-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lgr1zTjfURhzgu83GTv3DQiOhAYuU1SahXgWc365mb81p+OBUaNmlE01uFHRLHd4 dBRHKBF0ON+odL43gysnvg== 0000950109-96-001856.txt : 19960401 0000950109-96-001856.hdr.sgml : 19960401 ACCESSION NUMBER: 0000950109-96-001856 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CNB FINANCIAL CORP/PA CENTRAL INDEX KEY: 0000736772 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 251450605 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13396 FILM NUMBER: 96541121 BUSINESS ADDRESS: STREET 1: SECOND AND MARKET ST STREET 2: P.O. BOX 42 CITY: CLEARFIELD STATE: PA ZIP: 16830 BUSINESS PHONE: 814-765-9621 MAIL ADDRESS: STREET 1: SECOND AND MARKET STREET STREET 2: P.O. BOX 42 CITY: CLEARFIELD STATE: PA ZIP: 16830 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 1 0 - K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 Commission File Number 0-13396 CNB FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Pennsylvania 25-1450605 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) County National Bank Market and Second Streets P.O. Box 42 Clearfield, Pennsylvania 16830 (Address of principal executive offices) Registrant's telephone number, including area code, (814) 765-9621 Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $4.00 Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of March 1, 1996. Common Stock, $4.00 Par Value - $52,977,146 The number of shares outstanding of the issuer's common stock as of March 1, 1996: Common Stock, $4.00 Par Value - 1,722,834 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Shareholder's Report for the year ended December 31, 1995 are incorporated by reference into Part I and Part II pursuant to Section 13 of the Act. Portions of the proxy statement for the annual shareholders' meeting on April 16, 1996 are incorporated by reference into Part II and Part III. The incorporation by reference herein of portions of the proxy statement shall not be deemed to specifically incorporate by reference the information referred to in Item 402(a)(8) of regulation S-K. Exhibit index is located on sequentially numbered page 14. INDEX PART I.
ITEM 1. BUSINESS........................................... 3 ITEM 2. PROPERTIES......................................... 10 ITEM 3. LEGAL PROCEEDINGS.................................. 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11 PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................... 11 ITEM 6. SELECTED FINANCIAL DATA............................ 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..... 11 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........ 11 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............... 11 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.. 11 ITEM 11. EXECUTIVE COMPENSATION.............................. 11 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................. 12 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...... 12 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K............................ 12-13 SIGNATURES.......................................... 14 LETTER OF INDEPENDENT AUDITOR....................... 15 EXHIBIT 3(a)........................................ 17 EXHIBIT 3(b)........................................ 23
PART I. ITEM 1. BUSINESS CNB FINANCIAL CORPORATION CNB Financial Corporation (The Corporation) is a Bank Holding Company registered under the Bank Holding Company Act of 1956, as amended. It was incorporated under the laws of the Commonwealth of Pennsylvania in 1983 for the purpose of engaging in the business of a Bank Holding Company. On April 26, 1984, the Corporation acquired all of the outstanding capital stock of County National Bank (the Bank), a national banking chartered institution. The Corporation is subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System. In general, The Corporation is limited to owning or controlling banks and engaging in such other activity as the Federal Reserve Board may determine to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Corporation does not currently engage in any operating business activities, other than the ownership and management of County National Bank. COUNTY NATIONAL BANK The Bank is a nationally chartered banking institution incorporated in 1934. The Bank's Main Office is located on the Corner of Market and Second Streets, Clearfield, (Clearfield County) Pennsylvania. The Bank's primary marketing area consists of the Pennsylvania County of Clearfield (excluding Sandy, Brady and Huston Townships and the city of DuBois). It also includes those parts of Centre County consisting of Philipsburg Borough, Rush Township, Burnside Township and the western portion of Snow Shoe Township, as well as Elk County excluding Highland, Jones and Millstone Townships. The Bank opened a full service branch in Bradford, McKean County in 1995 and serves the entire county. The area is located in northern and central Pennsylvania and is situated approximately one hundred miles east of the Pittsburgh Metropolitan area and a similar distance west of the Harrisburg area. The estimated population of the general trade area is 100,000. The economy is diversified and includes manufacturing industries, wholesale and retail trade, service industries, family farms and abundant reserves of coal, clay and timber play a significant role. In addition to the Main Office, the Bank has 10 full-service branch offices in the communities of Bradford, Clearfield, Karthaus, Madera, Osceola Mills, Philipsburg, and St. Marys, Pennsylvania and one drive-in, with lobby, located in Clearfield, Pennsylvania. The Bank opened an in-store, full-service supermarket branch in St. Marys, Elk County in 1994. This branch operates on a 6 day a week basis. The Bank has completed construction of a full service branch office in Houtzdale, Clearfield County, and has notified the Comptroller of the Currency ("Comptroller") of its January 10, 1996 opening date. The Bank is a full-service bank. It engages in a full range of banking activities and services in individual, business, governmental and institutional customers. These activities and services principally include checking, savings, time and transaction accounts; real estate, commercial, industrial and residential and consumer loans; and a variety of other specialized financial services. Its Trust division offers a full range of client services. The Bank's customer base is such that loss of one customer relationship or a related group of depositors would not have a materially adverse effect on the business of the Bank. The Bank's loan portfolio is diversified so that one industry, group of related industries or changes in household economic conditions does not comprise a material portion of the loan portfolio. The Bank's business is not seasonal nor does it have any risks attendant to foreign sources. COMPETITION With 33.3% of total bank deposits in its primary market area, County National Bank is the largest headquartered bank in its trade area and competes actively with two community banks in the same area as well as several large regional banks headquartered outside the area. According to the latest FDIC summary of deposits, June 30, 1995, the Bank's share of deposits in its total market area is 17.35%. The Bank has 20.39% of the Clearfield County deposit base and much smaller percentages of market share in the Elk and McKean county region. The Bank is generally competitive with all competing financial institutions in its service area with respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates charged on loans. The banking industry in the Bank's service area continues to be extremely competitive, both among commercial banks and with financial service providers such as consumer finance companies, thrifts, investment firms, mutual funds and credit union. The increased competition has resulted from changes in the legal and regulatory guidelines as well as from the economic conditions. Mortgage banking firms, leasing companies, financial affiliates of industrial companies, brokerage firms, retirement fund management firms, leasing companies and even government agencies provide additional competition for loans and other financial services. Some of the financial service providers operating in the Bank's market area operate on a large-scale regional basis and possess resources greater than those of the Bank and the Corporation. SUPERVISION AND REGULATION The Bank is subject to supervision and examination by applicable federal and state banking agencies, including the Comptroller. In addition, the Bank is insured by and subject to some or all of the regulations of the Federal Deposit Insurance Corporation ("FDIC"). The Bank is also subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types, amounts and terms and conditions of loans that may be granted, and limitation on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operation of the Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve Board, including actions taken with respect to interest rates, as it attempts to control the money supply and credit availability in order to influence the economy. EXECUTIVE OFFICERS The table below lists the executive officers of The Corporation and County National Bank and sets forth certain information with respect to such persons.
AGE AT PRINCIPAL OCCUPATION NAME DECEMBER 31, 1995 FOR LAST FIVE YEARS - ---- ------------------ --------------------- JAMES P. MOORE 60 PRESIDENT AND CHIEF EXECUTIVE OFFICER, CNB FINANCIAL CORPORATION SINCE 9/20/83. CHAIRMAN OF THE BOARD, COUNTY NATIONAL BANK SINCE 3/19/91, PREVIOUSLY, PRESIDENT & CHIEF EXECUTIVE OFFICER, COUNTY NATIONAL BANK SINCE 4/15/82. WILLIAM F. FALGER 48 EXECUTIVE VICE PRESIDENT, CNB FINANCIAL CORPORATION SINCE 3/28/95. PREVIOUSLY VICE PRESIDENT, SECRETARY AND TREASURER. PRESIDENT AND CHIEF EXECUTIVE OFFICER, COUNTY NATIONAL BANK SINCE 1/01/93, PREVIOUSLY, GROUP VICE PRESIDENT, COUNTY NATIONAL BANK SINCE 4/89;
WILLIAM A. FRANSON 52 SECRETARY, CNB FINANCIAL CORPORATION SINCE 3/28/95. PREVIOUSLY, ASSISTANT SECRETARY SINCE 3/27/84. EXECUTIVE VICE PRESIDENT AND CASHIER, CHIEF OPERATING OFFICER COUNTY NATIONAL BANK SINCE 1/01/93, PREVIOUSLY SENIOR VICE PRESIDENT, COUNTY NATIONAL BANK SINCE 4/15/82. CARL J. PETERSON 58 ASSISTANT SECRETARY, CNB FINANCIAL CORPORATION, SINCE 3/27/84. SENIOR VICE PRESIDENT AND TRUST OFFICER, COUNTY NATIONAL BANK, SINCE 4/15/82. J. MATTHEW MCENROE 40 TREASURER, CNB FINANCIAL CORPORATION SINCE 3/28/95. SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER, COUNTY NATIONAL BANK, SINCE 8/22/94 PRIOR THERETO, VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER, BUCKS COUNTY BANK, SINCE 9/87. MARK D. BREAKEY 37 SENIOR VICE PRESIDENT, SENIOR LOAN OFFICER, SINCE 3/28/95. VICE PRESIDENT, COMMERCIAL BANKING SINCE 4/93, ASSISTANT VICE PRESIDENT COMMUNITY LENDING, ST. MARYS, SINCE 12/23/91 PRIOR THERETO, LENDING OFFICER, MELLON BANK
Officers are elected annually at the reorganization meeting of the Board of Directors. There are not any arrangements or understandings between any and all of the above officers and any other persons pursuant to which they were selected as officers. In addition, there are not any family relationships between the above officers. EMPLOYEES The Corporation has no employees who are not employees of the County National Bank. As of December 31, 1995, the Bank had a total of 167 employees of which 139 were full time and 28 were part time. MONETARY POLICIES The earnings and growth of the banking industry are affected by the credit policies of monetary authorities, including the Federal Reserve System. An important function of the Federal Reserve System is to regulate the national supply of bank credit in order to control recessionary and inflationary pressures. Among the instruments of monetary policy used by the Federal Reserve to implement these objectives are open market activities in U.S. Government Securities, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These operations are used in varying combinations to influence overall economic growth and indirectly, bank loans, investments and deposits. These variables may also affect interest rates charged on loans or paid for deposits. The monetary policies of the Federal Reserve authorities have had a significant effect on the operating results of commercial banks in the past and are expected to continue to have such an effect in the future. In view of the changing conditions in the national economy and in the money markets, as well as the effect of actions by monetary and fiscal authorities including the Federal Reserve System, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand or their effect on the business and earnings of the Corporation and the Bank. DISTRIBUTION OF ASSETS, LIABILITIES, & SHAREHOLDER'S EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL The following tables set forth statistical information relating to the Registrant and its wholly-owned subsidiary. The table should be read in conjunction with the consolidated financial statements of the Registrant which are incorporated by reference hereinafter.
AVERAGE CONSOLIDATE BALANCE SHEET AND NET INTEREST MARGIN (DOLLARS IN THOUSANDS) DECEMBER 31, 1995 DECEMBER 31, 1994 - --------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL INTEREST AVERAGE ANNUAL INTEREST BALANCE RATE INC./EXP. BALANCE RATE INC./EXP. - --------------------------------------------------------------------------------------------------------- ASSETS Interest-bearing deposits with banks $ 18 2.42% $ 0 $ 1,306 6.97% $ 91 Federal funds sold and securities purchased under agreements to resell 1,450 5.59% 81 1,130 3.81% 43 Other short-term 0 0 investments INVESTMENT SECURITIES: Taxable 54,681 5.97% 3,264 55,712 5.35% 2,983 Tax-Exempt (1) 21,495 8.62% 1,853 21,744 8.62% 1,874 - --------------------------------------------------------------------------------------------------------- Total Investment Securities 76,176 6.72% 5,117 77,456 6.27% 4,857 LOANS Commercial 44,621 8.56% 3,818 37,544 7.41% 2,782 Mortgage 89,215 9.03% 8,057 85,892 8.68% 7,456 Installment 54,293 9.16% 4,974 53,756 8.51% 4,575 - --------------------------------------------------------------------------------------------------------- Total Loans (2) 188,129 8.96% 16,849 177,192 8.36% 14,813 Total Earning Assets 265,773 8.30% 22,047 257,084 7.70% 19,804 NON INTEREST BEARING ASSETS Cash & Due From Banks 7,480 0 7,228 0 Premises & Equipment 6,482 0 4,471 0 Other Assets 2,902 0 2,600 0 Allowance for Possible Loan Losses (2,173) 0 (1,927) 0 - --------------------------------------------------------------------------------------------------------- Total Non-interest earning assets 14,691 -- 0 12,372 -- 0 - --------------------------------------------------------------------------------------------------------- TOTAL ASSETS $280,464 $22,047 $269,456 $19,804 ============================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY INTEREST-BEARING DEPOSITS Demand - Interest-Bearing $ 56,284 1.98% $ 1,115 $ 50,779 1.84% $ 935 Savings 38,716 2.72% 1,052 42,719 2.07% 886 Time 116,239 5.83% 6,778 109,912 4.70% 5,165 - --------------------------------------------------------------------------------------------------------- Total Interest-Bearing Deposits 211,239 4.23% 8,945 203,410 3.43% 6,986 Short-Term Borrowings 5,229 5.32% 278 5,162 4.63% 239 Long-Term Borrowings 0 0 0 0 - --------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 216,468 4.26% 9,223 208,572 3.46% 7,225 Demand - Non-Interest-Bearing 25,788 -- 0 26,225 -- 0 Other Liabilities 1,766 -- 0 1,199 -- 0 - --------------------------------------------------------------------------------------------------------- Total Liabilities 244,022 3.78% 9,223 235,996 3.06% 7,225 Shareholder's Equity 36,442 -- 0 33,460 -- 0 - --------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $280,464 $ 9,223 $269,456 $ 7,225 ============================================================================== Interest Income/Earning Assets 8.30% $22,047 7.70% $19,804 Interest Expense/Interest Bearing Liabilities 4.26% 9,223 3.46% 7,225 - --------------------------------------------------------------------------------------------------------- NET INTEREST SPREAD 4.04% $12,824 4.24% $12,579 =========================== =========================== Interest Income/Interest Earning Assets 8.30% $22,047 7.70% $19,804 Interest Expense/Interest Earning Assets 3.47% 9,223 2.81% 7,225 - --------------------------------------------------------------------------------------------------------- NET INTEREST MARGIN 4.83% $12,824 4.89% $12,579 =========================== =========================== DECEMBER 31, 1993 - --------------------------------------------------------------------------- AVERAGE ANNUAL INTEREST BALANCE RATE INC./EXP. - --------------------------------------------------------------------------- ASSETS Interest-bearing deposits with banks $ 3,131 7.76% $ 243 Federal funds sold and securities purchased under agreements to resell 2,944 3.02% 89 Other short-term investments 743 3.23% 24 INVESTMENT SECURITIES: Taxable 62,777 5.71% 3,586 Tax-Exempt (1) 25,449 8.82% 2,245 - -------------------------------------------------------------------------- Total Investment Securities 88,226 6.61% 5,831 LOANS Commercial 35,087 6.94% 2,436 Mortgage 76,069 8.80% 6,697 Installment 45,890 9.66% 4,435 - -------------------------------------------------------------------------- Total Loans (2) 157,046 8.64% 13,568 Total Earning Assets 252,090 7.84% 19,755 NON INTEREST BEARING ASSETS Cash & Due From Banks 6,701 0 Premises & Equipment 4,421 0 Other Assets 2,701 0 Allowance for Possible Loan Losses (1,553) 0 - -------------------------------------------------------------------------- Total Non-interest earning assets 12,270 -- 0 - -------------------------------------------------------------------------- TOTAL ASSETS $264,360 $19,755 ======================================= LIABILITIES AND SHAREHOLDER'S EQUITY INTEREST-BEARING DEPOSITS Demand - Interest-Bearing $ 49,460 2.31% $1,142 Savings 41,531 2.50% 1,040 Time 115,217 4.67% 5,382 - -------------------------------------------------------------------------- Total Interest-Bearing Deposits 206,208 3.67% 7,564 Short-Term Borrowings 1,292 2.48% 32 Long-Term Borrowings 0 -- 0 - -------------------------------------------------------------------------- Total interest-bearing liabilities 207,500 3.66% 7,596 Demand - Non-Interest-Bearing 23,360 -- 0 Other Liabilities 1,212 -- 0 - -------------------------------------------------------------------------- Total Liabilities 232,072 3.27% 7,596 Shareholder's Equity 32,288 -- 0 - -------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $264,360 $7,596 =============================================== Interest Income/Earning Assets 7.84% $19,755 Interest Expense/Interest Bearing Liabilities 3.66% 7,596 - -------------------------------------------------------------------------- NET INTEREST SPREAD 4.18% $12,159 ============================ Interest Income/Interest Earning Assets 7.84% $19,755 Interest Expense/Interest Earning Assets 3.01% 7,596 - -------------------------------------------------------------------------- NET INTEREST MARGIN 4.82% $12,159 ============================
(1) The amounts are reflected on a fully tax equivalent basis using the federal statutory rate of 34% in 1995, 1994 and 1993, adjusted for certain tax preferences. (2) Average outstanding includes the average balance outstanding of all non-accrual loans. Loans consist of the average of total loans less average unearned income. The amount of loan fees included in the interest income on loans is not material. 6
RATE-VOLUME VARIANCE 1995 over(under) 1994 1994 over(under) 1993 (DOLLARS IN THOUSANDS) Due to Change in Due to Change in - ----------------------------------------------------------------------------------------------------------------------------------- VOLUME RATE NET VOLUME RATE NET - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Interest-Bearing Deposits with Banks ($55) ($35) ($90) ($129) ($23) ($152) Federal Funds Sold and Securities Purchased Under Agreements to Resell 14 24 38 (65) 19 (46) Other Short-Term 0 0 0 0 0 (24) Investments INVESTMENT SECURITIES: Taxable (56) 337 281 (387) (216) (603) Tax-Exempt (21) 0 (21) (320) (51) (371) ------------------------------------------------ ------------------------------------------------- Total Investment Securities (77) 337 260 (707) (267) (974) Securities LOANS Commercial 569 467 1,036 176 170 346 Mortgage 294 307 601 854 (95) 759 Installment 46 353 399 707 (567) 140 ---------------------------------------------- --------------------------------------------------- Total loans 909 1,127 2,036 1,737 (492) 1,245 ---------------------------------------------- --------------------------------------------------- TOTAL EARNING ASSETS $ 791 $1,452 $2,243 $ 835 ($762) $ 49 ============================================== =================================================== LIABILITIES AND SHAREHOLDERS' EQUITY INTEREST-BEARING DEPOSITS Demand - Interest-Bearing $ 106 $ 74 $ 180 $ 30 ($231) (207) Savings (89) 255 166 30 (179) (154) Time 311 1,302 1,613 (248) 32 (217) --------------------------------------------- ------------------------------------------------- Total Interest-Bearing 316 1,590 1,959 (188) (378) (578) Deposits Short-Term Borrowings 3 36 39 96 28 207 --------------------------------------------- ------------------------------------------------- Total Interest-Bearing Liabilities $ 319 $1,626 $1,998 ($92) ($350) ($371) ============================================= ================================================= ============================================= ================================================= CHANGE IN NET INTEREST INCOME $ 473 ($174) $ 245 $ 927 ($412) $ 420 ============================================= ==================================================== 1. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. 2. Included in interest income is $192,412, $348,838 and $402,390 of fees for the years ending 1995, 1994 and 1993, respectively. 3. Income on restructured loans accounted under SFAS Nos. 114 & 118 are included in interest earning assets; there is no income being recognized on a cash basis.
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INVESTMENT PORTFOLIO (IN THOUSANDS) DECEMBER 31, 1995 DECEMBER 31, 1994 --------------------------------------------- --------------------------------------------- UNREALIZED UNREALIZED AMORTIZED --------------------- MARKET AMORTIZED ----------------------- MARKET COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE --------------------------------------------- --------------------------------------------- SECURITIES TO BE HELD TO MATURITY: U.S. Treasury.............. $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- U.S. Government agencies and corporations....... 1,989 18 -- 2,007 -- -- -- -- Obligations of States and Political Subdivisions. 11,251 439 5 11,685 16,845 360 241 16,964 Other Debt Securities...... 11,681 183 16 11,848 17,108 17 201 16,924 Marketable Equities........ -- -- -- -- -- -- -- -- --------------------------------------------- --------------------------------------------- $24,921 $ 640 $ 21 $25,540 $33,953 $ 377 $ 442 $33,888 ============================================= ============================================= SECURITIES AVAILABLE FOR SALE: U.S. Treasury.............. $11,500 $ 99 $ 5 $11,594 $15,528 $ -- $ 280 $15,248 U.S. Government agencies and corporations....... 24,527 271 106 24,692 18,233 10 688 17,555 Obligations of States and Political Subdivisions. 11,155 289 10 11,434 1,735 4 61 1,678 Other Debt Securities...... 1,528 17 5 1,540 1,958 -- 87 1,871 Marketable Equities........ 1,405 342 -- 1,747 816 210 17 1,009 --------------------------------------------- --------------------------------------------- $50,115 $1,018 $ 126 $51,007 $38,270 $ 224 $1,133 $37,361 ============================================= ============================================= MATURITY DISTRIBUTION OF INVESTMENT SECURITIES (IN THOUSANDS) DECEMBER 31, 1995 WITHIN AFTER ONE BUT AFTER FIVE BUT AFTER ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS TEN YEARS -------------------------------------------- --------------------------------------------- $ Amt Yield $ Amt Yield $ Amt Yield $ Amt Yield --------- --------- --------- --------- --------- --------- --------- --------- SECURITIES TO BE HELD TO MATURITY: U.S. Government agencies and corporations....... $ -- % $ -- % $ 1,989 6.90% $ -- % Obligations of States and Political Subdivisions. 2,695 9.47% 3,789 9.64% 4,767 8.83% -- -- Other Debt Securities...... 3,629 6.64% 8,051 6.82% -- -- -- -- --------------------------------------------- --------------------------------------------- 6,324 7.85% 11,840 7.72% 6,756 8.26% 0 0.00% SECURITIES AVAILABLE FOR SALE: U.S. Treasury.............. 4,999 6.32% 6,501 6.11% -- -- -- -- U.S. Government agencies and corporations....... 2,251 5.12% 21,256 6.47% 1,021 7.85% -- -- Obligations of States and Political Subdivisions. 250 8.86% 1,464 6.25% 7,041 8.22% 2,400 7.53% Other Debt Securities...... -- -- -- -- -- -- -- -- --------------------------------------------- --------------------------------------------- 7,500 6.04% 29,221 6.38% 8,062 8.17% 2,400 7.53% ============================================= ============================================= TOTAL $13,824 6.87% $41,061 6.77% $14,818 8.21% $2,400 7.53% ============================================= ============================================= The weighted average yields are based on book value and effective yields weighted for the scheduled maturity with tax-exempt securities adjusted to a taxable-equivalent basis using a tax rate of 34%. DECEMBER 31, 1993 ------------------------------------------------ UNREALIZED AMORTIZED -------------------- MARKET COST GAINS LOSSES VALUE ------------------------------------------------ SECURITIES TO BE HELD TO MATURITY U.S. Treasury.............. $15,591 $ 114 $ 22 $15,683 U.S. Government agencies and corporations....... 15,994 49 105 15,938 Obligations of States and Political Subdivisions. 23,589 963 1 24,551 Other Debt Securities...... 23,397 506 18 23,885 Marketable Equities........ 356 91 9 438 ------------------------------------------------ $78,927 $1,723 $155 $80,495 ================================================ SECURITIES AVAILABLE FOR SALE: U.S. Treasury.............. $ -- $ -- $ -- $ -- U.S. Government agencies and corporations....... -- -- -- -- Obligations of States and Political Subdivisions. -- -- -- -- Other Debt Securities...... -- -- -- -- Marketable Equities........ -- -- -- -- ------------------------------------------------ $ -- $ -- $ -- $ -- ================================================ MATURITY DISTRIBUTION OF INVESTMENT SECURITIES (IN THOUSANDS) DECEMBER 31, 1995 Collateralized Mortgage Obligations and Other Asset Backed Securities ------------------------------------------------ $ Amt Yield ----------- -------- SECURITIES TO BE HELD TO MATURITY U.S. Government agencies and corporations....... $ -- % Obligations of States and Political Subdivisions. -- -- Other Debt Securities...... -- -- ------------------------------------------------ 0 0.00% SECURITIES AVAILABLE FOR SALE: U.S. Treasury.............. -- -- U.S. Government agencies and corporations....... -- -- Obligations of States and Political Subdivisions. -- -- Other Debt Securities...... 1,528 7.00% ------------------------------------------------ 1,528 7.00% ================================================ TOTAL $ 1,528 7.00% ================================================
LOAN PORTFOLIO A. TYPE OF LOAN (IN THOUSANDS): 1995 1994 1993 1992 1991 ------------ ------------- ----------- ------------ ------------ Commercial, Financial and Agricultural $ 49,643 $40,643 $40,953 $40,203 $45,162 Real Estate Mortgages 108,749 99,946 99,014 77,441 66,269 Installment Loans to Individuals 43,794 44,196 40,488 33,996 36,716 -------- ------- ------- ------- ------- GROSS LOANS 203,703 184,785 170,455 151,647 165,127 Less: Unearned Income 3,608 2,900 2,499 1,823 1,255 -------- ------- ------- ------- ------- TOTAL LOANS NET OF UNEARNED $200,038 $181,789 $107,956 $150,014 $144,871 B. LOAN MATURITIES AND INTEREST SENSITIVITY DECEMBER 31, 1995 ONE YEAR ONE THROUGH OVER TOTAL GROSS Commercial Financial and Agricultural OR LESS FIVE YEARS FIVE YEARS LOANS ------------------------------------- ------------ ------------- ----------- ------------ Loans With Predetermined Rate $ 4,097 $11,654 $7,676 $23,227 Loans With Floating Rate 26,351 05 -- 26,416 ------------ ------------- ----------- ------------ $30,441 $11,719 $7,476 $49,643 ============ ============= =========== ============ C. RISK ELEMENTS 1995 1994 1993 1992 1991 ------------ ------------- ----------- ------------ ------------ Loans on non-accrual basis $414 $957 $1,134 $559 $525 Accruing loans which are contractually past due 90 days or more as to interest or principal payments 2,503 307 518 700 1,290 Trouble Debt Restructuring 705 -- -- -- -- ------------ ------------- ----------- ------------ ------------ $5,322 $1,264 $1,652 $1,338 $1,815 ============ ============= =========== ============ ============ 1. Internal income recorded on the non-accrual loans for the year ended December 31, 1996 was $3,775. Interest income which would have been recorded on these loans had they been on accrual income was $60,258. 2. Loans are placed in non-accrual status when the interest or principal is 90 days past due, unless the loan is in collection, will increase and it is believed that there will be no loss of interest or principal. 3. As December 31, 1995 there was $3,905,656 in loans which are considered problem loans. In the opinion of management, these loans are adequately insured and losses re believed to be minimal.
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SUMMARY OF LOAN LOSS EXPERIENCE ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES (IN THOUSANDS) YEARS ENDED DECEMBER 31, 1995 1994 1993 1992 1991 --------- --------- --------- --------- ---------- Balance at beginning of Period $ 2,033 $ 1,750 $ 1,502 $ 1,369 $ 1,269 Charge-offs: Domestic: Commercial, Financial and Agricultural 59 95 198 307 130 Real Estate Mortgages 28 33 -- 12 28 Installment Loans to Individuals 282 254 135 164 202 ------- ------- ------- ------- ------- 369 382 333 483 360 Recoveries: Domestic: Commercial, Financial and Agricultural -- 19 26 67 -- Real Estate Mortgages -- -- -- 14 -- Installment Loans to Individuals 101 121 30 35 47 ------- ------- ------- ------- ------- 101 140 56 116 47 Net Charge-offs: (268) (242) (277) (367) (313) Provision for Loan Losses 380 525 525 500 413 ========== ========== ========== ========== ========== Balance at End-of Period $ 2,145 $ 2,033 $ 1,750 $ 1,502 $ 1,369 ========== ========== ========== ========== ========== Ratio of net charge-offs during the period to average loans outstanding 0.14 0.18 0.25 0.22 0.25 The Provision for loan losses reflects the amount deemed appropriate by management to establish an adequate reserve to meet the present and foreseeable risk characteristics of the present loan portfolio. Management's judgement is based on the evaluation of individual loans, the overall risk characteristics of various portfolio segments, past experience with losses, the impact of economic conditions on borrowers, and other relevant factors.
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES (in thousands)
1995 1994 1993 1992 1991 ----------------------------------------------------------------------------------------------- Domestic: % of % of % of % of % of Loans in Loans in Loans in Loans in Loans in each each each each each Category Category Category Category Category $ Amt. to Total $ Amt. to Total $ Amt. to Total $ Amt. to Total $ Amt. to Total ----------------------------------------------------------------------------------------------- Real Estate Mortgages $ 387 53.40% $ 60 54.09% $ 47 52.22% $ 111 51.07% $ 82 45.35% Installment Loans to Individual 422 22.24% 210 23.92% 167 23.75% 227 22.42% 229 25.13% Commercial, Financial and Agricultural 446 24.36% 895 21.99% 834 24.03% 471 26.51% 562 29.52% Unallocated 890 N/A 868 N/A 702 N/A 693 N/A 496 N/A =============================================================================================== TOTALS $2,145 100.00% $2,033 100.00% $1,750 100.00% $1,502 100.00% $1,369 100.00% =============================================================================================== 1. In determining the allocation of the allowance for possible credit losses, County National Bank considers economic trends, historical patterns and specific credit reviews. 2. With regard to the credit reviews, a "watchlist" is evaluated on a monthly basis to determine potential commercial losses. Consumer loans and mortgage loans are allocated using historical loss experience. The total of these reserves is deemed "allocated", while the remaining balance is "unallocated".
9
DEPOSITS (in thousands) December 31, 1995 1994 1993 Amount Amount Amount ----------- ---------- -------- Demand - Non Interest Bearing $ 25,705 $ 26,225 $ 23,360 Demand - Interest Bearing 78,821 50,779 49,460 Savings Deposits 35,589 42,719 41,531 Time Deposits 115,672 109,912 115,217 =========== ========== ======== TOTAL DEPOSITS $255,787 $229,635 $229,568 =========== ========== ========
The maturity of certificates of deposits and other time deposits in denomination of $100,000 or more as of December 31, 1995 (in thousands): Maturing in: Three months or less................................. $ 1,910 Greater than three months but less than six months... 2,934 Greater than six months but less than twelve months.. 3,802 Greater than tweleve months.......................... 4,030 ========= TOTAL $12,676 ========= RETURN ON EQUITY AND ASSETS Information required by this section is presented on pages 18 and 19 of the Annual Report to Shareholders for the year ended December 31, 1995, and is incorporated herein by reference. ITEM 2. PROPERTIES The headquarters of the Corporation and the County National Bank is located at the corner of Market and Second Streets, Clearfield, Pennsylvania. In addition to the banking offices at its principal office, County National Bank owns the following properties in which it operates branch offices; 1231 S. Second Street, Clearfield, Pennsylvania; Karthaus, Pennsylvania; Main Street, Madera, Pennsylvania; 609 Lingle Street, Oscecla Mills, Pennsylvania; 113-117 Presqueisle Street, Philipsburg, Pennsylvania; 133 Washington Street, St. Marys, Pennsylvania and a drive-in banking facility at 219 E. Cherry Street, Clearfield, Pennsylvania, and 216 Spring Street, Houtzdale, Pennsylvania. The Bank leases branch facilities located at 25 Irwin Drive, Philipsburg, Pennsylvania, a supermarket branch at Bi-Lo Plaza, Million Dollar Highway, St. Marys, and 224 West Washington Street, Bradford, Pennsylvania. Drive-in banking facilities are maintained at all branch locations with the exception of the Main Office at Market and Second Streets, Clearfield, Pennsylvania and the branch at Karthsus, Pennsylvania. Automatic teller machines are in operation at branch offices located at 219 E. Cherry Street and 1231 S. Second Street in Clearfield, Pennsylvania; 113-117 Presqueisle Street, and 25 Irwin Drive, Philipsburg, Pennsylvania and 133 Washington Street, St. Marys, Pennsylvania, within the Bi-Lo Supermarket Lobby, Million Dollar Highway, St. Marys, Pennsylvania and 224 W. Washington Street, Bradford, McKean County, Pennsylvania. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings towhich the Corporation or the Bank is a party, or of which any of their property is the subject, except ordinary routine proceedings which are incidental to the oridnary conduct of business. In the opinion of Management, pending legal proceedings will not have a material adverse effect onthe consolidated financial position of the Corporation. 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders through the solicitation of proxies, or otherwise, for the three months ended December 31, 1995. PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS MATTERS Information relating to the Corporation's common stock is on pages 17 and 28 of the Annual Shareholder's Report for the year ended December 31, 1995 and is herein incorporated by reference. There were 1,421 registered shareholders of record as of March 1, 1996. ITEM 6. SELECTED FINANCIAL DATA Information required by this section is presented on pages 18 and 19 of the Annual Shareholder's Report for the year ended December 31, 1995 and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this section is presented on pages 20 - 24 of the Annual Shareholder's Report for the year ended December 31, 1995 and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements which appear in the Annual Shareholder's Report for the year ended December 31, 1995 are incorporated herein by reference to such annual report:
Pages in Annual Report ------------- Consolidated Statements of Condition 4 Consolidated Statements of Income 5 Consolidated Statements of Cash Flows 6 Consolidated Statements of Changes in Stockholder's Equity 7 Notes to Consolidated Financial Statements 8 - 15 Report of Independent Auditors 16
Quarterly financial data relating to the results of operations for the year ended December 31, 1995 and 1994, appears in the Annual Shareholder's Report for the year ended December 31, 1995 under the caption "Quarterly Summary of Earnings" at Page 17 and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to Executive Officers is included in Part I and information describing the Corporation's directors is included by reference on pages 3 and 4 of the Proxy Statement for the Annual Meeting to be held on April 16, 1996. ITEM 11. EXECUTIVE COMPENSATION Information required by this section is presented on pages 4 - 7 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 16, 1996 and is incorporated herein by reference. 11 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this section is presented on pages 3 - 4 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 16, 1996 and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this section is presented on page 8 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 16, 1996 and is incorporated herein by reference. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A.) 1. FINANCIAL STATEMENTS FILED The Financial Statements listed below are incorporated herein by reference from the Annual Shareholder's Report for the year ended December 31, 1995.
Pages in Annual Report ------------- CNB Financial Corporation and Subsidiary: Consolidated Balance Sheet 4 Consolidated Statement of Income 5 Consolidated Statements of Cash Flows 6 Consolidated Statements of Changes in Shareholder's Equity 7 Notes to Consolidated Financial Statements 8 to 15 Report of Independent Auditors 16 Quarterly Summary of Earnings and Per Share Data 17
2. FINANCIAL STATEMENT SCHEDULES: All schedules are omitted since they are not applicable. (B.) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the fourth quarter of the year ended December 31, 1995. 12 Pursuant to the requirements of the Sections 13 or 15 (d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CNB FINANCIAL CORPORATION (Registrant)
Date: March 26, 1996 By: /s/ JAMES P. MOORE ----------------------------- ------------------------------------------ JAMES P. MOORE President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 26, 1996.
/s/ JAMES P. MOORE President and Chief Executive Officer, - ------------------------------------------ Director JAMES P. MOORE /s/ WILLIAM F. FALGER Executive Vice President - ------------------------------------------ WILLIAM F. FALGER /s/ CARL J. PETERSON Assistant Secretary, Director - ------------------------------------------ CARL J. PETERSON /s/ J. MATTHEW MCENROE Treasurer, Principal Financial Officer - ------------------------------------------ Principal Accounting Officer J. MATTHEW MCENROE /s/ ROBERT E. BROWN Director /s/ JEFFREY S. POWELL - ------------------------------------------ ------------------------------------------ ROBERT E. BROWN JEFFREY S. POWELL Director /s/ EDWARD B. REIGHARD - ------------------------------------------ ------------------------------------------ RICHARD D. GATHAGAN EDWARD B. REIGHARD /s/ JAMES J. LEITZENGER Director - ------------------------------------------ ------------------------------------------ JAMES J. LEITZENGER PETER F. SMITH /s/ DENNIS L. MERREY Director /s/ L.E. SOULT, JR. - ------------------------------------------ ------------------------------------------ DENNIS L. MERREY L.E. SOULT, JR. /s/ WILLIAM R. OWENS DIRECTOR /s/ ROBERT G. SPENCER - ------------------------------------------ ------------------------------------------ WILLIAM R. OWENS ROBERT G. SPENCER /s/ ROBERT C. PENOVER Director /s/ JOSEPH L. WAROQUIER, SR. - ------------------------------------------ ------------------------------------------ ROBERT C. PENOVER JOSEPH L. WAROQUIER, SR.
13 EXHIBITS: The exhibits listed below are filed herewith or are incorporated herein by reference to other filings:
EXHIBIT SEQUENTIALLY NUMBER DESCRIPTION NUMBERED PAGE - ------ ----------- ------------- 3(a) Articles of Incorporation, 17 as amended 3(b) By-Laws 23 13 Annual Report to Shareholders for 1995 21 Subsidiaries of the Registrant 14 99 Proxy Statement for the Annual Meeting of Shareholders to be held April 16, 1996
14 EX-3.A 2 ARTICLES OF INCORPORATION EXHIBIT 3(a) Board of Directors CNB Financial Corporation We have audited the consolidated financial statements of CNB Financial Corporation and subsidiary (Corporation) at December 31, 1995 and 1994 and for the years then ended, all incorporated by reference in the Annual Report on Form 10-K to be filed by the Corporation under the Securities and Exchange Act of 1934 (the Act); our report dated January 26, 1996 with respect thereto is also incorporated by reference in such Annual Report on Form 10-K. In connection with the Form 10-K: 1. We are independent auditors with respect to the Corporation within the meaning of the Act and the applicable published rules and regulations thereunder. 2. In our opinion, the consolidated financial statements audited by us and incorporated by reference in the Form 10-K comply as to form in all material respects with the applicable accounting requirements of the Act and the published rules and regulations thereunder. 3. We affirm that generally accepted auditing standards require us to read the information, in addition to audited financial statements, contained in the Form 10-K, to consider whether such information is materially inconsistent with information appearing in the financial statements, and to discuss any such inconsistencies with management and the Board of Directors. Nothing came to our attention, as a result of reading the additional information contained in the Form 10-K, that caused us to conclude that any of the information is materially inconsistent with information appearing in the financial statements. Generally accepted auditing standards do not require, and we have not performed, any procedures, other than as described above. This letter is solely for the information of, and assistance to, the directors of the Corporation in connection with the filing of the Corporation's Annual Report on Form 10-K, and is not to be used, circulated, quoted, or otherwise referred to for any other purpose. Very truly yours, /S/ ERNST & YOUNG Ernst & Young LLP March 19, 1996 - -------------------------------------------------------------------------------- Filed this 12th day of COMMONWEALTH OF PENNSYLVANIA September, 1983 DEPARTMENT OF STATE CORPORATION BUREAU Commonwealth of Pennsylvania Department of State Articles of CNB FINANCIAL CORPORATION /s/ William R. Davis Domestic Business Corporation Secretary of the Commonwealth - -------------------------------------------------------------------------------- In compliance with the provisions of the Act of May 5, 1933, as amended, specifically, Title 15 Purdon's Pennsylvania Statutes Annotated, Section 1204, the undersigned, desiring to be incorporated as a business corporation, hereby certifies that: 1. The name of the corporation is: CNB FINANCIAL CORPORATION 2. The location and post office address of the initial registered office of the corporation in this Commonwealth is: Market and Second Streets Clearfield, PA 16830 3. PURPOSE: The corporation shall have unlimited power to engage in and to do any lawful act concerning any or all lawful business for which corporations may be incorporated under this act and the corporation is incorporated under the provisions of the Act of May 5, 1933, as amended, specifically, Title 15 Purdon's Pennsylvania Statutes Annotated, Section 1204. 4. TERM: Perpetual 5. NUMBER OF SHARES: (AMENDED MARCH 18, 1986) The total number of authorized shares shall be 2,500,000 with a par value of $4.00. The shares of the corporation shall not have preemptive rights but shall have the right of cumulative voting in regard to the election of Directors only as hereinafter set forth. 6. Except as set forth in paragraph five hereof, there are no special rights, designations, preferences, qualifications, limitations or restrictions imposed upon the stock of the corporation except as provided in these Articles of Incorporation. 7. The Board of Directors shall have no authority to change any designations, preferences, limitations, qualifications or restrictions or special or relative rights of the stock described in paragraph five hereof. 8. The name and post office address of the incorporators and the number and class of shares subscribed by him/her is:
NUMBER and CLASS NAME ADDRESS OF SHARES ---- ------- --------- JOHN LEITZINGER 205 SW Third Avenue One Clearfield, PA 16830 Common JOHN W. POWELL 27 Coventry Lane One State College, PA 16801 Common FRANCIS E. REED R.D. 2 Box 269 One Clearfield, PA 16830 Common WILLIAM U. SMITH 120 W. Walnut Street One Clearfield, PA 16830 Common L. E. SOULT, JR. 108 Elizabeth St. One Clearfield, PA 16830 Common JAMES K. NEVLING 1019 Linden Street One Clearfield, Pa 16830 Common WILLIAM R. OWENS R 1307 Riverview Road One Clearfield, PA 16830 Common ROBERT G. SPENCER Grampian, PA 16838 One Common RONALD B. STRATTAN 909 S.Second Street One Clearfield, PA 16830 Common W. K. ULERICH 724 South Second Street One Clearfield, PA 16830 Common ROBERT E. BROWN 46 West Pauline Drive One Clearfield, PA 16830 Common
NUMBER and CLASS NAME ADDRESS OF SHARES ---- ------- --------- ROBERT S. KEPNER 804 Hannah Street One Clearfield, PA 16830 Common JAMES P. MOORE 508 South Fourth Street One Clearfield, Pa 16830 Common ROBERT C. PENOYER 1220 South Second Street One Clearfield, PA 16830 Common EDWARD B. REIGHARD 8 Turnpike Avenue One Clearfield, PA 16830 Common E. DORSE ALBERT 111 East Pine Street One Clearfield, PA 16830 Common
9. OTHER PROVISIONS AS PERMITTED UNDER THE ACT: A. NUMBER, TERM AND QUALIFICATION OF DIRECTORS: All Directors shall have equal vote but shall be elected by classes as follows: Known as Class 1, consisting of not more than five (5) Directors; Class 2, consisting of not more than five (5) Directors; and Class 3, consisting of not more than five (5) Directors. The initial Directors of Class 1 shall serve until the third (3rd) annual meeting of the shareholders. At the third (3rd) annual meeting of the shareholders, the Directors of Class 1 shall be elected for a term of three (3) years and, after expiration of such term, shall thereafter be elected every three (3) years for three (3) year terms. The initial Directors of Class 2 shall serve until the second (2nd) annual meeting of shareholders. At the second (2nd) annual meeting of the shareholders, the Directors of Class 2 shall be elected for a term of three (3) years and, after expiration of such term, shall thereafter be elected every (3) years for three (3) year terms. The initial Directors of Class 3 shall serve until the first (1st) annual meeting of the shareholders. At the first (1st) annual meeting of the shareholders, the Directors of Class 3 shall be elected for a term of three (3) years and, after the expiration of such term, shall thereafter be elected every three (3) years for three (3) year terms. Each Director shall serve until his/her successor shall have been elected and shall qualify, even though his/her term of office as provided herein has otherwise expired, except in the event of his/her earlier resignation, removal or disqualification. Annual Meeting shall mean the first (1st) annual meeting after the organizational meeting and for this purpose, the initial terms of all Classes of Directors shall in the first instance not necessarily be in even twelve month increments. B. BY-LAW QUALIFICATIONS: The Board of Directors of the corporation may subject to the provisions contained in Article V of the By-Laws, increase the number of Directors to eighteen, twenty-one or twenty-four members. Any proposed nominee shall then stand for election consistent with the principles of A above at the next annual meeting. C. INITIAL BOARD OF DIRECTORS: 1. Elected for a term of three years: JOHN LEITZINGER JOHN W. POWELL FRANCIS E. REED WILLIAM U. SMITH L. E. SOULT, JR. 2. Elected for a term of two years: JAMES K. NEVLING WILLIAM R. OWENS ROBERT G. SPENCER RONALD B. STRATTAN W. K. ULERICH 3. Elected for a term of one year: ROBERT E. BROWN ROBERT S. KEPNER JAMES P. MOORE ROBERT C. PENOYER EDWARD B. REIGHARD D. CONDITIONS PRECEDENT TO MERGER, CONSOLIDATION OR DISSOLUTION OF THE CORPORATION: 1. In order to effect the merger or consolidation of the corporation into another corporation which is not a wholly owned subsidiary of this corporation the affirmative action of 75% of the outstanding shares entitled to vote shall be required. 2. The shareholders have reserved the right to amend the By-Laws to themselves by affirmative vote of the majority of the shares voting. IN TESTIMONY WHEREOF, the incorporators have signed and sealed these Articles of Incorporation this 30th day of August, 1983. /s/ /s/ - -------------------------- --------------------------- John Leitzinger Ronald B. Strattan /s/ /s/ - -------------------------- --------------------------- John W. Powell W. K. Ulerich /s/ /s/ - -------------------------- --------------------------- Francis E. Reed Robert E. Brown /s/ /s/ - -------------------------- --------------------------- William U. Smith Robert S. Kepner /s/ /s/ - -------------------------- --------------------------- L. E. Soult, Jr. James P. Moore /s/ /s/ - -------------------------- --------------------------- James K. Nevling Robert C. Penoyer /s/ /s/ - -------------------------- --------------------------- William R. Owens Edward B. Reighard /s/ /s/ - -------------------------- --------------------------- Robert C. Spencer E. Dorse Albert EX-3.B 3 BY-LAWS August 30, 1983 EXHIBIT 3(b) BY - LAWS OF CNB FINANCIAL CORPORATION ARTICLE I MEETINGS Section 1: (REVISED MARCH 28, 1995) The annual meeting of the shareholders for the purpose of electing Directors and such other business as may properly come before the meeting of the shareholders, shall be held on a date determined by the Board of Directors annually at such time and placed as per Board of Directors shall direct. Section 2: Special meetings of the shareholders may be called by the President of the Company or by order of the Board of Directors, and it shall be the duty of the Board of Directors to call such meetings upon the written request of one- half of the outstanding stock. Section 3: At all meetings of the shareholders, each shareholder shall be entitled to one vote for each share of stock held by the shareholder. However, in the election of Directors, each shareholder shall have the right of cumulative voting. ARTICLE II NOTICE OF MEETINGS Section 1: Written notice of any regular meeting of the Board of Directors shall not be required. Written notice of any special meeting of the Board of Directors shall be required. All share- holder's meetings shall only be upon twenty-one (21) days prior written notice. ARTICLE III REGISTERED OFFICE Section 1: The Corporation shall maintain a registered office and the first office shall be as stated in the Articles of Incorporation. Section 2: Thereafter a majority of the Board of Directors may change the registered office or place of business as deemed in the best interest of the corporation. ARTICLE IV INSPECTION OF CORPORATE RECORDS Section 1: Any shareholder may inspect and copy at shareholder's expense proper corporate records upon ten days written notice setting forth specifically, the reason for such inspection. ARTICLE V BOARD OF DIRECTORS Section 1: The affairs of the corporation shall be managed by no more than twenty-four Directors elected as set forth in the Articles of Incorporation who shall serve until their successors are duly elected and qualified. Section 2: No shareholder shall be eligible for election or serve as a Director who: A. Does not own and continue to own 350 unencumbered shares of the corporation B. Any present Director less than 57 years of age as of the date of these By-Laws and all future Directors shall tender their resignation as Director on or before their 70th year. C. Any Director as of the date of these By-Laws, 57 years of age or more may continue as a Director if properly elected until the Director chooses to retire. D. The Board of Directors may appoint any shareholder as Director Emeritus who may with compensation but without the right to vote, attend Director's meetings. Such person shall have stature in the community in which he/she resides and shall have been a consistent promotor of the interests of the financial industry and specifically, CNB Financial Corporation. E. No incumbent Director shall be proposed for nomination to the Board of Directors without approval of 25% of the Board of Directors. F. No shareholder, not a Director, shall be proposed for the Board of Directors without approval of two-thirds (2/3) of the Board of Directors. Section 3: The Board of Directors may fill any vacancy upon the Board of Directors. Such appointees shall serve until the next annual meeting at which time, he/she or they shall stand separately for election to serve out the term to which they have been appointed. Section 4: The Directors shall have power to elect or appoint all necessary officers; to employ agents, clerks and workpersons; to fix their compensation, to prescribe their duties, to dismiss any officers or agents without previous notice, and generally to control and manage the affairs of the corporation. Section 5: A majority of the Board of Directors shall constitute a quorum. Section 6: The corporation is authorized to pay its Directors a reasonable compensation for their services. Section 7: A salaried person of the corporation may also be a Director, but shall not receive Director's fees, except at the discretion of the Board of Directors. Section 8: The Board may if it determines in the best interests of the corporation, increase the number of Directors to eighteen, twenty-one or twenty- four between annual meetings without shareholder approval and fill the vacancy so created until the next annual meeting at which time such Directors shall stand for election for terms as set forth for the Initial Directors in the Articles of Incorporation. ARTICLE VI OFFICERS Section 1: The Board of Directors of the corporation shall annually elect the following officers who shall hold their respective offices at the discretion of the Board of Directors and at such salaries as the Board may fix from time to time, to wit: A President, a Secretary, a Treasurer, and one or more Vice Presidents if deemed desirable. Any of the offices, except the office of President, may be combined and held by one person. Section 2: The Board of Directors may, but they shall not be required to do so, elect an Assistant Secretary and Assistant Treasurer, or to establish any other offices which may be determined necessary for the conduct of the corporation. ARTICLE VII DUTIES OF OFFICERS Section 1: The duties of the officers shall be prescribed by the Board of Directors. ARTICLE VIII DIRECTOR LIABILITY LIMITATION AND INDEMNIFICATION Section 1: A director of the Corporation shall, to the maximum extent permitted by the laws of the Commonwealth of Pennsylvania, have no personal liability for monetary damages for any action taken, or any failure to take any action as a director, provided that this Section 1, Article VIII shall not eliminate the liability of a director in any case where such elimination is not permitted by law." Section 2: Each person who at any time is or shall have been a director or officer of the Corporation, or is serving or shall have served at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, and his heirs, executors and administrators, shall be indemnified by the Corporation in accordance with and to the full extent permitted by the laws of the Commonwealth of Pennsylvania as in effect at the time of such indemnification. The foregoing right of indemnification shall constitute a contract between the Corporation and each of its directors and officers and shall not be deemed exclusive of other rights to which any director, officer, employee, agent or other person may be entitled in any capacity as a matter of law or under any by-law, agreement, vote or shareholders or directors, or otherwise. If authorized by the Board of Directors, the Corporation may purchase and maintain insurance on behalf of any person to the full extent permitted by the laws of the Commonwealth of Pennsylvania." ARTICLE IX AMENDMENT OR CHANGE TO BY-LAWS Section 1: These By-Laws may only be amended or changed upon appropriate notice to the shareholders and their affirmative approval. ARTICLE X SAVING CLAUSE Section 1: If any provision of these By-Laws conflicts with any Rule, Regulation or Statute of the Commonwealth of Pennsylvania or the United States of America, then the By-Laws shall remain in force and effect and construed as such provision did not exist. EX-13 4 ANNUAL REPORT CNB Financial Corporation and Subsidiary 1995 Annual Report - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (in thousands, except for per share data)
FOR THE YEAR 1995 1994 ---- ---- Interest Income................................... $ 21,418 $ 19,168 Interest Expense.................................. 9,223 7,225 Net Interest Income............................... 12,195 11,943 Net Income........................................ 3,817 3,709 Dividends Paid.................................... 1,998 1,861 AT YEAR END Assets............................................ $297,523 $269,698 Loans (less unearned)............................. 200,038 181,789 Deposits.......................................... 255,787 230,641 Shareholders' Equity.............................. 37,543 34,515 PER SHARE DATA Net Income........................................ $2.22 $2.15 Dividends Paid.................................... 1.16 1.08 Book Value of Equity End of Year.................. 21.79 20.03
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS Financial Highlights......................................................... 1 Letter to Shareholders....................................................... 2 Market Area and Financial Graphs............................................. 3 Consolidated Statements of Condition......................................... 4 Consolidated Statements of Income............................................ 5 Consolidated Statements of Cash Flows........................................ 6 Consolidated Statements of Changes in Shareholders' Equity................................................. 7 Notes to Consolidated Financial Statements................................... 10 Report of Independent Auditors............................................... 16 Maturity Distribution........................................................ 17 Quarterly Summary of Earnings................................................ 17 Selected Financial Data - Five Year Comparison............................... 18 Management's Discussion and Analysis......................................... 20 Services for Industry & Consumer............................................. 25 Board of Directors........................................................... 26 Officers..................................................................... 27 Shareholder Information and Corporate Description............................................... 28 - -------------------------------------------------------------------------------- 1 CNB Financial Corporation and Subsidiary 1995 Annual Report TO OUR SHAREHOLDERS, CUSTOMERS AND FRIENDS: The hallmark of quality banking lies within distinguishing characteristics of service, loyalty and success. CNB Financial Corporation and County National Bank focus on these components to achieve goals and objectives in satisfying customers and investors alike, service to a broad base of retail customers, businesses and corporate entities as depositors and borrowers; loyalty to a growing shareholder base and a dedicated staff; success in growth and earnings power to support the many communities we serve in central and north central Pennsylvania. NET PROFITS this year grew to a record $3.82 million. Net interest income, after loan loss provision, increased by $399 thousand. Service charges, trust revenue, investment gains and all other income contributed to the effort by an increase of $433 thousand for combined income increases to $830 thousand. Operating expenses increased by a total of $686 thousand while federal income taxes went up $36 thousand. This resulted in a measure of average asset return of 1.36%. PER SHARE EARNINGS translate to $2.22 or $0.07 over the prior year, a 3.25% increase. A little over 50% of the earning per share were distributed in a total cash dividend of $1.16 yielding an annual return of 3.93%. The remaining $1.06 per share accrued to the capital account as retained earnings. EQUITY CAPITAL, at the primary measure, of 12.62% is at the top of our peer comparison for bank holding companies in the state. At $37.5 million this capital provides safety for depositors, equity for investors, maximum lending ability and relief from regulatory burden, It also affords necessary support for asset expansion through growth and acquisition. ASSETS closed at $297.5 million this year and grew by $27.8 million over 1994. This 10.3% gain represents the single best percentage increase in a decade. New competitive deposit products fostered this asset growth supporting increases in profitable loan activity as did our successful entrance into Bradford, McKean County. DEPOSITS, our main source of overall growth, increased by 10.8% to $255 million. A combination of aggressive pricing, new products and the enlargement of our banking market were responsible for this accomplishment. This growth compares favorably to the 3.7% total growth in all FDIC insured institutions nationally. These institutions saw even lesser cumulative growth rates of 2.2% in aggregate deposits from 1991 through 1995. During these same five years CNB managed a 15% cumulative growth rate throughout this slow growth period. LOANS at $203.7 million represent our best use of deposit funds and income generator. Loans at year end stood at 80% of deposits. We consider this a very safe margin especially when analyzed relative to our excellent nonperforming ratio of .04% and low percent of loan losses. TRUST AND ASSET MANAGEMENT division closed the year with $71.6 million of managed assets. This represents 350 individual and corporate trusts, guardianships, estates and retirement plans. This fiduciary planning and estate management service generated income revenue of $529 thousand for the year. This service group or trust department is now housed at 7 South Second Street, Clearfield, in a major section of County National Bank's expanded facilities. From this location they are easily available to the public and the Bank through new comfortable and secure accesses. NEW FOR 1996 we see electronic banking, additional branch offices and growing market areas. There are plans for a spring open house at our expanded and remodeled headquarters in Clearfield. Here you will see state-of-the-art banking systems and operational designs to transcend the past and prepare for our future. THE BOARD OF DIRECTORS, management and staff encourage you to study the detail contained within this report as it is our opportunity to account for and illustrate the effort behind maximizing shareholder value. For questions this report will generate, please feel free to call or stop by for a personal discussion. Sincerely, CNB Financial Corporation /s/ James P. Moore James P. Moore President and Chief Executive Officer County National Bank /s/ William F. Falger William F. Falger President and Chief Executive Officer December 31, 1995 2 CNB Financial Corporation and Subsidiary 1995 Annual Report CONSOLIDATED STATEMENTS OF CONDITION
(in thousands) December 31 ------------------------ 1995 1994 -------- -------- ASSETS Cash and Due from Banks (Note 2).............................................. $ 9,110 $ 9,390 Deposits with Other Banks..................................................... 19 18 Federal Funds Sold............................................................ 3,200 325 Investment Securities Available for Sale...................................... 51,007 37,361 Investment Securities Held to Maturity, fair value of $25,540 at December 31, 1995 and $33,888 at December 31, 1994......................... 24,921 33,953 Loans (Note 4)................................................................ 203,706 184,785 Less: Unearned Discount.................................................... 3,668 2,996 Allowance for Loan Losses (Note 5).................................... 2,145 2,033 -------- -------- NET LOANS.................................................................. 197,893 179,756 Premises and Equipment, Net (Note 6).......................................... 7,782 5,143 Accrued Interest and Other Assets............................................. 3,591 3,752 -------- -------- TOTAL ASSETS............................................................... $297,523 $269,698 ======== ======== LIABILITIES Deposits: (Note 7) Non-interest Bearing Deposits.............................................. $ 25,705 $ 28,046 Interest Bearing Deposits.................................................. 230,082 202,595 -------- -------- TOTAL DEPOSITS............................................................. 255,787 230,641 Other Borrowings (Note 8)..................................................... 2,846 3,685 Accrued Interest and Other Liabilities........................................ 1,347 857 -------- -------- TOTAL LIABILITIES.......................................................... 259,980 235,183 -------- -------- SHAREHOLDERS' EQUITY Common Stock $4.00 Par Value Authorized 2,500,000 Shares Issued 1,728,000 Shares....................................................... 6,912 6,912 Retained Earnings............................................................. 30,143 28,324 Treasury Stock, At Cost (5,166 Shares)........................................ (100) (100) Net Unrealized Gains (Losses) on Securities Available for Sale................ 588 (621) -------- -------- TOTAL SHAREHOLDERS' EQUITY................................................. 37,543 34,515 -------- -------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY................................... $297,523 $269,698 ======== ========
The accompanying notes are an integral part of these statements. 4 CNB Financial Corporation and Subsidiary 1995 Annual Report CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data) Year ended December 31, ---------------------------------------- 1995 1994 1993 ------- ------- ------- INTEREST INCOME Loans including Fees.......................................................... $16,849 $14,813 $13,568 Deposits with Banks........................................................... 1 91 243 Federal Funds Sold............................................................ 81 43 89 Other Short Term Investments.................................................. -- -- 24 Investment Securities: Taxable Securities which are Available for Sale............................ 2,249 1,807 -- Tax-Exempt Securities which are Available for Sale......................... 372 46 -- Taxable Securities being Held to Maturity.................................. 1,015 1,176 3,586 Tax-Exempt Securities being Held to Maturity............................... 851 1,192 1,480 ------- ------- ------- TOTAL INTEREST INCOME...................................................... 21,418 19,168 18,990 INTEREST EXPENSE Deposits...................................................................... 8,946 6,986 7,564 Borrowed Funds................................................................ 277 239 32 ------- ------- ------- TOTAL INTEREST EXPENSE..................................................... 9,223 7,225 7,596 ------- ------- ------- Net Interest Income........................................................ 12,195 11,943 11,394 Provision for Loan Losses (Note 5)......................................... 380 525 525 ------- ------- ------- Net Interest Income After Provision for Loan Losses............................................................. 11,815 11,418 10,869 OTHER INCOME Fiduciary Commissions and Fees................................................ 529 456 445 Service Charges - Deposit Accounts............................................ 616 412 293 Other Service Charges and Fees................................................ 411 245 222 Security Gains................................................................ 146 -- -- Gain on Sale of Loans......................................................... 53 45 -- Other Operating Income........................................................ 188 352 297 ------- ------- ------- TOTAL OTHER INCOME......................................................... 1,943 1,510 1,257 OTHER EXPENSES Salaries...................................................................... 3,615 3,297 3,131 Employee Benefits............................................................. 1,210 1,155 1,078 Net Occupancy Expense of Premises............................................. 1,119 1,060 977 Other Operating Expenses...................................................... 2,824 2,570 2,544 ------- ------- ------- TOTAL OTHER EXPENSES....................................................... 8,768 8,082 7,730 ------- ------- ------- Income before income taxes and cumulative effect of change in accounting principle.............................................. 4,990 4,846 4,396 Applicable Income Taxes....................................................... 1,173 1,137 1,051 ------- ------- ------- Income before cumulative effect of change in accounting principle....................................................... 3,817 3,709 3,345 Cumulative effect of change in accounting principle........................... -- -- 226 ------- ------- ------- Net Income.................................................................... $ 3,817 $ 3,709 $ 3,571 ======= ======= ======= EARNINGS PER SHARE, BASED ON WEIGHTED AVERAGE SHARES OUTSTANDING (1) Income before cumulative effect of accounting change.......................... $ 2.22 $ 2.15 $ 1.93 Cumulative effect of change in accounting principle........................... -- -- 0.13 ------- ------- ------- Net Income.................................................................... $ 2.22 $ 2.15 $ 2.06 Cash Dividends Per Share...................................................... $ 1.16 $ 1.08 $ 1.05
(1) Per share amounts and average shares outstanding have been restated to reflect a two-for-one split of common stock effected in the form of a 100 percent stock dividend distributed in 1993. The accompanying notes are an integral part of these statements. 5 CNB Financial Corporation and Subsidiary 1995 Annual Report CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Year ended December 31, ----------------------------------------- 1995 1994 1993 -------- -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income.................................................................... $ 3,817 $ 3,709 $ 3,571 Adjustments to reconcile net income to net cash provided by operations: Cumulative effect of change in accounting principle....................... -- -- (226) Provision for loan losses................................................. 380 525 525 Depreciation.............................................................. 505 455 451 Amortization and accretion of net deferred loan fees...................... (236) (115) (141) Amortization and accretion of premiums and discounts on investments.......................................................... 278 371 402 Deferred taxes............................................................ (37) (29) (283) Security Gains............................................................ (146) -- -- Gain on Sale of Loans..................................................... (53) (45) -- Other..................................................................... -- (81) -- Changes in: Interest receivable......................................................... (169) (92) 383 Other assets................................................................ (200) (21) (146) Interest payable............................................................ 56 47 (247) Other liabilities........................................................... 434 (208) 267 ------- ------- ------- Net cash provided by operating activities..................................... 4,703 4,516 4,556 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of: Investment securities..................................................... 17,748 11,424 35,425 Securities available for sale............................................. 17,702 14,195 -- Proceeds from sales: Proceeds from the sale of securities available for sale................... 358 -- -- Proceeds from the sale of loans........................................... 4,738 3,243 -- Purchase of: Investment securities..................................................... (9,025) (1,804) (17,983) Securities available for sale............................................. (29,728) (14,965) -- Net principal disbursed on loans............................................ (23,108) (17,208) (18,394) Redemption (Purchase) of Federal Home Loan Bank Stock....................... (14) 20 (812) Purchase of premises and equipment.......................................... (3,144) (1,237) (304) Proceeds from the sale of foreclosed assets................................. 56 355 342 ------- ------- ------- Net cash used in investing activities......................................... (24,417) (5,977) (1,726) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in: Checking, money market and savings accounts............................... 19,495 1,825 1,759 Certificates of deposit................................................... 5,651 2,490 (11,320) Other borrowed funds...................................................... (819) (771) 153 Cash dividends paid......................................................... (1,998) (1,861) (1,808) Proceeds from Federal Home Loan Bank advances............................... -- 540 1,916 Principal Reduction in Federal Home Loan Bank advances...................... (20) -- -- ------- ------- ------- Net cash (used in) provided by financing activities........................... 22,309 2,223 (9,300) ------- ------- ------- Net (decrease) increase in cash and cash equivalents.......................... 2,595 762 (6,470) Cash and cash equivalents at beginning of year................................ 9,715 8,953 15,423 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR...................................... $12,310 $ 9,715 $ 8,953 ======= ======= ======= NONCASH INVESTING ACTIVITIES Increase in net unrealized gains (loss) on securities available for sale...... $ 1,209 $ 765 $ -- Real estate acquired in settlement of loans................................... 142 51 325
The accompanying notes are an integral part of these statements. 6 CNB Financial Corporation and Subsidiary 1995 Annual Report CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands)
NET UNREALIZED GAINS (LOSSES) ON ADDITIONAL SECURITIES TOTAL PAID-IN RETAINED TREASURY AVAILABLE STOCKHOLDERS' COMMON STOCK CAPITAL EARNINGS STOCK FOR SALE EQUITY ---------------------------------------------------------------------------------------- Balance December 31, 1992................. $3,456 $2,036 $26,133 $(100) -- $31,525 Net Income for 1993................... 3,571 3,571 Cash Dividend Declared................ (1,808) (1,808) Transfer to Reflect Two-For-One Stock Split......................... 3,456 (2,036) (1,420) ---------------------------------------------------------------------------------------- Balance December 31, 1993................. 6,912 -- 26,476 (100) -- 33,288 Net Income for 1994................... 3,709 3,709 Cash Dividend Declared................ (1,861) (1,861) Net Unrealized Losses on Securities Available for Sale.................. (621) (621) ---------------------------------------------------------------------------------------- Balance December 31, 1994................. 6,912 -- 28,324 (100) (621) 34,515 Net Income for 1995................... 3,817 3,817 Cash Dividend Declared................ (1,998) (1,998) Net Unrealized Gains on Securities Available for Sale.................. 1,209 1,209 ---------------------------------------------------------------------------------------- Balance December 31, 1995................. $6,912 $ -- $30,143 $(100) $ 588 $37,543 ========================================================================================
The accompanying notes are an integral part of these statements. ---------------------------------------------------------------------- 7 CNB Financial Corporation and Subsidiary 1995 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS AND ORGANIZATION: CNB Financial Corporation (the "Corporation"), headquartered in Clearfield, Pennsylvania, provides a full range of banking and related services through its wholly owned subsidiary, County National Bank (the "Bank") to individual and corporate customers and is subject to competition from other financial institutions and intermediaries with respect to these services and customers. The Corporation is also subject to examinations by Federal regulators. The Corporation's market area is in the northern central region of the state of Pennsylvania. BASIS OF FINANCIAL PRESENTATION The financial statements are consolidated to include the accounts of the Corporation and its wholly owned bank subsidiary. These statements have been prepared in accordance with generally accepted accounting principles. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Use of estimates in preparing the consolidated statements to conform with generally accepted accounting practices requires Management to make estimates and assumptions which affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from such estimates. LOANS: Interest income with respect to loans is accrued on the principal amount outstanding, except on certain installment loans on which interest income is recognized over their terms using methods which approximate level yields. The Bank discontinues the accrual of interest when the interest or principal is 90 days past due, unless the loan is in the process of collection and no loss of interest is anticipated. Loan fees and certain direct origination costs are deferred and the net amount amortized as an adjustment to the related loan yield over the respective lives of the loans. ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is established through provisions for loan losses which are charged against income. Loans which are deemed to be uncollectible are charged against the allowance account. Subsequent recoveries, if any, are credited to the allowance account. Management determines the adequacy of the reserves based on historical patterns of charge-offs and recoveries, industry experience, and other qualitative factors relevant to the collectability of the loan portfolio. While management believes that the allowance is adequate to absorb estimated potential loan losses, future adjustments may be necessary in circumstances that differ substantially from the assumptions used in evaluating the adequacy of the allowance for loan losses. INVESTMENT SECURITIES: At the time of acquisition, Management classifies debt securities as either held to maturity, available for sale or trading securities. Debt securities are classified as held to maturity when the Corporation has the positive intent and ability to hold the securities to maturity. Held to maturity securities are stated at amortized cost. Debt securities that the Corporation does not have the positive intent and ability to hold to maturity, and all marketable equity securities, are classified as available for sale or trading and carried at fair value. Unrealized gains and losses, net of tax, on securities classified as available for sale will be carried as a separate component of shareholders' equity. Unrealized gains and losses on securities classified as trading will be reported in earnings. Management did not classify any debt or equity securities as trading. The amortized cost of debt securities classified as held to maturity or available for sale is adjusted for the amortization of premiums and the accretion of discounts to maturity or, in the case of mortgage-backed securities and collateralized mortgage obligations, over the estimated life of the security. Such amortization is included in interest income from investments. Realized gains and losses and declines in value judged to be other than temporary are included in other income. The cost of securities sold is based on the specific identification method. PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less accumulated depreciation. Depreciation of premises and equipment is computed principally by the straight line method over the estimated useful lives of the various classes of assets. Amortization of leasehold improvements is computed using the straight-line method over useful lives of the leasehold improvements or the term of lease, whichever is shorter. Maintenance, repairs and minor renewals are charged to expense as incurred. OTHER ASSETS: Other assets include real estate acquired through foreclosure or in settlement of debt and is stated at the lower of the carrying amount of the indebtedness or fair market value, net of selling costs. TREASURY STOCK: The purchase of the Corporation's common stock is recorded at cost. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on a first-in-first-out basis. 8 CNB Financial Corporation and Subsidiary 1995 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) TRUST INCOME: Trust income is recorded on a cash basis which approximates accrual basis. For Federal income tax purposes the income earned in the current period to be collected in a future period is estimated and used in the current period tax calculation. EARNINGS PER SHARE: Earnings per share is calculated on the weighted average number of common shares outstanding during the year. CASH AND CASH EQUIVALENTS: For purposes of the consolidated statement of cash flows, the Corporation defines cash and cash equivalents as cash and due from banks, and Federal funds sold. RECLASSIFICATIONS: Certain prior year amounts have been reclassified for comparative purposes. 2. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS The Bank is required to maintain average reserve balances with the Federal Reserve Bank. The average amount of these reserve balances for the year ended December 31, 1995, was approximately $1,343,580, which was maintained in vault cash. 3. INVESTMENT SECURITIES Investment securities at December 31, 1995 and 1994 were as follows (in thousands):
DECEMBER 31, 1995 --------------------------------------------------------------- UNREALIZED AMORTIZED ----------------------- MARKET COST GAINS LOSSES VALUE --------------------------------------------------------------- Securities available for sale: U.S. Treasury............................................. $11,500 $ 99 $ 5 $11,594 U.S. Government agencies and corporations........................................ 24,527 271 106 24,692 Obligations of States and Political Subdivisions.................................. 11,155 289 10 11,434 Other Debt Securities..................................... 1,528 17 5 1,540 Marketable Equity Securities.............................. 1,405 342 -- 1,747 --------------------------------------------------------------- $50,115 $1,018 $126 $51,007 =============================================================== Securities to be held to maturity: U.S. Government agencies and corporations........................................ 1,989 18 -- 2,007 Obligations of States and Political Subdivisions.................................. 11,251 439 5 11,685 Other Debt Securities..................................... 11,681 183 16 11,848 --------------------------------------------------------------- $24,921 $640 $ 21 $25,540 ==============================================================
DECEMBER 31, 1994 --------------------------------------------------------------- UNREALIZED AMORTIZED ----------------------- MARKET COST GAINS LOSSES VALUE --------------------------------------------------------------- Securities available for sale: U.S. Treasury............................................. $15,528 $ -- $280 $15,248 U.S. Government agencies and corporations........................................ 18,233 10 688 17,555 Obligations of States and Political Subdivisions.................................. 1,735 4 61 1,678 Other Debt Securities..................................... 1,958 -- 87 1,871 Marketable Equity Securities.............................. 816 210 17 1,009 --------------------------------------------------------------- $38,270 $ 224 $1,133 $37,361 =============================================================== Securities to be held to maturity: U.S. Government agencies and corporations........................................ -- -- -- -- Obligations of States and Political Subdivisions.................................. 16,845 360 241 16,964 Other Debt Securities..................................... 17,108 17 201 16,924 --------------------------------------------------------------- $33,953 $ 377 $442 $33,888 ===============================================================
Other debt securities include corporate notes and bonds, collateralized mortgage obligations and asset-backed securities. On December 31, 1995 investment securities carried at $11,583,000 were pledged to secure public deposits and for other purposes as provided by law. The following is a schedule of the contractual maturity of investments except marketable equity securities, at December 31, 1995 (in thousands):
CARRYING VALUE MARKET VALUE -------------- ------------ 1 year or less............................... $13,824 $13,905 1 year-5 years............................... 41,061 41,644 5 years-10 years............................. 14,818 15,308 After 10 years............................... 2,400 2,403 ------------------------------ 72,103 73,260 ------------------------------ Collateralized Mortgage Obligations and Other Asset-backed Securities................................. 1,528 1,540 ------------------------------ Total Investment Securities.............. $73,631 $74,800 ==============================
Collateralized mortgage obligations and other asset-backed securities are not due at a single date; periodic payments are received based on the payment patterns of the underlying collateral. 9 CNB Financial Corporation and Subsidiary 1995 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. LOANS Total Loans at December 31, 1995 and 1994 are summarized as follows (in thousands):
1995 1994 -------- -------- Commercial, Financial and Agricultural............. $ 49,643 $ 40,643 Residential Mortgage............................... 78,111 68,907 Commercial Mortgage................................ 30,658 31,039 Installment........................................ 45,294 44,196 -------- -------- $203,706 $184,785 ======== ========
In the ordinary course of business, the Bank has transactions, including loans, with it's officers, directors and their affiliated companies. These transactions were on substantially the same terms as those prevailing at the time for comparable transactions with unaffiliated parties and do not involve more than the normal risks. The aggregate of such loans totaled $6,818,000 in 1995 and $7,383,000 at December 31, 1994. During 1995, $23,119,000 of new loans were made and repayments totaled $23,684,000. The Bank`s outstanding loans and related unfunded commitments are primarily concentrated within Central Pennsylvania. The Bank attempts to limit concentrations within specific industries by utilizing dollar limitations to single industries or customers, and by entering into participation agreements with third parties. No specific industry concentration exceeded 10 percent of total loans outstanding. Collateral requirements are established based on management`s assessment of the customer. Effective January 1, 1995, the Corporation adopted Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures". These standards address the accounting for certain loans when it is probable that all the amounts due pursuant to the contractual terms of the loan will not be collected. Impairment is measured based on either the present values of the expected future cash flows using the initial effective interest rate on the loan, the observable market price of the loan, or the value of the collateral if the loan is collateral dependent. If the recorded investment in the loan exceeds the measure of fair value, a valuation allowance is established as a component of the allowance for possible loan losses. Impaired loans consist of non-homogeneous loans, which based on Management's evaluation of current information and events, it has determined that it is probable that the Corporation will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Corporation evaluates all commercial and commercial real estate loans which have been classified for regulatory purposes, including nonaccrual and restructured loans, in determining impaired loans. The recorded investment in loans that are considered impaired under SFAS No. 114 was $819,000 (of which $114,000 were on nonaccrual status and $957,000) at December 31, 1995 and 1994. Included in this year's amount is $705,000 of impaired loans that as a result of a write-down do not have an allowance for loan losses. The remaining had a related allowance for loan loss of $23,000. The average recorded investments in impaired loans during the year ended December 31, 1995 was approximately $870,000. For the year ended December 31, 1995, the Corporation recognized interest income on those impaired loans of $19,108 which does not include any interest income recognized using the cash basis method of income recognition. 5. ALLOWANCE FOR LOAN LOSSES Transactions in the Allowance for Loan Losses for the three years ended December 31 were as follows (in thousands):
1995 1994 1993 ------ ------ ------ Balance, beginning of year..................... $2,033 $1,750 $1,502 Charge-offs.................................... (369) (382) (333) Recoveries..................................... 101 140 56 ------ ------ ------ Net Charge-off............................. (268) (242) (277) Provision for Loan Losses...................... 380 525 525 ------ ------ ------ Balance, end of year........................... $2,145 $2,033 $1,750 ====== ====== ======
10 CNB Financial Corporation and Subsidiary 1995 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. PREMISES AND EQUIPMENT The following summarizes Premises and Equipment at December 31 (in thousands):
1995 1994 ------ ------ Land........................................................................ $1,011 $ 924 Premises and Leasehold Improvements......................................... 5,866 4,040 Furniture and Equipment..................................................... 4,260 3,759 ------ ------ 11,137 8,723 Less Accumulated Depreciation and Amortization.............................. 3,355 3,580 ------ ------ Premises and Equipment, Net............................................... $7,782 $5,143 ====== ======
Depreciation on Premises and Equipment amounted to $505,000 in 1995, $455,000 in 1994, and $451,000 in 1993. During 1995, the Corporation substantially completed a $2.46 million expansion of its Headquarters Building. 7. DEPOSIT Deposits at December 31, 1995 and 1994 consisted of the following (in thousands):
1995 1994 --------- -------- Checking and Money Market Accounts.......................................... $104,526 $ 79,061 Savings Accounts............................................................ 35,589 41,559 Certificates of Deposit..................................................... 115,672 110,021 --------- -------- $255,787 $230,641 ========= ========
During 1995, the Bank introduced a money market checking account called the "Prime Money Fund" for deposits of $25,000 and above. The Prime Money Fund pays a rate which is maintained at a level comparable to money market mutual funds available from non-banking financial service institutions. For accounts opened in 1995, a 0.5% incentive was added through year end. On December 31, 1995 this account, included in the Money Market Account line above, had a balance of $42 million. Certificates of Deposit of $100,000 or more totaled $12,676,000 and $14,493,000 at December 31, 1995 and 1994. 8. OTHER BORROWINGS Other borrowings include $0.4 million and $1.2 million of demand notes payable to the U.S. Treasury Department at December 31, 1995 and 1994. These notes are issued under the U.S. Treasury Department`s program of investing the treasury tax and loan account balances in interest bearing demand notes insured by depository institutions. These notes bear interest at a rate of .25 percent less than the average Federal funds rate as computed by the Federal Reserve Bank. In addition, other borrowings include $2.4 million of advances from the Federal Home Loan Bank (FHLB) at December 31, 1995. These advances mature within 15 years, and bear interest rates between 4.56% and 6.51%. The FHLB advances are secured by the Bank's FHLB stock, deposits held at the FHLB, and certain residential mortgages, and are subject to substantial prepayment penalties. At year end the Bank had borrowing capacity with the FHLB of $67 million. 9. INCOME TAXES The Corporation adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" in 1993. This statement requires the use of the liability method to account for deferred income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. These are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
1995 1994 1993 ------ ------ ------ Current................................................................. $1,210 $1,129 $1,335 Deferred................................................................ (37) 8 (284) ------ ------ ------ Net provision for Income Taxes.......................................... $1,173 $1,137 $1,051 ====== ====== =======
Deferred taxes in 1993 resulted primarily from the adoption of SFAS No. 109. 11 CNB Financial Corporation and Subsidiary 1995 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the net deferred tax asset as of December 31, 1995 and 1994 are as follows (in thousands): 1995 1994 ----- ----- Deferred tax assets Allowance for loan losses............................................... $444 $406 Unrealized loss on investment securities available for sale............. -- 288 Post-retirement benefits................................................ 15 -- Loan origination fees................................................... -- -- Fiduciary Income Earned not Recorded.................................... 80 80 ----- ----- 539 774 Deferred tax liabilities Premises and equipment.................................................. 270 254 Unrealized gain on investment securities available for sale............. 304 -- ----- ----- 574 254 ----- ----- Net deferred tax (liability) asset.......................................... $(35) $520 ===== =====
The reconciliation of income tax attributable to continuing operations at the Federal statutory tax rates to income tax expense is as follows (in thousands): 1995 1994 1993 ------ ------ ------ Tax at statutory rate....................................................... $1,697 $1,648 $1,495 Tax exempt income, net...................................................... (499) (475) (486) Other....................................................................... (25) (36) 42 ------ ------ ------ Income tax provision........................................................ $1,173 $1,137 $1,051 ====== ====== ======
10. EMPLOYEE BENEFIT PLANS The Bank provides a defined contribution pension plan that covers all active officers and employees twenty-one years of age or older, employed by the Bank for one year. Contributions to the plan, based on prior year compensation, are 9 percent of total compensation plus 5.7 percent of the compensation in excess of $55,500. The Corporation recognized pension expense of $274,000 in 1995, $268,000 in 1994, and $241,000 in 1993. In addition to the abovementioned pension benefit plan, the Corporation provides certain health care benefits for retired employees and their qualifying dependents.
The following table sets forth the plan`s funded status: December 31, 1995 1994 ------ ------ Accumulated post-retirement benefit obligation: Retirees............................................................ $ 18,692 $ 20,815 Fully eligible active plan participants............................. 23,164 79,999 Other active plan participants...................................... 293,665 449,881 ----------- ---------- Total accumulated post-retirement benefit obligation.................... 335,521 550,695 Unrecognized net transition obligation.................................. (132,218) (412,822) Unrecognized net (loss) gains........................................... (39,067) 25,224 ----------- ---------- Accrued post-retirement obligation...................................... $164,236 $163,097 Net periodic post-retirement benefit cost: Service cost........................................................ 18,531 28,258 Interest cost....................................................... 21,725 42,369 Amortization of transition obligation over 21 years................. 7,566 21,727 ----------- ---------- $ 47,822 $ 92,354 =========== ==========
The weighted average discount rate used to calculate net periodic benefit cost and the accrued post-retirement liability was 6.50% in 1995 and 7.75% in 1994. The health care cost trend rate used to measure the expected costs of benefits for 1996 was 10.0%, 9.0%, in 1997 and 8.0% thereafter. A one percent increase in the health care trend rates would result in an increase of $53,272 and $8,143 in the service and interest cost components, respectively. The presentation above reflects the current year policy change which grants eligibility to these benefits to employees 60 years of age with 30 years of service. Prior to the January 1, 1995 adoption of this change, an employee was eligible for these benefits at 55 years of age and 30 years of service. The plan amendment resulted in a $215,174 reduction to the accrued post-retirement benefit obligation. This reduction is being amortized over the average service of the covered employee. 12 CNB Financial Corporation and Subsidiary 1995 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK In the normal course of business, to meet the financing needs of its customers, the Bank enters into commitments involving financial instruments with off-balance sheet risks. Commitments to extend credit are agreements to lend to a customer at a future date, subject to the meeting of the contractual terms. These commitments generally have fixed expiration dates (less than one year), and require the payment of a fee. The Bank utilizes the same credit policies in making these obligations as it does for on-balance-sheet instruments. The credit risk involved in issuing these commitments is essentially the same as that involved in extending loan facilities to customers. However, since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent actual future cash requirements of the Bank. As of December 31, 1995, the Bank had $22.7 million of unfunded commercial lines of credit; $10.6 million of unused credit card lines; $0.8 million of outstanding commitments to fund residential loans; $1.7 million in standby letters of credit and $1.4 million of home equity lines. The Corporation was party to an interest rate swap which matured in December, 1995. 12. RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES Certain restrictions exist regarding the ability of the Bank to transfer funds to the Corporation in the form of cash dividends, loans or advances. The approval of the Comptroller of the Currency is required to pay dividends in excess of earnings retained in the current year plus retained net profits of the preceding two years. As of December 31, 1995, $7.47 million of undistributed earnings of the Bank, included in consolidated retained earnings, was available for distribution to the Corporation as dividends without prior regulatory approval. Under Federal Reserve restrictions, the Bank also is limited to the amount it may loan to its affiliates, including the Corporation, unless such loans are collateralized by specific obligations. Further, such secured loans are limited in the amount to ten percent of the Bank`s capital and surplus. 13. FAIR VALUE OF FINANCIAL INSTRUMENTS Statements of Financial Accounting Standards No. 107 "Disclosures about Fair Value of Financial Instruments" and Statement No. 119 "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments" require the disclosure of estimated fair value of all assets, liability and off- balance sheet instruments. The fair value estimates of the Corporation's financial instruments are made at a point in time, based on the then current market information and available financial information about the financial instrument. Fair market values are quoted on market prices for financial instruments where price exists. In cases where quoted market prices are not available, fair values are derived from estimates using discounted cash flow techniques. Generally, market prices do not exist for a substantial portion of the Corporation's financial instruments, fair value estimates are based on judgments with regard to future cash flow expectations, perceived credit risk, interest rate risk, prepayment risk, local and national economic conditions and other factors. The estimates are therefore subjective and may not reflect the amount that could be realized upon immediate sale of the instrument. Changes in certain assumptions could also significantly affect the estimates. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH AND SHORT-TERM ASSETS: The carrying amounts reported in the statement of condition for cash and short-term assets approximates those asset`s fair values primarily due to their short-term nature. For purposes of this disclosure only, short-term assets include due from banks, deposits with other banks, Federal funds sold, and accrued interest receivable. INVESTMENT SECURITIES: The fair value of investment securities are based on quoted market prices, where available. For equity securities for which quoted market prices are not available, fair value has been estimated to be the securities carrying value. NET LOANS: For demand and variable rate commercial, consumer loans, and residential mortgages that reprice frequently, fair values are estimated by reducing carrying amounts by estimated credit loss factors. For fixed rate commercial, consumer and residential mortgage loans, including nonaccrual loans, fair values are estimated using discounted cash flow analyses, with cash flows reduced by estimated credit loss factors and discount rates equal to interest rates currently being offered for similar loans. DEPOSITS: The carrying amount for noninterest-bearing demand and interest-bearing money-market and saving deposits approximates fair values. For certificates of deposit fair value has been estimated using discounted cash flow analyses that apply interest rates currently being offered on certificates with similar maturities. ADVANCES FROM THE FEDERAL HOME LOAN BANK: Fair value is determined by discounting the advances using current rates of advances with comparable maturities. 13 CNB Financial Corporation and Subsidiary 1995 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OTHER BORROWINGS: Other borrowings consist of short-term demand notes payable to the U.S. Treasury Department under its program of investing treasury tax and loan account balances with depository institutions. Because of their short-term nature carrying value is considered to be fair value. ACCRUED INTEREST PAYABLE: The carrying amounts reported in the statement of condition for accrued interest payable approximates its fair values primarily due to its short-term nature. STANDBY LETTERS OF CREDIT: The fair value of letters of credit are estimated based upon the amount of deferred fees and the creditworthiness of the counterparties. INTEREST RATE SWAP AGREEMENT: The fair value of the interest rate swap agreement in 1994 represented the quoted cost to terminate the agreement at that time. DECEMBER 31, 1995 DECEMBER 31, 1994 --------------------------------------------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE --------------------------------------------------------- ASSETS Cash and short-term assets....................................... $14,426 $14,426 $ 11,662 $ 11,662 Investment securities............................................ 75,928 76,547 71,314 71,319 Net Loans........................................................ 197,893 197,102 179,756 177,162 LIABILITIES Deposits......................................................... 255,787 256,464 230,641 229,964 Advances from the Federal Home Loan Bank......................... 2,436 2,413 2,456 2,262 Other Borrowings................................................. 410 410 1,229 1,229 Accrued Interest Payable......................................... 809 809 753 753 OFF-BALANCE-SHEET Interest Rate Swaps.............................................. -- -- 34 (115)
14. PARENT COMPANY FINANCIAL INFORMATION
The Corporation's financial information (parent company only) is summarized as follows (in thousands): DECEMBER 31, ----------------------- BALANCE SHEET 1995 1994 ------ ------ ASSETS Cash........................................................... $ 366 $ 24 Investment in Bank subsidiary.................................. 35,580 33,530 Securities-Available for Sale.................................. 1,747 1,009 Other assets................................................... -- 17 ------- ------- TOTAL ASSETS................................................. $37,693 $34,580 ======= ======= LIABILITIES Income Taxes Payable........................................... $ 34 $ -- Deferred Tax Liability......................................... 116 65 ------- ------- TOTAL LIABILITIES............................................ 150 65 TOTAL SHAREHOLDERS' EQUITY................................... 37,543 34,515 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................... $37,693 $34,580 ======= =======
14 CNB Financial Corporation and Subsidiary 1995 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, -------------------------------------- 1995 1994 1993 ------ ------ ------ INCOME Dividends from: Bank subsidiary................................................. $2,791 $2,350 $1,820 Other non-subsidiary investments................................ 56 18 16 Other............................................................. 128 24 9 ------ ------ ------ TOTAL INCOME....................................... 2,975 2,392 1,845 ------ ------ ------ EXPENSES Other...................................................... 63 90 56 ------ ------ ------ TOTAL EXPENSES..................................... 63 90 56 ------ ------ ------ INCOME BEFORE INCOME TAXES AND EQUITY IN DISTRIBUTED NET INCOME OF SUBSIDIARY...................... 2,912 2,302 1,789 Applicable Income Tax (Obligation) Benefit................. (34) 17 8 Equity in undistributed net income of subsidiary............... 939 1,390 1,774 ------ ------ ------ NET INCOME......................................... $3,817 $3,709 $3,571 ====== ====== ====== STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, -------------------------------------- 1995 1994 1993 ------ ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income.......................................................... $3,817 $3,709 $3,571 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiary.................. (939) (1,390) (1,774) Increase (Decrease) in other assets............................... 17 (7) (10) Increase (Decrease) in other liabilities.......................... 34 (1) 1 Gain on sale of available for sale securities..................... (125) -- -- ------ ------ ------ Net cash provided by operating activities......................... 2,804 2,311 1,788 ------ ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of securities available for sale........................... (801) (505) (96) Proceeds from the sale of securities available for sale............. 337 44 -- ------ ------ ------ Net cash provided by (used in) investing activities............... (464) (461) (96) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid...................................................... (1,998) (1,861) (1,808) ------ ------ ------ Net cash used in financing activities............................. (1,998) (1,861) (1,808) ------ ------ ------ Net Increase (Decrease) in Cash..................................... 342 (11) (116) Cash beginning of year.............................................. 24 35 151 ------ ------ ------ CASH END OF YEAR.................................................... $ 366 $ 24 $ 35 ====== ====== ======
15 [LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE] Report of Independent Auditors Board of Directors and Shareholders CNB Financial Corporation We have audited the accompanying consolidated statements of condition of CNB Financial Corporation and subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the CNB Financial Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CNB Financial Corporation and subsidiary at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in the Notes to Consolidated Financial Statements, CNB Financial Corporation changed its method of accounting for income taxes in 1993. /s/ Ernst & Young LLP January 26, 1996 Ernst & Young LLP is a member of Ernst & Young International, Ltd. CNB Financial Corporation and Subsidiary 1995 Annual Report MATURITY DISTRIBUTION
Remaining maturity/earliest repricing as of December 31, 1995: AFTER THREE AFTER SIX WITHIN MONTHS BUT MONTHS BUT THREE WITHIN SIX WITHIN ONE MONTHS MONTHS YEAR ------------------------------------------ Interest earning assets: Federal Funds Sold........................ $ 3,200 $ -- $ -- Investment Securities..................... 13,257 2,075 7,700 Interest Bearing Deposits................. 19 Loans (Net)............................... 25,952 12,146 22,957 -------- ------- ------- Total................................. 42,428 14,221 30,657 Interest bearing liabilities: Interest bearing demand deposits.......... 50,815 -- -- Savings................................... -- -- -- Time...................................... 33,170 18,085 25,825 Borrowed funds............................ 431 -- 916 -------- ------- ------- Total................................. 84,416 18,085 26,741 -------- ------- ------- Gap....................................... $ (41,988) $ (3,864) $ 3,916 Cumulative Gap............................ $ (41,988) $(45,852) $(41,936) Sensitivity Ratio......................... 0.50 0.79 1.15 Cumulative Sensitivity Ratio.............. 0.50 0.55 0.68 AFTER ONE YEAR BUT AFTER WITHIN FIVE FIVE YEARS YEARS TOTAL ----------------------------------------- Interest earning assets: Federal Funds Sold........................ $ -- $ -- $ 3,200 Investment Securities..................... 33,875 19,021 75,928 Interest Bearing Deposits................. 19 Loans (Net)............................... 118,955 17,883 197,893 -------- ------- ------- Total................................. 152,830 36,904 277,040 Interest bearing liabilities: Interest bearing demand deposits.......... 23,627 4,725 79,167 Savings................................... 29,657 5,932 35,589 Time...................................... 38,221 25 115,326 Borrowed funds............................ 1,105 394 2,846 -------- ------- ------- Total................................. 92,610 11,076 232,928 -------- ------- ------- Gap....................................... $ 60,220 $25,828 $ 44,112 Cumulative Gap............................ $ 18,284 $44,112 Sensitivity Ratio......................... 1.65 1.43 1.19 Cumulative Sensitivity Ratio.............. 1.08 1.19
---------------------------------------- QUARTERLY SUMMARY OF EARNINGS
The unaudited quarterly results of operations for the years ended December 1995 and 1994 are as follows (in thousands, except per share data): QUARTERS ENDED 1995 ------------------------------------------ March 31 June 30 Sept. 30 Dec. 31 Total Interest Income................. $5,037 $5,275 $5,473 $5,633 Net Interest Income................... 3,051 3,046 3,037 3,061 Provision for Loan Losses............. 125 125 65 65 Other Income.......................... 412 518 421 592 Other Expense......................... 2,140 2,249 2,099 2,280 Income Before Income Taxes............ 1,198 1,190 1,294 1,308 Applicable Income Taxes............... 334 268 277 294 Net Income............................ 864 922 1,017 1,014 Net Income Per Share (1).............. 0.50 0.54 0.59 0.59 1994 ------------------------------------------ March 31 June 30 Sept. 30 Dec. 31 Total Interest Income................. $4,575 $4,703 $4,913 $4,977 Net Interest Income................... 2,856 2,945 3,068 3,074 Provision for Loan Losses............. 131 132 131 131 Other Income.......................... 351 377 348 434 Other Expense......................... 2,036 2,001 1,998 2,047 Income Before Income Taxes............ 1,040 1,189 1,287 1,330 Applicable Income Taxes............... 253 311 302 271 Net Income............................ 787 878 985 1,059 Net Income Per Share (1).............. 0.46 0.51 0.57 0.61
---------------------------------------- QUARTERLY SHARE DATA The following table sets forth, for the periods indicated, the quarterly high and low bid price of stock as reported through the National Quotation Bureau and actual cash dividends paid per share. As of December 31, 1995, the approximate number of shareholders of the Corporation's common stock was 1,421.
Price Range of Common Stock Cash Dividends Paid 1995 1994 HIGH LOW High Low 1995 1994 --------------------------------------- ------------------ First Quarter.......... $29.50 $28.25 $25.50 $24.50 First Quarter............ $ 0.29 $ 0.27 Second Quarter......... 29.00 27.50 27.25 25.00 Second Quarter........... 0.29 0.27 Third Quarter.......... 28.25 27.00 29.25 25.50 Third Quarter............ 0.29 0.27 Fourth Quarter......... 29.00 27.00 29.50 28.25 Fourth Quarter........... 0.29 0.27 ------ ------ $ 1.16 $ 1.08 ====== ======
17 CNB Financial Corporation and Subsidiary 1995 Annual Report SELECTED FINANCIAL DATA YEAR ENDED DECEMBER 31 ---------------------- 1995 ---------------------- (in thousands, except per share data) Interest Income Loans including fees..................................................... $ 16,849 Deposits with Banks...................................................... 1 Federal Funds Sold....................................................... 81 Other Short-Term Investments............................................. -- Investment Securities: U.S. Treasury Securities.............................................. 747 Securities of U.S. Government Agencies and Corporations............... 1,480 Obligations of States and Political Subdivisions...................... 1,222 Other Securities...................................................... 1,038 -------- Total Interest Income.................................................... $ 21,418 Interest Expense Deposits................................................................. $ 8,946 Other Borrowings......................................................... 277 -------- Total Interest Expense................................................... $ 9,223 Net Interest Income......................................................... $ 12,195 Provision for Loan Losses................................................... 380 -------- Net Interest Income After Provision for Loan Losses.......................................................... $ 11,815 Other Operating Income...................................................... 1,943 Other Operating Expenses.................................................... 8,768 -------- Income Before Taxes and cumulative effect adjustment........................ 4,990 Applicable Income Taxes..................................................... 1,173 -------- Income before cumulative effect adjustment.................................. 3,817 Cumulative effect adjustment................................................ -- Net Income............................................................... $ 3,817 ======== Per Share Data(1) Income before cumulative effect adjustment............................... $ 2.22 Cumulative effect adjustment............................................. $ -- Net Income............................................................... $ 2.22 Dividends Declared....................................................... $ 1.16 Book Value Per Share at Year End......................................... $ 21.79 At End of Period Total Assets............................................................. $297,523 Investment Securities.................................................... 75,928 Loans, Net of Unearned Discount.......................................... 200,038 Allowance for Loan Losses................................................ 2,145 Deposits................................................................. 255,787 Shareholders' Equity..................................................... 37,543 Key Ratios Return on Average Assets................................................. 1.36% Return on Average Equity................................................. 10.58% Loan to Deposit Ratio.................................................... 77.36% Dividend Payout Ratio.................................................... 52.36% Average Equity to Average Assets Ratio................................... 12.86%
(1) Per share amounts have been restated to reflect a two-for-one split of common stock in 1993. 18 CNB Financial Corporation and Subsidiary 1995 Annual Report FIVE YEAR COMPARISON
- --------------------------------------------------------------------------------------------------------- 1994 1993 (1) 1992 (1) 1991 (1) - ------------- ------------- ------------- ------------- $ 14,813 $ 13,568 $ 13,935 $ 14,677 91 243 848 1,594 43 89 224 478 -- 24 156 240 729 920 955 899 1,060 1,170 1,511 1,557 1,238 1,480 1,491 1,416 1,194 1,496 1,563 1,480 - ------------- ------------- ------------- ------------- $ 19,168 $ 18,990 $ 20,683 $ 22,341 $ 6,986 $ 7,564 $ 9,690 $ 11,977 239 32 35 71 - ------------- ------------- ------------- ------------- $ 7,225 $ 7,596 $ 9,725 $ 12,048 $ 11,943 $ 11,394 $ 10,958 $ 10,293 525 525 500 413 - ------------- ------------- ------------- ------------- $ 11,418 $ 10,869 $ 10,458 $ 9,880 1,510 1,257 1,040 1,041 8,082 7,730 6,949 6,598 - ------------- ------------- ------------- ------------- 4,846 4,396 4,549 4,323 1,137 1,051 1,038 1,021 - ------------- ------------- ------------- ------------- 3,709 3,345 3,511 3,302 -- 226 -- -- - ------------- ------------- ------------- ------------- $ 3,709 $ 3,571 $ 3,511 $ 3,302 ============= ============= ============= ============= $ 2.15 $ 1.93 $ 2.04 $ 1.91 $ -- $ 0.13 $ -- $ -- $ 2.15 $ 2.06 $ 2.04 $ 1.91 $ 1.08 $ 1.05 $ 1.00 $ .93 $ 20.03 $ 19.32 $ 18.30 $ 17.26 $269,698 $264,547 $270,525 $255,267 71,314 78,927 92,493 72,036 181,789 167,956 150,024 144,872 2,033 1,750 1,502 1,369 230,641 226,326 235,887 222,262 34,515 33,288 31,525 29,737 1.39% 1.35% 1.34% 1.32% 11.07% 11.06% 11.48% 11.45% 77.94% 73.44% 63.56% 65.18% 50.18% 51.00% 49.07% 48.51% 12.43% 12.21% 11.66% 11.55%
19 CNB Financial Corporation and Subsidiary 1995 Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The purpose of the following pages is to provide discussion and analysis about CNB Financial Corporation (the Corporation) and its wholly owned subsidiary County National Bank (the Bank) which may not be apparent from the consolidated financial statements included within this report. The reader can refer to those statements and the accompanying financial data for a better understanding of the following review. RESULTS OF OPERATIONS OVERVIEW Net income for 1995 was $3.82 million compared to $3.71 million in 1994 and $3.57 million in 1993. The earnings growth for the year of 2.9%, resulted from a modest increase in net interest income and from increased other operating revenues, including gains on the sale of some of the Corporation's equity holdings. These increases were sufficient to offset a $686,000 increase in operating expenses to produce an increase of $107,800 in net income over the prior year. The Corporation and the Bank completed, or substantially completed many important strategic initiatives. These include: . The Corporation's headquarter's expansion was placed into operation on May 1, 1995. The new addition provided much needed space for the Bank's Trust/Asset Management Division and houses the sizeable investment made in electronic data processing. . A new management accounting system was successfully implemented on May 8, 1995. . A new Trust accounting system was placed into service on June 5, 1995 which has greatly enhanced that division's ability to handle today's competitive customer requirements. . The Bank instituted a new product in May, 1995 for first-time home-buyers which allowed many low to moderate income families to purchase their own residence. The Bank has lent approximately $5.6 million under this program. . The Bank implemented a competitive new deposit product in July, 1995 which by year end had attracted approximately $25 million in new deposits. . The Bank opened its eleventh full service branch in Bradford, McKean County, Pennsylvania on November 15, 1995. . The Bank had completed construction of its twelfth full-service branch in Houtzdale, Pennsylvania and notified regulators of its January 10, 1996 opening date. Each initiative carried a monetary and human resource expenditure which reflected in increased operating costs. However, these achievements have already allowed for rapid product implementation, increased management information for decision making and an ability to significantly leverage the Bank's existing asset size under a controlled system. On a per share basis, earnings grew 3.26% over the prior year. The book value of equity per share rose from $20.03 at the end of 1994 to $21.79 at year end 1995. As the end of 1993 the book value per share was $19.32. Approximately $0.70 of the per share increase in 1995 was attributable to changes in the unrealized gain on investment securities available for sale as required under generally accepted accounting practices. BALANCE SHEET HIGHLIGHTS LOANS - ----- Total assets on December 31, 1995 were $297.5 million compared with $269.7 million one year ago and $264.6 million on December 31, 1993. This 10.3% increase resulted from an $18.9 million increase in the loan portfolios, a $4.6 million increase in the investment portfolio and $3.2 million of federal funds sold at year end. With regard to the loan portfolios, the Bank expanded its lending activities into further northern portions of the state with the opening of its Bradford, McKean County branch and placing a full-time business development officer to serve that region. Also, the "First-Time Home Buyers" mortgage program mentioned above proved very successful and helped in the $9.2 million increase in residential mortgage loans. Continued personalized service in all lending areas, helped maintain the Bank's position of the predominant lender in its local region. As shown below, the portfolio composite has remained relatively the same from year to year.
1995 1994 Loan Categories (000'S) (000's) --------------- ------- ------- Commercial, Financial & Agriculture.........$ 49,643 24.37% $ 40,643 21.99% Residential Mortgage........ 78,111 38.34% 68,907 37.29% Commercial Mortgage......... 30,658 15.05% 31,039 16.80% Consumer Installment Loans................. 45,294 22.23% 44,196 23.92% -------- ------- -------- ------- $203,706 100.00% $184,785 100.00%
Management takes careful measures to ensure that loans are not concentrated in any particular industry or category. This helps the Corporation diversify its credit risks and avoid economic downturns in specific business sectors. 20 CNB Financial Corporation and Subsidiary 1995 Annual Report INVESTMENTS - ----------- Investment securities are the next predominant earning asset after loans. The Corporation's investments consist of $11.6 million of U.S. Treasury obligations, $28.2 million of U.S. Agency obligations, $22.7 million of Tax-Free State and Municipal Authority Debt Securities and $12.6 million of corporate debt. Included in the corporate debt is $1.5 million of collateralized mortgage obligations and asset backed securities. These latter investments are all rated AAA by Moody's Rating service. The parent Corporation also holds $1.4 million of various bank equities. At year-end the Bank had $3.2 million of federal funds sold outstanding. Upon purchasing a security, Management considers various factors such as loan and deposit growth, the Corporation's capital position and the interest rate risk position and classifies the debt security as available for sale or held to maturity. The Corporation's investment policy specifically prohibits trading activities, therefore, the Corporation has no investments which were designated as such. These procedures comply with Financial Accounting Standard No. 115 which the Bank adopted last year. At year end the Corporation had $51 million in securities available for sale and $25.5 million of securities it intends to hold until maturity. Management made no changes in classifications under the period between November 15, 1995 and December 31, 1995 which the Accounting Standards Board and regulators allowed reclassifications amongst categories without "tainting" the portfolio. Management's decision not to reclassify any securities was based on its current review of designated available for sale securities and the Corporation`s liquidity needs. DEPOSITS - -------- The Corporation's main source of funding is consumer deposits gathered through the Bank's branch network. The Bank concentrates its deposit gathering activities in the markets it serves and does not solicit monies from outside those areas. Total consumer deposits in 1995 grew by $25.1 million. In large part, the growth was attributable to the introduction of a new deposit type of account. Called "The Prime Money Fund", the account is a Money Market Deposit Account (MMDA). The minimum balance required to qualify for this account is $25,000 and the rate is maintained at a level comparable to money market mutual funds available from non-banking financial service institutions. For accounts opened in 1995, a 0.5% premium was added for incentive, especially to organizations or individuals whose monies were in non-FDIC insured money funds, to take advantage of the Bank's competitive product. The account proved highly successful ending the year with a $42 million balance. Management estimates that $16.9 million of monies was from the Bank's existing customers' accounts. Management further estimates that $25 million was attracted from local competing financial institutions and monies which were withdrawn from non-banking financial service institutions. Although the account increased the Bank's cost of funds (as will be discussed under "Net Interest Income"), Management was extremely satisfied at the number of new customers the product attracted and the additional services which were, or can be, sold to them. The Bank also saw an increase in term certificates of deposits from $91.6 million at year end 1994 to $97.8 million on December 31, 1995. This was encouraging as the banking industry as a whole had been experiencing declines in its traditional funding sources. Bank management constantly pursues new products which serve the customers' needs, so that it can maintain an entire relationship and fulfill its "full-service" promise to the customer. PURCHASED FUNDS - --------------- As a community bank, County National Bank strives to maintain the prudent balance between the demand for funds for loans and withdrawal of consumer deposits. During the course of operations, however, timing differences in cash flows may cause the Bank to purchase federal funds from banks who have committed to extend credit to the Bank. At year end 1995, the Bank had no purchased funds and the average purchased funds for the year were $22,500. CAPITAL & SHAREHOLDER'S EQUITY - ------------------------------ The Corporation's Primary Capital Position rose from $33.3 million on December 31, 1993 to $34.5 million at December 31, 1994 to $37.54 million at year end. This converts to a period end consolidated equity to asset ratio of 12.62%. After adding in the reserve held against possible loan losses, the Corporation's total capital to asset ratio is 13.24%. The Board of Directors and Management work together to deploy excess portions of the capital into resources which they believe best for Corporation shareholders. INCOME STATEMENT HIGHLIGHTS NET INTEREST INCOME - ------------------- The Corporation's primary source of earnings comes from the difference between interest earned on loans and investments (including deposits with other banks and federal funds sold) and the interest expense paid on deposits and borrowed funds. 21 CNB Financial Corporation and Subsidiary 1995 Annual Report The table below compares volume and yields for the past two years for various categories. The interest income is shown on a non-FTE basis:
1995 1994 ------------------------------------------ Avg Yld Avg Yld ($000's) ($000's) Investment Securities (Taxable) $ 56,149 5.97% $ 58,148 5.35% Investment Securities (Non-Taxable) 21,495 5.69% 21,744 5.69% Commercial Loans 44,621 8.56% 37,544 7.41% Mortgage Loans 89,215 9.03% 85,892 8.68% Installment Loans 54,293 9.16% 53,756 8.51% ------------------------------------------ Average Earning Assets $265,773 8.06% $257,084 7.46% Non Interest Bearing Demand $ 27,554 -- $ 27,424 -- Interest Bearing Checking 56,284 1.98% 50,779 1.84% Savings 38,716 2.72% 42,719 2.07% Time Deposits 116,239 5.83% 109,912 4.70% FHLB Advances & T.T.&L 5,229 5.32% 5,162 4.63% ------------------------------------------ Average Liabilities $244,022 3.78% $235,996 3.06%
As mentioned in the discussion on deposits, the Bank's "Prime Money Fund" paid a competitive market rate plus an added bonus through year end. In 1995, the account had an average annual percentage yield (APY) of 5.93%. The above market rate was clearly a successful marketing tool in attracting new customers into the Bank. Concurrently with the introduction of this product, Management had determined the Bank would receive at least $145,000 in the form of a refund for the overpayment of insurance premiums since June 1, 1995. Management, working with the Board of Directors, had concluded that deposit customers had carried the burden of the six year premium increase and had begun exploring means for passing this refund back to its deposit customers. In that process, it was realized that on an aggregate basis the refund would have a negligible effect. Instead, Management decided that depositors who had carried the highest portion of the premium surcharge were the same group who would be most inclined to switch to the "Prime Money Fund". The Board and Management believe that the action taken to offset the higher interest expense with lower non interest expense (discussed later) was the most equitable process by which to distribute the refund. Further, it was believed that the shareholders derive longer term benefits as the deposits gathered under this program were deployed in our communities through lending activities. The amount of net interest income is dependent not only on the mix of assets and liabilities, but is also heavily influenced by the ability to have assets and liabilities concurrently reprice in response to changes in market rates. As described later in the discussion on interest rate sensitivity, Management pays particular attention to the net amount of assets and liabilities (mainly referred to as the "interest rate gap") which reprice in periodic time frames. The Corporation strives to be in a neutral position with regard to repricing and does not take substantial risks to maximize the net interest margin spread. NON INTEREST INCOME - ------------------- The Bank charges fees for certain services it provides and charges penalties for noncompliance with product agreements. Other income not deemed to be interest income is also part of the category called "Noninterest income". Examples of this source of revenue are the fiduciary fees earned by the Trust Department for its services, late fees charged when customers make payments after the agreed upon payment date and the service charges the Bank receives for demand deposit accounts. Total revenues from these activities rose by 28.68% for the fiscal year of 1995 versus the same 12 months of 1994 and are 54.57% over year end 1993. Trust division commissions and fiduciary fees rose 16.0% over 1994 year end levels. Trust officers reported that the increase resulted from the settlement of several significant estates and the ability, provided by the new computer system, to accelerate remittances of fees earned. Service charge fees rose by almost 50% or $204,000 during 1995 without any increases in account or item charges. The increase resulted from a larger customer base and continued interest by our customers for flat fee based transaction accounts versus low balance charges when account balances drop below stated minimums. Other items in this category include credit card fees and safe deposit rents. The Bank recognized $53,000 in a one-time gain on the sale of Pennsylvania Higher Education Loans it sold to the Student Loan Marketing Association (SLMA). The Bank will still be an active lender for these types of loans, however, the servicing will be performed by SLMA. Also, the parent company recognized $125,000 in pre-tax profits from the sale of part of its equity holdings. The Bank recognized $21,000 in security gains from the early redemption of State & Municipal securities with discounts being accreted to maturity. NON INTEREST EXPENSE - -------------------- The costs associated with operating the Corporation rose by 8.48% over 1994 and are 13.43% over 1993 year end results. These costs include salaries paid to personnel, supplies, data processing expenses and occupancy expenses. As mentioned in this report, the Bank opened one branch in 1995 and was to open another shortly after the end of the fiscal year. Personnel expenses for new branches are incurred prior to the opening as training and other necessary preparations are important to the event. This explains some of the increase in personnel costs. Merit and cost of living increases also contributed to the increase in salaries. Benefit costs, in large part, are driven by increases in salaries, as many benefits such as retirement contributions, and payroll taxes are 22 CNB Financial Corporation and Subsidiary 1995 Annual Report computed as a function of salaries. Overall, salary and benefits increased 8.38% on a combined basis. In 1995, the Corporation expensed $66,300 under the accounting for its long term obligation for post-retirement benefits as required under SFAS No. 106. This is $32.348 lower than this expense for 1994. The expense accrual was lowered due to a change in the plan which now grants eligibility to these benefits at age 60 as compared to age 55: the change did not effect the thirty year service requirement. Net occupancy expenses rose by 5.6% in 1995 over the same period of 1994. This increase had been anticipated as the Corporation placed its headquarter's expansion into service on May 1, 1995. In connection with this, the Bank outsourced its data processing through an outside service company, M&I Data Services, Inc. under an eight year contract. The Corporation invested heavily in microcomputers as part of this conversion, and correspondingly is seeing the rewards of the expenditures through office automation. Management expects additional increases in this category through the next fiscal year, as a smaller expansion/renovation project is completed in the Corporation's longstanding main building. Other expenses which contain advertising and other pertinent costs involved in running the business rose 9.98% or $254,000 more than in 1994. The Corporation expensed $45,000 of travel for employees of the data processing company in converting its systems and a comparable amount was spent for its own employees traveling to training sites. These are viewed as one-time nonrecurring costs. Expenses for FDIC insurance decreased by $246,000 as, the FDIC lowered insurance premiums in 1995 as the Bank Insurnace Fund was determined to be funded to the required level, established under the Financial Institutions Reform, Recovery and Enforcement Act of 1989. The increase in other expenses also include the costs for non-capitalized expenditures relating to the branch openings and the business development costs as the Bank's geographic market expands. Management monthly reviews operating expenses to prevent inefficiencies from recurring. FEDERAL INCOME TAXES - -------------------- The Corporation provided $36,000 more in Federal income tax expense in 1995 over 1994. This increase is due to the higher earnings of the Corporation. The effective tax rate for 1995 was 23.5%, the same as in 1994. Increases or decreases in the effective tax rate are influenced by the amount of tax-free interest income from loans and securities, as well as the amount of income deferrable into future periods. A reconcilement of taxes accrued versus the Corporation's statutory rate is provided in Footnote No. 9. NET INCOME - ---------- Net income was $108,000 higher for the year ending December 31, 1995 than 1994. Net income totalled $3.82 million in 1995 compared to $3.71 million one year ago. On a per share basis, earnings were $2.22 compared with $2.15 for 1994. This represents a 3.26% increase in per share earnings.In 1993 net income was $3.57 million and $2.06 per share, of which $.13 was the result of the cumulative accounting adjustment for SFAS No. 109. Return on average assets for 1995 was 1.36% compared to 1.39% for 1994. Return on average equity was 10.58% for 1995 versus 11.07% for 1994. The return on average equity is influenced by changes in capital caused by accounting for the unrealized gains and losses on investments available for sale. CAPITAL RESOURCES The Corporation's capital position, increasing to $37.54 million at December 31, 1995, provides an above average capital position as compared to other bank holding companies of similar size. Capital adequacy for a financial institution is its ability to support asset growth and to sufficiently protect itself and depositors against risk. The Corporation has relied on retained earnings to increase equity, while providing a desirable return on invested capital to its shareholders. The Federal Reserve Board standards classify capital into two tiers, referred to as Tier 1 and Tier 2. Tier 1 capital consists of common shareholders` equity, noncumulative and cumulative perpetual preferred stock, and minority interests less goodwill. Tier 2 capital consists of allowance for loan losses, perpetual preferred stock (not used in Tier 1), hybrid capital instruments, term subordinate debt and intermediate-term preferred stock. All banks are required to meet a minimum ratio of 8% of qualifying total capital to risk-adjusted total assets and at least a 5.5% Tier 1 capital ratio. Capital that qualifies as Tier 2 capital is limited to 100% of Tier 1 capital. In addition to the above risk based capital requirements, the Federal Reserve also requires a minimum leverage capital ratio of 3% of Tier 1 capital to total risk based assets less any goodwill. The table below illustrates the Corporation`s regulatory capital (adjusted for regulatory accounting differences including SFAS No. 115 accounting) and the corresponding capital ratios at December 31, 1995 and 1994 (dollars and thousands):
1995 1994 Tier 1 Capital $ 36,752 $ 35,136 Tier 2 Capital 2,145 2,033 -------- -------- Total Qualifying Capital $ 38,897 $ 37,169 Risk Adjusted Total Assets (including off-balance sheet exposures) $251,276 $209,573 Tier 1 Risk-Based Capital Ratio 14.62% 16.77% Total Risk-Based Capital Ratio 15.48% 17.74% Leverage Ratio 12.35% 13.03%
LIQUIDITY As a financial intermediary, the Bank must manage its liquidity in order to ensure its abilities to meet the cash flow requirements of deposit customers who may 23 CNB Financial Corporation and Subsidiary 1995 Annual Report potentially want to withdraw their funds and to assure borrowers that sufficient funds are available to meet their credit needs. The Bank's major source of new funds has come from the growing number of depositors. As interest rates have fallen the banking industry has seen deposit growth rates drop to minimal levels. In this regard, Management continually explores new products which may attract customers searching for customized financial vehicles. The Prime Money Fund is an example of how quickly Management can develop a product for customer's needs. Aside from the capital markets open to the Corporation, the Bank has substantial avenues it can use to augment its liquidity needs. First, the Bank is a member of the Federal Home Loan Bank and had an average of $67 million of additional borrowing capacity with that organization. Secondly, the bank has committed lines from other banks to purchase up to $18 million in Federal funds on a short term basis. And lastly, the Corporation has $50 million of investments classified as available for sale, which could be sold to provide additional funding if necessary. The investment portfolio has a short weighted average maturity and in 1996 $21.1 million of securities will mature. These monies could be used to meet liquidity needs or reinvested in high quality, short term investments. INTEREST RATE SENSITIVITY The monies provided by deposit gathering and other borrowings are used by the Bank in its lending activities. In general, the ability to simultaneously reprice the deposits and loans does not occur. This difference is called interest rate risk and can represent substantial uncertainty as to the stability of earnings if interest rates rise or fall by relatively modest amounts. The process of asset/liability management is the continuous monitoring of the amount of monies available for repricing in periodic time frames. The primary function of asset/liability management is to assure stabilized earnings regardless of interest rate swings. Management's guiding principle in managing interest rate risk is to attempt to keep the amount of liabilities and assets maturing or repricing in a particular time frame as close to equal as possible. Therefore, any changes in market interest rates should affect the renewing of the obligations to much the same extent, therefore, net interest income should not fluctuate. Management uses several methods to manage its interest rate risk one of which is the interest rate sensitive assets to interest-rate sensitive liabilities report sometimes called the "gap report". Also, the Corporation uses a computer simulation model which attempts to duplicate all the repricing/maturity characteristics of the assets and liabilities and provide an ongoing estimate of net interest income under various interest rate environments. This second method has special uses in that it is helpful in judging not only short term risk, but the risk in longer time-frames also. 24 CNB Financial Corporation and Subsidiary 1995 Annual Report SERVICES FOR INDUSTRY & CONSUMER County National Bank is a nationally chartered full-service commercial bank which provides all conventional banking services customers associate with like institutions. Above those services County National Bank provides the following: Automated Clearing House Originations & EFT Transactions Accounts Receivable Financing through "Business Manager" (TM) Cash Concentration Accounts through ACH [LOGO OF CHECK CARD APPEARS HERE] for Customers with Active Lifestyles Direct Deposit Services for Payroll Automobile Leasing (available May 1996) Telephone Banking (available May 1996) Rainbow Account Services for Customers 50 years of age & better Customized Statement Cycles for Business and Organizations Expedited Loan Approvals 401-K Administration Self-Directed IRA's Private Banking and Retirement Planning 25 CNB Financial Corporation and Subsidiary 1995 Annual Report
BOARD OF DIRECTORS CNB FINANCIAL CORPORATION PRINCIPAL OCCUPATION L. E. Soult, Jr. Chairman of the Board Vice President and Treasurer, Soult Wholesale Co. (Building Materials Wholesaler) Robert E. Brown Vice President, E. M. Brown, Inc. (Coal Producer) Richard D. Gathagan President & Owner of Pharmaceutical & Medical Companies (Health Care) James J. Leitzinger President, Leitzinger Realty (Real Estate Investments) Dennis L. Merrey President, Clearfield Powdered Metals, Inc. (Manufacturer) James P. Moore President and Chief Executive Officer - CNB Financial Corporation Chairman of the Board - County National Bank William R. Owens Retired, Formerly Vice President, Secretary and Treasurer, CNB Financial Corporation and President & Chief Executive Officer, County National Bank Robert C. Penoyer President, Penoyer Contracting Co., Inc. (Contractor) Carl J. Peterson Assistant Secretary - CNB Financial Corporation Senior Vice President & Trust Officer - County National Bank Jeffrey S. Powell President, J.J. Powell, Inc. (Petroleum Distributor) Edward B. Reighard Retired Peter F. Smith Attorney at Law Robert G. Spencer President, Hepburnia Coal Sales Corp. (Coal Producer) Joseph L. Waroquier, Sr. President, Waroquier Coal Company (Coal Producer) DIRECTOR EMERITUS - W. K. Ulerich BOARD OF DIRECTORS COUNTY NATIONAL BANK PRINCIPAL OCCUPATION James P. Moore Chairman of the Board Robert E. Brown Vice President, E. M. Brown, Inc. (Coal Producer) William F. Falger President and Chief Executive Officer Richard D. Gathagan President & Owner of Pharmaceutical & Medical Companies (Health Care) James J. Leitzinger President, Leitzinger Realty (Real Estate Investments) Dennis L. Merrey President, Clearfield Powdered Metals, Inc. (Manufacturer) William R. Owens Retired, Formerly Vice President, Secretary and Treasurer, CNB Financial Corporation and President & Chief Executive Officer, County National Bank Robert C. Penoyer President, Penoyer Contracting Co., Inc. (Contractor) Jeffrey S. Powell President, J.J. Powell, Inc. (Petroleum Distributor) Edward B. Reighard Retired Peter F. Smith Attorney at Law L. E. Soult, Jr. Vice President and Treasurer, Soult Wholesale Co. (Building Materials Wholesaler) Robert G. Spencer President, Hepburnia Coal Sales Corp. (Coal Producer) Joseph L. Waroquier, Sr. President, Waroquier Coal Company (Coal Producer) DIRECTOR EMERITUS - W. K. Ulerich
26 CNB Financial Corporation and Subsidiary 1995 Annual Report CORPORATE OFFICERS James P. Moore, President and Chief Executive Officer William F. Falger, Executive Vice President William A. Franson, Secretary Carl J. Peterson, Assistant Secretary J. Matthew McEnroe, Treasurer BANK EXECUTIVE OFFICERS James P. Moore, Chairman William F. Falger, President & Chief Executive Officer William A. Franson, Executive Vice President & Cashier, Chief Operating Officer Carl J. Peterson, Senior Vice President & Senior Trust Officer J. Matthew McEnroe, Senior Vice President & Chief Financial Officer Mark D. Breakey, Senior Vice President & Senior Loan Officer BRANCH OFFICE ADMINISTRATION Jacqueline A. Hynd, Assistant Vice President, Branch Administrator Rodger L. Read, Assistant Vice President, Madera Office Jeffrey A. Herr, Assistant Vice President, Philipsburg Office Susan J. Shimmel, Assistant Cashier, Old Town Road Office Deborah M. Young, Assistant Cashier, St. Marys Office Nancy J. Fink, Assistant Cashier, Bonds & Securities S. Jean Sankey, Branch Manager, Lending Officer, Osceola Mills Office LENDING OPERATIONS Robin L. Hay, Vice President, Community Banking Joseph H. Yaros, Vice President, Community Banking, Bradford William J. Mills, Assistant Vice President, Community Banking, St. Marys Ronald E. Billotte, Assistant Vice President David W. Ogden, Assistant Vice President, Loan Review Duane P. Shifter, Assistant Vice President Merrill A. Dunlap, Assistant Cashier Larry A. Putt, Assistant Cashier Richard L. Bannon, Credit Administration Officer Paul A. McDermott, Collection Officer Keith M. Folmar, Lending Officer, Philipsburg Jo Potter, Lending Officer, Philipsburg Ruth Anne Ryan, Lending Officer, Leasing FINANCE & ACCOUNTING Rachel E. Larson, Assistant Vice President, Accounting Operations Edward H. Proud, Assistant Vice President, Electronic Technology C. Glenn Myers, Controller & Assistant Financial Officer Dennis J. Sloppy, Assistant Cashier, Electronic Technology TRUST & ASSET MANAGEMENT SERVICES Donald E. Shawley, Vice President & Trust Officer Scott R. Muirhead, Trust Officer Eunice M. Peters, Assistant Trust Officer AUDITING Brenda L. Terry, Auditor COMPLIANCE Donna J. Casteel, Compliance Officer HUMAN RESOURCES Mary Ann Conaway, Assistant Vice President MARKETING Helen G. Kolar, Vice President, Marketing Director 27 CNB Financial Corporation and Subsidiary 1995 Annual Report SHAREHOLDER INFORMATION ANNUAL MEETING The Annual Meeting of the Shareholders of CNB Financial Corporation will be held Tuesday, April 16, 1996 at 2:00 p.m. at the Corporation's Headquarters. CORPORATE ADDRESS CNB Financial Corporation P.O. Box 42 Corner of Market & Second Streets Clearfield, PA 16830 (814) 765-9621 STOCK TRANSFER AGENT AND REGISTRAR County National Bank P.O. Box 42 Corner of Market & Second Streets Clearfield, PA 16830 (814) 765-9621 FORM 10-K Shareholders may obtain a copy of the Annual Report to the Securities and Exchange Commission on Form 10-K by writing to: CNB Financial Corporation P.O. Box 42 Corner of Market & Second Streets Clearfield, PA 16830 ATTN: Shareholder Relations QUARTERLY SHARE DATA For information regarding the Corporation's quarterly share data, please refer to page 17. MARKET MAKERS The following firms have chosen to make a market in the stock of the Corporation. Inquiries concerning their services should be directed to: Ferris Baker Watts, Inc. 6 Bird Cage Walk Hollidaysburg, PA 16648 (800) 343-5149 Monroe Securities, Inc. 47 State Street Rochester, NY 14614 (800) 766-5560 F. J. Morrissey & Co. 1700 Market Street, Suite 1420 Philadelphia, PA 19103 (800) 842-8928 Parker Hunter, Inc. 484 Jeffers Street P.O. Box 1105 DuBois, PA 15801 (800) 238-0067 Ryan, Beck & Co. 3 Parkway Philadelphia, PA 19102 (800) 766-5560 Sandler O'Neill & Partners 2 World Trade Center 104th Floor New York, NY 10048 (800) 635-6860 CORPORATE DESCRIPTION CNB Financial Corporation is a bank holding company established April 26, 1984. Its assets consist principally of all the outstanding stock of County National Bank, Clearfield, Pennsylvania. County National Bank is a full-service financial institution with the main office located at the corner of Market and Second Streets, Clearfield, Pennsylvania; and 11 full-service branch offices in the communities of Clearfield, Karthaus, Madera, Osceola Mills, Philipsburg, St. Marys, and Bradford, McKean County, Pennsylvania. The Bank competes actively with several other commercial banks, savings banks, local credit unions and small loan and consumer loan companies having offices within its market areas. [LOGO OF FDIC APPEARS HERE] EX-21 5 SUBSIDIARIES EXHIBIT 21 CNB FINANCIAL CORPORATION Form 10-K For The Fiscal Year Ended December 31, 1995 Subsidiaries of the Registrant Jurisdiction of Incorporation Name or Organization ---- ----------------------------- County National Bank National Banking Association EX-27 6 FINANCIAL DATA SCHEDULE
9 0000736772 CNB FINANCIAL CORPORATION 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 9,110 19 3,200 0 51,007 24,921 0 200,038 2,145 297,523 255,787 0 1,347 2,846 0 0 6,912 30,631 297,523 16,849 4,514 55 21,418 8,946 277 12,195 380 146 8,768 4,990 4,990 0 0 3,817 2.22 2.22 8.96 114 6,939 705 0 2,033 369 101 2,145 2,145 0 0
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