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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, 2004
[ ] 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 Identification No.)
incorporation or organization)
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,
2003), was approximately $38.5 million. This amount was based on the last
closing sale price of a share of common stock of $100.00 as of the same date.
Common Stock $1 par value, 458,048 shares outstanding as of May 10, 2004
CNB FINANCIAL SERVICES, INC.
TABLE OF CONTENTS
PAGE
PART 1: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of March 31, 2004 (Unaudited)
and December 31, 2003............................................................................ 3
Consolidated Statements of Income for the Three Months ended
March 31, 2004 and 2003 (Unaudited) ............................................................. 4
Consolidated Statements of Changes in Shareholders' Equity for the Three
Months Ended March 31, 2004 (Unaudited) and the Year Ended December 31, 2003..................... 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2004 and 2003 (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, 2004.................................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......................................... 19
Item 4. Controls and Procedures............................................................................. 20
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................. 22
Item 6. Exhibits and Reports on Form 8-K.................................................................... 22
SIGNATURES.......................................................................................... 23
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 could increase expenses; 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,
2004 2003
------------- -------------
(Unaudited)
ASSETS
Cash and due from banks $ 10,385,376 $ 7,641,280
Federal funds sold 3,918,000 3,000
Securities available for sale
(at approximate market value) 33,662,082 39,361,934
Federal Home Loan Bank stock, at cost 707,400 865,700
Federal Reserve Bank stock, at cost 129,650 129,650
Loans and lease receivable, net 147,885,935 144,665,208
Accrued interest receivable 774,951 838,659
Premises and equipment, net 5,307,613 5,288,633
Cash surrender value of life insurance 1,071,356 1,065,435
Deferred income taxes 202,718 352,405
Intangible assets 22,308 23,795
Other assets 491,599 820,052
------------- -------------
TOTAL ASSETS $ 204,558,988 $ 201,055,751
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 32,393,895 $ 29,485,097
Interest-bearing demand 34,406,926 34,042,317
Savings 26,284,765 24,360,890
Time, $100,000 and over 36,600,198 36,642,560
Other time 55,062,222 56,367,865
------------- -------------
$ 184,748,006 $ 180,898,729
Accrued interest payable 640,039 673,624
FHLB borrowings - 1,200,000
Accrued expenses and other liabilities 1,788,907 1,714,457
------------- -------------
TOTAL LIABILITIES $ 187,176,952 $ 184,486,810
------------- -------------
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 13,029,425 12,460,556
Accumulated other comprehensive income 30,971 (213,255)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY $ 17,382,036 $ 16,568,941
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 204,558,988 $ 201,055,751
============= =============
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,
-------------------------
2004 2003
---------- ----------
INTEREST INCOME
Interest and fees on loans $2,384,198 $2,320,147
Interest and dividends on securities
U.S. Government agencies and
corporations 243,549 341,234
Mortgage backed securities 89,731 161,779
State and political subdivisions 44,978 13,112
Other 2,863 4,599
Interest on federal funds sold 2,785 7,527
---------- ----------
$2,768,104 $2,848,398
---------- ----------
INTEREST EXPENSE
Interest on interest bearing demand, $ 778,859 $1,216,268
savings and time deposits
Interest on federal funds purchased - 146
Interest on FHLB borrowings 2,900 -
---------- ----------
$ 781,759 $1,216,414
---------- ----------
NET INTEREST INCOME $1,986,345 $1,631,984
PROVISION FOR LOAN LOSSES 87,000 51,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES $1,899,345 $1,580,984
---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts $ 257,189 $ 190,789
Other service charges, commissions
and fees 89,247 91,883
Insurance commissions 33,002 24,271
Other operating income 17,531 18,849
Net gain on sale of securities 49,876 44,595
Income from title company 9,829 10,250
---------- ----------
$ 456,674 $ 380,637
---------- ----------
NONINTEREST EXPENSES
Salaries $ 595,918 $ 679,389
Employee benefits 217,879 212,220
Occupancy of premises 77,906 72,013
Furniture and equipment expense 202,054 117,537
Other operating expenses 415,888 402,499
---------- ----------
$1,509,645 $1,483,658
---------- ----------
INCOME BEFORE INCOME TAXES $ 846,374 $ 477,963
PROVISION FOR INCOME TAXES 277,505 162,611
---------- ----------
NET INCOME $ 568,869 $ 315,352
========== ==========
BASIC EARNINGS PER SHARE $ 1.24 $ 0.69
========== ==========
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
ACCUMULATED
OTHER TOTAL
COMMON CAPITAL RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK SURPLUS EARNINGS INCOME EQUITY
------------ ------------ ------------ ------------ -------------
BALANCE, DECEMBER 31, 2002 $ 458,048 $ 3,863,592 $ 11,267,374 $ 681,004 $ 16,270,018
Comprehensive income:
Net income for 2003 - - 1,742,840 - 1,742,840
Change in unrealized gains
(losses) on securities
available for sale (net of tax of $382,304) - - - (623,758) (623,758)
Change in minimum pension liability
adjustment (net of tax of $165,792) (270,501) (270,501)
------------
Total Comprehensive Income - - - - 848,581
------------
Cash dividends ($1.20 per share) - - (549,658) - (549,658)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2003 $ 458,048 $ 3,863,592 $ 12,460,556 $ (213,255) $ 16,568,941
------------
Comprehensive income:
Net income for three months
ended March 31, 2004 - - 568,869 - 568,869
Change in unrealized gains
(losses) on securities
available for sale (net of tax of $149,687) - - - 244,226 244,226
Change in minimum pension liability
adjustment - -
------------
Total Comprehensive Income - - - - 813,095
------------ ------------ ------------ ------------ ------------
BALANCE, MARCH 31, 2004 $ 458,048 $ 3,863,592 $ 13,029,425 $ 30,971 $ 17,382,036
============ ============ ============ ============ ============
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,
------------------------------
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 568,869 $ 315,352
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 171,462 122,644
Provision for loan losses 87,000 51,000
Net (gain) on sale of securities (49,876) (44,595)
(Increase) decrease in accrued interest receivable 63,708 (60,866)
Decrease in other assets 317,494 212,436
Increase (decrease) in accrued interest payable (33,585) 13,534
(Increase) in cash surrender value on life insurance in excess
of premiums paid - (15,000)
Increase in accrued expenses and other liabilities 74,450 288,812
Amortization of deferred loan (fees) cost 484 10,551
Amortization (accretion) of premium and discount on investments 19,291 41,208
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,219,297 $ 935,076
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in loans $ (3,308,211) $ (2,822,319)
Proceeds from sales of securities 3,900,535 3,196,279
Proceeds from maturities of securities 9,144,734 9,028,456
Purchases of securities (6,920,919) (15,774,000)
Purchases of Federal Home Loan Bank stock (230,100) -
Redemptions of Federal Home Loan Bank stock 388,400 -
Purchases of premises and equipment (177,996) (165,227)
Net (increase) decrease in federal funds sold (3,915,000) 3,235,712
Premiums paid on life insurance (5,921) (15,665)
------------ ------------
NET CASH (USED IN) INVESTING ACTIVITIES $ (1,124,478) $ (3,316,764)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits $ 5,197,282 $ 1,961,377
Net (decrease) in time deposits (1,348,005) (1,180,562)
Net (decrease) in FHLB borrowings (1,200,000) -
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 2,649,277 $ 780,815
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 2,744,096 $ (1,600,873)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,641,280 7,832,735
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,385,376 $ 6,231,862
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period:
Interest $ 815,344 $ 1,229,802
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 CNB
financial condition as of March 31, 2004 and the results of
operations for the three months ended March 31, 2004 and 2003 and
cash flows for the three months ended March 31, 2004 and 2003.
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 CNB's
Annual Report for the year ended December 31, 2003.
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 CNB's 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.
7
Note 2. Securities
The amortized cost and estimated market value of debt
securities at March 31, 2004 and December 31, 2003 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, 2004 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 $ 1,502,197 $ 100,618 $ - $ 1,602,815 4.69%
After 1 but within 5 years 2,511,642 105,058 - 2,616,700 4.80
After 5 but within 10 years 16,173,557 87,685 22,793 16,238,449 4.03
----------- ----------- ----------- -----------
$20,187,396 $ 293,361 $ 22,793 $20,457,964 4.17%
----------- ----------- ----------- -----------
States and political subdivisions
After 1 but within 5 years $ 468,656 $ 13,217 $ - $ 481,873 4.32%
After 5 but within 10 years 5,339,953 125,849 993 5,464,809 5.21
----------- ----------- ----------- -----------
$ 5,808,609 $ 139,066 $ 993 $ 5,946,682 4.94%
----------- ----------- ----------- -----------
Mortgage backed securities $ 7,179,831 $ 88,443 $ 10,838 $ 7,257,436 4.47%
----------- ----------- ----------- -----------
Total securities available for sale $33,175,836 $ 520,870 $ 34,624 $33,662,082 4.37%
=========== =========== =========== ===========
Restricted:
Federal Reserve Bank stock $ 129,650 $ - $ - $ 129,650 6.00%
Federal Home Loan Bank stock 707,400 - - 707,400 1.37
----------- ----------- ----------- -----------
Total restricted investments $ 837,050 $ - $ - $ 837,050 2.09%
=========== =========== =========== ===========
8
CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 2. Securities (continued)
DECEMBER 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 $ 3,679,936 $ 56,310 $ - $ 3,736,246 4.41%
After 1 but within 5 years 4,015,285 182,346 21,560 4,176,071 4.76
After 5 but within 10 years 17,436,050 32,346 162,056 17,306,340 4.26
----------- ----------- ----------- -----------
$25,131,271 $ 271,002 $ 183,616 $25,218,657 4.36%
----------- ----------- ----------- -----------
States and political subdivisions
After 1 but within 5 years $ 468,556 $ 7,274 $ 193 $ 475,637 2.85%
After 5 but within 10 years 4,143,424 42,818 6,904 4,179,338 3.42
----------- ----------- ----------- -----------
$ 4,611,980 $ 50,092 $ 7,097 $ 4,654,975 3.07%
----------- ----------- ----------- -----------
Mortgage backed securities $ 9,526,351 $ 42,478 $ 80,527 $ 9,488,302 4.44%
----------- ----------- ----------- -----------
Total securities available for sale $39,269,602 $ 363,572 $ 271,240 $39,361,934 4.25%
=========== =========== =========== ===========
Restricted:
Federal Reserve Bank stock $ 129,650 $ - $ - $ 129,650 6.00%
Federal Home Loan Bank stock 865,700 - - 865,700 3.52
----------- ----------- ----------- -----------
Total restricted investments $ 995,350 $ - $ - $ 995,350 3.84%
=========== =========== =========== ===========
The carrying value of securities pledged to secure public
deposits and for other purposes as required or permitted by law
totaled $16,514,263 at March 31, 2004 and $15,337,515 at December
31, 2003.
Proceeds from sales of securities available for sale
(excluding maturities) during the three months ended March 31, 2004
and the year ended December 31, 2003 were $3,900,535 and
$13,044,280, respectively. Gross gains (losses) of $49,876 and
$(-0-) during the three months ended March 31, 2004 and $210,572 and
$(69,122) for the year ended December 31, 2003 were realized on the
respective sales.
9
CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Loans and Leases Receivable
Major classifications of loans at March 31, 2004 and December
31, 2003, were as follows:
MARCH 31, DECEMBER 31,
2004 2003
------------- -------------
Loans:
Real estate $ 100,195,045 $ 98,404,610
Commercial real estate 23,588,170 21,521,317
Consumer 16,352,023 16,852,449
Commercial 8,917,107 8,934,099
Overdrafts 70,081 135,958
------------- -------------
$ 149,122,426 $ 145,848,433
Leases: 182,294 186,318
------------- -------------
$ 149,304,720 $ 146,034,751
Net deferred loan fees, costs,
premiums and discounts 253,616 238,220
Allowance for loan losses (1,672,401) (1,607,763)
------------- -------------
$ 147,885,935 $ 144,665,208
============= =============
An analysis of the allowance for possible loan losses is as
follows:
MARCH 31, DECEMBER 31,
---------------------------- ------------
2004 2003 2003
----------- ----------- ------------
Balance, Beginning $ 1,607,763 $ 1,484,448 $ 1,484,448
Provision charged to
operations 87,000 51,000 312,000
Recoveries 77,705 12,257 80,626
Loans charged off (100,067) (33,479) (269,311)
----------- ----------- -----------
Balance, Ending $ 1,672,401 $ 1,514,226 $ 1,607,763
=========== =========== ===========
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,
--------------------- ------------
2004 2003 2003
-------- -------- -----------
Nonaccrual loans $780,530 $ 98,872 $348,660
Loans past due 90 days or more still accruing interest - 556,457 27,045
-------- -------- --------
Total $780,530 $655,329 $375,705
======== ======== ========
10
CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 4. Time Deposits
At March 31, 2004, the scheduled maturities of time deposits
are as follows:
TIME DEPOSITS ALL TIME
$100,000 AND OVER DEPOSITS
----------------- -----------
Within 3 months $ 4,731,748 $ 9,784,165
3 months thru 6 months 2,263,636 6,924,603
6 months thru 12 months 6,163,822 14,045,339
Over 12 months 23,440,992 60,908,313
----------- -----------
$36,600,198 $91,662,420
=========== ===========
Note 5. Federal Home Loan Bank Borrowings
MARCH 31, DECEMBER 31,
------------------- ------------
2004 2003 2003
------- ------- ------------
Federal Home Loan Bank advances $ - $ - $ 1,200,000
Citizens National Bank 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. 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 Bank's stock in the FHLB is pledged as collateral for such
debt. Advances available under this agreement are limited by
available and qualifying collateral and the amount of FHLB stock
held by the borrower.
Note 6. 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 quarter ended March
31, 2004 was $8,160.
11
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 exercised an option to purchase a parcel of land in Falling
Waters, Berkeley County, West Virginia for the future site of an
additional full-service branch. The expected building completion date has
been revised to the first quarter of 2005.
On January 26, 2004, CNB entered into an agreement to purchase
certain assets and liabilities associated with the Hancock Branch of
Fidelity Bank, a subsidiary bank of Mercantile Bankshares Corporation
(formerly Home Federal). The purchase, which will take place on June 11,
2004, will increase the assets of CNB to over $218,000,000 and increase
liabilities by over $17,000,000. CNB will assume responsibility for all
the deposit services including checking, savings and certificate of
deposits. Additionally, CNB will acquire loans, equipment and leasehold
improvements and will assume the lease for the real estate located at 333
East Main Street, Hancock, Maryland.
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, 2004 and 2003. 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 daily averages.
EARNINGS SUMMARY
Net income for the three months ended March 31, 2004 was $569,000 or
$1.24 per share compared to $315,000 or $0.69 per share for the same
period in 2003. Annualized return on average assets and average equity
were 1.1% and 13.5% respectively, for the three months ended March 31,
2004, compared with .7% and 7.7%, respectively, for the three months ended
March 31, 2003.
Growth in net income for the year 2004 is projected to slow down
compared to the growth in net income for 2003 due to the additional
expenses related to the projected opening of a new branch facility and the
slowing of the maturities of the higher interest bearing 36 month
Certificate of Deposits causing interest expense to level out. Although,
net income increased in the first quarter of 2004 compared to the first
quarter of 2003, the additional expenses relating to the opening of the
branch facility are expected to be incurred in the second half of the
year. The steady loan growth is expected to continue through 2004 although
not at the level experienced in the recent past. As a result of lower
interest rates and slower loan growth, interest income on loans will be
impacted.
12
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.
Net interest income for the three months ended March 31, 2004 increased by
$354,000 or 21.7% over the same period in 2003. Interest income for the three
months ended March 31, 2004 decreased by $80,000 or 2.8% compared to the same
period in 2003, while interest expense decreased by $435,000 or 35.7% during the
three months ended March 31, 2004, as compared to the same period in the prior
year.
Increased net interest income for the three month period is attributable
to a higher level of net interest earning assets offset by a decrease in the
rates earned thereon. The Bank continues to experience a shift in the asset mix
from lower yielding overnight federal funds and investment securities to higher
yielding loans due to the continued high loan demand. The decrease in the rates
earned on interest earning assets is due to the current economic conditions. The
Bank has continued to experience steady deposit growth. Although the average
balance on interest bearing liabilities increased, total interest expense
decreased due to a decrease in the average rates paid on all interest bearing
liabilities. The Bank's higher loan demand and steady deposit growth has
resulted in an increased loan to deposit ratio.
During the first quarter of 2004 compared to the same period in 2003,
average net interest earning assets increased $6.5 million or 3.6% and average
net interest bearing liabilities increased $5.1 million or 3.5% resulting in
increased net interest income. CNB experienced a 69 basis point increase in the
ratio of net interest income to average interest earning assets. The 124 basis
point decrease in rates paid on average interest bearing liabilities offset by a
33 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.
13
TABLE 1. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
MARCH 31, 2004 MARCH 31, 2003
---------------------------------- -------------------------------
QTR QTR
AVERAGE QTR YIELD/ AVERAGE QTR YIELD/
BALANCE INTEREST RATE(4) BALANCE INTEREST RATE(4)
---------- -------- -------- ------- -------- --------
(IN THOUSANDS OF DOLLARS)
Interest earning assets:
Federal funds sold $ 1,258 $ 3 0.91% $ 2,106 $ 8 1.15%
Securities:
Taxable 31,602 336 4.25 45,775 511 4.47
Tax-exempt (1) 5,361 45 5.09 907 9 6.01
Loans (net of unearned interest) (2)(5)(6) 148,420 2,322 6.26 131,321 2,231 6.80
---------- -------- ------ ---------- -------- ------
Total interest earning assets (1) $ 186,641 $ 2,706 5.80% $ 180,109 $ 2,759 6.13%
----------- -------- ------ ---------- -------- ------
Nonearning assets:
Cash and due from banks $ 9,008 $ 6,485
Bank premises and equipment, net 5,264 4,798
Other assets 3,017 3,254
Allowance for loan losses (1,663) (1,496)
---------- ---------
Total assets $ 202,267 $ 193,150
========== =========
Interest bearing liabilities:
Savings deposits $ 25,197 $ 31 0.49% $ 21,723 $ 27 0.50%
Time deposits 92,450 661 2.86 95,714 1,108 4.63
NOW accounts 25,290 69 1.09 24,217 70 1.16
Money market accounts 9,082 18 0.79 6,157 11 0.71
Borrowings 893 3 1.34 - -
---------- -------- ------ ---------- -------- ------
Total interest bearing liabilities $ 152,912 $ 782 2.05% $ 147,811 $ 1,216 3.29%
========== ======== ====== ========== ======== ======
Noninterest bearing liabilities:
Demand deposits $ 30,159 $ 26,475
Other liabilities 2,287 2,381
Shareholders' equity 16,909 16,483
---------- ----------
Total liabilities and
shareholders' equity $ 202,267 $ 193,150
========== ==========
-------- --------
Net interest income (1) $ 1,924 $ 1,543
======== ========
Net interest spread (3) 3.75% 2.84%
====== ======
Net interest income to average
interest earning assets (1) 4.12% 3.43%
====== ======
(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 $62,000 in 2004 and $89,000 in
2003.
(6) Interest income on loans includes fees of $36,431 in 2004 and $30,893 in
2003 from the Business Manager Program, student loans and lease
receivables.
14
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, 2004, and March 31, 2003,
amounted to $87,000 and $51,000, respectively. Loan quality remains stable and
past dues are minimal while nonaccruals have shown an increase. Nonaccruals have
increased primarily due to two borrowers with outstanding loan balances of
$409,000. Management believes these loans are sufficiently collateralized and
the Bank will not incur any loss. 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, 2004 increased
$76,000 or 20.0% to $457,000 from $381,000 in the first quarter of 2003. The
increase in noninterest income is attributable, in general, to an increase in
service charge fees effective October 1, 2003 the bank assesses its customers.
Specifically, noninterest income increased due to fees generated from the Bounce
Protection program, insurance commissions and gain on sale of investment
securities offset by a decrease in overdraft fees and trust fees. The fees
related to the Bounce Protection program have a direct correlation to the
increased deposit base of the bank. Insurance commissions increased due to a
large group health account written in the third quarter of 2003 and general rate
increases from the insurance companies.
NONINTEREST EXPENSES
Noninterest expenses for the three months ended March 31, 2004, increased
$26,000 or 1.8% primarily due to increases in occupancy expense and furniture,
fixtures and equipment expenses offset by decreases in salaries and employee
benefits expense. Salaries decreased, in part, due to additional compensation
paid in 2003 in connection with the conversion of the Bank's core processing
system. The increase in furniture and equipment expense was due to an increase
in depreciation expense relating to the new computer equipment, software and
peripherals associated with the upgrade of the Bank's technology systems.
Another factor relating to the increase in furniture and equipment expense was
an increase in the cost and number of equipment maintenance contracts the Bank
entered into. The increase in other operating expenses was due to an increase in
stationery, supplies & printing, telephone, legal fees, advertising and debit
card expense offset by a decrease in data processing, postage and bounce
protection expense. The increase in legal fees and advertising are a direct
result of the Bank's acquisition of the full service branch of Fidelity Bank in
Hancock, Maryland. Bounce protection expense decreased due to the Bank's
contract with Pinnacle Financial Strategies expired in February 2004.
INCOME TAXES
The Bank's provision for income taxes increased $115,000 or 70.7% to
$278,000 for the three months ended March 31, 2004. The effective tax rates for
the first quarter of 2004 and 2003 were 32.8% and 34.0%, respectively. 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.
15
FINANCIAL CONDITION
The Bank's total assets at March 31, 2004 increased $3.5 million or 1.7%
to $204.6 million from December 31, 2003 due primarily to a $2.7 million
increase in cash and due from banks, $3.9 million increase in federal funds sold
and a $3.2 million increase in loans, offset by a $5.7 million decrease in
investment securities and a $328,000 decrease in other assets. The decrease in
other assets is due to mortgage loan and ATM clearing for transactions in
process at December 31, 2003 were greater than March 31, 2004. The Bank's total
liabilities increased $2.7 million or 1.5% to $187.2 million at March 31, 2004,
consisting of deposit growth, which increased to $184.7 million and an increase
of $74,000 in accrued expenses and other liabilities offset by a decrease of
$1.2 million in borrowings. Shareholders' equity increased $813,000 to $17.4
million at March 31, 2004, primarily due to net income of $569,000 and a
$244,000 increase in accumulated other comprehensive income. The components of
accumulated other comprehensive income at March 31, 2004, were unrealized gains
and losses on available for sale securities, net of deferred income taxes and
minimum pension liability adjustment, 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, 2004, total loans increased $3.2 million or 2.2% to $147.9
million from $144.7 million at December 31, 2003. This increase is mainly a
result of an increase in real estate lending with a increased emphasis in
commercial real estate and land development. The Bank feels additional growth in
all lending areas is possible during the remainder of 2004.
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,
---------------------------- ------------
2004 2003 2003
----------- ----------- ------------
Nonaccrual loans $ 780,530 $ 98,872 $ 348,660
Loans past due 90 days or more
still accruing interest - 556,457 27,045
----------- ----------- -----------
Total nonperforming loans $ 780,530 $ 655,329 $ 375,705
----------- ----------- -----------
Other real estate owned $ - $ 1,800 $ -
----------- ----------- -----------
Total nonperforming assets $ 780,530 $ 657,129 $ 375,705
=========== =========== ===========
Nonperforming loans/Total loans 0.53% 0.50% 0.26%
Nonperforming assets/Total assets 0.38% 0.34% 0.19%
Allowance for loan losses/Total loans 1.13% 1.16% 1.11%
As of March 31, 2004, the Bank has no loans which management considers
to be impaired. Management is aware of two borrowers who have exhibited
weaknesses. Their loans have aggregate uninsured balances of $693,503. A
specific allowance of $50,000 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
16
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, 2004, the allowance for loans
losses totaled $1.7 million compared to $1.6 million at December 31, 2003. The
allowance for loans losses as a percentage of loans was 1.1% as of March 31,
2004 and December 31, 2003.
An analysis of the allowance for loan losses is summarized below:
In thousands
MARCH 31, DECEMBER 31,
----------------------- ---------------------------
2004 2003
----------------------- ---------------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ------------- ----------- -------------
Commercial, financial $ 700 22% $ 782 21%
and agriculture
Real estate - residential 394 67 401 67
mortgage
Installment and other 291 11 274 12
Unallocated 287 151 N/A
------ ------------ ----------- ------------
Total $1,672 100% $ 1,608 100%
====== ============ =========== ============
DEPOSITS
The Bank's deposits increased $3.8 million or 2.1% during the three months
ended March 31, 2004. The Bank has experienced a slight change in the deposit
account mix during the first three months of 2004. Steady growth continues in
regular demand, interest-bearing demand and savings deposits. The increase is
primarily due to the continued customer growth in the Bank's market area of
Morgan and Berkeley Counties, West Virginia and also 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 2004. The decrease is primarily due to the maturity of the
36-month Ultimate Certificate of Deposit. Deposits, in general, have experienced
an increase due to customer's concerns with the weak economy and stock market.
CAPITAL RESOURCES
Shareholders' equity increased $813,000 or 4.9% during the first three
months of 2004 due to $569,000 in net income and a $244,000 increase 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
17
substantially in excess of the minimum regulatory requirements, and, by
definition was "well capitalized" at March 31, 2004. The following table
summarized, as of March 31, 2004, the Bank's capital ratios.
Components Actual Required
of Capital Ratio Ratio
---------- ----- -----
Tier 1 Capital $17,062 8.4% 4.0%
Total Risk Based Capital $18,623 14.9% 8.0%
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2004, the SEC issued Staff Accounting Bulletin ("SAB") No. 105,
"Application of Accounting Principles to Loan Commitments." SAB No. 105
clarifies certain provisions of SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," which amended portions of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" and is
effective for periods following March 31, 2004. Together, SAB No. 105 and SFAS
No. 149 provide guidance with regard to accounting for loan commitments. Under
SAB No. 105 and SFAS No. 149, loan commitments relating to the origination of
mortgage loans that will be held for sale shall be accounted for as derivative
instruments by the issuer of the commitment. The adoption of these
pronouncements subsequent to March 31, 2004 is not anticipated to have a
material impact on the Company's consolidated financial statements.
18
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 which totaled $37.6 million, or 18.4% of total assets at March 31,
2004. In addition, liquidity may be generated through loan repayments and over
$3.0 million of available borrowing arrangements with correspondent banks. At
March 31, 2004, 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 $1.2 million of cash from operations in the first three
months of 2004, which compares to $935,000 during the same time period in 2003.
Additional cash of $2.6 million was generated through net financing activities
through March 31, 2004, which compares to $781,000 for the first three months of
2003. These proceeds along with proceeds from the sales and calls of investment
securities were used to fund loans and purchase securities during each year. Net
cash used in investing activities totaled $1.1 million during the first three
months of 2004 compared to $3.3 million during the same time period in 2003.
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.
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.
19
The Bank's base-line scenario holds the prime rate constant at 4.00 percent
through March 2005. Based on the April 2004 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 as of the end of the reporting period of this quarterly
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 have been no changes in the Company's internal controls over
financial reporting in the fiscal quarter ended March 31, 2004, that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.
As exhibits to 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 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.
20
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.
21
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:
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
b.) Reports on Form 8-K:
Date of Report Item Description
-------------- ---- -----------
January 26, 2004 5 The Company issued a press
release that announced the
signing of a definitive agreement
providing for the purchase of
of certain assets and liabilities
associated with the Hancock,
Maryland branch office of Fidelity
Bank.
22
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 13, 2004 /s/ Thomas F. Rokisky, President/CEO
------------------------------------
Date May 13, 2004 /s/ Rebecca S. Stotler, Vice President/CFO
------------------------------------------
23