United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2010
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission file number 0-30665
CNB Financial Services, Inc.
(Exact Name of Registrant as specified in its charter)
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West Virginia
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550773918
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.)
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101 S. Washington Street, Berkeley Springs, WV
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25411
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(Address of principal executive offices)
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(Zip Code)
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Issuers telephone number, (304) 258 1520
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter 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
þ
NO
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files).
YES
o
NO
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one)
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Large Accelerated Filer
o
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Accelerated Filer
o
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Non-Accelerated Filer
o
(Do not check if a smaller reporting company)
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Smaller Reporting Company
þ
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
YES
o
NO
þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: 441,348 shares of common stock, par value $1 per share, as of
November 12, 2010.
CNB FINANCIAL SERVICES, INC.
TABLE OF CONTENTS
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 indicates that the disclosure of
forward-looking information is desirable for investors and encourages such disclosure by providing
a safe harbor for forward-looking statements that involve risk and uncertainty. All statements
other than statements of historical fact included in this Form 10-Q including statements in
Managements Discussion and Analysis of Financial Condition and Results of Operations are, or may
be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. In order to comply with the terms
of the safe harbor, CNB notes that a variety of factors could cause CNBs actual results and
experience to differ materially from the anticipated results or other expectations expressed in
those forward-looking statements. These factors could include the following possibilities: (1)
competitive pressures among depository and other financial institutions may increase significantly;
(2) changes in the interest rate environment may reduce margins; (3) general economic conditions
may become more unfavorable than expected resulting in reduced credit quality or demand for loans;
(4) legislative or regulatory changes could increase expenses (including changes as a result of
regulations adopted under the Dodd-Frank Wall Street Reform and Consumer Protection Act); (5)
competitors may have greater financial resources and develop products that enable them to compete
more successfully than CNB; (6) additional assessments may be imposed by the FDIC; (7) additional
expense to the provision for loan losses may be greater than anticipated; (8) loan activity may
continue to be soft in the commercial real estate portfolio with very little generation of new
loans; and (9) real estate activity for 2010 in the Eastern Panhandle of West Virginia may not
improve. Additionally, consideration should be given to the cautionary language contained
elsewhere in this Form 10-Q and in the section on Risk Factors, Item 1A in the companys Annual
Report to Shareholders on Form 10-K for the fiscal year ended December 31, 2009.
2
CNB FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
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September 30,
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December 31,
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2010
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2009
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(Unaudited)
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(Audited)
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ASSETS
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Cash and due from banks
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$
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3,596,105
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$
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5,068,118
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Federal funds sold
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3,800,000
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Certificates of deposit investments
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1,989,017
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Securities available for sale
(at approximate market value)
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71,750,052
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72,272,665
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Federal Home Loan Bank stock, at cost
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2,321,300
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2,321,300
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Loans and lease receivable, net
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186,892,465
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194,707,226
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Accrued interest receivable
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1,331,841
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1,334,704
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Foreclosed real estate (held for sale), net
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942,983
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386,500
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Premises and equipment, net
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5,417,889
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5,554,927
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Deferred income taxes
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1,580,206
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1,753,665
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Cash surrender value of life insurance
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1,690,400
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1,601,720
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Intangible assets
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78,991
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162,628
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Other assets
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1,889,484
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2,345,418
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TOTAL ASSETS
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$
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281,291,716
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$
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289,497,888
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LIABILITIES AND SHAREHOLDERS EQUITY
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LIABILITIES
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Deposits:
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Demand
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$
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39,820,448
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$
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43,381,922
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Interest-bearing demand
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36,443,847
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35,564,826
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Savings
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26,000,838
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24,925,247
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Time, $100,000 and over
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73,027,938
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72,982,196
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Other time
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73,223,391
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75,437,663
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$
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248,516,462
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$
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252,291,854
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Accrued interest payable
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1,021,793
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1,170,417
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FHLB borrowings
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6,400,000
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Accrued expenses and other liabilities
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4,160,801
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4,005,322
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TOTAL LIABILITIES
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$
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253,699,056
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$
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263,867,593
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SHAREHOLDERS EQUITY
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Common stock, $1 par value; 5,000,000 shares
authorized; 458,048 shares issued at September 30, 2010 and
December 31, 2009 and 441,348 and 443,648 outstanding at
September 30, 2010 and December 31, 2009, respectively
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$
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458,048
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$
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458,048
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Capital surplus
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4,163,592
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4,163,592
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Retained earnings
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23,556,318
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22,476,562
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Accumulated other comprehensive income (loss)
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352,600
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(642,839
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)
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$
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28,530,558
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$
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26,455,363
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Less treasury stock, at cost, 16,700 shares at September 30, 2010
and 14,400 shares at December 31, 2009
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(937,898
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)
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(825,068
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)
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TOTAL SHAREHOLDERS EQUITY
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$
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27,592,660
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$
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25,630,295
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
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$
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281,291,716
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$
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289,497,888
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The Notes to Consolidated Financial Statements are an integral part of these statements.
3
CNB FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
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Three months ended
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Nine months ended
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September 30,
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September 30,
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2010
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2009
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2010
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2009
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INTEREST INCOME
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Interest and fees on loans
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$
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2,997,963
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$
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3,227,137
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$
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9,028,174
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$
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9,701,834
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Interest and dividends on securities
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U.S. Government agencies and
corporations
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35,364
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48,362
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130,732
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189,552
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Corporate bonds
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68,251
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86,655
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189,587
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283,586
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Mortgage backed securities
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305,741
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327,452
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920,968
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1,038,813
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State and political subdivisions
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300,455
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202,095
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938,318
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|
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539,114
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Interest on certificates of deposit
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|
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|
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|
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5,517
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|
|
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2,052
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|
|
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14,142
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Interest on FHLB deposits
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|
|
3
|
|
|
|
4
|
|
|
|
60
|
|
|
|
33
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|
Interest on federal funds sold
|
|
|
653
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|
|
|
2,750
|
|
|
|
2,142
|
|
|
|
3,288
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|
|
|
|
|
|
|
|
|
|
|
|
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$
|
3,708,430
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|
|
$
|
3,899,972
|
|
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$
|
11,212,033
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|
|
$
|
11,770,362
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|
|
|
|
|
|
|
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|
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|
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INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Interest on interest bearing demand,
savings and time deposits
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|
$
|
1,167,236
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|
|
$
|
1,280,828
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|
|
$
|
3,598,414
|
|
|
$
|
3,808,924
|
|
Interest on federal funds purchased
|
|
|
21
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|
|
|
|
|
|
|
21
|
|
|
|
|
|
Interest on FHLB borrowings
|
|
|
2,287
|
|
|
|
73,161
|
|
|
|
28,805
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|
|
|
234,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,169,544
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|
|
$
|
1,353,989
|
|
|
$
|
3,627,240
|
|
|
$
|
4,042,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
NET INTEREST INCOME
|
|
$
|
2,538,886
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|
$
|
2,545,983
|
|
|
$
|
7,584,793
|
|
|
$
|
7,727,386
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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PROVISION FOR LOAN LOSSES
|
|
|
460,000
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|
|
|
400,000
|
|
|
|
1,370,000
|
|
|
|
1,165,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
|
|
|
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|
|
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|
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
|
|
$
|
2,078,886
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|
|
$
|
2,145,983
|
|
|
$
|
6,214,793
|
|
|
$
|
6,562,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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NONINTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Service charges on deposit accounts
|
|
$
|
290,139
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|
|
$
|
344,025
|
|
|
$
|
867,826
|
|
|
$
|
970,759
|
|
Other service charges, commissions
and fees
|
|
|
205,176
|
|
|
|
206,890
|
|
|
|
638,854
|
|
|
|
593,998
|
|
Other operating income
|
|
|
22,029
|
|
|
|
17,575
|
|
|
|
73,837
|
|
|
|
115,915
|
|
Income from title company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,061
|
|
Net gain on sales of loans
|
|
|
3,812
|
|
|
|
12,628
|
|
|
|
18,455
|
|
|
|
32,952
|
|
Net gain on sales and calls of securities
|
|
|
120,495
|
|
|
|
568
|
|
|
|
173,918
|
|
|
|
32,591
|
|
Net gain (loss) on sale of other real estate owned
|
|
|
(4,461
|
)
|
|
|
(38,308
|
)
|
|
|
10,100
|
|
|
|
(86,744
|
)
|
Provision for losses on other real estate owned
|
|
|
(3,900
|
)
|
|
|
(35,000
|
)
|
|
|
(51,900
|
)
|
|
|
(110,800
|
)
|
Net (loss) on disposal of premises, equipment and software
|
|
|
|
|
|
|
|
|
|
|
(166
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)
|
|
|
|
|
Net gain (loss) on sale of repossessed assets
|
|
|
975
|
|
|
|
|
|
|
|
(3,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
634,265
|
|
|
$
|
508,378
|
|
|
$
|
1,727,474
|
|
|
$
|
1,553,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
|
|
$
|
738,208
|
|
|
$
|
690,747
|
|
|
$
|
2,205,913
|
|
|
$
|
2,029,127
|
|
Employee benefits
|
|
|
288,389
|
|
|
|
264,747
|
|
|
|
876,856
|
|
|
|
842,383
|
|
Occupancy of premises
|
|
|
187,733
|
|
|
|
126,526
|
|
|
|
484,466
|
|
|
|
362,466
|
|
Furniture and equipment expense
|
|
|
130,118
|
|
|
|
163,529
|
|
|
|
443,842
|
|
|
|
482,674
|
|
Other operating expenses
|
|
|
871,179
|
|
|
|
600,606
|
|
|
|
2,442,317
|
|
|
|
1,976,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,215,627
|
|
|
$
|
1,846,155
|
|
|
$
|
6,453,394
|
|
|
$
|
5,692,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
$
|
497,524
|
|
|
$
|
808,206
|
|
|
$
|
1,488,873
|
|
|
$
|
2,423,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
33,367
|
|
|
|
193,886
|
|
|
|
175,203
|
|
|
|
664,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
464,157
|
|
|
$
|
614,320
|
|
|
$
|
1,313,670
|
|
|
$
|
1,759,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE
|
|
$
|
1.05
|
|
|
$
|
1.38
|
|
|
$
|
2.97
|
|
|
$
|
3.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
4
CNB FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common
|
|
|
Treasury
|
|
|
Capital
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Surplus
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Equity
|
|
BALANCE, JANUARY 1, 2009
|
|
$
|
458,048
|
|
|
$
|
(570,512
|
)
|
|
$
|
4,163,592
|
|
|
$
|
21,015,652
|
|
|
$
|
(1,848,990
|
)
|
|
$
|
23,217,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for nine months
ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,759,179
|
|
|
|
|
|
|
|
1,759,179
|
|
Change in unrealized gains
(losses) on securities
available for sale (net of tax of $714,213)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,165,296
|
|
|
|
1,165,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,924,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of treasury stock, at cost,
3,703 shares
|
|
|
|
|
|
|
(172,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(172,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($.53 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(236,300
|
)
|
|
|
|
|
|
|
(236,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, SEPTEMBER 30, 2009
|
|
$
|
458,048
|
|
|
$
|
(742,808
|
)
|
|
$
|
4,163,592
|
|
|
$
|
22,538,531
|
|
|
$
|
(683,694
|
)
|
|
$
|
25,733,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JANUARY 1, 2010
|
|
$
|
458,048
|
|
|
$
|
(825,068
|
)
|
|
$
|
4,163,592
|
|
|
$
|
22,476,562
|
|
|
$
|
(642,839
|
)
|
|
$
|
25,630,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for nine months
ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,313,670
|
|
|
|
|
|
|
|
1,313,670
|
|
Change in unrealized gains
(losses) on securities
available for sale (net of tax of $610,107)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
995,439
|
|
|
|
995,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,309,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of treasury stock, at cost,
2,300 shares
|
|
|
|
|
|
|
(112,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(112,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($.53 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(233,914
|
)
|
|
|
|
|
|
|
(233,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, SEPTEMBER 30, 2010
|
|
$
|
458,048
|
|
|
$
|
(937,898
|
)
|
|
$
|
4,163,592
|
|
|
$
|
23,556,318
|
|
|
$
|
352,600
|
|
|
$
|
27,592,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
5
CNB FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,313,670
|
|
|
$
|
1,759,179
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization on premises, equipment and software
|
|
|
339,645
|
|
|
|
380,255
|
|
Provision for loan losses
|
|
|
1,370,000
|
|
|
|
1,165,000
|
|
Provision for losses on other real estate owned
|
|
|
51,900
|
|
|
|
|
|
Deferred income taxes
|
|
|
(436,649
|
)
|
|
|
(327,645
|
)
|
Net (gain) on sale of securities
|
|
|
(173,918
|
)
|
|
|
(32,591
|
)
|
Net (gain) loss on sale of real estate owned
|
|
|
(9,153
|
)
|
|
|
86,744
|
|
Decrease in deferred gain on sale of real estate owned
|
|
|
947
|
|
|
|
|
|
Loss on disposal of premises, equipment and software
|
|
|
166
|
|
|
|
|
|
Net (gain) on loans sold
|
|
|
(18,455
|
)
|
|
|
(32,952
|
)
|
Loans originated for sale
|
|
|
(1,756,300
|
)
|
|
|
(7,141,400
|
)
|
Proceeds from loans sold
|
|
|
1,774,755
|
|
|
|
7,174,177
|
|
(Increase) decrease in accrued interest receivable
|
|
|
2,863
|
|
|
|
(42,359
|
)
|
(Increase) decrease in other assets
|
|
|
485,772
|
|
|
|
(40,007
|
)
|
Increase (decrease) in accrued interest payable
|
|
|
(148,624
|
)
|
|
|
1,433
|
|
(Increase) in cash surrender value on life insurance in excess
of premiums paid
|
|
|
(33,472
|
)
|
|
|
(87,999
|
)
|
Proceeds from life insurance death benefits
|
|
|
|
|
|
|
194,184
|
|
Increase (decrease) in accrued expenses and other liabilities
|
|
|
154,532
|
|
|
|
(250,434
|
)
|
Amortization of deferred loan (fees) cost
|
|
|
79,155
|
|
|
|
136,126
|
|
Amortization (accretion) of premium and discount on securities
|
|
|
101,458
|
|
|
|
11,005
|
|
Amortization (accretion) of premium and discount on certificates of deposit
|
|
|
|
|
|
|
(380
|
)
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
$
|
3,098,292
|
|
|
$
|
2,952,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net decrease in loans, not originated for sale
|
|
$
|
5,032,606
|
|
|
$
|
3,818,107
|
|
Proceeds from sales of securities
|
|
|
8,227,219
|
|
|
|
2,327,895
|
|
Proceeds from maturities, repayments and calls of securities
|
|
|
16,430,106
|
|
|
|
13,060,660
|
|
Proceeds from maturities of certificates of deposit
|
|
|
1,989,000
|
|
|
|
1,238,000
|
|
Purchases of securities
|
|
|
(22,453,670
|
)
|
|
|
(16,660,699
|
)
|
Purchases of certificates of deposit
|
|
|
|
|
|
|
(4,908,620
|
)
|
Purchases of premises, equipment and software
|
|
|
(151,992
|
)
|
|
|
(151,165
|
)
|
Proceeds from sale of real estate owned
|
|
|
745,862
|
|
|
|
588,695
|
|
Costs to acquire foreclosed real estate
|
|
|
(12,092
|
)
|
|
|
(20,423
|
)
|
Net (increase) in federal funds sold
|
|
|
(3,800,000
|
)
|
|
|
(9,950,000
|
)
|
Premiums paid on life insurance
|
|
|
(55,208
|
)
|
|
|
(55,208
|
)
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
$
|
5,951,831
|
|
|
$
|
(10,712,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net increase (decrease) in demand and savings deposits
|
|
$
|
(1,606,862
|
)
|
|
$
|
5,804,867
|
|
Net increase (decrease) in time deposits
|
|
|
(2,168,530
|
)
|
|
|
16,830,638
|
|
Net (decrease) in FHLB borrowings
|
|
|
(6,400,000
|
)
|
|
|
(15,445,000
|
)
|
Purchase of treasury stock
|
|
|
(112,830
|
)
|
|
|
(172,296
|
)
|
Cash dividends paid
|
|
|
(233,914
|
)
|
|
|
(236,300
|
)
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
$
|
(10,522,136
|
)
|
|
$
|
6,781,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
$
|
(1,472,013
|
)
|
|
$
|
(978,513
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
|
|
5,068,118
|
|
|
|
4,770,724
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
3,596,105
|
|
|
$
|
3,792,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the period:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,775,864
|
|
|
$
|
4,041,543
|
|
Income taxes
|
|
$
|
555,982
|
|
|
$
|
840,900
|
|
Net transfer to foreclosed real estate, held for sale
from loans receivable
|
|
$
|
1,333,000
|
|
|
$
|
686,045
|
|
Unrealized gain on investment securities
available for sale (net of tax)
|
|
$
|
995,439
|
|
|
$
|
1,165,296
|
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
6
CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation and Contingencies
In the opinion of CNB Financial Services, Inc. (CNB or the Company), the accompanying
unaudited consolidated financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of CNBs financial condition as of September
30, 2010 and the results of operations for the three and nine months ended September 30, 2010 and
2009, changes in shareholders equity and cash flows for the nine months ended September 30, 2010
and 2009.
The accompanying unaudited financial statements have been prepared in accordance with the
instructions for Form 10-Q. These financial statements should be read in conjunction with the
audited consolidated financial statements and the notes included in CNBs Annual Report for the
year ended December 31, 2009.
In the ordinary course of business, the Company and its subsidiary are involved in various
legal proceedings. In the opinion of the management of CNB, there are no proceedings pending to
which CNB is a party or to which its property is subject, which, if determined adversely to CNB,
would be material in relation to CNBs financial condition. There are no proceedings pending other
than ordinary routine litigation incident to the business of CNB. In addition, no material
proceedings are pending or are known to be threatened or contemplated against CNB by government
authorities.
Earnings per share have been computed based on the following weighted average shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
9/30/2010
|
|
9/30/2009
|
Quarter ending
|
|
|
441,348
|
|
|
|
445,774
|
|
|
|
|
|
|
|
|
|
|
Year to date ending
|
|
|
442,178
|
|
|
|
446,669
|
|
7
CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Securities
The amortized cost and estimated market value of debt securities at September 30, 2010 and
December 31, 2009 by contractual maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Securities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
September 30, 2010
|
|
|
Average
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
Tax
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Equivalent
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Yield
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
and corporations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
999,400
|
|
|
$
|
2,257
|
|
|
|
|
|
|
|
1,001,657
|
|
|
|
3.81
|
%
|
After 1 but wihin 5 years
|
|
|
1,000,000
|
|
|
|
4,977
|
|
|
|
|
|
|
|
1,004,977
|
|
|
|
2.00
|
|
After 5 but within 10 years
|
|
|
1,998,290
|
|
|
|
20,795
|
|
|
|
1
|
|
|
|
2,019,084
|
|
|
|
2.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,997,690
|
|
|
$
|
28,029
|
|
|
$
|
1
|
|
|
$
|
4,025,718
|
|
|
|
2.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
495,110
|
|
|
$
|
4,158
|
|
|
$
|
|
|
|
$
|
499,268
|
|
|
|
3.18
|
%
|
After 1 but within 5 years
|
|
|
2,775,820
|
|
|
|
222,793
|
|
|
|
|
|
|
|
2,998,613
|
|
|
|
5.03
|
|
After 5 but within 10 years
|
|
|
2,015,126
|
|
|
|
160,610
|
|
|
|
|
|
|
|
2,175,736
|
|
|
|
5.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,286,056
|
|
|
$
|
387,561
|
|
|
$
|
|
|
|
$
|
5,673,617
|
|
|
|
5.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
1,510,350
|
|
|
$
|
8,499
|
|
|
$
|
|
|
|
$
|
1,518,849
|
|
|
|
2.61
|
%
|
After 1 but within 5 years
|
|
|
6,589,670
|
|
|
|
276,723
|
|
|
|
1,038
|
|
|
|
6,865,355
|
|
|
|
3.04
|
|
After 5 but within 10 years
|
|
|
22,371,714
|
|
|
|
1,094,925
|
|
|
|
|
|
|
|
23,466,639
|
|
|
|
4.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,471,734
|
|
|
$
|
1,380,147
|
|
|
$
|
1,038
|
|
|
$
|
31,850,843
|
|
|
|
3.86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government issued or guaranteed
|
|
$
|
11,867,046
|
|
|
$
|
787,680
|
|
|
$
|
15,215
|
|
|
$
|
12,639,511
|
|
|
|
5.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government issued or guaranteed
|
|
$
|
16,247,150
|
|
|
$
|
395,204
|
|
|
$
|
15,666
|
|
|
$
|
16,626,688
|
|
|
|
3.44
|
%
|
Privately issued
|
|
|
1,065,628
|
|
|
|
|
|
|
|
131,953
|
|
|
|
933,675
|
|
|
|
8.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,312,778
|
|
|
$
|
395,204
|
|
|
$
|
147,619
|
|
|
$
|
17,560,363
|
|
|
|
3.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
68,935,304
|
|
|
$
|
2,978,621
|
|
|
$
|
163,873
|
|
|
$
|
71,750,052
|
|
|
|
4.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank stock
|
|
$
|
2,321,300
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,321,300
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Securities (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
December 31, 2009
|
|
|
Average
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
Tax
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Equivalent
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Yield
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
and corporations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
864,592
|
|
|
$
|
18,441
|
|
|
$
|
|
|
|
$
|
883,033
|
|
|
|
3.68
|
%
|
After 1 but within 5 years
|
|
|
2,006,039
|
|
|
|
1,077
|
|
|
|
17,468
|
|
|
|
1,989,648
|
|
|
|
1.60
|
|
After 5 but within 10 years
|
|
|
5,742,908
|
|
|
|
29,965
|
|
|
|
22,737
|
|
|
|
5,750,136
|
|
|
|
3.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,613,539
|
|
|
$
|
49,483
|
|
|
$
|
40,205
|
|
|
$
|
8,622,817
|
|
|
|
2.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
252,711
|
|
|
$
|
|
|
|
$
|
7,614
|
|
|
$
|
245,097
|
|
|
|
6.76
|
%
|
After 1 but within 5 years
|
|
|
1,490,853
|
|
|
|
47,318
|
|
|
|
7,029
|
|
|
|
1,531,142
|
|
|
|
4.84
|
|
After 5 but within 10 years
|
|
|
2,997,344
|
|
|
|
57,064
|
|
|
|
19,138
|
|
|
|
3,035,270
|
|
|
|
5.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,740,908
|
|
|
$
|
104,382
|
|
|
$
|
33,781
|
|
|
$
|
4,811,509
|
|
|
|
5.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
2,898,507
|
|
|
$
|
19,824
|
|
|
$
|
|
|
|
$
|
2,918,331
|
|
|
|
1.92
|
%
|
After 1 but within 5 years
|
|
|
9,567,178
|
|
|
|
314,547
|
|
|
|
357
|
|
|
|
9,881,368
|
|
|
|
2.98
|
|
After 5 but within 10 years
|
|
|
19,656,673
|
|
|
|
216,197
|
|
|
|
139,565
|
|
|
|
19,733,305
|
|
|
|
4.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,122,358
|
|
|
$
|
550,568
|
|
|
$
|
139,922
|
|
|
$
|
32,533,004
|
|
|
|
3.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government issued or guaranteed
|
|
$
|
12,775,369
|
|
|
$
|
640,601
|
|
|
$
|
|
|
|
$
|
13,415,970
|
|
|
|
5.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government issued or guaranteed
|
|
$
|
11,489,702
|
|
|
$
|
346,900
|
|
|
$
|
21,947
|
|
|
$
|
11,814,655
|
|
|
|
4.12
|
%
|
Privately issued
|
|
|
1,321,605
|
|
|
|
|
|
|
|
246,895
|
|
|
|
1,074,710
|
|
|
|
7.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,811,307
|
|
|
$
|
346,900
|
|
|
$
|
268,842
|
|
|
$
|
12,889,365
|
|
|
|
4.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
71,063,481
|
|
|
$
|
1,691,934
|
|
|
$
|
482,750
|
|
|
$
|
72,272,665
|
|
|
|
4.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank stock
|
|
$
|
2,321,300
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,321,300
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
1,989,000
|
|
|
$
|
209
|
|
|
$
|
192
|
|
|
$
|
1,989,017
|
|
|
|
0.33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of securities pledged to secure public deposits and for other purposes as
required or permitted by law totaled $21,384,433 at September 30, 2010 and $24,761,434 at December
31, 2009.
Proceeds from sales of securities available for sale (excluding maturities and calls) during
the nine months ended September 30, 2010 and 2009 were $8,227,219 and $2,327,895, respectively.
Gross gains (losses) of $161,694 and $(4,543) during the nine months ended September 30, 2010 on
respective sales of securities and $34,987 and $(0) for the nine months ended September 30, 2009
were realized on the respective sales. Gross gains (losses) of $16,870 and ($103) and $23 and
($2,419) during the nine months ended September 30, 2010 and 2009, respectively were realized on
called securities.
9
CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Securities (continued)
The following tables show our investments gross unrealized losses and fair value, aggregated
by investment category and length of time that individual securities have been in a continuous
unrealized loss position, at September 30, 2010 and December 31, 2009.
Securities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
Description of Securities
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
U.S. Government agencies
and corporations
|
|
$
|
499,375
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
499,375
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
103,530
|
|
|
|
1,038
|
|
|
|
103,530
|
|
|
|
1,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government issued or guarenteed
|
|
|
507,658
|
|
|
|
15,215
|
|
|
|
|
|
|
|
|
|
|
|
507,658
|
|
|
|
15,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government issued or guaranteed
|
|
|
1,912,687
|
|
|
|
15,666
|
|
|
|
|
|
|
|
|
|
|
|
1,912,687
|
|
|
|
15,666
|
|
Privately issued
|
|
|
|
|
|
|
|
|
|
|
933,675
|
|
|
|
131,953
|
|
|
|
933,675
|
|
|
|
131,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
securities
|
|
$
|
2,919,720
|
|
|
$
|
30,882
|
|
|
$
|
1,037,205
|
|
|
$
|
132,991
|
|
|
$
|
3,956,925
|
|
|
$
|
163,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
Description of Securities
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
Corporate bonds
|
|
$
|
990,185
|
|
|
$
|
19,138
|
|
|
$
|
723,796
|
|
|
$
|
14,643
|
|
|
$
|
1,713,981
|
|
|
$
|
33,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
and corporations
|
|
|
3,207,366
|
|
|
|
40,205
|
|
|
|
|
|
|
|
|
|
|
|
3,207,366
|
|
|
|
40,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
|
8,689,560
|
|
|
|
124,471
|
|
|
|
929,785
|
|
|
|
15,451
|
|
|
|
9,619,345
|
|
|
|
139,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government issued or guaranteed
|
|
|
1,995,305
|
|
|
|
19,204
|
|
|
|
370,595
|
|
|
|
2,742
|
|
|
|
2,365,900
|
|
|
|
21,946
|
|
Privately issued
|
|
|
|
|
|
|
|
|
|
|
1,074,651
|
|
|
|
246,896
|
|
|
|
1,074,651
|
|
|
|
246,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
499,808
|
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
499,808
|
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
$
|
15,382,224
|
|
|
$
|
203,210
|
|
|
$
|
3,098,827
|
|
|
$
|
279,732
|
|
|
$
|
18,481,051
|
|
|
$
|
482,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management evaluates securities for other-than-temporary impairment at least on a
quarterly basis, and more frequently when economic or market concerns warrant such evaluation.
Consideration is given to (1) the length of time and the extent to which the fair value has been
less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the
intent and ability of the bank to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value.
10
CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Securities (continued)
At September 30, 2010, there were 8 available for sale securities that have unrealized losses
with aggregate depreciation of 4.0% from their amortized cost basis. The unrealized losses relate
principally to privately issue collateralized mortgage obligations. In analyzing these
collateralized mortgage obligations, management considers the collateral composition, prepayment
history and the overall credit worthiness of the investment. Some of the unrealized losses relate
to corporate bonds and municipal obligations and it is more likely than not that management will
not be required to sell the securities before the market value has recovered. At September 30,
2010, management analyzed the investment portfolio and determined no other-than-temporary losses
were needed at the present time.
Note 3. Loans and Leases Receivable
Major classifications of loans at September 30, 2010 and December 31, 2009, were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Loans:
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
124,585,916
|
|
|
$
|
129,509,117
|
|
Commercial real estate
|
|
|
43,523,511
|
|
|
|
43,972,033
|
|
Consumer
|
|
|
15,158,985
|
|
|
|
16,683,611
|
|
Commercial
|
|
|
7,091,463
|
|
|
|
7,276,430
|
|
Overdrafts
|
|
|
65,494
|
|
|
|
203,337
|
|
|
|
|
|
|
|
|
|
|
$
|
190,425,369
|
|
|
$
|
197,644,528
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
525,987
|
|
|
|
585,393
|
|
|
|
|
|
|
|
|
|
|
$
|
190,951,356
|
|
|
$
|
198,229,921
|
|
Net deferred loan fees, costs,
premiums and discounts
|
|
|
409,055
|
|
|
|
380,025
|
|
Allowance for loan losses
|
|
|
(4,467,946
|
)
|
|
|
(3,902,720
|
)
|
|
|
|
|
|
|
|
|
|
$
|
186,892,465
|
|
|
$
|
194,707,226
|
|
|
|
|
|
|
|
|
An analysis of the allowance for possible loan losses is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
Balance, Beginning
|
|
$
|
3,902,720
|
|
|
$
|
2,751,386
|
|
|
$
|
2,751,386
|
|
Provision charged to operations
|
|
|
1,370,000
|
|
|
|
1,165,000
|
|
|
|
1,852,726
|
|
Recoveries
|
|
|
168,387
|
|
|
|
54,341
|
|
|
|
116,135
|
|
Loans charged off
|
|
|
(973,161
|
)
|
|
|
(602,125
|
)
|
|
|
(817,527
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance, Ending
|
|
$
|
4,467,946
|
|
|
$
|
3,368,602
|
|
|
$
|
3,902,720
|
|
|
|
|
|
|
|
|
|
|
|
11
CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Loans and Leases Receivable (continued)
The following is a summary of information pertaining to impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
Impaired loans without a valuation allowance
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Impaired loans with a valuation allowance (1)
|
|
|
5,556,693
|
|
|
|
1,236,885
|
|
|
|
935,785
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
5,556,693
|
|
|
$
|
1,236,885
|
|
|
$
|
935,785
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance related to impaired loans
|
|
$
|
756,730
|
|
|
$
|
275,430
|
|
|
$
|
235,073
|
|
|
|
|
(1)
|
|
Some of these loans have government agency guarantees reducing the banks exposure
by $0 for September 30, 2010, $38,435 at September 30, 2009 and $31,379 for December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
Average investment in impaired loans
|
|
$
|
3,396,789
|
|
|
$
|
1,231,977
|
|
|
$
|
1,081,427
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized on impaired loans
|
|
$
|
172,451
|
|
|
$
|
49,571
|
|
|
$
|
56,662
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized on a cash basis on
impaired loans
|
|
$
|
172,451
|
|
|
$
|
49,571
|
|
|
$
|
56,662
|
|
|
|
|
|
|
|
|
|
|
|
Loans are placed on nonaccrual status when, in the judgment of management, the
probability of collection of interest is deemed to be insufficient to warrant further accrual.
When interest accruals are discontinued, interest credited to income is reversed. Nonaccrual loans
are restored to accrual status when all delinquent principal and interest becomes current or the
loan is considered secured and in the process of collection. Certain loans that are determined to
be sufficiently collateralized may continue to accrue interest after reaching 90 days past due. A
summary of nonperforming assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
Foreclosed real estate (other real estate owned)
|
|
$
|
942,983
|
|
|
$
|
284,329
|
|
|
$
|
386,500
|
|
Impaired loans, not on nonaccrual
|
|
|
5,556,693
|
|
|
|
654,404
|
|
|
|
826,658
|
|
Nonaccrual loans, impaired (1)
|
|
|
|
|
|
|
582,481
|
|
|
|
109,127
|
|
Nonaccrual loans, not impaired
|
|
|
1,180,830
|
|
|
|
258,019
|
|
|
|
1,456,367
|
|
Loans past due 90 days or more still accruing interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
7,680,506
|
|
|
$
|
1,779,233
|
|
|
$
|
2,778,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Some of these loans have government agency guarantees reducing the banks exposure
by $0 at September 30, 2010, $38,435 at September 30, 2009 and $31,379 at December 31, 2009.
|
12
CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4. Time Deposits
At September 30, 2010, the scheduled maturities of time deposits are as follows:
|
|
|
|
|
|
|
|
|
|
|
Time Deposits
|
|
|
All Time
|
|
|
|
$100,000 and Over
|
|
|
Deposits
|
|
Within 3 months
|
|
$
|
17,106,070
|
|
|
$
|
30,675,356
|
|
3 months thru 6 months
|
|
|
23,125,076
|
|
|
|
37,280,831
|
|
6 months thru 12 months
|
|
|
4,875,723
|
|
|
|
13,932,645
|
|
Over 12 months
|
|
|
27,921,069
|
|
|
|
64,362,497
|
|
|
|
|
|
|
|
|
|
|
$
|
73,027,938
|
|
|
$
|
146,251,329
|
|
|
|
|
|
|
|
|
Note 5. Federal Home Loan Bank Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2009
|
Federal Home Loan Bank advances
|
|
$
|
|
|
|
$
|
10,000,000
|
|
|
$
|
6,400,000
|
|
CNB Bank, Inc. is a member of the Federal Home Loan Bank (FHLB) of Pittsburgh and, as
such, can take advantage of the FHLB program for overnight and term advances at published daily
rates. At September 30, 2010, the Bank has no long term advances with FHLB. Under the terms of a
blanket collateral agreement, advances from the FHLB are collateralized by qualifying mortgages and
US government agencies and mortgage-backed securities. In addition, all of the Banks stock in the
FHLB is pledged as collateral for such debt. Term advances available under this agreement are
limited by available and qualifying collateral and the amount of FHLB stock held by the borrower.
Note 6. Pension Plan
CNB Bank, Inc. has an obligation under a defined benefit plan covering all eligible employees.
See Note 11 Pension Plan to our consolidated financial statements in our most recently filed
Annual Report on Form 10-K for further information.
The components of net periodic plan cost charged to operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Service cost
|
|
$
|
65,133
|
|
|
$
|
59,100
|
|
|
$
|
195,398
|
|
|
$
|
177,299
|
|
Interest cost
|
|
|
86,446
|
|
|
|
79,062
|
|
|
|
259,337
|
|
|
|
237,185
|
|
Expected return on plan assets
|
|
|
(86,656
|
)
|
|
|
(81,877
|
)
|
|
|
(259,967
|
)
|
|
|
(245,631
|
)
|
Amortization of prior service costs
|
|
|
3,086
|
|
|
|
3,086
|
|
|
|
9,258
|
|
|
|
9,258
|
|
Recognized net actuarial loss
|
|
|
21,530
|
|
|
|
18,321
|
|
|
|
64,592
|
|
|
|
54,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic plan cost
|
|
$
|
89,539
|
|
|
$
|
77,692
|
|
|
$
|
268,618
|
|
|
$
|
233,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions paid during the periods ended September 30, 2010 and 2009 were
$304,000 and $477,092, respectively.
13
CNB FINANCIAL SERVICES, INC
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7. Supplemental Retirement Plan
On January 2, 2004, the Bank entered into a nonqualified supplemental retirement benefit
agreement with the President which when fully vested would pay the President or his beneficiary an
amount of $30,000 per year for 10 years beginning June 11, 2011, if he retires on or after May 29,
2011. Termination of employment prior to that date other than by reasons of death or disability
will result in a reduced benefit. The expense for the nine months ended September 30, 2010 and
2009 was $10,120 and $20,107, respectively.
Note 8. Health Insurance Plan
Effective January 1, 2005, the Bank changed its health insurance program to a high deductible
plan and concurrently established health reimbursement accounts for each employee in the plan. The
Bank has committed to fund $750 for each participant in 2010 and 2009. The expense incurred for
the health reimbursement accounts for the nine months ended September 30, 2010 and 2009 was $38,531
and $39,938, respectively.
Note 9. Fair Value Measurements
The FASB ASC Topic 820, Financial Instruments, requires the disclosure of the estimated fair
value of certain financial instruments. CNBs available for sale investment portfolio is subject
to disclosure for interim reporting. Fair value is the price that would be received upon sale of
an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. The following fair value hierarchy is used in selecting inputs, with the
highest priority given to Level 1, as these are most transparent or reliable.
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the financial
instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to the
fair value measurement.
The following describes the valuation techniques used by CNB to measure certain financial
assets and liabilities recorded at fair value on a recurring basis in the financial statements:
Securities available for sale and certificates of deposit investments
Securities available for sale and certificates of deposit investments are recorded at fair
value on a recurring basis. Fair value measurement is based upon quoted market prices, when
available (Level 1). If quoted market prices are not available, fair values are measured utilizing
independent valuation techniques of identical or similar securities for which significant
assumptions are derived primarily from or corroborated by observable market data. Third party
vendors compile prices from various sources and may determine the fair value of identical or
similar securities by using pricing models that considers observable market data (Level 2). In
certain cases where there is limited activity or less transparency around inputs to the valuation,
securities are classified within Level 3 of the valuation hierarchy. At September 30, 2010 and
December 31, 2009, all of CNBs securities and certificates of deposit investments are considered
to be Level 2 investments.
14
CNB FINANCIAL SERVICES, INC
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Fair Value Measurements (continued)
The following table presents the balances of financial assets and liabilities measured at fair
value on a recurring basis as of September 30, 2010 and December 31, 2009:
Valuation of our Financial Instruments by Fair Value Hierarchy Levels Recurring
Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
In Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
for Identical
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
Description
|
|
Total
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies and corporations
|
|
$
|
4,026
|
|
|
$
|
|
|
|
$
|
4,026
|
|
|
$
|
|
|
Corporate bonds
|
|
|
5,673
|
|
|
|
|
|
|
|
5,673
|
|
|
|
|
|
State and municipal securities
|
|
|
31,851
|
|
|
|
|
|
|
|
31,851
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
|
12,640
|
|
|
|
|
|
|
|
12,640
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
|
17,560
|
|
|
|
|
|
|
|
17,560
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
In Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
for Identical
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
Description
|
|
Total
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies and corporations
|
|
$
|
8,623
|
|
|
$
|
|
|
|
$
|
8,623
|
|
|
$
|
|
|
Corporate bonds
|
|
|
4,812
|
|
|
|
|
|
|
|
4,812
|
|
|
|
|
|
State and municipal securities
|
|
|
32,533
|
|
|
|
|
|
|
|
32,533
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
|
13,416
|
|
|
|
|
|
|
|
13,416
|
|
|
|
|
|
Collateralized mortgage obligtions
|
|
|
12,889
|
|
|
|
|
|
|
|
12,889
|
|
|
|
|
|
Certificates of deposit investments
|
|
|
1,989
|
|
|
|
|
|
|
|
1,989
|
|
|
|
|
|
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with
accounting principles generally accepted in the United States (GAAP). Adjustments to the fair
value of these assets usually result from the application of lower-of-cost-or-market accounting or
write-downs of individual assets.
The following describes the valuation techniques used by CNB to measure certain financial
assets recorded at fair value on a nonrecurring basis in the financial statements:
Loans held for sale
These loans currently consist of one-to-four family residential loans originated for sale in
the secondary market. Fair value is based on the price secondary markets are currently offering
for similar loans using observable market data which is not materially different than cost due to
the short duration between origination and sale (Level 2). Loans held for sale are required to be
measured at lower of cost or fair value. Under ASC Topic 820, market value is to represent fair
value. Management obtains quotes or bids on all or part of these loans directly from the
purchasing financial institutions. Premiums received or to be received on the quotes or bids are
indicative of the fact that cost is lower than fair value. At September 30, 2010, CNB did not have
any loans held for sale.
15
CNB FINANCIAL SERVICES, INC
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Fair Value Measurements (continued)
Impaired loans
Loans are designated as impaired when, in the judgment of management based on current
information and events, it is probable that all amounts due according to the contractual terms of
the loan agreement will not be collected. The measurement of loss associated with impaired loans
can be based on either the observable market price of the loan or the fair value of the collateral.
Fair value is measured based on the value of the collateral securing the loans. Collateral may be
in the form of real estate or business assets including equipment, inventory, and accounts
receivable. The value of real estate collateral is determined utilizing an income or market
valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of
the Company using observable market data (Level 2). However, if the collateral is a house or
building in the process of construction or if an appraisal of the real estate property is over two
years old, then the fair value is considered Level 3. The value of business equipment is based
upon an outside appraisal if deemed significant, or the net book value on the applicable business
financial statements if not considered significant using observable market data. Likewise, values
for inventory and accounts receivables collateral are based on financial statement balances or
aging reports (Level 3). Impaired loans allocated to the Allowance for Loan Losses are measured at
fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred
as provision for loan losses on the Consolidated Statements of Income.
Certain assets such as impaired loans are measured at the lower of cost or fair value less the
estimated cost to sell. Management believes that the fair value component in its valuation follows
the provisions of ASC Topic 820. CNB had no fair value measurement adjustments to impaired loans
during the quarter ended September 30, 2010.
Other Real Estate Owned
Certain assets such as other real estate owned (OREO) are measured at fair value less cost to
sell. CNB had $3,900 fair value adjustments during the quarter ended September 30, 2010 and
$130,800 of fair value adjustments during the year ended December 31, 2009 resulting from the
inability to sell a property at its appraised value. We believe that the fair value component in
its valuation follows the provisions of ASC Topic 820.
The following table summarized CNBs financial and nonfinancial assets that were measured at
fair value on a nonrecurring basis during the period.
Valuation of our Financial Instruments by Fair Value Hierarchy Levels Non-recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices In
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
Recognized Gains
|
|
Description
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
(Losses)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans, net of government agency
guarantees and reserve for losses
|
|
$
|
4,800
|
|
|
$
|
|
|
|
$
|
4,800
|
|
|
$
|
|
|
|
$
|
|
|
Other real estate owned
|
|
$
|
943
|
|
|
$
|
|
|
|
$
|
943
|
|
|
$
|
|
|
|
$
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
Quoted Prices In
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
Recognized Gains
|
|
Description
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
(Losses)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans, net of government agency
guarantees and reserve for losses
|
|
$
|
669
|
|
|
$
|
|
|
|
$
|
669
|
|
|
$
|
|
|
|
$
|
|
|
Other real estate owned
|
|
$
|
387
|
|
|
$
|
|
|
|
$
|
387
|
|
|
$
|
|
|
|
$
|
(149
|
)
|
16
CNB FINANCIAL SERVICES, INC
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Fair Value Measurements (continued)
The fair value is the current amount that would be exchanged between willing parties, other
than in a forced liquidation. Fair value is best determined based upon quoted market prices.
However, in many instances, there are no quoted market prices for the Companys various financial
assets. In cases where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future cash flows. Accordingly,
the fair value estimates may not be realized in an immediate settlement of the assets.
The estimated fair values of the Companys financial instruments at September 30, 2010 and
December 31, 2009 are summarized below. The fair values of a significant portion of these
financial instruments are estimates derived using present value techniques and may not be
indicative of the net realizable or liquidation values. Also, the calculation of estimated fair
values is based on market conditions at a specific point in time and may not reflect current or
future fair values.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, due from banks and
federal funds sold
|
|
$
|
7,396,105
|
|
|
$
|
7,396,105
|
|
|
$
|
5,068,118
|
|
|
$
|
5,068,118
|
|
Securities available for
sale
|
|
|
71,750,052
|
|
|
|
71,750,052
|
|
|
|
72,272,665
|
|
|
|
72,272,665
|
|
Loans
|
|
|
186,892,465
|
|
|
|
183,298,249
|
|
|
|
194,707,226
|
|
|
|
191,450,941
|
|
Accrued interest receivable
|
|
|
1,331,841
|
|
|
|
1,331,841
|
|
|
|
1,334,704
|
|
|
|
1,334,704
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
102,265,133
|
|
|
$
|
102,265,133
|
|
|
$
|
103,871,995
|
|
|
$
|
103,871,995
|
|
Time deposits
|
|
|
146,251,329
|
|
|
|
149,763,574
|
|
|
|
148,419,859
|
|
|
|
157,634,463
|
|
Accrued interest payable
|
|
|
1,021,793
|
|
|
|
1,021,793
|
|
|
|
1,170,417
|
|
|
|
1,170,417
|
|
FHLB borrowings
|
|
|
|
|
|
|
|
|
|
|
6,400,000
|
|
|
|
6,400,000
|
|
Off-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit
|
|
$
|
|
|
|
$
|
250
|
|
|
$
|
|
|
|
$
|
|
|
Note 10. Recently Issued Accounting Standards
ASC Topic 860 Transfers and Servicing (Statement No. 166,
Accounting for Transfers of
Financial Assets an amendment of FASB Statement No. 140) (ASC 860).
This accounting guidance was
originally issued in June 2009 and is now included in ASC 860. The guidance removes the concept of
a qualifying special purpose entity and changes the requirements for derecognizing financial
assets. Many types of transferred financial assets that would have been derecognized previously are
no longer eligible for derecognition. The guidance is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2009, and early adoption is
prohibited. The guidance applies prospectively to transfers of financial assets occurring on or
after the effective date. The guidance will impact structuring of securitizations and other
transfers of financial assets in order to meet the amended sale treatment criteria.
ASC Topic 810 Consolidation (Statement No. 167,
Amendments to FASB Interpretation No.
46R) (ASC 810)
This accounting guidance was originally issued in June 2009 and is now included in
ASC 810. The guidance amends the consolidation guidance applicable for variable interest entities
(VIE). The guidance is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2009, and early adoption is
prohibited. The adoption of this guidance did not have a material impact on CNBs consolidated
financial statements.
17
CNB FINANCIAL SERVICES, INC
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10. Recently Issued Accounting Standards (continued)
Accounting Standards Update (ASU) 2009-15 Accounting for Own-Share Lending Arrangements in
Contemplation of Convertible Debt Issuance or Other Financing.
The ASU amends Subtopic 470-20 to
expand accounting and reporting guidance for own-share lending arrangements issued in contemplation
of convertible debt issuance. The ASU is effective for fiscal years beginning on or after December
15, 2009 and interim periods within those fiscal years for arrangements outstanding as of the
beginning of those fiscal years. CNB has adopted ASU 2009-15 with no material impact on the
consolidated financial statements.
Accounting Standards Update (ASU) 2010-4 Accounting for Various Topics Technical
Corrections to SEC Paragraphs.
The ASU makes technical corrections to existing SEC guidance
including the following topics: accounting for subsequent investments, termination of an interest
rate swap, issuance of financial statements subsequent events, use of residential method to
value acquired assets other than goodwill, adjustments in assets and liabilities for holding gains
and losses, and selections of discount rate used for measuring defined benefit obligation. CNB has
adopted ASU 2010-4 with no material impact on the consolidated financial statements.
Accounting Standards Update (ASU) 2010-6 Fair Value Measurements and Disclosures (Topic
820): Improving Disclosures about Fair Value Measurements.
The ASU amends Subtopic 820-10 with new
disclosure requirements and clarification of existing disclosure requirements. New disclosures
required include the amount of significant transfers in and out of levels 1 and 2 fair value
measurements and the reasons for the transfers. In addition, the reconciliation for level 3
activity will be required on a gross rather than net basis. The ASU provides additional guidance
related to the level of disaggregation in determining classes of assets and liabilities and
disclosures about inputs and valuation techniques. The amendments are effective for annual or
interim reporting periods beginning after December 15, 2009, except for the requirement to provide
the reconciliation for level 3 activity on a gross basis which will be effective for fiscal years
beginning after December 15, 2010.
Accounting Standards Update (ASU) 2010-9 Subsequent Events (Topic 855): Amendments to
Certain Recognition and Disclosure Requirements.
ASU 2010-9 amends Topic 855 to exclude SEC
reporting entities from the requirement to disclose the date on which subsequent events have been
evaluated. In addition, it modifies the requirement to disclose the date on which subsequent
events have been evaluated in reissued financial statements to apply only to such statements that
have been restated to correct an error or to apply U.S. GAAP retrospectively. The amendments are
generally effective immediately, but with respect to the requirement that conduit obligors evaluate
subsequent events through the date the financial statements are issued, the effective date is for
interim or annual reporting periods ending after June 15, 2010. CNB has adopted ASU 2010-9 with no
material impact on the consolidated financial statements.
Accounting Standards Update (ASU) 2010-18 Effect of a Loan Modification When the Loan is
Part of a Pool that is Accounted for as a Single Asset (Topic 310).
ASU 2010-18 was issued in
April 2010. This guidance is effective for
modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first
interim or annual period ending after July 15, 2010. As a result of the amendments in this Update,
modification of loans within the pool does not result in the removal of those loans from the pool
even if the modification of those loans would otherwise be considered a trouble debt restructuring.
An entity will continue to be required to consider whether the pool of assets in which the loan is
included is impaired if expected cash flows for the pool change. However, loans within the scope of
Subtopic 310-30 that are accounted for individually will continue to be subject to the troubled
debt restructuring accounting provisions. The provisions of this Update will be applied
prospectively with early application permitted. Upon initial adoption of the guidance in this
Update, an entity may make a one-time election to terminate accounting for loans as a pool under
Subtopic 310-30. The election may be applied on a pool-by-pool basis and does not preclude an
entity from applying pool accounting to subsequent acquisitions of loans with credit deterioration.
CNB does not have any pools of loans accounted for as a single asset as defined in Subtopic
310-30, and therefore, the adoption of this Update will not have a significant effect on CNBs
financial statements.
Accounting Standards Update (ASU) 2010-20 Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses (Topic 310).
ASU 2010-20 was issued in July 2010.
This guidance will significantly expand the disclosures that the Company must make about the credit
quality of financing receivables and the allowance for credit losses. The objectives of the
enhanced disclosures are to provide financial statement users with additional information about the
nature of credit risks inherent in the Companys financing receivables, how credit risk is analyzed
and assessed when determining the allowance for credit losses, and the reasons for the change in
the allowance for credit losses. The disclosures as of the end of the reporting period are
effective for CNBs interim and annual periods
ending on or after December 15, 2010. The
disclosures about activity that occurs during a reporting period are effective for CNBs interim
and annual periods
18
CNB FINANCIAL SERVICES, INC
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10. Recently Issued Accounting Standards (continued)
beginning on or after December 15, 2010. The adoption of this update and its impact on CNBs
consolidated financial statements is currently being assessed.
SEC Release No. 33-9142 Internal Control Over Financial Reporting in Exchange Act Periodic
Reports of Non-Accelerated Filers.
This release issued a final rule adopting amendments to its
rules and forms to conform them to Section 404(c) of the Sarbanes-Oxley Act of 2002 (SOX), as added
by Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act. SOX Section
404(c) provides that Section 404(b) shall not apply with respect to any audit report prepared for
an issuer that is neither an accelerated filer nor a large accelerated filer as defined in Rule
12b-2 under the Securities Exchange Act of 1934. Release No. 33-9142 was effective September 21,
2010.
SEC Release No. 33-9144 Commission Guidance on Presentation of Liquidity and Capital
Resources Disclosures in Managements Discussion and Analysis.
This interpretive release is
intended to improve discussion of liquidity and capital resources in Managements Discussion and
Analysis of Financial Condition and Results of Operations in order to facilitate understanding by
investors of the liquidity and funding risks facing the registrant. This release was issued in
conjunction with a proposed rule, Short-Term Borrowings Disclosures, that would require public
companies to disclose additional information to investors about their short-term borrowing
arrangements. Release No. 33-9144 was effective on September 28, 2010.
Note 11. Subsequent Events
The Company has evaluated events and transactions subsequent to September 30, 2010 through the
date these consolidated financial statements were included in this Form 10-Q and filed with the
SEC. Based on the definitions and requirements of Generally Accepted Accounting Principles, we have
identified an event that has occurred subsequent to September 30, 2010, that requires recognition
or disclosure in the consolidated financial statements. On November 5, 2010, the Company began
mailing its definitive Proxy Statement to shareholders of record as of October 15, 2010, soliciting
proxies for a Special Meeting of Shareholders on December 9, 2010. The purpose of the Special
Meeting is to vote upon a proposal to engage in a corporate reorganization that will allow all
those Company shareholders who hold, in the aggregate, less than 150 shares of CNB Common Stock, to
exchange those shares for newly created Class A Common Stock shares. Those Company shareholders
who hold in the aggregate 150 or more of CNBs Common Stock shares will continue to hold their
existing Common Stock without change. This reorganization is known as a going private
transaction and will result, if approved, in the Company having less than 300 shareholders owning
the Companys existing Common Stock and less than 500 shareholders owning the newly created Class A
Common Stock.
19
|
|
|
ITEM 2.
|
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
GENERAL
CNB Financial Services, Inc. (CNB or the Company) was organized under the laws of West
Virginia in March 2000 at the direction of the Board of Directors of CNB Bank, Inc. formerly
Citizens National Bank, (the Bank) for the purpose of becoming a financial services holding
company. The Companys primary function is to direct, plan and coordinate the business activities
for the Bank and its subsidiary. We refer to the Company and its subsidiary as CNB.
On August 31, 2000, the Bank, via merger, became a wholly-owned subsidiary of the Company and
the shareholders of the Bank became shareholders of the Company. Each Bank shareholder received
two shares of the Company stock for each share of the Banks common stock. The merger was
accounted for as a pooling of interests.
The Bank was organized on June 20, 1934, and has operated in Berkeley Springs in Morgan
County, West Virginia, as a national banking association continuously until October 16, 2006, at
which time the Bank obtained a West Virginia state charter and began operating as a state banking
association.
The Bank is a full-service commercial bank conducting general banking and trust activities
through six full-service offices and six automated teller machines located in Morgan and Berkeley
Counties, West Virginia and Washington County, Maryland.
The following discussion and analysis presents the significant changes in financial condition
and results of operations of CNB for the three and nine months ended September 30, 2010 and 2009.
This discussion may include forward-looking statements based upon managements expectations.
Actual results may differ. We have rounded amounts and percentages used in this discussion and
have based all average balances on daily averages.
RECENT LEGISLATION IMPACTING THE FINANCIAL SERVICES INDUSTRY
On July 21, 2010, sweeping financial regulatory reform legislation entitled the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) was signed into law.
Generally, the Dodd-Frank Act is effective the day after it was signed into law, but different
effective dates apply to specific sections of the law. The Dodd-Frank Act implements far-reaching
changes across the financial regulatory landscape, including provisions that, among other things,
will:
|
|
|
Centralize responsibility for consumer financial protection by creating a new agency,
the Consumer Financial Protection Bureau, which will have rulemaking authority for a wide
range of consumer protection laws that would apply to all banks and have broad powers to
supervise and enforce consumer protection laws;
|
|
|
|
|
Changes standards for Federal preemption of state laws related to federally chartered
institutions and their subsidiaries;
|
|
|
|
|
After a three-year phase-in period which begins January 1, 2013, removes trust preferred
securities as a permitted component of a holding companys tier 1 capital;
|
|
|
|
|
Requires the Office of the Comptroller of the Currency to seek to make its capital
requirements for national banks countercyclical so that capital requirements increase in
times of economic expansion and decrease in times of economic contraction;
|
|
|
|
|
Requires financial holding companies to be well-capitalized and well-managed as of July
21, 2011. Bank holding companies and banks must also be both well-capitalized and
well-managed in order to acquire banks located outside their domiciled state;
|
|
|
|
|
Provides for an increase in the FDIC assessment for depository institutions with assets
of $10 billion or more, increases in the minimum reserve ratio for the deposit insurance
fund from 1.15% to 1.35% and changes in the basis for determining FDIC premiums from
deposits to assets;
|
|
|
|
|
Requires large, publicly traded bank holding companies with assets of $10 billion or
more to establish a risk committee responsible for the oversight of enterprise risk
management;
|
|
|
|
|
Provides for new disclosure and other requirements relating to executive compensation
and corporate governance. These disclosures and requirements apply to all public
companies, not just financial institutions;
|
20
|
|
|
Permanently increases the $250 thousand limit for federal deposit insurance and
increases the cash limit of Securities Investor Protection Corporation protection from $100
thousand to $250 thousand and provides unlimited federal deposit insurance until January 1,
2013 for non-interest bearing demand transaction accounts at all insured depository
institutions;
|
|
|
|
|
Repeals the federal prohibitions on the payment of interest on demand deposits;
|
|
|
|
|
Amends the Electronic Fund Transfer Act (EFTA) to, among other things, give the Federal
Reserve the authority to establish rules regarding interchange fees charged for electronic
debit transactions by payment card issuers having assets over $10 billion and to enforce a
new statutory requirement that such fees be reasonable and proportional to the actual cost
of a transaction to the issuer; and
|
|
|
|
|
Increases the authority of the Federal Reserve to examine the Bank and its non-bank
subsidiaries.
|
Uncertainty remains as to the ultimate impact of the Act, which could have a material adverse
impact either on the financial services industry as a whole, or on our business, result of
operations and financial condition. Provisions in the legislation that affect deposit insurance
assessments, payment of interest on demand deposits and interchange fees could increase the costs
associated with deposits as well as place limitations on certain revenues those deposits may
generate. Provisions in the legislation that revoke the Tier 1 capital treatment of trust
preferred securities and otherwise require revisions to the capital requirements of the Company and
the Bank could require the Company and the Bank to seek other sources of capital in the future.
CRITICAL ACCOUNTING POLICIES
CNB has established various accounting policies which govern the application of accounting
principles generally accepted in the United States of America in the preparation and presentation
of CNBs consolidated financial statements. The significant accounting policies of CNB are
described in Item 1, Critical Accounting Policies and Note 1: Summary of Significant Accounting
Policies of the Consolidated Financial Statements on Form 10-K as of December 31, 2009, and along
with the disclosures presented in other financial statement notes, provide information on how
significant assets and liabilities are valued in the financial statements and how those values are
determined. Certain accounting policies involve significant judgments, assumptions and estimates
by management that have a material impact on the carrying value of certain assets and liabilities,
which management considers to be critical accounting policies. The judgments, assumptions and
estimates used by management are based on historical experience, knowledge of the accounts and
other factors, which are believed to be reasonable under the circumstances. Because of the nature
of the judgment and assumptions made by management, actual results could differ from these
judgments and estimates, which could have a material impact on the carrying values of assets and
liabilities and the results of operations of the Company.
CNB views the determination of the allowance for loan losses as a critical accounting policy
that requires the most significant judgments, assumptions and estimates used in the preparation of
its consolidated financial statements. For a more detailed discussion on the allowance for loan
losses, see Nonperforming Loans and Allowance For Loan Losses in the Managements Discussion and
Analysis and Allowance for Loan Losses in Note 1: Summary of Significant Accounting Policies and
Note 4: Loans and Leases Receivable in the Notes to Consolidated Financial Statements in the Form
10-K for December 31, 2009.
21
EARNINGS SUMMARY
Net income for the three months ended September 30, 2010 was $464,000 or $1.05 per share
compared to $614,000 or $1.38 per share for the same period in 2009. Annualized return on average
assets and average equity were .6% and 7.0% respectively, for the three months ended September 30,
2010, compared with .9% and 10.1%
,
respectively, for the three months ended September 30, 2009.
Net income for the nine months ended September 30, 2010 was $1.3 million or $2.97 per share
compared to $1.8 million or $3.94 per share for the same period in 2009. Annualized return on
average assets and average equity were .6% and 6.7% respectively, for the nine months ended
September 30, 2010, compared with 0.8% and 9.9%
,
respectively, for the nine months ended September
30, 2009.
Earnings projections for the remainder of 2010 and into the first half of 2011 are expected to
be impacted by the continued slowing in the Banks loan demand and poor economic conditions. The
Bank is anticipating an additional expense of approximately $450,000 to the provision for loan
losses for the remainder of 2010 due to the continued foreclosure activity, increased number of
impaired loans and loans with weaknesses. Another significant factor affecting net income through
2012 is the increased expenses related to the FDIC insurance regular assessment. The Federal
Reserve amended Regulation E to require financial institutions to obtain a specific opt-in consent
from customers in order for the institution to be able to pay into overdraft and charge an
overdraft fee whenever a customers ATM transactions and one-time debit card transactions, such as
point-of-sale transactions, cause an account to go into overdraft. This amendment will have an
impact on the banks overdraft fee income for 2010 and in the future. The passage of the
interchange act by Congress in July 2010 will have an impact on the banks ATM and debit card
interchange fee income in 2010 and in the future.
NET INTEREST INCOME
Net interest income represents the primary component of CNBs earnings. It is the difference
between interest and fee income related to earning assets and interest expense incurred to carry
interest-bearing liabilities. Changes in the volume and mix of interest earning assets and
interest bearing liabilities, as well as changing interest rates, impact net interest income. To
manage these changes, their impact on net interest income and the risk associated with them, CNB
utilizes an ongoing asset/liability management program. This program includes analysis of the
difference between rate sensitive assets and rate sensitive liabilities, earnings sensitivity to
rate changes, and source and use of funds. A discussion of net interest income and the factors
impacting it is presented below.
Net interest income for the three months ended September 30, 2010 decreased by $7,000 or .3%
over the same period in 2009. Interest income for the three months ended September 30, 2010
decreased by $191,000 or 4.9% compared to the same period in 2009, while interest expense decreased
by $184,000 or 13.6% during the three months ended September 30, 2010, as compared to the same
period in the prior year.
Net interest income for the nine months ended September 30, 2010 decreased by $143,000 or 1.9%
over the same period in 2009. Interest income for the nine months ended September 30, 2010
decreased by $558,000 or 4.7% compared to the same period in 2009, while interest expense decreased
by $415,000 or 10.3% during the nine months ended September 30, 2010, as compared to the same
period in the prior year.
During the third quarter of 2010, the average balance of interest bearing liabilities, net of
the average balance of borrowings, increased while the average balance of interest earning assets
decreased. Due to the increase in the average balance of interest bearing liabilities, net of
borrowings, the interest expense paid on the liabilities net of borrowings decreased at a slower
pace than the interest earned on the assets resulting in a slight decrease in net interest income
for the three month period ending September 30, 2010. The 29 basis point decrease in rates paid on
average interest bearing liabilities offset by the 22 basis point decrease in rates earned on
average interest earning assets contributed to the 7 basis point increase in the net interest
margin along with the 4 basis point increase in the ratio of net interest income to average
interest earning assets.
During the nine months ended September 30, 2010 compared to the same period in 2009, average
net interest earning assets increased $4.0 million or 1.5% whereas average net interest bearing
liabilities decreased $710,000 or .3% resulting in a decrease in net interest income and a
decreased net interest margin. The 33 basis point decrease in rates earned on average interest
earning assets offset by a 26 basis point decrease in interest paid on average interest bearing
liabilities contributed to the decrease in the net interest margin of 7 basis points while the
ratio of net interest income to average interest earning assets decreased 11 basis points.
Although the third quarter of 2010 compared to the same period in 2009 experienced decreases
of $2.2 million in the average balance of interest earning assets and $5.6 million in the average
balance of interest bearing liabilities, the nine month period ending September 30, 2010 compared
to the same period in 2009, reflected an increase of $4.0 million in the average balance of
interest earning assets and a small decrease of $710,000 in the average balance of interest bearing
liabilities. The
22
decrease in the average balance of interest earning assets is fueled by the continued decrease
in the average balance of loans offset by higher balances in investment securities. The reason for
the decrease in the average balance on loans was due to the continued slow housing market and the
overall lower loan demand. The decrease in the yield earned on the interest earning assets is
reflective of the shift to lower yielding assets and the decrease in some rates earned on these
assets. These factors impacted the 22 and 33 basis point decreases in the average interest earned
on these assets for the three and nine month periods ending September 30, 2010.
Although CNB experienced a decrease in the average balance of interest bearing liabilities for
the three and nine month period ending September 30, 2010 compared to the same period in 2009, each
interest bearing deposit category, except money market accounts, has shown growth in aggregate of
$3.2 million and $10.0 million, respectively during the three and nine month periods ending
September 30, 2010 compared to the same periods in 2009. The decrease in the average balance of
borrowings of $8.7 million and $10.7 million, respectively overshadowed the increases in the
deposits. The full impact of the increase in average interest bearing deposit accounts was reduced
by the decreased average balance of borrowings the bank held during this same period. During the
aforementioned time frames, the Bank has also experienced lower rates paid on these interest
bearing liabilities. These factors impacted the 29 and 26 basis point decrease in the average
interest paid on these liabilities for the three and nine month periods ending September 30, 2010.
See Table 1 and Table 2 Distribution of Assets, Liabilities, and Shareholders Equity;
Interest Rates and Interest Differential.
The net interest margin is impacted by the change in the spread between yields on earning
assets and rates paid on interest bearing liabilities.
23
TABLE 1. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEPTEMBER 30, 2010
|
|
|
SEPTEMBER 30, 2009
|
|
|
|
QTR AVERAGE
|
|
|
|
|
|
|
|
|
|
|
QTR AVERAGE
|
|
|
|
|
|
|
|
|
|
BALANCE
|
|
|
QTR INTEREST
|
|
|
YIELD/ RATE
(4)
|
|
|
BALANCE
|
|
|
QTR INTEREST
|
|
|
YIELD/ RATE
(4)
|
|
|
|
|
|
|
|
|
|
|
|
(IN THOUSANDS OF DOLLARS)
|
|
|
|
|
|
|
|
|
|
Interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
$
|
930
|
|
|
$
|
|
|
|
|
0.19
|
%
|
|
$
|
5,645
|
|
|
$
|
3
|
|
|
|
0.16
|
%
|
Certificates of deposit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,599
|
|
|
|
6
|
|
|
|
0.67
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
48,958
|
|
|
|
493
|
|
|
|
4.03
|
|
|
|
40,921
|
|
|
|
496
|
|
|
|
4.85
|
|
Tax-exempt (1)
|
|
|
25,699
|
|
|
|
217
|
|
|
|
5.12
|
|
|
|
21,032
|
|
|
|
168
|
|
|
|
4.84
|
|
Loans (net of unearned interest) (2)(5)(6)
|
|
|
192,539
|
|
|
|
2,952
|
|
|
|
6.13
|
|
|
|
199,166
|
|
|
|
3,168
|
|
|
|
6.36
|
|
|
|
|
|
|
|
|
Total interest earning assets (1)
|
|
$
|
268,126
|
|
|
$
|
3,662
|
|
|
|
5.46
|
%
|
|
$
|
270,363
|
|
|
$
|
3,841
|
|
|
|
5.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonearning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
4,304
|
|
|
|
|
|
|
|
|
|
|
$
|
6,085
|
|
|
|
|
|
|
|
|
|
Bank premises and equipment, net
|
|
|
5,431
|
|
|
|
|
|
|
|
|
|
|
|
5,681
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
7,061
|
|
|
|
|
|
|
|
|
|
|
|
6,496
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(4,541
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
280,381
|
|
|
|
|
|
|
|
|
|
|
$
|
285,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
26,595
|
|
|
$
|
7
|
|
|
|
0.11
|
%
|
|
$
|
25,110
|
|
|
$
|
6
|
|
|
|
0.10
|
%
|
Time deposits
|
|
|
145,383
|
|
|
|
1,134
|
|
|
|
3.12
|
|
|
|
143,461
|
|
|
|
1,245
|
|
|
|
3.47
|
|
NOW accounts
|
|
|
23,061
|
|
|
|
22
|
|
|
|
0.38
|
|
|
|
21,893
|
|
|
|
25
|
|
|
|
0.46
|
|
Money market accounts
|
|
|
11,444
|
|
|
|
4
|
|
|
|
0.14
|
|
|
|
12,833
|
|
|
|
5
|
|
|
|
0.16
|
|
Borrowings
|
|
|
1,287
|
|
|
|
2
|
|
|
|
0.62
|
|
|
|
10,023
|
|
|
|
73
|
|
|
|
2.91
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
$
|
207,770
|
|
|
$
|
1,169
|
|
|
|
2.25
|
%
|
|
$
|
213,320
|
|
|
$
|
1,354
|
|
|
|
2.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
40,962
|
|
|
|
|
|
|
|
|
|
|
$
|
41,993
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
5,062
|
|
|
|
|
|
|
|
|
|
|
|
5,752
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
26,587
|
|
|
|
|
|
|
|
|
|
|
|
24,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
280,381
|
|
|
|
|
|
|
|
|
|
|
$
|
285,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (1)
|
|
|
|
|
|
$
|
2,493
|
|
|
|
|
|
|
|
|
|
|
$
|
2,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread (3)
|
|
|
|
|
|
|
|
|
|
|
3.21
|
%
|
|
|
|
|
|
|
|
|
|
|
3.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income to average
interest earning assets (1)
|
|
|
|
|
|
|
|
|
|
|
3.72
|
%
|
|
|
|
|
|
|
|
|
|
|
3.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Yields are expressed on a tax equivalent basis using a 34% tax rate.
|
|
(2)
|
|
For the purpose of these computations, nonaccruing loans are included in the amounts of
average loans outstanding.
|
|
(3)
|
|
Net interest spread is the difference between the weighted average yield on interest-earning
assets and the weighted
average cost of interest-bearing liabilities.
|
|
(4)
|
|
Yields/Rates are expressed on an annualized basis.
|
|
(5)
|
|
Interest income on loans excludes fees of $45,876 in 2010 and $59,168 in 2009.
|
|
(6)
|
|
Interest income on loans includes fees of $17,307 in 2010 and $19,666 in 2009 from student
loans and lease receivables.
|
24
TABLE 2. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEPTEMBER 30, 2010
|
|
|
SEPTEMBER 30, 2009
|
|
|
|
YTD AVERAGE
|
|
|
|
|
|
|
|
|
|
|
YTD AVERAGE
|
|
|
|
|
|
|
|
|
|
BALANCE
|
|
|
YTD INTEREST
|
|
|
YIELD/ RATE
(4)
|
|
|
BALANCE
|
|
|
YTD INTEREST
|
|
|
YIELD/ RATE
(4)
|
|
|
|
|
|
|
|
|
|
|
|
(IN THOUSANDS OF DOLLARS)
|
|
|
|
|
|
|
|
|
|
Interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
$
|
739
|
|
|
$
|
1
|
|
|
|
0.17
|
%
|
|
$
|
2,291
|
|
|
$
|
3
|
|
|
|
0.17
|
%
|
Certificates of deposit
|
|
|
876
|
|
|
|
2
|
|
|
|
0.30
|
|
|
|
2,371
|
|
|
|
14
|
|
|
|
0.79
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
46,975
|
|
|
|
1,479
|
|
|
|
4.20
|
|
|
|
42,539
|
|
|
|
1,566
|
|
|
|
4.91
|
|
Tax-exempt (1)
|
|
|
28,182
|
|
|
|
702
|
|
|
|
5.03
|
|
|
|
19,074
|
|
|
|
485
|
|
|
|
5.14
|
|
Loans (net of unearned interest) (2)(5)(6)
|
|
|
194,636
|
|
|
|
8,900
|
|
|
|
6.10
|
|
|
|
201,142
|
|
|
|
9,529
|
|
|
|
6.32
|
|
|
|
|
|
|
|
|
Total interest earning assets (1)
|
|
$
|
271,408
|
|
|
$
|
11,084
|
|
|
|
5.45
|
%
|
|
$
|
267,417
|
|
|
$
|
11,597
|
|
|
|
5.78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonearning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
4,270
|
|
|
|
|
|
|
|
|
|
|
$
|
5,950
|
|
|
|
|
|
|
|
|
|
Bank premises and equipment, net
|
|
|
5,468
|
|
|
|
|
|
|
|
|
|
|
|
5,749
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
7,192
|
|
|
|
|
|
|
|
|
|
|
|
6,613
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(4,291
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
284,047
|
|
|
|
|
|
|
|
|
|
|
$
|
282,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
26,200
|
|
|
$
|
19
|
|
|
|
0.10
|
%
|
|
$
|
24,667
|
|
|
$
|
23
|
|
|
|
0.12
|
%
|
Time deposits
|
|
|
147,177
|
|
|
|
3,493
|
|
|
|
3.16
|
|
|
|
138,672
|
|
|
|
3,693
|
|
|
|
3.55
|
|
NOW accounts
|
|
|
23,367
|
|
|
|
73
|
|
|
|
0.42
|
|
|
|
21,629
|
|
|
|
74
|
|
|
|
0.46
|
|
Money market accounts
|
|
|
11,092
|
|
|
|
13
|
|
|
|
0.16
|
|
|
|
12,894
|
|
|
|
19
|
|
|
|
0.20
|
|
Borrowings
|
|
|
2,947
|
|
|
|
29
|
|
|
|
1.31
|
|
|
|
13,631
|
|
|
|
234
|
|
|
|
2.29
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
$
|
210,783
|
|
|
$
|
3,627
|
|
|
|
2.29
|
%
|
|
$
|
211,493
|
|
|
$
|
4,043
|
|
|
|
2.55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
42,220
|
|
|
|
|
|
|
|
|
|
|
$
|
41,837
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
4,965
|
|
|
|
|
|
|
|
|
|
|
|
5,563
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
26,079
|
|
|
|
|
|
|
|
|
|
|
|
23,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
284,047
|
|
|
|
|
|
|
|
|
|
|
$
|
282,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (1)
|
|
|
|
|
|
$
|
7,457
|
|
|
|
|
|
|
|
|
|
|
$
|
7,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread (3)
|
|
|
|
|
|
|
|
|
|
|
3.16
|
%
|
|
|
|
|
|
|
|
|
|
|
3.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income to average
interest earning assets (1)
|
|
|
|
|
|
|
|
|
|
|
3.66
|
%
|
|
|
|
|
|
|
|
|
|
|
3.77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Yields are expressed on a tax equivalent basis using a 34% tax rate.
|
|
(2)
|
|
For the purpose of these computations, nonaccruing loans are included in the amounts of average
loans outstanding.
|
|
(3)
|
|
Net interest spread is the difference between the weighted average yield on interest-earning
assets and the weighted
average cost of interest-bearing liabilities.
|
|
(4)
|
|
Yields/Rates are expressed on an annualized basis.
|
|
(5)
|
|
Interest income on loans excludes fees of $128,185 in 2010 and $172,671 in 2009.
|
|
(6)
|
|
Interest income on loans includes fees of $50,716 in 2010 and $67,704 in 2009 from student
loans and lease receivables.
|
25
PROVISION FOR LOAN LOSSES
The amount charged to provision for loan losses is based on managements evaluation of the
loan portfolio. Management determines the adequacy of the allowance for loan losses, based on past
loan loss experience, current economic conditions and composition of the loan portfolio. The
allowance for loan losses is the best estimate of management of the probable losses which have been
incurred as of a balance sheet date.
The provision for loan losses is a charge to earnings which is made to maintain the allowance
for loan losses at a sufficient level. The provision for loan losses for the three months ended
September 30, 2010 and September 30, 2009 amounted to $460,000 and $400,000, respectively. The
provision for loan losses for the nine months ended September 30, 2010 and September 30, 2009
amounted to $1.4 million and $1.2 million, respectively. Nonperforming assets have increased from
.6% of total assets as of September 30, 2009 to 2.8% of total assets as of September 30, 2010 and
foreclosure activity remains constant while past due loans have increased from 3.5% of total loans
as of September 30, 2009 to 6.5% of total loans as of September 30, 2010. Management believes the
allowance for loan losses is adequate and is not aware of any information relating to the loan
portfolio which it expects will materially impact future operating results, liquidity or capital
resources. In addition, federal regulators may require an adjustment to the reserves as a result
of their examination of the Bank. See Nonperforming Assets and Allowance for Loan Losses for
further discussion.
NONINTEREST INCOME
Noninterest income for the three months ended September 30, 2010 increased $126,000 or 24.8%
to $634,000 from $508,000. Noninterest income for the nine months ended September 30, 2010
increased $174,000 or 11.2% to $1.7 million. The increase in noninterest income for the three
months ended September 30, 2010 is mainly a result of larger gains recorded in the third quarter
2010 as compared to the same time frame in 2009 on sales and calls of securities. During the third
quarter 2010 an additional provision of $3,900 for losses on other real estate owned was assessed.
This compares to a provision of $35,000 in the third quarter 2009. Smaller losses were recognized
on sales of other real estate owned during the third quarter of 2010 compared to the same time
frame in 2009. These increases were offset by decreases in overdraft account fees. The decrease
in fees related to overdrafts is a result of the amendment to Regulation E which was effective
during the third quarter of 2010. This amendment deals with the specific opt-in consent from
customers in order for the bank to be able to pay into overdraft and charge an overdraft fee
whenever a customers ATM transactions and one-time debit card transactions, such as point-of-sale
transactions, cause an account to go into overdraft. Without this opt-in consent, overdrafts
caused by debit card transactions will not occur which in turn has caused overdraft fees to
decline. Another reason overdraft fees have declined is the banks customer base remaining much
more aware of the status of their deposit accounts and proactive in keeping these accounts in a
satisfactory condition.
The increase in noninterest income for the nine months ended September 30, 2010 is related to
the aforementioned factors along with increases in the following areas, debit card fee income, ATM
fee income, trust income and lockbox income. The increase in debit card and ATM fee income is a
direct result of an increase in the interchange rates for the banks ATM/debit card network
provider along with increased usage by our customers. While the balance of trust assets declined
during the time frame by $3.0 million or 8.4%, the average balance of trust assets increased $1.7
million or 5.1% causing trust fee income to increase $6,000 during the nine months ending September
30, 2010. In the fourth quarter of 2009, the bank began offering a lockbox service to our
commercial customers which has generated $14,000 in the first nine months of 2010.
Offsetting these gains were decreases caused by income from the title company which dissolved
on August 31, 2009 and the death benefit received from the death of one of the Banks Board of
Directors in February 2009.
NONINTEREST EXPENSES
Noninterest expenses for the three months ended September 30, 2010, increased $369,000 or
20.0% and for the nine months ended September 30, 2010, increased $761,000 or 13.4%. The most
significant factor leading to the increase in noninterest expenses for the three and nine month
periods ending September 30, 2010 is the increased FDIC assessment. The three year prepayment of
the FDIC assessment was payable on December 31, 2009 and totaled $1.5 million. The assessment
expense for the first nine months of 2010 was $416,000 compared to $292,000 during the first nine
months of 2009.
Salaries increased by $47,000 for the three months ending September 30, 2010 and $177,000 for
the nine months ending September 30, 2010 due to normal merit increases and a decrease in the
deferred loan costs offset by a decrease of four in the number of full time equivalent employees
employed. These deferred costs are based on loan volumes and during the first nine months of 2010
the loan demand remained soft. Consumers are concentrated on decreasing their current debt instead
of taking on more debt. Employee benefits increased during these same time periods primarily due
to an increase in the pension plan expense and the post retirement expense. During the nine months
ended September 30, 2010, these expenses were offset by decreases in the 401k expense and the
supplemental non qualified retirement benefit plan expense. The 401k expense is down due to the
expected decrease in employer contributions for 2010 compared to 2009.
26
The increase of $61,000 in other occupancy expense for the three months and $122,000 for the
nine months ended September 30, 2010 are mainly due to painting, minor building repairs at the
banks facilities and during the first quarter of 2010, the cost of snow removal at all six bank
locations in the Eastern Panhandle of West Virginia and in Hancock, Maryland.
The decrease of $33,000 in furniture and equipment expense for the three months and $39,000
for the nine months ended September 30, 2010 are primarily due to decreased depreciation expense
due to some furniture, equipment and computer hardware becoming fully depreciated during this time
period.
The increase of $271,000 in other operating expenses for the three months and $466,000 for the
nine months ended September 30, 2010, are due to increases in the Banks FDIC assessment fee, data
processing expenses, legal fees and debit card losses offset by decreases in marketing expense,
stationery, supplies and printing and 75
th
anniversary expenses. The three year
prepayment of the FDIC assessment was payable on December 31, 2009 and totaled $1.5 million. The
assessment expense for the first nine months of 2010 was $416,000 compared to $292,000 for the
first nine months of 2009. Data processing expense increased due to the expenses related to the
monthly outsourcing charges of the Banks data processing system. The increase in legal fees
relates to the banks ongoing process of reclassification of the common stock. The increase in
debit card losses, which primarily happened in the third quarter 2010, relates to a sudden increase
in unauthorized fraudulent charges. Beginning in 2009, the bank scaled back its newspaper
advertising along with basically all of its marketing expenditures and the trend has continued in
2010. The bank continues to be in a cost cutting mode and continues to reduce non essential
expenses to a minimum.
INCOME TAXES
The banks provision for income taxes decreased $161,000 or 82.8% to $33,000 for the three
months ended September 30, 2010 and decreased $489,000 or 73.6% to $175,000 for the nine months
ended September 30,2 010. The effective tax rates for the third quarter of 2010 and 2009 were 6.7%
and 24.0%, respectively. The effective tax rates for the nine months ended September 30, 2010 and
2009, were 11.8% and 27.4%, respectively. The effective tax rates for the quarter and nine months
ending September 30, 2010 are lower due in part to a continued increase in tax exempt interest
income and a reduction in tax liability related to the banks life insurance compounded by CNBs
significantly lower pre-tax net income. The banks income tax expense differs from the amount
computed at statutory rates primarily due to the tax-exempt earnings from certain investment
securities and loans, and non-deductible expenses, such as life insurance premiums.
FINANCIAL CONDITION
The banks total assets as of September 30, 2010 decreased $8.2 million or 2.8% to $281.3
million from December 31, 2009 due primarily to a $7.8 million decrease in loans, a $1.5 million
decrease in cash and due from banks, a $2.0 million decrease in certificates of deposit
investments, a $523,000 decrease in investments and a $456,000 decrease in other assets offset by a
$3.8 million increase in federal funds sold and a $556,000 increase in foreclosed real estate. The
Banks total liabilities decreased $10.2 million or 3.9% to $253.7 million from December 31, 2009
due to a $6.4 million decrease in borrowings and a $3.8 million decrease in deposits.
Shareholders equity increased $2.0 million to $27.6 million at September 30, 2010, due to net
income of $1.3 million and a $995,000 increase in accumulated other comprehensive income offset by
stock repurchases of $113,000 and cash dividends paid of $234,000. The $995,000 increase in
accumulated other comprehensive income is a direct result of the increase in market value of
available for sale securities. The components of accumulated other comprehensive income at
September 30, 2010 and December 31, 2009, were unrealized gains and losses on available for sale
securities, net of deferred income taxes and unrecognized pension costs, net of deferred income
taxes. The unrealized gains and losses are primarily a function of available market interest rates
relative to the yield being generated on the available for sale portfolio. No earnings impact
results unless the securities are actually sold.
During the third quarter 2007, the Bank instituted a stock repurchase program to repurchase
issued shares of common stock of CNB Financial Services, Inc. Through this program as of September
30, 2010, the Bank has repurchased 16,700 shares of CNB Financial Services, Inc. common stock
reducing shareholders equity by $937,898.
27
LOAN PORTFOLIO
At September 30, 2010, total loans decreased $7.8 million or 4.0% to $186.9 million from
$194.7 million at December 31, 2009. All loan categories showed decreases during the first nine
months of 2010. In general, several reasons have caused this continued decline in the loan demand.
The overall economy and the financial uncertainty surrounding it along with unemployment have
increased while housing prices have declined. Customers continue to concentrate on paying off
their debt instead of borrowing additional funds. During this unstable economy, the bank continues
to tighten its credit standards and is performing more rigorous underwriting standards. Although
the banks lending officers continue to be proactive in their marketing effort in the banks
lending area, the uncertainty of the current financial position of prospective bank customers has
caused a reduction in the officer calls made to prospective clients during the first nine months of
2010.
During the first nine months of 2010, real estate loans outstanding decreased by $4.9 million.
Beyond the factors already explained, another factor impacting the decrease was CNB originated and
sold $1.8 million of loans to secondary market investors. CNB began selling all fixed rate mortgage
loans to secondary market investors in January 2007. An additional factor impacting the decrease
in real estate loans were the foreclosures of ten loans during the first nine months of 2010.
NONPERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
Nonperforming assets consist of nonaccrual loans, loans which are past due 90 days or more and
still accruing interest, impaired loans and foreclosed real estate. The following table summarized
the Banks nonperforming assets as of the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
Impaired loans, not on nonaccrual
|
|
|
5,556,693
|
|
|
|
654,404
|
|
|
|
826,658
|
|
Nonaccrual loans, impaired (1)
|
|
|
|
|
|
|
582,481
|
|
|
|
109,127
|
|
Nonaccrual loans, not impaired
|
|
|
1,180,830
|
|
|
|
258,019
|
|
|
|
1,456,367
|
|
Loans past due 90 days or more still accruing
interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
$
|
6,737,523
|
|
|
$
|
1,494,904
|
|
|
$
|
2,392,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed real estate (other real estate owned)
|
|
$
|
942,983
|
|
|
$
|
284,329
|
|
|
$
|
386,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
7,680,506
|
|
|
$
|
1,779,233
|
|
|
$
|
2,778,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans/Total loans
|
|
|
3.61
|
%
|
|
|
0.77
|
%
|
|
|
1.23
|
%
|
Nonperforming assets/Total assets
|
|
|
2.73
|
%
|
|
|
0.61
|
%
|
|
|
0.96
|
%
|
Allowance for loan losses/Total loans
|
|
|
2.39
|
%
|
|
|
1.73
|
%
|
|
|
2.00
|
%
|
|
|
|
(1)
|
|
Some of these loans have government agency guarantees reducing the banks exposure by
$0 at September 30, 2010, $38,435 at September 30, 2009 and $31,379 at December 31, 2009.
|
As of September 30, 2010, there are thirteen loans considered to be impaired with a balance of
$5.6 million (net of government agency guarantees) and a specific allowance of $125,000. As of
September 30, 2010, management is aware of forty borrowers who have exhibited weaknesses. Their
loans have aggregate uninsured balances of $9.5 million. A specific allowance of $798,000 related
to these loans has been established as part of the allowance for loan losses. The Bank continues
to experience additional foreclosures in its mortgage loan portfolio. Although the Banks mortgage
loan portfolio is well secured, if the Bank needs to go to foreclosure on a property, the value of
the property may possibly be less than the current appraised value considering the current real
estate market. In turn, the Bank may begin to see future write downs on foreclosed properties.
The allowance for loan losses is the best estimate by management of the probable losses
which have been incurred as of a balance sheet date. Management makes this determination quarterly
by its analysis of overall loan quality, changes in the mix and size of the loan portfolio,
previous loss experience, general economic conditions, information about specific borrowers and
other factors. The Banks methodology for determining the allowance for loan losses established
both an allocated and an unallocated component. The allocated portion of the allowance represents
the results of analyses of individual loans that the Bank monitors for potential credit problems
and pools of loans within the portfolio. Management bases the allocated portion of the allowance
for loans principally on current loan risk ratings, historical loan loss rates adjusted to reflect
current conditions, as well as analyses of other factors that may have affected the collectibility
of loans in the portfolio. The Bank analyzes all
28
commercial loans it is monitoring as potential credit problems to determine whether those
loans are impaired, with impairment measured by reference to the borrowers collateral values and
cash flows.
The unallocated portion of the allowance for loan losses represents the results of analyses
that measure probable losses inherent in the portfolio that are not adequately captured in the
allocated allowance analyses. These analyses include consideration of unidentified losses inherent
in the portfolio resulting from changing underwriting criteria, changes in the types and mix of
loans originated, industry concentrations and evaluations, allowance levels relative to selected
overall credit criteria and other economic indicators used to estimate probable incurred losses.
During the third quarter, the Bank considered the general economic conditions in its market area
and the significant slowdown in the residential housing market. At September 30, 2010, the Bank
had outstanding loans for the development of residential property including loans for spec homes
and subdivisions totaling $13.6 million with an additional undisbursed commitment of $1.6 million.
At September 30, 2010 and December 31, 2009, the allowance for loan losses totaled $4.5 million and
$3.9 million, respectively. The allowance for loan losses as a percentage of loans was 2.4% as of
September 30, 2010 and 2.0% as of December 31, 2009.
An analysis of the allowance for loan losses is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
Loans in Each
|
|
|
|
|
|
|
Loans in Each
|
|
|
|
|
|
|
|
Category to
|
|
|
|
|
|
|
Category to
|
|
In thousands
|
|
Amount
|
|
|
Total Loans
|
|
|
Amount
|
|
|
Total Loans
|
|
Commercial, financial
and agriculture
|
|
$
|
1,743
|
|
|
|
24
|
%
|
|
$
|
1,428
|
|
|
|
26
|
%
|
Real estate residential
mortgage
|
|
|
1,295
|
|
|
|
65
|
|
|
|
1,613
|
|
|
|
66
|
|
Installment and other
|
|
|
287
|
|
|
|
8
|
|
|
|
483
|
|
|
|
8
|
|
Impaired loans
|
|
|
757
|
|
|
|
3
|
|
|
|
235
|
|
|
|
|
|
Unallocated
|
|
|
386
|
|
|
|
N/A
|
|
|
|
144
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,468
|
|
|
|
100
|
%
|
|
$
|
3,903
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEPOSITS
The Banks deposits decreased $3.8 million during the nine months ended September 30, 2010.
This decrease was reflected in non-interest bearing demand deposits and certificates of deposit
accounts. The decrease in non-interest bearing demand accounts is completely attributable to the
decrease in balances held by one large commercial customer. This decrease was stabilized by the
continued volume of new account activity the bank has experienced. The shift from certificates of
deposit accounts to interest bearing demand and savings accounts is due to the increased number of
IRA and certificate of deposit withdrawals by customers needing immediate accessibility to their
cash. Another factor in the decrease of certificates of deposit accounts is a shift to
certificates of deposit over $100,000. The increase in interest bearing demand account balances
and savings account balances is from customers wanting immediate liquidity of their funds, when
needed. Although certificates of deposit accounts over $100,000 only increased $46,000, these
accounts actually showed growth of $5.5 million during the first nine months of 2010 due to the
fact that during this time frame, the bank experienced the maturity of $5.5 million in certificate
of deposit funds from the State of WV Treasurers office. These certificates of deposit carried
interest rates of .18 and .351%.
Factors affecting the shift between certificates of deposit and certificates of deposit over
$100,000 are the increase in IRA rollovers by customers from their qualified retirement plans and
the continued growth of our Washington County, Maryland branch from the proactive approach of
management in establishing new customer relationships to the continued trust of existing customers
as deposits are made to certificates of deposit accounts. The Banks 36-month Ultimate
Certificates of Deposit continues to be the certificate of choice for customers. The Banks
36-month Ultimate Certificate of Deposit allows the customer to withdraw all or a portion of the
certificate of deposit on the first or second year anniversary date without penalty and deposits
may be made to this CD at any time.
CAPITAL RESOURCES
Shareholders equity increased $2.0 million or 7.7% during the first nine months of 2010 due
to $1.3 million in net income and a $995,000 increase in accumulated other comprehensive income
offset by stock repurchases of $113,000 and cash dividends paid of $234,000.
29
During the third quarter 2007, the Bank instituted a stock repurchase program to repurchase
issued shares of common stock of CNB Financial Services, Inc. Through this program as of September
30, 2010, the Bank has repurchased 16,700 shares of CNB Financial Services, Inc. common stock
reducing shareholders equity by $937,898.
The Bank is subject to various regulatory capital requirements administered by the banking
regulatory agencies. Under each measure, the Bank was substantially in excess of the minimum
regulatory requirements, and, by definition was well capitalized at September 30, 2010. The
following table summarizes, as of September 30, 2010, the Banks capital ratios.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components
|
|
|
Actual
|
|
|
Required
|
|
|
|
of Capital
|
|
|
Ratio
|
|
|
Ratio
|
|
Tier 1 Capital
|
|
$
|
26,831
|
|
|
|
9.6
|
%
|
|
|
4.0
|
%
|
Total Risk Based Capital
|
|
$
|
28,967
|
|
|
|
17.2
|
%
|
|
|
8.0
|
%
|
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to economic loss that arises from changes in the values of certain
financial instruments. The types of market risk exposures generally faced by banking entities
include interest rate risk, bond market price risk, real estate market risk, foreign currency risk
and commodity price risk. Due to the nature of its operations, only bond market price risk,
interest rate risk and real estate market risk are significant to the Bank.
The objective of the Banks liquidity management program is to ensure the continuous
availability of funds to meet the withdrawal demands of depositors and the credit needs of
borrowers. The basis of the Banks liquidity comes from the stability of its core deposits.
Liquidity is also available through the available for sale securities portfolio and short-term
funds such as federal funds sold which totaled $75.6 million, or 26.9% of total assets at September
30, 2010. In addition, liquidity may be generated through loan repayments, FHLB borrowings and over
$6.5 million of available borrowing arrangements with correspondent banks. At September 30, 2010,
management considered the Banks ability to satisfy its anticipated liquidity needs over the next
twelve months. Management believes that the Bank is well positioned and has ample liquidity to
satisfy these needs. The Bank generated $3.1 million of cash from operations in the first nine
months of 2010, which compares to $3.0 million during the same time period in 2009. Additional
cash of $6.0 million was provided by net investing activities through September 30, 2010, which
compares to $10.7 million used in net investing activities for the first nine months of 2009. Net
cash used in financing activities totaled $10.5 million during the first nine months of 2010, which
compares to $6.8 million provided by financing activities during the same time period in 2009.
Details on both the sources and uses of cash are presented in the Consolidated Statements of Cash
Flows contained in the financial statements.
The objective of the Banks interest rate sensitivity management program, also known as
asset/liability management, is to maximize net interest income while minimizing the risk of adverse
effects from changing interest rates. This is done by controlling the mix and maturities of
interest sensitive assets and liabilities. The Bank has established an asset/liability committee
for this purpose. Daily management of the Banks sensitivity of earnings to changes in interest
rates within the Banks policy guidelines are monitored by using a combination of off-balance sheet
and on-balance sheet financial instruments. The Banks Chief Executive Officer, Senior Lending
Officer, Chief Financial Officer and the Chief Operations Officer monitor day to day deposit flows,
lending requirements and the competitive environment. Rate changes occur within policy guidelines
if necessary to minimize adverse effects. Also, the Banks policy is intended to ensure the Bank
measures a range of rate scenarios and patterns of rate movements that are reasonably possible.
The Bank measures the impact that 200 basis point changes in rates would have on earnings over the
next twelve months.
In analyzing interest rate sensitivity for policy measurement, the Bank compares its
forecasted earnings in both a high rate and low rate scenario to a base-line scenario. The
Banks base-line scenario is its estimated most likely path for future short-term interest rates
over the next 12 months. The high rate and low rate scenarios assumes 100 through 300 basis
point increases or decreases in the prime rate from the beginning point of the base-line scenario
over the most current 12-month period. The Banks policy limit for the maximum negative impact on
earnings resulting from high rate or low rate scenarios is 10 percent. The policy measurement
period is 12 months in length, beginning with the first month of the forecast.
The Banks base-line scenario holds the prime rate constant at 3.25 percent through September
2011. Based on the October 2010 outlook, if interest rates increased or decreased by 200 basis
points, the model indicates that net interest income during the policy measurement period would be
affected by less than 10 percent, in both an increasing and decreasing interest rate scenario.
30
CONTRACTUAL OBLIGATIONS
There were no other material changes outside the normal course of business to the quantitative
and qualitative disclosures about contractual obligations previously reported on Form 10-K for the
year ended December 31, 2009. See Item 7, Managements Discussion and Analysis of Financial
Condition and Results of Operations Contractual Obligations in the Form 10-K for December 31,
2009 for a detailed discussion.
31
ITEM 4. CONTROLS AND PROCEDURES
The Companys chief executive officer and chief financial officer, based on their evaluation
as of the end of the reporting period of this quarterly report of the Companys disclosure controls
and procedures (as defined in Rule 13 (a) 14 (c) of the Securities Exchange Act of 1934), have
concluded that the Companys disclosure controls and procedures are adequate and effective for
purposes of Rule 13 (a) 14 (c) and timely, alerting them to material information relating to the
Company required to be included in the Companys filings with the Securities and Exchange
Commission under the Securities Exchange Act of 1934.
There have been no changes in the Companys internal controls over financial reporting in the
fiscal quarter ended September 30, 2010, that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
32
PART II: OTHER INFORMATION
Item 1.
|
|
Legal Proceedings
|
|
|
There are no material legal proceedings to which CNB or its subsidiary is a party, or to
which any of their property is subject. However, CNB is involved in various legal
proceedings occurring in the ordinary course of business.
|
Item 1a.
|
|
Risk Factors
|
|
|
|
There have been no material changes to CNBs risk factors since these factors were
previously disclosed in CNBs annual report on Form 10-K for the period ended December 31,
2009.
|
Item 2.
|
|
Unregistered Sale of Equity Securities and Use of Proceeds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
|
|
|
|
Total Number of Shares Purchased
|
|
|
Maximum Number of Shares
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
as Part of Publicly Announced
|
|
|
that may yet be purchased under
|
|
Period
|
|
Purchased
|
|
|
Paid per Share
|
|
|
Plans or Programs
|
|
|
the Plans or Programs
|
|
Beginning balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
16,700
|
|
|
|
29,105
|
|
|
July 1, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
29,105
|
|
|
August 1, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
29,105
|
|
|
September 1, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
29,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
16,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On August 23, 2007, the Board of Directors approved a stock repurchase program to
repurchase issued shares of common stock of CNB Financial Services, Inc. Management is
authorized to repurchase up to 45,804 shares or 10% of the outstanding shares of CNB
Financial Services, Inc. common stock at the prevailing fair market value. The stock
repurchase program will terminate upon the repurchase of 45,804 shares.
|
Item 4.
|
|
Removed and Reserved.
|
Item 5.
|
|
Other Information
|
|
|
|
On November 5, 2010, the Company began mailing its definitive Proxy Statement to
shareholders of record as of October 15, 2010, soliciting proxies for a Special Meeting of
Shareholders on December 9, 2010. The purpose of the Special Meeting is to vote upon a
proposal to engage in a corporate reorganization that will allow all those Company
shareholders who hold, in the aggregate, less than 150 shares of CNB Common Stock, to
exchange those shares for newly created Class A Common Stock shares. Those Company
shareholders who hold in the aggregate 150 or more of CNBs Common Stock shares will
continue to hold their existing Common Stock without change. This reorganization is known
as a going private transaction and will result, if approved, in the Company having less
than 300 shareholders owning the Companys existing Common Stock and less than 500
shareholders owning the newly created Class A Common Stock.
|
Item 6.
|
|
Exhibits
|
|
|
|
31.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
33
SIGNATURES
|
|
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
CNB Financial Services, Inc.
(Registrant)
|
|
|
Date November 12, 2010
|
/s/ Thomas F. Rokisky, President/CEO
|
|
|
|
|
|
|
|
Date November 12, 2010
|
/s/ Rebecca S. Stotler, Senior Vice President/CFO
|
|
|
|
|
|
|
|
34
Grafico Azioni CNB Financial Services (CE) (USOTC:CBFC)
Storico
Da Giu 2024 a Lug 2024
Grafico Azioni CNB Financial Services (CE) (USOTC:CBFC)
Storico
Da Lug 2023 a Lug 2024