million for the six months ended June 30, an increase of 5.1 percent over the six months ended June 30, 2012.
- Annualized returns on average assets and equity of 0.80 percent and 10.04 percent, respectively, for the six months ended June 30.
- Loans of $982.9 million at June 30, an increase of $76.2 million, or 8.4 percent, compared to June 30, 2012. .
- Deposits of $1.55 billion at June 30, an increase of $91.1 million, or 6.3 percent, compared to June 30, 2012. .
- Total non-performing assets of $20.0 million, or 1.10 percent of total assets as of June 30.
Joseph B. Bower Jr., president and chief executive officer, stated, “We are very pleased with the growth in the loan portfolio through the first six months of 2013, and we are encouraged by the loan prospects currently in our pipeline. Although net income is slightly behind our projections, the remainder of 2013 looks promising as a result of our continued loan growth and the significant loan loss recovery that occurred in the third quarter.”
Net Interest Income and Margin
During the six months ended June 30, net interest income increased $1.3 million, or 5.1 percent, compared to the six months ended June 30, 2012. Net interest margin on a fully tax equivalent basis was 3.35 percent and 3.38 percent for the three and six months ended June 30, compared to 3.47 percent for both the three and six months ended June 30, 2012.
Although the yield on earnings assets decreased from 4.48 percent during the six months ended June 30, 2012 to 4.10 percent during the six months ended June 30, CNB’s average earning assets increased from $1.59 billion to $1.71 billion, or 7.7 percent. Due to growth in core deposits, interest-bearing liabilities have increased $77.6 million, or 6.0 percent, as compared to June 30, 2012. However, interest expense for the six months ended June 30, decreased by $1.9 million, or 23.5 percent, compared to the six months ended June 30, 2012, as a result of decreases in the cost of core deposits.
CNB’s strong and growing deposit base and low cost of funds has offset the decline in yield on earning assets as the company has been prudent in managing its deposit rates, resulting in the increase in net interest income.
Asset Quality
During the six months ended June 30, CNB recorded a provision for loan losses of $4.0 million, as compared to a provision for loan losses of $2.9 million for the six months ended June 30, 2012.
During the second quarter of 2013, a commercial mortgage loan with a balance of $1.1 million that was previously 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 six months ended June 30, of $611,000. In addition, due to a rapid deterioration in the collateral value of an impaired commercial mortgage loan with a carrying value of $2.9 million, CNB recorded an increase in the provision for loan losses of $1.7 million during the three and six months ended June 30. Subsequently, CNB recorded a partial charge-off on this loan of $892,000, resulting in a carrying amount of $2.0 million and a specific reserve of $822,000 as of June 30.
Finally, a commercial mortgage loan with a carrying value of $3.3 million defaulted in the second quarter of 2013 and was placed on nonaccrual status. Based on management’s evaluation of the fair value of the associated collateral, no provision for loan loss was required to be recorded.
In July CNB recorded a loan loss recovery of $1.4 million related to an impaired commercial mortgage loan. A partial charge-off had been recorded for this loan in a prior period. At the recovery date, the carrying amount of the loan was $5.2 million, which was satisfied in full by CNB’s participation in the issuance of a loan at market terms to a new borrower who purchased the property securing the loan.
Non-Interest Income
Excluding the effects of realized gains on the sale of available-for-sale securities, non-interest income was $6.5 million for the six months ended June 30, compared to $5.4 million for the six months ended June 30, 2012. Net realized gains on available-for-sale securities were $252,000 and $328,000 during the three and six months ended June 30, compared to $731,000 and $1.3 million during the three and six months ended June 30, 2012.
Wealth and asset management fees increased from $813,000 during the six months ended June 30, 2012 to $1.1 million during the six months ended June 30, due to increases in assets under management resulting from CNB’s strategic focus to grow its Wealth and Asset Management Division. During the quarter ended June 30, CNB recorded $815,000 in income from bank owned life insurance policies, including $576,000 representing the excess of the face value of certain policies over their cash surrender values resulting from the maturity of the policies.
Non-Interest Expenses
Total non-interest expenses increased $2.6 million, or 14.7 percent, during the six months ended June 30, compared to the six months ended June 30, 2012. Salaries and benefits expenses increased $1.2 million, or 12.7 percent, during the six months ended June 30, compared to the six months ended June 30, 2012, 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 premiums, which continue to increase in line with market conditions. In addition, non-interest expenses for the three and six months ended June 30 include merger related expenses of $828,000 and $931,000, respectively.