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

Clearfield, PA - February 2, 2018

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

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

  • Loans of $2.15 billion as of December 31, 2017, compared to loans of $1.87 billion as of December 31, 2016. Organic loan growth in 2017 was 14.5%. 

  • Deposits of $2.17 billion as of December 31, 2017, compared to deposits of $2.02 billion as of December 31, 2016. Organic deposit growth in 2017 was 7.4%. 

  • Net interest margin on a fully tax-equivalent basis of 3.82% for the year ended December 31, 2017, compared to 3.78% for the year ended December 31, 2016. 

  • Book value per share of $15.98 as of December 31, 2017 increased 9.2% compared to book value per share of $14.64 as of December 31, 2016. Tangible book value per share of $13.33 as of December 31, 2017 increased 13.4% compared to tangible book value per share of $11.76 as of December 31, 2016. 

  • Non-performing assets of $19.8 million, or 0.71% of total assets as of December 31, 2017, compared to $16.4 million, or 0.64% of total assets, as of December 31, 2016. 

Unaudited Financial Information 

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

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

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

Net Interest Margin 

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

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

Asset Quality 

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

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

In 2017, one commercial real estate loan that was impaired at year end 2016 but still on accrual status was placed on nonaccrual status as a result of further deterioration in the financial condition of the borrower. The additional provision for loan losses recorded in 2017 related to this loan was $2.9 million, including $1.6 million in the fourth quarter of 2017, which was based on the most current financial information available from the borrower. In 2017, CNB also increased its provision for loan losses as a result of stronger organic loan growth compared to 2016. 

Non-Interest Income 

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

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

Non-Interest Expenses 

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

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

Financial Highlights

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