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 March 31, 2000
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 (I.R.S. Employer Identification No.)
incorporation or organization)
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
4,093,996 shares outstanding as of March 31, 2000
<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 20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
Index to Exhibits 27
<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, 1999 and March 31, 2000
(unaudited);
2. Unaudited Consolidated Statements of Income for the three-month periods
ended March 31, 2000 and 1999;
3. Unaudited Consolidated Statements of Comprehensive Income for the three-
month periods ended March 31, 2000 and 1999;
4. Unaudited Consolidated Statements of Cash Flows for the three-month
periods ended March 31, 2000 and 1999; and,
5. Unaudited Consolidated Statements of Changes in Stockholders' Equity for
the three-month periods ended March 31, 2000 and 1999.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
FNB Corporation and subsidiaries
March 31, 2000
In Thousands, Except Share and Per Share Data
(Unaudited)
<S> <C>
ASSETS
Cash and due from banks $ 12,163
Federal funds sold 2,440
Securities available-for-sale, at fair value 60,208
Securities held-to-maturity, at amortized cost
(market value $32,283) 32,148
Mortgage loans held for sale 341
Loans:
Commercial 108,906
Consumer 71,487
Real estate - commercial 81,068
Real estate - construction 21,107
Real estate - mortgage 110,582
Total loans 393,150
Loans, net of unearned income 393,150
Less allowance for loan losses 5,463
Loans, net 387,687
Bank premises and equipment, net 13,332
Other real estate owned 373
Other assets 6,249
Total assets $ 514,941
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits 48,080
Interest-bearing demand and savings deposits 145,029
Time deposits 167,436
Certificates of deposit of $100,000 and over 48,550
Total deposits 409,095
Federal funds purchased and securities sold under
agreements to repurchase 6,746
Other borrowed funds 46,210
Other liabilities 4,153
Total liabilities 466,204
Stockholders' equity:
Common stock, $5.00 par value, Authorized 10,000,000
shares; issued and outstanding 4,093,996 shares 20,470
Surplus 25,595
Unearned ESOP shares (94,307 shares) (1,561)
Retained earnings 4,934
Accumulated other comprehensive loss (701)
Total stockholders' equity 48,737
Total liabilities and stockholders' equity $ 514,941
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
FNB Corporation and subsidiaries
December 31, 1999
In Thousands, Except Share and Per Share Data
<S> <C>
ASSETS
Cash and due from banks $ 18,363
Securities available-for-sale, at fair value 68,154
Securities held-to-maturity, at amortized cost
(market value $33,492) 33,221
Mortgage loans held for sale 73
Loans:
Commercial 113,321
Consumer 69,312
Real estate - commercial 74,113
Real estate - construction 18,772
Real estate - mortgage 106,754
Total loans 382,272
Loans, net of unearned income 382,272
Less allowance for loan losses 5,173
Loans, net 377,099
Bank premises and equipment, net 13,480
Other real estate owned 129
Other assets 6,387
Total assets $ 516,906
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits 43,365
Interest-bearing demand and savings deposits 141,831
Time deposits 167,162
Certificates of deposit of $100,000 and over 46,513
Total deposits 398,871
Federal funds purchased 13,635
Securities sold under agreements to repurchase 7,031
Other borrowed funds 46,262
Other liabilities 3,528
Total liabilities 469,327
Stockholders' equity:
Common stock, $5.00 par value. Authorized 10,000,000
shares; issued and outstanding 4,093,996 shares 20,470
Surplus 25,595
Unearned ESOP shares (106,013 shares) (1,747)
Retained earnings 3,968
Accumulated other comprehensive loss (707)
Total stockholders' equity 47,579
Total liabilities and stockholders' equity $ 516,906
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
FNB Corporation and subsidiaries
Three months Ended March 31, 2000 and 1999
In Thousands, Except Share and Per Share Data
(Unaudited)
2000 1999
<S> <C> <C>
Interest income:
Interest and fees on loans $ 8,828 7,689
Interest on securities:
Taxable 834 693
Nontaxable 538 605
Interest on federal funds sold 2 71
Total interest income 10,202 9,058
Interest expense:
Interest on interest-bearing
demand and savings deposits 1,023 686
Interest on time deposits 2,189 2,336
Interest on certificates of
deposit of $100,000 and over 743 807
Interest on federal funds purchased
and securities sold under
agreements to repurchase 141 56
Interest on other borrowed funds 639 314
Total interest expense 4,735 4,199
Net interest income 5,467 4,859
Provision for loan losses 293 289
Net interest income after
provision for loan losses 5,174 4,570
Noninterest income:
Service charges on deposit accounts 322 292
Loan origination fees 39 102
Other service charges and fees 193 159
Other income 133 327
Total noninterest income 687 880
Noninterest expense:
Salaries and employee benefits 1,905 1,767
Occupancy and equipment expense, net 631 601
Credit card expense 177 145
Supplies expense 97 119
Other expenses 830 743
Total noninterest expense 3,640 3,375
Income before income tax expense 2,221 2,075
Income tax expense 575 484
Net income $ 1,646 1,591
Net income per share (as restated) $ 0.41 0.40
Dividends declared per share
(as restated) $ 0.17 0.15
Average number of shares
outstanding (as restated) 3,998,556 3,975,804
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FNB Corporation and subsidiaries
Three Months Ended March 31, 2000 and 1999
In Thousands
(unaudited)
2000 1999
<S> <C> <C>
Net Income $ 1,646 1,591
Other comprehensive income, before tax:
Unrealized holding gains (losses)
arising during period on
securities 9 (273)
Other comprehensive income (loss)
before tax 9 (273)
Income tax effect of items of other
comprehensive income (3) 93
Other comprehensive income (loss),
net of tax 6 (180)
Comprehensive Income $ 1,652 1,411
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FNB Corporation and subsidiaries
Three Months Ended March 31, 2000 and 1999
In Thousands
(Unaudited)
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,646 1,591
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 293 289
Depreciation and amortization of bank
premises and equipment 316 250
ESOP compensation 186 186
Amortization of premiums and accretion
of discounts, net 116 108
Net (gain) loss on sale of fixed assets and
other real estate 1 (9)
Net increase in mortgage loans held for sale (268) (119)
Decrease (increase)in other assets 138 (243)
Increase in other liabilities 625 272
Net cash provided by operating activities 3,053 2,325
Cash flows from investing activities:
Net (increase) decrease in federal funds sold (2,440) 10,360
Proceeds from calls and maturities of
securities available-for-sale 8,494 3,219
Proceeds from calls and maturities of
securities held-to-maturity 1,070 590
Purchase of securities available-for-sale (699) (2,019)
Net increase in loans (10,936) (16,847)
Proceeds from sale of other real estate owned -- 30
Recoveries on loans previously charged off 56 37
Bank premises and equipment expenditures (168) (401)
Net cash used in investing activities (4,623) (5,031)
Cash flows from financing activities:
Net increase in deposits 10,224 2,706
Net decrease in federal funds purchased and
securities sold under agreements to
repurchase (13,920) (800)
Net increase (decrease) in other borrowed funds (52) 326
Principal payments on ESOP debt (186) (186)
Dividends paid (680) (614)
Dividends on unallocated ESOP shares (16) (19)
Net cash provided by (used in) financing
activities (4,630) 1,413
Net decrease in cash and due from banks (6,200) (1,293)
Cash and due from banks at beginning of period 18,363 11,875
Cash and due from banks at end of period $ 12,163 10,582
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FNB Corporation and subsidiaries
Three Months Ended March 31, 2000 and 1999
In Thousands
(Unaudited)
2000 1999
<S> <C> <C>
Balance, beginning of period $ 47,579 44,401
Net income for period 1,646 1,591
Cash dividends (680) (614)
ESOP shares allocated upon loan repayment 186 186
Change in accumulated other comprehensive income 6 (180)
Balance, end of period $ 48,737 45,384
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FNB Corporation and subsidiaries
March 31, 2000 and 1999
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.
<PAGE>
(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.
(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, 1999, or
March 31, 2000. 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.
<PAGE>
(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.
(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 July 1999, the Corporation declared a 10% dividend to
shareholders of record on August 27, 1999. As a result, all share
and per share data have been adjusted retroactively to reflect the
dividend as though it occurred at the beginning of the earliest
period presented.
<PAGE>
(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 $1,570 and $2,121 at March 31, 2000 and December 31, 1999,
respectively.
(3) Securities Available-for-Sale
The following sets forth the composition of securities available-for-
sale, which are reported at fair value, at March 31, 2000 and December
31, 1999:
<TABLE>
<CAPTION>
Gross Gross Approx.
Amortized Unrealized Unrealized Fair
March 31, 2000 Costs Gains Losses Values
<S> <C> <C> <C> <C>
U.S. Treasury $ 3,006 2 (3) 3,005
U.S. Government agencies
and corporations 14,795 18 (266) 14,547
States and political
subdivisions 15,860 35 (425) 15,470
Other securities 27,609 -- (423) 27,186
Totals $ 61,270 55 (1,117) 60,208
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Approx
Amortized Unrealized Unrealized Fair
December 31, 1999 Costs Gains Losses Values
<S> <C> <C> <C> <C>
U.S. Treasury $ 4,018 8 -- 4,026
U.S. Government agencies
and corporations 15,035 10 (221) 14,824
States and political
subdivisions 15,173 40 (460) 14,753
Other securities 34,952 1 (402) 34,551
Totals $ 69,178 59 (1,083) 68,154
</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.
<PAGE>
<TABLE>
<CAPTION>
Approx.
Amortized Fair
March 31, 2000 Costs Values
<S> <C> <C>
Due in one year or less $ 15,366 15,281
Due after one year through five years 24,996 24,394
Due after five years through ten years 13,249 12,965
Due after ten years 7,659 7,568
Totals $ 61,270 60,208
</TABLE>
Realized gains and losses on securities available-for-sale were not
material in 2000 or 1999.
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
$18,210 at March 31, 2000 and $49,033 at December 31, 1999.
(4) Securities Held-To-Maturity
The amortized costs, gross unrealized gains and losses, and approximate
fair values of securities held-to-maturity at March 31, 2000 and
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Gross Gross Approx.
Amortized Unrealized Unrealized Fair
March 31, 2000 Costs Gains Losses Values
<S> <C> <C> <C> <C>
States and political
subdivisions $ 32,148 273 (138) 32,283
Totals $ 32,148 273 (138) 32,283
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Approx.
Amortized Unrealized Unrealized Fair
December 31, 1999 Costs Gains Losses Values
<S> <C> <C> <C> <C>
States and political
subdivisions $ 33,221 367 (96) 33,492
Totals $ 33,221 367 (96) 33,492
</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.
<PAGE>
<TABLE>
<CAPTION>
Approx.
Amortized Fair
March 31, 2000 Costs Values
<S> <C> <C>
Due in one year or less $ 4,176 4,197
Due after one year through five years 21,008 21,146
Due after five years through ten years 6,811 6,788
Due after ten years 153 152
Totals $ 32,148 32,283
</TABLE>
Realized gains and losses on securities held-to-maturity were not
material in 2000 or 1999.
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
$16,216 at March 31, 2000 and $18,073 at December 31, 1999.
(5) Loans
At March 31, 2000 and December 31, 1999, there were direct loans to
executive officers and directors of $2,846 and $3,672, respectively. In
addition, there were loans of $4,375 and $3,423 at March 31, 2000 and
December 31, 1999 respectively, which directors endorsed or had been
made to companies in which directors had an equity interest.
At March 31, 2000 and December 31, 1999, the Corporation had sold
without recourse, participations in various loans to financial
institutions and other customers of the Corporation in the amount of
$39,228 and $39,969, 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:
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
March 31,
2000 1999
<S> <C> <C>
Balance at beginning of period $ 5,173 4,640
Provisions for loan losses 293 289
Loan recoveries 56 37
Loan charge-offs (59) (30)
Balance at end of period $ 5,463 4,936
</TABLE>
Nonperforming assets consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 l999
<S> <C> <C>
Nonaccrual loans $ 4,710 4,517
Other real estate owned 373 129
Total nonperforming assets $ 5,083 4,646
</TABLE>
There were no material commitments to lend additional funds to customers
whose loans were classified as nonperforming at March 31, 2000.
(7) Bank Premises and Equipment, Net
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
<S> <C> <C>
Land $ 1,515 1,515
Buildings 10,466 10,450
Furniture and equipment 8,440 8,354
Leasehold improvements 535 507
20,956 20,826
Less accumulated depreciation
and amortization 7,624 7,346
Totals $ 13,332 13,480
</TABLE>
(8) Other Borrowed Funds
Other borrowed funds include advances from the Federal Home Loan Bank of
Atlanta totaling $46,210 and $46,300 on March 31, 2000 and December 31,
1999, respectively. The interest rates on the advances range from 5.33
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.
<PAGE>
(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. First National Bank holds all ESOP loans. Consequently, in the
consolidated balance sheets 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
loans (plus interest) using employer contributions and dividends
received on the shares of common stock held by the ESOP.
The Corporation sponsors 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 participant's 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 $38 and $35 for the three-month periods ended
March 31, 2000 and 1999, respectively.
(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 2000 dividends of the
bank (unless prior regulatory approval is obtained) to $2,100 plus year-
to-date 2000 net profits as of the declaration date.
(12) Supplemental Cash Flow Information
The Corporation paid $4,826 and $4,343 for interest and it paid $541 and
$403 for income taxes for the three-month periods ended March 31, 2000
and 1999, 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.
<PAGE>
(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
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 unused home equity lines totaling $25,777 at March 31, 2000,
and $26,872 at December 31, 1999, the Corporation may not require
collateral or other security to support the following financial
instruments with credit risk:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
Contract Amount
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $ 86,886 88,046
Standby letters of credit 5,121 5,905
</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 $51
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.
<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.
2000 Compared to 1999
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
$5,467 for the three months ended March 31, 2000, an increase of $608 from the
same period in 1999. The increase in net interest income in the first three
months was primarily the result of growth in average earning assets, partially
offset by growth in interest bearing liabilities. Average earning asset
growth totaled $49,069 (11.25%), for the first three months of 2000 over the
respective prior year period. The largest component of the increase in
earning assets was average loans, reflecting an increase of $50,677
(15.06%)for the first three months of 2000. Growth in the loan portfolio was
concentrated primarily in commercial and real estate loans. Commercial loans
and loans secured by real estate reflected an increase of $15,659 and $29,395,
respectively, for the first three months of 2000. Average securities
increased $3,920 for the first three months of 2000. Average federal funds
sold decreased $5,528 for the first three months of 2000. Federal funds sold
were used as a source of funds to partially fund loan growth.
Average interest-bearing liabilities increased $39,147 (10.43%) over the
respective prior year period. The largest component of interest-bearing
liabilities was average deposits, reflecting an increase of $9,696 for the
first three months of 2000. Growth in the deposit portfolio was concentrated
in demand and savings deposits with an increase of $25,522 for the first three
months of 2000. Increased market penetration in new markets and a concerted
effort to obtain business deposit accounts from our business loan customers
accounted for the increase. This increase was partially offset by decreases
of $8,594 in certificates of deposit of $100,000 and over and $7,232 in time
deposits over the respective prior year period. The decreases can be
attributed to less competitive bidding for this type of deposit. Average
other borrowed funds increased $24,075 for the first three months of 2000. 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 liquidity to fund loan growth. Average federal funds purchased and
securities sold under agreements to repurchase increased $5,376 for the first
three months of 2000. This increase can be attributed to funding loan growth.
<PAGE>
Net interest yield decreased from 4.79% to 4.76% for the first three months of
2000 from the comparable prior year period. The yield on average earning
assets increased 2 basis points, from 8.64% to 8.66% for the first three
months of 2000 from the comparable prior year period. The cost of interest-
bearing liabilities increased 10 basis points, from 4.47% to 4.57% for the
first three months of 2000. Overall, 134.0% of the net interest income
increase for the first three months of 2000 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 first three
months of 2000 were due to a change in average rates.
Provision for Loan Losses
The provision for loan losses was $293 and $289, respectively, for the first
three months ended March 31, 2000 and 1999. Net charge-offs were negligible
for both quarters. The allowance for loan losses was $5,463, 1.39% of
outstanding loans, at March 31, 2000, and $5,173, 1.35% of outstanding loans,
at December 31, 1999. Since net charge offs were negligible, the provision
served to increase the allowance for loan losses. 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 and service release fees on mortgage loans sold, other service
charges, sundry income and net securities gains (losses), was $687 and $880,
respectively, for the three months ended March 31, 2000 and 1999. The
decrease in noninterest income resulted primarily from a decrease in mortgage
loan origination fees resulting from a decrease in the volume of loans
refinanced, which reflected the upward trend in mortgage rates, and a decrease
in appraisal fees resulting from the elimination of this in-house function.
Noninterest Expense
Noninterest expense, consisting of salaries and employee benefits, occupancy
costs, credit card processing, supplies, FDIC assessment and other expenses
was $3,640 and $3,375, respectively, for the three months ended March 31, 2000
and 1999. The net increase in noninterest expense resulted from increases in
several categories, primarily personnel costs, occupancy and equipment
expense, credit card expense, postage, telephone and online banking expense.
Personnel costs increased primarily as the result of merit increases, and
additional branch personnel necessitated by the new South Main office in
Blacksburg, which opened in April 1999. The increases in occupancy and
equipment expense resulted primarily from an increase in depreciation expense
for buildings and furniture and fixtures, which was related to the occupancy
of an additional floor in the headquarters building. Credit card expense was
up due to volume. The increase in postage expense resulted primarily from
timing. Telephone expense was up due to expanded facilities and online
banking expense increased due to volume. These increases were partially
offset by reductions in other areas.
<PAGE>
Income Taxes
Income tax expense as a percentage of pre-tax income was 25.9% and 23.3%,
respectively, for the three months ended March 31, 2000 and 1999. The increase
in the rate was due primarily to a decline in nontaxable interest as a percent
of pre-tax income.
Balance Sheet
Total assets of the Corporation at March 31, 2000, were $514,941, compared to
$516,906 at December 31, 1999. Total loans were $393,150 at March 31, 2000,
an increase of $10,878 from December 31, 1999. Loan growth was concentrated
in the real estate-commercial and mortgage portfolios and amounted to $10,783.
Cash and due from banks decreased $6,200 partially as a result of the decrease
in cash needs following Y2K. Securities decreased $9,019 primarily in the
available-for-sale portfolio. Funds generated were used to eliminate federal
funds purchased.
Total deposits at March 31, 2000, were $409,095, an increase of $10,224 from
December 31, 1999. Interest-bearing demand and savings deposits increased
$3,198, and noninterest-bearing demand deposits increased $4,715 since year
end. New interest bearing demand and savings deposits account for
approximately $5,085 of the increase. New noninterest-bearing demand deposits
account for approximately $1,276 of the increase. Competition for deposits
among local financial institutions and from mutual funds continues to be
strong.
Borrowed funds at March 31, 2000, were $52,956, a decrease of $13,972 from
December 31, 1999. These borrowings consist of advances from the Federal Home
Loan Bank of Atlanta, purchases of federal funds and securities sold under
agreements to repurchase. The decrease in purchased funds resulted primarily
from an increase in cash flow generated by maturing securities. Such
borrowings were used to provide partial funding for earning asset growth.
Stockholders' Equity
Stockholders' equity was $48,737 at March 31, 2000, compared to $47,579 at
December 31, 1999. This increase of $1,158 was the net result of earnings
retention, a decrease of $6 in net unrealized gains (net of tax) on securities
available-for-sale, a decrease of $186 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.
<PAGE>
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 March 31, 2000, the Bank's Tier 1 ratio, total capital ratio, and leverage
ratio, exceeded the minimum ratios required by the regulations.
The FNB Corporation 2000 Incentive Stock Plan (the "Plan") was adopted by
the Board of Directors on February 15, 2000 subject to approval by the holders
of a majority of the Corporation's common stock to be represented at the
annual meeting of shareholders scheduled for May 9, 2000. The Plan makes
available up to 400,000 shares of stock for awards to key employees and non-
employee directors of the Corporation and its subsidiaries in the form of
stock options, stock appreciation rights, and stock awards (collectively, the
"Awards"). The shares of the stock to be issued under the Plan will be
registered with the Securities and Exchange Commission on a registration
statement on Form S-8 pursuant to the requirements of the Securities Act of
1933. It is anticipated that, assuming the Plan is approved by the
shareholders, the registration statement will be filed with the SEC shortly
after the annual meeting. No Awards will be granted prior to the effective
date of the registration statement. A summary of the terms of the Plan and
awards thereunder will be available in a prospectus, and a complete
description will be contained in the Plan document.
The issuance of the Awards under the Plan will be accounted for based on the
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation." Any specific impact on the
Corporation's financial statements will depend on the terms of the particular
Award, the market price of the Corporation's stock, and certain other factors,
which cannot be predicted at this time.
Past Due Loans and Nonperforming Assets
Loans past due 90 days and over at March 31, 2000, totaled $191 compared to
$25 at December 31, 1999. In addition, nonaccrual loans and other real estate
owned totaled $5,083 at March 31, 2000, compared to $4,646 at December 31,
1999. The increase in nonaccrual loans can be attributed to one commercial
customer. Management considers the credit to be adequately secured and no
loss is anticipated. 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-
<PAGE>
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; approximately $12,000 of the Corporation's
borrowing capacity under an existing agreement with the FHLB remains unused as
of March 31, 2000, based on the level of qualifying portfolio mortgage loans
available for securitization. Secondary sources of liquidity are available
should the need arise, including approximately $38,500 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 2000 dividends of the bank (unless prior
regulatory approval is obtained) to $2,100 plus year-to-date 2000 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 2000. During the
first three months of 2000 the bank paid $798 in dividends to the holding
company.
Year 2000 (Y2K) Readiness Diclosure
The Corporation encountered no problems relating to Y2K. Even though
considerable resources were expended to ensure that FNB's automated systems
would be ready, the investment in much of the new technology will result in
more efficient processing, and the contingency plans developed and tested for
potential Y2K problems are in place to be used in the event of other emergency
situations.
<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 May 8, 2000 by: s/J. Daniel Hardy, Jr.
J. Daniel Hardy, Jr.
President & Chief Executive Officer
Date May 8, 2000 by: s/Daniel A. Becker
Daniel A. Becker
Senior Vice President & Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit # Description
(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) Registrant's 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 Change in control agreements with seven senior officers of
First National Bank and one senior officer of Registrant. 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) Daniel A. Becker, Senior Vice President, Chief Financial
Officer, dated April 1, 1999
(2) Keith J. Houghton, Senior Vice President, Manager,
Commercial Banking, dated April 1, 1999
(3) Darlene S. Lancaster, Senior Vice President, Manager,
Mortgage Loan Department, dated August 25, 1997
(4) R. Bruce Munro, Senior Vice President, Chief Credit
Administration Officer, dated August 25, 1997
(5) Woody B. Nester, Senior Vice President, Cashier, dated
August 25, 1997
(6) Peter A. Seitz, Executive Vice President, dated August 25,
1997
(7) Perry D. Taylor, Senior Vice President, Comptroller, dated
August 25, 1997
(8) Litz H. Van Dyke, Executive Vice President, dated August
25, 1997
The agreements with Mr. Seitz and Mr. Van Dyke were terminated
under the terms of the Employment Agreement referred to in Exhibit
(10) B below.
(10) B Employment agreement dated March 23, 1999 with two executive
officers of First National Bank. Both agreements have identical
terms, and as such, only a sample copy of the agreement was filed
with the Commission as Exhibit (10) E on form 10-Q for the quarter
ended March 31, 1999, and is incorporated herein by reference.
The officers covered by this agreement are:
<PAGE>
(1) Peter A. Seitz, Executive Vice President
(2) Litz H. Van Dyke, Executive Vice President
(10) C Change in control agreement dated March 15, 2000 between Joseph W.
Beury and First National Bank.
(27) Financial Data Schedule
Exhibit (10) C
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT, made and entered into this 15th day of March, 2000, by
and between FIRST NATIONAL BANK, a national banking association, with
principal offices in Christiansburg, Virginia "First National Bank"
hereinafter referred to as "Employer" or "FNB"), and JOSEPH W. BEURY, whose
mailing address is 5532 Westbrier Court, Roanoke, Virginia 24018 (sometimes
hereinafter referred to as "Employee").
WITNESSETH:
WHEREAS, Employee has been employed as a principal executive of Employer
and in such capacity will develop an intimate and thorough knowledge of
Employer's business methods, trade secrets, and operations, as well as
personal relationships with key individual employees of Employer and other
banks and companies with which Employer does business;
WHEREAS, the retention of Employee's services for and on behalf of
Employer and/or its subsidiaries, is of material importance to the
preservation and enhancement of the value of Employer's business;
WHEREAS, Employer recognizes that, as is the case with many publicly
held corporations, the possibility of a change of control may arise and that
such possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of Employer and its shareholders;
<PAGE>
WHEREAS, the Board of Directors of Employer (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the
continued attention and dedication of members of Employer's management to
their assigned duties without distraction by the possibility of a change of
control; and
WHEREAS, the Board believes it important, should Employer or its
shareholders receive a proposal for transfer of control of Employer, that
Employee be able to assess such proposal and advise the Board thereon, without
being influenced by the uncertainties of Employee's own employment status.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein set forth, Employer and Employee do hereby agree as follows:
I. Competitive Activities
1.1 During the term of this Agreement, Employee shall not, directly or
indirectly engage or participate in, become a director of, or render advisory
or other services for, or in connection with, or make any financial investment
in, any entity primarily engaging in financial or investment services which
competes with FNB in the Employer's trading area (as defined in Paragraph 4.2
of this Agreement). Notwithstanding the foregoing, the Employee may invest in
any such financial or investment firm, corporation, business entity or
enterprise so long as the investment is passive and where (i) such investment
does not exceed the greater of (a) five percent (5%) of the equity in any such
<PAGE>
entity or (b) an investment of $100,000 and (ii) excluding any passive
investment in securities of a publicly traded companies, such ownership and
any changes therein which are promptly reported in writing by the Employee to
the Board. Notwithstanding anything to the contrary contained in this
Agreement, while Employee is employed by Employer during the term of this
Agreement, Employee shall have no employment contract or other written or oral
agreement concerning his employment as an officer of the Employer with any
entity or person other than the Employer.
1.2 Employee acknowledges that by virtue of his employment with FNB,
Employee shall be privy to confidential information concerning the activities
and affairs of the Employer, its subsidiaries and affiliates, if any,
including trade secrets and other confidential matters. During the term of
employment, should employee render services to someone else in violation of
Section 1.1 hereof, other than as expressly authorized by the Board, Employer
shall be entitled to immediate equitable relief to restrain such conduct.
Such equitable relief shall be in addition to any other remedies to which
Employer may be entitled under law. Except for the purpose of carrying out
Employee's duties hereunder, Employee shall not remove or retain, or make
copies or reproductions of any inquiries, calculations, letters, papers, or
information of any type or description relating to the business of Employer,
its subsidiaries or affiliates, if any, and Employee shall not divulge to
others any information or data acquired by him while in Employer's employ
relating to methods, processes, or other trade secrets or confidential
information owned or utilized by FNB. Employer shall acquire the sole and
exclusive rights to any innovations, ideas, and concepts, whether or not
<PAGE>
subject to patent or trademark protection, and all copyrightable materials
which are conceived by Employee during his employment, which relate to the
business of Employer or any of its subsidiaries or affiliates, which are
confidential, and which are not readily ascertainable from persons or other
sources outside Employer and its subsidiaries and affiliates.
II. Change in Control
2.1 For purposes of this Agreement, a "change in control" of Employer
shall have occurred at such time as (a) the closing of a corporate
reorganization in which the Bank becomes a subsidiary of a holding company,
the majority of the common stock of which is owned by persons who did not own
the majority of the common stock of FNB Corporation (or its successor)
immediately prior to the reorganization; (b) individuals who constitute the
Board on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof; provided that any person becoming a
director subsequent to the date hereof whose nomination for election was
approved by a vote of at least three-quarters (3/4) of the directors
comprising the Incumbent Board shall be considered as though such person were
a member of the Incumbent Board for purposes of this subsection; (c) the
closing of the merger of Employer with or into another person; or (d) the
closing of the sale, conveyance or other transfer of substantially all of the
assets of Employer to another person.
2.2 For purposes of this Agreement, the term "person" shall include any
individual, corporation, partnership, group, association or other "person", as
<PAGE>
such term is used in section 14(d) of the Exchange Act, other than Employer,
any entity in which the Employer owns a majority of the voting interest or any
employee benefit plan(s) sponsored by Employer.
2.3 In the event Employer completes an affiliation with any other
institution in which there is a change in control and, as a result of the
affiliation, the Employee occupies a position of less authority than the
current position held under the terms of this Agreement and job
responsibilities less than Senior Vice President/Trust Executive of FNB, the
Employee may elect to terminate employment under Section 3.2 of this Agreement
and receive the compensation as provided in Section 4.1 hereof.
III. Termination Following Change in Control
3.1 Employer recognizes that a change in control as defined in Section I
may directly affect the direction and philosophy of FNB. A change in control
may also affect Employee's responsibilities and position with the Employer.
Employee will be entitled to the compensation provided in subsection 4.1 of
Section III hereof, upon Employee's determination to terminate his employment
with Employer or upon termination by Employer or upon termination by Employer
of Employee's employment with Employer.
3.2 Any termination by Employer or by Employee following a change in
control shall be communicated by written notice of termination ("Notice of
Termination") to the other party hereto. Such Notice of Termination shall
specify the date as of which employment shall terminate ("Date of
Termination"), which Date of Termination shall not be more than sixty (60)
days from the date of the Notice of Termination.
<PAGE>
IV. Compensation Upon Termination; Other Agreements
4.1 If within twelve (12) months of the date after which a change in
control of the Employer shall have occurred, as defined in Section II above,
Employee's employment with Employer shall be terminated by the Employer or by
Employee, then Employee shall be entitled, without regard to any contrary
provisions of any Plan, to the following benefits:
(A) For a period of twelve (12) months, commencing on the Date of
Termination, Employer shall make provisions so that Employee's medical
insurance benefits, life insurance and accident insurance plan coverage and
all other welfare and retirement plan and fringe benefits associated with
Employee's employment will continue to be on terms and at levels substantially
the same as those existing on the day prior to the Date of Termination;
(B) For a period of twelve (12) months, commencing on the Date of
Termination, Employee shall receive the Annual Compensation theretofore
received by Employee from Employer. Payment shall be made each month when the
Employer's payroll is customarily paid unless Employee irrevocably elects to
receive all salary compensation due hereunder in a lump sum which shall be
paid within thirty (30) days of the Employee's election. Should Employee
elect to receive a lump sum settlement instead of monthly payments, the amount
payable shall be reduced to the present value of monthly payments by using
the one year certificate of deposit rate then in effect at FNB. For purposes
of this Agreement, "Annual Compensation" shall mean Employee's current annual
base salary immediately preceding the change in control in accordance with
Section 4.1(a) hereof.
<PAGE>
4.2 The amount of any payment provided for in this Section IV shall not
be reduced, offset or subject to recovery by the Employer by reason of any
compensation earned by Employee as a result of subsequent employment by
another employer, other than compensation from employment with a banking
institution located in any county in Virginia whose county seat lies within
fifty (50) miles by highway from Christiansburg, Virginia (the bank's
"trading area") earned within twelve (12) months after a change in control.
4.3 Notwithstanding the other provisions of this Section IV, should
Employer terminate Employee for cause, no further compensation shall be paid
to Employee after the Date of Termination. Otherwise, Employee shall be
entitled to the full compensation provided for herein after his Termination,
whether such Termination is initiated by Employee or Employer. For purposes
of this subsection, the term "cause" shall mean personal dishonesty,
incompetence, willful misconduct, willful breach of fiduciary duty, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses), willful violation of a final cease and desist order,
willful or intentional breach or neglect of Employee's duties hereunder,
persistent negligence, or misconduct in the performance of Employee's duties.
V. Successors; Binding Agreement
5.1 This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of Employer which shall result from a change in
control of Employer as defined in Section I hereof. Employer shall require
any such successor, by an agreement in form and substance satisfactory to
Employee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent as Employer would be required to perform if no
such succession had taken place.
<PAGE>
5.2 This Agreement shall inure to the benefit and be enforceable by
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Employee should
die while any amount would still be payable to Employee hereunder at the time
of death of Employee, such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to Employee's devisee,
legatee or the devisee's or legatee's designee; or if there be no such
devisee, legatee or designee, to Employee's estate.
VI. Fees and Expenses
6.1 Both Employer and the Employee covenant and agree that in the event
of a breach or default of either party of any of the terms of this agreement,
then the defaulting party shall reimburse the non-defaulting party for any and
all legal expenses incurred to enforce the contract, including reasonable
attorney's fees.
<PAGE>
VII. Taxes
7.1 All payments to be made to Employee under this Agreement will be
subject to required withholding of federal, state and local income and
employment taxes.
VIII. Survival
8.1 The respective obligations of, and benefits accorded, Employer and
Employee as provided in this Agreement shall survive termination of this
Agreement.
IX. Notices
9.1 For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid and addressed to the addresses set
forth on the first page of this Agreement, provided that all notices to
Employer shall be directed to the attention of the Chairman of the Board, or
to such other addresses either party may have furnished to the other in
writing in accordance herewith; except that notice of change of address shall
be in effect only upon receipt.
X. Miscellaneous
10.1 No provision of this Agreement may be modified, waived or
discharged unless such modification, waiver or discharge is agreed to in
writing signed by Employee and the Chairman of the Board or President of
Employer (or highest ranking executive officer of FNB other than Employee, if
applicable). No waiver by either party hereto at any time of any breach by
the other party hereto of, or of compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any prior
<PAGE>
or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made
by either party which are not expressly set forth in this Agreement.
XI. Validity
11.1 The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
XII. Related Agreements
12.1 To the extent that any provision of any other agreement between
Employer or any of its subsidiaries and Employee shall limit, qualify or be
inconsistent with any provision of this Agreement, then for purposes of this
Agreement, while the same shall remain in force, the provision of this
Agreement shall control and such provision of such other agreement shall be
deemed to have been superseded, and to be of no force or effect, as if such
other agreement had been formally amended to the extent necessary to
accomplish such purpose.
XIII. Counterparts
13.1 This Agreement may be executed in one or more counterparts which
shall be construed together as one constituted agreement.
XIV. Governing Law
14.1 This Agreement shall be governed according to the laws of the
Commonwealth of Virginia. Should either party bring suit to enforce the
provisions hereof, Employer and Employee expressly consent to the exclusive
<PAGE>
jurisdiction and venue of the Circuit Court of Montgomery County, Virginia to
resolve such dispute.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first written above.
Employer:
First National Bank
Julian D. Hardy, President/CEO
Employee:
Joseph W. Beury, SVP/Trust Executive
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0
0
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