Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. CNB FINANCIAL CORP/PA (736772) 10-Q published on May 09, 2019 at 11:11 am
Reporting Period: Mar 30, 2019
The Corporation has a stock incentive plan, which is administered by a committee of the Board of Directors and which permits the Corporation to provide various types of stock-based compensation to its key employees, directors, and/or consultants, including time-based and performance-based shares of restricted stock. The Corporation previously maintained its 2009 Stock Incentive Plan, which terminated in accordance with its terms on February 10, 2019, and currently maintains its 2019 Stock Incentive Plan, which was approved by the Corporation’s shareholders and became effective on April 16, 2019.
For key employees, the vesting of time-based restricted stock is one-third, one-fourth, or one-fifth of the granted restricted shares per year, beginning one year after the grant date, with 100% vesting on the third, fourth or fifth anniversary of the grant date, respectively. Prior to 2018, for non-employee directors, the vesting schedule is one-third of the granted restricted shares per year, beginning one year after the grant date, with 100% vested on the third anniversary of the grant date. Beginning in 2018, stock compensation received by non-employee directors vests immediately. At March 31, 2019, there was no unrecognized compensation cost related to stock-based compensation awarded under this plan and, except for the time-based and performance-based restricted stock awards disclosed below and in previous filings, no other stock-based compensation was granted during the three month periods ended March 31, 2019 and 2018.
As of January 1, 2019, the Corporation adopted certain accounting standard updates related to accounting for leases (Topic 842 - Leases), primarily Accounting Standards Update ("ASU") 2016-02 and subsequent updates. This guidance requires a lessee to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model. The Corporation adopted the provisions of ASU 2016-02 on January 1, 2019, and elected several practical expedients made available by the FASB. Specifically, the Corporation elected the transition practical expedient to not recast comparative periods upon the adoption of the new guidance. In addition, the Corporation elected to apply certain practical adoption expedients provided under the updates whereby we did not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases and (3) initial direct costs for any existing leases. As a result, the Corporation recognized approximately $12.5 million of right of use assets, approximately $800 thousand in prepaid rent, and $13.3 million of related lease liabilities as of January 1, 2019.
In March 2019, the FASB issued an amendment (ASU 2019-01, Leases (Topic 842) Codification Improvements) which provides clarifications to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing essential information about leasing transactions. Specifically, ASU 2019-01 (i) allows the fair value of the underlying asset reported by lessors that are not manufacturers or dealers to continue to be its cost and not fair value as measured under the fair value definition, (ii) allows for the cash flows received for sales-type and direct financing leases to continue to be presented as results from investing, and (iii) clarifies that entities do not have to disclose the effect of the lease standard on adoption year interim amounts. The amendment will be effective for annual reporting periods beginning after December 15, 2019. Management does not expect the adoption of ASU 2019-01 will have any material impact on the Corporation’s financial statements.
Income tax expense was $2.0 million during the three months ended March 31, 2019 and $1.1 million during the three months ended March 31, 2018, resulting in effective tax rates of 17.1% and 13.7% for the periods, respectively. This increase in the effective tax rate is primarily attributable to a higher percentage of pre-tax net income in the first quarter of 2019 that is not tax-exempt than was recorded in the first quarter of 2018. The effective rates for the periods differed from the federal statutory rate of 21.0% at March 31, 2019 and 2018 principally as a result of tax exempt income from securities and loans as well as earnings from bank owned life insurance.