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Table of Contents
 
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 September 30, 2002
 
or
 
¨
 
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 0-13396
 
 
CNB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
 
Pennsylvania
  
25-1450605
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
 
County National Bank
1 South Second Street
P.O. Box 42
Clearfield, Pennsylvania 16830
(Address of principal executive offices)
 
Registrant’s telephone number, including area code, (814) 765-9621
 
 
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 periods 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  ¨
 
The number of shares outstanding of the issuer’s common stock as of November 13, 2002:
 
COMMON STOCK: $1.00 PAR VALUE—3,640,714 SHARES
 

Table of Contents
 
INDEX
 
PART I.
FINANCIAL INFORMATION
 
         
Sequential
Page Number
ITEM 1.—Financial Statements
     
       
PAGE 3.
       
PAGE 4.
       
PAGE 5.
       
PAGE 6.
       
PAGE 7.
       
PAGE 8.
ITEM 2—Management’s Discussion and Analysis
     
       
PAGE 13.
ITEM 3—Quantitative and Qualitative Disclosures
     
       
PAGE 18.
ITEM 4—Controls and Procedures
     
       
PAGE 18.
PART II.
   
OTHER INFORMATION
     
ITEM 1
      
PAGE 19
ITEM 2
      
PAGE 19
ITEM 3
      
PAGE 19
ITEM 4
      
PAGE 19
ITEM 5
      
PAGE 19
ITEM 6
      
PAGE 19
  
PAGE 19

2

Table of Contents
 
CONSOLIDATED BALANCE SHEETS
 
CNB FINANCIAL CORPORATION
Consolidated Balance Sheets (unaudited)
(Dollars in thousands)
                  
    
September 30, 2002
     
Dec. 31, 2001
  
ASSETS
                  
Cash and due from banks
   
$
18,464
 
   
$
17,350
 
Interest bearing deposits with other banks
   
 
11,512
 
   
 
2,041
 
    
  
Total cash and cash equivalents
   
 
29,976
 
   
 
19,391
 
Securities available for sale
   
 
188,721
 
   
 
152,757
 
Loans held for sale
   
 
4,463
 
   
 
5,334
 
Loans and leases
   
 
408,452
 
   
 
388,455
 
Less: unearned discount
   
 
1,417
 
   
 
2,282
 
Less: allowance for loan losses
   
 
4,682
 
   
 
4,095
 
    
  
NET LOANS
   
 
402,353
 
   
 
382,078
 
FHLB and Federal Reserve Stock
   
 
4,111
 
   
 
1,932
 
Premises and equipment
   
 
11,947
 
   
 
12,485
 
Accrued interest receivable and other assets
   
 
6,897
 
   
 
6,420
 
Intangibles
   
 
1,340
 
   
 
1,576
 
Goodwill
   
 
10,821
 
   
 
10,821
 
    
  
TOTAL ASSETS
   
$
659,289
 
   
$
591,218
 
    
  
LIABILITIES
                  
Deposits:
                  
Non-interest bearing deposits
   
$
61,253
 
   
$
60,241
 
Interest bearing deposits
   
 
478,638
 
   
 
446,399
 
    
  
TOTAL DEPOSITS
   
 
539,891
 
   
 
506,640
 
Other borrowings
   
 
52,000
 
   
 
23,268
 
Accrued interest and other liabilities
   
 
7,895
 
   
 
7,992
 
    
  
TOTAL LIABILITIES
   
 
599,786
 
   
 
537,900
 
SHAREHOLDERS’ EQUITY
                  
Common stock $1.00 par value Authorized 10,000,000 shares Issued 3,693,500 shares
   
 
3,694
 
   
 
3,694
 
Additional paid in capital
   
 
3,683
 
   
 
3,753
 
Retained earnings
   
 
51,247
 
   
 
47,731
 
Treasury stock, at cost
   
 
(1,094
)
   
 
(1,236
)
(52,786 shares for September 2002, and 53,568 for December 2001) Accumulated other comprehensive income
   
 
3,283
 
   
 
952
 
    
  
TOTAL SHAREHOLDERS’ EQUITY
   
 
60,813
 
   
 
54,894
 
    
  
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY
   
$
660,599
 
   
$
592,794
 
    
  
 

3

Table of Contents
 
CONSOLIDATED STATEMENTS OF INCOME
 
CNB FINANCIAL CORPORATION
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
 
    
Three Months Ended September 30,
    
2002
     
2001
INTEREST INCOME
                
Loans including fees
   
$
7,601
 
   
$
7,797
Deposits with other banks
   
 
19
 
   
 
36
Federal funds sold
   
 
82
 
   
 
108
Securities:
                
Taxable
   
 
1,681
 
   
 
1,769
Tax-exempt
   
 
562
 
   
 
366
Dividends
   
 
106
 
   
 
144
    
  
TOTAL INTEREST AND DIVIDEND INCOME
   
 
10,051
 
   
 
10,220
INTEREST EXPENSE
                
Deposits
   
 
3,033
 
   
 
4,477
Borrowed funds
   
 
666
 
   
 
298
    
  
TOTAL INTEREST EXPENSE
   
 
3,699
 
   
 
4,775
    
  
Net interest and dividend income
   
 
6,352
 
   
 
5,445
Provision for loan losses
   
 
540
 
   
 
270
    
  
NET INTEREST INCOME AFTER PROVISION
   
 
5,812
 
   
 
5,175
OTHER INCOME
                
Trust & asset management fees
   
 
225
 
   
 
258
Service charges on deposit accounts
   
 
894
 
   
 
753
Other service charges and fees
   
 
114
 
   
 
120
Securities gains(losses)
   
 
(13
)
   
 
258
Gains (losses) on sale of loans
   
 
21
 
   
 
19
Other income
   
 
283
 
   
 
268
    
  
TOTAL OTHER INCOME
   
 
1,524
 
   
 
1,676
OTHER EXPENSES
                
Salaries
   
 
1,709
 
   
 
1,529
Employee benefits
   
 
527
 
   
 
500
Net occupancy expense
   
 
619
 
   
 
590
Amortization of intangible
   
 
79
 
   
 
79
Amortization of goodwill
   
 
—  
 
   
 
360
Other
   
 
1,430
 
   
 
1,431
    
  
TOTAL OTHER EXPENSES
   
 
4,364
 
   
 
4,489
    
  
Income before income taxes
   
 
2,972
 
   
 
2,362
Applicable income taxes
   
 
684
 
   
 
627
    
  
NET INCOME
   
$
2,288
 
   
$
1,735
    
  
Earnings Per Share, Based on Weighted Average Shares Outstanding
                
Net income, basic
   
$
0.63
 
   
$
0.47
Net income, diluted
   
$
0.63
 
   
$
0.47
Cash dividends per share
   
$
0.26
 
   
$
0.23

4

Table of Contents
 
CONSOLIDATED STATEMENTS OF INCOME
 
CNB FINANCIAL CORPORATION
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
 
    
Nine Months Ended September 30
    
2002
     
2001
INTEREST AND DIVIDEND INCOME
                
Loans including fees
   
$
22,526
 
   
$
23,643
Deposits with other banks
   
 
66
 
   
 
132
Federal funds sold
   
 
221
 
   
 
355
Securities:
                
Taxable
   
 
4,976
 
   
 
5,081
Tax-exempt
   
 
1,583
 
   
 
1,219
Dividends
   
 
341
 
   
 
433
    
  
TOTAL INTEREST AND DIVIDEND INCOME
   
 
29,713
 
   
 
30,863
    
  
INTEREST EXPENSE
                
Deposits
   
 
9,983
 
   
 
14,017
Borrowed funds
   
 
1,639
 
   
 
883
    
  
TOTAL INTEREST EXPENSE
   
 
11,622
 
   
 
14,900
    
  
Net interest income
   
 
18,091
 
   
 
15,963
Provision for loan losses
   
 
1,260
 
   
 
810
    
  
NET INTEREST INCOME AFTER PROVISION
   
 
16,831
 
   
 
15,153
    
  
OTHER INCOME
                
Trust & asset management fees
   
 
685
 
   
 
753
Service charges on deposit accounts
   
 
2,526
 
   
 
2,038
Other service charges and fees
   
 
380
 
   
 
422
Securities gains(losses)
   
 
(1
)
   
 
244
Gains on sale of loans
   
 
108
 
   
 
23
Other
   
 
821
 
   
 
572
    
  
TOTAL OTHER INCOME
   
 
4,519
 
   
 
4,052
    
  
OTHER EXPENSES
                
Salaries
   
 
4,982
 
   
 
4,502
Employee benefits
   
 
1,665
 
   
 
1,562
Net occupancy expense
   
 
1,804
 
   
 
1,820
Amortization of intangible
   
 
236
 
   
 
236
Amortization of goodwill
   
 
—  
 
   
 
1,058
Other
   
 
4,254
 
   
 
3,883
    
  
TOTAL OTHER EXPENSES
   
 
12,941
 
   
 
13,061
    
  
Income before income taxes
   
 
8,409
 
   
 
6,144
Applicable income taxes
   
 
2,098
 
   
 
1,524
    
  
NET INCOME
   
$
6,311
 
   
$
4,620
    
  
Earnings Per Share, Based on Weighted Average Shares Outstanding
                
Net income, basic
   
$
1.74
 
   
$
1.26
Net income, diluted
   
$
1.73
 
   
$
1.26
Cash dividends per share
   
$
0.76
 
   
$
0.69

5

Table of Contents
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
CNB FINANCIAL CORPORATION
Consolidated Statements of Comprehensive Income (unaudited)
(dollars in thousands, except per share data)
 
    
Three Months Ended September 30,
   
Nine Months Ended September 30,
    
2002
     
2001
   
2002
     
2001
Net Income
   
$
2,288
 
   
$
1,735
   
$
6,311
 
   
$
4,620
Other comprehensive income, net of tax
                                
Unrealized gains/(losses)on securities:
                                
Unrealized gains/(losses) arising during the period
   
 
1,070
 
   
 
884
   
 
2,330
 
   
 
2,367
Reclassified adjustment for accumulated gains/(losses) included in net income, net of tax
   
 
(9
)
   
 
171
   
 
(1
)
   
 
161
    
  
  
  
Other comprehensive income
   
 
1,079
 
   
 
713
   
 
2,331
 
   
 
2,206
    
  
  
  
Comprehensive income
   
$
3,367
 
   
$
2,448
   
$
8,642
 
   
$
6,826
    
  
  
  

6

Table of Contents
 
CONSOLIDATED STATEMENTS OF CASHFLOWS
 
CNB FINANCIAL CORPORATION
Consolidated Statements of Cash Flows (unaudited)
(Dollars in thousands)
 
    
Nine Months Ended September 30,
  
    
2002
     
2001
  
Cash flows from operating activities:
                  
Net Income
   
$
6,311
 
   
$
4,620
 
Adjustments to reconcile net income to net cash provided by operations:
                  
Provision for loan losses
   
 
1,260
 
   
 
810
 
Depreciation and amortization
   
 
1,206
 
   
 
2,243
 
Amortization and accretion and deferred loan fees
   
 
(197
)
   
 
(407
)
Deferred taxes
   
 
(1,277
)
   
 
(469
)
Security (gains) losses
   
 
1
 
   
 
(244
)
Gain on sale of loans
   
 
(108
)
   
 
(23
)
Proceeds from sale of loans
   
 
21,174
 
   
 
17,117
 
Origination of loans for sale
   
 
(20,194
)
   
 
(17,670
)
Net (gains) on dispositions of acquired property
   
 
(6
)
   
 
48
 
Changes in:
                  
Interest receivable
   
 
(59
)
   
 
367
 
Other assets
   
 
(3,053
)
   
 
(104
)
Interest payable
   
 
(210
)
   
 
(142
)
Other liabilities
   
 
184
 
   
 
3,035
 
    
  
Net cash provided by operating activities
   
 
5,032
 
   
 
9,181
 
Cash flows from investing activities:
                  
Proceeds from maturities of:
                  
Securities available for sale
   
 
31,641
 
   
 
37,926
 
Proceeds from sales of securities available for sale
   
 
232
 
   
 
17,250
 
Purchase of securities available for sale
   
 
(64,646
)
   
 
(71,414
)
Net principal disbursed on loans
   
 
(20,992
)
   
 
(8,695
)
Purchase of premises and equipment
   
 
(332
)
   
 
(714
)
Proceeds from the sale of foreclosed assets
   
 
390
 
   
 
427
 
    
  
Net cash used in investing activities
   
 
(53,707
)
   
 
(25,220
)
Cash flows from financing activities:
                  
Net change in:
                  
Checking, money market and savings accounts
   
 
(3,702
)
   
 
17,990
 
Certificates of deposit
   
 
36,953
 
   
 
4,521
 
Cash dividends paid
   
 
(2,766
)
   
 
(2,532
)
Other borrowings
   
 
(1,268
)
   
 
(1,341
)
Proceeds from sale of treasury stock
   
 
392
 
   
 
105
 
Treasury stock purchased
   
 
(349
)
   
 
(35
)
Advances from long term borrowings
   
 
30,000
 
   
 
10,000
 
Repayments of long term borrowings
   
 
—  
 
   
 
—  
 
    
  
Net cash provided by financing activities
   
 
59,260
 
   
 
28,708
 
    
  
Net increase (decrease) in cash and cash equivalents
   
 
10,585
 
   
 
12,669
 
Cash and cash equivalents at beginning of year
   
 
19,391
 
   
 
17,973
 
    
  
Cash and cash equivalents at end of period
   
$
29,976
 
   
$
30,642
 
    
  
Supplemental disclosures of cash flow information:
                  
Cash paid during the period for:
                  
Interest (including amount credited directly to certificate accounts)
   
$
11,633
 
   
$
15,042
 
Income Taxes
   
$
2,530
 
   
$
1,770
 

7

Table of Contents
 
CNB FINANCIAL CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
 
BASIS OF PRESENTATION
 
The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (SEC) and in compliance with generally accepted accounting principles. Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.
 
In the opinion of Management of the registrant, the accompanying consolidated financial statements for the quarter and nine month periods ended September 30, 2002 and 2001 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations for the period. The financial performance reported for the Corporation for the three and nine-month periods ended September 30, 2002 is not necessarily indicative of the results to be expected for the full year. This information should be read in conjunction with the Corporation’s Annual Report to shareholders and Form 10-K for the period ended December 31, 2001.
 
COMMON STOCK PLAN
 
The Corporation has a common stock plan for key employees and independent directors. The Stock Incentive Plan, which is administered by a disinterested committee of the Board of Directors, provides for 250,000 shares of common stock in the form of qualified options, nonqualified options, stock appreciation rights or restrictive stock. Beginning in 2002, the Corporation adopted Financial Accounting Standards Board No. 123, which requires the recognition of expense at the time options are granted based on their fair value. The Corporation has not granted any options through the first nine months of 2002 and therefore has recognized no expense. In 2001, the Corporation applied Accounting Principles Board Opinion 25 and related interpretations in accounting for its common stock plan. Accordingly, no compensation expense has been recognized for the plans.
 
EARNINGS PER SHARE
 
Earnings-per-share is calculated on the weighted average number of common shares outstanding during the year. The number of shares used for basic and diluted was 3,636,222 and 3,644,031 for the three and nine month periods ended September 30, 2002 and 3,669,184 for basic and diluted for the three and nine month periods ended September 30, 2001. Stock options for 69,000 shares of common stock were considered in computing diluted earnings per common share.

8

Table of Contents
 
SECURITIES
 
Securities available for sale at:
 
 
    
September 30, 2002
   
December 31, 2001
    
Amortized
   
Unrealized
     
Fair
   
Amortized
   
Unrealized
     
Fair
    
Cost
   
Gains
   
Losses
     
Value
   
Cost
   
Gains
   
Losses
     
Value
U.S. Treasury
   
$
10,126
   
$
146
   
$
—  
 
   
$
10,272
   
$
14,046
   
$
263
   
$
(1
)
   
$
14,308
U.S. Government agencies and corporations:
   
 
28,141
   
 
491
   
 
—  
 
   
 
28,632
   
 
24,073
   
 
503
   
 
(7
)
   
 
24,569
Obligations of States and Political Subdivisions
   
 
48,534
   
 
2,351
   
 
—  
 
   
 
50,885
   
 
25,450
   
 
478
   
 
(175
)
   
 
25,753
Mortgage-backed Securities
   
 
45,002
   
 
899
   
 
(21
)
   
 
45,880
   
 
39,073
   
 
238
   
 
(308
)
   
 
39,003
Corporate Notes and Bonds
   
 
43,328
   
 
1,882
   
 
(524
)
   
 
44,686
   
 
40,563
   
 
967
   
 
(514
)
   
 
41,016
Marketable equity Securities
   
 
8,617
   
 
246
   
 
(497
)
   
 
8,366
   
 
8,115
   
 
97
   
 
(104
)
   
 
8,108
    
  
  
  
  
  
  
  
Total securities available for sale
   
$
183,748
   
$
6,015
   
$
(1,042
)
   
$
188,721
   
$
151,320
   
$
2,546
   
$
(1,109
)
   
$
152,757
    
  
  
  
  
  
  
  
 
On September 30, 2002 investment securities carried at $31,274 were pledged to secure public deposits and for other purposes provided by law.
 
The following is a schedule of the contractual maturity of investments excluding equity securities, at September 30, 2002:
 
    
Available for Sale
    
Amortized Cost
   
Fair Value
1 year or less
   
$
30,762
   
$
31,233
1 year-5 years
   
 
36,803
   
 
38,035
5 years-10 years
   
 
12,701
   
 
14,089
After 10 years
   
 
49,863
   
 
51,118
    
  
    
 
130,129
   
 
134,475
Mortgage-backed securities
   
 
45,002
   
 
45,880
    
  
Total securities
   
$
175,131
   
$
180,355
    
  
 
Collateralized mortgage obligations and other asset-backed securities are not due at a single date; periodic payments are received based on the payment patterns of the underlying collateral.

9

Table of Contents
 
OTHER BORROWINGS
 
Other borrowings include $2,000 and $308 of demand notes payable to the US Treasury Department at September 30, 2002 and December 31, 2001. These notes are issued under the US Treasury Department’s program of investing the treasury tax and loan account balances in interest bearing demand notes insured by depository institutions. These notes bear interest at a rate of .25 percent less than the average Federal funds rate as computed by the Federal Reserve Bank. The Corporation has available a $5 million line of credit with an unaffiliated institution. Terms of the line are floating at 30 day LIBOR plus 180 basis points. The outstanding balance on the loan at September 30 was $0 and $710 at year end 2001. The Corporation issued $10 million of trust-preferred securities. The issue is callable on June 25, 2007 in whole or in part and matures on June 25, 2032. Interest is variable and adjusts quarterly based on the 3 month LIBOR plus 345 basis points. The interest rate at September 30, 2002 was 5.24%. At September 30, 2002, the Bank had remaining borrowing capacity with the Federal Home Loan Bank of Pittsburgh (FHLB) of $177 million. Borrowings with the FHLB are secured by a blanket pledge of selected securities in the amount of $77,115 and certain mortgage loans with a value of $159,696. Also other borrowings include advances from the FHLB at September 30, 2002 and December 31, 2001 as follows:
 
Interest Rate
   
Maturity
   
September 30,
2002
   
December 31,
2001
Overnight
   
Daily
   
$
—  
   
$
2,250
[a]
   
3/1/10
   
 
10,000
   
 
10,000
[b]
   
1/3/11
   
 
10,000
   
 
10,000
[c]
   
1/24/12
   
 
20,000
   
 
—  
         
  
Total FHLB borrowed funds
        
$
40,000
   
$
22,250
         
  
 
[a]
 
Interest rate is fixed for one year at which time FHLB has option to float the interest rate based on the 3 month LIBOR + .16, the interest rate was 6.09% at September 30, 2002.
[b]
 
Interest rate is fixed for one year at which time FHLB has option to float the interest rate based on the 3 month LIBOR + .20, the interest rate was 4.95% at September 30, 2002.
[c]
 
Interest rate is fixed until 1/26/04 at which time FHLB has option to float the interest rate based on the 3 month LIBOR + .18, the interest rate was 4.52% at September 30, 2002.
Following are maturities of borrowed funds as of September 30, 2002:
 
2002
   
$
  2,000
2003
       
2004
       
2005
       
2006
       
Thereafter
   
 
50,000
    
Total Borrowed Funds
   
$
52,000
    

10

Table of Contents
 
 
    
Three Months Ended
March 31, 2002
   
Three Months Ended
June 30, 2002
   
Six Months Ended
June 30, 2002
    
Previously
Reported
   
As
Restated
   
Previously Reported
   
As
Restated
   
Previously Reported
   
As
Restated
Net Income
   
$
1,618,000
   
$
1,858,000
   
$
1,925,000
   
$
2,165,000
   
$
3,544,000
   
$
4,023,000
Earnings Per Share
                                          
Basic
   
$
0.45
   
$
0.51
   
$
0.53
   
$
0.60
   
$
0.98
   
$
1.11
Diluted
   
$
0.44
   
$
0.51
   
$
0.53
   
$
0.59
   
$
0.97
   
$
1.10
 
RECENT ACCOUNTING PRONOUNCEMENT
 
On October 1, 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (FAS) No. 147, Acquisitions of Certain Financial Institutions, effective for all business combinations initiated after October 1, 2002. This Statement addresses the financial accounting and reporting for the acquisition of all or part of a financial institution, except for a transaction between two or more mutual enterprises. This Statement removes acquisitions of financial institutions, other than transactions between two or more mutual enterprises, from the scope of FAS No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, and FASB Interpretation No. 9, Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method. The acquisition of all or part of a financial institution that meets the definition of a business combination shall be accounted for by the purchase method in accordance with FAS No. 141, Business Combinations, and FAS No. 142, Goodwill and Other Intangible Assets. Upon adoption of this statement, the Corporation ceased the amortization of $10,821,000 in goodwill associated with branch acquisitions. The Corporation will continue to review the remaining goodwill on an annual basis for impairment. However, $1,340,000 in a purchased customer list intangible will continue to be amortized and reviewed for impairment in accordance with FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The new requirement changes the accounting for goodwill from an amortization approach to an impairment-only approach as of the effective date that FAS No. 142 was adopted, which in the Corporation’s case was January 1, 2002. As a result of complying with FAS No. 147, the company is required to restate earnings for the first and second quarters of 2002. The following table details the changes in net income and earnings per share as a result of this restatement:

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CONSOLIDATED YIELD COMPARISONS
 
CNB Financial Corporation
Average Balances and Net Interest Margin
(Dollars in thousands)
    
September 30, 2002
   
September 30, 2001
    
Average
Balance
     
Annual
Rate
     
Interest
Inc./Exp.
   
Average
Balance
     
Annual
Rate
     
Interest
Inc./Exp.
Assets
                                              
Interest-bearing deposits with banks
   
$
4,400
 
   
2.00
%
   
 
66
   
 
3,650
 
   
4.82
%
   
 
132
Federal funds sold and securities purchased under agreements to resell
   
 
14,724
 
   
2.00
%
   
 
221
   
 
11,593
 
   
4.08
%
   
 
355
Investment Securities:
                                              
Taxable
   
 
124,383
 
   
5.33
%
   
 
4,976
   
 
110,255
 
   
6.14
%
   
 
5,081
Tax-Exempt (1)
   
 
43,450
 
   
6.87
%
   
 
2,240
   
 
33,045
 
   
6.77
%
   
 
1,679
Equity Investments (1)
   
 
12,607
 
   
4.64
%
   
 
439
   
 
10,280
 
   
7.06
%
   
 
544
    
  
  
  
  
  
Total Investments
   
 
199,564
 
   
5.31
%
   
 
7,942
   
 
168,823
 
   
6.15
%
   
 
7,791
Loans
                                              
Commercial (1)
   
 
103,364
 
   
6.91
%
   
 
5,354
   
 
83,078
 
   
8.28
%
   
 
5,158
Mortgage (1)
   
 
237,878
 
   
7.83
%
   
 
13,966
   
 
223,528
 
   
8.66
%
   
 
14,526
Installment
   
 
40,037
 
   
8.41
%
   
 
2,524
   
 
39,939
 
   
9.36
%
   
 
2,804
Leasing
   
 
17,244
 
   
7.08
%
   
 
916
   
 
23,941
 
   
7.31
%
   
 
1,313
    
  
  
  
  
  
Total loans (2)
   
 
398,523
 
   
7.61
%
   
 
22,760
   
 
370,486
 
   
8.57
%
   
 
23,801
    
  
  
  
  
  
Total earning assets
   
 
598,087
 
   
6.84
%
   
 
30,702
   
 
539,309
 
   
7.81
%
   
 
31,592
Non Interest Bearing Assets
                                              
Cash & Due From Banks
   
 
13,335
 
                 
 
13,354
 
              
Premises & Equipment
   
 
12,316
 
                 
 
12,872
 
              
Other Assets
   
 
21,847
 
                 
 
19,973
 
              
Allowance for Possible Loan Losses
   
 
(4,276
)
                 
 
(4,023
)
              
    
                
             
Total Non-interest earning assets
   
 
43,222
 
                 
 
42,176
 
              
    
         
  
         
Total Assets
   
$
641,309
 
          
$
30,702
   
$
581,485
 
          
$
31,592
    
         
  
         
Liabilities and Shareholders’ Equity
                                              
Interest-Bearing Deposits
                                              
Demand—interest-bearing
   
 
133,120
 
   
0.90
%
   
 
898
   
 
121,162
 
   
1.98
%
   
 
1,798
Savings
   
 
78,340
 
   
1.60
%
   
 
939
   
 
76,465
 
   
3.23
%
   
 
1,852
Time
   
 
260,472
 
   
4.17
%
   
 
8,147
   
 
246,809
 
   
5.60
%
   
 
10,368
    
  
  
  
  
  
Total interest-bearing deposits
   
 
471,932
 
   
2.82
%
   
 
9,984
   
 
444,436
 
   
4.21
%
   
 
14,018
Short-term borrowings
   
 
2,160
 
   
2.22
%
   
 
36
   
 
1,277
 
   
4.39
%
   
 
42
Long-term borrowings
   
 
42,611
 
   
5.01
%
   
 
1,602
   
 
19,963
 
   
5.61
%
   
 
840
    
  
  
  
  
  
Total interest-bearing liabilities
   
 
516,703
 
   
3.00
%
   
 
11,622
   
 
465,676
 
   
4.27
%
   
 
14,900
Demand—non-interest-bearing
   
 
55,909
 
                 
 
53,372
 
              
Other liabilities
   
 
7,926
 
                 
 
8,175
 
              
    
  
  
  
  
  
Total Liabilities
   
 
580,538
 
   
2.67
%
   
 
11,622
   
 
527,223
 
   
3.77
%
   
 
14,900
Shareholders’ equity
   
 
60,771
 
                 
 
54,262
 
              
    
         
  
         
Total Liabilities and Shareholders’ Equity
   
 
641,309
 
          
 
11,622
   
 
581,485
 
          
 
14,900
    
         
  
         
Interest income/earning assets
            
6.84
%
   
 
30,702
            
7.81
%
   
$
31,592
Interest expense/interest bearing liabilities
            
3.00
%
   
 
11,622
            
4.27
%
   
 
14,900
             
  
           
  
Net Interest Spread
            
3.85
%
   
$
19,080
            
3.54
%
   
$
16,692
             
  
           
  
Interest Income/Interest Earning Assets
            
6.84
%
   
$
30,702
            
7.81
%
   
$
31,592
Interest expense/Interest Earning Assets
            
2.59
%
   
 
11,622
            
3.68
%
   
 
14,900
             
  
           
  
Net Interest Margin
            
4.25
%
   
$
19,080
            
4.13
%
   
$
16,692
             
  
           
  
(1)
 
The amounts are reflected on a fully tax equity basis using the federal statutory rate of 34% in 2002 and 2001, adjusted for certain tax preferences
(2)
 
Average outstanding includes the average balance outstanding of all non-accrual loans. Loans consist of the average of total loans less average unearned income. The amount of loan fees included in the interest income on loans in not material.

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ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
FINANCIAL CONDITION
 
The following discussion and analysis of the consolidated financial statements of the Corporation is presented to provide insight into management’s assessment of financial results. The Corporation’s primary subsidiary County National Bank (the “Bank”) provides financial services to individuals and businesses within the Bank’s market area made up of the west central Pennsylvania counties of Clearfield, Cambria, Centre, Elk, Jefferson, and McKean. County National Bank is a member of the Federal Reserve System and subject to regulation, supervision and examination by the Office of the Comptroller of the Currency (“OCC”).
 
The market area that County National Bank operates in is rural in nature. The customer makeup consists of small business and individuals. The health of the economy in the region is mixed with unemployment rates running high in our market area except Centre County.
 
OVERVIEW OF BALANCE SHEET
 
Total assets have grown 11.4% since year-end 2001 to $660.6 million. The growth has occurred in all areas of the balance sheet. The following comments will further explain the details of the asset fluctuation.
 
CASH AND CASH EQUIVALENTS
 
Cash and cash equivalents totaled $29,976,000 at September 30, 2002 compared to $19,391,000 on December 31, 2001. This increase resulted from continued increases in consumer deposit accounts. The Corporation continues to focus on reducing the cash balance into higher yielding earning assets during the year.
 
Management believes the liquidity needs of the Corporation are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources, and the portion of the investment and loan portfolios that mature within one year. These sources of funds will enable the Corporation to meet cash obligations and off-balance sheet commitments as they come due.
 
SECURITIES
 
Securities increased $36.0 million or 23.5% since December 31, 2001. A major portion of the increase resulted from an opportunity to borrow money from the Federal Home Loan Bank and invest in $20 million of state and municipal bonds having similar duration. As previously mentioned, the increase in cash has been fairly dramatic during 2002. The focus has been to get these cash equivalents into higher yielding assets as opportunities occur. In addition to the $20.0 million borrowed, approximately $16.0 million of cash equivalents have been placed into the securities portfolio.
 
Also, contributing to the increase was a change in the fair market valuation of the bond portfolio. In a declining interest rate environment, bond prices generally increase. This increase gave the Corporation an unrealized gain of $5.0 million, an increase of $3.5 million over year-end. The Corporation generally buys into the market over time and does not attempt to “time” its transactions. In using this approach, the highs and lows of the market are averaged into the portfolio and minimize the overall effect of different rate environments.
 
Management monitors the earnings performance and the effectiveness of the liquidity of the securities portfolio on a regular basis through Asset / Liability Committee (“ALCO’) meetings. The ALCO also reviews and manages interest rate risk for the Corporation. Through active balance sheet management

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and analysis of the securities portfolio, the Corporation maintains sufficient liquidity to satisfy depositor requirements and various credit needs of its customers.
 
LOANS
 
The Corporation’s loan demand was strong during the first nine months of 2002. The Corporation’s lending is focused in the west central Pennsylvania market and consists principally of retail lending, which includes single-family residential mortgages and other consumer lending, and commercial lending primarily to locally owned small businesses.
 
At September 30, 2002, the Corporation had $407,035,000 in loans and leases outstanding, net of unearned discount, an increase of $20,862,000 or 5.4% since December 31, 2001. The increase was caused by demand in commercial loans, including commercial mortgages. The Corporation has opened a loan production office in Cambria County to expand our abilities to lend primarily to commercial businesses. This office will primarily serve Cambria, Blair and Centre counties.
 
ALLOWANCE FOR LOAN AND LEASE LOSSES
 
The allowance for loan and lease losses as a percentage of loans increased from 1.06% at December 31, 2001 to 1.15% at September 30, 2002. The dollar amount of the reserve increased $587,000 since year-end 2001. The increase is a result of the provision of $1,260,000 expensed during the nine months less net charge-offs. The net charge-offs for the first nine months of 2002 totaled $673,000 compared to $688,000 for the same period of 2001. Increases in the provision were deemed necessary to cover the increase in loans, as well as, the loan production office focus on commercial and commercial real estate, which has contributed to a shift in our portfolio mix. Also, the overall health of the economy is not positive.
 
The adequacy of the allowance for loan and lease losses is subject to a formal analysis by the loan review staff of the Bank and is deemed to be adequate to absorb probable losses in the portfolio as of September 30, 2002. The Corporation has disclosed in its annual report on Form 10-K the process and methodology supporting the loan loss provision.
 
Management continues to closely monitor loan delinquency and loan losses. Non-performing assets, which include loans 90 or more days past due, non-accrual loans, and other real estate owned were $2,758,000 or 0.68% of total loans on September 30, 2002 compared to $2,098,000 or 0.54% on December 31, 2001.
 
FUNDING SOURCES
 
The Corporation considers deposits, short-term borrowings, and term debt when evaluating funding sources. Traditional deposits continue to be the main focus for source of funds in the Corporation reaching $539,891,000 at September 30, 2002. Deposits increased 6.6% since year-end 2001 primarily resulting from a major marketing strategy focusing on retail consumer customers as well as a general lack of consumer confidence in the economy which has pulled consumer savings dollars from mutual funds and stocks to bank deposits. The marketing strategy includes direct mailing offering consumers a free checking product as well as the offering of several new certificate of deposit products.
 
The Corporation utilizes term borrowings from the Federal Home Loan Bank (FHLB) to meet funding needs not accommodated by deposit growth. During 2002, the Corporation borrowed $20,000,000 to take advantage of opportunities existing in the bond market. Management plans to maintain access to short and long-term FHLB borrowings as an appropriate funding source. In addition, the Corporation issued $10,000,000 as part of a pooled trust preferred security. This debt issuance allowed the Corporation to provide additional capital to its subsidiary, County National Bank. The Bank needed the capital to fund its strong growth in recent periods as well as expected growth over the next several years.

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Table of Contents
 
SHAREHOLDERS’ EQUITY
 
The Corporation’s capital continues to provide a base for profitable growth. Total shareholders’ equity was $60,813,000 at September 30, 2002 compared to $54,894,000 at December 31, 2001 an increase of $5,919,000 or 10.8%. In the first nine months of 2002, the Corporation earned $6,311,000 and declared dividends of $2,766,000, a dividend payout ratio of 43.9% of net income.
 
The securities in the Corporation’s portfolio are classified as available for sale making the Corporation’s balance sheet more sensitive to the changing market value of investments. Interest rates in the first nine months of 2002 have declined dramatically. This situation has caused a fairly significant increase of $2,331,000 in accumulated other comprehensive income, included in stockholders’ equity, since December 31, 2001.
 
The Corporation has also complied with the standards of capital adequacy mandated by the banking regulators. Bank regulators have established “risk-based” capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets banks hold in their portfolios. A weight category of 0% (lowest risk assets), 20%, 50%, or 100% (highest risk assets), is assigned to each asset on the balance sheet. The Corporation’s total risk-based capital ratio of 13.04% at September 30, 2002 is above the well-capitalized standard of 10%. The Corporation’s Tier 1 capital ratio of 12.02% is above the well-capitalized minimum of 6%. The leverage ratio at September 30, 2002 was 8.66%, also above the well-capitalized standard of 5%. The Corporation is well capitalized as measured by the federal regulatory agencies. The ratios provide quantitative data demonstrating the strength and future opportunities for use of the Corporation’s capital base. Management continues to evaluate risk-based capital ratios and the capital position of the Corporation as part of its strategic decision making process.
 
LIQUIDITY AND INTEREST RATE SENSITIVITY
 
Liquidity measures an organizations’ ability to meet cash obligations as they come due. The Consolidated Statement of Cash Flows presented on page 7 of the accompanying financial statements provides analysis of the Corporation’s cash and cash equivalents. Additionally, management considers that portion of the loan and investment portfolio that matures within one year as part of the Corporation’s liquid assets. The Corporation’s liquidity is monitored by the ALCO Committee, which establishes and monitors ranges of acceptable liquidity. Management feels the Corporation’s current liquidity position is acceptable.

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Table of Contents
 
RESULTS OF OPERATIONS
 
OVERVIEW OF THE INCOME STATEMENT
 
The Corporation had net income of $2,288,000 and $6,311,000 for the third quarter and first nine months of 2002, respectively. The earnings per diluted share for the respective periods were $0.63 and $1.73. Net income was $1,735,000 and $4,620,000 for the third quarter and first nine months of 2001, which equates to earnings per diluted share of $0.47 and $1.26, respectively. The return on average assets and the return on average equity for the nine months of 2002 are 1.32% and 14.50%.
 
INTEREST INCOME AND EXPENSE
 
Net interest income totaled $6,352,000 in the third quarter, an increase of 16.7% over the third quarter of 2001 and totaled $18,091,000 for the nine months of 2002, an increase of 13.3% compared to the prior year. Total interest income decreased during the quarter by $169,000 or 1.7% while interest expense decreased by $1,076,000 or 22.5% when compared to the third quarter of 2001. The decrease in interest income is a result of lower yields, 97 basis points, on earning assets caused by an overall decline in interest rates in the United States since June of 2001. As mentioned earlier, the rapid growth in deposits has not all been placed into higher yielding assets. Thus much of these funds are in lower yielding federal funds. Interest expense has declined significantly since the Corporation has adjusted deposit pricing to reflect the declining market rates.
 
PROVISION FOR LOAN LOSSES
 
The Corporation recorded a provision for loan and lease losses in the third quarter of $540,000 compared to the third quarter of 2001 of $270,000 and $1,260,000 for the nine months of 2002 compared to $810,000 in 2001. Increases in the provision are deemed necessary to adequately reserve for the increase in loans outstanding of $20,862,000 and the shift in the portfolio towards commercial lending. While the Corporation has maintained its sound underwriting, the shift to move commercial lending with some outside our normal market area brings the possibility of more risk. Based on managements’ evaluation of problem loans, increased charge-offs, expected growth in the loan portfolio and the overall effects of the economy, management’s analysis indicates that the allowance provision appears to be adequate.
 
NON-INTEREST INCOME
 
Non-interest income decreased $152,000 (-9.1%) and increased $467,000 (11.5%) in the third quarter and nine months of 2002, respectively, when compared to the same periods in 2001. The decrease in the quarter results from a gain on sale of securities in 2001 of $258,000 with a corresponding loss in 2002 of $13,000. Increased deposit account service charges have been the primary source of the growth in non-interest income during the year. In the nine months, account service charges totaled $2,526,000 up $488,000 or 23.9% over last year. The increases in fee income were mainly derived from a new service that began in April 2001 and took approximately eight months to mature. This service provides customers with the assurance of having their checks paid and not returned when funds are not sufficient in their account. Also during 2002, income derived from the sale of mortgages is higher due to continued low mortgage rates and high levels of refinancing.
 
NON-INTEREST EXPENSE
 
Non-interest expense decreased $125,000 or 2.8% during the third quarter of 2002 and $120,000 or 0.9% in the nine months of 2002 when compared to the same periods in 2001. The decrease is attributable to SFAS No. 147 an accounting rule regarding accounting for goodwill and the related amortization expense. After adoption of the statement, the Corporation reduced amortization expense by $1,079,000 through nine months and $360,000 for the quarter.
 
RETURN ON ASSETS
 
For the nine months ended September 30, 2002, the Corporation’s return on average assets (“ROA”) totaled 1.32% up from the 1.06% recorded in 2001.

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RETURN ON EQUITY
 
The Corporation’s return on average shareholder’s equity (“ROE”) in the first nine months was 14.50% compared to 11.54% for 2001. The increase can be attributed to the Corporation’s improvement in core earnings. The continued increase in assets without adding additional capital will provide the shareholders more earnings from virtually the same capital base.
 
FEDERAL INCOME TAX EXPENSE
 
Federal income tax expense was $684,000 in the third quarter of 2002 compared to $627,000 in the third quarter of 2001. For the nine-month period comparisons, the federal tax expense was $2,098,000 in 2002 and $1,524,000 in 2001. These increases are the result of higher taxable earnings in both the third quarter and first nine months of 2002.
 
FUTURE OUTLOOK
 
Year-to-date core earnings improved when compared to the prior year and were consistent with management’s expectations. Management continues to focus on strong internal growth generated by increased market share, as well as, development of new markets via a loan production office that is serving several counties previously not in our market. The objective of this growth in earning assets and net income is increased shareholder value from future dividends and capital accumulation from retained earnings.
 
Loan demand was strong during the first nine months of 2002 and is anticipated to continue through the last quarter. Loan growth for the full year of 2002 is anticipated to be over 5% compared to yearend 2001. While loan growth is expected to continue, it may not keep pace with deposit growth, which increased at an annualized rate of 6.6% during the first half of 2002. As a result, we have implemented the previously mentioned plan to expand our commercial loan market into additional counties to help deploy these additional funds.
 
Consumer loan charge-offs in the third quarter continued to comprise the majority of the Corporation’s recent charge-offs. In the first nine months, total net charge-offs were $673,000 of which consumer net charge-offs totaled $406,000. The charge-off level for the remainder of 2002 is expected to remain constant when compared to the first nine months of 2002.
 
Enhanced non-interest income and controlled non-interest expense are important factors in the success of the Corporation and is measured in the financial services industry by the efficiency ratio, calculated according to the following: non-interest expense (less amortization of intangibles) as a percentage of fully tax equivalent net interest income and non-interest income (less non-recurring income). For the nine months ended September 30, 2002, the Corporation’s efficiency ratio was 52.46% compared to 57.08% for the same period last year.
 
The efficiency ratio improved as the level of non-interest income has increased and non-interest expense has decreased over the year. Management believes controlling the operating costs of the Corporation is imperative to the future increased profitability derived from core earnings. A strong focus by management continues to be placed on non-interest expenses during the remainder of 2002.
 
The interest rate environment will continue to play an important role in the future earnings of the Corporation. The net interest margin has remained the central focus of management as competitive pressures in the form of reduced lending rates along with the search for low cost deposits has created pressure to the margin for the industry. The Corporation has been able to increase the margin slightly. This occurrence has been aided by the sharp steepening in the yield curve. Management expects further growth in interest income coupled with managed interest costs to provide the Corporation with improved net interest income for the remainder of 2002.
 
Management concentrates on return on average equity and earnings per share valuations, plus other methods, to measure and direct the performance of the Corporation. While past results are not an indication

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of future earnings, management feels the Corporation is positioned to enhance performance of normal operations through the remainder of 2002.
 
“SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
 
Certain statements contained in the report that are not historical facts are forward looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates,” “plans,” “expects,” “believes,” “estimate” or “projected” and similar expressions as they relate to CNB Financial Corporation or its management are intended to identify such forward looking statements. CNB Financial Corporation’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services.
 
ITEM 3
 
QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
In the course of conducting business activities, the Corporation is exposed to market risk, principally interest rate risk, through the operation of the Bank. Interest rate risk arises from market driven fluctuations in interest rates, which affect cash flows, income, expense and values of all financial instruments. Management and the ALCO Committee of the Board monitor the Corporation’s interest rate risk position. No material changes have occurred during the period in the Bank’s market risk strategy or position, a discussion of which can be found in the SEC Form-10K filed for the period ended December 31, 2001.
 
ITEM 4
 
CONTROLS AND PROCEDURES
 
Within the 90-day period prior to the filing date of this report, an evaluation was carried out under the supervision and with the participation of the Corporation’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14© and 15d-14© under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Corporation’s disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by the Corporation’s in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that there were no significant changes in the Corporation’s internal controls or in other factors that could significantly affect its internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

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PART II OTHER INFORMATION
 
ITEM 1.
   
LEGAL PROCEEDINGS - None
ITEM 2.
   
CHANGES IN SECURITIES AND USE OF PROCEEDS - None
ITEM 3.
   
DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4.
   
SUBMISSION OF MATTERS FOR SECURITY HOLDERS VOTE - None
ITEM 5.
   
OTHER INFORMATION - None
ITEM 6.
   
EXHIBITS AND REPORTS ON FORM 8-K –
 
A Form 8-K was filed on September 25, 2002 announcing that CNB Financial Corporation and its wholly owned subsidiary, County National Bank, upon receipt of the executed agreement on September 24, 2002, announced the following in regards to pending litigation. On July 30, 2002, the United States District Court for the Western District of Pennsylvania entered an order dismissing an action filed by Penn Laurel Financial Corporation and CSB Bank as plaintiffs against CNB Financial Corporation, County National Bank, Omega Financial Corporation, Tucker Arensberg, P.C., Sherwood C. Moody, Timothy A. Anonick, Anonick Financial Corporation, and Clearfield Bank & Trust Company as defendants. Following the dismissal of the federal action, Penn Laurel, CSB and defendants entered into an agreement on August 27, 2002 in order to settle the disputes that had arisen under merger agreements between Penn Laurel and Clearfield dated December 31, 1998. As a result of the August 27, 2002 agreement, all state and federal litigation concerning the proposed merger of Clearfield and Penn Laurel has been terminated without any loss payment by any party.
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
       
CNB FINANCIAL CORPORATION
(Registrant)
DATE:
  
November 13, 2002
      
/s/    William F. Falger
           
William F. Falger
President and Director
(Principal Executive Officer)
DATE:
  
November 13, 2002
      
/s/    Joseph B. Bower, Jr.
           
Joseph B. Bower, Jr.
Treasurer
(Principal Financial Officer)
(Principal Accounting Officer)

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CERTIFICATION
 
I, William F. Falger, certify:
 
1.  That I have reviewed the quarterly report on Form 10-Q for CNB Financial Corporation;
 
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 statement 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 we 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:
 
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.
 
6.  The registrant’s other certifying officers 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: November 13, 2002
 
/s/   WILLIAM F. FALGER
William F. Falger
President and Director
(Principal Executive Officer)

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CERTIFICATION
 
I, Joseph B. Bower, Jr. certify:
 
1.  That I have reviewed the quarterly report on Form 10-Q for CNB Financial Corporation;
 
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 statement 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 we 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:
 
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.
 
6.  The registrant’s other certifying officers 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: November 13, 2002
 
/s/   JOSEPH B. BOWER, JR.
Joseph B. Bower, Jr.
Treasurer
(Principal Financial Officer)
(Principal Accounting Officer)

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CERTIFICATE
 
As required by 18 U.S.C. 1350, the undersigned certify that this Report on Form 10-Q fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report on From 10-Q fairly presents, in all material respects, the financial condition and results of operations of the registrant.
 
/s/    William F. Falger
William F. Falger
President and Director
(Principal Executive Officer)
 
Dated: November 13, 2002
 
CERTIFICATE
 
As required by 18 U.S.C. 1350, the undersigned certify that this Report on Form 10-Q fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, as amended, and that the information contained in this Report on From 10-Q fairly presents, in all material respects, the financial condition and results of operations of the registrant.
 
/s/    Joseph B. Bower, Jr.
Joseph B. Bower, Jr.
Treasurer
(Principal Financial Officer)
(Principal Accounting Officer)
 
Dated: November 13, 2002

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