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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2013
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-13396
CNB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
| Pennsylvania | 25-1450605 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
1 South Second Street
P.O. Box 42
Clearfield, Pennsylvania 16830
(Address of principal executive offices)
Registrant’s telephone number, including area code, (814) 765-9621
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ¨ | Accelerated filer | x | |||
| Non-accelerated filer | ¨ | Smaller reporting company | ¨ | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
The number of shares outstanding of the issuer’s common stock as of May 6, 2013
COMMON STOCK NO PAR VALUE PER SHARE: 12,510,492 SHARES
Forward-Looking Statements
This document contains 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 our 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 our control). Forward-looking statements often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would” and “could.” Such known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements include, but are not limited to: changes in general business, industry or economic conditions or competition; changes in any applicable law, rule, regulation, policy, guideline or practice governing or affecting financial holding companies and their subsidiaries or with respect to tax or accounting principles or otherwise; adverse changes or conditions in capital and financial markets; changes in interest rates; higher than expected costs or other difficulties related to integration of combined or merged businesses; the inability to realize expected cost savings or achieve other anticipated benefits in connection with business combinations and other acquisitions, including the previously announced acquisition of FC Banc Corp.; changes in the quality or composition of our loan and investment portfolios; adequacy of loan loss reserves; increased competition; loss of certain key officers; continued relationships with major customers; deposit attrition; rapidly changing technology; unanticipated regulatory or judicial proceedings and liabilities and other costs; changes in the cost of funds, demand for loan products or demand for financial services; and other economic, competitive, governmental or technological factors affecting our operations, markets, products, services and prices. Some of these and other factors are discussed in our annual and quarterly reports filed with the Securities and Exchange Commission. Such factors could cause actual results to differ materially from those in the forward-looking statements.
The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of the filing of this document. We undertake no obligation to publicly update or revise any forward-looking statements included in this document 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 document might not occur and you should not put undue reliance on any forward-looking statements.
Dollars in thousands, except share data
| (unaudited) | ||||||||
|
March 31,
2013 |
December 31,
2012 |
|||||||
|
ASSETS |
|
|||||||
|
Cash and due from banks |
$ | 35,188 | $ | 28,570 | ||||
|
Interest bearing deposits with other banks |
3,303 | 3,311 | ||||||
|
|
|
|
|
|||||
|
Total cash and cash equivalents |
38,491 | 31,881 | ||||||
|
Interest bearing time deposits with other banks |
275 | 225 | ||||||
|
Securities available for sale |
760,945 | 737,311 | ||||||
|
Trading securities |
5,066 | 4,459 | ||||||
|
Loans held for sale |
956 | 2,398 | ||||||
|
Loans |
936,005 | 931,225 | ||||||
|
Less: unearned discount |
(3,309 | ) | (3,401 | ) | ||||
|
Less: allowance for loan losses |
(13,897 | ) | (14,060 | ) | ||||
|
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|
|||||
|
Net loans |
918,799 | 913,764 | ||||||
|
FHLB and other equity interests |
6,597 | 6,684 | ||||||
|
Premises and equipment, net |
24,416 | 24,072 | ||||||
|
Bank owned life insurance |
27,907 | 27,645 | ||||||
|
Mortgage servicing rights |
674 | 714 | ||||||
|
Goodwill |
10,946 | 10,946 | ||||||
|
Accrued interest receivable and other assets |
14,775 | 12,980 | ||||||
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|||||
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TOTAL |
$ | 1,809,847 | $ | 1,773,079 | ||||
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|||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|||||||
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Non-interest bearing deposits |
$ | 163,646 | $ | 175,239 | ||||
|
Interest bearing deposits |
1,381,799 | 1,309,764 | ||||||
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|||||
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Total deposits |
1,545,445 | 1,485,003 | ||||||
|
FHLB and other borrowings |
75,152 | 97,806 | ||||||
|
Subordinated debentures |
20,620 | 20,620 | ||||||
|
Accrued interest payable and other liabilities |
22,525 | 24,286 | ||||||
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|||||
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Total liabilities |
1,663,742 | 1,627,715 | ||||||
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|||||
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Common stock, $0 par value; authorized 50,000,000 shares; issued 12,599,603 shares |
0 | 0 | ||||||
|
Additional paid in capital |
43,840 | 44,223 | ||||||
|
Retained earnings |
91,193 | 88,960 | ||||||
|
Treasury stock, at cost (90,314 shares at March 31, 2013 and 123,699 shares at December 31, 2012) |
(1,245 | ) | (1,743 | ) | ||||
|
Accumulated other comprehensive income |
12,317 | 13,924 | ||||||
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|||||
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Total shareholders’ equity |
146,105 | 145,364 | ||||||
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|||||
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TOTAL |
$ | 1,809,847 | $ | 1,773,079 | ||||
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|||||
See Notes to Consolidated Financial Statements
1
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Dollars in thousands, except per share data
|
Three months ended
March 31, |
||||||||
| 2013 | 2012 | |||||||
|
INTEREST AND DIVIDEND INCOME: |
||||||||
|
Loans including fees |
$ | 12,302 | $ | 12,255 | ||||
|
Deposits with banks |
0 | 2 | ||||||
|
Securities: |
||||||||
|
Taxable |
3,409 | 3,683 | ||||||
|
Tax-exempt |
957 | 871 | ||||||
|
Dividends |
36 | 13 | ||||||
|
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|
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|
|||||
|
Total interest and dividend income |
16,704 | 16,824 | ||||||
|
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|
|||||
|
INTEREST EXPENSE: |
||||||||
|
Deposits |
2,234 | 3,149 | ||||||
|
Borrowed funds |
829 | 797 | ||||||
|
Subordinated debentures (includes $97 and $95 accumulated other comprehensive income reclassification for change in fair value of interest rate swap agreements in 2013 and 2012, respectively) |
190 | 201 | ||||||
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|
|||||
|
Total interest expense |
3,253 | 4,147 | ||||||
|
|
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|
|||||
|
NET INTEREST INCOME |
13,451 | 12,677 | ||||||
|
PROVISION FOR LOAN LOSSES |
930 | 1,104 | ||||||
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|
|||||
|
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
12,521 | 11,573 | ||||||
|
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|
|||||
|
NON-INTEREST INCOME: |
||||||||
|
Wealth and asset management fees |
574 | 387 | ||||||
|
Service charges on deposit accounts |
942 | 975 | ||||||
|
Other service charges and fees |
430 | 432 | ||||||
|
Net realized gains on available-for-sale securities (includes $76 and $566 accumulated other comprehensive income reclassifications for net realized gains on available-for-sale securities in 2013 and 2012, respectively) |
76 | 566 | ||||||
|
Net realized and unrealized gains on trading securities |
303 | 320 | ||||||
|
Mortgage banking |
255 | 265 | ||||||
|
Bank owned life insurance |
262 | 261 | ||||||
|
Other |
229 | 209 | ||||||
|
|
|
|
|
|||||
|
Total non-interest income |
3,071 | 3,415 | ||||||
|
|
|
|
|
|||||
|
NON-INTEREST EXPENSES: |
||||||||
|
Salaries and benefits |
5,197 | 4,725 | ||||||
|
Net occupancy expense |
1,317 | 1,149 | ||||||
|
Data processing |
767 | 725 | ||||||
|
State and local taxes |
439 | 366 | ||||||
|
Legal, professional, and examination fees |
400 | 228 | ||||||
|
Advertising |
246 | 250 | ||||||
|
FDIC insurance premiums |
279 | 259 | ||||||
|
Other |
1,037 | 1,312 | ||||||
|
|
|
|
|
|||||
|
Total non-interest expenses |
9,682 | 9,014 | ||||||
|
|
|
|
|
|||||
|
INCOME BEFORE INCOME TAXES |
5,910 | 5,974 | ||||||
|
INCOME TAX EXPENSE (includes ($7) and $165 income tax expense from reclassification items in 2013 and 2012, respectively) |
1,613 | 1,627 | ||||||
|
|
|
|
|
|||||
|
NET INCOME |
$ | 4,297 | $ | 4,347 | ||||
|
|
|
|
|
|||||
|
EARNINGS PER SHARE: |
||||||||
|
Basic |
$ | 0.34 | $ | 0.35 | ||||
|
Diluted |
$ | 0.34 | $ | 0.35 | ||||
|
DIVIDENDS PER SHARE: |
||||||||
|
Cash dividends per share |
$ | 0.165 | $ | 0.165 | ||||
See Notes to Consolidated Financial Statements
2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
Dollars in thousands
|
Three months ended
March 31, |
||||||||
| 2013 | 2012 | |||||||
|
NET INCOME |
$ | 4,297 | $ | 4,347 | ||||
|
Other comprehensive loss, net of tax: |
||||||||
|
Net change in fair value of interest rate swap agreements designated as cash flow hedges: |
||||||||
|
Unrealized gain on interest rate swaps, net of tax of ($6) in 2013 |
12 | 1 | ||||||
|
Reclassification adjustment for losses recognized in earnings, net of tax of ($34) and ($33), respectively |
63 | 62 | ||||||
|
|
|
|
|
|||||
| 75 | 63 | |||||||
|
|
|
|
|
|||||
|
Net change in unrealized gains on securities available for sale: |
||||||||
|
Unrealized losses on other-than-temporarily impaired securities available for sale: |
||||||||
|
Unrealized losses arising during the period, net of tax of $15 in 2013 |
(27 | ) | 0 | |||||
|
|
|
|
|
|||||
|
Unrealized losses on other securities available for sale: |
||||||||
|
Unrealized losses arising during the period, net of tax of $865 and $647, respectively |
(1,606 | ) | (1,201 | ) | ||||
|
Reclassification adjustment for realized gains included in net income, net of tax of $27 and $198, respectively |
(49 | ) | (368 | ) | ||||
|
|
|
|
|
|||||
| (1,655 | ) | (1,569 | ) | |||||
|
|
|
|
|
|||||
|
Other comprehensive loss |
(1,607 | ) | (1,506 | ) | ||||
|
|
|
|
|
|||||
|
COMPREHENSIVE INCOME |
$ | 2,690 | $ | 2,841 | ||||
|
|
|
|
|
|||||
See Notes to Consolidated Financial Statements
3
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Dollars in thousands
|
Three months ended
March 31, |
||||||||
| 2013 | 2012 | |||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
|
Net income |
$ | 4,297 | $ | 4,347 | ||||
|
Adjustments to reconcile net income to net cash provided by operations: |
||||||||
|
Provision for loan losses |
930 | 1,104 | ||||||
|
Depreciation and amortization of premises and equipment |
554 | 522 | ||||||
|
Amortization and accretion of securities premiums and discounts and deferred loan fees and costs |
1,126 | 992 | ||||||
|
Net realized gains on sales of available-for-sale securities |
(76 | ) | (566 | ) | ||||
|
Net realized and unrealized gains on trading securities |
(303 | ) | (320 | ) | ||||
|
Proceeds from sale of securities for which fair value was elected |
1,567 | 1,749 | ||||||
|
Purchase of securities for which fair value was elected |
(1,980 | ) | (1,457 | ) | ||||
|
Gain on sale of loans |
(243 | ) | (246 | ) | ||||
|
Net gains on dispositions of premises and equipment and foreclosed assets |
(2 | ) | (6 | ) | ||||
|
Proceeds from sale of loans |
11,072 | 6,996 | ||||||
|
Origination of loans held for sale |
(9,417 | ) | (6,730 | ) | ||||
|
Income on bank owned life insurance |
(262 | ) | (261 | ) | ||||
|
Stock-based compensation expense |
83 | 59 | ||||||
|
Contribution of treasury stock |
30 | 30 | ||||||
|
Changes in: |
||||||||
|
Accrued interest receivable and other assets |
(876 | ) | 5 | |||||
|
Accrued interest payable and other liabilities |
(1,646 | ) | 117 | |||||
|
|
|
|
|
|||||
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
4,854 | 6,335 | ||||||
|
|
|
|
|
|||||
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
|
Net increase in interest bearing time deposits with other banks |
(50 | ) | (51 | ) | ||||
|
Proceeds from maturities, prepayments and calls of securities |
29,276 | 23,709 | ||||||
|
Proceeds from sales of securities |
1,324 | 42,149 | ||||||
|
Purchase of securities |
(57,812 | ) | (152,141 | ) | ||||
|
Loan origination and payments, net |
(5,967 | ) | (10,808 | ) | ||||
|
Redemption of FHLB and other equity interests |
87 | 76 | ||||||
|
Purchase of premises and equipment |
(828 | ) | (491 | ) | ||||
|
Proceeds from the sale of premises and equipment and foreclosed assets |
0 | 260 | ||||||
|
|
|
|
|
|||||
|
NET CASH USED IN INVESTING ACTIVITIES |
(33,970 | ) | (97,297 | ) | ||||
|
|
|
|
|
|||||
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
|
Net change in: |
||||||||
|
Checking, money market and savings accounts |
62,167 | 102,063 | ||||||
|
Certificates of deposit |
(1,725 | ) | (18,926 | ) | ||||
|
Proceeds from sale of treasury stock |
2 | 413 | ||||||
|
Cash dividends paid |
(2,064 | ) | (2,049 | ) | ||||
|
Repayment of long-term borrowings |
(44 | ) | (39 | ) | ||||
|
Proceeds from long-term borrowings |
900 | 0 | ||||||
|
Net change in short-term borrowings |
(23,510 | ) | 0 | |||||
|
|
|
|
|
|||||
|
NET CASH PROVIDED BY FINANCING ACTIVITIES |
35,726 | 81,462 | ||||||
|
|
|
|
|
|||||
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
6,610 | (9,500 | ) | |||||
|
CASH AND CASH EQUIVALENTS, Beginning |
31,881 | 39,703 | ||||||
|
|
|
|
|
|||||
|
CASH AND CASH EQUIVALENTS, Ending |
$ | 38,491 | $ | 30,203 | ||||
|
|
|
|
|
|||||
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
||||||||
|
Cash paid during the period for: |
||||||||
|
Interest |
$ | 3,257 | $ | 4,175 | ||||
|
Income taxes |
$ | 32 | $ | 225 | ||||
|
SUPPLEMENTAL NONCASH DISCLOSURES: |
||||||||
|
Transfers to other real estate owned |
$ | 51 | $ | 15 | ||||
|
Grant of restricted stock awards from treasury stock |
$ | 539 | $ | 419 | ||||
See Notes to Consolidated Financial Statements
4
CNB F INANCIAL C ORPORATION
N OTES T O C ONSOLIDATED F INANCIAL S TATEMENTS
(U NAUDITED )
| 1. | BASIS OF PRESENTATION |
The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) and in compliance with accounting principles generally accepted in the United States of America (“GAAP”). Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.
In the opinion of management of the registrant, the accompanying consolidated financial statements as of March 31, 2013 and for the three month periods ended March 31, 2013 and 2012 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations for the periods presented. The financial performance reported for CNB Financial Corporation (the “Corporation”) for the three month period ended March 31, 2013 is not necessarily indicative of the results to be expected for the full year. This information should be read in conjunction with the Corporation’s Annual Report on Form 10-K for the period ended December 31, 2012 (the “2012 Form 10-K”). All dollar amounts are stated in thousands, except share and per share data.
| 2. | ACQUISITION OF FC BANC CORP. |
On March 26, 2013, the Corporation announced the signing of a definitive merger agreement to acquire FC Banc Corp. and its subsidiary, The Farmers Citizens Bank (“FC Bank”), for $30.00 per share in cash and stock, or approximately $40.4 million in the aggregate. FC Bank serves the northern Ohio markets of Bucyrus, Cardington, Fredericktown, Mount Hope and Shiloh, as well as the markets of Worthington and Upper Arlington in the greater Columbus, Ohio area, with 8 branch locations and a mortgage banking business headquartered in Dublin, Ohio. The transaction is expected to close in the fourth quarter of 2013, subject to customary closing conditions, including regulatory approvals and the approval of FC Banc Corp. shareholders.
| 3. | STOCK COMPENSATION |
The Corporation has a stock incentive plan for key employees and independent directors. The stock incentive plan, which is administered by a committee of the Board of Directors, provides for aggregate grants of up to 500,000 shares of common stock in the form of nonqualified options or restricted stock. For key employees, the plan vesting is one-fourth of the granted options or restricted stock per year beginning one year after the grant date, with 100% vested on the fourth anniversary of the grant. For independent directors, the vesting schedule is one-third of the granted options per year beginning one year after the grant date, with 100% vested on the third anniversary of the grant.
At March 31, 2013, there was no unrecognized compensation cost related to nonvested stock options granted under this plan and no stock options were granted during the three month periods ended March 31, 2013 and 2012. At March 31, 2013 and December 31, 2012, the Corporation had 75,500 stock options that were fully vested and exercisable.
Compensation expense for the restricted stock awards is recognized over the requisite service period noted above based on the fair value of the shares at the date of grant. Nonvested restricted stock awards are recorded as a reduction of additional paid-in-capital in shareholders’ equity until earned. Compensation expense resulting from these restricted stock awards was $83 and $59 for the three months ended March 31, 2013 and 2012, respectively. As of March 31, 2013, there was $991 of total unrecognized compensation cost related to unvested restricted stock awards.
5
A summary of changes in nonvested restricted stock awards for the three months ended March 31, 2013 follows:
|
Per Share Weighted Average |
||||||||
| Shares | Grant Date Fair Value | |||||||
|
Nonvested at beginning of period |
49,574 | $ | 15.37 | |||||
|
Granted |
31,500 | 17.10 | ||||||
|
Vested |
(15,674 | ) | 15.23 | |||||
|
|
|
|
|
|||||
|
Nonvested at end of period |
65,400 | $ | 16.24 | |||||
|
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|||||
| 4. | FAIR VALUE |
Fair Value Measurement
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy has also been established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs are used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The fair values of most trading securities and securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The fair value of one corporate bond held by the Corporation has been determined by using Level 3 inputs. The Corporation has engaged a valuation expert to price this security using a proprietary model which incorporates assumptions about certain factors that market participants would use in pricing the securities, including bid/ask spreads and liquidity and credit premiums.
The Corporation’s structured pooled trust preferred security is priced using Level 3 inputs. The decline in the level of observable inputs and market activity in this class of investments by the measurement date has been significant and resulted in unreliable external pricing. Broker pricing and bid/ask spreads, when available, vary widely, and the once-active market has become comparatively inactive. The Corporation engaged a third party consultant who has developed a model for pricing this security. Information such as historical and current performance of the underlying collateral, deferral and default rates, collateral coverage ratios, break in yield calculations, cash flow projections, liquidity and credit premiums required by a market participant, and financial trend analysis with respect to the individual issuing financial institutions and insurance companies are utilized in determining the security valuation. Due to the current market conditions as well as the limited trading activity of these types of securities, the market value of the Corporation’s structured pooled trust preferred security is highly sensitive to assumption changes and market volatility.
The Corporation’s derivative instrument is an interest rate swap that is similar to those that trade in liquid markets. As such, significant fair value inputs can generally be verified and do not typically involve significant management judgments (Level 2 inputs).
6
Assets and liabilities measured at fair value on a recurring basis are as follows at March 31, 2013 and December 31, 2012:
| Fair Value Measurements at March 31, 2013 Using | ||||||||||||||||
|
Description |
Total |
Quoted Prices in
Active Markets for Identical Assets (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
||||||||||||
|
Assets: |
||||||||||||||||
|
Securities Available For Sale: |
||||||||||||||||
|
U.S. Treasury |
$ | 2,025 | $ | 0 | $ | 2,025 | $ | 0 | ||||||||
|
U.S. Government sponsored entities |
192,770 | 0 | 192,770 | 0 | ||||||||||||
|
States and political subdivisions |
184,154 | 0 | 184,154 | 0 | ||||||||||||
|
Residential and multi-family mortgage |
296,305 | 0 | 296,305 | 0 | ||||||||||||
|
Commercial mortgage |
1,264 | 0 | 1,264 | 0 | ||||||||||||
|
Corporate notes and bonds |
15,336 | 0 | 13,269 | 2,067 | ||||||||||||
|
Pooled trust preferred |
558 | 0 | 0 | 558 | ||||||||||||
|
Pooled SBA |
67,001 | 67,001 | 0 | 0 | ||||||||||||
|
Other securities |
1,532 | 1,532 | 0 | 0 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Securities Available For Sale |
$ | 760,945 | $ | 68,533 | $ | 689,787 | $ | 2,625 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Trading Securities: |
||||||||||||||||
|
Corporate equity securities |
$ | 3,760 | $ | 3,760 | $ | 0 | $ | 0 | ||||||||
|
Certificates of deposit |
358 | 358 | 0 | 0 | ||||||||||||
|
International mutual funds |
261 | 261 | 0 | 0 | ||||||||||||
|
Large cap growth mutual funds |
158 | 158 | 0 | 0 | ||||||||||||
|
Money market mutual funds |
79 | 79 | 0 | 0 | ||||||||||||
|
Large cap value mutual funds |
106 | 106 | 0 | 0 | ||||||||||||
|
Corporate notes and bonds |
101 | 0 | 101 | 0 | ||||||||||||
|
Real estate investment trust mutual funds |
68 | 68 | 0 | 0 | ||||||||||||
|
U.S. Government sponsored entities |
57 | 0 | 57 | 0 | ||||||||||||
|
Small cap mutual funds |
59 | 59 | 0 | 0 | ||||||||||||
|
Mid cap mutual funds |
59 | 59 | 0 | 0 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Trading Securities |
$ | 5,066 | $ | 4,908 | $ | 158 | $ | 0 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Liabilities: |
||||||||||||||||
|
Interest rate swaps |
$ | (1,630 | ) | $ | 0 | $ | (1,630 | ) | $ | 0 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Fair Value Measurements at December 31, 2012 Using | ||||||||||||||||
|
Description |
Total |
Quoted Prices in
Active Markets for Identical Assets (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
||||||||||||
|
Assets: |
||||||||||||||||
|
Securities Available For Sale: |
||||||||||||||||
|
U.S. Treasury |
$ | 4,036 | $ | 0 | $ | 4,036 | $ | 0 | ||||||||
|
U.S. Government sponsored entities |
163,781 | 0 | 163,781 | 0 | ||||||||||||
|
States and political subdivisions |
181,279 | 0 | 181,279 | 0 | ||||||||||||
|
Residential and multi-family mortgage |
316,822 | 0 | 316,822 | 0 | ||||||||||||
|
Commercial mortgage |
1,304 | 0 | 1,304 | 0 | ||||||||||||
|
Corporate notes and bonds |
15,024 | 0 | 13,044 | 1,980 | ||||||||||||
|
Pooled trust preferred |
600 | 0 | 0 | 600 | ||||||||||||
|
Pooled SBA |
52,927 | 52,631 | 296 | 0 | ||||||||||||
|
Other securities |
1,538 | 1,538 | 0 | 0 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Securities Available For Sale |
$ | 737,311 | $ | 54,169 | $ | 680,562 | $ | 2,580 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
7
|
Trading Securities: |
||||||||||||||||
|
Corporate equity securities |
$ | 3,117 | $ | 3,117 | $ | 0 | $ | 0 | ||||||||
|
Certificates of deposit |
408 | 408 | 0 | 0 | ||||||||||||
|
International mutual funds |
287 | 287 | 0 | 0 | ||||||||||||
|
Large cap growth mutual funds |
157 | 157 | 0 | 0 | ||||||||||||
|
Money market mutual funds |
110 | 110 | 0 | 0 | ||||||||||||
|
Large cap value mutual funds |
104 | 104 | 0 | 0 | ||||||||||||
|
Corporate notes and bonds |
101 | 0 | 101 | 0 | ||||||||||||
|
Real estate investment trust mutual funds |
65 | 65 | 0 | 0 | ||||||||||||
|
U.S. Government sponsored entities |
58 | 0 | 58 | 0 | ||||||||||||
|
Small cap mutual funds |
26 | 26 | 0 | 0 | ||||||||||||
|
Mid cap mutual funds |
26 | 26 | 0 | 0 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Trading Securities |
$ | 4,459 | $ | 4,300 | $ | 159 | $ | 0 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Liabilities: |
||||||||||||||||
|
Interest rate swaps |
$ | (1,745 | ) | $ | 0 | $ | (1,745 | ) | $ | 0 | ||||||
|
|
|
|
|
|
|
|
|
The table below presents a reconciliation and income statement classification of gains and losses for all securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2013:
|
Corporate
notes and bonds |
Pooled
trust preferred |
|||||||
|
Balance, January 1, 2013 |
$ | 1,980 | $ | 600 | ||||
|
Total gains or (losses): |
||||||||
|
Included in other comprehensive income |
87 | (42 | ) | |||||
|
|
|
|
|
|||||
|
Balance, March 31, 2013 |
$ | 2,067 | $ | 558 | ||||
|
|
|
|
|
|||||
The table below presents a reconciliation and income statement classification of gains and losses for all securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2012:
|
Corporate
notes and bonds |
Pooled
trust preferred |
|||||||
|
Balance, January 1, 2012 |
$ | 2,060 | $ | 340 | ||||
|
Total gains or losses: |
||||||||
|
Included in other comprehensive income |
(20 | ) | — | |||||
|
|
|
|
|
|||||
|
Balance, March 31, 2012 |
$ | 2,040 | $ | 340 | ||||
|
|
|
|
|
|||||
The following table presents quantitative information about Level 3 fair value measurements at March 31, 2013:
|
Fair
value |
Valuation
|
Unobservable Inputs |
Input
Utilized |
|||||||
|
Corporate notes and bonds |
$ | 2,067 |
Discounted cash flow |
Constant prepayment rate Probability of default Discount rate |
0%
0% 9.2% |
|||||
|
Pooled trust preferred |
$ | 558 |
Discounted cash flow |
Collateral default rate |
2% in 2013; 1.5% in 2014;
1.0% in 2015; 0.5% in 2016 and thereafter |
|||||
|
Yield Prepayment speed |
12%
7.2% CPR in 2013;
2.0%
|
|||||||||
8
The following table presents quantitative information about Level 3 fair value measurements at December 31, 2012:
|
Fair
value |
Valuation
|
Unobservable Inputs |
Input
Utilized |
|||||||
|
Corporate notes and bonds |
$ | 1,980 |
Discounted cash flow |
Constant prepayment rate Probability of default Discount rate |
0%
0% 9.6% |
|||||
|
Pooled trust preferred |
$ | 600 |
Discounted cash flow |
Collateral default rate
Yield Recovery probability |
2% annually for 2 years;
0.36% thereafter 13% 10%, lagged 2 years |
|||||
The significant unobservable inputs used in the fair value measurement of the Corporation’s corporate notes and bonds are prepayment rates, probability of default, and discount rate. Significant changes in any of those inputs in isolation would result in a significantly different fair value measurement. At March 31, 2013, the significant unobservable inputs used in the fair value measurement of the Corporation’s pooled trust preferred security are collateral default rate, yield, and prepayment speed. At December 31, 2012, the significant unobservable inputs used in the fair value measurement of the Corporatin’s pooled trust preferred security are collateral default rate, yield, and recovery probability. Significant increases in specific-issuer default assumptions or decreases in specific-issuer recovery assumptions would result in a significantly lower fair value measurement. Conversely, decreases in specific-issuer default assumptions or increases in specific-issuer recovery assumptions would result in a higher fair value measurement.
During the three months ended March 31, 2013 and 2012, the following available for sale securities reported as Level 1 securities as of the beginning of the period were transferred to the Level 2 category:
| 2013 | 2012 | |||||||
|
U.S. Government sponsored entities |
$ | 0 | $ | 2,000 | ||||
|
States and political subdivisions |
0 | 4,655 | ||||||
|
Residential mortgage and asset backed |
0 | 8,577 | ||||||
|
|
|
|
|
|||||
|
Total |
$ | 0 | $ | 15,232 | ||||
|
|
|
|
|
|||||
These securities were transferred from the Level 1 category to the Level 2 category since there were no longer quoted prices for identical assets in active markets that the Corporation had the ability to access. The Corporation’s policy for determining when a transfer between the Level 1 and Level 2 categories has occurred is to monitor and report such transfers as of each quarterly reporting period.
The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals prepared by third-parties. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Management also adjusts appraised values based on the length of time that has passed since the appraisal date and other factors. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.
9
Assets and liabilities measured at fair value on a non-recurring basis are as follows at March 31, 2013 and December 31, 2012:
| Fair Value Measurements at March 31, 2013 Using | ||||||||||||||||
|
Description |
Total |
Quoted Prices in
Active Markets for Identical Assets (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
||||||||||||
|
Assets: |
||||||||||||||||
|
Impaired loans: |
||||||||||||||||
|
Commercial mortgages |
$ | 8,256 | $ | 0 | $ | 0 | $ | 8,256 | ||||||||
|
Commercial, industrial, and
|
1,661 | 0 | 0 | 1,661 | ||||||||||||
|
Residential real estate |
165 | 0 | 0 | 165 | ||||||||||||
| Fair Value Measurements at December 31, 2012 Using | ||||||||||||||||
|
Description |
Total |
Quoted Prices in
Active Markets for Identical Assets (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
||||||||||||
|
Assets: |
||||||||||||||||
|
Impaired loans: |
||||||||||||||||
|
Commercial mortgages |
$ | 8,422 | $ | 0 | $ | 0 | $ | 8,422 | ||||||||
|
Commercial, industrial, and
|
1,973 | 0 | 0 | 1,973 | ||||||||||||
|
Residential real estate |
402 | 0 | 0 | 402 | ||||||||||||
Impaired loans, which are measured for impairment using the fair value of collateral for collateral dependent loans, had a principal balance of $11,325 with a valuation allowance of $1,243 as of March 31, 2013, resulting in an additional provision for loan losses of $201 for the corresponding three month period. Impaired loans had a principal balance of $12,535 with a valuation allowance of $1,738 as of December 31, 2012, and an additional provision for loan losses of $401 was recorded for the three months ended March 31, 2012.
The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at March 31, 2013:
| Fair value |
Valuation Technique |
Unobservable Inputs |
Range
(Weighted Average) |
|||||||
|
Impaired loans – commercial mortgages |
$ | 8,256 | Sales comparison approach | Adjustment for differences between the comparable sales | 1% - 39% (19%) | |||||
|
Impaired loans – commercial, industrial, and agricultural |
$ | 1,661 | Income approach | Adjustment for differences in net operating income | 27% - 32% (28%) | |||||
|
Impaired loans – residential real estate |
$ | 165 | Sales comparison approach | Adjustment for differences between the comparable sales | 17% - 26% (23%) | |||||
10
The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2012:
| Fair value |
Valuation Technique |
Unobservable Inputs |
Range
(Weighted Average) |
|||||||
|
Impaired loans – commercial mortgages |
$ | 8,422 | Sales comparison approach | Adjustment for differences between the comparable sales | 1% - 39%(19%) | |||||
|
Impaired loans – commercial, industrial, and agricultural |
1,973 | Income approach | Adjusting for differences in net operating income | 24% - 38%(27%) | ||||||
|
Impaired loans – residential real estate |
402 | Sales comparison approach | Adjustment for differences between the comparable sales | 10% - 15%(11%) | ||||||
Fair Value of Financial Instruments
The following table presents the carrying amount and fair value of financial instruments at March 31, 2013:
| Carrying | Fair Value Measurement Using: | Total | ||||||||||||||||||
| Amount | Level 1 | Level 2 | Level 3 | Fair Value | ||||||||||||||||
|
ASSETS |
||||||||||||||||||||
|
Cash and cash equivalents |
$ | 38,491 | $ | 38,491 | $ | 0 | $ | 0 | $ | 38,491 | ||||||||||
|
Interest bearing time deposits with other banks |
275 | 0 | 281 | 0 | 281 | |||||||||||||||
|
Securities available for sale |
760,945 | 68,533 | 689,787 | 2,625 | 760,945 | |||||||||||||||
|
Trading securities |
5,066 | 4,908 | 158 | 0 | 5,066 | |||||||||||||||
|
Loans held for sale |
956 | 0 | 981 | 0 | 981 | |||||||||||||||
|
Net loans |
918,799 | 0 | 0 | 922,845 | 922,845 | |||||||||||||||
|
FHLB and other equity interests |
6,597 | n/a | n/a | n/a | n/a | |||||||||||||||
|
Accrued interest receivable |
7,451 | 385 | 3,879 | 3,187 | 7,451 | |||||||||||||||
|
LIABILITIES |
||||||||||||||||||||
|
Deposits |
$ | (1,545,445 | ) | $ | (1,334,227 | ) | $ | (213,177 | ) | $ | 0 | $ | (1,547,404 | ) | ||||||
|
FHLB and other borrowings |
(75,152 | ) | 0 | (82,624 | ) | 0 | (82,624 | ) | ||||||||||||
|
Subordinated debentures |
(20,620 | ) | 0 | (10,999 | ) | 0 | (10,999 | ) | ||||||||||||
|
Interest rate swaps |
(1,630 | ) | 0 | (1,630 | ) | 0 | (1,630 | ) | ||||||||||||
|
Accrued interest payable |
(971 | ) | (283 | ) | (671 | ) | (17 | ) | (971 | ) | ||||||||||
11
The following table presents the carrying amount and fair value of financial instruments at December 31, 2012:
| Carrying | Fair Value Measurement Using: | Total | ||||||||||||||||||
| Amount | Level 1 | Level 2 | Level 3 | Fair Value | ||||||||||||||||
|
ASSETS |
||||||||||||||||||||
|
Cash and cash equivalents |
$ | 31,881 | $ | 31,881 | $ | 0 | $ | 0 | $ | 31,881 | ||||||||||
|
Interest bearing time deposits with other banks |
225 | 0 | 230 | 0 | 230 | |||||||||||||||
|
Securities available for sale |
737,311 | 54,169 | 680,562 | 2,580 | 737,311 | |||||||||||||||
|
Trading securities |
4,459 | 4,300 | 159 | 0 | 4,459 | |||||||||||||||
|
Loans held for sale |
2,398 | 0 | 2,460 | 0 | 2,460 | |||||||||||||||
|
Net loans |
913,764 | 0 | 0 | 917,785 | 917,785 | |||||||||||||||
|
FHLB and other equity interests |
6,684 | n/a | n/a | n/a | n/a | |||||||||||||||
|
Accrued interest receivable |
6,863 | 278 | 3,498 | 3,087 | 6,863 | |||||||||||||||
|
LIABILITIES |
||||||||||||||||||||
|
Deposits |
$ | (1,485,003 | ) | $ | (1,272,060 | ) | $ | (215,485 | ) | $ | 0 | $ | (1,487,545 | ) | ||||||
|
FHLB and other borrowings |
(97,806 | ) | 0 | (105,850 | ) | 0 | (105,850 | ) | ||||||||||||
|
Subordinated debentures |
(20,620 | ) | 0 | (10,682 | ) | 0 | (10,682 | ) | ||||||||||||
|
Interest rate swaps |
(1,745 | ) | 0 | (1,745 | ) | 0 | (1,745 | ) | ||||||||||||
|
Accrued interest payable |
(1,022 | ) | (301 | ) | (707 | ) | (14 | ) | (1,022 | ) | ||||||||||
The methods and assumptions, not otherwise presented, used to estimate fair values are described as follows:
Cash and cash equivalents: The carrying amounts of cash and cash equivalents approximate fair values and are classified as Level 1.
Interest bearing time deposits with other banks: The fair value of interest bearing time deposits with other banks is estimated using a discounted cash flow calculation that applies interest rates currently being offered to a schedule of aggregated expected monthly maturities, resulting in a Level 2 classification.
Loans held for sale: The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.
Loans: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values, resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality, resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.
FHLB and other equity interests: It is not practical to determine the fair value of Federal Home Loan Bank stock and other equity interests due to restrictions placed on the transferability of these instruments.
Accrued interest receivable: The carrying amount of accrued interest receivable approximates fair value resulting in a classification that is consistent with the asset with which it is associated.
Deposits: The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amount), resulting in a Level 1 classification. Fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits, resulting in a Level 2 classification.
FHLB and other borrowings: The fair values of the Corporation’s FHLB and other borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements, resulting in a Level 2 classification.
Subordinated debentures: The fair value of the Corporation’s subordinated debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of arrangements, resulting in a Level 3 classification.
12
Accrued interest payable: The carrying amount of accrued interest payable approximates fair value resulting in a classification that is consistent with the liability with which it is associated.
While estimates of fair value are based on management’s judgment of the most appropriate factors as of the balance sheet date, there is no assurance that the estimated fair values would have been realized if the assets had been disposed of or the liabilities settled at that date, since market values may differ depending on various circumstances. The estimated fair values would also not apply to subsequent dates.
In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the disclosures. Also, non-financial assets such as, among other things, the estimated earnings power of core deposits, the earnings potential of trust accounts, the trained workforce, and customer goodwill, which typically are not recognized on the balance sheet, may have value but are not included in the fair value disclosures.
| 5. | SECURITIES |
Securities available for sale at March 31, 2013 and December 31, 2012 are as follows:
| March 31, 2013 | December 31, 2012 | |||||||||||||||||||||||||||||||
|
Amortized
Cost |
Unrealized |
Fair
Value |
Amortized | Unrealized |
Fair
Value |
|||||||||||||||||||||||||||
| Gains | Losses | Cost | Gains | Losses | ||||||||||||||||||||||||||||
|
U.S. Treasury |
$ | 2,013 | $ | 12 | $ | 0 | $ | 2,025 | $ | 4,018 | $ | 18 | $ | 0 | $ | 4,036 | ||||||||||||||||
|
U.S. Gov’t sponsored entities |
187,548 | 5,615 | (393 | ) | 192,770 | 157,965 | 5,977 | (161 | ) | 163,781 | ||||||||||||||||||||||
|
State & political subdivisions |
174,115 | 10,198 | (159 | ) | 184,154 | 170,223 | 11,113 | (57 | ) | 181,279 | ||||||||||||||||||||||
|
Residential & multi-family mortgage |
289,153 | 7,932 | (780 | ) | 296,305 | 308,800 | 8,724 | (702 | ) | 316,822 | ||||||||||||||||||||||
|
Commercial mortgage |
1,267 | 0 | (3 | ) | 1,264 | 1,275 | 29 | 0 | 1,304 | |||||||||||||||||||||||
|
Corporate notes & bonds |
17,371 | 93 | (2,128 | ) | 15,336 | 17,368 | 26 | (2,370 | ) | 15,024 | ||||||||||||||||||||||
|
Pooled trust preferred |
800 | 0 | (242 | ) | 558 | 800 | 0 | (200 | ) | 600 | ||||||||||||||||||||||
|
Pooled SBA |
65,069 | 2,071 | (139 | ) | 67,001 | 50,667 | 2,277 | (17 | ) | 52,927 | ||||||||||||||||||||||
|
Other securities |
1,521 | 11 | 0 | 1,532 | 1,521 | 17 | 0 | 1,538 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total |
$ | 738,857 | $ | 25,932 | $ | (3,844 | ) | $ | 760,945 | $ | 712,637 | $ | 28,181 | $ | (3,507 | ) | $ | 737,311 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
At March 31, 2013, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.
Trading securities at March 31, 2013 and December 31, 2012 are as follows:
|
March 31,
2013 |
December 31,
2012 |
|||||||
|
Corporate equity securities |
$ | 3,760 | $ | 3,117 | ||||
|
Certificates of deposit |
358 | 408 | ||||||
|
International mutual funds |
261 | 287 | ||||||
|
Large cap growth mutual funds |
158 | 157 | ||||||
|
Money market mutual funds |
79 | 110 | ||||||
|
Large cap value mutual funds |
106 | 104 | ||||||
|
Corporate notes and bonds |
101 | 101 | ||||||
|
Real estate investment trust mutual funds |
68 | 65 | ||||||
|
U.S. Government sponsored entities |
57 | 58 | ||||||
|
Small cap mutual funds |
59 | 26 | ||||||
|
Mid cap mutual funds |
59 | 26 | ||||||
|
|
|
|
|
|||||
|
Total |
$ | 5,066 | $ | 4,459 | ||||
|
|
|
|
|
|||||
13
Securities with unrealized losses at March 31, 2013 and December 31, 2012, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows (in thousands):
March 31, 2013
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
| Fair Value |
Unrealized
Loss |
Fair
Value |
Unrealized
Loss |
Fair Value |
Unrealized
Loss |
|||||||||||||||||||
|
U.S. Treasury |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
|
U.S. Gov’t sponsored entities |
60,309 | (393 | ) | 0 | 0 | 60,309 | (393 | ) | ||||||||||||||||
|
State & political subdivisions |
16,547 | (155 | ) | 482 | (4 | ) | 17,029 | (159 | ) | |||||||||||||||
|
Residential & multi-family mortgage |
43,505 | (774 | ) | 878 | (6 | ) | 44,383 | (780 | ) | |||||||||||||||
|
Commercial mortgage |
1,264 | (3 | ) | 0 | 0 | 1,264 | (3 | ) | ||||||||||||||||
|
Corporate notes & bonds |
0 | 0 | 11,236 | (2,128 | ) | 11,236 | (2,128 | ) | ||||||||||||||||
|
Pooled trust preferred |
0 | 0 | 558 | (242 | ) | 558 | (242 | ) | ||||||||||||||||
|
Pooled SBA |
9,501 | (139 | ) | 0 | 0 | 9,501 | (139 | ) | ||||||||||||||||
|
Other securities |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 131,126 | $ | (1,464 | ) | $ | 13,154 | $ | (2,380 | ) | $ | 144,280 | $ | (3,844 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2012
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
|
Fair
Value |
Unrealized
Loss |
Fair
Value |
Unrealized
Loss |
Fair
Value |
Unrealized
Loss |
|||||||||||||||||||
|
U.S. Treasury |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
|
U.S. Gov’t sponsored entities |
41,715 | (161 | ) | 0 | 0 | 41,715 | (161 | ) | ||||||||||||||||
|
State & political subdivisions |
7,857 | (57 | ) | 0 | 0 | 7,857 | (57 | ) | ||||||||||||||||
|
Residential & multi-family mortgage |
32,159 | (688 | ) | 4,254 | (14 | ) | 36,413 | (702 | ) | |||||||||||||||
|
Commercial mortgage |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
|
Corporate notes & bonds |
0 | 0 | 13,002 | (2,370 | ) | 13,002 | (2,370 | ) | ||||||||||||||||
|
Pooled trust preferred |
0 | 0 | 600 | (200 | ) | 600 | (200 | ) | ||||||||||||||||
|
Pooled SBA |
3,521 | (17 | ) | 0 | 0 | 3,521 | (17 | ) | ||||||||||||||||
|
Other securities |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 85,252 | $ | (923 | ) | $ | 17,856 | $ | (2,584 | ) | $ | 103,108 | $ | (3,507 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The Corporation evaluates securities for other-than-temporary impairment on a quarterly basis, or more frequently when economic or market conditions warrant such an evaluation.
At March 31, 2013, the Corporation held one structured pooled trust preferred security with an adjusted amortized cost of $800 and a fair value of $558. The Corporation evaluated this security for other-than-temporary impairment by estimating the cash flows expected to be received, taking into account future estimated levels of deferrals and defaults by the underlying issuers, and discounting those cash flows at the appropriate accounting yield. For the three months ended March 31, 2013, and March 31, 2012, no other-than-temporary impairment was required to be realized in earnings. At March 31, 2013 and December 31, 2012, the Corporation held four structured pooled trust preferred securities with an adjusted amortized cost of zero.
A roll-forward of the other-than-temporary impairment amount related to credit losses for the three months ended March 31, 2013 and 2012 is as follows:
|
Balance of credit losses on debt securities for which a portion of other-than-temporary impairment was recognized in earnings, beginning of period |
$ | 4,054 | ||
|
Additional credit loss for which other-than-temporary impairment was not previously recognized |
0 | |||
|
Additional credit loss for which other-than-temporary impairment was previously recognized |
0 | |||
|
|
|
|||
|
Balance of credit losses on debt securities for which a portion of other-than-temporary impairment was recognized in earnings, end of period |
$ | 4,054 | ||
|
|
|
14
Due to the insignificance of the adjusted amortized cost balance, no further disclosures are required with respect to the Corporation’s structured pooled trust preferred securities.
For the securities that comprise corporate notes and bonds and the securities that are issued by state and political subdivisions, management monitors publicly available financial information, such as filings with the Securities and Exchange Commission, in order to evaluate the securities for other-than-temporary impairment. For financial institution issuers, management also monitors information from quarterly “call” report filings that are used to generate Uniform Bank Performance Reports. When reviewing this information, management considers the financial condition and near-term prospects of the issuer and whether downgrades by bond rating agencies have occurred. Management also considers the length of time and extent to which fair value has been less than cost, and management does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery.
As of March 31, 2013 and December 31, 2012, management concluded that the securities described in the previous paragraph were not other-than-temporarily impaired for the following reasons:
| • |
There is no indication of any significant deterioration of the creditworthiness of the institutions that issued the securities. |
| • |
All contractual interest payments on the securities have been received as scheduled, and no information has come to management’s attention through the processes previously described which would lead to a conclusion that future contractual payments will not be timely received. |
The Corporation does not intend to sell and it is not more likely than not that it will be required to sell the securities in an unrealized loss position before recovery of its amortized cost basis.
Information pertaining to security sales is as follows:
| Proceeds | Gross Gains | Gross Losses | ||||||||||
|
Three months ended March 31, 2013 |
$ | 1,324 | $ | 76 | $ | 0 | ||||||
|
Three months ended March 31, 2012 |
42,149 | 636 | (72 | ) | ||||||||
The following is a schedule of the contractual maturity of securities available for sale, excluding equity securities, at March 31, 2013:
| Amortized | ||||||||
| Cost | Fair Value | |||||||
|
1 year or less |
$ | 35,468 | $ | 35,749 | ||||
|
1 year – 5 years |
121,517 | 124,627 | ||||||
|
5 years – 10 years |
176,162 | 185,331 | ||||||
|
After 10 years |
48,700 | 49,136 | ||||||
|
|
|
|
|
|||||
| 381,847 | 394,843 | |||||||
|
Residential and multi-family mortgage |
289,153 | 296,305 | ||||||
|
Pooled SBA |
65,069 | 67,001 | ||||||
|
Commercial mortgage |
1,267 | 1,264 | ||||||
|
|
|
|
|
|||||
|
Total debt securities |
$ | 737,336 | $ | 759,413 | ||||
|
|
|
|
|
|||||
Mortgage and asset backed securities are not due at a single date; periodic payments are received based on the payment patterns of the underlying collateral.
On March 31, 2013 and December 31, 2012, securities carried at $263,391 and $264,813, respectively, were pledged to secure public deposits and for other purposes as provided by law.
15
| 6. | LOANS |
Total net loans at March 31, 2013 and December 31, 2012 are summarized as follows:
|
March 31,
2013 |
December 31,
2012 |
|||||||
|
Commercial, industrial, and agricultural |
$ | 259,355 | $ | 257,091 | ||||
|
Commercial mortgages |
266,021 | 261,791 | ||||||
|
Residential real estate |
347,197 | 347,904 | ||||||
|
Consumer |
57,882 | 58,668 | ||||||
|
Credit cards |
4,604 | 4,800 | ||||||
|
Overdrafts |
946 | 971 | ||||||
|
Less: unearned discount |
(3,309 | ) | (3,401 | ) | ||||
|
allowance for loan losses |
(13,897 | ) | (14,060 | ) | ||||
|
|
|
|
|
|||||
|
Loans, net |
$ | 918,799 | $ | 913,764 | ||||
|
|
|
|
|
|||||
At March 31, 2013 and December 31, 2012, net unamortized loan costs of $144 and $232, respectively, have been included in the carrying value of loans.
The Corporation’s outstanding loans and related unfunded commitments are primarily concentrated within Central and Western Pennsylvania. The Bank attempts to limit concentrations within specific industries by utilizing dollar limitations to single industries or customers and by entering into participation agreements with third parties. Collateral requirements are established based on management’s assessment of the customer.
Transactions in the allowance for loan losses for the three months ended March 31, 2013 were as follows:
| Commercial, | Residential | |||||||||||||||||||||||||||
| Industrial, and | Commercial | Real | Credit | |||||||||||||||||||||||||
| Agricultural | Mortgages | Estate | Consumer | Cards | Overdrafts | Total | ||||||||||||||||||||||
|
Allowance for loan losses, January 1, 2013 |
$ | 4,940 | $ | 4,697 | $ | 2,466 | $ | 1,699 | $ | 83 | $ | 175 | $ | 14,060 | ||||||||||||||
|
Charge-offs |
0 | (607 | ) | (172 | ) | (331 | ) | (12 | ) | (47 | ) | (1,169 | ) | |||||||||||||||
|
Recoveries |
0 | 1 | 1 | 41 | 2 | 31 | 76 | |||||||||||||||||||||
|
Provision (benefit) for loan losses |
331 | 208 | 100 | 298 | 4 | (11 | ) | 930 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Allowance for loan losses, March 31, 2013 |
$ | 5,271 | $ | 4,299 | $ | 2,395 | $ | 1,707 | $ | 77 | $ | 148 | $ | 13,897 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Transactions in the allowance for loan losses for the three months ended March 31, 2012 were as follows:
| Commercial, | Residential | |||||||||||||||||||||||||||
| Industrial, and | Commercial | Real | Credit | |||||||||||||||||||||||||
| Agricultural | Mortgages | Estate | Consumer | Cards | Overdrafts | Total | ||||||||||||||||||||||
|
Allowance for loan losses, January 1, 2012 |
$ | 4,511 | $ | 4,470 | $ | 1,991 | $ | 1,404 | $ | 71 | $ | 168 | $ | 12,615 | ||||||||||||||
|
Charge-offs |
(225 | ) | (115 | ) | (87 | ) | (256 | ) | (19 | ) | (67 | ) | (769 | ) | ||||||||||||||
|
Recoveries |
3 | — | — | 27 | 1 | 34 | 65 | |||||||||||||||||||||
|
Provision for loan losses |
653 | 22 | 93 | 260 | 43 | 33 | 1,104 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Allowance for loan losses, March 31, 2012 |
$ | 4,942 | $ | 4,377 | $ | 1,997 | $ | 1,435 | $ | 96 | $ | 168 | $ | 13,015 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
16
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and is based on the Corporation’s impairment method as of March 31, 2013 and December 31, 2012. The recorded investment in loans excludes accrued interest due to its insignificance.
March 31, 2013
|
Commercial,
Industrial, and Agricultural |
Commercial
Mortgages |
Residential
Real Estate |
Consumer |
Credit
Cards |
Overdrafts | Total | ||||||||||||||||||||||
|
Allowance for loan losses: |
||||||||||||||||||||||||||||
|
Ending allowance balance attributable to loans: |
||||||||||||||||||||||||||||
|
Individually evaluated for impairment |
$ | 541 | $ | 151 | $ | 28 | $ | 0 | $ | 0 | $ | 0 | $ | 720 | ||||||||||||||
|
Collectively evaluated for impairment |
4,730 | 3,512 | 2,367 | 1,707 | 77 | 148 | 12,541 | |||||||||||||||||||||
|
Modified in a troubled debt restructuring |
0 | 636 | 0 | 0 | 0 | 0 | 636 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Total ending allowance balance |
$ | 5,271 | $ | 4,299 | $ | 2,395 | $ | 1,707 | $ | 77 | $ | 148 | $ | 13,897 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Loans: |
||||||||||||||||||||||||||||
|
Loans individually evaluated for impairment |
$ | 2,307 | $ | 10,678 | $ | 201 | $ | 0 | $ | 0 | $ | 0 | $ | 13,186 | ||||||||||||||
|
Loans collectively evaluated for impairment |
255,662 | 246,847 | 346,996 | 54,573 | 4,604 | 946 | 909,628 | |||||||||||||||||||||
|
Loans modified in a troubled debt restructuring |
1,386 | 8,496 | 0 | 0 | 0 | 0 | 9,882 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Total ending loans balance |
$ | 259,355 | $ | 266,021 | $ | 347,197 | $ | 54,573 | $ | 4,604 | $ | 946 | $ | 932,696 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
December 31, 2012
|
Commercial,
Industrial, and Agricultural |
Commercial
Mortgages |
Residential
Real Estate |
Consumer |
Credit
Cards |
Overdrafts | Total | ||||||||||||||||||||||
|
Allowance for loan losses: |
||||||||||||||||||||||||||||
|
Ending allowance balance attributable to loans: |
||||||||||||||||||||||||||||
|
Individually evaluated for impairment |
$ | 541 | $ | 131 | $ | 81 | $ | 0 | $ | 0 | $ | 0 | $ | 753 | ||||||||||||||
|
Collectively evaluated for impairment |
4,399 | 3,467 | 2,385 | 1,699 | 83 | 175 | 12,208 | |||||||||||||||||||||
|
Modified in a troubled debt restructuring |
0 | 1,099 | 0 | 0 | 0 | 0 | 1,099 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Total ending allowance balance |
$ | 4,940 | $ | 4,697 | $ | 2,466 | $ | 1,699 | $ | 83 | $ | 175 | $ | 14,060 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Loans: |
||||||||||||||||||||||||||||
|
Loans individually evaluated for impairment |
$ | 2,623 | $ | 10,683 | $ | 593 | $ | 0 | $ | 0 | $ | 0 | $ | 13,899 | ||||||||||||||
|
Loans collectively evaluated for impairment |
253,048 | 240,907 | 347,311 | 55,267 | 4,800 | 971 | 902,304 | |||||||||||||||||||||
|
Loans modified in a troubled debt restructuring |
1,420 | 10,201 | 0 | 0 | 0 | 0 | 11,621 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Total ending loans balance |
$ | 257,091 | $ | 261,791 | $ | 347,904 | $ | 55,267 | $ | 4,800 | $ | 971 | $ | 927,824 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
The following tables present information related to loans individually evaluated for impairment by portfolio segment as of March 31, 2013 and December 31, 2012 and for the three months ended March 31, 2013 and 2012:
March 31, 2013
|
Unpaid Principal
Balance |
Recorded
Investment |
Allowance for Loan
Losses Allocated |
||||||||||
|
With an allowance recorded: |
||||||||||||
|
Commercial, industrial, and agricultural |
$ | 2,219 | $ | 1,468 | $ | 541 | ||||||
|
Commercial mortgage |
5,879 | 4,885 | 787 | |||||||||
|
Residential real estate |
127 | 123 | 28 | |||||||||
|
With no related allowance recorded: |
||||||||||||
|
Commercial, industrial, and agricultural |
2,752 | 2,225 | 0 | |||||||||
|
Commercial mortgage |
16,062 | 14,289 | 0 | |||||||||
|
Residential real estate |
158 | 78 | 0 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total |
$ | 27,197 | $ | 23,068 | $ | 1,356 | ||||||
|
|
|
|
|
|
|
|||||||
17
December 31, 2012
|
Unpaid Principal
Balance |
Recorded
Investment |
Allowance for Loan
Losses Allocated |
||||||||||
|
With an allowance recorded: |
||||||||||||
|
Commercial, industrial, and agricultural |
$ | 2,542 | $ | 1,792 | $ | 541 | ||||||
|
Commercial mortgage |
5,870 | 5,329 | 1,230 | |||||||||
|
Residential real estate |
416 | 381 | 81 | |||||||||
|
With no related allowance recorded: |
||||||||||||
|
Commercial, industrial, and agricultural |
2,804 | 2,251 | 0 | |||||||||
|
Commercial mortgage |
17,285 | 15,555 | 0 | |||||||||
|
Residential real estate |
308 | 212 | 0 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total |
$ | 29,225 | $ | 25,520 | $ | 1,852 | ||||||
|
|
|
|
|
|
|
|||||||
|
Three Months Ended
March 31, 2013 |
Three Months Ended
March 31, 2012 |
|||||||||||||||||||||||
| Average | Interest | Cash Basis | Average | Interest | Cash Basis | |||||||||||||||||||
| Recorded | Income | Interest | Recorded | Income | Interest | |||||||||||||||||||
| Investment | Recognized | Recognized | Investment | Recognized | Recognized | |||||||||||||||||||
|
With an allowance recorded: |
||||||||||||||||||||||||
|
Commercial, industrial, and agricultural |
$ | 1,630 | $ | 0 | $ | 0 | $ | 2,673 | $ | 4 | $ | 4 | ||||||||||||
|
Commercial mortgage |
5,107 | 3 | 3 | 4,918 | 0 | 0 | ||||||||||||||||||
|
Residential real estate |
252 | 1 | 1 | 169 | 4 | 4 | ||||||||||||||||||
|
With no related allowance recorded: |
||||||||||||||||||||||||
|
Commercial, industrial, and agricultural |
2,238 | 0 | 0 | 3,412 | 0 | 0 | ||||||||||||||||||
|
Commercial mortgage |
14,922 | 0 | 0 | 12,061 | 0 | 0 | ||||||||||||||||||
|
Residential real estate |
145 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total |
$ | 24,294 | $ | 4 | $ | 4 | $ | 23,233 | $ | 8 | $ | 8 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still accruing interest by class of loans as of March 31, 2013 and December 31, 2012:
| March 31, 2013 | December 31, 2012 | |||||||||||||||
| Nonaccrual |
Past Due
Over 90 Days Still on Accrual |
Nonaccrual |
Past Due
Over 90 Days Still on Accrual |
|||||||||||||
|
Commercial, industrial, and agricultural |
$ | 2,725 | $ | 0 | $ | 3,073 | $ | 0 | ||||||||
|
Commercial mortgages |
10,986 | 0 | 8,570 | 109 | ||||||||||||
|
Residential real estate |
2,467 | 0 | 2,792 | 18 | ||||||||||||
|
Consumer |
9 | 208 | 10 | 217 | ||||||||||||
|
Credit cards |
0 | 13 | 0 | 13 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 16,187 | $ | 221 | $ | 14,445 | $ | 357 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Nonaccrual loans and loans past due over 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.
18
The following table presents the aging of the recorded investment in past due loans as of March 31, 2013 and December 31, 2012 by class of loans.
March 31, 2013
|
30-59 Days
Past Due |
60-89 Days
Past Due |
Greater Than
90 Days Past Due |
Total Past
Due |
Loans Not
Past Due |
Total | |||||||||||||||||||
|
Commercial, industrial, and agricultural |
$ | 256 | $ | 6 | $ | 2,725 | $ | 2,987 | $ | 256,368 | $ | 259,355 | ||||||||||||
|
Commercial mortgages |
1,467 | 14 | 10,986 | 12,467 | 253,554 | 266,021 | ||||||||||||||||||
|
Residential real estate |
765 | 338 | 2,467 | 3,570 | 343,627 | 347,197 | ||||||||||||||||||
|
Consumer |
327 | 149 | 217 | 693 | 53,880 | 54,573 | ||||||||||||||||||
|
Credit cards |
22 | 16 | 13 | 51 | 4,553 | 4,604 | ||||||||||||||||||
|
Overdrafts |
0 | 0 | 0 | 0 | 946 | 946 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total |
$ | 2,837 | $ | 523 | $ | 16,408 | $ | 19,768 | $ | 912,928 | $ | 932,696 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2012
|
30-59 Days
Past Due |
60-89 Days
Past Due |
Greater Than
90 Days Past Due |
Total Past
Due |
Loans Not
Past Due |
Total | |||||||||||||||||||
|
Commercial, industrial, and agricultural |
$ | 724 | $ | 157 | $ | 2,968 | $ | 3,849 | $ | 253,242 | $ | 257,091 | ||||||||||||
|
Commercial mortgages |
1,162 | 3,197 | 8,679 | 13,038 | 248,753 | 261,791 | ||||||||||||||||||
|
Residential real estate |
1,390 | 641 | 2,700 | 4,731 | 343,173 | 347,904 | ||||||||||||||||||
|
Consumer |
724 | 203 | 227 | 1,154 | 54,113 | 55,267 | ||||||||||||||||||
|
Credit cards |
39 | 9 | 13 | 61 | 4,739 | 4,800 | ||||||||||||||||||
|
Overdrafts |
0 | 0 | 0 | 0 | 971 | 971 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total |
$ | 4,039 | $ | 4,207 | $ | 14,587 | $ | 22,833 | $ | 904,991 | $ | 927,824 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Troubled Debt Restructurings
The terms of certain loans have been modified as troubled debt restructurings. The modification of the terms of such loans included either or both of the following: a reduction of the stated interest rate of the loan or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk.
The following table presents the number of loans, loan balances, and specific reserves for loans that have been restructured in a troubled debt restructuring as of March 31, 2013 and December 31, 2012.
| March 31, 2013 | December 31, 2012 | |||||||||||||||||||||||
|
Number of
Loans |
Loan
Balance |
Specific
Reserve |
Number of
Loans |
Loan
Balance |
Specific
Reserve |
|||||||||||||||||||
|
Commercial, industrial, and agricultural |
2 | $ | 1,386 | $ | 0 | 2 | $ | 1,420 | $ | 0 | ||||||||||||||
|
Commercial mortgages |
9 | 8,496 | 636 | 8 | 10,201 | 1,099 | ||||||||||||||||||
|
Residential real estate |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
|
Consumer |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
|
Credit cards |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total |
11 | $ | 9,882 | $ | 636 | 10 | $ | 11,621 | $ | 1,099 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
19
The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended March 31, 2013 and 2012:
| Three Months Ended March 31, 2013 | ||||||||||||
|
Number of
Loans |
Pre-Modification
Outstanding Recorded Investment |
Post-Modification
Outstanding Recorded Investment |
||||||||||
|
Commercial, industrial, and agricultural |
0 | $ | 0 | $ | 0 | |||||||
|
Commercial mortgages |
1 | 346 | 403 | |||||||||
|
Residential real estate |
0 | 0 | 0 | |||||||||
|
Consumer |
0 | 0 | 0 | |||||||||
|
Credit cards |
0 | 0 | 0 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total |
1 | $ | 346 | $ | 403 | |||||||
|
|
|
|
|
|
|
|||||||
| Three Months Ended March 31, 2012 | ||||||||||||
|
Number of
Loans |
Pre-Modification
Outstanding Recorded Investment |
Post-Modification
Outstanding Recorded Investment |
||||||||||
|
Commercial, industrial, and agricultural |
0 | $ | 0 | $ | 0 | |||||||
|
Commercial mortgages |
4 | 2,556 | 2,556 | |||||||||
|
Residential real estate |
0 | 0 | 0 | |||||||||
|
Consumer |
0 | 0 | 0 | |||||||||
|
Credit cards |
0 | 0 | 0 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total |
4 | $ | 2,556 | $ | 2,556 | |||||||
|
|
|
|
|
|
|
|||||||
The troubled debt restructurings described above increased the allowance for loan losses by $0 and $101 during the three months ended March 31, 2013 and 2012, respectively.
Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 4 to 15 years. Modifications involving an extension of the maturity date were for periods ranging from 4 to 18 years.
A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. Except as discussed below, all loans modified in troubled debt restructurings are performing in accordance with their modified terms as of March 31, 2013 and December 31, 2012 and no principal balances were forgiven in connection with the loan restructurings. During the three months ended March 31, 2013, the Corporation recorded a partial chargeoff of $595 for one commercial mortgage loan with a balance of $1,660 that had defaulted under its restructured terms in 2012 and was placed on nonaccrual status. The Corporation recorded an additional provision for loan losses of $135 on this loan during the three months ended March 31, 2013.
In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without a loan modification. This evaluation is performed using the Corporation’s internal underwriting policies. The Corporation has no further loan commitments to customers whose loans are classified as a troubled debt restructuring.
Credit Quality Indicators
The Corporation classifies commercial, industrial, and agricultural loans and commercial mortgage loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans with an outstanding balance greater than $1 million are analyzed at least semiannually and loans with an outstanding balance of less than $1 million are analyzed at least annually.
20
The Corporation uses the following definitions for risk ratings:
Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Corporation’s credit position at some future date.
Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans not rated as special mention, substandard, or doubtful are considered to be pass rated loans. All loans included in the following tables have been assigned a risk rating within 12 months of the balance sheet date.
March 31, 2013
| Special | ||||||||||||||||||||
| Pass | Mention | Substandard | Doubtful | Total | ||||||||||||||||
|
Commercial, industrial, and agricultural |
$ | 231,712 | $ | 7,975 | $ | 19,523 | $ | 145 | $ | 259,355 | ||||||||||
|
Commercial mortgages |
233,224 | 9,487 | 22,612 | 698 | 266,021 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Total |
$ | 464,936 | $ | 17,462 | $ | 42,135 | $ | 843 | $ | 525,376 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2012
| Special | ||||||||||||||||||||
| Pass | Mention | Substandard | Doubtful | Total | ||||||||||||||||
|
Commercial, industrial, and agricultural |
$ | 234,835 | $ | 6,641 | $ | 15,459 | $ | 156 | $ | 257,091 | ||||||||||
|
Commercial mortgages |
225,294 | 12,294 | 23,501 | 702 | 261,791 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Total |
$ | 460,129 | $ | 18,935 | $ | 38,960 | $ | 858 | $ | 518,882 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential real estate, consumer, and credit card loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential, consumer, and credit card loans based on payment activity as of March 31, 2013 and December 31, 2012:
| March 31, 2013 | December 31, 2012 | |||||||||||||||||||||||
| Residential | Credit | Residential | Credit | |||||||||||||||||||||
| Real Estate | Consumer | Cards | Real Estate | Consumer | Cards | |||||||||||||||||||
|
Performing |
$ | 344,730 | $ | 54,356 | $ | 4,591 | $ | 345,094 | $ | 55,040 | $ | 4,787 | ||||||||||||
|
Non-performing |
2,467 | 217 | 13 | 2,810 | 227 | 13 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total |
$ | 347,197 | $ | 54,573 | $ | 4,604 | $ | 347,904 | $ | 55,267 | $ | 4,800 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The Corporation considers all overdraft loans to be performing loans given their short-term duration.
21
The Corporation’s portfolio of residential real estate and consumer loans maintained within Holiday Financial Services Corporation (“Holiday”), a subsidiary that offers small balance unsecured and secured loans, primarily collateralized by automobiles and equipment, to borrowers with higher risk characteristics than are typical in the Bank’s consumer loan portfolio, are considered to be subprime loans.
Holiday’s loan portfolio is summarized as follows at March 31, 2013 and December 31, 2012:
| March 31, | December 31, | |||||||
| 2013 | 2012 | |||||||
|
Consumer |
$ | 20,756 | $ | 21,535 | ||||
|
Residential real estate |
1,012 | 954 | ||||||
|
Less: unearned discount |
(3,309 | ) | (3,401 | ) | ||||
|
|
|
|
|
|||||
|
Total |
$ | 18,459 | $ | 19,088 | ||||
|
|
|
|
|
|||||
| 7. | DEPOSITS |
Total deposits at March 31, 2013 and December 31, 2012 are summarized as follows (in thousands):
| Percentage | ||||||||||||
| Change | March 31, 2013 | December 31, 2012 | ||||||||||
|
Checking, non-interest bearing |
(6.6 | %) | $ | 163,646 | $ | 175,239 | ||||||
|
Checking, interest bearing |
5.7 | % | 355,992 | 336,911 | ||||||||
|
Savings accounts |
7.2 | % | 814,589 | 759,910 | ||||||||
|
Certificates of deposit |
(0.8 | %) | 211,218 | 212,943 | ||||||||
|
|
|
|
|
|
|
|||||||
| 4.1 | % | $ | 1,545,445 | $ | 1,485,003 | |||||||
|
|
|
|
|
|
|
|||||||
| 8. | EARNINGS PER SHARE |
Basic earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the applicable period, excluding outstanding participating securities. Diluted earnings per share is computed using the weighted average number of shares determined for the basic computation plus the dilutive effect of potential common shares issuable under certain stock compensation plans. For the three months ended March 31, 2013 and 2012, 37,500 shares issuable pursuant to outstanding stock options were excluded from the diluted earnings per share calculations because the strike prices associated with the options exceeded the market price of the Corporation’s common stock thus making the shares anti-dilutive.
Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the two-class method. The Corporation has determined that its outstanding non-vested stock awards are participating securities.
22
The computation of basic and diluted earnings per share is shown below (in thousands except per share data):
|
Three months ended
March 31, |
||||||||
| 2013 | 2012 | |||||||
|
Basic earnings per common share computation: |
||||||||
|
Net income per consolidated statements of income |
$ | 4,297 | $ | 4,347 | ||||
|
Net earnings allocated to participating securities |
(20 | ) | (16 | ) | ||||
|
|
|
|
|
|||||
|
Net earnings allocated to common stock |
$ | 4,277 | $ | 4,331 | ||||
|
|
|
|
|
|||||
|
Distributed earnings allocated to common stock |
$ | 2,053 | $ | 2,041 | ||||
|
Undistributed earnings allocated to common stock |
2,224 | 2,290 | ||||||
|
|
|
|
|
|||||
|
Net earnings allocated to common stock |
$ | 4,277 | $ | 4,331 | ||||
|
|
|
|
|
|||||
|
Weighted average common shares outstanding, including shares considered participating securities |
12,493 | 12,402 | ||||||
|
Less: Average participating securities |
(49 | ) | (40 | ) | ||||
|
|
|
|
|
|||||
|
Weighted average shares |
12,444 | 12,362 | ||||||
|
|
|
|
|
|||||
|
Basic earnings per common share |
$ | 0.34 | $ | 0.35 | ||||
|
|
|
|
|
|||||
|
Diluted earnings per common share computation: |
||||||||
|
Net earnings allocated to common stock |
$ | 4,277 | $ | 4,331 | ||||
|
|
|
|
|
|||||
|
Weighted average common shares outstanding for basic earnings per common share |
12,444 | 12,362 | ||||||
|
Add: Dilutive effects of assumed exercises of stock options |
1 | 4 | ||||||
|
|
|
|
|
|||||
|
Weighted average shares and dilutive potential common shares |
12,445 | 12,366 | ||||||
|
|
|
|
|
|||||
|
Diluted earnings per common share |
$ | 0.34 | $ | 0.35 | ||||
|
|
|
|
|
|||||
| 9. | DERIVATIVE INSTRUMENTS |
The Corporation records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.
For derivatives designated as cash flow hedges, the effective portion of the changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified into earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Corporation assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged item or transaction.
On August 1, 2008, the Corporation executed an interest rate swap agreement with a 5 year term and an effective date of September 15, 2008 in order to hedge $10 million of a subordinated note that was issued by the Corporation during 2007 and elected cash flow hedge accounting for the agreement. The Corporation’s objective in using this derivative is to add stability to interest expense and to manage its exposure to interest rate risk. The interest rate swap involves the receipt of variable-rate amounts in exchange for fixed-rate payments from August 1, 2008 to September 15, 2013 without exchange of the underlying notional amount. At March 31, 2013, the variable rate on the subordinated debt was 1.83% (LIBOR plus 155 basis points) and the Corporation was paying 5.84% (4.29% fixed rate plus 155 basis points).
23
In anticipation of the expiration of the 5 year interest rate swap agreement discussed immediately above, on May 3, 2011, the Corporation executed an interest rate swap agreement with a 5 year term and an effective date of September 15, 2013 which, as of that effective date, will hedge $10 million of the subordinated note discussed immediately above. As with the prior interest rate swap agreement, the Corporation’s objective in using this derivative is to add stability to interest expense and to manage its exposure to interest rate risk. The interest rate swap involves the receipt of variable-rate amounts in exchange for fixed-rate payments from September 15, 2013 to September 15, 2018 without exchange of the underlying notional amount. On the effective date, the variable rate on the subordinated debt will be LIBOR plus 155 basis points and the Corporation will be paying 5.57% (4.02% fixed rate plus 155 basis points).
As of March 31, 2013, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations. Additionally, the Corporation does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.
The following tables provide information about the amounts and locations of activity related to the interest rate swaps designated as cash flow hedges within the Corporation’s consolidated balance sheet and statement of income as of March 31, 2013 and December 31, 2012 and for the three months ended March 31, 2013 and 2012:
| Liability Derivative | ||||||||||
|
Balance Sheet
Location |
Fair value as of | |||||||||
|
March 31,
2013 |
December 31,
2012 |
|||||||||
|
Interest rate contracts |
Accrued interest and
other liabilities |
($ | 1,630 | ) | ($ | 1,745 | ) | |||
|
For the Three Months Ended March 31, 2013 |
(a) | (b) | (c) | (d) | (e) | |||||||||||
|
Interest rate contracts |
$ | 75 |
Interest expense –
subordinated debentures |
($ | 97 | ) |
Other
income |
$ | 0 | |||||||
|
For the Three Months Ended March 31, 2012 |
(a) | (b) | (c) | (d) | (e) | |||||||||||
|
Interest rate contracts |
$ | 63 |
Interest expense –
subordinated debentures |
($ | 95 | ) |
Other
income |
$ | 0 | |||||||
| (a) | Amount of Gain or (Loss) Recognized in Other Comprehensive Loss on Derivative (Effective Portion), net of tax |
| (b) | Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) |
| (c) | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) |
| (d) | Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
| (e) | Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
Amounts reported in accumulated other comprehensive loss related to the interest rate swap will be reclassified to interest expense as interest payments are made on the subordinated debentures. Such amounts reclassified from accumulated other comprehensive loss to interest expense in the next twelve months are expected to be $386.
24
As of March 31, 2013 and December 31, 2012, a cash collateral balance in the amount of $1,950 was maintained with a counterparty to the interest rate swaps. These balances are included in interest bearing deposits with other banks on the consolidated balance sheet.
| 10. | RECENT ACCOUNTING PRONOUNCEMENTS |
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (ASU 2013-02). ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about these amounts. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. The effect of adopting ASU 2013-02 did not have a material effect on the Corporation’s financial statements.
In February 2013, the FASB issued Accounting Standards Update 2013-04, “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date” (ASU 2013-04). ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. ASU 2013-04 is effective for reporting periods beginning after December 15, 2013. The Corporation is evaluating the effect that the adoption of ASU 2013-04 will have on its financial statements.
25
M ANAGEMENT ’ S D ISCUSSION AND A NALYSIS OF F INANCIAL C ONDITION
A ND R ESULTS OF O PERATIONS
The following discussion and analysis of the consolidated financial statements of CNB Financial Corporation (the “Corporation”) is presented to provide insight into management’s assessment of financial results. The Corporation’s subsidiary, CNB Bank (the “Bank”), provides financial services to individuals and businesses primarily within its primary market area of the Pennsylvania counties of Cambria, Cameron, Clearfield, Crawford, Elk, Erie, Indiana, McKean and Warren. The Bank’s market area also includes a portion of western Centre County including Philipsburg Borough, Rush Township and the western portions of Snow Shoe and Burnside Townships and a portion of Jefferson County, consisting of the boroughs of Brockway, Falls Creek, Punxsutawney, Reynoldsville and Sykesville, and the townships of Washington, Winslow and Henderson.
The Bank is subject to regulation, supervision and examination by the Pennsylvania State Department of Banking as well as the Federal Deposit Insurance Corporation. The financial condition and results of operations of the Corporation and its consolidated subsidiaries are not necessarily indicative of future performance. CNB Securities Corporation is incorporated in Delaware and currently maintains investments in debt and equity securities. County Reinsurance Company is an Arizona Corporation and provides credit life and disability insurance for customers of CNB Bank. CNB Insurance Agency, incorporated in Pennsylvania, provides for the sale of nonproprietary annuities and other insurance products. Holiday Financial Services Corporation (“Holiday”), incorporated in Pennsylvania, offers small balance unsecured loans and secured loans, primarily collateralized by automobiles and equipment, to borrowers with higher risk characteristics.
When we use the terms “we”, “us” and “our”, we mean CNB Financial Corporation and its subsidiaries. Management’s discussion and analysis should be read in conjunction with the Corporation’s consolidated financial statements and related notes.
PENDING ACQUISITION
On March 26, 2013, the Corporation announced the signing of a definitive merger agreement to acquire FC Banc Corp. and its subsidiary, The Farmers Citizens Bank (“FC Bank”), for $30.00 per share in cash and stock, or approximately $40.4 million in the aggregate. FC Bank serves the northern Ohio markets of Bucyrus, Cardington, Fredericktown, Mount Hope and Shiloh, as well as the markets of Worthington and Upper Arlington in the greater Columbus, Ohio area, with 8 branch locations and a mortgage banking business headquartered in Dublin, Ohio. The transaction is expected to close in the fourth quarter of 2013, subject to customary closing conditions, including regulatory approvals and the approval of FC Banc Corp. shareholders. FC Bank will operate as a separate and distinctly branded division of CNB Bank, with local decision making and oversight.
GENERAL OVERVIEW
The Bank expanded its ERIEBANK division by opening a second full service office in Meadville, Pennsylvania in the third quarter of 2012. In addition, a CNB Bank loan production office in Indiana, Pennsylvania was made a full service branch location in the first quarter of 2013. The Corporation opened a ninth office for Holiday in Dubois, Pennsylvania in the third quarter of 2012. The Corporation also purchased a consumer discount company in Ebensburg, Pennsylvania during the third quarter of 2012, resulting in the acquisition of a loan portfolio of approximately $1 million with a purchase premium of $200 thousand. The Corporation is operating the acquired location as its tenth Holiday office. The Corporation anticipates opening an eleventh Holiday office in Indiana, Pennsylvania during 2013.
Management believes that the Corporation’s ERIEBANK market, along with the traditional CNB Bank and Holiday Financial Services Corporation market areas, should provide the Bank with sustained loan and deposit growth during the remainder of 2013.
Management concentrates on return on average equity and earnings per share metrics, plus other metrics, to measure the performance of the Corporation. The interest rate environment will continue to play an important role in the future earnings of the Corporation. Some compression of the net interest margin was experienced in 2012 and the net interest margin has
26
decreased six basis points in the first three months of 2013 compared to the first three months of 2012 as a result of the current interest rate environment. During the past several years, in order to address the historic lows on various key interest rates such as the Prime Rate and 3-month LIBOR, the Corporation has taken a variety of measures including instituting rate floors on our commercial lines of credit and home equity lines. In addition, the Corporation decreased interest rates on certain deposit products during 2012 and the first three months of 2013 but maintained deposit growth as a result of marketing a savings product which carries a highly competitive annual percentage yield. Non-interest costs are expected to increase with the growth of the Corporation; however, management’s growth strategies are expected to also result in an increase in earning assets as well as enhanced non-interest income which is expected to more than offset increases in non-interest expenses in 2013 and beyond. While past results are not an indication of future earnings, management believes the Corporation is well-positioned to sustain core earnings during 2013.
The Dodd-Frank Act, enacted into law on July 21, 2010, includes numerous provisions designed to strengthen the financial industry, enhance consumer protection, expand disclosures and provide for transparency, and significantly changed the bank regulatory structure and affected and will continue to affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act also created a Consumer Financial Protection Bureau (“CFPB”), which is authorized to write rules on a number of consumer financial products, and a Financial Services Oversight Council, which is empowered to determine which entities are systematically significant and require tougher regulations.
The Dodd-Frank Act requires various federal agencies to adopt a broad range of new rules and regulations and to prepare various studies and reports for Congress.
It is difficult to predict at this time what specific impact certain provisions of the Dodd-Frank Act and the implementing rules and regulations, many which have yet to be written, will have on the Corporation, including any regulations promulgated by the CFPB. The legislation and any implementing rules that are ultimately issued could have adverse implications on the financial industry, the competitive environment, and the Corporation’s ability to conduct business. The Corporation will have to apply resources to ensure that it is in compliance with all applicable provisions of the Dodd-Frank Act and any implementing rules, which may increase its costs of operations and adversely impact its earnings.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents totaled $38.5 million at March 31, 2013 compared to $31.9 million at December 31, 2012. Cash and cash equivalents fluctuate based on the timing and amount of liquidity events that occur in the normal course of business.
Management believes the liquidity needs of the Corporation are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources, and the portion of the investment and loan portfolios that mature within one year. These sources of funds will enable the Corporation to meet cash obligations and off-balance sheet commitments as they come due.
SECURITIES
Securities available for sale and trading securities have combined to increase $24.2 million or 3.3% since December 31, 2012. The increase is primarily due to the purchases of U.S. Government agency securities and pooled SBA securities and resulted from deposit growth not reinvested in loans. See the notes to the consolidated financial statements for additional detail concerning the composition of the Corporation’s securities portfolio and the process for evaluating securities for other-than-temporary impairment.
The Corporation generally buys into the market over time and does not attempt to “time” its transactions. In doing this, the highs and lows of the market are averaged into the portfolio and minimize the overall effect of different rate environments. Management monitors the earnings performance and the effectiveness of the liquidity of the securities portfolio on a regular basis through meetings of the Asset/Liability Committee of the Corporation’s Board of Directors (“ALCO”). The ALCO also reviews and manages interest rate risk for the Corporation. Through active balance sheet management and analysis of the securities portfolio, a sufficient level of liquidity is maintained to satisfy depositor requirements and various credit needs of our customers.
27
LOANS
The Corporation experienced an increase in loans, net of unearned discount, of $4.9 million, or 0.5%, during the first three months of 2013. Lending efforts are focused in the west, central and northwest Pennsylvania markets and consist principally of commercial and retail lending, which includes single family residential mortgages and other consumer loans. The Corporation views commercial lending as its competitive advantage and continues to focus on this area by hiring and retaining experienced loan officers and supporting them with quality credit analysis. The Corporation expects sustained loan demand throughout the remainder of 2013.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established by provisions for losses in the loan portfolio as well as overdrafts in deposit accounts. These provisions are charged against current income. Loans and overdrafts deemed not collectible are charged off against the allowance while any subsequent collections are recorded as recoveries and increase the allowance.
The table below shows activity within the allowance account for the specified periods (in thousands):
|
Three months ending
March 31, 2013 |
Year
ending
December 31, 2012 |
Three months ending
March 31, 2012 |
||||||||||
|
Balance at beginning of period |
$ | 14,060 | $ | 12,615 | $ | 12,615 | ||||||
|
Charge-offs: |
||||||||||||
|
Commercial, industrial, and agricultural |
— | 2,871 | 225 | |||||||||
|
Commercial mortgages |
607 | 401 | 115 | |||||||||
|
Residential real estate |
172 | 304 | 87 | |||||||||
|
Consumer |
331 | 1,279 | 256 | |||||||||
|
Credit cards |
12 | 78 | 19 | |||||||||
|
Overdrafts |
47 | 257 | 67 | |||||||||
|
|
|
|
|
|
|
|||||||
| 1,169 | 5,190 | 769 | ||||||||||
|
|
|
|
|
|
|
|||||||
|
Recoveries: |
||||||||||||
|
Commercial, industrial, and agricultural |
— | 45 | 3 | |||||||||
|
Commercial mortgages |
1 | — | — | |||||||||
|
Residential real estate |
1 | 1 | — | |||||||||
|
Consumer |
41 | 91 | 27 | |||||||||
|
Credit cards |
2 | 18 | 1 | |||||||||
|
Overdraft deposit accounts |
31 | 99 | 34 | |||||||||
|
|
|
|
|
|
|
|||||||
| 76 | 254 | 65 | ||||||||||
|
|
|
|
|
|
|
|||||||
|
Net charge-offs |
(1,093 | ) | (4,936 | ) | (704 | ) | ||||||
|
|
|
|
|
|
|
|||||||
|
Provision for loan losses |
930 | 6,381 | 1,104 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Balance at end of period |
$ | 13,897 | $ | 14,060 | $ | 13,015 | ||||||
|
|
|
|
|
|
|
|||||||
|
Loans, net of unearned |
$ | 932,696 | $ | 927,824 | $ | 860,010 | ||||||
|
Allowance to net loans |
1.49 | % | 1.52 | % | 1.51 | % | ||||||
|
Net charge-offs to average loans (annualized) |
0.47 | % | 0.55 | % | 0.33 | % | ||||||
|
Nonperforming assets |
$ | 16,784 | $ | 15,127 | $ | 17,408 | ||||||
|
Nonperforming % of total assets |
0.93 | % | 0.85 | % | 1.03 | % | ||||||
28
The adequacy of the allowance for loan losses is subject to a formal analysis by the credit administrator of the Corporation. As part of the formal analysis, delinquencies and losses are monitored monthly. The loan portfolio is divided into several categories in order to better analyze the entire pool. First is a selection of classified loans that is given a specific reserve. The remaining loans are pooled, by category, into these segments:
Reviewed
| • |
Commercial, industrial, and agricultural |
| • |
Commercial mortgages |
Homogeneous
| • |
Residential real estate |
| • |
Consumer |
| • |
Credit cards |
| • |
Overdrafts |
The reviewed loan pools are further segregated into four categories: special mention, substandard, doubtful, and unclassified. Historical loss factors are calculated for each pool excluding overdrafts based on the previous eight quarters of experience. The homogeneous pools are evaluated by analyzing the historical loss factors from the most previous quarter end and the two most recent year ends.
The historical loss factors for both the reviewed and homogeneous pools are adjusted based on these six qualitative factors:
| • |
levels of and trends in delinquencies, non-accrual loans, and classified loans; |
| • |
trends in volume and terms of loans; |
| • |
effects of any changes in lending policies and procedures; |
| • |
experience, ability and depth of management; |
| • |
national and local economic trends and conditions; and |
| • |
concentrations of credit. |
The methodology described above was created using the experience of the Corporation’s credit administrator, guidance from the regulatory agencies, expertise of a third-party loan review provider, and discussions with peers. The resulting factors are applied to the pool balances in order to estimate the probable risk of loss within each pool. Prudent business practices dictate that the level of the allowance, as well as corresponding charges to the provision for loan losses, should be commensurate with identified areas of risk within the loan portfolio and the attendant risks inherent therein. The quality of the credit risk management function and the overall administration of this vital segment of the Corporation’s assets are critical to the ongoing success of the Corporation.
The previously mentioned analysis considered numerous historical and other factors to analyze the adequacy of the allowance and current period charges against the provision for loan losses. Management paid special attention to a section of the analysis that compared and plotted the actual level of the allowance against the aggregate amount of loans adversely classified in order to compute the estimated probable losses associated with those loans. By noting the “spread” at the present time, as well as prior periods, management determines the current adequacy of the allowance as well as evaluates trends that may be developing. The volume and composition of the Corporation’s loan portfolio continue to reflect growth in commercial credits including commercial real estate loans.
As mentioned in the Loans section of this analysis, management considers commercial lending to be a competitive advantage and continues to focus on this area as part of its strategic growth initiatives. However, management recognizes and considers the fact that risk is more pronounced in these types of credits and is, to a greater degree than with other loans, driven by the economic environment in which the debtor’s business operates.
During the three months ended March 31, 2013, CNB recorded a provision for loan losses of $930 thousand, as compared to a provision for loan losses of $1.1 million for the three months ended March 31, 2012. A commercial mortgage loan that was impaired at December 31, 2012 was placed on nonaccrual status during the three months ended March 31, 2013, resulting in an increase in nonperforming assets of $2.9 million. No loan loss reserve was required for this loan as of March 31, 2013 or December 31, 2012. A loan modified in a troubled debt restructuring that was nonperforming at December 31, 2012 was partially charged off in the first quarter of 2013, resulting in a decrease in nonperforming assets of $595 thousand. An
29
additional provision for loan losses of $135 thousand was recorded for this loan during the three months ended March 31, 2013.
Management believes that the allowance for loan losses is reasonable and adequate to absorb probable incurred losses in its portfolio at March 31, 2013.
PREMISES AND EQUIPMENT
In the second quarter of 2013, the Corporation entered into a contractual commitment to expand its main office facility in Clearfield, Pennsylvania at an approximate cost of $4 million. Construction will commence in the second quarter, with completion of the project expected by the end of the first quarter of 2014.
FUNDING SOURCES
The Corporation considers deposits, short-term borrowings, and term debt when evaluating funding sources. Traditional deposits continue to be the main source of funds in the Corporation, increasing $60.4 million from $1.49 billion at December 31, 2012 to $1.55 billion at March 31, 2013. The growth in deposits was primarily due to increases in savings accounts of $54.7 million over this period as a result of the Corporation’s marketing of a savings product which carries an annual percentage yield which is highly competitive in the current interest rate environment.
Periodically, the Corporation utilizes term borrowings from the Federal Home Loan Bank (“FHLB”) and other lenders to meet funding needs. Management plans to maintain access to short-term and long-term borrowings as an available funding source.
SHAREHOLDERS’ EQUITY AND CAPITAL RATIOS AND METRICS
The Corporation’s capital continued to provide a base for profitable growth through March 31, 2013. Total shareholders’ equity was $146.1 million at March 31, 2013 and $145.4 million at December 31, 2012. In the first three months of 2013, the Corporation earned $4.3 million and declared dividends of $2.1 million, a dividend payout ratio of 48.0% of net income. The Corporation has also complied with the standards of capital adequacy mandated by the banking regulators. Bank regulators have established “risk-based” capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets banks hold in their portfolios. A weight category of 0% (lowest risk assets), 20%, 50%, or 100% (highest risk assets) is assigned to each asset on the balance sheet.
The Corporation’s capital ratios, book value per share and tangible book value per share as of March 31, 2013 and December 31, 2012 are as follows:
| March 31, 2013 | December 31, 2012 | |||||||
|
Total risk-based capital ratio |
15.53 | % | 15.28 | % | ||||
|
Tier 1 capital ratio |
14.28 | % | 14.03 | % | ||||
|
Leverage ratio |
8.03 | % | 8.06 | % | ||||
|
Tangible common equity/tangible assets (1) |
7.51 | % | 7.63 | % | ||||
|
Book value per share |
$ | 11.68 | $ | 11.65 | ||||
|
Tangible book value per share (1) |
10.80 | 10.77 | ||||||
30
| (1) | 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 from the calculation of shareholders’ equity. Tangible assets is calculated by excluding the balance of goodwill from the calculation of total assets. Tangible book value per share is calculated by dividing tangible common equity by the number of shares outstanding. The Corporation believes that these non-GAAP financial measures provide information to investors that is useful in understanding its financial condition because they are additional measures used to assess capital adequacy. 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 share and per share data). |
| March 31, 2013 | December 31, 2012 | |||||||
|
Shareholders’ equity |
$ | 146,105 | $ | 145,364 | ||||
|
Less goodwill |
10,946 | 10,946 | ||||||
|
|
|
|
|
|||||
|
Tangible common equity |
$ | 135,159 | $ | 134,418 | ||||
|
|
|
|
|
|||||
|
Total assets |
$ | 1,809,847 | $ | 1,773,079 | ||||
|
Less goodwill |
10,946 | 10,946 | ||||||
|
|
|
|
|
|||||
|
Tangible assets |
$ | 1,798,901 | $ | 1,762,133 | ||||
|
|
|
|
|
|||||
|
Ending shares outstanding |
12,509,289 | 12,475,904 | ||||||
|
Tangible book value per share |
$ | 10.80 | $ | 10.77 | ||||
|
Tangible common equity/tangible assets |
7.51 | % | 7.63 | % | ||||
LIQUIDITY
Liquidity measures an organization’s ability to meet cash obligations as they come due. The consolidated statement of cash flows provides analysis of the Corporation’s cash and cash equivalents. Additionally, management considers that portion of the loan and investment portfolio that matures within one year to be part of the Corporation’s liquid assets. The Corporation’s liquidity is monitored by both management and the ALCO, which establishes and monitors ranges of acceptable liquidity. Management believes the Corporation’s current liquidity position is acceptable.
OFF BALANCE SHEET ACTIVITIES
Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection, are issued to meet customer financing needs. The contractual amount of financial instruments with off-balance sheet risk was as follows at March 31, 2013 (in thousands):
|
Commitments to extend credit |
$ | 263,034 | ||
|
Standby letters of credit |
13,075 | |||
|
|
|
|||
| $ | 276,109 | |||
|
|
|
31
CONSOLIDATED YIELD COMPARISONS
AVERAGE BALANCES AND NET INTEREST MARGIN FOR THE THREE MONTHS ENDED
Dollars in thousands
| March 31, 2013 | March 31, 2012 | |||||||||||||||||||||||
| Average | Annual | Interest | Average | Annual | Interest | |||||||||||||||||||
| Balance | Rate | Inc./Exp. | Balance | Rate | Inc./Exp. | |||||||||||||||||||
|
ASSETS: |
||||||||||||||||||||||||
|
Interest-bearing deposits with other banks |
$ | 3,884 | 0.00 | % | $ | — | $ | 4,251 | 0.19 | % | $ | 2 | ||||||||||||
|
Securities: |
||||||||||||||||||||||||
|
Taxable (1) |
618,620 | 2.30 | % | 3,409 | 582,354 | 2.59 | % | 3,683 | ||||||||||||||||
|
Tax-Exempt (1,2) |
129,879 | 4.62 | % | 1,431 | 104,136 | 5.26 | % | 1,292 | ||||||||||||||||
|
Equity Securities (1,2) |
3,964 | 4.94 | % | 49 | 2,285 | 2.98 | % | 17 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total securities |
752,463 | 2.71 | % | 4,889 | 688,775 | 2.98 | % | 4,992 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Loans: |
||||||||||||||||||||||||
|
Commercial (2) |
302,840 | 4.76 | % | 3,601 | 287,433 | 5.01 | % | 3,597 | ||||||||||||||||
|
Mortgage (2) |
580,638 | 4.85 | % | 7,034 | 518,893 | 5.45 | % | 7,069 | ||||||||||||||||
|
Consumer |
49,075 | 14.74 | % | 1,808 | 49,877 | 13.84 | % | 1,726 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total loans (3) |
932,553 | 5.34 | % | 12,443 | 856,203 | 5.79 | % | 12,392 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total earning assets |
1,688,900 | 4.18 | % | $ | 17,332 | 1,549,229 | 4.55 | % | $ | 17,386 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Non interest-bearing assets: |
||||||||||||||||||||||||
|
Cash and due from banks |
32,858 | 32,740 | ||||||||||||||||||||||
|
Premises and equipment |
24,345 | 24,043 | ||||||||||||||||||||||
|
Other assets |
57,327 | 54,767 | ||||||||||||||||||||||
|
Allowance for loan losses |
(13,958 | ) | (12,828 | ) | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
|
Total non interest-bearing assets |
100,572 | 98,722 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
|
TOTAL ASSETS |
$ | 1,789,472 | $ | 1,647,951 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY: |
||||||||||||||||||||||||
|
Demand - interest-bearing |
$ | 347,020 | 0.43 | % | $ | 370 | $ | 301,281 | 0.57 | % | $ | 428 | ||||||||||||
|
Savings |
796,417 | 0.57 | % | 1,137 | 681,672 | 0.97 | % | 1,649 | ||||||||||||||||
|
Time |
211,615 | 1.37 | % | 727 | 254,922 | 1.68 | % | 1,072 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total interest-bearing deposits |
1,355,052 | 0.66 | % | 2,234 | 1,237,875 | 1.02 | % | 3,149 | ||||||||||||||||
|
Short-term borrowings |
4,717 | 0.59 | % | 7 | 2,183 | 0.18 | % | 1 | ||||||||||||||||
|
Long-term borrowings |
74,867 | 4.39 | % | 822 | 74,430 | 4.28 | % | 796 | ||||||||||||||||
|
Subordinated debentures |
20,620 | 3.69 | % | 190 | 20,620 | 3.90 | % | 201 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total interest-bearing liabilities |
1,455,256 | 0.89 | % | $ | 3,253 | 1,335,108 | 1.24 | % | $ | 4,147 | ||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
|
Demand - non interest-bearing |
165,450 | 157,429 | ||||||||||||||||||||||
|
Other liabilities |
22,580 | 21,268 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
|
Total liabilities |
1,643,286 | 1,513,805 | ||||||||||||||||||||||
|
Shareholders’ equity |
146,186 | 134,146 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 1,789,472 | $ | 1,647,951 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
|
Interest income/Earning assets |
4.18 | % | $ | 17,332 | 4.55 | % | $ | 17,386 | ||||||||||||||||
|
Interest expense/Interest-bearing liabilities |
0.89 | % | 3,253 | 1.24 | % | 4,147 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Net interest spread |
3.29 | % | $ | 14,079 | 3.30 | % | $ | 13,239 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Interest income/Earning assets |
4.18 | % | 17,332 | 4.55 | % | 17,386 | ||||||||||||||||||
|
Interest expense/Earning assets |
0.77 | % | 3,253 | 1.07 | % | 4,147 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Net interest margin |
3.41 | % | $ | 14,079 | 3.47 | % | $ | 13,239 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| (1) | Includes unamortized discounts and premiums. Average balance is computed using the carrying value of securities. The average yield has been computed using the historical amortized cost average balance for available for sale securities. |
| (2) | Average yields are stated on a fully taxable equivalent basis. |
| (3) | Average outstanding includes the average balance outstanding of all non-accrual loans. Loans consist of the average of total loans less average unearned income. The amount of loan fees included in the interest income on loans is not material. |
32
R ESULTS OF O PERATIONS
OVERVIEW OF THE INCOME STATEMENT
The Corporation had net income of $4.3 million in both the first quarter of 2013 and 2012. The earnings per diluted share were $0.34 in the first quarter of 2013 and $0.35 in the first quarter of 2012. The return on assets and return on equity for the first quarter of 2013 are 0.96% and 11.76% compared to 1.06% and 12.96% for the first quarter of 2012.
INTEREST INCOME AND EXPENSE
Net interest income totaled $13.5 million, an increase of $774 thousand, or 6.1%, over the first quarter of 2012. Total interest and dividend income decreased by $120 thousand, or 0.7%, as compared to the first quarter of 2012. Net interest margin on a fully tax equivalent basis was 3.41% for the three months ended March 31, 2013, compared to 3.47% for the three months ended March 31, 2012.
Although the Corporation’s earning assets continue to grow, these increases have been offset by decreases in the yield on earning assets, primarily because the composition of earning assets has shifted to a greater percentage of investment securities as deposit growth has exceeded loan growth. Total interest expense decreased $894 thousand, or 21.6%, as compared to the first quarter of 2012 due to decreases in the cost of core deposits.
PROVISION FOR LOAN LOSSES
The Corporation recorded a provision for loan losses of $930 thousand in the first quarter of 2013 compared to $1.1 million in the first quarter of 2012. As disclosed in the Allowance for Loan Losses section of Management’s Discussion and Analysis, in the first quarter of 2013, the Corporation increased its loss reserve in connection with a nonperforming commercial mortgage loan that was modified in a troubled debt restructuring in a prior year.
Management believes the provision for loan losses was appropriate and the allowance for loan losses is adequate to absorb probable incurred losses in our portfolio as of March 31, 2013.
NON-INTEREST INCOME
Excluding the effects of the securities transactions described below, non-interest income was $2.7 million for the three months ended March 31, 2013, compared to $2.5 million for the three months ended March 31, 2012. Net realized gains on available-for-sale securities were $76 thousand during the three months ended March 31, 2013, and $566 thousand during the three months ended March 31, 2012. Net realized and unrealized gains on trading securities were $303 thousand and $320 thousand during the three months ended March 31, 2013 and 2012, respectively.
Wealth and asset management fees increased from $387 during the three months ended March 31, 2012 to $574 thousand during the three months ended March 31, 2013 due to increases in assets under management resulting from CNB’s strategic focus to grow its Wealth and Asset Management Division.
NON-INTEREST EXPENSES
Total non-interest expenses increased $668 thousand, or 7.4%, during the three months ended March 31, 2013 compared to the three months ended March 31, 2012. Salaries and benefits expenses increased $472 thousand, or 10.0%, during the three months ended March 31, 2013 compared to the three months ended March 31, 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 costs, which continue to increase in line with market conditions.
Total non-interest expenses on an annualized basis in relation to CNB’s average asset size declined from 2.19% for the three months ended March 31, 2012 to 2.16% for the three months ended March 31, 2013.
33
INCOME TAX EXPENSE
Income tax expense was $1.6 million in both the first quarter of 2013 and 2012, resulting in effective tax rates of 27.3% and 27.2% for the periods, respectively. The effective rates for the periods differed from the federal statutory rate of 35.0% principally as a result of tax exempt income from securities and loans as well as earnings from bank owned life insurance.
CRITICAL ACCOUNTING POLICIES
The Corporation’s accounting and reporting policies are in accordance with GAAP and conform to general practices within the financial services industry. Accounting and reporting practices for the allowance for loan losses and fair value of securities are deemed critical since they involve the use of estimates and require significant management judgments. Application of assumptions different than those used by management could result in material changes in the Corporation’s financial position or results of operations. Note 1 (Summary of Significant Accounting Policies), Note 3 (Securities), and Note 4 (Loans), of the Corporation’s 2012 Form 10-K, provide detail with regard to the Corporation’s accounting for the allowance for loan losses and fair value of securities. There have been no significant changes in the application of accounting policies since December 31, 2012.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a financial institution, the Corporation’s primary source of market risk is interest rate risk, which is the exposure to fluctuations in the Corporation’s future earnings resulting from changes in interest rates. This exposure is correlated to the repricing characteristics of the Corporation’s portfolio of assets and liabilities. Each asset or liability reprices either at maturity or during the life of the instrument.
The principal purpose of asset/liability management is to maximize current and future net interest income within acceptable levels of interest rate risk while satisfying liquidity and capital requirements. Net interest income is enhanced by increasing the net interest margin and by the growth in earning assets. As a result, the primary goal of interest rate risk management is to maintain a balance between risk and reward such that net interest income is maximized while risk is maintained at an acceptable level.
The Corporation uses an asset-liability management model to measure the effect of interest rate changes on its net interest income. The Corporation’s management also reviews asset-liability maturity gap and repricing analyses regularly. The Corporation does not always attempt to achieve a precise match between interest sensitive assets and liabilities because it believes that an actively managed amount of interest rate risk is inherent and appropriate in the management of the Corporation’s profitability.
Asset-liability modeling techniques and simulation involve assumptions and estimates that inherently cannot be measured with precision. Key assumptions in these analyses include maturity and repricing characteristics of assets and liabilities, prepayments on amortizing assets, non-maturing deposit sensitivity, and loan and deposit pricing. These assumptions are inherently uncertain due to the timing, magnitude, and frequency of rate changes and changes in market conditions and management strategies, among other factors. However, the analyses are useful in quantifying risk and provide a relative gauge of the Corporation’s interest rate risk position over time.
34
Management reviews interest rate risk on a quarterly basis and reports to the ALCO. This review includes earnings shock scenarios whereby interest rates are immediately increased and decreased by 100, 300, and 400 basis points. These scenarios, detailed in the table below, indicate that there would not be a significant variance in net interest income over a one-year period due to interest rate changes; however, actual results could vary significantly. At March 31, 2013 and December 31, 2012, all interest rate risk levels according to the model were within the tolerance limits of ALCO approved policy of +/- 25%. In addition, the table does not take into consideration changes that management would make to realign its assets and liabilities in the event of an unexpected changing interest rate environment. Due to the historically low interest rate environment, the -300 and -400 scenarios have been excluded from the table.
|
March 31, 2013 |
December 31, 2012 |
|||||
|
Change in Basis Points |
% Change in Net Interest Income |
Change in Basis Points |
% Change in Net Interest Income |
|||
|
400 |
2.7% | 400 | -0.5% | |||
|
300 |
2.8% | 300 | -0.8% | |||
|
100 |
1.9% | 100 | 2.3% | |||
|
(100) |
-3.9% | (100) | -4.0% | |||
CONTROLS AND PROCEDURES
As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) (“Exchange Act”). Based on their evaluation, our Chief Executive Officer and Principal Financial Officer have concluded that the Corporation’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report to ensure that information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There were no changes in the Corporation’s internal control over financial reporting that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
35
| ITEM 1. | LEGAL PROCEEDINGS – None |
The risks presented by acquisitions could adversely affect our financial condition and result of operations.
Any acquisitions, including our pending acquisition of FC Banc Corp., will be accompanied by the risks commonly encountered in acquisitions including, among other things: our ability to realize anticipated cost savings and avoid unanticipated costs relating to the merger, the difficulty of integrating operations and personnel, the potential disruption of our or the acquired company’s ongoing business, the inability of our management to maximize our financial and strategic position, the inability to maintain uniform standards, controls, procedures and policies, and the impairment of relationships with the acquired company’s employees and customers as a result of changes in ownership and management. These risks may prevent the Corporation from fully realizing the anticipated benefits of an acquisition or cause the realization of such benefits to take longer than expected.
| ITEM 6. | EXHIBITS |
|
Exhibit
|
Description |
|
| 2.1 | Agreement and Plan of Merger, dated as of March 26, 2013, by and between the Corporation and FC Banc Corp., filed as Exhibit 2.1 to the Corporation’s Current Report on Form 8-K, filed with the SEC on March 27, 2013 and incorporated herein by reference. | |
| 3.1 | Amended and Restated Articles of Incorporation of the Corporation, filed as Appendix B to the 2005 Proxy Statement, filed with the SEC on March 24, 2006, and incorporated herein by reference. | |
| 3.2 | By-Laws of the Corporation, as amended and restated, filed as Appendix C to the 2005 Proxy Statement, filed with the SEC on March 24, 2006, and incorporated herein by reference. | |
| 31.1 | Rule 13a – 14(a)/15d – 14(a) Certification of the Principal Executive Officer | |
| 31.2 | Rule 13a – 14(a)/15d – 14(a) Certification of the Principal Financial Officer | |
| 32.1 | Section 1350 Certification | |
| 32.2 | Section 1350 Certification | |
| 101 | The following financial information from the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, furnished electronically herewith, and formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.* | |
| * | In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. |
36
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CNB FINANCIAL CORPORATION | ||||||
|
(Registrant) |
||||||
| DATE: May 9, 2013 |
/s/ Joseph B. Bower, Jr. |
|||||
| Joseph B. Bower, Jr. | ||||||
| President and Director | ||||||
| (Principal Executive Officer) | ||||||
| DATE: May 9, 2013 |
/s/ Brian W. Wingard |
|||||
| Brian W. Wingard | ||||||
| Treasurer | ||||||
| (Principal Financial Officer) | ||||||
37
EXHIBIT INDEX
|
Exhibit
No. |
Description | |
| 2.1 | Agreement and Plan of Merger, dated as of March 26, 2013, by and between the Corporation and FC Banc Corp., filed as Exhibit 2.1 to the Corporation’s Current Report on Form 8-K, filed with the SEC on March 27, 2013 and incorporated herein by reference. | |
| 3.1 | Amended and Restated Articles of Incorporation of the Corporation, filed as Appendix B to the 2005 Proxy Statement, filed with the SEC on March 24, 2006, and incorporated herein by reference. | |
| 3.2 | By-Laws of the Corporation, as amended and restated, filed as Appendix C to the 2005 Proxy Statement, filed with the SEC on March 24, 2006, and incorporated herein by reference. | |
| 31.1 | Rule 13a – 14(a)/15d – 14(a) Certification of the Principal Executive Officer | |
| 31.2 | Rule 13a – 14(a)/15d – 14(a) Certification of the Principal Financial Officer | |
| 32.1 | Section 1350 Certification | |
| 32.2 | Section 1350 Certification | |
| 101 | The following financial information from the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, furnished electronically herewith, and formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.* | |
| * | In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. |
38
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
|---|
| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
|---|
No information found
No Customers Found
No Suppliers Found
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|