CNB Financial (CCNE) 10-K 2003 FY Annual report

Annual Report 2003

[GRAPHIC APPEARS HERE]

Hometown Banking. Hometown People.

[GRAPHIC APPEARS HERE]

FINANCIAL CORPORATION

COUNTY NATIONAL BANK

Table of Contents

1	Consolidated Financial Highlights
2	Message to Shareholders
5	Consolidated Statements of Condition
6	Consolidated Statements of Income
7	Consolidated Statements of Cash Flows
8	Consolidated Statements of Changes in Shareholders’ Equity
9	Notes to Consolidated Financial Statements
25	Report of Independent Auditors
26	Selected Financial Data – Five Year Comparison
28	Statistical Information
29	Management Discussion and Analysis
39	Executive Management and Board of Directors
40	Officers
Inside Back Cover: Shareholder Information

County National Bank Financial Corporation Annual Report 2003

Consolidated Financial Highlights

(in thousands, except per share data)	2003			2002			% Change
For The Year
Interest Income	$	37,586		$	39,736		(5.4	)%
Interest Expense		13,400			15,201		(11.8	)%
Net Interest Income		24,186			24,535		(1.4	)%
Non-interest Income		7,136			6,038		18.2	%
Non-interest Expense		17,925			17,307		3.6	%
Net Income		9,057			8,666		4.5	%
Return on:
Average Assets		1.31	%		1.35	%	(3.0	)%
Average Equity		14.79	%		14.83	%	(0.3	)%
At Year End
Assets	$	701,752		$	668,828		4.9	%
Loans, net of unearned		458,249			420,364		9.0	%
Deposits		575,438			545,137		5.6	%
Shareholders’ Equity		66,447			62,033		7.1	%
Trust Assets Under Management (at market value)		200,485			178,719		12.2	%
Per Share Data
Net Income, diluted	$	2.46		$	2.38		3.4	%
Dividends		1.18			1.18		—	%
Book Value		18.18			17.01		6.9	%
Market Value		42.08			33.00		27.5	%

Hometown Banking. Hometown People. page 1

Message to Shareholders

[GRAPHIC]

To Our Shareholders, Customers & Friends:

We are pleased to report that CNB Financial Corporation achieved a solid year of performance in 2003. The Corporation’s net income rose to a record level of $9.1 million representing a 4.5% increase over 2002. This growth rate of earnings closely matched our growth in assets of 4.9% yielding year-end total assets of $701.8 million. While our rate of growth in earnings and assets slowed somewhat in 2003, we are pleased with the results in a year that proved to be challenging on several fronts. The most dominant trend in the past year affecting our Corporation was the continued low interest rate environment with interest rates reaching forty year historic lows. The second trend was the sluggish regional and national economy, which has negatively affected many households and businesses in the communities we serve. We believe we effectively met these challenges and are pleased to share the results of our performance with you.

Our earnings growth in 2003 was primarily driven by growth in non-interest income, which increased by $1.1 million or 18.2% while net interest income declined by $349 thousand or 1.4%. The growth in non-interest income resulted from continued growth in fee income from both deposits and loans as well as newly created revenue from annuity sales and income from bank owned life insurance. Non-interest income growth was also positively impacted with realized security gains of $270 thousand and the gain on sale of loans of $557 thousand both amounts up significantly from the prior year. We remain focused on continuing to grow non-interest income from ongoing operations as we face the challenge of increasing net interest income in a period of tightening spreads between earning asset yields and interest costs. Earning asset yields continued to decline in 2003 to 5.96% from 6.63% while our cost of funds declined to 2.40% from 2.91%.

Our ability to grow earnings in 2003 was favorably impacted by a relatively small increase in non-interest expenses of $618 thousand or 3.6% over 2002. We are proud of the ability to control operating costs, which resulted in an efficiency ratio of 52.9% for the year. This ratio provides a measurement of the proportion of regular operating revenue that is utilized to offset operating costs. Our Corporation’s ratio compares very favorably to our peer average of 62.0%. In addition to the limited growth in operating expenses, we also experienced a reduction in expense for our provision for loan and lease losses of $265 thousand.

page 2 County National Bank Financial Corporation Annual Report 2003

Message to Shareholders

Maintaining asset quality remains a high priority and in 2003, we experienced a decline in net loan losses of $52 thousand to a total of $807 thousand. This loss level represents 0.17% of average loans for the year compared to 0.21% in 2002. A second measure of asset quality is the level of non-performing assets, which totaled $3.4 million at year-end 2003, which compares to $2.9 million at year-end 2002. This amount of non-performing assets, representing 0.49% of total assets, remains at a favorable level when compared to financial institutions of similar size, which have a median ratio of 0.65%. Finally, total delinquent loans at year-end were 1.75% of total loans down from 2.12% at year-end 2002. We remain committed to preserving our asset quality and believe that our performance reflects that commitment.

[GRAPHIC]

As a result of our financial performance we were able to achieve a return on average assets (ROAA) during 2003 of 1.31% and a return on average equity (ROAE) of 14.8%. Both of these measurements compare very favorably to our peers of comparable asset size, which had a median ROAA of 1.10% and a median ROAE of 12.7% during the past year. By consistently achieving these strong rates of return, we are able to provide a high level of shareholder value. This was clearly evident as our stock price at year end reached $42.08, up from $33.00 at the prior year end. This price appreciation when coupled with a dividend of $1.18 per share yielded a total shareholder return of 31.1% for the year. With our growth in market capitalization, our Corporation became one of the largest 3,000 publicly traded companies in the United States during the past year resulting in our inclusion on the Russell 2000 Index. This event has yielded higher visibility to our stock as well as a higher level of trading activity.

[GRAPHIC]

Hometown Banking. Hometown People. page 3

Message to Shareholders

In order to grow and expand our opportunities we have initiated two new ventures. The first was establishing a business lending office in Johnstown, Pennsylvania in order to develop new business banking relationships in a region not served by our branch network. The office opened in May 2002 and by year end 2003 had originated $48.2 million in loans. Late in 2003, we opened a second business lending office in Warren, Pennsylvania which will focus on banking relationships in the Warren and Jamestown, New York regions. We will be converting this office to a full service branch in the second half of 2004. In addition, during the past year we relocated one of our two Bradford, Pennsylvania offices to a newly constructed facility in a more strategically located site in that community. During the coming year we will continue to explore for future expansion opportunities while using our existing network of offices to increase our market share.

[GRAPHIC]

The Board of Directors, management and staff at CNB Financial Corporation are steadfastly committed to the achievement of our primary strategic goal of providing the level of financial performance, yielding the appropriate rate of return to our shareholders, in order to maintain our long-term independence. We strongly believe that our record of performance is fulfilling this goal.

[GRAPHIC]

/s/    WILLIAM F. FALGER        

William F. Falger

President and Chief Executive Officer

page 4 County National Bank Financial Corporation Annual Report 2003

Consolidated Statements of Condition

	December 31
(in thousands, except share data)	2003			2002
Assets
Cash and due from banks	$	15,239		$	16,748
Interest bearing deposits with other banks		5,742			5,779
CASH AND CASH EQUIVALENTS		20,981			22,527
Securities available for sale		175,903			185,025
Loans held for sale		3,099			3,924
Loans and leases		458,660			421,507
Less: unearned discount		411			1,143
Less: allowance for loan and lease losses		5,764			5,036
NET LOANS		452,485			415,328
Federal Home Loan Bank and Federal Reserve Stock		5,032			3,388
Premises and equipment, net		12,934			12,129
Bank owned life insurance		12,682			6,194
Mortgage servicing rights		481			512
Goodwill		10,821			10,821
Other intangible assets		946			1,261
Accrued interest and other assets		6,388			7,719
TOTAL ASSETS	$	701,752		$	668,828
Liabilities
Deposits:
Non-interest bearing deposits	$	63,297		$	56,010
Interest bearing deposits		512,141			489,127
TOTAL DEPOSITS		575,438			545,137
Short-term borrowings		1,313			2,000
Federal Home Loan Bank advances		40,000			40,000
Accrued interest and other liabilities		8,244			9,348
Subordinated debentures		10,310			10,310
TOTAL LIABILITIES		635,305			606,795
Shareholders’ Equity
Common stock $1.00 par value for 2003 and 2002
Authorized 10,000,000 shares for 2003 and 2002
Issued 3,693,500 shares for 2003 and 2002		3,694			3,694
Additional paid in capital		4,123			3,747
Retained earnings		56,787			52,065
Treasury stock, at cost (37,554 shares for 2003 and 46,245 shares for 2002)		(1,309	)		(974	)
Accumulated other comprehensive income		3,152			3,501
TOTAL SHAREHOLDERS’ EQUITY		66,447			62,033
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	701,752		$	668,828

The accompanying notes are an integral part of these statements.

Hometown Banking. Hometown People. page 5

Consolidated Statements of Income

	Year ended December 31,
(in thousands, except per share data)	2003		2002			2001
Interest and Dividend Income
Loans including fees	$	30,328	$	30,294		$	31,323
Deposits with banks		44		84			169
Federal funds sold		180		267			434
Securities:
Taxable		4,457		6,507			6,788
Tax-exempt		2,178		2,136			1,526
Dividends		399		448			569
TOTAL INTEREST AND DIVIDEND INCOME		37,586		39,736			40,809
Interest Expense
Deposits		10,882		12,908			17,971
Federal Home Loan Bank advances and other debt		2,047		2,016			1,176
Subordinated debentures		471		277			—
TOTAL INTEREST EXPENSE		13,400		15,201			19,147
Net interest income		24,186		24,535			21,662
Provision for loan losses		1,535		1,800			1,080
Net interest income after provision for loan losses		22,651		22,735			20,582
Non-interest Income
Trust & asset management fees		1,001		910			1,015
Service charges - deposit accounts		3,457		3,360			2,900
Other service charges and fees		511		476			525
Net security gains (losses)		270		(7	)		276
Net gain on sale of loans		557		247			45
Other		1,340		1,052			837
TOTAL NON-INTEREST INCOME		7,136		6,038			5,598
Non-interest Expenses
Salaries		6,733		6,670			6,151
Employee benefits		2,573		2,060			2,027
Net occupancy expense of premises		2,400		2,397			2,439
Data processing		1,411		1,492			1,261
Goodwill amortization		—		—			1,438
Intangible amortization		517		452			385
Director’s fees		578		675			346
Other		3,713		3,561			3,327
TOTAL NON-INTEREST EXPENSES		17,925		17,307			17,374
Income before income taxes		11,862		11,466			8,806
Applicable income taxes		2,805		2,800			2,296
Net income	$	9,057	$	8,666		$	6,510
EARNINGS PER SHARE
Basic	$	2.48	$	2.38		$	1.78
Diluted	$	2.46	$	2.38		$	1.78

The accompanying notes are an integral part of these statements.

page 6 County National Bank Financial Corporation Annual Report 2003

Consolidated Statements of Cash Flows

	Year ended December 31,
(in thousands)	2003			2002			2001
Cash Flows from Operating Activities:
Net income	$	9,057		$	8,666		$	6,510
Adjustments to reconcile net income to net cash provided by operations:
Provision for loan losses		1,535			1,800			1,080
Depreciation and amortization		1,668			1,577			3,006
Amortization, accretion and deferred loan fees		525			(148	)		(520	)
Deferred taxes		(181	)		(1,640	)		(434	)
Security (gains) losses		(270	)		7			(276	)
Gain on sale of loans		(557	)		(247	)		(45	)
Net losses (gains) on dispositions of acquired property		(28	)		(12	)		(16	)
Proceeds from sales of loans		42,411			34,086			27,728
Origination of loans for sale		(41,029	)		(32,428	)		(30,524	)
Changes in:
Interest receivable and other assets		(238	)		(2,100	)		513
Interest payable and other liabilities		(742	)		1,674			2,249
Net cash from operating activities		12,151			11,235			9,271
Cash Flows from Investing Activities:
Proceeds from maturities, prepayments and calls of:
Securities available for sale		73,351			45,543			49,698
Proceeds from sales of securities available for sale		10,608			1,258			19,081
Purchase of securities available for sale		(76,243	)		(75,754	)		(83,513	)
Loan origination and payments, net		(38,071	)		(34,351	)		(20,160	)
Purchase of Bank Owned Life Insurance		(6,488	)		(6,194	)		—
Purchase of Federal Reserve Bank Stock and Federal Home Loan Bank Stock		(433	)		(1,483	)		—
Net, purchase of premises and equipment		(1,956	)		(769	)		(863	)
Proceeds from the sale of foreclosed assets		215			498			497
Net cash from investing activities		(39,017	)		(71,252	)		(35,260	)
Cash Flows from Financing Activities:
Net change in:
Checking, money market and savings accounts		8,987			(12,028	)		29,199
Certificates of deposit		21,314			50,525			(7,776	)
Purchase treasury stock		(1,014	)		(380	)		(770	)
Proceeds from the sale of treasury stock		1,055			636			237
Cash dividends paid		(4,335	)		(4,332	)		(3,410	)
Advances from other borrowings		—			20,000			10,710
Advances from subordinated debentures		—			10,000			—
Net advances (repayments) from short-term borrowings		(687	)		(1,268	)		(783	)
Net cash from financing activities		25,320			63,153			27,407
Net increase (decrease) in cash and cash equivalents		(1,546	)		3,136			1,418
Cash and cash equivalents at beginning of year		22,527			19,391			17,973
Cash and cash equivalents at end of period	$	20,981		$	22,527		$	19,391
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	12,971		$	15,505		$	19,533
Income taxes		3,530			3,730			2,670
Supplemental non cash disclosures:
Transfers to other real estate owned	$	257		$	344		$	393

The accompanying notes are an integral part of these statements.

Hometown Banking. Hometown People. page 7

Consolidated Statements of Changes in Shareholders’ Equity

(in thousands, except per share data)	Common Stock		Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income			Total Shareholders’ Equity
Balance January 1, 2001	$	3,694	$	3,742		$	44,631		$	(692	)	$	(172	)	$	51,203
Comprehensive income:
Net income for 2001							6,510									6,510
Other comprehensive income:
Net change in unrealized gains on available for sale securities, net of taxes of $579 and adjustment for after tax gains of $182													1,124			1,124
Total comprehensive income																7,634
Treasury stock:
Purchase (38,725 shares)										(770	)					(770	)
Reissue (12,044 shares)				11						226						237
Cash dividends declared ($0.93 per share)							(3,410	)								(3,410	)
Balance December 31, 2001		3,694		3,753			47,731			(1,236	)		952			54,894
Comprehensive income:
Net income for 2002							8,666									8,666
Other comprehensive income:
Net change in unrealized gains on available for sale securities, net of taxes of $1,313 and adjustment for after tax losses of ($5)													2,549			2,549
Total comprehensive income																11,215
Treasury stock:
Purchase (16,156 shares)										(380	)					(380	)
Reissue (23,479 shares)				(6	)					642						636
Cash dividends declared ($1.18 per share)							(4,332	)								(4,332	)
Balance December 31, 2002		3,694		3,747			52,065			(974	)		3,501			62,033
Comprehensive income:
Net income for 2003							9,057									9,057
Other comprehensive income:
Net change in unrealized gains on available for sale securities, net of taxes of $180 and adjustment for after tax gains of $176													(349	)		(349	)
Total comprehensive income																8,708
Treasury stock:
Purchase (24,468 shares)										(1,014	)					(1,014	)
Reissue (33,480 shares)				376						679						1,055
Cash dividends declared ($1.18 per share)							(4,335	)								(4,335	)
Balance December 31, 2003	$	3,694	$	4,123		$	56,787		$	(1,309	)	$	3,152		$	66,447

The accompanying notes are an integral part of these statements.

page 8 County National Bank Financial Corporation Annual Report 2003

Notes to Consolidated Financial Statements

1. SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

Unless otherwise indicated, amounts are in thousands, except per share data.

Business and Organization:

CNB Financial Corporation (the “Corporation”), is headquartered in Clearfield, Pennsylvania, and provides a full range of banking and related services through its wholly owned subsidiary, County National Bank (the “Bank”). The Bank also provides trust services, including the administration of trusts and estates, retirement plans, and other employee benefit plans. The Bank serves individual and corporate customers and is subject to competition from other financial institutions and intermediaries with respect to these services. The Corporation is also subject to examination by Federal regulators. The Corporation’s market area is in the central region of the state of Pennsylvania.

Basis of Financial Presentation:

The financial statements are consolidated to include the accounts of the Corporation and its subsidiaries, County National Bank, CNB Investment Corporation, County Reinsurance Company and CNB Insurance Agency. These statements have been prepared in accordance with accounting principles generally accepted in the United States. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Use of Estimates:

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, mortgage servicing rights and fair values of financial instruments are particularly subject to change.

Operating Segments:

FAS No. 131 requires disclosures about an enterprise’s operating segments in financial reports issued to shareholders. The Statement defines an operating segment as a component of an enterprise that engages in business activities that generate revenue and incur expense, and the operating results of which are reviewed by the chief operating decision maker in the determination of resource allocation and performance. While the Corporation’s chief decision makers monitor the revenue streams of the various Corporation’s products and services, operations are managed and financial performance is evaluated on a Corporation-wide basis. Accordingly, the Corporation’s business activities are currently confined to one segment which is community banking.

Securities:

When purchased, securities are classified as held to maturity, trading or available for sale. Debt securities are classified as held to maturity when the Corporation has the positive intent and ability to hold the securities to maturity. Held to maturity securities are stated at amortized cost. Debt or equity securities are classified as trading when purchased principally for the purpose of selling them in the near term. Available for sale securities are those securities not classified as held to maturity or trading and are carried at their fair market value. Unrealized gains and losses, net of tax, on securities classified as available for sale are recorded as other comprehensive income. Unrealized gains and losses on securities classified as trading are included in other income. Management has not classified any debt or equity securities as trading.

The amortized cost of debt securities classified as held to maturity or available for sale is adjusted for the amortization of premiums and the accretion of discounts over the period through contractual maturity or, in the case of mortgage-backed securities and collateralized mortgage obligations, over the estimated life of the security. Such amortization is included in interest income from securities. Securities are written down to fair value when a decline in fair value is not temporary. Gains and losses on securities sold is based on the specific identification method.

Loans:

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Loans held for sale are reported at the lower of cost or market, on an aggregate basis.

Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Interest income on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Consumer loans are typically charged off no later than 180 days past due. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

Hometown Banking. Hometown People. page 9

Notes to Consolidated Financial Statements (continued)

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Direct Lease Financing:

Financing of equipment, principally consisting of automobiles, is provided to customers under lease arrangements accounted for as direct financing leases. These leases are reported in loans as a net amount, consisting of the aggregate of lease payments receivable and estimated residual values, less unearned income. Income is recognized in a manner which results in an approximate level yield over the lease term.

Allowance for Loan and Lease Losses:

The allowance for loan and lease losses is established through provisions for loan losses which are charged against income. Loans which are deemed to be uncollectible are charged against the allowance account. Subsequent recoveries, if any, are credited to the allowance account.

Management determines the adequacy of the allowance based on historical patterns of charge-offs and recoveries, information about specific borrower situations, industry experience, and other qualitative factors relevant to the collectability of the loan portfolio. While management believes that the allowance is adequate to absorb probable loan losses, future adjustments may be necessary due to circumstances that differ substantially from the assumptions used in evaluating the adequacy of the allowance for loan losses.

A loan is impaired when full payment under the loan terms is not expected. Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgage, consumer, and credit card loans, and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

Premises and Equipment:

Premises and equipment are stated at cost less accumulated depreciation. Depreciation of premises and equipment is computed principally by the straight line method with useful lives ranging from 3-39 years. Amortization of leasehold improvements is computed using the straight-line method over useful lives of the leasehold improvements or the term of the lease, whichever is shorter. Maintenance, repairs and minor renewals are charged to expense as incurred.

Foreclosed Assets:

Assets acquired through or instead of loan foreclosure are initially recorded at fair value when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed.

Bank Owned Life Insurance:

The Corporation has purchased life insurance policies on certain officers. Bank owned life insurance is recorded at its cash surrender value, or the amount that can be realized.

Goodwill and Other Intangible Assets:

Goodwill results from prior business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Upon adopting new accounting guidance on January 1, 2002, the Corporation ceased amortizing goodwill. Goodwill is assessed at least annually for impairment and any such impairment will be recognized in the period identified.

Other intangible assets consist of acquired customer relationship intangible assets arising from the purchase of customer lists. They are initially measured at fair value and then are amortized on a straight line basis over their estimated useful lives, which is 10 years.

Income Taxes:

The Corporation files a consolidated U. S. income tax return. Deferred taxes are recognized for the expected future tax consequences of existing differences between the financial reporting and tax reporting bases of assets and liabilities using enacted tax laws and rates. Income tax expense is the total of the current year income tax due or refundable and the changes in deferred tax assets and liabilities.

page 10 County National Bank Financial Corporation Annual Report 2003

Notes to Consolidated Financial Statements (continued)

Mortgage Servicing Rights (MSR’s):

Mortgage servicing assets are recognized as separate assets when servicing rights are acquired through purchase or loan originations, when there is a definitive plan to sell the underlying loan. Capitalized MSR’s are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying mortgage loans. Capitalized MSR’s are evaluated for impairment based on the fair value of those rights. The MSR’s recognized were $170 in 2003 and $280 in 2002.

Treasury Stock:

The purchase of the Corporation’s common stock is recorded at cost. Purchases of the stock are made both in the open market and through negotiated private purchases based on market prices. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on a first-in-first-out basis.

Stock Compensation:

The Corporation has a common stock plan for key employees and independent directors. The Stock Incentive Plan, which is administered by a committee of the Board of Directors, provides for up to 250,000 shares of common stock in the form of qualified options, nonqualified options, stock appreciation rights or restrictive stock. For key employees, the plan vesting schedule is one-fourth of granted options per year beginning one year after the grant date with 100% vested on the fourth anniversary. For independent directors, the vesting schedule is one-third of granted options per year beginning one year after the grant date with 100% vested on the third anniversary.

The Corporation applies 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. Had compensation cost for the plans been determined based on the fair values at the grant dates for awards, consistent with the method of SFAS No. 123, net income and earnings per share for 2003, 2002 and 2001 would have been adjusted to the pro forma amounts indicated below:

	2003		2002		2001
Net income As reported	$	9,057	$	8,666	$	6,510
Pro forma compensation expense		31		22		39
Pro forma	$	9,026	$	8,644	$	6,471
Earnings Per Share-Basic As reported	$	2.48	$	2.38	$	1.78
Pro forma	$	2.48	$	2.37	$	1.77
Earnings Per Share - Diluted As reported	$	2.46	$	2.38	$	1.78
Pro forma	$	2.46	$	2.37	$	1.77

For purposes of the pro forma calculations above, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for grants issued:

	2003		2002		2001
Dividend yield	3.0	%	4.6	%	4.9	%
Expected stock price volatility	5.1	%	13.2	%	25.9	%
Risk-free interest rates	3.4	%	1.2	%	2.2	%
Expected option lives	6.0 years		6.0 years		6.0 years

Comprehensive Income:

The Corporation presents comprehensive income as part of the Statement of Changes in Shareholders’ Equity. Other comprehensive income (losses) are comprised exclusively of unrealized holding gains (losses) on the available for sale securities portfolio.

Earnings per Share:

Basic earnings per share is determined by dividing net income by the weighted average number of shares outstanding. Diluted earnings per share is determined by dividing net income by the weighted average number of shares outstanding increased by the number of shares that would be issued assuming the exercise of stock options.

Cash and Cash Equivalents:

For purposes of the consolidated statement of cash flows, the Corporation defines cash and cash equivalents as cash and due from banks, interest bearing deposits with other banks, and Federal funds sold.

Hometown Banking. Hometown People. page 11

Notes to Consolidated Financial Statements (continued)

Restrictions on Cash:

The Bank is required to maintain average reserve balances with the Federal Reserve Bank. The average amount of these reserve balances for the year ended December 31, 2003 and 2002, was $50, which was maintained in vault cash.

New Accounting Standards:

During 2003, the Company adopted FASB Statement 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, FASB Statement 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equities, FASB Statement 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, FASB Interpretation 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, and FASB Interpretation 46, Consolidation of Variable Interest Entities. FASB Statement 132 (revised 2003) requires additional disclosures about the assets, obligations and cash flows of defined benefit pension and postretirement plans, as well as the expense recorded for such plans. Adoption of the new standards did not materially affect the Corporation’s operating results or financial condition.

Loss Contingencies:

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Fair Value of Financial Instruments:

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Reclassifications:

Certain prior year amounts have been reclassified for comparative purposes.

2. EARNINGS PER SHARE

Earnings per share (EPS) is calculated on the weighted average number of common shares outstanding during the year. Currently a dual presentation of basic and diluted EPS is required. The computation of basic and diluted EPS is shown below (in thousands, except per share data):

	Years Ended December 31
	2003		2002		2001
Net income	$	9,057	$	8,666	$	6,510
Weighted-average common shares outstanding		3,646		3,638		3,661
Basic earnings per share	$	2.48	$	2.38	$	1.78
Net income	$	9,057	$	8,666	$	6,510
Weighted-average common shares outstanding		3,646		3,638		3,661
Dilutive effects of assumed exercise of stock options		30		10		3
Total weighted-average common shares and equivalents		3,676		3,648		3,664
Diluted earnings per share	$	2.46	$	2.38	$	1.78

Stock options for 23 and 18 shares of common stock were not considered in computing diluted earnings per common share for 2003 and 2002 because they were antidilutive.

page 12 County National Bank Financial Corporation Annual Report 2003

Notes to Consolidated Financial Statements (continued)

3. SECURITIES

Securities at December 31, 2003 and 2002 were as follows:

	December 31, 2003									December 31, 2002
	Amortized Cost		Unrealized					Fair Value		Amortized Cost		Unrealized					Fair Value
			Gains		Losses							Gains		Losses
Securities available for sale:
U.S. Treasury	$	13,282	$	62	$	(6	)	$	13,338	$	10,169	$	145	$	—		$	10,314
U.S. Government agencies and corporations		30,312		162		(35	)		30,439		26,109		431		(8	)		26,532
Obligations of States and Political Subdivisions		45,401		3,294		—			48,695		47,322		2,520		(105	)		49,737
Mortgage-backed securities		40,197		508		(62	)		40,643		44,622		950		(24	)		45,548
Corporate notes and bonds		32,974		1,876		(217	)		34,633		42,819		2,000		(476	)		44,343
Marketable equity securities		8,962		558		(1,365	)		8,155		8,680		280		(409	)		8,551
Total securities available for sale	$	171,128	$	6,460	$	(1,685	)	$	175,903	$	179,721	$	6,326	$	(1,022	)	$	185,025

At year end 2003 and 2002, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

Securities with unrealized losses at year end 2003 not recognized in income are as follows:

	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasuries		—		—		$	3,001	$	(6	)	$	3,001	$	(6	)
U.S. Gov’t Agencies & Corps		—		—			6,026		(35	)		6,026		(35	)
States & Political Subdivisions		—		—			—		—			—		—
Mortgage-Backed Sec.	$	224	$	(1	)		7,534		(61	)		7,758		(62	)
Corporate Notes		—		—			7,682		(217	)		7,682		(217	)
Marketable Equities		—		—			5,646		(1,365	)		5,646		(1,365	)
	$	224	$	(1	)	$	29,889	$	(1,684	)	$	30,113	$	(1,685	)

The unrealized losses are a result of changes in the overall interest rate environment and are temporary in nature. No losses have arisen as a result of credit quality.

On December 31, 2003 securities carried at $36,099 were pledged to secure public deposits and for other purposes as provided by law.

The following is a schedule of the contractual maturity of investments excluding equity securities, at December 31, 2003:

	Available for Sale Fair Value
1 year or less	$	23,207
1 year-5 years		43,773
5 years-10 years		19,729
After 10 years		40,396
		127,105
Mortgage-backed securities		40,643
Total securities	$	167,748

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.

Hometown Banking. Hometown People. page 13

Notes to Consolidated Financial Statements (continued)

Information pertaining to security sales is as follows:

	Proceeds		Gross Gains		Gross Losses
2003	$	10,608	$	306	$	36
2002		1,258		13		20
2001		19,081		371		95

4. LOANS

Total Loans at December 31, 2003 and 2002 are summarized as follows:

	2003		2002
Commercial, Financial and Agricultural	$	168,794	$	130,121
Residential Mortgage		141,720		143,569
Commercial Mortgage		110,951		97,928
Installment		30,910		36,289
Lease Receivables		6,285		13,600
	$	458,660	$	421,507

Lease receivables at December 31, 2003 and 2002 are summarized as follows:

	2003			2002
Lease payment receivable	$	2,328		$	5,212
Estimated residual values		3,957			8,388
Gross lease receivables		6,285			13,600
Less unearned income		(411	)		(1,143	)
Net lease receivables	$	5,874		$	12,457

At December 31, 2003 and 2002, net unamortized loan costs of $621 and $699, respectively, have been included in the carrying value of loans.

The Bank’s outstanding loans and related unfunded commitments are primarily concentrated within Central Pennsylvania. The Bank attempts to limit concentrations within specific industries by utilizing dollar limitations to single industries or customers, and by entering into participation agreements with third parties. Collateral requirements are established based on management’s assessment of the customer.

Deposit accounts that have overdrawn their current balance, overdrafts, are reclassified to loans. Overdrafts included in loans are $597 in 2003 and $973 in 2002.

Impaired loans were as follows:

	2003		2002
Year-end loans with no allocated allowance for loan losses	$	653	$	—
Year-end loans with allocated allowance for loan losses		769		—
Total	$	1,422	$	—
Amount of the allowance for loan losses allocated	$	35	$	—
	2003		2002		2001
Average of impaired loans during the year	$	1,434	$	—	$	—
Interest income recognized during impairment		—		—		—
Cash-basis interest income recognized		—		—		—

page 14 County National Bank Financial Corporation Annual Report 2003

Notes to Consolidated Financial Statements (continued)

Nonperforming loans were as follows:

	2003		2002
Loans past due over 90 days still on accrual	$	1,076	$	1,106
Nonaccrual loans	$	1,873	$	1,830

Nonperforming loans include all (or almost all) impaired loans and smaller balance homogeneous loans, such as residential mortgage and consumer loans, that are collectively evaluated for impairment.

5. ALLOWANCEFOR LOANAND LEASE LOSSES

Transactions in the Allowance for Loan and Lease Losses for the three years ended December 31 were as follows:

	2003			2002			2001
Balance, Beginning of Year	$	5,036		$	4,095		$	3,879
Charge-offs		(924	)		(1,064	)		(1,015	)
Recoveries		117			205			151
Net Charge-offs		(807	)		(859	)		(864	)
Provision for Loan and Lease Losses		1,535			1,800			1,080
Balance, End of Year	$	5,764		$	5,036		$	4,095

6. SECONDARY MORTGAGE MARKET ACTIVITIES

Activity for capitalized mortgage servicing rights was as follows:

	2003			2002
Servicing rights:
Beginning of year	$	512		$	368
Additions		170			280
Amortized to expense		(201	)		(136	)
End of year	$	481		$	512

No valuation allowance is deemed necessary as of December 31, 2003 and 2002.

7. PREMISESAND EQUIPMENT

The following summarizes Premises and Equipment at December 31:

	2003		2002
Land	$	1,644	$	1,650
Premises and Leasehold Improvements		12,114		11,365
Furniture and Equipment		9,668		8,455
		23,426		21,470
Less Accumulated Depreciation and Amortization		10,492		9,341
Premises and Equipment, Net	$	12,934	$	12,129

Depreciation on Premises and Equipment amounted to $1,151 in 2003, $1,125 in 2002 and $1,183 in 2001.

The Corporation is committed under five noncancellable operating leases for facilities with initial or remaining terms in excess of one year. The minimum annual rental commitments under these leases at December 31, 2003 are as follows:

2004	$	152
2005		152
2006		148
2007		145
2008		149
Thereafter		1,469
	$	2,215

Hometown Banking. Hometown People. page 15

Notes to Consolidated Financial Statements (continued)

Rental expense, net of rental income, charged to occupancy expense for 2003, 2002, and 2001 was $217, $211 and $111, respectively.

8. FORECLOSED ASSETS

Foreclosed real estate is reported net of a valuation allowance. Activity was as follows:

	2003			2002			2001
Beginning of year	$	497		$	649		$	783
Additions		257			344			393
Direct write-downs		—			(10	)		(46	)
Sales		(187	)		(486	)		(481	)
End of year	$	567		$	497		$	649

9. GOODWILLAND INTANGIBLE ASSETS

The change in the carrying amount of goodwill for the year is as follows:

Balance as of January 1, 2003	$	10,821
Acquired during the period		—
Balance as of December 31, 2003	$	10,821

Goodwill is no longer amortized starting in 2002. The effect of not amortizing goodwill is summarized as follows:

	2003			2002			2001
Reported net income	$	9,057		$	8,666		$	6,510
Add back: goodwill amortization, net of taxes		—			—			950
Adjusted net income	$	9,057		$	8,666		$	7,460
Basic earnings per share:
Reported net income	$	2.48		$	2.38		$	1.78
Goodwill amortization		—			—			0.26
Adjusted net income	$	2.48		$	2.38		$	2.04
Diluted earnings per share:
Reported net income	$	2.46		$	2.38		$	1.78
Goodwill amortization		—			—			0.26
Adjusted net income	$	2.46		$	2.38		$	2.04
Acquired Intangible Assets
Amortized intangible assets:
Other intangibles	$	3,152		$	3,152
Accumulated amortization		(2,206	)		(1,891	)
Net	$	946		$	1,261
Aggregate amortization expense	$	315		$	315		$	315
Estimated amortization expense:
2004	$	315
2005		315
2006		316

page 16 County National Bank Financial Corporation Annual Report 2003

Notes to Consolidated Financial Statements (continued)

10. DEPOSITS

The following table reflects time certificates of deposit and IRA accounts included in total deposits and their remaining maturities at December 31:

	2003
Time Deposits Maturing:
2004	$	105,102
2005		87,321
2006		60,313
2007		41,741
2008		6,414
Thereafter		5,870
	$	306,761

Certificates of Deposit of $100,000 or more totaled $83,507 and $62,983 at December 31, 2003 and 2002, respectively.

11. BORROWINGS

Borrowings include $1,313 and $2,000 of demand notes payable to the U.S. Treasury Department at December 31, 2003 and 2002, respectively. These notes are issued under the U.S. 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 year end 2003 and 2002 was $0.

At year end 2003, the Bank had remaining borrowing capacity with the FHLB of $130 million. Borrowings with the FHLB are secured by a blanket pledge of selected securities in the amount of $75,317 and certain mortgage loans with a value of $147,567. Borrowings from the Federal Home Loan Bank (FHLB) at December 31, 2003, and 2002 are as follows:

		December 31,
Interest Rate	Maturity	2003		2002
Overnight	Daily	$	—	$	—
(a)	3/1/10		10,000		10,000
(b)	1/3/11		10,000		10,000
(c)	1/24/12		20,000		20,000
Total borrowed funds		$	40,000	$	40,000

(a) FHLB has option to float the interest rate based on the 3 month LIBOR +.16, the interest rate was 6.09% at December 31, 2003.

(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 December 31, 2003.

(c) Interest rate is fixed for two years at which time FHLB will convert it to a floating interest rate based on the 3 month LIBOR + .18 if the 3 month LIBOR is equal to or greater than 8.0%, the interest rate was 4.52% as of December 31, 2003.

Subordinated Debentures and Trust Preferred Securities:

A trust formed by the Corporation issued $10,000 of floating rate trust preferred securities in 2002 as part of a pooled offering of such securities. The interest rate is determined quarterly and floats based on the 3 month LIBOR plus 3.45% and was 4.62% at December 31, 2003. The Corporation may redeem them, in whole or in part, at face value after June 26, 2007. The Corporation issued subordinated debentures to the trust in exchange for the proceeds of the offering, which debentures represent the sole asset of the trust. The subordinated debentures must be redeemed no later than 2032.

Hometown Banking. Hometown People. page 17

Notes to Consolidated Financial Statements (continued)

Prior to 2003, the trust was consolidated in the Corporation’s financial statements, with the trust preferred securities issued by the trust reported in liabilities as “trust preferred securities” and the subordinated debentures eliminated in consolidation. Under new accounting guidance, FASB Interpretation No. 46, as revised in December 2003, the trust is no longer consolidated with the Corporation. Accordingly, the Corporation does not report the securities issued by the trust as liabilities, and instead reports as liabilities the subordinated debentures issued by the Corporation and held by the trust, as these are no longer eliminated in consolidation. The effect of adopting the new accounting guidance is an increase of $310, which represents the Corporation’s investment in the Trust.

Following are maturities of borrowed funds as of December 31, 2003:

2004	$	1,313
2005		—
2006		—
2007		—
2008		—
Thereafter		50,310
Total Borrowed Funds	$	51,623

12. INCOME TAXES

The following is a summary of the tax provision:

	2003			2002			2001
Current	$	4,094		$	4,166		$	3,138
Deferred		(1,289	)		(1,366	)		(842	)
Net provision for Income Taxes	$	2,805		$	2,800		$	2,296

The applicable portion of the current year provision related to the gains on sales of available for sale securities is $95, $(2), and $94 in 2003, 2002 and 2001, respectively.

The components of the net deferred tax liability as of December 31, 2003 and 2002 are as follows:

	2003		2002
Deferred tax assets
Allowance for loan losses	$	2,017	$	1,712
Post-retirement benefits		181		145
Intangible		2		292
Deferred compensation		477		283
Merger costs		46		52
Other		89		80
		2,812		2,564
Deferred tax liabilities
Premises and equipment		520		362
Vehicle leasing		1,474		2,667
Unrealized gain on securities available for sale		1,623		1,803
Loan servicing rights		168		174
		3,785		5,006
Net deferred tax liability	$	973	$	2,442

page 18 County National Bank Financial Corporation Annual Report 2003

Notes to Consolidated Financial Statements (continued)

The reconciliation of income tax attributable to continuing operations at the Federal statutory tax rates to income tax expense is as follows:

	2003			%		2002			%		2001			%
Tax at statutory rate	$	4,152		35.0		$	3,898		34.0		$	2,994		34.0
Tax exempt income, net		(1,007	)	(8.5	)		(959	)	(8.4	)		(715	)	(8.1	)
Bank owned life insurance		(171	)	(1.5	)		—		—			—		—
Other		(169	)	(1.4	)		(139	)	(1.2	)		17		0.2
Income tax provision	$	2,805		23.6		$	2,800		24.4		$	2,296		26.1

13. EMPLOYEE BENEFIT PLANS

The Bank provides a defined contribution retirement plan that covers all active officers and employees twenty-one years of age or older, employed by the Bank for one year. Contributions to the plan for 2003, 2002 and 2001 based on current year compensation, are 6 percent of total compensation plus 5.7 percent of the compensation in excess of $87. The Corporation recognized expense of $325 in 2003, $340 in 2002, and $308 in 2001.

In addition, the Bank sponsors a contributory defined contribution Section 401(k) plan in which substantially all employees participate. The plan permits employees to make pre-tax contributions which are matched by the Bank, in 2003, 2002 and 2001, at 1% for every 1% contributed up to three percent then 0.5% for every 1% contributed up to four percent in total of the employee’s compensation. The Bank’s contributions were $171, $169, and $187 in 2003, 2002, and 2001, respectively.

The Corporation provides certain health care benefits for retired employees and their qualifying dependents. The following table sets forth the change in the benefit obligation and funded status:

December 31	2003			2002			2001
Benefit obligation at beginning of year	$	637		$	538		$	501
Interest cost		45			40			37
Service cost		37			32			31
Actual claim expense		(35	)		(14	)		(22	)
Interest on claim expense		(1	)		—			—
Actuarial (gain)/loss		(29	)		41			(9	)
Benefit obligation at end of year	$	654		$	637		$	538
December 31	2003			2002			2001
Funded status of plan	$	(654	)	$	(637	)	$	(538	)
Unrecognized actuarial (gain)/loss		48			77			37
Unrecognized prior service cost		—			—			—
Unrecognized transition obligation		73			81			88
Accrued benefit cost	$	(533	)	$	(479	)	$	(413	)
December 31	2003			2002			2001
Net periodic post-retirement benefit cost:
Service cost	$	38		$	32		$	31
Interest cost		44			40			37
Amortization of transition obligation over 21 years		8			7			7
	$	90		$	79		$	75

The weighted average discount rate used to calculate net periodic benefit cost and the accrued post-retirement liability was 6.5% in 2003, 7.00% in 2002 and 7.50% in 2001. The health care cost trend rate used to measure the expected costs of benefits for 2004 is 8.00%, 7.00% for 2005, 6% for 2006 and 5% thereafter. A one percent increase in the health care trend rates would result in an increase of $71 in the benefit obligation of December 31, 2003, and would increase the service and interest costs by $11 in future periods. A similar one percent decrease in health care trend rates would result in a decrease of $62 and $9 in the benefit obligation and service and interest costs, respectively, at December 31, 2003. The presentation above for the years 2003, 2002 and 2001 reflects a policy which grants eligibility to these benefits to employees at least 60 years of age with 30 years of service.

Hometown Banking. Hometown People. page 19

Notes to Consolidated Financial Statements (continued)

14. STOCK OPTIONS

A summary of the status of the common stock incentive plan, adjusted retroactively for the effects of stock splits, is presented below:

	Shares		Weighted - average Exercise Price		Remaining Contractual Life
Outstanding, at January 1, 2001	47,250		$	23.12	7 years
Granted	21,500			22.50	8 years
Exercised	—			—
Forfeited	—			—
Outstanding, at December 31, 2001	68,750			22.93
Granted	22,250			33.25	9 years
Exercised	(250	)		23.50
Forfeited	—			—
Outstanding, at December 31, 2002	90,750			25.41
Granted	22,500			43.84	10 years
Exercised	(19,230	)		23.83
Forfeited	(832	)		22.48
Outstanding, at December 31, 2003	93,188		$	24.39

	2003		2002		2001
Options exercisable		40,985		35,083		16,437
Fair value of options granted during the year	$	1.39	$	1.47	$	3.22
Number of authorized shares remaining		137,332		159,000		181,000

Options outstanding at year-end 2003 were as follows:

Range of Exercise Prices	Outstanding		Exerciseable
	Number	Weighted Average Remaining Contractual Life	Number	Weighted Average Exercise Price
$18.50 - 43.84	93,438	8.3 years	40,985	$	24.39

15. RELATED PARTY TRANSACTIONS

In the ordinary course of business, the Bank has transactions, including loans, with its officers, directors and their affiliated companies. The aggregate of such loans totaled $3,619 on December 31, 2003 compared to $3,981 at December 31, 2002. During 2003, $18,341 of new loans were made and repayments totaled $18,703.

Deposits from principal officers, directors and their affiliates at year-end 2003 and 2002 were $1,720 and $2,817.

16. CAPITAL REQUIREMENTSAND RESTRICTIONSON RETAINED EARNINGS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgements by regulators. Failure to meet capital requirements can initiate regulatory action.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of December 31, 2003 and 2002, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

page 20 County National Bank Financial Corporation Annual Report 2003

Notes to Consolidated Financial Statements (continued)

Actual and required capital amounts (in millions) and ratios are presented below at year-end:

	Actual				For Capital Adequacy Purposes				To be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
2003
Total Capital to risk weighted assets
Consolidated	$	67,244	13.08	%	$	41,183	8.0	%	$	51,479	10.0	%
Bank	$	53,415	10.68	%	$	40,016	8.0	%	$	50,003	10.0	%
Tier 1 (Core) Capital to risk weighted assets
Consolidated	$	61,480	11.96	%	$	20,592	4.0	%	$	30,887	6.0	%
Bank	$	47,651	9.53	%	$	20,001	4.0	%	$	30,002	6.0	%
Tier 1 (Core) Capital to average assets
Consolidated	$	61,480	8.93	%	$	27,549	4.0	%	$	34,436	5.0	%
Bank	$	47,651	7.03	%	$	27,114	4.0	%	$	33,892	5.0	%
	Actual				For Capital Adequacy Purposes				To be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
2002
Total Capital to risk weighted assets
Consolidated	$	61,396	12.93	%	$	38,000	8.0	%	$	47,500	10.0	%
Bank	$	54,589	11.67	%	$	37,436	8.0	%	$	46,795	10.0	%
Tier 1 (Core) Capital to risk weighted assets
Consolidated	$	56,360	11.87	%	$	19,000	4.0	%	$	28,500	6.0	%
Bank	$	49,553	10.59	%	$	18,720	4.0	%	$	28,077	6.0	%
Tier 1 (Core) Capital to average assets
Consolidated	$	56,360	8.52	%	$	26,454	4.0	%	$	33,068	5.0	%
Bank	$	49,553	7.70	%	$	25,751	4.0	%	$	32,189	5.0	%

Certain restrictions exist regarding the ability of the Bank to transfer funds to the Corporation in the form of cash dividends, loans or advances. Dividends payable by the Bank to the Corporation without prior approval of the Office of the Comptroller of the Currency (OCC) are limited to the Bank’s retained net profits for the preceding two calendar years plus retained net profits up to the dividend declaration in the current calendar year. Retained net profits are defined by the OCC as net income, less dividends declared during the periods under regulatory accounting principles. As of December 31, 2003, $1.4 million of undistributed earnings of the Bank was available for distribution to the Corporation as dividends, without prior regulatory approval.

17. OFF-BALANCE SHEET ACTIVITIES

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions

Hometown Banking. Hometown People. page 21

Notes to Consolidated Financial Statements (continued)

established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amount of financial instruments with off-balance-sheet risk was as follows at year end.

	2003				2002
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	14.3	$	67.1	$	9.3	$	56.1
Unused lines of credit and letters of credit		—		36.5		—		33.9

Commitments to make loans are generally made for periods of 60 days or less. The fixed rate loan commitments have interest rates ranging from 2.67% to 12.00% and maturities ranging from 3 months to 20 years.

18. FAIR VALUEOF FINANCIAL INSTRUMENTS

Carrying amount is the estimated fair value for cash and cash equivalents, Federal Home Loan Bank stock, accrued interest receivable and payable, demand deposits, other borrowings, and variable rate loans, deposits or borrowings that reprice frequently and fully. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of loans held for sale is based on market quotes. Fair value of debt is based on current rates for similar financing. The fair value of off-balance-sheet items is based on the current fees or cost that would be charged to enter into or terminate such arrangements. The fair value of off balance sheet items is not materially different from the nominal value.

While these estimates of fair value are based on management’s judgment of the most appropriate factors as of the balance sheet date, there is no assurance that the estimated fair values would have been realized if the assets had been disposed of or the liabilities settled at that date, since market values may differ depending on various circumstances. The estimated fair values would also not apply to subsequent dates.

In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the above disclosures. Also, non-financial instruments typically not recognized on the balance sheet may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposits, the earnings potential of trust accounts, the trained workforce, customer goodwill and similar items.

	December 31, 2003						December 31, 2002
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
ASSETS
Cash and short-term assets	$	20,981		$	20,981		$	22,527		$	22,527
Securities		175,903			175,903			185,025			184,964
Net loans		446,611			459,029			402,871			423,137
Federal Home Loan Bank and Federal Reserve stock		5,032			5,032			3,588			3,588
Accrued interest receivable		3,541			3,541			3,905			3,905
LIABILITIES
Deposits		(575,438	)		(581,593	)		(545,137	)		(554,189	)
Borrowings		(51,623	)		(53,889	)		(52,310	)		(53,153	)
Accrued interest payable		(1,606	)		(1,606	)		(1,650	)		(1,650	)

page 22 County National Bank Financial Corporation Annual Report 2003

Notes to Consolidated Financial Statements (continued)

19. PARENT COMPANY ONLY FINANCIAL INFORMATION

	December 31,
	2003			2002
CONDENSED BALANCE SHEETS
ASSETS
Cash	$	21		$	113
Investment in bank subsidiary		62,619			65,281
Investment in non-bank subsidiaries		13,009			5,769
Other assets		1,091			1,159
TOTAL ASSETS	$	76,740		$	72,322
LIABILITIES
Income taxes payable	$	(194	)	$	(140	)
Deferred tax liability		9			9
Subordinated debt		10,310			10,310
Other liabilities		168			110
TOTAL LIABILITIES		10,293			10,289
TOTAL SHAREHOLDERS’ EQUITY		66,447			62,033
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	76,740		$	72,322

	Year ended December 31,
	2003			2002			2001
CONDENSED STATEMENTS OF INCOME
INCOME
Dividends from:
Bank subsidiary	$	10,379		$	5,958		$	3,555
Non bank subsidiaries		200			—			—
Other		126			130			116
TOTAL INCOME		10,705			6,088			3,671
EXPENSES		(697	)		(543	)		(190	)
INCOME BEFORE INCOME TAXES AND EQUITY IN DISTRIBUTED NET INCOME OF SUBSIDIARY		10,008			5,545			3,481
Applicable income tax (obligation) benefit		194			128			22
Equity in undistributed net income of bank subsidiary		(1,502	)		2,841			2,751
Equity in undistributed net income of non-bank subsidiaries		357			152			256
NET INCOME	$	9,057		$	8,666		$	6,510

	Year ended December 31,
	2003			2002			2001
CONDENSED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income	$	9,057		$	8,666		$	6,510
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of bank subsidiary		1,502			(2,841	)		(2,751	)
Equity in undistributed net income of non-bank subsidiaries		(357	)		(152	)		(256	)
(Increase) Decrease in other assets		68			(263	)		15
Increase (Decrease) in other liabilities		4			(1,284	)		553
Net cash provided by operating activities		10,274			4,126			4,071
Cash flows from investing activities:
Capital transfer to subsidiaries		(6,072	)		(10,319	)		(144	)
Net cash used in investing activities		(6,072	)		(10,319	)		(144	)
Cash flows from financing activities:
Dividends paid		(4,335	)		(4,332	)		(3,410	)
Net treasury stock activity		41			256			(533	)
Advances from subordinated debentures		—			10,310			—
Net cash used in financing activities		(4,294	)		6,234			(3,943	)
Net increase (decrease) in cash		(92	)		41			(16	)
Cash beginning of year		113			72			88
Cash end of year	$	21		$	113		$	72

Hometown Banking. Hometown People. page 23

Notes to Consolidated Financial Statements (continued)

20. OTHER COMPREHENSIVEINCOME (Loss)

Other comprehensive income (loss) components and related taxes were as follows:

	2003			2002			2001
Unrealized holding gains and losses on available for sale securities	$	(259	)	$	3,853		$	1,979
Less reclassification adjustments for gains and losses later recognized in income		270			(7	)		276
Net unrealized gains and losses		(529	)		3,860			1,703
Tax effect		(180	)		1,311			579
Other comprehensive income (loss)	$	(349	)	$	2,549		$	1,124

21. QUARTERLY FINANCIAL DATA (UNAUDITED)

The unaudited quarterly results of operations for the years ended December 2003 and 2002 are as follows (in thousands, except per share data):

	Quarters Ended
	2003								2002
	March 31		June 30		Sept. 30		Dec. 31		March 31		June 30		Sept. 30		Dec. 31
Total interest income	$	9,591	$	9,514	$	9,296	$	9,185	$	9,695	$	9,967	$	10,051	$	10,023
Net interest income		6,198		6,119		5,926		5,943		5,699		6,040		6,352		6,444
Provision for loan losses		540		540		200		255		360		360		540		540
Non-interest income		1,599		1,809		1,895		1,833		1,436		1,559		1,524		1,519
Non-interest expense		4,555		4,373		4,514		4,483		4,277		4,300		4,364		4,366
Net income		2,009		2,284		2,380		2,384		1,858		2,165		2,288		2,355
Net income per share, basic		0.55		0.62		0.65		0.65		0.51		0.60		0.63		0.65
Net income per share, diluted		0.55		0.62		0.65		0.65		0.51		0.59		0.63		0.64

page 24 County National Bank Financial Corporation Annual Report 2003

Report of Independent Auditors

[GRAPHIC]

Board of Directors and Shareholders

CNB Financial Corporation

Clearfield, PA

We have audited the accompanying consolidated statement of condition of CNB Financial Corporation as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CNB Financial Corporation as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

/s/    Crowe Chizek and Company LLC        

Crowe Chizek and Company LLC

Cleveland, Ohio

January 14, 2004

Hometown Banking. Hometown People. page 25

Selected Financial Data

	Year Ended December 31 2003
(dollars in thousands, except per share data)
Interest Income
Loans including fees	$	30,328
Deposits with banks		44
Federal funds sold		180
Investment securities:
U.S. treasury securities		311
Securities of U.S. government agencies and corporations		2,081
Obligations of states and political subdivisions		2,259
Other securities		2,383
Total interest and dividend income		37,586
Interest expense
Deposits		10,882
Other borrowings		2,518
Total interest expense		13,400
Net interest income		24,186
Provision for loan losses		1,535
Net interest income after provision for loan losses		22,651
Non-interest income		7,136
Non-interest expenses		17,925
Income before taxes		11,862
Applicable income taxes		2,805
Net income	$	9,057
Per share data
Basic	$	2.48
Fully diluted	$	2.46
Dividends declared	$	1.18
Book value per share at year end	$	18.18
At end of period
Total assets	$	701,752
Securities		175,903
Loans, net of unearned discount		458,249
Allowance for loan losses		5,764
Deposits		575,438
Shareholders’ equity		66,447
Key ratios
Return on average assets		1.31	%
Return on average equity		14.79	%
Loan to deposit ratio		78.63	%
Dividend payout ratio		47.86	%
Average equity to average assets ratio		8.87	%

page 26 County National Bank Financial Corporation Annual Report 2003.

Five Year Comparison

2002		2001			2000			1999
	$ 30,294	$	31,323		$	32,075		$	27,990
	84		169			137			60
	267		434			67			386
	528		1,113			1,378			989
	3,140		2,862			2,706			2,383
	2,136		1,526			1,813			1,888
	3,287		3,382			2,470			1,557
	39,736		40,809			40,646			35,253
	12,908		17,971			18,660			15,579
	2,293		1,176			1,174			981
	15,201		19,147			19,834			16,560
	24,535		21,662			20,812			18,693
	1,800		1,080			807			643
	22,735		20,582			20,005			18,050
	6,038		5,598			4,481			3,675
	17,307		17,374			17,249			15,661
	11,466		8,806			7,237			6,064
	2,800		2,296			1,804			1,460
	$ 8,666	$	6,510		$	5,433		$	4,604
$	2.38	$	1.48		$	1.26		$	1.37
$	2.38	$	1.48		$	1.25		$	1.37
$	1.18	$	0.84		$	0.80		$	0.72
$	17.01	$	13.96		$	13.00		$	13.41
$	668,518	$	592,794		$	555,365		$	561,162
	185,025		152,757			136,250			143,563
	420,364		386,173			366,156			362,764
	5,036		4,095			3,879			3,890
	545,137		506,640			485,217			500,751
	62,033		54,894			51,203			47,643
	1.35%		1.11	%		0.97	%		0.91	%
	14.83%		12.15	%		10.80	%		9.50	%
	76.19%		75.41	%		74.66	%		71.67	%
	49.58%		52.38	%		56.69	%		62.92	%
	9.07%		9.17	%		9.01	%		9.59	%

Hometown Banking. Hometown People. page 27

Statistical Information

Quarterly Share Data

The following table sets forth, for the periods indicated, the quarterly high and low bid price of the Corporation’s common stock as reported through the National Quotation Bureau and actual cash dividends paid per share. The stock is traded on the NASDAQ Stock Market under the symbol, CCNE. As of December 31, 2003, the approximate number of shareholders of record of the Corporation’s common stock was 2,300.

Price Range of Common Stock									Cash Dividends Paid
	2003				2002
	High		Low		High		Low			2003		2002
First Quarter	$	46.19	$	31.90	$	26.00	$	21.52	First Quarter	$	0.28	$	0.25
Second Quarter		46.73		40.75		26.20		23.00	Second Quarter		0.28		0.25
Third Quarter		48.35		41.82		25.65		23.25	Third Quarter		0.30		0.26
Fourth Quarter		47.50		39.00		34.00		24.50	Fourth Quarter		0.32		0.42
										$	1.18	$	1.18

Trust and Asset Management Division Funds under Management (Market Value)

($’s in thousands)	2003		2002
Personal Trusts, Estates and Agency Accounts	$	188,731	$	171,739
Corporate Accounts		11,754		6,980
Total	$	200,485	$	178,719

page 28 County National Bank Financial Corporation Annual Report 2003

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

GENERAL

The following discussion and analysis of the consolidated financial statements of CNB Financial Corporation (the “Corporation”) is presented to provide insight into management’s assessment of financial results. The Corporation’s 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 Cambria, Clearfield, 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 financial condition and results of operations are not intended to be indicative of future performance. The Corporation’s subsidiary, CNB Investment Corporation, is incorporated in Delaware. CNB Investment Corporation maintains investments in debt and equity securities. County Reinsurance Company, a subsidiary, is a Corporation of Arizona. County Reinsurance Company provides credit life and disability for customers of County National Bank. Finally, CNB Insurance Agency, incorporated in Pennsylvania, provides for the sale of nonproprietary annuities and other insurance products. Management’s discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes.

Risk identification and management are essential elements for the successful management of the Corporation. In the normal course of business, the Corporation is subject to various types of risk, including interest rate, credit, and liquidity risk. These risks are controlled through policies and procedures established throughout the Corporation.

Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the direction and frequency of changes in interest rates. Interest rate risk results from various repricing frequencies and the maturity structure of the financial instruments owned by the Corporation. The Corporation uses its asset/liability management policy and systems to control, monitor and manage interest rate risk.

Credit risk represents the possibility that a customer may not perform in accordance to contractual terms. Credit risk results from loans with customers and the purchase of securities. The Corporation’s primary credit risk is in the loan portfolio. The Corporation manages credit risk by following an established credit policy and through a disciplined evaluation of the adequacy of the allowance for loan losses. Also, the investment policy limits the amount of credit risk that may be taken in the securities portfolio.

Liquidity risk represents the inability to generate or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers and obligations to depositors. The Corporation has established guidelines within its asset liability management policy to manage liquidity risk. These guidelines include contingent funding alternatives.

FINANCIAL CONDITION

The following table presents ending balances ($’s in millions), growth (reduction) and the percentage change during the past two years:

	2003 Balance		Increase (Decrease)			% Change		2002 Balance		Increase (Decrease)		% Change	2001 Balance
Total assets	$	701.8	$	32.9		4.9		$	668.8	$	75.7	12.8	$	592.8
Total loans, net		452.5		37.2		9.0			415.3		33.3	8.7		382.1
Total securities		175.9		(9.1	)	(4.9	)		185.0		32.2	21.1		152.8
Total deposits		575.4		30.3		5.6			545.1		38.5	7.6		506.6
Total shareholders’ equity		66.4		4.4		7.1			62.0		7.1	13.0		54.9

The above table is referenced for the discussion in this section of the report.

OVERVIEW OF BALANCE SHEET

The increase in assets during 2003 was primarily the result of continued growth in the loan portfolio. This growth occurred in the commercial loan area. The specific effects to each area are described in the following sections.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents totaled $21.0 million at December 31, 2003 compared to $22.5 million on December 31, 2002. The cash and equivalents has various fluctuations based on timing during the month. The year end balance is considered reasonable to support the expected funding needs in the short term.

Hometown Banking. Hometown People. page 29

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

We believe the liquidity needs of the Corporation are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources, Federal Home Loan Bank financing, and the portion of the securities and loan portfolios that matures 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 decreased 4.9% since December 31, 2002. A large part of the decrease resulted from maturities of corporate bonds and principal payments from mortgage backed securities. These proceeds were not reinvested in the securities portfolio as they were needed to fund higher yielding loans. As previously mentioned, securities are considered as part of the liquidity planning for any funding needs. The Corporation generally buys into the market over time and does not attempt to “time” its transactions. In doing this, the highs and lows of the market are averaged into the portfolio attempting to minimize the overall effect of different rate environments.

The portfolio mix stayed fairly consistent to the prior year with the exception of the corporate notes and bonds discussed above.

We monitor 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 and analysis of the securities portfolio, we maintain a sufficient level of liquidity to satisfy depositor requirements and various credit needs of our customers.

LOANS

The Corporation’s loan volume was strong throughout 2003. Our lending is focused in the west central Pennsylvania market and consists principally of commercial and retail lending, which includes single family residential mortgages and other consumer loans. A shift in the loan portfolio from retail to commercial has occurred during the last two years. The Bank has focused on commercial business through the addition of several lenders and a credit analysis staff. Retail loan growth has been hampered by the current low interest rate environment and customer preference for fixed-rate loans which we do not believe represent attractive investments, as well as the competitive nature of auto loans.

Contributing to the growth in loans was an increase of $38.7 million in commercial loans and $13.0 million in commercial mortgages. These loans are not concentrated in one area nor were they in a single industry. The loan production office, operating primarily in Blair, Centre, Cambria and surrounding communities, has accounted for $32.7 million of the increase. The remaining increase was from within our market area as we continue to strengthen our niche in the business arena. The increases helped to offset the continued paydown of our leased auto portfolio. Our lease portfolio has declined $7.3 million or 53.8% since December 31, 2002.

LOAN CONCENTRATION

The Corporation monitors loan concentrations by individual industries in order to track potential risk exposures resulting from industry related downturns. At December 31, 2003, no concentration exists within our commercial or real estate loan portfolio as related to a concentration of 10% of the total loans.

LOAN QUALITY

The Corporation has established written lending policies and procedures that require underwriting standards, loan documentation, and credit analysis standards to be met prior to funding a loan. Subsequent to the funding of a loan, ongoing review of credits is required. Credit reviews are performed annually on a minimum of 60% of the commercial loan portfolio by an outsourced loan review partner. See “Allowance for Loan and Lease Losses” for further discussion of credit review procedures.

page 30 County National Bank Financial Corporation Annual Report 2003

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

The following table sets forth information concerning loan delinquency and other non-performing assets ($ in thousands):

at December 31,	2003			2002			2001
Nonperforming assets:
Non-accrual loans	$	1,873		$	1,830		$	1,174
Accrual loans greater than 89 days past due		1,076			1,106			432
Foreclosed assets held for sale		567			497			649
Total nonperforming assets	$	3,516		$	3,433		$	2,255
Total loans, net of unearned income	$	458,249		$	420,364		$	386,173
Nonperforming loans as a percent of loans, net		0.64	%		0.70	%		0.42	%

ALLOWANCE FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses is established by provisions for losses in the loan and lease portfolio. These provisions are charged against current income. Loans deemed not collectible are charged-off against the allowance while any subsequent collections are recorded as recoveries and increase the allowance.

The table below shows activity within the allowance account over the past three years:

Allowance for Loan and Lease Losses

($’s in thousands)	Years Ended December 31,
	2003			2002			2001
Balance at beginning of Period	$	5,036		$	4,095		$	3,879
Charge-offs:
Commercial and financial		19			152			38
Commercial mortgages		174			82			162
Residential mortgages		109			127			87
Installment		511			468			494
Lease receivables		111			235			234
		924			1,064			1,015
Recoveries:
Commercial and financial		1			1			1
Commercial mortgages		2			52			4
Residential mortgages		—			—			8
Installment		80			87			83
Lease receivables		34			65			55
		117			205			151
Net charge-offs:		(807	)		(859	)		(864	)
Provision for loan losses		1,535			1,800			1,080
Balance at end-of-period	$	5,764		$	5,036		$	4,095
Loans, net of unearned	$	458,249		$	420,364		$	386,173
Allowance to net loans		1.26	%		1.20	%		1.06	%

The adequacy of the allowance for loan and lease losses is subject to a formal analysis by the credit administrator of the Bank. As part of the formal analysis, delinquencies and losses are monitored monthly. The loan portfolio is divided into several categories in order to better analyze the entire pool. First is a selection of criticized loans that is given a specific reserve. The remaining loans are pooled, by category, into these segments:

Reviewed

• Commercial and financial

• Commercial mortgages

Hometown Banking. Hometown People. page 31

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Homogeneous

• Residential real estate

• Installment

• Lease receivables

The reviewed loan pools are further segregated into three categories: substandard, doubtful and unclassified. Historical loss factors are calculated for each pool based on the previous eight quarters of experience. The homogeneous pools are evaluated by analyzing the historical loss factors from the most previous quarter end and the two most recent year ends. The historical loss factors for both the reviewed and homogeneous pools are adjusted based on these six qualitative factors:

• Levels of and trends in delinquencies and non-accruals

• Trends in volume and terms of loans

• Effects of any changes in lending policies and procedures

• Experience, ability and depth of management

• National and local economic trends and conditions

• Concentrations of credit

The methodology described above was created using the experience of our credit administrator, guidance from the regulatory agencies, expertise of our loan review partner, and discussions with our peers. The resulting factors are applied to the pool balances in order to estimate the inherent risk of loss within each pool. The results of these procedures are listed in the following chart:

Allocation of the Allowance for Loan and Lease Losses

Balance at end of period	2003		2002
Commercial and industrial	$	2,472	$	1,777
Commercial mortgages		1,342		810
Residential mortgages		700		617
Installment		497		490
Lease receivables		79		178
Unallocated		674		1,164
Total	$	5,764	$	5,036

The results for the previous two years indicate higher allocations required for specific pools. This result is based on two main factors. First, the growth of our commercial loan and commercial mortgage portfolios require larger dollars to cover the associated credit risks. Secondly, economic factors both in our market area and nationwide have lead to trends of increased charge-offs in recent years.

With the growth of our commercial portfolios along with the unfavorable economic conditions, the Bank began to increase the allocation to loan loss reserve. This increase occurred during the third quarter of 2002 and continued thru the second quarter of 2003, at which time the Corporation determined that the loss history was not unfavorable and deemed that the coverage level was adequate. Management feels that the allowance provides the Corporation with adequate coverage for the credit risk associated with the increase in its commercial portfolios.

The Bank’s experience in net charge-offs for 2003 when compared to 2002 and 2001 was relatively unchanged in total dollars. However, as a percentage of outstanding loans, there has been a reduction in charge-offs with 2003 at 0.18% compared to 0.20% in 2002 and 0.22% in 2001. The allowance for loan and lease losses is deemed to be adequate to absorb probable incurred losses in the portfolio at December 31, 2003.

BANK OWNED LIFE INSURANCE

The Corporation purchased Bank Owned Life Insurance (BOLI) during 2002 of $6.0 million to assist in offsetting increased benefit costs. In 2003, another $6.0 million was purchased for the same purpose. Benefit costs increased 24.9% during the year of which BOLI income covered 95% of these costs before tax. The policies are covering the executive officers and a select group of officers with the Bank being named as the beneficiary.

page 32 County National Bank Financial Corporation Annual Report 2003

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

FUNDING SOURCES

The Corporation considers deposits, short-term borrowings, and term debt when evaluating funding sources. Traditional deposits continue to be the most significant source of funds. In addition, term borrowings from FHLB are used to meet short-term funding needs not met by deposit growth. Management plans to maintain access to short-term and long-term FHLB borrowings as an additional funding source.

The Corporation experienced an increase of 5.6% in deposits during 2003. Per the table below, growth was in the certificate of deposit accounts. With lower interest rates, customers are searching for insured deposits paying a reasonable rate of interest. A successful offer during the year was a CD allowing no penalty withdrawals and add-ons to principal during the period of the CD. This allows our customers flexibility in their investments at a competitive price for the Bank. One potential risk for the Bank is that these accounts can reprice immediately if customers so choose. However, the history of these accounts have shown minimal activity as to withdrawals in the portfolio. The following table reflects the Corporation’s deposits by category (in thousands):

	2003		2002		2001
Checking, Non-Interest Bearing	$	63,297	$	56,010	$	60,241
Checking, Interest Bearing		128,909		128,309		132,177
Savings Accounts		76,472		75,372		79,301
Certificates of Deposit		306,760		285,446		234,921
	$	575,438	$	545,137	$	506,640

SHAREHOLDERS’ EQUITY

The Corporation’s capital provided the strong base for our profitable growth. Total shareholders’ equity increased 7.1% in 2003. The increase was the result of an increase of retained earnings.

The Corporation has complied with the standards of capital adequacy mandated by the banking industry. 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 either 0% (lowest risk assets), 20%, 50%, or 100% (highest risk assets), is assigned to each asset on the balance sheet. The total risk-based capital ratio of 13.08% as of December 31, 2003 is well above the minimum standard of 8%. The Tier 1 capital ratio of 11.96% also is above the regulatory minimum of 4%. The leverage ratio, 8.93%, was also above the minimum standard of 4%. The Corporation is deemed to be well capitalized under regulatory industry standards as the noted ratios are above the regulatory requirements of 10%, 6% and 5%, respectively. The ratios provide quantitative data demonstrating the strength and future opportunities for use of the Corporation‘s capital base. An evaluation of risk-based capital ratios and the capital position of the Corporation is a part of its strategic decision making process.

LIQUIDITY

Liquidity measures an organizations’ ability to meet cash obligations as they come due. The Consolidated Statements of Cash Flows presented on page 7 of the accompanying financial statements provide analysis of the Corporation’s cash and cash equivalents and the sources and uses of cash. Additionally, the portion of the loan portfolio that matures within one year and maturities within one year in the investment portfolio are considered part of the liquid assets. Liquidity is monitored by the ALCO which establishes and monitors ranges of acceptable liquidity. Also, the Bank is a member of FHLB. This relationship provides the Bank with a borrowing line of $170 million with only $40 million outstanding at year end 2003. Management feels the Corporation’s current liquidity position is acceptable.

YEAR ENDED DECEMBER 31, 2003

OVERVIEW OF THE INCOME STATEMENT

In 2003, net income was $9,057,000 an increase of 4.5% compared to 2002 net income of $8,666,000. The increase in earnings is the result of enhanced noninterest income, which increased $1,098,000 over 2002.

INTEREST INCOME AND EXPENSE

Net interest income totaled $24,186,000 for 2003, a decrease of (1.4)% compared to 2002. The decline in the net interest income stems primarily from a reduced tax equivalent net interest margin which was 4.04% in 2003 compared to 4.29% in 2002.

Hometown Banking. Hometown People. page 33

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Total interest income for 2003 decreased by $2,150,000 or (5.4)% while interest expense decreased by $1,801,000 or (11.8)% when compared to 2002. The main cause of the decreased net interest margin is the more significant drop in the yield on earning assets. Our cost of funds are virtually as low as possible under the current rate environment while assets continued to price downward.

The Corporation recorded a provision for loan and lease losses of $1,535,000 for 2003 compared to $1,800,000 for 2002. The decrease in provision is a result of the relatively low level of charge-offs that the Bank has experienced over the past 3 years. The provision has given the Bank a 1.26% coverage of loans compared to 1.20% in 2002.

NON-INTEREST INCOME

Non-interest income increased 18.2% over 2003 providing the Corporation with its growth in earnings for the year. All areas had increases. The gain on sale of loans increased 97.6% or $241,000. This was driven by refinancings of residential mortgages to take advantage of lower interest rates. Also, the Corporation began selling fixed annuities in 2003 and earned $259,000. Finally, security gains increased $277,000 over 2002. The gains are comparable to gains taken in 2001. Two sales were responsible for the majority of the gains. First, a corporate bond that had suffered a downgraded rating was sold at a profit of $151,000. Second, several equity securities were sold to take advantage of some high value positions.

NON-INTEREST EXPENSE

The costs associated with operating the Corporation increased by 3.6% to $17,925,000 during 2003 compared to 2002. These costs include but are not limited to salaries, benefits, supplies, data processing expenses, insurance, occupancy, and amortization expenses. The primary factor in the increase is the cost of employee benefits. These costs increased $513,000 or 24.9% over 2002. A new supplemental retirement plan was established in 2003 to provide retirement benefits to key employees at an increase cost of $429,000. This cost was offset by income from an investment utilized to fund increasing benefit costs (see Bank Owned Life Insurance). This investment earned the Corporation $488,000 of tax free earnings.

YEAR ENDED DECEMBER 31, 2002

OVERVIEW OF THE INCOME STATEMENT

In 2002, net income was $8,666,000 an increase of 33.1% compared to 2001 net income of $6,510,000. The increase in earnings is the result of enhanced net interest income from the utilization of increased earning assets and an increased net interest margin as well as a recent accounting rule change regarding the expensing of goodwill from branch purchases. The net interest income increased $2.9 million or 13% over 2001. The Corporation’s net interest margin increased in 2002 which, coupled with a higher level of average earning assets, resulted in increased net interest income.

INTEREST INCOME AND EXPENSE

Net interest income totaled $24,535,000 for 2002, an increase of 13.3% over 2001. Continued growth in average earning assets has been the primary factor in this increase along with an increased net interest margin. Total interest income for 2002 decreased by $1,073,000 or (2.6)% while interest expense decreased by $3,946,000 or (20.6)% when compared to 2001. The Corporation’s tax equivalent net interest margin in 2002 was 4.29%, up 11 basis points from 4.18% in 2001. The main cause of the increased net interest margin is the reduction in cost of funds. Cost of funds in 2002 declined to 2.91% from 4.10% in 2001 or a 29% reduction. This reduction was aided by an overall decline in interest rates as well as management’s efforts in deposit pricing over the past three years.

The Corporation recorded a provision for loan and lease losses of $1,800,000 for 2002 compared to $1,080,000 for 2001. The increase in provision is a result of a change in the volume of the commercial loan portfolios as discussed in the Allocation of the Allowance for Loan and Lease Losses section.

NON-INTEREST INCOME

Non-interest income increased $440,000 or 7.9% in 2002 compared to 2001. The service charges on deposit accounts is the main source of the increase. The change for 2002 was an increase of $460,000 or 15.9%. This area continues to show increases resulting from an increased number of accounts and an overdraft payment program which allows customers to manage their financing

page 34 County National Bank Financial Corporation Annual Report 2003

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

in a more efficient manner. In addition, the Corporation’s net gain on sale of loans increased $202,000 or 449% over 2001. This increase was caused by an above average wave of refinances caused by the lower interest rates in 2002.

The Corporation owns equity securities of various entities that are carried at their current fair market value. During 2002, the losses realized from these securities totalled $(7,000) compared to a $276,000 gain in 2001. It is intended that sales will be realized on this portfolio from time to time during the year as each investment and the Corporation’s liquidity position is analyzed.

NON-INTEREST EXPENSE

The costs associated with operating the Corporation declined by 0.4% to $17,307,000 during 2002 compared to 2001. These costs include but are not limited to salaries, benefits, supplies, data processing expenses, insurance, occupancy, and amortization expenses. The primary factor in the decrease is the discontinuance of amortization expense associated with goodwill. This previously discussed accounting rule change saved the Corporation $1,438,000 in amortization expense in 2002. Under this rule, the goodwill is tested for impairment. The testing was performed as of implementation of the accounting rules, showing that there was no impairment of the goodwill and thus no write down occurred during 2002.

The reduction of amortization expense was offset by increases in salaries, data processing and other expenses. Salaries increased $519,000 or 8.4% due to the opening of the loan production office, increased staff in the credit administration area and the normal increases caused by individual increases in salaries. Data processing increased due to the implementation of a new customer platform system that automates customer account opening and loan documentation. This system allows the Bank to serve customers more efficiently and automates the opening of accounts on the accounting system.

The Bank signed an agreement to build a facility in Bradford, PA. This location will replace the Washington Street location in Bradford. The estimated total cost of this project is $700,000. The project is expected to be completed in late summer 2003 with minimal effect on annual operating expenses.

RETURN ON EQUITY

The return on average shareholder’s equity (“ROE”) for 2003 was 14.79% compared to 14.83% and 12.15% for 2002 and 2001 respectively. The decrease in 2003 can be attributed primarily to the Corporation’s growth in equity year over year.

RETURN ON ASSETS

The Corporation’s return on average assets (“ROA”) was 1.31% in 2003 down from 1.35% in 2002 and 1.11% recorded in 2001. Decreased ROA can be attributed to the growth in assets outpacing the growth in earnings.

FEDERAL INCOME TAX EXPENSE

Federal income taxes increased to $2,805,000 in 2003 compared to $2,800,000 in 2002. The effective tax rates were 23.6%, 24.4% and 26.1% for 2003, 2002 and 2001, respectively.

MARKET RISK MANAGEMENT

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. As a financial institution, the Corporation is primarily sensitive to the interest rate risk component. Changes in interest rates will affect the levels of income and expense recorded on a large portion of the Bank’s assets and liabilities. Additionally, such fluctuations in interest rates will impact the market value of all interest sensitive assets. The Asset/Liability Committee (ALCO) is responsible for reviewing the interest rate sensitivity position and establishing policies to control exposure to interest rate fluctuations. The primary goal established by this policy is to increase total income within acceptable risk limits.

The Corporation monitors interest rate risk through the use of two models: earnings simulation and static gap. Each model standing alone has limitations, however taken together they represent a reasonable view of the Corporation’s interest rate risk position.

Hometown Banking. Hometown People. page 35

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

STATIC GAP:Gap analysis is intended to provide an approximation of projected repricing of assets and liabilities at a point in time on the basis of stated maturities, prepayments, and scheduled interest rate adjustments within selected time intervals. A gap is defined as the difference between the principal amount of assets and liabilities which reprice within those time intervals. The cumulative one year gap at December 31, 2003 was 10.78% of total earning assets compared to policy guidelines of plus or minus 15.0%. The ratio was 11.85% at December 31, 2002.

Fixed rate securities, loans and CDs are included in the gap repricing based on time remaining until maturity. Mortgage prepayments are included in the time frame in which they are expected to be received.

Certain shortcomings are inherent in the method of analysis presented in Static Gap. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may not react correspondingly to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate with changes in market interest rates, while interest rates on other types of assets may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate loans, have features, like annual and lifetime rate caps, which restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate from those assumed in the table. Finally, the ability of certain borrowers to make scheduled payments on their adjustable-rate loans may decrease in the event of an interest rate increase.

EARNINGS SIMULATION:This model forecasts the projected change in net income resulting from an increase or decrease in the level of interest rates. The model assumes a one time shock of plus or minus 200 basis points or 2%.

The model makes various assumptions about cash flows and reinvestments of these cash flows in the different rate environments. Generally, repayments, maturities and calls are assumed to be reinvested in like instruments and no significant change in the balance sheet mix is assumed. Actual results could differ significantly from these estimates which would produce significant differences in the calculated projected change in income. The limits stated above do not necessarily represent measures that would be taken by management in order to stabilize income results. The instruments on the balance sheet do react at different speeds to various changes in interest rates as discussed under Static Gap. In addition, there are strategies available to management that minimize the decline in income caused by a rapid rise in interest rates.

The following table below summarizes the information from the interest rate risk measures reflecting rate sensitive assets to rate sensitive liabilities at December 31, 2003 and 2002:

	2003		2002
Static 1-Yr. Cumulative Gap	10.78	%	11.85	%
Earnings Simulation
- 200 bps vs. Stable Rate	(7.35	)%	(2.24	%)
+200 bps vs. Stable Rate	(5.62	)%	(6.08	%)

The interest rate sensitivity position at December 31, 2003 was asset sensitive in the short-term. Management measures the potential impact of significant changes in interest rates on both earnings and equity. By the use of computer generated models, the potential impact of these changes has been determined to be acceptable with modest affects on net income and equity given an interest rate shock of an increase or decrease in rates of 2.0%. We continue to monitor the interest rate sensitivity through the ALCO and use the data to make strategic decisions.

FUTURE OUTLOOK

Management’s focus for 2004 is to increase our consumer loan portfolio. This will enable us to grow our net interest margin and create higher returns for our shareholders through increased profitability. A couple of new home equity products have been scheduled for sale in the first quarter of 2004. These products have been developed to fill needs that our customers have been asking for. The Corporation began offering alternative investments in the form of annuities in 2003. 2004 will be the first full year of sales. Expectations for this product are about 4% of non-interest income with further growth in years to follow. The Corporation is looking

page 36 County National Bank Financial Corporation Annual Report 2003

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

in to furthering its insurance offerings in the future. Management continues to be encouraged by the growth in markets served by the Bank. In addition to deposits, the traditional funding source for the Corporation, we will continue to manage potential earning enhancement opportunities using other borrowings with the Federal Home Loan Bank of Pittsburgh. There are certain interest rate environments that allow for pricing opportunities from such borrowings.

Loan growth was strong during 2003. A concerted effort to manage our pricing based on credit risk has resulted in loan yields that are in the top 75% of our peer group. Management believes that the rate of loan growth will be strong again in 2004.

Enhancing non-interest income and controlling 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 taxable net interest income and non-interest income (net of provision for ALLL and non-recurring income). For the year December 31, 2003, the efficiency ratio was 52.9% compared to 51.9% for 2002 and 54.6% for 2001. Mortgage refinancings are expected to slow dramatically in 2004. Income for the upcoming year is budgeted to be down 75% from 2003, having a negative impact of non-interest income.

The interest rate environment will continue to play an important role in the future earnings of the Corporation. The net interest margin in 2003 declined compared to 2002 as a result of a drop in yield on earning assets. Management will closely monitor the net interest margin in 2004 as much of the earnings of the Corporation continue to be derived from interest income. To assist the net interest margin, the previously mentioned consumer loan focus should provide higher yields overall. Funding for expected loan growth may come from the investment portfolio which again will shift assets to a higher yielding product.

Management concentrates on return on average equity and earnings per share evaluations, plus other methods to measure and direct the performance of the Corporation. While past results are not an indication of future earnings, we feel the Corporation is positioned to enhance performance of normal operations through 2004.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The Corporation has various financial obligations, including contractual obligations and commitments, that may require future cash payments.

Contractual Obligations: The following table presents, as of December 31, 2003, significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements.

	Payments Due In
(In thousands)	Note Reference	One Year or Less		One to Three Years		Three to Five Years		Over Five Years		Total
Deposits without a stated maturity		$	268,678	$	—	$	—	$	—	$	268,678
Certificates of deposits	10		105,102		147,634		48,155		5,870		306,671
Borrowed funds	11		1,313		—		—		—		1,313
Long-term debt	11		—		—		—		40,000		40,000
Operating fees	7		152		300		294		1,469		2,215
Subordinated debentures			—		—		—		10,310		10,310

The Corporation’s operating lease obligations represent short and long-term lease and rental payments for facilities.

The Corporation also has obligations under its postretirement plan as described in Note 12 to the consolidated financial statements. The postretirement benefit payments represent actuarially determined future benefit payments to eligible plan participants. The Corporation reserves the right to terminate the postretirement benefit plan at any time.

Commitments to extend credit, including loan commitments, standby letters of credit, and commercial letters of credit do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon. Further discussion of these commitments is included in Note 17 to the consolidated financial statements.

Hometown Banking. Hometown People. page 37

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

APPLICATIONS OF CRITICAL ACCOUNTING POLICIES

The Corporation’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and follow general practices within the industries in which it operates. Application of these principles requires management to make estimates or judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates or judgments. Certain policies inherently have a greater reliance on the use of estimates, and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates or judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quaoted market prices or are provided by other third party sources, when available. When third-party information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal cash flow modeling techniques.

The most significant accounting policies followed by the Corporation are presented in Note 1 to the consolidated financial statements. These policies, along with the disclosures presented in the other financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for loan losses and the valuation of mortgage servicing assets to be critical accounting policies.

“SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The statements above which are not historical fact are forward looking statements that involve risks and uncertainties, including, but not limited to, the interest rate environment, the effect of federal and state banking and tax regulations, the effect of economic conditions, the impact of competitive products and pricing, and other risks detailed in the Corporation’s Securities and Exchange Commission filings.

page 38 County National Bank Financial Corporation Annual Report 2003

Executive Management and Board of Directors

CORPORATE OFFICERS
William F. Falger
President & Chief Executive Officer
Joseph B. Bower, Jr.
Secretary and Treasurer
EXECUTIVE OFFICERS
William F. Falger	Richard L. Sloppy
President & Chief Executive Officer	Senior Vice President & Senior Loan Officer
Joseph B. Bower, Jr.	Donald E. Shawley
Executive Vice President, Chief Operating Officer & Chief Financial Officer	Senior Vice President & Senior Trust Officer
Mark D. Breakey
Senior Vice President & Credit Risk Manager
BOARD OF DIRECTORS
CNB FINANCIAL CORPORATION AND COUNTY NATIONAL BANK
William R. Owens	William F. Falger	Robert C. Penoyer
Chairman of the Board Retired, Formerly Vice President, Secretary and Treasurer, CNB Financial Corporation and President & Chief Executive Officer, County National Bank	President and Chief Executive Officer, CNB Financial Corporation; President and Chief Executive Officer, County National Bank	Retired, Formerly President, Penoyer Contracting Co., Inc. (Contractor)
Robert E. Brown	James J. Leitzinger	Deborah Dick Pontzer
Vice President, E. M. Brown, Inc. (Coal Producer, Auto Dealer and Concrete Supplier)	Retired, Formerly President, Leitzinger Realty (Real Estate Investments)	Director of Outreach Services, University of Pittsburgh, Bradford Campus
Joseph B. Bower, Jr.	Dennis L. Merrey	Jeffrey S. Powell
(County National Bank only) Secretary and Treasurer, CNB Financial Corporation; Executive Vice President, Chief Operating Officer and Chief Financial Officer, County National Bank	Retired, Formerly President, Clearfield Powdered Metals, Inc. (Manufacturer) James P. Moore Retired, Formerly President & Chief Executive Officer, CNB Financial Corporation and Chairman of the Board, County National Bank	President, J.J. Powell, Inc. (Petroleum Distributor) James B. Ryan Retired, Formerly Vice President of Sales, Marketing, Windfall Products, Inc. (Manufacturer)
		Peter F. Smith
		Attorney at Law
		DIRECTOR EMERITUS
		L. E. Soult, Jr.

Hometown Banking. Hometown People. page 39

Officers

ADMINISTRATIVE
Mary Ann Conaway	Edward H. Proud	Leanne D. Kassab	Richard L. Greslick, Jr.
Vice President, Human	Vice President, Information	Marketing Officer	Banking Officer & Controller
Resources	Systems
		Susan B. Kurtz	Brenda L. Terry
Helen G. Kolar	Thomas J. Ammerman, Jr.	Customer Service Officer	Banking Officer
Vice President, Marketing & Sales	Bank Security Officer
		Dennis J. Sloppy	Susan M. Warrick
	Donna J. Collins	Information Systems Officer	Operations Officer
Rachel E. Larson	Compliance Officer
Vice President, Operations
BRANCH DIVISION
Michael C. Sutika	Mary A. Baker	Kathy J. McKinney	Susan J. Shimmel
Vice President, Retail Banking, Branch Administration	Assistant Vice President, Northern Cambria Office	Community Office Manager, Houtzdale and Madera Offices	Community Office Manager, Old Town Road Office, Clearfield
Ruth Anne Ryan-Catalano	Deborah M. Young	Francine M. Papa
Assistant Vice President, Regional Branch Administration, Insurance & Annuities	Assistant Vice President, Washington Street and BiLo Offices, St. Marys	Community Office Manager, Ridgway Office	Steven C. Tunall Community Office Manager, Kane Office
		Larry A. Putt	Gregory R. Williams
Vickie L. Pingie		Community Office Manager,	Banking Officer, Community
Assistant Vice President, Regional Branch Administration,	Denise J. Greene Community Office Manager, DuBois Office	Industrial Park Road, Clearfield	Banking, Clearfield
Bradford Main Street Office		Mary Ann Roney
		Banking Officer, Bradford
Jeffrey A. Herr	Paul A. McDermott	Douglas M. Shaffer
Vice President, Presqueisle Street Office, Philipsburg	Banking Officer, Community Banking, Clearfield	Community Office Manager, Punxsutawney Office
LENDING DIVISION
Robert S. Berezansky	William J. Mills	Duane P. Shifter	David W. Ogden
Vice President, Corporate Lending	Vice President, Commercial Banking, St. Marys	Vice President, Downtown Office, Clearfield	Assistant Vice President, Credit Administration
James M. Baker	Charles C. Shrader	Christopher L. Stott	Rodger L. Read
Vice President, Commercial Banking, DuBois	Vice President, Commercial Banking, Warren	Vice President, Mortgage Lending	Assistant Vice President, Dealer Center
Robin L. Hay	Joseph H. Yaros	Kristen L. Howard	Richard L. Bannon
Vice President, Commercial Banking	Vice President, Commercial Banking Bradford	Assistant Vice President, Commercial Banking, Warren	Credit Administration Officer
			Christopher N. Norris
			Collection Officer
			Tammy C. Wagner
			Staff Commercial Lender
TRUST & ASSET MANAGEMENT
Donald E. Shawley	Calvin R. Thomas, Jr.	Jane M. Gnan
Senior Vice President & Senior Trust Officer	Vice President, Trust Officer	Assistant Trust Officer
	Andrew J. Woolridge	Glenn R. Pentz
	Investment Officer	Trust Officer

page 40 County National Bank Financial Corporation Annual Report 2003

Shareholder Information

ANNUAL MEETING

The Annual Meeting of the Shareholders of CNB Financial Corporation will be held Tuesday, April 20, 2004 at 2:00 p.m. at the Corporation’s Headquarters in Clearfield, PA.

CORPORATE ADDRESS

CNB Financial Corporation

1 S. Second Street

P.O. Box 42

Clearfield, PA 16830

(814) 765-9621

STOCK TRANSFER AGENT & REGISTRAR

County National Bank

1 S. Second Street

P.O. Box 42

Clearfield, PA 16830

(814) 765-9621

FORM 10-K

Shareholders may obtain a copy of the Annual Report to the Securities and Exchange Commission on Form 10-K by writing to:

CNB Financial Corporation

1 S. Second Street

P.O. Box 42

Clearfield, PA 16830

ATTN: Shareholder Relations

QUARTERLY SHARE DATA

For information regarding the Corporation’s quarterly share data, please refer to page 28 in the 2003 Annual Report Financial Section.

MARKET MAKERS

The following firms have chosen to make a market in the stock of the Corporation. Inquiries concerning their services should be directed to:

Ferris Baker Watts, Inc.

6 Bird Cage Walk

Hollidaysburg, PA 16648

(800) 343-5149

E. E. Powell & Company, Inc.

1100 Gulf Tower

Pittsburgh, PA 15219

(412) 391-4594

Parker Hunter, Inc.

484 Jeffers Street

P.O. Box 1105

DuBois, PA 15801

(800) 238-0067

F. J. Morrissey & Co.

1700 Market Street, Suite 1420

Philadelphia, PA 19103

(800) 842-8928

Ryan, Beck & Co.

401 City Avenue Suite 902

Bala Cynwyd, PA 19004-1122

(800) 223-8969

CORPORATE PROFILE

County National Bank, a subsidiary of CNB Financial Corporation, is a leader in providing integrated financial solutions, which creates value for both consumers and businesses. These solutions consist of a family of products and services developed to support the evolving needs of our customers from traditional to innovative. For over 138 years, we have prided ourselves in building long-term customer relationships by being reliable and competitively priced.

Being a regional independent community bank in North Central Pennsylvania, we have approximately 240 employees who make our customer service more responsive and reliable. We strive to be more customer-driven than our competitors.

Hometown banking has always been our philosophy. Hometown people who are equipped to make quick decisions while, at the same time, make our customers feel ‘welcome’ is where it all begins. With another component of our hometown philosophy, community involvement, the Bank has played an integral role in all of our communities by contributing financial, in-kind and volunteer assistance to nonprofit organizations that enhance the quality of life and promote public interest.

In addition, CNB continues to rank technology as vital in executing our personal, quality service strategy by maintaining the latest data processing and information systems. We offer a variety of delivery channels, which includes 20 full-service offices, 16 ATMs, 2 loan production offices, telephone banking (1-888-641-6554), Internet banking (www.bankcnb.com) and a centralized customer service center (1-800-492-3221).

The common stock of the Corporation trades over-the-counter on the NASDAQ under the symbol CCNE.

[GRAPHIC]

Hometown Banking. Hometown People.

[GRAPHIC]

1 South Second Street

P.O. Box 42

Clearfield, PA 16830

800-492-3221

www.bankcnb.com