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REGISTRATION NO. 333-
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 2000
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CNB FINANCIAL SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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WEST VIRGINIA 6712 55-0773918
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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212 S. WASHINGTON STREET, P. O. BOX 130,
BERKELEY SPRINGS, WEST VIRGINIA 25411-0130
(304) 258-1520
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
THOMAS F. ROKISKY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CNB FINANCIAL SERVICES, INC.
212 S. WASHINGTON STREET, P. O. BOX 130
BERKELEY SPRINGS, WEST VIRGINIA 25411-0130
(304) 258-1520
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
CHARLES D. DUNBAR, ESQUIRE
ELIZABETH OSENTON LORD, ESQUIRE
JACKSON & KELLY PLLC
1600 LAIDLEY TOWER
POST OFFICE BOX 553
CHARLESTON, WEST VIRGINIA 25322
(304) 340-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
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Common Stock, par value $1.00 per
share.............................. 458,048 $55.40 $25,377,854 $6,700
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* Based upon the book value per share of the common stock of Citizens National
Bank of Berkeley Springs as of April 30, 2000.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS
212 W. WASHINGTON STREET
P. O. BOX 130
BERKELEY SPRINGS, WEST VIRGINIA 25411
(304) 258-1520
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 15, 2000
A special meeting of shareholders of Citizens National Bank of Berkeley
Springs ("Citizens National") will be held on Thursday, June 15, 2000, at the
Country Inn, Berkeley Springs, West Virginia, at 10:00 a.m., local time, for the
following purposes:
1. To vote on the following resolution:
RESOLVED, that the formation of a bank holding company for Citizens
National Bank of Berkeley Springs, pursuant to the terms and conditions
of an Agreement and Plan of Merger between Citizens National Bank of
Berkeley Springs and CNB Financial Services, Inc., and related Plan of
Merger, whereby (a) Citizens National Bank of Berkeley Springs will
become a wholly-owned subsidiary of CNB Financial Services, Inc., and
(b) shareholders of Citizens National Bank of Berkeley Springs will
become shareholders of CNB Financial Services, Inc., is hereby
authorized and approved.
2. To transact such other business as may properly come before the meeting
or any adjournments thereof.
At this meeting, holders of record of common stock of Citizens National at
the close of business on May 5, 2000, will be entitled to vote. Two-thirds of
the issued and outstanding shares of Citizens National must vote in favor of the
above resolution in order to permit the holding company formation to proceed.
Shareholders and beneficial shareholders are entitled to assert dissenters'
rights under 12 U.S.C. sections 215a(b), (c) and (d). A copy of those sections
is attached to the following proxy statement/prospectus as Appendix II.
THE BOARD OF DIRECTORS OF CITIZENS NATIONAL BELIEVES THAT THE PROPOSED
HOLDING COMPANY IS IN THE BEST INTERESTS OF CITIZENS NATIONAL AND ITS
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF CITIZENS NATIONAL
VOTE "FOR" THE PROPOSED HOLDING COMPANY.
By Order of the Board of Directors,
Thomas F. Rokisky
President and Chief Executive Officer
May , 2000
Berkeley Springs, West Virginia
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PROXY STATEMENT/PROSPECTUS
MAY , 2000
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS
PROXY STATEMENT
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CNB FINANCIAL SERVICES, INC.
PROSPECTUS
458,048 SHARES OF COMMON STOCK
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We are providing this proxy statement/prospectus to you because we are
soliciting your proxy to vote at a special meeting of shareholders. We are
seeking shareholder approval for a merger/corporate reorganization. This
reorganization involves the formation of a bank holding company for Citizens
National Bank of Berkeley Springs. If at least two-thirds of the bank's
shareholders approve the reorganization, you will become a shareholder of CNB
Financial Services, Inc., and this holding company will own all of the
outstanding stock of the bank.
IF SHAREHOLDERS APPROVE THE REORGANIZATION, YOU WILL RECEIVE TWO SHARES OF
HOLDING COMPANY STOCK FOR EACH SHARE OF THE BANK'S COMMON STOCK THAT YOU OWN.
GENERALLY, YOU WILL NOT RECOGNIZE ANY TAXABLE GAIN OR LOSS FOR CITIZENS NATIONAL
SHARES IN EXCHANGE FOR CNB FINANCIAL'S SHARES.
The date, time and place of the special meeting is June 15, 2000, 10:00
a.m., local time, at the Country Inn, Berkeley Springs, West Virginia.
THE SHARES OF CNB FINANCIAL'S COMMON STOCK ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER BANK OBLIGATIONS, AND NEITHER THE FDIC NOR ANY OTHER
GOVERNMENTAL AGENCY INSURES THESE SHARES.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS MAY , 2000.
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TABLE OF CONTENTS
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SUMMARY..................................................... 1
SELECTED FINANCIAL DATA..................................... 3
FORWARD-LOOKING STATEMENTS.................................. 4
THE SPECIAL MEETING......................................... 5
Matters to be Voted on at the Special Meeting............. 5
Who is Eligible to Vote................................... 5
Quorum; Required Vote..................................... 5
Revocability of Proxies................................... 5
Proxy Solicitation........................................ 5
PROPOSED MERGER AND REORGANIZATION INTO A BANK HOLDING
COMPANY................................................... 6
Description of Proposed Merger and Reorganization......... 6
Reasons for Forming the Holding Company................... 6
Recommendation of Citizens National's Board of
Directors.............................................. 7
Treatment of Stock Certificates........................... 7
Conditions That Must Occur Before the Merger Can Occur.... 8
Federal Tax Consequences of the Merger and Reorganization
into a Bank Holding Company............................ 8
Accounting Treatment...................................... 10
COMPARISON OF CITIZENS NATIONAL'S AND CNB FINANCIAL'S
STOCK..................................................... 10
Issuance of Capital Stock................................. 10
Dividends and Dividend Rights............................. 11
Voting Rights............................................. 11
Preemptive Rights......................................... 11
Liquidation Rights........................................ 12
Assessment of Shares...................................... 12
Indemnification........................................... 12
Fair Price Provision...................................... 12
REGULATORY APPROVALS........................................ 13
RIGHTS OF DISSENTING SHAREHOLDERS........................... 13
MARKET PRICE OF CITIZENS NATIONAL'S CAPITAL STOCK AND
DIVIDENDS................................................. 15
MANAGEMENT.................................................. 16
Directors................................................. 16
Executive Officers........................................ 17
Meetings and Committees of the Board of Directors......... 17
Compensation of Bank Directors............................ 18
Bank Executive Compensation............................... 18
Pension Plan.............................................. 19
401(k) Profit Sharing Plan................................ 19
Deferred Compensation..................................... 19
Compensation for CNB Financial's Executive Officers and
Directors.............................................. 19
Ownership of Certain Beneficial Owners and Management..... 19
Certain Transactions...................................... 21
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DESCRIPTION OF CITIZENS NATIONAL'S BUSINESS................. 21
Business of Citizens National............................. 21
Employees................................................. 21
Competition............................................... 21
Property.................................................. 23
SUPERVISION AND REGULATION.................................. 23
Gramm-Leach-Bliley Act of 1999............................ 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 25
Earnings Summary.......................................... 25
Net Interest Income....................................... 26
Provision for Loan Losses................................. 29
Noninterest Income........................................ 29
Noninterest Expenses...................................... 29
Income Taxes.............................................. 30
Financial Condition....................................... 30
Loan Portfolio............................................ 31
Nonperforming Loans and Allowance for Loan Losses......... 32
Securities Portfolio and Federal Funds Sold............... 34
Deposits and Other Funding Sources........................ 35
Capital Resources......................................... 36
Return on Equity and Assets............................... 36
Liquidity and Interest Rate Sensitivity................... 36
Impact of Inflation....................................... 38
ADDITIONAL INFORMATION ABOUT THE HOLDING COMPANY............ 39
OTHER MATTERS............................................... 39
LEGAL MATTERS............................................... 39
WHERE YOU CAN FIND MORE INFORMATION......................... 39
FINANCIAL STATEMENTS
APPENDIX I -- AGREEMENT AND PLAN OF MERGER
APPENDIX II -- 12 C.F.R. sections 215a(b), (c) and (d)
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QUESTIONS AND ANSWERS
Q: WHY IS CITIZENS NATIONAL PROPOSING TO REORGANIZE INTO A HOLDING COMPANY
STRUCTURE?
A. We believe that the reorganization will give Citizens National greater
flexibility in the services it provides to its customers and in
responding to changing market conditions and the changing needs of the
community.
Q: WHAT DO I NEED TO DO NOW?
A. Just indicate on your proxy card how you want to vote, and sign, date
and return it to us. If you sign and send in your proxy and do not
indicate how you want to vote, the proxies will vote your shares in
favor of the formation of a holding company. Not returning your proxy,
not voting at the special meeting or abstaining from voting has the
effect of voting against the reorganization.
If you hold Citizens National's common stock, you can choose to attend
the special meeting and vote your shares in person instead of returning
your completed proxy card. If you do return a proxy card, you may change
your vote at any time up to the time of the vote by following the
directions on page .
Q: WHAT WILL CITIZENS NATIONAL'S STOCKHOLDERS RECEIVE?
A. Each non-dissenting shareholder will receive two shares of common stock
of CNB Financial for each share of Citizens National's common stock.
Q: WHEN DO YOU EXPECT THE REORGANIZATION TO TAKE PLACE?
A. We are working toward completing the reorganization as quickly as
possible. In addition to the approval of Citizens National's
stockholders, we must obtain a number of regulatory approvals. We expect
the reorganization to take place as soon as practicable after the
special meeting and after we receive all regulatory approvals.
Q: WHAT ARE THE INCOME TAX CONSEQUENCES OF THE MERGER TO ME?
A. As a result of the reorganization, you will not recognize any gain or
loss when you exchange your bank common stock for holding company common
stock.
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SUMMARY
The following is a brief summary of information located elsewhere in this
proxy statement/ prospectus. BEFORE YOU VOTE, PLEASE CAREFULLY CONSIDER ALL OF
THE INFORMATION CONTAINED IN THIS DOCUMENT.
SHAREHOLDERS WILL RECEIVE TWO SHARES OF CNB FINANCIAL'S COMMON STOCK FOR EACH
SHARE OF CITIZENS NATIONAL'S COMMON STOCK THEY OWN. (PAGE )
If Citizens National's shareholders approve the reorganization/merger and
the parties satisfy all of the other conditions in the agreement and plan of
merger, each share of Citizens National's common stock that is outstanding
immediately prior to the merger will automatically become two shares of CNB
Financial's common stock on the effective date of the merger.
THIS TRANSACTION WILL BE GENERALLY TAX FREE TO SHAREHOLDERS. (PAGE )
Subject to the limitations and assumptions described in "Federal Tax
Consequences of the Merger and Reorganization Into a Bank Holding Company," the
shareholders of Citizens National will not recognize any gain or loss as a
result of exchanging Citizens National's common stock for CNB Financial's common
stock.
CNB FINANCIAL'S GOVERNING DOCUMENTS CONTAIN A "FAIR PRICE" PROVISION WHICH IS
DESIGNED TO MAKE UNSOLICITED TAKEOVER ATTEMPTS MORE DIFFICULT. (PAGE )
CNB Financial's articles and bylaws contain a fair price provision.
Citizens National's corporate governance documents do not contain this type of
provision. Anti-takeover provisions such as a fair price provision are designed
to make unsolicited takeover attempts more difficult to accomplish.
CITIZENS NATIONAL'S SHAREHOLDERS HAVE DISSENTERS' RIGHTS. (PAGE )
If the merger occurs, any Citizens National stockholder may receive payment
of the value of his or her shares from Citizens Financial if the shareholder
follows the procedures set forth in 12 C.F.R. sections 215a(b), (c) and (d).
CNB FINANCIAL'S COMMON STOCK IS NOT CURRENTLY LISTED ON AN EXCHANGE OR OTHER
TRADING FACILITY. (PAGE )
Citizens National's common stock currently is traded in privately
negotiated transactions. After the reorganization takes place and upon meeting
listing qualifications, we may in the future seek listing for trading on the
Nasdaq Stock Market's National Market Tier. We cannot predict when, if ever, we
would become eligible for listing.
CITIZENS NATIONAL AND CNB FINANCIAL ARE THE PARTIES TO THE MERGER. (PAGE )
Citizens National. Citizens National has operated as a national banking
association in Berkeley Springs, West Virginia, since June 20, 1934. The bank
provides a wide range of financial services for retail and institutional
customers. Citizens National operates as a full-service bank regulated by the
Office of the Comptroller of the Currency and the Board of Governors of the
Federal Reserve. The FDIC insures the bank's deposits, and therefore, the FDIC
also regulates the bank.
CNB Financial. CNB Financial is a West Virginia corporation formed in March
2000. Its principal executive offices are located at 212 S. Washington Street,
P. O. Box 130, Berkeley Springs, West Virginia, and its telephone number is
(304) 258-1520.
THE MERGER. (PAGE )
After the merger, each shareholder of Citizens National will become a
shareholder of CNB Financial. Citizens National will be a wholly owned
subsidiary of CNB Financial.
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RECAPITALIZATION STRUCTURE AFTER THE MERGER. (PAGE )
Immediately after the reorganization takes place (1) the holding company
will have outstanding twice the number of shares of common stock that Citizens
National had issued and outstanding immediately prior to the merger, (2) the
persons who held the Citizens National's common stock will be the same persons
who hold CNB Financial's common stock, and (3) the holding company will own all
of the shares of Citizens National.
TWO-THIRDS OF CITIZENS NATIONAL'S SHAREHOLDERS MUST APPROVE THE MERGER. (PAGE
)
Under federal law, at least two-thirds of our outstanding common stock must
approve the merger.
If you held Citizens National's common stock at the close of business on
May 5, 2000, you are entitled to vote at the special meeting. Each share of
common stock is entitled to one vote.
After careful consideration, Citizens National's board of directors
believes that the merger is in the best interests of Citizens National and its
stockholders and has approved the agreement and plan of merger and related plan
of merger. Citizens National's board of directors recommends that you vote FOR
approval of the agreement and plan of merger and related plan of merger.
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SELECTED FINANCIAL DATA
We are providing the following information to you to help you analyze
Citizens National's operations. We derived this information from audited
financial statements for 1995 through 1999. We have adjusted the per share data
to reflect a 100% stock dividend declared on March 1, 1998. This information is
only a summary, and you should read it in conjunction with Citizens National's
historical financial statements and related notes contained in this document. We
have not provided any financial information for CNB Financial because it was
recently formed, and there are no operations to date.
CITIZENS NATIONAL -- HISTORICAL FINANCIAL INFORMATION
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AS OF / FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
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Net interest income........ $ 5,348 $ 5,072 $ 4,831 $ 4,580 $ 4,342
Net income................. 1,220 1,301 1,317 1,215 1,071
Cash dividends paid per
share.................... 2.00 2.00 1.87 1.75 1.60
Book value per share....... 53.48 54.66 50.84 46.29 43.02
Total assets............... 138,648 129,600 115,402 108,943 101,901
Loans, net of unearned
income................... 98,272 86,377 81,084 72,268 71,156
Provision for loan
losses................... 118 196 174 134 146
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FORWARD-LOOKING STATEMENTS
When used in this proxy statement/prospectus, in Citizens National's or CNB
Financial's press releases or other public or shareholder communications, and in
oral statements made with the approval of the authorized executive officer, the
words or phrases "are expected to," "estimate," "is anticipated," "project,"
"will continue," "will likely result," "plans to" or similar expressions are
intended to identify "forward-looking statements." These types of statements are
subject to risks and uncertainties, including changes in economic conditions in
Citizens National's market area, changes in policies by regulatory agencies,
fluctuation in interest rates, demand for loans in Citizens National's market
area, and competition, that could cause actual results to differ materially from
what Citizens National or CNB Financial have presently anticipated or projected.
Citizens National and CNB Financial wish to caution readers not to place undue
reliance on any forward-looking statements, which speak only as of the date
made. Citizens National and CNB Financial wish to advise readers that factors
addressed within the proxy statement/prospectus could affect Citizens National's
financial performance and could cause Citizens National's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
Where any forward-looking statement includes a statement of the assumptions
or bases underlying the forward-looking statement, Citizens National and CNB
Financial caution that assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material. We cannot assure you that any statement of expectation or
belief in any forward-looking statement will result, or be achieved or
accomplished.
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THE SPECIAL MEETING
MATTERS TO BE VOTED ON AT THE SPECIAL MEETING
At the special meeting, you will be asked to vote on an agreement and plan
of merger, dated as of April 5, 2000, and related plan of merger. CNB Financial
Services, Inc., is the new West Virginia corporation we organized to become the
holding company for Citizens National. If shareholders approve the agreement and
plan of merger, each outstanding share of common stock of Citizens National will
be converted into two shares of common stock of CNB Financial, and Citizens
National will become a wholly owned subsidiary of CNB Financial.
WHO IS ELIGIBLE TO VOTE
If you held Citizens National common stock at the close of business on May
5, 2000, you may vote at the special meeting. On April 24, 2000, there were
229,024 shares of Citizens National common stock outstanding, held by 567
shareholders of record. Each share of common stock is entitled to one vote on
each matter properly presented at the special meeting.
QUORUM; REQUIRED VOTE
Under our articles of incorporation and bylaws, at least two-thirds of our
outstanding common stock must approve the merger. The presence, in person or by
proxy, of at least a majority of the total number of shares of common stock
entitled to vote is necessary to constitute a quorum at the special meeting.
Shares that are subject to abstentions and broker non-votes are counted as
present for purposes of determining the presence of a quorum. If there are not
sufficient votes for a quorum, the special meeting may be adjourned or postponed
to permit further solicitation of proxies.
REVOCABILITY OF PROXIES
The proxies we are soliciting under this proxy statement/prospectus, if
properly signed and returned to Citizens National and not revoked prior to their
use, will be voted in accordance with the instructions contained in the proxies.
EXECUTED PROXIES WITH NO INSTRUCTIONS INDICATED ON THE PROXY CARD WILL BE VOTED
FOR THE MERGER. Any stockholder who submits a proxy card has the power to revoke
it at any time before it is exercised by (1) filing a written notice of
revocation with Mr. Thomas F. Rokisky, Citizens National Bank of Berkeley
Springs, 212 S. Washington Street, P. O. Box 130, Berkeley Springs, West
Virginia 25411, (2) submitting a duly executed proxy card bearing a later date,
or (3) appearing at the special meeting and giving notice of his or her
intention to vote in person.
PROXY SOLICITATION
In addition to soliciting proxies by mail, Citizens National's directors,
officers and employees may solicit proxies personally or by telephone without
receiving additional compensation for these activities. Citizens National will
also make arrangements with brokerage firms and other custodians, nominees and
fiduciaries to send proxy materials to their principals and will reimburse those
parties for their expenses in doing so.
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PROPOSED MERGER AND REORGANIZATION INTO A BANK HOLDING COMPANY
We have attached a copy of the agreement and plan of merger to this proxy
statement/ prospectus as Appendix I. We urge you to read the entire agreement
and plan of merger because it is the document that governs the reorganization of
the bank into a one-bank holding company.
DESCRIPTION OF PROPOSED MERGER AND REORGANIZATION
If Citizens National's stockholders approve the merger and all of the other
conditions in the agreement and plan of merger are satisfied, on the effective
date of the merger each share of Citizens National's common stock that is
outstanding immediately prior to the merger (other than dissenting shares) will
automatically by operation of law be exchanged for two shares of the holding
company's common stock.
After the merger, the former holders of Citizens National's outstanding
common stock who do not exercise dissenters' rights will be the holders of all
of the outstanding shares of the holding company's common stock. At that point,
the holding company will own all of Citizens National's outstanding capital
stock. Because CNB Financial will hold all of the issued and outstanding capital
stock of Citizens National after the reorganization takes place, Citizens
National will be described as a "wholly owned" subsidiary of the holding company
following the merger.
After this reorganization, Citizens National will continue its existing
business and operations as a wholly owned subsidiary of the holding company. At
that time, the consolidated capitalization, assets, liabilities, income and
financial statements of the holding company immediately following the
reorganization will be substantially the same as those of Citizens National
immediately prior to when the reorganization takes place. The articles of
incorporation and the bylaws of Citizens National will continue in effect, and
the transaction will not affect them in any material way. Citizens National will
continue to use the name "Citizens National Bank of Berkeley Springs," and
Citizens National's corporate existence will continue unimpaired.
Citizens National's board of directors and the holding company believe that
the merger and reorganization into a holding company structure is in the best
interests of Citizens National's stockholders for the reasons we describe below.
The Citizens National and CNB Financial boards of directors have approved the
merger. If Citizens National's stockholders approve the agreement and plan of
merger and the other conditions described below under "Conditions That Must
Occur Before the Merger Can Occur" are satisfied, the merger will become
effective upon the filing of the plan of merger with the West Virginia Secretary
of State.
REASONS FOR FORMING THE HOLDING COMPANY
The reasons for forming CNB Financial are to permit greater flexibility to
Citizens National in meeting the financial needs of its customers and to provide
a vehicle for growth and potential geographic diversification. In addition,
holding companies may redeem their shares, and banks may accept holding company
shares as collateral for loans (within certain limits). National banks do not
have these powers.
Bank holding companies may also establish or acquire companies engaged in
activities closely related to banking with operations and offices located in
West Virginia and outside
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the state as well. While the holding company is not presently engaged in
negotiations and there are no current arrangements or agreements for the
acquisition of other banks or companies engaged in activities closely related to
banking, and while we cannot assure you that we will make any acquisitions,
Citizens National's board of directors believes that the possibility of making
acquisitions which would be permissible if the reorganization takes place
represents a potentially attractive growth possibility.
Citizens National's board of directors is also forming the holding company
to be in a position to take advantage of the provisions of the
Gramm-Leach-Bliley Act of 1999. This Act was passed by the United States
Congress on November 4, 1999, and signed by President Clinton on November 12,
1999. This Act repealed many of the restrictions on the activities that
financial institutions conduct. Under the Act, a bank holding company can
qualify as a "financial holding company" and engage in business activities which
were previously prohibited. The activities permitted to financial holding
companies under the Act are slightly broader than those permitted to banks.
Citizens National's board of directors also believes that the holding
company may provide additional funding sources for Citizens National, as well as
better access to the capital markets. Additionally, Citizens National's board
believes a bank holding company will be in a better position to respond to the
competitive environment in which it is operating, characterized in larger part
by the activities of bank holding companies in West Virginia as well as
nationally. In general, the board of directors of Citizens National believes
that operating as a bank holding company will serve the interests of the banking
public and the stockholders of Citizens National by improving the capability for
service in a highly competitive environment.
RECOMMENDATION OF CITIZENS NATIONAL'S BOARD OF DIRECTORS
After careful consideration, Citizens National's board of directors has
determined that the merger and reorganization is advisable and in the best
interests of Citizens National and its stockholders. Accordingly, the board has
approved the agreement and plan of merger and the related plan of merger and the
contemplated reorganization. CITIZENS NATIONAL'S BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE FOR APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND THE RELATED
PLAN OF MERGER.
TREATMENT OF STOCK CERTIFICATES
After the merger, Citizens National's shareholders who do not exercise
dissenters' rights will be entitled to exchange their Citizens National stock
certificates or the right to receive certificates for new certificates
evidencing two shares of holding company common stock for each share of Citizens
National common stock. Until exchanged, Citizens National stock certificates
will, for all purposes, represent two shares of holding company stock for each
Citizens National share previously represented. The holders of Citizens National
certificates who do not exercise dissenters' rights will have all of the rights
of holders of the holding company's shares.
As soon as practicable after the merger takes place, we will send
instructions concerning stock certificates to all holders of record as of the
effective date of the merger.
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CONDITIONS THAT MUST OCCUR BEFORE THE MERGER CAN OCCUR
The following summarizes some of the conditions that must occur before the
merger can take place:
- two-thirds of the issued and outstanding shares of Citizens National
common stock must approve the agreement and plan of merger and related
plan of merger;
- all regulatory approvals (or waiver or exemption from any required
regulatory approval) and satisfaction of all other requirements required
by law which are necessary to complete the merger, must be obtained, and
all statutory waiting periods must expire, without the imposition of any
condition or requirements that would materially and adversely affect the
operations or business prospects of the holding company or Citizens
National;
- Citizens National must receive an opinion letter from Jackson & Kelly
PLLC, counsel to Citizens National, regarding federal income tax
consequences of the merger; and
- Unless CNB Financial waives this condition, holders of more than 5% of
Citizens National's common stock may not dissent from the merger.
FEDERAL TAX CONSEQUENCES OF THE MERGER AND REORGANIZATION INTO A BANK HOLDING
COMPANY
The merger agreement expressly conditions the merger upon Citizens National
receiving an opinion of counsel from Jackson & Kelly PLLC with respect to United
States federal income taxation.
We qualify the following summary of federal income tax consequences in its
entirety by referring you to the full text of Jackson & Kelly PLLC's opinion,
including that firm's assumptions. We have filed Jackson & Kelly PLLC's opinion
as Exhibit 8 to the registration statement of which this proxy
statement/prospectus is a part.
This summary applies only to Citizens National's shareholders, if any, who
hold their common stock as a capital asset. This discussion does not address all
aspects of taxation that may be relevant to particular shareholders in light of
their personal investment or tax circumstances, or to certain types of
shareholders subject to special treatment under the federal income tax laws.
This opinion does not address tax issues relating to insurance companies,
financial institutions, broker-dealers, foreign corporations, persons who
receive stock through the exercise of stock options or otherwise as compensation
for services rendered and persons who are not citizens or residents of the
United States. It also does not discuss any state, local or foreign tax
considerations. Accordingly, we urge you to consult your own tax advisor as to
the specific tax consequences of the merger, including the applicable federal,
state, local and foreign tax consequences of the merger.
We have not requested any ruling from the Internal Revenue Service as to
the federal income tax consequences of the merger. Jackson & Kelly PLLC's
opinion is not binding on the IRS or any court, and neither the IRS nor any
court is precluded from taking a different position. The Internal Revenue Code
governs some of the federal income tax consequences of the merger as to which
there are no final regulations and little or no judicial or administrative
guidance. Jackson & Kelly PLLC bases its opinion upon the federal income tax
laws in effect on the date of the opinion and as those laws are currently
interpreted. Future legislation, regulations, administrative rulings or court
decisions could adversely affect the accuracy of the statements.
8
<PAGE> 15
We condition the federal income tax consequences below upon, and Jackson &
Kelly PLLC bases its opinion upon, the accuracy of assumptions and
representations of fact that the parties to the merger agreement provided to
Jackson & Kelly PLLC. Jackson & Kelly PLLC has not independently verified these
assumptions and representations. These assumptions and representations include,
but are not limited to, the following:
- that following the merger, CNB Financial will continue the historic
business of Citizens National or use a significant portion of Citizens
National's historic business assets in a business;
- that a bona fide corporate business purpose exists for the merger; and
- that in the merger shares of stock of Citizens National representing
control of Citizens National will be exchanged solely for CNB Financial's
common stock. For this purpose, control means 80% of the total combined
voting power of all classes of stock entitled to vote and of at least 80%
of the total number of shares of each other class of stock of Citizens
National.
As of the date of this proxy statement/prospectus, CNB Financial and
Citizens National believe that all of these assumptions are now, and will be at,
as of and after the time the merger becomes effective, accurate. If either CNB
Financial or Citizens National learns before that time that the assumptions are
false and that its counsel therefore believes that the merger is unlikely to be
treated as a tax-free reorganization, then additional shareholder approval will
be obtained before consummation of the merger.
Subject to the limitations and assumptions described above, we anticipate
that Jackson & Kelly PLLC will render an opinion that the merger will have the
following federal income tax consequences:
- The merger will constitute a reorganization within the meaning of
Sections 368(a)(1)(A) and (a)(2)(E) of the Internal Revenue Code of 1986;
- None of the parties to the merger agreement will recognize any gain or
loss as a result of the merger;
- Shareholders of Citizens National will not recognize any gain or loss as
a result of their exchange of Citizens National's common stock for CNB
Financial's common stock except to the extent any shareholder receives
cash as a dissenting shareholder;
- The holding period for Citizens National's shareholders of the CNB
Financial's common stock they receive in the merger will include the
period during which the Citizens National's stock was held, provided this
stock was a capital asset in the hands of the holder on the date of
exchange;
- The federal income tax basis for Citizens National's shareholders of the
CNB Financial's common stock they receive in the merger will be the same
as the basis of the Citizens National's common stock shareholders
exchange therefor; and
- CNB Financial's payment of cash to Citizens National's shareholders in
exchange for Citizens National common stock relating to the exercise of
dissenter's rights will be treated as having been received as a
distribution in redemption of a dissenting stockholder's Citizens
National's common stock, subject to the provisions and limitations of
Section 302 of the Internal Revenue Code. Where as a result of such
distribution a stockholder owns no Citizens National's common stock
either directly or through the application of Section 318(a) of the Code,
the redemption will be a complete termination of interest within the
meaning of Section 302(b)(3) of the Code and the cash will be treated as
a distribution in full payment in exchange for his or
9
<PAGE> 16
her Citizens National's common stock, as provided in Section 302(a) of
the Code. Under Section 1001 of the Code, gain or (subject to the
limitations of Section 267 of the Code) loss will be realized and
recognized to such stockholders in an amount equal to the difference
between the amount of such cash and the adjusted basis of the Citizens
National's common stock surrendered, as determined under Section 1011 of
the Code. If the Citizens National's stockholder has held his or her
stock for more than one year, the gain should be treated as long-term
capital gain, provided that the shares were held as a capital asset on
the date of the exchange.
The tax consequences of the merger may vary depending upon your particular
circumstances. We urge you to consult your own tax advisor to determine the
particular tax consequences of the merger to you, including the applicability
and effect of any state, local or foreign income, property, transfer and other
tax laws.
ACCOUNTING TREATMENT
The merger and reorganization into a bank holding company will be accounted
for as a change in corporate form with the historical basis of Citizens
National's assets, liabilities and stockholders' equity unchanged under the bank
holding company.
COMPARISON OF CITIZENS NATIONAL'S AND CNB FINANCIAL'S STOCK
The respective articles of incorporation and bylaws of Citizens National
and CNB Financial govern the bank's and the holding company's shareholders. In
many respects, the rights of CNB Financial's shareholders will be similar to
those of Citizens National's shareholders. For example:
- Holders of common stock of each corporation are entitled to one vote for
each share of common stock and to receive pro rata any assets distributed
to shareholders upon liquidation.
- Shareholders of neither corporation have preemptive rights.
- The shareholders of both corporations have the right to dissent from
certain corporate transactions and to elect dissenters' rights.
- The board of directors of each corporation may fill a vacancy of the
board occurring during the course of the year, including a vacancy
created by an increase in the number of directors.
Below we discuss the various attributes of owning CNB Financial's common
stock and Citizens National's common stock.
ISSUANCE OF CAPITAL STOCK
Under Citizens National's articles of incorporation, Citizens National's
authorized capital stock is 600,000 shares of common stock, par value $10.00 per
share, of which 229,024 shares are issued and outstanding as of April 24, 2000.
Under the holding company's articles of incorporation, the authorized capital
stock of the holding company is 5,000,000 shares of common stock, par value
$1.00 per share.
Under the agreement and plan of merger, CNB Financial will issue
approximately 458,048 shares of its common stock in exchange for all of the
outstanding shares of Citizens National's common stock. The balance of CNB
Financial's authorized capital stock will be
10
<PAGE> 17
available for issuance when and as the board of directors of CNB Financial
determines. CNB Financial could issue that common stock to raise additional
capital in connection with the acquisition of other businesses or for other
appropriate purposes. The board of directors of CNB Financial will have the
authority to issue common stock to the extent of the present number of
authorized and unissued shares, without obtaining shareholder approval. If
additional holding company common stock is issued, the existing holders of the
holding company's common stock would own a proportionately smaller portion of
the total number of issued and outstanding common stock, unless they acquire a
pro-rata portion of the new issue.
DIVIDENDS AND DIVIDEND RIGHTS
Citizens National's stockholders are entitled to receive dividends when and
as declared by its board of directors, subject to various regulatory
restrictions. In certain instances, a national bank must obtain approval of the
Comptroller of the Currency before paying dividends. Federal law prohibits
national banks from paying dividends greater than the bank's undivided profits
after deducting statutory bad debt in excess of the bank's allowance for loan
losses.
CNB Financial's future cash dividends will depend on its consolidated
earnings, general economic conditions, financial condition of its subsidiaries
and other factors generally affecting dividend policy. CNB Financial's
stockholders are entitled to receive dividends when and as declared by its board
of directors subject to the restrictions under federal law and the regulations
of the Office of the Comptroller of the Currency. Generally, the Office of the
Comptroller of the Currency must approve any dividends in excess of the sum of
current year's income and net profits retained for the prior two years.
Following the merger's completion, funds for the payment of cash dividends and
expenses of CNB Financial will come from cash dividends from Citizens National.
VOTING RIGHTS
All voting rights with respect to Citizens National are vested in the
holders of the bank's common stock. All voting rights with respect to CNB
Financial will be vested in the holders of CNB Financial's common stock.
In the election of directors, the shareholders of CNB Financial and
Citizens National have the right to vote the number of shares owned by them for
as many persons as there are directors to be elected, or to cumulate such shares
and give one candidate as many votes as the number of directors to be elected
multiplied by the number of shares they own, or to distribute them on the same
principle among as many candidates as they may decide. For all other purposes,
each share is entitled to one vote.
PREEMPTIVE RIGHTS
Holders of Citizens National's common stock do not have preemptive rights
to subscribe to a pro-rata share of any future offers of shares by the bank. The
holders of common stock of CNB Financial will have no preemptive rights to
subscribe to any additional securities which CNB Financial may issue. If CNB
Financial should decide to issue any or all of these shares, the effect would be
to dilute the percentage ownership of the shareholders who do not purchase a
pro-rata portion of the shares issued.
11
<PAGE> 18
LIQUIDATION RIGHTS
The holders of Citizens National's common stock are entitled to share
equally in the net assets of the bank in the event of liquidation or
dissolution. After the merger's completion, holders of Citizens National's
common stock converted to CNB Financial's common stock will be entitled to share
equally in the net assets of the holding company in the event of liquidation or
dissolution, subject to the preferential rights, if any, of the holders of any
outstanding senior securities. At this time, there are no senior securities of
the holding company issued or outstanding, and the holding company currently has
no plan to issue senior securities.
ASSESSMENT OF SHARES
The shares of CNB Financial's common stock are fully paid and
non-assessable. Federal regulations provide that the outstanding shares of
Citizens National held by the officers and directors of the bank may be assessed
if its common stock becomes impaired by losses or otherwise.
INDEMNIFICATION
Directors and officers of CNB Financial or persons serving at the request
of CNB Financial as directors, officers, employees or agents of another
corporation or organization (including any of its subsidiaries) are entitled to
indemnification as provided in its articles of incorporation.
In general, indemnification is provided for reasonable costs and expenses,
fees and reasonable payments in settlement, except in matters in which the
person is adjudged to be liable for gross negligence, willful misconduct, or
criminal acts.
The bank's articles of incorporation contains similar provisions.
Although we believe the foregoing describes the material similarities and
differences between the rights of CNB Financial's and Citizens National's
shareholders, it is not exhaustive, and we encourage you to refer to the West
Virginia Corporation Act and the articles and bylaws of both CNB Financial and
Citizens National.
FAIR PRICE PROVISION
Citizens National's articles of incorporation and bylaws do not contain a
fair price provision. However, CNB Financial's articles of incorporation contain
this provision.
The fair price provision requires the approval of at least 80% of CNB
Financial's shares entitled to vote to approve transactions with an interested
shareholder except in cases where either (1) price criteria and procedural
requirements are satisfied, or (2) a majority of CNB Financial's board of
directors recommends the transaction to the shareholders. If the minimum price
criteria and procedural requirements are met or the requisite approval of CNB
Financial's board of directors are given, the normal requirements of West
Virginia law would apply.
An "interested shareholder" is any person, other than CNB Financial or any
of its subsidiaries, who is, or who was within the two-year period immediately
before the announcement of a proposed business combination, the beneficial owner
of more than 10% of CNB Financial's voting power. It also includes any person
who is an assignee of, or has
12
<PAGE> 19
succeeded to, any shares of voting stock in a transaction not involving a public
offering which were at any time within the prior two-year period beneficially
owned by interested shareholders. A "disinterested director" is any member of
the board of directors of CNB Financial who is not affiliated with an interested
shareholder and who was a director of CNB Financial prior to the time the
interested shareholder became an interested shareholder. It also includes any
successor to a disinterested director who is not affiliated with an interested
shareholder and who was recommended by a majority of the disinterested directors
then on the board.
ADVANTAGES OF CNB FINANCIAL'S FAIR PRICE PROVISION. The fair price
provision may constitute a defensive measure because it may discourage or deter
a third party from attempting to acquire control of CNB Financial. The purpose
of this provision is to discourage and to insulate the corporation against
hostile takeover efforts which CNB Financial's board of directors might
determine are not in the best interests of CNB Financial or its shareholders. We
believe that the fair price provision is a reasonable precaution to ensure that
a party seeking control will discuss its proposal with management.
DISADVANTAGES OF CNB FINANCIAL'S FAIR PRICE PROVISION. The fair price
provision may be beneficial to management in a hostile takeover attempt, making
it more difficult to effect changes, and at the same time, adversely affecting
shareholders who might wish to participate in a takeover attempt.
REGULATORY APPROVALS
For the merger to occur, the holding company and Citizens National must
have received approvals from the Office of the Comptroller of the Currency and
the Federal Reserve Board.
RIGHTS OF DISSENTING SHAREHOLDERS
Citizens National's shareholders will be voting on the agreement and plan
of merger. If you object to the reorganization and comply with 12 C.F.R.
sections 215a(b), (c) and (d), you are entitled to payment of the fair value of
your shares. The following is a brief summary of the steps you must take to
perfect dissenters' rights. The summary may not contain all information that is
important to investors, even though it contains all material terms and
conditions. We have reproduced for you the provisions of 12 C.F.R. sections
215a(b), (c) and (d) as Appendix II to this proxy statement/prospectus.
YOU MUST VOTE AGAINST THE MERGER OR GIVE WRITTEN NOTICE OF YOUR DISSENT. If
the Comptroller of the Currency approves the merger and if the merger is
approved by two-thirds of the number of shares outstanding, you may receive the
fair value of your shares if you vote against the merger or give written notice
at or prior to the special meeting to Thomas F. Rokisky that you dissent from
the plan of merger. You will be entitled to receive the value of your shares
when the Comptroller of the Currency approves the merger and plan of merger upon
written request made to CNB Financial at any time before 30 days after the date
of consummation of the merger. Your stock certificates must accompany this
written request.
THE VALUE OF YOUR SHARES WILL BE DETERMINED AS OF THE EFFECTIVE DATE OF THE
MERGER. An appraisal committee consisting of three persons composed of one
selected by the vote of the holders of a majority of the bank's common stock,
one selected by the directors of the
13
<PAGE> 20
bank and one selected by each of the foregoing shall make up the committee. The
valuation agreed upon by any of the two of the three appraisers shall govern.
If the value so fixed is not satisfactory to any dissenting shareholder who
has requested payment, that shareholder may, within five days after being
notified of the appraised value of the shares, appeal to the Comptroller of the
Currency. In this event, the Comptroller of the Currency shall see to it that a
reappraisal be made and this appraisal will be the final and binding value of
the shares.
If within 90 days from the date of consummating the merger one or more of
the appraisers is not selected or the appraisers fail to determine the value of
the shares, the Comptroller of the Currency will upon written request of any
interested party cause an appraiser to make a final and binding appraisal. CNB
Financial will pay the expenses of the Comptroller in making the reappraisal or
the appraisal. CNB Financial will promptly pay to the dissenting shareholder the
value of the shares.
The shares of stock of CNB Financial which it would have delivered to a
dissenting shareholder had they not requested payment shall be sold by CNB
Financial at an advertised public auction, and CNB Financial will have the right
to purchase any of those shares at the public auction if it is the highest
bidder for the purpose of reselling the shares within 30 days to anyone and at a
price not less than the par value of the shares. If the shares are sold at
public auction at a price greater than the amount paid to a dissenting
shareholder, the excess of the sale price will be paid to the dissenting
shareholder.
14
<PAGE> 21
MARKET PRICE OF CITIZENS NATIONAL'S CAPITAL STOCK AND DIVIDENDS
The price of Citizens National's common stock ranged from $100.00 to
$150.00 in 1999, and from $75.00 to $90.00 in 1998. We have adjusted these
amounts to reflect a two-for-one stock split effective in the form of a 100%
stock dividend on March 1, 1998. The bank's stock is not traded on an
established exchange and there are no market makers. We use the prices listed
below upon information available to us through discussions with the bank's
shareholders. Prices reflect amounts purchasers of the stock made and may
include commissions or fees. We have not attempted to determine the prices for
every sale made during these periods. The bank's ability to pay dividends is
subject to limitations of national banking laws. As of April 24, 2000, Citizens
National's common stock was held of record by 567 persons.
After the reorganization takes place, we anticipate that the holding
company will obtain the funds needed for payment of its dividends and expenses
from Citizens National, chiefly in the form of dividends. The following table
sets forth dividends declared per share of Citizens National's common stock for
the periods indicated. The ability of Citizens National and CNB Financial to pay
dividends is and will be, respectively, subject to the restrictions we described
in "Supervision and Regulation." We have adjusted the per share data to reflect
a 100% stock dividend declared on March 1, 1998.
<TABLE>
<CAPTION>
QUARTER DIVIDEND
HIGH LOW END PER SHARE
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998:
First Quarter.................... $ 75.00 $ 75.00 $ 75.00 $0.00
Second Quarter................... $ 75.00 $ 75.00 $ 75.00 $0.70
Third Quarter.................... $ 85.00 $ 75.00 $ 75.00 $0.00
Fourth Quarter................... $ 90.00 $ 75.00 $ 90.00 $1.30
Year Ended December 31, 1999:
First Quarter.................... $100.00 $100.00 $100.00 $0.00
Second Quarter................... $100.00 $100.00 $100.00 $0.70
Third Quarter.................... $150.00 $131.58 $150.00 $0.00
Fourth Quarter................... $150.00 $150.00 $150.00 $1.30
</TABLE>
15
<PAGE> 22
MANAGEMENT
After the merger takes place, the initial directors of the holding company
will be the same as those currently serving as Citizens National's directors. We
will deem approval of the agreement and plan of merger by Citizens National's
shareholders to be a confirmation by the holding company's stockholders of those
persons as the directors of the holding company without further action and
without changes in classes or terms.
DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION
NAME AGE POSITION SINCE (PAST FIVE YEARS)
- ---- --- --------------------- -------- ---------------------------
<S> <C> <C> <C> <C>
J. Robert Ayers 70 Director 1974 President, Citizens
National Bank (Retired)
John E. Barker 71 Director 1972 Owner, Barker's Auto Sales
Jay E. Dick 47 Director 1983 Manager, Hunters' Hardware,
Inc.
Herbert L. Eppinger 67 Director 1979 Retired Agricultural
Stabilization and
Conservation Service, USDA
Robert L. Hawvermale 70 Director 1967 Retired Professional
Engineer, Pennsylvania
Glass Sand Corporation
J. Philip Kesecker 70 Director 1965 Owner, Kesecker Realty
Raymond H. Lawyer 65 Director 1979 President, Citizens
National Bank (Retired)
Jerry McGraw 53 Director 1988 Smith Nadenbousch Insurance
Martha H. Quarantillo 40 Director 1999 Pharmacist, Reed's
Pharmacy; formerly
Pharmacist, War Memorial
Hospital; Self-Employed
Pharmacist
Thomas K. Rokisky 53 Director 1993 President and Chief
Executive Officer, Citizens
National Bank of Berkeley
Springs
Charles S. Trump, IV 39 Director 1986 General Partner, Trump and
Trump, Attorneys at Law
Arlie R. Yost 52 Director 1988 Licensed Residential
Appraiser, Kesecker
Appraisal Services
</TABLE>
16
<PAGE> 23
EXECUTIVE OFFICERS
The following table sets forth selected information, as of March 1, 2000,
about the principal officers of the bank.
<TABLE>
<CAPTION>
OFFICE BANK
HELD EMPLOYEE PRINCIPAL OCCUPATION
NAME AGE POSITION SINCE SINCE (PAST FIVE YEARS)
- ---- --- --------------------- ------ -------- --------------------
<S> <C> <C> <C> <C> <C>
J. Philip Kesecker 70 Chairman of the Board 1987 (1) Kesecker Realty
Thomas F. Rokisky 53 President, Chief 1996 1990 President and Chief
Executive Officer Executive Officer,
Citizens National
Bank of Berkeley
Springs
Arnold K. Stotler 40 Senior Vice 1996 1978 Banker
President- Lending
Thomas A. Cummings 53 Vice President 1998 1998 Banker
David G. Komornik 41 Vice President/Trust 1996 1995 Banker
Officer
Rebecca S. Brock 39 Vice President- 1996 1983 Banker
Finance/Cashier
Patricia L. Poland 59 Vice President- 1996 1978 Banker
Lending
Karen O. Unger 48 Vice President-Data 1996 1974 Banker
Processing
</TABLE>
- ---------------
(1) Mr. Kesecker is not an employee of the Bank.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Citizens National's board of directors has a standing audit committee and
personnel committee, but does not have a standing nominating committee.
The functions of the audit committee include meeting with the independent
public accountants to review the scope of audit services, significant accounting
changes, audit conclusions regarding significant accounting estimates,
assessments as to the adequacy of internal controls and the resolution of any
reportable conditions or weaknesses, and compliance with laws and regulations;
overseeing the internal audit function; reviewing regulatory examination reports
and management's responses to those reports; and reviewing period reports from
the loan review function. Members of the audit committee during 1999 were
Charles S. Trump, IV, Chairman, Messrs. Yost, Barker, McGraw and Dick. Mr.
Kesecker serves as an ex-officio member of this committee. The audit committee
met four times during the year.
The functions of the personnel committee include reviewing benefit and
salary administration programs and increases in salaries for officers and
employees. Members of the personnel committee during 1999 were Jay E. Dick,
Chairman, Messrs. Andrews, Hawvermale, Eppinger, Trump and Ayers. Mr. Kesecker
serves as an ex-officio member of this committee. The personnel committee met
one time during the year.
There were 26 meetings of the bank's board of directors and 31 meetings of
committees of the board of directors of Citizens National during 1999. No
director attended fewer than
17
<PAGE> 24
75 percent of the aggregate number of meetings of the board of directors and of
the various committees on which they served.
COMPENSATION OF BANK DIRECTORS
Bank directors receive $125 for each board meeting they attend, $150 for
each discount committee meeting and $75 for other committee meetings. In
addition, each director receives a fee of $4,150 per year. The chairman of the
board receives $3,500 per year and the vice chairman receives $1,000 per year.
Other than the supplemental insurance plan described below, there are no other
special arrangements with any of the directors. In 1999, the board of directors
of the bank received $137,002, in the aggregate, for all board of directors'
meetings attended and all fees paid.
The bank maintains a supplemental insurance plan for directors pursuant to
which a director may elect to defer receipt of a portion of fees for board
meetings for at least four years or until he reaches age 65, whichever is later.
An amount equal to fees waived in addition to interest at an annual rate of 10%
per year will be paid to each participating director or his designated
beneficiary during a period of 10 years after the director reaches age 65. Fees
and interest the bank pays will be recovered through insurance policies on the
lives of participating directors. The bank uses funds from the deferred fees of
a participating director to pay the premium costs for the insurance policies.
The cost of the insurance premiums in 1999 was $49,944.
BANK EXECUTIVE COMPENSATION
The following table sets forth the compensation of the bank's chief
executive officer for the years 1999 and 1998. No executive officers received
total annual compensation exceeding $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------- ---- ------- ----- ------------
<S> <C> <C> <C> <C>
Thomas F. Rokisky, 1999 $89,095 $-0- $11,403(1)(2)
President and 1998 $84,829 $-0- $10,609(1)(2)
Chief Executive Officer
</TABLE>
- ---------------
(1) The bank's group life and health insurance program, which the bank pays, is
available to all full-time employees. In accordance with IRS Code Section
79, the bank adds the cost of group term life insurance coverage for an
individual in excess of $50,000 to the individual's earnings and includes it
in salary. This figure also includes board fees earned and the bank's
contributions to the individual's 401(k) retirement savings program to which
the individual has a vested interest.
(2) We do not and cannot calculate the allocation to specific participants of
the bank's contributions to the defined benefit pension plan. The bank made
contributions of $120,095 and $62,353 in 1999 and 1998, respectively.
The bank does not maintain any form of stock option, stock appreciation
rights, or other long-term compensation plans.
18
<PAGE> 25
PENSION PLAN
The bank maintains a non-contributory defined benefit pension plan with
employer contributions being based on a pension formula, which targets a
specified monthly benefit for each plan participant at retirement. This defined
benefit becomes the basis for a contribution to the plan for each eligible
participant. The normal retirement date for employees is the later of the
participant's 65th birthday, or the fifth anniversary of the participant joining
the plan. An employee must be at least 21 years of age and have one full year of
service to become a plan participant. Full vesting in accumulated plan benefits
occurs at the end of five years of service. There is no partial vesting. For the
1999 plan year, the employer contribution for all plan participants was
$120,095.
401(k) PROFIT SHARING PLAN
The bank maintains a 401(k) profit sharing plan that generally covers all
employees who have completed one year of service. The bank bases contributions
to the plan on bank performance as a percentage of assets and computes as a
percentage of the participant's total deferrals into the plan. The bank makes
the payment of benefits to participants at death, disability, termination or
retirement. Contributions to the plan for all employees charged to operations
during 1999 amounted to $19,800.
DEFERRED COMPENSATION
The bank maintains a deferred compensation plan for directors. This plan
provides payments after retirement, which the bank will pay from general funds.
The bank purchases and is the beneficiary of insurance on the lives of
participants and the bank uses the proceeds to help recover the net after-tax
cost of the benefits and insurance premiums it pays. At December 31, 1999, these
policies had a net accumulated cash value of $670,734.
COMPENSATION FOR CNB FINANCIAL'S EXECUTIVE OFFICERS AND DIRECTORS
CNB Financial does not currently compensate its directors for regular or
special board meetings attended, but it intends to compensate directors in the
future. Thomas F. Rokisky will serve as president and chief executive officer of
the holding company and will continue to serve as president and chief executive
officer of Citizens National.
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth information as of April 24, 2000, relating to the
beneficial ownership of the common stock by (i) each person or group known by
Citizens National to own beneficially more than 5% of Citizens National's
outstanding common stock; (ii) each of the bank's directors; and (iii) all
directors and executive officers of the bank as a group. Unless otherwise noted
below, the persons named in the table have sole investment powers with respect
to each of the shares reported as beneficially owned by such person. On the
merger, the percentage ownership will be the same as that listed below. Unless
the table
19
<PAGE> 26
notes otherwise, the address of all individuals is 212 S. Washington Street,
Berkeley Springs, West Virginia 25411.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS SHARES CLASS
- ---------------- --------- ----------
<S> <C> <C>
J. Robert Ayers(1)...................................... 920 *
John E. Barker(2)....................................... 8,632 3.77
Jay E. Dick(3).......................................... 7,787 3.40
Herbert L. Eppinger(4).................................. 1,395 *
Robert L. Hawvermale(5)................................. 1,865 *
J. Philip Kesecker(6)................................... 7,208 3.15
Raymond H. Lawyer(7).................................... 688 *
Jerald McGraw(8)........................................ 777 *
Martha H. Quarantillo................................... 100 *
Thomas F. Rokisky(9).................................... 584 *
Charles S. Trump, IV(10)................................ 5,630 2.46
Arlie R. Yost(11)....................................... 855 *
All directors and executive officers as a group (18
persons).............................................. 37,161 16.25
D. Louise Stotler and Deborah Dhayer
RR 6 Box 12460, Berkeley Springs, WV 25411............ 23,744 10.37
Mary Lou Trump
RR 7 Box 12840, Berkeley Springs, WV 25411............ 26,735 11.67
</TABLE>
- ---------------
* Indicates holdings of less than 1%.
(1) Includes 460 shares his spouse holds.
(2) Includes 2,152 shares he holds jointly with his spouse.
(3) Includes 5,446 shares his spouse holds.
(4) Includes 1,195 shares he holds jointly with his spouse.
(5) Includes 600 shares his spouse holds, 50 shares he holds jointly with his
spouse, and 15 shares he holds jointly with his son.
(6) Includes 792 shares his spouse holds, 1,687 shares he holds jointly with
his spouse, and 132 shares he holds jointly with his daughter.
(7) Includes 424 shares he holds jointly with his spouse.
(8) Includes 100 shares his spouse holds and 442 shares he holds jointly with
his spouse.
(9) Includes 584 shares he holds in an Individual Retirement Account.
(10) Includes 25 shares his spouse holds, 396 shares he holds jointly with his
spouse, and 100 shares he holds as custodian for his children.
(11) Includes 635 shares he holds jointly with his spouse.
20
<PAGE> 27
CERTAIN TRANSACTIONS
The bank has had and intends to continue to have banking and financial
transactions in the ordinary course of business with directors and executive
officers of the bank, CNB Financial and their associates. Total loans
outstanding from the bank at December 31, 1999, to the bank's officers and
directors as a group and members of their immediate families and companies in
which they had an ownership interest of 10% or more was $1,463,356 or
approximately 12.0% of total equity capital. These loans do not involve more
than the normal risk of collectibility or present other unfavorable features.
DESCRIPTION OF CITIZENS NATIONAL'S BUSINESS
Citizens National began banking operations in Berkeley Springs, Morgan
County, West Virginia, in 1934.
BUSINESS OF CITIZENS NATIONAL
Citizens National is a full-service commercial bank. It accepts time,
demand and savings deposits, including NOW accounts, regular savings accounts,
money market accounts, fixed-rate certificates of deposit and club accounts. In
addition, the bank provides safe deposit box rentals, wire transfer services and
24-hour ATM services through a regional network known as "Honor." Honor is a
participant in the nationwide Cirrus network.
The bank offers a full spectrum of lending services to its customers,
including commercial loans and lines of credit, residential real estate loans,
consumer installment loans and other personal loans. Commercial loans are
generally secured by various collateral, including commercial real estate,
accounts receivable and business machinery and equipment. Residential real
estate loans consist primarily of mortgages on the borrower's personal
residence, and are typically secured by a first lien on the subject property.
Consumer and personal loans are generally secured, often by first liens on
automobiles, consumer goods or depository accounts. The bank makes a special
effort to keep loan products as flexible as possible within the guidelines of
prudent banking practices in terms of interest rate risk and credit risk. The
bank's lending personnel adhere to established lending limits and authorities
based on each individual's lending expertise and experience.
When considering loan requests, the bank takes into consideration the cash
flow and financial condition of the borrower, the value of the underlying
collateral, if any, and the borrower's character and integrity. Bank personnel
evaluate these factors in a number of ways, including analyzing of financial
statements, conducting credit reviews and visiting the borrower's place of
business.
EMPLOYEES
As of March 31, 2000, Citizens National and its subsidiary employed 74
full-time equivalent employees.
COMPETITION
The banking business is highly competitive. Citizens National faces a high
degree of competition for all of its services from local banks. Within its
market area of Morgan County, the eastern section of Berkeley County in West
Virginia and Washington County in
21
<PAGE> 28
Maryland, there exists 11 competing commercial banks with 25 offices. Total
deposits of those commercial banks as of June 30, 1999, exceeded $639 million.
The three largest competitors are One Valley Bank-East, N.A., F & M Bank, West
Virginia, and The Huntington National Bank.
Nonbank competition has also increased in recent years locally by the
establishment of finance companies and the expansion of insurance operations and
credit unions as well as from mutual funds located throughout the country.
West Virginia banks are allowed unlimited branch banking throughout the
state. The Interstate Banking and Branch Efficiency Act of 1994 also authorizes
interstate branching by acquisition and consolidation nationwide. This law
provides opportunities for the bank, but it also serves to intensify future
competition.
The principal competitive factors in the markets for deposits and loans are
interest rates, either paid on deposits or charged on loans.
The principal economic risk associated with the bank's lending activities
is the creditworthiness of the bank's prospective borrowers. With any loan
category, the level of risk increases or decreases depending on economic
conditions prevailing from time to time. The bank makes a substantial portion of
its loans to working individuals, small business and professional persons.
During 1999, the bank's loan portfolio consisted of the following:
<TABLE>
<CAPTION>
TYPE OF LOAN PERCENTAGE OF PORTFOLIO
- ------------ -----------------------
<S> <C>
Residential Real Estate Loans.............. 63
Commercial Loans........................... 15
Undeveloped Real Estate Loans.............. -0-
Construction Loans......................... 1
Consumer Loans............................. 21
</TABLE>
The bank's lending activities are subject to a variety of lending limits
that federal law imposes. While differing limits apply in certain circumstances
based on the type of loan or the nature of the borrower (including the
borrower's relationship to the bank), in general, the bank is subject to a
loan-to-one borrower limit of an amount equal to (1) 15% of the bank's
unimpaired capital and surplus in the case of loans which are not fully secured
by readily marketable collateral, or (2) 25% of the unimpaired capital and
surplus if the excess over 15% is fully secured by readily marketable
collateral.
The bank may not make any extensions of credit to any director, executive
officer or principal shareholder of the bank, or to any related interest of such
a person, unless the board of directors approves the extension of credit.
Additionally, the bank cannot make loans to an affiliate of the bank on terms
and conditions more favorable than would be available to a person not affiliated
with the bank.
The bank also owns an insurance agency, CNB Insurance Services, Inc. CNB
Insurance is a property and casualty insurance agency selling primarily personal
lines of insurance in Morgan and Berkeley Counties.
The FDIC insures all deposit accounts up to $100,000 per depositor, subject
to aggregation rules.
22
<PAGE> 29
PROPERTY
The principal executive office and main banking office is located at 212 S.
Washington Street, Berkeley Springs, West Virginia. In addition, the bank has
owned and operated a full-service branch bank located at 2450 Valley Road,
Berkeley Springs, West Virginia, since 1991. In October 1998, the bank opened an
additional full-service branch located at 2646 Hedgesville Road, Martinsburg,
West Virginia. Each location provides ATM services in addition to traditional
lobby and drive-in services. During 1998, the bank purchased two cash machines
and placed them at Cacapon State Park Lodge and the Woods Resort. In November of
1998, the bank acquired CNB Insurance Services, Inc., which is operated out of
the main office in Berkeley Springs. The main office and branches are owned free
and clear of any indebtedness. The net book value of the bank's premises and
equipment as of December 31, 1999, is $3.4 million.
SUPERVISION AND REGULATION
Citizens National, as a national banking association, is subject to
supervision, examination and regulation by the Office of the Comptroller of the
Currency. It is also a member of the Federal Reserve System, and as such is
subject to applicable provisions of the Federal Reserve Act and regulations
issued thereunder.
The Federal Deposit Insurance Corporation insures the bank's deposits to
the extent the law allows. Accordingly, the FDIC also regulates the bank.
The Community Reinvestment Act of 1977 ("CRA") requires the Comptroller of
the Currency to assess the record of the financial institutions and regulates it
to determine if those institutions meet the community's credit needs (including
low-to-moderate income neighborhoods) and to take this record into account when
it evaluates any application made by any institution for, among other things,
approval of a branch or other deposit facility, office relocation, or the merger
with or acquisition of assets of another bank. In its most recent examination,
the bank received a satisfactory CRA rating.
The bank is subject to various capital requirements under federal banking
regulations including the Federal Deposit Insurance Corporation Improvement Act
of 1991. Quantitative measures established by those regulations ensure the bank
maintains minimum capital levels. Note 17 to the Consolidated Financial
Statements summarizes those measures. Note 17 also contains the bank's
regulatory capital ratios at December 31, 1999, and December 31, 1998. Those
ratios show that the bank satisfied the requirements necessary to be categorized
as well capitalized. This is the highest category established under the
regulations. As a well capitalized institution, Citizens National may engage in
a wider range of banking activities.
Another requirement of the Federal Deposit Insurance Corporation
Improvement Act of 1991 is that federal banking agencies must prescribe
regulations relating to various operational areas of banks and bank holding
companies. These include standards for internal audit systems, loan
documentation, information systems, internal controls, credit underwriting,
interest rate exposure, asset growth, compensation, and such other standards as
the agency deems appropriate.
GRAMM-LEACH-BLILEY ACT OF 1999
On November 4, 1999, Congress adopted the Gramm-Leach-Bliley Act of 1999.
This Act, also known as the Financial Modernization Law, repealed a number of
federal
23
<PAGE> 30
limitations on the powers of banks and bank holding companies originally adopted
in the 1930's. Under the Act, banks, insurance companies, securities firms and
other service providers may now affiliate. In addition to broadening the powers
of banks, the Act created a new form of entity, called a financial holding
company, which may engage in any activity that is financial in nature or
incidental or complementary to financial activities. CNB Financial intends to
become a financial holding company.
The Federal Reserve Board provides the principal regulatory supervision of
financial services permitted under the Act. However, the Securities and Exchange
Commission and state insurance and securities regulators also assume substantial
supervisory powers and responsibilities.
The Act addresses a variety of other matters, including customer privacy
issues. The obtaining of certain types of information by false or fraudulent
pretenses is a crime. Banks and other financial institutions must notify their
customers about their policies on sharing information with certain third parties
In some instances, customers may refuse to permit their information to be
shared. The Act also requires disclosures of certain ATM fees and contains
certain amendments to the federal Community Reinvestment Act. The Act became
effective 120 days after its passage.
24
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
TABLE 1. FIVE YEAR SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
IN THOUSANDS EXCEPT FOR PER SHARE DATA
<S> <C> <C> <C> <C> <C>
AT YEAR-END
Total assets............... $138,648 $129,600 $115,402 $108,943 $101,901
Securities available for
sale.................... 31,187 33,594 28,944 23,861 25,600
Loans, net of unearned
income.................. 98,272 86,377 81,084 72,268 71,156
Deposits................... 124,510 115,320 102,250 97,076 90,963
Shareholders' equity....... 12,249 12,518 11,644 10,601 9,852
SIGNIFICANT RATIOS
Return on average assets... 0.90% 1.07% 1.16% 1.15% 1.07%
Return on average
shareholders' equity.... 9.66 10.60 11.76 11.88% 11.54%
Average shareholders'
equity to average
assets.................. 9.35 10.13 9.89 9.70% 9.26%
Net interest margin........ 3.95 4.21 4.26 4.42% 4.41%
SUMMARY OF OPERATIONS
Interest income............ $ 9,945 $ 9,243 $ 8,651 $ 7,985 $ 7,635
Interest expense........... 4,597 4,171 3,820 3,405 3,293
Net interest income........ 5,348 5,072 4,831 4,580 4,342
Provision for loan
losses.................. 118 196 174 134 146
Net interest income after
provision for loan
losses.................. 5,230 4,876 4,657 4,446 4,196
Non-interest income........ 565 415 304 293 277
Non-interest expense....... 3,954 3,372 3,008 2,966 3,002
Income before income
taxes................... 1,841 1,919 1,953 1,773 1,471
Income tax expense......... 621 618 636 558 400
Net income................. 1,220 1,301 1,317 1,215 1,071
PER SHARE DATA (1)
Net income................. $ 5.33 $ 5.68 $ 5.75 $ 5.31 $ 4.67
Cash dividends............. 2.00 2.00 1.87 1.75 1.60
Net book value............. 53.48 54.66 50.84 46.29 43.02
</TABLE>
(1) Adjusted to reflect 100% stock dividend on March 1, 1998
The following discussion and analysis presents the significant changes in
financial condition and results of operations of Citizens National, for the
years ended December 31, 1999, 1998 and 1997. This discussion and analysis
should be read in conjunction with the audited, consolidated financial
statements and the accompanying notes thereto. This discussion may include
forward looking statements based upon management's expectations and actual
results may differ. We have rounded amounts and percentages we use in this
discussion. All average balances are based on monthly averages.
EARNINGS SUMMARY. Citizens National had net income totaling $1.2 million or
$5.33 per share, $1.3 million or $5.68 per share, and $1.3 million or $5.75 per
share for fiscal years 1999, 1998, and 1997, respectively. Annualized return on
average assets and average equity were .90% and 9.7%, respectively for 1999
compared to 1.07% and 10.6% for 1998 and 1.16% and 11.8% for 1997.
25
<PAGE> 32
NET INTEREST INCOME. Net interest income represents the primary component
of the bank's earnings. It is the difference between interest and fee income
related to earning assets and interest expense incurred to carry
interest-bearing liabilities. Net interest income is impacted by changes in the
volume and mix of interest earning assets and interest bearing liabilities, as
well as by changing interest rates. In order to manage these changes, their
impact on net interest income and the risk associated with them, the bank
utilizes an ongoing asset/liability management program. This program includes
analysis of the difference between rate sensitive assets and rate sensitive
liabilities, earnings sensitivity to rate changes, and source and use of funds.
A discussion of net interest income and the factors impacting it is presented
below.
Net interest income in 1999 increased by $276,000 or 5.4% over 1998.
Interest income in 1999 increased by $702,000 or 7.6% compared to 1998, while
interest expense increased by $426,000 or 10.2% during 1999 as compared to 1998.
Interest income increased during 1999 compared to 1998 as a result of an
increase in the average balance of loans and investment securities, which more
than offset the decrease in the average rates earned thereon. Interest expense
increased during 1999 compared to 1998 as a result of an increase in the average
balance of time deposits.
Net interest income in 1998 increased by $241,000 or 5.0% over 1997.
Interest income in 1998 increased by $592,000 or 6.9% compared to 1997, while
interest expense increased by $351,000 or 9.2% during 1998 as compared to 1997.
Interest income increased during 1998 compared to 1997 as a result of an
increase in the average balance of loans and investment securities. Interest
expense increased during 1999 compared to 1998 as a result of an increase in the
average balance of time deposits and the average cost of funds paid on deposits.
During both 1999 and 1998, the bank used funds generated from deposit account
growth to fund loan commitments and to increase the average balance of
investment securities.
The net interest margin is impacted by the change in the spread between
yields on earning assets and rates paid on interest bearing liabilities. Net
interest margin declined slightly from 1997 to 1999. See Table 2 -- Distribution
of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest
Differential.
26
<PAGE> 33
TABLE 2. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDER
INTEREST RATES AND INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------- --------------------------- ---------------------------
AVG YTD YIELD AVG YTD YIELD AVG YTD YIELD
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ----- -------- -------- ----- -------- -------- -----
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold............. $ 1,202 $ 61 5.07% $ 2,037 $ 131 6.43% $ 2,587 $ 150 5.80%
Securities:
Taxable...................... 30,637 1,934 6.31 23,999 1,496 6.23 21,243 1,295 6.10
Tax-exempt(1)................ 3,337 171 7.76 5,051 275 8.25 5,753 311 8.19
Loans (net of unearned
interest)(2)................. 91,717 7,437 8.11 83,439 7,091 8.50 78,374 6,664 8.50
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total interest earning
assets(1)...................... $126,893 $9,603 7.57% $114,526 $8,993 7.85% $107,957 $8,420 7.80%
-------- ------ ---- -------- ------ ---- -------- ------ ----
Nonearning assets:
Cash and due from banks........ $ 3,666 $ 3,038 $ 2,421
Bank premises and equipment,
net.......................... 3,427 2,901 2,354
Other assets................... 2,117 1,812 1,570
Allowance for loan losses...... (1,155) (1,054) (969)
-------- -------- --------
Total assets..................... $134,948 $121,223 $113,333
======== ======== ========
Interest bearing liabilities:
Savings deposits............... $ 17,272 $ 373 2.16% $ 17,413 $ 456 2.62% $ 17,804 $ 496 2.79%
Time deposits.................. 65,607 3,638 5.55 54,894 3,093 5.63 48,069 2,646 5.50
NOW accounts................... 17,512 459 2.62 17,313 465 2.69 16,845 517 3.07
Money market accounts.......... 5,591 125 2.24 5,675 158 2.78 6,399 161 2.52
Borrowings..................... 25 2 8.00 -- -- -- 28 1 --
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total interest bearing
liabilities.................... $106,007 $4,597 4.34% $ 95,295 $4,172 4.38% $ 89,145 $3,821 4.29%
-------- ------ ---- -------- ------ ---- -------- ------ ----
Noninterest bearing liabilities:
Demand deposits
Other liabilities.............. $ 14,947 $ 12,175 $ 11,767
Shareholders' equity........... 1,371 1,477 1,218
12,623 12,276 11,203
-------- -------- --------
Total liabilities and
shareholders' equity........... $134,948 $121,223 $113,333
======== ======== ========
Net interest income(1)........... $5,006 $4,821 $4,599
====== ====== ======
Net interest spread(3)........... 3.23% 3.47% 3.51%
==== ==== ====
Net interest income to average
earning assets(1).............. 3.95% 4.21% 4.26%
==== ==== ====
</TABLE>
- ---------------
(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 ratios (expressed as a
percentage) of taxable equivalent interest income to earnings assets and of
interest expense to interest-bearing liabilities.
Table 3 sets forth a summary of the changes in interest earned and interest
expense detailing the amounts attributable to (i) changes in volume (change in
average volume times the prior year's average rate), (ii) changes in rate
(change in the average rate times the prior year's average volume). The changes
in rate/volume (change in the average volume times the change in the average
rate), has been allocated to the changes in volume and changes in rate in
proportion to the relationship of the absolute dollar amounts of the change in
each. During 1999, net interest income increased $327,000 due to changes in
volume and decreased $582,000 due to changes in interest rates. In 1998, net
interest income increased $145,000 due to changes in volume and increased
$77,000 due to changes in interest rates.
27
<PAGE> 34
TABLE 3. VOLUME AND RATE ANALYSIS OF CHANGES IN INTEREST INCOME
(Taxable equivalent basis)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 OVER 1998 1998 OVER 1997
----------------------- ----------------------
CHANGE DUE TO CHANGE DUE TO
-------------- TOTAL ------------- TOTAL
VOLUME RATE CHANGE VOLUME RATE CHANGE
------ ----- ------ ------ ---- ------
IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Federal funds sold.............. $ (65) $ (5) $ (70) $(38) $ 19 $(19)
Taxable securities.............. 422 16 438 170 31 201
Tax-exempt securities........... (104) -- (104) (35) (1) (36)
Loans........................... 719 (373) 346 427 -- 427
----- ----- ----- ---- ---- ----
Total interest earned............. $ 972 $(362) $ 610 $524 $ 49 $573
===== ===== ===== ==== ==== ====
Interest expense on:
Savings deposits................ $ (5) $ (78) $ (83) $(12) $(28) $(40)
Time deposits................... 623 (78) 545 399 48 447
NOW accounts.................... 1 (7) (6) 6 (58) (52)
Money market accounts........... 26 (59) (33) (14) 11 (3)
Other borrowings................ -- 2 2 -- (1) (1)
----- ----- ----- ---- ---- ----
Total interest expense............ $ 645 $(220) $ 425 $379 $(28) $351
----- ----- ----- ---- ---- ----
Net interest income............... $ 327 $(582) $ 185 $145 $ 77 $222
===== ===== ===== ==== ==== ====
</TABLE>
Another method of analyzing the change in net interest income is to examine
the changes between interest rate spread and the net interest margin on earning
assets. The interest rate spread as shown in Table 4 is the difference between
the average rate earned on earning assets and the average rate on interest
bearing liabilities. The net interest margin takes into account the benefit
derived from assets funded by interest free sources such as non-interest bearing
demand deposits and capital.
TABLE 4. INTEREST RATE SPREAD AND NET INTEREST MARGIN ON EARNING ASSETS
(Taxable equivalent basis)
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
-------- ----- -------- ----- -------- -----
IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
Earning assets............... $126,893 7.57% $114,526 7.85% $107,957 7.80%
======== ======== ========
Interest bearing
liabilities................ $106,007 4.34% $ 95,295 4.38% 89,145 4.29%
----- ----- -----
Interest rate spread......... 3.23% 3.47% 3.51%
Interest free sources used to
fund earning assets(1)..... 20,886 0.72% 19,231 0.74% 18,812 0.75%
-------- ----- -------- ----- -------- -----
Total sources of
funds................. $126,893 $114,526 $107,957
======== ======== ========
Net interest margin.......... 3.95% 4.21% 4.26%
===== ===== =====
</TABLE>
- ---------------
(1) Noninterest bearing liabilities and shareholders' equity less noninterest
earning assets.
28
<PAGE> 35
The following discussion analyzes changes in Citizens National Bank's
spreads and margins in terms of basis points. A basis point is a unit of measure
for interest rates equal to .01%. One hundred basis points equals 1%.
Interest rate spread decreased 24 basis points in 1999 while the net
interest margin declined 26 basis points. Both the interest rate spread and
margin were negatively impacted by a 28 basis point decline in earning asset
yields and offset by a 4 basis point decline in interest bearing liability
costs. Loan yields declined 39 basis points despite three separate increases in
the prime rate during 1999. The competitive environment for higher quality loans
required us to make such loans with rates and related loan fees lower that those
realized in prior years. The yield on securities available for sale declined 12
basis points. The reduction in liability costs is primarily the result of lower
rates on interest bearing checking, savings and money market accounts during the
year.
Interest rate spread decreased 4 basis points in 1998. Earning asset yields
increased 5 basis points while funding costs increased 9 basis points. The net
interest margin declined from 4.26% in 1997 to 4.21% in 1998. The primary factor
in the decline in the interest margin and spread was the 13 basis point increase
in time deposit yields and 26 basis point increase in money market deposit
yields in 1998. These increases were due to the introduction of a new higher
yielding certificate of deposit product and the restructuring of the money
market deposit rates. These increases were partially offset by decreases in
yields on savings and money market accounts. Loan yields remained unchanged
during 1998 while yields on securities increased 5 basis points primarily due to
a larger investment in higher yielding callable agencies.
PROVISION FOR LOAN LOSSES. The amount charged to provision for loan losses
is based on management's evaluation of the loan portfolio. Management determines
the adequacy of the allowance for loan losses based on past loan loss
experience, current economic conditions, composition of the loan portfolio, and
the anticipated potential for future loss. See Nonperforming Loans and Allowance
for Loan Losses for a comprehensive analysis.
NONINTEREST INCOME. Noninterest income increased $149,000 or 36.0% during
1999 over the prior comparable period. The increase in 1999 was primarily due to
increased service charges on deposit accounts, insurance commissions, debit card
fees, and trust fees. These increases were offset by decreases in gains on sale
of other real estate owned and net gains on sale of securities. Trust assets
under management reached $20.3 million at December 31,1999, a 24.5% increase
from $16.3 million at December 31, 1998.
Noninterest income increased $111,000 or 36.5% during 1998 over 1997. The
increase was due primarily to increased service charges on deposit accounts,
debit card fees, insurance income and net gains on sale of securities.
NONINTEREST EXPENSES. Noninterest expenses increased $581,000 or 17.2%
during 1999 over the prior comparable period. The increase was primarily due to
an increase in salaries and employee benefits and other operating expenses.
Other operating expenses, which increased, were data processing expense, postage
expense, advertising expense and professional fees.
Noninterest expenses increased $364,000 or 12.1% during 1998 over the prior
comparable period. The increase was primarily due to an increase in salaries and
employee benefits and other operating expenses. Other operating expenses, which
increased, were data processing, stationery and supplies, postage, telephone and
ATM expense.
29
<PAGE> 36
The opening of an additional branch in Hedgesville in October 1998 and the
start-up of the insurance subsidiary in November, 1998 caused salaries and
benefits and other operating expenses to increase somewhat in 1998 over 1997 and
to increase to a greater degree in 1999 over 1998.
INCOME TAXES. The bank's provision for income tax totaled $621,000 in 1999,
$618,000 in 1998 and $636,000 in 1997. The effective tax rate was 33.7% in 1999
compared to 32.2% and 32.6% in 1998 and 1997, respectively. Lower tax exempt
earnings on investment securities was the primary reason for the increase in the
effective tax rate. See Note 13 of the Notes to Consolidated Financial
Statements for a comprehensive analysis of income tax expense.
FINANCIAL CONDITION. Table 5 examines Citizens National's financial
condition in terms of its sources and uses of funds. Average funding uses
increased $12.4 million or 10.8% in 1999 compared with an increase of $6.6
million or 6.1% in 1998.
TABLE 5. SOURCES AND USES OF FUNDS
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- -------------------------- --------
INCREASE INCREASE
(DECREASE) (DECREASE)
AVERAGE --------------- AVERAGE --------------- AVERAGE
BALANCE AMOUNT % BALANCE AMOUNT % BALANCE
-------- ------- ----- -------- ------ ------ --------
IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C>
Funding uses:
Federal funds
sold............ $ 1,202 $ (835) (41.0)% $ 2,037 $(550) (21.3)% $ 2,587
Securities
available for
sale............ 33,974 4,924 17.0 29,050 2,054 7.6 26,996
Loans.............. 91,717 8,278 9.9 83,439 5,065 6.5 78,374
-------- ------- -------- ------ --------
Total uses...... $126,893 $12,367 10.8% $114,526 $6,569 6.1% $107,957
======== ======= ===== ======== ====== ====== ========
Funding sources:
Interest-bearing
demand
deposits........ $ 23,103 $ 115 0.5% $ 22,988 $(256) (1.1)% $ 23,244
Savings deposits... 17,272 (141) (0.8) 17,413 (391) (2.2) 17,804
Time deposits...... 65,607 10,713 19.5 54,894 6,825 14.2 48,069
Short-term
borrowings...... 25 25 -- (28) (100.0) 28
Noninterest bearing
funds, net(1)... 20,886 1,655 8.6 19,231 419 2.2 18,812
-------- ------- -------- ------ --------
Total sources... $126,893 $12,367 10.8% $114,526 $6,569 6.1% $107,957
======== ======= ===== ======== ====== ====== ========
</TABLE>
- ---------------
(1) Noninterest bearing liabilities and shareholders' equity less noninterest
earning assets.
The bank's total assets increased $9.0 million or 7.0% to $138.6 million
from December 31, 1998 to December 31,1999, due primarily to a $11.9 million
increase in loans and a $1.2 million increase in cash and cash equivalents,
which was partially offset by a $2.4 million decrease in securities available
for sale and a $2.0 million decrease in federal funds sold.
The bank's total liabilities increased $9.3 million or 8.0% to $126.4
million from December 31, 1998, to December 31, 1999, completely due to the
increase in deposits. Shareholders' equity decreased $270,000 to $12.2 million
at December 31,1999, primarily
30
<PAGE> 37
due to cash dividends of $458,000 and $1.0 million decrease in accumulated other
comprehensive income, offset by net income of $1.2 million. The decrease in
accumulated other comprehensive income was due to the unrealized market value
decline of the available for sale investment security portfolio.
LOAN PORTFOLIO. At December 31,1999, total loans increased $11.9 million or
13.9% to $97.1 million from $85.3 million at December 31, 1998. Table 6 presents
major classifications of loans receivable at December 31, 1999, 1998 and 1997.
Table 7 presents loan maturities and interest sensitivity for certain loan
classifications at December 31, 1999. The loan mix did not change in any
material respect compared with December 31, 1999. The loan portfolio increase is
the result of developing new real estate loan programs and efforts to develop
new commercial and indirect lending relationships in the bank's expanded market
area of Berkeley County, West Virginia. The bank's management believes
additional growth in all lending areas is possible into year 2000. Management's
intent is to control the loan volume in a manner which would produce a loan to
deposit ratio between 75% and 80% and maintain credit quality. Such efforts were
successful as the loan to deposit ratio was 78.9% at December 31, 1999, and
74.9% at December 31, 1998. The ratio of net charge-offs to average loans
outstanding was .10% in 1999 and .11% in 1998.
The loan portfolio classifications of installment and commercial real
estate did not change significantly in 1999 and 1998. Growth recorded in the
commercial loan area resulted in increases of 34.6% to $5.2 million outstanding
at December 31, 1999, and 39% to $3.9 million outstanding December 31, 1998.
These increases in commercial lending is primarily the result of efforts to
develop new relationships with commercial entities in the area. The bank's
market area was expanded to Berkeley County, West Virginia in 1998 which
provides a much larger area for commercial lending. The bank's management feels
additional growth in the commercial area is possible in 2000.
Real estate mortgage loans comprised mainly of single-family one to four
family residences continued to be the bank's dominant loan category. Mortgage
lending comprises approximately 63% or $61.6 million of the total loan portfolio
at December 31, 1999, compared to 64% or $55.4 million at December 31, 1998.
Demand for the bank's primary mortgage products, variable rate loans
carrying annual interest rate adjustments based on one, three and five year
Treasury rates continues to increase. The bank is beginning to see an increase
in the demand for fixed rate mortgage products, and for all loan products, as
the bank enters the Berkeley County, West Virginia real estate market. As of
December 31, 1999, 68% of the bank's mortgage loans were in adjustable rate
loans and 32% were fixed rate loans. Currently, the bank has approximately $1.7
million in fixed rate loans in the portfolio which were originated under terms
that would allow them to be sold on the secondary market.
Additional information on the composition of the loan portfolio may be
found in Note 4 of the Notes to the Consolidated Financial Statements.
Bank policy requires those loans which are past due 90 days or more be
placed on nonaccrual status unless they are both well secured and in the process
of collection. As of December 31, 1999 and 1998, nonaccrual loans approximated
.02% and .32% of total loans (net), respectively.
31
<PAGE> 38
TABLE 6. LOANS RECEIVABLE
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
IN THOUSANDS
<S> <C> <C> <C>
Real estate......................................... $61,625 $55,412 $51,495
Commercial real estate.............................. 9,569 8,541 8,367
Consumer............................................ 21,778 18,408 18,311
Commercial.......................................... 5,185 3,853 2,771
Overdrafts.......................................... 28 83 96
------- ------- -------
$98,185 $86,297 $81,040
Net deferred loan fees, premiums and discounts...... 88 80 45
Allowance for loan losses........................... (1,148) (1,122) (1,019)
------- ------- -------
$97,125 $85,255 $80,066
======= ======= =======
</TABLE>
TABLE 7. LOAN MATURITIES AND INTEREST SENSITIVITY (1)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------
ONE YEAR ONE THROUGH OVER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ----------- ---------- -------
IN THOUSANDS
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural....................... $5,530 $1,058 $8,166 $14,754
Real estate -- construction.......... 1,325 -- -- 1,325
------ ------ ------ -------
Total........................... $6,855 $1,058 $8,166 $16,079
====== ====== ====== =======
Loans with predetermined interest
rate............................... $3,583 $1,058 $1,879 $ 6,520
Loans with variable interest rate.... 3,272 -- 6,287 9,559
------ ------ ------ -------
Total........................... $6,855 $1,058 $8,166 $16,079
====== ====== ====== =======
</TABLE>
(1) Excludes residential mortgages and consumer loans.
NONPERFORMING LOANS AND ALLOWANCE FOR LOAN LOSSES. Nonperforming loans
consist of loans in nonaccrual status, loans which are past due 90 days or more
and still accruing interest and restructured loans. As of December 31, 1999,
management is not aware of any potential problem loans other than those which
are on nonaccrual status or past due 90 days or more and still accruing
interest. Table 8 sets forth the amounts of such loans as of the dates
indicated.
32
<PAGE> 39
TABLE 8. NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998 1997
---- ---- ----
IN THOUSANDS
<S> <C> <C> <C>
Nonaccrual loans........................................ $ 22 $275 $ 91
Loans past due 90 days or more still accruing
interest.............................................. 79 7 91
Restructured loans...................................... -- 1 5
---- ---- ----
Total nonperforming loans.......................... $101 $283 $187
---- ---- ----
Other real estate owned................................. $ 67 $122 $136
---- ---- ----
Total nonperforming assets......................... $168 $405 $323
==== ==== ====
Ratios:
Nonperforming loans/Total loans......................... 0.10% 0.33% 0.23%
Nonperforming assets/Total assets....................... 0.12% 0.31% 0.28%
Allowance for loan losses/Total loans................... 1.18% 1.32% 1.27%
</TABLE>
All losses which may be reasonably anticipated are accounted for in the
allowance for loan losses. Management makes this determination quarterly by its
analysis of overall loan quality, changes in the mix and size of the loan
portfolio, previous loss experience, general economic conditions, information
about specific borrowers and other factors. The bank has no loans which are
considered to be impaired as of December 31, 1999 and 1998. At December 31, 1999
and 1998, the allowance for loan losses totaled $1.1 million. The allowance for
loan losses as a percentage of loans was 1.17% and 1.30% as of December 31, 1999
and 1998. The provision for loan losses exceeded net charge-offs by $26,000 and
$104,000 in 1999 and 1998. An analysis of the allowance for loan losses for the
years ended December 31, 1999 and 1998 may be found in Note 4 of the Notes to
the Consolidated Financial Statements and Table 9.
The provision for loan losses is a charge to earnings which is made to
maintain the allowance for loan losses at a sufficient level. In 1999, 1998 and
1997, the provision totaled $118,000, $196,000 and $174,000, respectively. While
loan quality remains good and, as noted previously, past due and nonaccrual
loans are minimal, management decreased the provision for loan losses in 1999
based on the OCC's recommendation to management. Having thus decreased the
provision for loan losses, management believes the allowance for loan losses to
be adequate and is not aware of any information relating to the loan portfolio
which it expects will materially impact future operating results, liquidity or
capital resources. In addition, federal regulators may require additional
reserves as a result of their examination of the bank. The allowance for loan
losses reflects what management currently believes is an adequate level of
allowance, although there can be no assurance that future losses will not exceed
the estimated amounts, thereby adversely affecting future results of operations.
33
<PAGE> 40
TABLE 9. ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
IN THOUSANDS
<S> <C> <C> <C>
Balance, beginning of year.......................... $1,122 $1,019 $ 917
------ ------ ------
Provision charged to expense........................ $ 118 $ 195 $ 174
------ ------ ------
Loans charged off:
Commercial, financial and agricultural......... $ 7 $ 5 $ 3
Consumer....................................... 97 107 81
Mortgage....................................... 14 16 18
------ ------ ------
Total loans charged off........................ $ (118) $ (128) $ (102)
------ ------ ------
Recoveries:
Commercial, financial and agricultural......... $ 5 $ 4 $ 7
Consumer....................................... 21 32 23
------ ------ ------
Total recoveries............................... $ 26 $ 36 $ 30
------ ------ ------
Net charge-offs................................ $ (92) $ (92) $ (72)
------ ------ ------
Balance, end of year................................ $1,148 $1,122 $1,019
====== ====== ======
</TABLE>
TABLE 10. ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- ----------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN
EACH EACH EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ------------- ------ ------------- ------ -------------
IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agriculture.... $ 89 5% $ 41 5% $ 32 3%
Real estate --
mortgage........... 284 73 531 74 373 74
Installment and
other.............. 558 22 265 21 188 23
Unallocated.......... 217 N/A 285 N/A 426 N/A
------ --- ------ --- ------ ---
Total............ $1,148 100% $1,122 100% $1,019 100%
====== === ====== === ====== ===
</TABLE>
SECURITIES PORTFOLIO AND FEDERAL FUNDS SOLD. The bank's securities
portfolio consists of only available for sale securities. Classifying the
securities portfolio as available for sale provides management with increased
ability to manage the balance sheet structure and address asset/liability
management issues when needed. The fair value of the investment portfolio has
decreased $2.4 million to $31.2 million at December 31, 1999 from 1998.
The composition of the portfolio continues to reflect the bank's
conservative philosophy which places greater importance on safety and liquidity
than on yield. At December 31, 1999, approximately 92.8% of the portfolio is
comprised of US Treasury and Agency securities and 6.8% in State and Political
Subdivision securities. The term to maturity is limited to seven years for
treasury and agency bonds and 10 years for municipal bonds. Typically,
investments in agency bonds contain a call feature. These bonds generally have a
34
<PAGE> 41
somewhat higher yield. The average term to maturity of the portfolio as of
December 31, 1999 was 5.5 years.
The bank generally participates in the overnight federal funds sold market.
Depending upon specific investing or funding strategies and/or normal
fluctuations in loan and deposit balances, the bank may need, on occasion, to
purchase funds on an overnight basis. At December 31, 1999, the bank had no
federal funds sold. In 1999 and 1998, the average balance in federal funds sold
was $1.2 million and $2.0 million, respectively.
DEPOSITS AND OTHER FUNDING SOURCES. Total deposits were $124.5 million at
December 31, 1999, an increase of $9.2 million or 8.0% of deposits at December
31, 1998. Average deposits, however, showed a $13.5 million, or 12.5% growth, to
$120.9 million in 1999. The growth is partially due to the bank entering an
expanded market into Berkeley County, West Virginia with the opening of the
Hedgesville Branch. Deposits at the Hedgesville Branch totaled $12.8 million at
December 31, 1999, an increase of $9.0 million over December 31, 1998.
Noninterest bearing deposits also grew by $1.7 million or 12.1%, during
1999 from $14.0 million at December 31, 1998, to $15.7 million at December 31,
1999. At December 31, 1999, noninterest bearing deposits represented 12.6% of
total deposits compared to 12.1% for 1998. Average noninterest bearing deposits
increased 22.8% from $12.2 million in 1998 to $14.9 million in 1999. The bank
has been promoting a new noninterest bearing deposit account with no minimum
balance and check truncation. Some growth has occurred in the noninterest
bearing deposit category, but a shift of dollars from other noninterest bearing
accounts to the no minimum balance account has also occurred.
Interest bearing deposits increased by $7.5 million or 7.4% to $108.9
million at December 31, 1999. Interest bearing checking decreased by $160,000 in
1999. Included in this category are NOW accounts and Money Market Accounts.
Savings accounts decreased $679,000 in 1999 over the previous year to $16.4
million while the average savings deposits fell $141,000 or .81% to $17.3
million at December 31, 1999. The bank's largest source of interest bearing
funds is certificates of deposit. These accounts totaled $69.5 million at
December 31, 1999, an increase of $8.3 million or 13.7%. While the certificate
of deposit accounts increased, the composition of the portfolio also changed.
Certificates of deposit with a term of one year or less fell by $384,000 while
certificates of deposit that mature beyond one year (includes 36-month Ultimate
CD) increased by $1.3 million. Certificates of deposit over $100,000 increased
by $8.1 million or 81.2% in 1999. The 36-month Ultimate CD is a product which
allows the customer to withdraw all or a portion of the CD on the first or
second year anniversary date without penalty. Deposits may also be made to this
CD at any time. This CD has become very popular and was used in the grand
opening promotion for the Hedgesville Branch. Much of the increase in
certificates of deposit that mature beyond one year was into the 36-month
Ultimate CD. A large portion of the increase in certificates of deposit over
$100,000 is due to the customers depositing money into their 36-month Ultimate
CD putting the balance over $100,000.
The following is a summary of the maturity distribution of certificates of
deposit in amounts of $100,000 or more as of December 31, 1999:
35
<PAGE> 42
TABLE 11. MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
AMOUNT PERCENT
------- -------
(IN THOUSANDS)
<S> <C> <C>
Three months of less........................ $ 6,239 34.58%
Three through six months.................... 3,784 20.97%
Six through twelve months................... 2,482 13.76%
Over twelve months.......................... 5,537 30.69%
------- ------
Total.................................. $18,042 100.00%
======= ======
</TABLE>
CAPITAL RESOURCES. The bank is and has been well capitalized. Total
shareholders' equity at December 31, 1999 of $12.2 million represents 8.8% of
total assets. This compares to $12.5 million or 9.7%, at December 31, 1998.
Included in capital at December 31, 1999 are $892,000 of unrealized losses on
available for sale securities, net of deferred income taxes. At December 31,
1998, the bank had unrealized gains on available for sale securities, net of
deferred income taxes of $140,000. Such unrealized gains and losses are recorded
net of related deferred taxes and are primarily a function of available market
interest rates relative to the yield being generated on the available for sale
portfolio. No earnings impact results, however, unless the securities are
actually sold.
Although not heavily traded, information available to management indicates
the market value of the bank's stock traded during 1999 in a range from $100.00
to $150.00 per share. During 1998, the market value of the bank's stock ranged
from $75.00 immediately after the two for one stock split effected as a 100%
stock dividend in March 1998 to $90.00 per share in December 1998. Book value
per share decreased from $54.66 at December 31, 1998 to $53.48 at December 31,
1999. Dividends, which are declared by the board of directors semiannually,
remained stable at $2.00 per share for 1999 and 1998. All per share amounts have
been restated to reflect the stock split in March 1998, except for market
values.
The Federal Reserve's risk-based capital guidelines provide for the
relative weighting of both on-balance-sheet and off-balance-sheet items based on
their degree of risk. The bank continues to exceed all regulatory capital
requirements, and is unaware of any trends or uncertainties, nor do any plans
exist, which may materially impair or alter its capital position.
RETURN ON EQUITY AND ASSETS. The following table shows consolidated
operating and capital ratios for the periods indicated.
TABLE 12. OPERATING AND CAPITAL RATIOS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------
1999 1998
----- -----
<S> <C> <C>
Return on average assets....................... .90% 1.07%
Return on average equity....................... 9.66 10.60
Dividend payout ratio.......................... 37.54 35.20
Average equity to average assets ratio......... 9.35 10.13
</TABLE>
LIQUIDITY AND INTEREST RATE SENSITIVITY. The objective of the bank's
liquidity management program is to ensure the continuous availability of funds
to meet the withdrawal demands of depositors and the credit needs of borrowers.
The basis of the bank's liquidity comes from the stability of its core deposits.
Liquidity is also available through the available
36
<PAGE> 43
for sale securities portfolio and short-term funds such as federal funds sold.
At December 31, 1999, these sources totaled $31.2 million, or 22.5% of total
assets. In addition, liquidity may be generated through loan repayments and over
$6.0 million of available borrowing arrangements with correspondent banks. At
December 31, 1999, management considered the bank's ability to satisfy its
anticipated liquidity needs over the next 12 months. Management believes that
the bank is well positioned and has ample liquidity to satisfy these needs.
Details on both the sources and uses of cash are presented in the Consolidated
Statements of Cash Flows contained in the financial statements.
The objective of the bank's interest rate sensitivity management program,
also known as asset/liability management, is to maximize net interest income
while minimizing the risk of adverse effects from changing interest rates. This
is done by controlling the mix and maturities of interest sensitive assets and
liabilities. The bank has established an asset/liability committee for this
purpose.
One common interest rate risk measure is the gap, or the difference between
rate sensitive assets and rate sensitive liabilities. A positive gap occurs when
rate sensitive assets exceed rate sensitive liabilities. This tends to be
beneficial in rising interest rate environments. A negative gap refers to the
opposite situation and tends to be beneficial in declining interest rate
environments. However, the gap does not consider future changes in the volume of
rate sensitive assets or liabilities or the possibility that interest rates of
various products may not change by the same amount or at the same time. In
addition, certain assumptions must be made in constructing the gap. For example,
the bank considers administered rate deposits, such as savings accounts, to be
immediately rate sensitive although their rate sensitivity could differ from
this assumption. The bank monitors its gap on a quarterly basis. Table 13
presents an interest sensitivity analysis of the bank's assets and liabilities
at December 31, 1999.
37
<PAGE> 44
TABLE 13. INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------------------------
INTEREST SENSITIVITY PERIOD
-------------------------------------------------------------------
0-90 91-180 181-365 ONE TO FIVE OVER FIVE
DAYS DAYS DAYS YEARS YEARS TOTAL
-------- -------- -------- ----------- --------- --------
IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
Interest Sensitive
Assets
Securities........... $ 350 $ 270 $ 250 $ 5,931 $25,824 $ 32,625
Loans, net of
unearned
interest........... 6,217 8,714 12,298 51,124 18,772 97,125
-------- -------- -------- ------- ------- --------
Total interest
sensitive
assets.......... $ 6,567 $ 8,984 $ 12,548 $57,055 $44,596 $129,750
======== ======== ======== ======= ======= ========
Interest sensitive
liabilities
Deposits............. $ 29,917 $ 14,501 $ 10,209 $25,404 $ -- $ 80,031
-------- -------- -------- ------- ------- --------
Total interest
sensitive
liabilities..... $ 29,917 $ 14,501 $ 10,209 $25,404 $ -- $ 80,031
======== ======== ======== ======= ======= ========
GAP.................. $(23,350) $ (5,517) $ 2,339 $31,651 $44,596
Cumulative GAP....... $(23,350) $(28,867) $(26,528) $ 5,123 $49,719
GAP to sensitive
assets ratio....... (18.00)% (4.25)% 1.80% 24.39% 34.37%
Cumulative GAP to
sensitive assets
ratio.............. (18.00)% (22.25)% (20.45)% 3.95% 38.32%
</TABLE>
IMPACT OF INFLATION. The results of operations and financial position of
the bank have been presented based on historical cost, unadjusted for the
effects of inflation, except for the recording of unrealized gains and losses on
securities available for sale. Inflation could significantly impact the value of
the bank's interest rate sensitive assets and liabilities and the cost of
noninterest expenses, such as salaries, benefits and other operating expenses.
Management of the money supply by the Federal Reserve to control the rate of
inflation may have an impact on the earnings of the bank. Further, changes in
interest rates to control inflation may have a corresponding impact on the
ability of certain borrowers to repay loans granted by the bank.
As a financial intermediary, the bank holds a high percentage of interest
rate sensitive assets and liabilities. Consequently, the estimated fair value of
a significant portion of the bank's assets and liabilities change more
frequently than those of non-banking entities. The bank's policies attempt to
structure its mix of financial instruments and manage its interest rate
sensitivity in order to minimize the potential adverse effects of market forces
on its net interest income, earnings and capital. A comparison of the carrying
value of the bank's financial instruments to their estimated fair value as of
December 31, 1999 and December 31, 1998 is disclosed in Note 18 of the Notes to
the Consolidated Financial Statements.
38
<PAGE> 45
ADDITIONAL INFORMATION ABOUT THE HOLDING COMPANY
CNB Financial was incorporated on March 20, 2000, under the general
corporation laws of West Virginia to serve as a bank holding company in the
reorganization and, therefore, the holding company has no prior operating
history. Its principal office is located at 212 S. Washington Street, P. O. Box
130, Berkeley Springs, West Virginia 25411, and its telephone number is (304)
258-1520.
The holding company is authorized to issue 5,000,000 shares of common
stock, par value $1.00 per share. Certain directors currently own 12,000 shares
of the holding company's common stock, which will constitute all of the issued
and outstanding capital stock of the holding company immediately prior to the
reorganization. On the effective date of the reorganization, all of the stock
held by those persons will be redeemed and canceled.
OTHER MATTERS
As of the date of this proxy statement/prospectus, management is not aware
of any business to come before the special meeting other than the matters that
are described in this proxy statement/prospectus. However, if any other matters
properly come before the special meeting, we intend that the proxies solicited
by this proxy statement/prospectus will be voted on those other matters in
accordance with the judgment of the persons voting the proxies.
LEGAL MATTERS
Jackson & Kelly PLLC, Charleston, West Virginia, will pass upon the
validity of the holding company stock to be issued in the reorganization and
certain federal tax matters.
WHERE YOU CAN FIND MORE INFORMATION
CNB Financial has filed with the Securities and Exchange Commission a
Registration Statement on Form S-4 under the Securities Act of 1933, as amended,
with respect to the shares of its stock it will issue in the
merger/reorganization. This proxy statement/prospectus does not contain all
information set forth in the Registration Statement and the exhibits thereto.
You may obtain copies, at prescribed rates, of this additional information
from the following SEC locations.
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, 7 World Trade Center Citicorp Center
N.W. Suite 1300 500 West Madison Street
Room 1024 New York, NY 10048 Suite 1400
Washington, DC 20549 Chicago, IL 60661-2511
</TABLE>
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. This SEC filing is also available to the public from commercial
document retrieval services and at Internet world wide web site maintained by
the SEC at "http://www.sec.gov."
39
<PAGE> 46
CONTENTS
<TABLE>
<S> <C>
Independent Auditor's Report................................ F-1
Consolidated Financial Statements:
Consolidated Statements of Financial Condition............ F-2
Consolidated Statements of Income......................... F-3
Consolidated Statements of Changes in Shareholders'
Equity................................................. F-4
Consolidated Statements of Cash Flows..................... F-5
Notes to Consolidated Financial Statements................ F-6
</TABLE>
<PAGE> 47
INDEPENDENT AUDITOR'S REPORT
Shareholders and Board of Directors
Citizens National Bank of Berkeley Springs and Subsidiary
Berkeley Springs, West Virginia
We have audited the accompanying consolidated statements of financial
condition of the Citizens National Bank of Berkeley Springs and Subsidiary as of
December 31, 1999 and 1998, and the related consolidated statements of income,
changes in shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Citizens
National Bank of Berkeley Springs and Subsidiary as of December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
/s/ Smith Elliott Kearns & Company, LLC
Hagerstown, Maryland
January 21, 2000
F-1
<PAGE> 48
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks........................... $ 4,035,293 $ 2,862,300
Federal funds sold................................ -- 2,000,000
Securities available for sale (at approximate
market value)................................... 31,186,678 33,593,959
Loans receivable, net............................. 97,124,993 85,255,050
Loans held for sale............................... 65,300 --
Accrued interest receivable....................... 871,671 846,744
Foreclosed real estate (held for sale), net....... 66,938 122,379
Premises and equipment, net....................... 3,360,924 3,474,996
Deferred income taxes............................. 849,721 250,841
Cash surrender value of life insurance............ 670,734 604,731
Intangible assets................................. 108,267 116,000
Other assets...................................... 307,220 473,169
------------ ------------
TOTAL ASSETS................................. $138,647,739 $129,600,169
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand....................................... $ 15,653,259 $ 13,968,331
Interest-bearing demand...................... 22,942,904 23,103,186
Savings...................................... 16,446,507 17,125,907
Time, $100,000 and over...................... 18,042,001 9,954,710
Other time................................... 51,425,277 51,168,087
------------ ------------
$124,509,948 $115,320,221
Accrued interest payable........................ 816,619 731,879
Accrued expenses and other liabilities.......... 1,072,451 1,029,804
------------ ------------
TOTAL LIABILITIES............................ $126,399,018 $117,081,904
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $10 par value; 600,000 shares
authorized; 229,024 shares outstanding....... $ 2,290,240 $ 2,290,240
Capital surplus................................. 2,031,400 2,031,400
Retained earnings............................... 8,818,791 8,056,610
Accumulated other comprehensive income.......... (891,710) 140,015
------------ ------------
TOTAL SHAREHOLDERS' EQUITY................... $ 12,248,721 $ 12,518,265
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... $138,647,739 $129,600,169
============ ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-2
<PAGE> 49
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans............. $7,779,359 $7,342,065 $6,895,881
Interest and dividends on securities:
United States Treasury securities... 55,516 114,631 114,180
U.S. Government agencies and
corporations...................... 1,855,665 1,374,600 1,175,067
State and political subdivisions.... 185,680 274,453 310,718
Other............................... 8,206 6,926 5,718
Interest on federal funds sold......... 60,968 130,863 149,681
---------- ---------- ----------
$9,945,394 $9,243,538 $8,651,245
---------- ---------- ----------
INTEREST EXPENSE
Interest on interest bearing demand,
savings and time deposits........... $4,594,966 $4,171,379 $3,820,545
Interest on federal funds purchased.... 2,607 359 --
---------- ---------- ----------
$4,597,573 $4,171,738 $3,820,545
---------- ---------- ----------
NET INTEREST INCOME................. $5,347,821 $5,071,800 $4,830,700
PROVISION FOR LOAN LOSSES................ 117,999 195,600 174,292
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES................... $5,229,822 $4,876,200 $4,656,408
---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts.... $ 247,159 $ 191,406 $ 164,483
Other service charges, commissions and
fees................................ 176,951 139,071 111,961
Insurance income....................... 92,650 3,501 --
Other operating income................. 55,139 50,538 40,283
Net gain (loss) on sale of
securities.......................... (4,262) 17,570 (21,584)
Gain (loss) on sale of other real
estate owned........................ (2,890) 13,329 9,292
---------- ---------- ----------
$ 564,747 $ 415,415 $ 304,435
---------- ---------- ----------
NONINTEREST EXPENSES
Salaries............................... $1,713,298 $1,550,588 $1,405,811
Employee benefits...................... 532,762 456,735 385,320
Occupancy of premises.................. 203,442 168,411 149,186
Furniture and equipment expense........ 262,794 247,317 243,878
Other operating expenses............... 1,241,226 949,081 823,634
---------- ---------- ----------
$3,953,522 $3,372,132 $3,007,829
---------- ---------- ----------
INCOME BEFORE INCOME TAXES.......... $1,841,047 $1,919,483 $1,953,014
PROVISION FOR INCOME TAXES............... 620,818 618,249 635,965
---------- ---------- ----------
NET INCOME.......................... $1,220,229 $1,301,234 $1,317,049
========== ========== ==========
EARNINGS PER SHARE....................... $ 5.33 $ 5.68 $ 5.75
========== ========== ==========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-3
<PAGE> 50
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON CAPITAL RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK SURPLUS EARNINGS INCOME EQUITY
---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996.............. $1,145,120 $2,031,400 $7,469,773 $ (45,511) $10,600,782
Comprehensive income:
Net income for 1997................... -- -- 1,317,049 -- --
Change in unrealized gains (losses) on
securities available for sale (net
of tax of $66,593).................. -- -- -- 154,163 --
Total Comprehensive Income.............. -- -- -- -- 1,471,212
Cash dividends ($1.87 per share)........ -- -- (428,278) -- (428,278)
---------- ---------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1997.............. $1,145,120 $2,031,400 $8,358,544 $ 108,652 $11,643,716
Comprehensive income:................... -- -- 1,301,234 -- --
Net income for 1998
Change in unrealized gains (losses) on
securities available for sale (net
of tax of $19,223).................. -- -- -- 31,363 --
Total Comprehensive Income.............. -- -- -- -- 1,332,597
Cash dividends ($2.00 per share)........ -- -- (458,048) -- (458,048)
Stock split effected in the form of a
100% dividend......................... 1,145,120 -- (1,145,120) -- --
---------- ---------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1998.............. $2,290,240 $2,031,400 $8,056,610 $ 140,015 $12,518,265
Comprehensive income:
Net income for 1999................... -- -- 1,220,229 -- --
Change in unrealized gains (losses) on
securities available for sale (net
of tax of $632,348)................. -- -- -- (1,031,725) --
Total Comprehensive Income.............. -- -- -- -- 188,504
Cash dividends ($2.00 per share)........ (458,048) (458,048)
---------- ---------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1999.............. $2,290,240 $2,031,400 $8,818,791 $ (891,710) $12,248,721
========== ========== ========== =========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-4
<PAGE> 51
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................... $ 1,220,229 $ 1,301,234 $ 1,317,049
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 256,642 219,325 219,872
Provision for loan losses.................... 117,999 195,600 174,292
Deferred income taxes........................ 33,468 (34,543) (69,299)
Net (gain) loss on sale of securities........ 4,262 (17,570) 21,584
(Gain) loss on sale of real estate owned..... 2,890 (13,329) (9,292)
Loss on disposal of fixed assets............. 407 -- --
(Increase) in loans held for sale............ (65,300) -- --
(Increase) decrease in accrued interest
receivable................................ (24,927) 39,580 (154,829)
(Increase) decrease in other assets.......... 65,079 (447,154) (88,927)
Increase in accrued interest payable......... 84,740 115,653 111,555
Increase in accrued expenses and other
liabilities............................... 42,647 137,665 130,180
Amortization of deferred loan (fees) cost.... 44,375 51,806 47,272
Amortization (accretion) of premium and
discount on investments................... (1,030) (6,315) 3,262
------------ ------------ -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES.............................. $ 1,781,481 $ 1,541,952 $ 1,702,719
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) in loans...................... $(12,094,817) $ (5,561,460) $(5,094,294)
Proceeds from sales of securities............ 7,290,995 8,648,700 8,462,366
Proceeds from maturities of securities....... 8,495,000 11,815,000 2,828,560
Purchases of securities...................... (15,046,019) (25,044,350) (16,150,000)
Purchases of premises and equipment.......... (100,377) (1,235,577) (322,283)
Proceeds from sale of other real estate
owned, net................................ 119,489 152,054 131,292
Net (increase) in real estate owned, net..... (4,438) -- --
Net (increase) decrease in federal funds
sold...................................... 2,000,000 (2,000,000) 2,995,000
------------ ------------ -----------
NET CASH (USED IN) INVESTING ACTIVITIES... $ (9,340,167) $(13,225,633) $(7,149,359)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand and savings
deposits.................................. $ 845,246 $ 3,507,977 $(1,563,687)
Net increase in time deposits................ 8,344,481 9,562,669 6,737,497
Cash dividends paid.......................... (458,048) (458,048) (428,278)
------------ ------------ -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES.............................. $ 8,731,679 $ 12,612,598 $ 4,745,532
------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. $ 1,172,993 $ 928,917 $ (701,108)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR... 2,862,300 1,933,383 2,634,491
------------ ------------ -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR......... $ 4,035,293 $ 2,862,300 $ 1,933,383
============ ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year:
Interest..................................... $ 4,512,832 $ 4,056,085 $ 3,708,990
Income taxes................................. $ 639,000 $ 612,604 $ 696,881
Net transfer to foreclosed real estate, held for
sale from loans receivable..................... $ 62,500 $ 124,613 $ 158,491
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-5
<PAGE> 52
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS:
Citizens National Bank of Berkeley Springs provides a variety of banking
services to individuals and businesses through its two locations in Berkeley
Springs, West Virginia and its branch in Hedgesville, West Virginia which opened
in October 1998. Its primary deposit products are demand deposits and
certificates of deposit, and its primary lending products are commercial
business, real estate mortgage, and installment loans.
CNB Insurance Services, Inc., wholly owned subsidiary of Citizens National
Bank, (collectively referred to as "the bank"), began operations in November,
1998. CNB Insurance Services, Inc. is a property and casualty insurance agency
selling primarily personal lines of insurance in Morgan and Berkeley Counties.
The accounting policies of the Bank conform to generally accepted
accounting principles and to general practices of the banking industry.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Citizens
National Bank of Berkeley Springs and its wholly owned subsidiary. All
significant intercompany transactions and balances have been eliminated.
USE OF ESTIMATES:
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SECURITIES AND MORTGAGE-BACKED SECURITIES:
The Bank classifies and accounts for investments in equity securities that
have readily determinable fair values and for all investments in debt securities
as follows:
a. Debt securities that the Bank has the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and
reported at amortized cost.
b. Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses
included in earnings.
c. Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of
shareholders' equity as accumulated other comprehensive income.
F-6
<PAGE> 53
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity.
Gain or loss on sale of securities is based on specific identification
method.
IMPAIRED LOANS:
Impaired loans are defined as those loans for which it is probable that
contractual amounts due will not be received. Statement of Financial Accounting
Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118, requires that the measurement of impaired loans is
based on the present value of expected future cash flows discounted at the
historical effective interest rate, except that all collateral-dependent loans
are measured for impairment based on the fair value of the collateral. Larger
groups of small-balance loans such as residential mortgage and installment loans
that are considered to be part of homogeneous loan pools are aggregated for the
purpose of measuring impairment, and therefore, are not subject to these
statements. Management has established a dollar-value threshold for commercial
loans. The larger commercial loans are evaluated in accordance with the
statements. The Bank has no loans which are considered to be impaired at
December 31, 1999 and 1998.
ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions.
Allowances for impaired loans are generally determined based on collateral
values or the present value of estimated cash flows. The allowance is increased
by a provision for loan losses, which is charged to expense and reduced by
charge-offs, net of recoveries. Changes in the allowance relating to impaired
loans are charged or credited to the provision for loan losses. Because of
uncertainties inherent in the estimation process, management's estimate of
credit losses inherent in the loan portfolio and the related allowance may
change in the near term.
LOANS HELD FOR SALE:
The Bank underwrites certain loan originations in a manner so they are
eligible for sale in the secondary market. If mortgage loans are originated and
held for sale to investors they are classified as held for sale and recorded at
the lower of cost or market value. Gains and losses realized from the sale of
loans and adjustments to market value are included in non-interest income. The
Bank has from time to time sold mortgage loans to the Federal Home Loan Mortgage
Corporation (Freddie Mac) and other commercial banks.
F-7
<PAGE> 54
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS:
The intangible asset represents the acquisition in November 1998 by CNB
Insurance Services, Inc. of a customer list, contracts and records in the amount
of $116,000. The intangible asset is being amortized over fifteen years on a
straight line basis.
LOAN SERVICING:
The cost of mortgage servicing rights is amortized in proportion to, and
over the period of, estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the fair value of those rights. Fair
values are estimated using discounted cash flows based on a current market
interest rate. For purposes of measuring impairment, the rights are stratified
based on the predominant risk characteristics of the underlying loans: product
type, investor type, interest rate, term and geographic location. An analysis of
the risk characteristics of the Bank's loan servicing portfolio allows for all
loans to be defined by one risk category.
INTEREST INCOME ON LOANS:
Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest on loans is discontinued when, in
the opinion of management, there is an indication that the borrower may be
unable to meet payments as they become due. Upon such discontinuance, all unpaid
accrued interest is reversed.
NONPERFORMING/NONACCRUAL ASSETS:
Nonperforming/nonaccrual assets consist of loans on which interest is no
longer accrued, loans which have been restructured in order to allow the
borrower the ability to maintain control of the collateral, real estate acquired
by foreclosure and real estate upon which deeds in lieu of foreclosure have been
accepted. Interest previously accrued but not collected on nonaccrual loans is
reversed against current income when a loan is placed on a nonaccrual basis.
LOANS RECEIVABLE:
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
unpaid principal balances reduced by any charge-offs or specific valuation
accounts and net of any deferred fees or costs on originated loans, or
unamortized premiums or discounts on purchased loans.
LOAN ORIGINATION FEES AND COSTS:
Certain direct costs of originating loans are being capitalized and
amortized over the contractual life of the loan as an adjustment of the yield on
the related loan.
F-8
<PAGE> 55
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREMISES AND EQUIPMENT:
Premises and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated on both straight-line and accelerated methods over
the estimated useful lives of 15 to 50 years for buildings and 3 to 20 years for
equipment. Maintenance and repairs are charged to operating expenses as
incurred.
INCOME TAXES:
Deferred tax assets or liabilities are computed based on the difference
between the financial statement and income tax bases of assets and liabilities
using the enacted marginal tax rate. Deferred income tax expenses or credits are
based on the changes in the asset or liability from period to period.
PENSION PLAN:
The Bank's policy is to fund pension costs by annual contributions as
required by applicable regulations.
CASH AND CASH EQUIVALENTS:
For purposes of the Consolidated Statements of Cash Flows, the Bank has
defined cash and cash equivalents as all highly liquid debt instruments
purchased with a maturity of three months or less except for federal funds sold.
Those amounts are included in the balance sheet captions "Cash and Due From
Banks." The Bank has elected to present the net increase or decrease in loans
and time deposits in the Consolidated Statements of Cash Flows.
EARNINGS AND DIVIDENDS PER SHARE:
Earnings and dividends per share are computed on the basis of the weighted
average number of 229,024 shares of common stock outstanding during each year.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:
In the ordinary course of business the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit, commercial lines of credit and letters of credit. Such financial
instruments are recorded in the financial statements when they become payable.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS:
During the years that the employee renders the necessary service, the Bank
accrues the cost of providing postretirement health and life insurance benefits
to the employee.
F-9
<PAGE> 56
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FORECLOSED REAL ESTATE:
Real estate properties acquired through, or in lieu of, loan foreclosure
are to be sold and are initially recorded at fair value at the date of
foreclosure establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate is carried at the lower
of carrying amount or fair value less estimated cost to sell. Revenue and
expenses from operations and changes in the valuation allowance are included in
loss on foreclosed real estate. The historical average holding period for such
properties is twelve to eighteen months.
TRUST FEES:
Trust fees are recorded on the accrual basis.
ADVERTISING COSTS:
The Bank expenses advertising costs in the period in which they are
incurred. Advertising cost amounted to $82,459, $55,220 and $58,544 for the
years ended December 31, 1999, 1998 and 1997, respectively.
COMPREHENSIVE INCOME:
In 1998 the Bank adopted Statement of Financial Accounting Standards (SFAS)
No. 130 -- Reporting Comprehensive Income. Under SFAS No. 130, comprehensive
income is defined as the change in equity from transactions and other events
from nonowner sources. It includes all changes in equity except those resulting
from investments by shareholders and distributions to shareholders.
Comprehensive income includes net income and certain elements of "other
comprehensive income" such as foreign currency transactions; accounting for
futures contracts; employers accounting for pensions; and accounting for certain
investments in debt and equity securities.
The Bank has elected to report its comprehensive income in the Consolidated
Statements of Changes in Shareholders' Equity. The only element of "other
comprehensive income" that the Bank has is the unrealized gain or losses on
available for sale securities. The 1997 financial statements have been
reclassified to reflect these changes in reporting format.
F-10
<PAGE> 57
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The components of the change in net unrealized gains (losses) on securities
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- -------- --------
<S> <C> <C> <C>
Unrealized holding gains (losses) arising
during the year.............................. $(1,668,335) $ 68,156 $199,172
Reclassification adjustment for (gains) losses
realized in net income....................... 4,262 (17,570) 21,584
----------- -------- --------
Net unrealized holding gains (losses) before
taxes........................................ $(1,664,073) $ 50,586 $220,756
Tax effect..................................... 632,348 (19,223) (66,593)
----------- -------- --------
Net change..................................... $(1,031,725) $ 31,363 $154,163
=========== ======== ========
</TABLE>
NOTE 2. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average daily reserve balances with the
Federal Reserve Bank. The amount of these required reserves, calculated based on
percentages of certain deposit balances was $1,000,000 at December 31, 1999.
NOTE 3. SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated market value of debt securities at
December 31, 1999 and December 31, 1998 by contractual maturity are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
F-11
<PAGE> 58
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. SECURITIES AVAILABLE FOR SALE (CONTINUED)
Securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
1999
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities
After 1 but within 5
years.................. $ 400,699 $ 51 $ -- $ 400,750
----------- ------ ---------- -----------
U.S. Government agencies and
corporations
Within 1 year............ $ 250,000 $ -- $ 1,094 $ 248,906
After 1 but within 5
years.................. 4,499,367 -- 181,006 4,318,361
After 5 but within 10
years.................. 25,230,736 -- 1,250,698 23,980,038
----------- ------ ---------- -----------
$29,980,103 $ -- $1,432,798 $28,547,305
----------- ------ ---------- -----------
States and political
subdivision
Within 1 year............ $ 620,637 $6,466 $ -- $ 627,103
After 1 but within 5
years.................. 1,030,759 2,742 2,237 1,031,264
After 5 but within 10
years.................. 363,085 -- 8,694 354,391
After 10 years........... 100,000 -- 3,785 96,215
----------- ------ ---------- -----------
$ 2,114,481 $9,208 $ 14,716 $ 2,108,973
----------- ------ ---------- -----------
Federal Reserve Bank
stock.................... $ 129,650 $ -- $ -- $ 129,650
----------- ------ ---------- -----------
Total securities
available for sale..... $32,624,933 $9,259 $1,447,514 $31,186,678
=========== ====== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities
Within 1 year............. $ 299,978 $ 1,052 $ -- $ 301,030
After 1 but within 5
years................... 1,151,200 70,320 -- 1,221,520
----------- -------- ------- -----------
$ 1,451,178 $ 71,372 $ -- $ 1,522,550
----------- -------- ------- -----------
U.S. Government agencies and
corporations
Within 1 year............. $ 349,994 $ -- $ -- $ 349,994
After 1 but within 5
years................... 4,192,505 40,991 17,970 4,215,526
After 5 but within 10
years................... 22,694,937 87,563 49,436 22,733,064
----------- -------- ------- -----------
$27,237,436 $128,554 $67,406 $27,298,584
----------- -------- ------- -----------
</TABLE>
F-12
<PAGE> 59
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. SECURITIES AVAILABLE FOR SALE (CONTINUED)
<TABLE>
<CAPTION>
1998
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
States and political
subdivisions
Within 1 year............. $ 815,156 $ 6,365 $ -- $ 821,521
After 1 but within 5
years................... 3,206,008 76,168 -- 3,282,176
After 5 but within 10
years................... 428,700 6,567 -- 435,267
After 10 years............ 100,000 4,211 -- 104,211
----------- -------- ------- -----------
$ 4,549,864 $ 93,311 $ -- $ 4,643,175
----------- -------- ------- -----------
Federal Reserve Bank stock... $ 129,650 $ -- $ -- $ 129,650
----------- -------- ------- -----------
Total securities available for
sale......................... $33,368,128 $293,237 $67,406 $33,593,959
=========== ======== ======= ===========
</TABLE>
The carrying value of securities pledged to secure public deposits and for
other purposes as required or permitted by law totaled $9,467,490 at December
31, 1999 and $9,018,282 at December 31, 1998.
Proceeds from sales of securities available for sale (excluding maturities)
for the years ended December 31, 1999, 1998 and 1997 were $7,290,995,
$8,648,700, and $8,462,366, respectively. Gross gains (losses) of $15,829 and
$(20,091) in 1999, $33,483 and $(15,913) in 1998, and $14,189 and $(35,773) in
1997 were realized on the respective sales.
NOTE 4. LOANS RECEIVABLE
Major classifications of loans at December 31, 1999 and 1998, were as
follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Real estate................................. $61,624,632 $55,412,444
Commercial real estate...................... 9,568,985 8,540,639
Consumer.................................... 21,778,574 18,407,662
Commercial.................................. 5,184,988 3,852,914
Overdrafts.................................. 28,121 83,226
----------- -----------
$98,185,300 $86,296,885
Net deferred loan fees, premiums and
discounts................................. 87,539 80,320
Allowance for loan losses................... (1,147,846) (1,122,155)
----------- -----------
$97,124,993 $85,255,050
=========== ===========
</TABLE>
At December 31, 1999, approximately $22,764,000 or 32.0% of the real estate
loans had fixed rates of interest and $48,430,000 or 68.0% had adjustable rates
of interest.
F-13
<PAGE> 60
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. LOANS RECEIVABLE (CONTINUED)
An analysis of the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Balance, Beginning............... $1,122,155 $1,018,818 $ 916,736
Provision charged to
operations.................. 117,999 195,600 174,292
Recoveries..................... 26,270 35,634 29,793
Loans charged off.............. (118,578) (127,897) (102,003)
---------- ---------- ----------
Balance, Ending.................. $1,147,846 $1,122,155 $1,018,818
========== ========== ==========
</TABLE>
Loans are placed on nonaccrual status when, in the judgement of management,
the probability of collection of interest is deemed to be insufficient to
warrant further accrual. A summary of nonaccrual loans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
------- --------
<S> <C> <C>
Real estate loans................................. $ -- $232,288
Consumer loans.................................... 22,157 42,293
Commercial loans.................................. -- --
------- --------
$22,157 $274,581
======= ========
</TABLE>
The contractual amount of interest that would have been recorded on
nonaccrual loans during 1999 and 1998 was $29,292 and $16,594, respectively. The
amount of interest income that was recorded on nonaccrual loans during 1999 and
1998 was $23,025 and $14,987, respectively.
The Bank is not committed to lend additional funds to debtors whose loans
are nonperforming or on nonaccrual status.
NOTE 5. LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
financial statements. The unpaid principal balances of mortgage loans serviced
for others was $6,189,932 and $7,655,856 at December 31, 1999 and 1998,
respectively.
Custodial balances maintained in connection with the foregoing loan
servicing, and included in demand deposits, were $143,486 and $113,674 at
December 31, 1999 and 1998, respectively.
Mortgage servicing rights of $12,253 were capitalized in 1998. The Bank did
not capitalize any mortgage servicing rights in 1999. An analysis of the
predominant risk characteristics indicates that there is not more that a normal
amount of prepayment risk and thus no write down is necessary. Amortization of
mortgage servicing rights was $2,258 and $2,439 in 1999 and 1998, respectively.
Mortgage servicing rights at the end of the years December 31, 1999 and 1998
were $36,370 and $38,472, respectively.
F-14
<PAGE> 61
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. PREMISES AND EQUIPMENT
Major classifications of premises and equipment at December 31 were as
follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Land and land improvements.............................. $ 981,150 $ 981,150
Banking house -- main................................... 1,282,560 1,281,085
Banking house -- Valley Road branch..................... 521,431 521,431
Banking house -- Hedgesville branch..................... 765,137 738,462
Furniture, fixtures and equipment....................... 1,680,757 1,637,706
---------- ----------
$5,231,035 $5,159,834
Less accumulated depreciation......................... 1,925,365 1,744,382
---------- ----------
$3,305,670 $3,415,452
Construction in progress -- addition.................... 55,254 59,544
---------- ----------
$3,360,924 $3,474,996
========== ==========
</TABLE>
Depreciation and amortization expense amounted to $256,642, $219,325, and
$219,872 in 1999, 1998 and 1997, respectively.
NOTE 7. OPERATING LEASES
The Bank has two lease agreements, one for a lot to be utilized for
additional parking and the other for a postage meter and mailing system.
The lease on the lot has a term of one year, expiring March 1, 2000 with an
annual payment of $2,500. The lease provides for automatic renewals for
successive one-year terms at the same payment. The lease on the postage meter
and mailing system is for a 57 month period expiring in January 2000, requiring
monthly payments of $771. Both leases are classified as operating leases.
Lease expense under operating leases for the periods ending December 31,
1999, 1998 and 1997 amounted to $11,752, $11,752, and $11,964, respectively.
NOTE 8. PENSION PLAN
The Bank is a member of The West Virginia Bankers Association Retirement
Plan, a multi-employer, defined benefit pension plan. All employees participate
in the plan after completing one year of service and attaining the age of 21.
The benefits are based on years of service and the highest average earnings
during any five consecutive calendar years. Plan assets are invested primarily
in corporate bonds, common stocks and U.S. Government and Agency Securities.
F-15
<PAGE> 62
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. PENSION PLAN (CONTINUED)
The following table sets forth information about the Bank's plan as of
October 31:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year... $2,451,242 $2,008,099 $1,736,731
Service cost.............................. 116,483 100,431 74,803
Interest cost............................. 167,701 156,741 132,532
Accrual gain (loss)....................... (5,239) 200,476 134,141
Change in discount rate................... (350,612) 89,231 28,576
Benefits paid............................. (114,357) (103,736) (98,684)
---------- ---------- ----------
Benefit obligation at end of year......... $2,265,218 $2,451,242 $2,008,099
---------- ---------- ----------
Change in plan assets:
Fair value of plan assets at beginning of
year................................... $2,008,519 $1,936,710 $1,717,386
Actual return on plan assets.............. 98,484 113,192 318,008
Employer contribution..................... 120,095 62,353 --
Benefits paid............................. (114,357) (103,736) (98,684)
---------- ---------- ----------
Fair value of plan assets at end of
year................................... $2,112,741 $2,008,519 $1,936,710
---------- ---------- ----------
Funded status............................... $ (152,477) $ (442,723) $ (71,389)
Unrecognized net actuarial (gain) loss...... (155,193) 131,366 (205,777)
Unrecognized prior service cost............. 76,376 112,980 107,943
Unrecognized net transition (asset)......... (36,081) (45,651) (55,221)
---------- ---------- ----------
Prepaid (accrued) benefit cost......... $ (267,375) $ (244,028) $ (224,444)
========== ========== ==========
Weighted average assumptions as of October
31:
Discount rate.......................... 8.0% 7.0% 7.25%
Expected return on plan assets......... 8.5% 8.5% 8.5%
Rate of compensation increase.......... 5.0% 5.0% 5.0%
Components of net periodic cost:
Service cost.............................. $ 116,483 $ 100,431 $ 74,803
Interest cost............................. 167,701 156,741 132,532
Expected return on plan assets............ (167,776) (171,093) (142,075)
Net amortization.......................... 11,446 11,446 11,446
---------- ---------- ----------
Net Periodic Plan Cost................. $ 127,854 $ 97,525 $ 76,706
========== ========== ==========
</TABLE>
NOTE 9. 401(k) PROFIT SHARING PLAN
All employees are eligible to participate in the Citizens National Bank of
Berkeley Springs 401(k) Profit Sharing Plan after completing one year of
service. Employees may defer up to 15% of their salary in 1999 and 1998, and 10%
of their salary in 1997. The Bank may, at the discretion of the Board of
Directors, match all or part of the employee deferrals. For 1999, 1998 and 1997,
the Bank matched 50% of employee deferrals up to 5% of salary. The percentage of
match varies based on the Bank's profit level.
The Bank's contribution charged to income during 1999, 1998 and 1997 was
$19,800, $15,534, and $22,400, respectively.
F-16
<PAGE> 63
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. DEFERRED COMPENSATION PLAN
The Bank has a plan pursuant to which a director may elect to waive receipt
of all or a portion of his fees for Board of Directors' meetings or committee
meetings in exchange for a retirement benefit to be received during a ten-year
period after attaining a certain age. The Bank has acquired life insurance on
the lives of participating directors to fund its obligation under the plan. The
cash surrender value of these life insurance policies has been recorded as an
asset. The present value of payments to be paid to directors or their
beneficiaries for services rendered to date has been recorded as a liability.
The expense for these benefits was $33,727, $26,464, and $40,126, for 1999,
1998, and 1997, respectively.
NOTE 11. TIME DEPOSITS
At December 31, 1999, the scheduled maturities of time deposits are as
follows:
<TABLE>
<CAPTION>
TIME DEPOSITS ALL TIME
$100,000 AND OVER DEPOSITS
----------------- -----------
<S> <C> <C>
2000.............................................. $12,505,334 $43,497,355
2001.............................................. 4,482,438 18,895,857
2002.............................................. 954,229 5,613,530
2003.............................................. 100,000 1,025,593
2004.............................................. -- 434,943
----------- -----------
$18,042,001 $69,467,278
=========== ===========
</TABLE>
NOTE 12. SHAREHOLDERS' EQUITY
At a special meeting of the shareholders of the Bank on January 22, 1998,
the authorized shares of the Bank were increased from 125,000 shares to 600,000
shares. The increase in authorized shares was necessary to complete a proposed
stock dividend. The authorized but unissued shares may only be issued for the
purpose of declaring stock dividends to the Bank's shareholders.
On January 22, 1998, the Board of Directors approved a stock split effected
in the form of a 100% stock dividend to shareholders of record on January 22,
1998. On March 1, 1998, the Bank distributed 114,512 shares of common stock to
shareholders in connection with the stock split effected in the form of a 100%
stock dividend. As a result of the stock dividend, common stock was increased by
$1,145,120 and retained income was decreased by $1,145,120.
All references in the accompanying consolidated financial statements and
notes to per-share amounts have been restated to reflect the above stock split.
Earnings and dividends per share has been computed based on 229,024 weighted
average number of shares outstanding in 1999, 1998 and 1997.
F-17
<PAGE> 64
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13. INCOME TAXES
Income taxes reflected in the statements of income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Federal:
Current........................................ $526,454 $573,908 $623,010
Deferred....................................... 30,090 (26,467) (52,827)
State:
Current........................................ 60,896 78,884 82,254
Deferred....................................... 3,378 (8,076) (16,472)
-------- -------- --------
Provision for Income Taxes.................. $620,818 $618,249 $635,965
======== ======== ========
</TABLE>
Deferred income taxes reflect the impact of "temporary differences" between
the amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations.
The following is a reconciliation of the statutory federal income tax rate
applied to pre-tax accounting income, with the income tax provisions in the
statements of income.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income tax expense at the statutory rate (34%)..... $625,956 $652,624 $664,025
Increases (decreases) resulting from:
Nontaxable interest income, net of
non-deductible interest expense............. (66,084) (90,371) (96,960)
State income taxes, net of federal income tax
benefit..................................... 64,274 70,808 65,782
Other......................................... (3,328) (14,812) 3,118
-------- -------- --------
Provision for Income Taxes.................. $620,818 $618,249 $635,965
======== ======== ========
</TABLE>
Federal and state income taxes receivable included in the balance sheet as
other assets were $83,543 and $29,800 at December 31, 1999 and 1998,
respectively.
F-18
<PAGE> 65
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13. INCOME TAXES (CONTINUED)
The components of deferred taxes included in the balance sheet as of
December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Deferred tax assets:
Provision for loan losses.............................. $ 348,863 $ 339,614
Deferred compensation plan............................. 190,043 182,758
Postretirement benefits................................ 33,069 24,701
Defined benefit plan................................... 96,255 87,850
Net unrealized loss on securities available for sale... 546,531 --
---------- ---------
$1,214,761 $ 634,923
---------- ---------
Deferred tax liabilities:
Deferred compensation plan............................. $ (134,147) $(120,946)
Mortgage servicing rights.............................. (13,201) (14,010)
Net unrealized gain on securities available for sale... -- (85,816)
Depreciation........................................... (217,692) (163,310)
---------- ---------
$ (365,040) $(384,082)
---------- ---------
Net Deferred Tax Asset................................... $ 849,721 $ 250,841
========== =========
</TABLE>
Generally accepted accounting principles require a valuation allowance
against deferred tax assets if, based on the weight of available evidence, it is
more likely than not that some or all of the deferred tax assets will not be
realized. The Bank believes that the deferred tax assets will be realized and
therefore no valuation allowance was established.
NOTE 14. OTHER OPERATING EXPENSES
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
Stationery, supplies and printing.............. $ 117,146 $117,879 $ 75,315
Data processing................................ 131,213 110,679 82,189
Director's fees................................ 137,002 119,275 116,960
Postage........................................ 77,043 62,722 47,028
Telephone...................................... 57,823 45,476 35,284
Professional fees.............................. 123,981 81,422 82,547
ATM fees....................................... 84,676 96,133 39,779
Advertising and public relations............... 96,133 75,476 77,513
Other.......................................... 416,209 240,019 267,019
---------- -------- --------
Total Other Operating Expenses............ $1,241,226 $949,081 $823,634
========== ======== ========
</TABLE>
NOTE 15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing need of its customers. These
financial instruments include commitments to extend credit, and standby letters
of credit. Those instruments involve, to varying degrees, elements of credit and
interest rate risk which are not reflected in
F-19
<PAGE> 66
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
the statements of financial condition. The contractual amounts of those
instruments reflect the extent of involvement the Bank has in particular classes
of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit written is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend funds as long as there
is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses. Commercial
line of credit arrangements usually require payment of a fee.
The Bank evaluates each customer's creditworthiness and related collateral
on a case-by-case basis. The amount of collateral obtained if deemed necessary
by the Bank upon extension of credit is based on management's credit evaluation
of the customer. Collateral held varies but may include accounts receivable,
inventory, real estate, equipment, and income-producing commercial properties.
Standby letters of credit written are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. Those
guarantees are issued to support public and private borrowing arrangements, bond
financing, and similar transactions. The credit risk involved in issuing a
letter of credit is essentially the same as that involved in extending loan
facilities to customers.
A summary of off-balance sheet instruments as of December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Commitments:
To originate:
Fixed rate loans................................. $ 547,205 $ 168,000
Adjustable rate loans............................ 197,250 384,800
---------- ----------
$ 744,455 $ 552,800
Letters of credit....................................... 874,299 113,733
Undisbursed portion of construction loans............... 967,784 1,053,820
Available credit granted on commercial loans............ 2,390,204 1,986,879
Available credit on personal lines of credit............ 505,997 379,623
Undisbursed portion of home equity loans................ 1,013,380 760,643
---------- ----------
$6,496,119 $4,847,498
========== ==========
</TABLE>
F-20
<PAGE> 67
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
The Bank's primary business is mortgage loans, which consists of
originating residential, construction, multi-family, and commercial real estate
loans and consumer and commercial loans. Citizen's National Bank's primary
lending area is Morgan County, West Virginia. Loans are occasionally made in
surrounding counties in West Virginia, Maryland and Virginia and Pennsylvania.
The Bank evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained if deemed necessary by the Bank upon
the extension of credit is based on management's credit evaluation of the
customer. Collateral held varies but generally includes vehicles, equipment and
real estate.
NOTE 17. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets (as defined), and of Tier I capital (as defined)
to average assets (as defined). Management believes, as of December 31, 1999,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1999 and 1998, the most recent notification from the
Office of the Comptroller of the Currency categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios. There are no conditions or events
since that notification that management believes have changed the institution's
category.
The Bank is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval.
F-21
<PAGE> 68
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17. REGULATORY MATTERS (CONTINUED)
The Bank's actual capital amounts and ratios are also presented in the
table. There were no deductions from capital for interest-rate risk in 1999 and
1998.
<TABLE>
<CAPTION>
RATIO
----------------------------------------------
ACTUAL TO BE WELL
AMOUNT CAPITALIZED UNDER
IN FOR CAPITAL PROMPT CORRECTIVE
THOUSANDS ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------- ------ ----------------- -----------------
<S> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital
(to Risk Weighted
Assets)................ $14,176 17.13% 8.0% 5.0%
Tier I Capital
(to Risk Weighted
Assets)................ $13,140 15.87% 4.0% 6.0%
Tier I Capital
(to Average Assets).... $13,140 9.52% 4.0% 5.0%
As of December 31, 1998:
Total Capital
(to Risk Weighted
Assets)................ $13,302 18.11% 8.0% 10.0%
Tier I Capital
(to Risk Weighted
Assets)................ $12,382 16.86% 4.0% 6.0%
Tier I Capital
(to Average Assets).... $12,382 9.73% 4.0% 5.0%
</TABLE>
NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is the amount at which the asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Fair value estimates are made at a
specific point in time based on relevant market information and information
about the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the entire
holdings of a particular financial instrument. Because no market value exists
for a significant portion of the financial instruments, fair value estimates are
based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature, involve uncertainties and
matters of judgment and, therefore, cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on financial instruments both on and off the
balance sheet without attempting to estimate the value of anticipated future
business, and the value of assets and liabilities that are not considered
financial instruments. Additionally, tax consequences related to the realization
of the unrealized gains and losses can have a potential effect on fair value
estimates and have not been considered in many of the estimates.
F-22
<PAGE> 69
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used to estimate the fair value
of significant financial instruments:
FINANCIAL ASSETS:
The carrying amounts of cash, due from banks and federal funds sold are
considered to approximate fair value. The fair value of investment securities,
including available for sale, are generally based on quoted market prices. The
fair value of loans is estimated using a combination of techniques, including
discounting estimated future cash flows and quoted market prices of similar
instruments where available.
FINANCIAL LIABILITIES:
The carrying amounts of deposit liabilities payable on demand are
considered to approximate fair value. For fixed maturity (time) deposits, fair
value is estimated by discounting estimated future cash flows using currently
offered rates for deposits of similar remaining maturities.
OFF-BALANCE-SHEET-FINANCIAL INSTRUMENTS:
The fair value of commitments to extend credit and standby letters of
credit is estimated using the fees currently charged to enter into similar
agreements.
The estimated fair value of financial instruments at December 31, is
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash, due from banks and
federal funds sold...... $ 4,035,293 $ 4,035,293 $ 2,862,300 $ 2,862,300
Securities available for
sale.................... 31,186,678 31,186,678 33,593,959 33,593,959
Loans...................... 97,190,293 97,060,268 85,255,050 85,012,608
Accrued interest
receivable.............. 871,671 871,671 846,744 846,744
Mortgage servicing
rights.................. 42,260 42,260 38,472 38,472
Financial Liabilities:
Demand deposits............ $55,042,670 $55,042,670 $54,197,424 $54,197,424
Time deposits.............. 69,467,278 70,575,049 61,122,797 62,127,845
Accrued interest payable... 816,619 816,619 731,879 731,879
Off Balance -- Sheet
Financial Instruments:
Letters of credit.......... $ -- $ 3,055 $ -- $ 600
</TABLE>
F-23
<PAGE> 70
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank had granted loans to officers,
directors, and their affiliates amounting to $1,463,356 and $1,488,737 at
December 31, 1999 and 1998, respectively. During 1999, $1,016,225 of new loans
were made, or became reportable, and repayments and other decreases totaled
$1,041,606. Deposits from related parties held by the Bank at December 31, 1999
and 1998 amounted to $2,257,550 and $1,913,513, respectively.
NOTE 20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1999
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income.............................. $2,379 $2,462 $2,529 $2,575
Interest expense............................. 1,116 1,135 1,155 1,191
------ ------ ------ ------
Net interest income.......................... $1,263 $1,327 $1,374 $1,384
Provision for loan losses.................... 42 16 30 30
Noninterest income........................... 138 119 157 151
Noninterest expense.......................... 893 1,015 932 1,114
------ ------ ------ ------
Income before income taxes................... 466 415 569 391
Provision for income taxes................... 153 138 197 133
------ ------ ------ ------
Net income................................... $ 313 $ 277 $ 372 $ 258
====== ====== ====== ======
Earnings per share........................... $ 1.37 $ 1.21 $ 1.62 $ 1.13
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1998
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income.............................. $2,234 $2,326 $2,333 $2,350
Interest expense............................. 1,001 1,032 1,043 1,095
------ ------ ------ ------
Net interest income.......................... $1,233 $1,294 $1,290 $1,255
Provision for loan losses.................... 30 55 51 60
Noninterest income........................... 90 105 92 128
Noninterest expense.......................... 758 853 815 946
------ ------ ------ ------
Income before income taxes................... 535 491 516 377
Provision for income taxes................... 175 161 172 110
------ ------ ------ ------
Net income................................... $ 360 $ 330 $ 344 $ 267
====== ====== ====== ======
Earnings per share........................... $ 1.57 $ 1.44 $ 1.50 $ 1.17
====== ====== ====== ======
</TABLE>
F-24
<PAGE> 71
APPENDIX I
AGREEMENT
AND
PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement"), is made and entered into
as of the 5th day of April, 2000, by and between CNB FINANCIAL SERVICES, INC., a
West Virginia corporation ("CNB Financial"), and CITIZENS NATIONAL BANK OF
BERKELEY SPRINGS, a national banking association ("Bank"), to be joined in by
CNB INTERIM BANK, N.A., a national banking association.
W I T N E S S E T H:
RECITALS
WHEREAS, the parties hereto have agreed that subject to the necessary
approval by the shareholders of the Bank, and subject to obtaining all necessary
approvals as hereinafter provided, CNB Financial shall acquire all of the
outstanding stock of the Bank pursuant to a plan of reorganization which
satisfies the requirements of Internal Revenue Code section 368(a)(1)(A) and
section 368(a)(2)(E); and
WHEREAS, it has been determined that the "Interim Bank Method" will be used
to implement such plan of reorganization; and
WHEREAS, in furtherance thereof, CNB Financial has been formed as a West
Virginia corporation; and
WHEREAS, CNB Financial will cause a new national banking association to be
chartered under the laws of the United States under the name CNB Interim Bank,
N.A. ("Interim Bank"); and
WHEREAS, the Interim Bank will merge with and into the Bank pursuant to
this Agreement; and
WHEREAS, the Board of Directors of the Bank, by a majority vote of all of
the members thereof, has approved this Agreement and has authorized the
execution hereof in counterparts; and
WHEREAS, the Board of Directors of CNB Financial, by a majority vote of all
of the members thereof, has approved this Agreement and has authorized the
execution hereof in counterparts.
AGREEMENT
Now, therefore, for and in consideration of the premises and the mutual
agreements hereinafter set forth, and in accordance with the provisions of
applicable law, the parties agree as follows:
I-1
<PAGE> 72
SECTION 1
THE MERGER
1.1 THE MERGER. On the Effective Date (as defined in Section 7.3), Interim
Bank shall merge with and into the Bank (the "Merger"), under the charter of the
Bank. The Bank shall be the surviving bank (hereinafter sometimes called the
"Surviving Bank").
1.2 EFFECTS OF MERGER. On the Effective Date, the corporate organization
and separate existence of Interim Bank shall cease and the Bank as the Surviving
Bank shall succeed to all the rights, assets, liabilities and obligations of
Interim Bank in accordance with the West Virginia Corporation Act, except where
the laws of the United States apply. The Bank as the Surviving Bank shall
continue to be governed by the laws of the State of West Virginia, except where
the laws of the United States apply.
SECTION 2
ARTICLES OF ASSOCIATION; BYLAWS; BOARD OF DIRECTORS AND OFFICERS
2.1 ARTICLES OF ASSOCIATION. From and after the Effective Date, the
Articles of Association of the Bank, as the same may be amended from time to
time as provided by law, shall be the Articles of Association of the Surviving
Bank.
2.2 BYLAWS. The Bylaws of the Bank as in effect on the Effective Date shall
continue as the Bylaws of the Surviving Bank until the same shall thereafter be
altered, amended or repealed in accordance with the law, its Articles of
Association, or said Bylaws.
2.3 DIRECTORS AND OFFICERS. The directors and officers of the Bank on the
Effective Date shall continue as the directors and officers of the Surviving
Bank and shall hold office as prescribed in the Bylaws of the Surviving Bank and
applicable law until their successors shall have been elected and shall qualify.
SECTION 3
CONVERSION OF SHARES
3.1 CONVERSION OF SHARES. On the Effective Date:
(a) Each share of common stock of the Bank ("Bank Common Stock") then
issued and outstanding, excluding any shares as to which dissenter's rights
are exercised pursuant to the requirements of 12 U.S.C. sec. 215a, which
shares shall be canceled, shall automatically be converted into and be
exchanged for two (2) shares of common stock of CNB Financial.
(b) From and after the Effective Date, the holders of the certificates
representing Bank Common Stock shall cease to have any rights with respect
to such shares (except such rights as they may have as dissenting
shareholders in accordance with 12 U.S.C. sec. 215a), and their sole right
shall be to receive common stock of CNB Financial, as herein provided.
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3.2 CLOSING OF STOCK TRANSFER BOOKS. On the Effective Date, the stock
transfer books of the Bank shall be deemed closed, and no shares of Bank Common
Stock outstanding immediately prior to the Effective Date shall thereafter be
transferred.
3.3 EXCHANGE OF CERTIFICATES. As soon as practicable after the Effective
Date, any certificates or the right to receive certificates representing the
outstanding shares of the Bank Common Stock shall be surrendered to CNB
Financial or any agent designated by it and, upon such surrender, CNB Financial
shall issue and deliver in substitution therefor, certificates representing the
number of shares of common stock of CNB Financial into which such surrendered
shares have been converted as hereinabove provided. Certificates representing
shares of Bank Common Stock or the right to receive such certificates which are
not surrendered shall be deemed for all purposes to evidence the ownership of
the number of shares of common stock of CNB Financial into which said shares of
Bank shall have been converted as hereinbefore set forth; provided, however,
that management of CNB Financial may elect not to distribute to the holder of an
unsurrendered certificate for Bank Common Stock or right to receive such
certificate of dividends declared with respect to common stock of CNB Financial
until such owner shall surrender such certificate or right to receive such
certificate, at which time the holder thereof shall be paid the amount of any
dividends previously declared with respect to the common stock without interest.
SECTION 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BANK
The Bank represents and warrants to and covenants with CNB Financial and
Interim Bank that:
4.1 ASSOCIATION ORGANIZATION AND QUALIFICATION OF THE BANK. The Bank is
duly organized, validly existing and in good standing as a national banking
association under the laws of the United States and has the association power to
own all of its properties and assets and to carry on its business as it is now
being conducted.
4.2 AUTHORIZATION OF AGREEMENT. The Board of Directors of the Bank has
authorized the execution of this Agreement as set forth herein, and subject to
the approval of this Agreement by the shareholders of the Bank as provided in 12
U.S.C. sec. 215a, the Bank has the association power and is duly authorized to
merge with Interim Bank pursuant to this Agreement.
4.3 CAPITALIZATION. The authorized capital stock of the Bank consists of
600,000 shares of common stock, par value of $10.00 per share, of which 229,024
shares are issued and outstanding and are fully paid and nonassessable.
4.4 PROXY STATEMENT. The information pertaining to the Bank which has been
or will be furnished by or on behalf of the Bank or its management for inclusion
in the proxy statement referred to in Section 9 or any amendment or supplement
thereto mailed to the holders of the common stock of the Bank will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they are made, not
misleading.
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4.5 ADDITIONAL COVENANTS. The Bank covenants and agrees:
(a) That it will promptly advise CNB Financial in writing of the name
and address of, and number of shares of the Bank held by, each shareholder
who elects to exercise his right to dissent to the Merger pursuant to 12
U.S.C. sec. 215a; and
(b) Subsequent to the date of this Agreement and prior to the
Effective Date that it will operate its business only in the normal course
and in a normal manner consistent with past practice.
SECTION 5
REPRESENTATIONS, WARRANTIES AND COVENANTS OF CNB FINANCIAL
CNB Financial represents and warrants to and covenants with the Bank that:
5.1 CORPORATE ORGANIZATION OF CNB FINANCIAL. CNB Financial is a corporation
duly organized, validly existing and in good standing under the laws of the
State of West Virginia.
5.2 CORPORATE POWER AND ACTION. CNB Financial has the corporate power to
execute and deliver this Agreement and has taken all action required by law, its
Articles of Incorporation, its Bylaws or otherwise to authorize such execution
and delivery, the Merger and the consummation of the transactions contemplated
hereby, and upon its execution and delivery, this Agreement is a valid and
binding agreement of CNB Financial in accordance with its terms. No action of
CNB Financial shareholders is or will be required to approve this Agreement or
the Merger.
5.3 APPLICATION FOR INTERIM BANK. Promptly following the execution of this
Agreement, CNB Financial shall cause to be filed with the Office of Comptroller
of the Currency (the "OCC") an application to organize Interim Bank as a
national banking association, in accordance with the provisions of 12 C.F.R.
5.33, with all its capital stock owned by CNB Financial. Upon the approval of
such application and the issuance of a certificate of association for Interim
Bank by the OCC, CNB Financial shall promptly cause Interim Bank to execute and
enter into a supplementary agreement in substantially the form attached as
Exhibit A to this Agreement and cause Interim Bank to take such action as it
provided in this Agreement on Interim Bank's part to be taken.
5.4 APPROVAL OF MERGER OF INTERIM BANK. Prior to the Effective Date, CNB
Financial shall cause this Agreement to be submitted to the shareholder of
Interim Bank for approval, ratification and confirmation in accordance with the
applicable law of West Virginia, except where the law of the United States
applies, and the certificate of association and bylaws of Interim Bank. CNB
Financial shall vote all of the stock of Interim Bank in favor of the approval,
ratification and confirmation of this Agreement and the Merger.
5.5 REGULATORY APPROVALS. Prior to the Effective Date, CNB Financial
separately and jointly with the Bank, shall use and cause Interim Bank to use
its best efforts in good faith to take or cause to be taken as promptly as
practicable all such steps as shall be necessary to obtain (i) the prior
approval of the OCC for the organization of the Interim Bank and for the Merger,
(ii) the prior approval of the West Virginia Board of Banking and Financial
Institutions (the "Banking Board") for CNB Financial's acquisition of the shares
of the Bank, (iii) the prior approval of the Board of Governors of the Federal
Reserve System ("FRB") under the Bank Holding Company Act of 1956, as amended,
for the formation of
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CNB Financial as a financial holding company owning 100% of the voting shares of
the Bank, and (iv) all other consents and approvals of governmental agencies as
are required by law or otherwise, and shall do any and all things deemed by CNB
Financial and the Bank to be necessary or appropriate in order to cause the
Merger to be consummated on the terms provided herein.
5.6 CAPITALIZATION. The authorized capital stock of CNB Financial consists
of 5,000,000 shares of common stock, par value of $1.00 per share, of which
12,000 shares of common stock are issued and outstanding and are fully paid and
nonassessable.
5.7 REGISTRATION. To the extent required by law, CNB Financial will cause a
Registration Statement (or other appropriate form) to be filed with and declared
effective by the Securities and Exchange Commission, appropriate agencies
regulating securities, and other governmental agencies having jurisdiction. The
information pertaining to CNB Financial and Interim Bank which will appear in
any required Registration Statement will contain no untrue statement of any
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading.
SECTION 6
NON-SURVIVAL
The representations and warranties included or provided herein shall not
survive the Effective Date.
SECTION 7
CONDITIONS PRECEDENT; CLOSING DATE AND EFFECTIVE DATE
7.1 CONDITIONS PRECEDENT. The consummation of this Agreement and the Merger
is conditioned upon the following:
(a) The shareholders of the Bank and Interim Bank shall have approved
this Agreement by vote as required by law and final approval of this
Agreement shall have taken place as provided in Section 9 hereof;
(b) The OCC shall have granted its final approval of the organization
of Interim Bank as a national banking association and the Merger pursuant
to this Agreement;
(c) The OCC shall have issued a Certificate of Association for Interim
Bank;
(d) The Banking Board shall have granted its final approval of the
acquisition of the Bank by CNB Financial pursuant to this Agreement;
(e) The FRB shall have approved the application of CNB Financial to
acquire the Bank pursuant to this Agreement;
(f) Any required Registration Statement shall have become effective
under the Securities Act of 1933, no stop order suspending the
effectiveness of such Registration Statement shall be in effect and no
proceedings for such purpose shall have been initiated or threatened by or
before the Securities and Exchange Commission, and all
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state securities and "blue sky" permits or approvals required (in the
opinion of CNB Financial) to carry out the transactions contemplated by
this Agreement shall have been received;
(g) All other consents, approvals and permissions and the satisfaction
of all the requirements prescribed by law which are necessary to the
carrying out of the transactions contemplated hereby shall have been
procured;
(h) All delay periods and all periods for review, objection or appeal
of or to any of the consents, approvals or permissions required with
respect to the consummation of the Merger and this Agreement shall have
expired;
(i) The approvals referred to in subparagraphs (b) through (e) of this
section 7.1 shall not have required the divestiture or cessation of any
significant part of the present operations conducted by CNB Financial, the
Bank, or any of their subsidiaries, and shall not have imposed any other
condition, which divestiture, cessation or condition which CNB Financial or
the Bank reasonably deems to be materially disadvantageous or burdensome;
(j) CNB Financial shall have received an opinion of its counsel,
Jackson & Kelly PLLC, that if the Merger is consummated in accordance with
the terms of this Agreement (i) the Merger will constitute a reorganization
in the meaning of sec. 368(a)(1)(A) and sec. 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended, (ii) the Bank, CNB Financial and Interim
Bank will each be a party to the reorganization within the meaning of
368(b) of the Code, (iii) no gain or loss will be recognized to the Bank as
a consequence of the Merger, (iv) no gain or loss will be recognized by any
Bank shareholder as a result of the Merger except in respect of cash
received in conjunction with the perfection of dissenter's rights, (v) the
basis of CNB Financial common stock received by Bank shareholders will be
the same as the basis of their shares of Bank Common Stock exchanged, and
(vi) the holding period for any Bank shareholder of the CNB Financial
common stock received in the Merger will include the period for which the
shares of the Bank Common Stock was held, provided that the Bank Common
Stock was a capital asset in the hands of such Bank shareholder on the
Effective Date; and
(k) Unless waived by CNB Financial, the holders of not more than 5% of
the outstanding shares of the Bank Common Stock shall have elected to
exercise their statutory right to dissent from the transactions
contemplated hereby at the special meeting of Bank shareholders referred to
in Section 9 hereof.
7.2 CLOSING DATE. The closing shall be held at the Bank's offices in
Berkeley Springs, West Virginia, at such time and place as the Bank and CNB
Financial shall agree. The time and date of closing are herein called the
"Closing Date." The Closing Date shall not be earlier than the 15th day
following the date (the "Approval Date") on which the approvals referred to in
Section 5.5 shall have been received, and shall not be later that the last day
of the sixth calendar month next succeeding the Approval Date. CNB Financial
shall cause the Articles of Merger with respect to the Merger to be filed with
the OCC on the Closing Date.
7.3 EFFECTIVE DATE. The Merger shall become effective (the "Effective
Date") on the date on which the certificate of merger approving the Merger is
issued by the OCC.
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SECTION 8
TERMINATION OF AGREEMENT
8.1 GROUNDS FOR TERMINATION. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to the Closing Date
either before or after the meeting of the shareholders of the Bank:
(a) By mutual consent of the Bank and CNB Financial;
(b) By CNB Financial if there has been a material misrepresentation or
breach of warranty in the representations and warranties of the Bank set
forth herein, or by the Bank if there has been a material misrepresentation
or breach of warrant in the representations and warranties of CNB Financial
or Interim Bank set forth herein; or
(c) By either the Bank or CNB Financial if the Merger shall violate
any nonappealable final order, decree or judgment of any court or
governmental body having competent jurisdiction.
8.2 EFFECT OF TERMINATION; RIGHT TO PROCEED. In the event this Agreement
shall be terminated pursuant to Section 8.1, all further obligations of CNB
Financial and the Bank under this Agreement shall terminate without further
liability of CNB Financial to the Bank or of the Bank to CNB Financial.
SECTION 9
MEETING OF SHAREHOLDERS OF THE BANK
The Bank shall take all steps necessary to call and hold a special meeting
of its shareholders, in accordance with applicable law and the Articles of
Association and Bylaws of the Bank, as soon as practicable for the purpose of
submitting this Agreement to its shareholders for their consideration and
approval and will send to its shareholders for purposes of such meeting a proxy
statement, which as to information pertaining the Bank which has been furnished
by or on behalf of the Bank or its management, will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they are made, not misleading, and which
otherwise complies with all applicable laws, rules and regulations. Information
pertaining to CNB Financial or Interim Bank which has been or will be furnished
to the Bank by or on behalf of CNB Financial or its management for inclusion in
such proxy statement will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein, in light of the circumstances under which they
are made, not misleading.
SECTION 10
REDEMPTION OF SHARES
Subsequent to the Effective Date, CNB Financial will repurchase from each
of the initial directors of CNB Financial those shares of the common stock of
CNB Financial purchased by them, which shares represent the initial
capitalization of CNB Financial, in an amount
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equal to the price paid per share plus an amount equal to the interest, if any,
paid by said directors on funds borrowed to purchase such shares.
SECTION 11
GOVERNING LAW; SUCCESSORS AND ASSIGNS;
COUNTERPARTS; ENTIRE AGREEMENT
This Agreement (a) shall be governed by and construed under and in
accordance with the laws of the State of West Virginia, except where the laws of
the United States apply, (b) shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement may not be assigned by any party without
the written consent of the other parties hereto, (c) may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective and binding as to CNB Financial and the Bank when one
or more counterparts shall have been signed and delivered by CNB Financial and
the Bank, and shall become effective and binding as to Interim Bank when Interim
Bank receives its Certificate of Association and its officers execute the
Supplemental Agreement, and (d) embodies the entire agreement and understanding,
and supersedes all prior agreements and understandings, between the Bank and CNB
Financial relating to the subject matter hereof.
SECTION 12
EFFECT OF CAPTIONS
The captions in this Agreement are included for convenience only and shall
not in any way affect the interpretation or construction of any of the
provisions hereof.
SECTION 13
AMENDMENTS
This Agreement may be amended by the written agreement of CNB Financial and
the Bank and without the approval of the shareholders of the Bank before or
after the meeting of Bank shareholders at any time prior to the Closing Date
with respect to any of the terms contained herein; provided, however, that after
any such shareholder approval, no amendment shall be made to and of this
Agreement, which substantially and adversely changes the terms of the particular
Agreement as to the Bank, CNB Financial, or both, without obtaining the further
approval of the shareholders of the Bank. If this Agreement is amended after the
meeting of shareholders of the Bank provided for in Section 9 of this Agreement,
the number of shares of CNB Financial common stock into which each share of
common stock of the Bank shall be converted in the Merger shall not be amended
after such meeting of Bank shareholders.
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SECTION 14
EXPENSES
Each of the parties hereto agrees to pay, without a right of reimbursement
from the other party and whether or not the transactions contemplated by this
Agreement shall be consummated, the costs incurred by it incident to the
performance of its obligations under this Agreement and to the consummation of
the Merger and of the other transactions contemplated herein, including the fees
and disbursements of counsel, accountants and consultants employed by such party
in connection therewith.
SECTION 15
AGREEMENT TO TAKE NECESSARY AND DESIRABLE ACTIONS
The Bank, CNB Financial and Interim Bank each agree to execute and deliver
such other documents, certificates and other writings and to take such other
actions as may be necessary or desirable in order to consummate or implement
expeditiously the transactions contemplated by this Agreement.
IN WITNESS WHEREOF, CNB Financial and the Bank have each caused this
Agreement to be executed on its behalf by its officers thereunto duly authorized
all as of the day and year first above written.
Seal: CNB FINANCIAL SERVICES, INC.
By: /s/ T. F. ROKISKY
--------------------------------
Its: President
Attest:
By: /s/ ARNOLD K. STOTLER
-------------------------------
Secretary
Seal: CITIZENS NATIONAL BANK OF
BERKELEY SPRINGS
By: /s/ T. F. ROKISKY
--------------------------------
Its: President
Attest:
By: /s/ ARNOLD K. STOTLER
-------------------------------
Secretary
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<PAGE> 80
STATE OF WEST VIRGINIA,
COUNTY OF MORGAN, to-wit:
The foregoing instrument was acknowledged before me this 5 day of April,
2000, by Thomas F. Rokisky, President of CNB FINANCIAL SERVICES, INC., as being
the act and deed of said corporation.
My commission expires July 2, 2007.
/s/ TERESA L. HOSKINS
------------------------------------
Notary Public
STATE OF WEST VIRGINIA,
COUNTY OF MORGAN, to-wit:
The foregoing instrument was acknowledged before me this 5 day of April,
2000, by Thomas F. Rokisky, President of CITIZENS NATIONAL BANK OF BERKELEY
SPRINGS, as being the act and deed of said banking association.
My commission expires July 2, 2007.
/s/ TERESA L. HOSKINS
------------------------------------
Notary Public
<PAGE> 81
EXHIBIT A
SUPPLEMENTARY AGREEMENT
THIS SUPPLEMENTARY AGREEMENT, made and entered into as of this day of
, 2000, by and among CNB INTERIM BANK, N.A., a national banking
association ("Interim Bank"), CITIZENS NATIONAL BANK OF BERKELEY SPRINGS, a
national banking association (the "Bank"), and CNB FINANCIAL SERVICES, INC., a
West Virginia corporation ("CNB Financial").
R E C I T A L S
WHEREAS, the Bank and CNB Financial have entered into an Agreement and Plan
of Merger dated as of April 5, 2000 (the "Agreement"), a copy of which is
attached hereto and by this reference incorporated herein and made a part
hereof; and
WHEREAS, it is provided in Section 5.3 of the Agreement that upon issuance
of the Certificate of Association for Interim Bank by the Office of Comptroller
of Currency ("OCC"), CNB Financial shall cause Interim Bank to execute and enter
into a Supplementary Agreement so as to cause Interim Bank to be bound by the
applicable terms and provisions of the Agreement; and
WHEREAS, the Certificate of Association for Interim Bank was issued in
, 2000, and Interim Bank and CNB Financial are entering into this
Supplementary Agreement pursuant to Section 5.3 of the Agreement.
NOW, THEREFORE, THIS AGREEMENT WITNESSETH: That for and in consideration of
the premises and the mutual agreements of the parties, it is hereby agreed as
follows:
(1) Interim Bank hereby joins in and agrees to be bound by the terms
and conditions of the Agreement applicable to it, to the same extent as if
Interim Bank were an original party thereto.
(2) Interim Bank agrees that it shall use its best efforts in good
faith to take or cause to be taken as promptly as practicable all action on
its part to be taken so as to permit the consummation of the Agreement and
the Merger (as defined in the Agreement) at the earliest possible date and
that it shall cooperate fully with CNB Financial and the Bank to that end.
(3) Interim Bank represents and warrants to the Bank and CNB Financial
as follows:
(a) Interim Bank is a national banking association duly organized,
validly existing and in good standing of the laws of the United
States; and
(b) Interim Bank has the corporate power to execute and deliver this
Supplementary Agreement and has taken all action as required by law,
its Articles of Association, its Bylaws or otherwise to authorize
such execution and delivery, said Merger and the consummation of the
transaction as contemplated by the Agreement, and this Supplementary
Agreement is a valid and binding agreement of Interim Bank.
<PAGE> 82
IN WITNESS WHEREOF, he parties have caused this Supplementary Agreement to
be executed by their officers thereunto duly authorized as of the date and year
first above written.
CNB INTERIM BANK, N.A.
By:
--------------------------------
Its: President
[SEAL]
CITIZENS NATIONAL BANK OF
BERKELEY SPRINGS
By:
--------------------------------
Its: President
[SEAL]
CNB FINANCIAL SERVICES, INC.
By:
--------------------------------
Its: President
[SEAL]
<PAGE> 83
STATE OF WEST VIRGINIA,
COUNTY OF MORGAN, to-wit:
The foregoing instrument was acknowledged before me this ____ day of
________ , 2000, by Thomas F. Rokisky, President of CNB INTERIM BANK, N. A., as
being the act and deed of said banking association.
My commission expires ____________ .
------------------------------------
Notary Public
STATE OF WEST VIRGINIA,
COUNTY OF MORGAN, to-wit:
The foregoing instrument was acknowledged before me this ____ day of
________ , 2000, by Thomas F. Rokisky, President of CITIZENS NATIONAL BANK OF
BERKELEY SPRINGS, as being the act and deed of said banking association.
My commission expires ____________ .
------------------------------------
Notary Public
STATE OF WEST VIRGINIA,
COUNTY OF MORGAN, to-wit:
The foregoing instrument was acknowledged before me this ____ day of
________ , 2000, by Thomas F. Rokisky, President of CNB FINANCIAL SERVICES,
INC., as being the act and deed of said corporation.
My commission expires ____________ .
------------------------------------
Notary Public
<PAGE> 84
APPENDIX II
12 C.F.R. SECTIONS 215A(B), (C) AND (D)
(b) Dissenting shareholders
If a merger shall be voted for at the called meetings by the necessary
majorities of the shareholders of each association or State bank participating
in the plan of merger, and thereafter the merger shall be approved by the
Comptroller, any shareholder of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a stockholder, or has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of merger, shall be entitled to receive the value of the share so
held by him when such merger shall be approved by the Comptroller upon written
request made to the receiving association at any time before thirty days after
the date of consummation of the merger, accompanied by the surrender of his
stock certificates.
(c) Valuation of shares
The value of the shares of any dissenting shareholder shall be ascertained,
as of the effective date of the merger, by an appraisal made by a committee of
three persons, composed of (1) one selected by the vote of the holders of the
majority of the stock, the owners of which are entitled to payment in cash; (2)
one selected by the directors of the receiving association; and (3) one selected
by the two so selected. The valuation agreed upon by any two of the three
appraisers shall govern. If the value so fixed shall not be satisfactory to any
dissenting shareholder who has requested payment, that shareholder may, within
five days after being notified of the appraised value of his shares, appeal to
the Comptroller, who shall cause a reappraisal to be made which shall be final
and binding as to the value of the shares of the appellant.
(d) Application to shareholders of merging associations: appraisal by
Comptroller; expenses of receiving association; sale and resale of shares;
State appraisal and merger law
If, within ninety days from the date of consummation of the merger, for any
reason one or more of the appraisers is not selected as herein provided, or the
appraisers fail to determine the value of such shares, the Comptroller shall
upon written request of any interested party cause an appraisal to be made which
shall be final and binding on all parties. The expenses of the Comptroller in
making the reappraisal or the appraisal, as the case may be, shall be paid by
the receiving association. The value of the shares ascertained shall be promptly
paid to the dissenting shareholders by the receiving association. The shares of
stock of the receiving association which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold by the
receiving association at an advertised public auction, and the receiving
association shall have the right to purchase any of such shares at such public
auction, if it is the highest bidder therefor, for the purpose of reselling such
shares within thirty days thereafter to such person or persons and at such price
not less than par as its board of directors by resolution may determine. If the
shares are sold at public auction at a price greater than the amount paid to the
dissenting shareholders, the excess in such sale price shall be paid to such
dissenting shareholders. The appraisal of such shares of stock in any State bank
shall be determined in the manner prescribed by the law of the State in such
cases, rather than as provided in this section, if such provision is made in the
State law; and no such merger shall be in contravention of the law of the State
under which such bank is incorporated. The provisions of this subsection shall
apply only to shareholders of (and stock owned by them in) a bank or association
being merged into the receiving association.
<PAGE> 85
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to the provisions of Article V.1 of CNB Financial
Services, Inc. articles of incorporation below.
V.1. INDEMNIFICATION:
A. INDEMNIFICATION. Each person who was or is a party or is threatened
to be made a party to or is involved (including, without limitation, as a
witness or deponent) in any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative, investigative or
otherwise in nature ("Proceeding"), by reason of the fact that he or she,
or a person of whom he or she is the legal representative, is or was a
director or officer of the corporation or is or was serving at the written
request of the corporation's Board of Directors, president or their
delegate as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such
Proceeding is alleged action or omission in an official capacity as a
director, officer, trustee, employee or agent or in any other capacity,
shall be indemnified and held harmless by the corporation to the fullest
extent authorized by law, including but not limited to the West Virginia
Code, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said Code
permitted the corporation to provide prior to such amendment), against all
expenses, liability and loss (including, without limitation, attorneys'
fees and disbursements, judgments, fines, ERISA or other similar or
dissimilar excise taxes or penalties and amounts paid or to be paid in
settlement) incurred or suffered by such person in connection therewith;
provided, however, that the corporation shall indemnify any such person
seeking indemnity in connection with a Proceeding (or part thereof)
initiated by such person only if such Proceeding (or part thereof) was
authorized by the Board of Directors of the corporation; provided, further,
that the corporation shall not indemnify any person for civil money
penalties or other matters, to the extent such indemnification is
specifically not permissible pursuant to federal or state statute or
regulation, or order or rule of a regulatory agency of the federal or state
government with authority to enter, make or promulgate such order or rule.
Such right shall include the right to be paid by the corporation expenses,
including, without limitation, attorneys' fees and disbursements, incurred
in defending or participating in any such Proceeding in advance of its
final disposition; provided, however, that the payment of such expenses in
advance of the final disposition of such Proceeding shall be made only upon
delivery to the corporation of an undertaking, by or on behalf of such
director or officer, in which such director or officer agrees to repay all
amounts so advanced if it should be ultimately determined that such person
is not entitled to be indemnified under this Article or otherwise. The
termination of any Proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interest of the corporation, or that such person did have reasonable cause
to believe that his conduct was unlawful.
II-1
<PAGE> 86
B. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under this Article is
not paid in full by the corporation within thirty days after a written
claim therefor has been received by the corporation, the claimant may at
any time thereafter bring suit against the corporation to recover the
unpaid amount of the claim and, if successful, in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending or
participating in any Proceeding in advance of its final disposition where
the required undertaking has been tendered to the corporation) that the
claimant has not met the standards of conduct which make it permissible
under the applicable law for the corporation to indemnify the claimant for
the amount claimed, but the burden of proving such defense shall be on the
corporation.
Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that indemnification
or reimbursement of the claimant is permitted in the circumstances because
he or she has met the applicable standard of conduct, nor an actual
determination by the corporation (including its Board of Directors,
independent legal counsel, or its shareholders) that the claimant has not
met such applicable standard of conduct, shall be a defense to the action
or create a presumption that the claimant has not met the applicable
standard of conduct.
C. CONTRACTUAL RIGHTS: APPLICABILITY. The right to be indemnified or
to the reimbursement or advancement of expenses pursuant hereto (i) is a
contract right based upon good and valuable consideration, pursuant to
which the person entitled thereto may bring suit as if the provisions
hereof were set forth in a separate written contract between the
corporation and the director or officer, (ii) is intended to be retroactive
and shall be available with respect to events occurring prior to the
adoption hereof, and (iii) shall continue to exist after the rescission or
restrictive modification hereof with respect to events occurring prior
thereto.
D. REQUESTED SERVICE. Any director or officer of the corporation
serving, in any capacity, (i) another corporation of which five percent
(5%) or more of the shares entitled to vote in the election of its
directors is held by the corporation, or (ii) any employee benefit plan of
the corporation or of any corporation referred to in clause (i), shall be
deemed to be doing so at the request of the corporation.
E. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
hereunder shall not be exclusive of and shall be in addition to any other
right which such person may have or may hereafter acquire under any
statute, provision of the Certificate of Incorporation, Bylaws, agreement,
vote of shareholders or disinterested directors or otherwise.
F. INSURANCE. The corporation may purchase and maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent
of the corporation or another corporation, partnership, joint venture,
trust or other enterprise against such expense, liability or loss, whether
or not the corporation would have the power to indemnify such person
against such expense, liability or loss under West Virginia law.
CNB Financial is a West Virginia corporation subject to the applicable
indemnification provisions of the General Corporation Law of West Virginia.
The foregoing indemnity provisions have the effect of reducing directors'
and officers' exposure to personal liability for actions taken in connection
with their respective positions.
II-2
<PAGE> 87
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of CNB
Financial pursuant to the foregoing provisions, or otherwise, CNB Financial has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by CNB
Financial of expenses incurred or paid by a director, officer or controlling
person of CNB Financial in the successful defense of any action, suite or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, CNB Financial will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of April 5, 2000, by
and among CNB Financial Services, Inc. and Citizens National
Bank of Berkeley Springs (included as Appendix I to the
Proxy Statement/ Prospectus)
3.1 Articles of Incorporation.
3.2 Bylaws.
5 Opinion of Jackson & Kelly PLLC, as to the validity of the
securities registered hereunder, including the consent of
that firm.
8 Form of Opinion of Jackson & Kelly PLLC as to certain United
States tax matters, including the consent of that firm.
23.1 Consent of Jackson & Kelly PLLC (included as part of Exhibit
5 and Exhibit 8).
23.2 Consent of Smith Elliott Kearns & Company, LLC.
24 Power of Attorney.
99.1 Form of Proxy Card.
</TABLE>
(b) Not required.
(c) Not required.
II-3
<PAGE> 88
ITEM 22. UNDERTAKINGS.
(a) CNB Financial hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of the securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) (sec. 230.424(b)
of this chapter) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
the Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) CNB Financial hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning
of Rule 145(c), CNB Financial undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(c) CNB Financial undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports
to meet the requirements of section 10(a)(3) of the Securities Act of
1933 and is used in connection with an offering of securities subject
to Rule 415 will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under
the Securities Act of 1933,
II-4
<PAGE> 89
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(d) The undertaking concerning indemnification is included as part of the
response to Item 20.
(e) CNB Financial hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by
first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(f) CNB Financial hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 90
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, CNB FINANCIAL
SERVICES, INC., HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BERKELEY
SPRINGS, WEST VIRGINIA, ON THE 3RD DAY OF MAY, 2000.
CNB FINANCIAL SERVICES, INC.
By /s/ T. F. ROKISKY
--------------------------------------
Thomas F. Rokisky
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director May 3, 2000
- -------------------------------------
J. Robert Ayers
* Director May 3, 2000
- -------------------------------------
John E. Barker
* Director May 3, 2000
- -------------------------------------
Jay E. Dick
* Director May 3, 2000
- -------------------------------------
Herbert L. Eppinger
* Director May 3, 2000
- -------------------------------------
Robert L. Hawvermale
/s/ J. PHILIP KESECKER Director May 3, 2000
- -------------------------------------
J. Philip Kesecker
* Director May 3, 2000
- -------------------------------------
Raymond H. Lawyer
* Director May 3, 2000
- -------------------------------------
Jerald McGraw
* Director May 3, 2000
- -------------------------------------
Martha H. Quarantillo
/s/ T. F. ROKISKY Director May 3, 2000
- -------------------------------------
Thomas F. Rokisky
* Director May 3, 2000
- -------------------------------------
Charles S. Trump, IV
* Director May 3, 2000
- -------------------------------------
Arlie R. Yost
</TABLE>
* /s/ T. F. ROKISKY /s/ J. PHILIP KESECKER
------------------------- --------------------------
Thomas F. Rokisky J. Philip Kesecker
Attorney-in-Fact Attorney-in-Fact
II-6
<PAGE> 91
EXHIBIT INDEX
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger, dated as of April 5, 2000, by
and among CNB Financial Services, Inc. and Citizens National
Bank of Berkeley Springs (included as Appendix I to the
Proxy Statement/Prospectus)
3.1 Articles of Incorporation.
3.2 Bylaws.
5 Opinion of Jackson & Kelly PLLC, as to the validity of the
securities registered hereunder, including the consent of
that firm.
8 Form of Opinion of Jackson & Kelly PLLC as to certain United
States tax matters, including the consent of that firm.
23.1 Consent of Jackson & Kelly PLLC (included as part of Exhibit
5 and Exhibit 8).
23.2 Consent of Smith Elliott Kearns & Company, LLC.
24 Power of Attorney.
99.1 Form of Proxy Card.
</TABLE>
II-7
<PAGE> 1
EXHIBIT 2.1
[Agreement and Plan of Merger, dated as of April 5, 2000, by and among Citizens
National Bank of Berkeley Springs and CNB Financial Services, Inc.
(included as Appendix I to the Proxy Statement/Prospectus)]]
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
CNB FINANCIAL SERVICES, INC.
The undersigned, acting as incorporator of a corporation under
Section 27, Article 1, Chapter 31 of the Code of West Virginia adopts the
following Articles of Incorporation for such corporation, FILED IN DUPLICATE:
ARTICLE I
The undersigned agrees to become a corporation by the name of
CNB Financial Services, Inc.
ARTICLE II
The address of the principal office of said corporation will
be located at 212 South Washington Street, P. O. Box 130, Town of Berkeley
Springs, County of Morgan, and State of West Virginia 25411-0130.
ARTICLE III
The purpose or purposes for which this corporation is formed
are as follows: To transact any or all lawful business for which corporations
may be incorporated under the corporation laws of the State of West Virginia.
ARTICLE IV
No shareholder or other person shall have any preemptive right
whatsoever.
ARTICLE V
Provisions for the regulation of the internal affairs of the
corporation are:
V.1. INDEMNIFICATION:
A. Indemnification. Each person who was or is a party or is
threatened to be made a party to or is involved (including, without limitation,
as a witness or deponent) in any threatened, pending or completed action, suit
or
<PAGE> 2
proceeding, whether civil, criminal, administrative, investigative or otherwise
in nature ("Proceeding"), by reason of the fact that he or she, or a person of
whom he or she is the legal representative, is or was a director or officer of
the corporation or is or was serving at the written request of the corporation's
Board of Directors, president or their delegate as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such Proceeding is alleged action or omission in an official
capacity as a director, officer, trustee, employee or agent or in any other
capacity, shall be indemnified and held harmless by the corporation to the
fullest extent authorized by law, including but not limited to the West Virginia
Code, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the corporation
to provide broader indemnification rights than said Code permitted the
corporation to provide prior to such amendment), against all expenses, liability
and loss (including, without limitation, attorneys' fees and disbursements,
judgments, fines, ERISA or other similar or dissimilar excise taxes or penalties
and amounts paid or to be paid in settlement) incurred or suffered by such
person in connection therewith; provided, however, that the corporation shall
indemnify any such person seeking indemnity in connection with a Proceeding (or
part thereof) initiated by such person only if such Proceeding (or part thereof)
was authorized by the Board of Directors of the corporation; provided, further,
that the corporation shall not indemnify any person for civil money penalties or
other matters, to the extent such indemnification is specifically not
permissible pursuant to federal or state statute or regulation, or order or rule
of a regulatory agency of the federal or state government with authority to
enter, make or promulgate such order or rule. Such right shall include the right
to be paid by the corporation expenses, including, without limitation,
attorneys' fees and disbursements, incurred in defending or participating in any
such Proceeding in advance of its final disposition; provided, however, that the
payment of such expenses in advance of the final disposition of such Proceeding
shall be made only upon delivery to the corporation of an undertaking, by or on
behalf of such director or officer, in which such director or officer agrees to
repay all amounts so advanced if it should be ultimately determined that such
person is not entitled to be indemnified under this Article or otherwise. The
termination of any Proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
corporation, or that such person did have reasonable cause to believe that his
conduct was unlawful.
B. Right of Claimant to Bring Suit. If a claim under this
Article is not paid in full by the corporation within thirty days after a
written claim therefor has been received by the corporation, the claimant may at
any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim and, if successful, in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending or participating in any Proceeding in advance of
its final disposition where the required undertaking has
<PAGE> 3
been tendered to the corporation) that the claimant has not met the standards of
conduct which make it permissible under the applicable law for the corporation
to indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the corporation.
Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that indemnification or
reimbursement of the claimant is permitted in the circumstances because he or
she has met the applicable standard of conduct, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel, or
its shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
C. Contractual Rights: Applicability. The right to be
indemnified or to the reimbursement or advancement of expenses pursuant hereto
(i) is a contract right based upon good and valuable consideration, pursuant to
which the person entitled thereto may bring suit as if the provisions hereof
were set forth in a separate written contract between the corporation and the
director or officer, (ii) is intended to be retroactive and shall be available
with respect to events occurring prior to the adoption hereof, and (iii) shall
continue to exist after the rescission or restrictive modification hereof with
respect to events occurring prior thereto.
D. Requested Service. Any director or officer of the
corporation serving, in any capacity, (i) another corporation of which five
percent (5%) or more of the shares entitled to vote in the election of its
directors is held by the corporation, or (ii) any employee benefit plan of the
corporation or of any corporation referred to in clause (i), shall be deemed to
be doing so at the request of the corporation.
E. Non-Exclusivity of Rights. The rights conferred on any
person hereunder shall not be exclusive of and shall be in addition to any other
right which such person may have or may hereafter acquire under any statute,
provision of the Certificate of Incorporation, Bylaws, agreement, vote of
shareholders or disinterested directors or otherwise.
F. Insurance. The corporation may purchase and maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the corporation or another corporation, partnership, joint venture,
trust or other enterprise against such expense, liability or loss, whether or
not the corporation would have the power to indemnify such person against such
expense, liability or loss under West Virginia law.
V.2. VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS
A. Higher Vote for Certain Business Combinations. In addition
to any affirmative vote required by law or these Articles of Incorporation, and
except as
<PAGE> 4
otherwise expressly provided in Section V.3 of this Article V,
(i) any merger or consolidation of the corporation or
any subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as
hereinafter defined) or (b) any other corporation (whether or not itself an
Interested Stockholder) which is, or after such merger or consolidation would
be, an Affiliate (as hereinafter defined) of any Interested Stockholder;
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder or any Affiliate of any Interested
Stockholder of any assets of the corporation or any subsidiary having an
aggregate Fair Market Value of $2,000,000 or more;
(iii) the issuance or transfer by the corporation or
any subsidiary (in one transaction or a series of transactions) of any
securities of the corporation or any subsidiary to any Interested Stockholder or
any Affiliate of any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate Fair Market Value
of $2,000,000 or more;
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested Stockholder; or
(v) any reclassification of securities (including any
reverse stock split), or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an Interested
Stockholder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of the corporation or any Subsidiary which is directly or
indirectly owned by any Interested Stockholder or any Affiliate of any
Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the then outstanding shares of capital stock of the corporation
entitled to vote (the "Voting Stock"), voting together as a single class (it
being understood that for purpose of this Article V, each share of the Voting
Stock shall have the number of votes granted to it pursuant to Article V of
these Articles of Incorporation). Such affirmative vote shall be required,
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
B. Definition of "Business Combination." The term "Business
Combination" as used in this Article V shall mean any transaction which is
referred to in any one or more of clauses (i) through (v) of paragraph A of this
Section V.2.
<PAGE> 5
V.3. WHEN HIGHER VOTE IS NOT REQUIRED
The provisions of Section V.2 of this Article V shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote as is required by law and any other
provision of these Articles of
<PAGE> 6
Incorporation, if all of the conditions specified in either of the following
paragraphs A and B are met:
A. Approval by Disinterested Directors. The Business
Combination shall have been approved by a majority of the Disinterested
Directors (as hereinafter defined).
B. Price and Procedure Requirements. All of the following
conditions shall have been met:
(i) The aggregate amount of the cash and the Fair
Market Value (as hereinafter defined) as of the date of the consummation of the
Business Combination of consideration other than cash to be received per share
by holders of Common Stock in such Business Combination shall be at least equal
to the higher of the following:
(a) (if applicable) the highest per share
price (including any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Stockholder for any shares of Common Stock
acquired by it (1) within the two-year period immediately prior to the first
public announcement of the proposal of the Business Combination (the
"Announcement Date") or (2) in the transaction in which it became an Interested
Stockholder, whichever is higher; and
(b) the Fair Market Value per share of
Common Stock on the Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter date is referred to in
this Article V as the "Determination Date"), whichever is higher.
(ii) The aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of shares of
any other class of outstanding Voting Stock shall be at least equal to the
highest of the following (it being intended that the requirements of this
paragraph B(ii) shall be required to be met with respect to every class of
outstanding Voting Stock, whether or not the Interested Stockholder has
previously acquired any shares of a particular class of Voting Stock):
(a) (if applicable) the highest per share
price (including any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Stockholder for any shares of such class
of Voting Stock acquired by it (1) within the three-year period immediately
prior to the Announcement Date or (2) in the transaction in which it became an
Interested Stockholder, whichever is higher;
(b) (if applicable) the highest preferential
amount per share to which the holders of shares of such class of Voting Stock
are entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the corporation; and
<PAGE> 7
(c) the Fair Market Value per share of such
class of Voting Stock on the Announcement Date or on the Determination Date,
whichever is higher.
(iii) The Consideration to be received by holders of
a particular class of outstanding Voting Stock (including Common Stock) shall be
in cash or in the same form as the Interested Stockholder has previously paid
for shares of such class of Voting Stock. If the Interested Stockholder has paid
for shares of any class of Voting Stock with varying forms of consideration, the
form of consideration for such class of Voting Stock shall be either cash or the
form used to acquire the largest number of shares of such class of Voting Stock
previously acquired by it. The price determined in accordance with paragraphs
B(i) and B(ii) of this Section V.3 shall be subject to appropriate adjustment in
the event of any stock dividend, stock split, combination of shares or similar
event.
(iv) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such Business
Combination: (a) there shall have been (1) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock), except as approved by a majority of the
Disinterested Directors, and (2) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has the effect
of reducing the number of outstanding shares of the Common Stock, unless the
failure so to increase such annual rate is approved by a majority of the
Disinterested Directors; and (b) such Interested Stockholder shall not have
become the beneficial owner of any additional shares of Voting Stock except as
part of the transaction which results in such Interested Stockholder becoming an
Interested Stockholder.
(v) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionate as a stockholder), of any
loans, advances, guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the corporation, whether in
anticipation of or in connection with such Business Combination or otherwise.
(vi) A proxy or information statement describing the
proposed Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or regulations) shall be mailed
to stockholders of the corporation at least 30 days prior to the consummation of
such Business Combination (whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent provisions).
V.4. CERTAIN DEFINITIONS
For the purpose of this Article V:
<PAGE> 8
A. A "person" shall mean any individual, firm, corporation or
other entity.
B. "Interested Stockholder" shall mean any person (other than
the corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly,
of more than 10% of the voting power of the outstanding Voting Stock;
(ii) is an Affiliate of the corporation and at any
time within the two-year period immediately prior to the date in question was
the beneficial owner, directly or indirectly, of 10% or more of the voting power
of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time within the three-year period
immediately prior to the date in question beneficially owned by any Interested
Stockholder, if such assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933.
C. A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or
Associates (as hereinafter defined) owns, directly or indirectly;
(ii) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (b) the right to vote pursuant to
any agreement, arrangement or understanding; or
(iii) which are owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock.
D. For the purposes of determining whether a person is an
Interested Stockholder pursuant to paragraph B of this Section V.4, the number
of shares of Voting Stock deemed to be outstanding shall include shares deemed
owned through application of paragraph C of this Section V.4 but shall not
include any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
E. "Affiliate" or "Associates" shall have the respective
meanings
<PAGE> 9
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934.
F. "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or indirectly, by the
corporation; provided, however, that for the purposes of the definition of
Interested Stockholder set forth in paragraph B of this Section V.4, the term
"Subsidiary" shall mean only a corporation of which a majority of each class of
equity security is owned, directly or indirectly, by the corporation.
G. "Disinterested Director" means any member of the Board of
Directors of the corporation (the "Board") who is unaffiliated with the
Interested Stockholder and was a member of the Board prior to the time that the
Interested Stockholder became an Interested Stockholder, and any successor of a
Disinterested Director who is unaffiliated with the Interested Stockholder and
is recommended to succeed a Disinterested Director by a majority of
Disinterested Directors then on the Board; provided, however, that all Directors
of the corporation who are elected as Directors as of the 2000 Annual Meeting of
Shareholders of the corporation shall be deemed to be Disinterested Directors,
notwithstanding the above provisions.
H. "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding the
date in question of a share of such stock on the Composite Tape for New York
Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite
Tape, on the New York Stock Exchange or the American Stock Exchange, or, if such
stock is not listed on such Exchange, or the principal United States securities
exchange registered under the Securities Exchange Act of 1934 on which such
stock is listed, or, if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a share of such stock during the
30-day period preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or any system
then in use, or if not listed with NASDAQ, the average bid and ask prices
available from brokerage firms in Charleston, West Virginia, or if such
information is not available, the fair market value on the date in question of a
share of such stock as determined by the Board in good faith; and (ii) in the
case of property other than cash or stock, the fair market value of such
property on the date in question as determined by the Board in good faith.
I. In the event of any Business Combination in which the
corporation survives, the phrase "other consideration to be received" as used in
paragraphs B(i) and (ii) of Section V.3 of this Article V shall include the
shares of Common Stock and/or the shares of any other class of outstanding
Voting Stock retained by the holders of such shares.
V.5. POWERS OF THE BOARD OF DIRECTORS
A majority of the Directors of the corporation shall have the
power and
<PAGE> 10
duty to determine for the purposes of this Article V, on the basis of
information known to them after reasonable inquiry, (A) whether a person is an
Interested Stockholder, (B) the number of shares of Voting Stock beneficially
owned by any person, (C) whether a person is an Affiliate or Associate of
another, and (D) whether the assets which are the subject of any Business
Combination have, or the consideration to be received for the issuance or
transfer of securities by the corporation or any Subsidiary in any Business
Combination has, an aggregate Fair
<PAGE> 11
Market Value of $2,000,000 or more. A majority of the Directors of the
corporation shall have the further power to interpret all of the terms and
provisions of this Article V.
V.6. NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED
STOCKHOLDERS
Nothing contained in this Article V shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
V.7. AMENDMENT, REPEAL, ETC.
Notwithstanding any other provisions of these Articles of
Incorporation or the Bylaws of the corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, these Articles of
Incorporation or the Bylaws of the corporation), the affirmative vote of the
holders of 80% or more of the outstanding Voting Stock entitled to vote, voting
together as a single class, shall be required to amend or repeal, or adopt any
provisions inconsistent with this Article V.
ARTICLE VI
The amount of the total authorized capital stock of said
corporation shall be Five Million Dollars ($5,000,000.00), which shall be
divided into five million (5,000,000) shares of common stock with a par value of
One Dollar ($1.00) each per share.
The Board of Directors shall have the power and authority at
any time and from time to time to issue, sell or otherwise dispose of any
unissued but authorized shares of any class or classes of stock presently
provided for in the Certificate of Incorporation, or that may hereafter be
provided for by a subsequent amendment to the Certificate of Incorporation, to
such persons or parties, including the holders of Common Stock or of any such
other class of stock, for such considerations (not less than the par value, if
any, thereof) and upon such terms and conditions as the Board of Directors in
its discretion may deem to be in the best interests of the corporation. Except
as expressly provided to the contrary hereinafter, such issuance, sale or other
disposition may be made without offering such shares, or any part or class
thereof, to the holders of Common Stock or any such other class of stock, and no
such holder shall have any preemptive right to subscribe for any such shares.
Each holder of Common Stock of the corporation entitled to
vote shall have one vote for each share thereof held.
ARTICLE VII
The full name and address of the incorporator is:
<PAGE> 12
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Thomas F. Rokisky P. O. Box 130
212 South Washington Street
Berkeley Springs, WV 25411-0130
</TABLE>
ARTICLE VIII
The existence of this corporation is to be perpetual.
ARTICLE IX
The full name and address of the appointed person to whom
notice or process may be sent is CNB Financial Services, Inc., Attention:
President, 212 South Washington Street, P. O. Box 130, Berkeley Springs, WV
25411-0130.
ARTICLE X
The number of directors constituting the initial Board of
Directors of the corporation is twelve and the names and addresses of the
persons who shall serve as directors until the first annual meeting of
shareholders or until their successors are elected and shall qualify are:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
J. Robert Ayers Berkeley Springs, WV 25411
John E. Barker Berkeley Springs, WV 25411
Jay E. Dick Berkeley Springs, WV 25411
Herbert L. Eppinger Berkeley Springs, WV 25411
Robert L. Hawvermale Berkeley Springs, WV 25411
J. Philip Kesecker Berkeley Springs, WV 25411
Raymond H. Lawyer Berkeley Springs, WV 25411
Jerald McGraw Berkeley Springs, WV 25411
Martha H. Quarantillo Berkeley Springs, WV 25411
Thomas F. Rokisky Berkeley Springs, WV 25411
Charles S. Trump, IV Berkeley Springs, WV 25411
Arlie R. Yost Berkeley Springs, WV 25411
</TABLE>
<PAGE> 13
THE UNDERSIGNED, for the purpose of forming a corporation
under the laws of the State of West Virginia, does make and file these Articles
of Incorporation, and I have accordingly hereto set my hand this 16th day of
March, 2000.
/s/ T. F. Rokisky
-----------------
Thomas F. Rokisky
Articles of Incorporation prepared by:
Charles D. Dunbar, Esquire
JACKSON & KELLY PLLC
1600 Laidley Tower
Post Office Box 553
Charleston, West Virginia 25322
STATE OF WEST VIRGINIA,
COUNTY OF Morgan , to-wit:
------------------
I, Tamela A. Waugh , a Notary Public in and for the County and
State aforesaid, hereby certify that Thomas F. Rokisky, whose name is signed to
the foregoing Articles of Incorporation, bearing date the 16th day of March,
2000, this day personally appeared before me in my said County and acknowledged
his signature to be the same.
<PAGE> 14
Given under my hand and official seal this the 16th day of
March, 2000.
My commission expires: November 17, 2003.
/s/ Tamela A. Waugh
--------------------
Notary Public
[NOTARIAL SEAL]
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
CNB FINANCIAL SERVICES, INC.
ARTICLE I. OFFICES
The principal offices of the Corporation shall be located in
the Town of Berkeley Springs, County of Morgan, State of West Virginia. The
Corporation may have such other offices, either within or without the State of
West Virginia, as the Board of Directors may designate or as the business of the
Corporation may require from time to time.
ARTICLE II. SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the
shareholders shall be held on the first Wednesday in the month of April in each
year, at 12:30 p.m., local time, or at such other time on such other day as
shall be fixed by the Board of Directors. If the day fixed for the annual
meeting shall be a legal holiday in the State of the principal office of the
Corporation, such meeting shall be held on the next succeeding business day. At
an annual meeting of the shareholders only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before an annual meeting business must be (a) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a shareholder. For business to be properly brought before an
annual meeting by a shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less than 40 days prior to
the meeting; provided, however, that in the event that less than 50 days' notice
or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 8th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the Corporation's books, of the shareholder proposing
such business, (c) the class and number of shares of the Corporation which are
beneficially owned by the shareholder, and (d) any material interest of the
shareholder in such business. Notwithstanding anything in the Bylaws to the
contrary, no business shall
<PAGE> 2
be conducted at an annual meeting except in accordance with the procedures set
forth in this Section 1. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the provisions of this Section
1, and if he should so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
Section 2. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, may be called by the Chairman of the
Board, if any, President, Secretary, or by the Board of Directors, and shall be
called by the President at the request of the holders of not less than one-tenth
of all outstanding shares of the Corporation entitled to vote at the meeting.
Section 3. Place of Meeting. The Board of Directors may
designate any place, either within or without the State of West Virginia, as the
place of meeting for any annual meeting or for any special meeting called by the
Board of Directors. If no designation is made, or if a special meeting be
otherwise called, the place of meeting shall be the principal office of the
Corporation.
Section 4. Notice of Meeting. Written notice stating the
place, day and hour of the meeting and, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten nor more than fifty days
before the date of the meeting, either personally or by mail, by or at the
direction of the Chairman of the Board, President, Secretary or the officer or
other persons calling the meeting, to each shareholder of record entitled to
vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, addressed to the shareholder at his
address as it appears on the stock transfer books of the Corporation, with
postage thereon prepaid.
Section 5. Closing of Transfer Books or Fixing of Record Date.
For the purpose of determining shareholders entitled to notice of or to vote at
any meeting of shareholders or any adjournment thereof, or shareholders entitled
to receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, fifty (50) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books shall
be closed for at least ten (10) days immediately preceding such meeting. In lieu
of closing the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than fifty (50) days and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action, requiring such determination of shareholders, is to be fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the
<PAGE> 3
record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
Section 6. Voting Record. The officer or agent having charge
of the stock transfer books for shares of the Corporation shall make a complete
record of the shareholders entitled to vote at each meeting of shareholders or
any adjournment thereof, arranged in alphabetical order, with the address of and
the number of shares held by each. Such record shall be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any shareholder during the whole time of the meeting for the purposes thereof.
Section 7. Quorum. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
Section 8. Proxies. At all meetings of shareholders, a
shareholder may vote in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney-in-fact. Such proxy shall be
filed with the Secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
Section 9. Voting of Shares. Subject to the provisions of
Section 12 of this Article II, each outstanding share entitled to vote shall be
entitled to one (1) vote upon each matter submitted to a vote at a meeting of
shareholders.
Section 10. Voting of Shares by Certain Holders. Shares
standing in the name of another corporation may be voted by such officer, agent
or proxy as the bylaws of such corporation may prescribe, or, in the absence of
such provision, as the Board of Directors of such other corporation may
determine.
Shares held by an administrator, executor, guardian,
committee, curator, or conservator may be voted by him, either in person or by
proxy, without a transfer of such shares into his name. Shares standing in the
name of a trustee may be voted by him, either in person or by proxy, but no
trustee shall be entitled to vote shares held by him without a transfer of such
shares in his name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority so to do
be contained in an appropriate order of the court by which such receiver was
appointed.
<PAGE> 4
A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
Neither treasury shares of its own stock held by the
Corporation, nor shares held by another corporation if a majority of the shares
entitled to vote for the election of directors of such other corporation are
held by the Corporation, shall be voted at any meeting or counted in determining
the total number of outstanding shares at any given time for purposes of any
meeting.
Section 11. Informal Action by Shareholders. Any action
required or permitted to be taken at a meeting of the shareholders may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the shareholders entitled to vote with respect to the
subject matter thereof.
Section 12. Cumulative Voting. At each election for directors,
every shareholder entitled to vote at such election shall have the right to
vote, in person or by proxy, the number of shares owned by him for as many
persons as there are directors to be elected and for whose election he has a
right to vote, or to cumulate his votes by giving one candidate as many votes as
the number of such directors multiplied by the number of his shares shall equal,
or by distributing such votes on the same principal among any number of such
candidates.
ARTICLE III. BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the
Corporation shall be managed by its Board of Directors.
Section 2. Number, election and terms; nominations. The number
of the directors of the Corporation shall be fixed from time to time by
resolution of the Board of Directors but shall not be less than 5 nor more than
25. At each annual meeting of the shareholders of the Corporation, the
successors of the directors shall be elected to hold office for a term expiring
at the next annual meeting of shareholders. Directors need not be residents of
the State of West Virginia but shall be shareholders of the Corporation.
Section 3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of West Virginia, for the holding of additional regular
meetings without other notice than such resolution.
<PAGE> 5
Section 4. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board, if
any, the President or a majority of the Board of Directors. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of West Virginia, as the place for
holding any special meeting of the Board of Directors called by them.
Section 5. Notice. Notice of any special meeting shall be
given at least three (3) days previously thereto by written notice delivered
personally or mailed to each director at his business address, or by telegram.
If mailed at least five (5) days prior to the date of meeting, such notice shall
be deemed to be delivered when deposited in the United States mail, so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any director may waive notice of any meeting. The attendance
of a director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting, except as otherwise provided
statute.
Section 6. Quorum. A majority of the number of directors fixed
by Section 2 of this Article III shall constitute a quorum for the transaction
of business at any meeting of the Board of Directors, but if less than such
majority is present at a meeting a majority of the directors present may adjourn
the meeting from time to time without further notice.
Section 7. Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 8. Action Without a Meeting. Any action required or
permitted to be taken by the Board of Directors at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors.
Section 9. Newly created directorships and vacancies.
Newly-created directorships resulting from any increase in the number of
directors and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be filled by the
affirmative vote of a majority of the remaining Directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence to fill a vacancy resulting from the
death, resignation, disqualification, removal or other cause shall hold office
for the remainder of the full term of the class of directors in which the
vacancy occurred and until such director's successor shall have been elected and
qualified, and any director elected in accordance with the preceding sentence by
reason of an increase in the number of directors shall hold office only until
the next election of directors by shareholders and until his successor
<PAGE> 6
shall have been elected and qualified. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Section 10. Compensation. By resolution of the Board of
Directors, each director may be paid his expenses, if any, of attendance at each
meeting of the Board of Directors, or committee thereof, and may be paid a
stated salary as directors or a fixed sum for attendance at each meeting of the
Board of Directors or committee thereof or both. No such payment shall preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor.
Section 11. Presumption of Assent. A director of the
Corporation who is present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless his dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as the Secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor or such action.
Section 12. Telephone Conference. Members of the Board of
Directors or any committee thereof may participate in a meeting of the Board or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time and participation by such means shall constitute
presence in person at the meeting.
Section 13. Confidentiality. All of the proceedings and
business transacted by the Board of Directors of the Corporation shall be
confidential, except as among the Directors. Any violation or breach of this
confidentiality by any Director shall be grounds for his removal and replacement
by a majority vote of the Board of Directors.
Section 14. Conflicts of Interest; Voting. Any Director having
a personal interest in any question or issue before the Board of Directors shall
advise the Board of his interest, give his personal information on the question
or issue, and then withdraw pending a discussion and determination of that
question or issue. Otherwise, no Director shall refrain from voting or withdraw
while business is pending at any meeting, unless he is excused by a majority
vote of Directors in attendance at the meeting. In all matters requiring action
by the Board of Directors, a simple majority vote of those present at a meeting
shall prevail, unless otherwise required by law.
Section 15. Committees.
(a) Appointment. The Board of Directors, by resolution adopted
by a majority of the full board, may establish an Executive Committee and such
other standing or special committees of the board as it may deem advisable, each
of which
<PAGE> 7
shall consist of two or more members of the Board of Directors. The designation
of a committee and the delegation thereto of authority shall not operate to
relieve the Board of Directors, or any member thereof, of any responsibility
imposed by law.
(b) Authority. The Executive Committee, when the Board of
Directors is not in session shall have and may exercise all of the authority of
the Board of Directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the Executive Committee and except also
that the Executive Committee shall not have the authority of the Board of
Directors in reference to amending the Articles of Incorporation, adopting a
plan of merger or consolidation, recommending to the shareholders the sale,
lease or other disposition of all or substantially all of the property and
assets of the Corporation otherwise than in the usual and regular course of its
business, recommending to the shareholders a voluntary dissolution of the
Corporation or a revocation thereof, or amending the bylaws of the Corporation.
The authority of other committees of the board shall be set forth in the
resolutions, as amended from time to time, establishing the same.
(c) Tenure and Qualifications. Committees of the board shall
consist only of members of the Board of Directors. Each member of the Executive
Committee shall hold office until the next regular annual meeting of the Board
of Directors following his designation and until his successor is designated as
a member of the Executive Committee and is elected and qualified. The tenure of
members of other committees of the board shall be set forth in the resolutions,
as amended from time to time, establishing the same.
(d) Meetings. Regular meetings of the committees of the board
may be held without notice at such times and places as each committee may fix
from time to time by resolution. Special meetings of any committee may be called
by any member thereof upon not less than one day's notice stating the place,
date and hour of the meeting, which notice may be written or oral, and if mailed
at least five days prior to the date of the meeting, shall be deemed to be
delivered when deposited in the United States mail addressed to the member of
the committee at his business address. Any member of a committee may waive
notice of any meeting and no notice of any meeting need be given to any member
thereof who attends in person. The notice of a meeting of a committee need not
state the business proposed to be transacted at the meeting.
(e) Quorum. A majority of the members of a committee shall
constitute a quorum for the transaction of business at any meeting thereof, and
action of the committee must be authorized by the affirmative vote of a majority
of the members present at a meeting at which a quorum is present.
(f) Action Without a Meeting. Any action required or permitted
to be taken by a committee at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the members of the committee.
<PAGE> 8
(g) Vacancies. Any vacancy in a committee may be filled by a
resolution adopted by a majority of the full Board of Directors.
<PAGE> 9
(h) Resignations and Removal. Any member of a committee may be
removed at any time with or without cause by resolution adopted by a majority of
the full Board of Directors. Any member of a committee may resign from the
committee at any time by giving written notice to the President or Secretary of
the Corporation, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
(i) Procedure. A committee shall elect a presiding officer
from its members and may fix its own rules of procedure which shall not be
inconsistent with these bylaws. It shall keep regular minutes of its proceedings
and report the same to the Board of Directors for its information at the meeting
thereof held next after the proceedings shall have been taken.
Section 16. Evaluation of Business Combinations. The Board of
Directors of the Corporation, when evaluating any offer of another party to (a)
make a tender or exchange offer for any equity security of the Corporation, (b)
merge or consolidate the Corporation with such party or an affiliate thereof, or
(c) purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, shall, in connection with the exercise of its
judgment in determining what is in the best interests of the Corporation, give
due consideration to all relevant factors, including, without limitation, the
social and economic effects on the employees, customers and other constituents
of the Corporation and its subsidiaries and on the communities in which the
Corporation and its subsidiaries are located.
ARTICLE IV. OFFICERS
Section l. Number. The officers of the Corporation shall be a
President, one or more Vice Presidents (the number thereof to be determined by
the Board of Directors), a Secretary, and a Treasurer, each of whom shall be
elected by the Board of Directors. A Chairman of the Board of Directors and such
other officers and assistant officers as may be deemed necessary may be elected
or appointed by the Board of Directors. Any two or more offices may be held by
the same person, except the offices of President and Secretary. The President
and the Chairman of the Board, if any, shall be elected from the membership of
the Board of Directors.
Section 2. Election and Term of Office. The officers of the
Corporation to be elected by the Board of Directors shall be elected annually by
the Board of Directors at the first meeting of the Board of Directors held after
each annual meeting of the shareholders. If the election of officers shall not
be held at such meeting, such election shall be held as soon thereafter as
conveniently may be. Each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death or until he
shall resign or shall have been removed in the manner hereinafter provided.
<PAGE> 10
Section 3. Removal. Any officer or agent may be removed by the
Board of Directors whenever in its judgment the best interests of the
Corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
Section 5. Chairman of the Board; President; Executive Vice
President. The Chairman of the Board, the President, or the Executive Vice
President, as the Board of Directors may from time to time determine, shall be
the principal executive officer of the Corporation. The principal executive
officer of the Corporation shall in general supervise and control all of the
business and affairs of the Corporation, subject to the control of the Board of
Directors. He shall, when present, preside at all meetings of the shareholders.
Whether the Chairman of the Board, the President or the Executive Vice President
be designated as the principal executive officer of the Corporation the others
shall, in the absence or incapacity of the principal executive officer or by his
authority may, exercise any of the powers of the principal executive officer.
The Chairman of the Board, the President or the Executive Vice President may
sign deeds, mortgages, bonds, contracts, or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing and
executing thereof shall be expressly delegated by the Board or by these bylaws
to some other officer or agent of the Corporation, or shall be required by law
to be otherwise signed or executed. The Chairman of the Board, the President and
the Executive Vice President shall each, in general, perform all duties incident
to their respective offices and shall perform such other duties as may be
prescribed by the Board of Directors from time to time.
Section 6. The Vice Presidents. In the absence of the Chairman
of the Board, President and Executive Vice President or in the event of their
death, inability or refusal to act, the Vice President (or in the event there be
more than one Vice President, the Vice Presidents in the order designated at the
time of their election, or in the absence of any designation, then in the order
of their election) shall perform the duties of the Chairman of the Board,
President, and Executive Vice President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Chairman of the Board,
President and Executive Vice President. Any Vice President may sign, with the
Secretary or an Assistant Secretary, certificates for shares of the Corporation;
and shall perform such other duties as from time to time may be assigned to him
by the principal executive officer of the Corporation, the bylaws or the Board
of Directors.
Section 7. The Secretary. The Secretary shall: (a) keep the
minutes of the proceedings of the shareholders and of the Board of Directors in
one or more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these bylaws or as required by law;
(c) be custodian of the
<PAGE> 11
corporate records and of the seal of the Corporation and see that the seal of
the Corporation is affixed to all documents the execution of which on behalf of
the Corporation under its seal is duly authorized; (d) keep a register of the
post office address of each shareholder which shall be furnished to the
Secretary by such shareholder; (e) sign with the President, or a Vice President,
certificates for shares of the Corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general charge
of the stock transfer books of the Corporation; and (g) in general perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the principal executive officer of the
Corporation, the bylaws or the Board of Directors.
Section 8. The Treasurer. The Treasurer shall: (a) have charge
and custody of and be responsible for all funds and securities of the
Corporation; (b) receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever, and deposit all such moneys in the name
of the Corporation in such banks, trust companies or other depositaries as shall
be selected in accordance with the provisions of Article V of these bylaws; and
(c) in general perform all of the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by the principal
executive officer of the Corporation, the bylaws or the Board of Directors. If
required by the Board of Directors, the Treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties as
the Board of Directors shall determine.
Section 9. Assistant Secretaries and Assistant Treasurers. The
Assistant Secretaries, when authorized by the Board of directors, may sign with
the President or a Vice President certificates for shares of the Corporation the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurers shall respectively, if required by the Board
of Directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board of Directors shall determine. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or by
the principal executive officer of the Corporation, the bylaws or the Board of
Directors.
Section 10. Officers' Salaries. The salaries of the officers
shall be fixed from time to time by the Board of Directors and no officer shall
be prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
<PAGE> 12
Section 2. Loans. No loans shall be contracted on behalf of
the Corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors. Such authority may
be general or confined to specific instances. The Board of Directors may
encumber and mortgage real estate and pledge, encumber and mortgage stocks,
bonds and other securities and other personal property of all types, tangible
and intangible, and convey any such property in trust to secure the payment of
corporate obligations.
Section 3. Checks, Drafts, etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation shall be signed by such officer or officers,
agent or agents of the Corporation and in such manner as shall from time to time
be determined by resolution of the Board of Directors.
Section 4. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositaries as the Board of
Directors may select.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing
shares of the Corporation shall be in such form as shall be determined by the
Board of Directors. Such certificates shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary and sealed with the
Corporate Seal or a facsimile thereof. The signatures of such officers upon a
certificate may be facsimiles if the certificate is manually signed on behalf of
a transfer agent or a registrar, other than the Corporation itself or one of its
employees. Each certificate for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except in case of a
lost, destroyed or mutilated certificate a new one may be issued therefor upon
such terms and indemnity to the Corporation as the Board of Directors may
prescribe.
Section 2. Transfer of Shares. Transfer of shares of the
Corporation shall be made only on the stock transfer books of the Corporation by
the holder of record thereof or by his legal representative, who shall furnish
proper evidence of authority to transfer, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the Corporation
shall be deemed by the Corporation to be the owner thereof for all purposes.
Section 3. Lost Certificates. Any person claiming a
certificate of
<PAGE> 13
shares to be lost or destroyed shall make an affidavit or affirmation of that
fact, and if requested to do so by the Board of Directors of the Corporation
shall advertise such fact in such manner as the Board of Directors may require,
and shall give the Corporation a bond of indemnity in such sum as the Board of
Directors may direct, but not less than double the value of shares represented
by such certificate, in form satisfactory to the Board of Directors and with or
without sureties as the Board of Directors may prescribe; whereupon the
President and the Secretary may cause to be issued a new certificate of the same
tenor and for the same number of shares as the one alleged to have been lost or
destroyed, but always subject to the approval of the Board of Directors.
Section 4. Stock Transfer Books. The stock transfer books of
the Corporation shall be kept in the principal office of the Corporation and
shares shall be transferred under such regulations as may be prescribed by the
Board of Directors.
ARTICLE VII. FISCAL YEAR
The fiscal year of the Corporation may be fixed and may be
changed from time to time by resolution of the Board of Directors. Until the
Board of Directors has acted to fix such fiscal year, the fiscal year of the
Corporation shall begin on the first day of January and end on the thirty-first
day of December in each year.
ARTICLE VIII. DIVIDENDS
The Board of Directors may, from time to time, declare and the
Corporation may pay dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law and its Articles of Incorporation.
ARTICLE IX. CORPORATE SEAL
The Board of Directors shall provide a corporate seal which
shall be circular in form and shall have inscribed thereon the name of the
Corporation and the state of incorporation and the words "Corporate Seal."
ARTICLE X. WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder
or director of the Corporation under the provisions of these bylaws or under the
provisions of the Articles of Incorporation or by law, a waiver thereof in
writing signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice.
<PAGE> 14
ARTICLE XI. AMENDMENTS
Subject to the provisions of the Articles of Incorporation,
these Bylaws may be altered, amended or repealed at any regular meeting of the
shareholders (or at any special meeting thereof duly called for that purpose) by
a majority vote of the shares represented and entitled to vote at such meeting;
provided that in the notice of such meeting notice of such purpose shall be
given. Subject to the laws of the State of West Virginia, the Articles of
Incorporation and these Bylaws, the Board of Directors may by majority vote of
those present at any meeting at which a quorum is present amend these Bylaws, or
enact such other bylaws as in their judgment may be advisable for the regulation
of the conduct of the affairs of the Corporation.
ARTICLE XII. VOTING SHARES OF OTHER CORPORATIONS
Unless otherwise ordered by the Board of Directors, shares in
other corporations held by this Corporation may be voted by the Chairman of the
Board or the President of the Corporation.
<PAGE> 1
EXHIBIT 5
[LETTERHEAD OF JACKSON & KELLY PLLC]
May 3, 2000
CNB Financial Services, Inc.
212 S. Washington Street
P.O. Box 130
Berkeley Springs, West Virginia 25411-0130
Re: Registration Statement on Form S-4 (the "Registration
Statement") with respect to shares to be issued pursuant
to the Agreement and Plan of Merger by and between CNB
Financial Services, Inc. ("CNB Financial") and Citizens
National Bank of Berkeley Springs, and to be joined in
by CNB Interim Bank, Inc., dated as of April 5, 2000
(the "Merger Agreement")
Ladies and Gentlemen:
We have acted as counsel to CNB Financial in connection with the
registration of 458,048 shares of its common stock, par value $1.00 per share
(the "Common Stock"), issuable pursuant to the Merger Agreement, as set forth in
the Registration Statement that is being filed on the date hereof by CNB
Financial with the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Act of 1933, as amended (the "Securities Act"). This
opinion is provided pursuant to the requirements of Item 21(a) of Form S-4 and
Item 601(b)(5) of Regulation S-K.
In connection with the foregoing, we have examined such records,
documents, and proceedings as we have deemed relevant as a basis for the opinion
expressed herein, and we have relied upon an officer's certificate as to certain
factual matters.
Based on the foregoing, we are of the opinion that, when the shares of
Common Stock have been issued upon the terms and conditions set forth in the
Merger Agreement, the shares of Common Stock will be validly issued, fully paid
and nonassessable.
<PAGE> 2
CNB Financial Services, Inc.
May 3, 2000
Page 2
We hereby consent to be named in the Registration Statement under the
heading "LEGAL MATTERS" as attorneys who passed upon the validity of the shares
of Common Stock and to the filing of a copy of this opinion as Exhibit 5 to the
Registration Statement. In giving this consent, we do not admit that we are
within the category of persons whose consent is required by Section 7 of the
Securities Act or other rules and regulations of the Commission thereunder.
Very truly yours,
JACKSON & KELLY PLLC
By: /s/ Elizabeth Lord
-------------------------
Elizabeth Lord, Member
<PAGE> 1
EXHIBIT 8
[LETTERHEAD OF JACKSON & KELLY PLLC]
May 3, 2000
Citizens National Bank of Berkeley Springs
212 S. Washington Street
P.O. Box 130
Berkeley Springs, West Virginia 25411-0130
Re: Certain Federal Income Tax Consequences of Merger of CNB
Interim Bank, Inc., a wholly-owned Subsidiary of CNB
Financial Services, Inc., with and into Citizens
National Bank of Berkeley Springs
Ladies and Gentlemen:
We have acted as special counsel to Citizens National Bank of
Berkeley Springs ("Citizens National"), in connection with the proposed merger
(the "Merger") of CNB Interim Bank, Inc. ("Merger Sub"), a wholly-owned
subsidiary of CNB Financial Services, Inc. ("CNB") into Citizens National. The
Merger will be effected pursuant to the Agreement and Plan of Merger by and
among Citizens National, CNB and Merger Sub, dated as of April 5, 2000 (the
"Agreement").
In our capacity as counsel to Citizens National, our opinion
has been requested with respect to certain federal income tax consequences
associated with the proposed Merger. In rendering this opinion, we have examined
(i) the Internal Revenue Code of 1986, as amended (the "Code"), and Treasury
Regulations promulgated thereunder, (ii) the legislative history of applicable
sections of the Code, and (iii) appropriate Internal Revenue Service and
judicial authorities. In addition, we have relied upon certain information made
known to us as more fully described below. All capitalized terms used herein
without definition shall have the respective meanings specified in the
Agreement, and, unless otherwise specified, all section references herein are to
the Code.
In our capacity as counsel to Citizens National in the Merger,
and for purposes of rendering the opinions expressed herein, we have examined
and relied upon such documents as we have deemed appropriate, including:
(1) the Agreement and exhibits thereto;
(2) the Registration Statement and Proxy
Statement/Prospectus being filed with the Securities and
Exchange Commission regarding the Merger; and
(3) such additional documents as we have considered
relevant.
<PAGE> 2
Citizens National Bank of Berkeley Springs
May 3, 2000
Page 2
We have also obtained written certification letters (the
"Certification Letters") from CNB, Merger Sub and Citizens National to verify
certain facts that we have assumed in rendering this opinion. Before rendering
our opinion in connection with the closing of the Merger, we intend to obtain
appropriate written certificates to confirm certain material facts that we have
assumed herein.
In connection with our review of the Agreement, the written
certificates described above, and the other documents described herein, we have
assumed, with your consent, that all documents submitted to us as photocopies
faithfully reproduce the originals thereof, that such originals are authentic,
that all such documents have been or will be duly executed to the extent
required and that all statements set forth in such documents are accurate. We
also have assumed, without independent verification or investigation, that (i)
we have been provided with true, correct and complete copies of all such
documents, (ii) none of the documents has been amended or modified; (iii) all
such documents are in full force and effect in accordance with the terms
thereof; (iv) there are no other documents which affect the opinions hereinafter
set forth; and (v) the documents reviewed by us reflect the entire agreement of
the parties thereto with respect to the subject matter thereof. We have further
assumed that any representations or statements made "to the best knowledge of"
or similarly qualified, are true and correct without such qualification. With
your permission, we have also assumed certain other factual matters set forth
more fully below.
We have not made an independent investigation of the
Registration Statement. Consequently, we have relied upon your representation
that the information presented in the Registration Statement or otherwise
furnished to us accurately and completely describes all material relevant facts.
You have advised us that the proposed Merger: (i) will permit
greater flexibility to Citizens National in meeting financial needs of its
customers; (ii) will provide a vehicle for growth and potential geographic
diversification; and (iii) may provide additional funding sources for Citizens
National, as well as better access to capital markets. To achieve these goals,
the following will occur pursuant to the Agreement:
(1) Merger Sub will merge with and into Citizens National
pursuant to the terms of the Agreement and the laws of the State of West
Virginia. Merger Sub's separate corporate existence will cease to exist, and
Citizens National will be the surviving corporation. Thereafter, Citizens
National will be a wholly-owned subsidiary of CNB, and will continue to operate
the businesses of Citizens National conducted prior to the Merger;
(2) The only class of Citizens National Stock outstanding is
Common Stock, par value of $10.00 per share ("Citizens National Common Stock").
Each share of Citizens National Common Stock (excluding shares held by Citizens
National stockholders who perfect their dissenters' rights of appraisal) issued
and outstanding immediately prior to the Effective Time of the Merger, as
defined in the Agreement, (the "Effective Time") shall, as of the Effective
Time, by virtue of the Merger and without any action on the
<PAGE> 3
Citizens National Bank of Berkeley Springs
May 3, 2000
Page 3
part of the holders thereof, be converted into and exchanged for the right to
receive shares of CNB Common Stock (as defined in the Agreement) in accordance
with the Agreement;
(3) At the Effective Time the holders of certificates
representing Citizens National Common Stock, including holders of Dissenting
Shares, shall cease to have any rights as stockholders of Citizens National; and
(4) Fractional shares of CNB Common Stock will be issued as a
result of the proposed Merger.
With your consent, and the consent of CNB and Merger Sub, we
have also assumed that the following statements are true as of the date hereof
and will be true as of the Effective Time and that you, CNB, and Merger Sub will
reaffirm these representations at the Effective Time. Jackson & Kelly PLLC has
not independently verified the completeness and accuracy of any of the following
representations. Jackson & Kelly PLLC is relying on these representations in
rendering the opinions contained herein:
(1) The Merger will be consummated in compliance with the
material terms of the Agreement, and none of the material terms and conditions
therein have been waived or modified, and neither Citizens National nor CNB has
any plan or intention to waive or modify any material conditions of the
Agreement.
(2) The ratio for the exchange of shares of CNB Common Stock
in exchange for shares of Citizens National Common Stock was negotiated through
arm's length bargaining. The fair market value of CNB Common Stock (including
any fractional share interest) received by the stockholders of Citizens National
will be, in each instance, approximately equal to the fair market value of the
Citizens National Common Stock surrendered in exchange therefor;
(3) Following the Merger, Citizens National will hold at least
90% of the fair market value of its net assets and at least 70% of the fair
market value of its gross assets (including assets disposed of by Citizens
National prior to or subsequent to the merger and in contemplation thereof)
(including without limitation any asset disposed of by Citizens National, other
than in the ordinary course of business, pursuant to a plan or intent existing
during the period ending on the Effective Date and beginning with the
commencement of negotiations; whether formal or informal, with CNB regarding the
Merger) and at least 90% of the fair market value of Merger Sub's net assets and
at least 70% of the fair market value of Merger Sub's gross assets held
immediately prior to the Merger. For purposes of this representation, amounts
paid by Citizens National or Merger Sub to dissenters, amounts paid by Citizens
National or Merger Sub to stockholders who receive cash or other property,
amounts used by Citizens National or Merger Sub to pay reorganization expenses
or other expenses incurred in connection with the Merger, amounts, if any, used
by Citizens National to make payments to employees, for severance and
termination of employment contracts, and all redemptions and distributions
(except for regular, normal dividends) made
<PAGE> 4
Citizens National Bank of Berkeley Springs
May 3, 2000
Page 4
by Citizens National will be included as assets of Citizens National or Merger
Sub, respectively, immediately prior to the Merger;
(4) Prior to the Merger, CNB will be in control of Merger Sub
within the meaning of Section 368(c) of the Code which means ownership of stock
possessing at least 80% of the total combined voting power of all classes of
stock entitled to vote and at least 80% of the total number of shares of each
other class of stock of the corporation;
(5) Citizens National has no plan or intention to issue
additional shares of its stock that would result in CNB losing control of
Citizens National within the meaning of Section 368(c) of the Code;
(6) During the five year period beginning on the Effective
Date, neither CNB nor any "CNB Related Person" (as defined below) has (i) any
plan or intention to purchase, redeem or otherwise acquire any of the CNB Common
Stock that will be issued pursuant to the Merger or (ii) participated in or will
participate in any purchase, redemption or other acquisition of Citizens
National Common Stock in contemplation or as part of the Merger. For purposes of
this paragraph, any arrangement that would result in a reduction of the risk of
loss with respect to the holding of any interest in the shares of CNB Common
Stock or Citizens National Common Stock as the case may be shall constitute an
acquisition of such shares.
"CNB Related Person" is (i) a member of its affiliated group
within the meaning of Section 1504 of the Code, (ii) a corporation as to which
CNB owns, actually or constructively, 50% or more of the total voting power or
total value of the shares of all classes of stock outstanding, (iii) a
corporation which owns, actually or constructively, 50% or more of the total
voting power or total value of the shares of all classes of stock of CNB, or
(iv) any other person related to CNB within the meaning of Treasury Regulation
Section 1.368-1(e)(3). A person will be related to CNB for this purpose if such
relationship exists either immediately before or immediately after such
acquisition or arises in connection with the Merger, and a person that is a
partner in a partnership will be deemed to own or have acquired stock that such
partnership acquired in accordance with the partner's interest in the
partnership;
(7) During the five-year period ending on the Effective Date,
neither Citizens National nor any "Citizens National Related Person" (as defined
below) has (i) purchased, redeemed or otherwise acquired any Citizens National
Common Stock in contemplation or as part of the Merger or (ii) will acquire any
Citizens National Common Stock prior to the Merger. During the five-year period
ending on the Effective Date, neither Citizens National nor any Citizens
National Related Person has made any extraordinary distribution with respect to
Citizens National stock. For purposes of this paragraph, any arrangement that
would result in a reduction of the risk of loss with respect to the holding of
any interest in the shares of Citizens National Common Stock shall constitute an
acquisition of such shares.
<PAGE> 5
Citizens National Bank of Berkeley Springs
May 3, 2000
Page 5
A "Citizens National Related Person" is (i) a corporation as
to which Citizens National owns actually or constructively 50% or more of the
total voting power or total value of the shares of all classes of stock
outstanding, or (ii) a corporation which owns actually or constructively 50% or
more of the total voting power or total value of all shares of all classes of
stock of Citizens National. A person will be deemed related to Citizens National
for this purpose if such relationship exists either immediately before or
immediately after such acquisition, and a person that is a partner in a
partnership will be deemed to own or have acquired any stock that such
partnership acquired in accordance with the partner's interest in the
partnership;
(8) CNB has no plan or intention to liquidate Citizens
National; to merge Citizens National with or into another corporation other than
Merger Sub; to sell or otherwise dispose of the stock of Citizens National
except for transfers of stock to corporations controlled by CNB; or to cause
Citizens National to sell or otherwise dispose of any of its assets or of any of
the assets acquired from Merger Sub, except for dispositions made in the
ordinary course of business or transfers of assets to a corporation controlled
by Citizens National;
(9) Merger Sub will have no liabilities assumed by Citizens
National, and it will not transfer to Citizens National any assets subject to
liabilities, in the Merger;
(10) At the time of the Merger, the only class of issued and
outstanding stock of Citizens National will be the Citizens National Common
Stock;
(11) In the Merger, shares of Citizens National stock
representing control of Citizens National, as defined in Section 368(c) of the
Code, will be exchanged solely for CNB Common Stock. For purposes of this
representation, shares of Citizens National stock exchanged for cash or other
property originating with CNB will be treated as outstanding Citizens National
stock on the date of the Merger;
(12) The Citizens National Common Stock to be surrendered by
each stockholder of Citizens National will not be subject to any liability, and
neither Citizens National nor CNB will assume any liability with respect to the
surrendered Citizens National Common Stock;
(13) At the time of the Merger, Citizens National will not
have outstanding any warrants, options, convertible securities, or any other
type of right pursuant to which any person could acquire stock in Citizens
National that, if exercised or converted, would affect CNB's acquisition or
retention of control of Citizens National, as defined in Section 368(c) of the
Code;
(14) Neither CNB nor any CNB Related Person owns, directly or
indirectly, nor has it or any CNB Related Person owned during the past five
years, directly or indirectly, any shares of the stock of Citizens National;
<PAGE> 6
Citizens National Bank of Berkeley Springs
May 3, 2000
Page 6
(15) Following the Merger, Citizens National will either
continue its historic business or use a significant portion of its historic
business assets in a business;
(16) CNB, Merger Sub, Citizens National and the stockholders
of Citizens National will pay their respective expenses, if any, incurred in
connection with the Merger;
(17) There is no intercorporate indebtedness existing between
CNB and Citizens National or between Merger Sub and Citizens National that was
issued, acquired, or will be settled at a discount;
(18) CNB will not issue cash in lieu of fractional share
interests;
(19) None of the compensation received, or to be received, by
any stockholder-employees of Citizens National will be separate consideration
for, or allocable to, any of their shares of Citizens National Common Stock;
none of the shares of CNB Common Stock or cash received, or to be received, by
any stockholder-employees of Citizens National pursuant to the Merger will be
separate consideration for, or allocable to, any employment agreement; and the
compensation paid to any stockholder-employees of Citizens National will be for
services actually rendered, or to be rendered, and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services;
(20) The only consideration to be received, directly or
indirectly, by holders of Citizens National Common Stock in the Merger is CNB
Common Stock. CNB has not agreed to assume, nor will it, directly or indirectly,
assume any expense or liability, whether contingent or fixed, of any holder of
Citizens National Common Stock. CNB has no plan or intention to contribute any
additional capital to Citizens National, to purchase additional Stock of
Citizens National or to make any loans to Citizens National following the Merger
for the purpose of directly or indirectly paying any additional consideration to
any holders of Citizens National Common Stock. None of the Citizens National
Common Stock exchanged for CNB Common Stock in the Merger will be subject to any
liabilities. No part of the consideration exchanged for Citizens National Common
Stock will be received by a shareholder as a creditor, employee, or in any
capacity other than that of a stockholder of Citizens National;
(21) The Agreement and documents, agreements and other matters
specifically identified therein represent the entire understanding of CNB,
Merger Sub and Citizens National with respect to the Merger contemplated
thereby, and the Merger will be effected in accordance with the Agreement;
(22) The Merger is being undertaken for one or more valid
business purposes, including those described herein;
<PAGE> 7
Citizens National Bank of Berkeley Springs
May 3, 2000
Page 7
(23) Merger Sub is a corporation newly formed for the purpose
of participating in the Merger and at no time prior to the Merger has had assets
or business operations; and
(24) Either (a) no shares of Citizens National Common Stock,
if any, that were acquired in connection with the performance of services are
subject to a substantial risk of forfeiture within the meaning of Section 83(c)
of the Code or (b) any shares of CNB Common Stock received in exchange for
shares of Citizens National Common Stock that were acquired in connection with
the performance of services and are subject to a substantial risk of forfeiture
within the meaning of Section 83(c) of the Code will be subject to substantially
the same risk of forfeiture after the Merger.
In addition to the mutual representations you, CNB and Merger
Sub have made to us, with your consent, we have also assumed that the following
statements are true as of the date hereof and will be true as of the Effective
Time and that you will reaffirm these representations at the Effective Time.
Jackson & Kelly PLLC has not independently verified the completeness and
accuracy of any of the following representations. Jackson & Kelly PLLC is
relying on these representations in rendering the opinions contained herein:
(1) For Citizens National, not more than 25% of the fair
market value of its adjusted total assets consists of stock and securities of
any one issuer, and not more than 50% of the fair market value of its adjusted
total assets consists of stock and securities of five or fewer issuers. For
purposes of the preceding sentence, (i) a corporation's adjusted total assets
exclude cash, cash items (including accounts receivable and cash equivalents),
and United States government securities, (ii) a corporation's adjusted total
assets exclude stock and securities issued by any subsidiary at least 50% of the
voting power or 50% of the total fair market value of the stock of which is
owned by the corporation, but the corporation is treated as owning directly a
ratable share (based on the percentage of the fair market value of the
subsidiary's stock owned by the corporation) of the assets owned by any such
subsidiary, and (iii) all corporations that are members of the same "controlled
group" within the meaning of Section 1563(a) of the Code are treated as a single
issuer.
(2) Citizens National is not under the jurisdiction of a court
in a case under Title 11 of the United States Code, a receivership, foreclosure,
or similar proceeding in a federal or state court.
(3) At the Effective Time, the fair market value of the assets
of Citizens National will exceed the liabilities plus the amount of liabilities,
if any, to which the assets are subject.
(4) At all times during the five-year period ending on the
Effective Date, the fair market value of all of Citizens National's United
States real property interests was and will have been less than 50% of the total
fair market value of, (a) its United States real property interests, (b) its
interests in real property located outside the United States and (c) its other
assets used or held for use in a trade or
<PAGE> 8
Citizens National Bank of Berkeley Springs
May 3, 2000
Page 8
business. For purposes of the preceding sentence, (x) United States real
property interests include all interests (other than an interest solely as a
creditor) in real property and associated personal property (such as movable
walls and furnishings) located in the United States or the Virgin Islands and
interests in any corporation (other than a controlled corporation) owning any
United States real property interest, Citizens (y) Citizens National is treated
as owning its proportionate share (based on the relative fair market value of
its ownership interest to all ownership interests) of the assets owned by any
controlled corporation or any partnership, trust, or estate in which Citizens
National is a partner or beneficiary, and (z) any such entity in turn is treated
as owning its proportionate share of the assets owned by any controlled
corporation or any partnership, trust, or estate in which the entity is a
partner or beneficiary. As used in this paragraph, "controlled corporation"
means any corporation at least 50% of the fair market value of the stock of
which is owned by Citizens National, in the case of a first-tier subsidiary of
Citizens National, or by a controlled corporation, in the case of a lower-tier
subsidiary.
(5) Citizens National will not take any position on any
Federal, state or local income tax return or franchise tax return, or take any
other action or reporting position, that is inconsistent with the treatment of
the Merger as a reorganization within the meaning of Section 368(a) of the Code
or with the representations made herein.
(6) No outstanding Citizens National Common Stock acquired in
connection with the performance of services was or will have been acquired
within six months before the Effective Date by any person subject to Section
16(b) of the Securities Exchange Act of 1934 other than pursuant to an award (a)
granted under a plan that satisfies the requirements under S.E.C. Rule 16b-3 or
(b) granted more than six months before the Effective Date.
(7) Citizens National has not filed, and does not hold any
asset subject to, a consent pursuant to Section 341(f) of the Code and
regulations thereunder.
(8) Citizens National is not a party to, and does not hold any
asset subject to, a "safe harbor lease" under former Section 168(f)(8) of the
Code and regulations thereunder.
(9) There is no plan or intention by the stockholders of
Citizens National who own 1% or more of the Citizens National Common Stock, and
to the best of the knowledge of management of Citizens National, there is no
plan or intention by the remaining stockholders of Citizens National to sell,
exchange or otherwise transfer ownership (including by derivative transactions
such as an equity swap which would have the economic effect of a transfer of
ownership) to CNB or any CNB Related Person, directly or indirectly, of a number
of CNB shares received in the Merger that would reduce the stockholders'
ownership of CNB Common Stock to a number of shares having a value, as of the
date of the Merger, of less than 50% of the value of all of the formerly
outstanding Citizens National Common Stock as of the same date. For purposes of
this representation, Citizens National Common Stock exchanged for cash or other
property will be treated as outstanding Citizens National Common Stock at
<PAGE> 9
Citizens National Bank of Berkeley Springs
May 3, 2000
Page 9
the date of the Merger. Moreover, Citizens National Common Stock and CNB Common
Stock held by the stockholders of Citizens National and otherwise sold,
redeemed, or disposed of prior or subsequent to the Merger are considered in
making this representation.
(10) During the five-year period prior to the Effective Time,
Citizens National did not declare any dividends with respect to its outstanding
stock other than regular, normal dividends consistent in amount and effect with
prior dividend distributions.
Also, in addition to the mutual representations you, CNB and
Merger Sub have made to us, and the specific representations that you have made
to us, with the consent of CNB and Merger Sub, we have also assumed that the
following statements are true as of the date hereof and will be true as of the
Effective Time and that CNB and Merger Sub will reaffirm these representations
at the Effective Time. Jackson & Kelly PLLC has not independently verified the
completeness and accuracy of any of the following representations. Jackson &
Kelly PLLC is relying on these representations in rendering the opinions
contained herein:
(1) For each of CNB and Merger Sub, not more than 25% of the
fair market value of its adjusted total assets consists of stock and securities
of any one issuer, and not more than 50% of the fair market value of its
adjusted total assets consists of stock and securities of five or fewer issuers.
For purposes of the preceding sentence, (i) a corporation's adjusted total
assets exclude cash, cash items (including accounts receivable and cash
equivalents), and United States government securities, (ii) a corporation's
adjusted total assets exclude stock and securities issued by any subsidiary at
least 50% of the voting power or 50% of the total fair market value of the stock
of which is owned by the corporation, but the corporation is treated as owning
directly a ratable share (based on the percentage of the fair market value of
the subsidiary's stock owned by the corporation) of the assets owned by any such
subsidiary, and (iii) all corporations that are members of the same "controlled
group" within the meaning of Section 1563(a) of the Code are treated as a single
issuer.
(2) Neither CNB nor Merger Sub is under the jurisdiction of a
court in a case under Title 11 of the United States Code, a receivership,
foreclosure, or similar proceeding in a federal or state court.
(3) At the Effective Time, the fair market value of the assets
of CNB will exceed the sum of its liabilities plus the amount of liabilities, if
any, to which the assets are subject. At the Effective Time, the fair market
value of the assets of Merger Sub will exceed the sum of its liabilities plus
the amount of liabilities, if any, to which the assets are subject.
(4) Currently, CNB has no ongoing stock repurchase program
where it acquires its own stock through repurchases in the open market. No such
stock repurchase program will be created in connection with the Merger.
<PAGE> 10
Citizens National Bank of Berkeley Springs
May 3, 2000
Page 10
(5) Neither CNB nor Merger Sub will take any position on any
Federal, state or local income tax return or franchise tax return, or take any
other action or reporting position, that is inconsistent with the treatment of
the Merger as a reorganization within the meaning of Section 368(a) of the Code
or with the representations made herein.
(6) There is no plan or intention by the stockholders of
Citizens National who own 1% or more of the Citizens National Common Stock, and
to the best of the knowledge of management of CNB, there is no plan or intention
by the remaining stockholders of Citizens National to sell, exchange or
otherwise transfer ownership (including by derivative transactions such as an
equity swap which would have the economic effect of a transfer of ownership) to
CNB or any CNB Related Person, directly or indirectly, of a number of CNB shares
received in the Merger that would reduce the stockholders' ownership of CNB
Common Stock to a number of shares having a value, as of the date of the Merger,
of less than 50% of the value of all of the formerly outstanding Citizens
National Common Stock as of the same date. For purposes of this representation,
Citizens National Common Stock exchanged for cash or other property will be
treated as outstanding Citizens National Common Stock at the date of the Merger.
Moreover, Citizens National Common Stock and CNB Common Stock held by the
stockholders of Citizens National and otherwise sold, redeemed, or disposed of
prior or subsequent to the Merger are considered in making this representation.
On the basis of the foregoing in reliance upon the
representations and assumptions described herein, and assuming that (a) with
respect to any nonresident alien or foreign entity that is a shareholder of
Citizens National, Citizens National will comply with all applicable statement
and notification requirements (if any) of Treasury Regulation Section 1.897-2(g)
& (h) and the Merger will be consummated in accordance with the Plan of Merger,
therefore, we are of the opinion that for federal income tax purposes:
(1) The Merger will constitute a reorganization within the
meaning of Section 368(a)(1)(A) and Section 368(a)(2)(E) of the Code. CNB,
Merger Sub and Citizens National will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by Citizens National,
CNB, or Merger Sub as a result of the Merger;
(3) The holders of Citizens National Common Stock will
recognize no gain or loss upon the exchange of their shares of Citizens National
Common Stock solely for shares of CNB Common Stock. Code Section 354(a)(1);
<PAGE> 11
Citizens National Bank of Berkeley Springs
May 3, 2000
Page 11
(4) The tax basis of the CNB Common Stock received by the
holders of Citizens National Common Stock in the Merger will, in each case, be
the same as the basis of the Citizens National Common Stock surrendered in
exchange therefor. Code Section 358(a)(l);
(5) The holding period of the CNB Common Stock received by the
holders of Citizens National Common Stock in the Merger will, in each case,
include the period during which the Citizens National Common Stock surrendered
in exchange therefor was held by the exchanging stockholders, provided that the
Citizens National Common Stock was held as a capital asset in the hands of the
exchanging stockholders on the date of the Merger. Code Section 1223(1);
(6) The payment of cash to Citizens National stockholders in
exchange for Citizens National Common Stock pursuant to the exercise of
dissenter's rights will be treated as having been received as a distribution in
redemption of such stockholder's Citizens National Common Stock, subject to the
provisions and limitations of Section 302 of the Code. Where as a result of such
distribution a stockholder owns no Citizens National Common Stock either
directly or through the application of Section 318(a) of the Code, the
redemption will be a complete termination of interest within the meaning of
Section 302(b)(3) of the Code and such cash will be treated as a distribution in
full payment in exchange for his or her Citizens National Common Stock, as
provided in Section 302(a) of the Code. Under Section 1001 of the Code, gain or
(subject to the limitations of Section 267 of the Code) loss will be realized
and recognized to such stockholders in an amount equal to the difference between
the amount of such cash and the adjusted basis of the Citizens National Common
Stock surrendered, as determined under Section 1011 of the Code. If a Citizens
National stockholder has held his or her stock for more than one year, the gain
should be treated as long-term capital gain, provided that the shares were held
as a capital asset on the date of the exchange; and
Our opinion represents our best judgement of how a court would
decide, if presented with the issues addressed herein and is not binding on the
Internal Revenue Service or any court. Our opinion is not the equivalent of a
ruling from the Internal Revenue Service and may upon audit be challenged by the
Internal Revenue Service. Thus, no assurances can be given that a position taken
in reliance on our opinion will not be challenged by the IRS or rejected by a
court.
Our opinion is based on the understanding that the relevant
facts are, and will be at the Effective Time, as set forth in this letter. It is
also based on the Code, Treasury Regulations, case law and Internal Revenue
Service rulings as they now exist. These authorities are all subject to change
and such change may be made with retroactive effect. Were there to be such
changes either before or after the Effective Time, or should the relevant facts
prove to be other than as we have reviewed, our opinion could be affected. We
can give no assurance that after any such change our opinion would not be
different. We do not undertake to advise you of matters that may come to our
attention subsequent to the date hereof and that may affect the opinions
expressed herein, including, without limitation, future changes in applicable
law.
<PAGE> 12
Citizens National Bank of Berkeley Springs
May 3, 2000
Page 12
Also, our opinion is based on the assumption, and we have
assumed with your permission that the cash paid to Citizens National
stockholders pursuant to the Merger (including, pursuant to a shareholder's
statutory dissent) will not exceed 5% of the value of all rights to shares of
Citizens National outstanding as of the Effective Time.
In addition, our opinions are based solely on the documents
that we have examined, the additional information that we have obtained
(including, by way of example, but not limitation, the representations) and the
statements set out herein, which we have assumed and you, CNB and Merger Sub
have confirmed to be true on the date hereof and the date the Merger is
consummated. Our opinions cannot be relied upon if any of the facts contained in
such documents or if such additional information is, or later becomes,
inaccurate, or if any of the statements set out herein is, or later becomes,
inaccurate.
Our opinions do not address the tax consequences to certain
Citizens National stockholders in light of their particular circumstances,
including, by way of example, but not limitation, some or all of the following:
Citizens National stockholders who hold their Citizens National Common Stock
other than as a capital asset, foreign stockholders, stockholders who are not
United States citizens, tax exempt organizations, financial institutions,
persons subject to the alternative minimum tax, insurance companies, retirement
plans, and persons who acquired their Citizens National Common Stock as
compensation. Finally, our opinions are limited to the federal income tax
matters specifically covered hereby, and we have not been asked to address, nor
have we addressed, any other tax consequences of the Merger to any party,
whether federal, state, local or foreign including, by way of example, but not
limitation, tax consequences of a required change in accounting method, if any,
or the termination of a bad debt reserve, if any.
The opinions expressed herein are solely for your benefit and
the benefit of your shareholders and are being furnished only to you and your
shareholders in connection with the Merger and solely for your and your
shareholders' benefit in connection therewith and may not be used or relied upon
in any manner or for any purpose by any other person nor any copies published,
communicated, quoted or otherwise made available in whole or in part to any
other person or entity without our express prior written consent. This letter is
our opinion as to certain legal conclusions as specifically set forth herein and
is not and shall not be deemed to be a representation or opinion as to any
factual matters.
<PAGE> 13
Citizens National Bank of Berkeley Springs
May 3, 2000
Page 13
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement. We also consent to the references to Jackson &
Kelly PLLC under the heading "Certain Federal Income Tax Consequences" in the
Registration Statement. In giving this consent, we do not admit that we are
within the category of persons whose consent is required by Section 7 of the
Securities Act or other rules and regulations of the Securities and Exchange
Commission thereunder.
Respectfully,
JACKSON & KELLY PLLC
/s/ Robert G. Tweel
-------------------------------
Robert G. Tweel, Member
RGT:mh
<PAGE> 1
EXHIBIT 23.1
[Consent of Jackson & Kelly PLLC (included as
part of Exhibit 5 and Exhibit 8.1)]
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement on Form
S-4 for CNB Financial Services, Inc. of our report dated January 21, 2000
relating to the consolidated financial statements of Citizens National Bank of
Berkeley Springs.
SMITH ELLIOTT KEARNS & COMPANY, LLC
Hagerstown, Maryland
May 3, 2000
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned do hereby
constitute and appoint THOMAS F. ROKISKY (whose address is Berkeley Springs,
West Virginia 25411) and J. PHILIP KESECKER (whose address is Berkeley Springs,
West Virginia 25411) and each of them severally, the true and lawful agents and
attorneys-in-fact (the "Agents" and, severally, an "Agent") of the undersigned
with full power to act, upon the terms and conditions herein set forth, for and
in the name, place and stead of the undersigned in any way which the undersigned
could do, if the undersigned were personally present, to execute in their name,
place and stead (in any such capacity), all applications, certificates, letters,
registration statements, amendments to registration statements or other
documents addressed to or filed with the Securities and Exchange Commission
which may be required in connection with the registration under the Securities
Act of 1933, as amended, of the common stock of CNB Financial Services, Inc.,
which may be issued to shareholders of Citizens National Bank of Berkeley
Springs, a national banking association, under the Agreement and Plan of Merger
dated as of April 5, 2000, by and between CNB Financial Services, Inc. and
Citizens National Bank of Berkeley Springs, and to file the same with the
Securities and Exchange Commission and other appropriate agencies or
departments, each of said attorneys and agents to have power to act with or
without the other, and to have full power and authority to do and perform in the
name and on behalf of each of the undersigned directors every act whatsoever
necessary or advisable to be done in the premises as fully and to all intents
and purposes as the undersigned may or could do in person.
Dated this 5th day of April, 2000.
WITNESS the following signatures and seals:
/s/ J. Robert Ayers /s/ Raymond H. Lawyer
- ------------------------- -------------------------
J. Robert Ayers Raymond H. Lawyer
/s/ John E. Barker /s/ Jerald McGraw
- ------------------------- -------------------------
John E. Barker Jerald McGraw
/s/ Jay E. Dick /s/ Martha H. Quarantillo
- ------------------------- -------------------------
Jay E. Dick Martha H. Quarantillo
/s/ Herbert L. Eppinger /s/ T. F. Rokisky
- ------------------------- -------------------------
Herbert L. Eppinger Thomas F. Rokisky
/s/ Robert L. Hawvermale /s/ Charles S. Trump
- ------------------------- -------------------------
Robert L. Hawvermale Charles S. Trump, IV
/s/ J. Philip Kesecker /s/ Arlie R. Yost
- ------------------------- -------------------------
J. Philip Kesecker Arlie R. Yost
<PAGE> 1
EXHIBIT 99.1
CITIZENS NATIONAL BANK OF BERKELEY SPRINGS
212 S. WASHINGTON STREET, P.O. BOX 130
BERKELEY SPRINGS, WEST VIRGINIA 25411-0130
(304) 258-1520
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
JUNE 15, 2000
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned shareholder of
Citizens National Bank of Berkeley Springs, Berkeley Springs, West Virginia
("Citizens National"), do hereby nominate, constitute and appoint W. Ralph
Widmyer and Emerson N. Grove or either one of them, with full power to act alone
as my true and lawful attorney(s) with full power of substitution, for me in my
name, place and stead to vote all the common stock of Citizens National,
standing in my name on the books of Citizens National at the close of business
on May 5, 2000, at the Special Meeting of Shareholders of Citizens National,
called for and to be held at the Country Inn, Berkeley Springs, West Virginia,
on June 15, 2000, at 10:00 a.m., local time, and at any and all adjournments of
said meeting as follows:
1. The formation of a bank holding company for Citizens National Bank
of Berkeley Springs, pursuant to the terms and conditions of an Agreement and
Plan of Merger between Citizens National Bank of Berkeley Springs and CNB
Financial Services, Inc., and related Plan of Merger, whereby (a) Citizens
National Bank of Berkeley Springs will become a wholly-owned subsidiary of CNB
Financial Services, Inc., and (b) shareholders of Citizens National Bank of
Berkeley Springs will become shareholders of CNB Financial Services, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Any other business which may properly come before the meeting or any
adjournment thereof.
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned. If no specification is made, the shares of
common stock of Citizens National represented by this Proxy will be voted "FOR"
proposal 1. If any other business is presented at said meeting, this Proxy shall
be voted in accordance with the recommendations of the Board of Directors of
Citizens National.
The Board of Directors of Citizens National recommends a vote "FOR" the
listed proposition.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CITIZENS
NATIONAL AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
Dated: , 2000
------------------------
------------------------------------
------------------------------------
(Signature(s) of Shareholder)
[ ] I/we plan to attend the meeting.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title. If more than one trustee, all should sign. All joint
owners must sign.
