Amendment No. 1
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10–K/A

 

AMENDMENT NO. 1

 


 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2004   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

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

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 preceeding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

 

Indicate by check mark 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

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

 

The aggregate market value of the voting stock held by nonaffiliates of the registrant as of June 30, 2004.

 

Common Stock, $1.00 Par Value - $122,016,742

 

The number of shares outstanding of the registrant’s common stock as of March 10, 2005:

 

Common Stock, $1.00 Par Value - 9,129,522 shares

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the Annual Shareholders’ Report for the year ended December 31, 2004 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 19, 2005 are incorporated by reference into Part III. The incorporation by reference herein of portions of the proxy statement shall not be deemed to incorporate by reference the information referred to in Item 402(a)(8) of regulation S-K.

 



Table of Contents

Exhibit index is located on sequentially numbered page 15.

 

INDEX

 

PART I.

 

ITEM 1.

   BUSINESS    4

ITEM 2.

   PROPERTIES    12

ITEM 3.

   LEGAL PROCEEDINGS    12

ITEM 4.

   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS    12
PART II.

ITEM 5.

   MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS    13

ITEM 6.

   SELECTED FINANCIAL DATA    13

ITEM 7.

   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS    13

ITEM 7A.

   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    13

ITEM 8.

   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA    13

ITEM 9.

   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE    14

ITEM 9A.

   CONTROLS AND PROCEDURES    14
PART III.

ITEM 10.

   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT    14

ITEM 11.

   EXECUTIVE COMPENSATION    14

ITEM 12.

   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT    14

ITEM 13.

   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS    15

ITEM 14.

   PRINCIPAL ACCOUNTANT FEES AND PROCEDURES    15
PART IV.

ITEM 15.

   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K    15
    

SIGNATURES

   17

 

3


Table of Contents

PART I.

 

ITEM 1. BUSINESS

 

CNB FINANCIAL CORPORATION

 

CNB Financial Corporation (the Corporation) is a Financial 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 Financial 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 activities as are properly incident thereto. The Corporation is currently engaged in three non-banking activities through its wholly owned subsidiaries CNB Investment Corporation, County Reinsurance Company, and CNB Insurance Agency. 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. CNB Insurance Agency was established in February of 2003. The company provides fixed annuity products to banking customers.

 

The Corporation does not currently engage in any operating business activities, other than the ownership and management of County National Bank, CNB Investment Corporation, County Reinsurance Company, and CNB Insurance Agency.

 

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 primary marketing area consists of the Pennsylvania Counties 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 Sykesville, 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, 1 limited service branch facility, and 2 loan production offices 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, and time 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 loan portfolio is diversified so that one industry, group of related industries or changes in household economic conditions would not comprise a material portion of the loan portfolio.

 

The Bank’s business is not seasonal nor does it have any risks attendant to foreign sources.

 

COMPETITION

 

The banking industry in the Bank’s service area continues to be extremely competitive, both among commercial banks and with other 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 competition for loans and other financial services. Some of the financial service providers operating in the Bank’s market area operate on a large-scale

 

4


Table of Contents

regional or national basis and possess resources greater than those of the Bank and the Corporation. The Bank is generally competitive with all competing financial institutions in its service area with respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates charged on loans.

 

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.

 

NAME


  

AGE


  

PRINCIPAL OCCUPATION

FOR LAST FIVE YEARS


WILLIAM F. FALGER

   57    PRESIDENT AND CHIEF EXECUTIVE OFFICER,
          CNB FINANCIAL CORPORATION, SINCE 1/1/01;
          PRESIDENT AND CHIEF EXECUTIVE OFFICER,
          COUNTY NATIONAL BANK, SINCE 1/01/93.

JOSEPH B. BOWER, JR.

   41    SECRETARY, SINCE 12/31/03 &
          TREASURER, CNB FINANCIAL
          CORPORATION, SINCE 11/18/97
         

EXECUTIVE VICE PRESIDENT, CHIEF OPERATING

OFFICER, SINCE 12/31/03 AND PREVIOUSLY

          CHIEF FINANCIAL OFFICER,
          COUNTY NATIONAL BANK, SINCE 11/10/97

MARK D. BREAKEY

   46    SENIOR VICE PRESIDENT AND
          CREDIT RISK MANAGER,
          COUNTY NATIONAL BANK, SINCE 5/95

DONALD E. SHAWLEY

   49    SENIOR VICE PRESIDENT,
          COUNTY NATIONAL BANK, SINCE 9/29/98.
          TRUST OFFICER SINCE 11/1/85.

RICHARD L. SLOPPY

   54    SENIOR VICE PRESIDENT AND
          SENIOR LOAN OFFICER,
          COUNTY NATIONAL BANK, SINCE 1/1/04

 

Officers are elected annually at the reorganization meeting of the Board of Directors.

 

EMPLOYEES

 

The Corporation has no employees who are not employees of County National Bank. As of December 31, 2004, the Bank had a total of 242 employees of which 192 were full time and 50 were part time.

 

5


Table of Contents

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, securities, 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 Corporation and its wholly-owned subsidiaries. The tables should be read in conjunction with the consolidated financial statements of the Corporation which are incorporated by reference hereinafter.

 

6


Table of Contents

Average Balances and Net Interest Margin

(Dollars in thousands)

 

     December 31, 2004

   December 31, 2003

   December 31, 2002

     Average
Balance


    Annual
Rate


    Interest
Inc./Exp.


   Average
Balance


    Annual
Rate


    Interest
Inc./Exp.


   Average
Balance


    Annual
Rate


    Interest
Inc./Exp.


Assets                                                               

Interest-bearing deposits with banks

   $ 3,484     3.36 %   $ 117    $ 1,818     2.42 %   $ 44    $ 1,733     4.85 %   $ 84

Federal funds sold and securities purchased under agreements to resell

     6,246     1.92 %     120      13,395     1.34 %     180      14,034     1.90 %     267

Securities:

                                                              

Taxable

     108,437     3.45 %     3,746      117,018     3.81 %     4,457      125,461     5.19 %     6,507

Tax-Exempt (1)

     41,508     6.94 %     2,881      45,297     6.90 %     3,125      44,104     6.87 %     3,030

Equity Securities (1)

     14,027     3.95 %     554      13,576     3.73 %     507      12,700     3.53 %     448
    


 

 

  


 

 

  


 

 

Total Securities

     173,702     4.27 %     7,418      191,104     4.35 %     8,313      198,032     5.22 %     10,336
Loans                                                               

Commercial (1)

     180,422     6.19 %     11,163      147,719     6.19 %     9,141      107,821     6.67 %     7,194

Mortgage (1)

     263,083     6.65 %     17,495      247,365     7.25 %     17,927      241,757     7.86 %     19,011

Installment

     30,178     8.70 %     2,626      34,496     8.64 %     2,981      37,608     8.14 %     3,063

Leasing

     3,669     6.70 %     246      8,955     6.91 %     619      16,246     7.03 %     1,142
    


 

 

  


 

 

  


 

 

Total Loans (2)

     477,352     6.61 %     31,530      438,535     6.99 %     30,668      403,432     7.54 %     30,410

Total earning assets

     651,054     5.98 %     38,948      629,639     6.19 %     38,981      601,464     6.77 %     40,746
Non Interest Bearing Assets                                                               

Cash & Due From Banks

     14,268                    15,130                    13,508              

Premises & Equipment

     13,124                    12,723                    12,213              

Other Assets

     39,311                    39,458                    19,867              

Allowance for Loan Losses

     (5,904 )                  (5,627 )                  (4,422 )            
    


              


              


           

Total Non Interest Earning Assets

     60,799                    61,684                    41,166              
    


       

  


       

  


       

Total Assets    $ 711,853           $ 38,948    $ 691,323           $ 38,981    $ 642,630           $ 40,746
    


       

  


       

  


       

Liabilities and Shareholders’ Equity                                                               
Interest-Bearing Deposits                                                               

Demand - interest-bearing

   $ 127,272     0.29 %   $ 373    $ 127,965     0.44 %   $ 563    $ 132,288     0.85 %   $ 1,126

Savings

     76,440     0.62 %     473      77,578     0.90 %     696      77,851     1.53 %     1,192

Time

     311,227     3.12 %     9,705      301,254     3.19 %     9,623      265,112     3.99 %     10,590
    


 

 

  


 

 

  


 

 

Total interest-bearing deposits

     514,939     2.05 %     10,551      506,797     2.15 %     10,882      475,251     2.72 %     12,908

Short-term borrowings

     3,739     0.88 %     33      1,654     0.67 %     11      1,915     2.09 %     40

Long-term borrowings

     40,000     5.10 %     2,041      40,000     5.09 %     2,036      38,740     5.10 %     1,976

Subordinated debentures

     10,000     5.03 %     503      10,000     4.71 %     471      5,833             277
    


 

 

  


 

 

  


 

 

Total interest-bearing liabilities

     568,678     2.31 %     13,128      558,451     2.40 %     13,400      521,739     2.91 %     15,201

Demand - non-interest-bearing

     68,986                    60,124                    56,321              

Other liabilities

     6,576                    8,230                    8,121              
    


       

  


       

  


       

Total Liabilities

     644,240             13,128      626,805             13,400      586,181             15,201

Shareholders’ Equity

     67,613                    64,518                    56,449              
    


       

  


       

  


       

Total Liabilities and Shareholders’ Equity    $ 711,853           $ 13,128    $ 691,323           $ 13,400    $ 642,630           $ 15,201
    


       

  


       

  


       

Interest Income/Earning Assets

           5.98 %   $ 38,948            6.19 %   $ 38,981            6.77 %   $ 40,746

Interest Expense/Interest Bearing Liabilities

           2.31 %     13,128            2.40 %     13,400            2.91 %     15,201
            

 

          

 

          

 

Net Interest Spread            3.67 %   $ 25,820            3.79 %   $ 25,581            3.86 %   $ 25,545
            

 

          

 

          

 

Interest Income/Interest Earning Assets

           5.98 %   $ 38,948            6.19 %   $ 38,981            6.77 %   $ 40,746

Interest Expense/Interest Earning Assets

           2.02 %     13,128            2.13 %     13,400            2.53 %     15,201
            

 

          

 

          

 

Net Interest Margin            3.97 %   $ 25,820            4.06 %   $ 25,581            4.25 %   $ 25,545
            

 

          

 

          

 


(1) The amounts are reflected on a fully tax equivalent basis using the federal statutory rate of 35% in 2004 and 2003 and 34% in 2002, 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.

 

7


Table of Contents

Net Interest Income

 

Rate-Volume Variance

(Dollars in thousands)

     For Twelve Months Ended December 31,

    For Twelve Months Ended December 31,

 
    

2004 over (under) 2003

Due to Change In


   

2003 over (under) 2002

Due to Change In


 
     Volume

    Rate

    Net

    Volume

    Rate

    Net

 
Assets                                                 

Interest-Bearing Deposits with Banks

   $ 40     $ 33     $ 73     $ 4     $ (44 )   $ (40 )

Federal Funds Sold and securities purchased under agreements to resell

     (96 )     36       (60 )     (12 )     (75 )     (87 )

Securities:

                                                

Taxable

     (327 )     (384 )     (711 )     (438 )     (1,612 )     (2,050 )

Tax-Exempt

     (261 )     17       (244 )     82       13       95  

Equity Securities

     17       30       47       31       28       59  
    


 


 


 


 


 


Total Securities

     (627 )     (268 )     (895 )     (333 )     (1,690 )     (2,023 )
Loans                                                 

Commercial

     2,024       (2 )     2,022       2,662       (715 )     1,947  

Mortgage

     1,139       (1,571 )     (432 )     441       (1,525 )     (1,084 )

Installment

     (373 )     18       (355 )     (253 )     171       (82 )

Leasing

     (365 )     (8 )     (373 )     (513 )     (10 )     (523 )
    


 


 


 


 


 


Total Loans

     2,425       (1,563 )     862       2,337       (2,079 )     258  
    


 


 


 


 


 


Total Earning Assets    $ 1,798     $ (1,831 )   $ (33 )   $ 2,004     $ (3,769 )   $ (1,765 )
    


 


 


 


 


 


Liabilities and Shareholders’ Equity                                                 
Interest-Bearing Deposits                                                 

Demand - Interest-Bearing

   $ (3 )   $ (187 )   $ (190 )   $ (37 )   $ (526 )   $ (563 )

Savings

     (10 )     (213 )     (223 )     (4 )     (492 )     (496 )

Time

     319       (237 )     82       1,444       (2,411 )     (967 )
    


 


 


 


 


 


Total Interest-Bearing Deposits

     306       (637 )     (331 )     1,403       (3,429 )     (2,026 )

Short-Term Borrowings

     14       8       22       (5 )     (24 )     (29 )

Long-Term Borrowings

     0       5       5       64       (4 )     60  

Subordinated debentures

     0       32       32       198       (4 )     194  
    


 


 


 


 


 


Total Interest-Bearing Liabilities    $ 320     $ (592 )   $ (272 )   $ 1,660     $ (3,461 )   $ (1,801 )
    


 


 


 


 


 


Change in Net Interest Income    $ 1,478     $ (1,239 )   $ 239     $ 344     $ (308 )   $ 36  
    


 


 


 


 


 



1. The change in interest due to both volume and rate had 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 $1,992, $1,878 and $1,621 of fees for the years ending 2004, 2003 and 2002, respectively.
3. Income on restructured loans accounted for under SFAS Nos. 114 & 118 are included in interest earning assets.

 

8


Table of Contents

Investment Portfolio

(Dollars In Thousands)

 

     December 31, 2004

   December 31, 2003

   December 31, 2002

    

Amortized
Cost


   Unrealized

  

Market
Value


  

Amortized
Cost


   Unrealized

  

Market
Value


  

Amortized
Cost


   Unrealized

  

Market
Value


        Gains

   Losses

         Gains

   Losses

         Gains

   Losses

  
Securities Available for Sale:                                                                                    

U.S. Treasury

   $ 13,096    $ —      $ 85    $ 13,011    $ 13,282    $ 62    $ 6    $ 13,338    $ 10,169    $ 145    $ —      $ 10,314

U.S. Government agencies and corporations

     30,563      —        303    $ 30,260      30,312      162      35    $ 30,439      26,109      431      8      26,532

Obligations of States and Political Subdivisions

     41,712      2,567      —      $ 44,279      45,401      3,294      —      $ 48,695      47,322      2,520      105      49,737

Other Debt Securities

     66,893      1,799      147    $ 68,545      73,171      2,384      279    $ 75,276      87,441      2,950      500      89,891

Marketable Equity Securities

     7,811      665      369    $ 8,107      8,962      558      1,365    $ 8,155      8,680      280      409      8,551
    

  

  

  

  

  

  

  

  

  

  

  

     $ 160,075    $ 5,031    $ 904    $ 164,202    $ 171,128    $ 6,460    $ 1,685    $ 175,903    $ 179,721    $ 6,326    $ 1,022    $ 185,025
    

  

  

  

  

  

  

  

  

  

  

  

 

Maturity Distribution of Investment Securities

(Dollars In Thousands)

December 31, 2004

 

    

Within

One Year


    After One But
Within Five Years


    After Five But
Within Ten
Years


   

After

Ten Years


   

Collaterialized Mortgage
Obligation and Other

Asset Backed Securities


 
     $ Amt.

   Yield

    $ Amt.

   Yield

    $ Amt.

   Yield

    $ Amt.

   Yield

    $ Amt.

   Yield

 
Securities Available for Sale:                                                                  

U.S. Treasury

   $ 7,049    1.73 %   $ 5,962    2.32 %   $ —            $ —            $ —         

U.S. Government agencies and corporations

     14,970    2.02 %     14,802    2.42 %     488    3.76 %     —              —         

Obligations of States and Political Subdivisions

     1,329    7.11 %     7,432    6.58 %     8,952    7.01 %     26,566    7.04 %     —         

Other Debt Securities

     —      0.00 %     6,333    6.13 %     9,184    7.34 %     12,348    3.61 %     40,680    3.91 %
    

  

 

  

 

  

 

  

 

  

TOTAL

   $ 23,348    2.22 %   $ 34,529    3.98 %   $ 18,624    7.09 %   $ 38,914    5.74 %   $ 40,680    3.91 %
    

  

 

  

 

  

 

  

 

  

 

The weighted average yields are based on market 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%.

 

The portfolio contains no holdings of a single issuer that exceeds 10% of shareholders’ equity other than the US Treasury and governmental agencies.

 

9


Table of Contents

LOAN PORTFOLIO

(Dollars in thousands)

 

A. TYPE OF LOAN

 

     2004

   2003

   2002

   2001

   2000

Commercial, Financial and Agricultural

   $ 187,261    $ 168,794    $ 130,121    $ 98,745    $ 79,229

Residential Mortgage

     149,621      141,720      143,569      154,115      160,523

Commercial Mortgage

     115,566      110,951      97,928      73,904      59,680

Installment

     27,526      30,910      36,289      39,442      40,128

Lease Receivables

     2,074      6,285      13,600      22,249      30,318
    

  

  

  

  

GROSS LOANS

     482,048      458,660      421,507      388,455      369,878

Less: Unearned Income

     111      411      1,143      2,282      3,722
    

  

  

  

  

TOTAL LOANS NET OF UNEARNED

   $ 481,937    $ 458,249    $ 420,364    $ 386,173    $ 366,156
    

  

  

  

  

 

B. LOAN MATURITIES AND INTEREST SENSITIVITY

 

     December 31, 2004

     One Year
or Less


   One Through
Five Years


   Over
Five Years


   Total Gross
Loans


Commercial, Financial and Agricultural

                           

Loans With Predetermined Rate

   $ 13,325    $ 44,411    $ 26,834    $ 84,570

Loans With Floating Rate

     84,156      18,535      —        102,691
    

  

  

  

     $ 97,481    $ 62,946    $ 26,834    $ 187,261
    

  

  

  

 

C. RISK ELEMENTS

 

     2004

   2003

   2002

   2001

   2000

Loans on non-accrual basis

   $ 1,683    $ 1,873    $ 1,830    $ 1,174    $ 652

Accruing loans which are contractually past due 90 days or more as to interest or principal payment

     177      1,076      1,106      432      1,136
    

  

  

  

  

     $ 1,860    $ 2,949    $ 2,936    $ 1,606    $ 1,788
    

  

  

  

  


1. Interest income recorded on the non-accrual loans for the year ended December 31, 2004 was $99. Interest income which would have been recorded on these loans had they been on accrual status was $258.
2. Loans are placed in non-accrual status when the interest or principal is 90 days past due, unless the loan is in collection, well secured and it is believed that there will be no loss of interest or principal.
3. At December 31, 2004 there was $12,495 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.

 

10


Table of Contents

SUMMARY OF LOAN LOSS EXPERIENCE

(Dollars in Thousands)

 

Analysis of the Allowance for Loan Losses

 

Years Ended December 31,


   2004

    2003

    2002

    2001

    2000

 

Balance at beginning of Period

   $ 5,764     $ 5,036     $ 4,095     $ 3,879     $ 3,890  

Charge-Offs:

                                        

Commercial, Financial and Agricultural

     51       19       152       38       144  

Commercial Mortgages

     226       174       82       162       3  

Residential Mortgages

     147       109       127       87       12  

Installment

     409       511       468       494       413  

Overdraft Deposit Accounts

     236       —         —         —         —    

Leasing

     30       111       235       234       395  
    


 


 


 


 


       1,099       924       1,064       1,015       967  

Recoveries:

                                        

Commercial, Financial and Agricultural

     1       1       1       1       18  

Commercial Mortgages

     13       2       52       4       2  

Residential Mortgages

     20       —         —         8       —    

Installment

     56       80       87       83       95  

Overdraft Deposit Accounts

     21       —         —         —         —    

Leasing

     9       34       65       55       34  
    


 


 


 


 


       120       117       205       151       149  

Net Charge-Offs:

     (979 )     (807 )     (859 )     (864 )     (818 )

Provision for Loan Losses

     800       1,535       1,800       1,080       807  
    


 


 


 


 


Balance at End-of-Period

   $ 5,585     $ 5,764     $ 5,036     $ 4,095     $ 3,879  
    


 


 


 


 


Percentage of net charge-offs during the period to average loans outstanding

     0.21 %     0.18 %     0.21 %     0.23 %     0.22 %

 

The Provision for loan losses reflects the amount deemed appropriate by management to provide for probable incurred losses based on present risk characteristics of the 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 LOAN LOSSES

(Dollars In Thousands)

 

     2004

    2003

    2002

    2001

    2000

 
     % of Loans in
each Category


    % of Loans in
each Category


    % of Loans in
each Category


    % of Loans in
each Category


    % of Loans in
each Category


 

Real Estate Mortgages

   $ 2,400    55.01 %   $ 2,042    55.09 %   $ 1,428    57.29 %   $ 1,026    58.70 %   $ 811    59.54 %

Installment

     446    5.74 %     497    6.74 %     490    8.61 %     519    10.15 %     473    10.84 %

Commercial, Financial and Agricultural

     2,396    38.23 %     2,472    36.80 %     1,776    30.87 %     1,066    25.42 %     706    21.42 %

Overdraft Deposit Accounts

     308    0.61 %     —              —              —              —         

Leasing

     20    0.41 %     79    1.37 %     178    3.23 %     212    5.73 %     221    8.20 %

Unallocated

     15    0.00 %     674    0.00 %     1,164    0.00 %     1,272    0.00 %     1,668    0.00 %
    

  

 

  

 

  

 

  

 

  

TOTALS

   $ 5,585    100.00 %   $ 5,764    100.00 %   $ 5,036    100.00 %   $ 4,095    100.00 %   $ 3,879    100.00 %
    

  

 

  

 

  

 

  

 

  


1. In determining the allocation of the allowance for possible credit losses, County National Bank considers economic trends, historical patterns and specific credit reviews.
2. With regard to the credit reviews, a “watchlist” is evaluated on a monthly basis to determine potential commercial losses. Consumer loans and mortgage loans are allocated using historical loss experience. The total of these reserves is deemed “allocated”, while the remaining balance is “unallocated”.

 

The unallocated component of the allowance for loan losses has declined over the last several years as management has refined its methodology for monitoring and measuring credit risk. In 2004, additional individual loans were subject to specific review, resulting in an increase in specific allowance allocations. In addition, consideration of current economic risk factors were applied to individual pools of homogeneous pools of loans. In prior years, economic risk factors were applied to the portfolio of loans as a whole and were reflected as unallocated.

 

11


Table of Contents

DEPOSITS

 

(Dollars In Thousands)

 

December 31,

 

   2004

    2003

    2002

 
   Average
Amount


   Annual
Rate


    Average
Amount


   Annual
Rate


    Average
Amount


   Annual
Rate


 

Demand - Non Interest Bearing

   $ 68,986          $ 60,124          $ 56,321       

Demand - Interest Bearing

     127,272    0.29 %     127,965    0.44 %     132,288    0.85 %

Savings Deposits

     76,440    0.62 %     77,578    0.90 %     77,851    1.53 %

Time Deposits

     311,227    3.12 %     301,254    3.19 %     265,112    3.99 %
    

        

        

      

TOTAL

   $ 583,925          $ 566,921          $ 531,572       
    

        

        

      

 

The maturity of certificates of deposits and other time deposits in denomination of $100,000 or more as of December 31, 2004.

 

(Dollars In Thousands)

 

Maturing in:

 

Three months or less

   $ 32,773

Greater than three months and through six months

     7,010

Greater than six months and through twelve months

     7,672

Greater than twelve months

     45,610
    

     $ 93,065
    

 

Key ratios for the Corporation for the years ended December 31, 2004 and 2003 appear in the Annual Shareholders’ Report for the year ended December 31, 2004 under the caption “Selected Financial Data” on pages 27 and 28 and are incorporated herein by reference. Short-term borrowings for the Corporation were less on average than 30% of the Corporation’s stockholders’ equity at December 31, 2004.

 

ITEM 2. PROPERTIES

 

The headquarters of the Corporation and the Bank are located at 1 South Second Street, Clearfield, Pennsylvania, in a building owned by the Corporation. The Bank operates 19 full-service, 1 limited service office, and 2 loan production offices. Of these 22 offices, 17 are owned and 5 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 routine proceedings which are incidental to the 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

 

None

 

12


Table of Contents

PART II.

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Information relating to the Corporation’s common stock is on page 28 of the Annual Shareholders’ Report for the year ended December 31, 2004 and is incorporated herein by reference. There were 1,554 registered shareholders of record as of March 10, 2005.

 

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period


  

Total Number

of Shares (or

Units)

Purchased


  

Average

Price Paid

per Share

(or Unit)


  

Total Number of

Shares (or Units)

Purchased as Part

of Publicly

Announced Plans

or Programs


  

Maximum Number (or

Approximate Dollar

Value) of Shares (or

Units) that May Yet Be

Purchased Under the

Plans or Programs


10/1/04 to

10/31/04

   442      14.95    —      362,600

11/1/04 to

11/30/04

   236      15.17    —      362,600

12/1/04 to

12/31/04

   1,499    $ 16.13    —      362,600
    
  

         

Total

   2,177    $ 15.79    —       
    
  

  
    

 

ITEM 6. SELECTED FINANCIAL DATA

 

Information required by this item is presented on pages 29 and 30 of the Annual Shareholders’ Report for the year ended December 31, 2004 and is incorporated herein by reference.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

 

Information required by this item is presented on pages 31 to 40 of the Annual Shareholders’ Report for the year ended December 31, 2004 and is incorporated herein by reference.

 

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Information required by this item is presented on pages 37 and 38 of the Annual Shareholders’ Report for the year ended December 31, 2004 and is incorporated herein by reference.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The following consolidated financial statements and report, which appear in the Annual Shareholders’ Report for the year ended December 31, 2004, are incorporated herein by reference:

 

13


Table of Contents
    

Pages in
Annual Report


Consolidated Statements of Financial 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

   9-26

Report of Independent Registered Public Accounting Firm on Financial Statements

   27

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

As of the end of the period covered by this report, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and Procedures. Based on that evaluation, the Corporation’s Chief Executive Officer and Principal Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective to ensure that the financial and nonfinancial information required to be disclosed by the Corporation in the reports that it files or submits under the Securities Exchange Act of 1934, including the form 10-K for the period ended December 31, 2004, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

There have been no significant changes in the Corporation’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation or any significant deficiencies or material weaknesses in such internal controls requiring corrective actions. As a result, no corrective actions were taken.

 

The Corporation meets the conditions as discussed in SEC Release No. 50754 of November 30, 2004 and intends to use the 45 day extension period to complete documentation before filing Management’s annual report over financial reporting, required by Item 308(a) of Regulation S-K, and the related Attestation report of the registered public accounting firm, required by Item 308(b) of Regulation S-K. As such, the Corporation will file an amended 10-K within the 45 day extension period. As of the date of this filing, management of the Corporation is not aware of any material weaknesses in its internal control over financial reporting for the year ended December 31, 2004.

 

PART III.

 

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

 

Information relating to the Corporation’s directors appears on pages 3 and 4 of the Proxy Statement for the Annual Meeting to be held on April 19, 2005 and is incorporated herein by reference. Information relating to Executive Officers is included in Part I.

 

ITEM 11. EXECUTIVE COMPENSATION

 

Information required by this item is presented on pages 6-10 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 19, 2005 and is incorporated herein by reference.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

Information required by this item is presented on pages 2-4 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 19, 2005 and is incorporated herein by reference.

 

14


Table of Contents

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Information required by this item is presented on page 10 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 19, 2005 and is incorporated herein by reference.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND PROCEDURES

 

Information concerning principal accountant fees and procedures is incorporated herein by reference to the “Concerning the Independent Public Accountants” section of the proxy statement for the 2005 Annual Meeting of Shareholders, filed with the Securities and Exchange Commission on or about March 16, 2005.

 

PART IV.

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

 

  (A) The following documents are filed as a part of this report:

 

  1. The following financial statements of the Corporation incorporated by reference in Item 8:

 

Consolidated Statements of Condition at December 31, 2004 and 2003

 

Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002

 

Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002

 

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2004, 2003 and 2002

 

Notes to Consolidated Financial Statements

 

Report of Independent Registered Public Accounting Firm on Financial Statements

 

  2. All financial statement schedules are omitted since they are not applicable.

 

  3. The following exhibits:

 

EXHIBIT
NUMBER


  

DESCRIPTION


3 i    Articles of Incorporation
3 ii    By-Laws
10(A)    Employment Contract, President and CEO, filed herewith*
10(B)    Form of employment contract for Other Executive Officer, Joseph B. Bower, Jr., filed herewith*
10(C)    Stock Option Plan filed in the 1999 Proxy Statement Form DEF 14A incorporated herein by reference
13    Portions of Annual Report to Shareholders for 2004, filed herewith
21    Subsidiaries of the Registrant
23    Consent of Independent Registered Public Accounting Firm
31.1    CEO Certification
31.2    Principal Financial Officer Certification

* Management contract or compensatory plan.

 

A Form 8-K was filed on November 9, 2004 announcing the declaration of a 13 cent per share dividend payable on December 15, 2004 to holders of record on December 3, 2004.

 

15


Table of Contents

A Form 8-K was filed on January 25, 2005 announcing the Corporation’s intent to record an other-than-temporary impairment non-cash after-tax charge of $910,000, or $0.10 per share, in the quarter ending December 31, 2004 related to a perpetual preferred stock issued by Fannie Mae.

 

A Form 8-K was filed on January 28, 2005 announcing earnings for the quarter ended December 31, 2004.

 

A Form 8-K was filed on February 8, 2005 announcing the declaration of a 13 cent per share dividend payable on March 15, 2005 to holders of record on March 3, 2005.

 

16


Table of Contents

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange 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 15, 2005

  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 16, 2005.

 

/s/ William F. Falger


WILLIAM F. FALGER

      

President and Chief Executive Officer,

Director

/s/ Robert E. Brown


ROBERT E. BROWN

   Director  

/s/ Jeffrey S. Powell


JEFFREY S. POWELL

/s/ Michael F. Lezzer


MICHAEL F. LEZZER

   Director  

/s/ James B. Ryan


JAMES B. RYAN

/s/ James J. Leitzinger


JAMES J. LEITZINGER

   Director  

/s/ Peter F. Smith


PETER F. SMITH

/s/ Dennis L. Merrey


DENNIS L. MERREY

   Director  

/s/ Deborah Dick Pontzer


DEBORAH DICK PONTZER

/s/ William R. Owens


WILLIAM R. OWENS

   Director  

/s/ James P. Moore


JAMES P. MOORE

 

17