CNB Financial Corp - 10-K annual report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

F O R M  1 0 – K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

          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.

          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.  o

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

The aggregate market value of the voting stock held by nonaffiliates of the registrant as of June 30, 2002.

          Common Stock, $1.00 Par Value  -  $90,983,100

The number of shares outstanding of the registrant’s common stock as of March 5, 2003:

          Common Stock, $1.00 Par Value  -  3,644,806 shares

DOCUMENTS INCORPORATED BY REFERENCE

          Portions of the Annual Shareholders’ Report for the year ended December 31, 2002 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 15, 2003 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.

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          Exhibit index is located on sequentially numbered page 15.

INDEX

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PART I.

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 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 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 19 full-service branch offices and 2 limited service branch facility located in various communities in its market area.  In the third quarter of 2002, the Bank opened a loan production office in Johnstown, PA and is offering loans to small businesses in communities located throughout the western part of Pennsylvania.

          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

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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. 

EMPLOYEES

          The Corporation has no employees who are not employees of County National Bank.  As of December 31, 2002, the Bank had a total of 238 employees of which 180 were full time and 58 were part time.

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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 table should be read in conjunction with the consolidated financial statements of the Corporation which are incorporated by reference hereinafter.

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CNB Financial Corporation
Average Balances and Net Interest Margin
(Dollars in thousands)

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