Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM - TO --
Commission file number 0-30665
CNB Financial Services, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
United States of America 55-0773918
- ------------------------------------------------ ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 S. Washington Street, Berkeley Springs, WV 25411
- ------------------------------------------------ ------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's 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 [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
YES [ ] NO [X]
The aggregate value of the common stock of the Registrant that was held by
non-affiliates as of the most recently completed second fiscal quarter (June 30,
2002), was approximately $32.7 million. This amount was based on the last
closing sale price of a share of common stock of $85.00 as of the same date.
Common Stock $1 par value, 458,048 shares outstanding as of May 12, 2003
CNB FINANCIAL SERVICES, INC.
TABLE OF CONTENTS
PART 1: FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of March 31, 2003 (Unaudited)
and December 31, 2002...........................................................3
Consolidated Statements of Income for the Three Months ended
March 31, 2003 and 2002 (Unaudited) ............................................4
Consolidated Statements of Changes in Shareholders' Equity for the Three
Months Ended March 31, 2003 (Unaudited) and the Year Ended December 31, 2002....5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2003 and 2002 (Unaudited).......................................6
Notes to Consolidated Financial Statements (Unaudited)............................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Three Months ended March 31, 2003.................11
Item 3. Quantitative and Qualitative Disclosures about Market Risk........................17
Item 4. Controls and Procedures...........................................................18
PART II: OTHER INFORMATION
Item 1. Legal Proceedings................................................................20
Item 6. Exhibits and Reports on Form 8-K..................................................20
SIGNATURES........................................................................21
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
Management's 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 CNB's 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 unfavorable resulting in reduced credit quality or demand for loans;
(4) legislative or regulatory changes; and (5) competitors may have greater
financial resources and develop products that enable them to compete more
successfully than CNB.
2
CNB FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, DECEMBER 31,
ASSETS 2003 2002
------------ ------------
(Unaudited)
Cash and due from banks $ 6,231,862 $ 7,832,735
Federal funds sold 891,587 4,127,299
Securities available for sale
(at approximate market value) 46,523,234 43,429,902
Federal Home Loan Bank stock, at cost 600,600 429,000
Federal Reserve Bank stock, at cost 129,650 129,650
Loans and lease receivable, net 131,091,071 128,330,303
Accrued interest receivable 952,852 891,986
Foreclosed real estate (held for sale), net 1,800 1,800
Premises and equipment, net 4,779,850 4,800,135
Cash surrender value of life insurance 994,844 964,179
Intangible assets 94,312 96,483
Other assets 421,211 568,608
------------ ------------
TOTAL ASSETS $192,712,873 $191,602,080
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 26,333,588 $ 26,663,469
Interest-bearing demand 31,348,962 30,087,763
Savings 22,519,914 21,489,855
Time, $100,000 and over 37,056,123 37,433,561
Other time 56,584,777 57,387,901
------------ ------------
$173,843,364 $173,062,549
Accrued interest payable 1,023,620 1,010,086
Deferred income taxes 48,935 158,269
Accrued expenses and other liabilities 1,389,970 1,101,158
------------ ------------
TOTAL LIABILITIES $176,305,889 $175,332,062
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $1 par value; 5,000,000 shares
authorized; 458,048 shares outstanding $ 458,048 $ 458,048
Capital surplus 3,863,592 3,863,592
Retained earnings 11,582,726 11,267,374
Accumulated other comprehensive income 502,618 681,004
------------ ------------
TOTAL SHAREHOLDERS' EQUITY $ 16,406,984 $ 16,270,018
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $192,712,873 $191,602,080
============ ============
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)
THREE MONTHS ENDED
MARCH 31,
2003 2002
----------- -----------
INTEREST INCOME
Interest and fees on loans $ 2,320,147 $ 2,210,123
Interest and dividends on securities:
U.S. Government agencies and
corporations 341,234 580,003
Mortgage backed securities 161,779 4,282
State and political subdivisions 13,112 7,363
Other 4,599 8,065
Interest on federal funds sold 7,527 13,317
----------- -----------
$ 2,848,398 $ 2,823,153
----------- -----------
INTEREST EXPENSE
Interest on interest bearing demand,
savings and time deposits $ 1,216,268 $ 1,382,583
Interest on federal funds purchased 146 -
----------- -----------
$ 1,216,414 $ 1,382,583
----------- -----------
NET INTEREST INCOME $ 1,631,984 $ 1,440,570
PROVISION FOR LOAN LOSSES 51,000 73,000
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES $ 1,580,984 $ 1,367,570
----------- -----------
NONINTEREST INCOME
Service charges on deposit accounts $ 190,789 $ 148,202
Other service charges, commissions
and fees 91,883 67,365
Insurance income 24,271 25,331
Other operating income 18,849 36,953
Net gain (loss) on sale of securities 44,595 54,125
Income from title company 10,250 14,000
Gain (loss) on sale of other real estate owned - (635)
----------- -----------
$ 380,637 $ 345,341
----------- -----------
NONINTEREST EXPENSES
Salaries $ 679,389 $ 531,672
Employee benefits 212,220 188,227
Occupancy of premises 72,013 77,766
Furniture and equipment expense 117,537 87,091
Other operating expenses 402,499 422,157
----------- -----------
$ 1,483,658 $ 1,306,913
----------- -----------
INCOME BEFORE INCOME TAXES $ 477,963 $ 405,998
PROVISION FOR INCOME TAXES 162,611 132,217
----------- -----------
NET INCOME $ 315,352 $ 273,781
=========== ===========
BASIC EARNINGS PER SHARE $ 0.69 $ 0.60
=========== ===========
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 CAPITAL RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK SURPLUS EARNINGS INCOME EQUITY
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2001 $ 458,048 $ 3,863,592 $ 10,426,618 $ 177,979 $ 14,926,237
------------
Comprehensive income:
Net income for 2002 - - 1,307,965 - 1,307,965
Change in unrealized gains
(losses) on securities
available for sale (net of tax of $308,306) - - - 503,025 503,025
------------
Total Comprehensive Income - - - - 1,810,990
------------
Cash dividends ($1.02 per share) - - (467,209) - (467,209)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2002 $ 458,048 $ 3,863,592 $ 11,267,374 $ 681,004 $ 16,270,018
Comprehensive income:
Net income for three months
ended March 31, 2003 - - 315,352 - 315,352
Change in unrealized gains
(losses) on securities
available for sale (net of tax of $109,334) - - - (178,386) (178,386)
------------
Total Comprehensive Income - - - - 136,966
------------ ------------ ------------ ------------ ------------
BALANCE, MARCH 31, 2003 $ 458,048 $ 3,863,592 $ 11,582,726 $ 502,618 $ 16,406,984
============ ============ ============ ============ ============
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)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 315,352 $ 273,781
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 122,644 88,572
Provision for loan losses 51,000 73,000
Net (gain) on sale of securities (44,595) (54,125)
Loss on sale of real estate owned - 635
(Increase) in accrued interest receivable (60,866) (172,039)
Decrease in other assets 212,436 353,243
Increase (decrease) in accrued interest payable 13,534 (91,065)
(Increase) in cash surrender value on life insurance in excess
of premiums paid (15,000) (9,079)
Increase in accrued expenses and other liabilities 288,812 94,597
Amortization of deferred loan (fees) cost 10,551 19,434
Amortization (accretion) of premium and discount on investments 41,208 2,428
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 935,076 $ 579,382
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in loans $ (2,822,319) $ (717,459)
Proceeds from sales of securities 3,196,279 2,566,067
Proceeds from maturities of securities 9,028,456 6,750,000
Purchases of securities (15,774,000) (8,028,906)
Purchases of premises and equipment (165,227) (270,632)
Proceeds from sales of other real estate owned, net - 14,263
Net (increase) decrease in federal funds sold 3,235,712 (4,975,474)
Premiums paid on life insurance (15,665) (5,921)
------------ ------------
NET CASH (USED IN) INVESTING ACTIVITIES $ (3,316,764) $ (4,668,062)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits $ 1,961,377 $ 3,511,742
Net increase (decrease) in time deposits (1,180,562) 2,346,057
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 780,815 $ 5,857,799
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (1,600,873) $ 1,769,119
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,832,735 4,229,810
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,231,862 $ 5,998,929
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period:
Interest $ 1,229,802 $ 1,473,649
Net transfer to foreclosed real estate, held for sale from loans
receivable $ - $ 30,000
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
In the opinion of CNB, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of CNB financial
condition as of March 31, 2003 and the results of operations for the
three months ended March 31, 2003 and 2002 and cash flows for the three
months ended March 31, 2003 and 2002.
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
consolidated financial statements and the notes included in the CNB's
Annual Report for the year ended December 31, 2002.
Reclassifications:
Certain 2002 amounts have been reclassified to conform with
2003 classifications. Such reclassifications had no effect on financial
position and results of operations.
Note 2. Securities
The amortized cost and estimated market value of debt
securities at March 31, 2003 and December 31, 2002 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:
MARCH 31, 2003 WEIGHTED
---------------------------------------------------------- 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 $ 2,010,242 $ 26,093 $ - 2,036,335 3.99%
After 1 but within 5 years 9,378,468 403,904 - 9,782,372 4.69
After 5 but within 10 years 19,632,556 164,219 58 19,796,717 4.61
----------- ----------- ----------- -----------
$31,021,266 $ 594,216 $ 58 $31,615,424 4.60%
----------- ----------- ----------- -----------
States and political subdivisions
Within one year $ 350,000 $ 7,235 $ - $ 357,235 6.21%
After 5 but within 10 years 775,000 35,394 - 810,394 6.22
----------- ----------- ----------- -----------
$ 1,125,000 $ 42,629 $ - $ 1,167,629 6.22%
----------- ----------- ----------- -----------
Mortgage backed securities $13,566,293 $ 200,229 $ 26,341 $13,740,181 5.14%
----------- ----------- ----------- -----------
Total securities available for sale $45,712,559 $ 837,074 $ 26,399 $46,523,234 4.80%
=========== =========== =========== ===========
Restricted:
Federal Reserve Bank stock $ 129,650 $ - $ - $ 129,650 6.00%
Federal Home Loan Bank stock 600,600 - - 600,600 3.25
----------- ----------- ----------- -----------
Total restricted investments $ 730,250 $ - $ - $ 730,250 3.74%
=========== =========== =========== ===========
7
CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Securities (continued)
DECEMBER 31, 2002 WEIGHTED
------------------------------------------------------------------------- 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 $ 5,300,481 $ 26,917 $ - $ 5,327,398 4.75%
After 1 but within 5 years 9,880,564 496,919 - 10,377,483 4.76
After 5 but within 10 years 12,135,426 187,756 - 12,323,182 4.99
----------- ----------- -------- -----------
$27,316,471 $ 711,592 $ - $28,028,063 4.86%
----------- ----------- -------- -----------
States and political subdivisions
Within one year $ 350,000 $ 9,747 $ - $ 359,747 8.27%
After 5 but within 10 years 775,000 21,967 - 796,967 6.22
----------- ----------- -------- -----------
$ 1,125,000 $ 31,714 $ - $ 1,156,714 6.86%
----------- ----------- -------- -----------
Mortgage backed securities $13,890,037 $ 355,088 $ - $14,245,125 5.20%
----------- ----------- -------- -----------
Total securities available for sale $42,331,508 $ 1,098,394 $ - $43,429,902 5.02%
=========== =========== ======== ===========
Restricted:
Federal Reserve Bank stock $ 129,650 $ - $ - $ 129,650 6.00%
Federal Home Loan Bank stock 429,000 - - 429,000 3.25
----------- ----------- -------- -----------
Total restricted investments $ 558,650 $ - $ - $ 558,650 3.89%
=========== =========== ======== ===========
The carrying value of securities pledged to secure public deposits and
for other purposes as required or permitted by law totaled $12,273,543 at
March 31, 2003 and $12,864,841 at December 31, 2002.
Proceeds from sales of securities available for sale (excluding
maturities) during the three months ended March 31, 2003 and the year ended
December 31, 2002 were $3,196,279 and $7,075,471, respectively. Gross gains
(losses) of $47,746 and $(3,151) during the three months ended March 31,
2003 and $78,028 and $(-0-) for the year ended December 31, 2002 were
realized on the respective sales.
8
CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 3. Loans and Lease Receivable
Major classifications of loans at March 31, 2003 and December
31, 2002, were as follows:
MARCH 31, DECEMBER 31,
2003 2002
------------- -------------
Loans:
Real estate $ 86,906,000 $ 83,239,409
Commercial real estate 18,281,818 13,934,900
Consumer 18,502,344 22,575,379
Commercial 8,168,260 9,684,720
Overdrafts 415,421 72,763
------------- -------------
$ 132,273,843 $ 129,507,171
Lease: 134,965 135,341
------------- -------------
$ 132,408,808 $ 129,642,512
Net deferred loan fees, costs,
premiums and discounts 196,489 172,239
Allowance for loan losses (1,514,226) (1,484,448)
------------- -------------
$ 131,091,071 $ 128,330,303
============= =============
An analysis of the allowance for possible loan losses is as follows:
MARCH 31, DECEMBER 31,
------------------------------- -----------
2003 2002 2002
----------- ----------- -----------
Balance, Beginning $ 1,484,448 $ 1,336,960 $ 1,336,960
Provision charged to
operations 51,000 73,000 261,000
Recoveries 12,257 8,793 37,230
Loans charged off (33,479) (44,829) (150,742)
----------- ----------- -----------
Balance, Ending $ 1,514,226 $ 1,373,924 $ 1,484,448
=========== =========== ===========
Loans are placed in nonaccrual status when, in the judgement
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 loans is as
follows:
MARCH 31, DECEMBER 31,
----------------------------------------
2003 2002 2002
-------- ------------------------
Nonaccrual loans $ 98,872 $171,578 $ 12,711
Loans past due 90 days or more still accruing interest 556,457 125,861 553,170
-------- -------- --------
Total $655,329 $297,439 $565,881
======== ======== ========
9
CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 3. Loans and Lease Receivable (continued)
Proceeds from sale of loans during the three months ended
March 31, 2003 and the year ended December 31, 2002 were $0. There were
no gains or losses on sale of loans.
Note 4. Time Deposits
At March 31, 2003, the scheduled maturities of time deposits
are as follows:
TIME DEPOSITS ALL TIME
$100,000 AND OVER DEPOSITS
----------------- --------
Within 3 months $ 8,573,343 $18,600,338
3 months thru 6 months 5,037,003 10,403,776
6 months thru 12 months 7,425,928 17,184,605
Over 12 months 16,019,849 47,452,181
----------- -----------
$37,056,123 $93,640,900
=========== ===========
10
ITEM 2. MANAGEMENT'S 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 Citizens National Bank (the
"Bank") for the purpose of becoming a financial services holding
company. The Company's 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 Bank's 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 since that time. The Bank is a full-service
commercial bank conducting general banking and trust activities through
four full-service offices and three automated teller machines located
in Morgan and Berkeley Counties, West Virginia. The Bank formed CNB
Insurance Services, Inc., a wholly owned subsidiary, which is a
property and casualty insurance agency selling primarily personal lines
of insurance.
The Bank purchased a parcel of land in Berkeley County, West
Virginia on April 20, 2001 for $450,000 to construct a new branch
facility. The Bank leased a parcel of land adjacent to the purchased
land and rented a temporary facility in which to conduct business while
the permanent bank building was under construction. The temporary
facility opened for business in August 2001. Construction on the
permanent facility began in September 2001 and was completed in March
2002. On March 18, 2002, the temporary facility was closed, and the new
branch building opened.
The following discussion and analysis presents the significant
changes in financial condition and results of operations of CNB for the
three months ended March 31, 2003 and 2002. This discussion may include
forward-looking statements based upon management's expectations. Actual
results may differ. We have rounded amounts and percentages used in
this discussion and have based all average balances on monthly
averages.
EARNINGS SUMMARY
Net income for the three months ended March 31, 2003 was
$315,000 or $0.69 per share compared to $274,000 or $0.60 per share for
the same period in 2002. Annualized return on average assets and
average equity were .65% and 7.65% respectively, for the three months
ended March 31, 2003, compared with .62% and 7.23%, respectively, for
the three months ended March 31, 2002.
NET INTEREST INCOME
Net interest income represents the primary component of CNB's
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.
11
Net interest income for the three months ended March 31, 2003
increased by $191,000 or 13.3% over the same period in 2002. Interest
income for the three months ended March 31, 2003 increased by $25,000
or 0.9% compared to the same period in 2002, while interest expense
decreased by $166,000 or 12.0% during the three months ended March 31,
2003, as compared to the same period in the prior year.
Increased net interest income for the three month period is
attributable to a significantly higher level of net interest earning
assets offset by a decrease in the rates earned thereon. The Bank's
loan growth has continued to increase due to refinancing and customer
debt consolidation. Due to the higher loan demand, the Bank has
experienced a shift in the asset mix from lower yielding overnight
federal funds and investment securities to higher yielding loans. The
decrease in the rates earned on interest earning assets is due to the
current economic conditions. Although deposit growth remains strong,
the substantial deposit growth the Bank experienced in 2002 has leveled
off. The Bank's increased loan demand and static deposit growth has
resulted in an increased loan to deposit ratio. Although, the average
balance on all interest bearing liabilities increased, total interest
expense decreased due to a decrease in the average rates paid on all
interest bearing liabilities.
During the first quarter of 2003 compared to the same period
in 2002, average net interest earning assets increased $15.8 million or
9.6% and average net interest bearing liabilities increased $10.0
million or 7.2% resulting in increased net interest income. CNB
experienced a 10 basis point increase in the net interest margin. The
72 basis point decrease in rates paid on average interest bearing
liabilities offset by a 57 basis point decrease in rates earned on
average interest earning assets contributed to the increase in the net
interest margin. See Table 1 - 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.
12
TABLE 1. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
MARCH 31, 2003 MARCH 31, 2002
--------------------------------------- ----------------------------------------
QTR AVERAGE QTR YIELD/ QTR AVERAGE QTR YIELD/
BALANCE INTEREST RATE (4) BALANCE INTEREST RATE (4)
--------------------------------------- ----------------------------------------
(IN THOUSANDS OF DOLLARS)
Interest earning assets:
Federal funds sold $ 2,106 $ 8 1.15% $ 3,195 $ 13 1.63%
Securities:
Taxable 45,775 511 4.47 48,378 596 4.93
Tax-exempt (1) 907 9 6.01 297 4 8.16
Loans (net of unearned interest) (2)(5)(6) 131,321 2,231 6.80 112,477 2,140 7.61
-------------------------------------- ---------------------------------------
Total interest earning assets (1) $ 180,109 $ 2,759 6.13% $ 164,347 $ 2,753 6.70%
-------------------------------------- ---------------------------------------
Nonearning assets:
Cash and due from banks $ 6,485 $ 5,018
Bank premises and equipment, net 4,798 4,381
Other assets 3,254 2,450
Allowance for loan losses (1,496) (1,368)
------------- --------------
Total assets $ 193,150 $ 174,828
============= ==============
Interest bearing liabilities:
Savings deposits $ 21,723 $ 27 0.50% $ 18,021 $ 41 0.91%
Time deposits 95,714 1,108 4.63 93,962 1,248 5.31
NOW accounts 24,217 70 1.16 20,734 78 1.50
Money market accounts 6,157 11 0.71 5,125 16 1.25
-------------------------------------- ---------------------------------------
Total interest bearing liabilities $ 147,811 $ 1,216 3.29% $ 137,842 $ 1,383 4.01%
-------------------------------------- ---------------------------------------
Noninterest bearing liabilities:
Demand deposits $ 26,475 $ 19,988
Other liabilities 2,381 1,961
Shareholders' equity 16,483 15,037
------------- --------------
Total liabilities and
shareholders' equity $ 193,150 $ 174,828
============= ==============
------------ ------------
Net interest income (1) $ 1,543 $ 1,370
============ ============
Net interest spread (3) 2.84% 2.69%
============= =============
Net interest income to average
interest earning assets (1) 3.43% 3.33%
============= =============
(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 annualized basis.
(5) Interest income on loans excludes fees of $89,000 in 2003 and $70,000 in
2002.
(6) Interest income on loans includes fees of $30,893 in 2003 and $46,865 in
2002 from the Business Manager Program, student loans and lease
receivables.
13
PROVISION FOR LOAN LOSSES
The amount charged to provision for loan losses is based on management's
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 March 31, 2003, and March 31, 2002,
amounted to $51,000 and $73,000, respectively. Loan quality remains stable and
past due and nonaccruals are minimal. 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
additional 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 March 31, 2003 increased
$35,000 or 10.2% to $381,000 from $345,000 in the first quarter of 2002. The
increase in noninterest income is attributable to fees generated from the Bounce
Protection program, overdraft fees, debit cards and trust fees offset by a
decrease in life insurance proceeds from death benefits received in 2002. The
increase in trust fees were a direct result of the fees earned from the
settlement of an estate.
In March 2002, one of the Bank's Board of Directors passed away and the
Bank was the beneficiary of a life insurance policy on the director. The Bank
received $43,379 in a death benefit, $21,645 of which was recorded in assets as
cash surrender value. The difference of $21,734 was reflected in other operating
income.
NONINTEREST EXPENSES
Noninterest expenses for the three months ended March 31, 2003, increased
$177,000 or 13.5% primarily due to increases in salaries and benefits and
furniture, fixtures and equipment expenses offset by a decrease in occupancy
expenses and other operating expenses. Salaries and employee benefits increased
due to normal recurring merit increases and increased health insurance costs and
hiring in the normal course of business. The increase in furniture and equipment
expense was due to an increase in depreciation expense relating to the new
computer equipment and peripherals associated with the upgrade of the Bank's
technology systems and the additional equipment acquired for the south
Martinsburg branch facility. The decrease in occupancy expenses is due to the
decrease in expenses associated with the temporary banking facility in
Martinsburg. The decrease in other operating expenses was due to a decrease in
telephone, ATM, NSF and other check losses offset by an increase in debit card
expenses and the Bounce program expenses. Employee training and food and
entertainment expenses increased as a direct result of the upgrade of the Bank's
technology systems.
INCOME TAXES
The Bank's provision for income taxes increased $30,000 or 23.0% to
$163,000 for the three months ended March 31, 2003. The effective tax rates for
the first quarter of 2003 and 2002 were 34.0% and 32.6%, respectively. The
Bank's higher effective tax rate for the first three months of 2003 compared to
the first three months of 2002, is due to an decrease in nontaxable income,
principally life insurance proceeds. The increase in the income tax provision in
2003 is attributable to higher taxable income. The Bank's income tax expense
differs from the amount computed at statutory rates primarily due to the
tax-exempt earnings from certain investment securities.
14
FINANCIAL CONDITION
The Bank's total assets at March 31, 2003 increased $1.1 million or 0.6% to
$192.7 million from December 31, 2002 due primarily to a $3.1 million increase
in investment securities and a $2.8 million increase in loans offset by a $1.6
million decrease in cash and due from banks and a $3.2 million decrease in
federal funds sold. The Bank's total liabilities increased $974,000 or 0.6% to
$176.3 million at March 31, 2003, consisting mainly of deposit growth, which
increased to $173.8 million. Shareholders' equity increased $137,000 to $16.4
million at March 31, 2003, primarily due to net income of $315,000 offset by a
$178,000 decrease in accumulated other comprehensive income. The only component
of accumulated other comprehensive income at March 31, 2003, was unrealized
gains and losses on available for sale securities, 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.
LOAN PORTFOLIO
At March 31, 2003, total loans increased $2.8 million or 2.2% to $131.1
million from $128.3 million at December 31, 2002. The loan mix showed a slight
change compared with December 31, 2002. The loan portfolio change is primarily
due to the reclassification of loans within the loan portfolio during the Bank's
recent mainframe computer conversion. The Bank feels additional growth in all
lending areas is possible during the remainder of 2003.
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, restructured loans and other real
estate owned. The following table summarized the Bank's nonperforming assets as
of the periods shown:
MARCH 31, DECEMBER 31,
------------------------- ------------
2003 2002 2002
-------- -------- ------------
Nonaccrual loans $ 98,872 $171,578 $ 12,711
Loans past due 90 days or more
still accruing interest 556,457 125,861 553,170
-------- -------- --------
Total nonperforming loans $655,329 $297,439 $565,881
-------- -------- --------
Other real estate owned $ 1,800 $ 30,000 $ 1,800
-------- -------- --------
Total nonperforming assets $657,129 $327,439 $567,681
======== ======== ========
Nonperforming loans/Total loans 0.50% 0.27% 0.44%
Nonperforming assets/Total assets 0.34% 0.18% 0.30%
Allowance for loan losses/Total loans 1.16% 1.24% 1.16%
As of March 31, 2003, the Bank has no loans which management considers to
be impaired. Management is aware of three borrowers who have exhibited
weaknesses. Their loans have aggregate uninsured balances of $858,773. A
specific allowance of $100,000 related to these loans has been established as
part of the allowance for loan losses. The loans are collateralized and
management anticipates any additional potential loss would be minimal.
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
15
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 Bank's 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 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. At March 31, 2003, and December 31, 2002, the
allowance for loans losses totaled $1.5 million. The allowance for loans losses
as a percentage of loans was 1.16% as of March 31, 2003 and December 31, 2002.
An analysis of the allowance for loan losses is summarized below:
In thousands MARCH 31, DECEMBER 31,
---------------------------- ---------------------------
2003 2002
---------------------------- ---------------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------------ --------------- ---------- ----------------
Commercial, financial $ 557 20% $ 330 8%
and agriculture
Real estate - mortgage 307 66 391 75
Installment and other 323 14 364 17
Unallocated 327 N/A 399 N/A
------ ----- ------ -----
Total $1,514 100 % $1,484 100 %
====== ===== ====== =====
DEPOSITS
The Bank's deposits increased $781,000 or 0.5% during the three months
ended March 31, 2003. The Bank has experienced a slight change in the deposit
account mix during the first three months of 2003. Steady growth continues in
interest-bearing demand and savings deposits. The increase is primarily due to
the maturity of rate sensitive certificate of deposits and customers temporarily
placing their money in demand or savings accounts. The Bank has experienced a
slight decrease in other time deposits and rate sensitive jumbo certificate of
deposits during the first three months of 2003. The decrease is primarily due to
the maturity of the 36-month Ultimate Certificate of Deposit. These maturities
are offset by an increase in Individual Retirement Accounts (IRA) which has
experienced an increase due to customer's concerns with the weak economy and
stock market.
CAPITAL RESOURCES
Shareholders' equity increased $137,000 or 0.8% during the first three
months of 2003 due to $315,000 in net income offset by a $178,000 decrease in
accumulated other comprehensive income. The Bank is subject to regulations of
the Office of the Comptroller of the Currency that impose certain minimum
regulatory capital requirements. Under each measure, the Bank was substantially
in excess of the minimum regulatory requirements, and, by definition was "well
16
capitalized" at March 31, 2003. The following table summarized, as of March 31,
2003, the Bank's capital ratios.
Components Actual Required
of Capital Ratio Ratio
---------- ----- -----
Tier 1 Capital $15,892 8.2% 4.0%
Total Risk Based Capital $17,313 15.2% 8.0%
RECENTLY ISSUED ACCOUNTING STANDARDS
During the three months ended March 31, 2003 there were no new accounting
pronouncements requiring CNB's review and adoption.
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, equity market
price risk, foreign currency risk and commodity price risk. Due to the nature of
its operations, only equity market price risk and interest rate risk are
significant to the Bank.
The objective of the Bank's 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 Bank's 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. At March 31, 2003, these totaled $47.4 million, or 24.6% of total
assets. In addition, liquidity may be generated through loan repayments and over
$7.0 million of available borrowing arrangements with correspondent banks. At
March 31, 2003, management considered the Bank's 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 $935,000 of cash from operations in the first three months of
2003, which compares to $579,000 during the same time period in 2002. Additional
cash of $781,000 was generated through net financing activities through March
31, 2003, which compares to $5.9 million for the first three months of 2002.
These proceeds along with proceeds from the sales and maturities of investment
securities were used to fund loans and purchase securities during each year. Net
cash used in investing activities totaled $3.3 million during the first three
months of 2003 compared to $4.7 million during the same time period in 2002.
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 Bank's 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 Bank's sensitivity of earnings to changes in
interest rates within the Bank's policy guidelines are monitored by using a
combination of off-balance sheet and on-balance sheet financial instruments. The
Bank's 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 Bank's 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.
17
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 Bank's 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 a 100 and 200 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 Bank's 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 Bank's base-line scenario holds the prime rate constant at 4.25 percent
through March 2004. Based on the April 2003 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 or decreasing interest rate scenario.
ITEM 4. CONTROLS AND PROCEDURES
The Company's chief executive officer and chief financial officer, based on
their evaluation within 90 days prior to the date of this report of the
Company's disclosure controls and procedures (as defined in Rule 13 (a) - 14 (c)
of the Securities Exchange Act of 1934), have concluded that the Company's
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 Company's filings with the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of their evaluation with the exception of the Company converting to the
use of new software for its core processing system on February 14, 2003. The
conversion significantly affected the Company's accounting systems as well as
the loan and deposit processing. The conversion resulted in changes to
procedures and controls, both manual and through electronic data processing.
Throughout the preparation for the conversion, the new procedures and controls
were reviewed and planned for and are in the implementation stage. Although, the
Company's procedures and controls have changed with the conversion, management's
conclusion that the controls are adequate and effective has not changed.
Appearing immediately following the signatures of this quarterly report on
Form 10-Q, certificates of the chief executive officer and chief financial
officer appear. This form of certification is required in accordance with
Section 302 of the Sarbanes-Oxley Act of 2002. This section of the quarterly
report on Form 10-Q is the information concerning the controls evaluation
referred to in the Section 302 certifications. This information should be read
in conjunction with those certifications for a more complete understanding of
the topics presented.
Disclosure controls are procedures that a company designs with the
objective of ensuring that information required to be disclosed in their reports
filed under the Securities Exchange Act of 1934 (such as this Form 10-Q), is
recorded, processed, summarized and reported within the time period specified
under the SEC's rules and forms. Disclosure controls are also designed with the
objective of ensuring that such information is accumulated and communicated to
management, including the CEO and CFO, as appropriate, to allow timely decisions
regarding required disclosure. Internal controls are procedures that a company
designs with the objective of providing reasonable assurance that transactions
are properly authorized, assets are safeguarded against unauthorized or improper
use and transactions are properly recorded and reported all to permit the
preparation of a company's financial statements in conformity with generally
accepted accounting principles.
The company's management, including the CEO and CFO, does not expect that
our disclosure controls or internal controls will prevent all error and fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that
18
the objectives of the control system are met. Further, the design of a control
system must reflect that fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the company have been detected. These inherent limitations include
the realities that judgments and decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of control also is based in part upon certain assumptions about the
likelihood of future events and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Based upon the controls evaluation conducted by our CEO and CFO, they have
concluded that, subject to the limitations noted above, the company's disclosure
controls are effective to ensure that material information relating to CNB
Financial Services and its subsidiaries is made known to management, including
the CEO and CFO, particularly during that period when our periodic reports are
being prepared, and that our internal controls are effective to provide
reasonable assurance that our financial statements are fairly presented in
conformity with generally accepted accounting principles.
19
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None; however, CNB is involved in various legal proceedings
occurring in the ordinary course of business. There are no
material legal proceedings to which CNB or its subsidiary is a
part, or to which any of their property is subject.
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits:
99.1 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
99.2 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
b.) Reports on Form 8-K:
Date of Report Item Description
-------------- ---- -----------
May 12, 2003 12 The Company issued a press release that
announced operating results of its first
quarter ended March 31, 2003
20
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 May 12, 2003 /s/ Thomas F. Rokisky, President/CEO
---------------- ------------------------------------
Date May 12, 2003 /s/ Rebecca S. Stotler, Vice President/CFO
---------------- ------------------------------------
21
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATIONS
I, Thomas F. Rokisky, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CNB Financial Services,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003
--------------------
/s/ Thomas F. Rokisky, President/CEO
-----------------------------------------
[Signature]
[Title]
22
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATIONS
I, Rebecca S. Stotler, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CNB Financial Services,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003
--------------------
/s/ Rebecca S. Stotler, VP/CFO
------------------------------------------------
[Signature]
[Title]
23