FORM 10-K-ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT of 1934.
For the fiscal year ended December 31, 1996
or
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 333-2524
FNB Corporation
(Exact name of registrant as specified in its charter)
Virginia 54-1791618
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
105 Arbor Drive, Christiansburg, Virginia 24073
(Address of principal executive offices) (Zip Code)
(540) 382-4951
(Registrant's telephone number, including area code)
50 North Franklin Street, Christiansburg, Virginia 24073
(Former name, former address and former fiscal year, if changed since
last report.)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $5 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 10, 1997, was $59,642,290.
1,661,900 shares outstanding as of March 10,1997
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Corporation's Annual Report to Stockholders for the year ended
December 31, 1996, are incorporated into Parts I and II hereof. Portions of
the Corporation's Notice of Annual Meeting and Proxy Statement for the Annual
Meeting of May 13, 1997, are incorporated into Part III hereof.
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Business Page
General 3
Competition 4
Loan Commitments 4
Deposit Concentrations 5
Employees 5
Securities Act Guide 3. Statistical
Disclosure by Bank Holding Companies 5
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of
Security Holders 15
PART II
Item 5. Market for the Bank's Common Stock and
Related Security Holder Matters 16
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 17
PART III
Item 10. Directors and Executive Officers of the Bank 17
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners
and Management 18
Item 13. Certain Relationships and Related Transactions 18
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 19
Signatures 20
Index to Consolidated Financial Statements 22
Index to Exhibits 23
<PAGE>
PART I
Item 1. Business
General. Subsequent to December 31, 1995, The Board of Directors of First
National Bank (the "Bank") approved a reorganization whereby a bank holding
company (FNB Corporation) was incorporated under the laws of the Commonwealth
of Virginia. On June 11, 1996, the shareholders of the Bank approved a plan
for the holding company to exchange one share of its stock for each share of
stock of the Bank. A registration statement was filed with the Securities and
Exchange Commission (SEC) to register the stock of the holding company, and
such registration statement was subsequently declared effective by the SEC. On
July 11, 1996, the Office of the Comptroller of the Currency (OCC) approved the
plan, and the exchange was subsequently consummated. As a result, the Bank
became a wholly owned subsidiary of the holding company during the third
quarter of 1996, and the holding company began filing periodic reports under
the Securities Exchange Act of 1934. Prior to the consummation of the
exchange, the Bank filed periodic reports with the OCC.
The financial statements included herein reflect the balances and activity of
the Bank and its subsidiaries for periods ending prior to the consummation of
the reorganization and of the holding company and its subsidiaries
(collectively, the "Corporation")for periods ending subsequent to the
reorganization. The exchange of stock was accounted for using the pooling of
interests method. That is, the bases of the assets and liabilities of the Bank
prior to the reorganization were carried forward without adjustment. Because
of this, and because the holding company's revenues, expenses and changes in
financial position subsequent to the reorganization have been minimal, the
consolidated financial statements for periods subsequent to the reorganization
are comparable to those for periods prior to the reorganization.
First National Bank, which was organized in 1905, does a general banking
business, serving the commercial, agricultural, and personal banking needs of
its trade territory, commonly referred to as the New River Valley, which
consists of Montgomery County, Virginia and portions of adjacent counties. The
Bank engages in and offers a full range of banking services, including trust
services; demand, savings, and time deposits used to fund the loan demand in
our trade area; commercial, farm, consumer installment, mortgage, credit card,
and SBA guaranteed loans.
Under national banking law, nontraditional activities of a bank must be
operated through a corporate subsidiary of the bank. During 1992, FNB formed
a wholly-owned subsidiary in order to expand its business operations. FNB
Financial Services, Inc. is a member of the Virginia Title Center, L.L.C. and
acts as an agent in the issuance of title insurance policies. Additionally,
this subsidiary has been licensed by the Commonwealth of Virginia to offer
annuity products through First National's Trust Department. Any reference in
this report to the operations of the Corporation shall include the activities
of FNB Financial Services, Inc.
The local economy is tied primarily to the area's three largest employers -
Virginia Polytechnic Institute and State University, with a student population
in excess of 23,000; Radford University, with a student population in excess of
9,000; and the Radford Arsenal, a large munitions plant operated under contract
to the U.S. Army by the Hercules Corporation. Other industries include a wide
variety of manufacturing concerns and agriculture-related enterprises. The
Bank's main office is located in Christianburg, the County Seat, with offices
strategically located to take advantage of its trade area's population mix. Of
the Bank's ten full service offices, eight are located in Montgomery County,
one in the City of Radford and one in the Town of Dublin. One paying and
receiving office is located in Montgomery County.
<PAGE>
Refer to the Corporation's 1996 Annual Report to Stockholders under the heading
"Selected Consolidated Financial Information" for a five year summary of
selected consolidated financial information which is incorporated by reference
into this Form 10-K.
Construction of a new corporate headquarters facility was completed during the
first quarter of 1997.
Competition. The Corporation is the largest bank in the area, with
approximately 65 percent of those deposits held by independent banks. It is
estimated that the Corporation holds 37 percent of total deposits in its trade
area including the offices of those state-wide bank holding companies located
in our trade area. Competition in the trade area consists of five statewide
bank holding companies, one independent bank, two offices of a regional bank,
and five credit unions.
Loan Commitments. The portfolio is not concentrated within any single industry
or group of related industries, nor is there any material risk other than that
which is expected in the normal course of business of a bank in this location.
Corporation policy establishes lending limits for each officer. Loan requests
for amounts exceeding loan officer lending authority are referred to loan
committees, and unsecured requests in excess of $750,000 and secured requests
in excess of $1,500,000 are referred to the Executive Committee of the Board of
Directors. The following table relates outstanding loans for the dates
indicated (in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Commercial $ 56,461 52,374
Consumer 62,906 61,888
Real estate - commercial 52,232 52,075
Real estate - construction 4,926 9,600
Real estate - mortgage 96,856 76,505
Total loans $ 273,381 252,442
</TABLE>
The Corporation is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheet. The
contract amounts of those instruments reflect the extent of involvement the
Corporation has in particular classes of financial instruments.
The Corporation's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Unless noted otherwise, the Corporation does not require collateral or other
security to support the following financial instruments with credit risk (in
thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
Contract Amounts
Financial instruments whose contract amounts
represent credit risk:
<S> <C> <C>
Commitments to extend credit $50,209 47,551
Standby letters of credit and
financial guarantees written 3,479 2,769
</TABLE>
<PAGE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Corporation evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Corporation upon extension of credit, is
based on management's credit evaluation of the customer. Collateral held
varies but may include securities, accounts receivable, inventory, property,
plant and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Corporation
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. Collateral held varies but may
include securities, accounts receivable, inventory, property, plant and
equipment and income-producing commercial properties.
Deposit Concentrations. The Corporation's deposits are obtained from a wide
range of depositors. There are no material concentrations of deposits from any
individual or organization.
Employees. The Corporation had 185 full-time equivalent employees as of
December 31, 1996, of which 57 were officers.
Securities Act Guide 3. Statistical Disclosure by Bank Holding Companies. The
following schedules are included:
Average Balance Sheets
Rate/Volume Variance
Securities Available-For-Sale at Fair Value
Securities Held-To-Maturity at Amortized Cost
Securities--Maturity/Yield Schedule
Types of Loans
Loan Maturities and Interest Sensitivity
Nonperforming Assets and Past Due Loans
Pro forma/Recorded Interest on Nonaccrual Loans
Analysis of Allowance for Loan Losses
Allocation of Allowance for Loan Losses
Deposit Maturities
Interest Sensitivity Analysis
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS
1996
Average
Average Income/ Yield/
(thousands) Balance Expense Rate
ASSETS
<S> <C> <C> <C>
Loans (Net of unearned income) (1) (2) $ 257,571 25,227 9.79 %
Securities:
Taxable 47,420 2,998 6.32
Nontaxable (2) 45,660 3,603 7.89
Total securities 93,080 6,601 7.09
Federal funds sold 3,496 188 5.38
Total interest-earning assets 354,147 32,016 9.04
Allowance for loan losses (4,116)
Cash and due from banks, noninterest-bearing 8,524
Bank premises and equipment, net 6,772
Other real estate owned 277
Other assets 4,363
Total assets $ 369,967
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Demand $ 44,127 1,280 2.90 %
Savings 47,253 1,395 2.95
Time 164,236 9,497 5.78
Certificates of deposit of $100,000 and over 32,219 1,856 5.76
Total interest-bearing deposits 287,835 14,028 4.87
Federal funds purchased and securities sold
under agreements to repurchase 5,461 229 4.19
Other borrowed funds 9,846 574 5.83
ESOP debt 1,469 118 8.03
Subordinated capital notes 661 67 10.14
Total interest-bearing liabilities 305,272 15,016 4.92
Demand deposits, noninterest-bearing 27,862
Other liabilities 2,583
Stockholders' equity 34,250
Total liabilities and stockholders' equity $ 369,967
Interest income and rate earned $ 32,016 9.04 %
Interest expense and rate paid 15,016 4.92
Interest rate spread 4.12
NET INTEREST INCOME AND NET YIELD
ON AVERAGE EARNING ASSETS $ 17,000 4.80 %
</TABLE>
(1) Interest on nonaccrual loans has been included only to the extent reflected
in the statements of income. Nonaccrual loans are included in average
balances for yield computations.
(2) Income and rates on non-taxable loans and securities are computed on a tax
equivalent basis using a federal tax rate of 34% for 1996, 1995 and 1994.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS
1995
Average
Average Income/ Yield/
(thousands) Balance Expense Rate
ASSETS
<S> <C> <C> <C>
Loans (Net of unearned income) (1) (2) $ 234,904 23,237 9.89 %
Securities:
Taxable 50,178 3,109 6.20
Nontaxable (2) 37,294 2,974 7.97
Total securities 87,472 6,083 6.95
Federal funds sold 3,594 186 5.18
Total interest-earning assets 325,970 29,506 9.05
Allowance for loan losses (3,923)
Cash and due from banks, noninterest-bearing 7,748
Bank premises and equipment, net 4,350
Other real estate owned 416
Other assets 4,717
Total assets $ 339,278
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Demand $ 42,715 1,410 3.30 %
Savings 52,828 1,692 3.20
Time 149,923 8,740 5.83
Certificates of deposit of $100,000 and over 26,170 1,603 6.13
Total interest-bearing deposits 271,636 13,445 4.95
Federal funds purchased and securities sold
under agreements to repurchase 4,874 232 4.76
Other borrowed funds 2,722 144 5.29
ESOP debt 2,273 173 7.61
Subordinated capital notes 978 87 8.90
Total interest-bearing liabilities 282,483 14,081 4.98
Demand deposits, noninterest-bearing 24,501
Other liabilities 2,414
Stockholders' equity 29,880
Total liabilities and stockholders' equity $ 339,278
Interest income and rate earned $ 29,506 9.05 %
Interest expense and rate paid 14,081 4.98
Interest rate spread 4.07
NET INTEREST INCOME AND NET YIELD
ON AVERAGE EARNING ASSETS $ 15,425 4.73 %
</TABLE>
(1) Interest on nonaccrual loans has been included only to the extent reflected
in the statements of income. Nonaccrual loans are included in average
balances for yield computations.
(2) Income and rates on non-taxable loans and securities are computed on a tax
equivalent basis using a federal tax rate of 34% for 1996, 1995 and 1994.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS
1994
Average
Average Income/ Yield/
(thousands) Balance Expense Rate
<S> <C> <C> <C>
ASSETS
Loans (Net of unearned income) (1) (2) $ 209,668 19,212 9.16 %
Securities:
Taxable 59,618 3,607 6.05
Nontaxable (2) 24,536 1,939 7.90
Total securities 84,154 5,546 6.59
Federal funds sold 2,789 128 4.59
Total interest-earning assets 296,611 24,886 8.39
Allowance for loan losses (3,801)
Cash and due from banks, noninterest-bearing 7,596
Bank premises and equipment, net 3,900
Other real estate owned 715
Other assets 4,320
Total assets $ 309,341
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Demand $ 41,332 1,244 3.01 %
Savings 63,965 1,916 3.00
Time 122,246 6,180 5.06
Certificates of deposit of $100,000 and over 21,565 1,259 5.84
Total interest-bearing deposits 249,108 10,599 4.25
Federal funds purchased and securities sold
under agreements to repurchase 5,262 184 3.50
Other borrowed funds 1,319 39 2.96
ESOP debt 1,789 117 6.54
Subordinated capital notes 1,085 83 7.65
Total interest-bearing liabilities 258,563 11,022 4.26
Demand deposits, noninterest-bearing 21,970
Other liabilities 1,967
Stockholders' equity 26,841
Total liabilities and stockholders' equity $ 309,341
Interest income and rate earned $ 24,886 8.39 %
Interest expense and rate paid 11,022 4.26
Interest rate spread 4.13
NET INTEREST INCOME AND NET YIELD
ON AVERAGE EARNING ASSETS $ 13,864 4.67 %
</TABLE>
(1) Interest on nonaccrual loans has been included only to the extent reflected
in the statements of income. Nonaccrual loans are included in average
balances for yield computations.
(2) Income and rates on non-taxable loans and securities are computed on a tax
equivalent basis using a federal tax rate of 34% for 1996, 1995 and 1994.
<PAGE>
<TABLE>
<CAPTION>
RATE/VOLUME VARIANCE
1996 Compared to 1995 1995 Compared to 1994
Due to Due to Due to Due to
(thousands) Change Volume Rate Change Volume Rate
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 1,990 2,231 (241) 4,025 2,404 1,621
Securities:
Taxable (111) (173) 62 (498) (578) 80
Nontaxable 629 664 (35) 1,035 1,013 22
Federal funds sold 2 (5) 7 58 39 19
Total 2,510 2,717 (207) 4,620 2,878 1,742
INTEREST EXPENSE
Demand (130) 44 (174) 166 44 122
Savings (297) (172) (125) (224) (345) 121
Time 757 831 (74) 2,560 1,506 1,054
Certificates of deposit of $100,000 and over 253 359 (106) 344 275 69
Federal funds purchased and securities sold
under agreements to repurchase (3) 26 (29) 48 (16) 64
Other borrowed funds 430 396 34 105 58 47
ESOP debt (55) (63) 8 56 34 22
Subordinated capital notes (20) (30) 10 4 (9) 13
Total 935 1,391 (456) 3,059 1,547 1,512
Net interest income $ 1,575 1,326 249 1,561 1,331 230
</TABLE>
Variances caused by changes in rate times the changes in volume are allocated
equally.
<PAGE>
<TABLE>
<CAPTION>
SECURITIES AVAILABLE - FOR - SALE AT FAIR VALUE
December 31,
(thousands) 1996 1995 1994
<S> <C> <C> <C>
U.S. Treasury $ 5,647 9,639 11,299
U.S. Government agencies and corporations 37,989 25,874 30,637
States and political subdivisions 4,047 2,388 1,555
Other securities 7,203 9,950 11,550
Totals $ 54,886 47,851 55,041
</TABLE>
<TABLE>
<CAPTION>
SECURITIES HELD - TO - MATURITY AT AMORTIZED COST
December 31,
(thousands) 1996 1995 1994
<S> <C> <C> <C>
U.S. Treasury $ 0 0 0
U.S. Government agencies and corporations 500 500 0
States and political subdivisions 42,394 39,110 30,972
Other securities 195 501 0
Totals $ 43,089 40,111 30,972
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITIES--MATURITY/YIELD SCHEDULE
As of December 31, 1996
Securities Available - For - Sale Securities Held - To - Maturity
Approximate Taxable Approximate Taxable
Amortized Fair Equivalent Amortized Fair Equivalent
(thousands) Costs Values Yield(1) Costs Values Yield(1)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury:
Within 1 year $ 2,503 2,505 5.87 % $ 0 0 0.00 %
1 through 5 years 3,131 3,142 6.35 0 0 0.00
Total 5,634 5,647 6.13 0 0 0.00
U.S. Government agencies and corporations:
Within 1 year 500 500 6.19 0 0 0.00
1 through 5 years 15,190 15,094 5.97 0 0 0.00
6 through 10 years 20,975 20,893 7.18 0 0 0.00
Over 10 years 1,500 1,502 8.94 500 501 7.99
Total 38,165 37,989 6.76 500 501 7.99
State and political subdivisions:
Within 1 year 291 292 6.66 1,593 1,593 6.47
1 through 5 years 1,200 1,188 6.51 14,855 15,072 7.96
6 through 10 years 1,875 1,947 8.74 24,249 24,573 7.82
Over 10 years 614 620 7.59 1,697 1,698 7.75
Total 3,980 4,047 7.74 42,394 42,936 7.81
Other securities:
Within 1 year 1,000 1,015 7.60 110 110 8.47
1 through 5 years 1,075 1,123 8.29 85 85 9.78
6 through 10 years 0 0 0.00 0 0 0.00
Over 10 years 5,089 5,065 6.90 0 0 0.00
Total 7,164 7,203 7.20 195 195 9.04
$ 54,943 54,886 6.83 $ 43,089 43,632 7.82
</TABLE>
(1) Yields on non-taxable investment securities are computed on a tax
equivalent basis using a federal tax rate of 34%.
<PAGE>
<TABLE>
<CAPTION>
TYPES OF LOANS
December 31,
1996 1995 1994 1993 1992
% of % of % of % of % of
(thousands) Amount Total Amount Total Amount Total Amount Total Amount Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 56,461 20.7 52,374 20.7 42,237 19.4 37,163 18.1 38,877 19.1
Consumer 62,906 23.0 61,888 24.5 54,155 24.8 46,816 22.8 50,635 24.9
Real estate - commercial 52,232 19.1 52,075 20.6 49,858 22.9 47,940 23.4 47,155 23.2
Real estate - construction 4,926 1.8 9,600 3.8 7,936 3.6 5,107 2.5 4,864 2.4
Real estate - mortgage 96,856 35.4 76,505 30.3 63,831 29.3 68,142 33.2 61,729 30.4
$ 273,381 100.0 252,442 100.0 218,017 100.0 205,168 100.0 203,260 100.0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOAN MATURITIES AND INTEREST SENSITIVITY
As of December 31, 1996
One
Within Through Over
(thousands) One Year Five Years Five Years Total
<S< <C> <C> <C> <C>
Commercial:
Fixed interest rates $ 4,812 10,379 4,856 20,047
Floating interest rates 36,173 241 ---- 36,414
Total 40,985 10,620 4,856 56,461
Real estate-commercial:
Fixed interest rates 76 3,039 7,243 10,358
Floating interest rates 40,065 1,809 ---- 41,874
Total 40,141 4,848 7,243 52,232
Real estate-construction:
Fixed interest rates 278 149 19 446
Floating interest rates 4,480 ---- ---- 4,480
Total 4,758 149 19 4,926
$ 85,884 15,617 12,118 113,619
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NONPERFORMING ASSETS AND PAST DUE LOANS
December 31,
(thousands) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 573 1,769 857 736 1,562
Restructured loans --- --- --- --- ---
Other real estate owned 185 387 444 2,364 2,831
Total nonperforming assets 758 2,156 1,301 3,100 4,393
Accruing loans past due 90 days $ 595 43 365 534 322
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA/RECORDED INTEREST ON NONACCRUAL LOANS
December 31,
(thousands) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Pro forma interest-nonaccrual loans $ 60 161 90 67 131
Recorded interest-nonaccrual loans $ 3 1 1 3 3
</TABLE>
Interest related to nonaccrual loans is recognized on the cash basis. Loans are
generally placed on nonaccrual status when the collection of principal or
interest is 90 days or more past due, unless the obligation is both well-secured
and in the process of collection.
<PAGE>
<TABLE>
<CAPTION>
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(thousands) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
AVERAGE LOANS OUTSTANDING $ 257,571 234,904 209,668 202,059 203,624
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period $ 3,988 3,815 3,471 3,068 2,587
Provision for loan losses 595 300 360 1,125 1,500
4,583 4,115 3,831 4,193 4,087
Loans charged off:
Commercial 122 27 80 465 781
Consumer 402 326 317 286 402
Real estate - commercial 21 12 55 227 52
Real estate - construction 0 0 --- --- ---
Real estate - mortgage 15 0 64 --- 50
Total loans charged off 560 365 516 978 1,285
Recovery of loans previously charged off:
Commercial 29 36 80 110 120
Consumer 125 142 155 132 138
Real estate - commercial 2 24 210 1 8
Real estate - construction 0 0 --- --- ---
Real estate - mortgage 0 36 55 13 ---
Total recoveries 156 238 500 256 266
Net loans charged off 404 127 16 722 1,019
Balance, end of period $ 4,179 3,988 3,815 3,471 3,068
Net charge-offs to average loans outstanding 0.16 % 0.05 0.01 0.36 0.50
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
December 31,
(thousands) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Commercial $ 961 652 603 950 1,298
Consumer 487 391 208 450 523
Real estate - commercial 738 412 242 313 252
Real estate - construction 28 69 11 50 35
Real estate - mortgage 743 612 248 250 168
Unassigned portion of allowance 1,222 1,852 2,503 1,458 792
$ 4,179 3,988 3,815 3,471 3,068
</TABLE>
Management continually reviews the loan portfolio for signs of deterioration.
In making their evaluation of the portfolio, factors considered include the
individual strength of borrowers, the strength of the individual industries,
the value and marketability of collateral, specific market strengths and
weaknesses, and general economic conditions. Management believes that the
allowance for loan losses at December 31, 1996 is adequate to cover potential
loan losses inherent in the loan portfolio.
<PAGE>
<TABLE>
<CAPTION>
DEPOSIT MATURITIES
As of December 31, 1996
Mature Within
Over Six
Three Over Three Months
Months Months Through Over
Or Through Twelve Twelve
(thousands) Less Six Months Months Months Total
<S> <C> <C> <C> <C> <C>
Certificates of deposit and other time deposits
of $100M and over $ 9,184 4,925 10,524 13,367 38,000
All other deposits 88,197 41,280 43,371 124,554 297,402
Total deposits $ 97,381 46,205 53,895 137,921 335,402
</TABLE>
<TABLE>
<CAPTION>
INTEREST SENSITIVITY ANALYSIS
As of December 31, 1996
Mature or Reprice Within
Over Three
Three Months Over One
Months Through Year To Over
Or Twelve Five Five
(thousands) Less Months Years Years Total
<S> <C> <C>
INTEREST-EARNING ASSETS
Loans $ 131,556 87,755 47,198 6,629 273,138
Securities:
Available-for-sale, at fair value 13,431 5,293 22,377 13,785 54,886
Held-to-maturity, at amortized cost 1,665 2,628 21,318 17,478 43,089
Other interest-earning assets 2,579 --- 190 --- 2,769
Total interest-earning assets $ 149,231 95,676 91,083 37,892 373,882
INTEREST-BEARING LIABILITIES
Certificates of deposit and other time deposits
of $100M and over $ 15,363 9,673 12,964 --- 38,000
Time 51,782 49,809 69,412 --- 171,003
All other deposits 50,535 19,314 25,752 --- 95,601
Securities sold under agreements to repurchase 4,795 --- --- --- 4,795
Other borrowed funds 1,625 --- 11,000 1,779 14,404
ESOP debt 1,252 --- --- --- 1,252
Total interest-bearing liabilities $ 125,352 78,796 119,128 1,779 325,055
Interest sensitivity gap per period $ 23,879 16,880 (28,045) 36,113 48,827
Cumulative interest sensitivity gap 23,879 40,759 12,714 48,827 ---
</TABLE>
Refer to the Bank's 1996 Annual Report to Stockholders under the heading
"Selected Consolidated Financial Information" for a five year summary of
financial information which includes return on equity and assets and is
incorporated by reference into this Form 10-K
<PAGE>
Item 2. Properties
The Corporation has ten full service offices and one paying and receiving
office at the following locations:
Full Service
1. Christiansburg Office, 50 North Franklin Street, Christiansburg,
Virginia, containing 9,000 square feet;
2. Blacksburg Office, 601 North Main Street, Blacksburg, Virginia,
containing 8,750 square feet;
3. Riner Office, Route 8, Riner, Virginia, containing 1,950 square
feet;
4. Hills Office, l340 Roanoke Street, Christiansburg, Virginia,
containing 1,200 square feet;
5. Radford Office, 50 First Street, Radford, Virginia, containing
8,000 square feet;
6. New River Valley Mall Office, 646 New River Road, Christiansburg,
Virginia, containing 917 square feet.
7. Corporate Research Center Office, 1872 Pratt Drive, Suite 1125,
Blacksburg, Virginia, containing 360 square feet.
8. Shawsville Office, 250 Alleghany Spring Road, Shawsville,
Virginia, containing 1,600 square feet.
9. Dublin Office, 2 Town Center Drive, Dublin, Virginia, containing
2,640 square feet.
10. FNB Center, 105 Arbor Drive, Christiansburg, Virginia, containing
72,816 square feet.
Paying and Receiving
11. Foothills Office, 1580 North Franklin Street, Christiansburg,
Virginia, containing 652 square feet.
All of such space is used by the Corporation in its operations. The
Corporation owns properties 1, 2, 3, 5, 8, 9 and 10 and leases properties 4, 6,
7 and 11 from independent parties on terms which management believes are
satisfactory.
Other Real Estate.
Other Real Estate is composed of 54% commercial real estate and 46%
residential. There were no covered transactions.
Item 3. Legal Proceedings
From time to time, the Corporation is a party to lawsuits arising in the normal
course of business in which claims for money damages are asserted. Management,
after consulting with legal counsel handling the respective matters, is of the
opinion that the ultimate outcome of such pending actions, whether or not
adverse to the Corporation, will not have a material effect upon the
Corporation's financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
<PAGE>
PART II
Item 5. Market for the Corporation's Common Stock and Related Security
Holder Matters
The Corporation has only one (1) class of Common Stock with a Par Value of $5
per share. There were approximately 1,082 stockholders of record as of
December 31, 1996, holding 1,661,900 shares of the authorized 5,000,000 shares.
The Corporation's stock is listed on the NASDAQ over-the-counter bulletin
board. Trading activity has been light. The recent market prices and other
related shareholder data is incorporated by reference into this Form 10-K from
the section entitled, "Market Price and Dividend Data," in the Corporation's
1996 Annual Report which is filed as Exhibit 13 to this Annual Report on Form
10-K. The Corporation has consistently paid a semi-annual dividend on its
common stock. There are no known restrictions on the retained earnings that
would affect the ability to pay further dividends other thatn those imposed by
regulatory agencies. See Note 13 of the notes to consolidated financial
statements in the Corporation's 1996 Annual Report to Stockholders under the
caption Dividend Restrictions and Capital Requirements, which is filed as
Exhibit 13 to this Form 10-K and is hereby incorporated by reference.
Item 6. Selected Financial Data
Selected financial data is located in the Corporation's 1996 Annual Report to
Stockholders, which is filed as Exhibit 13 to this Form 10-K, under the caption
"Selected Consolidated Financial Information," which is hereby incorporated by
reference into this Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations is located in the section of the Corporation's 1996 Annual Report to
Stockholders, which is filed as Exhibit 13 to this Form 10-K, under the same
heading, and is hereby incorporated by reference into this Form 10-K.
Item 8. Financial Statements and Supplementary Data
The following independent auditors' report, consolidated financial statements,
and supplementary financial information included in the Corporation's 1996
Annual Report to Stockholders, which is filed as Exhibit 13 to this Form 10-K,
are incorporated by reference into this Form 10-K:
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income - Years ended December 31, 1996, 1995,
and 1994
Consolidated Statements of Cash Flows - Years ended December 31, 1996,
1995, and 1994
Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
The independent auditors' report covering the consolidated statements of
income, changes in stockholders' equity and cash flows of First National Bank
and subsidiaries for the year ended December 31, 1994 is filed as Exhibit (99)
to this form 10-K and is incorporated by reference herein.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
KPMG Peat Marwick LLP ("KPMG") served as the Corporation's independent auditors
for the calendar year 1994. The Audit/Compliance Committee of the Corporation
recommended and the Board of Directors approved the appointment of McLeod &
Company to serve as the Corporation's independent auditors for calendar year
1995, which was subsequently ratified by the Corporation's shareholders.
KPMG's opinion on the Corporation's 1994 consolidated financial statements was
unqualified. There was no disagreement with the former auditors concerning
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of KPMG, would have caused the firm to make reference to such
disagreements in their report. McLeod & Company served as the Corporation's
auditors for 1995 and 1996 and has been appointed to serve as the Corporation's
auditors for 1997.
PART III
Item 10. Directors and Executive Officers of the Corporation
Information on directors is incorporated by reference from the Corporation's
Proxy Statement for the 1997 Annual Meeting of Stockholders under the heading
"Election of Directors."
Information on executive officers is incorporated by reference from the
Corporation's Proxy Statement for the 1997 Annual Meeting of Stockholders under
the heading "Executive Officers of the Corporation."
Election of Directors. A total of 1,399,946 shares of a possible 1,661,900
shares or 84.2 percent of eligible shares were voted at the June 11, 1996,
stockholders meeting. No class of voting stock withheld or cast against any
nominee for Director in aggregate five percent or more of total shares cast by
such class.
Item 11. Executive Compensation Information on executive compensation is
incorporated by reference from the Corporation's Proxy Statement for the 1997
Annual Meeting of Stockholders under the heading "Executive Compensation."
Employee Stock Ownership Plan. The Corporation instituted a qualified employee
stock ownership plan in 1983 which covers substantially all employees. The
Corporation makes periodic contributions to the plan that are used to purchase
the Corporation's common stock from available sources. The shares are then
allocated among plan participants based upon compensation and years of service.
Stock allocated to a particular participant (or its value) is generally
distributed upon retirement, death, disability, or (under certain
circumstances) attaining a specified age. The plan is administered by a
committee appointed by the Corporation's Board of Directors. Information on
the Corporation's leveraged ESOP is included in Note 11 of notes to
consolidated financial statements, and is incorporated by reference from the
Corporation's 1996 Annual Report to Stockholders which is included as Exhibit
13 to this Form 10-K.
Information on compensation of directors compensation committee and executive
compensation matters is incorporated by reference from the Corporation's Proxy
Statement for the 1997 Annual Meeting of Stockholders under the heading "Board
of Directors and Committees of the Board."
The Corporation's performance graph is incorporated by reference from the
Corporation's Proxy Statement under the heading "Performance Graph."
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Principal Security Holders. The Corporation knows of no person or group that
beneficially owned more than five percent of the outstanding shares of Common
Stock as of February 28, 1997.
Executive Officers. The persons currently serving as executive officers of the
Corporation, their security ownership, and their length of service with the
Corporation and it's predecessor (the Bank), are as follows:
<TABLE>
<CAPTION>
Percent of
Title and Length Number Shares Owned Outstanding
Name (Age) of Service as of 2/28/97(A)(B) Shares
<S> <S> <C> <C>
Samuel H. President & Chief 68,081 4.10
Tollison (64) Executive Officer
since January, 1971
Julian D. Executive Vice 18,631 1.12
Hardy, Jr. (47) President since
November 19, 1984
Perry D. Chief Financial Officer 14,193 *
Taylor (50) since January 1, 1989
Previously Senior Vice
President and Cashier
* Less than one percent.
</TABLE>
(A) Includes shares that may be deemed beneficially owned due to sole or
joint ownership, voting power or investment power; including shares owned by or
held for the benefit of an executive officer's spouse or another immediate
family member residing in the household of the executive officer that may be
deemed beneficially owned.
(B) Includes estimated 1996 Employee Stock Ownership Plan allocation.
Directors. Information on security ownership of directors is incorporated by
reference from the Corporation's Proxy Statement for the 1997 Annual Meeting of
Stockholders under the heading "Election of Directors."
Item 13. Certain Relationships and Related Transactions
Directors and officers of the Corporation and persons with whom they are
associated have had and expect to have in the future, banking transactions with
the Corporation in the ordinary course of their businesses. In the opinion of
management of the Corporation, all such loans and commitments for loans were
made on substantially the same terms, including interest rates, collateral and
repayment terms as those prevailing at the same time for comparable
transactions with other persons, were made in the ordinary course of business,
and do not involve more than a normal risk of collectibility or present other
unfavorable features. The aggregate amount of direct loans to any one
director, officer or principal stockholder (and related persons), does not
exceed 10 percent of the Corporation's equity capital accounts (nor 20 percent
of such accounts for all such persons as a group) and did not during the
previous two fiscal years.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a(1). Consolidated Financial Statements. See index to Consolidated Financial
Statements.
a(2). Financial Statement Schedules. The financial statement schedules are
omitted as the required information is inapplicable or the information is
presented in the consolidated financial statements or related notes.
a(3). Exhibits.
See index to Exhibits
b. Reports on Form 8-K.
The Corporation did not file any reports on Form 8-K during the
fourth quarter of 1996.
c. Exhibits.
Included in item 14a(3) above
d. Financial Statement Schedules.
Included in item 14a(2) above
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FNB Corporation
By: s/Samuel H. Tollison
President & Chief Executive Officer
By: s/Perry D. Taylor
Chief Financial Officer
Date: March 26, 1997
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following directors on behalf of the
registrant and in that capacity and on the dates indicated.
Signature Date
March 26, 1997
Kendall O. Clay
s/Archie E. Cromer, Jr. March 26, 1997
Archie E. Cromer, Jr.
s/Daniel D. Hamrick March 26, 1997
Daniel D. Hamrick
s/Julian D. Hardy, Jr. March 26, 1997
Julian D. Hardy, Jr.
s/James L. Hutton March 26, 1997
James L. Hutton
s/Carl N. McNeil March 26, 1997
Carl N. McNeil
s/Joan H. Munford March 26, 1997
Joan H. Munford
s/W. N. Ridinger March 26, 1997
W. N. Ridinger
s/William M. Sterrett, Jr. March 26, 1997
William M. Sterrett, Jr.
s/Robert J. Styne March 26, 1997
Robert J. Styne
s/Samuel H. Tollison March 26, 1997
Samuel H. Tollison
s/Nelson J. Wimmer March 26, 1997
Nelson J. Wimmer
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following independent auditors' report and consolidated financial
statements of the Corporation are incorporated by reference from the
Corporation's 1996 Annual Report to Stockholders included within this document
as an Exhibit:
Independent Auditors' Report
Consolidated Balance Sheets --
December 31, 1996 and 1995
Consolidated Statements of Income -- Years
Ended December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows --
Years Ended December 31, 1996, 1995, and 1994
Consolidated Statements of Changes in
Stockholders' Equity -- Years Ended
December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
All schedules are omitted as the required information is inapplicable or the
information is presented in the consolidated financial statements or related
notes.
<PAGE>
INDEX TO EXHIBITS
Exhibit # Description
(2) Plan of Reorganization
Agreement and Plan of Reorganization dated as of
February 1, 1996, between the Registrant, First
National Bank, and FNB Bank, filed as
Exhibit 2 to the Registration Statement on Form S-4
filed by FNB Corporation with the Securities and
Exchange Commission May 3, 1996 (Registration
number 333-2524) is incorporated herein by reference.
(3.1) Registrant's Articles of Incorporation
(3.2) Registrant's Bylaws
(10) Material Contracts
The construction contract dated October 2, 1995,
with J. M. Turner & Co., Inc. filed as Exhibit 10.9
to the Registration Statement on Form S-4
filed by FNB Corporation with the Securities
and Exchange Commission May 3, 1996 (Registration
number 333-2524) is incorporated herein by reference.
(13) 1996 Annual Report to Stockholders
(21) Subsidiaries of the Registrant
(27) Financial Data Schedule
(99) Independent Auditors' Report of KPMG Peat
Marwick LLP on the consolidated statements of
income, changes in stockholders' equity and
cash flows of First National Bank and subsidiaries
for the year ended December 31, 1994.
Exhibit #(3.1)
ARTICLES OF INCORPORATION
OF
FNB CORPORATION
I Name
The name of the corporation is FNB Corporation.
II Purpose
The purpose for which the Corporation is organized is to act as a bank
holding company and to transact any and all lawful business, not required to
be specifically stated in the Articles of Incorporation, for which
corporations may be incorporated under the Virginia Stock Corporation Act.
III Capital Stock
The Corporation shall have authority to issue five million (5,000,000)
shares of Common Stock, par value $5.00 per share.
(a) Dividends. Subject to the provisions of law and the rights of
holders of shares at the time outstanding of all classes of stock having prior
rights as to dividends, the holders of Common Stock at the time outstanding
shall be entitled to receive such dividends at such times and in such amounts
as the Board of Directors may deem advisable.
<PAGE>
(b) Liquidation. In the event of any liquidation, dissolution or
winding up (whether voluntary or involuntary) of the Corporation, after
payment or provision for the payment of all the liabilities and obligations of
the Corporation and all preferential amounts to which the holders of shares at
the time outstanding of all classes of stock having prior rights thereto shall
be entitled, the remaining net assets of the Corporation shall be distributed
ratably among the holders of the shares at the time outstanding of Common
Stock.
(c) Voting. Except to the extent to which the Board of Directors
shall have specified voting power with respect to any other class of stock and
except as otherwise provided by law, the exclusive voting power shall be
vested in the Common Stock, the holder thereof being entitled to one vote for
each share of Common Stock at all meetings of the shareholders of the
Corporation.
IV No Preemptive Rights
No holder of shares of the capital stock of the Corporation of any class
shall have any preemptive or preferential right to subscribe to or purchase
(i) any shares of capital stock of the Corporation, (ii) any securities
convertible into such shares or (iii) any options, warrants or rights to
purchase such shares or securities convertible into any such shares.
V Directors
The business and affairs of the Corporation shall be managed by or under
the direction of a Board of Directors consisting of such number of directors
<PAGE>
as may be fixed from time to time in the bylaws or by resolution adopted by
the affirmative vote of a majority of the Directors then in office. The
Directors shall be divided into three classes, designated as Class I, Class
II, and Class III. Each class shall consist, as nearly as may be possible, of
one-third of the total number of Directors constituting the entire Board of
Directors, with one class to be originally elected for a term of one year,
another class to be originally elected for a term expiring in two years, and
another class to be originally elected for a term of three years. At each
succeeding annual meeting of shareholders beginning in 1997, successors to the
class of Directors whose term expires at that annual meeting shall be elected
for a three-year term. If the number of Directors has changed, any increase
or decrease shall be apportioned among the classes so as to maintain the
number of Directors in each class as nearly equal as possible, but in no case
will a decrease in the number of Directors shorten the term of any incumbent
Director. A Director shall hold office until the annual meeting for the year
in which his term expires and until his successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.
If the office of any Director shall become vacant, the Directors then in
office, whether or not a quorum, may by majority vote choose a successor who
shall hold office until the next annual meeting of shareholders. In such
event, the successor elected by the Directors then in office shall hold office
for a term that shall coincide with the remaining term of the class of
Directors to which that person has been elected. Vacancies resulting from the
increase in the number of Directors shall be filled in the same manner.
<PAGE>
Directors of the Corporation may be removed by shareholders of the
Corporation only for cause and with the affirmative vote of at least two-
thirds of the outstanding shares entitled to vote.
Advance notice of shareholder nominations for the election of Directors
shall be given in the manner provided in the Bylaws of the Corporation.
VI Indemnification and Limit on Liability
(a) Mandatory Indemnification. To the full extent permitted by the
Virginia Stock Corporation Act, as it exists on the date hereof or may
hereafter be amended, each Director and officer shall be indemnified by the
Corporation against liabilities, fines, penalties and claims imposed upon or
asserted against him (including amounts paid in settlement) by reason of
having been such Director or officer, whether or not then continuing so to
be, and against all expenses (including counsel fees) reasonably incurred by
him in connection therewith, except in relation to matters as to which he
shall have been finally adjudged liable by reason of his willful misconduct or
a knowing violation of criminal law in the performance of his duty as such
Director or officer. The determination that the indemnification under this
subsection (a) is permissible shall be made as provided by law. The right of
indemnification hereby provided shall not be exclusive of any other rights to
which any Director or officer may be entitled.
(b) Limitation of Liability. To the full extent permitted by the
Virginia Stock Corporation Act, as it exists on the date hereof or may
hereafter be amended, in any proceeding brought by a shareholder of the
Corporation in the right of the Corporation or brought by or on behalf of
<PAGE>
shareholders of the Corporation, a director or officer of the Corporation
shall not be liable in any monetary amount for damages arising out of or
resulting from a single transaction, occurrence or course of conduct, provided
that the elimination of liability herein set forth shall not be applicable if
the Director or officer engaged in willful misconduct or a knowing violation
of the criminal law or of any federal or state securities law.
(c) Agents and Employees. The Board of Directors is hereby empowered,
by a majority vote of a quorum of disinterested Directors, to indemnify or
contract in advance to indemnify any person not specified in subsection (a) of
this Article against liabilities, fines, penalties and claims imposed upon or
asserted against him (including amounts paid in settlement) by reason of
having been an employee, agent or consultant of the Corporation, whether or
not then continuing so to be, and against all expenses (including counsel
fees) reasonably incurred by him in connection therewith, to the same extent
as if such person were specified as one to whom indemnification is granted in
subsection (a) of this Article.
(d) References. Every reference in this Article to Director, officer,
employee, agent or consultant shall include (i) every Director, officer,
employee, agent or consultant of the Corporation or any corporation the
majority of the voting stock of which is owned directly or indirectly by the
Corporation, (ii) every former Director, officer, employee, agent or
consultant of the Corporation, (iii) every person who may have served at the
request of or on behalf of the Corporation as a Director, officer, employee,
agent, consultant or trustee of another corporation, partnership, joint
venture, trust or other entity, and (iv) in all of such cases, his executors
<PAGE>
and administrators.
(e) Effective Date. The provisions of this Article VI shall be
applicable from and after its adoption even though some or all of the
underlying conduct or events relating to such a proceeding may have occurred
before such adoption. No amendment, modification or repeal of this Article VI
shall diminish the rights provided hereunder to any person arising from
conduct or events occurring before the adoption of such amendment,
modification or repeal.
(f) Change in Control. In the event there has been a change in the
composition of a majority of the Board of Directors after the date of
the alleged act or omission with respect to which indemnification is
claimed, any determination as to indemnification and advancements of
expenses with respect to any claim for indemnification made pursuant
to subsection (a) of this Article VI shall be made by special legal
counsel agreed upon by the Board of Directors and the proposed
indemnitee. If the Board of Directors and the proposed indemnitee
are unable to agree upon such special legal counsel, the Board of
Directors and the proposed indemnitee each shall select a nominee,
and the nominees shall select such special legal counsel.
VII Shareholder Approval of Certain Transactions
An amendment of the Corporation's Articles of Incorporation, a plan of
merger or share exchange, a transaction involving the sale of all or
substantially all the Corporation's assets other than in the regular course of
business and a plan of dissolution shall be approved by the vote of a majority
<PAGE>
of all the votes entitled to be cast on such transactions by each voting group
entitled to vote on the transaction at a meeting at which a quorum of the
voting group is present, provided that the transaction has been approved and
recommended by at least two-thirds of the Directors in office at the time of
such approval and recommendation. If the transaction is not so approved and
recommended by at least two-thirds of the Directors in office, then the
transaction shall be approved by the vote of eighty percent (80%) or more of
all the votes entitled to be cast on such transactions by each voting group
entitled to vote on the transaction.
VIII Registered Office/Agent
The Corporation's registered office shall be 105 Arbor Drive, PO Box
600, Christiansburg, Virginia 24073 (Montgomery County). The registered agent
shall be Peter A. Seitz, a resident of Montgomery County, Virginia, and a
member of the Virginia State Bar.
Secretary's Certificate
I, Peter A. Seitz, the undersigned Secretary of FNB Corporation do
hereby certify that the above Articles of Incorporation are a true restatement
of the corporation's Articles through this 18th day of March, 1997.
/s/ Peter A. Seitz
Peter A. Seitz
a:\fnbcorp.inc
Exhibit #(3.2)
FNB CORPORATION
RESTATEMENT OF BYLAWS
(effective December 19, 1996)
ARTICLE I
Meetings of Shareholders
Section 1.1. Annual Meeting. The regular annual meeting of the
shareholders for the election of Directors and the transaction of whatever
other business that may properly come before the meeting, shall be held at
such place as the Board may designate on the second Tuesday of May of each
year or at such other time as the Board designates. Notice of such meeting
shall be mailed, postage prepaid, at least ten days but not more than sixty
days prior to the date thereof, addressed to each shareholder at his address
appearing on the books of the holding company. If for any cause, an election
of Directors is not made on the said day, the Board of Directors shall order
the election to be held on some subsequent day, as soon thereafter as
practicable, according to the provision of law; and notice thereof shall be
given in the manner herein provided for the annual meeting.
Section 1.2. Special Meetings. Except as otherwise specifically
provided by statute, special meetings of the shareholders may be called for
any purpose at any time by the Board of Directors, the Chairman of the Board
or the President. Every such special meeting, unless otherwise provided by
law, shall be called by mailing, postage prepaid, not less than ten days nor
more than sixty days prior to the date fixed for such meeting, to each
shareholder at his address appearing on the books of the holding company, a
notice stating the purpose of the meeting.
Section 1.3. Nominations for Director. Nominations for election to the
Board of Directors may be made by the Board of Directors or by any stockholder
of any outstanding class of capital stock of the holding company entitled to
vote for the election of Directors. Nominations, other than those made by or
on behalf of the existing management of the bank, shall be made in writing and
shall be delivered or mailed to the President of the holding company, not less
than l4 days nor more than 50 days prior to any meeting of stockholders called
for the election of Directors; provided, however, if less than 21 days notice
of the meeting is given to shareholders, such nomination shall be mailed or
delivered to the President of the holding company not later than the close of
business on the seventh day following the day on which the notice of meeting
was mailed. Such notification shall contain the following information to the
extent known to the notifying shareholder: (a) the name and address of each
proposed nominee; (b) the principal occupation of each proposed nominee; (c)
the total number of shares of capital stock of the holding company that will
be voted for each proposed nominee; (d) the name and address of the notifying
shareholder; and (e) the number of shares of capital stock of the holding
company owned by the notifying shareholder. Nominations not made in
accordance herewith shall not be considered at the meeting.
<PAGE>
Section 1.4 Eligibility for Nomination to Board. No person (other
than organizers and initial directors) shall be eligible for nomination (and
subsequent election) for Director if they have attained or will attain age
seventy (70) on or before the date set for election of Directors. Any
initial directors appointed to serve who has already attained age seventy (70)
will be ineligible for nomination (and subsequent election) for Director if
they have attained or will attain age seventy-five (75) on or before the date
set for election of Directors. In the event the Corporation acquires voting
control ofmore than one chartered bank, any Director of this Corporation who
shall serve as a director of such chartered bank controlled by the Corporation
shall not be eligible for renomination as a director of this Corporation
unless such director resigns as a director of the chartered bank or serves as
President of the chartered bank.
Section 1.5. Judges of Election. Every election of Directors shall be
managed by three judges, who shall be appointed from among the shareholders by
the Board of Directors. The judges of election shall hold and conduct the
election at which they are appointed to serve; and, after the election, they
shall file with the Secretary a certificate under their hands, certifying the
result thereof and the names of the Directors elected. The judges of
election, at the request of the Chairman of the meeting, shall act as tellers
of any other vote by ballot taken at such meeting, and shall certify the
result thereof.
Section 1.6. Proxies. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing. Proxies shall be valid
only for one meeting, to be specified therein, and any adjournments of such
meeting. Proxies shall be dated and shall be filed with the records of the
meeting.
Section 1.7. Quorum. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law; but less than a quorum may
adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice. A majority of the votes cast shall decide
every question or matter submitted to the shareholders at any meeting, unless
otherwise provided by law or by the Articles of Incorporation.
ARTICLE II
Directors
Section 2.1. Board of Directors. The Board of Directors (hereinafter
referred to as the "Board"), shall have power to manage and administer the
business and affairs of the holding company. Except as expressly limited by
law, all corporate powers of the holding company shall be vested in and may be
exercised by said Board.
Section 2.2. Number. The Board shall consist of not less than three
shareholders nor more than fifteen, the exact number to be fixed and
determined from time to time by resolution of a majority of the full Board or
<PAGE>
by resolution of the shareholders at any meeting thereof, provided, however,
that a majority of the full Board of Directors may not increase the number of
Directors to a number which exceeds by two the number of Directors that were
last elected by shareholders.
Section 2.3 Class of Directors. Directors shall be divided into three
classes for the purpose of elections as set forth in the holding company's
Articles of Incorporation.
Section 2.4. Organization Meeting. The President or Executive Vice-
President, upon receiving the certificate of the judges, of the result of any
election, shall notify the directors-elect of their election and of the time
at which they are required to meet at the main office of the holding company
for the purpose of organizing the new Board and electing and appointing
officers of the holding company for the succeeding year. Such meeting shall
be appointed to be held on the day of the election or as soon thereafter as
practicable, and, in any event, within thirty days thereof, and if, at the
time fixed for such meeting, there shall not be a quorum present, the
Directors present may adjourn the meeting, from time to time, until a quorum
is obtained.
Section 2.5. Regular Meetings. The Regular Meetings of the Board of
Directors shall be held, without notice, on the fourth Wednesday of each month
at 8:00 a.m. at the Board of Directors' room at First National Bank or at such
time, place and with such frequency as the Board may establish at a regular
meeting. When any regular meeting of the Board falls upon a holiday, the
meeting shall be held on the next banking business day, unless the Board shall
designate some other day.
Section 2.6. Special Meetings. Special Meetings of the Board of
Directors may be called by the President or Executive Vice President of the
holding company, or at the request of three (3) or more Directors. Each
member of the Board of Directors shall be given notice stating the time and
place, by facsimile, letter, or in person, of each such special meeting.
Section 2.7. Quorum. A majority of the Directors shall constitute a
quorum at any meeting, except when otherwise provided by law; but a less
number may adjourn any meeting, from time to time, and the meeting may be
held, as adjourned, without further notice. If a quorum is present, the Board
may take action through the vote of a majority of directors who are in
attendance.
Section 2.8. Vacancies. When any vacancy occurs among the Directors,
the remaining members of the Board, in accordance with the laws of the
Commonwealth of Virginia and the Articles of Incorporation of the Corporation,
may appoint a Director to fill such vacancy at any regular meeting of the
Board, or at a special meeting called for that purpose.
<PAGE>
ARTICLE III
Committees of the Board
The Board of Directors has power over and is solely responsible for the
management, supervision and administration of the holding company. The Board
of Directors may delegate its power, but not any of its responsibilities, to
such persons or committees as the Board may determine. The chief executive
officers of the Corporation shall serve as ex officio members of all
committees of the Board with voting rights; however, membership on the Audit
Committee shall not include voting rights.
The Board of Directors must formally ratify written policies authorized by
committees of the Board before such policies become effective. Each committee
must have one or more member(s), who serve at the pleasure of the Board of
Directors. Provisions of the articles and bylaws governing quorum and voting
requirements of the Board of Directors, apply to committees and their members
as well. The creation of a committee and appointment of members to it must be
approved by the Board of Directors.
Section 3.1. Administrative Committee. There shall be an
Administrative Committee composed of not less than two outside directors.
The organizing directors shall appoint the initial Administrative Committee.
Thereafter, the Board may appoint new members or replace members whenever it
so chooses. The Administrative Committee shall have authority to exercise,
when the Board is not in session, all other powers of the Board that may
lawfully be delegated. The Administrative Committee shall keep minutes of its
meetings, and such minutes shall be submitted at the next regular meeting of
the Board of Directors at which a quorum is present, and any action taken by
the Board with respect thereto shall be entered in the minutes of the Board.
Section 3.2. Asset Liability Management Committee. There shall be an
Asset Liability Management Committee composed of not less than two outside
directors and any designated officers of the bank subsidiaries, directors and
designated officers being appointed by the Board annually or more often. The
Asset Liability Management Committee shall have the authority thereto, and to
exercise, when the Board is not in session, all powers of the Board regarding
the oversight of the holding company's assets and liabilities that may be
lawfully delegated. The Asset Liability Management Committee shall keep
minutes of its meetings, and such minutes shall be submitted at the next
regular meeting of the Board of Directors at which a quorum is present, and
any action taken by the Board with respect thereto shall be entered in the
minutes of the Board.
Section 3.3. Audit Committee. There shall be an Audit Committee
composed of not less than two outside directors, exclusive of any active
officers of the holding company or its bank subsidiaries, appointed by the
Board annually or more often. The duty of that committee shall be to examine
at least once during each calendar year and within l5 months of the last
examination the affairs of the holding company or its affiliates or cause
suitable examinations to be made by auditors responsible only to the Board of
Directors and to report the result of such examination in writing to the Board
<PAGE>
at the next regular meeting thereafter. Such report shall state whether the
holding company or its affiliates is in a sound condition, and whether
adequate internal controls and procedures are being maintained and shall
recommend to the Board such changes in the manner of conducting the affairs of
the holding company as shall be deemed advisable.
Section 3.4 Other Committees. The Board of Directors may appoint, from
time to time, from its own members, compensation, special litigation and other
committees of one or more persons, for such purposes and with such powers as
the Board may determine.
However, a committee may not:
(1) Authorize distributions of assets or dividends.
(2) Approve action required to be approved by shareholders.
(3) Fill vacancies on the Board of Directors or any of its committees.
(4) Amend articles of incorporation.
(5) Adopt, amend or repeal bylaws.
(6) Authorize or approve issuance or sale or contract for sale of
shares, or determine the designation and relative rights,
preferences and limitations of a class or series of shares.
ARTICLE IV
Officers and Employees
Section 4.1. Chairman of the Board. The Board of Directors may appoint
one of its members to be Chairman of the Board to serve at the pleasure of the
Board. He shall preside at all meetings of the Board of Directors. The
Chairman of the Board shall supervise the carrying out of the policies adopted
or approved by the Board. He shall also have and may exercise such further
powers and duties as from time to time may be conferred upon, or assigned to
him by the Board of Directors.
Section 4.2. President. The Board of Directors shall appoint a
President of the holding company. The President shall have general executive
powers, and shall have and may exercise any and all other powers and duties
pertaining by law, regulation, or practice, to the office of President, or
imposed by these Bylaws. He shall also have and may exercise such further
powers and duties as from time to time may be conferred upon, or assigned to
him by the Board of Directors.
Section 4.3. Executive Vice President. The Board of Directors shall
appoint an Executive Vice President. The Executive Vice President shall have
such powers and duties as may be assigned to him by the Board of Directors.
The Executive Vice President shall be designated by the Board of Directors, in
the absence of the President, to perform all the duties of the President.
<PAGE>
Section 4.4. Secretary. The Board of Directors shall appoint a
Secretary of the Board and of the holding company, and shall keep accurate
minutes of all meetings. He shall give all notices required by these Bylaws.
He shall be custodian of the corporate seal, records, documents and papers of
the holding company. He shall provide for the keeping of proper records of
all transactions of the holding company. He shall have and may exercise any
and all other powers and duties pertaining by law, regulation or practice, or
imposed by these Bylaws. He shall also perform such other duties as may be
assigned to him, from time to time, by the Board of Directors.
Section 4.5. Other Officers. The Board of Directors may appoint one or
more Senior Vice Presidents, one or more Vice Presidents, one or more
Assistant Vice Presidents, one or more Assistant Secretaries, and such other
officers and Attorneys-in-fact as from time to time may appear to the Board of
Directors to be required or desirable to transact the business of the holding
company. Such officers shall respectively exercise such powers and perform
such duties as pertain to their several offices, or as may be conferred upon,
or assigned to them by the Board of Directors, the Chairman of the Board, the
President or Executive Vice President.
Section 4.6. Tenure of Office. Subject to any agreement to the
contrary, the President and Executive Vice President shall hold his office for
the current year for which the Board of which he shall be a member was
elected, unless he shall resign, become disqualified, or be removed, and any
vacancy occurring in the office of President and Executive Vice President
shall be filled promptly by the Board of Directors.
ARTICLE V
Stock and Stock Certificates
Section 5.l. Transfers. Shares of stock shall be transferable on the
books of the holding company or such other party as designated by the Board of
Directors, and a transfer book shall be kept in which all transfers of stock
shall be recorded. Every person becoming a shareholder by such transfer
shall, in proportion to his shares, succeed to all rights of the prior holder
of such shares. The Board of Directors may impose conditions upon the
transfer of the stock reasonably calculated to simplify the work of the
holding company with respect to stock transfers, voting at shareholder's
meetings, and related matters and to protect against fraudulent transfers.
Section 5.2. Stock Certificates. Certificates of Stock shall bear the
signature of any holding company officer and attested by any other holding
company officer. Each certificate shall recite on its face that the stock
represented thereby is transferable only upon the books of the holding company
and properly endorsed.
Section 5.3. Authorized Capital. The amount of authorized capital
stock of this holding company shall be $25,000,000 divided into 5,000,000
shares of common stock, the par value per share of $5, but the capital stock
may be increased or decreased from time to time, in accordance with the
<PAGE>
provisions of the laws of the Commonwealth of Virginia. No shares shall
possess preemptive rights.
ARTICLE VI
Corporate Seal
The President, the Executive Vice President, the Secretary, the
Assistant Secretary or any other officer, shall have authority to affix the
corporate seal to any document requiring such seal, and to attest the same.
Such seal shall be substantially in the following form:
( )
( Impression )
( Of )
( Seal )
( )
<PAGE>
ARTICLE VII
Miscellaneous Provisions
Section 7.l. Fiscal Year. The fiscal year of the holding company shall
be the calendar year.
Section 7.2. Execution of Instruments. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations,
receipts, discharges, releases, satisfactions, settlements, petitions,
schedules, accounts, affidavits, bonds, undertakings, proxies and other
instruments or documents may be signed, executed, acknowledged, verified,
delivered or accepted on behalf of the bank by the President, the Executive
Vice President, any Vice President, the Secretary or Assistant Secretary or
any other holding company officer. The provisions of this Section 7.2 are
supplementary to any provision of these Bylaws.
Section 7.3. Records. The Articles of Incorporation, the Bylaws and
the proceedings of all meetings of the shareholders, the Board of Directors,
standing committees of the Board, shall be recorded in appropriate minute
books provided for the purpose. The minutes of each meeting shall be signed
by the Secretary or other officer appointed to act as Secretary of the
meeting. A shareholder shall be entitled to inspect the records of the
corporation provided (1) he has been a shareholder of record for at least six
months immediately preceding his demand or is the holder of record of at least
five percent off all outstanding shares and (2) he gives the holding company
written notice of his demand at least five business days before the
corporation wishes to inspect and copy, as permitted by Virginia law, from
time to time.
ARTICLE VIII
Bylaws
Section 8.l. Inspection. A copy of the Bylaws, with all amendments
thereto, shall at all times be kept in a convenient place within the holding
company offices, and shall be open for inspection to all shareholders, during
banking hours only, and according to the procedures outlined in Section 7.3.
Section 8.2. Amendments. The Bylaws may be amended, altered or
repealed, at any regular meeting of the Board of Directors, by a vote of a
majority of the whole number of the Directors. The Bylaws may also be
amended, altered or replaced by shareholders either by unanimous action
without a meeting or by a majority vote of the outstanding shares at a duly
called meeting.
hc-corp.by
Exhibit #(13)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of factors that significantly affected the
financial condition and results of operations of FNB Corporation and
subsidiaries. This discussion should be read in connection with the
consolidated financial statements, statistical disclosures and other financial
information presented herein. All amounts presented are denoted in thousands
except per share and percentage data.
Subsequent to December 31, 1995, the Board of Directors of First National Bank
(the "Bank") approved a reorganization whereby a bank holding company
(FNB Corporation) was incorporated under the laws of the Commonwealth of
Virginia. On June 11, 1996, the shareholders of the Bank approved a plan for
the holding company, the successor, to exchange one share of its stock for each
share of stock of the Bank, the predecessor. A registration statement was filed
with the Securities and Exchange Commission (SEC) to register the stock of the
holding company, and such registration statement was subsequently declared
effective by the SEC. On July 11, 1996, the Office of the Comptroller of the
Currency (OCC) approved the plan, and the exchange was subsequently consummated.
As a result, the Bank became a wholly owned subsidiary of the holding company
during the third quarter of 1996.
The financial statements included herein reflect the balances and activity of
the Bank and its subsidiaries for periods ending prior to the consummation of
the reorganization (July 11, 1996) and of the holding company and its
subsidiaries (collectively, the "Corporation") for periods ending subsequent to
the reorganization. The exchange of stock was accounted for using the pooling of
interests method. That is, the bases of the assets and liabilities of the Bank
prior to the reorganization were carried forward without adjustment. Because of
this, and because the holding company's revenues, expenses and changes in
financial position subsequent to the reorganization have been minimal, the
consolidated financial statements for periods subsequent to the reorganization
are comparable to those for periods prior to the reorganization. The
accompanying consolidated statements of income, cash flows and changes in
stockholders' equity for 1996 include the combined activity for the portion of
1996 prior to the consummation of the reorganization as well as that occuring
subsequent to the reorganization.
Net Income
Net income for the year 1996 was $5,204 compared to $4,674 for 1995 and $4,007
for 1994. This amounted to an increase of 11.3% for 1996 compared to an
increase of 16.6% for 1995. Earnings per share were $3.25 for the year 1996
compared to $2.96 for 1995 and $2.57 for 1994. The increases in earnings for
both 1996 and 1995 were primarily the result of increases in net interest income
and declines in the Federal Deposit Insurance Corporation insurance assessment.
Net Interest Income
The principal source of earnings for the Corporation is net interest income.
Net interest income is the net amount of interest earned on interest bearing
assets, less the amount of interest paid on deposits and other interest-bearing
liabilities. Net interest income before provision for loan losses for 1996 was
$15,510, up 8.8% from $14,249 for 1995, which was up 9.0% from $13,067 for 1994.
The increases in net interest income in both 1996 and 1995 were primarily the
result of growth in average earning assets, partially offset by growth in
interest bearing liabilities. Average earning asset growth totaled $28,177 or
8.64% for 1996 and $29,359 or 9.90% for 1995. The largest component of the
increase in earning assets was average loans, reflecting increases of $22,667
or 9.65% for 1996 and $25,236 or 12.04% for 1995. Growth in the loan portfolio
was concentrated primarily in real estate loans, reflecting increases of $15,410
for 1996 and $8,147 for 1995. Average securities increased $5,608 or 6.41% for
1996 and $3,318 or 3.94% for 1995 and were used as an alternative investment for
funds in excess of loan demand.
Average interest-bearing liabilities increased $22,789 or 8.07% for 1996 and
$23,920 or 9.25% for 1995. The largest component of interest-bearing
liabilities was average deposits, reflecting an increase of $16,199 for 1996 and
<PAGE>
$22,528 for 1995. Growth in the deposit portfolio was concentrated in time
deposits with an increase of $14,313 for 1996 and $27,677 for 1995 and in
certificates of deposit of $100 and over with an increase of $6,049 for 1996 and
$4,605 for 1995. Successful deposit promotions and more aggressive bidding for
deposits accounted for the increase. Other borrowed funds increased $7,124 for
1996 and $1,403 for 1995. The primary reason for the change was an increase in
advances from the Federal Home Loan Bank of Atlanta, as the Corporation
increasingly utilized this source of funds.
Net interest yield increased to 4.80% for 1996 from 4.73% for 1995 and 4.67% for
1994. The yield on average earning assets was essentially unchanged in 1996
compared to a 66 basis point increase for 1995. The cost of interest-bearing
liabilities decreased 6 basis points for 1996 compared to a 72 basis point
increase in 1995. The wider earnings spread reflected the Corporation's
management of its interest rate position which benefited from a downward
trending interest rate environment.
Overall, 84.2% and 85.3% of the net interest income increases in 1996 and 1995,
respectively, were attributable to changes in the volume of net interest-earning
assets and interest-bearing liabilities. The remainder of the increases in both
years was due to changes in average rates.
Management attempts to match, where possible, the maturities and repricing
intervals of its interest earning assets and interest bearing liabilities. The
largest cumulative interest sensitivity gap for periods up to five years is
$40.8 million, which represents 10.9% and 12.6% of total interest earning assets
and interest bearing liabilities at December 31, 1996, respectively. The
sensitivity gap for the period beyond five years is $48.8 million. Management
considers the interest rate exposure represented by these gaps to be acceptable.
Provision for Loan Losses
The provision for loan losses was $595 for 1996, $300 for 1995 and $360 for
1994. Net charge-offs amounted to $404, $127 and $16 for 1996, 1995 and 1994,
respectively. The increase in net charge-offs was due to a drop in recoveries
of loans previously charged off. An unusually high level of recoveries occurred
in 1994. The allowance for loan losses was $4,179, 1.53% of outstanding loans,
at December 31, 1996 and $3,988, 1.58% of outstanding loans, at December 31,
1995. With the increase in net charge-offs, the provision for loan losses was
also increased and the allowance for loan losses reflected a corresponding
increase. Management believes the allowance for loan losses as a percentage of
outstanding loans remains at a prudent level.
Noninterest Income
Noninterest income, which includes service charges on deposit accounts, loan
origination fees, other service charges, other income and net securities gains
(losses), was $2,034, $1,869 and $1,704 for 1996, 1995 and 1994, respectively.
The 1996 increase in noninterest income resulted primarily from an increase in
fees on Small Business Administration and real estate loans sold, trust fees,
title insurance income and gain on disposal of fixed assets. The increase in
noninterest income for 1995 was due primarily to increases in service charges on
deposit accounts and a reduction in securities losses. Increases for both 1996
and 1995 were partially offset by reductions in other areas.
Noninterest Expense
Noninterest expense, consisting of salaries and employee benefits, occupancy
costs, credit cards, supplies, FDIC assessment and other expenses was $10,254
for 1996, $9,695 for 1995 and $9,010 for 1994. The 1996 net increase in
noninterest expense resulted from increases in several categories, primarily
personnel costs and credit cards. Personnel costs increased primarily as the
result of merit increases, and additional personnel to staff two new branches.
The 1995 net increase resulted from increases in personnel costs, occupancy and
equipment expense and supplies expense. The increases for both 1996 and 1995
were partially offset by reductions in other areas, most notably in Federal
Deposit Insurance Corporation assessment expense. The decline in the FDIC
assessments resulted from revisions by the FDIC to the assessment rate schedule.
These revisions not only reduced the assessments applicable to the Corporation
for 1995 and 1996, but also resulted in a refund of $179 received in 1995.
<PAGE>
Income Taxes
Income tax expense as a percentage of pre-tax income was 22.3%, 23.7% and 25.8%
in 1996, 1995 and 1994, respectively. The decline in the rate for both years
was due to the continuing shift from taxable to nontaxable investment
securities.
Balance Sheet
Total assets at December 31, 1996, were $395,324, compared to $360,533 at
December 31, 1995. Total loans were $273,381 at December 31, 1996, an increase
of $20,939 from December 31, 1995. Loan growth was concentrated in the real
estate-mortgage portfolio and amounted to $20,351. The real estate-construction
portfolio decreased $4,674. All other loan portfolios experienced increases of
varying amounts. On an amortized cost basis, securities increased $10,386 from
$87,646 at December 31, 1995. The increase in securities represented funds in
excess of loan demand. The increase in bank premises and equipment of $5,697
represented advances for the construction of the new corporate headquarters
building.
Total deposits at December 31, 1996, were $335,402, an increase of $19,625 from
December 31, 1995. Certificates of deposit of $100 and over increased $11,347
and time deposits increased $8,608 since year end 1995. These increases were
partially offset by a decrease of $6,493 in savings deposits since year end
1995. Depositors continue to shift funds among the various types of deposit
instruments seeking the most advantageous return while maintaining an acceptable
level of liquidity. More aggressive bidding for deposits contributed to the
overall increase.
Other borrowed funds at December 31, 1996, were $14,404, an increase of $12,036
from December 31, 1995. The primary reason for the change was an increase in
advances from the Federal Home Loan Bank of Atlanta from $1,967 at December 31,
1995, to $12,779 at December 31, 1996, to provide partial funding for earning
asset growth.
Stockholders' Equity
Stockholders' equity was $35,828 at December 31, 1996, compared to $32,191 at
December 31, 1995. This increase of $3,637 was the net result of earnings
retention, an improvement of $246 in net unrealized gain or loss (net of tax) on
securities available-for-sale, a decrease of $604 in unearned ESOP shares
resulting from principal repayments on ESOP debt, and dividends paid to
shareholders.
All financial institutions are required to maintain minimum levels of regulatory
capital. The Federal Reserve and the Office of Comptroller of the Currency
(OCC) have established substantially similar risk-based and leveraged capital
standards for financial institutions they regulate. Under the risk-based
capital requirements of these regulatory agencies, the Corporation is required
to maintain a minimum ratio of total capital to risk-weighted assets of at least
8%. At least half of the total capital is required to be "Tier 1 capital", which
consists principally of common and certain qualifying preferred shareholders'
equity, less certain intangibles and other adjustments. The remainder, "Tier
2 capital", consists of a limited amount of subordinated and other qualifying
debt and a limited amount of the general loan loss reserve. Tier 1 and total
capital to risk-weighted assets ratios as of December 31, 1996 were 13.1% and
14.3%, respectively, exceeding the minimums required.
In addition, the federal regulatory agencies have established a minimum
leveraged capital ratio (Tier 1 capital to tangible assets). These guidelines
provide for a minimum leveraged capital ratio of 3% for banks and their
respective holding companies that meet certain specified criteria, including
that they have the highest regulatory examination rating and are not
contemplating significant growth or expansion. All other institutions are
expected to maintain a leverage ratio of at least 100 to 200 basis points above
that minimum. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets. The leverage ratio of the
Corporation as of December 31, 1996 was 9.7% as compared to a minimum
requirement of 4.0%.
Past Due Loans and Nonperforming Assets
Loans past due 90 days and over at December 31, 1996 totaled $595 compared to
$43 at December 31, 1995. In addition, nonaccrual loans and other real estate
owned totaled $758 at December 31, 1996, compared to $2,156 at December 31,
<PAGE>
1995. In spite of the increase in loans past due 90 days and over, the New
River Valley economy continues to improve, and such improvement has been
reflected in a declining trend of nonperforming assets in recent years. There
were no major concentrations in nonaccrual loans at December 31, 1996.
Approximately 50% of nonaccrual loans were outstanding to a single borrower and
related parties at December 31, 1995.
As of January 1, 1995, the Corporation adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan," and
Statement No. 118, "Accounting by Creditors for Impairment of a Loan--Income
Recognition and Disclosure." These Statements were adopted on a prospective
basis and had no material impact on the financial statements. See Note 7 to
the consolidated financial statements for additional information on loan
impairment.
Liquidity
Liquidity is the ability to provide sufficient cash flow to meet financial
commitments and to fund additional loan demand or withdrawal of existing
deposits. Liquidity remains sufficient, as assets are maintained on a short-
term basis to meet the liquidity demands anticipated by management. Funding
sources primarily include customer-based core deposits and cash generated by
operations. Another source of liquidity is additional borrowings from the
Federal Home Loan Bank of Atlanta; in excess of $15 million of the
Corporation's borrowing capacity under an existing agreement with the FHLB
remains unused as of December 31, 1996, based on the level of qualifying
portfolio mortgage loans available for securitization. Secondary sources of
liquidity are available should the need arise, including approximately $32,000
in unused Federal Funds lines of credit and the ability to liquidate assets
held for sale, especially investment securities.
The only significant source of cash for the holding company is transfers from
its bank subsidiary in the form of dividends, loans, or advances. The most
restrictive regulatory limitation placed on the amount of funds that may be
transferred from the Bank to the holding company is that placed on dividends.
Specifically, the maximum amount of dividends that may be paid by the Bank in
any calendar year without prior regulatory approval is the net profits of that
year, as defined, combined with the retained net profits for the two preceding
years. In effect, this limits 1997 dividends (unless prior regulatory approval
is obtained) to $6,212 plus year-to-date 1997 net profits as of the declaration
date. This limitation had no effect on the liquidity of the holding company in
1996, and it is not expected to have any material impact in 1997.
Construction on a new corporate headquarters facility is expected to be
completed during the first quarter of 1997. Costs approximating $933 had not
been paid as of December 31, 1996.
Effects of Inflation
The income statement generally reflects the effects of inflation. Since
interest rates, loan activities and deposit levels are related to inflation, the
resulting changes are included in net income. The most significant item that
does not reflect the effects of inflation is depreciation expense because
historically presented dollar values used to determine this expense do not
reflect the effects of inflation on the market value of depreciable assets.
Recent Accounting Developments
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
Statement provides standards for distinguishing between transfers of financial
assets that should be accounted for as sales and those that should be accounted
for as collateralized borrowings. In essence, transactions in which the
transferor has surrendered control of the financial asset must be recorded as
sales, and those in which control has not been surrendered should be recorded
as borrowings. The Statement specifies various circumstances that would
indicate whether control has been effectively surrendered or not. Transactions
engaged in by the Corporation which could be covered by the Statement include
sales of loans with retainage of servicing rights, securities sold under
agreement to repurchase (repurchase agreements), participations sold or
purchased, and borrowings secured by loans. The Statement as originally issued
was required to be adopted prospectively to transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1996. No
restatement of previously issued financial statements will be permitted.
However, the FASB has since issued SFAS No. 127, which defers the adoption date
for certain portions of SFAS No. 125 for one year. The primary types of
transactions engaged in by the Corporation for which the delay is applicable are
collateralized borrowings and repurchase agreements. Management has not yet
estimated the potential impact of SFAS 125 on the Corporation's financial
statements.
<PAGE>
Market Price and Dividend Data
The following information reflects per share data for the periods indicated
relative to Common Stock trading values and dividends. FNB Corporation Common
Stock began appearing on NASDAQ's OTC Bulletin Board under the symbol FNBP on
November 15, 1996. Shares are occasionally bought and sold by private
individuals, firms or corporations, and in many instances FNB Corporation does
not have knowledge of the purchase price or the terms of the purchase. The
information below relating to the trading values for the stock is based upon
information furnished to FNB Corporation by one or more parties involved in
certain purchases and sales of the stock. No attempt was made to verify or
determine the accuracy of the representations made. As of December 31, 1996,
there were 1,082 holders of record of FNB Corporation Common Stock.
The information below relating to periods prior to the effective date of the
reorganization discussed under Management's Discussion and Analysis relate to
the Common Stock of First National Bank, the predecessor entity. The stock of
First National Bank was not reported on the NASDAQ or any other quotation system
or traded on any organized exchange. See Note 1 to the consolidated financial
statements included herein.
<TABLE>
<CAPTION>
Trading Value Dividends
1996 High Low Per Share
<S> <C> <C> <C>
First Quarter $ 43.75 42.50 --
Second Quarter 43.75 42.00 0.50
Third Quarter 44.00 43.50 --
Fourth Quarter 44.50 43.50 0.70
</TABLE>
<TABLE>
<CAPTION>
Trading Value Dividends
1995 High Low Per Share
<S> <C> <C> <C>
First Quarter $ 42.50 42.00 --
Second Quarter 42.50 40.00 0.45
Third Quarter 42.50 41.00 --
Fourth Quarter 42.50 42.00 0.65
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION Years Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Selected income statement data
(in thousands):
Interest income $ 30,526 28,330 24,089 23,200 24,669
Interest expense 15,016 14,081 11,022 11,339 13,535
Net interest income 15,510 14,249 13,067 11,861 11,134
Provision for loan
losses 595 300 360 1,125 1,500
Noninterest income 2,034 1,869 1,704 2,435 2,025
Noninterest expense 10,254 9,695 9,010 8,757 8,590
Income tax expense 1,491 1,449 1,394 824 622
Income before cumulative
effects of changes
in accounting
principles 5,204 4,674 4,007 3,590 2,447
Cumulative effect of
change in accounting
for postretirement
benefits other than
pensions, net - - - (179) -
Cumulative effect of
change in accounting
for income taxes - - - 337 -
Net income $ 5,204 4,674 4,007 3,748 2,447
Per share data:
Net income $ 3.25 2.96 2.57 2.41 1.57
Cash dividends declared 1.20 1.10 1.45 .73 .50
Book value per share 22.28 20.28 16.99 16.97 15.29
Average number of shares
outstanding 1,602,566 1,581,436 1,557,855 1,554,960 1,554,960
Selected balance sheet
data at year end
(in thousands):
Total securities $ 97,975 87,962 86,013 85,276 72,296
Loans, net 269,145 248,305 213,899 201,381 200,179
Allowance for loan
losses 4,179 3,988 3,815 3,471 3,068
Total assets 395,324 360,533 323,876 307,516 292,059
Deposits 335,402 315,777 286,130 271,406 259,077
Subordinated capital
notes - 937 1,044 1,152 1,259
Stockholders' equity 35,828 32,191 26,777 26,392 23,775
Selected ratios
(in percentages):
Return on average assets 1.41 1.38 1.29 1.26 .85
Return on average equity 15.20 15.64 14.93 15.23 10.73
Dividend pay-out ratio 36.99 37.27 56.25 30.17 31.79
Average equity to average
assets 9.26 8.82 8.68 8.30 7.89
</TABLE>
NOTES:(1) All share and per share data have been adjusted retroactively to
reflect the stock dividend in 1994.
(2) See Note 1 to the consolidated financial statements for information
relating to a change in reporting entity resulting from a
reorganization involving the formation of a bank holding company (the
successor) and the exchange of one share of the holding company's
stock for each share of First National Bank (the predecessor). For
reasons discussed in Note 1, the information in the table above for
periods prior to the reorganization are comparable to that for the
period subsequent to the reorganization.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
FNB Corporation
We have audited the accompanying consolidated balance sheets of FNB Corporation
and subsidiaries as of December 31, 1996 and of First National Bank and
subsidiaries as of December 31, 1995, and the related consolidated statements
of income, changes in stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. The consolidated
financial statements of First National Bank and subsidiaries for the year ended
December 31, 1994 were audited by other auditors whose report dated February 10,
1995 expressed an unqualified opinion on those statements. Such report included
an explanatory paragraph that referred to the adoption of Statement of Financial
Accounting Standards No. 115.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FNB Corporation and
subsidiaries as of December 31, 1996 and of First National Bank and subsidiaries
as of December 31, 1995, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, FNB Corporation
was formed in 1996 and acquired 100% of the outstanding common stock of First
National Bank, the predecessor reporting entity.
Roanoke, Virginia
February 21, 1997
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996 and 1995
CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)
FNB Corporation First National Bank
and Subsidiaries and Subsidiaries
1996 1995
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,277 8,818
Federal funds sold 2,500 5,430
Securities available-for-sale, at fair value 54,886 47,851
Securities held-to-maturity, at amortized cost 43,089 40,111
Mortgage loans held for sale 330 817
Loans:
Commercial 56,461 52,374
Consumer 62,906 61,888
Real estate- commercial 52,232 52,075
Real estate - construction 4,926 9,600
Real estate - mortgage 96,856 76,505
Total loans 273,381 252,442
Less unearned income 57 149
Loans, net of unearned income 273,324 252,293
Less allowance for loan losses 4,179 3,988
Loans, net 269,145 248,305
Bank premises and equipment, net 10,283 4,586
Other real estate owned 185 387
Other assets 4,629 4,228
Total assets $ 395,324 360,533
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand deposits $ 30,798 27,991
Interest-bearing demand deposits 47,603 44,247
Savings deposits 47,998 54,491
Time deposits 171,003 162,395
Certificates of deposit of $100,000
and over 38,000 26,653
Total deposits 335,402 315,777
Securities sold under agreements
to repurchase 4,795 3,942
Other borrowed funds 14,404 2,368
Other liabilities 3,643 3,392
ESOP debt 1,252 1,926
Subordinated capital notes - 937
Total liabilities 359,496 328,342
Stockholders' equity:
Common stock, $5.00 par value.
Authorized 5,000,000 shares;
issued and outstanding 1,661,900
shares in 1996 and 1995 8,310 8,310
Surplus 10,782 10,782
Unearned ESOP shares (53,470 and
74,858 shares in 1996 and 1995,
respectively) (1,511) (2,115)
Retained earnings 18,285 15,006
Net unrealized gains (losses)
on securities available-for-sale (38) 208
Total stockholders' equity 35,828 32,191
Total liabilities and
stockholders' equity $ 395,324 360,533
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,1996, 1995 and 1994
CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data)
FNB Corporation First National Bank
and Subsidiaries and Subsidiaries
1996 1995 1994
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 24,962 23,072 19,074
Interest on securities:
Taxable 2,998 3,109 3,607
Nontaxable 2,378 1,963 1,280
Interest on federal funds sold 188 186 128
Total interest income 30,526 28,330 24,089
Interest expense:
Interest on interest-bearing
demand deposits 1,280 1,410 1,244
Interest on savings deposits 1,395 1,692 1,916
Interest on time deposits 9,497 8,740 6,180
Interest on certificates of
deposit of $100,000 and over 1,856 1,603 1,259
Interest on securities sold
under agreements to repurchase 229 232 184
Interest on other borrowed funds 574 144 39
Interest on subordinated capital notes 67 87 83
Interest on ESOP debt 118 173 117
Total interest expense 15,016 14,081 11,022
Net interest income 15,510 14,249 13,067
Provision for loan losses 595 300 360
Net interest income after provision
for loan losses 14,915 13,949 12,707
Noninterest income:
Service charges on deposit accounts 957 910 787
Loan origination fees 223 199 234
Other service charges and fees 332 279 285
Other income 517 477 505
Securities gains (losses), net 5 4 (107)
Total noninterest income 2,034 1,869 1,704
Noninterest expense:
Salaries and employee benefits 5,745 5,170 4,687
Occupancy and equipment expense, net 1,285 1,267 1,137
Credit card expense 572 464 379
Supplies expense 371 384 342
FDIC assessment expense 2 333 610
Other expenses 2,279 2,077 1,855
Total noninterest expe nse 10,254 9,695 9,010
Income before income tax expense 6,695 6,123 5,401
Income tax expense 1,491 1,449 1,394
Net income $ 5,204 4,674 4,007
Net income per share $ 3.25 2.96 2.57
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
CASH FLOWS
FNB Corporation First National Bank
and Subsidiaries and Subsidiaries
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,204 4,674 4,007
Adjustments to reconcile net income
to net cash provided
by operating activities:
Provision for loan losses 595 300 360
Depreciation and amortization
of bank premises and equipment 549 538 499
ESOP compensation 604 302 604
Provision for deferred income taxes 64 (90) 104
Loss (gain) on sales of securities
available-for-sale, net (5) - 109
Amortization of premiums and
accretion of discounts, net 73 20 111
Gain on sales of securities
held-to-maturity, net 0 (4) (2)
Decrease in valuation allowance
for securities 0 (209) -
Loss (gain) on sale of other real
estate and equipment (47) 12 18
Proceeds from sales of mortgage
loans held for sale 11,843 14,125 11,270
Origination of mortgage loans
held for sale (11,356) (14,487) (10,389)
Decrease (increase) in other assets (401) 1,169 (410)
(Decrease) increase in other
liabilities 251 385 (1,361)
Net cash provided by operating
activities 7,374 6,735 4,920
Cash flows from investing activities:
Net decrease (increase) in federal
funds sold 2,930 (3,000) (250)
Proceeds from sales of securities
available-for-sale 9,462 - 10,611
Proceeds from calls and maturities
of securities available-for-sale 10,895 15,009 16,291
Proceeds from calls and maturities
of securities held-to-maturity 3,037 2,626 2,304
Purchases of securities available-
for-sale (27,834) (4,456) (21,755)
Purchase of securities held-to-maturity (6,047) (11,783) (11,394)
Net increase in loans (21,739) (35,989) (12,774)
Proceeds from sale of other real
estate owned 449 197 1,293
Recoveries on loans previously charged off 156 238 500
Bank premises and equipment expenditures (6,203) (985) (1,041)
Net cash used in investing
activities (34,894) (38,143) (16,215)
Cash flows from financing activities:
Net increase (decrease) in
demand deposits (330) 3,799 (8,016)
Net increase in time deposits
and certificates of deposit 19,955 25,848 22,740
Net increase (decrease) in
securities sold under agreements
to repurchase 853 838 (1,095)
Net increase in other borrowed
funds 12,036 868 1,500
Principal payments on ESOP debt (604) (302) (604)
Principal payments on subordinated
capital notes (937) (107) (108)
Dividends paid (1,924) (1,742) (2,254)
Dividends on unallocated ESOP
shares (70) (87) (102)
Proceeds from sale of shares
to ESOP - - 3,021
Net cash provided by
financing activities 28,979 29,115 15,082
Net increase (decrease) in cash
and due from banks 1,459 (2,293) 3,787
Cash and due from banks at beginning
of year 8,818 11,111 7,324
Cash and due from banks at end of year $ 10,277 8,818 11,111
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31,1996, 1995 and 1994
(in thousands, except share and per share data)
Net
Unrealized
Gains
(Losses) on
Unearned Securities
Common ESOP Retained Available-
Stock Surplus Shares Earnings for-Sale Total
<S> <C> <C> <C> <C> <C> <C>
First National Bank and Subsidiaries
Balances at
December 31, 1993 $7,068 4,479 - 14,845 - 26,392
Net income - - - 4,007 - 4,007
Cash dividends, $1.45
per share - - - (2,254) - (2,254)
Cumulative effect of change in
accounting for securities
available-for-sale, net of
income taxes of $421 - - - - 817 817
10% stock dividend
(141,360 shares) 707 3,817 - (4,524) - -
Unallocated shares purchased
by ESOP (106,940 shares) 535 2,486 (3,021) - - -
ESOP shares allocated upon
loan repayment - - 604 - - 604
Change in net unrealized gains
(losses) on securities
available-for-sale, net of
income tax effect of $1,437 - - - - (2,789) (2,789)
Balances at December 31,
1994 8,310 10,782 (2,417) 12,074 (1,972) 26,777
Net income - - - 4,674 - 4,674
Cash dividends, $1.10 per share - - - (1,742) - (1,742)
ESOP shares allocated upon loan
repayment - - 302 - - 302
Change in net unrealized gains
(losses) on securities
available-for-sale, net of
income tax effect of $1,123 - - - - 2,180 2,180
Balances at December 31,
1995 8,310 10,782 (2,115) 15,006 208 32,191
FNB Corporation and Subsidiaries
Net income 5,204 5,204
Cash dividends, $1.20 per share (1,925) (1,925)
ESOP shares allocated upon loan
repayment 604 604
Change in net unrealized gains
(losses) on securities available for
sale, net of tax effect of $127 (246) (246)
Balances at December 31,
1996 $8,310 10,782 (1,511) 18,285 (38) 35,828
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996
(in thousands, except share data)
(1) Change in reporting entity
Subsequent to December 31, 1995, the Board of Directors of First National
Bank (the "Bank") approved a reorganization whereby a bank holding company
(FNB Corporation) was incorporated under the laws of the Commonwealth of
Virginia. On June 11, 1996, the shareholders of the Bank approved a plan
for the holding company, the successor, to exchange one share of its stock
for each share of stock of the Bank, the predecessor. A registration
statement was filed with the Securities and Exchange Commission (SEC) to
register the stock of the holding company, and such registration statement
was subsequently declared effective by the SEC. On July 11, 1996, the
Office of the Comptroller of the Currency (OCC) approved the plan, and the
exchange was subsequently consummated. As a result, the Bank became a
wholly owned subsidiary of the holding company during the third quarter of
1996, and the holding company began filing periodic reports under the
Securities Exchange Act of 1934. Prior to the consummation of the
exchange, the Bank filed periodic reports with the OCC. The par value per
share and the total number of shares outstanding of the holding company
immediately after the reorganization was the same as that of the Bank
immediately prior to the reorganization.
The financial statements included herein reflect the balances and activity
of the Bank and its subsidiaries for periods ending prior to the
consummation of the reorganization (July 11, 1996) and of the holding
company and its subsidiaries for periods ending subsequent to the
reorganization. The exchange of stock was accounted for using the pooling
of interests method. That is, the bases of the assets and liabilities
of the Bank prior to the reorganization were carried forward without
adjustment. Because of this, and because the holding company's revenues,
expenses and changes in financial position subsequent to the
reorganization have been minimal, the consolidated financial statements
for periods subsequent to the reorganization are comparable to those for
periods prior to the reorganization. The accompanying consolidated
statements of income, cash flows and changes in stockholders' equity for
1996 include the combined activity for the portion of 1996 prior to the
consummation of the reorganization as well as that occurring subsequent to
the reorganization.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of FNB Corporation and its wholly-owned
subsidiaries (collectively, the "Corporation") conform to generally accepted
accounting principles and general practices within the banking industry. In
preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheet and revenues and expenses for the year.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant changes in
the near term relate to the determination of the allowance for loan losses and
the valuation of other real estate owned acquired in connection with
foreclosures or in satisfaction of loans. In connection with the determination
of the allowance for loan losses and the valuation of other real estate owned,
management obtains independent appraisals for significant properties.
Management believes that the allowance for loan losses and the valuation of
other real estate owned are adequate. While management uses available
information to recognize loan losses and write-downs of other real estate owned,
future additions to the allowance and write-downs of other real estate owned
may be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses and valuation of other real
estate owned. Such agencies may require the Bank to recognize additions to the
allowance for loan losses and additional write-downs of other real estate owned
based on their judgments of information available to them at the time of their
examination.
<PAGE>
The following is a summary of the more significant accounting policies.
(a) Consolidation
The consolidated financial statements include the accounts of FNB Corporation,
a bank holding company, and its wholly-owned subsidiaries. For periods prior to
the reorganization discussed above, the consolidated financial statements
include the accounts of First National Bank and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated.
(b) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include those
amounts in the balance sheet caption, cash and due from banks. Generally, cash
and cash equivalents are considered to have maturities of three months or less.
The Bank maintains amounts due from banks which, at times, may exceed federally
insured limits. No losses have been experienced in such accounts.
(c) Securities
Effective January 1, 1994, the Bank adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," and accordingly, has recorded the effect in the
consolidated financial statements for the year ended December 31, 1994.
Statement 115 addresses the accounting and reporting for investments in debt
and equity securities by requiring such investments to be classified in three
categories and accounted for as follows:
Debt securities which the Bank has the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and
reported at amortized cost, computed by the level yield method.
Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as
trading securities and reported at fair value, with unrealized gains
and losses included in income. The Corporation has no trading
securities.
Debt and equity securities not classified as either held-to-maturity
or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and
losses excluded from income and reported as a separate component of
stockholders' equity, net of the related income tax effect.
Gains and losses on sales of securities are based on the net proceeds and
adjusted carrying amount of the security sold using the specific
identification method. Declines in fair values of individual securities below
their cost that are other than temporary are charged to income resulting in a
new cost basis for the security.
(d) Loans
Loans are stated at the amount of funds disbursed plus the applicable amount,
if any, of unearned interest and deferred fees and costs less payments
received. Interest on commercial and real estate mortgage loans is accrued
based on the average loans outstanding times the applicable interest rates.
Interest on installment loans is recognized on methods which approximate the
level yield method. Loan origination and commitment fees and certain costs
are deferred, and the net amount is amortized over the contractual life of the
related loans as an adjustment of the yield.
Interest related to nonaccrual loans is recognized on the cash basis. Loans
are generally placed on nonaccrual status when the collection of principal or
interest is 90 days or more past due, unless the obligation is both well-secured
and in the process of collection.
<PAGE>
Mortgage loans held for sale are carried at the lower of aggregate cost or
market value. Loans sold are removed from the accounts and any realized gain
or loss is recorded.
(e) Bank Premises and Equipment, Net
Bank premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization is charged to expense over
the estimated useful lives of the assets, principally on the straight-line
method. Costs of maintenance and repairs are charged to expense as incurred
and improvements are capitalized.
(f) Other Real Estate Owned
Other real estate owned represents properties acquired through foreclosure or
deed taken in lieu of foreclosure. At the time of acquisition, these
properties are recorded at the lower of the recorded investment in the loan or
fair value minus estimated costs to sell. Expenses incurred in connection with
operating these properties and subsequent write-downs, if any, are charged to
expense. Gains and losses on the sales of these properties are credited or
charged to income in the year of the sale.
(g) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(h) Net Income Per Share
Net income per share computations are based on the weighted average number of
shares outstanding during each year (1,602,566, 1,581,436, and 1,557,855 in
1996, 1995 and 1994, respectively). The weighted average shares outstanding do
not include unearned shares held by the Employee Stock Ownership Plan (ESOP).
The shares held by the ESOP are not considered outstanding for net income per
share calculations until the shares are released. Per share data has been
adjusted for the 1994 stock dividend. The par value per share and the total
number of shares outstanding were not affected by the reorganization discussed
above.
(i) Trust Assets
Assets held by the Bank's trust department in a fiduciary or agency capacity
are not included in the consolidated financial statements as they are not
assets of the Corporation.
(j) Reclassifications
Certain reclassifications have been made to prior year amounts to conform to
the 1996 presentation.
(3) RESTRICTIONS ON CASH
Federal reserve regulations require the Bank to maintain certain average
balances as cash reserves. The reserve requirements approximated $3,328 and
$2,712 at December 31, 1996 and 1995, respectively.
(4) SECURITIES AVAILABLE-FOR-SALE
As discussed above, effective January 1, 1994, the Bank adopted the provisions
of Statement 115. Upon adoption of Statement 115, certain securities totaling
$64,112 were reclassified from securities held-to-maturity to securities
available-for-sale. The cumulative effect of this change in accounting at
<PAGE>
January 1, 1994 was to increase stockholders' equity by $817. The following
sets forth the composition of securities available-for-sale, which are
reported at fair value, at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
December 31, 1996 Costs Gains Losses Values
<S> <C> <C> <C> <C>
U.S. Treasury $ 5,634 29 (16) 5,647
U.S. Government
agencies and
corporations 38,165 130 (306) 37,989
States and political
subdivisions 3,981 79 (13) 4,047
Other securities 7,164 63 (24) 7,203
Totals $ 54,944 301 (359) 54,886
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
December 31, 1995 Costs Gains Losses Values
<S> <C> <C> <C> <C>
U.S. Treasury $ 9,513 128 (2) 9,639
U.S. Government
agencies and
corporations 25,840 132 (98) 25,874
States and political
subdivisions 2,304 84 - 2,388
Other securities 9,878 161 (89) 9,950
Totals $ 47,535 505 (189) 47,851
</TABLE>
The amortized costs and approximate fair values of securities available-for-sale
by contractual maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Approximate
Amortized Fair
December 31, 1996 Costs Values
<S> <C> <C>
Due in one year or less $ 4,294 4,312
Due after one year through
five years 20,596 20,537
Due after five years through
ten years 22,850 22,840
Due after ten years 7,204 7,197
Totals $ 54,944 54,886
</TABLE>
Realized gains and losses on securities available-for-sale were not material
in 1996 or 1995. Gross gains of $83 and gross losses of $192 were realized
in 1994.
The carrying value of securities available-for-sale pledged to secure public
and trust deposits and securities sold under agreements to repurchase, and for
other purposes as required or permitted by law, was $17,650 at December 31, 1996
and $15,158 at December 31, 1995.
<PAGE>
(5) SECURITIES HELD-TO-MATURITY
The amortized costs, gross unrealized gains and losses, and approximate fair
values of securities held-to-maturity at December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
December 31, 1996 Costs Gains Losses Values
<S> <C> <C> <C> <C>
U.S. Government
agencies and
corporations $ 500 1 - 501
States and political
subdivisions 42,394 830 (288) 42,936
Other securities 195 - - 195
Totals $ 43,089 831 (288) 43,632
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
December 31, 1995 Costs Gains Losses Values
<S> <C> <C> <C> <C>
U.S. Government
agencies and
corporations $ 500 6 - 506
States and political
subdivisions 39,110 1,032 (149) 39,993
Other securities 501 1 - 502
Totals $ 40,111 1,039 (149) 41,001
</TABLE>
The amortized costs and approximate fair values of securities held-to-maturity
at December 31, 1996 by contractual maturity are shown below. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION> Approximate
Amortized Fair
December 31, 1996 Costs Values
<S> <C> <C>
Due in one year or less $ 1,703 1,703
Due after one year through
five years 14,940 15,157
Due after five years through
ten years 24,249 24,573
Due after ten years 2,197 2,199
Totals $ 43,089 43,632
</TABLE>
Realized gains and losses on sales, calls and maturities on securities
held-to-maturity were not material. The carrying value of securities held-to-
maturity pledged to secure public and trust deposits and securities sold under
agreements to repurchase, and for other purposes as required or permitted by
law, was $14,690 and $16,815 at December 31, 1996 and 1995, respectively.
(6) LOANS
At December 31, 1996 and 1995, there were direct loans to officers and directors
of $4,121 and $3,084, respectively. During 1996, new direct loans to officers
and directors amounted to $1,294 and repayments amounted to $257. In addition,
there were loans of $7,184 and $6,861 at December 31, 1996 and 1995,
respectively, which were endorsed by directors or had been made to companies
in which directors had an equity interest.
<PAGE>
At December 31, 1996 and 1995, the Corporation had sold without recourse,
participations in various loans to financial institutions and other customers
of the Corporation in the amount of $29,200 and $29,000, respectively.
(7) ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS
As of January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan," and Statement No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures." These new standards require that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. They also require creditors to
evaluate the collectibility of both contractual interest and contractual
principal of all receivables when assessing the need for a loss accrual.
Creditors may continue to use existing methods of recognizing interest income
on an impaired loan. These Statements were adopted on a prospective basis and
had no material impact on the financial statements.
A loan is considered impaired when, based on management's judgment, it is
probable that the Corporation will not be able to collect on all amounts due
according to the contractual terms of the loan. In making such assessment,
management considers the individual strength of borrowers, the strength of
particular industries, the payment history of individual loans, the value and
marketability of collateral and general economic conditions. Management's
methodology for evaluating the collectibility of a loan after it is deemed to
be impaired does not differ from the methodology used for nonimpaired loans.
As of December 31, 1996 and 1995, the investment in impaired loans approximated
$1,963 and $2,885, respectively. The December 31, 1996 and 1995 allowances for
loan losses includes allowances of $335 and $498, respectively, for these loans.
Impaired loans averaged $2,933 during 1996 and $2,166 during 1995. Interest on
impaired loans is recognized in the same manner as loans that are not considered
impaired under Statement 114; that is, interest is generally recognized on the
cash basis once the collection of principal or interest is 90 days or more past
due.
A summary of the changes in the allowance for loan losses (including allowances
for impaired loans) follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $ 3,988 3,815 3,471
Provisions for loan losses 595 300 360
Loan recoveries 156 238 500
Loan charge-offs (560) (365) (516)
Balance at end of year $ 4,179 3,988 3,815
</TABLE>
Nonperforming assets consist of the following:
<TABLE>
<CAPTION>
December 31, 1996 1995
<S> <C> <C>
Nonaccrual loans $ 573 1,769
Other real estate owned 185 387
Total nonperforming assets $ 758 2,156
</TABLE>
There were no material commitments to lend additional funds to customers whose
loans were classified as nonperforming at December 31, 1996.
<PAGE>
The following table shows the pro forma interest that would have been earned on
impaired loans if interest had been recorded using the cash basis and the
recorded interest that was included in income on these loans:
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995
<S> <C> <C>
Cash basis interest - impaired loans $ 122 81
Recorded interest - impaired loans $ 131 51
</TABLE>
For 1994, substantially no interest income was recorded for nonaccrual loans.
Had the loans been current in accordance with their original terms, recorded
interest would have totaled $90.
(8) BANK PREMISES AND EQUIPMENT, NET
Bank premises and equipment are stated at cost less accumulated depreciation
and amortization as follows:
<TABLE>
<CAPTION>
December 31, 1996 1995
<S> <C> <C>
Land $ 1,174 925
Buildings 2,763 2,297
Furniture and equipment 4,936 3,821
Leasehold improvements 379 309
Construction in progress 5,736 1,434
14,988 8,786
Less accumulated depreciation and amortization 4,705 4,200
Totals $ 10,283 4,586
</TABLE>
Included in construction in progress at December 31, 1996 is $132 of capitalized
interest related to the construction of a new headquarters facility.
(9) DEPOSITS
At December 31, 1996, there were deposits from officers and directors of $1,366.
Time deposits and certificates of deposit of $100,000 and over as of December
31, 1996 mature as follows:
<TABLE>
<S> <C>
1997 $ 121,297
1998 32,261
1999 19,903
2000 30,017
2001 5,216
Thereafter 309
$ 209,003
</TABLE>
(10) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED FUNDS
Advances from the Federal Home Loan Bank of Atlanta were $12.8 million and $2
million on December 31, 1996 and 1995, respectively. The fixed interest rates
on the advances as of December 31, 1996 range from 5.38 to 7.15 percent. The
advances are collateralized under a blanket floating lien agreement whereby the
Corporation gives a blanket pledge of residential first mortgage loans for 1-4
units. Of the total balance at December 31, 1996, $1,000 and $10,000 matures in
1998 and 2001, respectively, and the remainder matures after 2001.
<PAGE>
Securities sold under agreements to repurchase (repurchase agreements) at
December 31, 1996 were collateralized by investment securities controlled by
the Corporation with a book value of approximately $8.9 million. The maximum
amount of repurchase agreements outstanding during 1996 was $5.4 million, and
the average amount outstanding during 1996 was $4.6 million.
(11) EMPLOYEE BENEFIT PLAN
The Corporation sponsors a leveraged Employee Stock Ownership Plan (ESOP) which
covers all employees following the completion of one year of service and
attainment of age 21. The ESOP invests substantially in stock of the
Corporation. Employer contributions and dividends received by the ESOP are
used to pay debt service.
In May 1994, the Bank sold 106,940 shares of its stock to the ESOP for a price
of $28.25 per share as determined by an independent third-party valuation. The
acquisition cost of $3,021 was financed by a loan from another financial
institution, collateralized by the shares purchased, and guaranteed by the Bank.
In 1996, the ESOP tendered the stock of the Bank in exchange for the stock
issued by the holding company pursuant to the reorganization discussed in
Note 1. As debt is repaid, shares are released from collateral and allocated
to active participants as of the end of the plan's year based on the
participants' pro rata interest in the plan. The ESOP debt is reported as
debt and the corresponding shares pledged as collateral are reported as
unearned ESOP shares in the accompanying consolidated balance sheet. As shares
are released from collateral, compensation expense is recorded equal to the
fair value of the shares, and the released shares are included in income per
share computations. Dividends on allocated ESOP shares are recorded as a
reduction of retained earnings while dividends on unallocated ESOP shares are
recorded as a reduction of ESOP debt and related accrued interest. ESOP
compensation expense of $604, $302 and $604 and related ESOP interest expense
of $119, $173 and $117 were recorded for 1996, 1995 and 1994, respectively.
The difference in compensation expense recorded in 1995 is due to the fact that
the scheduled January 1995 principal payment was made in December 1994.
As of December 31, 1996, ESOP debt of $1,252, consisting of actual debt of
$1,511 and dividends on unallocated shares available for future debt reduction
of $259, was outstanding. ESOP shares as of December 31, 1996 consisted of
270,390 shares allocated prior to January 1, 1994, 53,470 released for
allocation subsequent to January 1, 1994 and 53,470 unreleased and unearned
shares. Based on the most recent independent stock valuation, the fair value
of the unreleased and unearned shares as of December 31, 1996 was $2,192.
(12) INCOME TAXES
Total income tax taxes are allocated as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Income $ 1,491 1,449 1,394
Stockholders' equity, for net
unrealized gains and losses
on securities available-for-sale
recognized for financial
reporting purposes (127) 1,123 (1,016)
Totals $ 1,364 2,572 378
</TABLE>
The components of federal income tax expense are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Current $ 1,427 1,539 1,290
Deferred 64 (90) 104
Total $ 1,491 1,449 1,394
</TABLE>
<PAGE>
The reconciliation of expected income tax expense at the statutory federal
rate with the reported tax expense at the effective rate is as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
Percent Percent Percent
of of of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
Expected tax expense
at statutory rate $ 2,276 34.0% 2,082 34.0% 1,836 34.0%
Increase (decrease)
in taxes resulting
from:
Tax-exempt interest (1,007) (15.0) (746) (12.1) (526) (9.7)
Nondeductible
interest expense 140 2.1 113 1.8 66 1.2
Other, net 82 1.2 - - 18 .3
Reported tax expense
at effective rate $ 1,491 22.3% 1,449 23.7% 1,394 25.8%
</TABLE>
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31, 1996 1995
<S> <C> <C>
Deferred tax assets:
Loans, principally due to allowance
for loan losses and unearned fees $ 1,078 1,095
Securities, principally due to
valuation allowance established for
financial reporting purposes 20 -
Accrued post-retirement benefits due
to accrual for financial reporting
purposes in excess of actual
contributions 139 128
Bank premises and equipment, due to
differences in depreciation 76 20
Other 29 22
Total gross deferred tax assets 1,342 1,265
Less valuation allowance - -
Net deferred tax assets 1,342 1,265
Deferred tax liabilities:
Securities, due principally to
valuation allowance - 36
Investment securities, due to
differences in discount accretion 73 39
Other 48 32
Total gross deferred tax
liabilities 121 107
Net deferred tax asset,
included in other assets $ 1,221 1,158
</TABLE>
<PAGE>
The Corporation has determined that a valuation allowance for gross deferred
tax assets is not necessary at December 31, 1996 or 1995 since deferred tax
assets can be recognized during the carryback period available under current
tax laws.
(13) DIVIDEND RESTRICTIONS AND CAPITAL REQUIREMENTS
The holding company's principal asset is its investment in the Bank, a wholly-
owned consolidated subsidiary. The only significant source of income for the
holding company is dividends from the Bank. Regulatory agencies limit the
amount of funds that may be transferred from the Bank to the holding company
in the form of dividends, loans, or advances.
Under applicable federal laws, the Comptroller of the Currency restricts,
without prior approval, the total dividend payments of the Bank in any calendar
year to the net profits of that year, as defined, combined with the retained
net profits for the two preceding years. The total dividends that may be
declared in 1997 without the approval of the Comptroller totals $6,212 plus
year-to-date 1997 net profits as of the declaration date.
The Corporation is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Corporation's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier 1 capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier 1 capital to average assets
(as defined). Management believes, as of December 31, 1996, that the
Corporation meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage
ratios as set forth in the table must be maintained. There are no conditions
or events since that notification that management believes have changed the
institution's category.
<TABLE>
<CAPTION>
As of December 31, 1996:
Minimum
Actual Requirements
Amount Ratio Amount Ratio
<S> <C> <C> <C> <C>
Total Capital $ 40,646 14.3% $ 22,668 8.0%
(to Risk Weighted Assets)
Tier 1 Capital 37,096 13.1% 11,334 4.0%
(to Risk Weighted Assets)
Tier 1 Capital 37,096 9.7% 15,244 4.0%
(to Average Assets)
</TABLE>
(14) SUPPLEMENTAL CASH FLOW INFORMATION
The Corporation paid $14,899, $13,901 and $10,917 for interest and $1,413,
$1,710, and $1,112 for income taxes in 1996, 1995 and 1994, respectively.
Noncash investing activities included $343, $61, and $711 of loans transferred
to other real estate owned in 1996, 1995 and 1994, respectively.
<PAGE>
(15) COMMITMENTS AND CONTINGENCIES
The Corporation is involved from time to time in litigation arising in the
normal course of business. Management believes that any resulting settlements
and disposition of these matters will not have a material effect on the
Corporation's consolidated results of operations or financial position.
(16) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Corporation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. The financial instruments include commitments to extend credit and
standby letters of credit. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the balance
sheets. The contract amounts of those instruments reflect the extent of
involvement the Corporation has in particular classes of financial instruments.
Exposure to credit loss in the event of nonperformance by the other party to
the financial instrument for commitments to extend credit and standby letters
of credit is represented by the contractual amount of these instruments. The
Corporation uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Unless noted otherwise, the Corporation does not require collateral or other
security to support the following financial instruments with credit risk:
<TABLE>
<CAPTION>
December 31, 1996 1995
Contract Amounts
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $50,209 47,551
Standby letters of credit 3,479 2,769
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Corporation evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by the Corporation upon extension of credit, is based on
management's credit evaluation of the customer. Collateral held varies but may
include securities, accounts receivable, inventory, property, plant and
equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Corporation
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers. Collateral held varies but may
include securities, accounts receivable, inventory, property, plant and
equipment, and income-producing properties.
The Corporation originates mortgage loans for sale to secondary market
investors subject to contractually specified and limited recourse provisions.
In 1996, the Corporation originated $11,356 and sold $11,843 to investors,
compared to $14,487 originated and $14,125 sold in 1995. Every contract with
each investor contains certain recourse language. In general, the Corporation
may be required to repurchase a previously sold mortgage loan if there is major
noncompliance with defined loan origination or documentation standards,
including fraud, negligence or material misstatement in the loan documents.
Repurchase may also be required if necessary governmental loan guarantees are
canceled or never issued, or if an investor is forced to buy back a loan after
it has been resold as a part of a loan pool. In addition, the Corporation may
<PAGE>
have an obligation to repurchase a loan if the mortgagor has defaulted early in
the loan term. This potential default period ranges from six to twelve months
after sale of a loan to the investor. Historically, repurchases under these
recourse provisions have been minimal.
The Corporation sells portions of mortgage and commercial loans to other
investors in the normal course of business ("participations"). In certain cases
the Corporation has agreed to repurchase the loan from the investor in the event
the debtor defaults. The Corporation's total exposure at December 31, 1996
under such agreements approximates $5 million.
(17) CONCENTRATIONS OF CREDIT RISK
The Corporation does a general banking business, serving the commercial,
agricultural and personal banking needs of its customers in its trade territory,
commonly referred to as the New River Valley, which consists of Montgomery
County, Virginia and portions of adjacent counties. Operating results are
closely correlated with the economic trends within this area which are, in turn,
influenced by the area's three largest employers - Virginia Polytechnic
Institute and State University, Radford University and the Radford Arsenal.
Other industries include a wide variety of manufacturing concerns and
agriculture-related enterprises. The ultimate collectibility of the loan
portfolios and the recovery of the carrying amounts of repossessed property are
susceptible to changes in the market conditions of this area. The commercial
portfolio is diversified with no significant concentrations of credit within a
single industry. The consumer loan portfolio included approximately $52
million of loans to individuals for household, family and other personal
expenditures at December 31, 1996 and 1995. The real estate mortgage portfolio
consists primarily of loans secured by 1-4 family residential properties.
(18) DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires the Corporation to disclose estimated
fair values of its financial instruments. The following methods and
assumptions were used to estimate the approximate fair value of each class of
financial instrument for which it is practicable to estimate that value:
(a) Cash and Due from Banks and Federal Funds Sold
The carrying amounts in the consolidated balance sheets are reasonable
estimates of fair values.
(b) Securities
The fair value of securities, except certain state and municipal securities,
is estimated based on bid prices published in financial newspapers or bid
quotations received from securities dealers. The fair value of certain state
and municipal securities is not readily available through market sources other
than dealer quotations, so fair value estimates are based on quoted market
prices of similar instruments, adjusted for differences between the quoted
instruments and the instruments being valued.
(c) Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type (commercial, mortgage, consumer,
etc.), by interest rate terms (fixed and adjustable rate) and by performing
performing and nonperforming categories. The fair value of performing loans
is calculated by discounting scheduled cash flows through the estimated
maturity using estimated market discount rates that reflect the credit and
interest rate risk inherent in the loan as well as estimates for operating
expenses and prepayments. The estimate of maturity is based on the
Corporation's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of current
economic and lending conditions.
<PAGE>
Fair value for significant nonperforming loans is based on estimated cash
flows which are discounted using a rate commensurate with the risk associated
with the estimated cash flows. Assumptions regarding credit risk, cash flows
and discount rates are judgmentally determined using available market
information and specific borrower information.
(d) Deposits
The fair value of demand and savings deposits is the amount payable on
demand. The fair value of fixed maturity time deposits and certificates of
deposit is estimated using the rates currently offered for deposits of similar
remaining maturities.
(e) Securities Sold Under Agreements to Repurchase and Other Borrowed Funds
Rates currently available for debt with similar terms and remaining maturities
are used to estimate fair value of existing debt.
(f) ESOP Debt and Subordinated Capital Notes
Rates currently available for debt with similar terms and remaining maturities
are used to estimate fair value of existing debt.
(g) Commitments to Extend Credit and Standby Letters of Credit
The only amounts recorded for commitments to extend credit and standby letters
of credit are the deferred fees arising from these unrecognized financial
instruments. These deferred fees are not deemed significant at December 31,
1996 and 1995, and as such, the related fair values have not been estimated.
The carrying amounts and approximate fair values of the Corporation's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1996 1995
Approximate Approximate
Carrying Fair Carrying Fair
Amounts Values Amounts Values
<S> <C> <C> <C> <C>
Financial assets:
Cash and due
from banks $ 10,277 10,277 8,818 8,818
Federal funds
sold 2,500 2,500 5,430 5,430
Securities
available-for
-sale 54,886 54,886 47,851 47,851
Securities held
-to-maturity 43,089 43,632 40,111 41,001
Loans, net 269,145 268,814 249,122 248,610
Total
financial
assets $ 379,897 380,109 351,332 351,710
Financial liabilities:
Deposits $ 335,402 336,262 315,777 318,206
Securities sold
under agreements
to repurchase
and other
borrowed funds 19,199 19,143 6,310 6,921
ESOP debt 1,252 1,252 1,926 1,926
Subordinated
capital notes - - 937 912
Total
financial
liabilities $ 355,853 356,657 324,950 327,965
</TABLE>
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Corporation's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the
Corporation's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect
on fair value estimates and have not been considered in the estimates.
(19) PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information of FNB Corporation (the parent or holding
company) is presented below:
<TABLE>
<CAPTION>
Condensed Balance Sheet
December 31, 1996
<S> <C>
Assets
Investment in bank subsidiary $35,829
Receivable from bank subsidiary 1,162
Total Assets $36,991
Liabilities
Dividends payable $ 1,163
Total Liabilities 1,163
Stockholders' Equity
Common stock and surplus 19,092
Retained earnings 18,285
Other (1,549)
Total Stockholders' Equity 35,828
Total Liabilities & Stockholders' Equity $36,991
</TABLE>
<TABLE>
<CAPTION>
Condensed Statement of Income
July 6, 1996 to
December 31, 1996
<S> <C>
Equity in earnings of bank subsidiary $ 2,570
Other expenses 1
Income before income taxes 2,569
Income tax expense -
Net income $ 2,569
</TABLE>
NOTES:
(1) July 6, 1996 represents the inception of operations of the holding company.
See Note 1 to the consolidated financial statements. The equity in earnings of
bank subsidiary represents the net income of its bank subsidiary from July 6,
1996 to December 31, 1996. Of this amount, $1,163 was declared by the Bank as
a dividend in December, 1996 payable to the holding company in January, 1997.
<PAGE>
(2) Cash flows for the parent company during 1996 were not significant.
(20) INTERIM FINANCIAL INFORMATION (Unaudited)
Consolidated quarterly results of operations were as follows:
<TABLE>
<CAPTION>
1996
Three Months Ended
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Interest income $ 7,349 7,531 7,669 7,977
Interest expense 3,677 3,741 3,782 3,816
Provision for
loan losses 105 105 135 250
Noninterest income 538 497 503 496
Noninterest expense 2,342 2,516 2,640 2,756
Income before income
tax expense 1,763 1,666 1,615 1,651
Income tax expense 421 373 358 339
Net income $ 1,342 1,293 1,257 1,312
Net income
per share $ 0.84 0.81 0.78 0.82
</TABLE>
<TABLE>
<CAPTION>
1995
Three Months Ended
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Interest income $ 6,510 7,071 7,373 7,376
Interest expense 3,171 3,463 3,788 3,659
Provision for
loan losses 50 100 75 75
Noninterest income 453 487 443 486
Noninterest expense 2,315 2,397 2,418 2,565
Income before income
tax expense 1,427 1,598 1,535 1,563
Income tax expense 340 398 360 351
Net income $ 1,087 1,200 1,175 1,212
Net income
per share $ 0.69 0.76 0.74 0.77
</TABLE>
The quarterly data above reflects the results of operations of the Bank and its
subsidiaries for periods prior to July 11, 1996 (the date of the consummation
of the reorganization discussed in Note 1), and of the holding company and its
subsidiaries for periods subsequent to that date. Because the reorganization
did not result in the adjustment of the carrying values of assets and
liabilities, and because revenues and expenses related to the holding company
have been minimal, management considers the pre-organization and post-
reorganization amounts in the above tables to be comparable. See Note (1).
(21) RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
Statement provides standards for distinguishing between transfers of financial
assets that should be accounted for as sales and those that should be accounted
for as collateralized borrowings. In essence, transactions in which the
transferor has surrendered control of the financial asset must be recorded as
sales, and those in which control has not been surrendered should be recorded
as borrowings. The Statement specifies various circumstances that would
indicate whether control has been effectively surrendered or not. Transactions
engaged in by the Corporation which could be covered by the Statement include
sales of loans with retainage of servicing rights, securities sold under
agreement to repurchase (repurchase agreements), participations sold or
purchased, and borrowings secured by loans. The Statement as issued was
required to be adopted prospectively to transfers and servicing of financial
assets and extinguishment of liabilities occuring after December 31, 1996. No
restatement of previously issued financial statements will be permitted.
However, the FASB has since issued SFAS No. 127, which defers the adoption date
for certain portions of SFAS No. 125 for one year. The primary types of
transactions engaged in by the Corporation for which the delay is applicable
are collaterlized borrowings and repurchase agreements. Management has not yet
estimated the potential impact of SFAS 125 on the Corporation's financial
statements.
<PAGE>
Exhibit #(21)
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary State of Incorporation
First National Bank Virginia
FNB Financial Services, Inc. Virginia
FNBO Co., Inc. Virginia
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,277
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,886
<INVESTMENTS-CARRYING> 43,089
<INVESTMENTS-MARKET> 43,632
<LOANS> 273,381
<ALLOWANCE> 4,179
<TOTAL-ASSETS> 395,324
<DEPOSITS> 335,402
<SHORT-TERM> 6,420
<LIABILITIES-OTHER> 3,643
<LONG-TERM> 14,031
0
0
<COMMON> 8,310
<OTHER-SE> 27,518
<TOTAL-LIABILITIES-AND-EQUITY> 395,324
<INTEREST-LOAN> 24,962
<INTEREST-INVEST> 5,376
<INTEREST-OTHER> 188
<INTEREST-TOTAL> 30,526
<INTEREST-DEPOSIT> 14,028
<INTEREST-EXPENSE> 15,016
<INTEREST-INCOME-NET> 15,510
<LOAN-LOSSES> 595
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 10,254
<INCOME-PRETAX> 6,695
<INCOME-PRE-EXTRAORDINARY> 6,695
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,204
<EPS-PRIMARY> 3.25
<EPS-DILUTED> 3.25
<YIELD-ACTUAL> 4.80
<LOANS-NON> 573
<LOANS-PAST> 595
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,988
<CHARGE-OFFS> 560
<RECOVERIES> 156
<ALLOWANCE-CLOSE> 4,179
<ALLOWANCE-DOMESTIC> 2,957
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,222
</TABLE>
Exhibit #(99)
Independent Auditors' Report
The Board of Directors and Stockholders
First National Bank:
We have audited the accompanying consolidated statements of income, changes
in stockholders' equity and cash flows of First National Bank and
subsidiaries for the year ended December 31, 1994. These consolidated financial
statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of First National Bank and subsidiaries for the year ended December 31, 1994,
in conformity with generally accepted accounting principles.
As discussed in notes 2(c) and 4 to the consolidated financial statements,
the Bank adopted the provisions of Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities,
on January 1, 1994.
KPMG Peat Marwick LLP
Roanoke, Virginia
February 10, 1995
