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
CNB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
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 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, 2003.
Common Stock, $1.00 Par Value - $162,160,138
The number of shares outstanding of the registrant’s common stock as of March 10, 2004:
Common Stock, $1.00 Par Value - 3,658,809 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Shareholders’ Report for the year ended December 31, 2003 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 20, 2004 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.
Exhibit index is located on sequentially numbered page 15.
INDEX
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
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PART I.
ITEM 1. BUSINESS
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 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, 1 limited service branch facility, and 2 loan production offices located in various communities in its market area. In the fourth quarter of 2003, the Bank opened a loan production office in Warren, PA and is offering loans to small businesses and consumers in the 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
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financial services. Some of the financial service providers operating in the Bank’s market area operate on a large-scale 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
PRINCIPAL OCCUPATION FOR LAST FIVE YEARS
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, 2003, the Bank had a total of 238 employees of which 186 were full time and 52 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 tables 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)
Average
Balance
Annual
Rate
Interest
Inc./Exp.
Assets
Interest-bearing deposits with banks
Federal funds sold and securities purchased under agreements to resell
Securities:
Taxable
Tax-Exempt (1)
Equity Securities (1)
Total Securities
Loans
Commercial (1)
Mortgage (1)
Installment
Leasing
Total Loans (2)
Total earning assets
Non Interest Bearing Assets
Cash & Due From Banks
Premises & Equipment
Other Assets
Allowance for Loan Losses
Total Non Interest Earning Assets
Total Assets
Liabilities and Shareholders’ Equity
Interest-Bearing Deposits
Demand - interest-bearing
Savings
Time
Total interest-bearing deposits
Short-term borrowings
Long-term borrowings
Subordinated debentures
Total interest-bearing liabilities
Demand - non-interest-bearing
Other liabilities
Total Liabilities
Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
Interest Income/Earning Assets
Interest Expense/Interest Bearing Liabilities
Net Interest Spread
Interest Income/Interest Earning Assets
Interest Expense/Interest Earning Assets
Net Interest Margin
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Net Interest Income
Rate-Volume Variance
For Twelve Months
Ended December 31,
2003 over (under) 2002
Due to Change In
2002 over (under) 2001
Interest-Bearing Deposits with Banks
Federal Funds Sold and securities purchased under agreements to resell
Tax-Exempt
Equity Securities
Commercial
Mortgage
Total Loans
Total Earning Assets
Demand - Interest-Bearing
Total Interest-Bearing Deposits
Short-Term Borrowings
Long-Term Borrowings
Total Interest-Bearing Liabilities
Change in Net Interest Income
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Investment Portfolio
(Dollars In Thousands)
Amortized
Cost
Market
Value
Securities Available for Sale:
U.S. Treasury
U.S. Government agencies and corporations
Obligations of States and Political Subdivisions
Other Debt Securities
Marketable Equity Securities
Maturity Distribution of Investment Securities
December 31, 2003
Within
One Year
After One But
Within Five Years
After Five But
Within Ten Years
Collaterialized Mortgage
Obligation and Other
Asset Backed Securities
Obligations of States and
Political Subdivisions
TOTAL
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 35%.
The portfolio contains no holdings of a single issuer that exceeds 10% of shareholders’ equity other than the US Treasury and governmental agencies.
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LOAN PORTFOLIO
A. TYPE OF LOAN
Commercial, Financial and Agricultural
Residential Mortgage
Commercial Mortgage
Lease Receivables
GROSS LOANS
Less: Unearned Income
TOTAL LOANS NET OF UNEARNED
B. LOAN MATURITIES AND INTEREST SENSITIVITY
or Less
One Through
Five Years
Over Five
Years
Total Gross
Loans With Predetermined Rate
Loans With Floating Rate
C. RISK ELEMENTS
Loans on non-accrual basis
Accruing loans which are contractually past due 90 days or more as to interest or principal payment
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SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
Analysis of the Allowance for Loan Losses
Years Ended December 31,
Balance at beginning of Period
Charge-Offs:
Commercial Mortgages
Residential Mortgages
Recoveries:
Net Charge-Offs:
Provision for Loan Losses
Balance at End-of-Period
Percentage of net charge-offs during the period to average loans outstanding
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
2003
% of Loans in
each Category
2002
2001
2000
1999
Real Estate Mortgages
Unallocated
TOTALS
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DEPOSITS
December 31,
Amount
Demand - Non Interest Bearing
Demand - Interest Bearing
Savings Deposits
Time Deposits
The maturity of certificates of deposits and other time deposits in denomination of $100,000 or more as of December 31, 2003.
Maturing in:
Three months or less
Greater than three months and through six months
Greater than six months and through twelve months
Greater than twelve months
Key ratios for the Corporation for the years ended December 31, 2003 and 2002 appear in the Annual Shareholders’ Report for the year ended December 31, 2003 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, 2003.
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 18 full-service, 1 limited service office, and 2 loan production offices. Of these 22 offices, 16 are owned and 6 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
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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 26 of the Annual Shareholders’ Report for the year ended December 31, 2003 and is incorporated herein by reference. There were 1,527 registered shareholders of record as of March 10, 2004.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is presented on pages 26 and 27 of the Annual Shareholders’ Report for the year ended December 31, 2003 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 29-38 of the Annual Shareholders’ Report for the year ended December 31, 2003 and is incorporated herein by reference.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is presented on pages 35 and 36 of the Annual Shareholders’ Report for the year ended December 31, 2003 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, 2003, are incorporated herein by reference:
Pages in
Annual Report
Consolidated Statements of Condition
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Shareholders’ Equity
Notes to Consolidated Financial Statements
Report of Independent Auditors
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 Chief 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 Chief 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, 2003, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
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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.
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 20, 2004 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 20, 2004 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 20, 2004 and is incorporated herein by reference.
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 20, 2004 and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND PROCEDURES
Information concerning principal accounting fees and procedures is incorporated herein by reference to the “Concerning the Independent Public Accountants” section of the proxy statement for the 2004 Annual Meeting of Shareholders, filed with the Securities and Exchange Commission on or about March 15, 2004.
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PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
EXHIBIT
NUMBER
DESCRIPTION
A report on Form 8-K dated November 12, 2003 was filed announcing under Item 7 the fourth quarter dividend of 32 cents per share to shareholders of record on December 5, 2003. A report on Form 8-k dated December 10, 2003 was filed announcing under item 12 the opening of a loan production office in Warren, PA.
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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.
/s/ William F. Falger
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 15, 2004.
/s/ Robert E. Brown
/s/ Jeffrey S. Powell
/s/ Robert C. Penoyer
/s/ James B. Ryan
/s/ James J. Leitzinger
/s/ Peter F. Smith
/s/ Dennis L. Merrey
/s/ Deborah Dick Pontzer
/s/ William R. Owens
/s/ James P. Moore
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