EX-13 3 dex13.txt 2000 ANNUAL REPORT (Graphic Appears Here) 2000 ANNUAL REPORT (Graphic Appears Here) Table of Contents ----------------------------------------------------------------------- 1 Consolidated Financial Highlights ----------------------------------------------------------------------- 2 Message to Shareholders ----------------------------------------------------------------------- 5 Consolidated Statements of Condition ----------------------------------------------------------------------- 6 Consolidated Statements of Income ----------------------------------------------------------------------- 7 Consolidated Statements of Cash Flows ----------------------------------------------------------------------- 8 Consolidated Statements of Changes in Shareholders' Equity ----------------------------------------------------------------------- 9 Notes to Consolidated Financial Statements ----------------------------------------------------------------------- 22 Report of Independent Auditors ----------------------------------------------------------------------- 23 Selected Financial Data - Five Year Comparison ----------------------------------------------------------------------- 25 Maturity Distribution of Balance Sheet ----------------------------------------------------------------------- 26 Management Discussion and Analysis ----------------------------------------------------------------------- 35 Board of Directors ----------------------------------------------------------------------- 36 Officers ----------------------------------------------------------------------- 38 Shareholder Information ----------------------------------------------------------------------- 39 Map of Locations ----------------------------------------------------------------------- i (Graphic Appears Here) Consolidated Financial Highlights
(in thousands, except per share data) 2000 1999 % Change ------------------------------------------------------------------------------------------ For The Year Interest Income $ 40,646 $ 35,253 15.3% Interest Expense 19,834 16,560 19.8% Net Interest Income 20,812 18,693 11.3% Net Income 5,433 4,604 18.0% Return on: Average Assets 0.97% 0.91% 6.6% Average Equity 10.80% 9.50% 13.7% CASH OPERATING BASIS* Net Income $ 6,655 $ 5,725 16.2% Return on: Average Assets 1.19% 1.13% 5.3% Average Equity 13.23% 11.81% 12.0% ------------------------------------------------------------------------------------------ At Year End Assets $ 555,365 $ 561,162 (1.0%) Deposits 485,217 500,751 (3.1%) Loans 366,156 362,764 0.9% Shareholders' Equity 51,203 47,643 7.5% Trust Assets Under Management (at market value) 194,472 191,465 1.6% ------------------------------------------------------------------------------------------ Per Share Data Net Income, diluted $ 1.48 $ 1.25 18.4% Dividends 0.84 0.80 5.0% Book Value 13.96 13.00 7.4%
------------------------------------------------------------------------------- *Cash operating basis results exclude one time merger and acquisition costs and the effect on earnings of amortization expense applicable to intangible assets not included in regulatory capital. ------------------------------------------------------------------------------- 1 (Graphic Appears Here) Message to Shareholders To Our Shareholders, Customers & Friends: For the year 2000, CNB Financial Corporation achieved record operating earnings of $6.7 million for an increase of 16% over 1999. This level of profitability was achieved as we heightened our focus on realizing the earnings potential created by the significant asset growth of the Corporation during the latter half of the 1990's. During the five year period of 1996 through 2000, assets grew by 86% and operating earnings increased 82%, making this the most significant growth period in our Corporation's history. We are extremely proud of this record of performance and are pleased to present this report to you. Our earnings performance during the past year was achieved by increasing total revenues, net of interest expense, by $2.9 million or 13% while operating expenses before amortization of intangibles increased by $800,000 or 6%. This faster pace of revenue growth versus expense growth was the anticipated result of acquiring assets and efficiently managing them. Of particular note, during 2000, our non-interest income increased $800 thousand or 22% which included an increase of 16% in Trust and Asset Management revenues. During the coming year, we are planning several new initiatives to continue to grow our non-interest income at an accelerated pace. Assets declined slightly during the year resulting from weak-ened loan demand coupled with a reduction in higher cost deposits. During the coming year, assets are anticipated to grow at a more typical rate as pro-grams are implemented to increase our market share of consumer loans and deposits. (Graphic Appears Here) Also, during 2000 we focused on utilizing technology to more efficiently provide quality service and products to our customers. In June, we initiated Internet banking in order to provide further banking access to our customers as their needs evolve. However, we remain strongly committed to traditional branch banking as the primary method to deliver the highest quality customer service in the most personal fashion. In order to further enhance this quality of 2 (Graphic Appears Here) service, we will be implementing new technology during the coming year throughout our branch network. In addition to improving service, this technology will allow us to effectively serve more customers without adding personnel. In addition to technology enhancements, we continue to improve customer service by improving our branch facilities. This past December, we relocated our Punxsutawney branch into a newly constructed office which added drive-up banking to the service we now can provide as well as maintaining our convenient location. During the coming year, we will complete the remodeling of our Johnsonburg office along with adding drive-up banking to our existing Kane office. We believe strongly in providing the best possible environment for our customers and employees. Along with ongoing investments in technology and facilities, we undertook several projects during the past year to review the processes by which we perform our regular banking functions. As a result of these studies, we implemented adjustments to our staffing levels while enhancing service levels for our external and internal customers. This has yielded an improvement in our efficiency levels as measured by the dollar amount of assets per employee which has increased from $2.2 million per employee at year end 1999 to $2.8 million at the end of 2000. Most importantly, total revenue per employee increased during the year by 24% from $102,000 in 1999 to $126,000 in 2000. We believe our future financial performance will be strongly driven by maintaining tight control over operating costs as well as increasing revenues. (Graphic Appears Here) One area of disappointment during the past year was the decline in the market value of our stock. As investors began the year looking for high levels of stock performance as reflected by technology stocks, the market value of financial stocks, particularly community banks, showed steady declines during 2000. With the significant correction in the stock markets in the latter half of the year, 3 (Graphic Appears Here) investors appear to be turning to more traditional value oriented stocks. We believe that the continued strong financial performance of our Corporation yields significant value to our shareholders. This is represented by the growth in our return on equity over the five year period of 1996 through 2000, as measured by cash earnings, from 11.73% to 13.23% and the increased dividend return growing 35% from $0.62 per share to $0.84 per share on a split-adjusted basis. We are dedicated to increasing both our return on equity and dividend returns at a rate of growth necessary to meet both our present and future shareholders' expectations. We are confident that by meeting these objectives, the value of our stock will grow to more traditional valuation levels as measured by price to earnings and price to book ratios. (Graphic Appears Here) While the coming year will offer challenges primarily resulting from a slowdown in economic growth experienced during the 1990's, we are confident that we will continue to improve our financial performance. We also feel very strongly about the long term viability of community banking. This belief is centered on our view that customers expect and value the close personal attention and service that we deliver. We will continue to evaluate and capitalize upon opportunities for further expansion and growth in order to deliver our style of community banking. Finally, I would like to take this opportunity to offer a sincere thank you and best wishes to James P. Moore who retired as President and Chief Executive Officer of our Corporation at year end 2000. Jim began his career with County National Bank as a part-time messenger at the age of 15 and served in many capacities over 49 years. He became the first President of CNB Financial Corporation at its inception in 1983. Jim will remain a part of the CNB family by continuing as a member of the Board of Directors. /s/ William F. Falger William F. Falger President and Chief Executive Officer 4 CNB Financial Corporation and Subsidiaries 2000 Annual Report (Graphic Appears Here) Consolidated Statements of Condition
(in thousands, except share data) December 31 ----------------------------- Assets 2000 1999 ---------- --------- Cash and due from banks $ 15,711 $ 20,893 Interest bearing deposits with other banks 2,262 321 ---------- --------- CASH AND CASH EQUIVALENTS 17,973 21,214 Securities available for sale 136,250 136,945 Securities held to maturity, fair value of $3,777 at December 31, 1999 -- 3,743 Loans held for sale 2,494 2,381 Loans and leases 369,878 367,711 Less: unearned discount 3,722 4,947 Less: allowance for loan and lease losses 3,879 3,890 ---------- --------- NET LOANS 362,277 358,874 FHLB and Federal Reserve Stock 3,025 2,875 Premises and equipment, net 12,805 12,854 Accrued interest and other assets 6,412 6,377 Intangible assets, net 14,129 15,899 ---------- --------- TOTAL ASSETS $ 555,365 $ 561,162 ========== ========= Liabilities Deposits: Non-interest bearing deposits $ 52,757 $ 54,891 Interest bearing deposits 432,460 445,860 ---------- --------- TOTAL DEPOSITS 485,217 500,751 Other borrowings 13,341 6,750 Accrued interest and other liabilities 5,604 6,018 ---------- --------- TOTAL LIABILITIES 504,162 513,519 ---------- --------- Shareholders' Equity Common stock $1.00 par value for 2000 and 1999 Authorized 10,000,000 shares for 2000 and 1999 Issued 3,693,500 shares for 2000 and 1999 3,694 3,694 Additional paid in capital 3,742 3,717 Retained earnings 44,631 42,278 Treasury stock, at cost (26,862 shares for 2000 and 29,191 shares for 1999) (692) (715) Accumulated other comprehensive income (172) (1,331) ---------- --------- TOTAL SHAREHOLDERS' EQUITY 51,203 47,643 ---------- --------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 555,365 $ 561,162 ---------- ---------
The accompanying notes are an integral part of these statements. 5 CNB Financial Corporation and Subsidiaries 2000 Annual Report (Graphic Appears Here) Consolidated Statements of Income
(in thousands, except per share data) Year ended December 31, ---------------------------------- 2000 1999 1998 --------- --------- ---------- Interest and Dividend Income Loans including fees $ 32,075 $ 27,990 $ 25,166 Deposits with banks 137 60 12 Federal funds sold 67 386 369 Securities: Taxable 5,990 4,665 4,101 Tax-exempt 1,813 1,888 1,414 Dividends 564 264 230 --------- --------- ---------- TOTAL INTEREST AND DIVIDEND INCOME 40,646 35,253 31,292 Interest Expense Deposits 18,660 15,579 13,714 Borrowed funds 1,174 981 934 --------- --------- ---------- TOTAL INTEREST EXPENSE 19,834 16,560 14,648 --------- --------- ---------- Net interest income 20,812 18,693 16,644 Provision for loan losses 807 643 707 --------- --------- ---------- Net interest income after provision for loan losses 20,005 18,050 15,937 Non-interest Income Trust & asset management fees 924 797 758 Service charges - deposit accounts 2,279 1,703 1,211 Other service charges and fees 604 468 469 Net security gains 79 36 350 Gain on sale of loans 53 73 31 Other 542 598 353 --------- --------- ---------- TOTAL NON-INTEREST INCOME 4,481 3,675 3,172 Non-interest Expenses Salaries 6,185 5,689 5,149 Employee benefits 2,263 1,929 1,577 Net occupancy expense of premises 2,392 2,056 1,822 Data processing 1,207 1,145 801 Amortization 1,852 1,072 329 Other 3,350 3,770 2,553 --------- --------- ---------- TOTAL NON-INTEREST EXPENSES 17,249 15,661 12,231 --------- --------- ---------- Income before income taxes 7,237 6,064 6,878 Applicable income taxes 1,804 1,460 1,835 --------- --------- ---------- Net income $ 5,433 $ 4,604 $ 5,043 ========= ========= =========== EARNINGS AND DIVIDENDS Net income, basic $ 1.48 $ 1.26 $ 1.37 Net income, diluted $ 1.48 $ 1.25 $ 1.37 Cash dividends per share $ 0.84 $ 0.80 $ 0.72
The accompanying notes are an integral part of these statements. 6 CNB Financial Corporation and Subsidiaries 2000 Annual Report (Graphic Appears Here) Consolidated Statements of Cash Flows
(in thousands) Year ended December 31, ---------------------------------- 2000 1999 1998 --------- --------- ---------- Cash Flows from Operating Activities: Net income $ 5,433 $ 4,604 $ 5,043 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses 807 643 707 Depreciation and amortization 2,951 2,036 1,201 Amortization and accretion of deferred loan fees (477) 61 (70) Deferred taxes 269 611 1,365 Security gains (79) (36) (350) Gain on sale of loans (53) (73) (31) Net losses (gains) on dispositions of acquired property 4 19 (98) Proceeds from sales of loans 9,461 13,914 15,977 Origination of loans for sale (9,521) (11,923) (18,728) Changes in: Interest receivable and other assets (386) (2,909) (515) Interest payable and other liabilities (1,280) 1,707 211 --------- --------- ---------- Net cash from operating activities 7,129 8,654 4,712 Cash Flows from Investing Activities: Proceeds from maturities of: Securities held to maturity 310 2,325 6,322 Securities available for sale 23,541 26,035 25,566 Proceeds from sales of securities available for sale 7,483 17,513 4,888 Purchase of securities available for sale (25,200) (79,392) (66,089) Net principal disbursed on loans (3,593) (51,057) (24,850) Purchase of Federal Reserve Bank Stock and Federal Home Loan Bank Stock (150) (1,269) (499) Acquisitions, net of cash received -- (14,382) -- Purchase of premises and equipment (1,050) (3,148) (2,306) Proceeds from the sale of foreclosed assets 264 277 192 Net cash from investing activities 1,605 (103,098) (56,776) Cash Flows from Financing Activities: Net change in: Checking, money market and savings accounts (7,084) 20,597 49,617 Certificates of deposit (8,450) 82,072 2,706 Treasury stock 48 (579) -- Cash dividends paid (3,080) (2,897) (2,588) Net advances (repayments) from other borrowings 6,591 (9,628) 8,307 --------- --------- ---------- Net cash from financing activities (11,975) 89,565 58,042 --------- --------- ---------- Net increase (decrease) in cash and cash equivalents (3,241) (4,879) 5,978 Cash and cash equivalents at beginning of year 21,214 26,093 20,115 --------- --------- ---------- Cash and cash equivalents at end of period $ 17,973 $ 21,214 $ 26,093 ========= ========= ========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 19,773 $ 17,077 $ 14,649 Income taxes 1,600 2,125 755 Supplemental non cash disclosures: Transfers from securities held to maturity to securities available for sale $ 3,431 $ -- $ --
The accompanying notes are an integral part of these statements. 7 CNB Financial Corporation and Subsidiaries 2000 Annual Report (Graphic Appears Here) Consolidated Statements of Changes in Shareholders' Equity
(in thousands, except per share data) Accumulated Additional Other Total Paid-In Retained Treasury Comprehensive Shareholders' Common Stock Capital Earnings Stock Income Equity ------------------------------------------------------------------------------------- Balance January 1, 1998 $ 7,387 $ -- $ 38,116 $ (100) $ 1,204 $ 46,607 Comprehensive income: Net income for 1998 5,043 5,043 Other comprehensive income: Net change in unrealized gains on available for sale securities, net of taxes of $164 and adjustment for gains of $231 324 324 ------- Total comprehensive income 5,367 ------- Issued 2 for 1 stock split (3,693) 3,693 Purchase of treasury stock (774 shares) (12) (12) Cash dividends declared (2,588) (2,588) ($0.72 and $0.45 per share, CNB and Spangler, respectively) ------------------------------------------------------------------------------------- Balance December 31, 1998 3,694 3,693 40,571 (112) 1,528 49,374 Comprehensive income: Net income for 1999 4,604 4,604 Other comprehensive income: Net change in unrealized losses on available for sale securities, net of taxes of $1,473 and adjustment for gains of $24 (2,859) (2,859) ------- Total comprehensive income 1,745 ------- Treasury stock: Purchase (19,600 shares) (617) (617) Reissue (1,515 shares) 24 14 38 Cash dividends declared (2,897) (2,897) ($0.80 and $0.26 per share, CNB and Spangler, respectively) ------------------------------------------------------------------------------------- Balance December 31, 1999 3,694 3,717 42,278 (715) (1,331) 47,643 Comprehensive income: Net income for 2000 5,433 5,433 Other comprehensive income: Cumulative effect of securities transferred, net 7 7 Net change in unrealized losses on available for sale securities, net of taxes of $900 and adjustment for gains of $52 1,152 1,152 ------- Total comprehensive income 6,592 ------- Treasury stock: Reissue (2,329 shares) 25 23 48 Cash dividends declared ($0.84 per share) (3,080) (3,080) ------------------------------------------------------------------------------------- Balance December 31, 2000 $ 3,694 $ 3,742 $ 44,631 $ (692) $ (172) $ 51,203 =====================================================================================
The accompanying notes are an integral part of these statements. 8 CNB Financial Corporation and Subsidiaries 2000 Annual Report (Graphic Appears Here) Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unless otherwise indicated, amounts are in thousands, except per share data. Business and Organization: CNB Financial Corporation (the "Corporation"), is headquartered in Clearfield, Pennsylvania, and provides a full range of banking and related services through its wholly owned subsidiary, County National Bank (the "Bank"). The Bank also provides trust services, including the administration of trusts and estates, retirement plans, and other employee benefit plans. The Bank serves individual and corporate customers and is subject to competition from other financial institutions and intermediaries with respect to these services. The Corporation is also subject to examination by Federal regulators. The Corporation's market area is in the 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 subsidiaries, County National Bank and CNB Investment Corporation. These statements have been prepared in accordance with accounting principles generally accepted in the United States. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Use of Estimates: To prepare financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses and fair values of financial instruments are particularly subject to change. Operating Segments: FAS No.131 requires disclosures about an enterprise's operating segments in financial reports issued to shareholders. The Statement defines an operating segment as a component of an enterprise that engages in business activities that generate revenue and incur expense, and the operating results of which are reviewed by the chief operating decision maker in the determination of resource allocation and performance. The Corporation's business activities are currently confined to one segment which is community banking. Securities: When purchased, investments are classified as held to maturity, trading or available for sale 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 or equity securities are classified as trading when purchased principally for the purpose of selling them in the near term. Available for sale securities are those securities not classified as held to maturity or trading and are carried at their fair market value. Unrealized gains and losses, net of tax, on securities classified as available for sale are recorded as other comprehensive income. Unrealized gains and losses on securities classified as trading are included in other income. Management has not classified any debt or equity securities as trading. Other securities, such as Federal Home Loan Bank and Federal Reserve Bank stock, are carried at cost. 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 over the period through contractual 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. Securities are written down to fair value when a decline in fair value is not temporary. Gains and losses on securities sold is based on the specific identification method. Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Loans held for sale are reported at the lower of cost or market, on an aggregate basis. Interest income with respect to loans and leases is accrued on the principal amount outstanding. The Bank discontinues the accrual of interest when, in the opinion of management, there exists doubt as to the ability to collect such interest. Loan fees and certain direct origination costs are deferred and the net amount amortized as an adjustment to the related loan interest income yield over the terms of the loans. Direct Lease Financing: Financing of equipment, principally consisting of automobiles, is provided to customers under lease arrangements accounted for as direct financing leases. These leases are reported in the consolidated statements of condition under the loan caption as a net amount, consisting of the aggregate of lease payments receivable and estimated residual values, less unearned income. Income is recognized in a manner which results in an approximate level yield over the lease term. 9 CNB Financial Corporation and Subsidiaries 2000 Annual Report Notes to Consolidated Financial Statements (continued) Allowance for Loan and Lease Losses: The allowance for loan and lease 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 loan losses, future adjustments may be necessary due to circumstances that differ substantially from the assumptions used in evaluating the adequacy of the allowance for loan losses. A loan is impaired when full payment under the loan terms is not expected. Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgage, consumer, and credit card loans, and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral. 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 the 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. The property is evaluated regularly and any decreases in the carrying amount are charged to expense. Intangibles: Intangible assets represent the present value of future net income to be earned from deposits and are being amortized on a straight-line basis over a ten year period. The excess of cost over the fair value of net assets acquired (goodwill) is being amortized on a straight-line basis over a period of ten years. Income Taxes: The Corporation files a consolidated U. S. income tax return. Deferred taxes are recognized for the expected future tax consequences of existing differences between the financial reporting and tax reporting bases of assets and liabilities using enacted tax laws and rates. Income tax expense is the total of the current year income tax due or refundable and the changes in deferred tax assets and liabilities. Mortgage Servicing Rights (MSR's): Mortgage servicing assets are recognized as separate assets when servicing rights are acquired through purchase or loan originations, when there is a definitive plan to sell the underlying loan. Capitalized MSR's are reported in other assets and are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying mortgage loans. Capitalized MSR's are evaluated for impairment based on the fair value of those rights. The MSR's recognized, $72 in 2000 and $168 in 1999, are included in other assets. 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. Stock Options: FAS No. 123 defines a fair value-based method of accounting for stock-based employee compensation plans. Under the fair value-based method compensation cost is measured at the grant date based upon the value of the award and is recognized over the service period. The standard encourages all entities to adopt this method of accounting for all employee stock compensation plans. However, it also allows an entity to continue to measure compensation costs for its plans as prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Since the Corporation has elected to use the accounting in APB No. 25, pro forma disclosures of net income and earnings per share are made as if the fair value method of accounting, as defined by FAS No. 123, had been applied. Comprehensive Income: The Corporation presents comprehensive income as part of the Statement of Changes in Stockholders' Equity. Other comprehensive income (losses) are comprised exclusively of unrealized holding gains (losses) on the available for sale securities portfolio. 10 CNB Financial Corporation and Subsidiaries 2000 Annual Report Notes to Consolidated Financial Statements (continued) Earnings per Share: Basic earnings per share is determined by dividing net income by the weighted average number of shares outstanding. Diluted earnings per share is determined by dividing net income by the weighted average number of shares outstanding increased by the number of shares that would be issued assuming the exercise of stock options. 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, interest bearing deposits with other banks, and Federal funds sold. Restrictions on Cash: 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, 2000, was approximately $841, which was maintained in vault cash. New Accounting Standards: On July 1, 2000, the Corporation adopted a new accounting standard, which required all derivatives to be recorded at fair value. Unless designated as hedges, changes in these fair values are recorded in the income statement. Fair value changes involving hedges would be recorded by offsetting gains and losses on the hedge and on the hedged item, even if the fair value of the hedged item is not otherwise recorded. This did not have a material effect since the Corporation holds no derivatives. See also Note 3 for additional disclosure. Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements. Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. Reclassifications: Certain prior year amounts have been reclassified for comparative purposes. 2. EARNINGS PER SHARE Earnings per share (EPS) is calculated on the weighted average number of common shares outstanding during the year. Currently a dual presentation of basic and diluted EPS is required. The computation of basic and diluted EPS is shown below:
Years Ended December 31 2000 1999 1998 ------ ------ ------ Net income applicable to common stock $5,433 $4,604 $5,043 Weighted-average common shares outstanding 3,665 3,665 3,682 ------ ------ ------ Basic earnings per share $ 1.48 $ 1.26 $ 1.37 ====== ====== ====== Net income applicable to common stock 5,433 $4,604 $5,043 ------ ------ ------ Weighted-average common shares outstanding 3,665 3,665 3,682 Common stock equivalents due to effect of stock options -- 6 -- ------ ------ ------ Total weighted-average common shares and equivalents 3,665 3,671 3,682 ------ ------ ------ Diluted earnings per share $ 1.48 $ 1.25 $ 1.37 ====== ====== ======
Stock options for 47,500 shares of common stock were not considered in computing diluted earnings per common share for 2000 because they were antidilutive. 1998 data is restated to reflect the 2 for 1 stock split effective April 30, 1998. 11 CNB Financial Corporation and Subsidiaries 2000 Annual Report Notes to Consolidated Financial Statements (continued) 3. SECURITIES Investment securities at December 31, 2000 and 1999 were as follows:
December 31, 2000 December 31, 1999 ------------------------------------ ------------------------------------- Amortized Unrealized Market Amortized Unrealized Market Cost Gains Losses Value Cost Gains Losses Value ------------------------------------ ------------------------------------- Securities available for sale: U.S. Treasury $ 23,045 $ 122 $ (8) $ 23,159 $ 24,127 $ 1 $ (156) $ 23,972 U.S. Government agencies and corporations 25,926 105 (11) 26,020 27,867 -- (221) 27,646 Obligations of States and Political Subdivisions 35,111 428 (197) 35,342 35,822 151 (1,111) 34,862 Mortgage-backed securities 18,243 20 (211) 18,052 27,614 41 (886) 26,769 Other Debt securities 26,998 220 (569) 26,649 20,309 75 (259) 20,125 Marketable equity securities 7,186 164 (322) 7,028 3,221 622 (272) 3,571 ------------------------------------ ------------------------------------- Total securities available for sale $136,509 $1,059 $(1,318) $136,250 $138,960 $890 $(2,905) $136,945 ==================================== ===================================== Securities to be held to maturity: Obligations of States and Political Subdivisions $ 2,744 $ 40 $ (1) $ 2,783 Other Debt securities 999 -- (5) 994 ------------------------------------- Total securities to be held to maturity $ 3,743 $ 40 $ (6) $ 3,777 =====================================
Other debt securities include corporate notes and bonds and collateralized mortgage obligations. On December 31, 2000 investment securities carried at $35,579 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 excluding equity securities, at December 31, 2000: Available for Sale Amortized Cost Market Value -------------- ------------ 1 year or less $ 29,834 $ 29,852 1 year-5 years 47,816 47,860 5 years-10 years 10,261 10,325 After 10 years 23,169 23,133 -------- -------- 111,080 111,170 -------- -------- Mortgage-backed securities 18,243 18,052 -------- -------- Total securities $129,323 $129,222 ======== ======== 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. Information pertaining to security sales is as follows: Proceeds Gross Gains Gross Losses -------- ----------- ------------ 2000 $ 7,483 $176 $97 1999 17,513 124 88 1998 4,888 351 1 On July 1, 2000, the Corporation adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 allows the Corporation a one time reclassification of securities held to maturity to classification as available for sale or trading to allow hedging of securities. The Corporation had no derivatives. The Corporation transferred securities with a carrying value of $3,431 previously classified as held to maturity to available for sale upon adoption. The unrealized gain on the securities transferred totaled $10. On July 1, 2000, the Corporation's equity and comprehensive income increased $7 (after tax effects) as a result of the transfer. 12 CNB Financial Corporation and Subsidiaries 2000 Annual Report Notes to Consolidated Financial Statements (continued) 4. LOANS Total Loans at December 31, 2000 and 1999 are summarized as follows: 2000 1999 -------- -------- Commercial, Financial and Agricultural $ 79,229 $ 78,588 Residential Mortgage 160,525 159,884 Commercial Mortgage 59,680 49,549 Installment 40,126 43,772 Lease Receivables 30,318 35,918 -------- -------- $369,878 $367,711 ======== ======== Lease receivables at December 31, 2000 and 1999 are summarized as follows: 2000 1999 ------- ------- Lease payment receivable $12,869 $16,494 Estimated residual values 17,449 19,424 ------- ------- Gross lease receivables 30,318 35,918 Less unearned income (3,719) (4,902) ------- ------- Net lease receivables $26,599 $31,016 ======= ======= At December 31, 2000 and 1999, net unamortized loan costs of $711 and $601, respectively, have been included in the carrying value of loans. 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. Collateral requirements are established based on management's assessment of the customer. Deposit accounts that have overdrawn their current balance, overdrafts, are reclassified to loans. Overdrafts included in loans are $1,587 in 2000 and $1,691 in 1999. Nonperforming loans were as follows: 2000 1999 ------ ---- Loans past due over 90 days still on accrual $1,136 $886 Nonaccrual loans $ 652 $862 Nonperforming loans include all (or almost all) impaired loans and smaller balance homogeneous loans, such as residential mortgage and consumer loans, that are collectively evaluated for impairment. No loans were determined to be impaired at December 31, 2000 and 1999, nor were any loans during the years then ended. 5. ALLOWANCE FOR LOAN AND LEASE LOSSES Transactions in the Allowance for Loan and Lease Losses for the three years ended December 31 were as follows: 2000 1999 1998 ------ ------ ------ Balance, Beginning of Year $3,890 $3,314 $3,062 Charge-offs (967) (616) (594) Recoveries 149 193 139 ------ ------ ------ Net Charge-offs (818) (423) (455) Provision for Loan and Lease Losses 807 643 707 Acquisition -- 356 -- ------ ------ ------ Balance, End of Year $3,879 $3,890 $3,314 ====== ====== ====== 13 CNB Financial Corporation and Subsidiaries 2000 Annual Report Notes to Consolidated Financial Statements (continued) 6. PREMISES AND EQUIPMENT The following summarizes Premises and Equipment at December 31: 2000 1999 ------- ------- Land $ 1,527 $ 1,527 Premises and Leasehold Improvements 11,035 10,831 Furniture and Equipment 7,359 6,738 ------- ------- 19,921 19,096 Less Accumulated Depreciation and Amortization (7,116) (6,242) ------- ------- Premises and Equipment, Net $12,805 $12,854 ======= ======= Depreciation on Premises and Equipment amounted to $1,099 in 2000, $957 in 1999, and $872 in 1998. The Corporation is committed under four noncancellable operating leases for facilities with initial or remaining terms in excess of one year. The minimum annual rental commitments under these leases at December 31, 2000 are as follows: 2001 $ 151 2002 154 2003 145 2004 113 2005 113 Thereafter 868 ------ $1,544 ====== Rental expense, net of rental income, charged to occupancy expense for 2000, 1999, and 1998 was $141, $184 and $134, respectively. 7. INTANGIBLE ASSETS, NET During 1999, the Corporation purchased the deposits, certain loans and the fixed assets of five branches of super-regional competitors. In conjunction with this transaction, the Corporation paid premiums totaling $14.4 million, which has been identified as an intangible and is being amortized on a straight line basis over a period of 10 years. The following table reflects the components of the intangible assets at December 31: 2000 1999 ------- ------- Intangible assets $17,534 $17,534 Less: accumulated amortization (3,405) (1,635) ------- ------- Intangible assets, net $14,129 $15,899 ======= ======= 8. DEPOSITS The following table reflects time certificates of deposit and IRA accounts included in total deposits and their remaining maturities at December 31: Time Deposits Maturing: 2000 1999 -------- -------- Within One Year $120,432 $181,756 Within Two Years 103,844 35,422 Within Three Years 5,780 16,454 Within Four Years 6,634 4,990 Within Five Years and Greater 6,100 12,618 -------- -------- $242,790 $251,240 ======== ======== Certificates of Deposit of $100,000 or more totaled $32,574 and $38,029 at December 31, 2000 and 1999, respectively. 14 CNB Financial Corporation and Subsidiaries 2000 Annual Report Notes to Consolidated Financial Statements (continued) 9. OTHER BORROWINGS Other borrowings include $1,891 and $1,750 of demand notes payable to the U.S. Treasury Department at December 31, 2000 and 1999, respectively. 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. At year end, the Bank had remaining borrowing capacity with the FHLB of $155 million. Borrowings with the FHLB are secured by a blanket pledge of selected securities in the amount of $68,594 and certain mortgage loans with a value of $163,830. Also, other borrowings include advances from the Federal Home Loan Bank (FHLB) at December 31, 2000, and 1999 as follows: December 31, Interest Rate Maturity 2000 1999 -------------------------------------------------------- Variable Overnight Daily $ 1,450 $ -- (a) 1/20/09 -- 5,000 (b) 3/1/10 10,000 -- ------- ------ Total borrowed funds $11,450 $5,000 ======= ====== (a) Interest rate is fixed for one year at which time FHLB has option to float the interest rate based on the 3 month LIBOR +.15, the interest rate was 4.30% at December 31, 1999. (b) Interest rate is fixed for one year at which time FHLB has option to float the interest rate based on the 3 month LIBOR +.16, the interest rate was 6.09% at December 31, 2000. 2001 $ 3,341 2002 -- 2003 -- 2004 -- 2005 -- Thereafter 10,000 ------- Total Borrowed Funds $13,341 ======= 10. INCOME TAXES The following is a summary of the tax provision: 2000 1999 1998 -------- -------- -------- Current $ 1,535 $ 849 $ 470 Deferred 269 611 1,365 -------- -------- -------- Net provision for Income Taxes $ 1,804 $ 1,460 $ 1,835 ======== ======== ======== The applicable portion of the current year provision related to the gains on sales of available for sale securities is $27, $12, and $119 in 2000, 1999 and 1998, respectively. The components of the net deferred tax liability as of December 31, 2000 and 1999 are as follows: 2000 1999 ------ ------ Deferred tax assets Allowance for loan losses $1,110 $1,054 Post-retirement benefits 92 71 Intangible 384 68 Deferred compensation 100 94 Merger costs 68 76 Unrealized loss on investment securities available for sale 88 685 Other 68 79 ------ ------ 1,910 2,127 Deferred tax liabilities Premises and equipment 393 380 Vehicle leasing 4,176 3,505 Other 100 135 ------ ------ 4,669 4,020 ------ ------ Net deferred tax liability $2,759 $1,893 ====== ====== 15 CNB Financial Corporation and Subsidiaries 2000 Annual Report Notes to Consolidated Financial Statements (continued) The reconciliation of income tax attributable to continuing operations at the Federal statutory tax rates to income tax expense is as follows: 2000 % 1999 % 1998 % ------- ------ ------- ------ ------- ----- Tax at statutory rate $2,461 34.0 $2,062 34.0 $2,339 34.0 Tax exempt income, net (773) (10.7) (749) (12.3) (579) (8.4) Other 116 1.6 147 2.4 75 1.1 ------ ----- ------ ----- ------ ---- Income tax provision $1,804 24.9 $1,460 24.1 $1,835 26.7 ====== ===== ====== ===== ====== ==== 11. STOCK INCENTIVE PLAN The Corporation has a common stock plan for key employees and independent directors. The Stock Incentive Plan, which is administered by a committee of the Board of Directors, provides for 250,000 shares of common stock in the form of qualified options, nonqualified options, stock appreciation rights or restrictive stock. The plan vesting schedule is one-fourth of granted options per year beginning one year after the grant date with 100% vested on the fourth anniversary. The Corporation applies Accounting Principles Board Opinion 25 and related interpretations in accounting for its common stock plan. Accordingly, no compensation expense has been recognized for the plans. Had compensation cost for the plans been determined based on the fair values at the grant dates for awards, consistent with the method of SFAS No. 123, net income and earnings per share for 2000 and 1999 would have been adjusted to the pro forma amounts indicated below: 2000 1999 ------ ------ Net income As reported $5,433 $4,604 Pro forma $5,414 $4,541 Earnings Per Share-Basic As reported $ 1.48 $ 1.26 Pro forma $ 1.48 $ 1.24 For purposes of the pro forma calculations above, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option- pricing model with the following weighted average assumptions for grants issued: 2000 1999 --------- ------- Dividend Yield 3.1% 3.5% Volatility 24.8% 17.3% Risk-free interest rates 6.3% 6.0% Expected option lives 5.7 years 6 years A summary of the status of the common stock plans, adjusted retroactively for the effects of stock splits, is presented below: Weighted-average Remaining Shares Exercise Price Contractual Life ------ ---------------- ---------------- Outstanding, at January 1, 1999 -- -- Granted 18,250 $28.25 10 years Exercised -- -- Forfeited -- -- ------ ------ Outstanding, at December 31, 1999 18,250 28.25 9 years Granted 29,250 19.98 10 years Exercised -- -- Forfeited -- -- ------ ------ Outstanding, at December 31, 2000 47,500 $23.12 ====== ====== 2000 1999 ------ ------ Options exercisable 4,562 -- Fair value of options granted during the year $5.14 $ 5.21 16 CNB Financial Corporation and Subsidiaries 2000 Annual Report Notes to Consolidated Financial Statements (continued) 12. EMPLOYEE BENEFIT PLANS The Bank provides a defined contribution retirement 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 current year compensation, are 9 percent of total compensation plus 5.7 percent of the compensation in excess of $76. The Corporation recognized expense of $462 in 2000, $419 in 1999, and $405 in 1998. In addition, the Bank sponsors a contributory defined contribution Section 401(k) plan in which substantially all employees participate. The plan permits employees to make pre-tax contributions which are matched by the Bank at 0.25% for every 1% contributed up to one percent of the employee's compensation. The Bank's contributions were $28, $40, and $30 in 2000, 1999, and 1998, respectively. The Corporation provides certain health care benefits for retired employees and their qualifying dependents. The following table sets forth the change in the benefit obligation and funded status: December 31 2000 1999 ------- ------- Benefit obligation at beginning of year $ 434 $ 463 Interest cost 32 30 Service cost 25 25 Actual claim expense (31) (26) Interest on claim expense 1 -- Actuarial (gain)/loss 40 (58) ------- ------- Benefit obligation at end of year $ 501 $ 434 ======= ======= December 31 2000 1999 ------- ------- Funded status of plan $ (501) $ (434) Unrecognized actuarial (gain)/loss 46 5 Unrecognized prior service cost -- -- Unrecognized transition obligation 95 103 ------- ------- Accrued benefit cost $ (360) $ (326) ======= ======= December 31 2000 1999 1998 ------- ------- ----- Net periodic post-retirement benefit cost: Service cost $ 25 $ 25 $ 23 Interest cost 32 30 28 Amortization of transition obligation over 21 years 7 8 9 ======= ======= ===== $ 64 $ 63 $ 60 ======= ======= ===== The weighted average discount rate used to calculate net periodic benefit cost and the accrued post-retirement liability was 7.50% in 2000 and 1999. The health care cost trend rate used to measure the expected costs of benefits for 2000 is 9.0%, and 8.0% thereafter. A one percent increase in the health care trend rates would result in an increase of $76 in the benefit obligation of December 31, 2000, and would increase the service and interest costs by $13 in future periods. A similar one percent decrease in health care trend rates would result in a decrease of $64 and $10 in the benefit obligation and service and interest costs, respectively, at December 31, 2000. The presentation above for the years 2000, 1999 and 1998 reflects a policy which grants eligibility to these benefits to employees at least 60 years of age with 30 years of service. 13. RELATED PARTY TRANSACTIONS In the ordinary course of business, the Bank has transactions, including loans, with its 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 $6,577 on December 31, 2000 compared to $4,431 at December 31, 1999. During 2000, $18,233 of new loans were made and repayments totaled $16,087. Deposits from principal officers, directors and their affiliates at year-end 2000 and 1999 were $3,171 and $3,662. The Bank entered into an operating lease with a director of the Corporation for one year terms which can be renewed for one year. The annual lease payments were determined based on prevailing terms in the market area. All ongoing operating and general maintenance expenses are the responsibility of the director. 17 CNB Financial Corporation and Subsidiaries 2000 Annual Report Notes to Consolidated Financial Statements (continued) 14. REGULATORY MATTERS The Corporation and Bank are subject to minimum capital requirements set by Federal regulatory agencies, namely the Federal Reserve Bank and the Office of the Comptroller of the Currency. Regulators require capital ratios of 4.0% Tier 1 capital to total risk based assets, 8.0% or more of total qualifying capital to total risk weighted assets and total Tier 1 capital to total assets of 4.0% for an institution to be considered adequately capitalized. The Corporation and the Bank are well capitalized under the regulatory framework for prompt corrective action as of the most recent notification of the regulators. There are no conditions or events since that notification that management believes would change the Corporation's status. The table below summarizes the Corporation and Bank's regulatory capital levels:
December 31, Risk Based Capital 2000 1999 --------------------------------------------------- ------------------------------------------------ Regulatory Ratio to Minimum Well Regulatory Ratio to Minimum Well Capital Risk Assets Required Capitalized Capital Risk Assets Required Capitalized --------------------------------------------------- ------------------------------------------------ Tier 1 CNB Financial Corporation $38,176 10.35% 4.0% 6.0% $33,745 8.96% 4.0% 6.0% County National Bank 34,181 9.24% 4.0% 6.0% 29,396 7.88% 4.0% 6.0% Tier 1 + Tier 2 Capital CNB Financial Corporation 42,078 11.40% 8.0% 10.0% 37,792 10.04% 8.0% 10.0% County National Bank 38,083 10.30% 8.0% 10.0% 33,286 8.92% 8.0% 10.0% Leverage CNB Financial Corporation 38,176 7.10% 4.0% 5.0% 33,745 6.66% 4.0% 5.0% County National Bank 34,181 6.41% 4.0% 5.0% 29,396 5.90% 4.0% 5.0%
Failure to maintain the minimum capital level requirements can initiate mandatory and possibly additional discretionary disciplinary actions by regulators. In such an instance, if regulatory action was undertaken, the results could have a direct effect on the Corporation's financial position. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of the Corporation's and the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation's and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Certain restrictions exist regarding the ability of the Bank to transfer funds to the Corporation in the form of cash dividends, loans or advances. Dividends payable by the Bank to the Corporation without prior approval of the Office of the Comptroller of the Currency (OCC) are limited to the Bank's retained net profits for the preceding two calendar years plus retained net profits up to the dividend declaration in the current calendar year. Retained net profits are defined by the OCC as net income, less dividends declared during the periods under regulatory accounting principles. As of December 31, 2000, $4.2 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. The Bank is also subject to certain restrictions under the Federal Reserve Act which include restrictions on extensions of credit to its affiliates. Of note, the Bank is prohibited from lending monies to the Corporation unless the loans are secured by specific collateral. These secured loans and other regulated transactions made by the Bank are limited in amount to ten percent of the Bank's capital stock and surplus. 15. 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 face amount for these items represents the exposure to loss before considering customer collateral or ability to repay. 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, 2000, the Bank had $12.9 million of unused credit card lines; $13.0 million of unfunded home equity lines of credit; $41.6 million in other outstanding loan commitments and $3.7 million in standby letters of credit. The fixed rate loan commitments have interest rates ranging from 6.67% to 13.00%. 18 CNB Financial Corporation and Subsidiaries 2000 Annual Report Notes to Consolidated Financial Statements (continued) 16. MERGERS AND ACQUISITIONS On August 18, 1999, the Corporation acquired The First National Bank of Spangler ("Spangler") located in Spangler, PA. The merger, which was accounted for as a pooling of interests, was affected by issuing 237,500 shares of CNB Financial Corporation common stock in exchange for 100% of the outstanding shares of Spangler. After consummation of the merger, Spangler was merged into County National Bank. All financial information has been restated to reflect the merger. On February 12, 1999, the Corporation acquired the Punxsutawney branch from an unaffiliated financial institution. This acquisition included deposits of $36 million, loans of $11 million and certain fixed assets. On September 24, 1999, the Corporation acquired the Johnsonburg, Ridgway, Bradford and Kane branches from an unaffiliated financial institution. This acquisition included deposits of $116.2 million, loans of $21.7 million and certain fixed assets. These acquisitions were accounted for under the purchase method of accounting and the Corporation recorded $14.4 million as intangible assets. The consolidated results include the operations of the acquired branches from the date of acquisition. 17. FAIR VALUE OF FINANCIAL INSTRUMENTS Carrying amount is the estimated fair value for cash and cash equivalents, Federal Home Loan Bank stock, accrued interest receivable and payable, demand deposits, other borrowings, and variable rate loans or deposits that reprice frequently and fully. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of loans held for sale is based on market quotes. Fair value of debt is based on current rates for similar financing. The fair value of off- balance-sheet items is based on the current fees or cost that would be charged to enter into or terminate such arrangements. While these estimates of fair value are based on management's judgment of the most appropriate factors as of the balance sheet date, there is no assurance that the estimated fair values would have been realized if the assets had been disposed of or the liabilities settled at that date, since market values may differ depending on various circumstances. The estimated fair values would also not apply to subsequent dates. In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the above disclosures. Also, non-financial instruments typically not recognized on the balance sheet may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposits, the earnings potential of trust accounts, the trained workforce, customer goodwill, and similar items. December 31, 2000 December 31, 1999 -------------------- -------------------- Carrying Fair Carrying Fair Amount Value Amount Value --------- --------- --------- --------- ASSETS Cash and short-term assets $ 17,973 $ 17,973 $ 21,214 $ 21,214 Securities 136,250 136,250 140,688 140,722 Net loans 332,034 353,975 327,858 325,819 FHLB and Federal Reserve stock 3,025 3,025 2,875 2,875 Accrued interest receivable 4,079 4,079 3,463 3,463 LIABILITIES Deposits 485,217 490,682 500,751 503,075 Other borrowings 13,341 13,341 6,750 6,750 Accrued interest payable 1,945 1,945 1,830 1,830 19 CNB Financial Corporation and Subsidiaries 2000 Annual Report Notes to Consolidated Financial Statements (continued) 18. PARENT COMPANY ONLY FINANCIAL INFORMATION CONDENSED BALANCE SHEETS December 31, 2000 1999 ------- ------- ASSETS Cash $ 88 $ 52 Investment in bank subsidiary 48,532 44,231 Investment in non-bank subsidiary 2,697 3,449 Other assets 911 926 ------- ------- TOTAL ASSETS $52,228 $48,658 ======= ======= LIABILITIES Income taxes payable $ (12) $ (16) Deferred tax liability (1) (15) Other liabilities 1,038 1,046 ------- ------- TOTAL LIABILITIES 1,025 1,015 TOTAL SHAREHOLDERS' EQUITY 51,203 47,643 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $52,228 $48,658 ======= ======= CONDENSED STATEMENTS OF INCOME Year ended December 31, 2000 1999 1998 ------ ------ ------ INCOME Dividends from: Bank subsidiary $2,309 $2,544 $3,588 Non bank subsidiary 770 750 -- Securities available for sale -- 35 130 Other 131 62 350 ------ ------ ------ TOTAL INCOME 3,210 3,391 4,068 ------ ------ ------ EXPENSES (187) (220) (234) ------ ------ ------ INCOME BEFORE INCOME TAXES AND EQUITY IN DISTRIBUTED NET INCOME OF SUBSIDIARY 3,023 3,171 3,834 Applicable income tax (obligation) benefit (19) (50) (53) Equity in undistributed net income of bank subsidiary 3,006 1,919 1,251 (Distributions in excess of)/equity in undistributed net income of non-bank subsidiary (615) (536) 11 ------ ------ ------ NET INCOME $5,433 $4,604 $5,043 ====== ====== ====== CONDENSED STATEMENTS OF CASH FLOWS Year ended December 31, Cash flows from operating activities: 2000 1999 1998 ------- ------- ------- Net income $ 5,433 $ 4,604 $ 5,043 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of bank subsidiary (3,006) (1,919) (1,251) Equity in undistributed net income of non-bank subsidiary 615 536 (11) (Increase) Decrease in other assets 15 (919) (7) Increase (Decrease) in other liabilities 11 957 (131) Gain on sale of available for sale securities -- -- (349) ------- ------- ------- Net cash provided by operating activities 3,068 3,259 3,294 ------- ------- ------- Cash flows from investing activities: Purchase of securities available for sale -- (119) (1,976) ------- ------- ------- Proceeds from the sale of securities available for sale -- -- 1,554 ------- ------- ------- Net cash used in investing activities -- (119) (422) Cash flows from financing activities: Dividends paid (3,080) (2,897) (2,588) Net treasury stock activity 48 (579) -- ------- ------- ------- Net cash used in financing activities (3,032) (3,476) (2,588) Net increase (decrease) in cash 36 (336) 284 Cash beginning of year 52 388 104 ------- ------- ------- Cash end of year $ 88 $ 52 $ 388 ======= ======= ======= 20 CNB Financial Corporation and Subsidiaries 2000 Annual Report Notes to Consolidated Financial Statements (continued) 19. OTHER COMPREHENSIVE INCOME (LOSS) Other comprehensive income (loss) components and related taxes were as follows: 2000 1999 1998 ------ ------- ---- Unrealized holding gains and losses on available for sale securities $1,825 $(4,295) $840 Cumulative effect of securities transferred 7 -- -- Less reclassification adjustments for gains and losses later recognized in income 76 36 350 ------ ------- ---- Net unrealized gains and losses 1,756 (4,331) 490 Tax effect 597 (1,472) 166 ------ ------- ---- Other comprehensive income (loss) $1,159 $ 2,859 $324 ====== ======= ==== 20. QUARTERLY FINANCIAL DATA (UNAUDITED) The unaudited quarterly results of operations for the years ended December 2000 and 1999 are as follows (in thousands, except per share data):
Quarters Ended 2000 1999 March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 ----------------------------------------- -------------------------------------- Total interest income $ 9,969 $ 10,233 $ 10,156 $ 10,288 $ 8,238 $ 8,338 $ 8,798 $ 9,879 Net interest income 5,287 5,310 5,038 5,177 4,262 4,433 4,848 5,150 Provision for loan losses 180 207 210 210 154 153 153 183 Non-interest income 912 1,092 1,239 1,238 728 928 955 1,064 Non-interest expense 4,332 4,335 4,224 4,358 3,507 3,602 3,911 4,641 Net income 1,247 1,393 1,393 1,400 1,062 1,218 1,293 1,031 Net income per share, basic 0.34 0.38 0.38 0.38 0.29 0.33 0.35 0.28 Net income per share, diluted 0.34 0.38 0.38 0.38 0.29 0.33 0.35 0.28
21 CNB Financial Corporation and Subsidiaries 2000 Annual Report (Graphic Appears Here) Report of Independent Auditors Board of Directors and Shareholders CNB Financial Corporation Clearfield, PA We have audited the accompanying consolidated statement of condition of CNB Financial Corporation as of December 31, 2000 and the related consolidated statements of income, changes in shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The 1999 and 1998 financial statements were audited by other auditors, whose report dated February 15, 2000 expressed an unqualified opinion on those statements. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CNB Financial Corporation as of December 31, 2000, and the results of its operations and cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Crowe, Chizek and Company LLP _______________________________________ Crowe, Chizek and Company LLP Cleveland, Ohio February 8, 2001 22 (Graphic Appears Here) CNB Financial Corporation and Subsidiaries 2000 Annual Report (Graphic Appears Here) Selected Financial Data
Year Ended December 31 (dollars in thousands, except per share data) 2000 ----------- Interest Income Loans including fees $ 32,075 Deposits with banks 137 Federal funds sold 67 Securities: U.S. treasury securities 1,378 Securities of U.S. government agencies and corporations 2,706 Obligations of states and political subdivisions 1,813 Other securities 2,470 -------- Total interest income 40,646 Interest expense Deposits 18,660 Other borrowings 1,174 -------- Total interest expense 19,834 Net interest income 20,812 Provision for loan losses 807 -------- Net interest income after provision for loan losses 20,005 Non-interest income 4,481 Non-interest expenses 17,249 -------- Income before taxes and cumulative effect adjustment 7,237 Applicable income taxes 1,804 -------- Income before cumulative effect adjustment 5,433 Cumulative effect adjustment -- Net income $ 5,433 ======== Per share data Income before cumulative effect adjustment $ 1.48 Cumulative effect adjustment $ -- Net income, basic $ 1.48 Net income, diluted $ 1.48 Dividends declared $ 0.84 Book value per share at year end $ 13.96 At end of period Total assets $555,365 Securities 139,275 Loans, net of unearned discount 366,156 Allowance for loan losses 3,879 Deposits 485,217 Shareholders' equity 51,203 Key ratios Return on average assets 0.97% Return on average equity 10.80% Loan to deposit ratio 74.66% Dividend payout ratio 56.69% Average equity to average assets ratio 9.01%
23 CNB Financial Corporation and Subsidiaries 2000 Annual Report Five Year Comparison
1999 1998 1997 1996 --------- --------- -------- -------- $ 27,990 $ 25,166 $ 23,209 $ 19,802 60 12 1 -- 386 369 271 196 989 1,134 1,366 1,290 2,383 2,503 1,663 1,756 1,888 1,414 1,307 1,301 1,557 694 634 838 -------- -------- -------- -------- 35,253 31,292 28,451 25,183 15,579 13,714 12,459 10,421 981 934 430 376 -------- -------- -------- -------- 16,560 14,648 12,889 10,797 18,693 16,644 15,562 14,386 643 707 931 625 -------- -------- -------- -------- 18,050 15,937 14,631 13,761 3,675 3,172 2,749 1,916 15,661 12,231 11,037 9,541 -------- -------- -------- -------- 6,064 6,878 6,343 6,136 1,460 1,835 1,648 1,639 -------- -------- -------- -------- 4,604 5,043 4,695 4,497 -- -- -- 156 -------- -------- -------- -------- $ 4,604 $ 5,043 $ 4,695 $ 4,653 ======== ======== ======== ======== $ 1.26 $ 1.37 $ 1.27 $ 1.22 $ -- $ -- $ -- $ 0.04 $ 1.26 $ 1.37 $ 1.27 $ 1.26 $ 1.25 $ 1.37 $ 1.27 $ 1.26 $ 0.80 $ 0.72 $ 0.68 $ 0.62 $ 13.00 $ 13.41 $ 12.65 $ 11.89 $561,162 $468,917 $403,779 $358,388 143,563 113,675 83,571 85,604 362,764 311,141 286,113 243,996 3,890 3,314 3,062 2,683 500,751 398,082 345,760 297,118 47,643 49,372 46,606 43,804 0.91% 1.18% 1.23% 1.39% 9.50% 10.43% 10.44% 10.95% 71.67% 76.94% 81.86% 81.22% 62.92% 51.32% 51.76% 47.63% 9.59% 11.31% 11.81% 12.66%
24 CNB Financial Corporation and Subsidiaries 2000 Annual Report Statistical Information (Graphic Appears Here) Maturity Distribution Remaining maturity/earliest repricing as of December 31, 2000 ($'s in thousands):
After Three After One Within Months But Year But After Three Within One Within Five Five Months Year Years Years Total ----------------------------------------------------------- Interest earning assets: Investment securities $ 24,209 $ 25,701 $ 51,402 $ 37,963 $ 139,275 Interest bearing deposits 2,262 -- -- -- 2,262 Loans 61,120 53,520 195,929 55,587 366,156 --------- ----------- ----------- --------- ---------- Total $ 87,591 $ 79,221 $ 247,331 $ 93,550 $ 507,693 Interest bearing liabilities: Interest bearing deposits $ -- $ 23,412 $ 84,580 $ 8,738 $ 116,730 Savings 32,366 -- 12,172 28,402 72,940 Time 34,214 86,218 120,063 2,295 242,790 Borrowed funds 3,341 10,000 -- -- 13,341 --------- ----------- ----------- --------- ---------- Total $ 69,921 $ 119,630 $ 216,815 $ 39,435 $ 445,801 --------- ----------- ----------- --------- ---------- Gap $ 17,670 $ (40,409) $ 30,516 $ 54,115 $ 61,892 Cumulative gap $ 17,670 $ (22,739) $ 7,777 $ 61,892 Sensitivity ratio 1.25 0.66 1.14 2.37 1.14 Cumulative sensitivity ratio 1.25 0.88 1.01 1.14 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. The stock is traded on the NASDAQ Stock Market under the symbol, CCNE. As of December 31, 2000, the approximate number of shareholders of record of the Corporation's common stock was 1,800.
Price Range of Common Stock Cash Dividends Paid 2000 1999 High Low High Low 2000 1999 ------ ------ ------ ------ ----- ----- First Quarter $25.00 $18.75 $35.00 $33.00 First Quarter $0.21 $0.20 Second Quarter 21.00 16.25 33.75 29.00 Second Quarter 0.21 0.20 Third Quarter 20.00 16.50 30.13 25.25 Third Quarter 0.21 0.20 Fourth Quarter 16.75 14.50 26.75 23.00 Fourth Quarter 0.21 0.20 ----- ----- $0.84 $0.80 ===== =====
Trust and Asset Management Division Funds under Management (Market Value) ($'s in thousands) 2000 1999 -------- -------- Personal Trusts, Estates and Agency Accounts $183,860 $180,664 Corporate Accounts 10,612 10,801 -------- -------- Total $194,472 $191,465 ======== ======== 25 CNB Financial Corporation and Subsidiaries 2000 Annual Report (Graphic Appears Here) Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL The following discussion and analysis of the consolidated financial statements of CNB Financial Corporation (the "Corporation") is presented to provide insight into management's assessment of financial results. The Corporation's subsidiary County National Bank (the "Bank") provides financial services to individuals and businesses within the Bank's market area made up of the west central Pennsylvania counties of Cambria, Clearfield, Centre, Elk, Jefferson and McKean. County National Bank is a member of the Federal Reserve System and subject to regulation, supervision and examination by the Office of the Comptroller of the Currency ("OCC"). The financial condition and results of operations are not intended to be indicative of future performance. The Corporation's subsidiary, CNB Investment Corporation, is headquartered in Wilmington, DE. CNB Investment Corporation maintains investments in debt and equity securities. Management's discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes. Risk identification and management are essential elements for the successful management of the Corporation. In the normal course of business, the Corporation is subject to various types of risk, including interest rate, credit, and liquidity risk. These risks are controlled through policies and procedures established throughout the Corporation. Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the direction and frequency of changes in interest rates. Interest rate risk results from various repricing frequencies and the maturity structure of the financial instruments owned by the Corporation. The Corporation uses its asset/liability management policy to control and manage interest rate risk. Credit risk represents the possibility that a customer may not perform in accordance to contractual terms. Credit risk results from loans with customers and purchasing of securities. The Corporation's primary credit risk is in the loan portfolio. The Corporation manages credit risk by following an established credit policy and through a disciplined evaluation of the adequacy of the allowance for loan losses. Also, the investment policy limits the amount of credit risk that may be taken in the investment portfolio. Liquidity risk represents the inability to generate or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers and obligations to depositors. The Corporation has established guidelines within its asset liability management policy to manage liquidity risk. These guidelines include contingent funding alternatives. MERGER AND ACQUISITIONS On February 12, 1999 the Bank acquired a full-service banking office and the corresponding liabilities ($36 million) and certain assets ($11 million) of the office from an unaffiliated institution. The office is located in west central Pennsylvania in the community of Punxsutawney. The office will continue to operate as a branch of the Bank. This acquisition has been accounted for as a purchase. On September 24, 1999, the Bank acquired four full service offices in north central PA from an unaffiliated institution. The offices are located in the communities of Johnsonburg and Ridgway in Elk County and Bradford and Kane in McKean County. The purchase included $21.7 million in loans, $116.2 million in deposits and certain fixed assets associated with the offices. All locations continue to operate as full service branches of the Bank. This purchase and the previously discussed purchase of the Punxsutawney office are referred to hereafter as "the Acquisitions". On August 18, 1999, the Corporation acquired The First National Bank of Spangler ("Spangler") located in Spangler, PA. The merger, which was accounted for as a pooling of interests, was affected by issuing 237,500 shares of CNB Financial Corporation common stock in exchange for 100% of the outstanding shares of Spangler. After consummation of the merger, Spangler was merged into County National Bank. The merger included $23.0 million in loans, $29.0 million in deposits, $4.6 million in capital and other assets and liabilities. All historical financial information has been restated to reflect the merger. FINANCIAL CONDITION The following table presents ending balances ($'s in millions), growth (reduction) and the percentage change during the past two years:
2000 Increase % 1999 Increase % 1998 Balance (Decrease) Change Balance (Decrease) Change Balance ---------------------------------------------------------------------- Total assets $ 555.4 $ (5.9) (1.0) $ 561.2 $ 92.3 19.7 $ 468.9 Total loans, net 362.3 3.4 0.9 358.9 51.1 16.6 307.8 Total securities 139.3 (4.3) (3.0) 143.6 29.9 26.3 113.7 Total deposits 485.2 (15.6) (3.1) 500.8 102.7 25.8 398.1 Total shareholders' equity 51.2 3.6 7.4 47.6 (1.7) (3.4) 49.3
The above table is referenced for the discussion in this section of the report. 26 CNB Financial Corporation and Subsidiaries 2000 Annual Report OVERVIEW OF BALANCE SHEET The decrease in assets during 2000 was attributed to management's efforts to control the rising cost in the certificate of deposit portfolio. This effort, combined with the Corporation's focus on earnings for 2000, caused a consolidation of the balance sheet. The specific effects to each area are described in the following sections. CASH AND CASH EQUIVALENTS Cash and cash equivalents totaled $17,973,000 at December 31, 2000 compared to $21,214,000 on December 31, 1999. The cash balance in 1999 was inflated due to excess cash built up for our year 2000 contingency plan as dictated by federal regulators. Thus the balance for 2000 was reduced when this cash excess was liquidated. We believe the liquidity needs of the Corporation are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources, Federal Home Loan Bank financing, and the portion of the securities and loan portfolios that matures within one year. These sources of funds will enable the Corporation to meet cash obligations and off-balance sheet commitments as they come due. SECURITIES Securities decreased 3% since December 31, 1999. The decrease results from payments received on mortgage-backed securities, as well as maturities of municipal bonds, which were not reinvested into the portfolio but were used to decrease other borrowings. Also, mitigating the decrease was a change in the fair market valuation of the bond portfolio. In a declining interest rate environment, bond prices generally increase. This increase gave the Corporation a decline in unrealized loss of $1,756,000. The Corporation generally buys into the market over time and does not attempt to "time" its transactions. In doing this the highs and lows of the market are averaged into the portfolio and minimizes the overall effect of different rate environments. No strategic shift in the portfolio occurred during 2000 with the investment mix staying the same. The Corporation's continued investing in bonds with greater liquidity is a strategy to provide funding for any future loan growth in an economy that has made deposit growth increasingly more difficult. We monitor the earnings performance and the effectiveness of the liquidity of the investment portfolio on a regular basis through Asset/Liability Committee ("ALCO") meetings. The ALCO also reviews and manages interest rate risk for the Corporation. Through active balance sheet management and analysis of the investment securities portfolio, we maintain a sufficient level of liquidity to satisfy depositor requirements and various credit needs of our customers. LOANS The Corporation's loan volume was fair during the first six months and was flat in the last six months of 2000. Our lending is focused in the west central Pennsylvania market and consists principally of retail lending, which includes single family residential mortgages and other consumer lending, and also commercial lending primarily to locally owned small businesses. The lending market has grown as a result of the Acquisitions and our purchase of Spangler. We expect loan demand to remain flat over the next several quarters in these and other market areas of the Bank. Contributing to a slowing growth in loans was a repayment of several floorplans to a major U.S. automaker. The total of this loss was $8 million in the commercial portfolio. The Corporation did experience a 20% growth in commercial mortgages as we continue to expand our presence within our market area. LOAN CONCENTRATION The Corporation monitors loan concentrations by individual industries in order to track potential risk exposures resulting from industry related downturns. At December 31, 2000, no concentration exists within our commercial or real estate loan portfolio as related to concentration of 10% of the total loans. Residential real estate lending continues to be the largest component of the loan portfolio. LOAN QUALITY The Corporation has established written lending policies and procedures that require underwriting standards, loan documentation, and credit analysis standards to be met prior to funding a loan. Subsequent to the funding of a loan, ongoing review of credits is required. Credit reviews are performed annually on a minimum of 60% of the commercial loan portfolio by an internal loan review staff. See "Allowance for Loan and Lease Losses" for further discussion of credit review procedures. 27 CNB Financial Corporation and Subsidiaries 2000 Annual Report The following table sets forth information concerning loan delinquency and other non-performing assets ($ in thousands):
at December 31, 2000 1999 1998 -------- -------- -------- Nonperforming assets: Non-accrual loans $ 652 $ 862 $ 190 Accrual loans greater than 89 days past due 1,136 886 1,479 Foreclosed assets held for sale 783 394 365 -------- -------- -------- Total nonperforming assets $ 2,571 $ 2,142 $ 2,034 ======== ======== ======== Total loans, net of unearned income $366,156 $362,764 $311,141 Nonperforming loans as a percent of loans, net 0.49% 0.48% 0.54%
ALLOWANCE FOR LOAN AND LEASE LOSSES The allowance for loan and lease losses is established by provisions for possible losses in the loan and lease portfolio. These provisions are charged against current income. Loans deemed not collectible are charged-off against the allowance while any subsequent collections are recorded as recoveries and increase the allowance. The table below shows activity within the allowance account over the past three years: Allowance for Loan and Lease Losses ($'s in thousands)
Years Ended December 31, 2000 1999 1998 -------- -------- -------- Balance at beginning of Period $3,890 $3,314 $3,062 Charge-offs: Commercial and financial 144 59 47 Commercial mortgages 3 30 30 Residential mortgages 12 54 16 Installment 413 380 459 Lease receivables 395 93 42 -------- -------- -------- 967 616 594 Recoveries: Commercial and financial 17 79 21 Commercial mortgages 3 1 -- Residential mortgages -- 4 2 Installment 95 103 115 Lease receivables 34 6 1 -------- -------- -------- 149 193 139 -------- -------- -------- Net charge-offs: (818) (423) (455) Provision for possible loan losses 807 999 707 -------- -------- -------- Balance at end-of-period $ 3,879 $ 3,890 $ 3,314 ======== ======== ======== Loans, net of unearned $366,156 $362,764 $311,141 Allowance to net loans 1.06% 1.07% 1.07% Specific allocation 0.60% 0.58% 0.53% Unallocated 0.46% 0.49% 0.54%
28 CNB Financial Corporation and Subsidiaries 2000 Annual Report The adequacy of the allowance for loan and lease losses is subject to a formal analysis by the credit administrator of the Bank. As part of the formal analysis, delinquencies and losses are monitored monthly. The loan portfolio is divided into several categories in order to better analyze the entire pool. First is a selection of "watch" loans that is given a specific reserve. The remaining loans will be pooled, by category, into these segments: Reviewed . Commercial and financial . Commercial mortgages Homogeneous . Residential real estate . Installment . Lease receivables The reviewed loan pools are further segregated into three categories: substandard, doubtful, and unclassified. Historical loss factors are calculated for each pool based on the previous eight quarters of experience. The homogeneous pools are evaluated by analyzing the historical loss factors from the most previous quarter end and the two most recent year ends. The historical loss factors for both the reviewed and homogeneous pools are adjusted based on these six qualitative factors: . Levels of and trends in delinquencies and non-accruals . Trends in volume and terms of loans . Effects of any changes in lending policies and procedures . Experience, ability and depth of management . National and local economic trends and conditions . Concentrations of credit The methodology described above was created using the experience of our credit administrator, guidance from the regulatory agencies, expertise of our loan review partner, and discussions with our peers. The resulting factors are applied to the pool balances in order to estimate the inherent risk of loss within each pool. The results of these procedures are listed in the following chart: Allocation of the Allowance for Loan and Lease Losses
Balance at end of period 2000 1999 ------- ------- Commercial and financial $ 706 $ 626 Commercial mortgages 303 216 Residential mortgages 508 504 Installment 473 592 Lease receivables 221 177 Unallocated 1,668 1,775 ------- ------- Total $ 3,879 $ 3,890 ======= =======
The results for the previous two years indicate higher allocations required for specific pools. This result is based on two main factors. First, the growth of our portfolio requires larger dollars to cover similar credit risks. Secondly, economic factors both in our market area and nationwide have lead to trends of increased charge-offs in recent years. The Bank did experience an increase in net charge-offs for 2000 when compared to 1999 and 1998. The unallocated allowance is determined based on management's knowledge of the portfolio, recent trends within the industry, historical trends reviewed monthly, and the local economy. Also, management utilizes peer group data surveying a group of similarly sized organizations which develop current information for comparative purposes. Most significantly consumer charge-offs remain high as the national trend is towards higher delinquencies and more personal bankruptcies. Also, the leasing portfolio has matured. As a result, we are experiencing an increase in charge- offs in the lease area. The allowance for loan and lease losses is deemed to be adequate to absorb probable losses in the portfolio at December 31, 2000. FUNDING SOURCES The Corporation considers deposits, short-term borrowings, and term debt when evaluating funding sources. Traditional deposits continue to be the most significant source of funds. In addition, term borrowings from FHLB are used to meet funding needs not met by deposit growth. Management plans to maintain access to short-term and long-term FHLB borrowings as an additional funding source. 29 CNB Financial Corporation and Subsidiaries 2000 Annual Report The Corporation experienced a decline of 3.1% in deposits during 2000. Per the table below this occurred mainly in the certificate of deposit category. This runoff was anticipated from acquisitions which occurred in 1999. Municipal jumbo CDs that were acquired, but were excluded from the calculation of premium paid, were at a higher cost than the Corporation generally paid. The following table reflects the Corporation's deposits by category (in thousands): 2000 1999 1998 -------- -------- -------- Checking, Non-Interest Bearing $ 52,757 $ 54,891 $ 38,970 Checking, Interest Bearing 116,730 121,614 127,809 Savings Accounts 72,940 73,006 62,103 Certificates of Deposit 242,790 251,240 169,200 -------- -------- -------- $485,217 $500,751 $398,082 ======== ======== ========
SHAREHOLDERS' EQUITY The Corporation's strong capital provided the strong base for our recent profitable growth. Total shareholders' equity increased 7.4% in 2000. The increase was the result of an increase of $1,159,000 in accumulated other comprehensive income which represents a decrease in unrealized loss in available-for-sale securities, net of taxes. The remainder of the growth is a result of earnings net of dividends. With 100% of the securities classified as available-for-sale, this portion of the balance sheet is more sensitive to the change in market value of securities. In 2000, interest rates generally declined resulting in increased valuations in the available-for-sale category of securities. The status of the investment markets do not affect the Corporation's equity position for regulatory capital standards as discussed below. The Corporation has complied with the standards of capital adequacy mandated by the banking industry. Bank regulators have established "risk-based" capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets banks hold in their portfolios. A weight category of either 0% (lowest risk assets), 20%, 50%, or 100% (highest risk assets), is assigned to each asset on the balance sheet. The total risk- based capital ratio of 11.40% as of December 31, 2000 is well above the minimum standard of 8%. The Tier 1 capital ratio of 10.35% also is above the regulatory minimum of 4%. The leverage ratio, 7.10%, was also above the minimum standard of 4%. The Corporation is deemed to be well capitalized under regulatory industry standards as the noted ratios are above the regulatory requirements of 10%, 6% and 5%, respectively. The ratios provide quantitative data demonstrating the strength and future opportunities for use of the Corporation's capital base. An evaluation of risk-based capital ratios and the capital position of the Corporation is a part of its strategic decision making process. LIQUIDITY Liquidity measures an organizations' ability to meet cash obligations as they come due. The Consolidated Statements of Cash Flows presented on page 6 of the accompanying financial statements provide analysis of the Corporation's cash and cash equivalents and the sources and uses of liquidity. Additionally, the portion of the loan portfolio that matures within one year and maturities within one year in the investment portfolio are considered part of the liquid assets. Liquidity is monitored by the ALCO which establishes and monitors ranges of acceptable liquidity. Also, the Bank is a member of FHLB. This relationship provides the Bank with a borrowing line of $167 million with only $11 million outstanding at year end 2000. Management feels the Corporation's current liquidity position is acceptable. YEAR ENDED DECEMBER 31, 2000 OVERVIEW OF THE INCOME STATEMENT In 2000, net income was $5,433,000 an increase of 18.0% compared to 1999 net income of $4,604,000. The increase in earnings is the result of enhanced net interest income from the utilization of increased earning assets and improved non-interest income. Net income prior to merger and acquisition costs and amortization of intangible assets and goodwill for 2000 was $6.7 million compared to $5.7 million for 1999. This measure is a reflection of the operating earnings of the Corporation comparative for two years. The increase indicates an improvement in 2000 of 16.8% over 1999. The major reason for the increase is the net interest income which increased $2.1 million or 11% over 1999. While the net interest margin did decline slightly in 2000, the growth of average earning assets more than compensated. 30 CNB Financial Corporation and Subsidiaries 2000 Annual Report INTEREST INCOME AND EXPENSE Net interest income totaled $20,812,000 for 2000, an increase of 11.3% over 1999. Continued growth in average earning assets has been the primary factor in this increase which has been mitigated somewhat by lower yields on the new loans written due to increased competition and the interest rate environment during much of the last several years. Total interest income for 2000 increased by $5,393,000 or 15.3% while interest expense increased by $3,274,000 or 19.8% when compared to 1999. The Corporation's net interest margin in 2000 was 4.21%, down 3 basis points from 4.24% in 1999. The Corporation recorded a provision for loan and lease losses of $807,000 for 2000 compared to $643,000 for 1999. The increase in provision is a result of higher net charge-offs during 2000 mitigated somewhat by the other factors discussed previously in the loan section of this discussion. NON-INTEREST INCOME Non-interest income increased $806,000 or 21.9% in 2000 compared to 1999. The service charges on deposit accounts is the main source of the increase. The change for 2000 was an increase of $576,000 or 33.8%. The overall growth in deposit customers accounts for most of the growth in this area. In addition, the Corporation's trust department fees increased $127,000 or 15.9% over 1999. The Corporation owns equity securities of various entities that are carried at their current fair market value. During 2000, the gains (losses) realized from these securities totalled $100,000 compared to $(25,000) in 1999. It is intended that sales will be realized on this portfolio from time to time during the year as each investment and the Corporation's liquidity position is analyzed. NON-INTEREST EXPENSE The costs associated with operating the Corporation rose by 10.1% to $17,249,000 during 2000 compared to 1999. These costs include but are not limited to salaries, supplies, data processing expenses, insurance, occupancy, and amortization expenses. The primary factors in this increase is amortization expense up $780,000 or 72.8% over 1999. Amortization expense increased due to the Acquisitions that were previously discussed. These Acquisitions, accounted for using the purchase method, increased our intangible assets by $14,382,000 in 1999. These intangibles will be written off over a 10 year period beginning with the date of each purchase. The Bank signed an agreement to build a drive-up facility on to the existing office in Kane. The estimated total cost of this project is $250,000. The project is expected to be completed in mid summer 2001 with little ongoing effect to the annual operating expenses. YEAR ENDED DECEMBER 31, 1999 OVERVIEW OF THE INCOME STATEMENT In 1999, net income was $4,604,000 a decrease of 8.7% compared to 1998 net income of $5,043,000. The decline in earnings is primarily the result of merger and acquisition related costs of $477,000, net of tax. Net income for 1999 exclusive of merger cost would be $5,081,000 or a 1% increase. Net income prior to merger and acquisition costs and amortization of intangible assets and goodwill for 1999 was $5.7 million compared to $5.3 million for 1998. This measure is a reflection of the operating earnings of the Corporation comparative for two years. The increase indicates an improvement in 1999 of 8% over 1998. The major reason for the increase is the net interest income which increased $2.1 million or 13% over 1998. While the net interest margin did decline in 1999, the growth of earning assets of $66.2 million to $502,758,000 an increase of 15.2%. INTEREST INCOME AND EXPENSE Net interest income totaled $18,693,000 for 1999, an increase of 12.3% over 1998. Continued growth in loans has been the primary factor in this increase which has been mitigated somewhat by lower yields on the new loans written due to increased competition and the interest rate environment during much of 1999. This was also aided by the large growth of investments during 1999. Total interest income for 1999 increased by $3,961,000 or 12.7% while interest expense increased by $1,912,000 or 13.1% when compared to 1998. The Corporation has placed an emphasis on the sale of lower cost transactional deposit accounts. This has kept the margin from experiencing an increase in our cost of funds. The cost of funds declined 25 basis points from 4.35% to 4.10% in 1999. The Corporation recorded a provision for loan and lease losses of $643,000 for 1999 compared to $707,000 for 1998. The decrease in provision is a result of a better experience level of net charge-offs during 1999 coupled with the other factors discussed previously in the loan section of this discussion. Also, the Bank continued its efforts towards increased loan collection activities which have created more timely procedures with delinquent loans. 31 CNB Financial Corporation and Subsidiaries 2000 Annual Report NON-INTEREST INCOME Non-interest income increased $429,000 or 13.9% in 1999 compared to 1998. The service charges on deposit accounts is the main source of the increase. The change for 1999 was an increase of $492,000 or 40.6%. The overall growth in deposit customers accounts for some of the growth in this area. In addition, the Corporation restructured fees for overdrafts and various other items within transaction accounts. The Corporation owns equity securities of various entities that are carried at their current fair market value. During 1999, the gains (losses) realized from these securities totalled ($25,000) compared to $349,000 in 1998. It is intended that sales will be realized on this portfolio from time to time during the year as each investment and the Corporation's liquidity position is analyzed. NON-INTEREST EXPENSE The costs associated with operating the Corporation rose by 28.0% to $15,661,000 during 1999 compared to 1998. These costs include but are not limited to salaries, supplies, data processing expenses, insurance, occupancy, and amortization expenses. The primary factors in this increase is amortization expense up $743,000 or 226% over 1998 and merger costs of $627,000 included in other expenses. Amortization expense increased due to the Acquisitions that were previously discussed. These Acquisitions, accounted for using the purchase method, increased our intangible assets by $14,382,000. These intangibles will be written off over a 10 year period beginning with the date of each purchase. The Bank signed an agreement to build a facility to replace the existing office in Punxsutawney. The estimated total cost of this project is $325,000. The project is expected to be completed in mid summer 2000 with little ongoing effect to the annual operating expenses. RETURN ON EQUITY The return on average shareholder's equity ("ROE") for 2000 was 10.80% compared to 9.50% and 10.43% for 1999 and 1998 respectively. The increase compared to 1999 can be attributed primarily to the Corporation's efforts to utilize its excess capital position. The ROE exclusive of the amortization expense for recorded intangible assets was 13.23% compared to 11.81% in 1999. Management anticipates increases in the ROE during 2001 as earnings are expected to continue improving. RETURN ON ASSETS The Corporation's return on average assets ("ROA") was 0.97% in 2000 up from 0.91% in 1999 and down from 1.18% recorded in 1998. Increased ROA can be attributed to growing net interest income as well as increased non-interest income. The continuing decline of the net interest margin is a concern to the Banking industry as a whole due in large part to competitive pressures with both banks and non-banks. FEDERAL INCOME TAX EXPENSE Federal income taxes increased to $1,804,000 in 2000 compared to $1,460,000 in 1999. This increase year to date can be attributed to the Corporation's higher taxable income during the period. The effective tax rates were 24.9%, 24.1% and 26.7% for 2000, 1999 and 1998, respectively. We anticipate the effective tax rate to maintain these levels as our tax exempt income remains stable. MARKET RISK MANAGEMENT Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. As a financial institution, the Corporation is primarily sensitive to the interest rate risk component. Changes in interest rates will affect the levels of income and expense recorded on a large portion of the Bank's assets and liabilities. Additionally, such fluctuations in interest rates will impact the market value of all interest sensitive assets. The Asset/Liability Committee (ALCO) is responsible for reviewing the interest rate sensitivity position and establishing policies to control exposure to interest rate fluctuations. The primary goal established by this policy is to increase total income within acceptable risk limits. The Corporation monitors interest rate risk through the use of two models: earnings simulation and static gap. Each model standing alone has limitations, however taken together they represent a reasonable view of the Corporation's interest rate risk position. 32 CNB Financial Corporation and Subsidiaries 2000 Annual Report STATIC GAP: Gap analysis is intended to provide an approximation of projected repricing of assets and liabilities at a point in time on the basis of stated maturities, prepayments, and scheduled interest rate adjustments within selected time intervals. A gap is defined as the difference between the principal amount of assets and liabilities which reprice within those time intervals. The cumulative one year gap at December 31, 2000 was -4.09% of total earning assets compared to policy guidelines of plus or minus 10.0%. The ratio was -0.30% at December 31, 1999. Fixed rate securities, loans and CDs are included in the gap repricing based on time remaining until maturity. Mortgage prepayments are included in the time frame in which they are expected to be received. Non maturity deposits are assigned time frames using a decay factor determined by historical analysis within the Corporation. Certain shortcomings are inherent in the method of analysis presented in Static Gap. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may not react correspondingly to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate with changes in market interest rates, while interest rates on other types of assets may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate loans, have features, like annual and lifetime rate caps, which restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate from those assumed in the table. Finally, the ability of certain borrowers to make scheduled payments on their adjustable-rate loans may decrease in the event of an interest rate increase. EARNINGS SIMULATION: This model forecasts the projected change in net income resulting from an increase or decrease in the level of interest rates. The model assumes a one time shock of plus or minus 200 basis points or 2%. The model makes various assumptions about cash flows and reinvestments of these cash flows in the different rate environments. Generally, repayments, maturities and calls are assumed to be reinvested in like instruments and no significant change in the balance sheet mix is assumed. Actual results could differ significantly from these estimates which would produce significant differences in the calculated projected change in income. The limits stated above do not necessarily represent measures that would be taken by management in order to stabilize income results. The instruments on the balance sheet do react at different speeds to various changes in interest rates as discussed under Static Gap. In addition, there are strategies available to management that minimize the decline in income caused by a rapid rise in interest rates. The following table below summarizes the information from the interest rate risk measures reflecting rate sensitive assets to rate sensitive liabilities at December 31, 2000 and 1999: 2000 1999 ------- ------- Static 1-Yr. Cumulative Gap (4.09%) (0.30%) Earnings Simulation - 200 bps vs. Stable Rate 13.42% 10.60% +200 bps vs. Stable Rate (16.00%) (15.40%)
The interest rate sensitivity position at December 31, 2000, was slightly liability sensitive in the short-term and asset sensitive for periods longer than one year. Management measures the potential impact of significant changes in interest rates on both earnings and equity. By the use of computer generated models, the potential impact of these changes has been determined to be acceptable with modest affects on net income and equity given an interest rate shock of an increase or decrease in rates of 2.0%. We continue to monitor the interest rate sensitivity through the ALCO and use the data to make strategic decisions. FUTURE OUTLOOK Management's focus for 2001 is to increase our retail business. This will enable us to better control our cost of funds and create higher returns for our shareholders through increased profitability. Our strategy will begin in the first quarter of 2001 by aggressively seeking new checking customers. Along with customer growth, we will be implementing a new overdraft concept which should significantly increase the non-interest income. Other strategies will be implemented throughout the year to encourage consumer loan growth. Management continues to be encouraged by the growth in the Elk and McKean county markets served by the Bank. The presence in our Northern Cambria and Punxsutawney markets has also begun to have positive effects and the Corporation appears to be poised to further grow market share in these areas in 2001. In addition to deposits, the traditional funding source for the Corporation, we will continue to manage potential earning enhancement opportunities using other borrowings with the Federal Home Loan Bank of Pittsburgh. There are certain interest rate environments that allow for pricing opportunities from such borrowings. These opportunities will be evaluated and used when possible to enhance earnings throughout 2001. 33 CNB Financial Corporation and Subsidiaries 2000 Annual Report Loan growth was flat for the year of 2000. While loan demand is flat, a concerted effort to sure up our pricing based on risk has resulted in increased loan yields. Management believes that the rate of loan growth will be low in 2001. Management expects the loan to deposit ratio to remain constant throughout 2001. Enhancing non-interest income and controlling non-interest expense are important factors in the success of the Corporation and is measured in the financial services industry by the efficiency ratio, calculated according to the following: non-interest expense (less amortization of intangibles) as a percentage of fully taxable net interest income and non-interest income (net of provision for ALLL and non-recurring income). For the year December 31, 2000, the efficiency ratio was 57.2% compared to 58.4% for 1999 and 60.5% for 1998. The efficiency ratio was positively impacted by increased non-interest income resulting from more customers. Management is placing emphasis on this area during 2000 with a goal of improved efficiency to approach prior levels. The interest rate environment will continue to play an important role in the future earnings of the Corporation. The net interest margin has been declining as higher cost deposits continue to be obtained. However, overall net interest income continues to increase due to growth in interest earning assets. Management will closely monitor the net interest margin in 2001 as much of the earnings of the Corporation are derived from interest earnings. Management concentrates on return on average equity and earnings per share evaluations, plus other methods, to measure and direct the performance of the Corporation. While past results are not an indication of future earnings, we feel the Corporation is positioned to enhance performance of normal operations through 2001. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements above which are not historical fact are forward looking statements that involve risks and uncertainties, including, but not limited to, the interest rate environment, the effect of federal and state banking and tax regulations, the effect of economic conditions, the impact of competitive products and pricing, and other risks detailed in the Corporation's Securities and Exchange Commission filings. 34 [Graphic Appears Here] Board of Directors CNB Financial Corporation William R. Owens Chairman of the Board Retired, Formerly Vice President, Secretary and Treasurer, CNB Financial Corporation and President & Chief Executive Officer, County National Bank Robert E. Brown Vice President, E. M. Brown, Inc. (Contractor) William F. Falger President and Chief Executive Officer, CNB Financial Corporation; President and Chief Executive Officer, County National Bank William A. Franson Secretary, CNB Financial Corporation; Executive Vice President & Cashier, Chief Operating Officer, County National Bank 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 Retired, Formerly President & Chief Executive Officer, CNB Financial Corporation and Chairman of the Board, County National Bank Robert C. Penoyer President, Penoyer Contracting Co., Inc. (Contractor) Jeffrey S. Powell President, J.J. Powell, Inc. (Petroleum Distributor) James B. Ryan Vice President of Sales, Marketing, Windfall Products, Inc. (Manufacturer) Peter F. Smith Attorney at Law Joseph L. Waroquier, Sr. Retired, Formerly President, Waroquier Coal Company (Coal Producer) DIRECTORS EMERITUS L. E. Soult, Jr. County National Bank William R. Owens Chairman of the Board Robert E. Brown Vice President, E. M. Brown, Inc. (Contractor) William F. Falger President & Chief Executive Officer William A. Franson Executive Vice President & Cashier, Chief Operating 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) James P. Moore Retired, Formerly President & Chief Executive Officer, CNB Financial Corporation and Chairman of the Board, County National Bank Robert C. Penoyer President, Penoyer Contracting Co., Inc. (Contractor) Jeffrey S. Powell President, J.J. Powell, Inc. (Petroleum Distributor) James B. Ryan Vice President of Sales Marketing, Windfall Products, Inc. (Manufacturer) Peter F. Smith Attorney at Law Joseph L. Waroquier, Sr. Retired, Formerly President, Waroquier Coal Company (Coal Producer) DIRECTORS EMERITUS L. E. Soult, Jr. 35 Officers [Graphic Appears Here] Corporate Officers William F. Falger President & Chief Executive Officer William A. Franson Secretary Joseph B. Bower, Jr. Treasurer Executive Officers William F. Falger President & Chief Executive Officer William A. Franson Executive Vice President & Cashier, Chief Operating Officer Joseph B. Bower, Jr. Senior Vice President & Chief Financial Officer Mark D. Breakey Senior Vice President & Senior Loan Officer Donald E. Shawley Senior Vice President & Senior Trust Officer Trust & Asset Management Services Donald E. Shawley Senior Vice President & Senior Trust Officer Calvin R. Thomas, Jr. Vice President, Trust Officer Lisa A. Fredette Trust Officer Andrew J. Woolridge Investment Officer Eunice M. Peters Assistant Trust Officer Lending Operations Robin L. Hay Vice President, Community Banking Richard L. Sloppy Vice President, Community Banking Stanley G. Kaizer Vice President, Community Banking, DuBois William J. Mills Vice President, Community Banking, St. Marys Charles L. Veronesi Vice President, Community Banking, Ridgway Joseph H. Yaros Vice President, Community Banking, Bradford Christopher L. Stott Vice President, Mortgage Lending Ruth Anne Ryan Assistant Vice President, Dealer Center David W. Ogden Assistant Vice President, Credit Administration Richard L. Bannon Credit Administration Officer Larry A. Putt Banking Officer, Community Banking, Clearfield Paul A. McDermott Banking Officer, Community Banking, Philipsburg Denise J. Greene Banking Officer, Community Banking, Clearfield Keith M. Folmar Banking Officer, Community Banking, Philipsburg Christopher N. Norris Collection Officer 36 [Graphic Appears Here] Officers Branch Division Jacqueline A. Hynd Vice President, Office Administration Jeffrey A. Herr Vice President, Presqueisle Street Office, Philipsburg Duane P. Shifter Vice President, Downtown Office, Clearfield Beatrice H. Wittman Assistant Vice President, Regional Banking Rodger L. Read Assistant Vice President, Madera Office Mary A. Baker Assistant Vice President, Northern Cambria Office Deborah M. Young Assistant Vice President, Washington Street Office, St. Marys Susan J. Shimmel Community Office Manager, Old Town Road Office, Clearfield S. Jean Sankey Community Office Manager, Osceola Mills Office Jo Ellen Potter Community Office Manager, Plaza Office, Philipsburg Kathy J. McKinney Community Office Manager, Houtzdale Office Gregory R. Williams Community Office Manager, Industrial Park Road Office, Clearfield Vickie L. Pingie Community Office Manager, Bradford Washington Street Office Jennifer A. Smith Community Office Manager, Bradford Main Street Office Steven C. Tunall Community Office Manager, Kane Office Francine M. Papa Community Office Manager, Ridgway Office Harold A. Wilson, Jr. Community Office Manager, Punxsutawney Office Administrative Services Mary Ann Conaway Vice President, Human Resources Helen G. Kolar Vice President, Marketing & Sales Edward H. Proud Vice President, Information Systems Rachel E. Larson Assistant Vice President, Operations Dennis J. Sloppy Information Systems Officer Duane B. Luzier Network Administration Officer C. Glenn Myers Controller & Assistant Financial Officer Brenda L. Terry Banking Officer Donna J. Collins Compliance Officer Susan B. Kurtz Customer Service Officer Thomas J. Ammerman, Jr. Bank Security Officer 37 [Graphic Appears Here] Shareholder Information Annual Meeting The Annual Meeting of the Shareholders of CNB Financial Corporation will be held Tuesday, April 17, 2001 at 2:00 p.m. at the Corporation's Headquarters in Clearfield, PA. Corporate Address CNB Financial Corporation 1 S. Second Street P.O. Box 42 Clearfield, PA 16830 (814) 765-9621 Stock Transfer Agent & Registrar County National Bank 1 S. Second Street P.O. Box 42 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 1 S. Second Street P.O. Box 42 Clearfield, PA 16830 ATTN: Shareholder Relations Quarterly Share Data For information regarding the Corporation's quarterly share data, please refer to page 21 in the 2000 Annual Report Financial Section. 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 Hopper Soliday & Co., Inc. 1703 Oregon Pike P. O. Box 4548 Lancaster, PA 17604-4548 (800) 456-9234 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. 401 City Avenue Suite 902 Bala Cynwyd,PA 19004-1122 (800) 223-8969 Corporate Profile County National Bank, a subsidiary of CNB Financial Corporation, is a leader in providing integrated financial solutions, which creates value for both consumers and businesses. These solutions consist of a family of products and services developed to support the evolving needs of our customers from traditional to innovative. For over 135 years, we have prided ourselves in building long-term customer relationships by being reliable and competitively priced. Being a regional independent community bank in North Central Pennsylvania, we have approximately 230 employees who serve over 52,000 customers. To satisfy our customers' banking expectations, we offer a variety of delivery channels, which includes 20 full-service offices, telephone banking (1-888-641-6554), Internet banking (www.bankcnb.com) and a centralized customer service center (1-800-492- 3221). [FDIC Logo Appears Here) 38 [Graphic Appears Here] Map of Locations [Graphic Appears Here] 39