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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from  to
 Commission file number 0-30665
 CNB Financial Services, Inc.
  West Virginia
    
    550773918(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)101 S. Washington Street, Berkeley Springs, WV
    
    25411(Address of principal executive offices)
    
    (Zip Code)
 304 258 - 1520
  None
  
   o þ
  o þ
  þ o
 þ
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ  o þ
      Documents
    
    10-K Parts1. CNB Financial Services, Inc. 2009 Proxy Statement
    
    Part III




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##### 



PAGEPART IItem 1.
    
    Business
    
    
    4Item 1A.
    
    Risk Factors
    
    
    8Item 2.
    
    Properties
    
    
    12Item 3.
    
    Legal Proceedings
    
    
    12Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    12PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    13Item 6.
    
    Selected Financial Data
    
    
    16Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 8.
    
    Financial Statements and Supplementary Data
    
    
    35Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
    
    
    74Item 9A(T).
    
    Controls and Procedures
    
    
    74Item 9B.
    
    Other Information
    
    
    74PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    75Item 11.
    
    Executive Compensation
    
    
    76Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    76Item 13.
    
    Certain Relationships and Related Stockholder Matters
    
    
    76Item 14.
    
    Principal Accountants Fees and Services
    
    
    76PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    77SIGNATURES
    
    
    78EX-14EX-21EX-31.1EX-31.2EX-32.1EX-32.2
  2




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
    
    Changes in market interest rates;
    
    Local and national economic trends and conditions;
    
    Competition for products and services among community, regional and national financial
institutions;
    
    New services and product offerings by competitors;
    
    Changes in customer preferences;
    
    Changes in technology;
    
    Legislative and regulatory changes;
    
    General economic conditions may become unfavorable resulting in reduced credit quality or
demand for loans;
    
    Delinquency rates on loans;
    
    Changes in accounting principles, policies or guidelines; and
    
    Current economic environment.
  3




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Part I
 
 Item 1. DESCRIPTION OF BUSINESS
 ORGANIZATIONAL HISTORY AND SUBSIDIARIES
             4




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Bank Holding Company Regulation .
  5




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Bank Subsidiary Regulation
   Capital Requirements
  6




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Federal and State Laws
  Monetary Policy and Economic Conditions
   Effect of Environmental Regulation
    International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 (U.S. Patriot
Act)
  7




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Item 1A. RISK FACTORS
  The banking business is very competitive.
    8




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In the future, CNBs lending limit could create a competitive disadvantage.
  CNB engages in commercial and consumer lending activities which are riskier than residential real
estate lending.
   Type of Loan
    
    Percentage of PortfolioResidential Real Estate Loans
    
    
    68
    %Commercial Loans, principally real estate secured
    
    
    24
    %Consumer Loans
    
    
    8
    %
 CNB has limited control over its profitability because CNB cannot control the various factors that
can cause fluctuations in interest rates.
 9




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CNBs success depends on CNBs management team.
  An economic slowdown in our market area could hurt CNBs business.
  
    
    Loan delinquencies may increase;
    
    Problem assets and foreclosures may increase;
    
    Demand for the products and services of CNB may decline; and
    
    Collateral (including real estate) for loans made by CNB may decline in value, in
turn reducing customers borrowing power and making existing loans less secure.
  The global financial crisis may have an adverse affect on our Bank, business and results of
operations.
    CNB is highly regulated.
 10




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CNB may incur increased charge-offs and additional loan loss provision due to negative credit in
the future.
  Marketability of Common Stock.
  11




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Item 2. PROPERTIES
 CNB Financial Services, Inc.
  CNB Bank, Inc.
 .
 
 Item 3. LEGAL PROCEEDINGS
   
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  12




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Part II
 
 Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
    Total Number
    
    
    
    
    
    Total Number of Shares Purchased
    
    Maximum Number of Sharesof Shares
    
    Average Price
    
    as Part of Publicly Announced
    
    that may yet be purchased underPeriod
    
    Purchased
    
    Paid per Share
    
    Plans or Programs
    
    the Plans or ProgramsBeginning balance
September 30, 2008
    
    
    
    
    
    
    
    
    
    
    7,819
    
    
    
    37,985October 1, 2008
October 31, 2008
    
    
    778
    
    
    $
    49.90
    
    
    
    778
    
    
    
    37,207November 1, 2008
November 30, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    37,207December 1, 2008
December 31, 2008
    
    
    300
    
    
    $
    50.00
    
    
    
    300
    
    
    
    36,907Total
    
    
    1,078
    
    
    
    
    
    
    
    8,897
  13




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Per ShareHigh
    
    Low
    
    Dividend2008First quarter
    
    $
    80.00
    
    
    $
    65.00Second quarter
    
    $
    67.00
    
    
    $
    65.50
    
    
    $
    0.53Third quarter
    
    $
    63.50
    
    
    $
    63.50Fourth quarter
    
    $
    63.85
    
    
    $
    49.40
    
    
    $
    1.372007First quarter
    
    $
    80.00
    
    
    $
    72.00Second quarter
    
    $
    80.00
    
    
    $
    70.00
    
    
    $
    0.50Third quarter
    
    $
    72.00
    
    
    $
    71.00Fourth quarter
    
    $
    72.00
    
    
    $
    67.00
    
    
    $
    1.19
   COMPARISON
OF 5-YEAR CUMULATIVE TOTAL RETURN 
AMONG CNB FINANCIAL SERVICES, INC., 
HEMSCOTT INDEX AND SIC CODE INDEX
 
 
 2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008CNB FINANCIAL SERVICES, INC.
    
    
    
    100.00
    
    
    
    100.60
    
    
    
    121.80
    
    
    
    135.40
    
    
    
    128.87
    
    
    
    95.77SIC CODE INDEX
    
    
    
    100.00
    
    
    
    108.75
    
    
    
    106.93
    
    
    
    121.68
    
    
    
    108.53
    
    
    
    70.43HEMSCOTT INDEX
    
    
    
    100.00
    
    
    
    112.17
    
    
    
    120.11
    
    
    
    139.03
    
    
    
    147.95
    
    
    
    91.72
 14




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Item 6. SELECTED FINANCIAL DATA
 TABLE 1. FIVE YEAR SELECTED CONSOLIDATED FINANCIAL DATA
 2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004In thousands except for per share dataAt Year-EndTotal assets
    
    $
    282,257
    
    
    $
    290,415
    
    
    $
    276,069
    
    
    $
    258,953
    
    
    $
    236,998Securities available for sale
    
    
    62,605
    
    
    
    66,017
    
    
    
    50,873
    
    
    
    55,194
    
    
    
    59,740Loans and lease, net of
unearned income
    
    
    200,752
    
    
    
    202,669
    
    
    
    204,319
    
    
    
    180,207
    
    
    
    154,920Deposits
    
    
    227,895
    
    
    
    226,645
    
    
    
    233,083
    
    
    
    219,288
    
    
    
    207,729Shareholders equity
    
    
    23,218
    
    
    
    22,821
    
    
    
    20,322
    
    
    
    19,008
    
    
    
    18,149Significant RatiosReturn on average assets
    
    
    0.96
    %
    
    
    0.90
    %
    
    
    0.92
    %
    
    
    1.00
    %
    
    
    1.07
    %Return on average
shareholders equity
    
    
    11.66
    
    
    
    11.88
    
    
    
    12.46
    
    
    
    12.91
    
    
    
    13.38Average shareholders equity
to average assets
    
    
    8.21
    
    
    
    7.55
    
    
    
    7.35
    
    
    
    7.76
    
    
    
    8.03Net interest margin
    
    
    3.92
    
    
    
    3.53
    
    
    
    3.77
    
    
    
    4.12
    
    
    
    4.11Summary of OperationsInterest income
    
    $
    16,995
    
    
    $
    17,201
    
    
    $
    15,989
    
    
    $
    13,420
    
    
    $
    11,715Interest expense
    
    
    6,307
    
    
    
    7,725
    
    
    
    6,269
    
    
    
    3,850
    
    
    
    3,169Net interest income
    
    
    10,688
    
    
    
    9,476
    
    
    
    9,720
    
    
    
    9,570
    
    
    
    8,546Provision for loan losses
    
    
    940
    
    
    
    169
    
    
    
    275
    
    
    
    352
    
    
    
    393Net interest income after
provision for loan losses
    
    
    9,748
    
    
    
    9,307
    
    
    
    9,445
    
    
    
    9,218
    
    
    
    8,153Non-interest income
    
    
    2,241
    
    
    
    2,400
    
    
    
    1,968
    
    
    
    2,007
    
    
    
    1,972Non-interest expense
    
    
    7,967
    
    
    
    8,012
    
    
    
    7,760
    
    
    
    7,541
    
    
    
    6,789Income before income taxes
and
discontinued operations
    
    
    4,022
    
    
    
    3,695
    
    
    
    3,653
    
    
    
    3,684
    
    
    
    3,336Discontinued operations
    
    
    
    
    
    
    
    
    
    
    124
    
    
    
    
    
    
    
    Income tax expense
    
    
    1,307
    
    
    
    1,191
    
    
    
    1,308
    
    
    
    1,238
    
    
    
    992Net income
    
    
    2,715
    
    
    
    2,504
    
    
    
    2,469
    
    
    
    2,446
    
    
    
    2,344Per Share DataNet income
    
    $
    6.01
    
    
    $
    5.48
    
    
    $
    5.39
    
    
    $
    5.34
    
    
    $
    5.12Cash dividends
    
    
    1.90
    
    
    
    1.69
    
    
    
    1.54
    
    
    
    1.44
    
    
    
    1.38Net book value
    
    
    51.40
    
    
    
    49.91
    
    
    
    44.37
    
    
    
    41.50
    
    
    
    39.62
 16




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Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  EARNINGS SUMMARY
   NET INTEREST INCOME
      17




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TABLE 2. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS EQUITY;  INTEREST RATES AND INTEREST DIFFERENTIAL
 DECEMBER 31, 2008
    
    
    DECEMBER 31, 2007
    
    
    DECEMBER 31, 2006YTD
    
    
    
    
    
    
    
    
    YTD
    
    
    
    
    
    
    
    
    YTDAVERAGE
    
    
    YTD
    
    
    YIELD/
    

    
    AVERAGE
    
    
       YTD
    
    
    YIELD/
        
    AVERAGE
    
    
        YTD
    
    
    YIELD/BALANCE
    
    
    INTEREST
    
    
    RATE
    
    
    BALANCE
    
    
    INTEREST
    
    
    RATE
    
    
    BALANCE
    
    
    INTEREST
    
    
    RATEIn thousandsInterest earning assets:Federal funds sold
    
    $
    
    
    
    $
    
    
    
    
    
    %
    
    $
    701
    
    
    $
    37
    
    
    
    4.97
    %
    
    $
    27
    
    
    $
    1
    
    
    
    4.87
    %Securities:Taxable
    
    
    49,888
    
    
    
    2,514
    
    
    
    5.04
    
    
    
    45,820
    
    
    
    2,192
    
    
    
    4.78
    
    
    
    44,674
    
    
    
    2,116
    
    
    
    4.74Tax-exempt (1)
    
    
    14,776
    
    
    
    510
    
    
    
    5.23
    
    
    
    11,100
    
    
    
    386
    
    
    
    5.27
    
    
    
    11,298
    
    
    
    390
    
    
    
    5.23Loans (net of unearned
interest) (2) (4) (5)
    
    
    202,803
    
    
    
    13,757
    
    
    
    6.78
    
    
    
    204,045
    
    
    
    14,356
    
    
    
    7.04
    
    
    
    194,712
    
    
    
    13,211
    
    
    
    6.78Total interest
earning assets (1)
    
    $
    267,467
    
    
    $
    16,781
    
    
    
    6.27
    %
    
    $
    261,666
    
    
    $
    16,971
    
    
    
    6.49
    %
    
    $
    250,711
    
    
    $
    15,718
    
    
    
    6.27
    %Nonearning assets:Cash and due
from banks
    
    $
    6,590
    
    
    
    
    
    
    
    
    
    
    $
    7,573
    
    
    
    
    
    
    
    
    
    
    $
    9,170Bank premises and
equipment, net
    
    
    5,970
    
    
    
    
    
    
    
    
    
    
    
    6,249
    
    
    
    
    
    
    
    
    
    
    
    6,464Other assets
    
    
    5,704
    
    
    
    
    
    
    
    
    
    
    
    5,688
    
    
    
    
    
    
    
    
    
    
    
    5,521Allowance for
loan losses
    
    
    (2,292
    )
    
    
    
    
    
    
    
    
    
    
    (2,171
    )
    
    
    
    
    
    
    
    
    
    
    (2,136
    )Total assets
    
    $
    283,439
    
    
    
    
    
    
    
    
    
    
    $
    279,005
    
    
    
    
    
    
    
    
    
    
    $
    269,730Interest bearing
liabilities:Savings deposits
    
    $
    23,540
    
    
    $
    69
    
    
    
    0.29
    %
    
    $
    25,335
    
    
    $
    119
    
    
    
    0.47
    %
    
    $
    30,586
    
    
    $
    153
    
    
    
    0.50
    %Time deposits
    
    
    125,689
    
    
    
    5,148
    
    
    
    4.10
    
    
    
    122,639
    
    
    
    5,632
    
    
    
    4.59
    
    
    
    99,950
    
    
    
    3,791
    
    
    
    3.79NOW accounts
    
    
    22,348
    
    
    
    202
    
    
    
    0.90
    
    
    
    31,534
    
    
    
    772
    
    
    
    2.45
    
    
    
    42,720
    
    
    
    1,189
    
    
    
    2.78Money market
accounts
    
    
    12,801
    
    
    
    120
    
    
    
    0.94
    
    
    
    13,252
    
    
    
    287
    
    
    
    2.17
    
    
    
    10,905
    
    
    
    158
    
    
    
    1.45Borrowings
    
    
    30,538
    
    
    
    768
    
    
    
    2.51
    
    
    
    18,173
    
    
    
    915
    
    
    
    5.03
    
    
    
    18,751
    
    
    
    978
    
    
    
    5.22Total interest
bearing liabilities
    
    $
    214,916
    
    
    $
    6,307
    
    
    
    2.93
    %
    
    $
    210,933
    
    
    $
    7,725
    
    
    
    3.66
    %
    
    $
    202,912
    
    
    $
    6,269
    
    
    
    3.09
    %Noninterest bearing
liabilities:Demand deposits
    
    $
    41,209
    
    
    
    
    
    
    
    
    
    
    $
    42,575
    
    
    
    
    
    
    
    
    
    
    $
    43,795Other liabilities
    
    
    4,039
    
    
    
    
    
    
    
    
    
    
    
    4,424
    
    
    
    
    
    
    
    
    
    
    
    3,207Shareholders equity
    
    
    23,275
    
    
    
    
    
    
    
    
    
    
    
    21,073
    
    
    
    
    
    
    
    
    
    
    
    19,816Total liabilities and
shareholders equity
    
    $
    283,439
    
    
    
    
    
    
    
    
    
    
    $
    279,005
    
    
    
    
    
    
    
    
    
    
    $
    269,730Net interest income (1)
    
    
    
    
    
    $
    10,474
    
    
    
    
    
    
    
    
    
    
    $
    9,246
    
    
    
    
    
    
    
    
    
    
    $
    9,449Net interest spread (3)
    
    
    
    
    
    
    
    
    
    
    3.34
    %
    
    
    
    
    
    
    
    
    
    
    2.83
    %
    
    
    
    
    
    
    
    
    
    
    3.18
    %Net interest income to
average interest earning
assets (1)
    
    
    
    
    
    
    
    
    
    
    3.92
    %
    
    
    
    
    
    
    
    
    
    
    3.53
    %
    
    
    
    
    
    
    
    
    
    
    3.77
    %
 
 (1)
    
    Yields are expressed on a tax equivalent basis using a 34% tax rate.(2)
    
    For the purpose of these computations, nonaccruing loans are included in the amounts of average loans outstanding.(3)
    
    Net interest spread is the difference between the weighted average yield on interest-earning assets and the weighted average cost
of interest-bearing liabilities.(4)
    
    Interest income on loans excludes fees of $214,622 in 2008, $229,997 in 2007 and $270,962 in 2006.(5)
    
    Interest income on loans includes fees of $77,546 in 2008, $86,770 in 2007 and $99,722 in 2006 from the Business Manager Program,
student loans and lease receivables. 18




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TABLE 3. VOLUME AND RATE ANALYSIS OF CHANGES IN INTEREST INCOME
 (Taxable equivalent basis)
    
    2008 over 2007
    
    
    2007 over 2006Change due to
    
    
    Total
    
    
    Change due to
    
    
    TotalVolume
    
    
    Rate
    
    
    Change
    
    
    Volume
    
    
    Rate
    
    
    ChangeIn thousandsInterest earned on:Federal funds sold
    
    $
    (23
    )
    
    $
    (14
    )
    
    $
    (37
    )
    
    $
    32
    
    
    $
    
    
    
    $
    32Taxable securities
    
    
    201
    
    
    
    121
    
    
    
    322
    
    
    
    53
    
    
    
    17
    
    
    
    70Tax-exempt securities
    
    
    128
    
    
    
    (4
    )
    
    
    124
    
    
    
    (8
    )
    
    
    3
    
    
    
    (5
    )Loans
    
    
    (80
    )
    
    
    (519
    )
    
    
    (599
    )
    
    
    643
    
    
    
    513
    
    
    
    1,156Total interest earned
    
    $
    226
    
    
    $
    (416
    )
    
    $
    (190
    )
    
    $
    720
    
    
    $
    533
    
    
    $
    1,253Interest expense on:Savings deposits
    
    $
    (8
    )
    
    $
    (42
    )
    
    $
    (50
    )
    
    $
    (24
    )
    
    $
    (9
    )
    
    $
    (33
    )Time deposits
    
    
    141
    
    
    
    (625
    )
    
    
    (484
    )
    
    
    954
    
    
    
    887
    
    
    
    1,841NOW accounts
    
    
    (179
    )
    
    
    (391
    )
    
    
    (570
    )
    
    
    (287
    )
    
    
    (130
    )
    
    
    (417
    )Money market accounts
    
    
    (8
    )
    
    
    (159
    )
    
    
    (167
    )
    
    
    39
    
    
    
    91
    
    
    
    130Other borrowing
    
    
    (561
    )
    
    
    414
    
    
    
    (147
    )
    
    
    (30
    )
    
    
    (35
    )
    
    
    (65
    )Total interest expense
    
    $
    (615
    )
    
    $
    (803
    )
    
    $
    (1,418
    )
    
    $
    652
    
    
    $
    804
    
    
    $
    1,456Net interest income
    
    $
    841
    
    
    $
    387
    
    
    $
    1,228
    
    
    $
    68
    
    
    $
    (271
    )
    
    $
    (203
    )
  19




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TABLE 4. INTEREST RATE SPREAD AND NET INTEREST MARGIN ON EARNING ASSETS
 (Taxable equivalent basis)
    
    2008
    
    
    2007
    
    
    2006Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateIn thousandsEarning assets
    
    $
    267,467
    
    
    
    6.27
    %
    
    $
    261,666
    
    
    
    6.49
    %
    
    $
    250,711
    
    
    
    6.27
    %Interest bearing liabilities
    
    $
    214,916
    
    
    
    2.93
    %
    
    $
    210,933
    
    
    
    3.66
    %
    
    $
    202,912
    
    
    
    3.09
    %Interest rate spread
    
    
    
    
    
    
    3.34
    %
    
    
    
    
    
    
    2.83
    %
    
    
    
    
    
    
    3.18
    %Interest free sources used
to fund earning assets(1)
    
    
    52,551
    
    
    
    0.58
    %
    
    
    50,733
    
    
    
    0.70
    %
    
    
    47,799
    
    
    
    0.59
    %Total sources of funds
    
    $
    267,467
    
    
    
    
    
    
    $
    261,666
    
    
    
    
    
    
    $
    250,711Net interest margin
    
    
    
    
    
    
    3.92
    %
    
    
    
    
    
    
    3.53
    %
    
    
    
    
    
    
    3.77
    %
 
 (1)
    
    Non-interest bearing liabilities and shareholders equity less
non-interest earning assets.    PROVISION FOR LOAN LOSSES
  20




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NONINTEREST INCOME
          21




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NONINTEREST EXPENSES
    th
  22




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INCOME TAXES
  23




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FINANCIAL CONDITION
  TABLE 5. SOURCES AND USES OF FUNDS
 2008
    
    
    2007
    
    
    2006Average
    
    
    Increase (Decrease)
    
    
    Average
    
    
    Increase (Decrease)
    
    
    AverageBalance
    
    
    Amount
    
    
    %
    
    
    Balance
    
    
    Amount
    
    
    %
    
    
    BalanceIn thousandsFunding uses:Federal funds
sold
    
    $
    
    
    
    $
    (701
    )
    
    
    (100.0
    )%
    
    $
    701
    
    
    $
    674
    
    
    
    2,496.3
    %
    
    $
    27Securities available
for sale
    
    
    64,664
    
    
    
    7,744
    
    
    
    13.6
    
    
    
    56,920
    
    
    
    948
    
    
    
    1.7
    
    
    
    55,972Loans
    
    
    202,803
    
    
    
    (1,242
    )
    
    
    (0.6
    )
    
    
    204,045
    
    
    
    9,333
    
    
    
    4.8
    
    
    
    194,712Total uses
    
    $
    267,467
    
    
    $
    5,801
    
    
    
    2.2
    %
    
    $
    261,666
    
    
    $
    10,955
    
    
    
    4.4
    %
    
    $
    250,711Funding sources:Interest-bearing
demand deposits
    
    $
    35,149
    
    
    $
    (9,637
    )
    
    
    (21.5
    )%
    
    $
    44,786
    
    
    $
    (8,839
    )
    
    
    (16.5
    )%
    
    $
    53,625Savings deposits
    
    
    23,540
    
    
    
    (1,795
    )
    
    
    (7.1
    )
    
    
    25,335
    
    
    
    (5,251
    )
    
    
    (17.2
    )
    
    
    30,586Time deposits
    
    
    125,689
    
    
    
    3,050
    
    
    
    2.5
    
    
    
    122,639
    
    
    
    22,689
    
    
    
    22.7
    
    
    
    99,950Short-term
borrowings
    
    
    30,538
    
    
    
    12,365
    
    
    
    68.0
    
    
    
    18,173
    
    
    
    (578
    )
    
    
    (3.1
    )
    
    
    18,751Noninterest bearing
funds, net (1)
    
    
    52,551
    
    
    
    1,818
    
    
    
    3.6
    
    
    
    50,733
    
    
    
    2,934
    
    
    
    6.1
    
    
    
    47,799Total sources
    
    $
    267,467
    
    
    $
    5,801
    
    
    
    2.2
    %
    
    $
    261,666
    
    
    $
    10,955
    
    
    
    4.4
    %
    
    $
    250,711
 
 (1)
    
    Noninterest bearing liabilities and shareholders equity less noninterest earning assets.    24




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LOAN PORTFOLIO
   TABLE 6. LOANS AND LEASES OUTSTANDING
 December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004In thousandsReal estate
    
    $
    137,770
    
    
    $
    143,012
    
    
    $
    143,767
    
    
    $
    125,723
    
    
    $
    108,159Commercial real estate
    
    
    40,614
    
    
    
    37,588
    
    
    
    36,967
    
    
    
    29,492
    
    
    
    22,759Consumer
    
    
    16,666
    
    
    
    15,544
    
    
    
    15,934
    
    
    
    16,802
    
    
    
    16,405Commercial
    
    
    7,931
    
    
    
    8,179
    
    
    
    9,172
    
    
    
    9,314
    
    
    
    8,881Overdrafts
    
    
    92
    
    
    
    104
    
    
    
    163
    
    
    
    356
    
    
    
    82$
    203,073
    
    
    $
    204,427
    
    
    $
    206,003
    
    
    $
    181,687
    
    
    $
    156,286Leases
    
    
    105
    
    
    
    113
    
    
    
    124
    
    
    
    145
    
    
    
    166$
    203,178
    
    
    $
    204,540
    
    
    $
    206,127
    
    
    $
    181,832
    
    
    $
    156,452Net deferred loan fees,
premiums and
discounts
    
    
    325
    
    
    
    273
    
    
    
    324
    
    
    
    397
    
    
    
    275Allowance for loan
losses
    
    
    (2,751
    )
    
    
    (2,144
    )
    
    
    (2,132
    )
    
    
    (2,022
    )
    
    
    (1,807
    )$
    200,752
    
    
    $
    202,669
    
    
    $
    204,319
    
    
    $
    180,207
    
    
    $
    154,920
  25




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TABLE 7. CONTRACTUAL MATURITY AND SENSITIVITY
 December 31, 2008One year
    
    
    One through
    
    
    Overor less
    
    
    Five years
    
    
    Five years
    
    
    TotalIn thousandsCommercial, financial and
agricultural:Floating rate
    
    $
    27,541
    
    
    $
    13,156
    
    
    $
    
    
    
    $
    40,697Fixed rate
    
    
    2,635
    
    
    
    2,662
    
    
    
    2,551
    
    
    
    7,848Total
    
    $
    30,176
    
    
    $
    15,818
    
    
    $
    2,551
    
    
    $
    48,545Real estate  mortgage:Floating rate
    
    $
    9,120
    
    
    $
    57,448
    
    
    $
    
    
    
    $
    66,568Fixed rate
    
    
    2,373
    
    
    
    4,356
    
    
    
    62,785
    
    
    
    69,514Total
    
    $
    11,493
    
    
    $
    61,804
    
    
    $
    62,785
    
    
    $
    136,082Real estate  construction:Floating rate
    
    $
    1,636
    
    
    $
    
    
    
    $
    
    
    
    $
    1,636Fixed rate
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    52Total
    
    $
    1,688
    
    
    $
    
    
    
    $
    
    
    
    $
    1,688Consumer:Floating rate
    
    $
    136
    
    
    $
    148
    
    
    $
    
    
    
    $
    284Fixed rate
    
    
    861
    
    
    
    10,403
    
    
    
    5,210
    
    
    
    16,474Total
    
    $
    997
    
    
    $
    10,551
    
    
    $
    5,210
    
    
    $
    16,758Lease financing:Floating rate
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Fixed rate
    
    
    
    
    
    
    
    
    
    
    105
    
    
    
    105Total
    
    $
    
    
    
    $
    
    
    
    $
    105
    
    
    $
    105
 26




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NONPERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
   TABLE 8. NONPERFORMING ASSETS
 December 312008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004In thousandsForeclosed real estate (other real estate owned)
    
    $
    253
    
    
    $
    151
    
    
    $
    
    
    
    $
    
    
    
    $
    Impaired loans, not on nonaccrual
    
    
    131
    
    
    
    848
    
    
    
    
    
    
    
    
    
    
    
    Nonaccrual loans, impaired(1)
    
    
    1,096
    
    
    
    562
    
    
    
    
    
    
    
    
    
    
    
    Nonaccrual loans, not impaired
    
    
    403
    
    
    
    552
    
    
    
    402
    
    
    
    790
    
    
    
    381Loans past due 90 days or more still accruing
interest
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    Total non-performing assets
    
    $
    1,883
    
    
    $
    2,113
    
    
    $
    407
    
    
    $
    790
    
    
    $
    381
 
 (1)
    
    Some of these loans have government agency guarantees reducing the banks exposure by
$57,611.  27




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TABLE 9. ALLOWANCE FOR LOAN LOSSES
 2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004In thousandsLoans outstanding at end of year
    
    $
    203,178
    
    
    $
    204,540
    
    
    $
    206,127
    
    
    $
    181,832
    
    
    $
    156,452Daily average balance of loans and
leases
    
    $
    202,803
    
    
    $
    204,045
    
    
    $
    194,712
    
    
    $
    170,158
    
    
    $
    152,984Balance of allowance for loan losses
at beginning of year
    
    $
    2,144
    
    
    $
    2,132
    
    
    $
    2,022
    
    
    $
    1,807
    
    
    $
    1,608Loans charged off:Commercial, financial and
agricultural
    
    $
    48
    
    
    $
    
    
    
    $
    20
    
    
    $
    
    
    
    $
    41Real estate  mortgage
    
    
    178
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    296
    
    
    
    320
    
    
    
    298
    
    
    
    306
    
    
    
    311Total loans charged off
    
    $
    522
    
    
    $
    340
    
    
    $
    318
    
    
    $
    306
    
    
    $
    352Recoveries:Commercial, financial and
agricultural
    
    $
    21
    
    
    $
    5
    
    
    $
    
    
    
    $
    2
    
    
    $
    5Consumer
    
    
    166
    
    
    
    178
    
    
    
    152
    
    
    
    167
    
    
    
    153Real estate  mortgage
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total recoveries
    
    $
    189
    
    
    $
    183
    
    
    $
    152
    
    
    $
    169
    
    
    $
    158Net charge-offs
    
    $
    333
    
    
    $
    157
    
    
    $
    166
    
    
    $
    137
    
    
    $
    194Provision charged to expense
    
    $
    940
    
    
    $
    169
    
    
    $
    276
    
    
    $
    352
    
    
    $
    393Balance, end of year
    
    $
    2,751
    
    
    $
    2,144
    
    
    $
    2,132
    
    
    $
    2,022
    
    
    $
    1,807Selected Asset Quality Ratios:Net charge-offs to average loans
    
    
    0.16
    %
    
    
    0.08
    %
    
    
    0.09
    %
    
    
    0.08
    %
    
    
    0.13
    %Allowance for loan losses to loans
outstanding at end of year
    
    
    1.35
    %
    
    
    1.05
    %
    
    
    1.03
    %
    
    
    1.11
    %
    
    
    1.15
    %Non-performing assets(1) to total
assets
    
    
    0.67
    %
    
    
    0.73
    %
    
    
    0.15
    %
    
    
    0.31
    %
    
    
    0.16
    %Non-accrual loans to total loans
    
    
    0.75
    %
    
    
    0.54
    %
    
    
    0.20
    %
    
    
    0.43
    %
    
    
    0.24
    %
 
 (1)
    
    Includes accruing loans past due 90 days or more, impaired loans and other real estate owned 28




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TABLE 10. HISTORICAL ALLOCATION OF THE ALLOWANCE FOR LOAN
LOSSES
 December 31,2008
    
    
    2007
    
    




    2006


    
    

    2005
    
    
    2004% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofLoans in
    
    
    
    
    
    
    Loans in
    
    
    
    
    
    
    Loans in
    
    
    
    
    
    
    Loans in
    
    
    
    
    
    
    Loans inEach
    
    
    
    
    
    
    Each
    
    
    
    
    
    
    Each
    
    
    
    
    
    
    Each
    
    
    
    
    
    
    EachAmount
    
    
    Category
    
    
    Amount
    
    
    Category
    
    
    Amount
    
    
    Category
    
    
    Amount
    
    
    Category
    
    
    Amount
    
    
    CategoryIn thousandsCommercial,
financial
and agriculture
    
    $
    1,178
    
    
    
    22
    %
    
    $
    886
    
    
    
    22
    %
    
    $
    1,231
    
    
    
    22
    %
    
    $
    1,056
    
    
    
    21
    %
    
    $
    810
    
    
    
    20
    %Real estate-
construction and
mortgages
    
    
    543
    
    
    
    69
    
    
    
    479
    
    
    
    69
    
    
    
    508
    
    
    
    70
    
    
    
    528
    
    
    
    69
    
    
    
    467
    
    
    
    69Consumer, leasing
and other
    
    
    415
    
    
    
    8
    
    
    
    244
    
    
    
    8
    
    
    
    225
    
    
    
    8
    
    
    
    303
    
    
    
    10
    
    
    
    323
    
    
    
    11Impaired loans
    
    
    383
    
    
    
    1
    
    
    
    255
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unallocated
    
    
    232
    
    
    
    N/A
    
    
    
    280
    
    
    
    N/A
    
    
    
    168
    
    
    
    N/A
    
    
    
    135
    
    
    
    N/A
    
    
    
    207
    
    
    
    N/ATotal
    
    $
    2,751
    
    
    
    100
    %
    
    $
    2,144
    
    
    
    100
    %
    
    $
    2,132
    
    
    
    100
    %
    
    $
    2,022
    
    
    
    100
    %
    
    $
    1,807
    
    
    
    100
    %
  .
 SECURITIES PORTFOLIO AND FEDERAL FUNDS SOLDS
  .
 29




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TABLE 11. INVESTMENT SECURITIES
 December 312008
    
    
    2007
    
    
    2006Available for sale:U.S. Government agencies and
corporations
    
    $
    10,804
    
    
    $
    31,170
    
    
    $
    30,347Corporate bonds
    
    
    6,592
    
    
    
    
    
    
    
    State and municipal securities
    
    
    16,965
    
    
    
    11,477
    
    
    
    12,020Mortgage-backed securities
    
    
    17,783
    
    
    
    14,139
    
    
    
    7,104Collateralized mortgage obligations
    
    
    10,461
    
    
    
    9,231
    
    
    
    1,402Restricted securities
    
    
    2,321
    
    
    
    2,624
    
    
    
    1,753Total
    
    $
    64,926
    
    
    $
    68,641
    
    
    $
    52,626
   DEPOSITS AND OTHER FUNDING SOURCES
   30




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TABLE 12. MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
 Amount
    
    
    PercentIn thousandsThree months or less
    
    
    
    
    
    $
    2,847
    
    
    
    5.16
    %Three through six months
    
    
    
    
    
    
    5,402
    
    
    
    9.79Six through twelve months
    
    
    
    
    
    
    4,229
    
    
    
    7.67Over twelve months
    
    
    
    
    
    
    42,691
    
    
    
    77.38Total
    
    
    
    
    
    $
    55,169
    
    
    
    100
    %
 CONTRACTUAL OBLIGATIONS
  TABLE 13. CONTRACTUAL OBLIGATIONS
 Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    5 yearsPurchase obligations
    
    $
    3,808,777
    
    
    $
    396,298
    
    
    $
    948,894
    
    
    $
    985,434
    
    
    $
    1,478,151Other long-term liabilities
reflected on the registrants
balance sheet under GAAPSupplemental retirement liability (1)
    
    
    176,775
    
    
    
    
    
    
    
    43,938
    
    
    
    55,500
    
    
    
    77,337Pension liability
    
    
    2,459,821
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,459,821401k liability
    
    
    46,957
    
    
    
    46,957
    
    
    
    
    
    
    
    
    
    
    
    Deferred compensation
    
    
    1,066,134
    
    
    
    2,173
    
    
    
    
    
    
    
    
    
    
    
    1,063,962Post retirement liability (1)
    
    
    288,070
    
    
    
    58,970
    
    
    
    127,288
    
    
    
    62,373
    
    
    
    39,439Total contractual obligations
    
    $
    7,846,534
    
    
    $
    504,398
    
    
    $
    1,120,120
    
    
    $
    1,103,307
    
    
    $
    5,118,710
 
 (1)
    
    These amounts represent the net present value of cash flow payments at December 31,
2008. CAPITAL RESOURCES
  32




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RETURN ON EQUITY AND ASSETS
  TABLE 14. OPERATING AND CAPITAL RATIOS
 Years Ended December 31,2008
    
    2007Return on average assets
    
    
    .96
    %
    
    
    .90
    %Return on average equity
    
    
    11.66
    
    
    
    11.88Dividend payout ratio
    
    
    31.43
    
    
    
    30.76Average equity to average assets ratio
    
    
    8.21
    
    
    
    7.55
 LIQUIDITY
AND INTEREST RATE SENSITIVITY
    33




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TABLE 15. INTEREST SENSITIVITY ANALYSIS
 December 31, 2008Interest Sensitivity Period2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter
    
    
    Total
    
    
    Fair ValueIn thousandsRate sensitive assetsLoans, net of unearned interest
    
    $
    98,263
    
    
    $
    22,225
    
    
    $
    22,356
    
    
    $
    15,211
    
    
    $
    15,694
    
    
    $
    27,004
    
    
    $
    200,752
    
    
    $
    201,347Average interest rate
    
    
    5.99
    %
    
    
    6.98
    %
    
    
    6.79
    %
    
    
    6.86
    %
    
    
    7.37
    %
    
    
    6.92
    %
    
    
    6.65
    %Securities
    
    
    23,792
    
    
    
    5,234
    
    
    
    5,548
    
    
    
    2,374
    
    
    
    2,372
    
    
    
    23,286
    
    
    
    62,605
    
    
    
    62,605Average interest rate
    
    
    1.25
    %
    
    
    2.25
    %
    
    
    2.75
    %
    
    
    3.00
    %
    
    
    3.50
    %
    
    
    4.22
    %
    
    
    3.36
    %Total interest sensitive assets
    
    $
    122,055
    
    
    $
    27,458
    
    
    $
    27,903
    
    
    $
    17,585
    
    
    $
    18,066
    
    
    $
    50,290
    
    
    $
    263,357Interest sensitive liabilitiesNon-interest-bearing deposits
    
    $
    3,907
    
    
    $
    3,907
    
    
    $
    3,907
    
    
    $
    3,907
    
    
    $
    3,907
    
    
    $
    19,537
    
    
    
    39,071
    
    
    $
    39,071Average interest rate
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %Savings and interest-bearing checking
    
    
    5,943
    
    
    
    5,943
    
    
    
    5,943
    
    
    
    5,943
    
    
    
    5,943
    
    
    
    29,714
    
    
    
    59,429
    
    
    
    59,429Average interest rate
    
    
    0.25
    %
    
    
    0.25
    %
    
    
    0.25
    %
    
    
    0.25
    %
    
    
    0.25
    %
    
    
    0.25
    %
    
    
    0.25
    %Time deposits
    
    
    31,081
    
    
    
    42,438
    
    
    
    45,189
    
    
    
    5,547
    
    
    
    5,140
    
    
    
    
    
    
    
    129,395
    
    
    
    137,539Average interest rate
    
    
    3.56
    %
    
    
    4.30
    %
    
    
    3.80
    %
    
    
    4.33
    %
    
    
    3.67
    %
    
    
    
    %
    
    
    3.93
    %Total interest sensitive liabilities
    
    $
    40,931
    
    
    $
    52,288
    
    
    $
    55,039
    
    
    $
    15,397
    
    
    $
    14,990
    
    
    $
    49,251
    
    
    $
    227,895GAP
    
    $
    81,124
    
    
    $
    (24,830
    )
    
    $
    (27,136
    )
    
    $
    2,188
    
    
    $
    3,076
    
    
    $
    1,039Cumulative GAP
    
    $
    81,124
    
    
    $
    56,294
    
    
    $
    29,158
    
    
    $
    31,346
    
    
    $
    34,422
    
    
    $
    35,461GAP to sensitive assets ratio
    
    
    30.80
    %
    
    
    (9.43
    )%
    
    
    (10.30
    )%
    
    
    0.83
    %
    
    
    1.17
    %
    
    
    0.39
    %Cumulative GAP to sensitive
assets ratio
    
    
    30.80
    %
    
    
    21.38
    %
    
    
    11.07
    %
    
    
    11.90
    %
    
    
    13.07
    %
    
    
    13.47
    %GAP to total assets ratio
    
    
    28.74
    %
    
    
    (8.80
    )%
    
    
    (9.61
    )%
    
    
    0.78
    %
    
    
    1.09
    %
    
    
    0.37
    %Cumulative GAP to total assets ratio
    
    
    28.74
    %
    
    
    19.94
    %
    
    
    10.33
    %
    
    
    11.11
    %
    
    
    12.20
    %
    
    
    12.56
    %
 IMPACT OF INFLATION
    
 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  34




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##### Table of Contents



Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  CNB Financial Services, Inc. and SubsidiaryManagements Report on Internal Control
    
    
    36Independent Registered Public Accounting Firm Report
    
    
    37Consolidated Balance Sheets
    
    
    38Consolidated Statements of Income
    
    
    39Consolidated Statements of Stockholders Equity
    
    
    40Consolidated Statements of Cash Flows
    
    
    41Notes to Consolidated Financial Statements
    
    
    42
 35




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##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL
 
  Internal Control  Integrated Framework
  /s/ Thomas F. Rokisky
    
    
    
    /s/ Rebecca S. StotlerThomas F. Rokisky
    
    
    
    Rebecca S. StotlerPresident and Chief Executive Officer
    
    
    
    Sr. Vice President and Chief Financial OfficerFebruary 25, 2009
 36




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     /s/ SMITH ELLIOTT KEARNS & COMPANY, LLC 
 37




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##### Table of Contents



CNB FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2008 AND 2007
 2008
    
    
    2007ASSETSCash and due from banks
    
    $
    4,770,724
    
    
    $
    7,791,093Securities available for sale
(at approximate market value)
    
    
    62,604,735
    
    
    
    66,017,231Federal Home Loan Bank stock, at cost
    
    
    2,321,300
    
    
    
    2,623,600Loans and leases receivable, net
    
    
    200,752,202
    
    
    
    202,668,845Accrued interest receivable
    
    
    1,272,742
    
    
    
    1,406,804Foreclosed real estate (held for sale), net
    
    
    253,300
    
    
    
    150,845Premises and equipment, net
    
    
    5,842,368
    
    
    
    6,111,273Deferred income taxes
    
    
    1,889,746
    
    
    
    927,843Cash surrender value of life insurance
    
    
    1,617,055
    
    
    
    1,491,093Intangible assets
    
    
    274,145
    
    
    
    385,661Other assets
    
    
    658,665
    
    
    
    841,156TOTAL ASSETS
    
    $
    282,256,982
    
    
    $
    290,415,444LIABILITIES AND SHAREHOLDERS EQUITYLIABILITIESDeposits:Demand
    
    $
    39,469,377
    
    
    $
    42,690,898Interest-bearing demand
    
    
    35,554,781
    
    
    
    35,278,551Savings
    
    
    23,476,255
    
    
    
    23,462,625Time, $100,000 and over
    
    
    55,269,424
    
    
    
    44,493,979Other time
    
    
    74,125,229
    
    
    
    80,718,661$
    227,895,066
    
    
    $
    226,644,714Accrued interest payable
    
    
    1,126,219
    
    
    
    1,281,166FHLB borrowings
    
    
    25,445,000
    
    
    
    37,500,000Accrued expenses and other liabilities
    
    
    4,572,907
    
    
    
    2,168,119TOTAL LIABILITIES
    
    $
    259,039,192
    
    
    $
    267,593,999SHAREHOLDERS EQUITYCommon stock, $1 par value; 5,000,000 shares
authorized; 458,048 shares issued at December 31, 2008 and
December 31, 2007 and 449,151 and 454,949 outstanding at
December 31, 2008 and December 31, 2007
    
    $
    458,048
    
    
    $
    458,048Capital surplus
    
    
    4,163,592
    
    
    
    4,163,592Retained earnings
    
    
    21,015,652
    
    
    
    19,155,244Accumulated other comprehensive income (loss)
    
    
    (1,848,990
    )
    
    
    (747,806
    )$
    23,788,302
    
    
    $
    23,029,078Less treasury stock, at cost, 8,897 shares in 2008 and 3,099
shares in 2007
    
    
    (570,512
    )
    
    
    (207,633
    )TOTAL SHAREHOLDERS EQUITY
    
    $
    23,217,790
    
    
    $
    22,821,445TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    282,256,982
    
    
    $
    290,415,444
  38




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##### Table of Contents



CNB FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 2008
    
    
    2007
    
    
    2006INTEREST INCOMEInterest and fees on loans
    
    $
    13,971,297
    
    
    $
    14,585,845
    
    
    $
    13,481,504Interest and dividends on securities:U.S. Government agencies and
corporations
    
    
    660,426
    
    
    
    1,372,612
    
    
    
    1,560,210Corporate bonds
    
    
    346,400
    
    
    
    
    
    
    
    Mortgage backed securities
    
    
    1,409,912
    
    
    
    708,398
    
    
    
    441,166State and political subdivisions
    
    
    520,511
    
    
    
    398,255
    
    
    
    403,097Dividend income
    
    
    84,316
    
    
    
    93,883
    
    
    
    81,663Interest on FHLB deposits
    
    
    2,766
    
    
    
    5,489
    
    
    
    20,396Interest on federal funds sold
    
    
    
    
    
    
    36,921
    
    
    
    1,317$
    16,995,628
    
    
    $
    17,201,403
    
    
    $
    15,989,353INTEREST EXPENSEInterest on interest bearing demand,
savings and time deposits
    
    $
    5,539,747
    
    
    $
    6,809,967
    
    
    $
    5,290,613Interest on FHLB borrowings
    
    
    767,619
    
    
    
    915,241
    
    
    
    978,243$
    6,307,366
    
    
    $
    7,725,208
    
    
    $
    6,268,856NET INTEREST INCOME
    
    $
    10,688,262
    
    
    $
    9,476,195
    
    
    $
    9,720,497PROVISION FOR LOAN LOSSES
    
    
    940,500
    
    
    
    168,999
    
    
    
    275,500NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
    
    $
    9,747,762
    
    
    $
    9,307,196
    
    
    $
    9,444,997NONINTEREST INCOMEService charges on deposit accounts
    
    $
    1,390,288
    
    
    $
    1,389,868
    
    
    $
    1,273,409Other service charges and fees
    
    
    577,337
    
    
    
    541,753
    
    
    
    470,101Trust fee income
    
    
    231,660
    
    
    
    242,831
    
    
    
    199,348Other operating income
    
    
    68,315
    
    
    
    129,322
    
    
    
    61,360Net gain on sales of loans
    
    
    51,782
    
    
    
    86,871
    
    
    
    Net gain (loss) on sales and calls of securities
    
    
    119,550
    
    
    
    (2,688
    )
    
    
    (37,271
    )Other than temporary impairment on investment securities
    
    
    (86,468
    )
    
    
    
    
    
    
    Net gain (loss) on sale of other real estate owned
    
    
    (69,264
    )
    
    
    
    
    
    
    Net gain (loss) on disposal of premises, equipment and software
    
    
    (49,212
    )
    
    
    225
    
    
    
    (19,756
    )Income from title company
    
    
    7,030
    
    
    
    12,023
    
    
    
    20,668$
    2,241,018
    
    
    $
    2,400,205
    
    
    $
    1,967,859NONINTEREST EXPENSESSalaries
    
    $
    2,883,534
    
    
    $
    2,928,925
    
    
    $
    2,885,950Employee benefits
    
    
    1,277,780
    
    
    
    1,241,633
    
    
    
    1,258,295Occupancy of premises
    
    
    504,608
    
    
    
    521,962
    
    
    
    509,945Furniture and equipment expense
    
    
    845,498
    
    
    
    850,208
    
    
    
    812,216Other operating expenses
    
    
    2,454,869
    
    
    
    2,469,626
    
    
    
    2,293,366$
    7,966,289
    
    
    $
    8,012,354
    
    
    $
    7,759,772INCOME BEFORE INCOME TAXES
    
    $
    4,022,491
    
    
    $
    3,695,047
    
    
    $
    3,653,084PROVISION FOR INCOME TAXES
    
    
    1,307,280
    
    
    
    1,190,791
    
    
    
    1,263,126INCOME FROM CONTINUING OPERATIONS
    
    $
    2,715,211
    
    
    $
    2,504,256
    
    
    $
    2,389,958NET RESULTS FROM DISCONTINUED OPERATIONS
OF CNB INSURANCE SERVICES, INC
BEFORE INCOME TAXES
    
    $
    
    
    
    $
    
    
    
    $
    124,157PROVISION FOR INCOME TAXES
    
    $
    
    
    
    $
    
    
    
    $
    45,453NET RESULTS OF DISCONTINUED OPERATIONS
    
    $
    
    
    
    $
    
    
    
    $
    78,704NET INCOME
    
    $
    2,715,211
    
    
    $
    2,504,256
    
    
    $
    2,468,662BASIC EARNINGS PER SHARE
    
    $
    6.01
    
    
    $
    5.48
    
    
    $
    5.39
  39




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##### Table of Contents



CNB FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 AccumulatedOther
    
    
    TotalCommon
    
    
    Treasury
    
    
    Capital
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersStock
    
    
    Stock
    
    
    Surplus
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBALANCE, DECEMBER 31, 2005
    
    $
    458,048
    
    
    $
    
    
    
    $
    4,163,592
    
    
    $
    15,658,134
    
    
    $
    (1,271,733
    )
    
    $
    19,008,041Comprehensive income:Net income for 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,468,662
    
    
    
    
    
    
    
    2,468,662Change in unrealized gains

(losses) on securities available
for sale (net of tax of $61,559)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,439
    
    
    
    100,439Change in minimum pension liability
adjustment (net of tax of $46,688)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,175
    
    
    
    76,175Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,645,276Adjustment to initially apply FASB
Statement No. 158, (net of tax of $383,469)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (625,661
    )
    
    
    (625,661
    )Cash dividends ($1.54 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (705,394
    )
    
    
    
    
    
    
    (705,394
    )BALANCE, DECEMBER 31, 2006
    
    $
    458,048
    
    
    $
    
    
    
    $
    4,163,592
    
    
    $
    17,421,402
    
    
    $
    (1,720,780
    )
    
    $
    20,322,262Comprehensive income:Net income for 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,504,256
    
    
    
    Change in unrealized gains
(losses) on securities available
for sale (net of tax of $395,359)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    645,060
    
    
    
    645,060Change in unfunded pension liability
(net of tax of $200,979)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    327,914
    
    
    
    327,914Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,477,230Acquisition of treasury stock, at cost,
3,099 shares
    
    
    
    
    
    
    (207,633
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (207,633
    )Cash dividends ($1.69 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (770,414
    )
    
    
    
    
    
    
    (770,414
    )BALANCE, DECEMBER 31, 2007
    
    $
    458,048
    
    
    $
    (207,633
    )
    
    $
    4,163,592
    
    
    $
    19,155,244
    
    
    $
    (747,806
    )
    
    $
    22,821,445Comprehensive income:Net income for 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,715,211
    
    
    
    
    
    
    
    2,715,211Change in unrealized gains
(losses) on securities available
for sale (net of tax of $112,510)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (183,569
    )
    
    
    (183,569
    )Change in unfunded pension liability
(net of tax of $562,408)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (917,615
    )
    
    
    (917,615
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,614,027Acquisition of treasury stock, at cost,
5,798 shares
    
    
    
    
    
    
    (362,879
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (362,879
    )Cash dividends ($1.90 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (854,803
    )
    
    
    
    
    
    
    (854,803
    )BALANCE, DECEMBER 31, 2008
    
    $
    458,048
    
    
    $
    (570,512
    )
    
    $
    4,163,592
    
    
    $
    21,015,652
    
    
    $
    (1,848,990
    )
    
    $
    23,217,790
  40




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##### Table of Contents



CNB FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 2008
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    2,715,211
    
    
    $
    2,504,256
    
    
    $
    2,468,662Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization on premises, equipment and software
    
    
    547,736
    
    
    
    579,761
    
    
    
    595,308Amortization of intangible assets
    
    
    111,516
    
    
    
    111,517
    
    
    
    113,996Provision for loan losses
    
    
    940,500
    
    
    
    168,999
    
    
    
    275,500Deferred income taxes
    
    
    (286,984
    )
    
    
    (42,015
    )
    
    
    (47,349
    )Net (gain) loss on sales and calls of securities
    
    
    (119,550
    )
    
    
    2,688
    
    
    
    37,271Other than temporary impairment on investment securities
    
    
    86,468
    
    
    
    
    
    
    
    Loss on sale of real estate owned
    
    
    69,264
    
    
    
    
    
    
    
    (Gain) loss on disposal of premises, equipment and software
    
    
    49,212
    
    
    
    (225
    )
    
    
    19,756Net (gain) on loans sold
    
    
    (51,782
    )
    
    
    (86,871
    )
    
    
    Loans originated for sale
    
    
    (4,239,250
    )
    
    
    (5,314,950
    )
    
    
    Proceeds from loans sold
    
    
    4,291,032
    
    
    
    5,401,821
    
    
    
    (Gain) on sale of assets of CNB Insurance Services, Inc.
    
    
    
    
    
    
    
    
    
    
    (143,913
    )(Gain) on sale of stock
    
    
    
    
    
    
    (59,369
    )
    
    
    (Increase) decrease in accrued interest receivable
    
    
    134,062
    
    
    
    (52,763
    )
    
    
    (123,264
    )(Increase) decrease in other assets
    
    
    299,867
    
    
    
    (86,477
    )
    
    
    (131,488
    )Increase (decrease) in accrued interest payable
    
    
    (154,947
    )
    
    
    209,176
    
    
    
    460,478(Increase) in cash surrender value on life insurance in excess
of premiums paid
    
    
    (67,528
    )
    
    
    (38,138
    )
    
    
    (56,009
    )Increase (decrease) in accrued expenses and other liabilities
    
    
    924,764
    
    
    
    (394,537
    )
    
    
    58,413Amortization of deferred loan (fees) cost
    
    
    71,137
    
    
    
    82,770
    
    
    
    60,439Amortization (accretion) of premium and discount on investments
    
    
    12,375
    
    
    
    13,254
    
    
    
    15,803NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    $
    5,333,103
    
    
    $
    2,998,897
    
    
    $
    3,603,603CASH FLOWS FROM INVESTING ACTIVITIESNet (increase) decrease in loans
    
    $
    229,039
    
    
    $
    1,252,722
    
    
    $
    (24,447,542
    )Proceeds from sales of securities
    
    
    2,803,399
    
    
    
    3,796,972
    
    
    
    12,218,693Proceeds from maturities, repayments and calls of securities
    
    
    35,569,701
    
    
    
    4,250,091
    
    
    
    2,675,837Purchases of securities
    
    
    (35,230,720
    )
    
    
    (22,177,257
    )
    
    
    (10,464,725
    )Purchases of Federal Home Loan Bank stock
    
    
    (1,697,000
    )
    
    
    (2,598,500
    )
    
    
    (6,356,000
    )Redemptions of Federal Home Loan Bank stock
    
    
    1,999,300
    
    
    
    1,727,900
    
    
    
    6,272,900Redemptions of Federal Reserve Bank stock
    
    
    
    
    
    
    
    
    
    
    138,650Purchases of premises, equipment and software
    
    
    (400,745
    )
    
    
    (408,326
    )
    
    
    (280,657
    )Proceeds from sales of premises and equipment
    
    
    
    
    
    
    1,270
    
    
    
    Proceeds from sale of real estate owned
    
    
    471,282
    
    
    
    
    
    
    
    Costs to acquire foreclosed real estate
    
    
    (17,034
    )
    
    
    (5,188
    )
    
    
    Proceeds from sale of assets of CNB Insurance Services, Inc.
    
    
    
    
    
    
    
    
    
    
    153,332Proceeds from sale of stock
    
    
    
    
    
    
    59,369
    
    
    
    Investment in (return of capital from) title company
    
    
    70
    
    
    
    (123
    )
    
    
    332Net decrease in federal funds sold
    
    
    
    
    
    
    9,000
    
    
    
    29,000Premiums paid on life insurance
    
    
    (58,434
    )
    
    
    (58,434
    )
    
    
    (58,822
    )NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
    
    $
    3,668,858
    
    
    $
    (14,150,504
    )
    
    $
    (20,119,002
    )CASH FLOWS FROM FINANCING ACTIVITIESNet (decrease) in demand and savings deposits
    
    $
    (2,931,661
    )
    
    $
    (21,417,803
    )
    
    $
    (7,063,703
    )Net increase in time deposits
    
    
    4,182,013
    
    
    
    14,979,777
    
    
    
    20,858,017Net increase (decrease) in FHLB borrowings
    
    
    (12,055,000
    )
    
    
    19,000,000
    
    
    
    700,000Purchase of treasury stock
    
    
    (362,879
    )
    
    
    (207,633
    )
    
    
    Cash dividends paid
    
    
    (854,803
    )
    
    
    (770,414
    )
    
    
    (705,394
    )NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    
    $
    (12,022,330
    )
    
    $
    11,583,927
    
    
    $
    13,788,920NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
    
    $
    (3,020,369
    )
    
    $
    432,320
    
    
    $
    (2,726,479
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    7,791,093
    
    
    
    7,358,773
    
    
    
    10,085,252CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    4,770,724
    
    
    $
    7,791,093
    
    
    $
    7,358,773SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid during the year:Interest
    
    $
    6,462,313
    
    
    $
    7,516,032
    
    
    $
    5,808,377Income taxes
    
    $
    1,577,750
    
    
    $
    1,165,500
    
    
    $
    1,386,500Net transfer to foreclosed real estate, held for sale
from loans receivable
    
    $
    717,341
    
    
    $
    145,657
    
    
    $
    Other real estate acquired in settlement of loans
    
    $
    50,000
    
    
    $
    
    
    
    $
    Unrealized gain (loss) on investment securities
available for sale (net of tax)
    
    $
    (183,569
    )
    
    $
    645,060
    
    
    $
    100,439
  41




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Nature of Operations
       Principles of Consolidation
  Use of Estimates
  Securities and Mortgage-Backed Securities
  42




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##### Table of Contents



Impaired loans
 Accounting by Creditors for Impairment of a Loan
 Allowance for Loan Losses
   Loans Held for Sale
  43




---



##### Table of Contents



Intangible Assets
  Loan Servicing
  Interest Income on Loans
  Nonperforming/Nonaccrual Assets
  Loans and Leases Receivable
  Loan Origination Fees and Costs
  Premises and Equipment
  Income Taxes
   44




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##### Table of Contents



Pension Plan
  Cash and Cash Equivalents
  Earnings and Dividends Per Share
  Off-Balance Sheet Financial Instruments
  Postretirement and Postemployment Benefits Other Than Pensions
  Foreclosed Real Estate
  Trust Assets
  45




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##### Table of Contents



Advertising Costs
  Comprehensive Income
    2008
    
    
    2007
    
    
    2006Additional pension liability adjustment
arising during the year
    
    $
    (1,480,023
    )
    
    $
    528,893
    
    
    $
    (886,267
    )Unrealized holding gains (losses) arising
during
the year on securities available for sale
    
    
    (176,529
    )
    
    
    1,037,731
    
    
    
    124,727Reclassification adjustment for (gains) losses
realized in net income on sale of securities
    
    
    (119,550
    )
    
    
    2,688
    
    
    
    37,271Net change in accumulated other comprehensive
income before taxes
    
    $
    (1,776,102
    )
    
    $
    1,569,312
    
    
    $
    (724,269
    )Tax effect
    
    
    674,918
    
    
    
    (596,338
    )
    
    
    275,222Net change
    
    $
    (1,101,184
    )
    
    $
    972,974
    
    
    $
    (449,047
    )
 Fair Value Measurements
  
    
    Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets.
    
    Level 2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable for the asset
or liability, either directly or indirectly, for substantially the full term of the
financial instrument.
    
    Level 3 inputs to the valuation methodology are unobservable and significant to
the fair value measurement.
  46




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##### Table of Contents



Securities
    Loans held for sale
  Impaired loans
  Other Real Estate Owned
  Recently Issued Accounting Standards
   47




---



##### Table of Contents



Accounting for Servicing of Financial Assets, The Fair Value Option for Financial Assets and Financial Liabilities,
  Share-Based Payment
  48




---



##### Table of Contents



NOTE 2. INVESTMENT IN LIMITED LIABILITY COMPANY
  49




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##### Table of Contents



MORGAN COUNTY TITLE INSURANCE AGENCY, LLC
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
DECEMBER 31, 2008 AND 2007
 2008
    
    
    2007ASSETSCash
    
    $
    3,474
    
    
    $
    3,684TOTAL ASSETS
    
    $
    3,474
    
    
    $
    3,684MEMBERS EQUITY
    
    $
    3,474
    
    
    $
    3,684TOTAL MEMBERS EQUITY
    
    $
    3,474
    
    
    $
    3,684
 MORGAN COUNTY TITLE INSURANCE AGENCY, LLC
STATEMENTS OF INCOME
(Unaudited)
YEARS ENDED DECEMBER 31, 2008, 2007AND 2006
 2008
    
    
    2007
    
    
    2006INCOMEInsurance commissions
    
    $
    39,005
    
    
    $
    65,653
    
    
    $
    101,084TOTAL INCOME
    
    $
    39,005
    
    
    $
    65,653
    
    
    $
    101,084EXPENSESManagement fees
    
    $
    14,695
    
    
    $
    26,776
    
    
    $
    32,300Other expenses
    
    
    3,220
    
    
    
    2,908
    
    
    
    6,725TOTAL EXPENSES
    
    $
    17,915
    
    
    $
    29,684
    
    
    $
    39,025NET INCOME
    
    $
    21,090
    
    
    $
    35,969
    
    
    $
    62,059
 50




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##### Table of Contents



MORGAN COUNTY TITLE INSURANCE AGENCY, LLC
STATEMENTS OF CASH FLOWS
(Unaudited)
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 2008
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    21,090
    
    
    $
    35,969
    
    
    $
    62,059NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    $
    21,090
    
    
    $
    35,969
    
    
    $
    62,059CASH FLOWS FROM FINANCING ACTIVITIESProfit and capital distributed
    
    $
    (21,300
    )
    
    $
    (35,700
    )
    
    $
    (63,000
    )NET CASH (USED IN) FINANCING ACTIVITIES
    
    $
    (21,300
    )
    
    $
    (35,700
    )
    
    $
    (63,000
    )NET INCREASE IN CASH AND CASH
EQUIVALENTS
    
    $
    (210
    )
    
    $
    269
    
    
    $
    (941
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    3,684
    
    
    
    3,415
    
    
    
    4,356CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    3,474
    
    
    $
    3,684
    
    
    $
    3,415
 NOTE 3. SECURITIES
   51




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##### Table of Contents



Weighted2008
    
    
    AverageGross
    
    
    Gross
    
    
    Estimated
    
    
    TaxAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    EquivalentCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    YieldAvailable for sale:U.S. Government agencies
and corporationsWithin one year
    
    $
    3,714,859
    
    
    $
    4,957
    
    
    $
    
    
    
    $
    3,719,816
    
    
    
    3.90
    %After 1 but within 5 years
    
    
    1,592,342
    
    
    
    368
    
    
    
    
    
    
    
    1,592,710
    
    
    
    3.15After 5 but within 10 years
    
    
    5,394,502
    
    
    
    96,724
    
    
    
    
    
    
    
    5,491,226
    
    
    
    4.56$
    10,701,703
    
    
    $
    102,049
    
    
    $
    
    
    
    $
    10,803,752
    
    
    
    4.12
    %Corporate BondsAfter 1 but within 5 years
    
    $
    1,735,480
    
    
    $
    
    
    
    $
    173,968
    
    
    $
    1,561,512
    
    
    
    5.64
    %After 5 but within 10 years
    
    
    5,478,377
    
    
    
    
    
    
    
    448,115
    
    
    
    5,030,262
    
    
    
    5.47$
    7,213,857
    
    
    $
    
    
    
    $
    622,083
    
    
    
    6,591,774
    
    
    
    5.51
    %States and political subdivisionsWithin one year
    
    $
    874,070
    
    
    $
    5,303
    
    
    $
    
    
    
    $
    879,373
    
    
    
    2.80
    %After 1 but within 5 years
    
    
    4,635,138
    
    
    
    46,652
    
    
    
    5,120
    
    
    
    4,676,670
    
    
    
    3.33After 5 but within 10 years
    
    
    11,581,159
    
    
    
    35,359
    
    
    
    207,323
    
    
    
    11,409,195
    
    
    
    3.72$
    17,090,367
    
    
    $
    87,314
    
    
    $
    212,443
    
    
    $
    16,965,238
    
    
    
    3.57
    %Mortgage backed securities:Government issued or
guaranteed
    
    $
    17,278,086
    
    
    $
    511,216
    
    
    $
    5,937
    
    
    $
    17,783,365
    
    
    
    5.35
    %Collateralized mortgage obligations:Government issued or
guaranteed
    
    $
    8,942,326
    
    
    $
    141,517
    
    
    $
    41,825
    
    
    $
    9,042,018
    
    
    
    5.06
    %Privately issued
    
    
    1,691,093
    
    
    
    
    
    
    
    272,505
    
    
    
    1,418,588
    
    
    
    7.01$
    10,633,419
    
    
    $
    141,517
    
    
    $
    314,330
    
    
    $
    10,460,606
    
    
    
    5.37
    %Total securities available for sale
    
    $
    62,917,432
    
    
    $
    842,096
    
    
    $
    1,154,793
    
    
    $
    62,604,735
    
    
    
    4.68
    %Restricted:Federal Home Loan Bank stock
    
    $
    2,321,300
    
    
    $
    
    
    
    $
    
    
    
    $
    2,321,300
    
    
    
    2.35
    %
 52




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##### Table of Contents



Weighted2007
    
    
    AverageGross
    
    
    Gross
    
    
    Estimated
    
    
    TaxAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    EquivalentCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    YieldAvailable for sale:U.S. Government agencies
and corporationsWithin one year
    
    $
    13,892,949
    
    
    $
    21,851
    
    
    $
    4,802
    
    
    $
    13,909,998
    
    
    
    4.58
    %After 1 but within 5 years
    
    
    15,236,652
    
    
    
    33,176
    
    
    
    31,057
    
    
    
    15,238,771
    
    
    
    4.09After 5 but within 10 years
    
    
    1,987,371
    
    
    
    33,929
    
    
    
    
    
    
    
    2,021,300
    
    
    
    5.86$
    31,116,972
    
    
    $
    88,956
    
    
    $
    35,859
    
    
    $
    31,170,069
    
    
    
    4.42
    %States and political subdivisionsWithin one year
    
    $
    551,482
    
    
    $
    311
    
    
    $
    1,711
    
    
    $
    550,082
    
    
    
    2.85
    %After 1 but within 5 years
    
    
    2,064,702
    
    
    
    24,344
    
    
    
    22,266
    
    
    
    2,066,780
    
    
    
    3.40After 5 but within 10 years
    
    
    8,990,637
    
    
    
    2,330
    
    
    
    132,262
    
    
    
    8,860,705
    
    
    
    3.55$
    11,606,821
    
    
    $
    26,985
    
    
    $
    156,239
    
    
    $
    11,477,567
    
    
    
    3.49
    %Mortgage backed securities:Government issued or guaranteed
    
    $
    14,149,889
    
    
    $
    86,271
    
    
    $
    97,135
    
    
    $
    14,139,025
    
    
    
    5.37
    %Collateralized mortgage obligations:Government issued or guaranteed
    
    $
    7,236,286
    
    
    $
    80,871
    
    
    $
    7,907
    
    
    $
    7,309,250
    
    
    
    5.54
    %Privately issued
    
    
    1,923,882
    
    
    
    12,116
    
    
    
    14,677
    
    
    
    1,921,321
    
    
    
    5.92$
    9,160,168
    
    
    $
    92,987
    
    
    $
    22,584
    
    
    $
    9,230,571
    
    
    
    5.62
    %Total securities available for sale
    
    $
    66,033,850
    
    
    $
    295,199
    
    
    $
    311,817
    
    
    $
    66,017,232
    
    
    
    4.63
    %Restricted:Federal Home Loan Bank stock
    
    $
    2,623,600
    
    
    $
    
    
    
    $
    
    
    
    $
    2,623,600
    
    
    
    6.00
    %
    53




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##### Table of Contents



2008Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesCorporate bonds
    
    $
    6,591,774
    
    
    $
    622,083
    
    
    $
    
    
    
    $
    
    
    
    $
    6,591,774
    
    
    $
    622,083State and political subdivisions
    
    
    7,296,127
    
    
    
    210,761
    
    
    
    217,773
    
    
    
    1,682
    
    
    
    7,513,900
    
    
    
    212,443Mortgage backed securities:Government issued or
guaranteed
    
    
    296,216
    
    
    
    271
    
    
    
    492,011
    
    
    
    5,666
    
    
    
    788,227
    
    
    
    5,937Collateralized mortgage
obligations:Government issued or
guaranteed
    
    
    1,130,704
    
    
    
    9,320
    
    
    
    393,802
    
    
    
    32,505
    
    
    
    1,524,506
    
    
    
    41,825Privately issued
    
    
    1,418,529
    
    
    
    272,505
    
    
    
    
    
    
    
    
    
    
    
    1,418,529
    
    
    
    272,505Total temporarily impaired
securities
    
    $
    16,733,350
    
    
    $
    1,114,940
    
    
    $
    1,103,586
    
    
    $
    39,853
    
    
    $
    17,836,936
    
    
    $
    1,154,793
 2007Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Government agencies
and corporations
    
    $
    6,999,300
    
    
    $
    700
    
    
    $
    12,876,348
    
    
    $
    35,159
    
    
    $
    19,875,648
    
    
    $
    35,859State and political subdivisions
    
    
    2,067,956
    
    
    
    24,596
    
    
    
    8,102,090
    
    
    
    131,643
    
    
    
    10,170,046
    
    
    
    156,239Mortgage backed securities:Government issued or
guaranteed
    
    
    846,880
    
    
    
    4
    
    
    
    5,448,594
    
    
    
    97,131
    
    
    
    6,295,474
    
    
    
    97,135Collateralized mortgage
obligations:Government issued or
guaranteed
    
    
    1,548,343
    
    
    
    7,907
    
    
    
    
    
    
    
    
    
    
    
    1,548,343
    
    
    
    7,907Privately issued
    
    
    467,086
    
    
    
    14,677
    
    
    
    
    
    
    
    
    
    
    
    467,086
    
    
    
    14,677Total temporarily impaired
securities
    
    $
    11,929,565
    
    
    $
    47,884
    
    
    $
    26,427,032
    
    
    $
    263,933
    
    
    $
    38,356,597
    
    
    $
    311,817
  54




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##### Table of Contents



NOTE 4. LOANS AND LEASES RECEIVABLE
  2008
    
    
    2007Loans:Real estate
    
    $
    137,770,172
    
    
    $
    143,012,227Commercial real estate
    
    
    40,613,894
    
    
    
    37,587,676Consumer
    
    
    16,665,647
    
    
    
    15,544,183Commercial
    
    
    7,931,399
    
    
    
    8,179,019Overdrafts
    
    
    91,515
    
    
    
    104,240$
    203,072,627
    
    
    $
    204,427,345Leases
    
    
    105,219
    
    
    
    112,838$
    203,177,846
    
    
    $
    204,540,183Net deferred loan fees, costs,
premiums and discounts
    
    
    325,742
    
    
    
    273,123Allowance for loan losses
    
    
    (2,751,386
    )
    
    
    (2,144,461
    )$
    200,752,202
    
    
    $
    202,668,845
   2008
    
    
    2007
    
    
    2006Balance, beginning
    
    $
    2,144,461
    
    
    $
    2,131,523
    
    
    $
    2,022,130Provision charged to
operations
    
    
    940,500
    
    
    
    168,999
    
    
    
    275,500Recoveries
    
    
    188,860
    
    
    
    183,281
    
    
    
    151,513Loans charged off
    
    
    (522,435
    )
    
    
    (339,342
    )
    
    
    (317,620
    )Balance, ending
    
    $
    2,751,386
    
    
    $
    2,144,461
    
    
    $
    2,131,523
 55




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##### Table of Contents



December 31,2008
    
    
    2007(in thousands)Impaired loans without a valuation allowance
    
    $
    
    
    
    $
    Impaired loans with a valuation allowance (1)
    
    
    1,227,068
    
    
    
    1,410,100Total impaired loans
    
    $
    1,227,068
    
    
    $
    1,410,100Valuation allowance related to impaired loans
    
    $
    383,350
    
    
    $
    254,680
 
 (1)
    
    Some of these loans have government agency guarantees
reducing the banks exposure by $57,611. Years Ended December 31,2008
    
    
    2007(in thousands)Average investment in impaired loans
    
    $
    1,318,584
    
    
    $
    705,050Interest income recognized on impaired loans
    
    $
    52,430
    
    
    $
    85,185Interest income recognized on a cash basis on
impaired loans
    
    $
    52,430
    
    
    $
    85,185
  December 31,2008
    
    
    2007Foreclosed real estate (other real estate owned)
    
    $
    253,300
    
    
    $
    150,845Impaired loans, not on nonaccrual
    
    
    130,905
    
    
    
    847,852Nonaccrual loans, impaired (1)
    
    
    1,096,163
    
    
    
    562,248Nonaccrual loans, not impaired
    
    
    402,520
    
    
    
    551,904Loans past due 90 days or more still accruing interest
    
    
    
    
    
    
    Total non-performing assets
    
    $
    1,882,888
    
    
    $
    2,112,849
 
 (1)
    
    Some of these loans have government agency guarantees reducing the banks
exposure by $57,611.   56




---



##### Table of Contents



NOTE 5. LOAN SERVICING
    NOTE 6. PREMISES AND EQUIPMENT
  2008
    
    
    2007Land and land improvements
    
    $
    2,077,658
    
    
    $
    2,077,658Banking house  Main
    
    
    1,528,011
    
    
    
    1,516,466Banking house  Valley Road branch
    
    
    547,936
    
    
    
    547,936Banking house  Hedgesville branch
    
    
    783,368
    
    
    
    770,643Banking house  Martinsburg branch
    
    
    697,006
    
    
    
    697,006Banking house  Hancock branch
    
    
    235,589
    
    
    
    230,999Banking house  Spring Mills branch
    
    
    885,697
    
    
    
    885,697Bank owned automobiles
    
    
    49,752
    
    
    
    41,657Furniture, fixtures and equipment
    
    
    2,961,545
    
    
    
    3,096,484$
    9,766,562
    
    
    $
    9,864,546Less accumulated depreciation
    
    
    3,924,194
    
    
    
    3,753,273$
    5,842,368
    
    
    $
    6,111,273
   NOTE 7. INTANGIBLE ASSETS
    57




---



##### Table of Contents



2009
    
    $111,5162010
    
    $111,5162011
    
    $  51,114
 NOTE 8. TIME DEPOSITS
  Time Deposits
    
    
    All Time$100,000 and over
    
    
    Deposits2009
    
    $
    12,478,120
    
    
    $
    31,081,3682010
    
    
    18,441,061
    
    
    
    42,437,5722011
    
    
    20,848,005
    
    
    
    45,188,9542012
    
    
    1,600,559
    
    
    
    5,547,1122013
    
    
    1,801,679
    
    
    
    5,139,648$
    55,169,424
    
    
    $
    129,394,653
 NOTE 9. FEDERAL HOME LOAN BANK BORROWINGS
 December 31,2008
    
    
    2007Federal Home Loan Bank advances
    
    $
    25,445,000
    
    
    $
    37,500,000
  58




---



##### Table of Contents



2008
    
    
    2007Maximum balance outstanding at any month-end during the year
    
    $
    34,900,000
    
    
    $
    37,500,000Average balance for the year
    
    
    30,549,453
    
    
    
    18,212,781Weighted average rate for the year
    
    
    2.47
    %
    
    
    4.97
    %Weighted average rate at year-end
    
    
    1.47
    %
    
    
    3.80
    %
 NOTE 10. UNUSED LINES OF CREDIT
  NOTE 11. PENSION PLAN
   59




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##### Table of Contents



December 31,
    
    
    October 31,
    
    
    October 31,2008
    
    
    2007
    
    
    2006Change in benefit obligation:Benefit obligation at
beginning of year
    
    $
    5,014,903
    
    
    $
    4,859,682
    
    
    $
    4,186,024Adjustment for plan changes
    
    
    
    
    
    
    
    
    
    
    Service cost
    
    
    257,310
    
    
    
    247,821
    
    
    
    232,392Interest cost
    
    
    333,188
    
    
    
    267,244
    
    
    
    248,471Actuarial (gain) loss
    
    
    (659
    )
    
    
    (181,949
    )
    
    
    346,984Benefits paid
    
    
    (221,884
    )
    
    
    (177,895
    )
    
    
    (154,189
    )Benefit obligation at end of
year
    
    $
    5,382,858
    
    
    $
    5,014,903
    
    
    $
    4,859,682Change in plan assets:Fair value of plan assets at
beginning of year
    
    $
    4,097,489
    
    
    $
    3,365,278
    
    
    $
    2,760,085Actual return on plan assets
    
    
    (1,202,568
    )
    
    
    522,339
    
    
    
    346,212Employer contribution
    
    
    250,000
    
    
    
    387,767
    
    
    
    413,170Benefits paid
    
    
    (221,884
    )
    
    
    (177,895
    )
    
    
    (154,189
    )Fair value of plan assets
at end of year
    
    $
    2,923,037
    
    
    $
    4,097,489
    
    
    $
    3,365,278Funded status
    
    $
    (2,459,821
    )
    
    $
    (917,414
    )
    
    $
    (1,494,404
    )Unrecognized net actuarial
(gain) loss
    
    
    2,556,379
    
    
    
    1,061,955
    
    
    
    1,578,504Unrecognized prior service
cost
    
    
    113,165
    
    
    
    127,566
    
    
    
    139,910Prepaid (accrued) benefit cost
    
    $
    209,723
    
    
    $
    272,107
    
    
    $
    224,010Additional informationIncrease (decrease) in minimum liability included
in other comprehensive income (prior to adjustment
to implement SFAS No. 158)
    
    $
    
    
    
    $
    
    
    
    $
    (122,863
    )
  60




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##### Table of Contents



December 31,
    
    
    October 31,
    
    
    October 31,2008
    
    
    2007
    
    
    2006Components of net periodic cost:Service cost
    
    $
    220,551
    
    
    $
    247,821
    
    
    $
    232,392Interest cost
    
    
    285,590
    
    
    
    267,244
    
    
    
    248,471Expected return on plan assets
    
    
    (302,628
    )
    
    
    (267,153
    )
    
    
    (248,419
    )Amortization of prior service costs
    
    
    12,344
    
    
    
    12,344
    
    
    
    12,344Recognized net actuarial loss
    
    
    51,902
    
    
    
    79,414
    
    
    
    81,099Adjustment due to change in measurement date (1)
    
    
    44,625
    
    
    
    
    
    
    
    Net periodic plan cost
    
    $
    312,384
    
    
    $
    339,670
    
    
    $
    325,887
 
 (1)
    
    - This amount was run through current net periodic pension costs rather than directly to
retained earnings as the amount is not considered significant or material. December 31,
    
    
    October 31,
    
    
    October 31,2008
    
    
    2007
    
    
    2006Weighted average assumptions used to
determine benefit obligations for the years ended:Discount rate
    
    
    6.0
    %
    
    
    6.0
    %
    
    
    5.75
    %Expected return on plan
assets
    
    
    8.0
    %
    
    
    8.0
    %
    
    
    8.0
    %Rate of compensation increase
    
    
    3.0
    %
    
    
    3.5
    %
    
    
    3.5
    %Weighted average assumptions used to determine
net periodic benefit cost for the years ended:Discount rate
    
    
    6.00
    %
    
    
    5.75
    %
    
    
    5.75
    %Expected return on plan
assets
    
    
    8.0
    %
    
    
    8.0
    %
    
    
    8.5
    %Rate of compensation increase
    
    
    3.0
    %
    
    
    3.5
    %
    
    
    3.0
    %Amounts recognized in the statement of financial
position
consist of:Accrued benefit cost
    
    $
    (2,459,821
    )
    
    $
    (917,414
    )
    
    $
    (1,494,404
    )Intangible assets
    
    
    
    
    
    
    
    
    
    
    Accumulated other comprehensive income
    
    
    2,669,544
    
    
    
    1,189,521
    
    
    
    1,718,414Net amount recognized
    
    $
    209,723
    
    
    $
    272,107
    
    
    $
    224,010
 61




---



##### Table of Contents



Plan assets
 Target
    
    Allowable
    
    Percentage of Plan Assets atAllocation
    
    Allocation
    
    December 31,
    
    October 31,2008
    
    Range
    
    2008
    
    2007Plan assetsEquity securities
    
    
    70
    %
    
    
    40 - 80
    %
    
    
    64
    %
    
    
    68
    %Debt securities
    
    
    25
    %
    
    
    20 - 40
    %
    
    
    30
    %
    
    
    27
    %Real estate
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Other
    
    
    5
    %
    
    
    3 -10
    %
    
    
    6
    %
    
    
    5
    %Total
    
    
    
    
    
    
    
    
    
    
    100
    %
    
    
    100
    %
 Investment Policy and Strategy
      Determination of Expected Long-term Rate of Return
  62




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##### Table of Contents



Cash flows
 Expected contributions for fiscal year ending December 31, 2009Expected employer contributions
    
    $
    477,092Expected employee contributions
    
    $
    Estimated future benefit payments reflecting expected
future service for the fiscal year(s) ending12/31/2009
    
    $
    203,24412/31/2010
    
    $
    209,44212/31/2011
    
    $
    217,63712/31/2012
    
    $
    252,48212/31/2013
    
    $
    253,18412/31/2014 - 12/31/2018
    
    $
    1,424,753
 NOTE 12. 401(k) PROFIT SHARING PLAN
   NOTE 13. DEFERRED COMPENSATION PLAN
  NOTE 14. INCOME TAXES
    63




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##### Table of Contents



Years ended December 31,2008
    
    
    2007
    
    
    2006Federal:Current
    
    $
    1,414,802
    
    
    $
    1,114,801
    
    
    $
    1,194,270Deferred
    
    
    (252,298
    )
    
    
    (35,201
    )
    
    
    (39,537
    )State:Current
    
    
    179,462
    
    
    
    118,005
    
    
    
    161,659Deferred
    
    
    (34,686
    )
    
    
    (6,814
    )
    
    
    (7,813
    )Provision for income taxes
    
    $
    1,307,280
    
    
    $
    1,190,791
    
    
    $
    1,308,579
   Years ended December 31,2008
    
    
    2007
    
    
    2006Income tax expense at the
statutory rate (34%)
    
    $
    1,367,647
    
    
    $
    1,256,316
    
    
    $
    1,284,262Increases (decreases) resulting
from:Nontaxable interest income,
net of non-deductible interest
expense
    
    
    (164,855
    )
    
    
    (116,607
    )
    
    
    (120,442
    )State income taxes, net of
federal income tax benefit
    
    
    112,366
    
    
    
    102,085
    
    
    
    104,293Other
    
    
    (7,878
    )
    
    
    (51,003
    )
    
    
    40,466Provision for income taxes
    
    $
    1,307,280
    
    
    $
    1,190,791
    
    
    $
    1,308,579
  64




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##### Table of Contents



2008
    
    
    2007Deferred tax assets:Provision for loan losses
    
    $
    926,135
    
    
    $
    707,644Deferred compensation plan
    
    
    383,808
    
    
    
    343,363Postretirement benefits
    
    
    103,705
    
    
    
    69,329Intangible asset
    
    
    97,242
    
    
    
    75,831Unrecognized pension costs
    
    
    1,014,427
    
    
    
    452,018Net unrealized loss on securities
available for sale
    
    
    118,825
    
    
    
    6,315$
    2,644,142
    
    
    $
    1,654,500Deferred tax liabilities:CSV life insurance
    
    $
    (323,411
    )
    
    $
    (298,220
    )Defined benefit plan
    
    
    (75,500
    )
    
    
    (97,959
    )Depreciation
    
    
    (355,485
    )
    
    
    (330,478
    )$
    (754,396
    )
    
    $
    (726,657
    )Net deferred tax asset (liability)
    
    $
    1,889,746
    
    
    $
    927,843
  NOTE 15. LEASE AGREEMENT
    2009
    
    $
    21,7262010
    
    $
    22,1712011
    
    $
    22,6142012
    
    $
    23,0662013
    
    $
    23,5282014
    
    $
    23,9982015
    
    $
    24,4782016
    
    $
    24,9682017
    
    $
    8,378
  65




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##### Table of Contents



NOTE 16. OTHER OPERATING EXPENSES
 Years ended December 31,2008
    
    
    2007
    
    
    2006Stationery, supplies and printing
    
    $
    190,764
    
    
    $
    194,794
    
    
    $
    245,038Data processing
    
    
    100,305
    
    
    
    118,212
    
    
    
    116,177Directors fees and deferred
compensation
    
    
    253,491
    
    
    
    261,667
    
    
    
    226,766Postage
    
    
    130,675
    
    
    
    130,305
    
    
    
    124,099Telephone
    
    
    113,422
    
    
    
    105,471
    
    
    
    102,854Professional fees
    
    
    376,252
    
    
    
    408,285
    
    
    
    267,380Regulatory assessment fees
    
    
    102,917
    
    
    
    45,550
    
    
    
    110,291Outside service fees
    
    
    8,012
    
    
    
    29,354
    
    
    
    14,584ATM and debit card fees
    
    
    265,795
    
    
    
    250,814
    
    
    
    215,218Advertising
    
    
    185,769
    
    
    
    205,444
    
    
    
    173,792Amortization of intangible
    
    
    111,516
    
    
    
    111,516
    
    
    
    111,516Amortization of software
    
    
    66,075
    
    
    
    65,620
    
    
    
    89,887Other
    
    
    549,876
    
    
    
    542,594
    
    
    
    495,764Total other operating expenses
    
    $
    2,454,869
    
    
    $
    2,469,626
    
    
    $
    2,293,366
 NOTE 17. DISCONTINUED OPERATIONS
   2006First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    Year endedQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    December 31Net income (loss) from operations
of CNB Insurance Services, Inc.
    
    $
    2,354
    
    
    $
    (22,404
    )
    
    $
    (58
    )
    
    $
    352
    
    
    $
    (19,756
    )Gain on sale of CNB Insurance
Services, Inc.
    
    
    
    
    
    
    143,913
    
    
    
    
    
    
    
    
    
    
    
    143,913Net Income before taxes
    
    $
    2,354
    
    
    $
    121,509
    
    
    $
    (58
    )
    
    $
    352
    
    
    $
    124,157Taxes
    
    
    902
    
    
    
    42,595
    
    
    
    
    
    
    
    1,956
    
    
    
    45,453Net income (loss)
    
    $
    1,452
    
    
    $
    78,914
    
    
    $
    (58
    )
    
    $
    (1,604
    )
    
    $
    78,704
 66




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##### Table of Contents



NOTE 18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
       2008
    
    
    2007Commitments to originate:Fixed rate loans:Residential real estate loans to be sold
    
    $
    478,700
    
    
    $
    639,500Other residential real estate
    
    
    358,726
    
    
    
    134,000Adjustable rate loans:Other commerical real estate and
construction
    
    
    862,500
    
    
    
    1,295,000Other residential real estate
    
    
    278,400
    
    
    
    1,162,100Commerical and other
    
    
    765,000
    
    
    
    460,000Letters of credit
    
    
    227,237
    
    
    
    914,353Undisbursed portion of construction
loans
    
    
    882,893
    
    
    
    1,419,345Available credit granted on commercial
loans
    
    
    6,106,161
    
    
    
    8,174,480Available credit on personal lines
of credit
    
    
    279,112
    
    
    
    293,791Undisbursed portion of home equity loans
    
    
    4,937,093
    
    
    
    4,950,486Commitments to sell real estate loans
    
    
    
    
    
    
    672,100$
    15,175,822
    
    
    $
    20,115,155
 67




---



##### Table of Contents



NOTE 19. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
     NOTE 20. LEGAL CONTINGENCIES
  NOTE 21. REGULATORY MATTERS
     68




---



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Minimum To BeWell CapitalizedMinimum
    
    Under Prompt CorrectiveActual
    
    Capital Requirements
    
    Action ProvisionsAmount
    
    
    
    
    
    Amount
    
    
    
    
    
    Amountin
    
    
    
    
    
    in
    
    
    
    
    
    inThousands
    
    Ratio
    
    Thousands
    
    Ratio
    
    Thousands
    
    RatioAs of December 31,
2008:Total Capital(to Risk Weighted
Assets)
    
    $
    26,616
    
    
    
    15.19
    %
    
    $
    14,017
    
    
    
    8.0
    %
    
    $
    17,522
    
    
    
    10.0
    %Tier I Capital(to Risk Weighted
Assets)
    
    $
    24,419
    
    
    
    13.94
    %
    
    $
    7,007
    
    
    
    4.0
    %
    
    $
    10,510
    
    
    
    6.0
    %Tier I Capital(to Average Assets)
    
    $
    24,419
    
    
    
    8.56
    %
    
    $
    11,411
    
    
    
    4.0
    %
    
    $
    14,263
    
    
    
    5.0
    %As of December 31,
2007:Total Capital(to Risk Weighted
Assets)
    
    $
    24,195
    
    
    
    14.14
    %
    
    $
    13,689
    
    
    
    8.0
    %
    
    $
    17,111
    
    
    
    10.0
    %Tier I Capital(to Risk Weighted
Assets)
    
    $
    22,056
    
    
    
    12.89
    %
    
    $
    6,844
    
    
    
    4.0
    %
    
    $
    10,267
    
    
    
    6.0
    %Tier I Capital(to Average Assets)
    
    $
    22,056
    
    
    
    7.70
    %
    
    $
    11,458
    
    
    
    4.0
    %
    
    $
    14,322
    
    
    
    5.0
    %
 NOTE 22. REGULATORY RESTRICTIONS
   NOTE 23. FAIR VALUE OF FINANCIAL INSTRUMENTS
   69




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##### Table of Contents



2008
    
    2007Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial Assets:Cash, due from banks and
federal funds sold
    
    $
    4,770,724
    
    
    $
    4,770,724
    
    
    $
    7,791,093
    
    
    $
    7,791,093Securities available for
sale
    
    
    62,604,735
    
    
    
    62,604,735
    
    
    
    66,017,231
    
    
    
    66,017,231Loans
    
    
    200,752,202
    
    
    
    201,347,332
    
    
    
    202,668,845
    
    
    
    204,293,376Accrued interest receivable
    
    
    1,272,742
    
    
    
    1,272,742
    
    
    
    1,406,804
    
    
    
    1,406,804Financial Liabilities:Demand deposits
    
    $
    98,500,413
    
    
    $
    98,500,413
    
    
    $
    101,432,074
    
    
    $
    101,432,074Time deposits
    
    
    129,394,653
    
    
    
    137,539,118
    
    
    
    125,212,640
    
    
    
    131,298,172Accrued interest payable
    
    
    1,126,219
    
    
    
    1,126,219
    
    
    
    1,281,166
    
    
    
    1,281,166FHLB borrowings
    
    
    25,445,000
    
    
    
    25,445,000
    
    
    
    37,500,000
    
    
    
    37,500,000Off-Balance SheetFinancial Instruments:Letters of credit
    
    $
    
    
    
    $
    2,149
    
    
    $
    
    
    
    $
    7,392
 NOTE 24. RELATED PARTY TRANSACTIONS
  70




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NOTE 25. PARENT COMPANY ONLY FINANCIAL INFORMATION
  STATEMENTS OF FINANCIAL CONDITION (PARENT ONLY)
DECEMBER 31, 2008 AND 2007
 2008
    
    
    2007ASSETSCash
    
    $
    289,968
    
    
    $
    345,226Investment in CNB Bank, Inc.
    
    
    22,843,976
    
    
    
    22,432,322Investment in Morgan County Title Insurance Agency, LLC
    
    
    1,173
    
    
    
    1,243Other assets
    
    
    84,052
    
    
    
    67,845TOTAL ASSETS
    
    $
    23,219,169
    
    
    $
    22,846,636LIABILITIES AND SHAREHOLDERS EQUITY
LIABILITIESAccrued expenses and other liabilities
    
    $
    1,379
    
    
    $
    25,191TOTAL LIABILITIES
    
    $
    1,379
    
    
    $
    25,191SHAREHOLDERS EQUITYCommon stock, $1 par value; 5,000,000 shares
authorized; 458,048 shares issued at December 31, 2008 and
December 31, 2007 and 449,151 and 454,949 outstanding at
December 31, 2008 and December 31, 2007
    
    $
    458,048
    
    
    $
    458,048Capital surplus
    
    
    4,163,592
    
    
    
    4,163,592Retained earnings
    
    
    21,015,652
    
    
    
    19,155,244Accumulated other comprehensive income (loss)
    
    
    (1,848,990
    )
    
    
    (747,806
    )$
    23,788,302
    
    
    $
    23,029,078Less treasury stock, at cost, 8,897 shares in 2008 and 3,099
shares in 2007
    
    
    (570,512
    )
    
    
    (207,633
    )TOTAL SHAREHOLDERS EQUITY
    
    $
    23,217,790
    
    
    $
    22,821,445TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    23,219,169
    
    
    $
    22,846,636
 71




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STATEMENTS OF INCOME (PARENT ONLY)
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 2008
    
    
    2007
    
    
    2006Dividend income
    
    $
    1,250,000
    
    
    $
    1,154,024
    
    
    $
    855,394Income from title company
    
    
    7,030
    
    
    
    12,023
    
    
    
    20,668Noninterest expense
    
    
    (70,863
    )
    
    
    (118,006
    )
    
    
    (66,610
    )INCOME BEFORE INCOME TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF CNB BANK, INC.
    
    $
    1,186,167
    
    
    $
    1,048,041
    
    
    $
    809,452Income tax (benefit)
    
    
    (16,207
    )
    
    
    (36,884
    )
    
    
    (12,922
    )INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF
CNB BANK, INC.
    
    $
    1,202,374
    
    
    $
    1,084,925
    
    
    $
    822,374Equity in undistributed earnings of CNB Bank, Inc.
    
    
    1,512,837
    
    
    
    1,419,331
    
    
    
    1,646,288NET INCOME
    
    $
    2,715,211
    
    
    $
    2,504,256
    
    
    $
    2,468,662
 STATEMENTS OF CASH FLOWS (PARENT ONLY)
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 2008
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    2,715,211
    
    
    $
    2,504,256
    
    
    $
    2,468,662Adjustments to reconcile net income to net cash
provided by operating activities:(Increase) in other assets
    
    
    (16,207
    )
    
    
    (36,884
    )
    
    
    (19,166
    )Increase (decrease) in accrued expenses and other liabilities
    
    
    (23,813
    )
    
    
    26,408
    
    
    
    764Equity in undistributed earnings of CNB Bank, Inc.
    
    
    (1,512,837
    )
    
    
    (1,419,331
    )
    
    
    (1,496,288
    )NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    $
    1,162,354
    
    
    $
    1,074,449
    
    
    $
    953,972CASH FLOWS FROM INVESTING ACTIVITIESInvestment in title company
    
    $
    70
    
    
    $
    (123
    )
    
    $
    332NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
    
    $
    70
    
    
    $
    (123
    )
    
    $
    332CASH FLOWS FROM FINANCING ACTIVITIESCash dividends paid
    
    $
    (854,803
    )
    
    $
    (770,414
    )
    
    $
    (705,394
    )Purchase of treasury stock, cost
    
    
    (362,879
    )
    
    
    (207,633
    )
    
    
    NET CASH (USED IN) FINANCING ACTIVITIES
    
    $
    (1,217,682
    )
    
    $
    (978,047
    )
    
    $
    (705,394
    )NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
    
    $
    (55,258
    )
    
    $
    96,279
    
    
    $
    248,910CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    $
    345,226
    
    
    $
    248,947
    
    
    $
    37CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    289,968
    
    
    $
    345,226
    
    
    $
    248,947
 72




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NOTE 26. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
 2008First
    
    
    Second
    
    
    
    
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    
    
    
    
    Quarter
    
    
    QuarterIn thousandsInterest income
    
    $
    4,351
    
    
    $
    4,178
    
    
    
    
    
    
    $
    4,218
    
    
    $
    4,248Interest expense
    
    
    1,793
    
    
    
    1,572
    
    
    
    
    
    
    
    1,531
    
    
    
    1,411Net interest income
    
    
    2,558
    
    
    
    2,606
    
    
    
    
    
    
    
    2,687
    
    
    
    2,837Provision for loan losses
    
    
    105
    
    
    
    120
    
    
    
    
    
    
    
    160
    
    
    
    556Noninterest income
    
    
    581
    
    
    
    589
    
    
    
    
    
    
    
    589
    
    
    
    482Noninterest expense
    
    
    1,869
    
    
    
    1,926
    
    
    
    
    
    
    
    1,991
    
    
    
    2,180Income before income taxes
    
    
    1,165
    
    
    
    1,149
    
    
    
    
    
    
    
    1,125
    
    
    
    583Provision for income taxes
    
    
    386
    
    
    
    379
    
    
    
    
    
    
    
    372
    
    
    
    170Net income
    
    $
    779
    
    
    $
    770
    
    
    
    
    
    
    $
    753
    
    
    $
    413Basic earnings per share
    
    $
    1.71
    
    
    $
    1.70
    
    
    
    
    
    
    $
    1.67
    
    
    $
    0.93
 2007First
    
    
    Second
    
    
    
    
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    
    
    
    
    Quarter
    
    
    QuarterIn thousandsInterest income
    
    $
    4,230
    
    
    $
    4,182
    
    
    
    
    
    
    $
    4,348
    
    
    $
    4,441Interest expense
    
    
    1,836
    
    
    
    1,849
    
    
    
    
    
    
    
    2,006
    
    
    
    2,034Net interest income
    
    
    2,394
    
    
    
    2,333
    
    
    
    
    
    
    
    2,342
    
    
    
    2,407Provision for loan losses
    
    
    63
    
    
    
    35
    
    
    
    
    
    
    
    31
    
    
    
    40Noninterest income
    
    
    534
    
    
    
    647
    
    
    
    
    
    
    
    601
    
    
    
    618Noninterest expense
    
    
    1,916
    
    
    
    1,957
    
    
    
    
    
    
    
    1,936
    
    
    
    2,203Income before income taxes
    
    
    949
    
    
    
    988
    
    
    
    
    
    
    
    976
    
    
    
    782Provision for income taxes
    
    
    323
    
    
    
    332
    
    
    
    
    
    
    
    314
    
    
    
    222Net income
    
    $
    626
    
    
    $
    656
    
    
    
    
    
    
    $
    662
    
    
    $
    560Basic earnings per share
    
    $
    1.37
    
    
    $
    1.43
    
    
    
    
    
    
    $
    1.44
    
    
    $
    1.24
 73




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##### Table of Contents



Item 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
  
 Item 9A(T). CONTROLS AND PROCEDURES
    
 Item 9B. OTHER INFORMATION
  74




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##### Table of Contents



Part III
 
 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
      Age as ofFebruary 25,Name
    
    2009
    
    Position and Experience during the Past 5 YearsCharles S. Trump IV(1)
    
    
    48
    
    
    2008 to present  Chairman of the Board, CNB Financial Services, Inc.
2000 to present  Member of the Board, CNB Financial Services, Inc.
1986 to present  Member of the Board, CNB Bank, Inc.Thomas F. Rokisky
    
    
    62
    
    
    2000 to present  President/CEO, CNB Financial Services, Inc.
1996 to present  President/CEO, CNB Bank, Inc.
1990 to 1996   Executive Vice President/COO, CNB Bank, Inc.Rebecca S. Stotler
    
    
    48
    
    
    2007 to present  Senior Vice President/CFO, CNB Financial Services, Inc.
2007 to present  Senior Vice President/CFO, CNB Bank, Inc.
2000 to 2007   Vice President/CFO, CNB Financial Services, Inc.
1999 to 2007   Vice President/CFO, CNB Bank, Inc.
1996 to 1999 - Vice President of Finance/Cashier, Citizens National BankPatricia C. Muldoon
    
    
    48
    
    
    2007 to present  Executive Vice President/COO, CNB Financial Services, Inc.
2007 to present  Executive Vice President/COO, CNB Bank, Inc.
2003 to 2007   Senior Vice President/COO, CNB Financial Services, Inc.
2003 to 2007   Senior Vice President/COO, CNB Bank, Inc.
2001 to 2003   Vice President/COO, Citizens National Bank
 
 (1)
    
    Mr. Trump is not an employee of CNB. 75




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##### Table of Contents



CODES OF ETHICS
  
 Item 11. EXECUTIVE COMPENSATION
  
 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT
  
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 Item 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES
  76




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##### Table of Contents



Part IV
 
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    
    1. Financial StatementsThe consolidated financial statements listed on the index to Item 8 of this Annual
Report on Form 10-K are filed as a part of this Annual Report.
 2.
    
    Financial Statement Schedules
 All schedules applicable to the Registrant are shown in the respective financial
statements or in the notes thereto included in this Annual Report.
 3.
    
    Exhibits
           (b)
    
    See (a) 3 above.(c)
    
    See (a) 1 and 2 above.
 77




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##### Table of Contents



CNB Financial Services, Inc.
(Registrant)Date February 25, 2009
    /s/ Thomas F. RokiskyThomas F. Rokisky, President/CEODate February 25, 2009
    /s/ Rebecca S. StotlerRebecca S. Stotler, Senior Vice President/CFO(Principal Financial and Accounting Officer) 78




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##### Table of Contents



th
 Signatures
    
    Title/s/ Charles S. Trump IV

Charles S. Trump IV
    
    Chairman and Director/s/ Thomas F. Rokisky

Thomas F. Rokisky
    
    President/CEO and Director/s/ Kenneth W. Apple

Kenneth W. Apple
    
    Director/s/ J. Robert Ayers

J. Robert Ayers
    
    Director/s/ John E. Barker

John E. Barker
    
    Director/s/ Margaret S. Bartles

Margaret S. Bartles
    
    Director/s/ Jay E. Dick

Jay E. Dick
    
    Director/s/ Herbert L. Eppinger

Herbert L. Eppinger
    
    Director/s/ J. Philip Kesecker

J. Philip Kesecker
    
    Director/s/ Jerald McGraw

Jerald McGraw
    
    Director/s/ Martha H. Quarantillo

Martha H. Quarantillo
    
    Director/s/ Arlie R. Yost

Arlie R. Yost
    
    Director
 79