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, 2007

[  ]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)

Not Applicable

(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]

At November 8, 2007, the registrant had 2,283,208 shares of common stock, $1.00 par value, issued and outstanding.

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

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION		PAGE
Item 1-	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets	1
	Unaudited Condensed Consolidated Statements of Income	2
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity	3
	Unaudited Condensed Consolidated Statements of Cash Flows	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2-	Management’s Discussion and Analysis or Plan of Operation	11
Item 3-	Controls and Procedures	19

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 a Vote of Security Holders	20
Item 5-	Other Information	20
Item 6-	Exhibits	20
Signatures		21

CNB FINANCIAL CORP. AND SUBSIDIARY

Consolidated Balance Sheets

September 30, 2007 and December 31, 2006

(Unaudited)

ASSETS	September 30,			December 31,
	2007			2006
Cash and Cash Equivalents	$	19,867,000		$	6,736,000
Investment Securities Available-for-Sale, (amortized cost of $47,174,000 as of September 30, 2007 and $54,808,000 as of December 31, 2006) (Note 4)		47,162,000			54,582,000
Investment Securities Held-to-Maturity, (fair value of $10,698,000 as of September 30, 2007 and $12,450,000 as of December 31, 2006) (Note 4)		10,744,000			12,513,000
Federal Reserve Bank Stock		743,000			700,000
Federal Home Loan Bank Stock		3,052,000			3,070,000
Loans		216,399,000			200,668,000
Less: Allowance for Loan Losses		(2,773,000	)		(2,807,000	)
Loans, Net		213,626,000			197,861,000
Premises and Equipment, Net		2,396,000			2,521,000
Accrued Interest Receivable		1,359,000			1,297,000
Deferred Tax Asset		1,415,000			1,553,000
Prepaid Expenses and Other Assets		511,000			531,000
	$	300,875,000		$	281,364,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits	$	213,627,000		$	191,807,000
Federal Home Loan Bank Advances		43,750,000			52,250,000
Federal Funds Purchased		-			500,000
Subordinated Debentures		7,732,000			7,732,000
Securities Under Agreement to Repurchase		9,440,000			5,946,000
Accrued Expenses and Other Liabilities		5,662,000			2,958,000
Total Liabilities:		280,211,000			261,193,000
Commitments and Contingencies (Note 8)
Stockholders' Equity:
Common Stock
Par Value: $1.00
Shares Authorized: 10,000,000 as of September 30, 2007 and December 31, 2006
Issued and Outstanding: 2,283,000 as of September 30, 2007 and December 31, 2006		2,283,000			2,283,000
Additional Paid-in Capital		20,284,000			20,154,000
Accumulated Deficit		(1,919,000	)		(2,151,000	)
Accumulated Other Comprehensive Income (Loss),  net of taxes		16,000			(115,000	)
Total Stockholders' Equity		20,664,000			20,171,000
	$	300,875,000		$	281,364,000

See Notes to Consolidated Financial Statements

1

CNB FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statements of Income

For the Three and Nine Months Ended September 30, 2007 and 2006

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
Interest and Dividend Income:
Interest and Fees on Loans	$	3,972,000	$	3,698,000	$	11,620,000	$	10,307,000
Interest and Dividends on Investments		866,000		896,000		2,560,000		2,222,000
Total Interest and Dividend Income		4,838,000		4,594,000		14,180,000		12,529,000
Interest Expense:
Interest Expense on Deposits		1,934,000		1,702,000		5,455,000		4,444,000
Interest Expense on Borrowings		804,000		746,000		2,514,000		1,671,000
Total Interest Expense		2,738,000		2,448,000		7,969,000		6,115,000
Net Interest Income		2,100,000		2,146,000		6,211,000		6,414,000
Provision for Loan Losses		-		-		30,000		164,000
Net Interest Income, After Provision for Loan Losses		2,100,000		2,146,000		6,181,000		6,250,000
Other Income:
Fees on Deposit Accounts		52,000		57,000		155,000		163,000
Loan Related Fees		38,000		38,000		116,000		113,000
Other		24,000		31,000		78,000		89,000
Security Gains (net of losses)		-		5,000		-		5,000
Total Other Income		114,000		131,000		349,000		370,000
Operating Expense:
Employee Compensation and Benefits		1,103,000		1,073,000		3,299,000		3,115,000
Occupancy and Equipment		327,000		291,000		1,025,000		818,000
Professional Fees		191,000		171,000		514,000		493,000
Marketing and Public Relations		94,000		122,000		281,000		361,000
Data Processing Expense		110,000		100,000		343,000		287,000
Other General and Administrative Expenses		249,000		209,000		710,000		609,000
Total Operating Expense		2,074,000		1,966,000		6,172,000		5,683,000
Income Before Taxes		140,000		311,000		358,000		937,000
Provision for Income Taxes		48,000		134,000		126,000		415,000
Net Income	$	92,000	$	177,000	$	232,000	$	522,000
Net Income per Basic Share	$	0.04	$	0.08	$	0.10	$	0.24
Net Income per Diluted Share	$	0.04	$	0.08	$	0.10	$	0.24
Weighted Average Shares - Basic		2,283,000		2,173,000		2,283,000		2,136,000
Weighted Average Shares - Diluted		2,284,000		2,226,000		2,297,000		2,187,000

See Notes to Consolidated Financial Statements

2

CNB FINANCIAL CORP.

Consolidated Statements of Changes in Stockholders’ Equity

For the Nine Months Ended September 30, 2007 and 2006

(Unaudited)

	Common Stock
	Number of Shares		Par Value		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)  net of taxes			Total
Balance, December 31, 2006		2,283,000	$	2,283,000	$	20,154,000	$	(2,151,000	)	$	(115,000	)	$	20,171,000
Net Income								232,000						232,000
Other Comprehensive Income
Unrealized Gains on Securities Available-for-Sale, net of Deferred Taxes of $84,000											131,000			131,000
Total Comprehensive Income														363,000
Share-based Compensation						130,000								130,000
Balance, September 30, 2007		2,283,000	$	2,283,000	$	20,284,000	$	(1,919,000	)	$	16,000		$	20,664,000

See Notes to Consolidated Financial Statements

3

CNB FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2007 and 2006

(Unaudited)

	Nine Months Ended
	September 30,
	2007			2006
Cash Flows from Operating Activities:
Net Income	$	232,000		$	522,000
Adjustments to reconcile Net Income to Net Cash Provided by Operating Activities:
Share-based Compensation		130,000			103,000
Provision for Loan Losses		30,000			164,000
Increase in Net Deferred Loan Costs		(19,000	)		(27,000	)
Depreciation, Amortization of Premiums and Accretion of Discounts on Securities		233,000			227,000
Decrease in Deferred Tax		54,000			169,000
Increase in Accrued Interest Receivable		(62,000	)		(409,000	)
Decrease (Increase) in Other Assets		20,000			(475,000	)
Increase in Accrued Expenses and Other Liabilities		2,704,000			718,000
Net Cash Provided by Operating Activities		3,322,000			992,000
Cash Flows from Investing Activities:
Purchase of Investment Securities Held-to-Maturity		(849,000	)		(3,377,000	)
Purchase of Investment Securities Available-for-Sale		(2,000,000	)		(24,233,000	)
Principal Payments on Mortgage Backed Securities (CMOs)		4,429,000			3,583,000
Proceeds from Maturity of Investment Securities Held-to-Maturity		2,000,000			1,000,000
Proceeds from Maturity of Investment Securities Available-for-Sale		6,000,000			1,000,000
Proceeds from Sale of Investment Securities Available-for-Sale					4,860,000
Purchase of Federal Reserve Stock, FHLBB Stock and other bonds		(125,000	)		(1,393,000	)
Loan Charge-offs, net of recoveries		(90,000	)
Loan Originations, net of Principal Repayments		(15,686,000	)		(10,257,000	)
Purchases of Premises and Equipment		(184,000	)		(790,000	)
Net Cash Used in Investing Activities		(6,505,000	)		(29,607,000	)
Cash Flows from Financing Activities:
Net Increase (Decrease) in Deposits		21,820,000			(301,000	)
Advances from FHLBB		75,847,000			57,000,000
Repayment of FHLBB Advances		(84,347,000	)		(31,000,000	)
Reduction of Federal Funds Purchased		(500,000	)		-
Increases of Securities Under Agreement to Repurchase		3,494,000			-
Common Stock Issuance		-			1,869,000
Net Cash Provided by Financing Activities		16,314,000			27,568,000
Net Change in Cash and Cash Equivalents		13,131,000			(1,047,000	)
Cash and Cash Equivalents, Beginning of the Period		6,736,000			14,971,000
Cash and Cash Equivalents, End of the Period	$	19,867,000		$	13,924,000

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, N.A. (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 and has branch offices at One West Boylston Street, Worcester, Massachusetts, 564 Main Street, Shrewsbury, Massachusetts, 701 Church Street in Northbridge, Massachusetts, 1393 Grafton Street, Worcester, Massachusetts and 25A 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.  The Bank is also subject to the regulations of, and periodic examinations by, the Office of the Comptroller of the Currency (“the OCC”) and the Federal Deposit Insurance Corporation (“the FDIC”).  The FDIC insures the Bank’s deposits for amounts up to $100,000 and amounts up to $250,000 for deposit retirement accounts.

Company Formation

The Company was formed on December 16, 2005 upon the reorganization of the Bank into a bank holding company structure.  The Bank was 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.

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 and warrants immediately prior to the reorganization received one option or warrant to acquire shares of the common stock of the Company for each Bank option or warrant 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, 2007, the results of operations for the three-month and nine-month periods ended September 30, 2007 and 2006 and cash flows for the nine months ended September 30, 2007 and 2006.  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, 2006.  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, 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, 2007, 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 three-month and nine-month periods ended September 30, 2007 are not necessarily indicative of the results to be expected for the full year.

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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, rental rates, interest rates or market conditions may result in the ultimate realization of amounts on certain loans that are significantly different from the amounts reflected in the consolidated financial statements.

5

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 the 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.

In July 2006, the FASB issued Financial Accounting Standards Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”.  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS 109, “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attributable for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions.  The Company adopted FIN 48 on January 1, 2007.  The Company did not record any adjustments to the consolidated financial statements as a result of the adoption of FIN 48.  The Company recognizes accrued interest and penalties, if applicable, in income tax expense.

The Company and its subsidiaries file a consolidated federal income tax return in the United States and separate income tax returns in Massachusetts.  The Company’s federal and state income tax returns filed for 2002 and prior are no longer subject to examination by the federal or state jurisdictions.

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, 2007 are as follows:

	Amortized cost		Unrealized					Fair Value
Available-for-sale:			Gains		Losses
U.S. Government-sponsored enterprises         Due within one year	$	1,000,000	$	-	$	(7,000	)	$	993,000
Due after one year through five years		10,163,000		10,000		(48,000	)		10,125,000
Due after five years through ten years		938,000		34,000		-			972,000
Due after ten years		3,873,000		86,000		-			3,959,000
Mortgage-backed Securities (including CMOs)
Due within one year		1,844,000		8,000		(8,000	)		1,844,000
Due after five years through ten years		3,106,000		-		(61,000	)		3,045,000
Due after ten years		26,250,000		135,000		(161,000	)		26,224,000
	$	47,174,000	$	273,000	$	(285,000	)	$	47,162,000
Held-to-maturity:
U.S. Government-sponsored enterprises
Due within one year	$	2,000,000	$	-	$	(7,000	)	$	1,993,000
Mortgage-backed Securities(including CMOs)
Due after five years through ten years		3,163,000		1,000		(20,000	)		3,144,000
Due after ten years		1,229,000		-		(31,000	)		1,198,000
Municipals
Due after five years through ten years		330,000		3,000		-			333,000
Due after ten years		3,922,000		13,000		(5,000	)		3,930,000
Other Bonds                Due after one year through five years		100,000		-		-			100,000
	$	10,744,000	$	17,000		(63,000	)	$	10,698,000
Total Investment Securities	$	57,918,000	$	290,000	$	(348,000	)	$	57,860,000

7

The amortized cost and fair value of investment securities available-for-sale and held-to-maturity, with gross unrealized gains and losses, at December 31, 2006 are as follows:

	Amortized cost		Unrealized					Fair Value
Available-for-sale:			Gains		Losses
U.S. Government-sponsored enterprises         Due within one year	$	6,000,000	$	-	$	(42,000	)	$	5,958,000
Due after one year through five years		11,162,000		-		(186,000	)		10,976,000
Due after five years through ten years		930,000		24,000		-			954,000
Due after ten years		1,864,000		55,000		-			1,919,000
Mortgage-backed Securities (including CMOs)
Due after ten years		34,852,000		250,000		(327,000	)		34,775,000
	$	54,808,000	$	329,000	$	(555,000	)	$	54,582,000
Held-to-maturity:
U.S. Government-sponsored enterprises
Due within one year	$	1,997,000	$	-	$	(4,000	)	$	1,993,000
Due after one year through five years		2,000,000		-		(23,000	)		1,977,000
Mortgage-backed Securities(including CMOs)
Due after five years through ten years		3,702,000		3,000		(38,000	)		3,667,000
Due after ten years		1,412,000		-		(33,000	)		1,379,000
Municipals
Due after ten years		3,352,000		34,000		(2,000	)		3,384,000
Other Bonds          Due after one year through five years		50,000		-		-			50,000
	$	12,513,000	$	37,000		(100,000	)	$	12,450,000
Total Investment Securities	$	67,321,000	$	366,000	$	(655,000	)	$	67,032,000

5.  LOANS

Major classifications of loans at September 30, 2007 and December 31, 2006 follow:

	September 30,			December 31,
	2007			2006
Commercial and Industrial	$	55,284,000		$	62,217,000
Commercial Real Estate		129,407,000			110,693,000
Residential Real Estate		18,737,000			15,048,000
Consumer		12,971,000			12,710,000
Total loans		216,399,000			200,668,000
Less: Allowance for loan losses		(2,773,000	)		(2,807,000	)
Total loans, net	$	213,626,000		$	197,861,000

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, 2007, $250,000 of loans accruing interest was past due 90 days or more and $1,178,000 of loans were on non-accrual status.  Net deferred costs totaled $317,000 and $297,000 at September 30, 2007 and December 31, 2006, respectively.

A summary of changes in the allowance for loan losses for the three-month period ended September 30, 2007 and 2006 follows:

	2007		2006
Balance as of June 30	$	2,773,000	$	2,765,000
Provision for loan losses		-		-
Recoveries		-		-
Less: Loans charged-off		-		(5,000	)
Balance as of September 30,	$	2,773,000	$	2,760,000

8

A summary of changes in the allowance for loan losses for the nine-month period ended September 30, 2007 and 2006 follows:

	2007			2006
Balance, beginning of year	$	2,807,000		$	2,615,000
Provision for loan losses		30,000			164,000
Recoveries		7,000			-
Less: Loans charged-off		(71,000	)		(19,000	)
Balance as of September 30,	$	2,773,000		$	2,760,000

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 and March 22, 2007), 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.  Awards of 69,670 shares with a fair value of $3.24 have been granted during 2007.  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, 2007.

Dividend yield	2.77%
Expected volatility	35.00%
Risk free interest rate	3.87%
Expected lives	6.0 years

7.  WEIGHTED AVERAGE SHARES – BASIC AND DILUTED

A reconciliation of the weighted-average shares used in the basic and diluted earnings per common share computations for the three and nine months respectively ended September 30, 2007 and 2006 is presented below:

	Three Months Ended
	September 30,
	2007		2006
Weighted-average shares outstanding:
Weighted-average shares outstanding—Basic		2,283,000		2,173,000
Dilutive securities		1,000		53,000
Weighted-average shares outstanding—Diluted		2,284,000		2,226,000
	Nine Months Ended
	September 30,
	2007		2006
Weighted-average shares outstanding:
Weighted-average shares outstanding—Basic		2,283,000		2,173,000
Dilutive securities		14,000		51,000
Weighted-average shares outstanding—Diluted		2,297,000		2,224,000

Diluted earnings per share reflect 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, 2007 and 2006, options outstanding totaling 367,000 and 156,000 shares, respectively, were excluded from the calculations, as their effect would have been antidilutive.

9

8. LOAN COMMITMENTS

Financial instruments with off-balance-sheet risk at September 30, 2007 follow:

Commitments whose contract amounts represent credit risk–
Commitments to originate loans	$	29,178,000
Unused lines of credit		10,500,000
Secured commercial lines of credit		28,915,000
Letters of Credit		2,462,000

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 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.  As of September 30, 2007, 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, 2007, the Bank was 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.

(Dollars in Thousands)	Company		Bank		Minimum Capital Requirements	For Bank to be “Well Capitalized” under PCA provisions
	Amount	Ratio	Amount	Ratio
Leverage Ratio	$26,699	9.18%	$24,513	8.43%	4.00%	5.00%
Tier 1 risk-based ratio	26,699	11.92%	24,513	10.96%	4.00%	6.00%
Total risk-based ratio	29,472	13.15%	27,286	12.20%	8.00%	10.00%

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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, N.A. (the “Bank”), a national bank with six 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 thereto appearing in Part I, Item 1 of this report and in the Annual Report on Form 10-KSB for the year ended December 31, 2006.

General

The operating results of the Company 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 and borrowings.  Net earnings are also affected by non-interest income and non-interest expense, such as compensation and benefits, occupancy and equipment expense, and other operating expenses.

Forward-looking Statements Safe Harbor Statement

This report may contain forward-looking statements that are subject to numerous assumptions, risks and uncertainties.  These forward looking statements are generally identified by the use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions.  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: 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; competition; and significant changes in accounting, tax or regulatory practices or requirements.  The Company provided greater detail regarding some of these factors in its Form 10-KSB for the year ended December 31, 2006, including in the Risk Factors section of that report.  The Company’s forward-looking statements may also be subject to other risks and uncertainties, including those that it may discuss elsewhere in this report or in its other filings with the SEC.  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.

Significant Accounting Policies

Disclosure of the Company's significant accounting policies is included in Note 2 to the consolidated financial statements of the Company's Annual Report on Form 10-KSB for the year ended December 31, 2006 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 16 of this Form 10-QSB regarding the provision and allowance for loan losses.

New Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“FAS 157”).  This statement defines fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States and requires certain disclosures about fair value measurements.  FAS 157 provides guidance on how to measure fair value when required under existing accounting standards.  The statement establishes a fair value hierarchy of three levels based on the inputs to valuation techniques used to measure fair value.  Required disclosures will focus on the inputs used to measure fair value, fair value measurements, and the effects of the measurements in the financial statements.  FAS 157 is effective for fiscal years beginning after November 15, 2007, with earlier application allowed. Management is currently evaluating the impact of adopting this statement on the Company’s financial position and results of operations.

In February 2007, the FASB issued Statement No. 159, TheFair Value Option for Financial Assets and Financial Liabilities (“FAS 159”).  FAS 159 permits entities to measure certain financial assets and financial liabilities at fair value and amended FASB Statement No. 115, Accounting for Investments in Debt and Equity Securities.  

11

Unrealized gains and losses on items for which the fair value option is elected will be reported in earnings.  FAS 159 is effective for fiscal years beginning after November 15, 2007.  Management is currently evaluating the impact of adopting this statement on the Company’s financial position and results of operations.

Comparison of Operating Results for the Three and Nine Months Ended September 30, 2007 and September 30, 2006

Overview

The Company recorded net income of $92,000 for the three-month period ended September 30, 2007 compared to $177,000 for the same quarter of 2006.  Diluted earnings per share were $0.04 and $0.08 for the third quarters of 2007 and 2006, respectively.  Year-to-date net income equaled $232,000 for the 2007 period compared to $522,000 for the 2006 period.  Diluted earnings per share were $0.10 and $0.24 for the year-to-date periods of 2007 and 2006, respectively.  The reduction in net income compared to the same periods of last year was predominantly due to an increase in total operating expenses (5% year-to-year increase for the quarterly period and 9% increase for the year-to-date period) primarily caused by the addition of two branch facilities during the latter part of 2006 and a reduction in net interest income (2% year-to-year decrease for the quarterly period and 3% decrease for the year-to-date period) caused by a narrowing of the net interest margin, the effects of which were partially offset by reductions in the provision for loan losses for the year-to-date period.  Book value per share was $9.05 at September 30, 2007, compared to the book value per share of $8.84 at December 31, 2006.

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-earning assets in order to match the variability of interest rates paid on the Company’s deposits and other interest-bearing liabilities.  Imbalance among interest earning assets and interest-bearing liabilities at any point in time constitutes interest rate risk.

Net interest income equaled $2,099,000 for the three-month period ended September 30, 2007 compared to $2,146,000 for the three-month period ended September 30, 2006.  The following table provides the average balances of the major balance sheet categories that generate interest income or interest expense and the resulting asset yields or rate paid for the three-month period ended September 30, 2007 compared to the three months ended September 30, 2006.  The difference between asset yields and the rate paid 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, using a federal tax rate of 34%.

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

For the Three Months Ended September 30, 2007 and 2006

	Three Months Ended									Three Months Ended
(Dollars in Thousands)	September 30, 2007									September 30, 2006
(Fully Taxable Equivalent)	Average Balance			Interest Income and Expense (Taxable Equivalent)			Average Yield/Rate			Average Balance			Interest Income and Expense (Taxable Equivalent)			Average Yield/Rate
INTEREST EARNING ASSETS
Total Loans	$	215,293		$	3,972			7.32	%	$	196,782		$	3,698			7.46	%
Investments, Fed Funds and Int. Bearing Balances		67,964			884			5.16	%		73,913			912			4.90	%
Total Interest Earning Assets		283,257			4,856			6.80	%		270,695			4,610			6.76	%
Allowance for Loan Losses		(2,773	)								(2,765	)
Cash and Due from Banks		5,695									5,176
Premises and Equipment		2,455									2,146
Other Assets		3,308									5,951
Total Assets	$	291,942								$	281,203
INTEREST BEARING LIABILITIES
Savings, NOW and Money Market Deposits	$	56,598		$	395			2.77	%	$	43,312		$	185			1.69	%
Time Deposits		120,010			1,539			5.09	%		131,096			1,517			4.59	%
Borrowed Funds		57,623			665			4.58	%		52,178			608			4.63	%
Subordinated Debentures		7,500			139			7.25	%		7,500			138			7.19	%
Total Interest Bearing Liabilities		241,731			2,738			4.49	%		234,086			2,448			4.15	%
Demand Deposits		27,134									26,515
Total Deposits and Borrowed Funds		268,865			2,738			4.04	%		260,601			2,448			3.73	%
Other Liabilities		2,761									2,232
Stockholders' Equity		20,316									18,370
Total Liabilities and Stockholders' Equity	$	291,942								$	281,203
Net Interest Income (tax equivalent basis)				$	2,118								$	2,162
Interest Rate Spread								2.76	%								3.03	%
Less: adjustment of tax exempt income					(18	)								(16	)
Net Interest Income				$	2,100								$	2,146
Net Interest Margin								2.97	%								3.17	%

The Company’s net interest margin declined to 2.97% for the three months ended September 30, 2007, from the year earlier period’s 3.17% as a result of the difficult interest rate environment in the 2007 period which was mostly characterized by a flat or inverted yield curve.  Asset yields increased by four basis points from period to period as the average balance of the loan portfolio grew by 9% compared to the third quarter of 2006 and a portion of the growth was funded by reducing the level of the lower yielding investment securities portfolio.  The yield on the loan portfolio declined by 14 basis points from period to period as the balance growth was concentrated primarily in commercial real estate loans which yield less relative to commercial and industrial loans.  Also impacting the loan portfolio yield was the 50 basis point reduction in the Bank’s prime rate on September 18, 2007.  The total cost of deposits and borrowed funds increased by 31 basis points comparing the three-month period of 2007 to same period of 2006.  The cost of savings, NOWs and money market accounts increased by 108 basis points from the year earlier period as a result of the introduction, earlier in 2007, of a new high rate savings account product designed to source funds at a lower rate than that paid on time deposits.  The growth of this new product caused

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the total volume of savings, NOW’s and money market accounts to increase by $13 million, or 31%, compared to the third quarter of 2006.  The rate on time deposits increased by 50 basis points as the maturities of longer-term CDs, originally written at historically low interest rates, were replaced at the current higher market rates. Not all maturing time deposits were replaced, causing the volume to decline by $11 million, or 8%, compared to the third quarter of 2006.  The cost of borrowed funds declined by 5 basis points and the volume grew by $5 million, or 10%, from the 2006 period to the 2007 period as a result of the introduction of an overnight commercial deposit sweep product in late 2006.  The subordinated debentures volume remained unchanged at $7.5 million and carried an average rate of 7.25% during the third quarter of 2007 compared to a rate of 7.19% during the corresponding quarter of 2006.  While recent events have caused the yield curve to return to a more normal upward slope, we expect management of the net interest margin to remain a challenge.  Partially offsetting the negative effects of the interest rate environment upon net interest income was the impact of growth of the balance sheet from period to period.  Earning assets averaged $283.3 million during the three-month period ended September 30, 2007, a 5% increase compared to the same period of 2006.  Total deposits and borrowed funds averaged $268.9 million during the three-month period ended September 30, 2007, a 3% increase since the same period of 2006.

Net interest and dividend income equaled $6,211,000 for the year-to-date period ended September 30, 2007 compared to $6,414,000 for the same period of 2006.  The following table provides the average balances of the major balance sheet categories that generate interest income or interest expense and the resulting asset yields or rates paid for the year-to-date period ended September 30, 2007 compared to the same period of 2006.  The total dollar amount on interest income from assets and the subsequent yields are calculated on a taxable equivalent basis using a federal tax rate of 34%.

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

For the Nine Months Ended September 30, 2007 and 2006

	Nine Months Ended									Nine Months Ended
(Dollars in Thousands)	September 30, 2007									September 30, 2006
(Fully Taxable Equivalent)	Average Balance			Interest Income and Expense (Taxable Equivalent)			Average Yield/Rate			Average Balance			Interest Income and Expense (Taxable Equivalent)			Average Yield/Rate
INTEREST EARNING ASSETS
Total Loans	$	209,969		$	11,620			7.40	%	$	189,102		$	10,307			7.29	%
Investments, Fed Funds and Int. Bearing Balances		68,174			2,615			5.13	%		65,749			2,246			4.57	%
Total Interest Earning Assets		278,143		$	14,235			6.84	%	$	254,851		$	12,553			6.59	%
Allowance for Loan Losses		(2,808	)								(2,711	)
Cash and Due from Banks		5,496									5,211
Premises and Equipment		2,512									1,989
Other Assets		3,295									4,289
Total Assets	$	286,638								$	263,629
INTEREST BEARING LIABILITIES
Savings, NOW and Money Market Deposits	$	47,017		$	847			2.41	%	$	48,695		$	650			1.78	%
Time Deposits		121,129			4,608			5.09	%		121,909			3,794			4.16	%
Borrowed Funds		60,219			2,103			4.67	%		40,687			1,284			4.22	%
Subordinated Debentures		7,500			411			7.23	%		7,500			387			6.79	%
Total Interest Bearing Liabilities		235,865			7,969			4.52	%		218,791			6,115			3.74	%
Demand Deposits		27,611									25,295
Total Deposits and Borrowed Funds		263,476			7,969			4.04	%		244,086			6,115			3.35	%
Other Liabilities		2,850									1,857
Stockholders' Equity		20,312									17,686
Total Liabilities and Stockholders' Equity	$	286,638								$	263,629
Net Interest Income (tax equivalent basis)				$	6,266								$	6,438
Interest Rate Spread								2.80	%								3.24	%
Less: adjustment of tax exempt income					(55	)								(24	)
Net interest income				$	6,211								$	6,414
Net Interest Margin								3.01	%								3.38	%

Comparing the nine months ended September 30, 2007 to the same period of 2006, the Company’s net interest margin declined to 3.01% from 3.38% as a result of the difficult interest rate environment in the 2007 period.  Balance sheet growth partially mitigated the unfavorable impact of this market condition.  Earning assets averaged $278.1 million during the period, a 9% increase since the same period of 2006.  Asset yields increased by 25 basis points from over the same time period as a result of the higher prime rate during the 2007 period.  The increase in interest income also reflected a growth in the average balance of the loan portfolio of 11%, and a 4% growth in the lower yielding investment securities portfolio.  The same impact was felt in the cost of funds as short term rates were generally higher in 2007 than during the same nine month period of 2006.  The total cost of deposits and borrowed funds increased by 69 basis points compared to the cost during the first nine months of 2006.  The cost of savings, NOWs and money market accounts increased by 63 basis points from the year earlier period and the rate on time deposits has increased by 93 basis points.  The new deposit product introduced during the second quarter of 2007 is designed to grow core deposits at an interest rate that is below that which is paid on certificates of deposit.  Balances in time deposits were allowed to decline during the 2007 period as some of the funds

15

migrated from certificates of deposit to the new savings product (at a lower interest cost).  Borrowed funds increased by $19.5 million or 48% as a result of the new commercial deposit sweep product and increased use of Federal Home Loan Bank advances.  The cost of borrowed funds increased by 45 basis points comparing the 2007 period to the 2006 period.  The subordinated debentures carried an average rate of 7.23% during the first nine months of 2007 compared to a rate of 6.79% during the corresponding quarter of 2006.  Total deposits and borrowed funds averaged $263.5 million during the period, 2007, an 8% increase since the same period of 2006.

Provision for Loan Losses

The Bank’s allowance for loan losses was increased by a provision for loan losses amounting to $30,000 during the first nine months of 2007 (all being recorded during the first quarter of 2007) compared to a $164,000 provision that was added to the allowance during the year-to-date period of 2006 (all recorded during the first six months of 2006).  The amount necessary to be provided to the reserve was lower as compared to prior periods, yet still adequate to provide sufficient coverage for the increased loan portfolio volume.  This was possible as a result of a review of loss history since the inception of the Bank which supported a reduction in the allocated portion of the loan loss reserve.  This reduction lessened the amount necessary to be provided to the allowance during the period ended September 30, 2007.  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.  On a year to date basis, other income decreased to $349,000, or by 6% compared to the same period of 2006.  Service charges on deposits for the nine-month period of 2007 declined by 5% compared to the nine-month period of 2006 as a result of higher earnings credits paid on deposit accounts balances which, in turn, caused the decreased charges for deposit account activity.  Loan referral fees increased for the nine months ended September 30, 2007 as a result of the Bank’s increased activity in mortgage lending.  Included in the “Other” category (which declined by $11,000 or 12% on a year-to-date basis) are fees associated with the cash management sweep product which declined as the Bank changed the product to one which now generates additional net interest income rather than fee income.  Total other income equaled $114,000 for the three-month period ended September 30, 2007, a decrease of 13% compared to $131,000 recorded during the same quarter of 2006.  The factors impacting the three-month comparison are the same as impacted the nine-month comparison.

Operating Expense

Operating expense, alternatively known as non-interest expense, totaled $6,172,000 for the first nine months of 2007, an increase of 9% compared to the same period of 2006.  Employee compensation and benefits expense comprised 53% of non-interest expense.  This category increased 6% to $3,299,000 due to staff additions for the two new branches which were opened in late 2006, as well as merit increases.  Also causing an increase in this category during the 2007 period was the amount expensed for share-based incentive payments which amounted to $130,000 during the 2007 period.  These factors were partially offset by a reduction in the amount accrued for employee incentive bonuses during the year-to-date period of 2007.  Occupancy and equipment expenses equaled $1,025,000 for the year-to date period, an increase of 25%, as the number of branches increased from four to six and the Bank leased additional space for an operations center.  Professional fees totaled $514,000, a $21,000, or 4%, increase since the same period of 2006.  Included in professional fees were higher costs for consulting regarding compensation matters and Sarbanes-Oxley compliance offset by lower legal fees.  Marketing and public relations declined by $80,000, or 22%, compared to the prior year-to-date period to $281,000 as a result of fewer advertising placements in the local print, radio and outdoor media.  Data processing expense increased by $56,000, or 20%, over the prior year-to-date period to $343,000 as a result of increased costs associated with data security as well as the increased numbers of loan and deposit accounts maintained on the data processing systems.  Other general and administrative expenses increased by $101,000, or 17%, to $710,000 due to increases in FDIC insurance, telephone and delivery expenses.  The FDIC premium assessments increased for all banks however, since the Bank was not opened until 2001, it did not receive the assessment credit which was received by most of the banking industry.  The increases in telephone and delivery expenses were the result of the increase in the number of branches, as well as the expansion to an operations center that occurred late in 2006.

Comparing operating expense for the three-month period ended September 30, 2007 to the three-month period ended September 30, 2006 reflects a $108,000 or 5% increase since the third quarter of 2006.  The factors causing the changes are similar to those that impacted the year-to date comparison.

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Income Taxes

For the nine-month period ended September 30, 2007, the Company recorded income tax expense of $126,000, equivalent to an effective rate of 35%.  During the same period of 2006, the Company recorded income tax expense of $415,000, equivalent to an effective rate of 44%.  The improvement in the effective tax rate was attributable to an increased level of tax advantaged income (primarily generated by municipal securities) as a percentage of taxable income.  For the three-month period ended September 30, 2007, the Company recorded income tax expense of $48,000, equivalent to an effective rate of 34%.  During the same period of 2006, the Company recorded income tax expense of $134,000, equivalent to an effective rate of 43%.  The improvement for the three-month comparison was also attributable to an increased level of tax-advantaged income.

Comparison of Financial Condition at September 30, 2007 and December 31, 2006

Overview

Total assets were $300.9 million at September 30, 2007, compared to $281.4 million at December 31, 2006, an increase of $19.5 million or 7%.

Loans

The loan portfolio's increase of $15.7 million (or 8%) since December 31, 2006 was primarily due to commercial real estate (increased by $18.7 million) and residential real estate (increased by $3.7 million).  Commercial and industrial loans declined by $6.9 million as a result of various loan payoffs, and loans to consumers were up by $300,000 compared to December 31, 2006.  The growth in commercial real estate and residential real estate loans was primarily the result of new loan customer relationships acquired through increased business development efforts.  The allowance for loan losses was reduced to $2,773,000 since the end of 2006 as a result of net charge-offs of $64,000, offset by a $30,000 provision for loan losses.  Increased non-accrual loans caused non-performing loans at September 30, 2007 to equal $1,428,000 (0.7% of loans) compared to $67,000 at December 31, 2006.  $71,000 of loans were charged-off during the year-to-date period ended September 30, 2007 and $7,000 of losses were recovered.  During the same period of 2006 $19,000 of loans were charged-off and no recoveries were recorded.  At September 30, 2007, the allowance for loan losses equaled 1.28% of total loans versus 1.40% at December 31, 2006.  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 Company considers industry trends and regional and national economic conditions.  In addition to the allowance for loan losses, the Company maintains a separate liability account as a reserve for probable losses on currently unfunded loan commitments.  At September 30, 2007, this reserve equaled $61,000.

Investment Securities

Investment securities available-for-sale are carried at estimated fair value and totaled $47.2 million at September 30, 2007, a decrease of $7.4 million, or 14%, from December 31, 2006 due to normal amortization and maturities.  Investment securities classified as held-to-maturity were $10.7 million at September 30, 2007, a decrease of $1.8 million, or 14%, from December 31, 2006 also as a result of maturities and normal amortization.  Given the interest rate environment, the Company has decided to redeploy lower-yielding investment securities portfolio cash flows to the growth of the higher-yielding loan portfolio during the first nine months of 2007.

Short-term Investments

Cash and cash equivalents increased by $13.1 million since December 31, 2006 and equaled $19.9 million at September 30, 2007.  The increase was primarily the result of additional overnight federal funds sold, which equaled $13.4 million at September 30, 2007.  Historically, the Company experiences significant inflows of commercial deposits during the final few days of each quarter which tend to return to normal levels during the first few days of the subsequent month.  This short term increase in liquidity is usually invested in overnight federal funds sold.  In addition, at September 30, 2007, the Company had received an unusually large deposit from one customer relationship.  It is expected that this customer will withdraw the majority of this particular deposit during the fourth quarter of 2007.

Deposits

Deposits are the Bank’s primary source of funds.  Total deposits increased to $213.6 million at September 30, 2007, a $21.8 million (or 11%) increase since December 31, 2006.  The Company reduced borrowed funds by $5.5

17

million during the year-to-date-period as the deposit inflow provided funds to reduce borrowings and support continued loan and asset growth allowing the Bank to continue to leverage its capital base.  The deposit portfolio increases occurred almost entirely in the savings category (increase of $35.8 million) and was caused by the introduction of a new high interest savings product.  Demand deposits increased by 11% or $2.6 million over the year-end level.  Certificates of deposits declined by $7.6 million (6%) and interest-bearing transaction accounts declined by $9.0 million or 24%.  Upon introduction of the new savings product in April certain customers transferred funds from other deposit product categories to the new savings product.  These transfers constrained the growth of certificates of deposit as well as interest-bearing transaction accounts.  The amount of these internal transfers to the new product was approximately one-fourth of the $35.8 million growth in this category and the remaining funds were newly acquired.  In addition, the previously mentioned large deposit totaling $9.9 million of one customer is carried in this category and is expected to be withdrawn during the fourth quarter of 2007.  The net effect of these funds flows was an improvement in the Company’s liquidity position and a reduction in the reliance upon higher cost certificates of deposit and borrowings.  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.

Borrowed Funds

Borrowed funds include Federal Home Loan Bank advances, federal funds purchased, subordinated debentures and securities under agreement to repurchase.  During the first nine months of 2007, the aggregate of these items decreased by $5.5 million.  Securities under agreement to repurchase increased by $3.5 million as a result of additional commercial customers using the “cash management sweep” product.  The balance of subordinated debentures remained unchanged.  Advances from the Federal Home Loan Bank of Boston decreased by $8.5 million.  Federal funds purchased of $500,000 at December 31, 2007 were reduced to zero at September 30, 2007.  The net reduction in borrowed funds was funded by the above mentioned increase in deposits.

Stockholders’ Equity

Stockholders’ equity at September 30, 2007 was $20.7 million, an increase of $493,000 from December 31, 2006.  The increase was primarily due to year-to-date earnings of $232,000, the $130,000 impact of the accounting treatment for share-based compensation and the $131,000 increase in the market value of available-for sale investment securities that resulted from movements in market interest rates.  The current level of net unrealized losses on available-for-sale investment securities is $8,000, net of taxes.

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 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 Company maintains cash balances that are available to pay the interest expense associated with the subordinated debentures and to pay normal 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 Company.

The Company’s most liquid assets are cash and cash equivalents.  The levels of these assets depend on our operating, financing, lending and investing activities during any given period.  At September 30, 2007, cash and cash equivalents totaled $19.9 million, including overnight federal funds sold of $13.4 million.  These relatively high amounts were caused by the receipt of the previously mention large deposit from one customer in the amount of approximately $9.9 million.  The majority of these funds are expected to be withdrawn during the fourth quarter of 2007.  The withdrawals will be funded by a reduction in federal funds sold.  Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $47.2 million at September 30, 2007.  In addition, at September 30, 2007 the Company had the ability to borrow an additional $18.1 million from a combination of Federal Home Loan Bank of Boston advances and federal funds purchased.

At September 30, 2007, the Company had $29.2 million in loan commitments outstanding.  In addition to commitments to originate loans, the Company had $39.4 million in unused lines of credit.  Certificates of deposit due within one year of September 30, 2007 totaled $112.1 million, or 58% of total deposits.  If these deposits do

18

not remain with the Company, the Company will be required to seek other sources of funds, including other certificates of deposit or other borrowed funds.  Depending on market conditions, the Company may be required to pay higher rates on such deposits or other borrowings than the Company currently pays on its certificates of deposit.  The Company believes, however, based on past experience, that a significant portion of our certificates of deposit will remain with the Company.  The Company has the ability to attract and retain deposits by adjusting the interest rates offered.

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.  Other sources of funds for the Bank are overnight borrowings from customers in the form of repurchase agreements, federal funds purchases and advances (borrowings) from the Federal Home loan Bank of Boston.

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.

Under applicable provisions of federal law, the Company and the Bank must meet specific quantitative capital requirements.  As of September 30, 2007, the Company’s and the Bank’s Tier 1 Leverage Capital ratios were 9.18% and 8.43%, respectively.  The Bank’s Tier 1 and Total Risk Based Capital ratios were 10.96% and 12.20%, 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.  At September 30, 2007, the Company and the Bank were “well capitalized” as defined by federal regulations.

Off-Balance Sheet Arrangements

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in the Company’s financial statements.  These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk.  Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit.  For the three months ended September 30, 2007, the Company engaged in no off-balance sheet transactions reasonably likely to have a material effect on the Company’s financial condition, results of operations or cash flows.

ITEM 3 - Controls and Procedures

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 as such term is defined in Rule 13a-15(c) promulgated under the Security Exchange Act of 1934, as amended(the “Exchange Act”).  Based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the fiscal quarter covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.  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.

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PART II

Item 1 – Legal Proceedings

The Company is not involved in any pending legal proceedings.  The Bank is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business.  Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to its financial condition and results of operations.

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

None

Item 3 – Defaults Upon Senior Securities

None

Item 4 – Submission of Matters to Vote of Security Holders

None

Item 5 – Other Information

None

Item 6 – Exhibits

Exhibit No.	Description
3.1	Articles of Association(1)
3.2	Bylaws(1)
4.1	Common Stock Certificate(2)
31.1	Sarbanes-Oxley Section 302 Certification of Charles R. Valade
31.2	Sarbanes-Oxley Section 302 Certification of William M. Mahoney
32.1	Sarbanes-Oxley Section 906 Certification of Charles R. Valade
32.2	Sarbanes-Oxley Section 906 Certification of William M. Mahoney

(1) Incorporated by reference in this document to the Form 8-K filed with the Securities and Exchange Commission on December 19, 2006.

(2) Incorporated by reference in this document to the Annual Report on Form 10-KSB for the year ended December 31, 2005.

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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 9, 2007	By:	/s/ Charles R. Valade
		Charles R. Valade
		President and Chief Executive Officer
Date:     November 9, 2007	By:	/s/ William M. Mahoney
		William M. Mahoney
		Treasurer & Chief Financial Officer

21

EX-31.1

Exhibit 31.1

RULE 13a-14(a)/15d-14(a)

CHIEF EXECUTIVE OFFICER CERTIFICATION

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 9, 2007	/s/ Charles R. Valade
	Charles R. Valade
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

RULE 13a-14(a)/15d-14(a)

CHIEF FINANCIAL OFFICER CERTIFICATION

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 9, 2007	/s/ William M. Mahoney
	William M. Mahoney
	Treasurer and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-QSB of CNB Financial Corp. (the “Company”) for the period ended September 30, 2007 (the “Report”), I, Charles R. Valade, acting as principal executive officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of September 30, 2007 and for the period covered by this Report.

/s/ Charles R. Valade

Charles R. Valade

President

CNB Financial Corp.

November 9, 2007

EX-32.2

 

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-QSB of CNB Financial Corp. (the “Company”) for the period ended September 30, 2007 (the “Report”), I, William M. Mahoney, acting as principal financial officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of September 30, 2007 and for the period covered by this Report.

/s/ William M Mahoney

William M. Mahoney

Treasurer and CFO

CNB Financial Corp.

November 9, 2007