10QSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from to

Commission file number: 000-51685

CNB Financial Corp

(Exact name of small business issuer as specified in its charter)

Massachusetts	20-3801620
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

33 Waldo Street, P.O. Box 830, Worcester, MA 01613-0830

(Address of principal executive offices)

(508) 752-4800

(Issuer’s telephone number)

___________________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.Yes [X]No [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes [ ]No [X]

APPLICABLE ONLY TO CORPORATE ISSUERS

At November 1, 2006, the registrant had 2,283,208 shares of $1.00 par value common stock issued and outstanding.

Transitional Small Business Disclosure Format (Check one): Yes [ ]  No [X]

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

		PAGE
Item 1-	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income	2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2-	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3-	Controls and Procedures	18

PART II - OTHER INFORMATION

Item 1-	Legal Proceedings	20
Item 2-	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3-	Defaults Upon Senior Securities	20
Item 4-	Submission of Matters to Vote of Security Holders	20
Item 5-	Other Information	20
Item 6-	Exhibits	20
Signatures		21
Exhibit Index		22

CNB FINANCIAL CORP. AND SUBSIDIARY

Consolidated Balance Sheets

September 30, 2006 and December 31, 2005

ASSETS	September 30,			December 31,
	2006			2005
Cash and Cash Equivalents	$	13,924,000		$	14,971,000
Investment Securities Available-for-Sale, (amortized cost of $53,879,000 as of September 30, 2006 and $40,294,000 as of December 31, 2005) (Note 4)		53,633,000			39,593,000
Investment Securities Held-to-Maturity, (fair value of $12,686,000 as of September 30, 2006 and $9,005,000 as of December 31, 2005) (Note 4)		12,734,000			9,110,000
Federal Reserve Bank Stock		700,000			508,000
Federal Home Loan Bank Stock		3,070,000			1,870,000
Loans		191,112,000			180,848,000
Less: Allowance for Loan Losses		(2,760,000	)		(2,615,000	)
Loans, Net		188,352,000			178,233,000
Premises and Equipment, Net		2,290,000			1,774,000
Accrued Interest Receivable		1,380,000			971,000
Deferred Tax Asset		1,661,000			2,056,000
Prepaid Expenses and Other Assets		841,000			325,000
	$	278,585,000		$	249,411,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits	$	189,151,000		$	189,452,000
Federal Home Loan Bank Advances		59,500,000			33,500,000
Subordinated Debentures		7,732,000			7,732,000
Accrued Expenses and Other Liabilities		2,214,000			1,501,000
Total Liabilities:		258,597,000			232,185,000
Commitments and Contingencies (Note 8)
Stockholders' Equity:
Common Stock
Par Value: $1.00
Shares Authorized: 10,000,000 as of September 30, 2006   and December 31, 2005.
Issued and Outstanding: 2,283,000 and 2,113,000 as of  September 30, 2006 and December 31, 2005, respectively		2,283,000			2,113,000
Additional Paid-in Capital		20,116,000			18,314,000
Accumulated Deficit		(2,265,000	)		(2,787,000	)
Accumulated Other Comprehensive Loss (net of taxes)		(146,000	)		(414,000	)
Total Stockholders' Equity		19,988,000			17,226,000
	$	278,585,000		$	249,411,000

(unaudited)

See Notes to Consolidated Financial Statements

1

CNB FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statements of Income

For the Three and Nine Month Periods Ended September 30, 2006 and 2005

(Unaudited)

	Three Months Ended
					Nine Months Ended
	September 30,					September 30,
	2006		2005			2006		2005
Interest and Dividend Income:
Interest and Fees on Loans:	$	3,675,000	$	2,810,000		$	10,251,000	$	7,663,000
Interest and Dividends on Investments		896,000		498,000			2,222,000		1,401,000
Total Interest and Dividend Income		4,571,000		3,308,000			12,473,000		9,064,000
Interest Expense:
Interest Expense on Deposits		1,702,000		1,035,000			4,444,000		2,777,000
Interest Expense on Borrowings		746,000		270,000			1,671,000		709,000
Total Interest Expense		2,448,000		1,305,000			6,115,000		3,486,000
Net Interest Income		2,123,000		2,003,000			6,358,000		5,578,000
Provision for Loan Losses		-		150,000			164,000		440,000
Net Interest Income, After Provision for Loan Losses		2,123,000		1,853,000			6,194,000		5,138,000
Other Income:
Fees on Deposit Accounts		57,000		51,000			163,000		141,000
Loan Related Fees		61,000		40,000			169,000		129,000
Other		31,000		22,000			89,000		74,000
Security Gains (net of losses)		5,000		-			5,000		-
Total Other Income		154,000		113,000			426,000		344,000
Operating Expenses:
Employee Compensation and Benefits		1,073,000		883,000			3,115,000		2,515,000
Occupancy and Equipment		291,000		259,000			818,000		785,000
Professional Fees		171,000		139,000			493,000		426,000
Marketing and Public Relations		122,000		123,000			361,000		338,000
Data Processing Expense		100,000		76,000			287,000		228,000
Other General and Administrative Expenses		209,000		177,000			609,000		517,000
Total Operating Expense		1,966,000		1,657,000			5,683,000		4,809,000
Income Before Taxes		311,000		309,000			937,000		673,000
Income Taxes (Benefit)		134,000		(1,549,000	)		415,000		(1,566,000	)
Net Income	$	177,000	$	1,858,000		$	522,000	$	2,239,000
Net Income per Basic Share	$	0.08	$	0.88		$	0.24	$	1.06
Net Income per Diluted Share	$	0.08	$	0.87		$	0.24	$	1.04
Weighted Average Shares - Basic		2,173,000		2,112,000			2,136,000		2,111,000
Weighted Average Shares - Diluted		2,226,000		2,132,000			2,187,000		2,161,000

See Notes to Consolidated Financial Statements

2

CNB FINANCIAL CORP.

Consolidated Statements of Changes in Stockholders’ Equity

For the Nine Month Periods Ended September 30, 2006 and 2005

(Unaudited)

	Common Stock
	Number of Shares		Par Value		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss (net of taxes)			Total
Balance, December 31, 2005		2,113,000	$	2,113,000	$	18,314,000		($2,787,000	)		($414,000	)	$	17,226,000
Net Income								522,000						522,000
Other Comprehensive Loss
Unrealized Gains (Losses) on Securities Available-for-Sale,											268,000			268,000
net of Deferred Taxes of $186,000
Total Comprehensive Income														790,000
Share-based Compensation						103,000								103,000
Exercise of Warrants (Note 6)		170,000		170,000		1,699,000								1,869,000
Balance, September 30, 2006		2,283,000	$	2,283,000	$	20,116,000		($2,265,000	)		($146,000	)	$	19,988,000
Balance, December 31, 2004		2,111,000	$	10,556,000	$	9,851,000		($5,352,000	)		($71,000	)	$	14,984,000
Net Income								2,239,000						2,239,000
Other Comprehensive Loss
Unrealized Gains (Losses) on Securities Available-for-Sale											(294,000	)		(294,000	)
Total Comprehensive Income														1,945,000
Exercise of Warrants (Note 6)		400		2,000		2,000								4,000
Balance, September 30, 2005		2,112,000	$	10,558,000	$	9,853,000		($3,113,000	)		($365,000	)	$	16,933,000

See Notes to Consolidated Financial Statements

3

CNB FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2006 and 2005

(Unaudited)

	Nine Months Ended
	September 30,
	2006			2005
Cash Flows from Operating Activities:
Net Income	$	522,000		$	2,239,000
Adjustments to reconcile Net Income to Net Cash Provided by (Used in) Operating Activities-
Share-based Compensation		103,000			-
Provision for Loan Losses		164,000			440,000
Increase in net Deferred Loan Costs		(27,000	)		(20,000	)
Depreciation, Amortization of Premiums and Accretion of Discounts on Securities		227,000			270,000
Deferred Tax		169,000			(1,711,000	)
Increase in Accrued Interest Receivable		(409,000	)		(288,000	)
Increase (Decrease) in Other Assets		(475,000	)		16,000
Increase in Accrued Expenses and Other Liabilities		718,000			417,000
Net Cash Provided by Operating Activities		992,000			1,363,000
Cash Flows from Investing Activities:
Purchase of Investment Securities Held-to-Maturity		(3,377,000	)		(8,445,000	)
Purchase of Investment Securities Available-for-Sale		( 24,233,000	)		(3,477,000	)
Principal Payments on Mortgage Backed Securities (CMOs)		3,583,000			2,893,000
Proceeds from Maturity (Call) of Investment Securities Held-to-Maturity		1,000,000			2,000,000
Proceeds from Maturity (Call) of Investment Securities Available-for-Sale		1,000,000			-
Proceeds from Sale of Investment Securities Available-for-Sale		4,860,000			-
Purchase of Federal Reserve Stock and FHLBB Stock		(1,393,000	)		(449,000	)
Loan Originations, net of Principal Repayments		(10,257,000	)		(22,905,000	)
Purchases of Premises and Equipment		(790,000	)		(105,000	)
Net Cash Used in Investing Activities		(29,607,000	)		(30,488,000	)
Cash Flows from Financing Activities:
Advances from FHLBB		57,000,000			11,000,000
Repayment of FHLBB Advances		(31,000,000	)		(3,500,000	)
Net (Decrease) Increase in Deposits		(301,000	)		23,696,000
Common Stock Issuance		1,869,000			4,000
Net Cash Provided by Financing Activities		27,568,000			31,200,000
Net (Decrease) Increase Cash and Cash Equivalents		(1,047,000	)		2,075,000
Cash and Cash Equivalents, Beginning of the Period		14,971,000			9,316,000
Cash and Cash Equivalents, End of the Period	$	13,924,000		$	11,391,000

See Notes to Consolidated Financial Statements

4

CNB FINANCIAL CORP. AND SUBSIDIARY

Notes to Consolidated Financial Statements

1.ORGANIZATION

CNB Financial Corp. (the “Company”) is a bank holding company. Its wholly owned subsidiary Commonwealth National Bank (the “Bank”) is a nationally chartered bank operating primarily in Worcester County, Massachusetts. The Bank operates out of its main office at 33 Waldo Street, Worcester, Massachusetts, a branch office at One West Boylston Street, Worcester, Massachusetts, a branch office at 564 Main Street, Shrewsbury, Massachusetts, a branch office at 701 Church Street in Northbridge, Massachusetts and a branch office at 1393 Grafton Street, Worcester, Massachusetts. The Bank has received approval from the Office of the Comptroller of the Currency (“OCC”) to open a branch banking facility at 26 West Boylston Street, West Boylston, Massachusetts. The Bank anticipates seeking regulatory approvals in the future for additional branch locations within the Worcester County market area. The Bank is subject to competition from other financial institutions, including commercial banks, savings banks, credit unions and mortgage banking companies. The Company is subject to the regulations of, and periodic examinations by, the Federal Reserve Board and the Securities and Exchange Commission. The Bank is also subject to the regulations of, and periodic examinations by, the OCC and the Federal Deposit Insurance Corporation (“FDIC”). The Bank Insurance Fund of the FDIC insures the Bank’s deposits for amounts up to $100,000 and the amount insured for retirement accounts has increased to $250,000 effective April 1, 2006 due to recent federal insurance changes.

Company Formation

The Company was formed on December 16, 2005 in connection with the reorganization of the Bank into a bank holding company structure. The reorganization of the Bank was approved by shareholders of the Bank on August 23, 2005 and subsequently approved by the OCC. The Federal Reserve Bank of Boston (“FRBB”) approved the application of the Company to acquire 100% of the capital stock of the Bank. The Bank was originally organized as a national bank under the National Bank Act and received its charter to operate as a national bank from the OCC effective November 19, 2001. The Bank received approval of its application for Federal Deposit Insurance from the FDIC effective November 19, 2001 and commenced its banking business on the same day.

In connection with the reorganization, the holders of common stock of the Bank received one share of common stock of the Company in exchange for each share of common stock of the Bank. Outstanding certificates representing shares of common stock of the Bank now represent shares of the common stock of the Company and such certificates may, but need not, be exchanged by the holders for new certificates for the appropriate number of shares of the Company. The par value of the Company’s common stock is $1 per share, and the par value of the Bank’s common stock is $5 per share. The holders of Bank options immediately prior to the reorganization are entitled to receive one option to acquire shares of the common stock of the Company for each Bank option then held by them on the same terms and conditions.

2.BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 2006, the results of operations for the three and nine-month periods ended September 30, 2006 and 2005 and cash flows for the nine months ended September 30, 2006 and 2005. The statements should be read in conjunction with the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2005. The consolidated financial statements include the accounts of the Company and the Bank. All material inter-company transactions have been eliminated in consolidation. The Company (only), as a separately incorporated bank holding company, has no significant operations other than serving as the sole stockholder of the Bank. Its commitments and debt service requirement, at September 30, 2006, consist of subordinated debentures, including accrued interest amounting to $7.8 million issued to the unconsolidated subsidiary, Commonwealth National Bank Statutory Trust I. Commonwealth National Bank Statutory Trust I is an unconsolidated special purpose subsidiary of the Company that was formed to facilitate the issuance of trust preferred securities to the public. The Company has one reportable operating segment. The results of operations for the nine-month periods ended September 30, 2006 and 2005 are not necessarily indicative of the results to be expected for the full year.

5

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

At September 30, 2006, cash and cash equivalents consisted of cash on hand, amounts due from banks and overnight federal funds sold.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred, through a provision for loan losses charged to earnings. Losses are charged against the allowance when management believes the collectibility of principal is doubtful. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is based on management’s estimate of the amount required to reflect the risks in the loan portfolio, based on circumstances and conditions known or anticipated at each reporting date. There are inherent uncertainties with respect to the final outcome of loans and nonperforming loans. Because of these inherent uncertainties, actual losses may differ from the amounts reflected in these consolidated financial statements. Factors considered in evaluating the adequacy of the allowance include previous loss experience, current economic conditions and its effect on borrowers, the performance of individual loans in relation to contract term, industry peer standards and estimated fair values of underlying collateral.

Key elements of the above estimates, including assumptions used in independent appraisals, are dependent upon the economic conditions prevailing at the time of the estimates. Accordingly, uncertainty exists as to the final outcome of certain of the valuation judgments as a result of economic conditions in the Bank’s lending areas. The inherent uncertainties in the assumptions relative to projected sales prices or rental rates may result in the ultimate realization of amounts on certain loans that are significantly different from the amounts reflected in these consolidated financial statements.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement. All loans are individually evaluated for impairment, except for smaller balance homogeneous residential and consumer loans, which are evaluated in aggregate, according to the Bank’s normal loan review process, including overall credit evaluation, non-accrual status and payment experience. Loans identified as impaired are further evaluated to determine the estimated extent of impairment.

Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, if the loan is collateral-dependent. For collateral-dependent loans, the extent of impairment is the shortfall, if any, between the collateral value, less costs to dispose of such collateral, and the carrying value of the loan. Loans on non-accrual status and restructured troubled debts are considered to be impaired.

Income Taxes

The Company records income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are established for the temporary difference between the accounting bases and the tax bases of the Company’s assets and liabilities. Deferred taxes are measured using enacted tax rates that are expected to be in effect when the amounts related to such temporary differences are realized or settled. A valuation allowance is established against deferred tax assets when, based upon the available evidence, management believes it is more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax assets are reviewed quarterly and adjustments are recognized in the provision or benefit for income taxes. In determining the possible future realization of deferred tax assets, future taxable income from the following sources are taken into account: (a) reversal of taxable temporary differences, (b) future operations exclusive of reversing temporary differences, and (c) tax planning strategies that, if necessary, would be implemented to accelerate taxable income into years in which net operating losses might otherwise expire.

Stock Option Plan

During the first calendar quarter of 2006 the Company adopted SFAS No. 123R Share-Based Payment recognizing the grant-date fair value of share-based compensation using the modified prospective transition method. The impact of the Company adopting such accounting can be seen in Note 6, Stock Based Plans of these Notes to Consolidated Financial Statements.

6

4.INVESTMENT SECURITIES

The amortized cost and fair value of investment securities available-for-sale and held-to-maturity, with gross unrealized gains and losses, at September 30, 2006 are as follows:

	Amortized cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale:
US Government Agencies
Due within one year	$	7,000,000	$	-	$	(75,000	)	$	6,925,000
Due after one year through five years		10,161,000		-		(189,000	)		9,972,000
Due after five years		36,718,000		345,000		(327,000	)		36,736,000
	$	53,879,000	$	345,000	$	(591,000	)	$	53,633,000
Held-to-maturity:
US Government Agencies
Due within one year	$	1,993,000	$	-	$	(11,000	)	$	1,982,000
Due after one year through five years		2,000,000		-		(24,000	)		1,976,000
Due after five years		5,339,000		10,000		(75,000	)		5,274,000
Municipals
Due after five years		3,352,000		52,000		-			3,404,000
Other Bonds
Due after one year through five years		50,000		-		-			50,000
	$	12,734,000	$	62,000	$	(110,000	)	$	12,686,000
Total Investment Securities	$	66,613,000	$	407,000	$	(701,000	)	$	66,319,000

The Company has the ability and intent to hold these investment securities until a price recovery, which could be until maturity, and therefore considers them to be other-than-temporarily impaired at September 30, 2006.

5.LOANS

Major classifications of loans at September 30, 2006 and December 31, 2005 follow:

	September 30,			December 31,
	2006			2005
Commercial and Industrial	$	58,755,000		$	59,043,000
Commercial Real Estate		104,746,000			91,497,000
Residential Real Estate		15,066,000			15,278,000
Consumer		12,545,000			15,030,000
Total loans		191,112,000			180,848,000
Less—Allowance for loan losses		(2,760,000	)		(2,615,000	)
Total loans, net	$	188,352,000		$	178,233,000

The Bank’s lending activities are conducted principally in Worcester County, Massachusetts. The Bank originates commercial real estate loans, commercial loans, commercial construction loans, commercial lines of credit, consumer loans and residential real estate loans. At September 30, 2006 there were $1,836,000 in loans accruing interest past due between 30 and 89 days, zero loans accruing interest were past due 90 days or more and $115,000 of loans were on non-accrual status. At December 31, 2005 no loans accruing interest were past due 30 days or more and $1,287,000 of

7

loans were on non-accrual status. Net deferred costs totaled $334,000 and $368,000 at September 30, 2006 and December 31, 2005, respectively.

A summary of changes in the allowance for loan losses for the nine-month period ended September 30, 2006 and 2005 follows:

	2006			2005
Balance, beginning of year	$	2,615,000		$	2,025,000
Provision for loan losses		164,000			440,000
Less: Loans charged-off		(19,000	)		-
Balance as of September 30,	$	2,760,000		$	2,465,000

6.STOCK BASED PLANS

Stock Option Plan

On November 6, 2001, the shareholders’ voted to approve the Bank’s 2001 Stock Option Plan (the “Plan”) for employees and directors of the Bank. The Compensation Committee of the Board of Directors administers the Plan (as amended on May 19, 2005), which has authorized 400,000 shares for grant. Both incentive stock options and non-qualified stock options may be granted under the Plan. The authorization of grants, the determination of number of shares to be granted, the exercise date and the option price of each award will be determined by the Compensation Committee of the Board of Directors on the date of grant. The options vest annually at a rate of 25% over a four-year period and will expire on the tenth anniversary of the grant date.

Upon the reorganization of the Bank into a holding company structure the Plan was assumed and restated by the Company on the same terms and conditions as the Bank’s Plan. All shares of common stock of the Bank under the Plan which remained available on the date of reorganization for issuance of options were converted into the same number of shares of common stock of the Company and are available for future option grants made by the Company. Any options thereafter granted pursuant to the Plan shall be options granted by the Company and shall relate to the common stock of the Company.

The following table summarizes the Company’s activities with respect to its stock option plan for the first nine months of 2006 as follows:

Options	Number of Shares		Weighted- Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term		Weighted-Average Grant Date Fair Value
Outstanding at January 1, 2006		196,055	$	11.41
Granted		59,250		13.00			$	3.74
Exercised		-
Forfeited		3,000		12.05
Outstanding at September 30,  2006		252,305	$	11.77		7.61 years	$	2.96
Exercisable at September 30,   2006		124,815	$	10.76		6.45 years	$	2.47

The aggregate intrinsic value of the options exercisable and outstanding at September 30, 2006 equals $308,000 and $747,000, respectively. Total compensation costs associated with the unvested options outstanding at September 30, 2006 equals $342,000 and will be recognized over an average of 2.0 years.

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123R”). SFAS No. 123R replaces SFAS No. 123 “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees”. SFAS No. 123R requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values, eliminating pro forma disclosure as an alternative. The cost is measured based on the grant-date fair value of the equity or liability instruments issued.

Effective January 1, 2006, the Company adopted the provisions of SFAS 123R. Under the previously employed intrinsic value method, no share-based compensation expense related to stock option

8

awards granted to employees had been recognized in the Company’s Consolidated Statements of Operations, as all stock option awards granted under the plans had an exercise price equal to or greater than the market value of the Common Stock on the date of the grant.

The Company adopted SFAS 123R using the modified prospective transition method. Under this transition method, compensation expense recognized during the nine months ended September 30, 2006 equals $103,000 and reflects (a) compensation expense for all share-based awards granted prior to December 31, 2005 but not yet vested, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation expense for all share-based awards granted subsequent to December 31, 2005 but not yet vested, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. Share-based awards involving 59,250 options were granted by the Company during the first nine months of 2006. In accordance with the modified prospective transition method, the Company’s Consolidated Financial Statements for prior periods have not been restated to reflect the impact of SFAS 123R.

The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the National Economic Research Associates, Inc. employee stock option pricing model with the assumptions included in the table below. The Company uses historical data among other factors to estimate the expected price volatility, the expected option life and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. The following table depicts the average of the assumptions that were used to estimate the fair value of options that remain outstanding at September 30, 2006.

Dividend yield	2.7%
Expected volatility	35.0%
Risk free interest rate	3.6%
Expected lives	6.0 years

Prior to January 1, 2006, the Company accounted for share-based employee compensation arrangements in accordance with the provisions and related interpretations of APB 25. Had compensation cost for share-based awards been determined consistent with SFAS No. 123R, the net income and earnings per share would have been adjusted to the following pro forma amounts for the three and nine-month periods ended September 30, 2005:

	Three months ended  September 30, 2005	Nine months ended  September 30, 2005
Net Income, as reported	$ 1,858,000	$ 2,239,000
Pro forma total share-based compensation as if  Statement 123R had been applied (zero tax rate)
	(18,000)	(53,000)
Net Income as reported for the 2006 period, pro forma for the 2005 period	$ 1,840,000	$ 2,186,000
Earnings per share:
Basic-as reported	$0.88	$1.06
Basic-pro forma	$0.87	$1.04
Diluted-as reported	$0.87	$1.04
Diluted-pro forma	$0.86	$1.01
Weighted Average Shares Outstanding	2,112,000	2,111,000
Weighted Average Diluted Shares Outstanding	2,132,000	2,161,000

Warrants

The Bank’s 2003 capital stock offering included the issuance of 721,581 warrants to purchase an aggregate of 180,395 common shares. The warrants expired on September 30, 2006. Upon the reorganization of the Bank into a holding company structure all outstanding warrants were assumed

9

and restated by the Company on the same terms and conditions as were the Bank’s. All shares of common stock of the Bank which remained available through the exercise of warrants on the date of reorganization were converted into the same number of warrants for shares of common stock of the Company. Four warrants were required to purchase one common share. Fractional shares were not issued in connection with the exercise of warrants. The exercise price of the warrants was $11.00 per whole share subject to adjustments for stock splits, recapitalization or other similar events. During the calendar quarter ended September 30, 2006, 619,985 of the warrants were exercised resulting in the issuance of 154,993 shares. As of September 30, 2006, a cumulative total of 682,264 warrants issued during 2003 had been exercised resulting in the issuance of a cumulative 170,566 common shares.

7. EARNINGS PER SHARE

A reconciliation of the weighted-average shares used in the basic and diluted earnings per common share computations for the three and nine months ended September 30, 2006 and 2005, respectively, is presented below:

	Three Months Ended September 30,
	2006		2005
Weighted-average shares outstanding:
Weighted-average shares outstanding—Basic		2,173,000		2,112,000
Dilutive securities		53,000		20,000
Weighted-average shares outstanding—Diluted		2,226,000		2,132,000

	Nine Months Ended September 30,
	2006		2005
Weighted-average shares outstanding:
Weighted-average shares outstanding—Basic		2,136,000		2,111,000
Dilutive securities		51,000		50,000
Weighted-average shares outstanding—Diluted		2,187,000		2,161,000

Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock. Options with an exercise price in excess of the average market value of the Company’s Common Stock during the period have been excluded from the calculation as their effect would be antidilutive. For the three months ended September 30, 2006 outstanding options totaling 156,000 shares were excluded from the calculations, as their effect would have been antidilutive. For the three months ended September 30, 2005, outstanding options totaling 99,000 shares were excluded from the calculations, as their effect would have been antidilutive. For the nine months ended September 30, 2006 and 2005, outstanding options totaling 156,000 and 99,000 shares, respectively, were excluded from the calculations, as their effect would have been antidilutive.

8.LOAN COMMITMENTS

Financial instruments with off-balance-sheet risk at September 30, 2006: Commitments whose contract amounts represent credit risk-
Commitments to originate loans	$	34,655,000
Unused lines of credit		10,300,000
Secured commercial lines of credit		24,241,000
Letters of Credit		3,272,000

9.MINIMUM REGULATORY CAPITAL REQUIREMENTS

The Company and the Bank are subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements and the Bank’s financial

10

statements. Under capital adequacy guidelines and the regulatory framework for Prompt Corrective Action (“PCA”), the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Management believes, as of September 30, 2006 that the Company and the Bank met all capital adequacy requirements to which they are subject.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of Total and Tier I Capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). The minimum ratios necessary for the Bank to be categorized as “Well Capitalized” are also reflected in the table below. At September 30, 2006, the Bank is categorized as “Well Capitalized” as defined by federal regulations. There are no conditions or events since the last filing with the FDIC that management believes have changed the Bank’s category.

September 30, 2006 (Dollars in Thousands)	Company					Bank					Minimum Capital Requirements			For Bank to be “Well Capitalized” under prompt corrective action provisions
	Amount		Ratio			Amount		Ratio
Leverage Ratio	$	25,388		9.08	%	$	22,931		8.20	%		4.00	%		5.00	%
Tier 1 risk-based ratio		25,388		12.40	%		22,931		11.22	%		4.00	%		6.00	%
Total risk-based ratio		27,946		13.65	%		25,489		12.47	%		8.00	%		10.00	%

ITEM 2- MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CNB Financial Corp. (the “Company”) is the parent of Commonwealth National Bank (the “Bank”), a national bank with five full-service branches located in the greater Worcester, Massachusetts area. The Company reports its financial results on a consolidated basis with the Bank.

The following analysis of financial condition and results of operations should be read in conjunction with the Company’s Consolidated Financial Statements and Notes contained in this report and the Company’s 2005 Annual Report on Form 10-KSB for the year ended December 31, 2005.

General

The operating results of the Company and the Bank depend primarily upon net interest income, which is the difference between interest income on interest-earning assets, primarily loans and investment securities, and interest expense on interest-bearing liabilities, primarily deposits. Net earnings are also affected by non-interest income and non-interest expense, such as compensation and benefits, building and occupancy expense, and other operating expenses.

This discussion and analysis covers material changes in financial condition and liquidity that have occurred since December 31, 2005 as well as the results of operations during the three and nine-month periods ended September 30, 2006.

Forward-looking Statements Safe Harbor Statement

This report may contain forward-looking statements that are subject to numerous assumptions, risks and uncertainties. Statements pertaining to future periods are subject to numerous uncertainties because of the possibility of changes in underlying factors and assumptions. Actual results could differ materially from those contained in or implied by such forward-looking statements for a variety of factors including: sharp and rapid changes in interest rates; significant changes in the economic scenario from the current anticipated scenario which could materially change anticipated credit quality trends and the ability to generate loans; significant delay in or inability to execute strategic initiatives designed to grow revenues and/or control expenses; and significant changes in accounting, tax or regulatory practices or requirements. Because of the risks and uncertainties inherent in forward-looking statements, readers are cautioned not to place undue reliance on them, whether included in this report or made elsewhere from time to time by the Company or on its behalf. The Company assumes no obligation to update any forward-looking statements.

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Critical Accounting Policies

The Company's significant accounting policies are described in Note 2 to the consolidated financial statements of the Company's Annual Report on Form 10-KSB for the year ended December 31, 2005 and Note 3 to the consolidated financial statements of this Form 10-QSB. Some of these policies are particularly sensitive, requiring significant judgments, estimates and assumptions to be made by management, most particularly in connection with determining the provision for loan losses and the appropriate level of the allowance for loan losses. Additional information is contained on page 15 of this Form 10-QSB for the provision and allowance for loan losses.

New Accounting Pronouncements

Effective January 1, 2006, the company adopted SFAS No. 123 (revised 2004), "Share-Based Payment" (“SFAS No. 123R”), which replaces SFAS No. 123 and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.  The Company adopted SFAS No. 123R using the modified-prospective transition method, which requires the Company, beginning January 1, 2006 and thereafter, to expense the grant date fair value of all share-based awards over their remaining vesting periods to the extent the awards were not fully vested as of the date of adoption and to expense the fair value of all share-based awards granted subsequent to December 31, 2005 over their requisite service periods.  During the three and nine month periods ended September 30, 2006, the Company recorded $39,000 and $103,000 of share-based compensation expense, respectively.  Previous periods have not been restated.  See Note 6 to the consolidated financial statements of this Form 10-QSB for further details.

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement 109 ("FIN 48").  FIN 48 clarifies the accounting for uncertainty with respect to income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109 Accounting for Income Taxes by providing guidance on the recognition, derecognition and classification of taxes, interest and penalties and the accounting during interim periods of uncertain tax positions including financial statement disclosure.  This interpretation will become effective for fiscal years beginning after December 15, 2006.  The Company is currently evaluating the impact the interpretation will have on the financial statements and believes that, when adopted, this interpretation will not have a material impact on the Company's financial condition or results of operations.

In February 2006 the FASB issued Statement No. 155, Accounting for Certain Hybrid Financial Instruments, (“FAS 155”). FAS 155 amends FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities and FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments, and allows an entity to remeasure at fair value a hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation from the host, if the holder irrevocably elects to account for the whole instrument on a fair value basis. FAS 155 is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. Management has not determined if the adoption of FAS 155 will have a material impact on the Company’s financial position or results of operations.

On September 13, 2006, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin (“SAB”) No. 108 expressing the SEC staff’s views regarding the process of quantifying financial statement misstatements. This SAB is addressing diversity in practice in quantifying financial statement misstatements and the build up of improper amounts on the balance sheet. The built up misstatements, while not considered material in the individual years in which the misstatement were built up, may be considered material in a subsequent year if a Company were to correct those misstatements through current period earning. Initial application of SAB No. 108 allows registrants to elect not to restate prior periods but to reflect the initial application in their annual financial statements covering the first fiscal year ending after November 15, 2006. The cumulative effect of the initial application should be reported in the carrying amounts of assets and liabilities as of the beginning of that fiscal year, and the offsetting adjustment, net of tax, should be made to the opening balance of retained earnings for that year. Registrants will need to disclose the nature and amount of each item, when and how each error being corrected arose, and the fact that the errors were previously considered immaterial. The Company is currently evaluating the impact this will have on its financial statements and will adopt SAB No. 108 in its annual report on Form 10-K for the year ending December 31, 2006.

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Executive Summary

During the most recent quarter and the 2006 year-to-date period the Company experienced net interest margin contraction, largely the result of the flat to inverted yield curve, competitive deposit pricing conditions and a shift towards higher cost categories to fund earning assets. In response to these conditions, the company took actions to reduce low net interest margin matches of asset and liabilities. Accordingly, total assets at September 30, 2006 had reduced by $8.7 million from the level at June 30, 2006 yet were $29.2 million or 12% higher than the level at December 31, 2005. In addition, the Company recorded $5,000 of net gains on the sale of investment securities available-for-sale. The sale transactions took advantage of market opportunities to restructure the investment portfolio to improve yield going forward. On July 31, 2006 the Company entered into a lease for 7704 square feet in a multi-tenant building at 67 Millbrook Street, Worcester, Massachusetts which will be used as an operations center. On August 14, 2006 the Company entered into a lease for a 1,800 square foot building at 26 West Boylston Street, West Boylston, Massachusetts which will be used as a branch location.

Results of Operations

Overview

The Company recorded net income of $177,000 for the three month period ended September 30, 2006, compared to $1,858,000 for the same period of 2005. The 2005 period included a $1,549,000 tax benefit as a result of the elimination of the tax loss carry-forward valuation allowance that had previously been provided. Both basic and diluted earnings per share were $0.08 for the third quarter of 2006 compared to $0.88 and $0.87 respectively for the third quarter of 2005. Pre-tax net income increased by 1% compared to the same quarter of last year as a net interest income increase of 6%, a zero provision for loan losses and a 36% increase in non-interest income in the 2006 period was mostly offset by a 19% increase in non-interest expense. Pre-tax net income for the nine-month period ended September 30^th equaled $937,000, compared to $673,000 for the same period of 2005, a 39% increase. Book value per share was $8.75 at September 30, 2006, an increase of $0.60 from the book value per share of $8.15 at December 31, 2005.

Analysis of Net Interest Income

Net interest income is the difference between the income the Company earns on interest earning assets such as loans and investments and the interest the Company pays for its deposits and borrowed funds. As the Company’s primary source of earnings, net interest income will fluctuate with interest rate movements. To lessen the impact of changes in interest rates, the Company endeavors to structure the balance sheet so that there will be regular opportunities to change the interest rates on (or “reprice”) many of the interest-bearing assets in order to match the variability of interest rates paid on the Company’s deposits and other interest bearing liabilities. Imbalance among interest bearing assets and liabilities at any point in time constitutes interest rate risk.

Net interest income equaled $2,123,000 for the three-month period ended September 30, 2006 compared to $2,003,000 for the same period of 2005; a 6% increase. For the nine-month period ended September 30, 2006, net interest income equaled $6,358,000 compared to $5,578,000 for the same period of 2005, a 14% increase. The tables on pages 14 and 15 depict the condensed quarterly averages of the major balance sheet categories that generate interest income or interest expense and the resulting asset yields or cost of funds for the three and nine-month periods ended September 30, 2006 compared to the same periods of 2005. The difference between asset yields and the cost of funds equals the net interest spread. The difference between interest income and interest expense equals net interest income, which is divided into the average balance of interest earning assets to arrive at the net interest margin. The total dollar amount of interest income from assets and the subsequent yields are calculated on a taxable equivalent basis.

Comparing the third quarter of 2006 to the same three-month period of 2005, the Company’s net interest margin declined to 3.13% from the year earlier period’s 3.61% as a result of the generally flat or inverted yield curve interest rate environment in the 2006 period, the growth of higher cost deposit and borrowed funds categories and the addition of subordinated debentures to the company’s liability structure. Asset yields increased by 76 basis points from period to period to equal 6.72% as the Company’s balance sheet responded to the higher level of market interest rates, in particular the increased level of the Company’s base lending rate versus the year-earlier period. However, a similar and more pronounced impact is noted in the cost of total deposits and borrowed funds, which increased by 126 basis points from period to period

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to equal 3.73% during the third quarter of 2006. The subordinated debentures (issued in December 2005) carried an average rate of 7.19% during the third quarter of 2006.

Comparing the first nine month period of 2006 to the same period of 2005, the Company’s net interest margin declined by 20 basis points from the year earlier period to equal 3.35% as a result of the flat or inverted yield curve interest rate environment in the 2006 period, the growth of higher cost deposit and borrowed funds categories and the addition of subordinated debentures to the company’s liability structure. Asset yields increased by 79 basis points from period to period as the Company’s balance sheet responded to the higher level of market interest rates. The cost of total deposits and borrowed funds increased by 102 basis points to equal 3.35% during the nine-month period of 2006. The subordinated debentures (issued in December 2005) carried an average rate of 6.79% during the first half of 2006. Management expects the declining margin will be mitigated or reversed upon the return to a more historically traditional slope of the yield curve.

Distribution of Assets, Liabilities and Stockholders’ Equity Yields and Rates

For the Three Months Ended September 30, 2006 and 2005

	Three Months Ended								Three Months Ended
(Dollars in Thousands)	September 30, 2006								September 30, 2005
(Fully Taxable Equivalent)	Average Balance			Interest Income and Expense (Taxable Equivalent)		Average Balance			Average Balance			Interest Income and Expense (Taxable Equivalent)		Average Balance
INTEREST EARNING ASSETS
Total Loans	$	196,782		$	3,675		7.41	%	$	168,787		$	2,812		6.61	%
Investments, Fed Funds and Int. Bearing Balances		73,913			912		4.90	%		51,624			498		3.82	%
Total Interest Earning Assets	$	270,695		$	4,587		6.72	%	$	220,411		$	3,310		5.96	%
Allowance for Loan Losses	$	(2,765	)						$	(2,370	)
Cash and Due from Banks		5,176								4,841
Premises and Equipment		2,146								1,888
Other Assets		5,951								1,445
Total Assets	$	281,203							$	226,215
INTEREST BEARING LIABILITIES
Savings, NOW and Money Market Deposits	$	43,312		$	185		1.69	%	$	58,489		$	265		1.79	%
Time Deposits		131,096			1,517		4.59	%		96,122			770		3.18	%
Borrowed Funds		52,178			608		4.63	%		31,812			270		3.37	%
Subordinated Debentures		7,500			138		7.19	%		-			-		-
Total Interest Bearing Liabilities	$	234,086		$	2,448		4.15	%	$	186,423		$	1,305		2.78	%
Demand Deposits		26,515								23,224
Total Deposits and Borrowed Funds	$	260,601		$	2,448		3.73	%	$	209,647		$	1,305		2.47	%
Other Liabilities		2,232								1,277
Stockholders' Equity		18,370								15,291
Total Liabilities and Stockholders' Equity	$	281,203							$	226,215
Net Interest Income				$	2,139							$	2,005
Interest Rate Spread							3.00	%							3.49	%
Net Yield on Interest Earning Assets
(Net Interest Margin)							3.13	%							3.61	%

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Distribution of Assets, Liabilities and Stockholders’ Equity Yields and Rates

For the Nine Months Ended September 30, 2006 and 2005

	Nine Months Ended								Nine Months Ended
(Dollars in Thousands)	September 30, 2006								September 30, 2005
(Fully Taxable Equivalent)	Average Balance			Interest Income and Expense (Taxable Equivalent)		Average Balance			Average Balance			Interest Income and Expense (Taxable Equivalent)		Average Balance
INTEREST EARNING ASSETS
Total Loans	$	189,102		$	10,251		7.25	%	$	160,412		$	7,669		6.39	%
Investments, Fed Funds and Int. Bearing Balances		65,749			2,246		4.57	%		49,672			1,401		3.77	%
Total Interest Earning Assets	$	254,851		$	12,497		6.56	%	$	210,084		$	9,070		5.77	%
Allowance for Loan Losses	$	(2,711	)						$	(2,222	)
Cash and Due from Banks		5,211								4,791
Premises and Equipment		1,989								1,944
Other Assets		4,289								1,289
Total Assets	$	263,629							$	215,886
INTEREST BEARING LIABILITIES
Savings, NOW and Money Market Deposits	$	48,695		$	650		1.78	%	$	54,900		$	681		1.66	%
Time Deposits		121,909			3,794		4.16	%		93,648			2,096		2.99	%
Borrowed Funds		40,687			1,284		4.22	%		29,296			709		3.23	%
Subordinated Debentures		7,500			387		6.79	%		-			-		-
Total Interest Bearing Liabilities	$	218,791		$	6,115		3.74	%	$	177,844		$	3,486		2.62	%
Demand Deposits		25,295								21,943
Total Deposits and Borrowed Funds	$	244,086		$	6,115		3.35	%	$	199,787		$	3,486		2.33	%
Other Liabilities		1,857								1,020
Stockholders' Equity		17,686								15,079
Total Liabilities and Stockholders' Equity	$	263,629							$	215,886
Net Interest Income				$	6,382							$	5,584
Interest Rate Spread							3.21	%							3.44	%
Net Yield on Interest Earning Assets
(Net Interest Margin)							3.35	%							3.55	%

Provision for Loan Losses

The Bank’s allowance for loan losses was increased by a charge to the provision for loan losses amounting to $164,000 during the first nine months of 2006 compared to a $440,000 provision that was added to the allowance during the same period of 2005. For the quarter ended September 30, 2006 no addition to the allowance was provided compared to $150,000 that was provided during the same period of 2005. Loans totaling $19,000 were charged off during the nine-months ended September 30, 2006. At September 30, 2006 the level of non-performing loans had declined to $115,000 versus the $1,287,000 level at December 31, 2005. The amount necessary to be provided to the allowance was lower as compared to prior periods,

15

yet still adequate to provide sufficient coverage for the risk inherent in the loan portfolio. At September 30, 2006 and December 31, 2006 the allowance for loan losses equaled 1.44% and 1.45% of total loans, respectively. Management, based upon known circumstances and conditions on individual loans, industry trends, regional and national economic conditions and estimates of the potential for losses, determines the necessary level of the allowance for loan losses.

Total Other Income

Total other income (non-interest income) consists primarily of service charges on deposits and other fee based services, including loan document preparation fees. This category equaled $154,000 for the three-month period ended September 30, 2006 and equaled $426,000 for the nine-month period ended September 30, 2006. The year-to-date amount reflects a 24% increase over the same period of 2005 while the third quarter comparison reflects a 36% increase over the corresponding 2005 period. The majority of the year-to-date increase related to increased volume of transactions in deposit accounts, as well as, increased activity involving loan origination document preparation. The third quarter and year-to-date periods of 2006 also include $5,000 of net gains upon the sale of available-for-sale investment securities versus none recorded in the earlier periods.

Operating Expense

Operating expense, alternatively known as non-interest expense, in the quarter ended September 30, 2006 totaled $1,966,000, an increase of 19% compared to the third quarter of 2005. Employee compensation and benefits expense increased 22% to $1,073,000 due to staff additions in the branches, lending, credit and operations areas, staff merit increases and the implementation of SFAS No. 123R Share-Based Payments. This recent accounting pronouncement resulted in an expense of $39,000 for the third quarter of 2006 and $103,000 on a year-to-date basis. During prior periods the Company was not required to recognize expense for this item and the impact was reflected in the financial statement footnotes on a pro-forma basis. Occupancy and Equipment costs increased by 12% to $291,000 for the quarter as costs associated with the new bank branch building and scheduled increases in lease costs were partially offset by savings in equipment service contract costs. Increased professional fees of $171,000, a 23% increase over the third quarter of 2005, were caused by higher legal, consulting and audit costs, as well as increased expenditures for shareholder relations and a higher level of appraisal activity. Data processing expense for the quarter increased by $24,000 or 32% over the prior year period to a level of $100,000 as a result of increased numbers of loan and deposit accounts maintained on the data processing systems, as well as increased levels of customer transactions. Advertising and public relations expense declined slightly compared to the prior year period to a level of $122,000 as a result of management’s strategy to attempt to reduce reliance upon high cost deposits which allowed for a reduction in local print advertisement.

Comparing operating expenses for the first nine months of 2006 to the same period of 2005 reflects an 18% increase. The factors causing the changes are all similar to those of the quarter to quarter comparison except that occupancy and equipment costs reflect a lower increase (4%) as this category benefited from relatively benign winter weather during the first calendar quarter, and advertising and public relations has increased 7% on a year to date basis.

Provision for Income Taxes

Income tax expense totaled $134,000 for the quarter ended September 30, 2006 and $415,000 for the full nine month period ended September 30, 2006. An income tax benefit was recorded during the third quarter of 2005. Prior to and during 2005, the Company maintained a valuation allowance against the deferred tax asset which resulted from tax loss carry-forwards. During the third quarter of 2005, the Company reversed the remaining valuation allowance. Since the third quarter of 2005 the Company has recorded income tax expense at approximately the applicable statutory rate adjusted for permanent items. The tax loss carry-forwards will offset the liability for taxes payable during the current and future periods until the deferred tax asset is exhausted or expires. At September 30, 2006 the available tax-loss carry-forwards approximate $1.3 million. These carry-forwards expire through 2023 and are subject to review and possible adjustment by the Internal Revenue Service.

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Financial Condition

Overview

Total assets were $278,585,000 at September 30, 2006, compared to $249,411,000 at December 31, 2005, an increase of $29.2 million or 12%. Loans have increased 6% since the beginning of the year to equal $191.1 million at September 30, 2006. Investment securities total $66.4 million and have increased $17.7 million or 36% since December 31, 2005. The aggregate of deposits and borrowed funds have increased 11% since December 31, 2005 to equal $256.4 million at the end of the third quarter.

Loans

The company’s core asset strategy is to grow loans, primarily commercial loans. The loan portfolio increased by $10.3 million or 6% since December 31, 2005 as commercial and industrial loans increased by $13.2 million, commercial real estate declined by $0.2 million, residential real estate loans declined by $0.2 million and consumer loans declined by $2.5 million. The allowance for loan losses increased to $2,760,000 as of September 30, 2006 as a result of a $164,000 provision charge to earnings during the first nine months of the year less $19,000 of loan charge-offs. Non-performing loans at September 30, 2006 equaled $115,000 compared to $1,287,000 at December 31, 2005, a decrease of $1.2 million. At September 30, 2006 the allowance for loan losses equaled 1.44% of total loans versus 1.45% at December 31, 2005 and 1.43% at September 30, 2005. Management, based upon known circumstances and conditions, determines the level of the allowance for loan losses. In addition to assessing risk on individual loans, the Bank considers industry trends, regional and national economic conditions. In addition to the allowance for loan losses, the Bank maintains a separate liability account as a reserve for the potential of losses on currently unfunded loan commitments. At September 30, 2006 this reserve equaled $61,000.

Investment Securities

The investment securities portfolio is mainly used to invest excess funds, provide liquidity and as a tool for the management of interest rate risk. Investment securities available-for-sale are carried at estimated fair value and totaled $53,633,000 at September 30, 2006, an increase of $14.0 million or 35% from the balance at December 31, 2005. Similarly, investment securities classified as held-to-maturity were $12,734,000 at September 30, 2006, an increase of $3.6 million or 40% from December 31, 2005. The majority of the portfolio’s growth compared to the year-end level occurred during the second quarter of 2006 and was primarily funded by short term FHLB advances. The Company has the ability and intent to hold these investment securities until a price recovery, which could be until maturity, and therefore considers them to be other-than-temporarily impaired at September 30, 2006.

Deposits

Deposits are the Bank’s primary source of funds, yet total deposits decreased slightly from December 31, 2005 (by $0.3 million) to equal $189.2 million at September 30, 2006. The certificates of deposit portfolio increased by $14.9 million or 14% since December 31, 2005. Demand deposit accounts declined by $0.5 million and the aggregate of personal and commercial money market, NOW accounts and savings accounts declined by $14.6 million or 24% during the nine months since December 31, 2005. A large portion of this balance decline shifted directly into higher cost time deposits. Given the difficult interest rate environment that has existed during most of 2006 the Company chose to alter its deposit pricing strategy in an effort to reduce reliance on high cost deposits. To attract new core depositors, the Bank conducts deposit promotion campaigns that are comprised of newspaper, radio and outdoor advertisements, competitive pricing and in-branch promotions. These programs continue to generate significant increases in customer relationships. Management believes that the new relationships that result from these marketing efforts provide valuable opportunities to cross sell other deposit and loan products and services, as well as build a solid base of core deposits. On July 17, 2006 the Company opened a new bank branch at 1393 Grafton Street in Worcester, Massachusetts, thereby expanding the bank’s geographic reach and its ability to generate deposit growth. Another branch will open on November 6,2006 at 26 West Boylston Street, West Boylston, Massachusetts.

Off-Balance Sheet Arrangements

The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments, held for purposes other than trading, include commitments to originate loans, unused lines of credit and commercial and standby letters of credit. 

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For additional information regarding these financial instruments, please refer to Note 8 to the financial statements accompanying this Quarterly Report and Note 10 to the financial statements accompanying the Company's Annual Report on Form 10-KSB.

Liquidity and Capital Resources

Liquidity represents the Bank’s ability to generate adequate amounts of funds to meet its needs for cash. Specifically, liquidity ensures that adequate funds are available to fund loan demand, meet deposit withdrawals, maintain reserve requirements, pay operating expenses and satisfy other institutional commitments. The Bank’s ability to maintain and increase deposits will serve as its primary source of liquidity. Secondary sources of liquidity are principal and interest payments on loans and scheduled maturities of the investment portfolio. In addition, the liquidity is supplemented through the use of borrowings. The parent company entity maintains cash balances that are available to pay the interest expense associated with the subordinated debentures and to pay normal holding company related operating expenses. These cash balances are considered sufficient to provide adequate liquidity for the payment of these expenses until such time that the bank is permitted to pay dividends to the parent company.

The primary investing activity of the Bank is the origination of loans to businesses and individuals. The primary financing activity of the Bank is accepting demand, savings and time deposits from businesses and individuals. Advances (borrowings) from the FHLBB are another source of funding for the Bank.

The Bank anticipates that it will have sufficient funds available to meet commitments outstanding and to meet loan demand. In estimating uses of funds, cash requirements for expected loan originations and initial funding amounts of those loans for the forward looking 90-day period are constantly developed, reviewed and evaluated. Estimating the expected deposit trends for the ensuing 90-day period projects the primary source of funds. Expected changes in the interest rate environment are considered when estimating loan originations and pay-downs, as well as, deposit flows. Mismatches between expected uses and sources of funds identify the need to adjust the level of the Bank’s investment portfolio or the level of borrowed funds.

Stockholders’ equity at September 30, 2006 was $19,988,000, an increase of $2,762,000 from December 31, 2005. The increase was primarily due to the nine-month earnings of $522,000, the exercise of common stock warrants for 170,000 shares generating $1,869,000, the $103,000 impact of the accounting treatment for share-based compensation and the $268,000 decrease in the unrealized loss on available-for sale investment securities (net of taxes) to a level of $146,000.

Under applicable provisions of federal law, the Company and the Bank must meet specific quantitative capital requirements. As of September 30, 2006, the Company’s and the Bank’s Tier One Leverage Capital ratios were 9.08% and 8.20%, respectively. The Bank’s Tier One and Total Risk Based Capital ratios were 11.22% and 12.47%, respectively. These levels of capital place the Company and the Bank above the regulatory guidelines and requirements, which provides the opportunity to take advantage of business opportunities while ensuring that it has the resources to protect against risk inherent in its business.

Item 3 - Controls and Procedures

(a)The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures. Based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective as of the end of the fiscal quarter covered by this report.

As used herein, “disclosure controls and procedures” mean controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 (b)There have not been any changes in the Company’s internal control over financial reporting during the Company’s last fiscal quarter that have materially affected, or which are reasonably likely to materially affect, the Company’s internal control over financial reporting.

18

PART II

Item 1 - Legal Proceedings

Not applicable

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

Item3 - Defaults Upon Senior Securities

Not applicable

Item 4 - Submission of Matters to Vote of Security Holders

Not applicable

Item 5 - Other Information

On August 14, 2006, the Bank entered into a lease with John W. Hadley and Catherine M. Hadley for a building located at 26 West Boylston Street, West Boylston, Massachusetts.The building will be used as a bank branch.The term of the lease is ten (10) years, commencing on July 1, 2006 and ending on June 30, 2016.Under terms of the lease, base rent is $2,400 per month during the first year with a 3% increase each year.The lease provides for the Bank’s right to extend the lease for three (3) additional five (5) year terms, each with a 3% annual increase in rent.

On July 25, 2006, the Bank entered into a lease with Worcester Millbrook LLC for 7,704 square feet of office space in a multi-tenant building located at 67 Millbrook Street, Worcester, Massachusetts.The premises will house a portion of the Bank’s staff functions. The term of the lease is five (5) years, commencing on October 1, 2006 and ending on September 30, 2011.Under terms of the lease, the Bank will pay monthly rent of $7,381, including utilities.  The lease provides for the Bank’s right to extend the lease for one additional five (5) year period with the monthly rents equal to $9,250 during the first extended year and increasing approximately 5% each year to the monthly amount of $10,750 during the last year of the five year extended period.

Item 6 - Exhibits

Exhibit Number	Description
Exhibit 3(i)	Articles of Organization (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K12g3 as filed with the Securities and Exchange Commission on December 19, 2005)
Exhibit 3(ii)	Bylaws (incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K12g3 as filed with the Securities and Exchange Commission on December 19, 2005)
Exhibit 10.1	Lease for 26 West Boylston Street, West Boylston, Massachusetts
Exhibit 10.2	Lease for 67 Millbrook Street, Worcester Massachusetts
Exhibit 31.1	Rule 13a-14(a)/15d-14(a) certification of the Chief Executive Officer
Exhibit 31.2	Rule 13a-14(a)/15d-14(a) certification of the Chief Financial Officer
Exhibit 32	Section 1350 certifications of the Chef Executive Officer and Chief Financial Officer

19

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CNB FINANCIAL CORP.
Date: November 6, 2006	By:/s/ Charles R. Valade
	Charles R. Valade
	President and Chief Executive Officer
Date: November 6, 2006	By: /s/ William M. Mahoney
	William M. Mahoney
	Treasurer & Chief Financial Officer

20

EXHIBIT INDEX

Exhibit Number	Description
Exhibit 3(i)	Articles of Organization (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K12g3 as filed with the Securities and Exchange Commission on December 19, 2005)
Exhibit 3(ii)	Bylaws (incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K12g3 as filed with the Securities and Exchange Commission on December 19, 2005)
Exhibit 10.1	Lease for 26 West Boylston Street, West Boylston, Massachusetts
Exhibit 10.2	Lease for 67 Millbrook Street, Worcester Massachusetts
Exhibit 31.1	Rule 13a-14(a)/15d-14(a) certification of the Chief Executive Officer
Exhibit 31.2	Rule 13a-14(a)/15d-14(a) certification of the Chief Financial Officer
Exhibit 32	Section 1350 certifications of the Chef Executive Officer and Chief Financial Officer

21

EX-10.1

LEASE

SECTION 1

REFERENCE INFORMATION

1.1Reference Information

Reference in this Lease to any of the following shall have the meaning set forth below:

Premises:	The portion (shown on Exhibit A as Number 1) of the building (the "building")
	known as West Boylston Centre, West Boylston, Massachusetts (the "Lot"),
	together with the right to use Tenant's proportionate fraction of the parking
	provided on the Lot from time to time as further described at section 11.8
Landlord:	John W. Hadley & Catherine M. Hadley
Landlord's address:	P.O. Box 388
	West Boylston, MA 01583
Tenant:	Commonwealth National Bank
Tenant's address:	33 Waldo Street
	Worcester, MA 01608
Rent commencement:	July 1, 2006
Term expiration date:	The date which is ten (10) years from the frst day of the month of the Rent
	Commencement Date.
Extension term(s):	Options to extend for three (3) additional terms of fve (5) years each
	(individually and collectively, the "Extension Term") as provided at Section 2.3,
	with rent to be determined as provided below.
Annual rental rate for	Base rent for the first year will be 52,400/mo. with a 3% increase
Years 1 through 5 (2006,	every year. The rental payments are to be paid on the first day of
through 2011):	each month in twelve (12) equal payments.
Permitted uses:	Banking, Financial and Investment Products and Services with
	Drive Thru Services and such other uses as are permitted as of right at the
	Premises subject to Landlord's reasonable approval, such approval not to be
	unreasonably withheld, conditioned or delayed. The withholding of the
	Landlord's approval because any proposed use would compete with the activities
	of another tenant in the Shopping Center, or such proposed use would violate
	any term of a lease with another tenant in the Shopping Center, shall in no event
	be deemed unreasonable. The parties further agree that as long as Tenant
	occupies the Premises under this Lease, the Landlord shall not lease space at the
	Shopping Center or allow another occupant of the Shopping Center to operate as
	a bank or operate an ATM.
Public liability insurance	Bodily injury and property damage combined single limit of
limit:	52,000,000 per occurrence, $2,000,000 aggregate. The Landlord shall be named
	on the insurance policy as an additional insured. A renewal certificate must be received by the Landlord no later than 30 (thirty) days before expiration of said policy. The insurance carrier shall be an A-rated company or higher as rated by A.M. Best's Insurance Guide.

SECTION 2

PREMISES AND TERM

2.1Premises

Landlord hereby leases and demises the premises to Tenant, and Tenant hereby leases the premises from Landlord subject to any and all existing encumbrances and other matters of record and subject to the terms and provisions of this Lease.

The Premises are a part of a larger parcel of land consisting of the Property that the Landlord has developed into a shopping center more particularly described on Exhibit A, attached hereto and made a part hereof (the "Shopping Center"). Those portions of the Shopping Center intended to be for the common use of the Tenant and other tenants and occupants of the Shopping Center are collectively referred to as the "Common Area" or the "Common Areas".

The Tenant has the complete responsibility for build out of the leased premises. This lease is subject to Tenant obtaining a building permit and all approvals necessary from the town o f West Boylston, and pertaining to all operations of a branch bank including, but not limited to a drive-through operation.

2.2 Term

To have and to hold the Premises for an original term beginning on the term commencement date and continuing until the term expiration date, unless sooner terminated, or extended, as hereinafter provided.

2.3 Option to Extend Term

Tenant shall have three (3) options to extend the term of this Lease for five (5) year extension term(s) provided (i) no default in the obligations of the Tenant under this Lease shall exist at the time such option is exercised and (ii) Tenant shall give written notice to Landlord of its exercise of such option not less than one hundred and eighty (180) days prior to expiration of the original or then extended tern, as the case may be. All of the terms and provisions of this Lease shall be applicable during the extension term(s), except that Tenant shall have no option to extend the term of the lease beyond the extension term(s).

SECTION 3

FIXEDAND MARKET RENT

3.1Fixed Rent

Tenant shall pay rent to the Landlord at the address of the Landlord or at such other place, or to such other person or entity, as the Landlord may by notice to Tenant from time to time direct, at the annual fixed rental rate set forth in Section 1, in equal installments equal to one-twelfth (1/12th) of the annual fixed rental rate in advance on or before the first day of each calendar month included in the term, and for any portion of a calendar month at the beginning or end of the term, at that rate payable in advance for such portion

Tenant shall pay as additional rent a late charge equal to five percent (5%) of the amount of any fixed rent, additional rent, or other charges not paid within 10 days of when due hereunder.

SECTION 4

INSURANCE

4.1 Tenant's Insurance

Tenant shall maintain throughout the term the following insurance:

a. commercial general liability for any injury to person or property occurring on the Premises or in the drive-through

area, as shown on Exhibit A attached hereto, naming as additional insureds Landlord and such persons, including,

without limitation. Landlord's managing agent and mortgage lenders, as Landlord shall designate from time to time,

in amounts that shall, at the beginning of the term, be at least equal to the limits set forth in Section 1, and, from time

to time during the term, shall be for such higher limits as are customarily required for Tenant's operations; and

b. worker's compensation insurance with statutory limits covering all of Tenant's employees working at the

Premises.

c. Tenant shall be responsible for assurance and verification of liability and workman's comp insurance of all contractors or subcontractors providing any construction/build out services to tenant regarding the subject property.

4.2 Landlord's Insurance

Landlord shall maintain throughout the term the following insurance:

a. commercial general liability for any injury to person or property occurring on the lot or building or the Shopping Center, in such amounts and with such deductibles as are customarily required for shopping centers in Worcester, Massachusetts;

b. all-risk fire and casualty insurance on a replacement value, agreed-amount basis together with rental loss coverage and, if the Landlord so elects, floor coverage to the extent the same is available, insuring the building and its rental value, with such deductibles, if any, as Landlord shall consider appropriate; and

c. at Landlord's option, insurance against loss or damage from sprinklers and from leakage or explosions or cracking of boilers, pipes carrying steam or water, or both, pressure vessels or similar apparatus. in the so-called broad form, in such amounts and with such deductibles as Landlord may consider appropriate and insurance against such other hazards and in such amounts as may from time to time be required by any bank, insurance company, or other lending institution holding a mortgage on the building.

4.3 Requirements Applicable to Insurance Policies

All policies of insurance required under the provisions of Section 4.1 shall be obtained from responsible companies qualified to do business in the Commonwealth of Massachusetts and in good standing therein. Tenant agrees to furnish Landlord with insurance company certificates of all such insurance and copies of the policies prior to the beginning of the Term hereof and of each renewal policy at least thirty (30) days prior to the expiration of the policy it renews. Each such policy shall be noncancellable with respect to the interest of the Landlord and Landlord's mortgages without at least thirty (30) days prior written notice thereto.

SECTION 5

TAXES, UTILITIES,

COMMON AREA MAINTENANCE EXPENSES

5.1Utilities

All utilities will be separately metered (or sub-metered) to the Tenant's rental space. and Tenant shall be solely responsible for all utilities during the Term or any renewal thereof including, but not limited to, heat, hot water, electricity, and water and sewer charges.

Expenses which Tenant shall be responsible for shall not include:

(i) Costs incurred because the Landlord or another tenant violated the terms of any lease;

(ii) Repairs or other work needed because of fire, windstorm or casualty against the Landlord;

(iii) Costs, fines or penalties incurred because Landlord violated any Governmental rule or authority;

(iv) Costs incurred by Landlord for alterations that are considered capital improvements and replacements under generally accepted accounting principals consistently applied except that the annual amortization of these costs may

be included;

(v) Costs incurred to survey, clean up, contain, abate, remove or otherwise remedy hazardous wastes or asbestos containing materials from the Premises, building or the Shopping Center.

5.2 Taxes

The Tenant shall pay a pro rata share of the total tax bill for the shopping plaza property, pro rated from June 1, 2006, and to be paid bi-annually, with 50% of said amount due on December 31^st and 50% due on June 30th of the respective fiscal year, Landlord to provide tenant with copies of tax bills no less than 30 days prior to the date the said payment is due.

SECTION 6

LANDLORD'S COVENANTS

6.1 Common Area Maintenance

Subject to Sections 7 and 8, Landlord shall maintain and repair the Common Areas, including the parking lot and any landscaping or plantings at the Shopping Center, and Landlord shall clean and provide snow plowing for all of the Common Are, including the drive-through area;

6.2 Trash

Landlord shall provide a trash receptacle(s) in the dumpster enclosure(s). Tenant shall breakdown or compact cardboard prior to placing receptacle and place same in separate cardboard receptacle, if directed by the Landlord. Tenant will bag and place its trash and garbage in the trash receptacle provided by the Landlord. No material will be placed in the trash boxes or receptacles if such material may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage without being in violation of any law or ordinance governing such disposal. All garbage and refuse disposal will be made only through entryways and elevators provided for such purposes and at such times as Landlord designates. Removal of any furniture or furnishings, large equipment, package crates, packing materials and boxes will be the responsibility of each tenant. Such items may not be disposed of in the Building trash receptacles, nor will they be removed by the Building's janitorial service, except at Landlord's sole option and at the Tenant's expense. No furniture, appliances, equipment, or flammable products of any type may be disposed of in the Building trash receptacles. Tenant may at its option and expense secure its own trash disposal services.

SECTION 7

TENANT'S COVENANTS

7.1Use

Tenant shall use the premises only for the permitted uses and shall from time to time procure all licenses and permits necessary therefore at Tenant's sole expense.

7.2 Repair and Maintenance

Except otherwise provided in Section 6 and 8, Tenant shall keep the Premises, including all plumbing, electrical, heating, air-conditioning and other systems therein and exclusively serving the Premises, in good order, condition, and repair and in at least as in good order, condition, and repair as they are in on the commencement date or date installed if put in during the term, only reasonable use and wear expected. However, with the exception of the air conditioning system, Tenant will only be responsible for inside maintenance and repairs; exterior, ie. from the exterior of building out, shall remain Landlord's responsibility. Tenant shall make all repairs and replacements and do all other work necessary for the foregoing purposes whether the same may be ordinary or extraordinary, foreseen or unforeseen. Tenant shall keep in a safe, secure, and sanitary condition all trash and rubbish temporarily stored at the premises in connection with Tenant's use of the premises. The maintenance of the drive-through area physical premises shall be the responsibility of the Tenant, but snow removal, etc. will be the responsibility of the Landlord.

7.3 Compliance with Law and Insurance Requirements

Tenant shall make all repairs, alterations, additions, or replacements to the Premises required by any law or ordinance, or any order or regulation of any public authority arising from Tenant's specific use of the premises, and shall keep the premises equipped with all safety appliances so required. Tenant shall not dump, fush, or in any way introduce any hazardous substances or any other toxic substances into the septic, sewage, or other waste disposal system serving the premises, or generate, store, or dispose of hazardous substances in or on the premises, or dispose of hazardous substances from the premises to any other location without prior written consent of Landlord and then only in compliance with the Resource Convention and Recovery Act of 1976, as amended, 42 U.S.C. § 6901 et sq.; the Massachusetts Hazardous Waste Management Act, G.L. c. 21 C, as amended: the Massachusetts Oil and Hazardous Material Release Prevention and Response Act, G.L. c. 21 E, as amended; and all other applicable codes, regulations, ordinances, and laws. Tenant shall notify Landlord of any incident that would require fling of a notice under Chapter 232 of the Acts of 1982 and shall comply with the orders and regulations of all government authorities with respect to zoning, building, fire, health, and other codes, regulations, ordinances, or laws applicable to the premises. "Hazardous substances" as used in this section shall mean "hazardous substances" as defined in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, U.S.C. § 9601, and regulations adopted pursuant to said act.

Landlord may, if it so elects, after notice to Tenant and provided Tenant has no reasonable objection to such work, make any repairs, alterations, additions, or replacements referred to in this section that affect the building structure or the building systems, and Tenant shall reimburse Landlord for the cost thereof on demand. Tenant will provide Landlord, from time to time on Landlord's request, with all records and information regarding any hazardous substance maintained on the premises by Tenant.

Landlord shall have the right, at its expense, during Tenant's regular business houses, with reasonable advance notice, to make such inspections as Landlord shall reasonable elect from time to time to determine if Tenant is complying with this section.

Tenant shall comply promptly with the recommendations of any insurer, foreseen or unforeseen, ordinary as well as extraordinary, that may he applicable to the premises by reason of Tenant's use thereof. In no event shall any activity be conducted by Tenant on the premises that may give rise to any cancellation of any insurance policy or make any insurance unobtainable.

7.4 Tenant's Work

Tenant will be responsible for renovations, improvements, and maintenance thereof to the premises during the term of the lease. The Tenant shall be responsible for the fabrication and installation of its sign panel on the main sign structure. Tenant shall be entitled to erect and shall be responsible for the purchase, installation, and maintenance of two (2) lit signs on the premises. Any such sign shall not cover more than thirty (30) square feet of wall area measured by the perimeter combined sign element(s). Tenant shall also have the right to install directional signs at the corner indicating of the entrance and exit of the Premises and the drive through and ATM areas. Any sign and the method and location of installation must comply with all laws, regulations and ordinances, must have proper permits, and must be approved by the Landlord prior to its installation. Landlord shall not unreasonable withhold any such approval. Tenant shall not make any other exterior or structural or interior non-structural (costing more than $10,000 in each instance) installations, alterations, additions, or improvements in or to the Premises, including, without limitation, any apertures in the walls, partitions, ceilings, or floors, without on each occasion obtaining the prior written consent of the Landlord. Any such work si approved by Landlord shall be performed only in accordance with plans and specifications that are certified by a licensed architect and approved by Landlord. Tenant shall procure at Tenant's sole expense all necessary permits and licenses before undertaking any work on the Premises and shall perform all such work in a good and workmanlike manner, employing materials of good quality and so as to conform with all applicable zoning, building, fire, health, and other codes, regulations, ordinances, and laws, and with all applicable insurance requirements. Tenant shall keep the premises all times free of liens for labor and materials. Tenant shall require all contractors employed by Tenant to carry workers' compensation insurance in accordance with statutory requirements and comprehensive public liability insurance covering such contractors on or about the

premises in amounts that at least equal the limits set forth in Section 1 and to submit certificates evidencing such coverage to Landlord prior to the commencement of such work. Tenant shall save landlord harmless and indemnified from all injury, loss, claims, or damage to any person or property occasioned by, or growing out of such work. Landlord may inspect the work of Tenant at reasonable times and give notice of observed defects.

7.5 Indemnity

Tenant shall defend, with counsel, all actions against Landlord; any partner, trustee, stockholder, officer, director, employee, or beneficiary of Landlord; holders of mortgages secured by the building: and any other party having an interest in the Premises ("indemnified parties") with respect to, and shall pay, protect. indemnify, and save harmless, to the extent permitted by law, all indemnified parties from and against, any and all liabilities, losses, damages, costs, expenses (including reasonable attorneys' fees and expenses), causes of action, suits, claims, demands, or judgments of any nature arising from (a) injury to or death of any person, or damage to or loss of property, occurring on the Premises or connected with the use, condition, or occupancy of any thereof unless caused by the negligence of Landlord or its servants or agents; (b) violation of this Lease by Tenant; © for any and all claims arising on, or from the use of, the drive-through area described in Exhibit A attached hereto, it being the intent of the parties that the Tenant shall have complete and sole responsibility for such drive-through area; or (d) any act, fault, omission, or other misconduct of Tenant or its agents, contractors, licensees, sublessees, or invitees.

7.6 Landlord's Right to Enter

Due to the security inherent in banking operations, Landlord and Tenant agree that Landlord and its representatives shall not enter the Premises without being accompanied by the Tenant. The parties further agree that Tenant shall pen-nit Landlord and its agents to enter the premises at reasonable times and on reasonable notice during Tenant's regular business hours (except in the case of emergencies consisting or imminent threats to the safety and/or integrity of the Premises, building or Shopping Center, in which event Landlord shall endeavor, to the extent practicable, to notify the emergency contact representative of the Tenant designated for such purposes prior to entering the Premises) to examine the Premises; make such repairs and replacements as Landlord may elect, without, however, any obligation to do so; and show the Premises to prospective purchasers and landers, and, during the last year of the term, to prospective tenants and to keep affixed in suitable places notices of availability to the Premises. Until further notice to Landlord, the Tenant's designated official for emergency contact and access purposes is: Andrea White whose pone numbers are: (1) Work (508) 793-8368; (ii) Cell (508) 612-9526; and (iii) Home (508) 234-4463.

7.7 Personal Property at Tenant's Risk

All furnishings, fixtures, equipment, effects, and property of every kind of Tenant and of all persons claiming by, through, or under Tenant that may be on the premises shall be at the sole risk and hazard of th Tenant, and if the whole or any part thereof shall be destroyed or damages by fire, water, or otherwise, or by the leakage or bursting of water pipes, steam pipes, or other pipes, or by theft, or from any other cause, no part of such loss or damage shall be the responsibility of the Landlord, except that Landlord shall in no event be indemnified or held harmless or exonerated from any liability to Tenant for any injury, loss, damage, or liability not covered by Tenant's insurance to the extent prohibited by law. Tenant shall insure Tenant's personal property.

7.8 Payment of Landlord's Cost of Enforcement

Tenant shall pay, on demand, Landlord's expenses, including reasonable attorneys' fees, incurred in enforcing any obligation of Tenant under this lease or in curing any default by Tenant under this Lease provided in Section 9.4.

7.9 Yield Up

At the expiration of the term or earlier termination of this Lease, Tenant shall surrender all keys to the premises, remove all of its trade fixtures and personal property in t he premises, remove such installations and improvements made by Tenant (after the completion of the Tenant's work described in Exhibit B of this Lease) as Landlord may request and all Tenant's signs wherever located, repair all damage caused by such removal, and yield up the premises (including all installations or improvements made by Tenant except for trade fixtures and such installations and

improvements made by Tenant as Landlord shall request Tenant to remove) broom clean and in the same good order and repair in which Tenant is obliged to keep and maintain the premises under this Lease. Any property not so removed shall be deemed abandoned and may be removed and disposed of by Landlord in such manner as Landlord shall determine, and Tenant shall pay Landlord entire cost and expense incurred by it in effecting such removal and disposition in making any incidental repairs and replacements to the premises and for use and occupancy during the period of expiration of the term and prior to Tenant's performance of its obligations under this Section 7.9.

7.10 Estoppel Certificate

On not less than ten (10) business days' prior notice by landlord, Tenant shall execute, acknowledge, and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect and that, except as stated herein, Tenant has no knowledge or any defenses, offsets, or counterclaims against its obligations to pay fixed rent and additional rent and any other charges and to perform its other covenants under this lease (or, if there have been any modifications, the same is in full force and effect as modified and stating the modifications and, if there are any defenses, offsets, or counterclaims, setting them forth in reasonable detail), the dates to which the fixed rent and additional rent and other charges have been paid and a statement that Landlord is not in default hereunder (or if in default, the nature of such default, in reasonable detail). Any such statement delivered pursuant to this Section 7.10 may be relied on by any prospective purchaser or mortgagee of the building.

7.11 Landlord's Expenses Regarding Consents

Tenant shall reimburse Landlord promptly on demand for all reasonable legal and other expenses incurred by Landlord in connection with all requests by Tenant for consent or approval hereunder.

7.12 Rules and Regulations

Tenant shall comply with such reasonable rules and regulations as may be adopted from time to time by Landlord to provide for the beneficial operation of the lot and building.

7.13 Holding Over

Tenant shall vacate premises immediately upon the expiration or sooner termination of this Lease. If tenant retains possession of the premises or any part thereof after the termination of the term without Landlord's express consent, Tenant shall pay Landlord rent at double the monthly rate for total rent specified in Section I for the time Tenant thus remains in possession and, in addition thereto, shall pay Landlord for all damages, consequential as well as direct, sustained by reason of Tenant's retention of possession. The provisions of this section do not exclude Landlord's rights of reentry or any other right hereunder, including, without limitation, the right to refuse triple the monthly rent and instead remove the Tenant through summary proceedings for holding over beyond the expiration of the term of this Lease.

7.14 Assignment and Subletting

Tenant shall not assign, transfer, mortgage, or pledge this Lease or grant a security interest in Tenant's rights hereunder or sublease (which term shall be deemed to include the granting of concessions and licenses and the like) all or any part of the premises or suffer or permit this Lease or the leasehold estate hereby created or any other rights arising under this Lease to be assigned, transferred, or encumbered, in whole or in part, whether voluntary, involuntary, or by operation of law, or permit the occupancy of the premises by anyone other than Tenant without Landlord's prior written consent. Any attempted assignment, transfer, mortgage, pledge, grant of security interest, sublease, or other encumbrance, except with prior written approval thereof from Landlord, shall be void. No assignment, transfer, mortgage, grant of security interest, sublease, or other encumbrance, whether or not approved, and no indulgence granted by Landlord to any assignee or sublessee, shall in any way impair the continuing primary liability (which after an assignment shall be joint and several with the assignee) of Tenant hereunder, and no approval in a particular instance shall be deemed to be a waiver of the obligation to obtain Landlord's approval in any other case.

Within thirty (30) days after Landlord's receipt of any request for consent under the preceding paragraph, Landlord

may, at its option by notice to Tenant, elect to terminate this Lease in the case of a proposed assignment or proposed sublease of the entire premises. Upon such termination, Tenant shall have no further liability under this Lease. Tenant may assign this Lease and sublet the Premises without the Landlord's consent if such subletting or assignment is to a subsidiary or any entity controlled by or under common control with Tenant or by virtue of a merger or other reorganization or by a sale of substantially all of the Tenant's assets. Any assignment or subletting (whether with Landlord's consent or in an instance not requiring Landlord's consent), shall not relieve the tenant of any liability hereunder, however, if for any assignment or sublease Tenant shall receive rent or other consideration, either initially or over the term of the assignment or sublease. in excess of the rent called for hereunder (or in the case of the sublease of part, in excess of such rent allocable to the part) after appropriate adjustments to assure that all over payments called for hereunder are taken into account, Tenant shall pay to Landlord, as additional rent, one-half (%) of such excess of such payment of rent or other consideration received by Tenant, promptly after it's receipt.

7.15 Overloading and Nuisance

Tenant shall not injure, overload, deface, or otherwise harm the premises; commit any nuisance, permit the emission of any objectionably noise, vibration, or odor; make allow or suffer any waste; or make any use of the premises that is improper, offensive, or contrary to any law or ordinance that will invalidate any of Landlord's insurance. Landlord agrees that it shall impose these same restrictions on all other tenants of the Shopping Center.

SECTION 8

CASUALTY OR TAKING

8.1 Termination

In the event that greater than twenty-five percent (25%) of the building or the lot shall be taken by any public authority for any public use or destroyed by the action or any public authority (a "taking"), this Lease may be terminated by either Landlord or Tenant effective on the effective date of the taking. In the event that the premises shall be destroyed or damaged by fire or casualty (a "casualty") and if Landlord's architect, engineer, or contractor shall determine that it will require in excess of one hundred eighty (180) days from the date or the casualty to restore the premises, this lease may be terminated by either the Landlord or Tenant by notice to the other within thirty (30) days after the casualty. In the case of a taking, such election, which may be made notwithstanding the fact that Landlord's entire interest may have been divested, shall be made by the giving of notice by Landlord or Tenant to the other within thirty (30) days after Landlord or Tenant, as the case may be, shall receive notice of the taking.

8.2 Restoration

In the event of a taking or a casualty, if neither Landlord nor Tenant exercises the election to terminate provided in Section 8.1, this lease shall continue in force and a just proportion of the fixed rent and other charges hereunder, according to the nature and extent of the damages sustained by the Premises and the Shopping Center, including access thereto, but not in excess of an equitable portion of the net proceeds of insurance recovered by the Landlord under the rental insurance carried pursuant to Section 4.2, shall be abated until the premises, or what may remain thereof, shall be put by Landlord in proper condition for use subject to zoning and building laws or ordinances then in existence, which, unless Landlord or Tenant has exercised its option to terminate pursuant to Section 8.1, Landlord covenants to do with reasonable diligence at Landlord's expense. Landlord's obligations with respect to restoration shall not require Landlord to expend more than the net proceeds of insurance recovered by Landlord's mortgagees. "Net proceeds of insurance recovered or damages awarded" refers to the gross amount of such insurance or damages less the reasonable expenses of Landlord in connection with the collection of the same, including, without limitation, fees and expenses of Landlord in connection with the collection of the same, including, without limitation, fees and expenses for legal and appraisal services.

8.3 Award

Irrespective of the form in which recovery may be had by law, all rights to damages or compensation shall belong to Landlord in all cases. Tenant hereby grants to Landlord all of Tenant's rights to such damages and compensation and covenants to deliver such further assignments thereof as Landlord may from time to time request. Notwithstanding

anything else in this Section 8.3, Tenant may claim and recover from the condemning authority a separate award for Tenant's personal property and fixtures paid for by Tenant and any other award that would not substantially reduce the award payable to Landlord. Each party shall seek its own award, as limited by this Section, at its own expense, and neither shall have any right to the award made to the other.

SECTION 9

DEFAULT

9.1 Events of Default

a. If tenant shall default in the performance of any of its obligations to pay the fixed rent, additional rent, or any other sum payable hereunder, and if such default shall continue for five (5) days after notice from Landlord designating such default;

b. If within thirty (30) days after notice from Landlord to Tenant specifying any other default or defaults Tenant has not commenced diligently to correct the default or defaults so specified or has not thereafter diligently pursued such correction to completion;

c. If any assignment for the benefit of creditors shall be made by Tenant:

d. If Tenant's leasehold interest shall be taken on execution or other process of law in any action against Tenant;

e. If a lien or other involuntary encumbrance is fled against Tenant's leasehold interest and is not discharged or bonded over within thirty (30) days thereafter;

f. If a petition is fled by Tenant for liquidation, or for reorganization or an arrangement or any other relief under any provision of the Bankruptcy Code as then in force and effect; or

g. If an involuntary petition under any of the provisions of said Bankruptcy Code is fled against Tenant and such involuntary petition is not dismissed within thirty (30) days thereafter,

then, and in any of such cases, Landlord and the agents and servants of the Landlord lawfully may, in addition to and not in derogation of any remedies for any preceding breach or covenant, immediately or at any time thereafter and without demand or notice and with or without process of law (forcibly, if necessary) enter into and on the premises or any part thereof in the name of the whole, or mail a notice of termination addressed to the Tenant, and repossess the same as of Landlord's former estate and expel Tenant and those claiming through or under Tenant and remove its and their effects without being deemed guilty of any manner of trespass and without prejudice to any remedies that might otherwise be used for arrears of rent or prior breach of covenant, and on such entry or mailing as aforesaid this Lease shall terminate, Tenant hereby waiving all statutory rights (including, without limitation, rights of redemption, if any) to the extent such right may be lawfully waived. Landlord, without notice to Tenant, may store Tenants effects, and those of any person claiming through or under Tenant at the expense and risk of Tenant, and, if Landlord so elects, may sell such effects at public auction or private sale and apply the net proceeds to the payment of all sums due to Landlord from Tenant, if any, and pay over the balance, if any, to Tenant.

9.2 Remedies

In the event that this lease is terminated under any of the provisions contained in Section 9.1, Tenants shall pay forthwith to Landlord, compensation, the excess of the total rent observed for the residue of term over the fair market rental value of the premises for the residue of the term. In calculating the rent reserved there shall be included, in addition to the fixed rent and additional rent, the value of all other considerations agreed to be paid or performed by Tenant during the residue. As additional and cumulative obligations after any such termination, Tenant shall also pay punctually to Landlord all the sums and shall perform all the obligations that Tenant covenants in this Lease to pay and to perform in the same manner and to the same extent and at the same time as if this Lease had not been terminated. In calculating the amounts to be paid to Landlord pursuant to the first sentence of this Section 9.2 and also with the net proceeds of any rent obtained by Landlord by reletting the premises, after deducting all Landlord's reasonable costs, brokerage commissions, fees for legal services, and expenses of preparing the premises for such reletting, it being agreed by Tenant that Landlord may (i) relet the premises or any part or parts thereof for a term or terms that may, at Landlord's option, be equal to or less than or exceed the period that would otherwise have

constituted the balance of the term hereof and may grant such concessions and free rent as Landlord in the reasonable judgment considers advisable or necessary to relet the same, and (ii) make such alterations, repairs, and decorations in the premises as Landlord in its reasonable judgment considers advisable or necessary to relet the same, and no action of Landlord in accordance with the foregoing or failure to relet or to collect rent under reletting shall operate or be construed to release of reduce Tenant's liability as aforesaid.

9.3 Cumulative Remedies

Except as otherwise expressly provided herein, any and all rights and remedies to Landlord may have under this Lease and at law and equity shall be cumulative and shall not be deemed inconsistent with one another, and any two or more of all such rights and remedies may be exercised at the same time to the greatest extent permitted by law; provided, however, that Landlord agrees to use reasonable efforts to mitigate its damages.

9.4 Landlord's Right to Cure Defaults

At any time following 10 (the) days' prior notice to Tenant (except in cases or emergency when no notice shall be required), Landlord may (but shall not be obligated to) cure any default by Tenant under this Lease, and whenever Landlord so elects. all costs and expenses incurred by Landlord, including reasonable attorneys' fees, in curing a default shall he paid by Tenant to Landlord as additional rent on demand, together with interest thereon at the rate provided in Section 9.7 from the date of payment by Landlord to the date of payment by Tenant.

9.5 Effect of Waivers on Default

Any consent or permission by landlord to any act or omission that otherwise would be a breach of any covenant or condition herein, or any waiver by Landlord of the breach of any covenant or condition herein, shall not in any way be held or construed (unless expressly so declared) to operate so as to impair the continuing obligation of any covenant or condition here in, or otherwise operate to permit the same or similar acts or omissions except as to the specific instance. The failure of Landlord to seek redress for violation of, or to insist on the strict performance of any covenant or condition of this Lease shall not be deemed a waiver of such violation nor prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord of rent with knowledge of the breach by Landlord or of any of Landlord's remedies on account thereof, including its right of termination for such default.

9.6 No Accord and Satisfaction

No acceptance by Landlord of a lesser sum than the fixed rent, additional rent, or any other charge then due shall be deemed to be other than on account of the earliest installment of such rent or charge due, unless Landlord elects by notice to Tenant to credit such sum against the most recent installment due. Any endorsement or statement on any check or any letter accompanying any check or payment as rent or other charge shall not be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or pursue any other remedy under this Lease or otherwise.

SECTION 10

MORTGAGES

10.1 Rights of Mortgage Holders

Except for the rent paid upon the execution of this Lease, no fixed rent, additional rent, or any other charge shall be paid more than ten (10) days prior to the due date thereof, and payments made in violation of this provision shall (except to the extent that such payments are actually received by a mortgagee in possession or in the process of foreclosing its mortgage) be a nullity as against such mortgagee.

In the event of any act or omission by Landlord that would give Tenant the right to terminate this Lease or to claim a partial or total eviction. Tenant shall not exercise any such right (a) until it shall have given notice, in the manner provided in section 11. 1, of such act or omission to the holder of any mortgage encumbering the premises whose

name and address shall have been furnished to the Tenant in writing, at the last address so furnished, and (b) until a reasonable period of time for remedying such act or omission shall have elapsed following the giving of such notice, provided that following the giving of such notice, Landlord or such holder shall, with reasonable diligence, have commenced and continued to remedy such act or omission or to cause the same to be cured.

In the event any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under, any mortgage now or hereafter encumbering the premises, Tenant shall attorn to the purchaser on such foreclosure or sale or on any grant of any a deed in lieu of foreclosure and recognize such purchaser as Landlord under this Lease provided that purchases agrees to recognize the rights of Tenant under this Lease.

This Lease shall be subject and subordinate to any and all mortgages, deeds, and trusts and other instruments in the nature of a mortgage, now or at any time hereafter, on lease premises Tenant shall, when requested, promptly execute and deliver such written instruments as shall be necessary to show the subordination of this Lease to said mortgages, deed of trust or other such instruments in the nature of a mortgage provided that the mortgagee or holder or said mortgage enters into an agreement with Tenant by the terms of which such holder will agree to recognize the rights of Tenant under this Lease and to accept Tenant as tenant of the premises under the terms and conditions of this Lease in the event of acquisition of title by such holder through foreclosure proceedings or otherwise, and Tenant will agree to recognize the holder of such mortgage as Landlord in such event, which agreement shall be made expressly to bind and inure to the benefit of the successors and assigns of Tenant and of the holder on anyone purchasing said premises at any foreclosure sale a "Subordination Non-Disturbance and Attornment Agreement" or "SNDA"). Tenant and Landlord agree to execute and deliver any appropriate SNDA instruments customarily used by the holder and necessary to carry out the agreements contained in this section 10.1. Any such mortgage to which this Lease shall be subordinated may contain such terms, provisions, and conditions as the holder deemed usual or customary. Tenant agrees to execute and deliver any appropriate instruments necessary to carry out the agreements contained in this section 10.1.

SECTION 11

MISCELLANEOUS PROVISIONS

11.1 Notice From One Party to the Other

All notices required or permitted hereunder shall be in writing, sent by certified or registered mail, postage prepaid and addressed, if to Tenant, at the original address of Tenant or such other address as Tenant shall have last designated by notice in writing to Landlord and, if to Landlord, at the original address of Landlord or such other address as Landlord shall have last designated by notice in writing to tenant. Any notice shall be deemed duly given when delivered or tendered for delivery at any such address.

11.2 Quiet Enjoyment

Landlord agrees that on Tenant's paying the rent and performing and observing the terms. covenants, conditions and provisions on its part to be performed and observed, Tenant shall and may peaceably and quietly have, hold, and enjoy the premises during the term without any manner of hindrance or molestation from Landlord or anyone claiming under Landlord, subject, however, to the terms of this Lease.

11.3 Lease Not to Be Recorded; Notice of Lease

Tenant agrees that it will not record this Lease. Landlord and Tenant agree that they will enter and record a notice of lease in form reasonable acceptable to Landlord at the expense of the Tenant.

11.4 Bind and Inure; Limitation of Landlord's Liability

The obligations of this Lease shall run with the land, and this Lease shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. No owner of the premises shall be liable under this Lease except for breaches of Landlord's obligations occurring while owner of premises. The obligations of Landlord shall be binding on the assets of Landlord, which compromise the Premises, including the proceeds thereof but not on other assets of Landlord. No individual partner, trustee, stockholder, officer, director, employee, or beneficiary of

Landlord shall be personally liable under this Lease, and Tenant shall look solely to Landlord's interest in the premises in pursuit of its remedies on an event of default hereunder, and the general assets of Landlord and its partners, trustees, stockholders, officers, employees, or beneficiaries of Landlord shall not be subject to levy, execution, or other enforcement procedure for the satisfaction of the remedies of Tenant.

11.5 Force Majeure

In any case where either party hereto is required to do any act, delays caused by, or resulting from, acts of God, ware, civil commotion, fire, flood, or other casualty; labor difficulties, shortages of labor, materials or equipment; government regulations; unusually severe weather; or other causes beyond such party's reasonable control shall not be counted in determining the time during which work shall be completed, whether such time be designated by a fixed date, a fixed time, or a "reasonable time", and such time shall be deemed to be extended by the period of such delay.

11.6 Landlord's Default

Landlord shall not be deemed to be in default in the performance of any of its obligations hereunder unless it shall fail to perform such obligations and unless within thirty (30) days after notice from Tenant to Landlord specifying such default Landlord has not commenced diligently to correct the default so specified or has not thereafter diligently pursued such correction to completion. Tenant shall have no right, for any default by Landlord, to offset or counterclaim against any rent due hereunder.

11.7 Brokerage

The parties warrant and represent to one another that they have had no dealings with any broker or agent in connection with this Lease.

11.8 Parking

The Tenant, its employees and patrons, are granted the right to use the parking areas on the Lot in common with other tenants in the building. All employees of all tenants in the Shopping Center shall be required to park their vehicles behind the Building. Landlord reserves the right to modify this requirement in its sole discretion if the rear parking area is inadequate to accommodate all of said employees.

11.9 Miscellaneous

This Lease shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts. There are no prior oral or written agreements between Landlord and Tenant affecting this Lease.

WITNESS the execution hereof under the seal as of the 14^thday of August, 2006

LANDLORD:	TENANT:
/s/John M. Hadley	COMMONWEALTH NATIONAL BANK
John W. Hadley
/s/Catherine M. Hadley	By: /s/Charles R. Valade
Cathering M. Hadley	Charles R. Valade, President and CEO

AMENDMENT TO LEASE

The lease between John W. Hadley and Catherine M. Hadley and Commonwealth National Bank regarding the property at 26 West Boylston Street, West Boylston, Massachusetts with a commencement date of July 1, 2006 and as dated August 14, 2006 is hereby amended as follows:

The first month's rent (July 1, 2006 through July 31, 2006) is hereby reduced from $2,400.00 to $1,200.00.

LANDLORD:	TENANT:
	COMMONWEALTH NATIONAL BANK
/s/John W. Hadley	/s/Charles R. Valade
John W. Hadley	Charles R. Valade, President and CEO
/s/Catherine M. Hadley
Catherine M. Hadley

EX-10.2

Exhibit 10.2

COMMERCIAL LEASE

PARTIES

Worcester Millbrook LLC, LESSOR, which expression shall include heirs, successors, and assigns where the context so admits, does hereby lease to Commonwealth National Bank, LESSEE, which expression shall include successors, executors, administrators, and assigns where the context so admits, and the LESSEE hereby leases the following described premises:

PREMISES

4^th floor in the Center Section of the Worcester Business Center, 67 Millbrook Street, Suite 423, Worcester, MA 01606, consisting of 7,704 SF of net rentable area, together with the right to use in common with others entitled thereto, the hallways, stairways, bathrooms, parking areas, and loading docks necessary for access to said leased premises. LESSEE shall accept the space in "as is" condition.

TERM

The term of this lease shall be for Five (5) years, commencing October 1, 2006 and terminating September 30, 2011.

RENT

The LESSEE shall pay to the LESSOR rent in the amount of $7,381 per month; Rent is payable in advance on the first day of each month. A penalty of $356.25 per month (5%) will be assessed on any rent payments not received by the 10th day of each month.

EXTENSIONS

Provided not then in default, and upon one hundred twenty (120) days prior written notice, LESSEE shall have the right to extend this lease for one (1) additional five (5) year period, at the following monthly rents:

October 1, 2011 - September 30, 2012	$ 9,250 per month
October 1, 2012 - September 30, 2013	$ 9,750 per month
October 1, 2013 - September 30, 2014	$10,250 per month
October 1, 2014 - September 30, 2015	$10,250 per month
October 1, 2015 - September 30, 2016	$10,750 per month

SECURITY DEPOSIT

LESSEE shall pay a security deposit of $7,381.00 upon execution of this lease, to be returned by LESSOR upon expiration, less any amounts necessary to repair damage to the Premises not caused by ordinary wear and tear, or to cure any other LESSEE defaults.

UTILITIES

All electricity that is furnished to the leased premises is included in the rent.

The LESSOR agrees to provide reasonable heat and air conditioning to the Premises (+/- 70 degrees), the hallways, stairways, and lavatories during normal business hours on regular business days of the heating season of each year, subject to interruption due to any accident, to improvements, to labor difficulties, to trouble supplies from the sources from which they are usually obtained for said building, or to any cause beyond the LESSOR's control. Overtime HVAC will be billed as additional rent in the amount of $25 per hour.

LESSOR shall have no obligation to provide utilities or equipment other than the utilities and equipment within the premises as of the commencement date of this lease. In the event LESSEE requires additional utilities or equipment, the installation and maintenance provided that such installation shall be subject to the written consent of the LESSOR, except for additional cooling in the telecom room to be installed by LESSEE prior to lease commencement.

CLEANING

LESSOR agrees to remove LESSEE’s office related trash every night, and to vacuum the leased premises two (2) times weekly.

USE

The LESSEE shall use the leased premises for the purpose of an Administrative and Back Offce for Commonwealth National Bank and any affliates.

COMPLIANCE WITH LAWS

The LESSEE acknowledges that no trade or occupation shall be conducted in the leased premises or use made thereof which will be unlawful, improper noisy or offensive, or contrary to any federal, state, or local law or ordinance, including the Americans With Disabilities Act, in force in the city or town in which the premises are situated.

FIRE INSURANCE

The LESSEE shall not permit any use of the leased premises which will make void-able any insurance on the property of which the leased premises are a part, or on the contents of said property or which shall be contrary to any law or regulation from time to time established by the New England Fire Insurance Rating Association, or any similar body succeeding to its powers. The LESSEE shall on demand reimburse the LESSOR, and all other tenants, all extra insurance premiums caused by LESSEE's use of the premises.

MAINTENANCE BY LESSEE

The LESSEE agrees to maintain the leased premises in good condition, damage by fire and other casualty only accepted, and whenever necessary, to replace plate glass and other glass therein, acknowledging that the leased premises are now in good order and the glass whole. The LESSEE shall not permit the leased premises to be overloaded, damaged, stripped, or defaced, nor suffer any waste. LESSEE shall obtain written consent of LESSOR before erecting any sign on the premises.

MAINTENANCE BY LESSOR

The LESSOR agrees to maintain the parking areas and structure of the building of which the leased premises are a part in the same condition as it is at the commencement of the term or as it may be put in during the term of this lease, reasonable wear and tear, damage by fire and other casualty only excepted, unless such maintenance is required because of the LESSEE or those for whose conduct the LESSEE is legally responsible.

ALTERATIONS - ADDITIONS

The LESSEE shall not make structural alterations or additions to the leased premises, but may make non-structural alterations provided the LESSOR consents thereto in writing, which consent shall not be unreasonably withheld or

delayed. All such allowed alterations shall be at LESSEE's expense and shall be in quality at least equal to the present construction. LESSEE shall not permit any mechanics' liens, or similar liens, to remain upon the leased premises for labor and material furnished to LESSEE or claimed to have been furnished to LESSEE in connection with work of any character performed or claimed to have been performed at the direction of LESSEE and shall cause any such lien to be released of record forthwith without cost to LESSOR. Any alterations or improvements made by the LESSEE shall become the property of the LESSOR at the termination of occupancy as provided herein.

ASSIGNMENT, SUBLEASING

The LESSEE shall not assign or sublet the whole or any part of the leased premises without LESSOR's prior written consent. Notwithstanding such consent, LESSEE shall remain liable to LESSOR for the payment of all rent and for the full performance of the covenants and conditions of this lease.

LESSEE shall have the right to assign or sublet the Premises to any Commonwealth National Bank affliate, assignee, or other related company, without LESSOR's consent. LESSEE shall remain liable to LESSOR for the payment of all rent and for the full performance of the covenants and conditions of this lease.

SUBORDINATION

See "Addendum A" (attached)

LESSOR'S ACCESS

The LESSOR or agents of the LESSOR may, during normal business hours and with prior notice to LESSEE, enter to view the leased premises and may remove placards and signs not approved and affixed as herein provided, and make repairs and alterations as LESSOR should elect to do and may show the leased premises to others, and at any time within three (3) months before the expiration of the term, may affix to any suitable part of the leased premises a notice for letting or selling the leased premises or property of which the leased premises are a part and keep the same so affixed without hindrance or molestation.

INDEMNIFICATION, LIABILITY, DISABILITY

The LESSEE shall save the LESSOR harmless from all loss and damage occasioned by the use or escape of water or by the bursting of pipes, as well as from any claim or damage resulting from neglect in not removing snow and ice from the roof of the building or from the sidewalks bordering upon the premises so leased, or by any nuisance made or suffered on the leased premises, unless such loss is caused by the neglect of the LESSOR. The removal of snow and ice from the sidewalks bordering upon the leased premises shall be the responsibility of LESSOR. LESSEE at LESSEE's expense shall comply with all laws, rules, orders, ordinances, directions, regulations, and requirements of federal, state, county, and municipal authorities, now in force or which may hereafter be in force, which shall impose any duty upon LESSOR or LESSEE with respect to the use, occupation, or alteration of the Premises, including without limitation the Americans with Disabilities Act.

LESSEE'S LIABILITY INSURANCE

The LESSEE shall maintain with respect to the leased premises and the property of which the leased premises are a part comprehensive public liability insurance in the amount of $2.0 million with property damage insurance in limits of $500,000 in responsible companies qualified to do business in Massachusetts and in good standing therein

insuring the LESSOR as well as LESSEE against injury to persons or damage to property as provided. The LESSEE shall deposit with the LESSOR a certificate for such insurance at or prior to the commencement of the term, and thereaffer within thirty (30) days prior to the expiration of any such policies. All such insurance certificates shall provide that such policies shall not be cancelled without at least ten (10) days prior written notice to each insured name therein.

FIRE, CASUALTY, EMINENT DOMAIN

Should a substantial portion of the leased premises, or of the property of which they area part, be substantially damaged by fire or other casualty, or be taken by eminent domain, the LESSOR may elect to terminate this lease. When such fire, casualty, or taking renders the leased premises substantially unsuitable for their intended use, a just and proportionate abatement of rent shall be made, and the LESSEE may elect to to terminate this lease if,

(a) The LESSOR fails to give written notice within thirty (30) days of intention to restore leased premises, or

(b) The LESSOR fails to restore the leased premises to a condition

substantially suitable for their intended use within ninety (90) days of said fire, casualty or taking. The LESSOR reserves, and the LESSEE grants to the LESSOR, all rights which the LESSEE may have for damages or injury to the leased premises for any taking by eminent domain, except for damage to the LESSEE's fixtures, property, or equipment.

DEFAULT AND BANKRUPTCY

In the event that:

(a)	The LESSEE shall default in the payment of any installment of rent or other sum herein specified and such default shall continue for ten (10) days after written notice thereof; or
(b)	The LESSEE shall default in the observance or performance of any other of the LESSEE's covenants, agreements, or obligations hereunder and such default shall not be corrected within thirty (30) days after written notice thereof; or
(c)	The LESSEE shall be declared bankrupt or insolvent according to law, or, if any assignment shall be made of LESSEE's property for the benefit of creditors,

then the LESSOR shall have the right thereafter, while such default continues, to re-enter and take complete possession of the leased premises, to declare the term of this lease ended, and remove the LESSEE's effects, without prejudice to any remedies which might be otherwise used for arrears of rent or other default. The LESSEE shall indemnify the LESSOR against all loss of rent and other payments which the LESSOR may incur by reason of such termination during the residue of the term. If the LESSEE shall default, after reasonable notice thereof, in the observance or performance of any conditions or covenants on LESSEE's part to be observed or performed under or by virtue of any of the provisions in any article of this lease, the LESSOR, without being under any obligation to do so and without thereby waiving such default, may remedy such default for the account and at the expense of the LESSEE. If the LESSOR makes any expenditures or incurs any obligations for the payment of money in connection therewith, including but not limited to, reasonable attorney's fees in instituting, prosecuting or defending any action or proceeding, such sums paid or obligations insured, with interest at the rate of 18 per cent annum and costs, shall be paid to the LESSOR by the LESSEE as additional rent.

NOTICE

Any notice from the LESSOR to the LESSEE relating to the leased premises or to the occupancy thereof, shall be deemed duly served, if mailed to the LESSEE, registered or certified mail, return receipt requested, postage prepaid, addressed to the LESSEE at the following address:

Commonwealth National Bank

Attn: Chief Financial Officer

33 Waldo Street

Worcester, MA 01613

Any notice from the LESSEE to the LESSOR relating to the leased premises or to the occupancy thereof, shall be deemed duly served, if mailed to the LESSOR by registered or certified mail, return receipt requested, postage prepaid, addressed to the LESSOR at the Premises or such other address as the LESSOR may from time to time advise in writing. All rent and notices shall be paid and sent to the LESSOR at

Worcester Millbrook LLC

C/O The Boynton Company, Inc.

67 Millbrook Street

Worcester, MA. 01606

SURRENDER

The LESSEE shall at the expiration or other termination of this lease remove all LESSEE's goods and effects from the leased premises, (including, without hereby limiting the generality of the foregoing, all signs and lettering affixed or painted by the LESSEE, either inside or outside the leased premises). LESSEE shall deliver to the LESSOR the leased premises and all keys, locks thereto, and other fixtures connected therewith and all alterations and additions made to or upon the leased premises, in good condition, damage by fire or other casualty only excepted. In the event of the LESSEE's failure to remove any of the LESSEE's property from the premises, LESSOR is hereby authorized, without liability to LESSEE for loss or damage thereto, and at the sole risk of LESSEE, to remove and store any of the property at LESSEE's expense, or to retain same under LESSOR's control or to sell at public or private sale, without notice any or all of the property not so removed and to apply the net proceeds of such sale to the payment of any sum due hereunder, or to destroy such property. In addition,

HOLDOVER

LESSEE shall have no right to holdover possession of the Premises after the expiration or termination of this Lease without LESSOR's prior written consent, which consent LESSOR may withhold in its sole and absolute discretion. If LESSEE retains possession of any part of the Premises after the Term, LESSEE shall become a month-to-month tenant for the entire Premises upon all of the terms of this Lease as might be applicable to such month-to-month tenancy, except that LESSEE shall pay all of Base Rent at double the rate in effect immediately prior to such holdover, computed on a monthly basis for each full or partial month LESSEE remains in possession. LESSEE shall also pay LESSOR all of LESSOR's direct and consequential damages resulting from Tenant's holdover. No acceptance of Rent or other payments by LESSOR under these holdover provisions shall operate as a waiver of LESSOR's right to regain possession or any other of LESSOR's remedies.

TENANT IMPROVEMENTS

LESSOR agrees to deliver the leased premises in accordance with specifications provided by LESSEE. LESSEE and LESSOR will agree on the specifics of said build-out prior to the execution of this lease.

LESSEE shall be responsible for any work, and cost of said work, as it relates to networking, and additional HVAC requirements. LESSEE understands their will be an additional cost, to be determined, for running the additional HVAC.

OTHER PROVISIONS

1.	LESSEE shall have the right to terminate this lease between the 30th and 36th months, by providing four (4) months prior written notice and paying a cancellation penalty equal to $14,762.00.
2.	LESSOR agrees to designate one (1) parking space, labeled "deliveries only" near the center entrance. Otherwise parking is handled on a first come first serve basis.

WITNESS WHEREOF, the said parties hereunto set their hands and seal this 25^thday of July, 2006.

LESSEE	/s/ Charlie Valade	7/25/06
	Charlie Valade, President & CEO	Date
	Commonwealth National Bank

LESSOR	/s/ Nick Boynton	7/27/06
	Nick Boynton, Member	Date
	Worchester Millbrook LLC

EX-31.1

Exhibit 31.1

I, Charles R. Valade, President and Chief Executive Officer of CNB Financial Corp. (the “Company”), certify that:

1.I have reviewed this quarterly report on Form 10-QSB of the Company;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materials respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d- 15(e)) for the Company and we have:

 a)designed such disclosure controls and procedures, or caused such disclosures and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 b)evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 c)disclosed in this report any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company’s most recent fiscal quarter (the Company’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

5.The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of Company’s board of directors (or persons performing the equivalent functions):

 a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 b)any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: November 6, 2006	/s/ Charles R. Valade
	Charles R. Valade
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

I, William M. Mahoney, Treasurer and Chief Financial Officer of CNB Financial Corp. (the “Company”), certify that:

1.I have reviewed this quarterly report on Form 10-QSB of the Company;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materials respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d- 15(e)) for the Company and we have:

 a.designed such disclosure controls and procedures, or caused such disclosures and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 b.evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 c.disclosed in this report any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company’s most recent fiscal quarter (the Company’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

5.The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of Company’s board of directors (or persons performing the equivalent functions):

 a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 b.any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: November 6, 2006	/s/ William M. Mahoney
	William M. Mahoney
	Treasurer and Chief Financial Officer

EX-32

Certification of Chief Executive Officer and Chief Financial Officer

Charles R. Valade, President and Chief Executive Officer, and William M. Mahoney, Treasurer and Chief Financial Officer of CNB Financial Corp. (the “Company”) each certify in his capacity as an officer of the Company that he has reviewed the quarterly report on Form 10-QSB for the quarter ended September 30, 2006 and that to the best of his knowledge:

(1)the report fully complies with the requirements of Section 13 (a) of the Securities Exchange Act of 1934; and

(2)the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002.

Date: November 6, 2006	/s/ Charles R. Valade
	Charles R. Valade
	President and Chief Executive Officer
Date: November 6, 2006	/s/ William M. Mahoney
	William M. Mahoney
	Treasurer and Chief Financial Officer