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 September 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
3,722,139 shares outstanding as of September 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 6. Exhibits and Reports on Form 8-K 28
Signatures 29
Index to Exhibits 30
<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 September 30,
1998 (unaudited);
2. Unaudited Consolidated Statements of Income for the quarter and nine-
month periods ended September 30, 1998 and 1997;
3. Unaudited Consolidated Statements of Comprehensive Income for the
quarter and nine-month periods ended September 30, 1998 and 1997;
4. Unaudited Consolidated Statements of Cash Flows for the nine-month
periods ended September 30, 1998 and 1997; and,
5. Unaudited Consolidated Statements of Changes in Stockholders' Equity
for the nine-month periods ended September 30, 1998 and 1997.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
FNB Corporation and subsidiaries
September 30, 1998
In Thousands, Except Share and Per Share Data
(Unaudited)
<S> <C>
ASSETS
Cash and due from banks $ 11,496
Federal funds sold 5,040
Securities available-for-sale, at fair value 47,316
Securities held-to-maturity, at amortized cost
(market value $41,476) 40,244
Mortgage loans held for sale 2,190
Loans:
Commercial 83,713
Consumer 67,807
Real estate - commercial 66,244
Real estate - construction 14,195
Real estate - mortgage 94,631
Total loans 326,590
Less unearned income 1
Loans, net of unearned income 326,589
Less allowance for loan losses 4,480
Loans, net 322,109
Bank premises and equipment, net 12,440
Other real estate owned 119
Other assets 5,305
Total assets $ 446,259
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits 37,330
Interest-bearing demand and savings deposits 117,634
Time deposits 169,832
Certificates of deposit of $100,000 and over 43,906
Total deposits 368,702
Securities sold under agreements to repurchase 6,565
Other borrowed funds 24,149
Other liabilities 3,165
Total liabilities 402,581
Stockholders' equity:
Common stock, $5.00 par value, Authorized 10,000,000
shares; issued and outstanding 3,722,139 shares in 1998 18,611
Surplus 19,320
Unearned ESOP shares (117,660 shares) (2,120)
Retained earnings 7,471
Accumulated other comprehensive income 396
Total stockholders' equity 43,678
Total liabilities and stockholders' equity $ 446,259
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 Nine Months Ended September 30, 1998 and 1997
In Thousands, Except Share and Per Share Data
(Unaudited)
Quarter Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 7,781 6,951 22,066 19,872
Interest on securities:
Taxable 741 990 2,445 2,641
Nontaxable 586 591 1,731 1,798
Interest on federal funds sold 122 86 348 228
Total interest income 9,230 8,618 26,590 24,539
Interest expense:
Interest on interest-bearing
demand and savings deposits 755 723 2,210 2,110
Interest on time deposits 2,443 2,583 7,409 7,496
Interest on certificates of deposit
of $100,000 and over 796 530 2,165 1,560
Interest on federal funds purchased
and securities sold under
agreements to repurchase 73 67 194 181
Interest on other borrowed funds 320 460 965 962
Interest on ESOP debt 4 22 76 66
Total interest expense 4,391 4,385 13,019 12,375
Net interest income 4,839 4,233 13,571 12,164
Provision for loan losses 390 125 710 400
Net interest income after
provision for loan losses 4,449 4,108 12,861 11,764
Noninterest income:
Service charges on deposit accounts 294 245 842 736
Loan origination fees 95 62 279 140
Other service charges and fees 121 106 354 305
Other income 203 149 571 570
Securities gains (losses), net 22 3 47 (20)
Total noninterest income 735 565 2,093 1,731
Noninterest expense:
Salaries and employee benefits 1,637 1,602 4,858 4,547
Occupancy and equipment expense, net 508 475 1,569 1,311
Credit card expense 175 173 441 421
Supplies expense 134 124 361 326
FDIC assessment expense 11 5 32 26
Other expenses 692 618 1,905 1,800
Total noninterest expense 3,157 2,997 9,166 8,431
Income before income tax expense 2,027 1,676 5,788 5,064
Income tax expense 456 304 1,305 1,045
Net income $ 1,571 1,372 4,483 4,019
Net income per share (as restated) $ 0.44 0.39 1.25 1.13
Dividends declared per share $ 0.15 .14 0.46 0.23
(as restated)
Average number of shares
outstanding (as restated) 3,603,820 3,561,796 3,597,305 3,561,037
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FNB Corporation and subsidiaries
Quarter and Nine Months Ended September 30, 1998 and 1997
In Thousands
(unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Income $ 1,571 1,372 4,483 4,019
Other comprehensive income, before tax:
Unrealized holding gains (losses)
arising during period on
securities 264 315 298 224
Less: reclassification adjustment
for (gains) losses included in
net income (17) (2) (42) 21
Other comprehensive income (loss)
before tax 247 313 256 245
Income tax effect of items of other
comprehensive income (84) (106) (87) (83)
Other comprehensive income (loss),
net of tax 163 207 169 162
Comprehensive Income $ 1,734 1,579 4,652 4,181
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FNB Corporation and subsidiaries
Nine Months Ended September 30, 1998 and 1997
In Thousands
(Unaudited)
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,483 4,019
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 710 400
Depreciation and amortization of bank
premises and equipment 812 649
ESOP compensation 488 302
Amortization of premiums and accretion
of discounts, net 137 42
(Gain)Loss on sale of securities, net (47) 20
Net gain on sale of fixed assets and
other real estate (30) (27)
Net increase in mortgage
loans held for sale (1,031) (693)
Increase in other assets (1,079) (233)
Increase (Decrease) in other liabilities 203 (851)
Net cash provided by operating activities 4,646 3,628
Cash flows from investing activities:
Net increase in federal funds sold (1,540) (4,000)
Proceeds from sales of securities
available-for-sale -- 4,060
Proceeds from calls and maturities of
securities available-for-sale 29,442 5,969
Proceeds from calls and maturities of
securities held-to-maturity 2,265 2,239
Purchase of securities available-for-sale (14,366) (17,461)
Purchase of securities held-to-maturity -- (1,989)
Net increase in loans (37,475) (10,408)
Proceeds from sale of other real estate owned 203 185
Recoveries on loans previously charged off 145 131
Bank premises and equipment expenditures (734) (2,789)
Net cash used in investing activities (22,060) (24,063)
Cash flows from financing activities:
Net increase in deposits 16,157 7,895
Net increase in federal funds purchased and
securities sold under agreements
to repurchase 1,105 1,546
Net increase (decrease) in other borrowed funds (1,944) 14,346
Principal payments on ESOP debt (488) (302)
Dividends paid (1,668) (799)
Dividends on unallocated ESOP shares (58) (32)
Proceeds from sale of shares to ESOP 1,400 --
Net cash provided by financing
activities 14,504 22,654
Net increase (decrease) in cash and due from banks (2,910) 2,219
Cash and due from banks at beginning of period 14,406 10,277
Cash and due from banks at end of period $ 11,496 12,496
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FNB Corporation and subsidiaries
Nine Months Ended September 30, 1998 and 1997
In Thousands
(Unaudited)
1998 1997
<S> <C> <C>
Balance, beginning of period $ 40,213 35,828
Net income for period 4,483 4,019
Cash dividends (1,668) (799)
ESOP shares allocated upon loan repayment 488 302
Change in accumulated other comprehensive income 169 161
Cash payment of fractional shares in 10% stock
dividend (7) --
Balance, end of period $ 43,678 39,511
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FNB Corporation and subsidiaries
September 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) 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
September 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.
In August 1998, the Corporation declared a 10% stock dividend to
shareholders of record on August 26, 1998. As a result, all share
and per share data have been adjusted retroactively to reflect the
dividend.
(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 $1,012 and $4,285 at September 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 September 30, 1998 and
December 31, 1997:
<TABLE>
<CAPTION>
Gross Gross Approx.
Amortized Unrealized Unrealized Fair
September 30, 1998 Costs Gains Losses Values
<S> <C> <C> <C> <C>
U.S. Treasury $ 7,074 119 -- 7,193
U.S. Government agencies
and corporations 28,095 276 (1) 28,370
States and political
subdivisions 7,048 212 (23) 7,237
Other securities 4,499 17 -- 4,516
Totals $ 46,716 624 (24) 47,316
</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
September 30, 1998 Costs Values
<S> <C> <C>
Due in one year or less $ 6,249 6,303
Due after one year through five years 7,272 7,380
Due after five years through ten years 23,074 23,428
Due after ten years 10,121 10,205
Totals $ 46,716 47,316
</TABLE>
Gross gains of $47 and $12 and gross losses of $5 and $33 were realized
on sales and calls of securities available-for-sale through September
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
$16,185 at September 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 September 30, 1998 and
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross Approx.
Amortized Unrealized Unrealized Fair
September 30, 1998 Costs Gains Losses Values
<S> <C> <C> <C> <C>
States and political
subdivisions $ 40,244 1,233 (1) 41,476
Totals $ 40,244 1,233 (1) 41,476
</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
September 30, 1998 Costs Values
<S> <C> <C>
Due in one year or less $ 3,087 3,105
Due after one year through five years 20,745 21,331
Due after five years through ten years 16,133 16,755
Due after ten years 279 285
Totals $ 40,244 41,476
</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
$17,726 at September 30, 1998 and $16,381 at December 31, 1997.
<PAGE>
(5) Loans
At September 30, 1998 and December 31, 1997, there were direct loans to
executive officers and directors of $3,511 and $5,595, respectively. In
addition, there were loans of $7,287 and $5,957 at September 30, 1998
and December 31, 1997, respectively, which directors endorsed or had
been made to companies in which directors had an equity interest.
At September 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
$36,390 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 Nine Months Ended
September 30 September 30,
1998 1977 1998 1997
<S> <C> <C> <C> <C>
Balance at beginning of period $ 4,330 4,363 4,291 4,179
Provisions for loan losses 390 125 710 400
Loan recoveries 32 50 145 131
Loan charge-offs (272) (219) (666) (391)
Balance at end of period $ 4,480 4,319 4,480 4,319
</TABLE>
Nonperforming assets consist of the following:
<TABLE>
<CAPTION>
September 30 December 31,
1998 l997
<S> <C> <C>
Nonaccrual loans $ 1,188 893
Other real estate owned 119 98
Total nonperforming assets $ 1,307 991
</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>
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
Proforma interest - nonaccrual loans $ 90 79
Recorded interest - nonaccrual loans 2 --
</TABLE>
There were no material commitments to lend additional funds to customers
whose loans were classified as nonperforming at September 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>
September 30 December 31,
1998 1997
<S> <C> <C>
Land $ 1,515 1,359
Buildings 9,700 9,820
Furniture and equipment 7,086 6,461
Leasehold improvements 428 383
18,729 18,023
Less accumulated depreciation
and amortization 6,289 5,505
Totals $ 12,440 12,518
</TABLE>
(8) Other Borrowed Funds
Other borrowed funds include advances from the Federal Home Loan Bank of
Atlanta totaling $21,473 and $22,600 on September 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 was guaranteed by the Corporation; therefore, the
unpaid balance of the borrowings as of December 31, 1997 has been
reflected in the accompanying balance sheet as of that date as a
liability. During the third quarter of 1998, First National Bank
purchased all ESOP loans from the outside financial institution which
had originally financed them. Consequently, in the 9/30/98 consolidated
<PAGE>
balance sheet the loans and the related liability have been eliminated.
The amounts representing unearned employee benefits have been recorded
as reductions 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.
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 $88 for the nine-month period
ended September 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 $13,157 and $12,066 for interest and it paid $1,257
and $931 for income taxes for the nine-month periods ended September 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
<PAGE>
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
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 $25,183 at September 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>
September 30, December 31,
1998 1997
Contract Amount
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $ 87,622 63,194
Standby letters of credit and
financial guarantees written 5,553 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.
<PAGE>
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.
(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 $46
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 nine-month periods ended September 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 nine month periods
ended September 30, 1998 and 1997 were not impacted by the adoption of
SFAS No. 130.
<PAGE>
The changes in the accumulated balances of other comprehensive income
for the quarter and nine-month periods ended September 30, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Beginning balance of unrealized
gains (losses)on available-
for-sale securities, net of
tax $ 233 (83) 227 (38)
Change during the period 163 207 169 162
Ending balance of unrealized gains
(losses)on available-for-sale
securities, net of tax $ 396 124 396 124
</TABLE>
<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
$13,571 for the nine months ended September 30, 1998, an increase of $1,407
from the same period in 1997. Net interest income before provision for loan
losses was $4,839 for the quarter ended September 30, 1998, an increase of
$606 from the same period in 1997. The increase in net interest income in
both the third quarter and first nine months was primarily the result of
growth in average earning assets, partially offset by growth in interest
bearing liabilities. Average earning asset growth totaled $26,710 (6.77%) and
$31,167 (8.16%), respectively, for the third quarter and first nine months of
1998 over the respective prior year periods. The largest component of the
increase in earning assets was average loans, reflecting increases of $34,729
(12.31%) and $31,353 (11.39%), respectively, for the third quarter and first
nine months of 1998. Growth in the loan portfolio was concentrated in
commercial and real estate loans. Commercial loans reflected increases of
$17,391 and $10,177, respectively, for the third quarter and first nine months
of 1998. Real estate loans increased $16,124 and $13,348, respectively, for
the third quarter and first nine months of 1998. Average Federal Funds sold
increased $3,058 (52.86%) and $2,665 (47.53%), respectively, for the third
quarter and first nine 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 $16,002 (4.65%) and $24,193
(7.30%), respectively, for the third quarter and first nine months of 1998
over the respective prior year periods. The largest component of interest-
bearing liabilities was average deposits, reflecting an increase of $20,873
and $20,853, respectively, for the third quarter and first nine months of
1998. Growth in the deposit portfolio was concentrated in certificates of
deposit of $100 and over with an increase of $17,809 and $13,469 for the third
quarter and first nine months of 1998 and in demand and savings deposits with
an increase of $7,493 and $6,440 for the third quarter and first nine months
of 1998. Aggressive bidding for deposits accounted for most of the increase.
Average other borrowed funds decreased $4,855 and increased $2,440,
respectively, for the third quarter and first nine months of 1998. The
primary reason for the year to date change was an increase in advances from
the Federal Home Loan Bank of Atlanta, as the Corporation increasingly
utilized this source of funds.
<PAGE>
Net interest yield increased to 4.93% from 4.66% for the third quarter and
increased to 4.72% from 4.63% for the first nine months of 1998 from the
comparable prior year period. The yield on average earning assets remained
constant at 9.10% for the third quarter and decreased 3 basis points, to 8.92%
from 8.95% for the first nine months of 1998 from the comparable prior year
period. The cost of interest-bearing liabilities decreased 22 basis points,
to 4.88% from 5.10% for the third quarter and 10 basis points to 4.88% from
4.98% for the first nine months of 1998. Overall, 93.0% and 97.5% of the net
interest income increase, respectively, for the third quarter and first nine
months of 1998 was attributable to changes in the volume of net interest-
earning assets and interest-bearing liabilities. The remaining portions of
the changes in net interest income for the third quarter and first nine months
of 1998 were due to a change in average rates.
Provision for Loan Losses
The provision for loan losses was $390 and $710, respectively, for the quarter
and nine months ended September 30, 1998, and $125 and $400, respectively, for
the quarter and nine months ended September 30, 1997. Net charge-offs
amounted to $240 and $521, respectively, for the quarter and nine months ended
September 30, 1998 and $169 and $260, respectively, for the quarter and nine
months ended September 30, 1997. The allowance for loan losses was $4,480,
1.37% of outstanding loans, at September 30, 1998, and $4,291, 1.47% of
outstanding loans, at December 31, 1997. With the increase in net charge-offs
in the first nine months of 1998, the provision for loan losses was also
increased and the allowance for loan losses reflected a corresponding
increase. The increase in net charge-offs for the first nine months of 1998
can be attributed to one commercial customer. 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 $735 and $2,093, respectively, for the quarter and nine months
ended September 30, 1998, and $565 and $1,731, respectively, for the quarter
and nine months ended September 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 $3,157
and $9,166, respectively, for the quarter and nine months ended September 30,
1998, and $2,997 and $8,431, respectively, for the quarter and nine months
ended September 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
<PAGE>
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 opened in
1997.
Income Taxes
Income tax expense as a percentage of pre-tax income was 22.5% for both the
quarter and nine months ended September 30, 1998 and 18.1% and 20.6%,
respectively, for the quarter and nine months ended September 30, 1997. The
increase in the rate for the third quarter and nine months ended September 30,
1998, was due to the 1997 rate being lower than normal, which resulted from
anticipated income tax refunds related to amendments of prior year tax
returns.
Balance Sheet
Total assets of the Corporation at September 30, 1998, were $446,259, compared
to $428,174 at December 31, 1997. Total loans were $326,590 at September 30,
1998, an increase of $35,520 from December 31, 1997. Loan growth was
concentrated in the commercial, real estate-commercial and construction
portfolios and amounted to $34,844. The real estate-mortgage portfolio
decreased $1,072. 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 $1,540
and was funded primarily by sales and maturities of securities which decreased
$17,716.
Total deposits at September 30, 1998, were $368,702, an increase of $16,157
from December 31, 1997. Interest-bearing demand and savings deposits
increased $17,911, and noninterest-bearing demand deposits increased $2,051
since year end. These increases were partially offset by a decrease of $4,287
in time deposits since year end 1997. New interest bearing demand and savings
deposits account for approximately $10,650 of the increase. Interest bearing
public fund demand deposits increased $6,196. Competition for deposits among
local financial institutions continues to be strong.
Other borrowed funds at September 30, 1998, were $24,149, a decrease of $1,944
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 was $901 at December 31, 1997.
This debt, as well as an additional $1,400 of new debt issued by the ESOP in
the first quarter of 1998, is not reflected in the balance sheet as of
September 30, 1998, because of the repurchase of the ESOP loans by the banking
subsidiary of FNB Corporation. In the third quarter of 1998, the ESOP debt
and the related loans have been eliminated in consolidation. The new debt
financed the purchase by the ESOP of $1,400 of newly issued stock of the
Corporation.
<PAGE>
Stockholders' Equity
Stockholders' equity was $43,678 at September 30, 1998, compared to $40,213 at
December 31, 1997. This increase of $3,465 was the net result of earnings
retention, an increase of $169 in net unrealized gains (net of tax) on
securities available-for-sale, a decrease of $488 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.
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 September 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 September 30, 1998, totaled $293 compared
to $196 at December 31, 1997. In addition, nonaccrual loans and other real
estate owned totaled $1,307 at September 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.
<PAGE>
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 September 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 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 nine months of 1998 the bank paid $2,892 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 nine months ended September 30, 1998 and 1997. Amounts
reported in the accompanying Consolidated Statements of Income, Balance
Sheets, Statements of Cash Flows and Statements of Changes in
<PAGE>
Stockholders' Equity as of and for the quarters and nine month periods
ended September 30, 1998 and 1997 were not impacted by the adoption of
SFAS No. 130.
Other Matters
Year 2000. A number of electronic systems utilize a two-digit field for
year references, e.g., "98" for "1998". Such systems may interpret the
year reference "00" as referring to the Year 1900 rather than the Year
2000. If these systems are not corrected prior to December 31, 1999,
many processing failures could result. This section describes the
status of the Corporation's efforts to correct these systems
deficiencies.
State of Readiness. The Corporation has committed personnel and
resources to resolve potential Year 2000 issues, both internally and
externally (with respect to the Corporation's service providers, vendors
and customers) for both information technology assets and non-
information technology assets. The Corporation has identified Year 2000
dependencies in its systems, equipment, and processes and is
implementing changes to such systems, updating or replacing such
equipment, and modifying such processes to make them Year 2000
compliant. The Corporation has completed its assessment of internal
Year 2000 issues and is in the process of remediation of the critical
systems.
The Corporation does not employ computer programmers and relies heavily
on outside vendors to make the necessary software and hardware changes
for Year 2000 compliance. Management has contacted all mission critical
service providers and insisted that Year 2000 upgrades be delivered to
the Corporation before the end of 1998. Plans are in place to test
these systems before June 30, 1999, by entering various critical future
dates into the systems in an off line mode. The Corporation anticipates
that all of its systems will be substantially compliant by June 30,
1999.
The Corporation is also assessing the operability of other devices after
1999, including vaults, fax machines, stand-alone personal computers,
security systems and elevators and addressing deficiencies, if
necessary. These efforts are currently underway and we anticipate
compliance to be achieved in 1999.
Costs. In order to achieve and confirm Year 2000 readiness, significant
costs are being incurred to test and modify or replace computer software
and hardware, as well as a variety of other items, e.g., Automated
Teller Machines. The corporation had an estimated capital outlay of
$1,000 in 1997 and anticipates an additional $750 expenditure during
1998 on hardware and software equipment. Approximately $29 in related
expenses has been recognized through September 30, 1998, in the
Statement of Income.
Risks. If the Corporation's mission-critical applications are not
compliant by 2000, it may not be able to correctly process transactions
in a reasonable period of time. This scenario could result in a wide
variety of claims against the Corporation for improper handling of its
assets as well as deposits and other borrowings from its customers. For
example, the Corporation's ability to process interest payments on
deposits and other liabilities could be impaired. The Corporation is
also at risk if the credit worthiness of a few of its large borrowers or
a significant number of its small borrowers, were to deteriorate quickly
and severely as a result of their inability to conduct business
<PAGE>
operations after December 31, 1999, for whatever reason. Such risks
would include a potential negative impact on earnings and financial
position to the extent that a significant amount of loans were not
repaid based on contractual terms. The Corporation is presently
reviewing the Year 2000 plans of its larger credit customers to
ascertain the sufficiency of their remediation efforts and the
implication of their actions on their credit worthiness. The
Corporation explicitly disclaims, however, any obligation or liability
for the completeness, or lack thereof, of its customers' Year 2000
remediation plans or actions.
Contingency Plans. The Corporation is in the process of developing
contingency plans in the event that the remediation plan is not
completed in time or fails for reasons that are not presently foreseen.
In the event of such a failure, these plans will outline the steps that
will be taken to deal with the situation to minimize the effect on
customers and losses to the Corporation.
<PAGE>
Part II OTHER INFORMATION
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 November 10, 1998 By: s/Samuel H. Tollison
Samuel H. Tollison
President & CEO
Date November 10, 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 eight 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) Carol H. Brockmeyer, Senior Vice President, Director
Relationship Banking, dated July 1, 1998
(2) Darlene S. Lancaster, Senior Vice President, Manager,
Mortgage Loan Department, dated August 25, 1997
(3) R. Bruce Munro, Senior Vice President, Chief Credit
Administration Officer, dated August 25, 1997
(4) Woody B. Nester, Senior Vice President, Cashier, dated
August 25, 1997
(5) Fred L. Newhouse, Jr., Senior Vice President, Branch
Administrator, dated August 25, 1997
(6) Peter A. Seitz, Senior Vice President, General
Counsel, Dated August 25, 1997
(7) Perry D. Taylor, Senior Vice President, Chief
Financial Officer, dated August 25, 1997
(8) 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,496
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,040
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,316
<INVESTMENTS-CARRYING> 40,244
<INVESTMENTS-MARKET> 41,476
<LOANS> 326,590
<ALLOWANCE> 4,480
<TOTAL-ASSETS> 446,259
<DEPOSITS> 368,702
<SHORT-TERM> 9,241
<LIABILITIES-OTHER> 3,165
<LONG-TERM> 21,473
0
0
<COMMON> 18,611
<OTHER-SE> 25,067
<TOTAL-LIABILITIES-AND-EQUITY> 446,259
<INTEREST-LOAN> 22,066
<INTEREST-INVEST> 4,176
<INTEREST-OTHER> 348
<INTEREST-TOTAL> 26,590
<INTEREST-DEPOSIT> 11,784
<INTEREST-EXPENSE> 13,019
<INTEREST-INCOME-NET> 13,571
<LOAN-LOSSES> 710
<SECURITIES-GAINS> 47
<EXPENSE-OTHER> 9,166
<INCOME-PRETAX> 5,788
<INCOME-PRE-EXTRAORDINARY> 5,788
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,483
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
<YIELD-ACTUAL> 4.72
<LOANS-NON> 1,188
<LOANS-PAST> 293
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,291
<CHARGE-OFFS> 666
<RECOVERIES> 145
<ALLOWANCE-CLOSE> 4,480
<ALLOWANCE-DOMESTIC> 4,116
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 364
</TABLE>
