-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QqDdh/QwDswcWN8bo3jiiG4QOvWwZayYhqE42ep0LPFFyvN2QlB4J3UVt90B9rIM LqvuUbbcXjDULiuLBxACyg== 0000950132-02-000072.txt : 20020415 0000950132-02-000072.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950132-02-000072 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CNB FINANCIAL CORP/PA CENTRAL INDEX KEY: 0000736772 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 251450605 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-13396 FILM NUMBER: 02591836 BUSINESS ADDRESS: STREET 1: 1 SOUTH SECOND STREET STREET 2: P.O. BOX 42 CITY: CLEARFIELD STATE: PA ZIP: 16830 BUSINESS PHONE: 8147659621 MAIL ADDRESS: STREET 1: 1 SOUTH SECOND STREET STREET 2: P.O. BOX 42 CITY: CLEARFIELD STATE: PA ZIP: 16830 10-K405 1 d10k405.txt FORM 10-K 405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 Commission File Number 0-13396 CNB FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Pennsylvania 25-1450605 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) County National Bank 1 South Second Street P.O. Box 42 Clearfield, Pennsylvania 16830 (Address of principal executive office) Registrant's telephone number, including area code, (814) 765-9621 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of March 14, 2002. Common Stock, $1.00 Par Value - $87,825,599 The number of shares outstanding of the issuer's common stock as of March 14, 2002: Common Stock, $1.00 Par Value - 3,629,157 shares DOCUMENTS INCORPORATED BY REFERENCE Portion of the Annual Shareholders' Report for the year ended December 31, 2001 are incorporated by reference into Part I and Part II pursuant to Section 13 of the Act. Portions of the proxy statement for the annual shareholders' meeting on April 16, 2002 are incorporated by reference into Part II and Part III. The incorporation by reference herein of portions of the proxy statement shall not be deemed to specifically incorporate by reference the information referred to in Item 402(a)(8) of regulation S-K. Exhibit index is located on sequentially numbered page 15. INDEX PART I. ITEM 1. BUSINESS.........................................................3 ITEM 2. PROPERTIES......................................................11 ITEM 3. LEGAL PROCEEDINGS...............................................11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............11 PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................................12 ITEM 6. SELECTED FINANCIAL DATA.........................................12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................12 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.......12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ....................12 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.............................12 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............13 ITEM 11. EXECUTIVE COMPENSATION..........................................13 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...........................................13 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................13 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ........................................13 SIGNATURES .....................................................14 2 PART I. ITEM 1. BUSINESS CNB FINANCIAL CORPORATION CNB Financial Corporation (the Corporation) is a Bank Holding Company registered under the Bank Holding Company Act of 1956, as amended. It was incorporated under the laws of the Commonwealth of Pennsylvania in 1983 for the purpose of engaging in the business of a Bank Holding Company. On April 26, 1984, the Corporation acquired all of the outstanding capital stock of County National Bank (the Bank), a national banking chartered institution. The Corporation is subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System. In general, the Corporation is limited to owning or controlling banks and engaging in such other activity as proper incident thereto. The Corporation is currently engaged in two non-banking activities through its wholly owned subsidiaries CNB Investment Corporation and County Reinsurance Company. CNB Investment Corporation was formed in November 1998 to hold and manage investments that were previously owned by County National Bank and the Corporation and to provide the Corporation with additional latitude to purchase other investments. County Reinsurance Company was formed in June of 2001 as a corporation in the state of Arizona. The company provides accidental death and disability and life insurance as a part of lending relationships of the Bank. The Corporation does not currently engage in any operating business activities, other than the ownership and management of County National Bank, CNB Investment Corporation and County Reinsurance Company COUNTY NATIONAL BANK The Bank is a nationally chartered banking institution incorporated in 1934. The Bank's Main Office is located at 1 South Second Street, Clearfield,(Clearfield County) Pennsylvania. The Bank's primary marketing area consists of the Pennsylvania Countries of Clearfield, Elk (excluding the Townships of Millstone, Highland and Spring Creek), Mckean Cambria and Cameron. It also includes a portion of western Centre County including Philipsburg Borough, Rush Township and the western portions of Snow Shoe and Burnside Townships and a portion of Jefferson County, consisting of the boroughs of Brockway, Falls Creek, Punxsutawney, Reynoldsville and Skyesville, and the townships of Washington, Winslow and Henderson. The approximate population of the general trade area is 150,000. The economy is diversified and includes manufacturing industries, wholesale and retail trade, services industries, family farms and the production of natural resources of coal, oil, gas and timber. In addition to the Main Office, the Bank has 18 full-service branch offices and 1 limited service branch facility located in various communities in its market area. The Bank is a full-service bank engaging in a full range of banking activities and services for individual, business, governmental and institutional customers. These activities and services principally include checking, savings, time and deposit accounts; real estate, commercial, industrial, residential and consumer loans, and a variety of other specialized financial services. Its Trust division offers a full range of client services. The Bank's customer base is such that loss of one customer relationship or a related group of depositors would not have a materially adverse effect on the business of the Bank. The Bank's portifolio is diversified so that one industry, group of related industries or changes in household economic conditions does not comprise a material portion of the loan portfolio. The Bank's business is not seasonal not does it have any risks attendant to foreign sources. COMPETITION The banking industry in the Bank's service area continues to be extremely competitive, both among commercial banks and with financial service providers such as consumer finance companies, thrifts, investment firms, mutual funds and credit unions. The increased competition has resulted from changes in the legal and regulatory guidelines as well as from economic conditions. Mortgage banking firms, leasing companies, financial affiliates of industrial companies brokerage firms, retirement fund management firms, and even government agencies provide additional competitions for loans and other financial services. Some of the financial service providers operating in the Bank's market area operate on a large-scale regional basis and possess resources greater than those of the Bank and the Corporation. The Bank is generally competitive 3 with all competing financial institutions in its service area with respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates charged on loans. SUPERVISION AND REGULATION The Bank is subject to supervision and examination by applicable federal and state banking agencies, including the Office of the Comptroller of the Currency. In addition, the Bank is insured by and subject to some or all of the regulations of the Federal Deposit Insurance Corporation ("FDIC"). The Bank is also subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types, amounts and terms and conditions of loans that may be granted, and limitation on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operation of the Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve Board, including actions taken with respect to interest rates, as it attempts to control the money supply and credit availability in order to influence the economy. EXECUTIVE OFFICERS The table below lists the executive officers of the Corporation and County National Bank and sets forth certain information with respect to such persons.
AGE AT PRINCIPAL OCCUPATION NAME DECEMBER 31, 2001 FOR LAST FIVE YEARS - ---- ----------------- --------------------- WILLIAM F. FALGER 54 PRESIDENT AND CHIEF EXECUTIVE OFFICER SINCE 1/1/01 PREVIOUSLY EXECUTIVE VICE PRESIDENT, CNB FINANCIAL CORPORATION SINCE 3/28/95. PRESIDENT AND CHIEF EXECUTIVE OFFICER, COUNTY NATIONAL BANK SINCE 1/01/93 WILLIAM A. FRANSON 58 EXECUTIVE VICE PRESIDENT SINCE 1/1/01 SECRETARY CNB FINANCIAL CORPORATION SINCE 3/28/95, EXECUTIVE VICE PRESIDENT AND CASHIER, CHIEF OPERATING OFFICER COUNTY NATIONAL BANK SINCE 1/01/93, JOSEPH B. BOWER, JR. 38 TREASURER CNB FINANCIAL CORPORATION, SINCE 11/18/97 SENIOR VICE PRESIDENT CHIEF FINANCIAL OFFICER COUNTY NATIONAL BANK, SINCE 11/10/97 PRIOR THERETO. CONTROLLER MIFFLINGBURG BANK MARK D. BREAKEY 43 SENIOR VICE PRESIDENT, SENIOR LOAN OFFICER, COUNTY NATIONAL BANK, SINCE 3/28/95. PREVIOUSLY VICE PRESIDENT, COMMERCIAL BANKING SINCE 4/93, ASSISTANT VICE PRESIDENT COMMUNITY LENDING, ST. MARYS, SINCE 12/23/91 PRIOR THERETO, LENDING OFFICER, MELLON BANK DONALD E. SHAWLEY 46 SENIOR VICE PRESIDENT AND TRUST OFFICER COUNTY NATIONAL BANK, SINCE 9/29/98 TRUST OFFICER SINCE 11/1/85.
4 Officers are elected annually at the reorganization meeting of the Board of Directors. There are not any arrangements or understandings between any and all of the above officers and any other persons pursuant to which they were selected as officers. In addition, there are not any family relationships between the above officers. EMPLOYEES The Corporation has no employees who are not employees of County National Bank. As of December 31, 2001, the Bank had a total of 239 employees of which 173 were full time and 66 were part time. MONETARY POLICIES The earnings and growth of the banking industry are affected by the credit policies of monetary authorities, including, the Federal Reserve System. An important function of the Federal Reserve System is to regulate the national supply of bank credit in order to control recessionary and inflationary pressures. Among the instruments of monetary policy used by the Federal Reserve to implement these objectives are open market activities in U.S. Government Securities, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These operations are used in varying combinations to influence overall economic growth and indirectly, bank loans, investments, and deposits. These variables may also affect interest rates charged on loans or paid for deposits. The monetary policies of the Federal Reserve authorities have had a significant effect on the operating results of commercial banks in the past and are expected to continue to have such an effect in the future. In view of the changing conditions in the national economy and in the money markets, as well as the effect of actions by monetary and fiscal authorities including the Federal Reserve System, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand or their effect on the business and earnings of the Corporation and the Bank. DISTRIBUTION OF ASSETS, LIABILITIES, & SHAREHOLDER'S EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL The following tables set forth statistical information relating to the Registrant and its wholly-owned subsidiaries. The table should be read in conjunction with the consolidated financial statements of the Registrant which are incorporated by reference hereinafter. 5 CNB Financial Corporation Average Balances and Net Interest Margin (Dollars in thousands)
December 31, 2001 December 31, 2000 - ---------------------------------------------------------------------------------------------------------- Average Annual Interest Average Annual Interest Balance Rate Inc./Exp. Balance Rate Inc./Exp. - ---------------------------------------------------------------------------------------------------------- Assets Interest bearing deposits with banks $ 3,600 4.62% $ 169 $ 2,200 6.23% $ 137 Federal funds sold and securities purchased under agreements to resell 11,535 3.76% 434 1,078 6.22% 67 Securities Taxable 112,446 6.04% 6,788 96,304 6.22% 5,990 Tax-Exempt (1) 30,977 6.81% 2,109 36,575 6.82% 2,493 Equity Securities (1) 10,297 6.99% 720 9,868 7.03% 694 - --------------------------------------------------------------------------------------------------------- Total Securities 168,914 6.05% 10,220 146,025 6.42% 9,381 Loans Commerical (1) 85,261 8.00% 6,824 77,347 8.89% 6,873 Mortgage (1) 224,615 8.60% 19,307 220,398 8.69% 19,148 Installment 40,406 9.21% 3,720 44,993 9.18% 4,130 Leasing 23,146 7.33% 1,697 29,437 7.25% 2,134 - --------------------------------------------------------------------------------------------------------- Total Loans (2) 373,428 8.45% 31,548 372,175 8.67% 32,285 Total earning assets 542,342 7.70% 41,768 518,200 8.04% 41,666 Non Interest Bearing Assets Cash & Due From Banks 13,353 12,933 Premises & Equipment 12,797 12,912 Other Assets 20,014 18,493 Allowance for Possible Loan Losses (4,033) (3,885) - --------------------------------------------------------------------------------------------------------- Total Non Interest Earning Assets 42,131 40,453 - --------------------------------------------------------------------------------------------------------- Total Assets $584,473 $41,768 $558,653 $41,666 ============================================================ Liabilities and Shareholders' Equity Interest-Bearing Deposits Demand - interest-bearing $122,709 1.78% $ 2,182 $117,352 2.48% $ 2,910 Savings 77,214 2.98% 2,304 72,128 3.81% 2,748 Time 245,722 5.49% 13,485 242,352 5.36% 13,002 - --------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 445,645 4.03% 17,971 431,832 4.32% 18,660 Short-term borrowings 1,503 3.79% 57 5,225 6.18% 323 Long-term borrowings 19,973 5.60% 1,119 13,648 6.24% 851 - --------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 467,121 4.10% 19,147 450,705 4.40% 19,834 Demand - non-interest-bearing 54,254 52,092 Other liabilities 8,331 5,474 - --------------------------------------------------------------------------------------------------------- Total liabilities 529,706 19,147 508,271 19,834 Shareholders' Equity 54,767 50,382 - --------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $584,473 $19,147 $558,653 $19,834 ============================================================ Interest Income/Earning Assets 7.70% $41,768 8.04% $41,666 Interest Expense/Interest Bearing Liabilities 4.10% 19,147 4.40% 19,834 - --------------------------------------------------------------------------------------------------------- Net Interest Spread 3.60% $22,621 3.64% $21,832 =============== ================ Interest Income/Interest Earning Assets 7.70% $41,768 8.04% $41,666 Interest Expense/Interest Earning Assets 3.53% 19,147 3.83% 19,834 - --------------------------------------------------------------------------------------------------------- Net Interest Margin 4.17% $22,621 4.21% $21,832 =============== ================ December 31, 1999 - ------------------------------------------------------------------------- Average Annual Interest Balance Rate Inc./Exp. - ------------------------------------------------------------------------- Assets Interest bearing deposits with banks $ 1,133 5.30% $ 60 Federal funds sold and securities purchased under agreements to resell 7,347 5.25% 386 Securities Taxable 82,345 5.67% 4,665 Tax-Exempt (1) 37,830 6.96% 2,632 Equity Securities (1) 5,671 5.27% 299 - ----------------------------------------------------------------------- Total Securities 134,326 5.99% 8,042 Loans Commerical (1) 66,475 8.59% 5,712 Mortgage (1) 196,295 8.47% 16,624 Installment 42,324 9.18% 3,884 Leasing 28,875 7.41% 2,140 - ----------------------------------------------------------------------- Total Loans (2) 333,969 8.49% 28,360 Total earning assets 468,295 7.77% 36,402 Non Interest Bearing Assets Cash & Due From Banks 12,944 Premises & Equipment 11,279 Other Assets 13,972 Allowance for Possible Loan Losses (3,603) - ----------------------------------------------------------------------- Total Non Interest Earning Assets 34,592 - ----------------------------------------------------------------------- Total Assets $502,887 $36,402 =========================== Liabilities and Shareholders' Equity Interest-Bearing Deposits Demand - interest-bearing $107,341 2.49% $ 2,676 Savings 67,717 3.32% 2,249 Time 209,709 5.08% 10,654 - ----------------------------------------------------------------------- Total interest-bearing deposits 384,767 4.05% 15,579 Short-term borrowings 4,568 4.99% 228 Long-term borrowings 14,977 5.03% 753 - ----------------------------------------------------------------------- Total interest-bearing liabilities 404,312 4.10% 16,560 Demand - non-interest-bearing Other liabilities - ----------------------------------------------------------------------- Total liabilities 453,852 16,560 Shareholders' Equity 49,035 - ----------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $502,887 $16,560 =========================== Interest Income/Earning Assets 7.77% 36,402 Interest Expense/Interest Bearing Liabilities 4.10% 16,560 - ----------------------------------------------------------------------- Net Interest Spread 3.68% $19,842 ================ Interest Income/Interest Earning Assets 7.77% $36,402 Interest Expense/Interest Earning Assets 3.54% 16,560 - ----------------------------------------------------------------------- Net Interest Margin 4.24% $19,842 ================
(1) The amounts are reflected on a fully tax equivalent basis using the federal statutory rate of 34% in 2001, 2000 and 1999, adjusted for certain tax preferences. (2) Average outstanding includes the average balance outstanding of all non-accrual loans. Loans consist of the average of total loans less average unearned income. The amount of loan fees included in the interest income on loans is not material. 6
Net Interest Income For Twelve Months Ended December 31, For Twelve Months Ended December 31, Rate-Volume Variance 2001 over (under) 2000 2000 over (under) 1999 (Dollars in thousands) Due to Change in Due to Change in - ---------------------------------------------------------------------------------------------------------------------------- Volume Rate Net Volume Rate Net - ---------------------------------------------------------------------------------------------------------------------------- Assets Interest-Bearing Deposits with Banks $ 91 $ (59) $ 32 $ 57 $ 20 $ 77 Federal Funds Sold 650 (283) 367 (329) 10 (319) Securities: Taxable 1,004 (206) 798 791 534 1,325 Tax-Exempt (382) (2) (384) (87) (52) (139) Equity Securities 30 (4) 26 220 175 395 ----------------------------------- ------------------------------------- Total Securities 1,393 (554) 839 652 687 1,339 Loans Commercial 703 (752) (49) 934 227 1,161 Mortgage 366 (207) 159 2,041 483 2,524 Installment (421) 11 (410) 245 1 246 Leasing (456) 19 (437) 42 (48) (6) ----------------------------------- ------------------------------------- Total Loans 192 (929) (737) 3,262 663 3,925 ----------------------------------- ------------------------------------- Total Earning Assets $1,585 $(1,483) $ 102 $3,914 $1,350 $5,264 =================================== ===================================== Liabilities and Shareholders' Equity Interest-Bearing Deposits Demand-Interest-Bearing 133 (861) (728) 250 (16) 234 Savings 194 (638) (444) 146 353 499 Time 181 302 483 1,658 690 2,348 ----------------------------------- ------------------------------------- Total Interest-Bearing Deposits 508 (1,197) (689) 2,054 1,027 3,081 Short-Term Borrowings (230) (36) (266) 33 62 95 Long-Term Borrowings 394 (126) 268 (67) 165 98 ----------------------------------- ------------------------------------- Total Interest-Bearing Liabilities $ 672 $(1,359) $(687) $2,020 $1,254 $3,274 =================================== ===================================== ----------------------------------- ------------------------------------- Change in Net Interest Income $ 913 $ (124) $ 789 $1,894 $ 96 $1,990 =================================== =====================================
1. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. 2. Included in interest income is $1,453, $1,008 and $887 of fees for the years ending 2001, 2000 and 1999, respectively. 3. Income on restructured loans accounted for under SFAS Nos. 114 & 118 are included in interest earning assets. 7 Securities Portfolio (Dollars in Thousands)
December 31,2001 December 31, 2000 ------------------------------------- --------------------------------------- Unrealised Unrealised Amortized --------------- Market Amortized --------------- Market Costs Gains Losses Value Costs Gains Losses Value ------------------------------------- --------------------------------------- Securities held to maturity: U.S. Treasury U.S. Government agencies and corporations Obligations of States and Political Subdivisions Other Debt Securities Securities Available for Sale: U.S. Treasury $ 14,046 $ 263 $ 1 $ 14,308 $ 23,045 $ 122 $ 8 $ 23,159 U.S. Government agencies and corporations 24,073 503 7 24,569 25,926 105 11 26,020 Obligations of States and Political Subdivisions 25,450 478 175 25,753 35,111 428 197 35,342 Other Debt Securities 79,636 1,205 822 80,019 45,241 240 780 44,701 Marketable Equity Securities 8,115 97 104 8,108 7,186 164 322 7,028 ------------------------------------- --------------------------------------- $151,320 $2,546 $1,109 $152,757 $136,509 $1,059 $1,318 $136,250 ===================================== ======================================= December 31, 1999 --------------------------------------- Unrealised Amortized -------------- Market Costs Gains Losses Value ------------------------------------- Securities held to maturity: U.S. Treasury $ $ $ $ -- U.S. Government agencies and corporations -- -- -- -- Obligations of States and Political Subdivisions 2,744 40 1 2,783 Other Debt Securities 999 5 994 ------------------------------------- $ 3,743 $ 40 $ 6 $ 3,777 ===================================== Securities Available for Sale: U.S. Treasury $ 24,127 $ 1 $ 156 $ 23,972 U.S. Government agencies and corporations 27,867 221 27,646 Obligations of States and Political Subdivisions 35,822 151 1,111 34,862 Other Debt Securities 47,923 116 1,145 46,894 Marketable Equity Securities 3,221 622 272 3,571 ------------------------------------- $138,960 $890 $2,905 $136,945 =====================================
Maturity Distribution of Securities (Dollars in Thousands) December 31, 2001
Within After One But After Five But After One Year Within Five Years Within Ten Years Ten Years ------------------------------------------- -------------------------------------------------- $ Amt Yield $ Amt Yield $ Amt Yield $ Amt Yield ------- ----- ------- ----- ------- ----- ------- ----- Securities Available for Sale: U.S. Treasury $ 9,179 6.03% $ 5,129 3.91% $ -- $ -- U.S. Government agencies and corporations 8,170 6.15% 15,385 4.46% 1,014 6.54% Obligations of States and Political Subdivisions 1,256 4.01% 7,046 7.62% 4,640 7.09% 12,811 7.00% Other Debt Securities 537 4.93% 17,512 6.27% 13,029 6.95% 9,939 4.12% ------------------------------------------- ------------------------------------------------- Total $19,142 5.91% $45,072 5.58% $18,683 6.96% $22,750 5.71% =========================================== ================================================= Collateralized Mortgage Obligation and Other Asset Backed Securities ------------------------ $ Amt Yield ------- ----- Securities Available for Sale: U.S. Treasury $ -- U.S. Government agencies and corporations Obligations of States and Political Subdivisions Other Debt Securities 39,002 5.77% ------------------------ Total $39,002 5.77% ========================
The weighed average yields are based on book value and effective yields weighted for the scheduled maturity with tax-exempt securities adjusted to a taxable equivalent basis using a tax rate of 34% 8 LOAN PORTFOLIO (Dollar in thousands) A. TYPE OF LOAN
2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- Commercial, Financial and Agricultural $ 98,745 $ 79,229 $ 78,588 $ 66,257 $ 61,066 Residential Mortgage 154,115 160,525 159,884 134,998 128,161 Commercial Mortgage 73,904 59,680 49,549 46,701 37,702 Installment 39,442 40,126 43,772 38,393 44,661 Lease Receivables 22,249 30,318 35,918 29,362 18,231 -------- -------- -------- -------- -------- GROSS LOANS 388,455 369,878 367,711 315,711 289,821 Less Unearned Income 2,282 3,722 4,947 4,570 3,708 -------- -------- -------- -------- -------- TOTAL LOANS NET OF UNEARNED $386,173 $366,156 $362,764 $311,141 $286,113 ======== ======== ======== ======== ========
B. LOAN MATURITIES AND INTEREST SENSITIVITY
December 31,2001 ------------------------------------------------- One Year One Through Over Total Gross or Less Five Years Five Years Loans -------- ----------- ---------- ----------- Commerical Financial and Agricultural - ------------------------------------- Loans with predetermine Rate $10,469 $26,963 $14,156 $51,588 Loans with Floating Rate 35,766 9,043 2,348 47,157 ------- ------- ------- ------- $46,235 $36,006 $16,504 $98,745 ======= ======= ======= =======
C. RISK ELEMENTS
2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ Loans on non-accrual basis $1,174 $ 652 $ 862 $ 198 $ 323 Accruing Lonas which are contractually past due 90 days or more as to interest or principal payment 432 1,136 886 1,479 601 Troubled Debt Restructuring -- -- -- 538 597 ------ ------ ------ ------ ------ $1,606 $1,788 $1,748 $2,215 $1,521 ====== ====== ====== ====== ======
1. Interest income recorded on the non-accrual loans for the year ended December 31, 2001 was $63. Interest income whcich would have been recorded on these loans had they been on accrual status was $132. 2 Loans are placed in non-accrual status when the interest or principal is 90 days past due, unless the loan is in collection, well secured and it is believed that there will be no loss of interest or principal 3. At December 31, 2001 there was $ 6,950 in loans which are considered problem loans which were not included in the table above. In the opinion of management, these loans are adequately secured and losses are believed to be minimal 9 SUMMARY OF LOAN LOSS EXPERIENCE (Dollars in Thousands) Analysis of the Allowance for Loan Losses Years Ended December 31,
2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ Balance at beginning of Period $3,879 $3,890 $3,314 $3,062 $2,683 Charge-Offs: Domestic: Commercial, Financial and Agricultural 38 144 90 77 88 Commercial Mortgages 162 3 54 -- -- Residential Mortgages 87 12 -- 16 28 Consumer Loans and Credit Cards 494 413 379 459 529 Leasing 234 395 93 42 25 ------ ------ ------ ------ ------ 1,015 967 616 594 670 Recoveries: Domestic: Commercial, Financial and Agricultural 1 18 80 21 2 Commercial Mortgages 4 2 4 -- -- Residential Mortgages 8 -- -- 2 1 Consumer Loans and Credit Cards 83 95 103 115 115 Leasing 55 34 6 1 -- ------ ------ ------ ------ ------ 151 149 193 139 118 Net Charge-Offs: (864) (818) (423) (455) (552) Provision for Loan Losses 1,080 807 643 707 931 Adjustments due to acquisition -- -- 356 -- -- ------ ------ ------ ------ ------ Balance at End-of-Period $4,095 $3,879 $3,890 $3,314 $3,062 ====== ====== ====== ====== ====== Percentage of net charge-offs during the period to average loans outstanding 0.23 0.22 0.13 0.16 0.20
The provision for loan losses reflects the amount deemed appropriate by management to establish an adequate reserve to meet the present and foreseeable risk characteristics of the present loan portfolio. Management's judgement is based on the evaluation of individual loans, the overall risk characteristics of various portfolio segments, past experience with losses, the impact of economic condition on borrowers, and other relevant factors. ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES (Dollars In Thousands)
2001 2000 1999 1998 1997 ---------------------------------------------------------------------------------------- % of Loans in % of Loans in % of Loans in % of Loans in % of Loans in each Category each Category each Category each Category each Category $ Amt. to Total $ Amt. to Total $ Amt. to Total $ Amt. to Total $ Amt. to Total ---------------------------------------------------------------------------------------- Domestic: Real Estate Mortgages $1,026 58.70% $ 811 59.54% $ 720 56.96% $ 521 57.55% $ 678 57.23% Installment Loans to Individuals 519 10.15% 473 10.84% 592 11.90% 453 12.16% 429 15.41% Commercial, Financial and Agricultural 1,066 25.42% 706 21.42% 626 21.37% 435 20.99% 361 21.07% Leasing 212 5.73% 221 8.20% 177 9.77% 140 9.30% 80 6.29% Unallocated 1,272 0.00% 1,688 0.00% 1,775 0.00% 1,765 0.00% 1,514 0.00% ---------------------------------------------------------------------------------------- TOTALS $4,095 100.00% $3,879 100.00% $3,890 100.00% $3,314 100.00% $3,062 100.00% ========================================================================================
1. In determining the allocation of the allowance for possible credit losses. County National Bank considers economic trends, historical patterns and specific credit reviews. 2. With regard to the credit reviews, a "watchlist" is evaluated on a monthly basis to determine potential commercial losses. Consumer loans and mortgage loans are allocated using historical loss experience. The total of these reserves is deemed "allocated", while the renaming balance is "unallocated". 10 DEPOSITS (Dollars In Thousands)
December 31, 2001 2000 1999 Amount Annual rate Amount Annual rate Amount Annual rate ----------------------------------------------------------------------------------- Demand - Non Interest Bearing $ 54,254 $ 52,092 $ 43,420 Demand - Interest Bearing 122,709 1.78% 117,352 2.48% 107,341 2.49% Savings Deposits 77,214 2.98% 72,128 3.81% 67,717 3.32% Time Deposits 245,722 5.49% 242,352 5.36% 209,709 5.08% -------- -------- -------- TOTAL DEPOSITS $499,899 $483,924 $428,187 ======== ======== ========
The maturity of certificates of deposits and other time deposits in denomination of $100,000 or more as of December 31, 2001. (Dollars In Thousands) Maturing in: Three months or less $ 4,621 Greater than three months and through six months 11,438 Greater than six months and through twelve months 13,435 Greater than twelve months 4,536 ------- $34,030 ======= Key ratios for the Corporation for the years ended December 31, 2001 and 2000 appear in the Annual Shareholders' Report for the year ended December 31, 2001 under the caption "Selected Financial Data" on pages 25 and 26 and is incorporated herein by reference. ITEM 2. PROPERTIES The headquarters of the Corporation and the Bank is located at 1 South Second Street, Clearfield, Pennsylvania. The Bank operates 19 full-service and 1 limited service offices. Of these 20 offices, 16 are owned and four are leased from independent owners. There are no incumberances on the offices owned and the rental expense on the leased property is immaterial in relation to operating expenses. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Corporation or the Bank is a party, or of which any of their property is the subject, except ordinary routing proceedings which are incidental to the ordinary conduct of business. In the opinion of management and counsel, pending legal proceedings will not have a material adverse effect on the consolidated financial position of the Corporation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders through the solicitation of proxies, or otherwise, for the three months ended December 31, 2001. 11 PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS MATTERS Information relating to the Corporation's common stock is on pages 24 and 39 of the Annual Shareholders' Report for the year ended December 31, 2001 and is herein incorporated by reference. There were 1,557 registered shareholders of record as of March 6, 2002. ITEM 6. SELECTED FINANCIAL DATA Information required by this section is presented on pages 25 and 26 of the Annual Shareholders' Report for the year ended December 31, 2001 and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this section is presented on pages 27-35 of the Annual Shareholders' Report for the year ended December 31, 2001 and is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this section is presented on pages 33 and 34 of the Annual Shareholders' Report for the year ended December 31, 2001 and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements, which appear in the Annual Shareholders' Report for the year ended December 31, 2001, are incorporated herein by reference to such annual report: Pages in Annual Report ------------- Consolidated Statements of Condition 5 Consolidated Statements of Income 6 Consolidated Statements of Cash Flows 7 Consolidated Statements of Changes in Shareholders' Equity 8 Notes to Consolidated Financial Statements 9-22 Report of Independent Auditors 23 Quarterly financial data relating to the results of operations for the years ended December 31, 2001 and 2000, appears in the Annual Shareholders' Report for the year ended December 31, 2001 under the caption "Quarterly Financial Data" (unaudited) at Page 22 and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 12 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to Executive Officers is included in Part I and information describing the Corporation's directors is included by reference on pages 3 and 4 of the Proxy Statement for the Annual Meeting to be held on April 16, 2002. ITEM 11. EXECUTIVE COMPENSATION Information required by this section is presented on pages 7-10 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 16, 2002 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this section is presented on pages 3 and 4 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 16, 2002 and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this section is presented on page 11 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 16, 2002 and is incorporated herein by reference. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS FILED The Financial Statements listed below are incorporated herein by reference from the Annual Shareholders' Report for the year ended December 31, 2001 Pages in Annual Report ------------- CNB Financial Corporation and Subsidiary: Consolidated Statements of Condition 5 Consolidated Statements of Income 6 Consolidated Statements of Cash Flows 7 Consolidated Statements of Changes in Shareholders' Equity 8 Notes to Consolidated Financial Statements 9-22 Quarterly Summary of Earnings and Per Share Data 22 Report of Independent Auditors 23 Per Share Data 24 2. FINANCIAL STATEMENTS SCHEDULES: All schedules are omitted since they are not applicable. (B) REPORTS ON FORM 8-K Form 8-K dated August 15, 2001 was filed announcing the approval of a plan to repurchase up to 180,000 shares of its common stock. The plan for repurchase will expire on August 14, 2002 unless extended by the Board of Directors. 13 Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CNB FINANCIAL CORPORATION (Registrant) Date: March 27, 2002 By: /s/ William F. Falger ------------------------------- ------------------------------------ WILLIAM F. FALGER President & Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 27, 2002. /s/ William F. Falger President & Chief Executive Officer, - ------------------------ Director WILLIAM F. FALGER /s/ William A. Franson Executive Vice-president and Secretary, - ------------------------ Director WILLIAM A. FRANSON /s/ Robert E. Brown Director /s/ Jeffrey S. Powell - ------------------------ ----------------------------------- ROBERT E. BROWN JEFFREY S. POWELL /s/ Richard D. Gathagan Director /s/ James B. Ryan - ------------------------ ----------------------------------- RICHARD D. GATHAGAN JAMES B. RYAN /s/ James J. Leitzinger Director /s/ Peter F. Smith - ------------------------ ----------------------------------- JAMES J. LEITZINGER PETER F. SMITH /s/ Dennis L. Merrey Director /s/ Joseph L. Waroquier, Sr. - ------------------------ ----------------------------------- DENNIS L. MERREY JOSEPH L. WAROQUIER, SR /s/ William R. Owens Director /s/ James P. Moore - ------------------------ ----------------------------------- WILLIAM R. OWENS JAMES P. MOORE /s/ Robert C. Penoyer Director - ------------------------ ROBERT C. PENOYER 14 EXHIBITS: The exhibits listed below are filed herewith or are incorporated herein by reference to other filings: EXHIBIT NUMBER DESCRIPTION ------ ----------- 10 Material Contracts 13 Annual Report to Shareholders for 2001 21 Subsidiaries of the Registrant 15 EX-10 3 dex10.txt LEASE AGREEMENT EXHIBIT 10 CNB FINANCIAL CORPORATION Form 10-K For The Year Ended December 31, 2001 Material Contracts A lease agreement was entered into between CNB Financial Corporation's wholly owned subsidiary County National Bank and a director of both entities. This lease is discussed in the notes to the consolidated financial statements on page 18. These financial statements are incorporated herein by reference from the Annual Shareholder's Report for the year ended December 31, 2001. 16 EX-13 4 dex13.txt ANNUAL REPORT EXHIBIT 13 CNB Financial Corporation Annual Report - ------------------------------------------------------------------------------- 2001 - -------------------------------------------------------------------------------- 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 23 Report of Independent Auditors 24 Statistical Information 25 Selected Financial Data - Five Year Comparison 27 Management Discussion and Analysis 36 Board of Directors 37 Officers 39 Shareholder Information - -------------------------------------------------------------------------------- i - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Consolidated Financial Highlights - -------------------------------------------------------------------------------- (in thousands, except per share data)
2001 2000 % Change - ----------------------------------------------------------------------------------------- For The Year Interest Income $ 40,809 $ 40,646 0.4% Interest Expense 19,147 19,834 (3.5)% Net Interest Income 21,662 20,812 4.1% Net Income 6,510 5,433 19.8% Return on: Average Assets 1.11% 0.97% 14.4% Average Equity 12.15% 10.80% 12.5% CASH OPERATING BASIS* Net Income $ 7,628 $ 6,655 14.6% Return on: Average Assets 1.32% 1.19% 10.9% Average Equity 14.39% 13.23% 8.8% - ----------------------------------------------------------------------------------------- At Year End Assets $592,794 $555,365 6.7% Deposits 506,640 485,217 4.4% Loans, net of unearned 386,173 366,156 5.5 Shareholders' Equity 54,894 51,203 7.2% Trust Assets Under Management (at market value) 206,631 194,472 6.3% - ----------------------------------------------------------------------------------------- Per Share Data Net Income, diluted $ 1.78 $ 1.48 20.3% Dividends 0.93 0.84 10.7% Book Value 15.08 13.96 8.0% Market Value 22.80 15.13 50.7% ========================================================================================= *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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Message to Shareholders - -------------------------------------------------------------------------------- To Our Shareholders, Customers & Friends: We are extremely proud to report that the year 2001 marked the second consecutive year of strong earnings growth as the Corporation continues to realize the value of the assets acquired during our expansionary period in the latter part of the 1990's. The Corporation's cash operating earnings for the year reached a record level of $7.6 million for an increase of 15% over the year 2000. This follows the previous year increase of 16% and results in a five year increase for the period 1997 through 2001 of 56%. We are very proud of this performance and are pleased to present this report to you. Our earnings performance continues to be driven by revenue growth from ongoing operations as net interest income plus non-interest income increased by $1.5 million or 5.7% during the year before security gains, and operating expenses increased by only $125 thousand or 0.7%. This demonstrates the significant benefit of acquiring earning assets and efficiently managing them. While prior years' asset growth came from purchases of branches and a bank, the year of 2001 marked growth driven internally with core deposits increasing by $21.4 million. These additional deposits were utilized to fund loan growth of $20.0 million. In addition, the Corporation increased its wholesale borrowings by $10.0 million using the funding to increase investments in order to increase our level of earning assets. During the coming year, we anticipate continued growth in assets as we further increase deposits through our branch network and via borrowings. [CHART] Deposit Growth (in thousands) 1997 $319,473 1998 $370,814 1999 $500,751 2000 $485,217 2001 $506,640 A key initiative taken during 2001 was the focus on growing our market share of consumer deposits and loans. Our Positively Free Checking program, which was introduced in April, yielded a dramatic 25% increase in checking account customers. These new accounts resulted in an increase of $10.0 million in new low cost deposits. We will continue to use this well received and customer friendly product to grow our core business. In addition to our checking program, we were able to capture significant residential mortgage loan volume due to the high level of mortgage refinancings, which occurred due to the dramatic decline in interest rates during the year. We originated and sold $24.9 million in mortgages, which generated current non-interest income with the gain on sale of the loans. In addition, we will gain future income from servicing these accounts. We strongly believe that the basic checking account and mortgage loan continue to represent the key elements of a strong consumer customer relationship. - -------------------------------------------------------------------------------- 2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Message to Shareholders - -------------------------------------------------------------------------------- [CHART] Asset Growth (in thousands) 1997 $403,779 1998 $468,917 1999 $561,162 2000 $555,365 2001 $592,794 In spite of a slowing economy, the quality of our loan assets continues to remain strong. By continuing to maintain consistently applied loan underwriting standards, we ended the year with total non-performing assets of $1.9 million or 0.42% of outstanding loans. This represents a reduction of $600 thousand or 24.5% from prior year end. Our net loan losses for the year totaled $864 thousand, up from $818 thousand or 5.6% from the prior year. Our net losses represented 0.22% of year-end outstanding loans. We are confident that our strong credit culture will continue to yield this level of asset quality. As stated in last year's letter, we looked to implement new technology throughout our branch network to more efficiently serve our customers and assist us in creating internal efficiencies in order to control operating costs. We have successfully deployed this technology and are experiencing immediate paybacks which will continue to accumulate with future growth and activity at the branch level. This will continue to allow us to keep the pace of growth of operating costs below the rate of growth in revenues. In addition to technology enhancements, we also introduced drive-up banking capability in our Kane Office and completed the renovation of our Johnsonburg Office. [CHART] Earnings Per Share (adjusted for stock splits) 1997 $1.27 1998 $1.37 1999 $1.25 2000 $1.48 2001 $1.78 The year of 2001 marked the beginning of a period of recession in our national economy, which of course has impacted our local economy. Short-term interest rates dropped rapidly to levels not experienced in forty years. The stock markets experienced a down year as stock valuations began to adjust to more traditional levels. In spite of these trends, our Corporation experienced an excellent year of growth in earnings per share to $1.78 from $1.48 in 2000. Concurrent with this strong growth was the increase in market value of our stock, which opened the year trading at $15.13 and closing at $22.80. Coupled with dividend paid of $0.93, our stock yielded a total return of 56.8% - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Message to Shareholders - -------------------------------------------------------------------------------- during 2001. In the other key measurement of performance for the shareholder, our return on equity reached 14.39% as measured by cash operating earnings and 12.15% as measured by book earnings. We continue to strive to utilize our capital in order to deliver a desired level of return on equity in the 15% to 20% range. In order to assist shareholders in the management of their investment in our Corporation, we introduced our Dividend Reinvestment Plan and Cash Purchase Option during 2001. Both of these vehicles for further investment have been well received and participation continues to steadily increase. Our Corporation gains the added benefit of additional liquidity in our stock as we acquire shares in the market in order to fund these plans. [CHART] Dividends Paid Per Share (adjusted for stock splits) 1997 $0.68 1998 $0.72 1999 $0.80 2000 $0.84 2001 $0.93 As we confidently look forward to the coming year, I would like to conclude by thanking our Board of Directors and employees for their hard work in producing another rewarding year to our shareholders. Their accomplishments have yielded a company with strong earnings growth providing solid returns to our shareholders. We will continue to focus on the opportunities to expand our business within the markets we serve by utilizing our culture of simply executing better on the basics in order to continue to deliver consistent earnings growth. /s/ William F. Falger ----------------------------------------- William F. Falger President and Chief Executive Officer - -------------------------------------------------------------------------------- 4 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Consolidated Statements of Condition - --------------------------------------------------------------------------------
(in thousands, except share data) December 31 --------------------- Assets 2001 2000 -------- -------- Cash and due from banks ....................................................... $ 17,350 $ 15,711 Interest bearing deposits with other banks .................................... 2,041 2,262 -------- -------- CASH AND CASH EQUIVALENTS .................................................. 19,391 17,973 Securities available for sale ................................................. 152,757 136,250 Loans held for sale ........................................................... 5,334 2,494 Loans and leases .............................................................. 388,455 369,878 Less: unearned discount ..... .............................................. 2,282 3,722 Less: allowance for loan and lease losses .................................. 4,095 3,879 -------- -------- NET LOANS .................................................................. 382,078 362,277 FHLB and Federal Reserve Stock ................................................ 1,932 3,025 Premises and equipment, net ................................................... 12,485 12,805 Accrued interest and other assets ............................................. 6,052 6,412 Intangible assets, net ........................................................ 12,765 14,129 -------- -------- TOTAL ASSETS ............................................................... $592,794 $555,365 ======== ======== Liabilities Deposits: Non-interest bearing deposits .............................................. $ 60,241 $ 52,757 Interest bearing deposits .................................................. 446,399 432,460 -------- -------- TOTAL DEPOSITS ............................................................. 506,640 485,217 Other borrowings .............................................................. 23,268 13,341 Accrued interest and other liabilities ........................................ 7,992 5,604 -------- -------- TOTAL LIABILITIES .......................................................... 537,900 504,162 -------- -------- Shareholders' Equity Common stock $1.00 par value for 2001 and 2000 Authorized 10,000,000 shares for 2001 and 2000 Issued 3,693,500 shares for 2001 and 2000 ..................................... 3,694 3,694 Additional paid in capital .................................................... 3,753 3,742 Retained earnings ............................................................. 47,731 44,631 Treasury stock, at cost (53,568 shares for 2001 and 26,862 shares for 2000) ... (1,236) (692) Accumulated other comprehensive income ........................................ 952 (172) -------- -------- TOTAL SHAREHOLDERS' EQUITY ................................................. 54,894 51,203 -------- -------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY ................................... $592,794 $555,365 ======== ========
The accompanying notes are an integral part of these statements. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 5 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Consolidated Statements of Income - --------------------------------------------------------------------------------
(in thousands, except per share data) Year ended December 31, --------------------------- 2001 2000 1999 ------- ------- ------- Interest and Dividend Income Loans including fees ................................................. $31,323 $32,075 $27,990 Deposits with banks .................................................. 169 137 60 Federal funds sold ................................................... 434 67 386 Securities: Taxable ........................................................... 6,788 5,990 4,665 Tax-exempt ........................................................ 1,526 1,813 1,888 Dividends ......................................................... 569 564 264 ------- ------- ------- TOTAL INTEREST AND DIVIDEND INCOME ................................ 40,809 40,646 35,253 Interest Expense Deposits ............................................................. 17,971 18,660 15,579 Borrowed funds ....................................................... 1,176 1,174 981 ------- ------- ------- TOTAL INTEREST EXPENSE ............................................ 19,147 19,834 16,560 ------- ------- ------- Net interest income ............................................... 21,662 20,812 18,693 Provision for loan losses ......................................... 1,080 807 643 ------- ------- ------- Net interest income after provision for loan losses ............... 20,582 20,005 18,050 Non-interest Income Trust & asset management fees ........................................ 1,015 924 797 Service charges - deposit accounts ................................... 2,900 2,279 1,703 Other service charges and fees ....................................... 525 604 468 Net security gains ................................................... 276 79 36 Net gain on sale of loans ............................................ 45 53 73 Other ................................................................ 837 542 598 ------- ------- ------- TOTAL NON-INTEREST INCOME ......................................... 5,598 4,481 3,675 Non-interest Expenses Salaries ............................................................. 6,151 6,185 5,689 Employee benefits .................................................... 2,027 2,263 1,929 Net occupancy expense of premises .................................... 2,439 2,392 2,056 Data processing....................................................... 1,261 1,207 1,145 Intangible amortization .............................................. 1,823 1,852 1,072 Other ................................................................ 3,673 3,350 3,770 ------- ------- ------- TOTAL NON-INTEREST EXPENSES ....................................... 17,374 17,249 15,661 ------- ------- ------- Income before income taxes ........................................... 8,806 7,237 6,064 Applicable income taxes .............................................. 2,296 1,804 1,460 ------- ------- ------- Net income ........................................................... $ 6,510 $ 5,433 $ 4,604 ======= ======= ======= EARNINGS PER SHARE Basic ................................................................ $ 1.78 $ 1.48 $ 1.26 Diluted .............................................................. $ 1.78 $ 1.48 $ 1.25
The accompanying notes are an integral part of these statements. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 6 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Consolidated Statements of Cash Flows - --------------------------------------------------------------------------------
(in thousands) Year ended December 31, --------------------------------- 2001 2000 1999 -------- -------- --------- Cash Flows from Operating Activities: Net income ................................................................... $ 6,510 $ 5,433 $ 4,604 Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses .............................................. 1,080 807 643 Depreciation and amortization .......................................... 3,006 2,951 2,036 Amortization and accretion of deferred loan fees ....................... (520) (477) 61 Deferred taxes ......................................................... (434) 269 611 Security gains ......................................................... (276) (79) (36) Gain on sale of loans .................................................. (45) (53) (73) Net losses (gains) on dispositions of acquired property ................ (16) 4 19 Proceeds from sales of loans ........................................... 27,728 9,461 13,914 Origination of loans for sale .......................................... (30,524) (9,521) (11,923) Changes in: Interest receivable and other assets ...................................... 438 (386) (2,909) Interest payable and other liabilities .................................... 2,249 (1,280) 1,707 -------- -------- --------- Net cash from operating activities ........................................... 9,196 7,129 8,654 Cash Flows from Investing Activities: Proceeds from maturities, prepayments and calls of: Securities held to maturity ............................................ -- 310 2,325 Securities available for sale .......................................... 49,698 23,541 26,035 Proceeds from sales of securities available for sale ...................... 19,081 7,483 17,513 Purchase of securities available for sale ................................. (83,513) (25,200) (79,392) Loan origination and payments, net ........................................ (20,160) (3,593) (51,057) (Purchase) of Federal Reserve Bank Stock and Federal Home Loan Bank Stock ........................................... -- (150) (1,269) Acquisitions, net of cash received ........................................ -- -- (14,382) Purchase of premises and equipment ........................................ (863) (1,050) (3,148) Proceeds from the sale of foreclosed assets ............................... 572 264 277 -------- -------- --------- Net cash from investing activities ........................................... (35,185) 1,605 (103,098) Cash Flows from Financing Activities: Net change in: Checking, money market and savings accounts ............................ 29,199 (7,084) 20,597 Certificates of deposit ................................................ (7,776) (8,450) 82,072 Treasury stock ......................................................... (533) 48 (579) Cash dividends paid .................................................... (3,410) (3,080) (2,897) Advances from other borrowings ......................................... 10,710 10,000 5,000 Repayments of other borrowings ......................................... -- (5,000) (16,019) Net advances (repayments) from federal funds purchased .................... (783) 1,591 1,391 -------- -------- --------- Net cash from financing activities ........................................... 27,407 (11,975) 89,565 -------- -------- --------- Net increase (decrease) in cash and cash equivalents ......................... 1,418 (3,241) (4,879) Cash and cash equivalents at beginning of year ............................... 17,973 21,214 26,093 -------- -------- --------- Cash and cash equivalents at end of period ................................... $ 19,391 $ 17,973 $ 21,214 ======== ======== ========= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest ............................................................... $ 19,533 $ 19,773 $ 17,077 Income taxes ........................................................... 2,670 1,600 2,125 Supplemental non cash disclosures: Transfers from securities held to maturity to securities available for sale .......................................... $ -- $ 3,431 $ -- Transfers to other real estate owned ...................................... $ 166 $ 627 $ 348
The accompanying notes are an integral part of these statements. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 7 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 1999 ......................... $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 gains on available for sale securities, net of taxes of $1,473 and adjustment for after tax 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 after tax 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 Comprehensive income: Net income for 2001 ....................... 6,510 6,510 Other comprehensive income: Net change in unrealized gains on available for sale securities, net of taxes of $577 and adjustment for after tax gains of $182 ............. 1,124 1,124 ------- Total comprehensive income ................ 7,634 ------- Treasury stock: Purchase (38,725 shares) ................ (770) (770) Reissue (12,044 shares) ................. 11 226 237 Cash dividends declared ($0.93 per share) ...................... (3,410) (3,410) ------------------------------------------------------------------------------ Balance December 31, 2001 ....................... $3,694 $3,753 $47,731 $(1,236) $ 952 $54,894 ==============================================================================
The accompanying notes are an integral part of these statements. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 8 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, CNB Investment Corporation and County Reinsurance Company. 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 accounting principles generally accepted in the United States of America, 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, mortgage servicing rights 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. While the Corporation's chief decision-makers monitor the revenue streams of the various Corporation's products and services, operations are managed and financial performance is evaluated on a Corporation-wide basis. Accordingly, 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. 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. 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. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements (continued) - -------------------------------------------------------------------------------- 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. 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 allowance based on historical patterns of charge-offs and recoveries, information about specific borrower situations, industry experience, and other qualitative factors relevant to the collectability of the loan portfolio. While management believes that the allowance is adequate to absorb probable 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. Any expenses incurred after acquisition are expensed. Intangibles: Purchased intangibles, primarily goodwill and core deposit value, are recorded at cost and amortized over the estimated life. Goodwill amortization is straight-line over 10 years, and core deposit amortization is straight-line over 10 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, $203 in 2001 and $72 in 2000, are included in other assets. Treasury Stock: The purchase of the Corporation's common stock is recorded at cost. Purchases of the stock are made both in the open market and through negotiated private purchases based on market prices. 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. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 10 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements (continued) - -------------------------------------------------------------------------------- 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. 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, 2001, was approximately $50, which was maintained in vault cash. New Accounting Standards: New accounting standards required all business combinations to be recorded using the purchase method of accounting for any transaction initiated after June 30, 2001. Under the purchase method, all identifiable tangible and intangible assets and liabilities of the acquired company must be recorded at fair value at date of acquisition, and the excess of cost over fair value of net assets acquired is recorded as goodwill. Identifiable intangible assets must be separated from goodwill. Identifiable intangible assets with finite useful lives will be amortized under the new standard, whereas goodwill, both amounts previously recorded and future amounts purchased, will cease being amortized starting in 2002. Annual impairment testing will be required for goodwill with impairment being recorded if the carrying amount of goodwill exceeds its implied fair value. Adoption of this standard on January 1, 2002 will not have a material effect on the Corporation's financial statements. In October, 2001, the FASB issued SFAS No. 144, 'Accounting for the Impairment or Disposal of Long-Lived Assets'. SFAS 144 supercedes SFAS 121 and applies to all long-lived assets (including discontinued operations) and consequently amends APB Opinion No. 30, 'Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business'. SFAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less costs to sell. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, its provisions are to be applied prospectively. The adoption of this statement is not expected to have a material effect on the Company's financial statements. 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. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 11 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements (continued) - -------------------------------------------------------------------------------- 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 (in thousands, except per share data): Years Ended December 31 -------------------------- 2001 2000 1999 ------ ------ ------ Net income applicable to common stock ............ $6,510 $5,433 $4,604 Weighted-average common shares outstanding ....... 3,661 3,665 3,665 ------ ------ ------ Basic earnings per share ......................... $ 1.78 $ 1.48 $ 1.26 ====== ====== ====== Net income applicable to common stock ............ $6,510 $5,433 $4,604 Weighted-average common shares outstanding ....... 3,661 3,665 3,665 Dilutive effects of assumed exercise of stock options ..................... 3 -- 6 ------ ------ ------ Total weighted-average common shares and equivalents ........................ 3,664 3,665 3,671 ------ ------ ------ Diluted earnings per share ....................... $ 1.78 $ 1.48 $ 1.25 ====== ====== ====== Stock options for 26,500 and 47,500 shares of common stock were not considered in computing diluted earnings per common share for 2001 and 2000 because they were antidilutive. 3. Securities Investment securities at December 31, 2001 and 2000 were as follows:
December 31, 2001 December 31, 2000 ---------------------------------------- -------------------------------------------- Unrealized Unrealized Amortized --------------- Market Amortized ----------------- Market Cost Gains Losses Value Cost Gains Losses Value ---------------------------------------- -------------------------------------------- Securities available for sale: U.S. Treasury ......................... $ 14,046 $ 263 $ (1) $ 14,308 $ 23,045 $122 $ (8) $ 23,159 U.S. Government agencies and corporations ................... 24,073 503 (7) 24,569 25,926 105 (11) 26,020 Obligations of States and Political Subdivisions ............. 25,450 478 (175) 25,753 35,111 428 (197) 35,342 Mortgage-backed securities ............ 39,073 238 (308) 39,003 18,243 20 (211) 18,052 Corporate notes and bonds ............. 40,563 967 (514) 41,016 26,998 220 (569) 26,649 Marketable equity securities .......... 8,115 97 (104) 8,108 7,186 164 (322) 7,028 ---------------------------------------- -------------------------------------------- Total securities available for sale ...... $151,320 $2,546 $(1,109) $152,757 $136,509 $(1,509) $(1,318) $136,250 ======================================== ============================================
On December 31, 2001 investment securities carried at $24,885 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, 2001: Available for Sale Amortized Cost Market Value -------------- ------------ 1 year or less ........................ $ 18,806 $ 19,142 1 year-5 years ........................ 44,017 45,070 5 years-10 years ...................... 18,202 18,681 After 10 years ........................ 23,107 22,753 -------- -------- 104,132 105,646 -------- -------- Mortgage-backed securities ............ 39,073 39,003 -------- -------- Total securities ................... $143,205 $144,649 ======== ======== 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. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 12 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements (continued) - -------------------------------------------------------------------------------- Information pertaining to security sales is as follows: Proceeds Gross Gains Gross Losses -------- ----------- ------------ 2001 $19,089 $371 $95 2000 7,483 176 97 1999 17,513 124 88 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. 4. Loans Total Loans at December 31, 2001 and 2000 are summarized as follows: 2001 2000 -------- -------- Commercial, Financial and Agricultural ............... $ 98,745 $ 79,229 Residential Mortgage ................................. 154,115 160,525 Commercial Mortgage .................................. 73,904 59,680 Installment .......................................... 39,442 40,126 Lease Receivables .................................... 22,249 30,318 -------- -------- $388,455 $369,878 ======== ======== Lease receivables at December 31, 2001 and 2000 are summarized as follows: 2001 2000 ------- ------- Lease payment receivable.............................. $ 8,991 $12,869 Estimated residual values............................. 13,258 17,449 ------- ------- Gross lease receivables .............................. 22,249 30,318 Less unearned income ................................. (2,281) (3,719) ------- ------- Net lease receivables ................................ $19,968 $26,599 ======= ======= At December 31, 2001 and 2000, net unamortized loan costs of $721 and $711, 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 $2,583 in 2001 and $1,587 in 2000. Nonperforming loans were as follows: 2001 2000 ------ ------ Loans past due over 90 days still on accrual ......... $ 432 $1,136 Nonaccrual loans ..................................... $1,174 $ 652 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, 2001 and 2000, nor were any loans during the years then ended. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 13 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements (continued) - -------------------------------------------------------------------------------- 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: 2001 2000 1999 ------- ------- ------- Balance, Beginning of Year .............. $ 3,879 $ 3,890 $ 3,314 Charge-offs ............................. (1,015) (967) (616) Recoveries .............................. 151 149 193 ------- ------- ------- Net Charge-offs ...................... (864) (818) (423) Provision for Loan and Lease Losses ..... 1,080 807 643 Acquisition ............................. -- -- 356 ------- ------- ------- Balance, End of Year .................... $ 4,095 $ 3,879 $ 3,890 ======= ======= ======= 6. Premises and Equipment The following summarizes Premises and Equipment at December31: 2001 2000 ------- ------- Land ............................................... $ 1,650 $ 1,527 Premises and Leasehold Improvements ................ 11,080 11,035 Furniture and Equipment ............................ 7,955 7,359 ------- ------- 20,685 19,921 Less Accumulated Depreciation and Amortization ..... (8,200) (7,116) ------- ------- Premises and Equipment, Net ..................... $12,485 $12,805 ======= ======= Depreciation on Premises and Equipment amounted to $1,183 in 2001, $1,099 in 2000, $957 in 1999. 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, 2001 are as follows: 2002 $ 154 2003 145 2004 113 2005 113 2006 113 Thereafter 756 ------ $1,394 ====== Rental expense, net of rental income, charged to occupancy expense for 2001, 2000, and 1999 was $111, $141 and $184, respectively. 7. Intangible Assets, Net The following table reflects the components of the intangible assets at December 31: 2001 2000 ------- ------- Intangible assets .................................... $17,993 $17,534 Less: accumulated amortization ....................... (5,228) (3,405) ------- ------- Intangible assets, net ............................... $12,765 $14,129 ======= ======= - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 14 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements (continued) - -------------------------------------------------------------------------------- 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: 2001 2000 -------- -------- 2002............................................ $192,365 $120,432 2003 ........................................... 16,025 103,844 2004 ........................................... 10,052 5,780 2005 ........................................... 10,564 6,634 Thereafter ..................................... 5,915 6,100 -------- -------- ................................................ $234,921 $242,790 ======== ======== Certificates of Deposit of $100,000 or more totaled $34,030 and $32,574 at December 31, 2001 and2000, respectively. 9. Other Borrowings Other borrowings include $308 and $1,891 of demand notes payable to the U.S. Treasury Department at December 31, 2001 and 2000, 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. The Corporation has available a $5 million line of credit with an unaffiliated institution. Terms of the line are floating at 30 day LIBOR plus 180 basis points which equated to a rate of 3.91% at year end. The outstanding balance on the loan at year end 2001 was $710. At year end 2001, the Bank had remaining borrowing capacity with the FHLB of $161 million. Borrowings with the FHLB are secured by a blanket pledge of selected securities in the amount of $76,421 and certain mortgage loans with a value of $162,619. Also, other borrowings include advances from the Federal Home Loan Bank (FHLB) at December 31, 2001, and 2000 as follows: December 31, Interest Rate Maturity 2001 2000 ------------------------------------------------------ Variable Overnight Daily $ 2,250 $ 1,450 (a) 3/1/10 10,000 10,000 (b) 1/3/11 10,000 -- ------- -------- Total borrowed funds $22,250 $11,450 ======= ======= (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 +.16, the interest rate was 6.09% at December 31, 2001. (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 +.20, the interest rate was 4.95% at December 31, 2001. Following are maturities of borrowed funds as of December 31, 2001: 2002 $ 3,268 2003 -- 2004 -- 2005 -- 2006 -- Thereafter $20,000 ------- Total Borrowed Funds $23,268 ======= - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 15 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements (continued) - -------------------------------------------------------------------------------- 10. Income Taxes The following is a summary of the tax provision: 2001 2000 1999 ------- ------ ------ Current .................................. $ 3,138 $1,535 $ 849 Deferred ................................. (842) 269 611 ------- ------ ------ Net provision for Income Taxes ........... $ 2,296 $1,804 $1,460 ======= ====== ====== The applicable portion of the current year provision related to the gains on sales of available for sale securities is $94, $27, and $12 in 2001, 2000 and 1999, respectively. The components of the net deferred tax liability as of December 31, 2001 and 2000 are as follows: 2001 2000 ------ ------ Deferred tax assets Allowance for loan losses ............................. $1,273 $1,110 Post-retirement benefits .............................. 118 92 Intangible ............................................ 582 384 Deferred compensation ................................. 162 100 Merger costs .......................................... 60 68 Unrealized loss on securities available for sale ...... -- 88 Other ................................................. 60 68 ------ ------ 2,255 1,910 Deferred tax liabilities Premises and equipment ................................ 354 393 Vehicle leasing ....................................... 3,771 4,176 Unrealized gain on securities available for sale ...... 488 Other ................................................. 135 100 ------ ------ 4,748 4,669 ------ ------ Net deferred tax liability ............................... $2,493 $2,759 ====== ====== The reconciliation of income tax attributable to continuing operations at the Federal statutory tax rates to income tax expense is as follows: 2001 % 2000 % 1999 % ------- ---- ------- ----- ------- ----- Tax at statutory rate .... $2,994 34.0 $2,461 34.0 $2,062 34.0 Tax exempt income, net (715) (8.1) (773) (10.7) (749) (12.3) Other .................... 17 0.2 116 1.6 147 2.4 ------ ---- ------ ----- ------ ----- Income tax provision ..... $2,296 26.1 $1,804 24.9 $1,460 24.1 ====== ==== ====== ===== ====== ===== 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 - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 16 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements (continued) - -------------------------------------------------------------------------------- method of SFAS No. 123, net income and earnings per share for 2001, 2000 and 1999 would have been adjusted to the pro forma amounts indicated below: 2001 2000 1999 ------ ------ ------ Net income As reported $6,510 $5,433 $4,604 Pro forma $6,471 $5,414 $4,541 Earnings Per Share-Basic As reported $ 1.78 $ 1.48 $ 1.26 Pro forma $ 1.77 $ 1.48 $ 1.24 Earnings Per Share-Diluted As reported $ 1.78 $ 1.48 $ 1.26 Pro forma $ 1.77 $ 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: 2001 2000 1999 ---- ---- ---- Dividend Yield 4.9% 3.1% 3.5% Volatility 25.9% 24.8% 17.3% Risk-free interest rates 2.2% 6.3% 6.0% Expected option lives 6.0 years 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 January 1, 2000 .................. 8,250 28.25 9 years Granted .......................................... 29,250 19.98 10 years Exercised ........................................ -- -- Forfeited......................................... -- -- Outstanding, at December 31, 2000................. 47,500 23.12 Granted .......................................... 21,500 22.50 10 years Exercised ........................................ -- -- Forfeited......................................... -- -- ------ ------ Outstanding, at December 31, 2001................. 69,000 $22.93 ====== ======
2001 2000 ------- ------ Options exercisable .............................. 16,437 4,562 Fair value of options granted during the year..... $ 3.22 $ 5.14 Options outstanding at year-end 2001 were as follows: Outstanding Exerciseable ---------------------------- ----------------------- Weighted Average Weighted Range of Remaining Average Exercise Contractual Exercise Prices Number Life Number Price - -------- ------ ---------------- ------ -------- $18-$28 69,000 9 years 16,437 $24.57 ====== ======= ====== ====== - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 17 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 for 2001, based on current year compensation, are 6 percent of total compensation plus 5.7 percent of the compensation in excess of $85. In 2000 and 1999, contributions to the plan were 9 percent of total compensation plus 5.7 percent of the compensation in excess of $76. The Corporation recognized expense of $308 in 2001, $462 in 2000, and $419 in 1999. 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, in 2001, at 1% for every 1% contributed up to three percent then 0.5% for every 1% contributed up to four percent in total of the employee's compensation. Matching contributions in 2000 and 1999 were 0.25% for every 1% contributed up to 1% of the employee's compensation. The Bank's contributions were $187, $28, and $40 in 2001, 2000, and 1999, 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 2001 2000 1999 ----- ----- ----- Benefit obligation at beginning of year.... $ 501 $ 434 $ 463 Interest cost .......................... 37 32 30 Service cost ........................... 31 25 25 Actual claim expense ................... (22) (31) (26) Interest on claim expense .............. -- 1 -- Actuarial (gain)/loss .................. (9) 40 (58) ----- ----- ----- Benefit obligation at end of year ......... $ 538 $ 501 $ 434 ===== ===== ===== December 31 2001 2000 1999 ----- ----- ----- Funded status of plan...................... $(538) $(501) $(434) Unrecognized actuarial (gain)/loss......... 37 46 5 Unrecognized prior service cost............ -- -- -- Unrecognized transition obligation ........ 88 95 103 ----- ----- ----- Accrued benefit cost....................... $(413) $(360) $(326) ===== ===== ===== December 31 2001 2000 1999 ----- ----- ----- Net periodic post-retirement benefit cost: Service cost ........................... $ 31 $ 25 $ 25 Interest cost .......................... 37 32 30 Amortization of transition obligation over 21 years ....................... 7 7 8 ----- ----- ----- $ 75 $ 64 $ 63 ===== ===== ===== The weighted average discount rate used to calculate net periodic benefit cost and the accrued post-retirement liability was 7.50% in 2001 and 2000. The health care cost trend rate used to measure the expected costs of benefits for 2001 is 8.0%, and 7.0% thereafter. A one percent increase in the health care trend rates would result in an increase of $79 in the benefit obligation of December 31, 2001, 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 $63 and $10 in the benefit obligation and service and interest costs, respectively, at December 31, 2001. The presentation above for the years 2001, 2000 and 1999 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. The aggregate of such loans totaled $7,888 on December 31, 2001 compared to $6,577 at December 31, 2000. During 2001, $15,899 of new loans were made and repayments totaled $14,588. Deposits from principal officers, directors and their affiliates at year-end 2001 and 2000 were $4,474 and $3,171. The Bank entered into an operating lease with a director of the Corporation for a one year term which can be renewed for one year. The annual lease payments of $11,400 were determined based on prevailing terms in the market area. All ongoing operating and general maintenance expenses are the responsibility of the director. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 18 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 2001 2000 ------------------------------------------------ ----------------------------------------------- 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 ........ $41,508 9.90% 4.0% 6.0% $38,176 10.35% 4.0% 6.0% County National Bank ............. 38,877 9.35% 4.0% 6.0% 34,181 9.24% 4.0% 6.0% Tier 1 + Tier 2 Capital CNB Financial Corporation ........ 45,603 10.87% 8.0% 10.0% 42,078 11.40% 8.0% 10.0% County National Bank ............. 42,972 10.33% 8.0% 10.0% 38,083 10.30% 8.0% 10.0% Leverage CNB Financial Corporation ........ 41,508 7.16% 4.0% 5.0% 38,176 7.10% 4.0% 5.0% County National Bank ............. 38,877 6.75% 4.0% 5.0% 34,181 6.41% 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, 2001, $5.8 million of undistributed earnings of the Bank 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, 2001, the - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 19 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements (continued) - -------------------------------------------------------------------------------- Bank had $13.0 million of unused credit card lines; $13.6 million of unfunded home equity lines of credit; $66.7 million in other outstanding loan commitments and $2.1 million in standby letters of credit. The fixed rate portion of total commitments is $10.8 million having interest rates ranging from 4.27% to 12.00%. 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. The fair value of off balance sheet items is not materially different from the nominal value. 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, 2001 December 31, 2000 ------------------------ ------------------------ Carrying Fair Carrying Fair Amount Value Amount Value -------- ---------- --------- ----------- ASSETS Cash and short-term assets ....... $ 19,391 $ 19,391 $ 17,973 $ 17,973 Securities ....................... 152,757 152,757 136,250 136,250 Net loans ........................ 362,110 374,471 332,034 353,975 FHLB and Federal Reserve stock 1,932 1,932 3,025 3,025 Accrued interest receivable ...... 3,569 3,569 4,079 4,079 LIABILITIES Deposits ......................... (506,640) (510,695) (485,217) (490,682) Other borrowings ................. (23,268) (23,268) (13,341) (13,341) Accrued interest payable ......... (1,679) (1,679) (1,945) (1,945)
- -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 20 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements (continued) - -------------------------------------------------------------------------------- 18. Parent Company Only Financial Information CONDENSED BALANCE SHEETS December 31, ------------------ ASSETS 2001 2000 ------- ------- Cash ................................................ $ 72 $ 88 Investment in bank subsidiary ....................... 52,268 48,532 Investment in non-bank subsidiaries ................. 3,236 2,697 Other assets ........................................ 896 911 ------- ------- TOTAL ASSETS ..................................... $56,472 $52,228 ======= ======= LIABILITIES Income taxes payable ................................ $ (21) $ (12) Deferred tax liability .............................. (3) (1) Other liabilities ................................... 1,602 1,038 TOTAL LIABILITIES ................................ 1,578 1,025 TOTAL SHAREHOLDERS' EQUITY ....................... 54,894 51,203 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....... $56,472 $52,228 ======= =======
CONDENSED STATEMENTS OF INCOME Year ended December 31, -------------------------- INCOME 2001 2000 1999 ------ ------ ------ Dividends from: Bank subsidiary ........................................... $3,555 $2,309 $2,544 Non bank subsidiaries ..................................... -- 770 750 Securities available for sale ............................. -- -- 35 Other ........................................................ 116 131 62 ------ ------ ------ TOTAL INCOME ........................................... 3,671 3,210 3,391 ------ ------ ------ EXPENSES ........................................................ (190) (187) (220) ------ ------ ------ INCOME BEFORE INCOME TAXES AND EQUITY IN DISTRIBUTED NET INCOME OF SUBSIDIARY ..................... 3,481 3,023 3,171 Applicable income tax (obligation) benefit ................ 22 19 50 Equity in undistributed net income of bank subsidiary 2,751 3,006 1,919 (Distributions in excess of)/equity in undistributed net income of non-bank subsidiaries ....................... 256 (615) (536) ------ ------ ------ NET INCOME ............................................. $6,510 $5,433 $4,604 ====== ====== ======
CONDENSED STATEMENTS OF CASH FLOWS Year ended December 31, ----------------------------- Cash flows from operating activities: 2001 2000 1999 ------- ------- ------- Net income ...................................................... $ 6,510 $ 5,433 $ 4,604 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of bank subsidiary ........ (2,751) (3,006) (1,919) Equity in undistributed net income of non-bank subsidiaries .. (256) 615 536 (Increase) Decrease in other assets .......................... 15 15 (919) Increase (Decrease) in other liabilities ..................... 553 11 957 ------- ------- ------- Net cash provided by operating activities .................... 4,071 3,068 3,259 ------- ------- ------- Cash flows from investing activities: Capital transfer to subsidiary .................................. (144) -- -- Purchase of securities available for sale ....................... -- -- (119) ------- ------- ------- Net cash used in investing activities ........................ (144) -- (119) Cash flows from financing activities: Dividends paid .................................................. (3,410) (3,080) (2,897) Net treasury stock activity ..................................... (533) 48 (579) ------- ------- ------- Net cash used in financing activities ........................ (3,943) (3,032) (3,476) Net increase (decrease) ......................................... (16) 36 (336) Cash beginning of year .......................................... 88 52 388 ------- ------- ------- Cash end of year ................................................ $ 72 $ 88 $ 52 ======= ======= =======
- -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 21 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements (continued) - -------------------------------------------------------------------------------- 19. Other Comprehensive Income (Loss) Other comprehensive income (loss) components and related taxes were as follows: 2001 2000 1999 ------ ------ ------- Unrealized holding gains and losses on available for sale securities .............. $1,979 $1,825 $(4,295) Cumulative effect of securities transferred ... -- 7 -- Less reclassification adjustments for gains and losses later recognized in income .......... 276 76 36 ------ ------ ------- Net unrealized gains and losses ............... 1,703 1,756 (4,331) Tax effect .................................... 579 597 (1,472) ------ ------ ------- Other comprehensive income (loss) ............. $1,124 $1,159 $ 2,859 ====== ====== ======= 20. Quarterly Financial Data (Unaudited) The unaudited quarterly results of operations for the years ended December 2001 and2000 are as follows (in thousands, except per share data):
Quarters Ended 2001 2000 --------------------------------------- ----------------------------------------- March 31 June 30 Sept. 30 Dec.31 March 31 June 30 Sept. 30 Dec.31 --------------------------------------- ----------------------------------------- Total interest income ......... $10,339 $10,304 $10,220 $9,946 $9,916 $10,171 $10,271 $10,288 Net interest income ........... 5,195 5,323 5,445 5,699 5,234 5,248 5,153 5,177 Provision for loan losses ..... 270 270 270 270 180 207 210 210 Non-interest income ........... 1,157 1,219 1,676 1,546 965 1,154 1,124 1,238 Non-interest expense .......... 4,270 4,302 4,489 4,313 4,332 4,335 4,224 4,358 Net income .................... 1,382 1,503 1,735 1,890 1,247 1,393 1,393 1,400 Net income per share, basic ... 0.38 0.41 0.47 0.52 0.34 0.38 0.38 0.38 Net income per share, diluted.. 0.38 0.41 0.47 0.52 0.34 0.38 0.38 0.38
- -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 22 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2001 and 2000 and the related consolidated statements of income, changes in shareholders' equity and cash flows for the years 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 audits. The 1999 financial statements were audited by other auditors, whose report dated February 15, 2000 expressed an unqualified opinion on those statements. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CNB Financial Corporation as of December 31, 2001 and 2000, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Crowe, Chizek and Company LLP ------------------------------------------ Crowe, Chizek and Company LLP Cleveland, Ohio February 7, 2002 - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 23 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Statistical Information - -------------------------------------------------------------------------------- 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, 2001, the approximate number of shareholders of record of the Corporation's common stock was 1,800.
Price Range of Common Stock Cash Dividends Paid 2001 2000 High Low High Low 2001 2000 --------------- --------------- ----- ----- First Quarter .......... $18.50 $14.75 $25.00 $18.75 First Quarter ............. $0.23 $0.21 Second Quarter.......... 21.00 16.25 21.00 16.25 Second Quarter ............ 0.23 0.21 Third Quarter........... 20.00 17.50 20.00 16.50 Third Quarter ............. 0.23 0.21 Fourth Quarter.......... 23.50 18.50 16.75 14.50 Fourth Quarter ............ 0.24 0.21 ----- ----- $0.93 $0.84
Trust and Asset Management Division Funds under Management(Market Value) ($'s in thousands) 2001 2000 -------- -------- Personal Trusts, Estates and Agency Accounts .... $194,884 $183,860 Corporate Accounts .............................. 11,747 10,612 -------- -------- Total ........................................... $206,631 $194,472 ======== ======== - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 24 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Selected Financial Data - --------------------------------------------------------------------------------
Year Ended December 31 (dollars in thousands, except per share data) 2001 Interest Income ---------------------- Loans including fees ...................................... $ 31,323 Deposits with banks ....................................... 169 Federal funds sold ........................................ 434 Investment securities: U.S. treasury securities ................................ 1,113 Securities of U.S. government agencies and corporations . 2,862 Obligations of states and political subdivisions ........ 1,526 Other securities ........................................ 3,382 -------- Total interest and dividend income ........................ 40,809 Interest expense Deposits .................................................. 17,971 Other borrowing ........................................... 1,176 -------- Total interest expense .................................... 19,147 Net interest income ........................................... 21,662 Provision for loan losses ..................................... 1,080 -------- Net interest income after provision for loan losses ........... 20,582 Non-interest income ........................................... 5,598 Non-interest expenses ......................................... 17,374 Income before taxes ........................................... 8,806 Applicable income taxes ....................................... 2,296 Net income .............................................. $ 6,510 Per share data Basic ..................................................... $ 1.78 Fully diluted ............................................. $ 1.78 Dividends declared ........................................ $ 0.93 Book value per share at year end .......................... $ 15.08 At end of period Total assets .............................................. $592,794 Securities ................................................ 152,757 Loans, net of unearned discount ........................... 386,173 Allowance for loan losses ................................. 4,095 Deposits .................................................. 506,640 Shareholders' equity ...................................... 54,894 Key ratios Return on average assets .................................. 1.11% Return on average equity .................................. 12.15% Loan to deposit ratio ..................................... 75.41% Dividend payout ratio ..................................... 52.38% Average equity to average assets ratio .................... 9.17%
- -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Five Year Comparison - -------------------------------------------------------------------------------- 2000 1999 1998 1997 -------- -------- -------- -------- $ 32,075 $ 27,990 $ 25,166 $ 23,209 137 60 12 1 67 386 369 271 1,378 989 1,134 1,366 2,706 2,383 2,503 1,663 1,813 1,888 1,414 1,307 2,470 1,557 694 634 -------- -------- -------- -------- 40,646 35,253 31,292 28,451 18,660 15,579 13,714 12,459 1,174 981 934 430 -------- -------- -------- -------- 19,834 16,560 14,648 12,889 20,812 18,693 16,644 15,562 807 643 707 931 -------- -------- -------- -------- 20,005 18,050 15,937 14,631 4,481 3,675 3,172 2,749 17,249 15,661 12,231 11,037 -------- -------- -------- -------- 7,237 6,064 6,878 6,343 1,804 1,460 1,835 1,648 -------- -------- -------- -------- $ 5,433 $ 4,604 $ 5,043 $ 4,695 ======== ======== ======== ======== $ 1.48 $ 1.26 $ 1.37 $ 1.27 $ 1.48 $ 1.25 $ 1.37 $ 1.27 $ 0.84 $ 0.80 $ 0.72 $ 0.68 $ 13.96 $ 13.00 $ 13.41 $ 12.65 $555,365 $561,162 $468,917 $403,779 136,250 143,563 113,675 83,571 366,156 362,764 311,141 286,113 3,879 3,890 3,314 3,062 485,217 500,751 398,082 345,760 51,203 47,643 49,372 46,606 0.97% 0.91% 1.18% 1.23% 10.80% 9.50% 10.43% 10.44% 74.66% 71.67% 76.94% 81.86% 56.69% 62.92% 51.32% 51.76% 9.01% 9.59% 11.31% 11.81% - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 incorporated in Wilmington, DE. CNB Investment Corporation maintains investments in debt and equity securities. County Reinsurance Company, a subsidiary, is a Corporation of Arizona. County Reinsurance Company provides credit life and disability for customers of County National Bank. 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 Northern Cambria, 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, $4.6 million in capital and other assets and liabilities. All historical financial information has been restated to reflect the merger. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- FINANCIAL CONDITION The following table presents ending balances ($'s in millions), growth (reduction) and the percentage change during the past two years:
2001 Increase % 2000 Increase % 1999 Balance (Decrease) Change Balance (Decrease) Change Balance ----------------------------------------------------------------------- Total assets $592.8 $37.4 6.7 $555.4 (5.9) (1.0) $561.2 Total loans, net 382.1 19.8 5.5 362.3 3.4 0.9 358.9 Total securities 152.8 16.5 12.1 136.3 (4.4) (3.1) 140.7 Total deposits 506.6 21.4 4.4 485.2 (15.6) (3.1) 500.8 Total shareholders' equity 54.9 3.7 7.2 51.2 3.6 7.4 47.6
The above table is referenced for the discussion in this section of the report. OVERVIEW OF BALANCE SHEET The increase in assets during 2001 was attributed to a Corporate wide focus on retail checking accounts. In addition to retail checking accounts, we have continued to improve and enhance our commercial relationships. The specific effects to each area are described in the following sections. CASH AND CASH EQUIVALENTS Cash and cash equivalents totaled $19,391,000 at December 31, 2001 compared to $17,973,000 on December 31, 2000. The fluctuation is not significant as this section of the balance sheet has been in this range most of the year. 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 increased 12.1% since December 31, 2000. A large part of the increase resulted from purchasing $10 million of corporate notes using borrowings from the Federal Home Loan Bank of Pittsburgh. Both the borrowing and the notes were of similar maturities. Also, adding to the increase 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 an increase in unrealized gain of $1,710,000. 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. A shift in the portfolio occurred during 2001 with the investment mix shifting from US treasury and municipal securities to agency CMOs and corporate notes. The Corporation invested in longer bonds with current payments as deposit growth continued to be strong throughout much of the year. 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 strong during the last six months of 2001. 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. We expect loan demand to remain steady over the next several quarters in these and other market areas of the Bank. Contributing to the growth in loans was an increase of $19.5 million in commercial loans. These loans are not concentrated in one area nor were they in a single industry. The Corporation also experienced a 23.8% growth in commercial mortgages as we continue to expand our presence within the market area. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- LOAN CONCENTRATION The Corporation monitors loan concentrations by individual industries in order to track potential risk exposures resulting from industry related downturns. At December 31, 2001, no concentration exists within our commercial or real estate loan portfolio as related to concentration of 10% of the total loans. Residential real estate lending continues to be the largest component of the loan portfolio. LOAN QUALITY The Corporation has established written lending policies and procedures that require underwriting standards, loan documentation, and credit analysis standards to be met prior to funding a loan. Subsequent to the funding of a loan, ongoing review of credits is required. Credit reviews are performed annually on a minimum of 60% of the commercial loan portfolio by an outsourced loan review partner. See "Allowance for Loan and Lease Losses" for further discussion of credit review procedures. The following table sets forth information concerning loan delinquency and other non-performing assets ($ in thousands):
at December 31, 2001 2000 1999 -------- --------- --------- Nonperforming assets: Non-accrual loans $ 1,174 $ 652 $ 862 Accrual loans greater than 89 days past due 432 1,136 886 Foreclosed assets held for sale 361 783 394 -------- -------- -------- Total nonperforming assets $ 1,967 $ 2,571 $ 2,142 ======== ======== ======== Total loans, net of unearned income $386,173 $366,156 $362,764 Nonperforming loans as a percent of loans, net 0.42% 0.49% 0.48%
ALLOWANCE FOR LOAN AND LEASE LOSSES The allowance for loan and lease losses is established by provisions for possible losses in the loan and lease portfolio. These provisions are charged against current income. Loans deemed not collectible are charged-off against the allowance while any subsequent collections are recorded as recoveries and increase the allowance. The table below shows activity within the allowance account over the past three years: Allowance for Loan and Lease Losses ($'s in thousands) Years Ended December 31, ----------------------------------- 2001 2000 1999 -------- -------- -------- Balance at beginning of Period $ 3,879 $ 3,890 $ 3,314 Charge-offs: Commercial and financial 38 144 59 Commercial mortgages 162 3 30 Residential mortgages 87 12 54 Installment 494 413 380 Lease receivables 234 395 93 -------- -------- -------- 1,015 967 616 Recoveries: Commercial and financial 1 17 79 Commercial mortgages 4 3 1 Residential mortgages 8 -- 4 Installment 83 95 103 Lease receivables 55 34 6 -------- -------- -------- 151 149 193 -------- -------- -------- Net charge-offs: (864) (818) (423) Provision for possible loan losses 1,080 807 999 -------- -------- -------- Balance at end-of-period $ 4,095 $ 3,879 $ 3,890 ======== ======== ======== Loans, net of unearned $386,173 $366,156 $362,764 Allowance to net loans 1.06% 1.06% 1.07% Specific allocation 0.73% 0.60% 0.58% Unallocated 0.33% 0.46% 0.49% - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 29 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- 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 are 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 2001 2000 ------ ------ Commercial and financial $1,066 $ 706 Commercial mortgages 466 303 Residential mortgages 560 508 Installment 519 473 Lease receivables 212 221 Unallocated 1,272 1,668 ------ ------ Total $4,095 $3,879 ====== ====== 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 2001 when compared to 2000 and 1999. 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. We are experiencing an increase in charge-offs in the lease area as this portfolio ages. The allowance for loan and lease losses is deemed to be adequate to absorb probable losses in the portfolio at December 31, 2001. 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. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 30 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- The Corporation experienced an increase of 4.4% in deposits during 2001. Per the table below, growth was in the low cost deposit categories. These are the types focused on during 2001 in various promotions. The following table reflects the Corporation's deposits by category (in thousands): 2001 2000 1999 -------- -------- -------- Checking, Non-Interest Bearing $ 60,241 $ 52,757 $ 54,891 Checking, Interest Bearing 132,177 116,730 121,614 Savings Accounts 79,301 72,940 73,006 Certificates of Deposit 234,921 242,790 251,240 -------- -------- -------- $506,640 $485,217 $500,751 ======== ======== ======== SHAREHOLDERS' EQUITY The Corporation's capital provided the strong base for our profitable growth. Total shareholders' equity increased 7.2% in 2001. The increase was the result of an increase of $1,124,000 in accumulated other comprehensive income which represents an increase in unrealized gain 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 2001, interest rates 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 10.87% as of December 31, 2001 is well above the minimum standard of 8%. The Tier 1 capital ratio of 9.90% also is above the regulatory minimum of 4%. The leverage ratio, 7.16%, 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 7 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 $183 million with only $22 million outstanding at year end 2001. Management feels the Corporation's current liquidity position is acceptable. YEAR ENDED DECEMBER 31, 2001 OVERVIEW OF THE INCOME STATEMENT In 2001, net income was $6,510,000 an increase of 19.8% compared to 2000 net income of $5,433,000. The increase is a combination of increased net interest income and non-interest income with virtually no change in non-interest expense. Net income prior to merger and acquisition costs and amortization of intangible assets and goodwill for 2001 was $7.6 million compared to $6.7 million for 2000. The increase indicates an improvement in 2001 of 14.6% over 2000. The major reason for the increase is the net interest income which increased $850,000 or 4.1% over 2000. Also the net interest margin was unchanged in 2001 on growth of average earning assets of $21.1 million to $537,523,000, an increase of 4.1%. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 31 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- INTEREST INCOME AND EXPENSE Net interest income totaled $21,662,000 for 2001, an increase of 4.1% over 2000. Continued growth in loans along with reduced funding costs has been the primary factor in this increase. This was also aided by the large growth of investments during 2001. Total interest income for 2001 increased by $163,000 or 0.4% while interest expense decreased by $687,000 or 3.5% when compared to 2000. The Corporation has placed an emphasis on increasing lower cost transactional deposit accounts. The cost of funds declined 30 basis points from 4.40% in 2000 to 4.10% in 2001. The Corporation recorded a provision for loan and lease losses of $1,080,000 for 2001 compared to $807,000 for 2000. The increase in provision is a result of a higher level of net charge-offs during 2001 coupled with the other factors discussed previously in the loan section of this discussion. NON-INTEREST INCOME Non-interest income increased $1,117,000 or 24.9% in 2001 compared to 2000. The service charges on deposit accounts is the main source of the increase. The change in service charge income for 2001 was an increase of $621,000 or 27.2% over 2000. The overall growth in deposit customers accounts for the growth in this area. Also, trust income is up $91,000 or 9.8% over 2000 mainly due to growth in trust assets of $12,159,000 or 6.3%. The Corporation owns equity securities of various entities that are carried at their current fair market value. During 2001, the gains realized from the sale of securities totaled $276,000 compared to $79,000 in 2000. 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 0.7% to $17,374,000 during 2001 compared to 2000. These costs include but are not limited to salaries, supplies, data processing expenses, insurance, occupancy, and amortization expenses. The Corporation focused on non-interest expenses throughout much of 2000 and2001 to maximize efficiencies through growth and automation. The minimal increase is due to process efficiencies that were implemented in the fourth quarter of 2000. 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. 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. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 32 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- 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 totaled $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. RETURN ON EQUITY The return on average shareholder's equity ("ROE") for 2001 was 12.15% compared to 10.80% and 9.50% for 2000 and 1999 respectively. The increase in 2001 can be attributed primarily to the Corporation's efforts to become more efficient and profitable after the growth in 1999. The ROE exclusive of the amortization expense for recorded intangible assets was 14.39% compared to 13.23% in 2000. Management anticipates increases in the ROE during 2002 as earnings are expected to continue improving. RETURN ON ASSETS The Corporation's return on average assets ("ROA") was 1.11% in 2001 up from 0.97% in 2000 and 0.91% recorded in 1999. Increased ROA can be attributed to growing net interest income as well as increased non-interest income. FEDERAL INCOME TAX EXPENSE Federal income taxes increased to $2,296,000 in 2001 compared to $1,804,000 in 2000. This increase year to date can be attributed to the Corporation's higher taxable income during the period. The effective tax rates were 26.1%, 24.9% and 24.1% for 2001, 2000 and 1999, 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. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 33 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- 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, 2001 was -19.28% of total earning assets compared to policy guidelines of plus or minus 15.0%. The ratio was -4.48% at December 31, 2000. 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, 2001 and 2000: 2001 2000 -------- -------- Static 1-Yr. Cumulative Gap (19.28%) (4.48%) Earnings Simulation -200 bps vs. Stable Rate 10.62% 13.42% +200 bps vs. Stable Rate (16.05%) (16.00%) The interest rate sensitivity position at December 31, 2001 was 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. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 34 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- FUTURE OUTLOOK Management's focus for 2002 is to continue 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 began in the first quarter of 2001 by aggressively seeking new checking customers. We will continue a similar direct marketing approach throughout 2002. Other strategies will be implemented throughout the year to encourage consumer loan growth. Management continues to be encouraged by the growth in markets served by the Bank. 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 2002. Loan growth was good during the last six months of 2001. A concerted effort to sure up our pricing based on risk has resulted in increased loan yields compared to the overall decline in market interest rates. Management believes that the rate of loan growth will be moderate in 2002 and expects the loan to deposit ratio to remain constant throughout 2002. 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, 2001, the efficiency ratio was 54.6% compared to 57.2% for 2000 and 58.4% for 1999. The efficiency ratio was positively impacted by increased non-interest income resulting from more customers. Management will continue its emphasis on this area during 2002 with a goal of improved efficiency along with improved non-interest income. The interest rate environment will continue to play an important role in the future earnings of the Corporation. The net interest margin in 2001 held steady compared to 2000 even with the dramatic drop in interest rates. However, overall net interest income continues to increase due to growth in interest earning assets. Management will closely monitor the net interest margin in 2002 as much of the earnings of the Corporation are derived from interest. 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 2002. "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. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 35 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Board of Directors - -------------------------------------------------------------------------------- CNB FINANCIAL CORPORATION AND COUNTY NATIONAL BANK 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. (Coal Producer) William F. Falger President and Chief Executive Officer, CNB Financial Corporation; President and Chief Executive Officer, County National Bank William A. Franson Executive Vice President and Secretary, CNB Financial Corporation; Executive Vice President & Cashier, Chief Operating Officer, County National Bank Richard D. Gathagan Principal, Gathagan Investment Company, LLP (Diversified Investments) James J. Leitzinger President, Leitzinger Realty (Real Estate Investments) Dennis L. Merrey Retired, Formerly 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 Retired, Formerly 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. - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 36 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Officers - -------------------------------------------------------------------------------- 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 Andrew J. Woolridge Investment Officer Lisa A. Fredette Trust Officer Glenn R. Pentz Trust Officer Vickie L. Pingie Assistant Trust Officer LENDING OPERATIONS Robin L. Hay Vice President, Community Banking Stanley G. Kaizer Vice President, Community Banking, DuBois William J. Mills Vice President, Community Banking, St. Marys Richard L. Sloppy Vice President, Community Banking Joseph H. Yaros Vice President, Community Banking, Bradford Duane P. Shifter Vice President, Downtown Office, Clearfield Christopher L. Stott Vice President, Mortgage Lending David W. Ogden Assistant Vice President, Credit Administration Ruth Anne Ryan Assistant Vice President, Dealer Center Michael C. Sutika Assistant Vice President, Community Banking Eric P. Schmader Community Banking, Ridgway Richard L. Bannon Credit Administration Officer Denise J. Greene Banking Officer, Community Banking, Clearfield Paul A. McDermott Banking Officer, Community Banking, Philipsburg Larry A. Putt Banking Officer, Community Banking, Clearfield Gregory R. Williams Banking Officer, Community Banking, Clearfield Christopher N. Norris Collection Officer - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 37 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Officers - -------------------------------------------------------------------------------- BRANCH DIVISION Jacqueline A. Hynd Vice President, Office Administration Jeffrey A. Herr Vice President, Presqueisle Street Office, Philipsburg Beatrice H. Wittman Assistant Vice President, Regional Banking Mary A. Baker Assistant Vice President, Northern Cambria Office Rodger L. Read Assistant Vice President, Madera Office and Osceola Mills Office Deborah M. Young Assistant Vice President, Washington Street Office and BiLo Office, St. Marys Patricia D. Arlington Community Office Manager, Bradford Washington Street Office Dawn M. Gier Community Office Manager, Johnsonburg Office Kathy J. McKinney Community Office Manager, Houtzdale Office Francine M. Papa Community Office Manager, Ridgway Office Jo Ellen Potter Community Office Manager, Plaza Office, Philipsburg Douglas M. Shaffer Community Office Manager, Punxsutawney Office Susan J. Shimmel Community Office Manager, Old Town Road Office, Clearfield Jennifer A. Smith Community Office Manager, Bradford Main Street Office Steven C. Tunall Community Office Manager, Kane Office ADMINISTRATIVE SERVICES Mary Ann Conaway Vice President, Human Resources Helen G. Kolar Vice President, Marketing & Sales Rachel E. Larson Vice President, Operations Edward H. Proud Vice President, Information Systems Thomas J. Ammerman, Jr. Bank Security Officer Donna J. Collins Compliance Officer Susan B. Kurtz Customer Service Officer Duane B. Luzier Network Administration Officer C. Glenn Myers Controller & Assistant Financial Officer Dennis J. Sloppy Information Systems Officer Brenda L. Terry Banking Officer - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 38 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shareholder Information - -------------------------------------------------------------------------------- ANNUAL MEETING The Annual Meeting of the Shareholders of CNB Financial Corporation will be held Tuesday, April 16, 2002 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 24 in the 2001 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 136 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 238 employees who make our customer service more responsive, reliable and empathetic. In addition, 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). [LOGO] FDIC - -------------------------------------------------------------------------------- CNB Financial Corporation and Subsidiaries 2001 Annual Report 39 - -------------------------------------------------------------------------------- EX-21 5 dex21.txt SUBSIDIARIES OF THE COMPANY EXHIBIT 21 CNB FINANCIAL CORPORATION Form 10-K For The Year Ended December 31, 2001 Subsidiaries of the Registrant Jurisdiction of Incorporation Name or Organization ---- ----------------------------- County National Bank National Banking Association Incorporated in Pennsylvania CNB Investment Corporation Investment Holding Company Incorporated in Delaware County Reinsurance Company Reinsurance Company Incorporated in Arizona 17 -----END PRIVACY-ENHANCED MESSAGE-----