CNB Financial (CCNE) 10-Q 2005 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10 - Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission File Number 0-13396

CNB FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania	25-1450605
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

County National Bank

1 South Second Street

P.O. Box 42

Clearfield, Pennsylvania 16830

(Address of principal executive offices)

Registrant’s telephone number, including area code, (814) 765-9621

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes  x    No  ¨

The number of shares outstanding of the issuer’s common stock as of August 4, 2005

COMMON STOCK: $1.00 PAR VALUE, 9,089,054 SHARES

1

INDEX

PART I.

FINANCIAL INFORMATION

Sequential Page Number
ITEM 1. – Financial Statements (unaudited)
PAGE 3.	Consolidated Balance Sheets – June 30, 2005 and December 31, 2004
PAGE 4.	Consolidated Statements of Income - Quarters ending June 30, 2005 and 2004
PAGE 5.	Consolidated Statements of Income – Six months ending June 30, 2005 and 2004
PAGE 6.	Consolidated Statements of Comprehensive Income for the three and six month periods ending June 30, 2005 and 2004
PAGE 7.	Consolidated Statements of Cash Flows – six months ending June 30, 2005 and 2004
PAGE 8.	Notes to Consolidated Financial Statements
ITEM 2 – Management’s Discussion and Analysis
PAGE 14.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3 – Quantitative and Qualitative Disclosures
PAGE 20.	Quantitative and Qualitative Disclosures About Market Risk
ITEM 4 – Controls and Procedures
PAGE 20.	Controls and Procedures
PART II.
OTHER INFORMATION
PAGE 20.	ITEM 1	Legal Proceedings
PAGE 20.	ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds
PAGE 21.	ITEM 3	Defaults Upon Senior Securities
PAGE 21.	ITEM 4	Submission of Matters for Security Holders Vote
PAGE 21.	ITEM 5	Other Information
PAGE 21.	ITEM 6	Exhibits
PAGE 22.	Signatures

2

CONSOLIDATED BALANCE SHEETS

CNB FINANCIAL CORPORATION

(Dollars in thousands)

	(unaudited)
	June 30, 2005			December 31, 2004
ASSETS
Cash and due from banks	$	16,341		$	14,296
Interest bearing deposits with other financial institutions		15,867			15,616
Total cash and cash equivalents		32,208			29,912
Securities available for sale		170,548			164,202
Loans held for sale		2,508			3,499
Loans and leases		500,420			482,048
Less: unearned discount		54			111
Less: allowance for loan losses		5,597			5,585
NET LOANS		494,769			476,352
FHLB, FRB and other bank stock		5,519			4,792
Premises and equipment, net		14,075			13,761
Bank owned life insurance		13,522			13,182
Accrued interest receivable and other assets		7,640			7,655
Mortgage servicing rights		402			411
Goodwill		10,821			10,821
Intangible, net		473			630
TOTAL ASSETS	$	752,485		$	725,217
LIABILITIES
Deposits:
Non-interest bearing deposits	$	71,817		$	71,968
Interest bearing deposits		532,476			524,937
TOTAL DEPOSITS		604,293			596,905
Short-term borrowings		1,534			2,000
Federal Home Loan Bank advances		59,500			40,000
Accrued interest and other liabilities		7,211			7,292
Subordinated debentures		10,310			10,310
TOTAL LIABILITIES		682,848			656,507
SHAREHOLDERS’ EQUITY
Common stock $1.00 par value
Authorized 10,000,000 shares
Issued 9,233,750 shares		9,234			9,234
Additional paid in capital		4,134			4,243
Retained earnings		56,246			54,347
Treasury stock, at cost (128,338 shs for June 2005, and 123,240 shs for December 2004)		(1,801	)		(1,796	)
Accumulated other comprehensive income		1,824			2,682
TOTAL SHAREHOLDERS’ EQUITY		69,637			68,710
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	752,485		$	725,217

3

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

CNB FINANCIAL CORPORATION

(Dollars in thousands, except per share data)

	THREE MONTHS ENDED JUNE 30,
	2005			2004
INTEREST AND DIVIDEND INCOME
Loans including fees	$	8,451		$	7,683
Deposits with other financial institutions		94			18
Securities:
Taxable		1,226			967
Tax-exempt		458			523
Dividends		88			76
TOTAL INTEREST AND DIVIDEND INCOME		10,317			9,267
INTEREST EXPENSE
Deposits		2,965			2,585
Borrowed funds		837			637
TOTAL INTEREST EXPENSE		3,802			3,222
Net interest income		6,515			6,045
Provision for loan losses		172			300
NET INTEREST INCOME AFTER PROVISION		6,343			5,745
OTHER INCOME
Trust & asset management fees		239			218
Service charges on deposit accounts		1,006			947
Other service charges and fees		129			109
Net security gains (losses)		63			(5	)
Loss on other-than-temporarily impaired securities		(240	)		—
Gains on sale of loans		24			34
Bank owned life insurance earnings		159			125
Wealth Management		200			59
Other		150			65
TOTAL OTHER INCOME		1,730			1,552
OTHER EXPENSES
Salaries		1,802			1,644
Employee benefits		716			696
Net occupancy expense of premises		668			633
Amortization of intangibles		127			127
Other		1,600			1,522
TOTAL OTHER EXPENSES		4,913			4,622
Income before income taxes		3,160			2,675
Applicable income taxes		816			660
NET INCOME	$	2,344		$	2,015
EARNINGS PER SHARE, BASED ON WEIGHTED AVERAGE SHARES OUTSTANDING
Net income, basic	$	0.26		$	0.22
Net income, diluted	$	0.26		$	0.22
DIVIDENDS PER SHARE
Cash dividends per share	$	0.14		$	0.13

4

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

CNB FINANCIAL CORPORATION

(Dollars in thousands, except per share data)

	SIX MONTHS ENDED JUNE 30,
	2005			2004
INTEREST AND DIVIDEND INCOME
Loans including fees	$	16,382		$	15,210
Deposits with other financial institutions		243			48
Securities:
Taxable		2,402			2,032
Tax-exempt		926			1,044
Dividends		160			169
TOTAL INTEREST AND DIVIDEND INCOME		20,113			18,503
INTEREST EXPENSE
Deposits		5,836			5,213
Borrowed funds		1,496			1,265
TOTAL INTEREST EXPENSE		7,332			6,478
Net interest income		12,781			12,025
Provision for loan losses		339			600
NET INTEREST INCOME AFTER PROVISION		12,442			11,425
OTHER INCOME
Trust & asset management fees		459			466
Service charges on deposit accounts		1,891			1,797
Other service charges and fees		261			237
Net security gains		63			164
Loss on other-than-temporarily impaired securities		(240	)		—
Gains on sale of loans		58			57
Bank owned life insurance earnings		340			251
Wealth Management		293			96
Other		181			194
TOTAL OTHER INCOME		3,306			3,262
OTHER EXPENSES
Salaries		3,680			3,461
Employee benefits		1,480			1,406
Net occupancy expense of premises		1,370			1,312
Amortization of intangibles		255			256
Other		3,238			3,011
TOTAL OTHER EXPENSES		10,023			9,446
Income before income taxes		5,725			5,241
Applicable income taxes		1,334			1,211
NET INCOME	$	4,391		$	4,030
EARNINGS PER SHARE, BASED ON WEIGHTED AVERAGE SHARES OUTSTANDING
Net income, basic	$	0.48		$	0.44
Net income, diluted	$	0.48		$	0.44
DIVIDENDS PER SHARE
Cash dividends per share	$	0.27		$	0.26

5

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended June 30,					Six Months Ended June 30,
	2005		2004			2005			2004
Net Income	$	2,344	$	2,015		$	4,391		$	4,030
Other comprehensive income, net of tax
Unrealized gains/(losses) on securities:
Unrealized gains/(losses) arising during the period		357		(3,034	)		(973	)		(2,176	)
Reclassification adjustment for accumulated (gains)/losses included in net income, net of tax		115		3			115			(107	)
Other comprehensive income (loss)		472		(3,031	)		(858	)		(2,283	)
Comprehensive income (loss)	$	2,816	$	(1,016	)	$	3,533		$	1,747

6

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	6 Months Ended June 30
	2005			2004
Cash flows from operating activities:
Net Income	$	4,391		$	4,030
Adjustments to reconcile net income to net cash provided by operations:
Provision for loan losses		339			600
Depreciation and amortization		935			868
Amortization and accretion and deferred loan fees		46			29
Deferred Taxes		387			(83	)
Security Gains		(63	)		(164	)
Loss on other-than-temporarily impaired securities		240			—
Gain on sale of loans		(58	)		(57	)
Net gains on dispositions of acquired property		(20	)		(18	)
Proceeds from sale of loans		5,947			4,897
Origination of loans for sale		(4,898	)		(5,779	)
Increase in Bank Owned Life Insurance		(340	)		(250	)
Changes in:
Interest receivable and other assets		(516	)		(1,013	)
Interest payable and other liabilities		(8	)		(1,348	)
Net cash provided by operating activities		6,382			1,712
Cash flows from investing activities:
Proceeds from maturities of:
Securities available for sale		17,521			24,870
Proceeds from sales of securities available for sale		3,048			6,061
Purchase of securities available for sale		(28,520	)		(17,855	)
Loan origination and payments, net		(18,520	)		(19,099	)
Purchase of FHLB, FRB & Other Bank Stock		(727	)		(182	)
Net, purchase of premises and equipment		(994	)		(528	)
Proceeds from the sale of foreclosed assets		290			215
Net cash used in investing activities		(27,902	)		(6,518	)
Cash flows from financing activities:
Net change in:
Checking, money market and savings accounts		10,852			2,581
Certificates of deposit		(3,464	)		(843	)
Treasury stock purchased		(641	)		(278	)
Proceeds from sale of treasury stock		528			484
Cash dividends paid		(2,493	)		(2,381	)
Net advances from long-term borrowings		19,500			—
Net advances from short-term borrowings		(466	)		2,028
Net cash provided by financing activities		23,816			1,591
Net increase (decrease) in cash and cash equivalents		2,296			(3,215	)
Cash and cash equivalents at beginning of year		29,912			20,981
Cash and cash equivalents at end of period	$	32,208		$	17,766
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	7,166		$	6,327
Income Taxes	$	1,400		$	1,600
Supplemental non cash disclosures:
Transfers to other real estate owned	$	12		$	320

7

CNB FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (SEC) and in compliance with accounting principles generally accepted in the United States of America. Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.

In the opinion of Management of the registrant, the accompanying consolidated financial statements for the quarters ended June 30, 2005 and 2004 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations for the period. The financial performance reported for CNB Financial Corporation (the Corporation) for the three and six month periods ended June 30, 2005 is not necessarily indicative of the results to be expected for the full year. This information should be read in conjunction with the Corporation’s Annual Report to shareholders and Form 10-K for the period ended December 31, 2004.

COMMON STOCK PLAN

The Corporation has a common stock plan for key employees and independent directors. The Stock Incentive Plan, which is administered by the Executive Compensation and Personnel Committee, comprised of independent members of the Board of Directors, provides for the issuance of up to 625,000 shares of common stock in the form of nonqualified options. 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. No stock options were granted during the first six months of 2005 or 2004.

As required by SFAS 123, “Accounting for Stock-Based Compensation” as amended by SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” the Corporation provides pro forma net income and pro forma earnings per share disclosures.

The following table illustrates the effects of stock options on pro forma net income and pro forma earnings per share at June 30, 2005 and 2004 (in thousands except per share data):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net income, as reported	$	2,344		$	2,015		$	4,391		$	4,030
Pro forma compensation expense, net of tax		(168	)		(20	)		(191	)		(39	)
Pro forma net income	$	2,176		$	1,995		$	4,200		$	3,991
Earnings per share - basic
As reported	$	0.26		$	0.22		$	0.48		$	0.44
Pro forma	$	0.24			0.22			0.46			0.44
Earnings per share - diluted
As reported	$	0.26		$	0.22		$	0.48		$	0.44
Pro forma		0.24			0.22			0.46		$	0.43

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As reported in a From 8K dated May 16, 2005, the Corporation opted to accelerate the vesting of all unvested options with an exercise price greater than $15.00, the closing price of the Corporations common stock on the NASDAQ on May 10, 2005. As a result of the acceleration, all unvested shares granted in 2003 and 2004 became immediately exercisable resulting in the significant increase in pro forma compensation expense for the three and six month periods ended June 30, 2005 as noted in the preceding table.

EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of shares determined for the basic computation plus the dilutive effect of potential common shares issuable under stock options. For the three and six month periods ended June 30, 2005, 110,500 shares under option were excluded from the diluted earnings per share calculations as they were anti-dilutive. For the three and six month periods ended June 30, 2004, 56,250 shares were anti-dilutive.

The computation of basic and diluted EPS is shown below (in thousands except per share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Net income	$	2,344	$	2,015	$	4,391	$	4,030
Weighted-average common shares outstanding (basic)		9,113		9,174		9,117		9,160
Effect of stock options		47		60		49		64
Weighted-average common shares outstanding (diluted)		9,160		9,234		9,166		9,224
Earnings per share:
Basic	$	0.26	$	0.22	$	0.48	$	0.44
Diluted		0.26		0.22		0.48		0.44

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SECURITIES

Securities at June 30, 2005 and December 31, 2004 (in thousands) are as follows:

	June 30, 2005									December 31, 2004
	Amortized Cost		Unrealized					Fair Value		Amortized Cost		Unrealized					Fair Value
			Gains		Losses							Gains		Losses
Securities available for sale:
U.S. Treasury	$	11,618	$	—	$	(90	)	$	11,528	$	13,096	$	—	$	(85	)	$	13,011
U.S. Government agencies and corporations		30,480		2		(303	)		30,179		30,563		—		(303	)		30,260
Obligations of States and Political Subdivisions		40,325		2,025		—			42,350		41,712		2,567		—			44,279
Mortgage-backed securities		44,203		150		(225	)		44,128		40,489		241		(50	)		40,680
Corporate notes and bonds		33,876		1,052		(292	)		34,636		26,404		1,558		(97	)		27,865
Marketable equity securities		7,242		583		(98	)		7,727		7,811		665		(369	)		8,107
Total Securities available for sale	$	167,744	$	3,812	$	(1,008	)	$	170,548	$	160,075	$	5,031	$	(904	)	$	164,202

At June 30, 2005, 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 June 30, 2005 and December 31, 2004, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

	Less than 12 Months					12 Months or More					Total
June 30, 2005	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Description of Securities
U.S. Treasury	$	3,971	$	(36	)	$	6,970	$	(54	)	$	10,941	$	(90	)
U.S. Gov’t Agencies & Corps		10,338		(132	)		17,840		(171	)		28,178		(303	)
Obligations of States and Political Subdivisions		—		—			—		—			—		—
Mortgage-Backed Sec.		18,842		(138	)		11,649		(87	)		30,491		(225	)
Corporate Notes and Bonds		12,339		(154	)		5,747		(138	)		18,086		(292	)
Marketable Equity Securities		16		(1	)		1,921		(97	)		1,937		(98	)
	$	45,506	$	(461	)	$	44,127	$	(547	)	$	89,633	$	(1,008	)
	Less than 12 Months					12 Months or More					Total
December 31, 2004	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Description of Securities
U.S. Treasury	$	11,023	$	(74	)	$	1,988	$	(11	)	$	13,011	$	(85	)
U.S. Gov’t Agencies & Corps		23,282		(243	)		5,977		(60	)		29,259		(303	)
Mortgage-Backed Sec.		11,429		(42	)		2,544		(8	)		13,973		(50	)
Corporate Notes and Bonds		500		(7	)		3,779		(90	)		4,279		(97	)
Marketable Equity Securities		81		(18	)		1,676		(351	)		1,757		(369	)
	$	46,315	$	(384	)	$	15,964	$	(520	)	$	62,279	$	(904	)

The Corporation evaluates securities for other-than-temporary impairment on a quarterly basis, or more frequently when economic or market conditions warrant such an evaluation. Consideration is given to the length of time and extent to which fair value has been less than cost, the financial condition and near term prospects of the issuer, and the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Corporation may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. The following comments relate to those securities which have been in a continuous unrealized loss position for more than twelve months.

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Included in the $547,000 of unrealized losses at June 30, 2005 on investment securities that have been in a continuous unrealized loss position for 12 months or more are $450,000 of unrealized losses on debt securities. Management does not believe any of the individual unrealized losses on debt securities represents an other-than-temporary impairment since these losses are primarily attributable to changes in interest rates and the Corporation has both the intent and ability to hold the debt securities to maturity.

Unrealized losses on equity securities, which compromise the remainder of the $547,000, were not individually significant and also considered to be temporary in nature.

FEDERAL HOME LOAN BANK (FHLB) BORROWINGS

Borrowings from the FHLB at June 30, 2005 and December 31, 2004 (in thousands) are as follows:

Interest Rate	Maturity	June 30, 2005		December 31, 2004
(a)	11/03/05	$	1,250		—
(b)	05/03/06		1,250		—
(c)	11/03/06		1,750		—
(d)	05/03/07		2,250		—
(e)	05/03/08		4,000		—
(f)	05/03/09		4,500		—
(g)	03/01/10		10,000	$	10,000
(h)	05/03/10		4,500		—
(i)	01/03/11		10,000		10,000
(j)	01/24/12		20,000		20,000
Total FHLB Borrowings		$	59,500	$	40,000

(a), (b), (c), (d), (e), (f), (h) – Items (a) through (f) and (h) are fixed rate borrowings at interest rates of 3.45%, 3.69%, 3.83%, 4.00%, 4.14%, 4.35% and 4.43%, respectively.

(g) FHLB has option to float the interest rate based on the 3 month LIBOR +.16, the interest rate was 6.09% at June 30, 2005.

(i) 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 June 30, 2005.

(j) 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 June 30, 2005.

The terms of the above borrowings are interest only payments with principal due at maturity.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004),Share-Based Payment(FAS No. 123R). FAS No. 123R revised FAS No. 123,Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees, and its related implementation guidance. FAS No. 123R will require compensation costs related to share-based payment transactions to be recognized in the financial statement (with limited exceptions). The amount of compensation cost will be measured based on

11

the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period that an employee provides service in exchange for the award.

In April, the Securities and Exchange Commission adopted a new rule that amends the compliance dates for FAS No. 123R. The Statement requires that compensation cost relating to share-based payment transactions be recognized in financial statements and that this cost be measured based on the fair value of the equity or liability instruments issued. FAS No. 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. The Company will adopt FAS No. 123R on January 1, 2006 and is currently evaluating the impact the adoption of the standard will have on the Company’s results of operations.

In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107 (“SAB No. 107”),Share-Based Payment, providing guidance on option valuation methods, the accounting for income tax effects of share-based payment arrangements upon adoption of FAS No. 123R, and the disclosures in MD&A subsequent to the adoption. The Company will provide SAB No. 107 required disclosures upon adoption of FAS No. 123R on January 1, 2006 and is currently evaluating the impact the adoption of the standard will have on the Company’s financial condition, results of operations, and cash flows.

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CONSOLIDATED YIELD COMPARISONS

CNB Financial Corporation

Average Balances and Net Interest Margin

(Dollars in thousands)

	Six Month Periods Ended
	June 30, 2005							June 30, 2004
	Average Balance			Annual Rate		Interest Inc./Exp.		Average Balance			Annual Rate		Interest Inc./Exp.
Assets
Interest-bearing deposits with banks	$	6,973		3.93	%	$	137	$	2,028		2.47	%	$	25
Federal funds sold and securities purchased under agreements to resell		5,169		4.10	%		106		3,432		1.34	%		23
Investment Securities:
Taxable		125,953		3.81	%		2,402		112,336		3.62	%		2,032
Tax-Exempt (1)		38,702		6.73	%		1,302		42,778		6.98	%		1,492
Equity Investments (1)		12,531		3.11	%		195		13,759		3.17	%		218
Total Investments		189,328		4.38	%		4,142		174,333		4.35	%		3,790
Loans
Commercial (1)		189,370		6.71	%		6,350		178,459		5.97	%		5,331
Mortgage (1)		271,121		6.65	%		9,019		260,706		6.64	%		8,651
Installment		28,261		8.69	%		1,228		30,868		8.60	%		1,327
Leasing		1,490		6.04	%		45		4,612		6.85	%		158
Total loans (2)		490,242		6.79	%		16,642		474,645		6.52	%		15,467
Total earning assets		679,570		6.12	%		20,784		648,978		5.93	%		19,257
Non Interest Bearing Assets
Cash & Due From Banks		16,686					—		14,107					—
Premises & Equipment		14,159					—		12,821					—
Other Assets		38,986					—		39,952					—
Allowance for Possible Loan Losses		(5,589	)				—		(5,891	)				—
Total Non-interest earning assets		64,242		—			—		60,989		—			—
Total Assets	$	743,812				$	20,784	$	709,967				$	19,257
Liabilities and Shareholders’ Equity
Interest-Bearing Deposits
Demand - interest-bearing	$	147,164		0.64	%	$	472	$	127,269		0.28	%	$	178
Savings		73,081		0.60	%		219		77,371		0.62	%		240
Time		311,654		3.30	%		5,145		310,329		3.09	%		4,795
Total interest-bearing deposits		531,899		2.19	%		5,836		514,969		2.02	%		5,213
Short-term borrowings		5,493		1.35	%		37		2,665		0.98	%		13
Long-term borrowings		46,810		4.88	%		1,142		40,000		5.09	%		1,018
Subordinated Debentures		10,000		6.34	%		317		10,000		4.68	%		234
Total interest-bearing liabilities		594,202		2.47	%		7,332		567,634		2.28	%		6,478
Demand - non-interest-bearing		73,162					—		66,306		—			—
Other liabilities		7,043					—		8,674		—			—
Total Liabilities		674,407					7,332		642,614					6,478
Shareholders’ equity		69,405					—		67,353		—			—
Total Liabilities and Shareholders’ Equity	$	743,812					7,332	$	709,967					6,478
Interest income/earning assets				6.12	%		20,784				5.93	%		19,257
Interest expense/interest bearing liabilities				2.47	%		7,332				2.28	%		6,478
Net Interest Spread				3.65	%	$	13,452				3.65	%	$	12,779
Interest Income/Interest Earning Assets				6.12	%	$	20,784				5.93	%	$	19,257
Interest expense/Interest Earning Assets				2.16	%		7,332				2.00	%		6,478
Net Interest Margin				3.96	%	$	13,452				3.94	%	$	12,779

(1) The amounts are reflected on a fully tax equity basis using the federal statutory rate of 35% in 2005 and 2004, adjusted for certain tax preferences.

(2) Average outstanding includes the average balance outstanding of all non-accrual loans. Loans consist of the average of total loans less average unearned income. The amount of loan fees included in the interest income on loans is not material.

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ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FINANCIAL CONDITION

The following discussion and analysis of the consolidated financial statements of the Corporation is presented to provide insight into management’s assessment of financial results. The Corporation’s primary subsidiary County National Bank (the “Bank”) provides financial services to individuals and businesses within the Bank’s market area made up of the west central Pennsylvania counties of Clearfield, Cambria, Centre, Elk, Jefferson, McKean and Warren. County National Bank is a member of the Federal Reserve System and subject to regulation, supervision and examination by the Office of the Comptroller of the Currency (“OCC”).

The market area that County National Bank operates in is rural in nature. The customer makeup consists of small business and individuals. The health of the economy in the region is mixed with unemployment rates running high in most of our market areas except Centre County.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents totaled $32,208,000 at June 30, 2005 compared to $29,912,000 on December 31, 2004. The increase in cash was primarily the result of deposit growth.

Management believes the liquidity needs of the Corporation are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources, and the portion of the investment and loan portfolios that mature within one year. These sources of funds will enable the Corporation to meet cash obligations and off-balance sheet commitments as they come due.

SECURITIES

Securities increased approximately $6,346,000 or 3.9% since December 31, 2004. The increase the result of purchases made in variable rate corporate trust preferred securities to take advantage of the rising interest rate environment. 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 and minimize the overall effect of different rate environments.

Management monitors the earnings performance and the effectiveness of the liquidity of the securities portfolio on a regular basis through Asset / Liability Committee (“ALCO’) meetings. The ALCO also reviews and manages interest rate risk for the Corporation. Through active balance sheet management and analysis of the securities portfolio, the Corporation maintains sufficient liquidity to satisfy depositor requirements and various credit needs of its customers.

LOANS

The Corporation’s lending is focused on the west central Pennsylvania market and consists principally of commercial lending primarily to locally owned small businesses and retail lending which includes single-family residential mortgages and other consumer lending. Although the Corporation’s loan demand was flat during the first three months of 2005, the second quarter brought a significant increase in loan demand which was anticipated by management based on our knowledge of the business cycles of the businesses and industries in our market area. Management believes the loan growth rate will decrease but nevertheless remain positive throughout the remainder of the year. At June 30, 2005, the Corporation had $500,366,000 in loans and leases outstanding, net of unearned discount, an increase of $18,429,000 (or 3.8%) since December 31, 2004.

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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 as well as overdrafts in deposit accounts. These provisions are charged against current income. Loans leases and overdrafts 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:

($’s in thousands)	June 30, 2005			Periods Ending Dec. 31, 2004			June 30, 2004
Balance at beginning of Period	$	5,585		$	5,764		$	5,764
Charge-offs:
Commercial and financial		0			51			29
Commercial mortgages		124			226			112
Residential mortgages		42			147			94
Installment		177			409			178
Lease receivables		0			30			16
Overdrafts		109			236			—
		452			1,099			429
Recoveries:
Commercial and financial		—			1			—
Commercial mortgages		18			13			12
Residential mortgages		—			20			19
Installment		60			56			21
Lease receivables		1			9			2
Overdrafts		46			21			—
		125			120			54
Net charge-offs:		(327	)		(979	)		(375	)
Provision for loan losses		339			800			600
Balance at end-of-period	$	5,597		$	5,585		$	5,989
Loans, net of unearned	$	500,366		$	481,937		$	477,312
Allowance to net loans		1.12	%		1.16	%		1.25	%
Net charge-offs to average loans		0.13	%		0.17	%		0.15	%

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

Homogeneous

• Residential real estate

• Installment

• Lease receivables

• Credit cards

• Overdrafts

The reviewed loan pools are further segregated into three categories: substandard, doubtful and unclassified. Historical loss factors are calculated for each pool excluding overdrafts 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

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• 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 allowance coverage of net loans has remained relatively flat over the past six months. Through the analysis methodology detailed above, the coverage during the period was considered appropriate and adequate based on the Corporation’s current risk profile. The adequacy of the allowance for loan and lease losses is subject to a formal analysis by an independent loan review analyst, as well as our internal credit administrator, and is deemed to be adequate to absorb probable incurred losses in the portfolio as of June 30, 2005.

Management continues to closely monitor loan delinquency and loan losses. Non-performing assets, which include loans 90 or more days past due, non-accrual loans and other real estate owned, were $2,942,000 or 0.39% of total assets on June 30, 2005 compared to $2,690,000 or 0.37% on December 31, 2004. The increase was caused by one large commercial real estate loan which management placed on nonaccrual in the last month of the first quarter due to the borrower’s inability to make regular payments. The bank has a first lien on the commercial property and considers its risk of loss to be minimal. Without this loan, the ratio at June 30, 2005 would have been approximately 0.30%.

FUNDING SOURCES

The Corporation considers deposits, short-term borrowings, and term debt when evaluating funding sources. Traditional deposits continue to be the main focus for source of funds in the Corporation, reaching $604,293,000 at June 30, 2005. Deposits have increased only 1.2% since year-end 2004. The Corporation is currently implementing strategies to decrease its cost of funds from interest bearing deposits by shifting more dollars into lower interest bearing deposits throughout 2005.

The Corporation utilizes term borrowings from the Federal Home Loan Bank (FHLB) to meet funding needs not accommodated by deposit growth. As discussed in the loans section of this analysis, the Corporation experienced significant loan demand in the second quarter. As previously mentioned deposits have increased only 1.2% since December 31, 2004 and during the quarter management accessed $19,500,000 in FHLB borrowings to fund certain new loans. The borrowings are fixed rate and have maturity dates ranging from six months to five years. Management plans to maintain access to short and long-term FHLB borrowings as an available funding source when deemed appropriate.

SHAREHOLDERS’ EQUITY

The Corporation’s capital continues to provide a base for profitable growth. Total shareholders’ equity was $69,637,000 at June 30, 2005 compared to $68,710,000 at December 31, 2004, an increase of $927,000 or 1.3%. In the first six months of 2005, the Corporation earned $4,391,000 and declared dividends of $2,493,000, a dividend payout ratio of 56.8% of net income. This growth was offset by a decline in the securities market value as discussed below.

The securities in the Corporation’s portfolio are classified as available for sale making the Corporation’s balance sheet more sensitive to the changing market value of investments. The Federal Open Market Committee raised the federal discount rate by 100 basis points in the first six months of 2005. This situation affected the market value of various securities in the Corporation’s portfolio and caused a decrease in accumulated other comprehensive income, included in shareholders’ equity, of $858,000 since December 31, 2004.

The Corporation has also complied with the standards of capital adequacy mandated by the banking regulators. Bank regulators have established “risk-based” capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets banks hold in their portfolios. A weight category of 0% (lowest risk assets), 20%, 50%, or 100% (highest risk assets), is assigned to each asset on the balance sheet. The Corporation’s total risk-based capital ratio of 12.53% at

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June 30, 2005 is above the well-capitalized standard of 10%. The Corporation’s Tier 1 capital ratio of 11.53% is above the well-capitalized minimum of 6%. The leverage ratio at June 30, 2005 was 9.08%, also above the well-capitalized standard of 5%. The Corporation is well capitalized as measured by the federal regulatory agencies. The ratios provide quantitative data demonstrating the strength and future opportunities for use of the Corporation’s capital base. Management continues to evaluate risk-based capital ratios and the capital position of the Corporation as part of its strategic decision making process.

LIQUIDITY AND INTEREST RATE SENSITIVITY

Liquidity measures an organizations’ ability to meet cash obligations as they come due. The Consolidated Statement of Cash Flows presented on page 7 of the accompanying unaudited financial statements provides analysis of the Corporation’s cash and cash equivalents. Additionally, management considers that portion of the loan and investment portfolio that matures within one year as part of the Corporation’s liquid assets. The Corporation’s liquidity is monitored by the ALCO Committee, which establishes and monitors ranges of acceptable liquidity. Management feels the Corporation’s current liquidity and interest rate position is acceptable.

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. The contractual amount of financial instruments with off-balance sheet risk was as follows at June 30, 2005:

Commitments to extend credit	$	129,943
Standby letters of credit		11,099
	$	141,042

RESULTS OF OPERATIONS

OVERVIEW OF THE INCOME STATEMENT

The Corporation had net income of $2,344,000 and $4,391,000 for the second quarter and first six months of 2005, respectively. The earnings per diluted share for the respective periods were $0.26 and $0.48. Net income was $2,015,000 and $4,030,000 for the second quarter and first six months of 2004, which equates to earnings per diluted share of $0.22 and $0.44, respectively. The return on assets and the return on equity for the six months of 2005 are 1.22% and 13.26% as compared to 1.15% and 12.77% for the first six months of 2004.

INTEREST INCOME AND EXPENSE

Net interest income totaled $6,515,000 in the second quarter, an increase of $470,000 (or 7.8%) over the second quarter of 2005 and totaled $12,781,000 for the six months of 2005, an increase of 6.3% as compared to the first six months of 2004. Total interest and dividend income increased by $1,050,000 (or 11.3%) as compared to the second quarter of 2004 while total interest expense increased $580,000 (or 1.8%) as compared to the second quarter of 2004. The primary reason for the growth in interest income stems from an improved level of average earning assets and increasing yields. As noted on page 13 of this analysis, the Corporation’s average earning assets have increased by $30,592,000 from $648,978,000 for the six months ended June 30, 2004 to $679,570,000 for the six months ended June 30, 2005 while annual yields have increased from 5.93% to 6.12% for the same two periods.

PROVISION FOR LOAN LOSSES

The Corporation recorded a provision for loan and lease losses in the second quarter of $172,000 compared to $300,000 in the second quarter of 2004 and $339,000 for the first six months of 2005 compared to $600,000 for 2004. As part of the in-depth analysis as previously described, it has been determined that the credit risk of the Corporation is showing positive trends and therefore a lesser provision is required. The overall credit quality of existing assets continues to improve and as a result the Corporation has experienced a relatively low level of charge-offs over the past three years. In short, based on managements’ evaluation of problem loans, criticized assets and charge-offs in the loan portfolio and the overall effects of the economy in our markets, the analysis indicates that the provision appears adequate.

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The reduced provision in the current year has created a slight decrease in the Allowance for Loan and Lease Losses as a percentage of total loans, however, management believes the allowance provides adequate coverage of our current loan and lease portfolio.

OTHER INCOME

Other income increased $178,000 (or 11.5%) and $44,000 (or 1.3%) in the second quarter and six months of 2005, respectively, when compared to the same periods in 2004.

As mentioned in the Securities footnote on page 10, the Corporation evaluates securities for other than temporary impairment on a quarterly basis or more frequently when economic or market conditions warrant such an evaluation. During the latest evaluation, management determined that a preferred stock issuance of the FHLMC appeared to be other than temporarily impaired. The security had a cost basis of $1,500,000 and is indexed to the two year constant maturity treasury plus 20 basis points with a reset date that occurred June 30, 2005. As the security did not meet management’s expectation for recovery at the reset date, the Corporation recorded an impairment charge of $240,000 (before tax) during the second quarter.

A positive enhancement to other income for 2005 has been the growth of earnings from the Corporation’s wealth management services. The Corporation added these services to its product mix during the second quarter of 2004 and in roughly a year the program has more than $11.3 million of assets under management which has provided $293,000 in other income to the Corporation for the six months ended June 30, 2005.

OTHER EXPENSE

Other expense increased $291,000 (or 6.3%) during the second quarter of 2005 and $577,000 (or 6.1%) in the six months of 2005 when compared to the same two periods in 2004. The increases were not concentrated in any one area or line item but were primarily the result of the Corporations increasing costs for salaries, employee benefits, outside services and insurance.

RETURN ON ASSETS

For the six months ended June 30, 2005, the Corporation’s return on average assets (“ROA”) totaled 1.22% compared to 1.15% for the same period of 2004.

RETURN ON EQUITY

The Corporation’s return on average shareholder’s equity (“ROE”) in the first six months was 13.26% compared to 12.77% for the same period in 2004.

FEDERAL INCOME TAX EXPENSE

Federal income tax expense was $816,000 in the second quarter of 2005 as compared to $660,000 in the second quarter of 2004 resulting in an effective tax rate of 25.8% and 24.7%, respectively. For the six month period comparisons the effective tax rate was 23.3% in 2005 and 23.1% in 2004. The effective tax rate for the periods differed from the federal statutory rate of 35.0% principally as a result of tax exempt income from securities and loans as well as earnings from bank owned life insurance.

FUTURE OUTLOOK

The focus of management for 2005 is to maintain a favorable cost of funds. As mentioned in the “Funding Sources” section of this report, management is currently implementing certain strategies to accomplish this focus including reducing the cost of funds for our traditional certificates of deposit as well as deriving more funding from our lower cost deposit products. Deposit growth was minimal during the first and second quarters and is expected to be flat throughout much of 2005. In addition to deposits, the traditional funding source for the Corporation, we will continue to manage potential earnings enhancement opportunities using other borrowings such as those through the Federal Home Loan Bank of Pittsburgh (FHLB) as there are certain interest rate environments that allow for pricing opportunities from such borrowings. As mentioned previously in this analysis, the Corporation utilized borrowings from the FHLB during the second quarter to fund certain new loans added to its portfolio.

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Although loan growth was flat during the first quarter, management saw significantly increased loan demand in the second quarter and has positive expectations for the remainder of the year. To increase profitability management will continue to implement a loan pricing approach that projects a desired return on investment for each proposal.

The interest rate environment always plays an important role in the future earnings of the Corporation. During 2004, the Corporation saw declining net interest margins due to a decreased yield on earning assets as compared to 2003. During 2005, management is closely monitoring the net interest margin as much of the earnings of the Corporation continue to be derived from interest income. Although the future is uncertain, management believes that interest rates will continue to increase throughout 2005 resulting in increased yields on the Corporations variable rate earning assets.

Enhancing non-interest income and controlling non-interest expense are important factors in the success of the Corporation. One promising enhancement to non interest income was the introduction of wealth management services to the Corporation’s product mix during 2005 as discussed in the Other Income section of this analysis. Like many growing entities, the Corporation must continue to monitor and manage expenses. One of the tools the Corporation uses to monitor expenses is the efficiency ratio, calculated according to the following: non-interest expense (less amortization of intangibles) as a percentage of fully tax equivalent net interest income and non-interest income (less non-recurring income). For the six months ended June 30, 2005, the Corporation’s efficiency ratio was 57.82% compared to 57.20% for the same period last year. The Corporation strives to manage expenses while recognizing that some such as increasing salary, benefits and occupancy costs are simply the result of continued growth.

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, management feels the Corporation is positioned to enhance performance of normal operations through the remainder of 2005.

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of CNB Financial Corporation are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the financial services industry. Accounting and reporting practices for the allowance for loan and lease losses and fair value of securities are deemed critical since they involve the use of estimates and require significant management judgments. Application of assumptions different than those used by management could result in material changes in CNB Financial Corporation’s financial position or results of operations. Note 1 ( Summary of Significant Accounting Policies), Note 3 (Securities), and Note 5 (Allowance for Loan and Lease Losses), of the 2004 Annual Report and 10-K, provide detail with regard to the Corporation’s accounting for the allowance for loan and lease losses and fair value of securities. There have been no significant changes in the application of accounting policies since December 31, 2004.

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

Certain statements contained in the report that are not historical facts are forward looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates,” “plans,” “expects,” “believes,” “estimate” or “projected” and similar expressions as they relate to CNB Financial Corporation or its management are intended to identify such forward looking statements. CNB Financial Corporation’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services.

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ITEM 3 QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the course of conducting business activities, the Corporation is exposed to market risk, principally interest rate risk, through the operation of the Bank. Interest rate risk arises from market driven fluctuations in interest rates, which affect cash flows, income, expense and values of all financial instruments. Management and the ALCO Committee of the Board monitor the Corporation’s interest rate risk position. No material changes have occurred during the period in the Bank’s market risk strategy or position, a discussion of which can be found in the SEC Form-10K filed for the period ended December 31, 2004.

ITEM 4 CONTROLS AND PROCEDURES

As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of the Corporation’s management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Principal Financial Officer have concluded that the Corporation’s disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, our Chief Executive Officer and Principal Financial Officer have concluded that there were no significant changes in the Corporation’s internal controls or in other factors that could significantly affect its internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS - None

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
4/1/05 to 4/30/05	—		—	—	342,600
5/1/05 to 5/31/05	6,200		15.00	6,200	336,400
6/1/05 to 6/30/05	16,200		14.97	16,200	320,200
Total	22,400	$	14.98	22,400

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Purchases not made in conjunction with the Publicly Announced Plan were made to facilitate employee benefit plans in the form of a 401(k).

ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None

ITEM 4. SUBMISSION OF MATTERS FOR SECURITY HOLDERS VOTE

CNB Financial Corporation held its Annual Meeting of Shareholders on April 19, 2005, for the purpose of electing five directors, to ratify the appointment of independent auditors, and to transact such other business as would properly come before the meeting. Results of shareholder voting on these individuals were as follows:

Election of Directors

	William F. Falger	James J. Leitzinger	Jeffrey S. Powell	James B. Ryan	Peter F. Smith
For	6,985,244	6,991,715	6,984,945	6,992,151	6,991,041
Against or Withheld	141,189	134,718	141,488	134,282	135,392
The following directors’ terms of office as director continued after the meeting: Robert E. Brown, Michael F. Lezzer, Dennis L. Merrey, James P. Moore, and Deborah Dick Pontzer Results of ratification of appointment of Crowe Chizek and Company, LLC as independent auditors was as follows:
For	7,097,589
Against or Withheld	28,844

The total shares voted at the annual meeting were 7,126,433.

ITEM 5. OTHER INFORMATION - None

ITEM 6. EXHIBITS

EXHIBIT 31.1	CEO Certification
EXHIBIT 31.2	Principal Financial Officer Certification
EXHIBIT 32	Certifications

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CNB FINANCIAL CORPORATION
	(Registrant)
DATE: August 4, 2005	/S/    WILLIAM F. FALGER
	William F. Falger
	President and Director
	(Principal Executive Officer)
DATE: August 4, 2005	/S/    JOSEPH B. BOWER, JR.
	Joseph B. Bower, Jr.
	Treasurer and Director
	(Principal Financial Officer)
	(Principal Accounting Officer)

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