b"NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a description of the more significant accounting policies of CNB Financial Services, Inc. and its subsidiary.Nature of Operations: CNB Financial Services, Inc. (CNB or the Company) is a financial services holding company incorporated under the laws of West Virginia on March 20, 2000.It became a bank holding company when it acquired all of the common stock of Citizens National Bank of Berkeley Springs on August 31, 2000.Citizens National Bank operated as a national banking association until October 16, 2006 at which time it became a West Virginia state chartered bank.Concurrent with the charter change, the Bank began operating under the legal name of CNB Bank, Inc. CNB Bank, Inc. (the Bank), a wholly owned subsidiary of CNB, provides a variety of banking services to individuals and businesses through its two locations in Morgan County, West Virginia, three locations in Berkeley County, West Virginia and three locations in Washington County, Maryland.Its primary deposit products are demand deposits and certificates of deposit, and its primary lending products are commercial business, real estate mortgage and installment loans.The accounting policies of the Company and its subsidiary conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry.Principles of Consolidation: The consolidated financial statements of CNB Financial Services, Inc. include the accounts of the Company and its wholly owned subsidiary, CNB Bank, Inc.All significant intercompany transactions and balances have been eliminated.Use of Estimates: The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates.CNBs most significant estimates are the allowance for loan losses, fair values of investments, the fair value of foreclosed property and the collateral for impaired loans, depreciable lives of fixed assets and actuarial and other assumptions used in determining pension expense and liability, liability for postretirement benefits, liability for deferred compensation, liability for current taxes, and deferred tax valuation allowances.Securities and Mortgage-Backed Securities:Investments in debt securities are classified and accounted for as follows:a. Debt securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost.b. Debt securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings.c. Debt securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses generally excluded from earnings and reported in a separate component of shareholders' equity as accumulated other comprehensive income.CNB classifies all securities as available for sale, except for stock in the Federal Home Loan Bank, which are restricted investments. Interest and dividends on securities, including amortization of premiums and accretion of discounts, are included in interest income.Declines in the fair value of available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses except for the non-credit component of other than 8"