<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or rule 14a-12
FNB Financial Services Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Not Applicable
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[LOGO TO BE ADDED]
FNB FINANCIAL SERVICES CORPORATION
202 South Main Street
Reidsville, North Carolina 27320
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 13, 1999
To Our Shareholders:
NOTICE IS HEREBY GIVEN that, pursuant to the call of the Board of
Directors, the 1999 Annual Meeting of Shareholders of FNB Financial Services
Corporation (the "Company") will be held at the Bryan Enrichment Center, 6275
Bryan Park Road, Brown Summit, North Carolina on Tuesday, April 13, 1999, at
1:00 p.m., for the following purposes:
1. To elect three nominees to serve as Class III Directors, each
to serve a three-year term until the Annual Meeting of
Shareholders in 2002;
2. To ratify the selection by the Board of Directors of
PricewaterhouseCoopers LLP as the Company's independent
auditors for the 1999 fiscal year; and
3. To consider and act upon such other business as may properly
come before the meeting or any adjournment or postponement
thereof.
All shareholders are invited to attend the Annual Meeting. Only those
shareholders of record as of the close of business on February 16, 1999, are
entitled to notice of, and to vote at, the Annual Meeting and all adjournments
and postponements of the meeting. If the Annual Meeting is adjourned or
postponed, the new date, time and place will be announced at the Annual Meeting
prior to adjournment or postponement. It is important that your stock be
represented at this meeting so that the presence of a quorum may be assured.
Information about the activities and operation of the Company during
the fiscal year ended December 31, 1998 is contained in the Company's 1998
Annual Report to Shareholders, a copy of which is enclosed.
It is important that your shares of stock be represented at the
meeting, regardless of the number of shares you may hold. Even though you may
plan to attend the meeting in person, please complete and return the enclosed
proxy in the envelope provided so that it will be received no later than Friday,
April 9, 1999. If you attend the meeting, you may revoke your proxy and vote in
person.
By Order of the Board of Directors,
Robert F. Albright
March 16, 1999 Executive Vice President
<PAGE> 3
FNB FINANCIAL SERVICES CORPORATION
202 South Main Street
Reidsville, North Carolina 27320
PROXY STATEMENT
GENERAL INFORMATION
The accompanying proxy is solicited by and on behalf of the Board of
Directors of FNB Financial Services Corporation, a North Carolina corporation
(the "Company"), for use at the 1999 Annual Meeting of Shareholders to be held
on April 13, 1999, at 1:00 p.m. at the Bryan Enrichment Center, 6275 Bryan Park
Road, Brown Summit, North Carolina (the "Annual Meeting"), and at any
adjournment or postponement thereof. The Company's wholly-owned subsidiary is
FNB Southeast, a North Carolina bank, which until March 15, 1999 when its change
in charter from a national bank to a North Carolina bank took effect, was most
recently known as First National Bank Southeast (the "Bank"). The purposes of
the Annual Meeting are:
1. To elect three nominees to serve as Class III Directors, each
to serve a three-year term until the Annual Meeting of
Shareholders in 2002;
2. To ratify the selection by the Board of Directors of
PricewaterhouseCoopers LLP as the Company's independent
auditors for the 1999 fiscal year; and
3. To consider and act upon such other business as may properly
come before the meeting or any adjournment or postponement
thereof.
The Board of Directors knows of no other matters other than those
stated above to be brought before the Annual Meeting or any adjournment or
postponement thereof. Nonetheless, the proxyholders named on the enclosed proxy
card may vote in accordance with the instructions of the Board of Directors or
in the absence thereof, in accordance with their discretion, on any matter
properly presented for action of which the Board of Directors is not now aware.
The shares represented by all properly executed proxies received by the Company
in time to be taken to the Annual Meeting will be voted; and, if a choice is
specified with respect to any matter to be acted upon, the shares will be voted
in accordance with such specifications. IF A SPECIFICATION IS NOT MADE, THE
PROXY WILL BE VOTED FOR THE PROPOSALS SET FORTH ABOVE AND IN THE NOTICE OF THE
ANNUAL MEETING OF SHAREHOLDERS.
This Proxy Statement is first being mailed to shareholders of record as
of February 16, 1999 on or about March 16, 1999.
By signing the proxy, a shareholder will be authorizing the proxyholder
to vote in his discretion regarding any procedural motions which may come before
the Annual Meeting. For example, this authority could be used to adjourn the
meeting if the Company believes it is desirable to do so. Adjournment or other
procedural matters could be used to obtain more time before a vote is taken in
order to solicit additional proxies or to provide additional information to
shareholders. The Company
<PAGE> 4
has no current plans to adjourn the meeting, but would attempt to do so if the
Board of Directors believes adjournment would promote shareholder interests.
Proxies may be revoked at any time before they are exercised by (i)
filing a written notice of revocation with the Secretary of the Company, (ii)
filing a duly executed proxy bearing a later date or (iii) personally appearing
at the Annual Meeting and electing to vote in person.
The cost of the solicitation of proxies will be borne by the Company.
Solicitation of proxies will be made by mail except that, if necessary, proxies
may be solicited personally or by telephone by directors, officers and employees
of the Company or the Bank, none of whom will receive special compensation for
their efforts. Brokerage houses and nominees have been requested to forward
these proxy materials to the beneficial owners of shares held of record by such
persons, and upon request, the Company will reimburse such persons for the
reasonable out-of-pocket expenses thereby incurred.
VOTING SECURITIES OUTSTANDING
Only shareholders of record as of the close of business on February 16,
1999, will be entitled to notice of, and to vote at, the Annual Meeting. On such
date, the Company had 3,377,415 shares of Common Stock, par value $1.00 per
share, issued and outstanding, each of which is entitled to one vote on each
matter calling for a vote of the shareholders. There are no other voting
securities.
Each shareholder entitled to vote has the right to vote, in person or
by proxy, the number of shares standing of record in his name for as many
persons as there are directors to be elected.
The holders of a majority of the outstanding shares of Common Stock
present in person or represented by proxy at the Annual Meeting will constitute
a quorum. Since many of the shareholders cannot attend the Annual Meeting, it is
necessary that a large number be represented by proxy. Accordingly, the Board of
Directors has designated proxies to represent those shareholders who cannot be
present in person and who desire to be so represented.
2
<PAGE> 5
SHARE OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information, as of February 16,
1999, regarding shares of Common Stock of the Company owned of record or known
to the Company to be owned beneficially by each director and nominee for
director, each executive officer named in the Summary Compensation Table in the
Proxy Statement and all directors and officers as a group. As of February 16,
1999, there were no individuals or entities known to the Company who
beneficially owned more than five percent of the Company's outstanding Common
Stock. Except as set forth in the footnotes to the table below, each of the
shareholders identified in the table below has sole voting and investment power
over the shares beneficially owned by such person.
<TABLE>
<CAPTION>
Shares
Beneficially Percent
Name Owned (1)(2) of Class (1)
---- ------------ ------------
<S> <C> <C>
Ernest J. Sewell............................... 62,404 1.8%
Willard B. Apple, Jr........................... 22,390 *
Charles A. Britt............................... 20,553 *
Barry Z. Dodson................................ 7,946 *
O. Eddie Green................................. 34,682 1.0%
Joseph H. Kinnarney............................ 19,061 *
Clifton G. Payne............................... 61,699 1.8%
Elton H. Trent, Jr............................. 48,055 1.4%
Kenan C. Wright................................ 13,409 *
Robert F. Albright............................. 22,185 *
Directors and executive officers as a group,
including those listed above (12 persons).... 332,798 9.5%
</TABLE>
- ---------------------------
* Less than one percent.
(1) Based upon 3,377,415 shares of Common Stock outstanding on February 16,
1999. The securities "beneficially owned" by an individual are
determined in accordance with the definition of "beneficial ownership"
set forth in the regulations of the Securities and Exchange Commission.
Accordingly, they may include securities owned by or for, among others,
the spouse and/or minor children of the individual and any other
relative who has the same home as such individual, as well as other
securities as to which the individual has or shares voting or
investment power or has the right to acquire under outstanding stock
options within 60 days of February 16, 1999. Beneficial ownership may
be disclaimed as to certain of the securities.
(2) Each director who is not an officer of the Company (other than Willard
B. Apple, Jr., Barry Z. Dodson, O. Eddie Green and Clifton G. Payne)
has the right to acquire 8,067 shares of Common Stock under presently
exerciseable stock options. Mr. Sewell has the right to acquire 38,553
shares, Mr. Apple 2,250 shares, Mr. Dodson 2,472 shares, Mr. Green
6,867 shares, Dr. Payne 250 shares and Mr. Albright 21,385 shares under
presently exerciseable options. All directors and executive officers as
a group have the right to acquire 123,662 shares of Common Stock under
stock options exercisable currently or within 60 days of February 16,
1999. These shares are shown as beneficially owned.
3
<PAGE> 6
PROPOSAL 1: ELECTION OF DIRECTORS
It is intended that the persons named in the accompanying form of proxy
will vote FOR the three nominees listed under the caption "Class III" below for
directors, unless the authority to so vote is withheld. All three of the
nominees are presently members of the Board of Directors of the Company and of
the Board of Directors of the Bank.
The Board of Directors of the Company is divided into three classes:
Class I, Class II and Class III. If elected, the nominees will be designated
Class III, and will serve until the Annual Meeting of Shareholders in 2002. The
directors designated as Class I have been previously elected to serve until the
2000 Annual Meeting of Shareholders, and the directors designated as Class II
have been previously elected to serve until the 2001 Annual Meeting of
Shareholders.
The following table lists the directors of the Company and the classes
in which they serve as of the date of this Proxy Statement:
Class I Class II Class III (Nominees)
------- -------- --------------------
(Term Expiring 2000) (Term Expiring 2001) (Term Expiring 1999)
Ernest J. Sewell Willard B. Apple, Jr. Joseph H. Kinnarney
Charles A. Britt O. Eddie Green Elton H. Trent, Jr.
Barry Z. Dodson Clifton G. Payne Kenan C. Wright
The total number of directors comprising the Company's Board of
Directors has been fixed at eleven. The Board currently has a vacancy of two
directors resulting from the prior retirement of two directors. The remaining
directors are permitted under the Company's Bylaws to fill the vacancies at any
time and to assign any director appointed to fill a vacancy to any class, as
long as the number of directors in each class are as close in number as
possible. Although the Company currently has no plans to fill any of the
existing vacancies on its Board of Directors, it may do so at any time with the
consent of a majority of the directors then in office. The term of office of any
such director appointed to fill the vacancy expires with the class in which such
director has been appointed.
The Board of Directors has no reason to believe that the persons named
as nominees for directors will be unable or will decline to serve if elected.
However, in the event of death or disqualification of any nominee or the refusal
or inability of any nominee to serve as a director, it is the intention of the
proxyholders named in the accompanying proxy card to vote for the election of
such other person or persons as the proxyholders determine in their discretion.
In no circumstance will the proxy be voted for more than three nominees.
Properly executed and returned proxies, unless revoked, will be voted as
directed by the shareholder or, in the absence of such direction, will be voted
in favor of the election of the recommended nominees.
In tallying shareholder votes, abstentions and broker non-votes will be
counted as present for purposes of determining the existence of a quorum at the
Annual Meeting. Under the North Carolina Business Corporation Act, to be elected
as a director, a nominee need only receive a plurality of the
4
<PAGE> 7
votes cast, provided a quorum of shareholders is present. Accordingly,
abstentions and broker non-votes will not be counted against such nominees.
A broker non-vote occurs when a nominee holding shares for a beneficial
owner does not vote on a particular proposal because the nominee does not have
discretionary voting power with respect to that proposal and has not received
voting instructions from the beneficial owner (despite voting on at least one
other proposal for which it does have discretionary authority or for which it
has received instructions).
The Board of Directors recommends a vote "FOR" all of the nominees for election
as directors.
Set forth below are the names and other information pertaining to the
Board's nominees and other directors whose terms of office will continue after
the 1999 Annual Meeting:
<TABLE>
<CAPTION>
First Year
Name Position With Company Age Elected Director
---- --------------------- --- ----------------
<S> <C> <C> <C>
Class I
Ernest J. Sewell Director, President and CEO 58 1995
Charles A. Britt (1)(2) Director 49 1985
Barry Z. Dodson (1)(2) Director 50 1997
Class II
Williard B. Apple, Jr.(1)(2) Director and Chairman 68 1969
O. Eddie Green (2) Director 64 1970
Clifton G. Payne (1)(2) Director 67 1976
Class III (Nominees)
Joseph H. Kinnarney Director 45 1988
Elton H. Trent, Jr. (2) Director 66 1969
Kenan C. Wright (1)(2) Director 46 1990
</TABLE>
- ----------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Ernest J. Sewell is the President, Chief Executive Officer and a
Director of the Company and the Bank. He assumed his current position on January
26, 1995 after the resignation of Willard B. Apple, Jr. from those positions on
that date. Prior to joining the Company and the Bank, Mr. Sewell served as
Senior Vice President of Branch Banking and Trust Company, with 26 years of
previous banking experience. Mr. Sewell is a member of the Board of Trustees of
Annie Penn Memorial Hospital, Reidsville, North Carolina, and is Chairman of its
Investment Committee. He is an avid pilot who also serves on the boards of
various charitable organizations and is Vice Chairman of the Rockingham County
Airport Authority.
Charles A. Britt joined the Board of Directors of the Company and the
Bank in 1985 and has been the owner of Carolina Apothecary, Inc. and Belmont
Pharmacy, Inc. since January 1993. Mr. Britt has a degree in pharmacy, which he
earned in 1972 from the University of North Carolina.
5
<PAGE> 8
Barry Z. Dodson joined the Board of Directors of the Company and the
Bank in 1997 and is a self-employed Certified Public Accountant. He is the owner
of Barry Dodson CPA, an accounting firm with offices located in Madison and
Reidsville, North Carolina.
Willard B. Apple, Jr., a former mayor of Reidsville, North Carolina,
has been Chairman of the Board of Directors of the Company and the Bank since
1993. He also served as President and Chief Executive Officer of the Company
from its organization as a bank holding company in 1984 until 1993 and the Bank
from 1969 until 1993. Mr. Apple also acted as interim Chief Executive Officer of
the Company and the Bank from August 1994 to January 1995. Mr. Apple is a former
member of the Board of Directors of the Federal Reserve Bank of Richmond and is
a Life Member of the Reidsville Jaycees. He has also served and currently serves
on the boards of various charitable and civic organizations located in the
Rockingham County area of North Carolina.
O. Eddie Green joined the Board of Directors of the Bank in 1970 and
the Board of Directors of the Company in 1984 and has been the Division Manager
of Chandler Concrete Co., Inc., providers of ready-mixed concrete located in
Reidsville, North Carolina, since 1991. Mr. Green obtained his degree in Civil
Engineering from N.C. State University in 1956.
Clifton G. Payne joined the Board of Directors of the Bank in 1976 and
the Board of Directors of the Company in 1984 and has been retired from the
practice of medicine since 1991. Dr. Payne earned his M.D. degree from the
University of North Carolina in 1956.
Joseph H. Kinnarney joined the Board of Directors of the Company and
the Board of Directors of the Bank in 1988 and has been the President of
Reidsville Veterinary Hospital, Inc. since 1988. In 1976, Mr. Kinnarney earned a
Masters degree from the University of Kentucky in Animal Science and a Doctorate
of Veterinary Medicine from Cornell University in 1980.
Elton H. Trent, Jr. joined the Board of Directors of the Bank in 1969
and has been the Vice Chairman of the Board of Directors of the Bank since 1984
and the Company since 1994. Mr. Trent is a former councilman of the City of
Reidsville and is now retired.
Kenan C. Wright joined the Board of Directors of the Company and the
Board of Directors of the Bank in 1990 and has been the President of The Wright
Co. of N.C. Inc., a general contractor located in Eden, North Carolina, since
1990.
ATTENDANCE AT BOARD MEETINGS; COMMITTEES
During fiscal 1998, there were 12 regular meetings and no special
meetings of the Board of Directors of the Company. Each of the incumbent
directors attended 75% or more of the meetings held by the Company's Board of
Directors. The Company has an Audit Committee and a Compensation Committee, but
does not have a standing Nominating Committee. The members of the Audit
Committee, which reviews the reports and oversees the actions of the internal
audit department, are Messrs. Payne, Britt, Dodson and Wright. The Audit
Committee met eight times during 1998. The Compensation Committee, which met
four times during 1998, is comprised of Messrs. Britt, Dodson, Green, Payne,
Trent, Jr., and Wright. The function of the Compensation Committee is to review
and recommend
6
<PAGE> 9
executive salary and benefit programs. The Board of Directors of the Company
performs the functions that would be performed by a nominating committee. The
Chairman of the Board of Directors, Mr. Apple, is an ex officio member of all
Board committees. Presently, the Board of Directors does not have a policy or
procedure restricting or limiting shareholder recommendations for nominees to
the Board.
During fiscal 1998, there were 12 regular meetings and no special
meetings of the Board of Directors of the Bank. Each of the incumbent directors
attended 75% or more of the aggregate of the total number of Bank Board meetings
and the total number of meetings held by all committees of the Bank's Board of
Directors on which he served.
The Board of Directors of the Bank also has an Audit Committee, a
Compensation Committee and a Trust Committee, but does not have a standing
Nominating Committee. Since the members of the Bank's Audit Committee and
Compensation Committee are identical to the Company's, the Bank's committees
meet at the same time as the Company's.
The Trust Committee of the Bank's Board of Directors met once during
the 1998 fiscal year. This Committee reviews the Trust Department's reports and
recommendations and is responsible for suitable audits of that department.
Committee members are Messrs. Green, Trent, Jr. and Wright.
DIRECTOR COMPENSATION
In 1998, directors were paid $450 for each meeting attended of the
Board of Directors of the Bank, except for the Chairman of the Board, who
received $500 per meeting. Additionally, each director who is not an employee of
the Bank received an annual retainer of $6,000 during 1998. Directors are also
paid $150 for each committee meeting of the Board of Directors of the Bank
attended, excluding those directors who are employees. Payment is not made for
meetings of the Bank's Board of Directors or Committees where a director has
failed to attend. The directors are also eligible for awards under the Company's
Stock Compensation Plan and under the Company's Omnibus Equity Compensation
Plan. During 1998, each director who was not an employee of the Bank received
non-qualified stock options in July 1998 to purchase 3,000 shares of the
Company's Common Stock, at an exercise price of $24.75 per share, under the
Omnibus Equity Compensation Plan. Such options vest in consecutive annual
increments of 25% of the shares subject to the option, with the first 25%
vesting one year after the date of grant. The directors do not receive any
additional compensation for attending meetings of the Board of Directors of the
Company.
All of the Company's directors and certain senior management employees
are eligible to participate in the Company's Deferred Compensation Plan, which
is intended to provide additional financial incentives and retirement security
for the Company's directors and executive officers, and to allow for deferral of
up to 100% of director's fees and a portion of eligible employees' compensation.
Eligible employees may elect to defer up to 25% of their base salary and up to
100% of any bonuses. Under the Plan, deferred compensation is invested in a
Guaranteed Interest Account (the return on which is tied to the rates on U.S.
Treasury Notes).
7
<PAGE> 10
EXECUTIVE COMPENSATION
The following table sets forth for 1996, 1997 and 1998 the cash and
other compensation paid to, received or deferred by the Company's chief
executive officer and the Company's other executive officer whose salary and
bonus in 1998 exceeded $100,000 (the "named executive officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------- ----------------------
Awards
----------------------
Securities
Year Restricted Underlying
Ended Other Annual Stock Options/ All Other
Name and Principal Position 12/31 Salary Bonus Compensation Award(s) SARs Compensation
--------------------------- ------ ------ ----- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ernest J. Sewell, President and 1998 $225,000 $74,250(1) (2) -0- 25,000 $17,071(3)
Chief Executive Officer 1997 176,666 48,000(1) (2) -0- 20,000 9,539(3)
1996 125,000 43,750(1) (2) -0- 44,443 9,539(3)(4)
Robert F. Albright, Executive Vice 1998 $85,950 $18,909(1) (2) -0- 10,000 $ 7,622(3)
President and Chief Financial 1997 81,858 14,875(1) (2) -0- 7,500 7,622(3)
Officer 1996 77,960 13,590(1) (2) -0- 18,221 7,622(3)
</TABLE>
- -----------------------
(1) Represents compensation earned by Messrs. Sewell and Albright under the
Company's Annual Incentive Plan.
(2) Perquisites and other personal benefits received did not exceed the
lesser of $50,000 or 10% of salary and bonus compensation for Messrs.
Sewell and Albright.
(3) Represents benefits to Messrs. Sewell and Albright under the Company's
split-dollar insurance plan.
(4) Excludes the gain received by Mr. Sewell on the sale of his personal
residence to the Company for $342,000, the value of such residence as
determined by three independent appraisals performed just prior to such
sale.
8
<PAGE> 11
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning options
to purchase Common Stock granted to the named executive officers during the year
ended December 31, 1998.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants(1) for Option Term(2)
- ------------------------------------------------------------------------------------- --------------------------
Number of % of Total
Securities Options Exercise or
Underlying Granted to Base
Options Employees in Price (Per
Name Granted Fiscal Year Share) Expiration Date 5% 10%
---- ------- ----------- ------ --------------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Ernest J. Sewell 25,000 45% $24.75 July 15, 2008 $389,250 $986,250
Robert F. Albright 10,000 18% $24.75 July 15, 2008 $155,700 $394,500
</TABLE>
- -----------------------
(1) The options granted are nonstatutory stock options. The options were
granted effective July 16, 1998 and expire 10 years from the effective
date of grant, or if sooner, upon termination of employment, unless
employment is terminated because of retirement, death or permanent and
total disability, in which case the options remain exercisable for one
year following the termination or the remainder of the option period,
if shorter. Shares subject to the options vest 25% per year over four
years with the first vesting occurring one year from the date of grant.
(2) The Potential Realizable Value of each option grant is calculated
assuming that the market price of the underlying security appreciates
at annualized rates of 5% and 10%, respectively, over the ten year term
of the option.
9
<PAGE> 12
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year End
Option Values
The following table sets forth certain information concerning options
to purchase Common Stock held by the named executive officers during the year
ended December 31, 1998, the aggregate value of gains on the date of exercise,
and the value of unexercised options as of December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Acquired Value Underlying Unexercised In-the-Money Options
Name on Exercise Realized Options at FY-End(#) at FY-End ($)(1)
---- --------------- -------- ---------------------- --------------------
Exercisable/ Exercisable/
Unexercisable Unexercisable
------------- -------------
<S> <C> <C> <C> <C>
Ernest J. Sewell -0- -0- 38,553/69,778 $196,688/$160,632
Robert F. Albright -0- -0- 21,385/26,386 $139,156/$52,031
</TABLE>
- ----------------------
(1) The value of the options is based upon the difference between the
exercise price and the closing price per share of the Company's Common
Stock on the Nasdaq National Market System on December 31, 1998 of
$16.75.
Pension Plan Table
<TABLE>
<CAPTION>
Years of Service
------------------------------------------------------
Final Average Compensation 5 10 15 20 or more
- -------------------------- ------- ------- ------- ----------
<S> <C> <C> <C> <C>
$100,000 $16,250 $32,500 $48,750 $65,000
200,000 32,500 65,000 97,500 130,000
300,000 48,750 97,500 146,250 195,000
400,000 65,000 130,000 195,000 260,000
500,000 81,250 162,500 243,750 325,000
</TABLE>
The Company maintains a funded, qualified defined benefit plan known as
the FNB Financial Services Corporation Employees' Pension Plan and an unfunded,
non-qualified defined benefit pension plan known as the Benefit Equivalency Plan
(collectively, the "Pensions Plans").
The above table sets out the estimated annual pension benefit payable
under the Pension Plans for a participant at age 65 for various levels of Final
Average Compensation (as defined below) and years of service, as supplemented in
the case of Mr. Sewell. Covered compensation under the Pension Plans consists of
the amounts in the Annual Compensation column of the Summary Compensation Table.
The benefits payable under the Benefit Equivalency Plan are fully offset by
benefits paid under the Employees' Pension Plan and are partially offset by
Social Security benefits. The above table does not reflect these offsets.
For purposes of the Pension Plans, Final Average Compensation is equal
to the average of the highest five consecutive calendar years of compensation
paid during the ten calendar years preceding termination of employment. The
average compensation for the current year for the named executive officers is
indicated in the Annual Compensation column of the Summary Compensation Table.
The
10
<PAGE> 13
years of service for each of the named executive officers under the Pension
Plans (rounded to the nearest whole number) as of December 31, 1998 are: Mr.
Sewell, four years; and Mr. Albright, 18 years. No additional benefits are
payable under the Pension Plans for years of service in excess of 20 years.
Mr. Sewell's annual pension from the Company includes a supplemental
benefit (which is in addition to the benefit described in the above table) equal
to 2.75% of his Final Average Compensation multiplied by his years of service.
Employment Contracts and Termination,
Severance and Change-of-Control Arrangements
In May, 1995, Ernest J. Sewell, President and Chief Executive Officer
of the Company and the Bank, entered into an Employment Agreement with the
Company and the Bank, jointly. The Agreement has a rolling three-year term,
meaning that it is automatically renewed each month for a three-year period,
unless either party terminates the Agreement in accordance with its terms. The
Agreement provides for an initial annual base salary of $110,000 (increased to
$240,000 as of January 1, 1999), plus a number of benefits, including
participation in various compensation plans offered to the Company's employees
and senior management. These plans include the Company's Long Term Incentive
Plan and its Annual Management Incentive Plans, and a Benefit Equivalency
(supplemental executive retirement) Plan. Mr. Sewell is also a participant in
the Company's Deferred Compensation Plan. Under the Employment Agreement, if
there is a change in control of the Company, Mr. Sewell may, under certain
circumstances, terminate his employment with the Company, and thereafter
continue to receive his base salary for a period of two years and eleven months,
in addition to any other benefits.
The Board of Directors has previously adopted a Stock Compensation Plan
and an Omnibus Equity Compensation Plan. As discussed more fully in the Board
Compensation Committee Report, the stock options awarded under these Plans to
the Company's officers and directors grant such persons the right to acquire up
to a specified number of the Company's shares at certain times in the future at
a fixed price, and thereby reward the recipients for their contribution to
increases in the price of the Company's shares. In the event of a change in
control of the Company, benefits under these Plans may vest early.
The Board of Directors has adopted two severance policies for the
senior officers of the Company and the Bank. Under the first severance policy,
any officer (other than an officer covered by a currently effective severance
agreement) who has been employed for five years or more, and who has attained
the office of Senior Vice President or above (a "Senior Officer"), is entitled
to receive salary continuation payments if his employment by the Company or the
Bank is terminated "without cause." Any officer covered by the policy would also
be entitled to payments in the event of a "change in control" of the Company or
Bank if the officer is not offered a position with the Company, the Bank, or the
successor of either, at the officer's current salary, that does not require the
officer to maintain an office more than 25 miles from his or her office before
the change in control. These payments would be made in the same installments and
amounts as the officer's salary immediately prior to the time of termination and
would continue for a period of time dependent on the officer's length of
employment. Any officer employed for less than ten years would receive payments
for one year, any officer
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<PAGE> 14
employed for more than ten years but less than 15 years would receive payments
for 18 months, and any officer employed for more than 15 years would receive
payments for two years.
The second severance policy was adopted by the Board of Directors at
its February 1997 meeting, and covers senior officers who have been employed by
the Bank for less than five years and are recommended by the President and the
Board of Directors. Senior officers subject to this second policy receive
payments only if they are terminated as a result of a "change in control." Any
officer employed for less than three years would receive payments for six
months, and any officer employed for more than three years but less than five
years would receive payments for nine months.
Under either severance policy, payments to any officer would
immediately cease if the officer became an officer, director, employee,
consultant, or more than one percent owner of any bank or savings and loan
institution within 50 miles of the Company's home office and in connection with
such position is responsible for soliciting or servicing depositors, borrowers
or other customers. No amounts have ever been paid under either severance
policy.
The Board of Directors has adopted a Long Term Incentive Plan to
encourage eligible senior management employees to make long term decisions that
increase the Company's shareholder value, and enhance the Company's ability to
retain such employees. Under the Plan, certain senior management employees who
have significant policy-making roles, or the ability to affect policy, are
awarded incentive compensation if the Company reaches specified threshold,
target and maximum performance goals over a specified period, based on: (i) the
increase, if any, in the price per share of the Company's Common Stock; (ii) the
increase, if any, in the annual earnings per share of the Company; and (iii) the
growth in the Company's average earning assets. In the event of a change in
control of the Company, benefits under the Long Term Incentive Plan may vest
early. Under the Long Term Incentive Plan, Mr. Sewell will be entitled to
receive a payout in the following amount as of December 31, 1999: (i) $52,142,
if the Company meets the threshold performance goals; (ii) $260,708, if the
Company meets the target performance goals; or (iii) $391,062, if the Company
meets the maximum performance goals. Mr. Albright will be entitled to receive a
payout in the following amount as of December 31, 1999: (i) $20,556, if the
Company meets the threshold performance goals; (ii) $102,781, if the Company
meets the target performance goals; or (iii) $154,172, if the Company meets the
maximum performance goals. There are seven senior officers of the Company
(including Messrs. Sewell and Albright) who are participants in the Long Term
Incentive Plan. The aggregate potential payouts to such participants as of
December 31, 1999 would be: (i) $140,079, if the Company meets the threshold
performance goals; (ii) $700,394, if the Company meets the target performance
goals; or (iii) $1,050,593, if the Company meets the maximum performance goals.
In addition to the Long Term Incentive Plan, the Board of Directors has
adopted an Annual Management Incentive Plan. Annual incentives exist as a means
of linking compensation to objective performance criteria that are within the
control of the executive officers. Under the Annual Management Incentive Plan,
certain of the Company's officers and management employees are awarded incentive
compensation, based in part on the Company's achievement of specified goals,
such as a minimum net income, over a specified period, generally one calendar
year, and the officer's achievement of certain goals relating to the functions
of the particular officer. If the Company does not meet the specified goals,
discretionary awards may be made to certain officers and management employees if
they meet planned individual goals during the specified period, as recommended
by the Chief Executive Officer of the Company.
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<PAGE> 15
Certain highly compensated employees of the Company, including the
named executive officers, are eligible for the Company's Benefit Equivalency
Plan, which is a supplemental executive retirement plan, intended to "make
whole" those employees whose compensation under the Company's Employees' Pension
Plan is limited by applicable governmental restrictions due to their
compensation level. The Plan includes certain early retirement benefits.
Board Compensation Committee Report
General. A compensation committee of the Company was initially
constituted in 1991. Prior thereto, the functions of a compensation committee
were performed by the Executive Committee of the Board of Directors. The
Compensation Committee reviews and oversees the general compensation plans and
policies of the Company and approves the individual compensation arrangements
for the Company's executive officers.
Philosophy. The fundamental philosophy of the Company's compensation
program is to provide and maintain a total compensation program that is
internally competitive in relation to the value of each job, recognizing and
rewarding when appropriate individual differences in performance, and a program
that is externally competitive in relation to the total compensation levels and
compensation practices at other companies in our industry and geographic area.
The overall intent of the program is to motivate superior performance on behalf
of the Company and its shareholders.
Application of Philosophy to CEO and Other Officers' Compensation. In
applying this philosophy, the Compensation Committee (the "Committee") reviews
and develops compensation recommendations to be considered by the entire Board
of Directors. A compensation policy has been adopted that is used as a guide by
the Committee and the Board of Directors to consistently and fairly address
salary/benefit issues for all employees, including executive officers. The
Committee met four times during 1998. The Committee directly determined the
recommendations regarding the compensation of the Chief Executive Officer (the
"CEO"). In addition, the Committee also sets forth recommendations involving
compensation policies, incentive compensation, long term equity participation
and benefit plans. The Committee also delegates to the CEO the responsibility to
determine appropriate levels of salaries and incentive bonuses for the other
officers in the Bank. Primary consideration is given to attainment and
performance in relation to individual goals and objectives that are established
at the beginning of each year before increases are granted. Additional
consideration is given by both the Committee (with regard to the CEO) and the
CEO (with regard to other officers) to the demonstration of the leadership
skills needed to enable the Company to achieve the business objectives set forth
by the Board of Directors.
Components of Compensation. In order to objectively establish a fair,
reasonable and competitive package an independent consultant was also hired to
review the CEO compensation package. This consultant submitted a detailed
analysis that formed the basis for decisions that were made in different areas
of the compensation plan. This analysis included the use of surveys with
financial institutions of similar size and complexity to insure that our
programs and decisions are in line with other bank CEO's in North Carolina and
this region of the country. The North Carolina Bankers' Association Survey and
the Bank Administration Institute Survey were among several sources that were
used to obtain relevant information. The following components of the
compensation package were taken into consideration during this analysis and
review process:
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<PAGE> 16
-- Base Salary - The Company's objective is to have salary
parameters, established through comparisons with other financial
institutions, that motivate and reward superior performance. The
Committee felt the CEO's achievements were significant in terms of
the Company's growth and profitability and that base salary levels
and recommendations were reasonable and in accordance with the
salary administration guidelines prepared from peer group data.
-- Bonus Plans - For the Company's officers, including the CEO,
annual incentive bonuses are directly and indirectly linked to the
Company's financial performance and to the officer's individual
performance as it relates to enabling the Company to achieve its
performance goals. During 1998, as in previous years, the
Committee set the CEO's annual incentive bonus as a percentage of
base salary based on overall net income targets that were
established. This goal was attained and the full payout was earned
accordingly. In addition to the annual plan, the CEO and other
selected executive officers participate in a long term (five year)
bonus plan that encourages long term decisions that increase
shareholder value. The goals of this plan were recommended by the
Committee to the Board of Directors and are monitored at regular
intervals to determine progress.
-- Long Term Equity Participation (stock options) - For the Company's
CEO and other selected executive officers approved by the
Committee, stock options may be granted each year at the
recommendation of the Committee and at the discretion and approval
of the Board of Directors. While no formal system is employed in
determining the number of options granted, the Committee does
consider the individual's level of responsibility and the number
of previously granted stock options. The number and frequency of
the grants are in line with our competition in the industry in
which we compete based on survey information and data compiled by
the consultant engaged by the Committee.
-- Miscellaneous Benefit Plans - The Company also provides the CEO
and certain officers the same benefits that are afforded to all
Company employees, including matching contributions under a
defined contribution plan, retirement benefits under the Company's
pension plans and group insurance covering health, life and
disability. Also, the Company's CEO and selected executive
officers participate in a Supplemental Executive Retirement Plan
and Split Dollar Life Insurance program. These plans are
reasonable and frequently found in comparisons with other similar
sized financial institutions and are part of a total compensation
plan.
Conclusion. The Committee carefully reviewed the salary and benefit
recommendations made to the Board of Directors and believes all approved
increases were in line with survey information as compiled independently and
with the assistance and advice of an outside consulting organization. The Board
of Directors believes that these executive officer compensation policies and
programs effectively promote the Company's interests and enhance shareholder
value.
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<PAGE> 17
This report is submitted by the following members of the Compensation
Committee of the Board of Directors:
Compensation Committee
----------------------
Charles A. Britt, Chairman Clifton G. Payne
Willard B. Apple, Jr. (ex officio) Elton H. Trent, Jr.
Barry Z. Dodson Kenan C. Wright
O. Eddie Green
15
<PAGE> 18
Comparison of Cumulative Total Return
The following graph compares the cumulative shareholder return on the
Company's Common Stock since December 31, 1993 through December 31, 1998, with
the cumulative total return for the same period on the Nasdaq Stock Market Index
(U.S.) and The Carson Medlin Company Independent Bank Index of 23 independent
community banks located in seven southeastern states, with assets averaging
approximately $450 million.(1) The graph assumes that at the beginning of the
period indicated, $100 was invested in the Company's Common Stock and the stock
of the companies comprising the other indices indicated and that all dividends,
if any, were reinvested.
FNB FINANCIAL SERVICES CORPORATION
Five Year Performance Index
[GRAPH]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FNB Financial Services Corporation 100 105 137 193 386 259
Independent Bank Index 100 119 151 191 280 296
Nasdaq Index 100 98 138 170 209 293
</TABLE>
(1) The Carson Medlin Company Independent Bank Index is a published
industry index of the total return to shareholders over the past five
years of 23 similarly-sized independent community banks located in the
Southeastern United States.
16
<PAGE> 19
CERTAIN TRANSACTIONS
Certain of the directors and executive officers of the Company are
customers of and borrowers from the Bank in the ordinary course of business.
From January 1, 1998 to December 31, 1998, loans outstanding to directors and
executive officers of the Company, and their associates as a group, amounted to
a maximum of approximately $3,139,637, or 7.0% of the equity capital of the
Bank. The peak indebtedness occurred in December 1998. Total individual and
corporate obligations, direct and indirect, for any one director did not exceed
10% of the equity capital of the Bank at any time during the 1998 fiscal year.
All outstanding loans and commitments included in such transactions are made
substantially on the same terms, including rate and collateral, as those
prevailing at the time in comparable transactions with other customers. In the
opinion of management, these loans do not involve more than normal risk of
collectability, or contain other unfavorable features.
The Bank has had, and expects to have in the future, banking
transactions in the ordinary course of its business with directors, officers and
principal shareholders of the Company, and their associates, on the same terms
including interest rates and collateral on loans, as those prevailing at the
same time for comparable transactions with others.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than ten
percent of the Company's Common Stock, to file reports of ownership and changes
in ownership with the Securities and Exchange Commission ("SEC"). Executive
officers, directors and greater than ten percent beneficial owners are required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during the year ended December 31, 1998,
its executive officers and directors complied with all applicable Section 16(a)
filing requirements.
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors has approved the engagement of
PricewaterhouseCoopers LLP as the Company's independent public accountants for
the year ended December 31, 1998, to replace Cherry, Bekaert & Holland, L.L.P.
Cherry, Bekaert & Holland, L.L.P. was notified on August 21, 1998 that the
Company was changing independent public accountants.
17
<PAGE> 20
The audit reports of Cherry, Bekaert & Holland, L.L.P. on the
consolidated financial statements of the Company for the years ended December
31, 1996 and 1997 did not contain any adverse opinion or disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope or accounting
principles.
In connection with the audits of the Company's financial statements,
for each of the two fiscal years ended December 31, 1997 and in the subsequent
interim period through August 21, 1998, there were no disagreements with Cherry,
Bekaert & Holland, L.L.P. on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope and procedures which, if not
resolved to the satisfaction of Cherry, Bekaert & Holland, L.L.P. would have
caused Cherry, Bekaert & Holland, L.L.P. to make reference to the matter in
their report. Cherry, Bekaert & Holland, L.L.P. affirmed these statements in a
letter furnished to the Company and filed with the Securities and Exchange
Commission.
During the last two fiscal years and the subsequent interim period
through August 21, 1998, the Company did not consult PricewaterhouseCoopers LLP
regarding any of the matters or events set forth in Regulation S-K Item
304(a)(2)(i) and (ii).
The Board of Directors has appointed PricewaterhouseCoopers LLP as
independent auditors for fiscal year 1999. Although shareholder approval is not
required, the Company desires to obtain from the shareholders an indication of
their approval or disapproval of the Board's action in appointing
PricewaterhouseCoopers LLP as the independent auditors of the Company. If the
shareholders do not ratify this appointment, such appointment will be
reconsidered by the Audit Committee and the Board of Directors.
A representative of PricewaterhouseCoopers LLP will be present at the
Annual Meeting to make a statement and respond to questions.
The Board of Directors recommends that the shareholders vote "FOR" the
ratification of appointment of PricewaterhouseCoopers LLP for fiscal year 1999.
SUBMISSION OF SHAREHOLDER PROPOSALS FOR
2000 ANNUAL MEETING
Any proposals which shareholders intend to present for a vote at the
Company's 2000 annual meeting of shareholders, and which such shareholders
desire to have included in the Company's proxy materials relating to that
meeting, must be received by the Company on or before November 17, 1999.
Proposals received after that date will not be considered for inclusion in such
proxy materials. In addition, if a shareholder intends to present a matter for a
vote at the 2000 annual meeting of shareholders, other than by submitting a
proposal for inclusion in the Company's proxy statement for that meeting, the
shareholder must give timely notice in accordance with SEC rules. To be timely,
a shareholder's notice must be received by the Company's Corporate Secretary at
its principal office, 202 South Main Street, Reidsville, North Carolina 27320,
on or before January 31, 2000. Such notice should set forth (a) as to each
matter the shareholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting and the reasons for
conducting
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<PAGE> 21
such business at the meeting, and (b) the name and record address of the
shareholder, the class and number of shares of capital stock of the Company that
are beneficially owned by the shareholder, and any material interest of the
shareholder in such business.
MISCELLANEOUS
As of the date hereof, the Company knows of no other business that will
be presented for consideration at the Annual Meeting. However, the enclosed
proxy confers discretionary authority to vote with respect to any and all of the
following matters that may come before the meeting: (i) matters that the
Company's Board of Directors did not have notice of by January 31, 2000 in
accordance with the preceding paragraph; (ii) approval of the minutes of a prior
meeting of shareholders, if such approval does not amount to ratification of the
action taken at the meeting; (iii) the election of any person to any office for
which a bona fide nominee is named in this Proxy Statement and such nominee is
unable to serve or for good cause will not serve; (iv) any proposal omitted from
this Proxy Statement and the form of proxy pursuant to Rule 14a-8 or Rule 14a-9
under the Securities Exchange Act of 1934; and (v) matters incidental to the
conduct of the meeting. If any such matters come before the meeting, the proxy
agents named in the accompanying proxy card will vote in accordance with their
judgment.
The Annual Report of the Company for the year ended December 31, 1998,
which includes financial statements audited and reported upon by the Company's
independent auditor, is being mailed along with this Proxy Statement; however,
it is not intended that the Annual Report be a part of this Proxy Statement or a
solicitation of proxies.
THE FORM 10-K FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, WILL BE
PROVIDED FREE OF CHARGE UPON WRITTEN REQUEST DIRECTED TO: FNB FINANCIAL SERVICES
CORPORATION, POST OFFICE BOX 2037, REIDSVILLE, NORTH CAROLINA 27320-2037,
ATTENTION: ROBERT F. ALBRIGHT (336-342-3346).
By Order of the Board of Directors
Willard B. Apple, Jr.
Chairman of the Board
March 16, 1999
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<PAGE> 22
REVOCABLE PROXY
FNB FINANCIAL SERVICES CORPORATION
202 South Main Street
Reidsville, North Carolina 27320
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS - APRIL 13, 1999
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Ernest J. Sewell and Robert F.
Albright, or either of them, as attorney and proxy of the undersigned, each with
full power of substitution to represent the undersigned and to vote all shares
of FNB Financial Services Corporation which the undersigned is entitled to vote
at the above Annual Meeting of Shareholders, and any adjournment or postponement
thereof.
When properly executed and returned, this proxy and the shares represented
hereby will be voted in the manner described herein by the undersigned. If no
direction is made, this proxy and such shares will be voted FOR Proposals 1 and
2 set forth below and described in the Proxy Statement. The undersigned further
gives the above-named attorneys and proxies the authority to vote in their
discretion upon such other matters as may properly come before the Annual
Meeting and any adjournment or postponement of the meeting. This proxy may be
revoked prior to its exercise.
The Board of Directors recommends a vote FOR the proposals listed below.
1. Election of Board of Directors:
[ ] FOR all nominees listed below (except as marked to the contrary below).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
Joseph H. Kinnarney, Elton H. Trent, Jr., Kenan C. Wright
INSTRUCTION: To withhold authority to vote for any individual nominee, write the
nominee's name in the space provided below.
- ------------------------------------------------------
2. Ratify appointment of PricewaterhouseCoopers LLP as independent auditors for
the Company for the fiscal year ending December 31, 1999.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
By signing the proxy, a shareholder will also be authorizing the proxy
holder to vote in his discretion regarding any procedural motions which may come
before the Annual Meeting. For example, this authority could be used to adjourn
the meeting if the Company believes it is desirable to do so. Adjournment or
other procedural matters could be used to obtain more time before a vote is
taken in order to solicit additional proxies or to provide additional
information to shareholders. The Company has no current plans to adjourn the
meeting, but would attempt to do so if the Company believes that adjournment
would promote shareholder interests.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders, the Proxy Statement for such meeting, and the 1998
Annual Report to Shareholders.
Dated: _____________________, 1999
---------------------------------------
SIGNATURE OF SHAREHOLDER
---------------------------------------
SIGNATURE OF SHAREHOLDER
When signing as Attorney-in-Fact, Executor,
Administrator, Trustee or Guardian, please
give full title. If more than one Trustee,
all should sign. All joint owners must sign.
If a corporation, please sign in full
corporate name by any authorized officer.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
