FORM 10-K-ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT of 1934.
For the fiscal year ended December 31, 1999
or
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 333-2524
FNB Corporation
(Exact name of registrant as specified in its charter)
Virginia 54-1791618
(State or other jurisdiction of (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.)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $5 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 10, 2000, was $66,077,038.
4,093,996 shares outstanding as of March 10, 2000
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Corporation's Annual Report to Stockholders for the year ended
December 31, 1999, are incorporated into Parts I and II hereof. Portions of
the Corporation's Notice of Annual Meeting and Proxy Statement for the Annual
Meeting of May 9, 2000, are incorporated into Part III hereof.
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Business Page
General 4
Competition 5
Loan Commitments 5
Deposit Concentrations 6
Employees 6
Securities Act Guide 3. Statistical
Disclosure by Bank Holding Companies 7
Item 2. Properties 17
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
PART II
Item 5. Market for the Bank's Common Stock and
Related Security Holder Matters 18
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers of the Bank 19
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain Beneficial Owners
and Management 20
Item 13. Certain Relationships and Related Transactions 21
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 21
Signatures 22
Index to Consolidated Financial Statements 23
Index to Exhibits 24
<PAGE>
PART I
Item 1. Business
General. Subsequent to December 31, 1995, The Board of Directors of First
National Bank (the ?Bank?) approved a reorganization whereby a bank holding
company (FNB Corporation) was incorporated under the laws of the Commonwealth
of Virginia. On June 11, 1996, the shareholders of the Bank approved a plan
for the holding company to exchange one share of its stock for each share of
stock of the Bank. A registration statement was filed with the Securities and
Exchange Commission (SEC) to register the stock of the holding company, and
such registration statement was subsequently declared effective by the SEC.
On July 11, 1996, the Office of the Comptroller of the Currency (OCC) approved
the plan, and the exchange was subsequently consummated. As a result, the
Bank became a wholly owned subsidiary of the holding company during the third
quarter of 1996, and the holding company began filing periodic reports under
the Securities Exchange Act of 1934. Prior to the consummation of the
exchange, the Bank filed periodic reports with the OCC. The holding company
and its subsidiaries are collectively referred to herein as the
"Corporation."
First National Bank, which was organized in 1905, does a general banking
business, serving the commercial, agricultural, and personal banking needs of
its trade territory, commonly referred to as the New River Valley, which
consists of Montgomery County, Virginia and portions of surrounding counties.
The Bank engages in and offers a full range of banking services, including
trust services; demand, savings, and time deposits used to fund the loan
demand in our trade area; commercial, farm, consumer installment, mortgage,
credit card, FHA and SBA guaranteed loans.
Under national banking law, nontraditional activities of a bank must be
operated through a corporate subsidiary of the bank. During 1992, FNB formed
a wholly-owned subsidiary in order to expand its business operations. FNB
Financial Services, Inc. is a member of the Virginia Title Center, L.L.C. and
acts as an agent in the issuance of title insurance policies. Additionally,
this subsidiary has been licensed by the Commonwealth of Virginia to offer
annuity products through First National's Trust Department. Any reference in
this report to the operations of the Corporation shall include the activities
of FNB Financial Services, Inc.
The local economy is tied primarily to the area's three largest employers -
Virginia Polytechnic Institute and State University, with a student population
in excess of 25,000; Radford University, with a student population in excess
of 8,000; and the Radford Arsenal, a large munitions plant operated under
contract to the U.S. Army by the Hercules Corporation. Other industries
include a wide variety of manufacturing concerns and agriculture-related
enterprises. The Bank's main office is located in Christiansburg, the County
Seat, with offices strategically located to take advantage of its trade area's
population mix. Of the Bank's twelve full service offices, nine are located
in Montgomery County, one in the City of Radford, one in the Town of Dublin
and one in Wythe County. One paying and receiving office is located in
Montgomery County.
<PAGE>
Refer to the Corporation?s 1999 Annual Report to Stockholders under the
heading "Selected Consolidated Financial Information" for a five year summary
of selected consolidated financial information which is incorporated by
reference into this Form 10-K.
Construction of a new corporate headquarters facility was completed during the
first quarter of 1997.
Competition. The Corporation is the largest bank in the area, with
approximately 60 percent of those deposits held by independent banks. It is
estimated that the Corporation holds 36 percent of total deposits in its
primary trade area including the offices of those state-wide and multi-state
bank holding companies located in our trade area. Competition in the trade
area consists of state-wide and multi-state bank holding companies,
independent banks, and credit unions.
Loan Commitments.The portfolio is not concentrated within any single industry
or group of related industries, nor is there any material risk other than that
which is expected in the normal course of business of a bank in this location.
Corporation policy establishes lending limits for each officer. Loan requests
for amounts exceeding loan officer lending authority are referred to the
officer loan committee which can approve loans up to 80% of the bank's legal
lending limit. Loan requests exceeding this limit are referred to the
Executive Committee of the Board of Directors. The following table relates
outstanding loans for the dates indicated (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
Commercial $ 113,321 85,536
Consumer 69,312 66,526
Real estate - commercial 74,113 65,165
Real estate - construction 18,772 16,686
Real estate - mortgage 106,754 94,686
Total loans $ 382,272 328,599
</TABLE>
The Corporation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the balance
sheet. The contract amounts of those instruments reflect the extent of
involvement the Corporation has in particular classes of financial
instruments.
The Corporation's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
<PAGE>
Except for unused home equity lines totaling $26,872 at December 31, 1999, and
$27,008 at December 31, 1998 (included in the amounts below) the Corporation
may not require collateral or other security to support the following
financial instruments with credit risk (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
Contract Amounts
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 88,046 86,583
Standby letters of credit 5,905 6,252
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Corporation evaluates
each customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Corporation upon extension of
credit, is based on management's credit evaluation of the customer.
Collateral held varies but may include securities, accounts receivable,
inventory, property, plant and equipment, and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by the
Corporation to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers.
Collateral held varies but may include securities, accounts receivable,
inventory, property, plant and equipment and income-producing commercial
properties.
Deposit Concentrations.The Corporation's deposits are obtained from a wide
range of depositors. There are no material concentrations of deposits from
any individual or organization.
Employees. The Corporation had 220 full-time equivalent employees as of
December 31, 1999, of which 63 were officers.
<PAGE>
Securities Act Guide 3. Statistical Disclosure by Bank Holding Companies. The
following schedules are included:
Average Balance Sheets
Rate/Volume Variance
Securities Available-For-Sale at Fair Value
Securities Held-To-Maturity at Amortized Cost
Securities--Maturity/Yield Schedule
Types of Loans
Loan Maturities and Interest Sensitivity
Nonperforming Assets and Past Due Loans
Pro forma/Recorded Interest on Nonaccrual Loans
Analysis of Allowance for Loan Losses
Allocation of Allowance for Loan Losses
Deposit Maturities
Interest Sensitivity Analysis
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET
1999
Average
Average Income/ Yield/
(thousands) Balance Expense Rate
<S> <C> <C> <C>
ASSETS
Loans (Net of unearned income) (1)(2) $ 359,268 33,226 9.25%
Securities:
Taxable 51,576 3,157 6.12
Nontaxable (2) 47,414 3,414 7.20
Total securities 98,990 6,571 6.64
Federal funds sold 3,632 183 5.04
Total interest-earning assets 461,890 39,980 8.66
Allowance for loan losses (4,961)
Cash and due from banks, noninterest-
bearing 11,652
Bank premises and equipment, net 13,360
Other real estate owned 43
Other assets 5,535
Total assets $ 487,519
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Demand and savings $ 126,671 3,400 2.68%
Time 167,143 8,905 5.33
Certificates of deposit of
$100,000 and over 55,093 2,931 5.32
Total interest-bearing deposits 348,907 15,236 4.37
Federal funds purchased and securities
sold under agreements to repurchase 9,231 380 4.12
Other borrowed funds 37,207 1,994 5.36
ESOP debt - - -
Total interest-bearing liabilities 395,345 17,610 4.45
Demand deposits, noninterest-bearing 42,733
Other liabilities 3,422
Stockholders' equity 46,019
Total liabilities and stockholders'
equity $ 487,519
Interest income and rate earned $ 39,980 8.66%
Interest expense and rate paid 17,610 4.45
Interest rate spread 4.21
NET INTEREST INCOME AND NET YIELD
ON AVERAGE EARNING ASSETS $ 22,370 4.84%
</TABLE>
(1) Interest on nonaccrual loans has been included only to the extent
reflected in the statements of income. Nonaccrual loans are included in
average balances for yield computations.
(2) Income and rates on non-taxable loans and securities are computed on a tax
equivalent basis using a federal tax rate of 34% for 1999.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET
1998
Average
Average Income/ Yield/
(thousands) Balance Expense Rate
<S> <C> <C> <C>
ASSETS
Loans (Net of unearned income) (1)(2) $ 312,369 29,980 9.60%
Securities:
Taxable 49,206 3,082 6.26
Nontaxable (2) 46,425 3,452 7.44
Total securities 95,631 6,534 6.83
Federal funds sold 9,518 507 5.33
Total interest-earning assets 417,518 37,021 8.87
Allowance for loan losses (4,401)
Cash and due from banks, noninterest-
bearing 10,415
Bank premises and equipment, net 12,642
Other real estate owned 37
Other assets 4,788
Total assets $ 440,999
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Demand and savings $ 105,744 2,958 2.80%
Time 173,533 9,801 5.65
Certificates of deposit of
$100,000 and over 49,607 2,870 5.79
Total interest-bearing deposits 328,884 15,629 4.75
Federal funds purchased and securities
sold under agreements to repurchase 6,496 261 4.02
Other borrowed funds 22,612 1,283 5.67
ESOP debt 874 76 8.70
Total interest-bearing liabilities 358,866 17,249 4.81
Demand deposits, noninterest-bearing 36,239
Other liabilities 3,539
Stockholders' equity 42,355
Total liabilities and stockholders'
equity $ 440,999
Interest income and rate earned $ 37,021 8.87%
Interest expense and rate paid 17,249 4.81
Interest rate spread 4.06
NET INTEREST INCOME AND NET YIELD
ON AVERAGE EARNING ASSETS $ 19,772 4.74%
</TABLE>
(1) Interest on nonaccrual loans has been included only to the extent
reflected in the statements of income. Nonaccrual loans are included in
average balances for yield computations.
(2) Income and rates on non-taxable loans and securities are computed on a tax
equivalent basis using a federal tax rate of 34% for 1998.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET
1997
Average
Average Income/ Yield/
(thousands) Balance Expense Rate
<S> <C> <C> <C>
ASSETS
Loans (net of unearned income)(1)(2) $ 278,824 26,959 9.67%
Securities:
Taxable 55,721 3,641 6.53
Nontaxable(2) 46,581 3,596 7.72
Total securities 102,302 7,237 7.07
Federal funds sold 6,376 344 5.40
Total interest-earning assets 387,502 34,540 8.91
Allowance for loan losses (4,316)
Cash and due from banks, noninterest-
bearing 11,061
Bank premises and equipment, net 11,965
Other real estate owned 77
Other assets 4,719
Total assets $ 411,008
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Demand and savings $ 96,485 2,823 2.93%
Time 174,225 10,071 5.78
Certificates of deposit of $100,000
and over 36,724 2,148 5.85
Total interest-bearing deposits 307,434 15,042 4.89
Federal funds purchased and securities
sold under agreements to repurchase 5,849 250 4.27
Other borrowed funds 24,469 1,385 5.66
ESOP debt 942 88 9.34
Total interest-bearing liabilities 338,694 16,765 4.95
Demand deposits, noninterest-bearing 31,358
Other liabilities 2,941
Stockholders' equity 38,015
Total liabilities and
stockholders' equity $ 411,008
Interest income and rate earned $ 34,540 8.91%
Interest expense and rate paid 16,765 4.95
Interest rate spread 3.96
NET INTEREST INCOME AND NET YIELD
ON AVERAGE EARNING ASSETS $ 17,775 4.59%
</TABLE>
(1) Interest on nonaccrual loans has been included only to the extent
reflected in the statements of income. Nonaccrual loans are included in
average balances for yield computations.
(2) Income and rates on non-taxable loans and securities are computed on a tax
equivalent basis using a federal tax rate of 34% for 1997.
<PAGE>
<TABLE>
<CAPTION>
RATE/VOLUME VARIANCE
1999 Compared to 1998 1998 Compared to 1997
Due to Due to Due to Due to
(thousands) Change Volume Rate Change Volume Rate
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 3,246 4,419 (1,173) 3,021 3,231 (210)
Securities:
Taxable 75 147 (72) (559) (417) (142)
Nontaxable (38) 72 (110) (144) (12) (132)
Federal funds sold (324) (305) (19) 163 168 (5)
Total 2,959 4,333 (1,374) 2,481 2,970 (489)
INTEREST EXPENSE
Demand and savings 442 574 (132) 135 265 (130)
Time (896) (351) (545) (270) (40) (230)
Certificates of deposit
of $100,0000 and over 61 305 (244) 722 749 (27)
Federal funds purchased
and securities sold
under agreements to
repurchase 119 111 8 11 27 (16)
Other borrowed funds 711 805 (94) (102) (105) 3
ESOP debt (76) (38) (38) (12) (6) (6)
Total 361 1,406 (1,045) 484 890 (406)
Net interest income $ 2,598 2,927 (329) 1,997 2,080 (83)
</TABLE>
Variances caused by changes in rate times the changes in volume are allocated
equally.
<PAGE>
<TABLE>
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE AT FAIR VALUE
December 31,
(thousands) 1999 1998 1997
<S> <C> <C> <C>
U.S. Treasury $ 4,026 7,164 8,162
U.S. Government agencies and
corporations 14,824 19,624 47,020
States and political subdivisions 14,753 11,648 3,070
Other securities 34,551 18,796 4,604
Totals $ 68,154 57,232 62,856
</TABLE>
<TABLE>
<CAPTION>
SECURITIES HELD-TO-MATURITY AT AMORTIZED COST
December 31,
(thousands) 1999 1998 1997
<S> <C> <C> <C>
U.S. Treasury $ -- -- --
U.S. Government agencies and
corporations -- -- --
States and political subdivisions 33,221 38,322 42,360
Other securities -- 30 60
Totals $ 33,221 38,352 42,420
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
SECURITIES--MATURITY/YIELD SCHEDULE
As of December 31, 1999
Securities Available-for-Sale
Approximate Taxable
Amortized Fair Equivalent
(thousands) Costs Values Yield(1)
<S> <C> <C> <C>
U.S. Treasury:
Within 1 year $ 1,501 1,503 5.91
1 through 5 years 2,517 2,523 6.01
Total 4,018 4,026 5.97
U.S. Government
agencies and corporations:
Within 1 year 3,999 3,903 6.20
1 through 5 years 6,165 6,121 6.31
6 through 10 years 4,500 4,434 7.56
Over 10 years 371 366 6.27
Total 15,035 14,824 6.65
State and political
subdivisions:
Within 1 year 100 100 5.76
1 through 5 years 15,073 14,653 6.78
Total 15,173 14,753 6.77
Other securities:
Within 1 year 21,651 21,546 5.94
1 through 5 years 10,286 9,988 5.60
Over 10 years 3,015 3,017 7.29
Total 34,952 34,551 5.96
$ 69,178 68,154 6.29
</TABLE>
(1) Yields on non-taxable investment securities are computed on a tax
equivalent basis using a federal tax rate of 34%.
<PAGE>
<TABLE>
<CAPTION>
SECURITIES--MATURITY/YIELD SCHEDULE
As of December 31, 1999
Securities Held-To-Maturity
Approximate Taxable
Amortized Fair Equivalent
(thousands) Costs Values Yield(1)
<S> <C> <C> <C>
U.S. Treasury:
Within 1 year $ - - - %
1 through 5 years - - -
Total - - -
U.S. Government
agencies and corporations:
Within 1 year - - -
1 through 5 years - - -
6 through 10 years - - -
Over 10 years - - -
Total - - -
State and political subdivisions:
Within 1 year 4,432 4,460 7.65
1 through 5 years 28,789 29,032 7.48
Total 33,221 33,492 7.50
Other securities:
Within 1 year - - -
1 through 5 years - - -
Over 10 years - - -
Total - - -
$ 33,221 33,492 7.50
</TABLE>
(1) Yields on non-taxable investment securities are computed on a tax
equivalent basis using a federal tax rate of 34%.
<PAGE>
<TABLE>
<CAPTION>
TYPES OF LOANS
December 31,
1999 1998 1997
% of % of % of
(thousands) Amount Total Amount Total Amount Total
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 113,321 29.7 85,536 26.0 64,247 22.0
Consumer 69,312 18.1 66,526 20.3 66,059 22.7
Real estate - commercial 74,113 19.4 65,165 19.8 56,404 19.4
Real estate - construction 18,772 4.9 16,686 5.1 8,657 3.0
Real estate - mortgage 106,754 27.9 94,686 28.8 95,703 32.9
$ 382,272 100.0 328,599 100.0 291,070 100.0
</TABLE>
<TABLE>
<CAPTION>
TYPES OF LOANS
December 31,
1996 1995
% of % of
(thousands) Amount Total Amount Total
<S> <C> <C> <C> <C>
Commercial $ 56,461 20.7 52,374 20.8
Consumer 62,906 23.0 61,888 24.5
Real estate - commercial 52,232 19.1 52,075 20.6
Real estate - construction 4,926 1.8 9,600 3.8
Real estate - mortgage 96,856 35.4 76,505 30.3
$ 273,381 100.0 252,442 100.0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOAN MATURITIES AND INTEREST SENSITIVITY
As of December 31, 1999
One
Within Through Over
(thousands) One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial:
Fixed interest rates $ 9,425 26,789 26,843 63,057
Floating interest rates 49,960 - 304 50,264
Total 59,385 26,789 27,147 113,321
Real estate-commercial:
Fixed interest rates 2,904 6,253 25,180 34,337
Floating interest rates 37,582 1,369 825 39,776
Total 40,486 7,622 26,005 74,113
Real estate-construction:
Fixed interest rates 686 1,050 6,023 7,759
Floating interest rates 11,013 --- --- 11,013
Total 11,699 1,050 6,023 18,772
$ 111,570 35,461 59,175 206,206
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NONPERFORMING ASSETS AND PAST DUE LOANS
December 31,
(thousands) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 4,517 1,109 893 573 1,769
Restructured loans -- -- -- -- --
Other real estate owned 129 30 98 185 387
Total nonperforming assets 4,646 1,139 991 758 2,156
Accruing loans past due
90 days $ 25 161 196 595 43
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA/RECORDED INTEREST ON NONACCRUAL LOANS
(thousands) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Pro forma interest-nonaccrual
loans $ 406 105 92 60 161
Recorded interest-nonaccrual
loans $ 1 1 3 3 1
</TABLE>
Interest related to nonaccrual loans is recognized on the cash basis. Loans
are generally placed on nonaccrual status when the collection of principal or
interest is 90 days or more past due, unless the obligation is both well-
secured and in the process of collection. Pro forma interest represents the
amount of interest that would have been recorded if the loans had been current
in accordance with their original terms.
<PAGE>
<TABLE>
<CAPTION>
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(thousands) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
AVERAGE LOANS OUTSTANDING $ 359,268 312,369 278,824 257,571 234,904
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period $ 4,640 4,291 4,179 3,988 3,815
Provision for loan losses 1,445 1,135 550 595 300
6,085 5,426 4,729 4,583 4,115
Loans charged off:
Commercial 713 507 42 122 27
Consumer 355 441 402 402 326
Real estate - commercial 50 -- 25 21 12
Real estate - construction -- -- -- -- --
Real estate - mortgage 15 22 159 15 --
Total loans charged off 1,133 970 628 560 365
Recovery of loans previously
charged off:
Commercial 9 54 17 29 36
Consumer 178 130 134 125 142
Real estate - commercial -- -- 37 2 24
Real estate - construction -- -- 2 -- --
Real estate - mortgage 34 -- -- -- 36
Total recoveries 221 184 190 156 238
Net loans charged off 912 786 438 404 127
Balance, end of period $ 5,173 4,640 4,291 4,179 3,988
Net charge-offs to average
loans outstanding 0.25% 0.25 0.16 0.16 0.05
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
December 31,
(thousands) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Commercial $ 2,555 2,388 1,218 961 652
Consumer 839 841 792 487 391
Real estate - commercial 612 418 649 738 412
Real estate - construction 66 58 161 28 69
Real estate - mortgage 538 621 688 743 612
Unassigned portion of allowance 563 314 783 1,222 1,852
$ 5,173 4,640 4,291 4,179 3,988
</TABLE>
Management continually reviews the loan portfolio for signs of deterioration.
In making their evaluation of the portfolio, factors considered include the
individual strength of borrowers, the strength of the individual industries,
the value and marketability of collateral, specific market strengths and
weaknesses, and general economic conditions. Management believes that the
allowance for loan losses at December 31, 1999 is adequate to cover potential
loan losses inherent in the loan portfolio.
<PAGE>
<TABLE>
<CAPTION>
DEPOSIT MATURITIES
As of December 31, 1999
Mature Within
Over Six
Three Over Three Months
Months Months Through Over
or Through Twelve Twelve
(thousands) Less Six Months Months Months Total
<S> <C> <C> <C> <C> <C>
Certificates of
deposit and other
time deposits of
$100M and over $ 8,530 7,097 17,653 13,233 46,513
All other deposits 133,453 51,566 54,885 112,454 352,358
Total deposits 141,983 58,663 72,538 125,687 398,871
</TABLE>
<TABLE>
<CAPTION>
INTEREST SENSITIVITY ANALYSIS
As of December 31, 1999
Mature or Reprice Within
Over Three
Three Months Over One
Months Through Year To Over
or Twelve Five Five
(thousands) Less Months Years Years Total
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans $ 136,067 90,272 93,109 58,380 377,828
Securities:
Available-for-sale,
at fair value 9,490 15,013 21,253 22,398 68,154
Held-to-maturity,
at amortized cost 1,069 3,363 21,354 7,435 33,221
Other interest-earning
assets 3,510 -- -- -- 3,510
Total interest-
earning assets $ 150,136 108,648 135,716 88,213 482,713
INTEREST-BEARING LIABILITIES
Certificates of deposit
and other time deposits
of $100M and over $ 11,767 21,613 13,133 -- 46,513
Time 47,385 72,427 47,329 21 167,162
All other deposits 90,887 21,833 29,111 -- 141,831
Federal funds purchased
and securities sold
under agreements to
repurchase 20,666 -- -- -- 20,666
Other borrowed funds 20,000 -- 25,107 1,155 46,262
Total interest-
bearing
liabilities $ 190,705 115,873 114,680 1,176 422,434
Interest sensitivity
gap per period $ (40,569) (7,225) 21,036 87,037 60,279
Cumulative interest
sensitivity gap (40,569) (47,794) (26,758) 60,279 --
</TABLE>
Refer to the Bank's 1999 Annual Report to Stockholders under the heading
"Selected Consolidated Financial Information" for a five year summary of
financial information which includes return on equity, return on assets and
other ratios, which is incorporated by reference into this Form
10-K.
<PAGE>
Item 2. Properties
The Corporation has twelve full service offices at the following locations:
Full Service
1. Christiansburg Office, 50 North Franklin Street, Christiansburg,
Virginia, containing 9,000 square feet;
2. Blacksburg Office, 601 North Main Street, Blacksburg, Virginia,
containing 8,750 square feet;
3. Riner Office, Route 8, Riner, Virginia, containing 1,600 square
feet;
4. Hills Office, l340 Roanoke Street, Christiansburg, Virginia,
containing 1,200 square feet;
5. Radford Office, 50 First Street, Radford, Virginia, containing
8,000 square feet;
6. New River Valley Mall Office, 646 New River Road, Christiansburg,
Virginia, containing 917 square feet.
7. Corporate Research Center Office, 1872 Pratt Drive, Suite 1125,
Blacksburg, Virginia, containing 360 square feet.
8. Shawsville Office, 250 Alleghany Spring Road, Shawsville,
Virginia, containing 2,712 square feet.
9. Dublin Office, 2 Town Center Drive, Dublin, Virginia, containing
2,640 square feet.
10. FNB Center, 105 Arbor Drive, Christiansburg, Virginia, containing
72,816 square feet.
11. Wytheville Office, 280 West Main Street, Wytheville, Virginia,
containing 3,000 square feet.
12. South Main Blacksburg Office, 1206 South Main Street, Blacksburg,
Virginia, containing 1,100 square feet.
All of such space is used by the Corporation in its operations. The
Corporation owns properties 1, 2, 3, 5, 8, 9 and 10 and leases properties 4,
6, 7, 11, and 12 from independent parties on terms which management believes
are satisfactory.
Other Real Estate.
Other Real Estate is composed of one commercial and one residential property.
Item 3. Legal Proceedings
From time to time, the Corporation is a party to lawsuits arising in the
normal course of business in which claims for money damages are asserted.
Management, after consulting with legal counsel handling the respective
matters, is of the opinion that the ultimate outcome of such pending actions,
whether or not adverse to the Corporation, will not have a material effect
upon the Corporation's financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
<PAGE>
PART II
Item 5. Market for the Corporation's Common Stock and Related Security
Holder Matters
The Corporation has only one (1) class of Common Stock with a Par Value of $5
per share. There were approximately 1,058 stockholders of record as of
December 31, 1999, holding 4,093,996 shares of the authorized 10,000,000
shares. The Corporation's stock began appearing on the Nasdaq Stock Market
under the symbol FNBP on July 7, 1998. Previously, the stock appeared on the
over-the-counter bulletin board under the same symbol. The recent market
prices and other related shareholder data is incorporated by reference into
this Form 10-K from the section entitled, "Market Price and Dividend Data," in
the Corporation's 1999 Annual Report to Stockholders which is filed as Exhibit
13 to this Annual Report on Form 10-K. Prior to 1997, the Corporation had
consistently paid a semi-annual dividend on its common stock. Beginning in
the second quarter of 1997, the dividend payment was changed to a quarterly
basis, which is currently anticipated to be the normal frequency for the
foreseeable future. There are no known restrictions on the retained earnings
that would affect the ability to pay further dividends other than those
imposed by regulatory agencies. See Note 12 of the notes to consolidated
financial statements in the Corporation?s 1999 Annual Report to Stockholders
under the caption Dividend Restrictions and Capital Requirements, which is
filed as Exhibit 13 to this Form 10-K and is incorporated herein by reference.
Item 6. Selected Financial Data
Selected financial data is located in the Corporation's 1999 Annual Report to
Stockholders, which is filed as Exhibit 13 to this Form 10-K, under the
caption "Selected Consolidated Financial Information," which is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations is located in the section of the Corporation's 1999 Annual Report
to Stockholders, which is filed as Exhibit 13 to this Form 10-K, under the
same heading, and is incorporated herein by reference.
Item 7(A) Quantitative and Qualitative Disclosures About Market Risk
Information regarding market risks is included in the section of the 1999
Annual Report to Stockholders entitled "Market Risks Related to Financial
Instruments," which is filed as Exhibit 13 to this Form 10-K and is
incorporated herein by reference.
<PAGE>
Item 8. Financial Statements and Supplementary Data
The following independent auditors' report, consolidated financial statements,
and supplementary financial information included in the Corporation's 1999
Annual Report to Stockholders, which is filed as Exhibit 13 to this Form 10-K,
are incorporated herein by reference:
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income - Years ended December 31, 1999, 1998,
and 1997
Consolidated Statements of Comprehensive Income - Years ended December
31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows - Years ended December 31, 1999,
1998, and 1997
Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Corporation
Information on directors is incorporated by reference from the Corporation's
Proxy Statement for the 2000 Annual Meeting of Stockholders under the heading
"Election of Directors."
Information on executive officers is incorporated by reference from the
Corporation's Proxy Statement for the 2000 Annual Meeting of Stockholders
under the heading "Executive Officers of the Corporation."
Election of Directors. A total of 3,127,488 shares of a possible 3,722,139
shares or 84.0 percent of eligible shares were voted at the May 11, 1999,
stockholders meeting. No class of voting stock withheld or cast against any
nominee for Director in aggregate five percent or more of total shares cast by
such class.
Item 11. Executive Compensation
Information on executive compensation is incorporated by reference from the
Corporation's Proxy Statement for the 2000 Annual Meeting of Stockholders
under the heading "Executive Compensation."
<PAGE>
Employee Stock Ownership Plan. The Corporation instituted a qualified
employee stock ownership plan in 1983 which covers substantially all
employees. The Corporation makes periodic contributions to the plan that are
used to purchase the Corporation's common stock from available sources. The
shares are then allocated among plan participants based upon compensation and
years of service. Stock allocated to a particular participant (or its value)
is generally distributed upon retirement, death, disability, termination, or
(under certain circumstances) attaining a specified age. The plan is
administered by a committee appointed by the Corporation's Board of Directors.
Information on the Corporation's leveraged ESOP is included in Note 10 of
notes to consolidated financial statements, and is incorporated by reference
from the Corporation's 1999 Annual Report to Stockholders which is included as
Exhibit 13 to this Form 10-K.
Information on compensation of directors compensation committee and executive
compensation matters is incorporated by reference from the Corporation's Proxy
Statement for the 2000 Annual Meeting of Stockholders under the heading "Board
of Directors and Committees of the Board."
The Corporation's performance graph is incorporated by reference from the
Corporation's Proxy Statement under the heading "Performance Graph."
Item 12. Security Ownership of Certain Beneficial Owners and Management
Principal Security Holders. The Corporation knows of no person or group that
beneficially owned more than five percent of the outstanding shares of Common
Stock as of March 6, 2000.
Executive Officers. The persons currently serving as executive officers of
the Corporation and their security ownership, are as follows:
Percent of
Number Shares Owned Outstanding
Name (Age) Title as of 3/6/00(A)(B) Shares
J. Daniel President & Chief 49,156 1.20
Hardy, Jr. (50) Executive Officer
Daniel A. Senior Vice President &
Becker (57) Chief Financial Officer 381 .01
(A) Includes shares that may be deemed beneficially owned due to sole or
joint ownership, voting power or investment power; including shares owned by
or held for the benefit of an executive officer's spouse or another immediate
family member residing in the household of the executive officer that may be
deemed beneficially owned.
(B) Includes estimated 1999 Employee Stock Ownership Plan allocation.
Directors. Information on security ownership of directors is incorporated by
reference from the Corporation's Proxy Statement for the 2000 Annual Meeting
of Stockholders under the heading "Election of Directors."
<PAGE>
Item 13. Certain Relationships and Related Transactions
Directors and officers of the Corporation and persons with whom they are
associated have had and expect to have in the future, banking transactions
with the Corporation in the ordinary course of their businesses. In the
opinion of management of the Corporation, all such loans and commitments for
loans were made on substantially the same terms, including interest rates,
collateral and repayment terms as those prevailing at the same time for
comparable transactions with other persons, were made in the ordinary course
of business, and do not involve more than a normal risk of collectibility or
present other unfavorable features. The aggregate amount of direct loans to
any one director, officer or principal stockholder (and related persons), does
not exceed 10 percent of the Corporation's equity capital accounts (nor 20
percent of such accounts for all such persons as a group) and did not during
the previous two fiscal years.
Information on transactions with management is incorporated herein by
reference from the Corporation's Proxy Statement for the 2000 Annual Meeting
of Stockholders under the heading "Transactions with Management."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a(1). Consolidated Financial Statements. See Index to Consolidated Financial
Statements.
a(2).Financial Statement Schedules. The financial statement schedules are
omitted as the required information is inapplicable or the information
is presented in the consolidated financial statements or related notes.
a(3).Exhibits.
See Index to Exhibits
b. Reports on Form 8-K.
The Corporation did not file any reports on Form 8-K during the fourth
quarter of 1999.
c. Exhibits.
Included in item 14a(3) above
d. Financial Statement Schedules.
Included in item 14a(2) above
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FNB Corporation
By: s/J. Daniel Hardy, Jr.
J. Daniel Hardy, Jr.
President & Chief Executive Officer
By: s/Daniel A. Becker
Daniel A. Becker
Senior Vice President &
Chief Financial Officer
Date: March 23, 2000
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following directors on behalf of the
registrant and in that capacity and on the dates indicated.
Signature Date
s/Kendall O. Clay March 23, 2000
Kendall O. Clay
s/Dr. Douglas Covington March 23, 2000
Dr. Douglas Covington
s/Daniel D. Hamrick March 23, 2000
Daniel D. Hamrick
s/J. Daniel Hardy, Jr. March 23, 2000
J. Daniel Hardy, Jr.
s/Joan H. Munford March 23, 2000
Joan H. Munford
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following independent auditors' report and consolidated financial
statements of the Corporation are incorporated by reference from the
Corporation's 1999 Annual Report to Stockholders included within this document
as an Exhibit:
Independent Auditors' Report
Consolidated Balance Sheets --
December 31, 1999 and 1998
Consolidated Statements of Income -- Years
Ended December 31, 1999, 1998, and 1997
Consolidated Statements of Comprehensive Income -- Years
Ended December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows -
Years Ended December 31, 1999, 1998, and 1997
Consolidated Statements of Changes in
Stockholders' Equity -- Years Ended
December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
All schedules are omitted as the required information is inapplicable or the
information is presented in the consolidated financial statements or related
notes.
<PAGE>
INDEX TO EXHIBITS
Exhibit # Description
(2) Plan of Reorganization
Agreement and Plan of Reorganization dated as of February 1, 1996,
between the Registrant, First National Bank, and FNB Bank, filed
as Exhibit 2 to the Registration Statement on Form S-4 filed by
FNB Corporation with the Securities and Exchange Commission May 3,
1996 (Registration number 333-2524) is incorporated herein by
reference.
(3)(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 Consulting and Noncompetition Agreement With Put Option dated
January 15, 1999, between Samuel H. Tollison and Registrant, filed
with the Commission as Exhibit (10) D on Form 10-K for the year
ended December 31, 1998, is incorporated herein by reference.
(10)B First Amendment to Consulting and Noncompetition Agreement dated
December 23, 1999, between Samuel H. Tollison and Registrant.
(10)C 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)D 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
<PAGE>
(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) E below.
(10)E 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:
(1) Peter A. Seitz, Executive Vice President
(2) Litz H. Van Dyke, Executive Vice President
(13) 1999 Annual Report to Stockholders
(21) Subsidiaries of the Registrant
(27) Financial Data Schedule
FIRST AMENDMENT TO CONSULTING AND
NONCOMPETITION AGREEMENT
THIS FIRST AMENDMENT to Consulting and Noncompetition Agreement dated December
23, 1999 is by and between FNB Corporation, a Virginia corporation and bank
holding company (the "Corporation") which owns all of the outstanding stock
of First National Bank, a national banking association headquartered in
Christiansburg, Virginia (the "Bank") and Samuel H. Tollison, who resides at
3180 Fairview Church Road, Riner, Virginia 24149 (the "Consultant").
W I T N E S S E T H:
WHEREAS, the Consultant and the Corporation did execute a Consulting and
Noncompetition Agreement dated January 15, 1999 (the "Agreement");
WHEREAS, the Corporation has been advised by its accounting firm that the
effect of the Put Option provided in Paragraph 12 of the Agreement will cause
all of the shares owned by the Consultant and subject to the Put Option to be
reclassified as a liability of the Corporation as opposed to stockholder's
equity of the Corporation;
WHEREAS, the Corporation and the Consultant mutually desire to avoid the
reclassification of the Consultant's shares in the Corporation.
NOW, THEREFORE, in consideration of the foregoing and other good and valuable
consideration, the Corporation and the Consultant agree to amend the Agreement
as follows:
1. Put Option. Paragraph 12 of the Agreement is deleted and replaced in
its entirety as follows:
In the event the Consultant desires to list for sale at any time
more than 1000 shares of the Corporation's stock, the Consultant
shall offer (the "notice") the Corporation the opportunity to
repurchase such shares (the "right of first refusal") at a
mutually agreed upon price. The mutually agreed upon price shall
equal or exceed the price per share reported by the NASDAQ
national market exchange for the last trade in the Corporation's
stock on a trading day prior to the Consultant's notice to the
Corporation of the right of first refusal. Upon notice by the
Consultant, the Corporation shall have five (5) days to exercise
its right of first refusal or the right shall lapse. Should the
Corporation announce a merger, sale or acquisition of the
Corporation (the "Merger Announcement") within 365 days after the
Corporation's exercise of the right of first refusal on any of the
Consultant's shares of the Corporation, the Consultant shall be
entitled to additional compensation for all shares repurchased by
<PAGE>
the Corporation within the 365-day period before the Merger
Announcement. This additional compensation shall equal the
difference between the per share sales price of the Corporation's
stock at the end of trading on the first trading day after the
Merger Announcement and per share sales price on the date of each
exercise of the right of first refusal times the number of shares
repurchased on each such exercise date. The shares subject to the
right of first refusal shall include all shares owned by the
Consultant, whether directly, indirectly or through beneficial
ownership.
2. Full Force and Effect. Except as herein amended, the Agreement shall
remain in full force and effect.
WITNESS the following signatures and seals:
FNB Corporation
(SEAL)
J. Daniel Hardy, Jr., President/CEO
(SEAL)
Samuel H. Tollison
FNB CORPORATION
ANNUAL REPORT TO STOCKHOLDERS
1999
<PAGE>
INDEX TO ANNUAL REPORT TO STOCKHOLDERS
Page
Selected Consolidated Financial Information..................................1
Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................2
Market Price and Dividend Data...............................................7
Market Risks Related to Financial Instruments ...............................7
Independent Auditors' Report on Consolidated Financial Statements ..........10
Consolidated Balance Sheets ................................................11
Consolidated Statements of Income ..........................................12
Consolidated Statements of Comprehensive Income ............................13
Consolidated Statements of Cash Flows ......................................14
Consolidated Statements of Changes in Stockholders' Equity .................16
Notes to Consolidated Financial Statements .................................17
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Years Ended December 31,
1999 1998 1997 1996 1995
Selected income statement data
(in thousands):
<S> <C> <C> <C> <C> <C>
Interest income $ 38,570 35,653 33,114 30,526 28,330
Interest expense 17,610 17,249 16,764 15,016 14,081
Net interest income 20,960 18,404 16,350 15,510 14,249
Provision for loan losses 1,445 1,135 550 595 300
Noninterest income 3,174 3,001 2,291 2,034 1,869
Noninterest expense 14,416 12,682 11,602 10,254 9,695
Income tax expense 1,946 1,657 1,324 1,491 1,449
Net income $ 6,327 5,931 5,165 5,204 4,674
Per share data:
Net income $ 1.59 1.50 1.32 1.34 1.23
Cash dividends declared .63 .57 .35 .50 .45
Book value per share 11.93 11.20 10.26 9.21 8.38
Average number of shares
outstanding 3,982,147 3,959,084 3,917,654 3,878,209 3,827,075
Selected balance sheet data at year end
(in thousands):
Total securities $ 101,375 95,584 105,276 97,975 87,962
Loans, net of unearned
income 382,272 328,599 291,058 273,324 252,293
Allowance for loan losses 5,173 4,640 4,291 4,179 3,988
Total assets 516,906 461,916 428,174 395,324 360,533
Deposits 398,871 386,257 352,545 335,402 315,777
Subordinated capital notes - - - - 937
Stockholders' equity 47,579 44,401 40,213 35,828 32,191
Selected ratios (in percentages):
Return on average assets 1.30 1.34 1.26 1.41 1.38
Return on average equity 13.75 14.00 13.59 15.20 15.64
Dividend pay-out ratio 39.89 38.44 26.08 36.99 37.27
Average equity to average
assets 9.44 9.60 9.31 9.26 8.82
</TABLE>
NOTES: All share and per share data have been adjusted retroactively to
reflect the 2 for 1 stock split effected in the form of a 100% stock
dividend in 1997 and a 10% stock dividend in 1998 and 1999.
<PAGE>
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, a bank
holding company, and its wholly owned subsidiaries (collectively, the
"Corporation"). The primary subsidiary of FNB Corporation is First National
Bank (the "Bank"). 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.
Net Income
Net income for 1999 was $6,327 compared to $5,931 for 1998 and $5,165 for
1997. This amounted to an increase of 6.7% for 1999 compared to an increase
of 14.8% for 1998. Earnings per share for 1999 were $1.59 compared to $1.50
for 1998 and $1.32 for 1997. The increase in earnings for 1999 and 1998 was
primarily the result of higher net interest income due to growth.
The per share earnings for prior years has been restated to reflect the effect
of a 10% stock dividend declared in the third quarter of 1999.
Net Interest Income
The principal source of earnings for the Corporation is net interest income.
Net interest income is the amount of interest earned on loans and investments
(Fed funds sold, securities and mortgage loans held for sale) less the amount
of interest paid on deposits and other interest-bearing liabilities. Net
interest income before provision for loan losses for 1999 was $20,960, up
13.9% from $18,404 for 1998, which was up 12.6% from $16,350 for 1997. The
increases in net interest income in both 1999 and 1998 were primarily the
result of growth in loans and deposits. Average loans grew $47,800 or 15.4%
in 1999 and $34,573 or 12.5% in 1998. This growth occurred primarily in the
commercial sector. Investments declined slightly in both years in order to
partially fund the increased loan demand. Average investments dropped $3,500
in 1999 and $2,063 in 1998.
The increase in loan demand was funded primarily by an increase in deposits.
Total average deposits increased $26,400 or 7.2% in 1999 and $26,559 or 7.8%
in 1998. Average deposit growth occurred primarily in lower-cost transaction
account balances in 1999 as opposed to higher cost certificate of
deposit/individual retirement account balances. In 1998, average growth was
spread among all deposit categories. Average other borrowed funds increased
$16,000 in 1999 to fund the excess in loan growth over deposit growth. These
borrowings primarily represented an increase in advances from the Federal Home
Loan Bank of Atlanta.
<PAGE>
The net interest margin increased to 4.84% in 1999 from 4.74% in 1998. This
follows a strong increase from 4.59% to 4.74% from 1997 to 1998. This
increase in both years was largely due to loan growth. Loans, with their
higher yields relative to investments, expanded as a percent of earning assets
in 1998 and 1999. In addition, management was able to control funding costs
as the yield on earning assets declined. Cost of funds as a percent of
earning assets declined 32 basis points in 1999, whereas the yield on earning
assets only declined 21 basis points. In 1998 the total cost of funds
declined 19 basis points and the yield on earning assets only declined four
basis points. Management attempts to match the maturities and repricing
intervals of its earning assets and liabilities in order to avoid material
fluctuations in earnings if interest rates change. This is covered under the
heading of "Market Risks Related to Financial Instruments".
Provision for Loan Losses
The provision for loan losses was $1,445 for 1999, $1,135 for 1998 and $550
for 1997. Net charge-offs amounted to $913, $786 and $438 for 1999, 1998 and
1997, respectively. The provision for loan losses increased in 1999 and 1998,
from the respective prior years, due to higher net charge-offs and to provide
an adequate reserve on outstanding loans. Loans grew at an annual rate of
16.3% in 1999 and 12.9% in 1998. The allowance for loan losses increased $533
to $5,173 or 1.35% of outstanding loans, net of unearned income at December
31, 1999, from $4,640 or 1.41% of outstanding loans, net of unearned income at
December 31, 1998. The decline in the allowance as a percentage of loans is
attributable primarily to a higher overall loan portfolio quality which has
resulted in part from the high recent rate of loan growth.
Noninterest Income
Noninterest income, which includes 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 $3,174, $3,001
and $2,291 for 1999, 1998 and 1997, respectively. The increase in noninterest
income for 1999 resulted primarily from new mortgage loan underwriting fees,
service charge income due to volume and pricing, insurance revenue on consumer
loans and revenue from sales of investment products. These favorable items
were partially offset by lower net securities gains. The increase in
noninterest income in 1998 over 1997 was due primarily to mortgage origination
fees on loans sold due to higher volume, service charges on deposit accounts,
securities gains, a full year of ATM usage fees and higher trust/investment
revenue.
Noninterest Expense
Noninterest expense, consisting of salaries and employee benefits, occupancy
costs, credit card processing, supplies and other expense was $14,416 for
1999, $12,682 for 1998 and $11,602 for 1997. The 1999 increase in noninterest
expense in most categories resulted primarily from new initiatives including
the opening of two new full service branches, offering online banking and
investment in new technology to streamline operations. These are investments
in the future, which should enable the Corporation to contain costs and
provide customers with more convenient locations and up-to-date services. In
addition, salary expense was up due to staff additions for new branches and
merit increases, and credit card expense was up due to volume. The growth in
expenses in 1998 over 1997 was due in part to additions to staff and merit
increases, a new 401(K) plan, higher sales volume, and occupying the new
headquarters building for a full year in 1998 vs. a partial year in 1997.
Income Taxes
Income tax expense as a percentage of pre-tax income was 23.5%, 21.8%, and
20.4% in 1999, 1998 and 1997, respectively. The increase in 1999 was due in
part to a reduction in the dividends paid deduction, and the decline in both
years was also attributable to reductions in nontaxable interest as a percent
of pre-tax income.
Balance Sheet
Total assets of the Corporation at December 31, 1999, were $516,528, up 11.8%
compared to $461,916 at December 31, 1998 due to loan growth. Total loans
were $382,272 at December 31, 1999, an increase of $53,673 or 16.3% over
December 31, 1998. Loan growth was concentrated in the commercial, real
estate-commercial and real estate-mortgage portfolios. Investments (Fed funds
sold, securities and mortgage loans held for sale) declined $6,382 to
partially fund loan growth.
Total deposits at December 31, 1999, were $398,871, an increase of $12,614 or
3.3% over December 31, 1998. Lower-cost transaction account balances rose a
strong $19,851 or 12.0% over last year; however, certificate of
deposit/individual retirement account balances declined $7,237. Competition
for deposits among local financial institutions and from mutual funds
continues to be strong. The Corporation is responding with new products such
as the high-yield money market account and business sweep product, offering
free checking and pricing certain certificate of deposit categories
aggressively. Additionally, the Corporation has opened a second full-service
branch in the growing Town of Blacksburg (the location of Virginia Tech) and
expanded the loan production office in Wytheville, VA to a full-service
branch.
Borrowed funds at December 31, 1999 increased $38,666 over December 31, 1998.
These borrowings consist of advances from the Federal Home Loan Bank of
Atlanta, purchases of Fed funds and securities sold under agreements to
repurchase. Such borrowings were used to fund the excess growth in loans over
deposits and Y2K cash needs.
Stockholders' Equity
Stockholders' equity was $47,579 at December 31, 1999, compared to $44,401 at
December 31, 1998. This increase of $3,178 was the result of earnings
retention net of dividends paid to shareholders; a decrease of $990 in net
unrealized gains net of tax on securities available-for-sale and principal
repayments on ESOP debt. In the third quarter of 1999, the Corporation
declared and paid a 10% stock dividend. This resulted in a transfer of $8,142
from retained earnings to capital stock and surplus. There was no effect on
total stockholders' equity.
All financial institutions are required to maintain minimum levels of
regulatory capital. The Federal Reserve and the Office of the 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-
<PAGE>
weighted assets of at least 8%. At least half of the total capital is
required to be "Tier 1 capital", which consists principally of common and
certain qualifying preferred shareholders' equity, less certain intangibles
and other adjustments. The remainder, "Tier 2 capital", consists of a limited
amount of subordinated and other qualifying debt and a limited amount of the
general loan loss reserve. Tier 1 and total capital to risk-weighted assets
ratios on a consolidated basis as of December 31, 1999, were 11.6% and 12.9%,
respectively, exceeding the minimums required.
In addition, the federal regulatory agencies have established a minimum
leveraged capital ratio (Tier 1 capital to tangible assets). These guidelines
provide for a minimum leveraged capital ratio of 3% for banks and their
respective holding companies that meet certain specified criteria, including
that they have the highest regulatory examination rating and are not
contemplating significant growth or expansion. All other institutions are
expected to maintain a leverage ratio of at least 100 to 200 basis points
above that minimum. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum supervisory
levels, without significant reliance on intangible assets. The leverage ratio
of the Corporation on a consolidated basis as of December 31, 1999 was 9.5% as
compared to a minimum requirement of 4.0%.
As of December 31, 1999, the most recent notification from the OCC categorized
the Bank as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, minimum total risk-
based capital, Tier 1 risk-based capital, and Tier 1 leverage ratios of 10.0%,
6.0% and 5.0%, respectively, must be maintained. The Bank exceeded all three
of these minimums as of December 31, 1999. There are no conditions or events
that management believes have changed the institution's category.
Past Due Loans and Nonperforming Assets
Loans past due 90 days and over at December 31, 1999, totaled $25 compared to
$161 at December 31, 1998. Nonaccrual loans and other real estate owned
totaled $4,646 at December 31, 1999, compared to $1,139 at December 1998. The
increase in nonaccrual loans can be largely attributed to one large health
care provider. Signed agreements have been reached with an unrelated party to
acquire all of the major assets of the borrower. If the details of the
agreement transpire as planned, FNB should not incur a significant loss.
Liquidity and Capital Resources
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 adequate 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. The Corporation has additional borrowing
capacity of $12,000 under an existing agreement with the FHLB as of December
31, 1999, based on the level of qualifying portfolio mortgage loans available
for securitization. Secondary sources of liquidity are available should the
need arise, including approximately $25,000 in unused Federal Funds lines of
credit and the ability to liquidate assets held for sale, especially
investment securities.
<PAGE>
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 2000 dividends (unless prior regulatory
approval is obtained) to $2,100 plus year-to-date 2000 net profits as of the
declaration date. This limitation had no effect on the liquidity of the
holding company in 1999 and it is not expected to have any material impact in
2000. During 1999, the Bank paid $2,692 in dividends to the holding company.
Effects of Inflation
The income statement generally reflects the effects of inflation. Since
interest rates, loan activities and deposit levels are related to inflation,
the resulting changes are included in net income. The most significant item
that does not reflect the effects of inflation is depreciation expense because
historically presented dollar values used to determine this expense do not
reflect the effect of inflation on the market value of depreciable assets.
Year 2000 (Y2K) Readiness Disclosure
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>
Market Price and Dividend Data
The following information reflects per share data for the periods indicated
relative to Common Stock trading values and dividends. FNB Corporation Common
Stock began appearing on the Nasdaq Stock Market? under the symbol FNBP on
July 7,1998. The information below, prior to July 7, 1998, relating to the
trading values for the stock is based upon information furnished to FNB
Corporation by one or more parties involved in certain purchases and sales of
the stock. No attempt was made to verify or determine the accuracy of the
representations made. Both the trading values and per share dividends in the
tables below have been adjusted to retroactively reflect the effects of a 10%
stock dividend in August 1999. As of December 31, 1999, there were 1,058
holders of record of FNB Corporation Common Stock.
<TABLE>
<CAPTION>
Trading Value Dividends
1999 High Low Per Share
<S> <C> <C> <C>
First Quarter $ 22.27 19.35 0.15
Second Quarter 21.82 18.18 0.15
Third Quarter 23.00 20.46 0.16
Fourth Quarter 22.50 17.00 0.17
</TABLE>
<TABLE>
<CAPTION>
Trading Value Dividends
1998 High Low Per Share
<S> <C> <C> <C>
First Quarter $ 22.95 20.00 0.14
Second Quarter 24.55 21.82 0.14
Third Quarter 26.14 20.66 0.14
Fourth Quarter 22.73 21.03 0.16
</TABLE>
Market Risks Related to Financial Instruments
The Corporation is not a party to any derivative financial instruments such as
futures, forward interest rate agreements, swaps or option contracts.
Commitments to lend are entered into in the ordinary course of business as
discussed more fully in the notes to the financial statements, but the
majority of these commitments reflect interest rates that vary with certain
indexes such as the prime rate. As a result, those commitments normally do
not expose the Corporation to market interest rate risks prior to funding the
loan.
In general, the Corporation does not enter into financial instruments for
trading purposes. That is, obtaining short-term profits by buying and selling
instruments is not an objective pursued by management. The turnover frequency
associated with financial instruments is, in general, greater when trading is
a short-term objective, and market risks can be enhanced or reduced by such
trading.
The Corporation is a party to a variety of financial instruments in the
ordinary course of business, including loans, investments and deposits. Most
financial instruments by their nature carry associated market risks. The only
substantial market risk associated with the Corporation's financial
instruments is interest rate risk; that is, the risk that the fair values or
future cash flows from an instrument could change as a result of changes in
market interest rates. For example, a decline in market interest rates will
<PAGE>
generally have the effect of reducing the expected future interest to be
received on a loan with a variable contractual interest rate. However, such a
decline will normally have the effect of increasing the fair value of a fixed
contractual rate investment security. Management does not expect significant
changes in its market risk exposure positions in the near term.
The Corporation seeks to manage its interest rate risk by establishing
asset/liability management policies and by continually monitoring the
characteristics of its asset and liability portfolios that bear on interest
rate risk. Interest rate management is conducted in coordination with
management of liquidity and capital adequacy. The monitoring of interest rate
risk is supervised by an Asset Liability Management Committee comprised of
certain senior officers and certain members of the board of directors.
Management seeks to minimize the risks to earnings and equity associated with
movements in market interest rates. To achieve this objective management
monitors such factors as:
- Relative volumes of fixed-rate vs. variable-rate loans and deposits
- Average interest rate spreads between interest bearing assets and
liabilities
- Maturity and repricing schedules of loans, investment securities and
deposits, including the extent to which expected maturities of interest
sensitive assets align with that of interest sensitive liabilities
("sensitivity gap")
Techniques used by management to adjust exposure to interest rate risk include
but are not limited to selling certain types of loans (especially fixed rate
loans); periodically changing stated interest rates charged on loans and
offered on deposits in conjunction with market trends; promoting, changing the
pricing of or developing new products to emphasize/de-emphasize different
maturity and/or fixed vs. variable loans and deposits; redirecting funds upon
maturities of investment securities and loan repayments and careful selection
among choices of sources of borrowed funds other than deposits. The
Corporation has not entered into derivative financial instruments such as
futures, forward interest rate agreements, swaps or option contracts in order
to manage interest rate risk.
A key analytical technique used by management in its efforts to manage
interest rate risk is interest rate shock simulation. This method seeks first
to estimate the current market value of the Corporation's assets and
liabilities by applying present value techniques (discounting) to the
Corporation's assets and liabilities at current market interest rates. The
difference between the market value of assets and liabilities is market value
of the Corporation's equity. The current market value of assets and
liabilities is then recalculated assuming a hypothetical, immediate (shock)
increase or decrease in market interest rates of 200 basis points. The table
below reflects the outcome of this analysis. This information is presented at
December 31, 1999 and December 31, 1998. Market value of equity would decline
8.48% if market rates were to immediately rise by 200 basis points and
increase 9.58% if market rates were to immediately drop by 200 basis points at
December 31, 1999. These percentages are greater than last year, but the
maximum decline in market value of equity is still less than 10%. In
management's opinion, this is acceptable, given the unlikely occurrence of
this scenario.
<PAGE>
Percentage Increase (Decrease) in Market Value of Equity
200 Basis Point Increase 200 Basis Point Decrease
December 31, 1999 (8.48%) 9.58%
December 31, 1998 (6.33%) 6.51%
The outcome reflects management estimates on loan prepayments, which vary
depending on the relationship between the change in rates scenarios and
current book yields. Investment securities are assumed to remain in the
Corporation's portfolio until maturity unless called by the issuer. Non-
maturity deposits such as checking and savings are assumed to mature over a
60-month period. Rates on accounts that are interest bearing are increased or
decreased, according to the bank's pricing expectations, before the cash flows
are discounted. As a result, while the rates on these accounts change, they
do not change to the same degree as market rates. This captures the value of
the optionality in the pricing of these deposits. Discount rates for loans
are based upon the bank's loan pricing spreads and discount rates for term
deposits are based upon the cost of wholesale funding.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
FNB Corporation
We have audited the accompanying consolidated balance sheets of FNB
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, comprehensive income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FNB
Corporation and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
McLEOD & COMPANY
Roanoke, Virginia
January 31, 2000
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999 and 1998
CONSOLIDATED BALANCE SHEETS in thousands, except share and per share data)
ASSETS 1999 1998
<S> <C> <C>
Cash and due from banks $ 18,363 11,875
Federal funds sold - 10,600
Securities available-for-sale, at fair value 68,154 57,232
Securities held-to-maturity, at amortized cost 33,221 38,352
Mortgage loans held for sale 73 1,646
Loans:
Commercial 113,321 85,536
Consumer 69,312 66,526
Real estate- commercial 74,113 65,165
Real estate - construction 18,772 16,686
Real estate - mortgage 106,754 94,686
Total loans 382,272 328,599
Loans, net of unearned income 382,272 328,599
Less allowance for loan losses 5,173 4,640
Loans, net 377,099 323,959
Bank premises and equipment, net 13,480 12,977
Other real estate owned 129 30
Other assets 6,387 5,245
Total assets $ 516,906 461,916
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand deposits $ 43,365 39,141
Interest-bearing demand and savings deposits 141,831 126,204
Time deposits 167,162 172,368
Certificates of deposit of $100,000 and over 46,513 48,544
Total deposits 398,871 386,257
Federal funds purchased 13,635 -
Securities sold under agreements to repurchase 7,031 6,650
Other borrowed funds 46,262 21,612
Other liabilities 3,528 2,996
Total liabilities 469,327 417,515
Stockholders' equity:
Common stock, $5.00 par value. Authorized 10,000,000
shares; issued and outstanding 4,093,996
shares in 1999 and 3,722,139 in 1998 20,470 18,611
Surplus 25,595 19,320
Unearned ESOP shares (106,013 and 129,426 shares
in 1999 and 1998, respectively) (1,747) (2,120)
Retained earnings 3,968 8,307
Accumulated other comprehensive income (loss) (707) 283
Total stockholders' equity 47,579 44,401
Total liabilities and stockholders' equity $ 516,906 461,916
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,1999, 1998 and 1997
CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data)
1999 1998 1997
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 32,977 29,786 26,754
Interest on securities:
Taxable 3,157 3,082 3,642
Nontaxable 2,253 2,278 2,374
Interest on federal funds sold 183 507 344
Total interest income 38,570 35,653 33,114
Interest expense:
Interest on interest-bearing demand
and savings deposits 3,400 2,958 2,823
Interest on time deposits 8,905 9,801 10,070
Interest on certificates of deposit of
$100,000 and over 2,931 2,870 2,148
Interest on securities sold under
agreements to repurchase 380 261 250
Interest on other borrowed funds 1,994 1,283 1,385
Interest on ESOP debt - 76 88
Total interest expense 17,610 17,249 16,764
Net interest income 20,960 18,404 16,350
Provision for loan losses 1,445 1,135 550
Net interest income after
provision for loan losses 19,515 17,269 15,800
Noninterest income:
Service charges on deposit accounts 1,263 1,156 990
Loan origination fees 359 393 205
Other service charges and fees 671 481 375
Other income 877 813 740
Securities gains (losses), net 4 158 (19)
Total noninterest income 3,174 3,001 2,291
Noninterest expense:
Salaries and employee benefits 7,309 6,570 6,193
Occupancy and equipment expense, net 2,497 2,166 1,786
Credit card expense 857 613 560
Supplies expense 448 503 456
Other expenses 3,305 2,830 2,607
Total noninterest expense 14,416 12,682 11,602
Income before income tax expense 8,273 7,588 6,489
Income tax expense 1,946 1,657 1,324
Net income $ 6,327 5,931 5,165
Net income per share $ 1.59 1.50 1.32
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,1999, 1998 and 1997
(in thousands)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
1999 1998 1997
<S> <C> <C> <C>
Net income $ 6,327 5,931 5,165
Other comprehensive income, before tax:
Unrealized holding gains (losses)
arising during period on
securities (1,453) 227 382
Less: reclassification adjustment
for (gains) losses included in
net income - (142) 20
Other comprehensive income (loss)
before tax (1,453) 85 402
Income tax effect of items of other
comprehensive income 463 (29) (137)
Other comprehensive income (loss),
net of tax (990) 56 265
Comprehensive Income $ 5,337 5,987 5,430
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF Years Ended December 31, 1999, 1998 and 1997
CASH FLOWS (in thousands)
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,327 5,931 5,165
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for loan losses 1,445 1,135 550
Depreciation and amortization of
bank premises and
equipment 1,259 1,098 902
ESOP compensation 373 488 302
Deferred income tax expense (benefit) (378) 132 130
Loss (gain) on sales of securities
available-for-sale, net - (142) 20
Amortization of premiums and
accretion of discounts, net 537 230 71
Gain on calls of securities
held-to-maturity, net (4) (16) (1)
Loss (gain) on sale of other
real estate and fixed asset s 1 (34) (32)
Proceeds from sales of mortgage
loans held for sale 22,035 33,298 13,751
Origination of mortgage loans
held for sale (20,462) (33,785) (14,580)
Decrease (increase) in other
assets (1,142) (795) 179
(Decrease) increase in other
liabilities 532 34 (681)
Net cash provided by
operating activities 10,523 7,574 5,776
Cash flows from investing activities:
Net decrease (increase) in federal
funds sold 10,600 (7,100) (1,000)
Proceeds from sales of securities
available-for-sale - 617 6,060
Proceeds from calls and maturities of
securities available-for-sale 14,400 39,232 13,269
Proceeds from calls and maturities of
securities held-to-maturity 5,141 4,066 2,640
Purchases of securities available-
for-sale (27,297) (34,196) (26,963)
Purchases of securities held-to-maturity (17) (15) (1,994)
Net increase in loans (54,056) (40,535) (18,673)
Proceeds from sale of other real estate
owned 139 228 155
Recoveries on loans previously charged off 221 184 190
Bank premises and equipment expenditures (1,479) (1,561) (3,130)
Net cash used in investing
activities (52,348) (39,080) (29,446)
Cash flows from financing activities:
Net increase in demand deposits 19,851 30,343 8,603
Net (decrease) increase in time
deposits and certificates of deposit (7,237) 3,369 8,540
Net increase in federal funds purchased 13,635 - -
Net increase in securities sold under
agreements to repurchase 381 1,190 665
Net increase (decrease) in other
borrowed funds 24,650 (4,481) 11,689
Principal payments on ESOP debt (373) (488) (302)
Sale of stock to ESOP - 1,400 -
Dividends paid (2,524) (2,280) (1,347)
Dividends on unallocated ESOP shares (70) (78) (49)
Net cash provided by financing
activities 48,313 28,975 27,799
Net increase (decrease) in cash and due
from banks 6,488 (2,531) 4,129
Cash and due from banks at beginning of year 11,875 14,406 10,277
Cash and due from banks at end of year $ 18,363 11,875 14,406
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
(in thousands, except share and per share data)
Accumulated
Other
Unearned Compre-
Common ESOP Retained hensive
Stock Surplus Shares Earnings Income Total
<S> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1996 $ 8,310 10,782 (1,511) 18,285 (38) 35,828
Net income - - - 5,165 - 5,165
Cash dividends, $0.35
per share - - - (1,348) - (1,348)
ESOP shares allocated
upon loan
repayment - - 303 - - 303
Two for one stock
split effected in
form of 100%
stock dividend 8,309 - - (8,309) - -
Change in net
unrealized gains
(losses) on securities
available-for-sale,
net of tax effect
of $136 - - - - 265 265
Balances at
December 31, 1997 16,619 10,782 (1,208) 13,793 227 40,213
Net income - - - 5,931 - 5,931
Cash dividends, $0.57
per share - - - (2,280) - (2,280)
ESOP shares allocated
upon loan
repayment - - 488 - - 488
10% stock dividend 1,691 7,439 - (9,137) - (7)
Change in net unrealized
gains (losses) on
securities available-
for-sale, net of tax
effect of $29 - - - - 56 56
Sale of 60,215 shares
of stock to ESOP 301 1,099 (1,400) - - -
Balances at
December 31, 1998 18,611 19,320 (2,120) 8,307 283 44,401
Net income - - - 6,327 - 6,327
Cash dividends, $0.63
per share - - - (2,524) - (2,524)
ESOP shares allocated
upon loan
repayment - - 373 - - 373
10% stock dividend 1,859 6,275 - (8,142) - (8)
Change in net
unrealized gains
(losses) on securities
available-for-sale,
net of tax effect
of $463 - - - - (990) (990)
Balances at
December 31, 1999 $ 20,470 25,595 (1,747) 3,968 (707) 47,579
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December31, 1999
(in thousands, except share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The reporting entity is comprised of FNB Corporation, a bank
holding company, and its wholly owned subsidiaries
(collectively the "Corporation"). The primary subsidiary of
FNB Corporation is First National Bank (the "Bank"). The
accounting and reporting policies of the Corporation conform
to generally accepted accounting principles and general
practices within the banking industry. In preparing the
financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues
and expenses for the year. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to
significant changes in the near term relate to the
determination of the allowance for loan losses and the
valuation of other real estate owned acquired in connection
with foreclosures or in satisfaction of loans. In connection
with the determination of the allowance for loan losses and
the valuation of other real estate owned, management obtains
independent appraisals for significant properties.
Management believes that the allowance for loan losses and the
valuation of other real estate owned are adequate. While
management uses available information to recognize loan losses
and write-downs of other real estate owned, future additions
to the allowance and write-downs of other real estate owned
might be necessary based on changes in economic conditions.
In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the
allowance for loan losses and valuation of other real estate
owned. Such agencies may require the Bank to recognize
additions to the allowance for loan losses and additional
write-downs of other real estate owned based on their
judgments of information available to them at the time of
their examination.
The following is a summary of the more significant accounting
policies.
(a) Consolidation
The consolidated financial statements include the
accounts of FNB Corporation, a bank holding company, and
its wholly owned subsidiaries.
(b) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash
equivalents include those amounts in the balance sheet
caption, cash and due from banks. Generally, cash and
cash equivalents are considered to have maturities of
three months or less. The Bank maintains amounts due
from banks, which, at times, may exceed federally
insured limits. No losses have been experienced in such
accounts.
(c) Securities
The Corporation follows the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
Under Statement 115, investments in debt and equity
securities are required to be classified in three
categories and accounted for as follows:
- Debt securities which the Corporation has the
positive intent and ability to hold to maturity are
classified as held-to-maturity securities and reported
at amortized cost, computed by the level yield method.
- Debt and equity securities that are bought and held
principally for the purpose of selling them in the
near term are classified as trading securities and
reported at fair value, with unrealized gains and
losses included in income. The Corporation has no
trading securities.
- Debt and equity securities not classified as either
held-to-maturity or trading securities are classified
as available-for-sale securities and reported at fair
value, with unrealized gains and losses excluded from
income and reported as a separate component of
stockholders' equity, net of the related income tax
effect.
Gains and losses on sales of securities are based on the
net proceeds and adjusted carrying amount of the
security sold using the specific identification method.
Declines in fair values of individual securities below
their cost that are other than temporary are charged to
income resulting in a new cost basis for the security.
(d) Loans
Loans are stated at the amount of funds disbursed plus
the applicable amount, if any, of unearned interest and
deferred fees and costs less payments received.
Interest on commercial and real estate mortgage loans is
accrued based on the average loans outstanding times the
applicable interest rates. Interest on installment
loans is recognized on methods which approximate the
level yield method. Loan origination and commitment
fees and certain costs are deferred, and the net amount
is amortized over the contractual life of the related
loans as an adjustment of the yield.
Interest related to nonaccrual loans is recognized on
the cash basis. Loans are generally placed on
nonaccrual status when the collection of principal or
interest is 90 days or more past due, unless the
obligation is both well-secured and in the process of
collection.
Mortgage loans held for sale are carried at the lower of
aggregate cost or market value. Loans sold are removed
from the accounts and any realized gain or loss is
recorded.
(e) Bank Premises and Equipment, Net
Bank premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation
and amortization is charged to expense over the
estimated useful lives of the assets, principally on the
straight-line method. Costs of maintenance and repairs
are charged to expense as incurred and improvements are
capitalized.
(f) Other Real Estate Owned
Other real estate owned represents properties acquired
through foreclosure or deed taken in lieu of
foreclosure. At the time of acquisition, these
properties are recorded at the lower of the recorded
investment in the loan or fair value less estimated
costs to sell. Expenses incurred in connection with
operating these properties and subsequent write-downs,
if any, are charged to expense. Gains and losses on the
sales of these properties are credited or charged to
income in the year of the sale.
(g) Income Taxes
Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are
expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that
includes the enactment date.
(h) Net Income Per Share
Net income per share computations are based on the
weighted average number of shares outstanding during
each year (3,982,147, 3,959,084, and 3,917,654 in 1999,
1998 and 1997, respectively, as restated). The weighted
average shares outstanding do not include average
unearned shares held by the Employee Stock Ownership
Plan (ESOP) totaling 112,433, 126,466 and 104,144 shares
for 1999, 1998 and 1997, respectively. The shares held
by the ESOP are not considered outstanding for net
income per share calculations until the shares are
released.
During the second quarter of 1997, the Corporation
declared a two for one stock split effected in the form
of a 100% stock dividend. As a result, the total number
of shares outstanding doubled. Par value per share did
not change. During the third quarter of 1998 and 1999,
the Corporation declared a 10% stock dividend. Earnings
per share, dividends per share and weighted average
shares for periods prior to the split and the stock
dividends have been restated to reflect the change in
shares outstanding as though the split and the stock
dividends had occurred at the beginning of the earliest
period presented.
(i) Trust Assets
Assets held by the Bank's trust department in a
fiduciary or agency capacity are not included in the
consolidated financial statements as they are not assets
of the Corporation.
(j) Reclassifications
Certain reclassifications have been made to prior year
amounts to conform to the 1999 presentation.
(2) RESTRICTIONS ON CASH
Federal reserve regulations require the Bank to maintain
certain average balances as cash reserves. The reserve
requirements approximated $2,121 and $1,113 at December 31,
1999 and 1998, respectively.
(3) SECURITIES AVAILABLE-FOR-SALE
The following sets forth the composition of securities
available-for-sale, which are reported at fair value, at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Gross Gross Approximate
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>
<PAGE>
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
December 31, 1998 Costs Gains Losses Values
<S> <C> <C> <C> <C>
U.S. Treasury $ 7,062 102 - 7,164
U.S. Government agencies
and corporations 19,511 120 (7) 19,624
States and political
subdivisions 11,436 231 (19) 11,648
Other securities 18,794 16 (14) 18,796
Totals $ 56,803 469 (40) 57,232
</TABLE>
The amortized costs and approximate fair values of securities
available-for-sale by contractual maturity are shown below.
Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Approximate
Amortized Fair
December 31, 1999 Costs Values
<S> <C> <C>
Due in one year or less $ 27,251 27,052
Due after one year through five years 34,041 33,285
Due after five years through ten years 4,500 4,434
Due after ten years 3,386 3,383
Totals $ 69,178 68,154
</TABLE>
Realized gains and losses on securities available-for-sale
were not material in 1999 or 1997. In 1998, realized gains
and losses totaled $147 and $5, respectively.
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 $49,033 at December 31, 1999 and
$17,887 at December 31, 1998.
(4) SECURITIES HELD-TO-MATURITY
The amortized costs, gross unrealized gains and losses, and
approximate fair values of securities held-to-maturity at
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross Approximate
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>
<PAGE>
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
December 31, 1998 Costs Gains Losses Values
<S> <C> <C> <C> <C>
States and political
subdivisions $ 38,322 1,289 - 39,611
Other securities 30 - - 30
Totals $ 38,352 1,289 - 39,641
</TABLE>
The amortized costs and approximate fair values of securities
held-to-maturity at December 31, 1999 by contractual maturity
are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Approximate
Amortized Fair
December 31, 1999 Costs Values
<S> <C> <C>
Due in one year or less $ 4,432 4,460
Due after one year through five years 28,789 9,032
Due after five years through ten years - -
Due after ten years - -
Totals $ 33,221 33,492
</TABLE>
Realized gains and losses on calls and maturities of
securities held-to-maturity were not material in 1999, 1998 or
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 $18,073 and $18,386 at
December 31, 1999 and 1998, respectively.
(5) LOANS
At December 31, 1999 and 1998, there were direct loans to
officers and directors of $3,672 and $6,167, respectively.
During 1999, new direct loans to officers and directors
amounted to $1,105 and repayments amounted to $3,600. In
addition, there were loans of $3,423 and $6,324 at December
31, 1999 and 1998, respectively, which were endorsed by
directors or had been made to companies in which directors had
an equity interest.
At December 31, 1999 and 1998, the Corporation had sold
without recourse to financial institutions and other customers
of the Corporation participations in various loans in the
amount of $39,969 and $38,704 respectively.
(6) ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS
Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if
the loan is collateral dependent. A loan is considered
impaired when, based on management's judgment, it is probable
that the Corporation will not be able to collect on all
amounts due according to the contractual terms of the loan.
In making such assessment, management considers the individual
strength of borrowers, the strength of particular industries,
the payment history of individual loans, the value and
marketability of collateral and general economic conditions.
Management's methodology for evaluating the collectibility of
a loan after it is deemed to be impaired does not differ from
the methodology used for nonimpaired loans.
<PAGE>
As of December 31, 1999 and 1998, the investment in impaired
loans approximated $4,575 and $2,252, respectively. The
December 31, 1999 and 1998 allowances for loan losses includes
allowances of $539 and $338, respectively, for these loans.
Impaired loans averaged $3,414, $1,754 and $1,694 during 1999,
1998 and 1997, respectively. Interest on impaired loans is
recognized in the same manner as loans that are not considered
impaired; that is, interest is generally recognized on the
cash basis once the collection of principal or interest is 90
days or more past due.
A summary of the changes in the allowance for loan losses
(including allowances for impaired loans) follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Balance at beginning of year $ 4,640 4,291 4,179
Provisions for loan losses 1,445 1,135 550
Loan recoveries 221 184 190
Loan charge-offs (1,133) (970) (628)
Balance at end of year $ 5,173 4,640 4,291
</TABLE>
Nonperforming assets consist of the following:
<TABLE>
<CAPTION>
December 31, 1999 1998 1997
<S> <C> <C> <C>
Nonaccrual loans $ 4,517 1,109 893
Other real estate owned 129 30 98
Total nonperforming assets $ 4,646 1,139 991
</TABLE>
There were no material commitments to lend additional funds to
customers whose loans were classified as nonperforming at
December 31, 1999.
The following table shows the pro forma interest that would
have been earned on impaired loans if interest had been
recorded using the cash basis and the recorded interest that
was included in income on these loans:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Cash basis interest - impaired loans $ 134 50 64
Recorded interest - impaired loans $ 120 48 7
</TABLE>
(7) BANK PREMISES AND EQUIPMENT, NET
Bank premises and equipment are stated at cost less
accumulated depreciation and amortization as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
<S> <C> <C>
Land $ 1,515 1,515
Buildings 10,450 9,355
Furniture and equipment 8,354 7,641
Leasehold improvements 507 428
Construction in progress - 613
20,826 19,552
Less accumulated depreciation and
Amortization (7,346) (6,575)
Totals $ 13,480 12,977
</TABLE>
<PAGE>
(8) DEPOSITS
At December 31, 1999 and 1998, there were deposits from
officers and directors of $1,872 and $2,338, respectively.
Time deposits and certificates of deposit of $100,000 and over
as of December 31, 1999 mature as follows:
2000 $ 152,055
2001 29,420
2002 9,924
2003 10,539
2004 11,716
Thereafter 21
$ 213,675
(9) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND
OTHER BORROWED FUNDS
Advances from the Federal Home Loan Bank of Atlanta were $46.3
million and $21.3 million on December 31, 1999 and 1998,
respectively. The fixed interest rates on the advances as of
December 31, 1999 range from 5.3 to 6.7 percent. The advances
are collateralized under a blanket floating lien agreement
whereby the Corporation gives a blanket pledge of residential
first mortgage loans for 1-4 units. Of the total balance at
December 31, 1999, $10 million matures in 2000 and $10
million matures in 2004. The remainder matures after 2004.
Securities sold under agreements to repurchase (repurchase
agreements) at December 31, 1999 were collateralized by
investment securities controlled by the Corporation with a
book value of approximately $11.5 million. The maximum amount
of repurchase agreements outstanding during 1999 was $7.9
million, and the average amount outstanding during 1999 was
$6.4 million.
(10) EMPLOYEE BENEFIT PLAN
The Corporation sponsors a leveraged Employee Stock Ownership
Plan (ESOP), which covers all employees following the
completion of one year of service and attainment of age 21.
The ESOP invests substantially in stock of the Corporation.
The purchase of some of the shares held by the ESOP 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 and prior borrowings is guaranteed by the
Corporation and secured by the stock acquired. 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 December 31,
1999 and 1998 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 as unearned
ESOP shares. These amounts are reduced and compensation
expense is recorded as the ESOP debt is curtailed and shares
are released from collateral. Shares released are allocated
to plan participants as of the end of the Plan's year based on
an allocation formula specified in the Plan. The ESOP is
repaying the loans (plus interest) using employer
contributions and dividends received on the shares of common
stock held by the ESOP. Dividends on allocated ESOP shares
are recorded as a reduction of retained earnings. Dividends
on unallocated shares are recorded as a reduction of ESOP debt
to the extent used for debt service, and as compensation
expense to the extent expected to be allocated to
participants' accounts as additional compensation. ESOP
compensation expense of $373, $488 and $302 was recorded for
1999, 1998 and 1997, respectively.
<PAGE>
ESOP shares as of December 31, 1999 consisted of 722,787
allocated shares and 106,013 unreleased and unearned shares.
Based on quoted trading and bid prices, the fair value of the
unreleased and unearned shares at December 31, 1999 was $20.50
per share.
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 $147, $121 and $26 for 1999,
1998 and 1997, respectively.
(11) INCOME TAXES
Total income taxes are allocated as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Income $ 1,946 1,657 1,324
Stockholders' equity, for net unrealized gains
and losses on securities available-for-sale
recognized for financial reporting purposes (463) 30 136
Totals $ 1,483 1,687 1,460
</TABLE>
The components of federal income tax expense (benefit) are as
follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Current $ 2,324 1,525 1,194
Deferred (378) 132 130
Total $ 1,946 1,657 1,324
</TABLE>
The reconciliation of expected income tax expense at the
statutory federal rate with the reported tax expense at the
effective rate is as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
Percent Percent Percent
of of of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
Expected tax expense at
statutory rate $ 2,813 34.0% 2,580 34.0% 2,206 34.0%
Increase (decrease) in
taxes resulting from:
Tax-exempt interest (1,007) (12.2) (979) (12.9) (970) (15.0)
Nondeductible interest
expense 124 1.5 135 1.8 142 2.2
Other, net 16 0.2 (79) (1.1) (54) (0.8)
Reported tax expense at
effective rate $ 1,946 23.5% 1,657 21.8% 1,324 20.4%
</TABLE>
<PAGE>
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and deferred tax
liabilities are as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
<S> <C> <C>
Deferred tax assets:
Loans, principally due to allowance for loan losses
and unearned fees $ 1,535 1,232
Securities, due principally to valuation allowance 316 -
Accrued employee benefits due to accrual for financial
reporting purposes in excess of actual contributions 237 160
Other 16 17
Total gross deferred tax assets 2,104 1,409
Less valuation allowance - -
Net deferred tax assets 2,104 1,409
Deferred tax liabilities:
Bank premises and equipment, due to differences in
depreciation 359 251
Securities, due principally to valuation allowance - 146
Investment securities, due to differences in discount
accretion 85 107
Prepaids, due to advance payments 27 113
Total gross deferred tax liabilities 471 617
Net deferred tax asset, included in other
assets $ 1,633 792
</TABLE>
The Corporation has determined that a valuation allowance for
gross deferred tax assets is not necessary at December 31,
1999 or 1998 since deferred tax assets can be recognized
during the carryback period available under current tax laws.
(12) DIVIDEND RESTRICTIONS AND CAPITAL REQUIREMENTS
The holding company's principal asset is its investment in the
Bank, a wholly owned consolidated subsidiary. The primary
source to date of income for the holding company has been
dividends from the Bank. Regulatory agencies limit the amount
of funds that may be transferred from the Bank to the holding
company in the form of dividends, loans, or advances.
Under applicable federal laws, the Comptroller of the Currency
restricts, without prior approval, the total dividend payments
of the Bank in any calendar year to the net profits of that
year, as defined, combined with the retained net profits for
the two preceding years. The total dividends that may be
declared in 2000 without the approval of the Comptroller
totals $2,100 plus year-to-date 2000 net profits as of the
declaration date.
The Corporation is subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate
certain mandatory--and possibly additional discretionary--
actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements.
Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, established by Section 38 of the
Federal Deposit Insurance Act (FDI Act), the Corporation must
meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices.
The Corporation's capital amounts and classification are also
subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
<PAGE>
Quantitative measures established by regulation to ensure
capital adequacy require the Corporation to maintain minimum
amounts and ratios of total and Tier 1 capital (as defined in
the regulations) to risk-weighted assets (as defined), and of
Tier 1 capital to average assets (as defined). Management
believes, as of December 31, 1999, that the Corporation meets
all capital adequacy requirements to which it is subject. The
table below sets forth the ratios for the Bank and on a
consolidated basis for December 31, 1999 and 1998.
As of December 31, 1999, the most recent notification from the
Office of the Comptroller of the Currency categorized the Bank
as well capitalized under the regulatory framework for prompt
corrective action (Section 38 of the FDI Act). To be
categorized as well capitalized, minimum total risk-based
capital, Tier 1 risk-based capital, and Tier 1 leverage ratios
as set forth in the table below must be maintained. There are
no conditions or events since that notification that
management believes have changed the institution's category.
<TABLE>
<CAPTION>
As of December 31, 1999:
Minimum Requirements
Section 38 of
For Capital Federal Deposit
Actual Adequacy Insurance Act
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted
Assets)
Consolidated $ 53,459 12.9% 33,192 8.0% N/A
Bank 47,646 11.5% 33,160 8.0% 41,450 10.0%
Tier 1 Capital
(to Risk Weighted
Assets)
Consolidated 48,286 11.6% 16,596 4.0% N/A
Bank 42,473 10.3% 16,580 4.0% 24,870 6.0%
Tier 1 Capital
(to Average
Assets)
Consolidated 48,286 9.5% 20,270 4.0% N/A
Bank 42,473 8.5% 20,107 4.0% 25,134 5.0%
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1998:
Minimum Requirements
Section 38 of
For Capital Federal Deposit
Actual Adequacy Insurance Act
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted
Assets)
Consolidated $ 48,620 13.5% 28,801 8.0% N/A
Bank 43,236 12.0% 28,856 8.0% 36,070 10.0%
Tier 1 Capital
(to Risk Weighted
Assets)
Consolidated 44,118 12.3% 14,400 4.0% N/A
Bank 38,726 10.7% 14,428 4.0% 21,642 6.0%
Tier 1 Capital
(to Average
Assets)
Consolidated 44,118 9.7% 18,214 4.0% N/A
Bank 38,726 8.5% 18,138 4.0% 22,673 5.0%
</TABLE>
<PAGE>
(13) SUPPLEMENTAL CASH FLOW INFORMATION
The Corporation paid $17,652, $17,090 and $16,325 for interest
and $1,999, $1,604, and $1,057 for income taxes in 1999, 1998
and 1997, respectively. Noncash investing activities included
$190, $30, and $98 of loans transferred to other real estate
owned in 1999, 1998 and 1997, respectively, and $599 of non-
operating real estate transferred from bank premises and
equipment to other assets in 1998.
(14) COMMITMENTS AND CONTINGENCIES
The Corporation is involved from time to time in litigation
arising in the normal course of business. Management believes
that any resulting settlements and disposition of these
matters will not have a material effect on the Corporation's
consolidated results of operations or financial position.
(15) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Corporation is a party to financial instruments with off-
balance-sheet risk in the normal course of business to meet
the financing needs of its customers. The financial
instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying
degrees, elements of credit risk in excess of the amount
recognized in the balance sheets. The contract amounts of
those instruments reflect the extent of involvement the
Corporation has in particular classes of financial
instruments. Exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit
is represented by the contractual amount of these instruments.
The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-
balance-sheet instruments.
Except for unused home equity lines totaling $26,872 at
December 31, 1999, and $27,008 at December 31, 1998 (included
in the amounts below), the Corporation may not require
collateral or other security to support the following
financial instruments with credit risk:
<TABLE>
<CAPTION>
Contract Amounts
December 31, 1999 1998
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $ 88,046 86,583
Standby letters of credit 5,905 6,252
</TABLE>
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
The Corporation evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Corporation upon extension of credit,
is based on management's credit evaluation of the customer.
Collateral held varies but may include securities, accounts
receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued
by the Corporation to guarantee the performance of a customer
to a third party. Those guarantees are primarily issued to
support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions.
The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to
customers. Collateral held varies but may include securities,
accounts receivable, inventory, property, plant and equipment,
and income-producing properties.
<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.
The Corporation originates mortgage loans for sale to
secondary market investors subject to contractually specified
and limited recourse provisions. In 1999, the Corporation
originated $20,462 and sold $22,035 to investors, compared to
$33,785 originated and $33,298 sold in 1998. Every contract
with each investor contains certain recourse language. In
general, the Corporation may be required to repurchase a
previously sold mortgage loan if there is major noncompliance
with defined loan origination or documentation standards,
including fraud, negligence or material misstatement in the
loan documents. Repurchase may also be required if necessary
governmental loan guarantees are canceled or never issued, or
if an investor is forced to buy back a loan after it has been
resold as a part of a loan pool. In addition, the Corporation
may have an obligation to repurchase a loan if the mortgagor
has defaulted early in the loan term. This potential default
period ranges from six to twelve months after sale of a loan
to the investor. Historically, repurchases under these
recourse provisions have been minimal.
(16) CONCENTRATIONS OF CREDIT RISK
The Corporation does a general banking business, serving the
commercial, agricultural and personal banking needs of its
customers in its trade territory, commonly referred to as the
New River Valley, which consists of Montgomery County,
Virginia and portions of adjacent counties. Operating
results are closely correlated with the economic trends within
this area, which are, in turn, influenced by the area's three
largest employers - Virginia Polytechnic Institute and State
University, Radford University and the Radford Arsenal. Other
industries include a wide variety of manufacturing concerns
and agriculture-related enterprises. The ultimate
collectibility of the loan portfolios and the recovery of the
carrying amounts of repossessed property are susceptible to
changes in the market conditions of this area. The commercial
portfolio is diversified with no significant concentrations of
credit within a single industry. The consumer loan portfolio
included approximately $50 million of loans to individuals for
household, family and other personal expenditures at December
31, 1999 and 1998. The real estate mortgage portfolio
consists primarily of loans secured by 1-4 family residential
properties.
(17) DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL
INSTRUMENTS
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments,"
requires the Corporation to disclose estimated fair values of
its financial instruments. The following methods and
assumptions were used to estimate the approximate fair value
of each class of financial instrument for which it is
practicable to estimate that value:
(a) Cash and Due from Banks and Federal Funds Sold
The carrying amounts in the consolidated balance sheets
are reasonable estimates of fair values.
(b) Securities
The fair value of securities, except certain state and
municipal securities, is estimated based on bid prices
published in financial newspapers or bid quotations
received from securities dealers. The fair value of
certain state and municipal securities is not readily
available through market sources other than dealer
quotations, so fair value estimates are based on quoted
market prices of similar instruments, adjusted for
differences between the quoted instruments and the
instruments being valued.
<PAGE>
(c) Loans
Fair values are estimated for portfolios of loans with
similar financial characteristics. Loans are segregated
by type (commercial, mortgage, consumer, etc.), by
interest rate terms (fixed and adjustable rate) and by
performing and nonperforming categories. The fair value
of performing loans is calculated by discounting
scheduled cash flows through the estimated maturity
using estimated market discount rates that reflect the
credit and interest rate risk inherent in the loan as
well as estimates for operating expenses and
prepayments. The estimate of maturity is based on the
Corporation's historical experience with repayments for
each loan classification modified, as required, by an
estimate of the effect of current economic and lending
conditions.
Fair value for significant nonperforming loans is based
on estimated cash flows that are discounted using a rate
commensurate with the risk associated with the estimated
cash flows. Assumptions regarding credit risk, cash
flows and discount rates are judgmentally determined
using available market information and specific borrower
information.
(d) Deposits
The fair value of fixed maturity time deposits and
certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining
maturities. For 1998, the fair value of demand and
savings deposits is the amount payable on demand.
However, for 1999, a five-year maturity was assumed for
demand and savings deposits and the fair values were
estimated in a manner similar to deposits with fixed
contractual maturities.
(e) Federal Funds Purchased, Securities Sold Under Agreements
to Repurchase and Other Borrowed Funds
Rates currently available for debt with similar terms
and remaining maturities are used to estimate fair value
of existing debt.
(f) Commitments to Extend Credit and Standby Letters of
Credit
The only amounts recorded for commitments to extend
credit and standby letters of credit are the deferred
fees arising from these unrecognized financial
instruments. These deferred fees are not deemed
significant at December 31, 1999 and 1998, and as such,
the related fair values have not been estimated.
The carrying amounts and approximate fair values of the
Corporation's financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
Approximate Approximate
Carrying Fair Carrying Fair
Amounts Values Amounts Values
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 18,363 18,363 11,875 11,875
Federal funds sold - - 10,600 10,600
Securities available-for-sale 68,154 68,154 57,232 57,232
Securities held-to-maturity 33,221 33,492 38,352 39,641
Loans, net of unearned income 382,272 378,825 328,599 332,239
Total financial assets $ 502,010 498,834 446,658 451,587
Financial liabilities:
Deposits $ 398,871 381,072 386,257 387,931
Federal funds purchased,
securities sold under
agreements to repurchase
and other borrowed funds 66,928 66,507 28,262 28,498
Total financial
liabilities $ 465,799 447,579 414,519 416,429
</TABLE>
<PAGE>
Fair value estimates are made at a specific point in
time, based on relevant market information and
information about the financial instrument. These
estimates do not reflect any premium or discount that
could result from offering for sale at one time the
Corporation's entire holdings of a particular financial
instrument. Because no market exists for a significant
portion of the Corporation's financial instruments, fair
value estimates are based on judgments regarding future
expected loss experience, current economic conditions,
risk characteristics of various financial instruments
and other factors. These estimates are subjective in
nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined
with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on and off-
balance sheet financial instruments without attempting
to estimate the value of anticipated future business and
the value of assets and liabilities that are not
considered financial instruments. In addition, the tax
ramifications related to the realization of the
unrealized gains and losses can have a significant
effect on fair value estimates and have not been
considered in the estimates.
(18) PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information of FNB Corporation (the parent
or holding company) is presented below:
<TABLE>
<CAPTION>
Condensed Balance Sheets
Assets December 31, 1999 December 31, 1998
<S> <C> <C>
Securities available for sale,
at fair value $ 5,279 5,369
Investment in bank subsidiary 41,921 39,016
Receivable from bank subsidiary 1,703 1,682
Other assets 114 88
Total Assets $ 49,017 46,155
Liabilities
ESOP debt $ 1,438 1,754
Total Liabilities 1,438 1,754
Stockholders' Equity
Common stock and surplus 46,065 37,931
Retained earnings 3,968 8,307
Other (2,454) (1,837)
Total Stockholders' Equity 47,579 44,401
Total Liabilities &
Stockholders' Equity $ 49,017 46,155
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Income
1999 1998 1997
<S> <C> <C> <C>
Net interest income $ 228 24 -
Non interest income 92 465 -
Non interest expense (432) (489) -
Equity in earnings of bank
subsidiary 6,439 5,931 5,165
Income before income taxes 6,327 5,931 5,165
Income tax expense - - -
Net income $ 6,327 5,931 5,165
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
1999 1998 1997
<S> <C> <C> <C>
Dividends paid $ (2,524) (2,280) (1,348)
Dividends received from
subsidiary bank 2,692 7,578 1,911
Issuance of new ESOP debt - 1,400 -
Principal repayments on ESOP debt (316) (488) -
Purchase of securities
available for sale (233) (5,380) -
Proceeds from sales &
maturities of securities 100 - -
Net change in receivable from
subsidiary bank (21) (1,168) (514)
Other, net 302 338 (49)
- - -
Cash at beginning of year - - -
Cash at end of year $ - - -
</TABLE>
NOTES: (1) The ESOP loan is held by the Bank and as such is eliminated
in consolidation.
(19) INTERIM FINANCIAL INFORMATION (Unaudited)
Consolidated quarterly results of operations were as follows:
<TABLE>
<CAPTION>
1999
Three Months Ended
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Interest income $ 9,025 9,401 9,852 10,292
Interest expense 4,199 4,283 4,529 4,599
Provision for loan losses 289 300 300 556
Noninterest income 913 758 724 779
Noninterest expense 3,375 3,577 3,637 3,827
Income before income
tax expense 2,075 1,999 2,110 2,089
Income tax expense 484 465 503 494
Net income $ 1,591 1,534 1,607 1,595
Net income per share $ 0.40 0.39 0.40 0.40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998
Three Months Ended
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Interest income $ 8,583 8,777 9,230 9,063
Interest expense 4,358 4,270 4,391 4,230
Provision for loan losses 110 210 390 425
Noninterest income 669 689 735 908
Noninterest expense 2,971 3,038 3,157 3,516
Income before income
tax expense 1,813 1,948 2,027 1,800
Income tax expense 404 445 456 352
Net income $ 1,409 1,503 1,571 1,448
Net income per share $ 0.36 0.38 0.39 0.37
</TABLE>
Net income per share in the above tables has been restated to
reflect retroactively 10% stock dividends declared in the
third quarter of 1998 and 1999.
Exhibit #(21)
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary State of Incorporation
First National Bank Virginia
FNB Financial Services, Inc. Virginia
FNBO Co., Inc. Virginia
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 18,363
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 68,154
<INVESTMENTS-CARRYING> 33,221
<INVESTMENTS-MARKET> 33,492
<LOANS> 382,272
<ALLOWANCE> 5,173
<TOTAL-ASSETS> 516,528
<DEPOSITS> 398,871
<SHORT-TERM> 30,666
<LIABILITIES-OTHER> 3,150
<LONG-TERM> 36,262
0
0
<COMMON> 20,470
<OTHER-SE> 27,109
<TOTAL-LIABILITIES-AND-EQUITY> 516,528
<INTEREST-LOAN> 32,977
<INTEREST-INVEST> 5,410
<INTEREST-OTHER> 183
<INTEREST-TOTAL> 38,570
<INTEREST-DEPOSIT> 15,236
<INTEREST-EXPENSE> 17,610
<INTEREST-INCOME-NET> 20,960
<LOAN-LOSSES> 1,445
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 14,416
<INCOME-PRETAX> 8,273
<INCOME-PRE-EXTRAORDINARY> 8,273
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,327
<EPS-BASIC> 1.59
<EPS-DILUTED> 1.59
<YIELD-ACTUAL> 4.84
<LOANS-NON> 4,516
<LOANS-PAST> 25
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,640
<CHARGE-OFFS> 1,133
<RECOVERIES> 221
<ALLOWANCE-CLOSE> 5,173
<ALLOWANCE-DOMESTIC> 4,610
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 563
</TABLE>
