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 one nonbanking activity through its wholly owned subsidiary CNB Investment Corporation. 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.
The Corporation does not currently engage in any operating business activities, other than the ownership and management of County National Bank and CNB Investment Corporation.
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 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 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 loan portfolio is diversified so that one industry, group of related industries or changes in household economic conditions does not comprise a material portion of the loan portfolio.
The Bank's business is not seasonal nor does it have any risks attendant to foreign sources.
COMPETITION
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 competition for loans and other financial services. Some of the financial service providers operating in the Bank's market area operate on a large-scale regional basis and possess resources greater than those of the Bank and the Corporation. 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.
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, 2000, the Bank had a total of 232 employees of which 173 were full time and 59 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.
CNB Financial Corporation Average Balances and Net Interest Margin (Dollars in thousands)
(1) The amounts are reflected on a fully tax equivalent basis using the federal statutory rate of 34% in 2000, 1999 and 1998, 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 in not material.
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 $1,008, $887 and $394 of fees for the years ending 2000, 1999 and 1998, respectively.
3. Income or restructured loans accounted for under SFAS Nos. 114 & 118 are included in interest earning assets.
Securities Portfolio (Dollars In Thousands)
Maturity Distribution of Securities (Dollars In Thousands)
December 31, 2000
The weighted average yields are based on book value and effective yields weighted for the scheduled maturity with tax-exempt securities adjusted to a taxable-equivalent basis using a tax rate of 34%.
LOAN PORTFOLIO (Dollars in thousands)
A. TYPE OF LOAN
B. LOAN MATURITIES AND INTEREST SENSITIVITY
C. RISK ELEMENTS
1. Interest income recorded on the non-accrual loans for the year ended December 31, 2000 was $17. Interest income which would have been recorded on these loans had they been on accrual status was $77.
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, 2000 there was $7,911 in loans which are considered problem loans. In the opinion of management, these loans are adequately secured and losses are believed to be minimal.
SUMMARY OF LOAN LOSS EXPERIENCE (Dollars In Thousands)
Analysis of the Allowance for Loan Losses Years Ended December 31,
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)
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".
DEPOSITS
(Dollars In Thousands)
The maturity of certificates and deposits and other time deposits in denomination of $100,000 or more as of December 31, 2000.
(Dollars In Thousands)
Maturing in:
Three months or less $ 4,425
Greater than three months and through six months 3,588
Greater than six months and through twelve months 6,247
Greater than twelve months $18,314 ------- $32,574 -------
ITEM 2.
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 4 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.
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.
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, 2000.
PART II.
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS MATTERS
Information relating to the Corporation's common stock is on pages 25 and 38 of the Annual Shareholders' Report for the year ended December 31, 2000 and is herein incorporated by reference. There were 1,573 registered shareholders of record as of March 8, 2001.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this section is presented on pages 23 and 24 of the Annual Shareholders' Report for the year ended December 31, 2000 and is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information required by this section is presented on pages 26-34 of the Annual Shareholders' Report for the year ended December 31, 2000 and is incorporated herein by reference.
ITEM 7A
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this section is presented on pages 32 and 33 of the Annual Shareholders' Report for the year ended December 31, 2000 and is incorporated herein by reference.
ITEM 8.
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, 2000, are incorporated herein by reference to such annual report:
Quarterly financial data relating to the results of operations for the years ended December 31, 2000 and 1999, appears in the Annual Shareholders' Report for the year ended December 31, 2000 under the caption "Quarterly Financial Data" (unaudited) at Page 21 and is incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Change in accountants is discussed at Item 14(B).
PART III.
ITEM 10.
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 17, 2001.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this section is presented on pages 6-9 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 17, 2001 and is incorporated herein by reference.
ITEM 12.
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 17, 2001 and is incorporated herein by reference.
ITEM 13.
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 17, 2001 and is incorporated herein by reference.
PART IV.
ITEM 14.
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, 2000.
2. FINANCIAL STATEMENT SCHEDULES:
All schedules are omitted since they are not applicable.
(B) REPORTS ON FORM 8-K
Form 8-K dated May 9, 2000 was filed announcing the engagement of Crowe, Chizek and Company, LLP as its independent auditors for the fiscal year ended December 31, 2000. The determination to replace Ernst & Young, LLP was recommended by the audit committee and approved by the full board of directors of the registrant. There were no disagreements between the registrant and Ernst & Young, LLP concerning accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
Form 8-K dated October 24, 2000 was filed announcing the retirement of James P. Moore as President and CEO. William F. Falger will succeed him in his role as President and CEO of the Corporation.
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, 2001 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, 2001.
EXHIBITS:
The exhibits listed below are filed herewith or are incorporated herein by reference to other filings: