UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-12
CNB FINANCIAL SERVICES, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(5) Total fee paid:
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing:
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
CNB FINANCIAL SERVICES, INC.
101 SOUTH WASHINGTON STREET
P.O. BOX 130
BERKELEY SPRINGS, WEST VIRGINIA 25411-0130
(304) 258-1520
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 2, 2008
The Annual Meeting of Shareholders of CNB Financial Services, Inc.
("CNB") will be held on Wednesday, April 2, 2008, at The American Legion,
Berkeley Springs, West Virginia, at 12:30 p.m., local time, for the purposes of
considering and voting upon proposals:
1. To elect thirteen (13) directors for staggered terms of office
if Items 2 and 3 are approved, or otherwise elect directors to
serve until the next Annual Meeting of Shareholders; and
2. To approve amendments to the Articles of Incorporation of CNB,
all as more fully described in the accompanying Proxy
Statement, to provide for:
a. The division or classification of the Board of Directors
of CNB into three classes;
b. Procedures for filling newly created directorships and
vacancies;
c. A requirement for an affirmative vote of the holders of at
least 75% of the voting power of CNB to remove directors;
and
d. An increase to 75% of the voting power of CNB as the vote
requirement necessary to adopt amendments to Article X of
the Articles of Incorporation and other related Bylaws
amendments.
3. To ratify amendments to the Bylaws of CNB, all as more fully
described in the accompanying Proxy Statement, to provide for:
a. The division of classification of the Board of Directors
of CNB into three classes;
b. The requirement for an affirmative vote of holders of at
least 75% of the voting power of CNB to remove directors;
c. The requirement that the affirmative vote of two-thirds of
all of the members of the Board to amend the Bylaws to (i)
change the principal office of CNB, (ii) change the number
of directors, or (iii) make a substantial change in the
duties of the Chairman of the Board and the President.
4. To ratify the selection by the Board of Directors of Smith
Elliott Kearns & Company, LLC, as CNB's independent auditors
for 2008.
5. To transact such other business as may properly come before
the meeting or any adjournments thereof.
Shareholders who are holders of record on March 3, 2008, may vote at
the meeting.
By Order of the Board of Directors,
/s/ Thomas F. Rokisky
Thomas F. Rokisky
President/CEO
Berkeley Springs, West Virginia
March 10, 2008
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PLEASE VOTE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED,
SELF-ADDRESSED ENVELOPE AS PROMPTLY AS POSSIBLE, EVEN IF YOU PLAN TO ATTEND THE
MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON, EVEN
THOUGH YOU HAVE PREVIOUSLY SIGNED AND RETURNED YOUR PROXY. YOU MAY REVOKE YOUR
PROXY BEFORE IT IS VOTED AT THE MEETING.
TABLE OF CONTENTS
PAGE NO.
GENERAL........................................................................1
Information Concerning the Solicitation.................................1
Voting and Revoking Your Proxy..........................................1
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PURPOSES OF MEETING............................................................2
* ELECTION OF DIRECTORS......................................................2
General.................................................................3
Management Nominees to CNB's Board......................................3
Nominating Committee....................................................4
Other Director Information..............................................6
* PROPOSALS TO AMEND CNB'S ARTICLES OF INCORPORATION.........................6
Introduction............................................................6
Amendments to the Articles of Incorporation Concerning
Classification of the Board, Supermajority Voting Requirements
And Related Matters................................................7
Description of the Proposed Amendments..................................7
Considerations in Support of the Proposed Amendments....................9
Considerations Against the Proposed Amendments......................10
Vote Required for Adoption of Proposed Amendments......................10
MANAGEMENT AND BOARD MATTERS..................................................11
Management.............................................................11
Number of Meetings.....................................................11
Directors' Table.......................................................11
Board Compensation.....................................................12
Membership on Certain Board Committees.................................13
Personnel Committee....................................................13
Audit Committee........................................................13
Investment Committee...................................................14
Trust Committee........................................................14
Policies on Director Attendance of Shareholder Meetings................14
AUDIT RELATED MATTERS.........................................................14
Audit Committee........................................................14
Audit Committee Report.................................................15
* Independent Registered Public Accountants..............................16
COMPENSATION DISCUSSION AND ANALYSIS..........................................18
General Philosophy.....................................................19
Compensation Programs..................................................20
Executive Compensation -- Summary Compensation Table...................21
Pension Plan...........................................................22
Pension Benefits Table.................................................22
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Nonqualified Supplemental Retirement Plan..............................23
401(k) Profit Sharing Plan.............................................23
Personnel Committee Report.............................................23
OTHER INFORMATION.............................................................24
Personnel Committee Interlocks and Insider Participation...............24
Certain Transactions With Directors and Officers and Their Associates..24
Section 16(a) Beneficial Ownership Reporting Compliance................24
Report on Form 10-K.......................................................26
Annual Shareholder Communications with the Board of Directors..........26
Shareholder Proposals for 2009.........................................26
APPENDICES
Appendix I -- Definition of "Independent Director"
Appendix II -- Proposed Amendments to Articles of Incorporation and Bylaws
Appendix III -- Audit Committee Charter
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* MATTER TO BE VOTED UPON.
CNB FINANCIAL SERVICES, INC.
101 SOUTH WASHINGTON STREET
P.O. BOX 130
BERKELEY SPRINGS, WEST VIRGINIA 25411-0130
(304) 258-1520
PROXY STATEMENT
GENERAL
INFORMATION CONCERNING THE SOLICITATION
CNB's board of directors is soliciting proxies to vote CNB shares at
the 2008 Annual Meeting of Shareholders. Shareholders will meet at 12:30 p.m.,
on Wednesday, April 2, 2008, for the purposes stated in the accompanying Notice
of Annual Meeting. On or about March 10, 2008, CNB began mailing this proxy
statement to shareholders of record as of March 3, 2008. Shareholders of record
as of March 3, 2008, may vote at the meeting.
Please read this proxy statement carefully. You will find more
information about CNB in our enclosed 2007 Annual Report to Shareholders and in
the public documents we file with the Securities and Exchange Commission.
CNB will pay for the cost of preparing, assembling, printing and
mailing of the proxy material. Directors, officers and employees of CNB may
solicit proxies personally, by telephone, telegraph and telecopier. We will
arrange with custodians, nominees and fiduciaries to forward proxy material to
the beneficial owners of stock and upon request, CNB will reimburse them for
reasonable forwarding expenses.
As of March 3, 2008, CNB had 5,000,000 authorized shares of common
stock with 458,048 shares issued and 454,949 shares outstanding.
VOTING AND REVOKING YOUR PROXY
If you complete, sign and return the enclosed proxy card, the person's
name in the proxy card will vote your shares as you direct. If you sign and
return the proxy card without indicating how you want to vote, the proxies will
vote your shares "FOR" Proposals 1, 2, 3 and 4. If any other matters are
properly presented for consideration at the Annual Meeting, the persons named as
proxies and acting thereunder will have discretion to vote on those matters
according to their best judgment to the same extent as the person delivering the
proxy would be entitled to vote. At this time, CNB is not aware of any other
matters that may become before the Annual Meeting.
You may revoke your proxy at any time before the shares subject to it
are voted by:
- Notifying, in person or in writing, Rebecca Stotler, CNB Bank,
Inc., 101 S. Washington Street, P.O. Box 130, Berkley Springs,
West Virginia 25411;
- Executing a proxy bearing a later date; and
- Voting in person at the Annual Meeting the shares represented
by the proxy.
Your attendance at the Annual Meeting will not, by itself, revoke your
proxy. You must vote in person at the Annual Meeting to revoke your proxy. All
shares of CNB's common stock represented by valid proxies received pursuant to
this solicitation, and not revoked before their exercise, will be voted in the
manner specified therein.
A quorum for the meeting is present if at least a majority of the
outstanding shares is present in person or by proxy. Votes withheld and
abstentions will count in determining the presence of a quorum for the
particular matter as to which the shareholder withheld authority. Those who fail
to return a proxy card or attend the meeting will not count towards determining
a quorum.
PURPOSES OF MEETING
1. ELECTION OF DIRECTORS
GENERAL
The Bylaws of CNB currently provide for a Board of Directors composed
of five to twenty-five members to be elected annually. The Board has set
thirteen as the number of members to be elected at the Annual Meeting to be held
on April 2, 2008. The thirteen members of the current Board of Directors
represent those nominated to serve for the upcoming year without any
replacements.
As required by West Virginia law, each share is entitled to one vote
per nominee, unless a shareholder requests cumulative voting for directors at
least 48 hours before the meeting. If a shareholder properly requests cumulative
voting for directors, then each CNB shareholder will have the right to vote the
number of shares owned by that shareholder 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 multiplied by the number of shares owned
shall equal, or to distribute them on the same principle among as many
candidates as the shareholder sees fit. If any shares are voted cumulatively for
the election of directors, the proxies, unless otherwise directed, shall have
full discretion and authority to cumulate their votes and vote for less than all
such nominees. For all other purposes, each share is entitled to one vote.
To vote cumulatively, you multiply the number of shares you own times
the number of nominees, resulting in a cumulative total. You may vote your
cumulative total for one nominee or divide it among all 13 nominees in any
proportion you choose. The following is an example of how cumulative voting
works. If you own five shares and there are 13 nominees for director, you have a
cumulative total of 65 votes. You may choose to vote all 65 votes for one
nominee and not vote for the other nominees. Or, you may allocate five votes for
each nominee. Or, you may choose any other allocation of your cumulative total
over all or part of the 13 nominees. If you vote your shares cumulatively by
proxy, you must indicate how you wish to divide your cumulative total.
Otherwise, the proxies will vote the cumulative total evenly or in a manner to
elect as many of CNB's nominees as possible. For all other purposes (Proposals
2, 3 and 4 and any other matters properly brought before the meeting), each
share is entitled to one vote.
The proposed amendments to CNB's Articles of Incorporation and Bylaws
provide for a classified Board of Directors. Unless otherwise directed, it is
intended that the enclosed proxy will be
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voted "FOR" the classification of the Board of Directors (see discussion under
"Proposals to Amend the Articles of Incorporation and Bylaws of CNB") and for
the election of the thirteen management nominees to the Board for the classes
indicated. The classification of the Board of Directors may have an
anti-takeover effect by making it more difficult to change the composition of
the Board. At least two shareholders' meetings, instead of one, normally would
be required to effect a change of control of the Board. For a more complete
discussion of the anti-takeover effects of a classified Board of Directors, see
the discussion at "Consideration Against the Proposed Amendments." If the
amendment for the classification of the Board of Directors is not approved, the
enclosed proxy will be voted "FOR" the thirteen nominees for election to the
Board until the 2009 Annual Meeting of Shareholders, or until their successors
are elected and qualified.
MANAGEMENT NOMINEES TO CNB'S BOARD
The following table sets forth information on the current directors of
CNB who are also the management nominees. All nominees are incumbent directors
of CNB Financial Services, Inc. All Board members are independent except for Mr.
Rokisky, President and CEO of CNB and Charles Trump, IV, whose firm provides
legal services for CNB.
DIRECTOR PRINCIPAL OCCUPATION FOR PAST FIVE YEARS
NAME AGE SINCE AND POSITION HELD WITH CNB
---- --- -------- ----------------------------------------
Kenneth W. Apple 51 2003 Certified Public Accountant
J. Robert Ayers 78 1974 Retired -- President, Citizens National Bank
(predecessor to CNB Bank, Inc.)
John E. Barker 79 1972 Auto Sales -- Services
Margaret S. Bartles 54 2002 Realtor
Jay E. Dick 55 1983 Retired - Manager-Hunters' Hardware, Inc.
Herbert L. Eppinger 75 1979 Retired -- Agriculture
Robert L. Hawvermale 78 1967 Retired - Professional Engineer
J. Philip Kesecker 78 1965 Real Estate Development
Jerry McGraw 61 1988 Insurance
Martha H. Quarantillo 48 1999 Pharmacist
Thomas F. Rokisky 61 1993 President and Chief Executive Officer, CNB and CNB
Bank, Inc.
Charles S. Trump IV 47 1986 Attorney at Law
Arlie R. Yost 60 1988 Licensed Residential Appraiser
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NOMINATING COMMITTEE
In 2007, for purposes of the directors that are nominated for the 2008
Annual meeting, the Board of Directors of CNB did not maintain a separate
nominating committee as the entire Board of Directors performed the functions of
a nominating committee. As there is very low turnover in director positions, the
Board of Directors believed it is in the best position to identify the criteria
for open Board positions and reviewing background information on potential
candidates.
It does, however, believe that candidates for director should have
certain minimum qualifications, including:
- Directors should be of the highest ethical character.
- Directors should have excellent personal and professional
reputations in CNB's market area.
- Directors should be accomplished in their professions or
careers.
- Directors should be able to read and comprehend financial
statements and either have knowledge of, or the ability and
willingness to learn, financial institution law.
- Directors should have relevant experience and expertise to
evaluate financial data and provide direction and advice to
the chief executive officer and the ability to exercise sound
business judgment.
- Directors must be willing and able to expend the time to
attend meetings of the Board of Directors of CNB and the bank
and to serve on board committees.
- The Board of Directors will consider whether a nominee is
independent as legally defined. In addition, directors should
avoid the appearance of any conflict and should be independent
of any particular constituency and be able to serve all
shareholders of CNB.
- Directors must be acceptable to CNB's and the bank's
regulatory agencies, including the Federal Reserve Board, the
Federal Deposit Insurance Corporation and the West Virginia
Division of Banking and must not be under any legal disability
which prevents them from serving on the Board of Directors or
participating in the affairs of a financial institution.
- Directors must be at least 21 years of age.
The Board of Directors of CNB reserves the right to modify these
minimum qualifications from time to time, except where the qualifications are
required by the laws relating to financial institutions.
The process of the Board of Directors for identifying and evaluating
nominees is as follows: In the case of incumbent directors whose terms are set
to expire, the board of directors considers the directors' overall service to
CNB during their term, including such factors as the number of meetings
attended, the level of participation, quality of performance and any
transactions between such directors
4
and CNB and its subsidiary, CNB Bank, Inc. (the "bank"). The Board of Directors
also reviews the payment history of loans, if any, made to such directors by the
bank to ensure that the directors are not chronically delinquent and in default.
The Board of Directors considers whether any transactions between the directors
and the bank have been criticized by any banking regulatory agency or the bank's
internal auditors and whether corrective action, if required, has been taken and
was sufficient. The Board of Directors also confirms that such directors remain
eligible to serve on the Board of Directors of a financial institution under
federal and state law. For new director candidates, the Board of Directors uses
its network of contacts of CNB's market area to compile a list of potential
candidates. The Board then meets to discuss each candidate and whether he or she
meets the criteria set forth above. The Board of Directors then discusses each
candidate's qualifications and recommends a candidate by majority vote.
The Board of Directors will consider director candidates recommended by
shareholders, provided that the recommendations are received at least 120 days
before the next Annual Meeting of Shareholders. In addition, the procedures set
forth below must be followed by shareholders for submitting nominations. The
Board of directors does not intend to alter the manner in which it evaluates
candidates, regardless of whether or not the candidate was recommended or
nominated by a shareholder.
Any nominations for election to the Board of Directors, other than
those made by CNB, must be made by a shareholder. The nomination must be in
writing and delivered or mailed to the president not less than 40 days nor more
than 50 days prior to the meeting. However, if CNB gives less than 50 days
notice of the meeting, the nominations must be mailed or delivered to the
president not later than the eighth day after the Notice of Annual Meeting was
mailed.
A shareholder nomination should include the:
o name and address of the proposed nominee(s);
o principal occupation of proposed nominee(s);
o name and address of the shareholder making the nomination; and
o number of shares owned by the shareholder making the
nomination.
The full Board of Directors determines whether each Board member meets
the applicable legal standards for Board member and Board committee
independence. The Board of Directors reviews the annual questionnaires completed
by each of the directors and a report setting forth any transactions that a
particular director or its affiliated entities has with CNB or the bank. As a
result of this review, the Board affirmatively determined that all of the
directors were independent except for Mr. Rokisky and Charles Trump, IV. Mr.
Rokisky is not considered independent due his role as President and Chief
Executive Officer of CNB, and Mr. Trump is not considered independent due to the
fact that his law firm provides legal services to CNB and, in addition, he is a
partner in Morgan County Title Insurance Agency, LLC, to which CNB pays
management fees.
In making its independence determinations, the Board considered that in
the ordinary course of business transactions may occur between the bank and
companies or entities of which some of our directors have interests. One area of
inquiry is the amount of loans outstanding and the terms of those loans. In
connection with such loans, the Board of Directors considers that all of the
loans made to directors were made on substantially the same terms (including
interest rates, collateral and repayment
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terms on loans) as comparable transactions with non-affiliated parties.
Additionally, the Board considers whether such loans involve more than the
normal risk of collectibility or present other unfavorable features. The
definition of independence used by CNB is that contained in Rule 4200(a)(15) of
the Nasdaq Marketplace Rules. That definition of independence is attached hereto
as Appendix I.
OTHER DIRECTOR INFORMATION
If any of the nominees for election as directors is unable to serve due
to death or other unexpected occurrence, your proxies will be voted for a
substitute nominee or nominees designated by the board of CNB, or the Board of
Directors may adopt a resolution to reduce the number of directors to be
elected. The Board of Directors is unaware of any other matters to be considered
at the Annual Meeting other than those matters stated in the Notice of Annual
Meeting of Shareholders. If any other matters properly come before the meeting,
persons named in the accompanying proxy will vote your shares in accordance with
the direction of the Board of Directors.
2. PROPOSALS TO AMEND CNB'S ARTICLES OF INCORPORATION
INTRODUCTION
CNB's Board of Directors has unanimously adopted resolutions approving
and recommending to the shareholders for their adoption certain amendments to
CNB's Articles of Incorporation (the "Articles") and ratification of certain
amendments to CNB's Bylaws. These amendments will have an anti-takeover effect
and are discussed in detail below under the captions "Amendments to the Articles
of Incorporation Concerning Classification of the Board and supermajority Voting
Requirements and Related Matters". The four proposals discussed under
"Amendments to the Articles of Incorporation Concerning Classification of the
Board, Supermajority Voting Requirements and Related Matters" all must be
approved separately by the company's shareholders, and if all of these proposals
do not receive shareholder approval, then none of the proposals will be adopted.
The proposed amendments are intended, among other things, to reduce the
possibility that a third party could effect a sudden or surprise change in
majority control of CNB's Board of Directors without the support of the
incumbent Board. The Board believes it is in the best interests of CNB and its
shareholders to discourage certain unilateral attempts by a purchaser to take
control of CNB.
The proposed amendments are permitted under the laws of the State of
West Virginia, CNB's state of incorporation, and, assuming approval by a
majority vote of CNB's outstanding shares at the Annual Meeting, these
amendments would become effective upon the filing of Articles of Amendment with
the Secretary of State. This filing is expected to be made shortly after the
adoption of the amendments if the proposed amendments are approved by the
shareholders at the Annual Meeting.
CNB's Articles and Bylaws do not presently contain any provisions
intended to affect the ability of purchasers to take over or change control of
CNB.
You are also being requested to ratify certain corresponding amendments
to CNB's Bylaws as previously adopted by the Board of Directors. If less than
all of the proposed amendments to the Articles of Incorporation and the Bylaws
are adopted or ratified (as the case may be), none of the amendments will be
adopted.
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THE BOARD BELIEVES THAT ADOPTION OF THE FOLLOWING PROPOSED AMENDMENTS
TO THE ARTICLES OF CNB AND RELATED CHANGES TO THE BYLAWS ARE IN THE BEST
INTERESTS OF ALL THE SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR
OF THEIR ADOPTION.
AMENDMENTS TO THE ARTICLES OF INCORPORATION CONCERNING CLASSIFICATION OF THE
BOARD, SUPERMAJORITY VOTING REQUIREMENTS AND RELATED MATTERS
This group of proposed amendments to the Articles would amend Article X
in its entirely and would:
- classify the Board of Directors into three classes, as nearly
equal in number as possible, each of which classes, after a
transitional arrangement, would serve for three years, with
one class being elected each year at the Annual Meeting;
- reference in the Articles the procedures under which a
shareholder may properly nominate a person to serve as a
director of CNB;
- provide that any vacancy on the Board could be filled by the
remaining directors then in office, though less than a quorum;
- provide that directors may be removed, with or without cause,
only with the approval of the holders of at least 75% of the
voting power of CNB entitled to vote generally in the election
of directors; and
- increase the shareholder vote required to alter, amend or
repeal the foregoing amendments to the Articles and related
amendments to the Bylaws from the current majority of the
voting power to 75% of the voting power of CNB. These proposed
amendments to the Articles are set forth in full on Appendix
II to this Proxy Statement.
The Board of Directors believes that if the proposed amendments are
adopted, these amendments would reduce the possibility that a third party could
effect a sudden change in control of CNB's Board of Directors without the
support of the incumbent Board. Shareholders are urged to read carefully the
following sections of this Proxy Statement, which describe the amendments and
their purposes and effects, and Appendix II, before voting on the proposed
amendments.
DESCRIPTION OF THE PROPOSED AMENDMENTS
CLASSIFICATION OF THE BOARD OF DIRECTORS. The Bylaws of CNB now provide
that all members of the Board of Directors are to be elected annually for a term
of one year and that the number of directors of CNB shall not be less than five
nor more than 25, the number to be determined by the Board from time to time.
Currently, there are thirteen directors of CNB. Thirteen directors have been
nominated for election by management at this year's Annual Meeting.
Proposed Article X.1 of the Articles continues to permit the Board to
fix the number of directors from time to time pursuant to the Bylaws and
provides that the Board will be divided into three classes of directors, each
class to be as nearly equal in number of directors as possible. If the proposed
amendments are adopted (including the corresponding amendment to the Bylaws),
the Board
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of Directors of CNB will be divided into three classes, and four directors will
be elected for a term expiring at the 2009 Annual Meeting of Shareholders, four
directors will be elected for a term expiring at the 2010 Annual Meeting of
Shareholders, and five directors will be elected for a term expiring at the 2011
Annual Meeting of Shareholders (in each case, until their respective successors
are duly elected and qualified). The names of the various nominees who will
serve in each class are set forth in the table which describes the management
nominees. Starting with the 2009 Annual Meeting of Shareholders, one class of
directors will be elected each year for a three-year term. If the proposed
amendments are not adopted, all thirteen directors elected will serve a term
expiring at the 2009 Annual Meeting of Shareholders or until their successors
are duly elected and qualified.
If these proposed amendments are adopted, they will have the effect of
making it more difficult and time-consuming for a shareholder who has acquired
or controls a majority of CNB's outstanding Common Stock to gain immediate
control of the Board of Directors or otherwise disrupt the management of CNB.
Unless that shareholder can gain the 75% vote required to amend the provisions
regarding classifications or number of directors or to remove directors, it
would not be possible for that shareholder to elect a majority of the directors
at a single meeting of shareholders. Under the proposed amendment, it would take
at least two Annual Meetings to change the composition of a majority of the
Board of Directors, which presently may be accomplished at a single meeting. The
longer time required to elect a majority of a classified Board would help to
assure continuity and stability of CNB's management and policies, since a
majority of the directors at any given time would have prior experience as
directors of CNB.
This amendment would also have the effect of making it more difficult
for a shareholder to elect a director pursuant to the exercise of his cumulative
voting rights. However, the Board believes that the benefits to CNB and its
shareholders of encouraging prior consultation and negotiation outweigh the
disadvantages of discouraging any such proposals.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Proposed Article X.(B) of the
Articles provides that a vacancy on the Board occurring during the course of the
year, including a vacancy created by an increase in the number of directors,
will be filled by the remaining directors. They further provide that any new
director elected to fill a vacancy on the Board resulting from death,
resignation, disqualification, removal or other cause or resulting from an
increase in the number of directors will serve until the next Annual Meeting of
Shareholders. It also provides that no decrease in the number of directors will
shorten the term of any incumbent. The current Bylaws do not contemplate a
classified Board, and a director selected to fill a vacancy now serves until the
next Annual Meeting of Shareholders.
The provision that newly created directorships are to be filled by the
Board could prevent a third party seeking majority representation on the Board
of Directors from obtaining such representation simply by enlarging the Board
and immediately filling the new directorships created with its own nominees.
However, these new directors elected by the Board would only serve until the
next election of directors under West Virginia law.
REMOVAL OF DIRECTORS. Currently, the vote required under the West
Virginia Business Corporation Act to remove a director is a majority of the
voting power of the shares entitled to be voted for the election of directors.
Proposed Article X.(C) and proposed Section 17, Article III, of the Bylaws
provide that a director may be removed, with or without cause, by the
affirmative vote of the holders of at least 75% of the voting power of the
shares entitled to vote generally in the election of directors. The proposed
amendments (including the corresponding amendments to the Bylaws)
8
preclude a third party from removing incumbent directors and simultaneously
gaining control of the Board by filling the vacancies created by removal with
its own nominees unless the third party controls 75% of the voting power of the
Voting Stock and can amend these provisions of the Bylaws and the Articles.
INCREASED SHAREHOLDER AND DIRECTOR VOTE FOR ALTERATION, AMENDMENT OR
REPEAL OF PROPOSED AMENDMENTS. Proposed Article X(D) of the amendments to the
Articles would require the concurrence of the holders of at least 75% of the
voting power of CNB entitled to vote generally in the election of directors for
the alteration, amendment or repeal of, or the adoption of any provision
inconsistent with, all of the proposed amendments to the Articles discussed in
this Proxy Statement. Under the West Virginia Business Corporation Act,
amendments to the Articles of CNB require the approval of the holders of more
than one-half of the outstanding stock entitled to vote thereon and of more than
one-half of the outstanding stock of each class entitled to vote thereon voting
as a class. However, the West Virginia Business Corporation Act also permits
provisions in the Articles which require a greater vote than the minimum vote
otherwise required by law for any corporate action.
In addition, under proposed Article XI of the Bylaws, without the
affirmative vote of two-thirds of all members of the Board, the Board may not
amend the Bylaws to change the principal office of CNB, change the number of
Directors or make a substantial change in the duties of the Chairman of the
Board and the President.
The requirement of an increased shareholder vote is designed to prevent
a shareholder with a majority of the voting power of the Bank from avoiding the
requirements of the proposed amendments by simply repealing them.
CONSIDERATIONS IN SUPPORT OF THE PROPOSED AMENDMENTS
Although no activity with respect to the stock of CNB has come to the
attention of the Board of Directors, a third party may seek to accumulate a
substantial amount of CNB's stock as a prelude to proposing a takeover or a
restructuring or sale of all or part of the company or other similar
extraordinary corporate action. These actions are often undertaken by the third
party without advance notice to or consultation with management of the company.
In many cases, the purchaser seeks representation on the Board of Directors in
order to increase the likelihood that its proposal will be implemented by the
company. If the company resists the efforts of the purchaser to obtain
representation on the Board, the purchaser may commence a proxy contest to have
its nominees elected to the Board in place of certain directors or the entire
Board. In some cases, the purchaser may not truly be interested in taking over
the company, but uses the threat of a proxy fight and/or a bid to take over the
company as a means of forcing the company to repurchase its equity position at a
substantial premium over market price.
The purpose of the proposed amendments to the Articles is to encourage
persons seeking to acquire control of CNB to negotiate with CNB prior to
attempting to take control. The various amendments to the Articles are designed
to make it more difficult and time-consuming to change majority control of the
Board and thus to reduce the vulnerability of CNB to a takeover attempt which
may not be in the best interests of CNB or its shareholders. The amendments are
also designed to ensure that management is fully aware of shareholders'
intentions and proposals before any shareholders meeting.
9
The Board of Directors of CNB believes that any imminent threat of removal
of the Board's management during a takeover attempt could severely curtail
management's ability to negotiate effectively with any potential purchasers.
Management could be deprived of the time and information necessary to evaluate a
takeover proposal, to study alternative proposals and to help ensure that the
best price is obtained in any transaction involving CNB which may ultimately be
undertaken.
CONSIDERATIONS AGAINST THE PROPOSED AMENDMENTS
The proposed amendments will make more difficult or discourage a proxy
contest, the assumption of control by a holder of a substantial block of CNB's
stock or the removal of the incumbent Board and could increase the likelihood
that incumbent directors will retain their positions, even if a majority of the
shareholders are dissatisfied with the performance of those directors. Under the
proposed amendments, a third party would not immediately obtain the ability to
control the Board through its first-step acquisition.
VOTE REQUIRED FOR ADOPTION OF PROPOSED AMENDMENTS
The affirmative vote of the holders of more than one-half of the
outstanding shares of CNB entitled to vote at the Annual Meeting is required to
adopt the proposed amendments to the Articles. Additionally, if all of these
proposed amendments do not receive the required shareholder approval, then none
of the amendments will be adopted. The proposals to ratify the Bylaw amendments
require the affirmative vote of one-half of the shares present at the meeting in
person or by proxy.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" ADOPTION OF
THE AMENDMENTS TO THE ARTICLES AND RATIFICATION OF THE AMENDMENTS TO THE BYLAWS
DISCUSSED ABOVE.
10
MANAGEMENT AND BOARD MATTERS
MANAGEMENT
The following are the executive officers of CNB.
OFFICE HELD BANK EMPLOYEE AGE AS OF
NAME AND OFFICE HELD SINCE SINCE MARCH 3, 2008
-------------------- ----------- ------------- -------------
J. Philip Kesecker, Chairman of the Board 1987 (1) 78
Thomas F. Rokisky, President/CEO 1996 1990 61
Rebecca S. Stotler, Sr. Vice President/CFO 1999 (2) 1983 47
Patricia C. Muldoon, Ex. Vice President/COO 2003 (3) 2001 47
|
(1) Mr. Kesecker is not an employee of CNB.
(2) From 1999 to 2006, Rebecca Stotler was Vice President/Chief
Financial Officer.
(3) From 2003 to 2006, Patricia Muldoon was Senior Vice
President/Chief Operations Officer
NUMBER OF MEETINGS
The directors of CNB are also directors of the bank. The Board of
Directors met eleven times in 2007. All of CNB's directors attended 75% or more
of all Board and committee meetings in the aggregate in 2007. The bank's Board
of Directors had 26 meetings and 47 meetings of committees during 2007. Each of
CNB's directors attended at least 75% of the aggregate of all Board and
committee meetings of committees they served on during 2007.
DIRECTORS' TABLE
The following table disclosed the cash and other compensation earned
and paid to each of the Company's directors during the fiscal year ended 2007.
11
DIRECTORS TABLE
CHANGE IN
PENSION VALUE
AND
NONQUALIFIED
FEES EARNED DEFERRED
OR PAID IN COMPENSATION ALL OTHER TOTAL
NAME YEAR CASH EARNINGS (1) COMPENSATION COMPENSATION
---------------------------- ------ ----------- ------------- ------------ ------------
J. Philip Kesecker 2007 $ 21,650 $ - $ - $ 21,650
Kenneth W. Apple 2007 $ 17,625 $ - $ - $ 17,625
J. Robert Ayers 2007 $ 16,875 $ - $ - $ 16,875
John E. Barker 2007 $ 15,825 $ - $ - $ 15,825
Margaret S. Bartles 2007 $ 15,500 $ 2,273 $ - $ 17,773
Jay E. Dick 2007 $ 17,300 $ 25,206 $ - $ 42,506
Herbert L. Eppinger 2007 $ 17,517 $ 1,023 $ - $ 18,540
Robert L. Hawvermale 2007 $ 15,325 $ - $ - $ 15,325
Jerald McGraw 2007 $ 17,800 $ 15,348 $ - $ 33,148
Martha H. Quarantillo 2007 $ 14,875 $ 2,273 $ - $ 17,148
Thomas F. Rokisky 2007 $ 11,200 $ - $ - $ 11,200
Charles S. Trump IV 2007 $ 14,850 $ 13,796 $ - $ 28,646
Arlie R. Yost 2007 $ 15,925 $ 15,348 $ - $ 31,273
|
(1) Refer to page 13 Board Compensation for a more detailed discussion of
the director's deferred compensation plan.
BOARD COMPENSATION
Directors receive $200 for each Board meeting of the bank they attend,
$175 for each discount committee meeting, $150 for each audit committee meeting
and $100 for other committee meetings they attend. There is no compensation for
attendance at CNB Board meetings. However, each director receives a fee of
$6,000 per year. The chairman of the Board receives an additional $3,500 per
year and the vice chairman receives an additional $1,000 per year. Other than
the deferred compensation plan described below, there are no other special
arrangements with any directors. In 2007, the Board of Directors of CNB received
$212,150, in the aggregate, for all Board of Directors' meetings attended and
all fees paid.
CNB maintains a deferred compensation 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. The
payments after retirement will be paid from the general funds of CNB. CNB
purchases and is the beneficiary of insurance on the lives of participants, the
proceeds of which are used to help recover the net after-tax cost of the
benefits and insurance premiums paid. Funds from the deferred fees of a
participating director will be used to reimburse CNB for the costs of the
premium for the insurance policies. The cost of the insurance premiums in
12
2007
was $58,434. At December 31, 2007, these policies had a net accumulated cash
value of $1,491,093.
MEMBERSHIP ON CERTAIN BOARD COMMITTEES
The Board of Directors of CNB has established an audit committee,
personnel committee, investment committee and trust committee. The following
table sets forth the membership of such committees as of the date of this proxy
statement.
AUDIT PERSONNEL INVESTMENT TRUST
DIRECTOR COMMITTEE COMMITTEE COMMITTEE COMMITTEE
--------- --------- ---------- ---------
Kenneth W. Apple * *
J. Robert Ayers * ** **
John E. Barker *
Margaret S. Bartles ** *
Jay E. Dick * **
Herbert L. Eppinger *
Robert L. Hawvermale * *
J. Philip Kesecker * * * *
Jerald McGraw * *
Martha H. Quarantillo *
Charles S. Trump IV * * *
Arlie R. Yost *
Number of
of Meetings
Held in 2007 11 5 5 12
|
* Committee Member
** Committee Chair
PERSONNEL COMMITTEE
During 2007, the personnel committee consisted of Jay E. Dick,
Chairperson, Robert L. Hawvermale, Herbert L. Eppinger, Charles S. Trump IV, J.
Robert Ayers and J. Philip Kesecker (ex officio). The Board of Directors has
determined that each current member of the personnel committee is "independent"
within the meaning of the general independence standards of the listing
standards of the Nasdaq Stock Market, Inc., except for Charles Trump, IV. For a
description of the function of the personnel committee, see "Personnel Committee
Report on Executive Compensation." The personnel committee met five times during
the fiscal year ended December 31, 2007. Each member of the personnel committee
attended at least 75% of all meetings held during 2007.
AUDIT COMMITTEE
In 2007, members of the audit committee included Margaret S. Bartles,
Chairperson, Arlie R. Yost, John E. Barker, Jerry McGraw, Jay E. Dick and
Kenneth W. Apple, none of whom is employed by CNB. The Board of Directors has
determined that each of the current members of the audit committee is
"independent" within the meaning of the enhanced independent standards for audit
committee members in the Securities Exchange Act of 1934 and rules thereunder,
as amended, and as incorporated into the listing standards of the Nasdaq Stock
Market, Inc. The Board of Directors has also determined that Kenneth W. Apple,
CPA, member of the audit committee, is an "audit committee financial expert"
within the meaning of the rules promulgated by the Securities and Exchange
13
Commission and pursuant to the Sarbanes-Oxley Act of 2002. The audit committee
held eleven meetings during fiscal year 2007. The audit committee selects the
company's independent registered public accounting firm (subject to shareholder
ratification), considers the scope of the audit, reviews the activities and
recommendations made by CNB's internal auditors, and considers comments made by
the independent registered public accounting firm with respect to the company's
internal control structure. No audit committee member attended fewer than 75% of
the meetings held during the fiscal year ended December 31, 2007.
INVESTMENT COMMITTEE
During 2007, the investment committee consisted of J. Robert Ayers,
Chairperson, Margaret S. Bartles, Robert L. Hawvermale, Charles S. Trump IV and
J. Philip Kesecker (ex officio). The investment committee reviews the investment
portfolio for liquidity, profitability composition, diversification and
permissible investments. The investment committee met five times during the
fiscal year ended December 31, 2007. All of the members except two attended at
least 75% of all meetings held during 2007.
TRUST COMMITTEE
During 2007, the trust committee consisted of J. Robert Ayers,
Chairperson, Kenneth W. Apple, Jerald McGraw, Martha H. Quarantillo, Charles S.
Trump IV and J. Philip Kesecker (ex officio). The trust committee reviews the
general status of activities within the Trust Department including the value of
fiduciary assets, new business development activities, investment performance,
profitability and growth projections. The trust committee also approves all new
fiduciary accounts and reviews all existing fiduciary accounts annually. The
trust committee met twelve times during the fiscal year ended December 31, 2007.
Each member of the trust committee attended at least 75% of all meetings held
during 2007.
POLICIES ON DIRECTOR ATTENDANCE OF SHAREHOLDER MEETINGS
In order to fulfill their primary responsibilities, directors of the
Company are expected to attend the Annual Meeting of Shareholders and all Board
meetings and all meetings on committees on which they serve. All of the
directors of the Company attended the 2007 Annual Meeting of Shareholders.
AUDIT RELATED MATTERS
AUDIT COMMITTEE
The functions of the audit committee include performing all duties the
Board assigns, meeting with the independent registered 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 significant deficiencies
or material weaknesses and compliance with laws and regulations, overseeing the
internal audit function, reviewing regulatory examination reports and
management's responses thereto, and reviewing periodic reports from the loan
review function.
The audit committee is governed by a written charter approved by the
Board of Directors.
CNB's Board of Directors has determined that Kenneth W. Apple, CPA,
meets the requirements of an audit committee financial expert as defined by the
Securities and Exchange
14
Commission. The Board of Directors believes that Mr. Apple has the following
five attributes that qualify him as an audit committee financial expert. This
director, through education and experience, has:
- An understanding of financial statements and generally
accepted accounting principles;
- An ability to assess the general application of generally
accepted accounting principles in connection with accounting
for estimates, accruals and reserves;
- Some experience in preparing, auditing, analyzing and
evaluating financial statements that present a level of
complexity of accounting issues comparable to the breadth of
issues that could reasonably be expected to be presented by
CNB's financial statements;
- An understanding of internal controls; and
- An understanding of audit committee functions.
Mr. Apple acquired these attributes through his Bachelor of Science
degree from Shepherd College in Shepherdstown, West Virginia, and over 25 years
of experience in public accounting, including auditing.
AUDIT COMMITTEE REPORT
The audit committee, in fulfilling its oversight responsibilities
regarding the audit process:
- Reviewed and discussed the fiscal year 2007 audited financial
statements with management;
- Discussed with the independent registered public accounting
firm, Smith Elliott Kearns & Company, LLC, who is responsible
for expressing an opinion on the fairness of the presentation
of those audited financial statements in conformity with
generally accepted accounting principles, the matters required
to be discussed by Public Company Accounting Oversight Board
Auditing Standard AU Section 380, "Communication with Audit
Committees," and Rule 2-07 of Regulation S-X promulgated by
the SEC, as modified or supplemented; and
- Reviewed the written disclosures and the letter from the
independent auditors required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit
Committees, as modified or supplemented), and discussed with
the independent auditors any relationships that may impact
their objectivity and independence.
Management has the primary responsibility for the financial statements
and the reporting process including the systems of internal controls, and the
audit committee relies on the expertise and knowledge of management, the
company's internal auditors and the independent auditors in carrying out its
oversight responsibilities. The specific responsibilities in carrying out the
audit committee's oversight role are set forth in CNB's audit committee charter
(copy attached as Appendix III). This charter is reviewed annually and is
amended as may be required due to changes in industry accounting practices or
15
the promulgation of new rules or guidance documents. In fulfilling its oversight
responsibilities, the committee reviewed the audited financial statements in the
Annual Report with management including a discussion of the quality, not just
the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in the financial
statements.
The committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with accounting principles generally accepted in the United
States, their judgments as to the quality, not just the acceptability, of CNB's
accounting principles and such other matters as are required to be discussed
with the committee under standards of the Public Company Accounting Oversight
Board. In addition, the committee has discussed with the independent auditors
the auditors' independence from management and CNB, including the matters in the
written disclosures required by the Independence Standards Board and considered
the compatibility of non-audit services with the auditors' independence.
Based upon the review and discussions referred to above, the audit
committee recommended to the Board of Directors that the audited financial
statements for the year ended December 31, 2007, be included in CNB's Annual
Report on Form 10-K and filed with the Securities and Exchange Commission.
The foregoing report has been furnished by the current members of the
audit committee.
Margaret S. Bartles, Audit Committee Chairperson
Arlie R. Yost, Audit Committee Member
John E. Barker, Audit Committee Member
Jerry McGraw, Audit Committee Member
Jay E. Dick, Audit Committee Member
Kenneth W. Apple, Audit Committee Member
February 20, 2008
This report shall not be deemed to be incorporated by reference into
any filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, unless CNB specifically incorporates this
report by reference. It will not otherwise be filed under such Acts.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Subject to ratification by CNB's shareholders, the firm of Smith
Elliott Kearns & Company, LLC, Certified Public Accountants, has been selected
as CNB's independent registered public firm for the year 2008. Representatives
of Smith Elliott Kearns & Company, LLC are expected to be present at the Annual
Meeting. The representatives may, if they wish, make a statement and, it is
expected, will be available to respond to appropriate questions.
THE AUDIT COMMITTEE AND THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" SUCH RATIFICATION.
Smith Elliott Kearns & Company, LLC, advised CNB that no member of that
accounting firm has any direct or indirect material interest in CNB or its
subsidiary.
16
The following fees were paid by CNB and the bank to Smith Elliott
Kearns & Company, LLC:
2007 2006
---- ----
Audit Fees (a) $72,670 $68,400
Audit-Related Fees (b) 19,768 -0-
Tax Fees (c) 12,050 10,010
All Other Fees (d) 8,200 5,500
|
(a) Principally professional services rendered for the audit of the
consolidated financial statements of CNB and review of the
financial statements included in Form 10Q.
(b) Principally review of regulatory filings and attendance at audit
committee meetings.
(c) Principally tax compliance services (including federal and state
returns).
(d) Principally consultation related to SEC inquiries and agreed upon
procedures related to the trust department.
The audit committee charter requires that the audit committee
pre-approve all audit and non-audit services to be provided to CNB by the
independent accountants; provided, however, that the audit committee has
specifically authorized its chairperson to pre-approve the provision of any
non-audit service to the CNB. Further, the foregoing pre-approval policies may
be waived, with respect to the provision of any non-audit services consistent
with the exceptions for federal securities law. All of the services described
above for which Smith Elliott Kearns & Company, LLC billed CNB during the fiscal
year ended December 31, 2007, were pre-approved by CNB's audit committee. For
the fiscal year ended December 31, 2007, CNB's audit committee did not waive the
pre-approval requirement of any non-audit services to be provided to CNB by
Smith Elliott Kearns & Company, LLC.
The audit committee of the Board of Directors has determined that the
provision of such services is compatible with maintaining Smith Elliott Kearns &
Company, LLC's independence.
17
COMPENSATION DISCUSSION AND ANALYSIS
GENERAL PHILOSOPHY
We compensate our senior management through base salary and a benefits
package designed to be competitive with comparable employers. We believe that
information regarding pay practices at other financial institutions is useful in
at least two respects. First, we recognize that our compensation practices must
be competitive in the marketplace. Second, this marketplace information is one
of the many factors that the President and the Personnel Committee consider in
assessing the reasonableness of compensation. The President and the Personnel
Committee do not attempt to set salaries for executive officers within the
industry peer ranges. As only a guideline, the individual executive officer's
salaries are compared to the salary survey ranges for the specific job
classifications to ensure competitiveness in the market. The President and the
Personnel Committee rely more on individual performance and contribution to the
bank, reporting structure, internal pay relationship, job responsibilities,
growth potential, leadership abilities and the overall bank's performance for
the previous year.
The committee establishes the compensation for the Chief Executive
Officer of CNB and the bank and reviews all personnel related issues including
salary administration related to other employees and benefit programs. The CEO
establishes compensation levels for executive officers and all other personnel
which is reviewed by the personnel committee. Committee objectives include
administration of a total compensation package that allows CNB to fill key
executive positions with qualified individuals and to utilize effective
compensation programs which are directly related to executive officers
accomplishing corporate goals and objectives, both operational and financial,
aimed at achieving lasting improvement in CNB's long-term financial performance.
We rely upon our judgment about each individual executive officer and not on
rigid formulas or short-term changes in business performance in determining the
amount.
The corporate goals and objectives include:
o Increase return on shareholders' investment
o Increase return on assets
o Increase return on equity
o Increase market share
o Continued strong asset growth
o Maintain a high quality loan portfolio with strong
underwriting standards
o Maintain a high quality investment portfolio
The committee and the CEO utilize human resources' staff, and, as
appropriate, other qualified consultants to review compensation practices as
they compare to industry norms. In 2007, the committee relied only on CNB's
human resources' staff for information concerning industry norms.
18
COMPENSATION PROGRAMS
The committee utilizes an internal salary administration plan for the
basis of its analysis of compensation levels throughout CNB, including the CEO.
The plan includes job descriptions for all positions and considers the overall
responsibility of each position based on characteristics including job
knowledge, problem-solving, accountability, human relations, communications,
supervision of others and marketing. Salary ranges for each position are
developed based on market information available for similar positions at
financial institutions both in the communities where CNB does business and
outside its market area. Salary surveys utilized include those provided by the
West Virginia Bankers Association and Topnet (a group of West Virginia
non-competing independent community banks). These results are used annually by
the human resources staff to update the salary administration plan using current
market data which reflects marketplace changes, inflation, and, if applicable,
corporate performance. The salary surveys performed a comparison study of the
current compensation of the CEO and other executive officers at the bank with
comparable financial institutions (the "Peer Group"). The Peer Group was used to
provide information regarding executive compensation levels against other
financial institutions of similar asset size. The personnel committee reviews
the compensation data compiled in these surveys to ensure that our executive
compensation program is competitive.
The individual components of CNB's compensation program include:
(a) Base Salary.
a. Base salary levels are established for the CEO primarily
based upon evaluation of the historical performance,
degree of responsibility, level of experience and number
of years with CNB. With respect to the base salary granted
to Mr. Rokisky for the year 2007, the personnel committee
took into account the performance during 2006 and
information referred to above. Particular emphasis was
placed on Mr. Rokisky's individual performance, including
his leadership role through a period of continued growth,
and CNB's continued strong financial performance. For the
year 2008, the committee has established certain goals and
objectives for the Chief Executive Officer, Chief
Operations Officer, Chief Financial Officer and Chief
Lending Officer to attain. The achievement of these goals
and objectives may contribute to future salary increases
and possible bonuses. In comparing Mr. Rokisky's salary to
financial institutions in the Peer Group, his salary falls
in the average range. Mr. Rokisky has no input into the
determination of his salary.
b. Base salary levels are established for the Executive Vice
President/Chief Operations Officer, the Senior Vice
President/Chief Financial Officer and the Senior Vice
President/Chief Lending Officer primarily based upon
evaluation of their historical performance, degree of
responsibility, industry average percentage increase and
the bank's performance for the previous year. Mr. Rokisky
determines the salaries for these individuals. As a
guideline, Mr. Rokisky compares these individual salaries
to the salary survey ranges for these job classifications
from the West Virginia Bankers Association and Topnet.
19
(b) Annual Incentives/Bonuses.
Beginning in 2007, bonuses were paid to the
President/Chief Executive Officer, Executive Vice
President/Chief Operations Officer, Senior Vice
President/Chief Financial Officer and the Senior Vice
President/Chief Lending Officer based on the bank's
historical performance. The compensation committee is in
the process of developing a structured bonus program based
on certain tangible criteria which will be put into place
beginning with the fiscal year 2008. Contributions to the
401(k) plan on behalf of all employees who defer into the
plan are based on bank performance as a percentage of
assets.
The personnel committee believes that the total compensation awarded to
the Chief Executive Officer and other executive officers of CNB is consistent
with the committee's objectives. The amounts paid to individual executives are
consistent with competition within the market and with banks of similar size as
reflected by individual performance of each executive, and are rationally linked
with the fulfillment of corporate objectives and corporate financial
performance.
EXECUTIVE COMPENSATION -- SUMMARY COMPENSATION TABLE
The following table sets forth for each of the Named Executive
Officers: (a) the dollar value of base salary and bonus earned during the year
ended December 31, 2007; (b) the change in pension value and nonqualified
deferred compensation earnings during the year, (c) all other compensation for
the year; and, finally, (d) the dollar value of total compensation for the year.
20
SUMMARY COMPENSATION TABLE
CHANGE IN
PENSION
VALUE AND
NONQUALIFIED
NAME AND DEFERRED
PRINCIPAL COMPENSATION OTHER ANNUAL TOTAL
POSITION YEAR SALARY BONUS EARNINGS COMPENSATION COMPENSATION
-------- ---- ------ ----- ------------ ------------ ------------
Thomas F. Rokisky, 2007 $ 147,411 $25,557 (3) $ 56,266 $ 21,197 (1)(2) $ 238,931
President/CEO 2006 $ 140,571 $ - $ 44,507 $ 23,906 (1)(2) $ 208,984
2005 $ 126,592 $ - $ 54,930 $ 22,845 (1)(2) $ 149,437
Patricia C. Muldoon, Sr. 2007 $ 93,273 $15,057 (3) $ 7,093 $ 1,840 (1)(2) $ 110,263
VP/COO 2006 $ 85,075 $ - $ 7,563 $ 3,158 (1)(2) $ 95,796
2005 $ 83,399 $ - $ 9,146 $ 3,097 (1)(2) $ 86,496
Rebecca S. Stotler, 2007 $ 71,770 $12,269 (3) $ 5,191 $ 1,421 (1)(2) $ 85,151
VP/CFO 2006 $ 67,695 $ - $ 9,184 $ 2,510 (1)(2) $ 79,389
2005 $ 62,683 $ - $ 15,740 $ 2,326 (1)(2) $ 65,009
|
(1) CNB's group life and health insurance program, which is paid for by CNB, is
made available to all full-time employees. Effective January 1, 2005, the bank
changed its health insurance program to a high deductible plan and concurrently
established health reimbursement accounts for each employee on the plan. The
bank funded $750 for each participant in 2007. In accordance with IRS Code
Section 79, the cost of group life insurance coverage for an individual in
excess of $50,000 is added to the individual's earnings and is included in
salary. Also included in this figure are Board fees earned and the corporation's
contributions to the individual's 401(k) retirement savings program to which the
individual has a vested interest.
(2) CNB's contributions to the pension plan, a defined benefit plan, are not and
cannot be calculated separately for specific participants. Contributions for all
participants for the plan year of $387,767, $413,170 and $285,150 were made by
CNB in 2007, 2006 and 2005, respectively.
(3) Bonuses include amounts paid and accrued for in 2007.
CNB does not maintain any form of stock option, stock appreciation
rights, or other long-term compensation plans.
21
PENSION PLAN
CNB maintains a non-contributory defined benefit pension plan with
employer contributions being based on a pension formula, which targets a certain
monthly benefit for each plan participant at retirement. This pension plan is a
qualified retirement plan and is available to all full-time employees, including
officers, who meet the eligibility requirements. Directors do not participate in
this plan.
The pension plan is integrated with social security and is applicable
to all participants. Pensions for all participants are based on an average of
the highest five-years compensation. Annual compensation for the pension plan is
defined as the total cash remuneration reportable on the employee's IRS form
W-2, plus pre-tax contributions to employee benefit plans. The formula for
determining the annual pension benefit is 2.0 percent of the 5-year average
compensation multiplied by years of service up to a 25-year maximum effective
for the plan year beginning November 1, 2004.
The pension benefits are payable to participants on a monthly basis in
the form of a joint and 50 percent survivor annuity for all married participants
who do not elect otherwise, or in the form of a single life annuity for all
other participants or survivors. Joint and 100 percent survivorship, single life
annuity or 120 payments guaranteed are other optional forms of distribution. 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 2007 plan
year, the employer contribution for all plan participants was $387,767.
PENSION BENEFITS TABLE
The following table discloses the actuarial present value of each Named
Executive Officer's accumulated benefit under defined benefit plans, the number
of years of credited service under each plan, and the amount of pension benefits
paid to each Named Executive Officer during the year.
PENSION BENEFITS TABLE
NUMBER OF PAYMENTS
YEARS PRESENT VALUE DURING
CREDITED OF ACCUMULATED LAST
NAME PLAN NAME SERVICE BENEFIT FISCAL YEAR
--------------------------------- -------------------- --------- -------------- -----------
Thomas F. Rokisky, President/CEO WVBA Retirement Plan 17 $ 312,764 $ -
Patricia C. Muldoon, Sr. VP/COO WVBA Retirement Plan 6 $ 34,636 $ -
Rebecca S. Stotler, VP/CFO WVBA Retirement Plan 25 $ 62,820 $ -
|
22
NONQUALIFIED SUPPLEMENTAL RETIREMENT PLAN
Effective January 2, 2004, CNB entered into a nonqualified supplemental
retirement benefit agreement with the President which when fully vested would
pay the President or his beneficiary an amount of $30,000 per year for 10 years
beginning June 11, 2011, if he retires on or after May 29, 2011. Termination of
employment prior to that date other than by reasons of death or disability will
result in a reduced benefit. The expense charged to operations related to the
plan during 2007 amounted to $39,426. The benefits to be provided by this plan
are not being funded by current resources.
401(k) PROFIT SHARING PLAN
CNB maintains a 401(k) profit sharing plan that generally covers all
employees who have completed one year of service. Contributions to the plan are
based on bank performance as a percentage of assets and are computed as a
percentage of the participant's total deferrals into the plan. The payment of
benefits to participants is made at death, disability, termination or
retirement. Contributions to the plan for all employees charged to operations
during 2007 amounted to $46,000.
PERSONNEL COMMITTEE REPORT
The Personnel Committee held five meetings during fiscal year 2007. The
Personnel Committee has reviewed and discussed the Compensation Discussion and
Analysis required by Item 402(b) of Regulation S-K with management. Based upon
such review, the related discussions and such other matters deemed relevant and
appropriate by the Personnel Committee, the Personnel Committee has recommended
to the Board of Directors that the Compensation Discussion and Analysis be
included in this proxy statement to be delivered to shareholders.
The foregoing report has been furnished by the current members of the
personnel committee.
Jay E. Dick, Personnel Committee Chairperson
Robert L. Hawvermale, Personnel Committee Member
Herbert L. Eppinger, Personnel Committee Member
Charles S. Trump IV, Personnel Committee Member
J. Robert Ayers, Personnel Committee Member
J. Philip Kesecker, Ex-Officio member
December 26, 2007
This report shall not be deemed to be incorporated by reference into
any filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, unless CNB specifically incorporates this
report by reference. It will not otherwise be filed under such Acts.
23
OTHER INFORMATION
PERSONNEL COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Loans were made to various directors and officers of CNB. These loans
were made in the ordinary course of business, made on substantially the same
terms, including interest rate and collateral requirements, as those prevailing
at the time for comparable transactions with unrelated customers and did not
involve more than a normal risk of collectibility or present other unfavorable
features.
CERTAIN TRANSACTIONS WITH DIRECTORS AND OFFICERS AND THEIR ASSOCIATES
CNB has had and intends to continue to have banking and financial
transactions in the ordinary course of business with directors and executive
officers of CNB and their associates. All executive officer and director and
their associates loans are approved prior to disbursement by the discount
committee and/or the Board of Directors. These approvals are evidenced by the
discount committee and/or Board minutes. The bank's loan policy and Regulation
"O" policy governs these transactions. Total loans outstanding from CNB at
December 31, 2007, to CNB'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 $1,999,561, or approximately 8.8% of total equity capital and
1.0% of total loans. Management believes that all of these transactions were
made on substantially the same terms (including interest rates, collateral and
repayment terms on loans) as comparable transactions with non-affiliated
persons. These loans do not involve more than the normal risk of collectibility
or present other unfavorable features.
Trump and Trump, in which director Charles S. Trump, IV is a partner,
performed legal services for CNB and the bank. Fees paid by CNB and the bank to
that law firm were $44,092 during 2007.
CNB, Charles S. Trump, IV and George I. McVey are members in a Limited
Liability Company, Morgan County Title Insurance Agency, LLC, which was formed
in February 2001. Morgan County Title Insurance Agency, LLC, paid Trump and
Trump management fees of $26,776. Charles S. Trump, IV and George I. McVey are
partners in Trump and Trump.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 (a) of the Securities Exchange Act of 1934 requires CNB's
directors and executive officers, and persons who own more than 10% of the
registered class of CNB's equity securities, to make stock ownership and
transaction filings with the Securities and Exchange Commission and to provide
copies to CNB. Based solely on a review of the reports furnished to CNB and
written statements that no other reports were required, all Section 16(a) filing
requirements applicable to its officers and directors were met.
24
The following table sets forth information as of February 21, 2008, relating to
the beneficial ownership of the common stock by (a) each person or group known
by CNB to own beneficially more than 5% of the outstanding common stock; (b)
each of CNB's directors; and (c) all directors and executive officers of CNB as
a group. Unless otherwise noted below, the persons named in the table have sole
investment power with respect to each of the shares reported as beneficially
owned by such person.
-------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF CLASS (1)
-------------------------------------------------------------------------------------------------------------
Kenneth W. Apple (2) (14) 1,650 *
J. Robert Ayers (3) (14) 1,415 *
John E. Barker (4) (14) 18,394 4.04
Margaret S. Bartles (5) (14) 200 *
Jay E. Dick (6) (14) 15,691 3.45
Herbert L. Eppinger (7) (14) 2,870 *
Robert L. Hawvermale (8) (14) 3,730 *
J. Philip Kesecker (9) (14) 13,282 2.92
Jerald McGraw (10) (14) 1,514 *
Martha H. Quarantillo (14) 400 *
Thomas F. Rokisky (11) (14) 1,544 *
Charles S. Trump IV (12) (14) 11,410 2.51
Arlie R. Yost (13) (14) 2,210 *
All directors and executive officers as a group (14 persons) (14) 74,504 16.38
D. Louise Stotler and Deborah Dhayer
RR 6 Box 12460, Berkeley Springs, WV, 25411 47,488 10.44
Mary Lou Trump
RR 7 Box 12840, Berkeley Springs, WV, 25411 53,470 11.75
-------------------------------------------------------------------------------------------------------------
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* Indicates holdings of less than 1%.
(1) Includes shares of common stock held by the named individual as of
February 21, 2008.
(2) Includes 1,000 shares held in an Individual Retirement Account.
(3) Includes 1,315 shares held jointly with spouse.
(4) Includes 14,300 shares held jointly with spouse and 3,794 shares held
jointly with children.
(5) Includes 100 shares held jointly with spouse.
(6) Includes 15,591 shares held jointly with spouse.
(7) Includes 2,770 shares held jointly with spouse.
(8) Includes 1,200 shares held by spouse and 100 shares held jointly with
spouse.
(9) Includes 3,098 shares held by spouse and 1,860 shares held jointly with
spouse.
(10) Includes 110 shares held by spouse and 964 shares held jointly with
spouse.
(11) Includes 1,425 shares held in an Individual Retirement Account.
(12) Includes 200 shares held in an Individual Retirement Account, 842
shares held by spouse and 300 shares held as custodian for children.
(13) Includes 1,770 shares held jointly with spouse.
(14) Unless otherwise indicated shares are not pledged as security.
25
ANNUAL REPORT ON FORM 10-K
You may obtain a copy of the Annual Report on Form 10-K, as filed with
the Securities and Exchange Commission, by contacting Rebecca S. Stotler, Sr.
Vice President/CFO, CNB Financial Services, Inc., 101 South Washington Street,
Berkeley Springs, West Virginia 25411, (304) 258-1520.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Any shareholder desiring to contact the Board of Directors or any
individual serving on the Board may do so by written communication mailed to:
Board of Directors (Attention: J. Philip Kesecker, care of the Corporate
Secretary, CNB Financial Services, Inc., 101 South Washington Street, P.O. Box
130, Berkeley Springs, West Virginia 25411). Any proper communication so
received will be processed by the Corporate Secretary as agent for the Board.
Unless, in the judgment of the Corporate Secretary, the matter is not intended
or appropriate for the Board (and subject to any applicable regulatory
requirements), the Corporate Secretary will prepare a summary of the
communication for prompt delivery to each member of the Board or, as
appropriate, to the member(s) of the Board named in the communication. Any
director may request the Corporate Secretary to produce, for his or her review,
the original of the shareholder communication.
SHAREHOLDER PROPOSALS FOR 2009
Any shareholder who wishes to have a proposal placed before the 2009
Annual Meeting of Shareholders must submit the proposal to the secretary of CNB,
at its executive offices, no later than October 31, 2008, to have it considered
for inclusion in the proxy statement of that Annual Meeting.
26
APPENDIX I
DEFINITION OF "INDEPENDENT DIRECTOR"
(NASDAQ RULE 4200 A(15))
"INDEPENDENT DIRECTOR" means a person other than an executive officer
or employee of the company or any other individual having a relationship which,
in the opinion of the issuer's board of directors, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director. The following persons shall not be considered independent:
(A) a director who is, or at any time during the past three years was,
employed by the company or by any parent or subsidiary of the company;
(B) a director who accepted or who has a Family Member who accepted any
compensation from the company in excess of $60,000 during any period of twelve
consecutive months within the three years preceding the determination of
independence, other than the following:
(i) compensation for board or board committee service;
(ii) compensation paid to a Family Member who is an employee (other
than an executive officer) of the company; or
(iii) benefits under a tax-qualified retirement plan, or
non-discretionary compensation,
Provided, however, that in addition to the requirements contained in
this paragraph (B), audit committee members are also subject to additional, more
stringent requirements under NASDAQ Rule 4350(d).
(C) a director who is a Family Member of an individual who is, or at
any time during the past three years was, employed by the company as an
executive officer;
(D) a director who is, or has a Family Member who is, a partner in, or
a controlling shareholder or an executive officer of, any organization to which
the company made, or from which the company received, payments for property or
services in the current or any of the past three fiscal years that exceed 5% of
the recipient's consolidated gross revenues for that year, or $200,000,
whichever is more, other than the following:
(i) payments arising solely from investments in the company's
securities; or
(ii) payments under non-discretionary charitable contribution matching
programs.
(E) a director of the issuer who is, or has a Family Member who is,
employed as an executive officer of another entity where at any time during the
past three years any of the executive officers of the issuer serve on the
compensation committee of such other entity; or
(F) a director who is, or has a Family Member who is, a current partner
of the company's outside auditor, or was a partner or employee of the company's
outside auditor who worked on the company's audit at any time during any of the
past three years.
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APPENDIX II
X. BOARD OF DIRECTORS
(A) NUMBER, ELECTION AND TERMS. The number of the Directors of the
Corporation shall be fixed from time to time by or pursuant to
the Bylaws of the Corporation. The Directors shall be
classified, with respect to the time for which they severally
hold office, into three classes, as nearly equal in number as
possible, as shall be provided in the manner specified in the
Bylaws of the Corporation, one class to be originally elected
for a term expiring at the Annual Meeting of Stockholders to
be held in 2009, another class to be originally elected for a
term expiring at the Annual Meeting of Stockholders to be held
in 2010, and another class to be originally elected for a term
expiring at the Annual Meeting of Stockholders to be held in
2011, with each class to hold office until its successor is
elected and qualified. At each Annual Meeting of the
Stockholders of the Corporation, the successors of the class
of Directors whose term expires at that meeting shall be
elected to hold office for a term expiring at the Annual
Meeting of Stockholders held in the third year following the
year of their election.
(B) 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 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 Directors 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 the shareholders and
until such Director's successor shall have been elected and
qualified. No decrease in number of Directors constituting the
Board of Directors shall shorten the term of any incumbent
Director.
(C) REMOVAL. Any Director may be removed from office, with or
without cause, and only by the affirmative vote of the holders
of 75% of the combined voting power of the then outstanding
shares of stock entitled to vote generally in the election of
Directors, voting together as a single class.
(D) AMENDMENT, REPEAL, ETC. Notwithstanding anything contained in
these Articles of Incorporation to the contrary, the
affirmative vote of the holders of at least 75% of the voting
power of all shares of the Corporation entitled to vote
generally to the election of Directors, voting together as a
single class, shall be required to alter, amend, or adopt any
provision inconsistent with or repeal this Article X.
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A-2
III. BYLAW AMENDMENTS
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 five nor more than 25. The Directors, other than those
who may be elected by the holders of any class or series of
stock having a preference over the Common Stock as to dividend
or upon liquidation, shall be classified, with respect to the
time for which they severally hold office, into three classes,
as nearly equal in number as possible, as determined by the
Board of Directors of the Corporation, one class to be
originally elected for a term expiring at the Annual Meeting
of Stockholders to be held in 2009, another class to be
originally elected for a term expiring at the Annual Meeting
of Shareholders to be held in 2010, and another class to be
originally elected for a term expiring at the Annual Meeting
of Shareholders to be held in 2011, with each class to hold
office until its successor is elected and qualified. At each
Annual Meeting of the shareholders of the Corporation, the
successors of the class of Directors whose term expires at
that meeting shall be elected to hold office for a term
expiring at the Annual Meeting of Shareholders held in the
third year following the year of their election. Directors
need not be residents of the State of West Virginia but shall
be shareholders of the Corporation.
17. REMOVAL. Any Director may be removed from office, with or
without cause and only by the affirmative vote of the holders
of 75% of the combined voting power of the then outstanding
shares of stock entitled to vote generally in the election of
Directors, voting together as a single class.
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; provided, however, that, without the
affirmative vote of two-thirds of all members of the Board,
the Board may not amend the Bylaws to (i) change the principal
office of the Corporation, (ii) change the number of
Directors, or (iii) make a substantial change in the duties of
the Chairman of the Board and the President.
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APPENDIX III
AUDIT COMMITTEE CHARTER
MISSION STATEMENT
The Audit Committee is appointed by the Chairman of the Board and approved by
the Board of Directors to assist the Board in fulfilling its oversight
responsibilities. The Audit Committee's primary duties and responsibilities are
to:
- Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, risk
management and regulatory compliance.
- Monitor the independence, qualifications, engagement, compensation and
performance of the Company's independent auditors and monitor their
conduct of the annual audit of the Company's financial statements and
their engagement to provide any other services.
- Provide an avenue of communication among the independent auditors,
management, and the Board of Directors.
- Monitor the Company's legal and regulatory compliance.
- Prepare the Audit Committee report required by SEC rules to be included in
the Company's annual proxy statement.
POWERS
The Audit Committee shall:
- Pre-approve all audit services and permissible non-audit services to be
rendered by the independent auditors in accordance with Section 10A(i) of
the Securities Exchange Act of 1934 (the "Act");
- Have sole authority to appoint and determine the funding for the
independent auditors in accordance with Section 10A(m)(2) of the Act;
- Have the responsibility to establish procedures for the receipt, retention
and treatment of complaints as set forth in Section 10A(m)(4) of the Act
and the confidential anonymous submission by employees of concerns
regarding questionable accounting, financial reporting or auditing
matters;
- Have the authority to engage and determine funding for independent counsel
and other advisors as set forth in Section 10A(m)(5) of the Act; and
- Have the authority to retain outside counsel, other auditors and advisors
to assist it in carrying out its activities.
The Audit Committee may establish written policies and procedures for the
pre-approval of audit and non-audit services to be performed by the independent
auditors provided that these policies and procedures are detailed as to the
particular service and do not result in the delegation of the Audit Committee's
responsibilities to management. The Audit Committee may, at its discretion,
delegate to one or more of its members the authority to pre-approve audit or
non-audit services to be performed by the independent auditors provided that any
such approvals are presented to the full Committee at its next scheduled
meeting.
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The Company shall provide adequate resources to support the Committee's
activities, including compensation of the Company's independent auditor and any
counsel, other auditors or advisors to assist it in carrying out its activities.
COMMITTEE COMPOSITION
The membership of the Audit Committee shall be composed of at least three
directors, each of whom (i) is independent as defined under NASD Rule 4200
(a)(15); (ii) meets the criteria for independence set forth in Rule 10A-3(b)(1)
under the Act; (iii) has not participated in the preparation of the financial
statements of the Company or any current subsidiary of the Company during the
past three years; and (iv) is able to read and understand fundamental financial
statements. In addition, at least one member of the Committee shall have
accounting or related financial management expertise.
At least one member of the Audit Committee shall possess the qualifications to
serve as an "audit committee financial expert" as defined under SEC rules
pursuant to the Act. The designation of a person as an "audit committee
financial expert" does not impose any duties, obligations or liability on the
person that are greater than those imposed on such a person as a member of the
Audit Committee in the absence of such designation.
MEETINGS
The Committee will meet at least four times a year, with authority to convene
additional meetings, as circumstances require. The Committee will invite members
of management, independent auditors or others to attend meetings and provide
pertinent information, as necessary. It will meet separately, periodically, with
management, and with independent auditors. It will also meet periodically in
executive session. Meeting agendas will be prepared and provided in advance to
members, along with appropriate briefing materials. Minutes will be prepared.
KEY ROLES AND RESPONSIBILITIES
The Committee's role is one of oversight. The Company's management is
responsible for preparing the Company's financial statements and the independent
auditors are responsible for auditing those financial statements. In carrying
out its oversight responsibilities, the Committee is not providing any expert or
special assurance as to the Company's financial statements or any professional
certification as to the independent auditor's work. The following
responsibilities are set forth as a guide for fulfilling the Committee's
purposes, with the understanding that the Committee's activities may diverge as
appropriate given the circumstances. The Committee is authorized to carry out
these activities and other actions reasonably related to the Committee's
purposes or assigned by the Board from time to time. The Committee will carry
out the following responsibilities:
FINANCIAL STATEMENTS
1. Review significant accounting and reporting issues, with management and
the independent auditors, and understand their impact on the financial
statements. These issues include:
- Complex or unusual transactions and highly judgmental areas.
A-5
- Major issues regarding accounting principles and financial statement
presentations, including any significant changes in the Company's
selection or application of accounting principles.
- The effect of regulatory and accounting initiatives, as well as
off-balance sheet structures, on the financial statements of the
Company.
2. Review with management and the independent auditors the results of the
year-end audit, including any difficulties encountered. This review will
include any restrictions on the scope of the independent auditor's
activities or on access to requested information, and any significant
disagreements with management.
3. Discuss the annual audited financial statements and quarterly financial
statements with management and the independent auditors, including the
Company's disclosures under "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
4. Review disclosures made by the CEO and CFO during the Forms 10-K and 10-Q
certification process about significant deficiencies and material
weaknesses in the design or operation of internal control over financial
reporting or any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company's internal
controls.
INTERNAL CONTROL
1. Consider the effectiveness of the Company's risk management program and
internal control system, including information technology, security and
control.
2. Understand the scope of the independent auditors' review of internal
control over financial reporting, and obtain reports on significant
findings and recommendations, together with management's responses.
INTERNAL AUDIT
1. Review with management and internal audit, the Committee charter, audit
schedule and approach, recommendation, and follow-up matrix.
2. Ensure there are no unjustified restrictions or limitations, and review
and concur in the appointment, replacement or dismissal of the chief audit
executive.
3. Review the effectiveness of the internal audit function, including the
audit risk assessment and compliance with internal audit policy and
procedures manual.
4. On a periodic basis, meet separately with internal audit to discuss any
matters that the Committee of internal audit believes should be discussed
privately.
5. Review the performance of the external auditors performing the internal
audit function, and exercise final approval on the appointment or
discharge of the auditors.
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EXTERNAL AUDIT
1. Review the external auditors' audit scope and approach, including
coordination of audit effort with internal audit.
2. Review the performance of the external auditors, and exercise final
approval on the appointment or discharge of the auditors. In performing
this review, the Committee will:
- At least annually, obtain and review a report by the external
auditor describing the firm's internal quality-control procedures;
any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or by any
inquiry or investigation by governmental or professional
authorities, within the preceding five years, respecting one or more
independent audits carried out by the firm, and any steps taken to
deal with any such issues; and (to assess the auditor's
independence) all relationships between the independent auditor and
the Company.
- Take into account the opinions of management and internal audit.
- Review and evaluate the lead partner of the external auditor.
3. Present its conclusions with respect to the external auditor to the full
Board.
4. On a regular basis, meet separately with the external auditors to discuss
any matters that the Committee or auditors believe should be discussed
privately.
5. Prior to the filing of audited financial statements with the Securities
and Exchange Commission, obtain a report from the independent accountants
of: (1) all critical accounting policies and practices to be used; (2) all
alternative treatments of financial information within GAAP that have been
discussed with management, ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by the independent
accountant, and; (3) other material written communications between the
independent accountant and management, such as any management letter or
schedule of unadjusted differences.
COMPLIANCE
1. Review the effectiveness of the system for monitoring compliance with laws
and regulations and the results of management's investigation and
follow-up (including disciplinary action) of any instances of
noncompliance.
2. Establish procedures for: (1) The receipt, retention, and treatment of
complaints received by the listed issuer regarding accounting, internal
accounting controls or auditing matters; and (2) the confidential,
anonymous submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
3. Review with management and the independent auditor the basis for the
reports issued pursuant to Part 363 of the FDIC regulations.
4. Review the findings of any examinations by regulatory agencies.
A-7
5. Obtain regular updates from management and Company legal counsel regarding
compliance matters.
REPORTING RESPONSIBILITIES
1. Report as needed to the Board of Directors about issues that arise with
respect to the quality or integrity of the Company's financial statements,
the Company's compliance with legal or regulatory requirements, and the
performance and independence of the Company's independent auditors.
2. Provide an open avenue of communication between the independent auditors,
and the Board of Directors.
3. Report annually to the shareholders in the proxy statement, describing the
Committee's composition, responsibilities and how they were discharged,
and any other information required by rule, including approval of
non-audit services.
OTHER RESPONSIBILITIES
1. Discuss with management the Company's major policies with respect to risk
assessment and risk management.
2. Perform other activities related to this charter as requested by the Board
of Directors or as required by law.
3. Institute and oversee special investigations as needed.
4. Review and assess the adequacy of the Committee charter annually,
requesting Board approval for proposed changes, and ensure appropriate
disclosure as may be required by law or regulation.
5. Confirm annually that all responsibilities outlined in this charter have
been carried out.
Revised and Approved by Audit Committee: December 20, 2007
Reviewed and Approved by Board of Directors: December 26, 2007
A-8
CNB FINANCIAL SERVICES, INC.
101 SOUTH WASHINGTON STREET
BERKELEY SPRINGS, WEST VIRGINIA 25411
(304) 258-1520
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
APRIL 2, 2008
Andrew E. Orebaugh and Thomas W. Brown, or either one of them, with full power
to act alone and with full power of substitution, are hereby authorized to
represent and to vote all the Common Stock of CNB Financial Services, Inc. (the
"Corporation"), standing in my (our) name on its books at the close of business
on March 3, 2008, at the Annual Meeting of Shareholders of the Corporation,
called for and to be held at The American Legion, Berkeley Springs, West
Virginia on April 2, 2008, at 12:30 pm, and at any and all adjournments of said
meeting, with all the powers the undersigned would possess if personally
present, as follows:
1. ELECTION OF DIRECTORS. If the Amendment to the Articles of Incorporation
providing for a classified Board of Directors is approved, then for the
election of the thirteen persons listed below for the classes indicated;
however, if that amendment is not approved, then for the election of the
thirteen persons listed below:
CLASS I - ONE YEAR TERM CLASS II - TWO YEAR TERM CLASS III - THREE YEAR TERM
----------------------- ------------------------ ---------------------------
Kenneth W. Apple Jay E. Dick J. Robert Ayers
Margaret S .Bartles Jerald McGraw John E. Barker
Martha H. Quarantillo Thomas F. Rokisky Herbert L. Eppinger
Charles S. Trump, IV Arlie R. Yost Robert L. Hawvermale
J. Philip Kesecker
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[ ] FOR ALL OF THE ABOVE-LISTED NOMINEES
[ ] DO NOT VOTE FOR ANY OF THE ABOVE-LISTED NOMINEES
[ ] FOR ALL OF THE NOMINEES LISTED ABOVE EXCEPT THOSE FOR WHOM I CHOOSE TO
WITHHOLD TO VOTE FOR AS LISTED BELOW:
2. To approve amendments to the Articles of Incorporation of the Corporation,
all as more fully described in the accompanying Proxy Statement, to provide
for:
a) The division of classification of the Board of Directors of the
Corporation into three classes;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
b) Procedures for filling newly created directorships and vacancies;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
c) A requirement for an affirmative vote of the holders of at least 75%
of the voting power of the Corporation to remove Directors; and
[ ] FOR [ ] AGAINST [ ] ABSTAIN
d) An increase to 75% of the voting power of the Corporation as the vote
requirement necessary to adopt amendments to the Articles of
Incorporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify amendments to the Bylaws of the Corporation, all as more fully
described in the accompanying Proxy Statement, to provide for:
a) The division of classification of the Board of Directors of the
Corporation into three classes;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
b) The requirement for an affirmative vote of holders of at least 75% of
the voting power of the Corporation to remove directors;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
c) The requirement that the affirmative vote of two-thirds of all of the
members of the Board to amend the Bylaws to (i) change the principal
office of the Corporation, (ii) change the number of directors, or
(iii) make a substantial change in the duties of the Chairman of the
Board and the President.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To ratify the selection by the Board of Directors of Smith Elliott Kearns &
Company, LLC, as the Corporation's independent auditors for 2008.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. To transact such other business as may properly come before the meeting or
any adjournment thereof.
Unless otherwise specified on this Proxy, the shares represented by this Proxy
will be voted "FOR" the propositions listed above and described more fully in
the Proxy Statement of the Corporation, distributed in connection with this
Annual Meeting. If any shares are voted cumulatively for the election of
directors, the proxies, unless otherwise directed, shall have full
discretion and authority to cumulate their votes and vote for less than all such
nominees. If any other business is presented at said meeting, this Proxy shall
be voted in accordance with recommendations of the Board of Directors.
The Board of Directors recommends a vote "FOR" the listed propositions.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED
PRIOR TO ITS EXERCISE.
Dated: ____________, 2008
(Signature of Shareholder)
(Signature of Shareholder)
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.
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