FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the quarterly period ended June 30, 1998
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: 000-24141
FNB Corporation
(Exact name of registrant as specified in its charter)
Virginia 54-1791618
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
105 Arbor Drive, Christiansburg, Virginia 24068
(Address of principal executive offices) (Zip Code)
(540) 382-4951
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report.)
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. X Yes No
3,384,015 shares outstanding as of June 30, 1998
<PAGE>
FNB CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 21
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 26
Item 4. Submission of Matters to a Vote of
Security Holders 26
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
Index to Exhibits 29
<PAGE>
FNB CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item l. Financial Statements
The financial statements filed as a part of Item 1 of Part I are as follows:
1. Consolidated Balance Sheets as of December 31, 1997 and June 30, 1998
(unaudited);
2. Unaudited Consolidated Statements of Income for the quarter and six-
month periods ended June 30, 1998 and 1997;
3. Unaudited Consolidated Statements of Comprehensive Income for the
quarter and six-month periods ended June 30, 1998 and 1997;
4. Unaudited Consolidated Statements of Cash Flows for the six-month
periods ended June 30, 1998 and 1997; and,
5. Unaudited Consolidated Statements of Changes in Stockholders' Equity
for the six-month periods ended June 30, 1998 and 1997.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
FNB Corporation and subsidiaries
June 30, 1998
In Thousands, Except Share and Per Share Data
(Unaudited)
<S> <C>
ASSETS
Cash and due from banks $ 12,405
Federal funds sold 6,140
Securities available-for-sale, at fair value 56,076
Securities held-to-maturity, at amortized cost
(market value $42,377) 41,439
Mortgage loans held for sale 2,037
Loans:
Commercial 74,851
Consumer 67,240
Real estate - commercial 62,046
Real estate - construction 14,675
Real estate - mortgage 92,494
Total loans 311,306
Less unearned income 3
Loans, net of unearned income 311,303
Less allowance for loan losses 4,330
Loans, net 306,973
Bank premises and equipment, net 12,491
Other real estate owned 119
Other assets 4,981
Total assets $ 442,661
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits 37,953
Interest-bearing demand and savings deposits 111,453
Time deposits 173,595
Certificates of deposit of $100,000 and over 41,398
Total deposits 364,399
Federal funds purchased and securities sold under
agreements to repurchase 6,460
Other borrowed funds 24,567
Other liabilities 2,954
ESOP debt 1,959
Total liabilities 400,339
Stockholders' equity:
Common stock, $5.00 par value, Authorized 10,000,000
shares; issued and outstanding 3,384,015 shares 16,920
Surplus 11,881
Unearned ESOP shares (116,638 shares) (2,306)
Retained earnings 15,594
Accumulated other comprehensive income 233
Total stockholders' equity 42,322
Total liabilities and stockholders' equity $ 442,661
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
FNB Corporation and subsidiaries
December 31, 1997
In Thousands, Except Share and Per Share Data
<S> <C>
ASSETS
Cash and due from banks $ 14,406
Federal funds sold 3,500
Securities available-for-sale, at fair value 62,856
Securities held-to-maturity, at amortized cost
(market value $43,430) 42,420
Mortgage loans held for sale 1,159
Loans:
Commercial 64,247
Consumer 66,059
Real estate - commercial 56,404
Real estate - construction 8,657
Real estate - mortgage 95,703
Total loans 291,070
Less unearned income 12
Loans, net of unearned income 291,058
Less allowance for loan losses 4,291
Loans, net 286,767
Bank premises and equipment, net 12,518
Other real estate owned 98
Other assets 4,450
Total assets $ 428,174
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits 35,279
Interest-bearing demand and savings deposits 99,723
Time deposits 174,119
Certificates of deposit of $100,000 and over 43,424
Total deposits 352,545
Securities sold under agreements to repurchase 5,460
Other borrowed funds 26,093
Other liabilities 2,962
ESOP debt 901
Total liabilities 387,961
Stockholders' equity:
Common stock, $5.00 par value. Authorized 5,000,000
shares; issued and outstanding 3,323,800 shares 16,619
Surplus 10,782
Unearned ESOP shares (77,811 shares) (1,208)
Retained earnings 13,793
Accumulated other comprehensive income 227
Total stockholders' equity 40,213
Total liabilities and stockholders' equity $ 428,174
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
FNB Corporation and subsidiaries
Quarter and Six Months Ended June 30, 1998 and 1997
In Thousands, Except Share and Per Share Data
(Unaudited)
Quarter Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 7,323 6,591 14,285 12,921
Interest on securities:
Taxable 809 822 1,704 1,651
Nontaxable 574 617 1,145 1,207
Interest on federal funds sold 71 116 226 142
Total interest income 8,777 8,146 17,360 15,921
Interest expense:
Interest on interest-bearing
demand and savings deposits 746 695 1,455 1,387
Interest on time deposits 2,468 2,496 4,966 4,913
Interest on certificates of
deposit of $100,000 and over 633 526 1,369 1,030
Interest on federal funds purchased
and securities sold under
agreements to repurchase 69 55 121 114
Interest on other borrowed funds 318 306 645 502
Interest on ESOP debt 36 22 72 44
Total interest expense 4,270 4,100 8,628 7,990
Net interest income 4,507 4,046 8,732 7,931
Provision for loan losses 210 100 320 275
Net interest income after
provision for loan losses 4,297 3,946 8,412 7,656
Noninterest income:
Service charges on deposit accounts 283 251 548 491
Loan origination fees 114 42 184 78
Other service charges and fees 108 96 233 199
Other income 184 166 368 421
Securities gains (losses), net 0 (2) 25 (23)
Total noninterest income 689 553 1,358 1,166
Noninterest expense:
Salaries and employee benefits 1,579 1,397 3,221 2,945
Occupancy and equipment expense, net 552 451 1,061 836
Credit card expense 151 119 266 248
Supplies expense 103 116 227 202
FDIC assessment expense 10 11 21 21
Other expenses 643 628 1,213 1,182
Total noninterest expense 3,038 2,722 6,009 5,434
Income before income tax expense 1,948 1,777 3,761 3,388
Income tax expense 445 390 849 741
Net income $ 1,503 1,387 2,912 2,647
Net income per share $ 0.46 0.43 0.89 0.82
Dividends declared per share $ 0.17 .10 0.34 0.10
Average number of shares
outstanding 3,267,377 3,238,248 3,266,342 3,237,214
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FNB Corporation and subsidiaries
Quarter and Six Months Ended June 30, 1998 and 1997
In Thousands
(unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Income $ 1,503 1,387 2,912 2,647
Other comprehensive income, before tax:
Unrealized holding gains (losses)
arising during period on
securities (17) 513 34 (91)
Less: reclassification adjustment
for (gains) losses included in
net income -- 2 (25) 23
Other comprehensive income (loss)
before tax (17) 515 9 (68)
Income tax effect of items of other
comprehensive income 6 (175) 3 23
Other comprehensive income (loss),
net of tax (11) 340 6 (45)
Comprehensive Income $ 1,492 1,727 2,918 2,602
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FNB Corporation and subsidiaries
Six Months Ended June 30, 1998 and 1997
In Thousands
(Unaudited)
Six Months Ended
June 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,912 2,647
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 320 275
Depreciation and amortization of bank
premises and equipment 543 408
ESOP compensation 302 302
Amortization of premiums and accretion
of discounts, net 78 26
(Gain)Loss on sale of securities, net (25) 23
Net gain on sale of fixed assets and
other real estate (29) (50)
Net increase in mortgage
loans held for sale (878) (62)
Increase in other assets (755) (636)
Decrease in other liabilities (8) (442)
Net cash provided by operating activities 2,460 2,491
Cash flows from investing activities:
Net increase in federal funds sold (2,640) (13,000)
Proceeds from sales of securities
available-for-sale -- 4,060
Proceeds from calls and maturities of
securities available-for-sale 16,447 4,249
Proceeds from calls and maturities of
securities held-to-maturity 1,130 1,184
Purchase of securities available-for-sale (9,881) (12,797)
Purchase of securities held-to-maturity -- (1,224)
Net increase in loans (20,592) (2,734)
Proceeds from sale of other real estate owned 203 85
Recoveries on loans previously charged off 113 81
Bank premises and equipment expenditures (516) (2,357)
Net cash used in investing activities (15,736) (22,453)
Cash flows from financing activities:
Net increase in deposits 11,854 11,447
Net increase (decrease) in federal funds
purchased and securities sold under
agreements to repurchase 1,000 (285)
Net increase (decrease) in other borrowed funds (1,526) 11,056
Principal payments on ESOP debt (302) (302)
Dividends paid (1,111) (322)
Dividends on unallocated ESOP shares (40) (10)
Proceeds from sale of shares to ESOP 1,400 --
Net cash provided by financing
activities 11,275 21,584
Net increase (decrease) in cash and due from banks (2,001) 1,622
Cash and due from banks at beginning of period 14,406 10,277
Cash and due from banks at end of period $ 12,405 11,899
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FNB Corporation and subsidiaries
Six Months Ended June 30, 1998 and 1997
In Thousands
(Unaudited)
1998 1997
<S> <C> <C>
Balance, beginning of period $ 40,213 35,828
Net income for period 2,912 2,647
Cash dividends (1,111) (322)
ESOP shares allocated upon loan repayment 302 302
Change in accumulated other comprehensive income 6 (44)
Balance, end of period $ 42,322 38,411
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FNB Corporation and subsidiaries
June 30, 1998 and 1997
In Thousands, Except Share Data
(Unaudited)
(1) Summary of Significant Accounting Policies
The accompanying financial statements of FNB Corporation and subsidiaries are
unaudited, however, in the opinion of management, all adjustments necessary
for a fair presentation of the financial statements have been included. All
adjustments were of a normal recurring nature, except as otherwise disclosed
herein.
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 to 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 Corporation's allowance for loan losses and valuation
of other real estate owned. Such agencies may require the Corporation 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.
The following is a description of the more significant accounting and
reporting policies which conform to general practice within the banking
industry.
(a) Consolidation
The consolidated financial statements include the accounts of FNB
Corporation (the "Registrant" or the "holding company") and its
wholly-owned subsidiaries (collectively, the "Corporation"). The
primary subsidiary is First National Bank (the "Bank"). 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.
<PAGE>
(c) Investment Securities
Debt securities that the Corporation has the positive intent and
ability to hold to maturity are classified as held-to-maturity
securities and reported at amortized cost. Debt and equity
securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities
and reported at fair value, with unrealized gains and losses
included in earnings.
The Corporation had no trading securities at December 31, 1997, or
June 30, 1998. Debt and equity securities not classified as
either held-to-maturity securities or trading securities are
classified as available-for-sale securities and reported at fair
value, with unrealized gains and losses excluded from earnings and
reported as a separate component of stockholders' equity.
Amortization of premiums and accretion of discounts are computed
on the level yield method. Gains and losses on sales of
investment securities are computed on the basis of specific
identification of the adjusted cost of each security upon
disposition.
(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 being
deferred, and the net amount is amortized as an adjustment of the
related loan's yield over the contractual life of the related
loans.
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.
(e) Bank Premises and Equipment, Net
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
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.
<PAGE>
(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 with any write-down being charged to the allowance
for loan losses. 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. 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.
During the second quarter of 1997 the Corporation declared a stock
split effected in the form of a 100% stock dividend. The split
occurred in June 1997. As a result, the total number of shares
outstanding doubled. Par value per share did not change.
(I) Trust Assets
Assets held by the Corporation'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.
(2) Restrictions on Cash
Federal reserve regulations require the Corporation to maintain certain
average balances as cash reserves. The reserve requirements
approximated $1,600 and $4,285 at June 30, 1998 and December 31, 1997,
respectively.
<PAGE>
(3) Securities Available-for-Sale
The following sets forth the composition of securities available-for-
sale, which are reported at fair value, at June 30, 1998 and December
31, 1997:
<TABLE>
<CAPTION>
Gross Gross Approx.
Amortized Unrealized Unrealized Fair
June 30, 1998 Costs Gains Losses Values
<S> <C> <C> <C> <C>
U.S. Treasury $ 7,086 60 -- 7,146
U.S. Government agencies
and corporations 39,910 227 (75) 40,062
States and political
subdivisions 4,650 121 (1) 4,770
Other securities 4,077 21 -- 4,098
Totals $ 55,723 429 (76) 56,076
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Approx.
Amortized Unrealized Unrealized Fair
December 31, 1997 Costs Gains Losses Values
<S> <C> <C> <C> <C>
U.S. Treasury $ 8,109 53 -- 8,162
U.S. Government agencies
and corporations 46,864 272 (116) 47,020
States and political
subdivisions 2,962 108 -- 3,070
Other securities 4,576 28 -- 4,604
Totals $ 62,511 461 (116) 62,856
</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>
Approx.
Amortized Fair
June 30, 1998 Costs Values
<S> <C> <C>
Due in one year or less $ 8,426 8,456
Due after one year through five years 7,288 7,346
Due after five years through ten years 31,707 31,948
Due after ten years 8,302 8,326
Totals $ 55,723 56,076
</TABLE>
Gross gains of $29 and $12 and gross losses of $5 and $33 were realized
on sales and calls of securities available-for-sale through June 30,
1998, and 1997, respectively.
<PAGE>
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
$16,163 at June 30, 1998 and $16,371 at December 31, 1997.
(4) Securities Held-To-Maturity
The amortized costs, gross unrealized gains and losses, and approximate
fair values of securities held-to-maturity at June 30, 1998 and December
31, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross Approx.
Amortized Unrealized Unrealized Fair
June 30, 1998 Costs Gains Losses Values
<S> <C> <C> <C> <C>
States and political
subdivisions $ 41,439 953 (15) 42,377
Totals $ 41,439 953 (15) 42,377
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Approx.
Amortized Unrealized Unrealized Fair
December 31, 1997 Costs Gains Losses Values
<S> <C> <C> <C> <C>
States and political
subdivisions $ 42,360 1,029 (19) 43,370
Other securities 60 -- -- 60
Totals $ 42,420 1,029 (19) 43,430
</TABLE>
The amortized costs and approximate fair values of securities held-to-
maturity, 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>
Approx.
Amortized Fair
June 30, 1998 Costs Values
<S> <C> <C>
Due in one year or less $ 3,143 3,157
Due after one year through five years 21,147 21,604
Due after five years through ten years 16,869 17,335
Due after ten years 280 281
Totals $ 41,439 42,377
</TABLE>
Realized gains and losses on securities held-to-maturity were not
material in 1998 and 1997.
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
$17,730 at June 30, 1998 and $16,381 at December 31, 1997.
<PAGE>
(5) Loans
At June 30, 1998 and December 31, 1997, there were direct loans to
executive officers and directors of $3,775 and $5,595, respectively. In
addition, there were loans of $8,988 and $5,957 at June 30, 1998 and
December 31, 1997, respectively, which directors endorsed or had been
made to companies in which directors had an equity interest.
At June 30, 1998 and December 31, 1997, the Corporation had sold without
recourse, participations in various loans to financial institutions and
other customers of the Corporation in the amount of $35,750 and $30,000,
respectively.
(6) Allowance for Loan Losses and Impaired Loans
A loan is considered impaired when, based on management's judgment, the
Corporation will probably not be able to collect 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. The Corporation'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.
A summary of the changes in the allowance for loan losses (including
allowances for impaired loans) follows:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Balance at beginning of period $ 4,399 4,309 4,291 4,179
Provisions for loan losses 210 100 320 275
Loan recoveries 41 27 113 81
Loan charge-offs (320) (73) (394) (172)
Balance at end of period $ 4,330 4,363 4,330 4,363
</TABLE>
Nonperforming assets consist of the following:
<TABLE>
<CAPTION>
June 30 December 31,
1998 l997
<S> <C> <C>
Nonaccrual loans $ 1,673 893
Other real estate owned 119 98
Total nonperforming assets $ 1,792 991
</TABLE>
The following tables show the pro forma interest that would have been
earned on nonaccrual loans if they had been current in accordance with
their original terms and the recorded interest included in income on
these investments:
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
<S> <C> <C>
Proforma interest - nonaccrual loans $ 84 24
Recorded interest - nonaccrual loans -- --
</TABLE>
There were no material commitments to lend additional funds to customers
whose loans were classified as nonperforming at June 30, 1998.
(7) Bank Premises and Equipment, Net
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization as follows:
<TABLE>
<CAPTION>
June 30 December 31,
1998 1997
<S> <C> <C>
Land $ 1,515 1,359
Buildings 9,455 9,820
Furniture and equipment 6,801 6,461
Leasehold improvements 426 383
18,197 18,023
Less accumulated depreciation
and amortization 5,706 5,505
Totals $ 12,491 12,518
</TABLE>
(8) Other Borrowed Funds
Other borrowed funds include advances from the Federal Home Loan Bank of
Atlanta totaling $21,533 and $22,600 on June 30, 1998 and December 31,
1997, respectively. The interest rates on the advances range from 5.38
to 6.65 percent and have maturity dates through June 7, 2010. 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.
(9) Employee Benefit Plans
The Employee Stock Ownership Plan (ESOP) invests primarily in the
Registrant's stock. The ESOP covers substantially all employees. The
purchase of some of the shares has been financed by borrowings by the
ESOP. In February 1998, the Corporation sold 60,215 shares to the ESOP
for $23.25 per share. The ESOP borrowed $1,400 from another financial
institution to finance the purchase. The ESOP's obligation to repay
these borrowings is guaranteed by the Corporation; therefore, the unpaid
balance of the borrowings has been reflected in the accompanying balance
sheet as a liability and the amount representing unearned employee
benefits has been recorded as a reduction in stockholders' equity.
These amounts will be reduced as the ESOP debt is curtailed. The ESOP
is repaying the loan (plus interest) using employer contributions and
dividends received on the shares of common stock held by the ESOP.
<PAGE>
In 1997 the Corporation instituted a 401(k) plan that covers
substantially all employees who work at least 1,000 hours per year.
Participants have the option to have up to 12% of their salary withheld
on a pre-tax basis to be contributed to the plan. The Corporation
matches 100% of the first 3% of the participants' contributions.
Participants may choose among several investment options comprised
primarily of mutual funds, but there is no stock of the Corporation in
the plan. Matching contributions totaled $56 for the six-month period
ended June 30, 1998.
(10) Income Taxes
The primary reason for the difference between the effective tax rates
and the statutory tax rate is a substantial amount of tax-exempt
interest income.
(11) Restrictions on Payment of Dividends
Under applicable federal laws, the Comptroller of the Currency
restricts, without prior approval, the total dividend payments of the
Corporation's Bank subsidiary in any calendar year to the net profits of
that year, as defined, combined with the retained net profits for the
two preceding years. In effect, this limits total 1998 dividends of the
bank (unless prior regulatory approval is obtained) to $7,096 plus year-
to-date 1998 net profits as of the declaration date.
(12) Supplemental Cash Flow Information
The Corporation paid $8,724 and $7,379 for interest and it paid $886 and
$535 for income taxes for the six-month periods ended June 30, 1998 and
1997, respectively.
(13) 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 materially affect
consolidated results of operations or financial position.
(14) 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. These financial instruments include commitments to
extend credit and standby letters of credit. Those instruments involve,
to varying degrees, elements of credit risk more than 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 case of nonperformance by
the other party to the financial instrument for commitments to extend
<PAGE>
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.
Except for home equity lines totaling $22,504 at June 30, 1998, and
$14,526 at December 31, 1997, the Corporation may not require collateral
or other security to support the following financial instruments with
credit risk:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
Contract Amount
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $ 80,105 63,194
Standby letters of credit and
financial guarantees written 4,744 4,300
</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
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 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 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 loan facilities to
customers. Collateral held varies but may include securities, accounts
receivable, inventory, property, plant and equipment and income-
producing commercial properties.
Commitments to extend credit, standby letters of credit and financial
guarantees written are not reflected in the financial statements except
to the extent of fees collected, which are generally reflected in
income. The fulfillment of these commitments would normally result in
the recording of a loan at the time the funds are disbursed.
<PAGE>
(15) 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 includes approximately $47
million of the loans to individuals for household, family and other
personal expenditures. The real estate-mortgage portfolio consists
primarily of loans secured by l-4 family residential properties.
(16) Recent Accounting Developments
During the first quarter of 1998 the Corporation adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." The Statement requires enterprises to display "comprehensive
income" and its components in a financial statement that is displayed
with the same prominence as other financial statements in a full set of
financial statements. "Comprehensive income" is comprised of net income
as reported in the Statement of Income as well as "other comprehensive
income," which is comprised of certain items and events that have been
reflected only in stockholders' equity without impacting the Statement
of Income. Currently the only such item included in FNB Corporation's
financial statements that is required to be reflected in other
comprehensive income is the unrealized gains and losses on securities
classified as available-for-sale under SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
The adoption of SFAS No. 130 resulted in the presentation of the
accompanying Consolidated Statements of Comprehensive Income for the
quarter and six-month periods ended June 30, 1998 and 1997. Amounts
reported in the accompanying Consolidated Statements of Income, Balance
Sheets, Statements of Cash Flows and Statements of Changes in
Stockholders' Equity as of and for the quarters and six-month periods
ended June 30, 1998 and 1997 were not impacted by the adoption of SFAS
No. 130.
The changes in the accumulated balances of other comprehensive income
for the quarter and six-month periods ended June 30, 1998 and 1997 are
as follows:
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Beginning balance of unrealized
gains (losses)on available-
for-sale securities, net of
tax $ 244 (423) 227 (38)
Change during the quarter (11) 340 6 (45)
Ending balance of unrealized gains
(losses)on available-for-sale
securities, net of tax $ 233 (83) 233 (83)
</TABLE>
The Financial Accounting Standards Board has also issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share," which
supersedes existing standards for calculating and disclosing earnings
per share (EPS). The new standard requires the disclosure of Basic EPS
and, where potential dilution exists, Diluted EPS. Basic EPS is
calculated using only the actual weighted average number of common
shares outstanding and the income available to common stockholders.
Diluted EPS adjusts the income and number of shares to reflect the
potential effects of stock options, warrants, convertible debt, and
other potentially dilutive securities. The Statement was adopted in the
fourth quarter of 1997. It did not have an impact on earnings per share
for any periods presented. Based on the current capital structure,
management does not expect SFAS No. 128 to materially impact earnings
per share in the future because there are currently no potentially
dilutive securities.
<PAGE>
Item 2. 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.
1998 Compared to 1997
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 was
$8,732 for the six months ended June 30, 1998, an increase of $801 from the
same period in 1997. Net interest income before provision for loan losses was
$4,507 for the quarter ended June 30, 1998, an increase of $461 from the same
period in 1997. The increase in net interest income in both the second
quarter and first six months was primarily the result of growth in average
earning assets, partially offset by growth in interest bearing liabilities.
Average earning asset growth totaled $25,679(6.75%) and $33,396 (8.89%),
respectively, for the second quarter and first six months of 1998 over the
respective prior year periods. The largest component of the increase in
earning assets was average loans, reflecting increases of $31,252 (11.43%) and
$29,665 (10.91%), respectively, for the second quarter and first six months of
1998. Growth in the loan portfolio was concentrated primarily in commercial
loans reflecting increases of $15,774 and $12,313, respectively, for the
second quarter and first six months of 1998. Real estate loans increased
$13,046 and $11,960, respectively, for the second quarter and first six months
of 1998. Average Federal Funds sold decreased $4,178 (46.72%), and increased
$2,487 (45.06%), respectively, for the second quarter and first six months of
1998. Federal Funds sold were used as an alternative investment for funds in
excess of loan demand and as a source of funds as needed.
Average interest-bearing liabilities increased $21,670 (6.56%) and $28,289
(8.69%), respectively, for the second quarter and first six months of 1998
over the respective prior year periods. The largest component of interest-
bearing liabilities was average deposits, reflecting an increase of $17,437
and $20,842, respectively, for the second quarter and first six months of
1998. Growth in the deposit portfolio was concentrated in certificates of
deposit of $100 and over with an increase of $7,188 and $11,299 for the second
quarter and first six months of 1998 and in demand and savings deposits with
an increase of $9,657 and $5,913 for the second quarter and first six months
of 1998. Aggressive bidding for deposits accounted for most of the increase.
Average other borrowed funds increased $1,367 and $6,087, respectively, for
the second quarter and first six months of 1998. 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 4.78% from 4.64% for the second quarter and
decreased to 4.60% from 4.61% for the first six months of 1998 from the
<PAGE>
comparable prior year period. The yield on average earning assets increased 3
basis points, to 8.98% from 8.95% for the second quarter and decreased 5 basis
points, to 8.82% from 8.87% for the first six months of 1998 from the
comparable prior year period. The cost of interest-bearing liabilities
decreased 11 basis points, to 4.85% from 4.96% for the second quarter and 3
basis points to 4.88% from 4.91% for the first six months of 1998. Overall,
97.5% and 102.2% of the net interest income increase, respectively, for the
second quarter and first six months of 1998 was attributable to changes in the
volume of net interest-earning assets and interest-bearing liabilities. The
remaining portions of the change in net interest income for the second quarter
and first six months of 1998 was due to a change in average rates.
Provision for Loan Losses
The provision for loan losses was $210 and $320, respectively, for the quarter
and six months ended June 30, 1998, and $100 and $275, respectively, for the
quarter and six months ended June 30, 1997. Net charge-offs amounted to $279
and $281, respectively, for the quarter and six months ended June 30, 1998 and
$46 and $91, respectively, for the quarter and six months ended June 30, 1997.
The increase in net charge-offs for 1998 was due primarily to the charge-off
of certain balances related to a single customer. The allowance for loan
losses was $4,330, 1.39% of outstanding loans, at June 30, 1998, and $4,291,
1.47% of outstanding loans, at December 31, 1997. With the increase in net
charge-offs in the first six months of 1998, 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, including service charges on deposit accounts, loan
origination fees, other service charges, other income and net securities gains
(losses), was $689 and $1,358, respectively, for the quarter and six months
ended June 30, 1998, and $553 and $1,166, respectively, for the quarter and
six months ended June 30, 1997. The increase in noninterest income resulted
primarily from an increase in loan origination fees, net gains on the sale of
securities, trust fees, automated teller machine usage fees, gain on sale of
other real estate and non-sufficient fund check charges. These increases were
partially offset by reductions in other areas, most notably in fees on loans
sold.
Noninterest Expense
Noninterest expense, consisting of salaries and employee benefits, occupancy
costs, credit cards, supplies, FDIC assessment and other expenses was $3,038
and $6,009, respectively, for the quarter and six months ended June 30, 1998,
and $2,722 and $5,434, respectively, for the quarter and six months ended June
30, 1997. The net increase in noninterest expense resulted from increases in
several categories, primarily personnel costs, occupancy and equipment
expense, postage and telephone expense. Personnel costs increased primarily
as the result of merit increases, contributions to a new 401-K plan and
additional personnel. The increases in occupancy and equipment expense
resulted from an increase in depreciation expense for buildings and furniture
and fixtures, which was related to the new corporate office facility.
<PAGE>
Income Taxes
Income tax expense as a percentage of pre-tax income was 22.8% and 22.6%,
respectively, for the quarter and six months ended June 30, 1998 and 21.9% and
21.9%, respectively, for the quarter and six months ended June 30, 1997. The
increase in the rate for the second quarter was due to a decrease in
nontaxable investment securities.
Balance Sheet
Total assets of the Corporation at June 30, 1998, were $442,661, compared to
$428,174 at December 31, 1997. Total loans were $311,306 at June 30, 1998, an
increase of $20,236 from December 31, 1997. Loan growth was concentrated in
the commercial, real estate-commercial and construction portfolios and
amounted to $22,264. The real estate-mortgage portfolio decreased $3,209.
The decline in the real estate- mortgage portfolio resulted from an increase
in the refinancing of home mortgage loans and their subsequent sale on the
secondary market. Federal Funds sold increased $2,640 and was funded
primarily by sales and maturities of securities which decreased $7,761.
Total deposits at June 30, 1998, were $364,399, an increase of $11,854 from
December 31, 1997. Interest-bearing demand and savings deposits increased
$11,730, and noninterest-bearing demand deposits increased $2,674 since year
end. These increases were partially offset by a decrease of $2,026 in
certificates of deposit of $100 and over since year end 1997. New interest
bearing demand and savings deposits account for approximately $7,000 of the
increase. Interest bearing public fund demand deposits increased $3,600.
Competition for deposits among local financial institutions continues to be
strong.
Other borrowed funds at June 30, 1998, were $24,567, a decrease of $1,526 from
December 31, 1997. Other borrowed funds is composed primarily of advances
from the Federal Home Loan Bank of Atlanta and is used to provide partial
funding for earning asset growth.
The Employee Stock Ownership Plan (ESOP) Debt at June 30, 1998 was $1,959, an
increase of $1,058 from December 31, 1997. The increase was the net result of
the issuance of $1,400 in new ESOP debt and a first quarter principal
curtailment. The new debt financed the purchase by the ESOP of $1,400 of
newly issued stock of the Corporation.
Stockholders' Equity
Stockholders' equity was $42,322 at June 30, 1998, compared to $40,213 at
December 31, 1997. This increase of $2,109 was the net result of earnings
retention, an increase of $6 in net unrealized gains (net of tax) on
securities available-for-sale, a decrease of $302 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-
<PAGE>
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.
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.
At June 30, 1998, the Bank's Tier 1 ratio, total capital ratio, and leverage
ratio, exceeded the minimum ratios required by the regulations.
Past Due Loans and Nonperforming Assets
Loans past due 90 days and over at June 30, 1998, totaled $316 compared to
$196 at December 31, 1997. In addition, nonaccrual loans and other real
estate owned totaled $1,792 at June 30, 1998, compared to $991 at December 31,
1997. The increase in nonaccrual loans can be attributed to one commercial
customer. A portion of this customer's loans is guaranteed by the United
States Department of Agriculture. The New River Valley economy remains
strong.
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 $10,000 of the Corporation's
borrowing capacity under an existing agreement with the FHLB remains unused as
of June 30, 1998, based on the level of qualifying portfolio mortgage loans
available for securitization. Secondary sources of liquidity are available
should the need arise, including approximately $35,000 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
<PAGE>
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 total 1998 dividends of the bank (unless prior
regulatory approval is obtained) to $7,096 plus year-to-date 1998 net profits
as of the declaration date. This limitation is not expected to have any
material impact on the liquidity of the holding company in 1998. During the
first six months of 1998 the bank paid $1,330 in dividends to the holding
company.
Recent Developments
During the first quarter of 1998 the Corporation adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." The Statement requires enterprises to display "comprehensive
income" and its components in a financial statement that is displayed with the
same prominence as other financial statements in a full set of financial
statements. "Comprehensive income" is comprised of net income as reported in
the Statement of Income as well as "other comprehensive income," which is
comprised of certain items and events that have been reflected only in
stockholders' equity without impacting the Statement of Income. Currently the
only such item included in FNB Corporation's financial statements that is
required to be reflected in other comprehensive income is the unrealized gains
and losses on securities classified as available-for-sale under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
The adoption of SFAS No. 130 resulted in the presentation of the accompanying
Consolidated Statements of Comprehensive Income for the quarters and six month
periods ended June 30, 1998 and 1997. Amounts reported in the accompanying
Consolidated Statements of Income, Balance Sheets, Statements of Cash Flows
and Statements of Changes in Stockholders Equity as of and for the six months
ended June 30, 1998 and 1997 were not impacted by the adoption of SFAS No.
130.
Other Matters
The "Year 2000 Issue" results from the inability of most computers to process
year-date data accurately beyond the year 1999 unless programmed to do so.
The Corporation has undertaken substantial measures to identify hardware and
software in its own systems that are not year-2000 compliant, and some
replacements have been effected. Some systems, however, are still not year-
2000 compliant, and management intends and expects to continue its efforts to
achieve full year-2000 compliance in all of its significant systems to avoid
any systems failures or malfunctions. Because a large portion of the
Corporation's software and hardware has been purchased relatively recently,
and because the software for most of the Corporation's major systems is
maintained and updated periodically by outside vendors, management does not
anticipate the year-2000 compliance process to require expenditures that would
be material to the financial statements. These costs are being expensed as
incurred in accordance with generally accepted accounting principles.
<PAGE>
Part II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
In February 1998, the Registrant sold 60,215 shares of $5 par
value common stock to the FNB Corporation Employee Stock Ownership
Plan (ESOP). The total proceeds from the sale were $1,400,000, or
$23.25 per share. The ESOP financed the acquisition of the stock
by borrowing the full amount of the purchase price from an
independent financial institution. The ESOP's obligation to repay
the new borrowing is secured by the stock purchased and guaranteed
by the Registrant. This sale of stock was not registered under
the Securities Act of 1933 (the "Act") because it was exempt from
registration under Section 4(6) of the Act. That section exempts
from registration transactions involving no more than $5 million
to one or more accredited investors (as that term is defined by
Section 2(a) of the Act), as long as there is no advertising or
public solicitation in connection with the transaction. The sale
referred to above meets these criteria for exemption.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of FNB Corporation was held at
Custom Catering, Inc., 902 Patrick Henry Drive, Blacksburg,
Virginia on May 12, 1998, at 2:00 p.m., for the following
purposes:
(1) To elect two (2) Directors of the Corporation to fill the
vacancies created by the expiration of terms of the Directors of
Class II;
A total of 2,548,241 shares of a possible 3,384,015 shares or 75.3
percent of eligible shares were voted. The following information
is provided to disclose the number of votes for, against or
withheld, and abstentions for each director:
<TABLE>
<CAPTION>
No. of Shares
No. of Shares Voted Against Number
Director Voted For or Withheld of Abstentions
<S> <C> <C> <C>
Kendall O. Clay 2,509,470 38,771 --
Julian D. Hardy, Jr. 2,541,257 6,984 --
</TABLE>
(2) To increase the number of authorized shares of the
Corporation's common stock, par value $5.00, from 5,000,000 to
10,000,000;
No. of Shares
No. of Shares Voted Against Number
Voted For or Withheld of Abstentions
2,453,648 73,899 20,694
<PAGE>
(3) To ratify the selection by the Audit/Compliance Committee of
the Board of Directors of McLeod & Company, independent
certified public accountants, as auditors of the Corporation
for 1998.
No. of Shares
No. of Shares Voted Against Number of
Voted For or Withheld Abstentions
2,467,058 64,324 16,859
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
See index to exhibits
(B) Reports on Form 8-K:
None
<PAGE>
Signatures
Pursuant to the requirements 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
Date August 12, 1998 By: s/Samuel H. Tollison
Samuel H. Tollison
President & CEO
Date August 12, 1998 By: s/Perry D. Taylor
Perry D. Taylor
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit #
(3)(I) Articles of Incorporation
Registrant's Articles of Incorporation, filed with the
Commission as exhibit 3.1 to the Annual Report on Form 10-K
for the year ended December 31, 1996, is incorporated herein
by reference.
(3)(ii) Bylaws
Registrant's Bylaws, filed with the Commission as exhibit
3.2 to the Annual Report on Form 10-K for the year ended
December 31, 1997, is incorporated herein by reference.
(10) Material Contracts
(10)A Employment agreement dated September 11, 1997 between Samuel
H. Tollison, First National Bank, and Registrant, filed with
the Commission as Exhibit (10)A on Form 10-Q for the quarter
ended September 30, 1997, is incorporated herein by
reference.
(10)B Employment agreement dated September 11, 1997 between Julian D.
Hardy, Jr., First National Bank, and Registrant, filed with the
Commission as Exhibit (10)B on Form 10-Q for the quarter ended
September 30, 1997, is incorporated herein by reference.
(10)C Change in control agreements with seven senior officers of First
National Bank. All agreements have identical terms and, as such,
only a sample copy of the agreements was filed with the Commission
as Exhibit (10)C on Form 10-Q for the quarter ended September 30,
1997, and is incorporated herein by reference. The officers
covered by the agreements are as follows:
(1) Darlene S. Lancaster, Senior Vice President, Manager,
Mortgage Loan Department, dated August 25, 1997
(2) R. Bruce Munro, Senior Vice President, Chief Credit
Administration Officer, dated August 25, 1997
(3) Woody B. Nester, Senior Vice President, Cashier, dated
August 25, 1997
(4) Fred L. Newhouse, Jr., Senior Vice President, Branch
Administrator, dated August 25, 1997
(5) Peter A. Seitz, Senior Vice President, General Counsel,
Dated August 25, 1997
(6) Perry D. Taylor, Senior Vice President, Chief Financial
Officer, dated August 25, 1997
(7) Litz H. Van Dyke, Senior Vice President, Manager,
Commercial Banking Department, dated August 25, 1997
(27) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 12,405
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,140
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,076
<INVESTMENTS-CARRYING> 41,439
<INVESTMENTS-MARKET> 42,377
<LOANS> 311,306
<ALLOWANCE> 4,330
<TOTAL-ASSETS> 442,661
<DEPOSITS> 364,399
<SHORT-TERM> 9,495
<LIABILITIES-OTHER> 2,954
<LONG-TERM> 23,491
0
0
<COMMON> 16,920
<OTHER-SE> 25,402
<TOTAL-LIABILITIES-AND-EQUITY> 442,661
<INTEREST-LOAN> 14,285
<INTEREST-INVEST> 2,849
<INTEREST-OTHER> 226
<INTEREST-TOTAL> 17,360
<INTEREST-DEPOSIT> 7,790
<INTEREST-EXPENSE> 8,628
<INTEREST-INCOME-NET> 8,732
<LOAN-LOSSES> 320
<SECURITIES-GAINS> 25
<EXPENSE-OTHER> 6,009
<INCOME-PRETAX> 3,761
<INCOME-PRE-EXTRAORDINARY> 3,761
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,912
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.89
<YIELD-ACTUAL> 4.60
<LOANS-NON> 1,673
<LOANS-PAST> 316
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,291
<CHARGE-OFFS> 320
<RECOVERIES> 41
<ALLOWANCE-CLOSE> 4,330
<ALLOWANCE-DOMESTIC> 3,803
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 527
</TABLE>
