UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from ______________________ to ______________________
Commission File Number 0-13823
FNB CORP.
(Exact name of registrant as specified in its charter)
North Carolina 56-1456589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Sunset Avenue, Asheboro, North Carolina 27203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 626-8300
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock, par
value $2.50 per share
(Title of Class)
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-B 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-KSB or any amendment to the Form 10-KSB. [ ]
The registrant's revenues for the year ended December 31, 1994 were
$19,762,934.
As of March 10, 1995, the aggregate market value of voting stock held by
nonaffiliates of the registrant, assuming, without admission, that all
directors and officers of the registrant may be deemed affiliates, was
$24,208,066.
The registrant had 1,200,000 shares of $2.50 par value common stock
outstanding at March 10, 1995.
Transitional Small Business Disclosure Format (Check One): Yes
No X
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
December 31, 1994 are incorporated by reference into Part II.
Portions of the definitive proxy statement for the Annual Meeting of
Shareholders to be held on May 9, 1995 are incorporated by reference
into Part III.
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PART I
Item 1. Description of Business
FNB Corp. (the "Corporation") is a bank holding company incorporated
under the laws of the State of North Carolina in 1984. On July 2, 1985,
through an exchange of stock, the Corporation acquired its wholly- owned
bank subsidiary, First National Bank and Trust Company (the "Bank"), a
national banking association founded in 1907.
The Bank, a full-service commercial bank, currently conducts all of
its operations in Randolph, Montgomery and Chatham counties in North
Carolina. Four offices, including the main office, are located in
Asheboro. Additional community offices are located in Archdale (two
offices), Biscoe, Ramseur, Randleman, Seagrove and Siler City. Some of
the major services offered include checking accounts, NOW accounts
(including two package account versions that offer a variety of products
and services), money market accounts, savings accounts, certificates of
deposit, holiday club accounts, individual retirement accounts, credit
cards and loans, both secured and unsecured, for business, agricultural
and personal use. The Bank also has automated teller machines and is a
member of "Honor", a regional teller machine network that operates in
Virginia, North Carolina, South Carolina, Georgia, Florida, Maryland and
Tennessee. In total, the Honor network, through arrangements with other
networks, allows access to automated teller machines located in a total
of forty-one states and Puerto Rico.
The Bank has a Trust and Investment Services Department that offers
traditional trust and estate settlement services, investment management
programs and tax-deferred annuities. The annuity program commenced in
the 1993 third quarter.
The Bank significantly augmented its normal growth pattern by the
acquisition on December 3, 1992 of a branch office located in Archdale,
N.C. from another commercial bank. The principal amounts acquired
included deposits of $4,870,000, loans of $1,112,000 and net cash of
$3,300,000.
The Bank increased its investment in premises and equipment through a
major renovation of its Ramseur office. This project, completed in
August, 1993, improved customer accessibility and office appearance.
During 1994, a new credit card operation was established in which the
Bank carries its own credit card receivables as opposed to the former
fee-based arrangement under which accounts were generated for and owned
by a correspondent bank. As part of the new credit card strategy,
extensive customer solicitation efforts are scheduled for 1995.
Additionally, the merchant aspect of credit card operations has been
shifted to an in-house basis from the prior correspondent arrangement.
In a significant 1994 development, the Bank elected to outsource all
of its data processing, item capture and statement rendering operations.
The conversion to a service bureau arrangement was completed in the 1994
fourth quarter. The major items of data processing equipment that were
no longer needed by the Bank were acquired by the new processor. While
the bank does not plan to resume any major data processing operations,
the level of computer equipment is expected to be significantly
increased in 1995 through expanded use of personal computer networks.
The new networks will allow for a more direct input of basic loan and
deposit account information to the data files maintained by the service
bureau.
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In addition to the outsourcing decision for data processing,
management has adopted a comprehensive project for the reengineering of
all Bank operations to become more competitive and cost-effective in
developing business and servicing customers. This project, scheduled
for completion in 1995, may eliminate or realign some positions within
the Bank. The more significant reengineering costs are expected to be
incurred in the first half of 1995.
On December 30, 1993, the Corporation entered into definitive
agreements to acquire two mutual savings banks, Home Savings Bank of
Siler City, SSB ("Home") of Siler City, North Carolina and Randleman
Savings Bank, SSB ("Randleman") of Randleman, North Carolina, in
merger/conversion transactions, pursuant to which the savings banks
would convert from mutual to stock form and the Corporation would
simultaneously acquire the shares issued in the conversions.
Consummation of the proposed acquisitions is subject to regulatory
approval by the Federal Deposit Insurance Corporation, the Board of
Governors of the Federal Reserve System and the Administrator of the
North Carolina Savings Institutions Division. At December 31, 1994,
Home operated one office and had approximately $43,614,000 in total
assets, $37,732,000 in deposits and $5,105,000 in retained earnings. On
this same date, Randleman had approximately $15,610,000 in total assets,
$13,459,000 in deposits and $2,100,000 in retained earnings.
Regulatory applications for approval to consummate the proposed
acquisitions were filed in April, 1994. Substantial changes in
regulatory policy occurring shortly after the applications were filed
effectively resulted in a moratorium on federal approval of
merger/conversions, and the Corporation subsequently withdrew the
applications to the FDIC and the Federal Reserve. The Corporation and
the savings banks are exploring other methods of effecting a combination
and continue to monitor developments in federal regulations and policy
with respect to merger/conversions. Depending on the results of the
continuing evaluation of the progress toward finding a method of
effecting a combination, the Corporation may elect to charge to expense
in the first half of 1995 certain costs, amounting to $179,143 at
December 31, 1994, that have been deferred in connection with the
proposed acquisitions.
Competition
The commercial banking industry within the Bank's marketing area is
extremely competitive. The Bank faces direct competition in Randolph,
Montgomery and Chatham counties from approximately twenty- four
different financial institutions, including commercial banks, savings
institutions and credit unions. Although none of these entities is
dominant, the Bank considers itself one of the major financial
institutions in the area in terms of total assets and deposits. Further
competition is provided by banks located in adjoining counties, as well
as other types of financial institutions such as insurance companies,
finance companies, pension funds and brokerage houses and other money
funds.
Supervision and Regulation
The Corporation is a bank holding company within the meaning of the
Bank Holding Company Act of 1956, as amended (the "BHC Act"), and is
registered as such with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"). A bank holding company is
required to file with the Federal Reserve Board annual reports and other
information regarding its business operations and those of its
subsidiaries. It is also subject to examination by the Federal Reserve
Board and is required to obtain Federal Reserve Board approval prior to
acquiring, directly or indirectly, ownership or control of any voting
shares of any bank if, after such acquisition, it would own or control,
directly or indirectly, more than five percent of the voting stock of
such bank, unless it already owns a majority of the voting
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stock of such bank. Furthermore, a bank holding company, with limited
exceptions, is prohibited from acquiring direct or indirect ownership or
control of more than five percent of the voting stock of any company
which is not a bank or a bank holding company and must engage only in
the business of banking or managing or controlling banks or furnishing
services to or performing services for its subsidiary banks. One of the
exceptions to this prohibition is the ownership of shares in a company
the activities of which the Federal Reserve Board has determined to be
so closely related to banking or managing or controlling banks as to be
a proper incident thereto.
The Federal Reserve Board has determined that certain activities are
closely related to banking, and that bank holding companies may apply to
the Federal Reserve Board for permission to form, retain or acquire an
interest in a company engaging or proposing to engage in these
activities. The permitted nonbanking activities include, without
limitation: (1) making, acquiring or servicing loans or other
extensions of credit such as consumer finance, credit card, mortgage,
commercial finance and factoring companies would make; (2) acting as an
investment or financial advisor; (3) leasing real or personal property
or acting as agent, broker, or advisor in leasing such property if the
lease is to serve as the functional equivalent of an extension of credit
to the lessee of the property and certain other conditions are met; (4)
providing bookkeeping or data processing services under certain
circumstances; (5) acting as an insurance agent or broker with respect
to insurance that is directly related to the extension of credit with
other financial services; (6) acting as an underwriter for credit life
insurance and credit accident and health insurance directly related to
extensions of credit by the holding company system; and (7) providing
securities brokerage services and related securities credit activities.
As a national banking association, the Bank is subject to regulatory
supervision, of which regular bank examinations by the Comptroller of
the Currency are a part. The Bank is a member of the Federal Deposit
Insurance Corporation (the "FDIC") which currently insures the deposits
of each member bank to a maximum of $100,000 per depositor. For this
protection, each bank pays a semi-annual statutory assessment and is
subject to the rules and regulations of the FDIC. The Bank is also a
member of the Federal Reserve System and is therefore subject to the
applicable provisions of the Federal Reserve Act, which imposes
restrictions on loans by subsidiary banks to a holding company and its
other subsidiaries and on the use of stock or securities as collateral
security for loans by subsidiary banks to any borrower.
The ability of the Corporation to pay dividends depends to a large
extent upon the amount of dividends the Bank pays to the Corporation.
Approval of the Comptroller of the Currency, or his designate, will be
required for any dividend to the Corporation by the Bank if the total of
all dividends, including any proposed dividend, declared by the Bank in
any calendar year exceeds the total of its net profits for that year
combined with its retained net profits for the preceding two years, less
any required transfers to surplus or a fund for the retirement of any
preferred stock.
Effect of Governmental Policies
The operations and earnings of the Bank and, therefore, of the
Corporation are affected by legislative changes and by the policies of
various regulatory agencies. In particular, the Bank is affected by the
monetary and fiscal policies of the Federal Reserve Board. The
instruments of monetary policy used by the Federal Reserve Board include
its open market operations in U.S. Government securities, changes in the
discount rate on member bank borrowings, and changes in reserve
requirements on member bank deposits. The actions of the Federal
Reserve Board influence the growth of bank loans, investments and
deposits and also affect interest rates charged on loans or paid on
deposits.
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Employees
As of December 31, 1994, the Corporation had three officers, all of
whom were also officers of the Bank. On that same date, the Bank had
127 full-time employees and 21 part-time employees. The Bank considers
its relationship with its employees to be excellent. The Bank provides
employee benefit programs, including a noncontributory defined benefit
pension plan, matching retirement/savings plan, group life, health and
dental insurance, paid vacations, sick leave, and health care and life
insurance benefits for retired employees.
Item 2. Description of Property
The main offices of the Bank and the principal executive offices of
the Corporation are located in an office building at 101 Sunset Avenue,
Asheboro, North Carolina. The premises contain approximately 36,500
square feet of office space. The Bank also has other community offices
in Asheboro, Archdale, Biscoe, Ramseur, Randleman, Seagrove and Siler
City, North Carolina. Except as noted below, all premises are owned by
the Bank in fee. The Randolph Mall office in Asheboro, an automated
teller machine location at the Randolph Mall and another automated
teller machine location in Asheboro are under leases expiring December
31, 1999, December 31, 1996 and May 31, 1996, respectively. The Bush
Hill office in Archdale is under a lease expiring January 31, 2002, with
lease renewal options for up to an additional 20-year term. The land on
which the Seagrove Office is situated is under a lease expiring June 30,
2016. At that time, the land is subject to a purchase option at a fixed
price or lease renewal options for up to an additional 30-year term.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters To A Vote Of Security Holders
Not applicable.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Information with respect to FNB Corp. common stock, appearing under
the headings "Common Stock" and "Market Makers" of the section entitled
"General Information" and under the heading "Table 10 - Quarterly
Financial Data" of the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the 1994
Annual Report to Shareholders, is incorporated herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
The sections entitled "Five Year Financial History" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
in the 1994 Annual Report to Shareholders are incorporated herein by reference.
Item 7. Financial Statements
The consolidated financial statements of the Corporation and its
subsidiary and the opinion of KPMG Peat Marwick LLP, independent
certified public accountants, with respect thereto, are incorporated
herein by reference, as identified below, from the 1994 Annual Report to
Shareholders.
Independent Auditors' Report
Consolidated Balance Sheets, December 31, 1994 and 1993
Consolidated Statements of Income, years ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Shareholders' Equity, years ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows, years ended
December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Not Applicable.
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PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Information with respect to directors, appearing under the heading
"Election of Directors" in the Registrant's definitive proxy statement
for the Annual Meeting of Shareholders to be held on May 9, 1995, is
incorporated herein by reference. Information with respect to executive
officers, appearing under the heading "Executive Officers" in the
Registrant's definitive proxy statement for the Annual Meeting of
Shareholders to be held on May 9, 1995, is incorporated herein by
reference. Information with respect to compliance with Section 16(a) of
the Exchange Act, appearing under the heading "Security Ownership of
Management" in the Registrant's definitive proxy statement for the
Annual Meeting of Shareholders to be held on May 9, 1995, is
incorporated herein by reference.
Item 10. Executive Compensation
Information with respect to executive compensation, appearing under
the heading "Executive Compensation" in the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders to be held on May
9, 1995, is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information with respect to security ownership of certain beneficial
owners and management, appearing under the headings "Voting Securities
Outstanding and Principal Shareholders" and "Security Ownership of
Management" in the Registrant's definitive proxy statement for the
Annual Meeting of Shareholders to be held on May 9, 1995, is
incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
Information with respect to certain relationships and related
transactions, appearing under the heading "Indebtedness of Officers and
Directors" in the Registrant's definitive proxy statement for the Annual
Meeting of Shareholders to be held on May 9, 1995, is incorporated
herein by reference.
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PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits to this report are listed in the index to exhibits on
pages 10 and 11 of this report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FNB Corp.
(Registrant)
Date: March 27, 1995 By: /s/ Michael C. Miller
Michael C. Miller
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the
capacities indicated on March 27, 1995.
Signature Title
/s/ Michael C. Miller President, Chief Executive
Michael C. Miller Officer and Director
/s/ Jerry A. Little Treasurer and Secretary
Jerry A. Little (Principal Financial and
Accounting Officer)
/s/ James M. Culberson, Jr. Chairman of the Board
James M. Culberson, Jr.
/s/ James M. Campbell, Jr. Director
James M. Campbell, Jr.
/s/ Wilbert L. Hancock Director
Wilbert L. Hancock
/s/ Thomas A. Jordan Director
Thomas A. Jordan
/s/ R. Reynolds Neely, Jr. Director
R. Reynolds Neely, Jr.
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Signature Title
/s/ Richard K. Pugh Director
Richard K. Pugh
/s/ J. M. Ramsay III Director
J. M. Ramsay III
/s/ Charles M. Stout, M.D. Director
Charles W. Stout, M.D.
/s/ Earlene V. Ward Director
Earlene V. Ward
/s/ E. C. Watkins, Jr. Director
E. C. Watkins, Jr.
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FNB CORP.
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit Page No.
3.10 Articles of Incorporation of the Registrant,
incorporated herein by reference to Exhibit
3.1 to the Registrant's Form S-14 Registration
Statement (No. 2-96498) filed March 16, 1985.
3.11 Articles of Amendment to Articles of
Incorporation of the Registrant, adopted
May 10, 1988, incorporated herein by reference
to Exhibit 19.10 to the Registrant's Form 10-Q
Quarterly Report for the quarter ended June 30,
1988.
3.20 Amended and Restated Bylaws of the Registrant,
adopted October 11, 1990, incorporated herein by
reference to Exhibit 19 to the Registrant's Form 10-Q
Quarterly Report for the quarter ended September
30, 1990.
3.21 Amendment to Bylaws of the Registrant, adopted
September 19, 1991, incorporated herein by reference
to Exhibit 19 to the Registrant's Form 10-Q Quarterly
Report for the quarter ended September 30, 1991.
3.22 Amendment to Bylaws of the Registrant, adopted
December 16, 1993, incorporated herein by reference
to Exhibit 3.22 to the Registrant's Form 10-KSB
Annual Report for the fiscal year ended December
31, 1993.
4 Specimen of Registrant's Common Stock Certificate,
incorporated herein by reference to Exhibit 4 to
Amendment No. 1 to the Registrant's Form S-14
Registration Statement (No. 2-96498) filed April
19, 1985.
10.10 Form of Split Dollar Insurance Agreement dated
as of November 1, 1987 between First National
Bank and Trust Company and certain of its key
employees and directors, incorporated herein by
reference to Exhibit 19.20 to the Registrant's
Form 10-Q Quarterly Report for the Quarter
ended June 30, 1988.
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Exhibit No. Description of Exhibit Page No.
10.11 Form of Amendment to Split Dollar Insurance
Agreement dated as of November 1, 1994
between First National Bank and Trust Company
and certain of its key employees and directors.
10.20 Copy of Split Dollar Insurance Agreement
dated as of May 28, 1989 between First National
Bank and Trust Company and James M.
Culberson, Jr., incorporated herein by reference
to Exhibit 10.30 to the Registrant's Form 10-K
Annual Report for the fiscal year ended
December 31, 1989.
10.30 Copy of Stock Compensation Plan adopted
May 11, 1993, incorporated herein by
reference to Exhibit 10.40 to the Registrant's
Form 10-QSB Quarterly Report for the quarter
ended June 30, 1993.
10.31 Form of Incentive Stock Option Agreement
between FNB Corp. and certain of its key employees,
pursuant to the Registrant's Stock Compensation
Plan.
10.32 Form of Nonqualified Stock Option Agreement
between FNB Corp. and certain of its directors,
pursuant to the Registrant's Stock Compensation
Plan.
10.40 Copy of FNB Corp. Savings Institutions Management
Stock Compensation Plan adopted May 10, 1994,
incorporated herein by reference to Exhibit 10.40
to the Registrant's Form 10-QSB Quarterly Report
for the quarter ended June 30, 1994.
13 Portions of the Registrant's 1994 Annual Report to
Shareholders, which are incorporated within this
report at the items so designated.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
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EXHIBIT 10.11
AMENDMENT
TO
SPLIT DOLLAR INSURANCE AGREEMENT
THIS AMENDMENT made effective the 1st day of November, 1994, between
the FIRST NATIONAL BANK AND TRUST COMPANY, ("Bank") and
_____________________, ("Participant").
WHEREAS, the Participant and the Bank are parties to a Split Dollar
Insurance Agreement dated the _____ day of ___________________, 19__,
setting forth the terms of a Split Dollar Insurance Program ("Program");
WHEREAS, Confederation Life Insurance Company ("Insurer"), which
issued the life insurance contract on which the Split Dollar Insurance
Agreement is based ("Policy"), has encountered financial difficulties
and is under an order of rehabilitation; and
WHEREAS, the parties, under authority given in the Split Dollar
Insurance Agreement, wish to amend the Split Dollar Insurance Agreement
(i) to permit the Bank to determine in its sole discretion the extent,
if any, of any additional premiums that will be paid by the Bank to the
Insurer under the Split Dollar Insurance Agreement, (ii) to eliminate
the requirement for payments by the Participant under the Split Dollar
Insurance Agreement until the Program is either terminated (in which the
Split Dollar Insurance Agreement would be discontinued) or reinstated
(in which the Program would continue from the point of reinstatement in
accordance with the terms of the Split Dollar Insurance Agreement) and
(iii) to permit the Bank in its discretion the right to either terminate
or reinstate the Program and the Split Dollar Insurance Agreement by
giving notice to the Participant of its decision,
NOW, THEREFORE, for and in consideration of the premises and of the
mutual promises and obligations hereinafter set forth, the parties do
hereby agree as follows:
1. Future Premium Payments. The Bank shall pay $_________ to the
Insurer as a premium payment in 1994, and may make such future premium
payments, if any, as it shall determine in its sole discretion. The
Employee shall make no further premium payments under the Program unless
and until the Program is reinstated as set forth below.
2. Reinstatement or Termination. The Bank, by written notice to the
Participant, shall have the right in its sole discretion to either (i)
terminate the Program and the Split Dollar Insurance Agreement, retaining any
and all rights to return of premium it may have under the collateral assignment
executed in connection with the Program or (ii) reinstate the Program in
accordance with its original terms so that from the date of the notice
the obligations of the parties under the Split Dollar Insurance
Agreement would continue in accordance with its terms but with no
obligation on either party to make up premium payments not made between
the date hereof and the date of reinstatement. Neither a termination
nor a reinstatement shall require any documentation other than the
notice given by the Bank to the Participant; however, the Participant
agrees to execute any and all documents that may be necessary or
advisable to effect the decision (termination or reinstatement) made in
the discretion of the Bank.
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3. Continuation. Except as modified hereby, the Split Dollar Insurance
Agreement shall continue in accordance with its terms.
IN WITNESS WHEREOF, the parties have signed this Amendment as of the day
and year first-above written.
FIRST NATIONAL BANK AND TRUST COMPANY
BY:
President
Participant
EXHIBIT 10.31
FNB CORP.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of the day of , 19
between FNB CORP., a North Carolina corporation having its
principal office at Asheboro, North Carolina (hereinafter called
the "Company"), and , a key employee of the
Company or a subsidiary of the Company (hereinafter called the
"Option Holder").
WITNESSETH:
WHEREAS, the Company recognizes the value to it of the services
of the Option Holder as a key employee and is desirous of
furnishing him with added incentive and inducement to contribute to
the success of the Company; and
WHEREAS, the Board of Directors of the Company has adopted, and
the shareholders have approved, the Stock Compensation Plan, a copy
of which is annexed hereto as Exhibit A (hereinafter called the
"Plan"); and
WHEREAS, on , 19 , pursuant to the
provisions of the Plan, the Board of Directors of the Company
(a) granted to the Option Holder, pursuant to Article II of the
Plan, an incentive stock option in respect of the number of shares
hereinbelow set forth, (b) fixed and determined the option price
hereinbelow set forth which it determined to be the then fair
market value of the Common Stock of the Company, and (c) approved
the form of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and
representations herein contained and other good and valuable
consideration, it is agreed by and between the parties hereto as
follows:
l. Subject to the Plan, the terms and provisions of which are
incorporated herein by reference, the Company hereby grants to the
Option Holder an Incentive Stock Option to purchase, on the terms
and subject to the conditions hereinafter set forth, all or any
part of an aggregate of shares of the Company's Common
Stock, par value $2.50 per share, ("Common Stock") at the purchase
price of $ per share (the "Option"), exercisable in the
amounts and at the times set forth in this paragraph l. Unless
sooner terminated as provided in this Agreement, the Option shall
terminate, and all rights of the Option Holder hereunder shall
expire, on . In no event may the Option be
exercised after .
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The Option may be exercised as follows:
(a) Up to 20% of the shares subject to the Option on and
at any time after , 19 ;
(b) Up to 40% of the shares subject to the Option (less any
shares previously purchased pursuant to the Option) on
and at any time after , 19 ;
(c) Up to 60% of the shares subject to the Option (less any
shares previously purchased pursuant to the Option) on
and at any time after , 19 ; and
(d) Up to 80% of the shares subject to the Option (less any
shares previously purchased pursuant to the Option) on
and at any time after , 19 ; and
(e) Up to 100% of the shares subject to the Option (less
any shares previously purchased pursuant to the Option) on
and any time after , 19 .
The number of shares subject to exercise shall be calculated
to the next lower whole number of shares in the event of any
resulting fraction.
2. The Option or any part thereof may, to the extent that
it is exercisable, be exercised in the manner provided in
Article I, Section 7 of the Plan by purchasing at least 25 shares
then exercisable under the Option or, if less, all of the shares
then exercisable under the Option. Payment of the aggregate
option price for the number of shares purchased shall be made in
the manner provided in Article I, Section 7(d) of the Plan.
3. The Option or any part thereof may be exercised during
the lifetime of the Option Holder only by the Option Holder and,
except as provided in Article I, Section 7 of the Plan, may be
exercised only while the Option Holder is in the employ of the
Company.
4. Except as provided in Article I, Section 7(h) of the
Plan with respect to transfers upon the death of the Option
Holder, the Option shall not be transferred, assigned, pledged or
hypothecated in any way, whether by operation of law or
otherwise. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of the Option or any right or
privilege confirmed hereby contrary to the provisions hereof, the
Option and the rights and privileges confirmed hereby shall
immediately become null and void.
5. The Option Holder acknowledges that, in the event of
certain dispositions by him of shares of Common Stock purchased
pursuant to exercise of the Option, he will recognize ordinary
income for income tax purposes (generally in an amount equal to
the difference between the fair market value of the shares on the
date of exercise and the option price paid therefor) and the
Company
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will be entitled to a corresponding deduction. Consequently, the
Option Holder agrees to notify the Company of any disposition of
shares purchased pursuant to exercise of the Option that is made
by him within two years from the date of grant of the Option or
within one year after the delivery of a stock certificate
evidencing such shares and to provide to the Company such
information with respect to the disposition as may be reasonably
requested. The Option Holder further agrees that, in the event
of a disposition within either of the aforesaid periods, he will
pay, or make arrangements to pay, to the Company an amount equal
to any income and other taxes that the Company is required to
withhold as a result of his disposition. If for any reason such
payment or arrangement to pay is not made, the Company shall be
entitled to withhold, from other sums payable to the Option
Holder, the amount of such income and other taxes.
6. If the shares of Common Stock of the Company are
increased, decreased, changed into, or exchanged for a different
number or kind of shares or securities through merger,
consolidation, combination, exchange of shares, other
reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split in which the Company
is the surviving entity, a corresponding adjustment shall be made
to the number of shares under the unexercised portion of the
Option and the purchase price of the shares in the manner
provided in Article I, Section 10(a) of the Plan. In the event
of a consolidation or a merger in which the Company is not the
surviving corporation, or any other merger in which the
shareholders of the Company exchange their shares of stock in the
Company for stock of another corporation, or in the event of
complete liquidation of the Company, or in the case of a tender
offer approved by the Board of Directors, the Option shall become
exercisable in full immediately prior to the effective date of
any such transaction, regardless of the exercise schedule.
7. The Option Holder recognizes that any registration of the Option
and the shares of Common Stock issuable upon its exercise under the
Securities Act of 1933 or under the securities laws of any state shall
be at the option of the Company. The Option Holder acknowledges that,
absent registration, under present federal securities regulations, he
will be required to hold any shares purchased pursuant to exercise of
the Option for a period of not less than two years following full
payment for said shares and that thereafter the shares may be sold only
in compliance with Rule l44 of the Securities and Exchange Commission.
The Option Holder further acknowledges that, notwithstanding
registration, if, at the time of exercise of the Option, he is deemed an
"affiliate" of the Company as defined in said Rule l44, any shares
purchased thereunder will nevertheless be subject to sale only in
compliance with Rule l44 (but without any holding period), and that the
Company shall take such action as it deems necessary or appropriate
-3-
<PAGE>
to assure such compliance, including placing restrictive legends
on certificates evidencing such shares and delivering stop
transfer instructions to the Company's transfer agent.
8. The Option shall not be exercised in whole or in part
and no certificates representing shares subject to the Option
shall be delivered, if any requisite approval or consent of any
governmental authority having jurisdiction over the exercise of
options shall not have been secured or if the issuance of shares
subject to the Option would violate any Federal, state or local
law, regulation or order that may be applicable. The Company
shall use its best efforts to obtain any such approval or consent
and to effect compliance with any such applicable law, regulation
or order (except that registration under the Act or state
securities laws shall be at the company's discretion), and the
Option Holder or any other person entitled to exercise the Option
shall take any action reasonably requested by the Company in such
connection.
9. Any notice to be given to the Company shall be addressed
to the Secretary of the Company at 101 Sunset Avenue, Asheboro,
North Carolina 27203.
10. Nothing herein contained shall affect the right of the
Option Holder to participate in and receive benefits under and in
accordance with the provisions of any pension, insurance or other
benefit plan or program of the Company as in effect from time to
time and for which he is eligible.
11. Nothing herein contained shall affect the right of the
Company, subject to the terms of any existing contractual
arrangement to the contrary, to terminate the Option Holder's
employment at any time for any reason whatsoever.
12. This Agreement shall be binding upon and inure to the
benefit of the Option Holder, his personal representatives, heirs
and legatees, but neither this Agreement nor any rights hereunder
shall be assignable or otherwise transferable by the Option
Holder except as expressly set forth in this Agreement or in the
Plan.
FNB CORP.
By:
President
Option Holder
-4-
EXHIBIT 10.32
FNB CORP.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of the day of , 19 between FNB
CORP., a North Carolina corporation having its principal office at
Asheboro, North Carolina (hereinafter called the "Company"), and ., a
director of the Company or a subsidiary of the Company (hereinafter
called the "Option Holder").
WITNESSETH:
WHEREAS, the Company recognizes the value to it of the services of
the Option Holder as a director and is desirous of furnishing him with
added incentive and inducement to contribute to the success of the
Company; and
WHEREAS, the Board of Directors of the Company has adopted, and the
shareholders have approved, the Stock Compensation Plan, a copy of which
is annexed hereto as Exhibit A (hereinafter called the "Plan"); and
WHEREAS, on , 19 , pursuant to the provisions of the Plan,
the Board of Directors of the Company (a) granted to the Option Holder,
pursuant to Article III of the Plan, an option in respect of the number
of shares hereinbelow set forth, (b) designated the option a
Nonqualified Stock Option, (c) fixed and determined the option price
hereinbelow set forth which it determined to be the then fair market
value of the Common Stock of the Company, and (d) approved the form of
this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and
representations herein contained and other good and valuable
consideration, it is agreed by and between the parties hereto as
follows:
l. Subject to the Plan, the terms and provisions of which are
incorporated herein by reference, the Company hereby grants to the
Option Holder a Nonqualified Stock Option to purchase, on the terms and
subject to the conditions hereinafter set forth, all or any part of an
aggregate of shares of the Company's Common Stock, par value
$2.50 per share, ("Common Stock") at the purchase price of $ per
share (the "Option"), exercisable in the amounts and at the times set
forth in this paragraph l. Unless sooner terminated as provided in this
Agreement, the Option shall terminate, and all rights of the Option
Holder hereunder shall expire, on . In no event may the
Option be exercised after .
<PAGE>
The Option may be exercised as follows:
(a) Up to 20% of the shares subject to the Option on and at any
time after , 19 ;
(b) Up to 40% of the shares subject to the Option (less any
shares previously purchased pursuant to the Option) on and
at any time after , 19 ;
(c) Up to 60% of the shares subject to the Option (less any
shares previously purchased pursuant to the Option) on and
at any time after , 19 ; and
(d) Up to 80% of the shares subject to the Option (less any
shares previously purchased pursuant to the Option) on and
at any time after , 19 ; and
(e) Up to 100% of the shares subject to the Option (less any
shares previously purchased pursuant to the Option) on and
at any time after , 19 .
The number of shares subject to exercise shall be calculated to the
next lower whole number of shares in the event of any resulting
fraction.
2. The Option or any part thereof may, to the extent that it is
exercisable, be exercised in the manner provided in Article I, Section 7
of the Plan by purchasing at least 25 shares then exercisable under the
Option or, if less, all of the shares then exercisable under the Option.
Payment of the aggregate option price for the number of shares purchased
shall be made in the manner provided in Article I, Section 7(d) of the
Plan.
3. This Option is not an incentive stock option. The Option Holder
acknowledges that, upon any exercise of the Option, he will recognize
ordinary income for income tax purposes (generally in an amount equal to
the difference between the fair market value of the shares on the date
of exercise and the option price paid therefor) and the Company will be
entitled to a corresponding deduction. Consequently, the Option Holder
agrees that he will pay, or make arrangements to pay, to the Company an
amount equal to any income and other taxes that the Company is required
to withhold as a result of his exercise of the Option. If for any
reason such payment or arrangement to pay is not made, the Company shall
be entitled to withhold, from other sums payable to the Option Holder,
the amount of such income and other taxes.
4. The Option or any part thereof may be exercised during the
lifetime of the Option Holder only by the Option Holder and, except as
provided in Article I, Section 7 of the Plan, may be exercised only
while the Option Holder is a director or director emeritus of the
Company.
-2-
<PAGE>
5. Except as provided in Article I, Section 7(h) of the Plan with
respect to transfers upon the death of the Option Holder, the Option
shall not be transferred, assigned, pledged or hypothecated in any way,
whether by operation of law or otherwise. Upon any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of the Option or any
right or privilege confirmed hereby contrary to the provisions hereof,
the Option and the rights and privileges confirmed hereby shall
immediately become null and void.
6. If the shares of Common Stock of the Company are increased,
decreased, changed into, or exchanged for a different number or kind of
shares or securities through merger, consolidation, combination,
exchange of shares, other reorganization, recapitalization,
reclassification, stock dividend, stock split or reverse stock split in
which the Company is the surviving entity, a corresponding adjustment
shall be made to the number of shares under the unexercised portion of
the Option and the purchase price of the shares in the manner provided
in Article I, Section 10(a) of the Plan. In the event of a
consolidation or a merger in which the Company is not the surviving
corporation, or any other merger in which the shareholders of the
Company exchange their shares of stock in the Company for stock of
another corporation, or in the event of complete liquidation of the
Company, or in the case of a tender offer approved by the Board of
Directors, the Option shall become exercisable in full immediately prior
to the effective date of any such transaction, regardless of the
exercise schedule.
7. The Option Holder recognizes that any registration of the Option
and the shares of Common Stock issuable upon its exercise under the
Securities Act of 1933 or under the securities laws of any state shall
be at the Option of the Company. The Option Holder acknowledges that,
absent registration, under present federal securities regulations, he
will be required to hold any shares purchased pursuant to exercise of
the Option for a period of not less than two years following full
payment for said shares and that thereafter the shares may be sold only
in compliance with Rule l44 of the Securities and Exchange Commission.
The Option Holder further acknowledges that, notwithstanding
registration, if, at the time of exercise of the Option, he is deemed an
"affiliate" of the Company as defined in said Rule l44, any shares
purchased thereunder will nevertheless be subject to sale only in
compliance with Rule l44 (but without any holding period), and that the
Company shall take such action as it deems necessary or appropriate to
assure such compliance, including placing restrictive legends on
certificates evidencing such shares and delivering stop transfer
instructions to the Company's transfer agent.
8. The Option shall not be exercised in whole or in part and no
certificates representing shares subject to the Option shall be
delivered, if any requisite approval or consent of any governmental
authority having jurisdiction over the exercise of options shall not
-3-
<PAGE>
have been secured or if the issuance of shares subject to the Option
would violate any Federal, state or local law, regulation or order that
may be applicable. The Company shall use its best efforts to obtain any
such approval or consent and to effect compliance with any such
applicable law, regulation or order (except that registration under the
Act or state securities laws shall be at the Company's discretion), and
the Option Holder or any other person entitled to exercise the Option
shall take any action reasonably requested by the Company in such
connection.
9. Any notice to be given to the Company shall be addressed to the
Secretary of the Company at 101 Sunset Avenue, Asheboro, North Carolina
27203.
10. This Agreement shall be binding upon and inure to the benefit
of the Option Holder, his personal representatives, heirs and legatees,
but neither this Agreement nor any rights hereunder shall be assignable
or otherwise transferable by the Option Holder except as expressly set
forth in this Agreement or in the Plan.
FNB CORP.
By:
President
Option Holder
-4-
<PAGE>
Five Year Financial History
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
(Dollars in thousands except per share data)
SUMMARY OF OPERATIONS
Interest income............................................ $ 17,688 $ 17,507 $ 18,594 $ 18,542 $ 17,605
Interest expense........................................... 6,979 6,945 8,083 9,949 10,019
Net interest income........................................ 10,709 10,562 10,511 8,593 7,586
Provision for loan losses.................................. 220 370 575 330 425
Net interest income after provision for loan losses........ 10,489 10,192 9,936 8,263 7,161
Other operating income..................................... 2,075 1,810 1,609 1,385 1,181
Other operating expense.................................... 8,578 8,306 7,536 6,502 5,860
Income before income taxes................................. 3,986 3,696 4,009 3,146 2,482
Income taxes............................................... 1,159 1,006 1,100 743 473
Net income................................................. $ 2,827 $ 2,690 $ 2,909 $ 2,403 $ 2,009
PER SHARE DATA
Net income................................................. $ 2.36 $ 2.24 $ 2.42 $ 2.00 $ 1.67
Cash dividends declared.................................... .70 .68 .66 .60 .56
Book value................................................. 19.48 18.52 16.84 15.13 13.73
BALANCE SHEET INFORMATION
Total assets............................................... $261,616 $249,698 $245,205 $228,410 $197,101
Investment securities...................................... 76,983 78,488 81,020 82,986 54,716
Loans...................................................... 168,328 157,302 147,032 126,756 121,603
Deposits................................................... 229,925 224,260 223,478 208,294 178,637
Shareholders' equity....................................... 23,379 22,223 20,204 18,157 16,474
RATIOS (AVERAGES)
Return on assets........................................... 1.11% 1.09% 1.24% 1.15% 1.09%
Return on shareholders' equity............................. 12.33 12.62 15.16 13.90 12.73
Shareholders' equity to assets............................. 8.98 8.65 8.19 8.27 8.55
Dividend payout ratio...................................... 29.71 30.34 27.23 29.96 33.44
Loans to deposits.......................................... 70.67 66.76 64.47 65.22 69.70
Net yield on earning assets, taxable equivalent basis...... 4.62 4.74 5.00 4.68 4.77
</TABLE>
[4]
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to assist
in the understanding and evaluation of
the financial condition, changes in financial condition
and results of operations of FNB Corp. (the Corporation)
and its wholly-owned subsidiary, First National Bank and
Trust Company (the Bank). This discussion should be read
in conjunction with the consolidated financial statements
and supplemental financial information appearing elsewhere
in this report.
The Corporation earned $2,826,866 in 1994, a 5.1% increase
over net income in 1993. Earnings
OVERVIEW
per share increased from $2.24 in 1993 to $2.36 in 1994.
Total assets were $261,615,709 at December 31, 1994, up
4.8% from year-end 1993. Loans amounted to $168,327,821 at
December 31, 1994, up 7.0% from the prior year. Total
deposits grew 2.5% to $229,925,312 in 1994.
In December 1993, the Corporation entered into definitive
agreements to acquire two mutual savings banks, Home
Savings Bank of Siler City, SSB and Randleman Savings
Bank, SSB, which had total assets at December 31, 1994 of
$43,614,000 and $15,610,000, respectively. In 1994, the
Corporation withdrew the applications it had filed with
the FDIC and Federal Reserve for approval of the
acquisitions as substantial changes in regulatory policy
in 1994 effectively resulted in a moratorium on federal
approval of such merger/conversion transactions. The
Corporation and savings banks are exploring other methods
of effecting a combination and continue to monitor
developments in federal regulations and policy with
respect to merger/conversions.
The Corporation's net income increased $136,978 in 1994,
up 5.1% over 1993. The increase in
EARNINGS REVIEW
net income in 1994 primarily resulted from an increase in
net interest income and a $150,000 decrease in the
provision for loan losses. The increase in total other
operating income of $264,544 in 1994 approximately offset
the effect of a $271,724 increase in total other operating
expense.
In 1993, earnings declined $218,546 or 7.5% from 1992.
There was only a minor increase in net interest income as
a decline in the net yield on earning assets significantly
offset the effect of a 5.6% increase in the level of
average earning assets. Earnings were positively impacted
in 1993 by a $205,000 decrease in the provision for loan
losses and by a $201,462 increase in total other operating
income that primarily resulted from increases in insurance
and annuity commissions and gains on loan sales. These
earnings improvement factors, however, were not sufficient
to offset the effect of the increase in total other
operating expense of $769,983 which largely resulted from
increased personnel expense and the start up of new
operations.
Return on average assets improved from 1.09% in 1993 to
1.11% in 1994, reflecting the effect of a faster rate of
growth in net income than in average total assets. Return
on average assets declined in 1993 from 1.24% in 1992,
affected by the reduction in net income while average
assets continued to increase. Return on average
shareholders' equity declined slightly from 12.62% in 1993
to 12.33% in 1994 compared to a steeper decline from the
return on average shareholders' equity of 15.16% in 1992.
NET INTEREST INCOME
Net interest income is the difference between interest
income, principally from loans and investments, and
interest expense, principally on customer deposits.
Changes in net interest income result from changes in
interest rates and in the volume, or average dollar level,
and mix of earning assets and interest-bearing
liabilities.
Net interest income was $10,709,322 in 1994 compared to
$10,561,630 in 1993. This was an increase of only $147,692
or 1.4% because a decline in the net yield on earning
assets, or net interest margin, from 4.74% in 1993 to
4.62% in 1994 significantly offset the effect of a 3.6%
increase in the level of average earning assets.
Similarly, in 1993 there was only a $51,070 or 0.5%
increase in net interest income, reflecting a decline of
26 basis points in the net interest
[5]
<PAGE>
<TABLE>
<S> <C> <C>
margin from 5.00% in 1992. Until the second quarter of
1993, the net interest margin had shown substantial
improvement with the rapidly declining rates paid on
deposits. As the impact of declining yields on earning
assets became more significant, however, the net interest
margin began to decline. The interest rate scenario
changed significantly in 1994, influenced by actions taken
by the Federal Reserve to combat a possible resurgence in
inflation. The interest rate increases in 1994 resulted in
some improvement in the net interest margin on a
quarter-to-quarter basis. Additionally, there has been a
continuing negative impact on the margin from certain
variable-rate time deposits with minimum rates in excess
of current market rates. Such variable-rate time deposits
are being phased out over a two-year period that commenced
in January 1994. On a taxable equivalent basis, the
increases in net interest income in 1994 and 1993 were
slightly lower at $116,000 and $5,000, reflecting declines
in the levels and yields of non-taxable investment
securities in each year.
Table 1 sets forth for the periods indicated information
with respect to the Corporation's average balances of
assets and liabilities, as well as the total dollar
amounts of interest income (taxable equivalent basis) from
earning assets and interest expense on interest-bearing
liabilities, resultant rates earned or paid, net interest
income, net interest spread and net yield on earning
assets. Net interest spread refers to the difference
between the average yield on earning assets and the
average rate paid on interest-bearing liabilities. Net
yield on earning assets, or net interest margin, refers to
net interest income divided by average earning assets and
is influenced by the level and relative mix of earning
assets and interest-bearing liabilities.
TABLE 1
AVERAGE BALANCES AND NET INTEREST INCOME ANALYSIS
(TAXABLE EQUIVALENT BASIS, DOLLARS IN THOUSANDS)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992
Average Average
Interest Rates Interest Rates Interest
Average Income/ Earned/ Average Income/ Earned/ Average Income/
Balance Expense Paid Balance Expense Paid Balance Expense
EARNING ASSETS
Loans (1)(2)................................ $161,121 $13,286 8.25% $149,045 $12,662 8.50% $137,101 $12,778
Investment securities:
Taxable income............................ 66,679 3,723 5.58 69,701 4,096 5.88 69,034 4,969
Non-taxable income (1).................... 10,042 968 9.64 10,360 1,083 10.45 11,685 1,247
Federal funds sold.......................... 2,174 91 4.19 2,593 77 2.97 1,678 57
Total earning assets.................. 240,016 18,068 7.53 231,699 17,918 7.73 219,498 19,051
Cash and due from banks..................... 8,625 8,002 7,978
Other assets, net........................... 6,631 6,872 6,881
TOTAL ASSETS.......................... $255,272 $246,573 $234,357
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
NOW accounts.............................. $ 32,521 658 2.02 $ 29,953 657 2.19 $ 25,768 750
Savings deposits.......................... 31,820 830 2.61 29,999 852 2.84 24,152 890
Money market accounts..................... 21,261 543 2.55 23,102 597 2.59 26,240 919
Certificates and other time deposits...... 106,759 4,850 4.54 106,989 4,836 4.52 106,714 5,511
Retail repurchase agreements................ 2,101 84 4.00 -- -- -- -- --
Federal funds purchased..................... 307 14 4.64 89 3 3.28 372 13
Total interest-bearing liabilities.... 194,769 6,979 3.58 190,132 6,945 3.65 183,246 8,083
Noninterest-bearing demand deposits......... 35,614 33,212 29,786
Other liabilities........................... 1,964 1,909 2,135
Shareholders' equity........................ 22,925 21,320 19,190
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.............................. $255,272 $246,573 $234,357
NET INTEREST INCOME AND SPREAD.............. $11,089 3.95% $10,973 4.08% $10,968
NET YIELD ON EARNING ASSETS................. 4.62% 4.74%
<CAPTION>
Average
Rates
Earned/
Paid
EARNING ASSETS
Loans (1)(2)................................ 9.31 %
Investment securities:
Taxable income............................ 7.20
Non-taxable income (1).................... 10.67
Federal funds sold.......................... 3.41
Total earning assets.................. 8.67
Cash and due from banks.....................
Other assets, net...........................
TOTAL ASSETS..........................
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
NOW accounts.............................. 2.90
Savings deposits.......................... 3.67
Money market accounts..................... 3.49
Certificates and other time deposits...... 5.15
Retail repurchase agreements................ --
Federal funds purchased..................... 3.45
Total interest-bearing liabilities.... 4.40
Noninterest-bearing demand deposits.........
Other liabilities...........................
Shareholders' equity........................
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY..............................
NET INTEREST INCOME AND SPREAD.............. 4.27 %
NET YIELD ON EARNING ASSETS................. 5.00 %
</TABLE>
(1) Interest income related to tax-exempt securities and to certain loans exempt
from federal income tax is stated on a taxable equivalent basis, assuming a
34% tax rate.
(2) Nonaccrual loans are included in the average loan balance. Loan fees and the
incremental direct costs associated with making loans are deferred and
subsequently recognized over the life of the loan as an adjustment of
interest income.
[6]
<PAGE>
<TABLE>
<S> <C> <C>
Not only has the net interest margin declined in both
1993 and 1994 as described above, but the
net interest spread also declined. Movements in the prime
rate of interest impacted net interest margin and spread
in the following manner.
The prime rate, which was 6.00% at December 31, 1992 and
1993, moved up significantly in 1994 to close the year at
8.50%. The average prime for those three years amounted to
6.25%, 6.00% and 7.09%, respectively. The prime rate had
declined significantly from 1991 to 1993, but began to
increase in 1994 following steps taken by the Federal
Reserve to combat a possible resurgence in inflation. The
prime rate increased towards the end of the first quarter
in 1994 and an additional four times during the remainder
of the year. In early 1995, it increased again to 9.00%
and there appears some likelihood of a further 1995
increase. The Corporation's average total yield on earning
assets lags the movement in the prime rate and can
continue to decline for a period after the stabilization
of or an increase in the prime. In 1994, the net interest
spread declined 13 basis points from 4.08% to 3.95% as the
yield on earning assets declined by 20 basis points, from
7.73% to 7.53%, while the average rate paid on
interest-bearing liabilities, or cost of funds, declined
by only 7 basis points. In 1993, the 19 basis points
decline in net interest spread resulted from a 94 basis
points decline in the yield on earning assets from 8.67%
to 7.73% versus only a 75 basis points decline in the cost
of funds.
As noted above, the average cost of deposits is receiving
a positive impact from the phasing out of certain
variable-rate time deposits with rate floors above the
current market rates. This phase out began in January 1994
and will take approximately two years.
The 1994 and 1993 changes in net interest income on a
taxable equivalent basis, as measured by volume and rate
variances, are analyzed in Table 2. Volume refers to the
average dollar level of earning assets and
interest-bearing liabilities.
TABLE 2
VOLUME AND RATE VARIANCE ANALYSIS
(TAXABLE EQUIVALENT BASIS, IN THOUSANDS)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1994 Versus 1993 1993 Versus 1992
Variance Variance
due to (1) due to (1)
Volume Rate Net Change Volume Rate Net Change
INTEREST INCOME
Loans (2)................................................ $1,005 $ (381) $ 624 $1,053 $(1,169) $ (116)
Investment securities:
Taxable income......................................... (172 ) (201) (373) 47 (920) (873)
Non-taxable income (2)................................. (32) (83) (115) (138) (26) (164)
Federal funds sold....................................... (13) 27 14 28 (8) 20
Total interest income................................ 788 (638) 150 990 (2,123) (1,133)
INTEREST EXPENSE
Interest-bearing deposits:
NOW accounts........................................... 54 (53) 1 109 (202) (93)
Savings deposits....................................... 50 (72) (22) 187 (225) (38)
Money market accounts.................................. (45) (9) (54) (102) (220) (322)
Certificates and other time deposits................... (9) 23 14 14 (689) (675)
Retail repurchase agreements............................. 84 -- 84 -- -- --
Federal funds purchased.................................. 10 1 11 (9) (1) (10)
Total interest expense............................... 144 (110) 34 199 (1,337) (1,138)
NET INTEREST INCOME........................................ $ 644 $ (528) $ 116 $ 791 $ (786) $ 5
</TABLE>
(1) The mix variance, not separately stated, has been proportionally allocated
to the volume and rate variances based on their absolute dollar amount.
(2) Interest income related to tax-exempt securities and to certain loans exempt
from federal income tax is stated on a taxable equivalent basis, assuming a
34% tax rate.
[7]
<PAGE>
<TABLE>
<S> <C> <C>
Provision for Loan Losses
This provision is the charge against earnings to provide
an allowance or reserve for possible future losses on
loans. The amount of each year's charge is affected by
several considerations including management's evaluation
of various risk factors in determining the adequacy of the
allowance (see "Asset Quality"), actual loan loss
experience and loan portfolio growth. In 1994 and 1993,
earnings were positively impacted by decreases in the
provision of $150,000 and $205,000, respectively.
OTHER OPERATING INCOME
Total other operating income, or noninterest income,
increased $264,544 or 14.6% in 1994 and $201,462 or 12.5%
in 1993, reflecting in part the general increase in the
volume of business. The increase in 1994 was primarily due
to commissions from tax-deferred annuity products, a
program which began in July 1993 and also contributed
significantly to the 1993 increase in noninterest income.
Insurance and annuity commissions increased $207,802 in
1994 and $90,795 in 1993. The primary factor in the 1993
increase in noninterest income was the increase in gains
on loan sales of $129,685 which is included in "other
income". This was not a significant factor in 1994, when
there was a decline of $121,346 in gains on loan sales. In
January 1993, the program of originating residential
mortgage loans for sale to the Federal National Mortgage
Association (Fannie Mae) effectively commenced. As noted
in "Loans" below, mortgage loan activity declined in 1994,
reflecting increases in mortgage loan rates that in turn
reduced the level of profitability on sales to Fannie Mae.
The increase in service charges on deposit accounts in
1994 was due both to the selected increases in service
charge rates that became effective in the second quarter
of 1993 and to a change in the 1994 fourth quarter in the
method of collecting fees on returned checks and overdraft
items. The 1993 increase was primarily due to the rate
increases in the 1993 second quarter. The level of other
service charges and fees was higher in 1994 due to several
factors including increased fees related to credit card
operations (see "Business Development Matters"), an
increase in fees received for servicing loans sold to
Fannie Mae and increased check order fees. The 1993
decrease resulted from a reduction in fees related to
origination of residential mortgage loans for
correspondent banks, a revenue source that has not been
utilized to any extent since the Fannie Mae program was
initiated. While there was a reduction in gains on loan
sales in 1994, "other income" did benefit from a higher
level of trust income.
OTHER OPERATING EXPENSE
Total other operating, or noninterest, expense increased
$271,724 or 3.3% in 1994 and $769,983 or 10.2% in 1993 due
largely to costs associated with new or changed
operations, increased personnel expense and the continuing
effects of inflation. As discussed in "Business
Development Matters", the Bank in 1994 elected to
outsource its data processing operations and completed the
conversion to a service bureau arrangement in the 1994
fourth quarter. Both personnel expense and "other expense"
were increased due to costs associated with the
outsourcing decision. A change in credit card operations,
also discussed in "Business Development Matters", has
increased these same expense components starting in the
1994 third quarter. Noninterest expense was affected in
1993 by the expansion of the Trust and Investment Services
Department in the 1993 third quarter for the sale of
tax-deferred annuity products and by the first full year
of operation of a branch office that was acquired in
Archdale, N.C. in December 1992. Personnel expense has
been impacted in recent years by the staffing requirements
of new operations, increased staffing requirements of
other Bank operations, normal salary adjustments and
higher costs of fringe benefits. In 1994, the average
number of employees on a full-time equivalent basis was
essentially unchanged from 1993, and several fringe
benefit components were less costly. Compared to the prior
year-end, there was a decline in the number of full-time
equivalent employees at December 31, 1994, reflecting in
particular the outsourcing of data processing operations.
</TABLE>
[8]
<PAGE>
<TABLE>
<S> <C> <C>
Due to the outstanding outsourcing of data processing
operations in late 1994, certain expense components will
be significantly affected in 1995 and future years.
Although outside processing costs will increase, there
will be a reduction in personnel and equipment costs as
compared to the prior in-house system. Another significant
change planned for 1995 is a comprehensive project for the
reengineering of all Bank operations (see "Business
Development Matters"). While cost savings and improved
operating procedures are expected to result from this
project, there will be implementation costs, the more
significant of which are expected to be incurred in the
first half of 1995.
As discussed in the "Overview", the Corporation has
entered into definitive agreements to acquire two mutual
savings banks. Changes in regulatory policy, however, have
effectively resulted in a moratorium on federal approval
of such merger/conversion transactions. Depending on the
results of the continuing evaluation of the progress
toward finding a method of effecting a combination, the
Corporation may elect to charge to expense in the first
half of 1995 certain costs, amounting to $179,143
(approximately $118,000 on an aftertax basis) at December
31, 1994, that have been deferred in connection with the
proposed acquisitions.
Because of the Federal Deposit Insurance Corporation
Improvement Act (FDICIA) enacted in 1989, FDIC insurance
expense was increased substantially, with the Bank's
expense amounting to $503,379 in 1994. The FDIC has two
separate insurance funds, which are the Bank Insurance
Fund (BIF) and the Savings Association Insurance Fund
(SAIF). When each fund reaches the 1.25 percent reserve
ratio required by FDICIA, then the corresponding insurance
assessment rates can be lowered starting within that
semiannual period. While the BIF fund is expected to reach
the mandated reserve ratio between May and July of 1995,
the SAIF fund may not reach this level for several years.
Since most of the Bank's deposits are insured through BIF,
the Bank could experience a significant savings in FDIC
insurance expense, if as currently projected, the
effective BIF rate is lowered by as much as 83%.
INCOME TAXES
The effective income tax rate increased from 27.2% in 1993
to 29.1% in 1994 due to both the effect of state income
tax expense recognition in 1994 but not in 1993 and an
increase in the ratio of taxable to tax-exempt income. The
effective income tax rate of 27.2% in 1993 did not
significantly change from the 27.4% rate in 1992.
Liquidity refers to the continuing ability of the Bank to
meet deposit withdrawals, fund loan and
LIQUIDITY
capital expenditure commitments, maintain reserve
requirements, pay operating expenses and provide funds to
the Corporation for payment of dividends, debt service and
other operational requirements. Liquidity is immediately
available from three major sources: (a) cash on hand and
on deposit at other banks, (b) the outstanding balance of
federal funds sold and (c) the available-for-sale
securities portfolio. While additional liquidity is
readily obtainable by purchasing federal funds from other
banks, the Bank has not found it necessary to utilize this
resource to any substantial extent in recent years,
although it was a net purchaser of federal funds at
December 31, 1994. Further, while available-for-sale
securities are intended to be a source of immediate
liquidity, the entire investment securities portfolio is
managed to provide both income and a ready source of
liquidity. The average portfolio life of debt securities
is approximately three years, resulting in a substantial
level of maturities each year. All debt securities are of
investment grade quality and, if the need arises, can be
promptly liquidated on the open market or pledged as
collateral for short-term borrowing.
In line with its approach to liquidity, the Bank as a
matter of policy does not solicit or accept brokered
deposits for funding asset growth. Instead, loans and
other assets are based on a core of local deposits and the
Bank's capital position. To date, the steady increase in
deposits, retail repurchase agreements and capital has
been adequate to fund loan demand in the Bank's market
area, while maintaining the desired level of immediate
liquidity and a substantial investment portfolio available
for both immediate and secondary liquidity purposes.
</TABLE>
[9]
<PAGE>
<TABLE>
<S> <C> <C>
One of the primary objectives of asset/liability
management is to maximize net interest margin
ASSET/LIABILITY while minimizing the earnings risk associated with
MANAGEMENT AND changes in interest rates. One method used
INTEREST RATE to manage interest rate sensitivity is to measure,
SENSITIVITY over various time periods, the interest rate
sensitivity positions, or gaps; however, this method
addresses only the magnitude of timing differences and
does not address earnings or market value. Therefore,
management uses an earnings simulation model to prepare,
on a regular basis, earnings projections based on a range
of interest rate scenarios in order to more accurately
measure interest rate risk.
The Bank's balance sheet is liability-sensitive, meaning
that in a given period there will be more liabilities than
assets subject to immediate repricing as market rates
change. Because immediately rate sensitive
interest-bearing liabilities exceed rate sensitive assets,
the earnings position could improve in a declining rate
environment and could deteriorate in a rising rate
environment, depending on the correlation of rate changes
in these two categories. Included in interest-bearing
liabilities subject to rate changes within 30 days are
NOW, savings, and money market deposits totaling
$82,401,000 as of December 31, 1994. These types of
deposits historically have not repriced coincidentally
with or in the same proportion as general market
indicators.
Table 3 presents information about the periods in which
the interest-sensitive assets and liabilities at December
31, 1994 will either mature or be subject to repricing in
accordance with market rates, and the resulting
interest-sensitivity gaps. This table shows the
sensitivity of the balance sheet at one point in time and
is not necessarily indicative of what the sensitivity will
be on other dates.
TABLE 3
INTEREST RATE SENSITIVITY ANALYSIS
(DOLLARS IN THOUSANDS)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
December 31, 1994
Rate Maturity In Days Beyond
1-90 91-180 181-365 One Year Total
EARNING ASSETS
Loans........................................................... $ 78,565 $ 6,983 $ 11,215 $71,565 $168,328
Investment securities........................................... 9,131 3,241 2,456 62,155 76,983
Federal funds sold.............................................. -- -- -- -- --
Total earning assets.......................................... 87,696 10,224 13,671 133,720 245,311
INTEREST-BEARING LIABILITIES
NOW accounts.................................................... 31,902 -- -- -- 31,902
Savings deposits................................................ 30,920 -- -- -- 30,920
Money market accounts........................................... 19,579 -- -- -- 19,579
Time deposits of $100,000 or more............................... 8,741 5,891 3,702 1,857 20,191
Other time deposits............................................. 37,694 16,870 19,671 15,816 90,051
Retail repurchase agreements.................................... 3,526 -- -- -- 3,526
Federal funds purchased......................................... 3,050 -- -- -- 3,050
Total interest-bearing liabilities............................ 135,412 22,761 23,373 17,673 199,219
INTEREST SENSITIVITY GAP.......................................... $(47,716) $(12,537) $ (9,702) $116,047 $ 46,092
Cumulative gap.................................................... $(47,716) $(60,253) $(69,955) $46,092 $ 46,092
Ratio of interest-sensitive assets to interest-sensitive
liabilities..................................................... 65% 45% 58% 757 % 123%
</TABLE>
[10]
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<TABLE>
<S> <C> <C>
Under guidelines established by the Federal Reserve
Board, capital adequacy is currently
CAPITAL ADEQUACY
measured for regulatory purposes by certain risk-based
capital ratios, supplemented by a leverage ratio. The
risk-based capital ratios are determined by expressing
allowable capital amounts, defined in terms of Tier 1 and
Tier 2, as a percentage of risk-adjusted assets, which are
computed by measuring the relative credit risk of both the
asset categories on the balance sheet and various
off-balance sheet exposures. Tier 1 capital consists
primarily of common shareholders' equity and qualifying
perpetual preferred stock, net of goodwill and other
disallowed intangible assets. Tier 2 capital, which is
limited to the total of Tier 1 capital, includes allowable
amounts of subordinated debt, mandatory convertible
securities, preferred stock and the allowance for loan
losses. Under current requirements, the minimum Tier 1
capital ratio is 4% and the minimum total capital ratio,
consisting of both Tier 1 and Tier 2 capital, is 8%. At
December 31, 1994, the Corporation had a Tier 1 capital
ratio of 13.41% and a total capital ratio of 14.38%.
The leverage ratio, which serves as a minimum capital
standard, considers Tier 1 capital only and is expressed
as a percentage of average total assets for the most
recent quarter, after reduction of those assets for
goodwill and other disallowed intangible assets at the
measurement date. The required ratio ranges from 3% to 5%,
subject to federal bank regulatory evaluation of the
organization's overall safety and soundness. At December
31, 1994, the Corporation had a leverage ratio of 9.14%.
Asset and deposit growth was higher in 1994 than in 1993.
Total assets increased $11,918,000 or
BALANCE SHEET REVIEW
4.8% in 1994 compared to $4,493,000 or 1.8% in 1993.
Deposits grew $5,665,000 or 2.5% and $782,000 or 0.4%,
respectively, in the same periods. A new retail repurchase
agreements program that commenced in the second quarter of
1994 generated $3,526,000 of the asset increase at
December 31, 1994. The Bank, in December 1992, acquired a
branch office in Archdale, N.C. with deposits of
$4,870,000, loans of $1,112,000 and net cash of
$3,300,000. As a result, the percentage increases in
average assets and deposits were greater in 1993 than
either the similar increases in 1994 or the increases that
result from comparing year-end 1993 balances to 1992. The
average asset growth rates were 3.5% in 1994 and 5.2% in
1993. The corresponding average deposit growth rates were
2.1% and 5.0%.
As discussed in Note 1 to Consolidated Financial
Statements, the Corporation adopted
INVESTMENT SECURITIES
Statement of Financial Accounting Standards No. 115 as of
December 31, 1993 and transferred certain debt and equity
securities at that time to the available-for-sale
category. Investments are carried on the consolidated
balance sheet at estimated fair value for
available-for-sale securities and at amortized cost for
held-to-maturity securities. Table 4 presents information,
on the basis of selected maturities, about the composition
of the investment securities portfolio for each of the
last three years.
</TABLE>
[11]
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<TABLE>
<S> <C> <C>
TABLE 4
INVESTMENT SECURITIES PORTFOLIO ANALYSIS
(DOLLARS IN THOUSANDS)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
December 31
1994
Estimated Taxable 1993 1992
Amortized Fair Equivalent Carrying Carrying
Cost Value Yield Value Value
AVAILABLE FOR SALE
U.S. Treasury:
One to five years....................................... $ 7,488 $ 7,256 6.28% $ 5,334
Five to ten years....................................... 522 509 7.34 254
Total................................................. 8,010 7,765 6.34 5,588
Mortgage-backed securities................................ 12,558 12,108 6.67 18,920
Total debt securities..................................... 20,568 19,873 6.54 24,508
Equity securities......................................... 5,145 4,696 4,810
Total available-for-sale securities................... $25,713 $24,569 $29,318 $ --
HELD TO MATURITY
U.S. Treasury:
Within one year......................................... $ 4,954 $ 4,922 5.49 $ 8,303 $ 9,851
One to five years....................................... 2,748 2,692 5.94 3,957 13,536
Total................................................. 7,702 7,614 5.68 12,260 23,387
U.S. Government agencies and corporations:
Within one year......................................... 3,151 3,139 6.46 5,503 2,502
One to five years....................................... 26,294 25,162 6.03 17,543 30,121
Five to ten years....................................... 4,916 4,607 6.16 3,328 8,815
Total................................................. 34,361 32,908 6.09 26,374 41,438
State, county and municipal (1):
Within one year......................................... 2,081 2,092 11.32 1,831 1,560
One to five years....................................... 3,017 3,079 10.39 4,483 5,175
Five to ten years....................................... 4,909 4,792 8.10 3,535 3,771
Over ten years.......................................... 344 325 8.09 542 617
Total................................................. 10,351 10,288 9.42 10,391 11,123
Total debt securities..................................... 52,414 50,810 6.70 49,025 75,948
Other securities.......................................... -- -- 145 5,072
Total held-to-maturity securities..................... $52,414 $50,810 $49,170 $81,020
</TABLE>
(1) Yields related to state, county and municipal securities are stated on a
taxable equivalent basis, assuming a 34% tax rate.
At December 31, 1994, an investment in the Franklin
Adjustable U.S. Government Securities
Fund exceeded 10% of shareholders' equity. This mutual
fund investment, which is carried in the
available-for-sale portfolio, has an original cost of
$5,000,000 and a current estimated fair value of
$4,550,000.
Additions to the investment securities portfolio depend to
a large extent on the availability of investable funds
that are not otherwise needed to satisfy loan demand.
During both 1994 and 1993, when loan growth was at a much
higher rate than that for either total assets or deposits,
there was a reduction in the level of investment
securities, amounting to $1,505,000 or 1.9% in 1994 and
$2,532,000 or 3.1% in 1993. Investable funds not otherwise
utilized are temporarily invested on an overnight basis as
federal funds sold, the level of which is affected by such
considerations as near-term loan demand and liquidity
needs. Based on funds requirements, the Bank was a net
purchaser of federal funds at December 31, 1994.
[12]
<PAGE>
<TABLE>
<S> <C> <C>
The Corporation's primary source of revenue and
largest component of earning assets is the
LOANS
loan portfolio. Loans experienced 7.0% growth in both 1994
and 1993, increasing by $11,026,000 in 1994 and
$10,270,000 in 1993. Average loans increased $12,076,000
or 8.1% and $11,944,000 or 8.7%, respectively. The ratio
of average loans to average deposits increased from 66.8%
in 1993 to 70.7% in 1994. Part of this increase is due to
the effect of the new retail repurchase agreements program
which began generating additional funds in 1994 that can
be used for loan growth and other purposes. The ratio of
loans to deposits at December 31, 1994 was 73.2%.
Table 5 sets forth the major categories of loans and
information regarding residential mortgage loans held for
sale for each of the last five years. The maturity
distribution and interest sensitivity of selected loan
categories at December 31, 1994 are presented in Table 6.
TABLE 5
LOAN PORTFOLIO COMPOSITION
(DOLLARS IN THOUSANDS)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31
1994 1993 1992 1991 1990
Amount % Amount % Amount % Amount % Amount
Term federal funds sold................. $ -- -- $ -- -- $ -- -- $ -- -- $ 2,000
Commercial and agricultural............. 41,777 24.8 40,858 26.0 34,630 23.5 27,600 21.8 26,312
Real estate -- construction............. 1,331 .8 2,163 1.4 1,313 .9 1,956 1.5 1,536
Real estate -- mortgage................. 79,169 47.0 69,782 44.3 61,269 41.7 53,836 42.5 49,535
Consumer................................ 46,051 27.4 44,499 28.3 49,820 33.9 43,364 34.2 42,220
Total loans........................... $168,328 100.0 $157,302 100.0 $147,032 100.0 $126,756 100.0 $121,603
Residential mortgage loans held for
sale.................................. $ -- $ 1,090 $ 101 $ -- $ --
<CAPTION>
%
Term federal funds sold................. 1.6
Commercial and agricultural............. 21.6
Real estate -- construction............. 1.3
Real estate -- mortgage................. 40.8
Consumer................................ 34.7
Total loans........................... 100.0
Residential mortgage loans held for
sale..................................
<CAPTION>
</TABLE>
TABLE 6
SELECTED LOAN MATURITIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, 1994
One Year One to Over
or Less Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial and agricultural............................................... $37,015 $4,149 $613 $41,777
Real estate -- construction............................................... 1,331 -- -- 1,331
Total selected loans.................................................... $38,346 $4,149 $613 $43,108
Sensitivity to rate changes:
Fixed interest rates.................................................... $ 1,802 $4,149 $613 $ 6,564
Variable interest rates................................................. 36,544 -- -- 36,544
Total................................................................... $38,346 $4,149 $613 $43,108
</TABLE>
The residential construction and mortgage loan portfolio
accounted for slightly more than half
of the 1994 loan increase. In late 1992, the Bank became
qualified as a seller and servicer of mortgage loans for
the Federal National Mortgage Association (Fannie Mae) and
began generating income from these activities in 1993. As
a result of favorable market conditions in 1993 caused by
a decline in interest rates, the Bank experienced brisk
mortgage loan activity and sold a substantial portion of
the loans originated to Fannie Mae. Increased mortgage
loan rates in 1994 led to a decline in originations.
Because of a reduction in the level of profitability on
sales to Fannie Mae, however, the Bank increased the
percentage of residential mortgage loans added to its own
portfolio.
Consumer loan growth also added significantly to the 1994
increase in loans. Automobile lending was especially
strong in the first part of the year, although the pace
did subside. There was steady growth in the balances
related to the home equity line of credit program.
Management considers the Bank's asset quality to be of
primary importance. A formal loan
ASSET QUALITY
review function, independent of loan origination, is used
to identify and monitor problem loans.
[13]
<PAGE>
<TABLE>
<S> <C> <C>
In determining the allowance for loan losses and any
resulting provision to be charged against earnings,
particular emphasis is placed on the results of the loan
review process. Consideration is also given to historical
loan loss experience, the value and adequacy of
collateral, and economic conditions in the Bank's market
area.
Management's policy in regard to past due loans is
conservative and normally requires a prompt charge-off to
the allowance for loan losses following timely collection
efforts and a thorough review. Further efforts are then
pursued through various means available. Loans carried in
a nonaccrual status are generally collateralized and the
possibility of future losses is considered minimal.
Table 7 presents an analysis of the changes in the
allowance for loan losses and of the level of
nonperforming assets for each of the last five years.
Information about management's allocation of the allowance
for loan losses by loan category is presented in Table 8.
TABLE 7
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS
(DOLLARS IN THOUSANDS)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of year.............................................. $1,745 $1,766 $1,484 $1,323 $1,185
Charge-offs:
Commercial and agricultural............................................. 16 57 159 64 144
Real estate -- construction............................................. -- -- -- -- --
Real estate -- mortgage................................................. 1 24 34 12 22
Consumer 419 486 228 221 252
Total charge-offs 436 567 421 297 418
Recoveries:
Commercial and agricultural............................................. 6 8 24 48 45
Real estate -- construction............................................. -- -- -- -- --
Real estate -- mortgage 5 7 1 2 4
Consumer................................................................ 180 161 103 78 82
Total recoveries...................................................... 191 176 128 128 131
Net loan charge-offs...................................................... 245 391 293 169 287
Provision for loan losses................................................. 220 370 575 330 425
Balance at end of year.................................................... $1,720 $1,745 $1,766 $1,484 $1,323
NONPERFORMING ASSETS, AT END OF YEAR
Nonaccrual loans.......................................................... $ -- $ -- $ 68 $ 791 $ 427
Accruing loans past due 90 days or more................................... 118 136 388 72 163
Total nonperforming loans............................................. 118 136 456 863 590
Foreclosed assets......................................................... 78 134 159 -- --
Other real estate owned................................................... -- -- 52 52 55
Total nonperforming assets............................................ $ 196 $ 270 $ 667 $ 915 $ 645
RATIOS
Net loan charge-offs to average loans..................................... .15% .26% .21% .14% .25%
Net loan charge-offs to allowance for loan losses......................... 14.25 22.43 16.59 11.40 21.65
Allowance for loan losses to year-end loans............................... 1.02 1.11 1.20 1.17 1.09
Total nonperforming loans to year-end loans............................... .07 .09 .31 .68 .49
</TABLE>
[14]
<PAGE>
<TABLE>
<S> <C> <C>
TABLE 8
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(IN THOUSANDS)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
December 31
1994 1993 1992 1991 1990
Commercial and agricultural................................................. $ 490 $ 451 $ 418 $ 454 $ 181
Real estate -- construction................................................. 14 25 23 20 15
Real estate -- mortgage..................................................... 346 281 261 250 219
Consumer.................................................................... 651 569 343 286 270
Unallocated................................................................. 219 419 721 474 638
Total allowance for loan losses........................................... $1,720 $1,745 $1,766 $1,484 $1,323
</TABLE>
The level and mix of deposits is affected by various
factors, including general economic
DEPOSITS
conditions, the particular circumstances of local markets
and the specific deposit strategies employed. Broad
interest rate declines such as have occurred from 1991 to
early 1994 tend to encourage customers to consider
alternative investments such as mutual funds and tax-
deferred annuity products.
The Bank's level and mix of deposits has been specifically
affected by the following factors. In December 1992, the
Bank acquired a branch office in Archdale, N.C. with
deposits of $4,870,000. Certain variable-rate time
deposits with minimum rates in excess of current market
rates are being phased out over a two-year period that
commenced in January 1994. A retail repurchase agreements
program, established in the second quarter of 1994, has
tended to transfer funds away from deposits. At December
31, 1994, the balance of retail repurchase agreements was
$3,526,000. Further, the level of public funds on deposit
fluctuates, amounting to $10,940,000, $10,636,000 and
$14,990,000 at December 31, 1994, 1993 and 1992,
respectively.
Table 9 shows the year-end and average deposit balances
for the years 1994, 1993 and 1992 and the changes in 1994
and 1993.
TABLE 9
ANAYLSIS OF DEPOSITS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993
Change from Change from
Prior Year Prior Year 1992
Balance Amount % Balance Amount % Balance
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR-END BALANCES
Interest-bearing deposits:
NOW accounts...................................... $ 31,902 $ 157 .5 $ 31,745 $2,661 9.1 $ 29,084
Savings deposits.................................. 30,920 34 .1 30,886 2,896 10.3 27,990
Money market accounts............................. 19,579 (2,330) (10.6) 21,909 (3,741) (14.6) 25,650
Total........................................... 82,401 (2,139) (2.5) 84,540 1,816 2.2 82,724
Certificates and other time deposits.............. 110,242 5,160 4.9 105,082 (1,551) (1.5) 106,633
Total interest-bearing deposits................. 192,643 3,021 1.6 189,622 265 .1 189,357
Noninterest-bearing demand deposits................. 37,282 2,644 7.6 34,638 517 1.5 34,121
Total deposits.................................. $229,925 $5,665 2.5 $224,260 $ 782 .4 $223,478
AVERAGE BALANCES
Interest-bearing deposits:
NOW accounts...................................... $ 32,521 $2,568 8.6 $ 29,953 $4,185 16.2 $ 25,768
Savings deposits.................................. 31,820 1,821 6.1 29,999 5,847 24.2 24,152
Money market accounts............................. 21,261 (1,841) (8.0) 23,102 (3,138) (12.0) 26,240
Total........................................... 85,602 2,548 3.1 83,054 6,894 9.1 76,160
Certificates and other time deposits.............. 106,759 (230) (.2) 106,989 275 .3 106,714
Total interest-bearing deposits................. 192,361 2,318 1.2 190,043 7,169 3.9 182,874
Noninterest-bearing demand deposits................. 35,614 2,402 7.2 33,212 3,426 11.5 29,786
Total deposits.................................. $227,975 $4,720 2.1 $223,255 $10,595 5.0 $212,660
</TABLE>
[15]
<PAGE>
<TABLE>
<S> <C> <C>
As discussed in the "Overview" and "Other Operating
Expense" above and in Note 2 to
BUSINESS DEVELOPMENT Consolidated Financial Statements, the Corporation has
MATTERS entered into definitive agreements to
acquire two mutual savings banks.
During 1994, a new credit card operation was established
in which the Bank carries its own credit card receivables
as opposed to the former fee-based arrangement under which
accounts were generated for and owned by a correspondent
bank. As part of the new credit card strategy, extensive
customer solicitation efforts are scheduled for 1995.
Additionally, the merchant aspect of credit card
operations has been shifted to an in-house basis from the
prior correspondent arrangement.
In a significant 1994 development, the Bank elected to
outsource all of its data processing, item capture and
statement rendering operations. The conversion to a
service bureau arrangement was completed in the 1994
fourth quarter. The major items of data processing
equipment that were no longer needed by the Bank were
acquired by the new processor. While the bank does not
plan to resume any major data processing operations, the
level of computer equipment is expected to be
significantly increased in 1995 through expanded use of
personal computer networks. The new networks will allow
for a more direct input of basic loan and deposit account
information to the data files maintained by the service
bureau. Capital expenditures for these and other projects
are expected to be approximately $900,000 in 1995.
In addition to the outsourcing decision for data
processing, management has adopted in 1995 a comprehensive
project for the reengineering of all Bank operations to
become more competitive and cost-effective in developing
business and servicing customers and to improve long-term
profitability. This project, scheduled for completion in
1995, may eliminate or realign some positions within the
bank and will result in one-time charges to earnings. The
Bank also decided in March 1995 to sell certain
investments to recognize a loss and gain favorable tax
treatment. While these actions will have a significant
adverse impact on 1995 earnings, management believes these
decisions will enhance the long-term value of FNB Corp.
and insure the competitive edge of its community banking
operations. Management expects these one-time charges and
losses to reduce 1995 aftertax earnings by approximately
$500,000 to $600,000. The most significant costs are
expected to be incurred in the first half of 1995.
The Bank increased its investment in premises and
equipment through a major renovation of its Ramseur
office. This project, completed in August 1993, improved
customer accessibility and office appearance.
The Corporation adopted the provisions of three new
Statements of Financial Accounting
ACCOUNTING PRONOUNCE Standards (SFAS) in 1993 as discussed in the Notes to
MENT MATTERS Consolidated Financial Statements.
Included were SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", SFAS No.
109, "Accounting for Income Taxes" and SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities". None of the SFAS statements adopted had a
material effect on the consolidated financial statements.
As discussed in Note 1 to Consolidated Financial
Statements, SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan", as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of Loan -- Income
Recognition and Disclosures", is effective for fiscal
years beginning after December 15, 1994. At this time,
management estimates that adoption of SFAS No. 114, as
amended by SFAS No. 118, will not have a significant
effect on the consolidated financial statements.
The operations of the Bank and therefore of the
Corporation are subject to the effects of
EFFECTS OF INFLATION
inflation through interest rate fluctuations and changes
in the general price level of noninterest operating
expenses. Such costs as salaries, fringe benefits and
utilities have tended to increase at a rate comparable to
or even greater than the general rate of inflation.
Broadly speaking, all operating expenses have risen to
higher levels as inflationary pressures have increased.
Management has responded to this situation by evaluating
and adjusting fees charged for specific services and by
emphasizing operating efficiencies.
</TABLE>
[16]
<PAGE>
<TABLE>
<S> <C> <C>
The level of interest rates is also considered to be
influenced by inflation, rising whenever inflationary
expectations and the actual level of inflation increase
and declining whenever the inflationary outlook appears to
be improving. Management constantly monitors this
situation, attempting to adjust both rates received on
earning assets and rates paid on interest-bearing
liabilities in order to maintain the desired net yield on
earning assets.
TABLE 10
QUARTERLY FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
First Second Third Fourth
1994
Interest income.................................................................... $4,159 $4,311 $4,515 $4,703
Interest expense................................................................... 1,662 1,650 1,762 1,905
Net interest income................................................................ 2,497 2,661 2,753 2,798
Provision for loan losses.......................................................... 35 50 30 105
Net interest income after provision for loan losses................................ 2,462 2,611 2,723 2,693
Other operating income............................................................. 546 546 462 521
Other operating expense............................................................ 2,078 2,117 2,192 2,191
Income before income taxes......................................................... 930 1,040 993 1,023
Income taxes....................................................................... 267 310 283 299
Net income......................................................................... $ 663 $ 730 $ 710 $ 724
Per share data:
Net income....................................................................... $ .55 $ .61 $ .59 $ .60
Cash dividends declared.......................................................... .17 .17 .18 .18
Common stock price (1):
High........................................................................... 20.00 24.00 25.00 25.00
Low............................................................................ 19.00 19.00 22.00 23.50
1993
Interest income.................................................................... $4,544 $4,424 $4,298 $4,241
Interest expense................................................................... 1,788 1,754 1,704 1,699
Net interest income................................................................ 2,756 2,670 2,594 2,542
Provision for loan losses.......................................................... 90 110 90 80
Net interest income after provision for loan losses................................ 2,666 2,560 2,504 2,462
Other operating income............................................................. 424 413 502 471
Other operating expense............................................................ 1,999 2,065 2,105 2,137
Income before income taxes......................................................... 1,091 908 901 796
Income taxes....................................................................... 313 245 241 207
Net income......................................................................... $ 778 $ 663 $ 660 $ 589
Per share data:
Net income....................................................................... $ .65 $ .55 $ .55 $ .49
Cash dividends declared.......................................................... .17 .17 .17 .17
Common stock price (1):
High........................................................................... 17.25 18.00 19.00 20.00
Low............................................................................ 16.75 17.25 18.00 19.00
</TABLE>
(1) FNB Corp. common stock began trading on the NASDAQ National Market System on
June 14, 1994, and stock price data from that date forward reflects actual
sales prices. Prior to June 14, 1994, the stock was traded on an
over-the-counter basis and bid quotations are reported. Such bid quotations
reflect interdealer prices without retail mark-up, mark-down or commissions
and may not represent actual transactions.
[17]
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
FNB Corp.
We have audited the accompanying consolidated balance sheets of FNB Corp. and
subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1994. These consolidated financial
statements are the responsibility of the Company'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 Corp. and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in note 1 to the consolidated financial statements, the Company
changed its method of accounting for investments to adopt the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", at December 31, 1993. As discussed in notes 1 and 8, the Company
also adopted the provisions of the Financial Accounting Standards Board's SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions", on January 1, 1993.
KPMG Peat Marwick LLP
Greensboro, North Carolina
February 3, 1995
[18]
<PAGE>
<TABLE>
<S> <C> <C>
FNB CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
</TABLE>
<TABLE>
<CAPTION>
December 31
<S> <C> <C>
ASSETS 1994 1993
Cash and due from banks............................................................. $ 9,348,113 $ 7,050,226
Investment securities:
Available for sale, at estimated fair value (amortized cost of $25,713,359 in 1994
and $29,203,055 in 1993)........................................................ 24,569,036 29,318,080
Held to maturity (estimated fair value of $50,809,510 in 1994 and $50,443,810 in
1993)........................................................................... 52,414,194 49,169,718
Loans............................................................................... 168,327,821 157,301,915
Less: Allowance for loan losses................................................... (1,719,717) (1,744,820)
Net loans....................................................................... 166,608,104 155,557,095
Premises and equipment.............................................................. 5,024,522 5,379,035
Other assets........................................................................ 3,651,740 3,223,929
TOTAL ASSETS.................................................................... $261,615,709 $249,698,083
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits............................................... $ 37,282,808 $ 34,638,291
Interest-bearing deposits:
NOW, savings and money market deposits.......................................... 82,400,774 84,539,779
Time deposits of $100,000 or more............................................... 20,191,213 19,993,280
Other time deposits............................................................. 90,050,517 85,088,706
Total deposits................................................................ 229,925,312 224,260,056
Retail repurchase agreements........................................................ 3,526,226 --
Federal funds purchased............................................................. 3,050,000 1,800,000
Other liabilities................................................................... 1,735,041 1,414,594
Total Liabilities............................................................. 238,236,579 227,474,650
Shareholders' Equity:
Preferred stock, $10.00 par value; authorized 200,000 shares, none issued......... -- --
Common stock, $2.50 par value; authorized 5,000,000 shares, issued 1,200,000
shares.......................................................................... 3,000,000 3,000,000
Surplus........................................................................... 900,000 900,000
Retained earnings................................................................. 20,234,383 18,247,517
Net unrealized securities gains (losses).......................................... (755,253) 75,916
Total Shareholders' Equity.................................................... 23,379,130 22,223,433
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................... $261,615,709 $249,698,083
Commitments (Note 13)
</TABLE>
See notes to consolidated financial statements.
[19]
<PAGE>
<TABLE>
<S> <C> <C>
FNB CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31
<S> <C> <C> <C>
1994 1993 1992
INTEREST INCOME
Interest and fees on loans............................................. $13,228,841 $12,610,672 $12,737,320
Interest and dividends on investment securities:
Taxable income....................................................... 3,722,957 4,095,951 4,968,195
Non-taxable income................................................... 645,224 723,372 831,255
Federal funds sold..................................................... 91,034 77,128 57,301
Total interest income.............................................. 17,688,056 17,507,123 18,594,071
INTEREST EXPENSE
Deposits............................................................... 6,880,389 6,942,569 8,070,661
Retail repurchase agreements........................................... 84,094 -- --
Federal funds purchased................................................ 14,251 2,924 12,850
Total interest expense............................................. 6,978,734 6,945,493 8,083,511
NET INTEREST INCOME...................................................... 10,709,322 10,561,630 10,510,560
Provision for loan losses.............................................. 220,000 370,000 575,000
Net Interest Income After Provision For Loan Losses...................... 10,489,322 10,191,630 9,935,560
OTHER OPERATING INCOME
Service charges on deposit accounts.................................... 1,218,066 1,153,374 1,092,624
Other service charges and fees......................................... 295,445 188,082 214,428
Insurance and annuity commissions...................................... 393,960 186,158 95,363
Other income........................................................... 167,407 282,720 206,457
Total other operating income....................................... 2,074,878 1,810,334 1,608,872
OTHER OPERATING EXPENSE
Personnel expense...................................................... 4,902,442 4,807,246 4,294,884
Net occupancy expense.................................................. 447,645 455,991 404,345
Furniture and equipment expense........................................ 503,296 529,228 492,261
Other expense.......................................................... 2,724,565 2,513,759 2,344,751
Total other operating expense...................................... 8,577,948 8,306,224 7,536,241
Income Before Income Taxes............................................... 3,986,252 3,695,740 4,008,191
Income taxes............................................................. 1,159,386 1,005,852 1,099,757
NET INCOME............................................................... $ 2,826,866 $ 2,689,888 $ 2,908,434
Net income per share..................................................... $ 2.36 $ 2.24 $ 2.42
Average number of shares outstanding..................................... 1,200,000 1,200,000 1,200,000
</TABLE>
See notes to consolidated financial statements.
[20]
<PAGE>
<TABLE>
<S> <C> <C>
FNB CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1994, 1993 and 1992
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
NET
UNREALIZED
COMMON STOCK RETAINED SECURITIES
SHARES AMOUNT SURPLUS EARNINGS GAINS (LOSSES)
BALANCE, DECEMBER 31, 1991.......................... 1,200,000 $3,000,000 $900,000 $14,257,195 $ --
Net income, 1992.................................... -- -- -- 2,908,434 --
Cash dividends, $.66 per share...................... -- -- -- (792,000) --
Recognize unrealized loss on mutual fund
investment........................................ -- -- -- -- (70,000)
BALANCE, DECEMBER 31, 1992.......................... 1,200,000 3,000,000 900,000 16,373,629 (70,000)
Net income, 1993.................................... -- -- -- 2,689,888 --
Cash dividends, $.68 per share...................... -- -- -- (816,000) --
Reversal of unrealized loss on mutual fund
investment........................................ -- -- -- -- 70,000
Recognize net unrealized gain on available-for-sale
securities........................................ -- -- -- -- 75,916
BALANCE, DECEMBER 31, 1993.......................... 1,200,000 3,000,000 900,000 18,247,517 75,916
Net income, 1994.................................... -- -- -- 2,826,866 --
Cash dividends, $.70 per share...................... -- -- -- (840,000) --
Change in net unrealized gains (losses) on
available-for-sale securities..................... -- -- -- -- (831,169)
BALANCE, DECEMBER 31, 1994.......................... 1,200,000 $3,000,000 $900,000 $20,234,383 $ (755,253)
</TABLE>
See notes to consolidated financial statements.
[21]
<PAGE>
<TABLE>
<S> <C> <C>
FNB CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
<S> <C> <C> <C>
1994 1993 1992
OPERATING ACTIVITIES
Net income........................................................... $ 2,826,866 $ 2,689,888 $ 2,908,434
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of premises and equipment............ 408,730 415,971 410,924
Provision for loan losses.......................................... 220,000 370,000 575,000
Deferred income taxes.............................................. 295,558 (57,690) (114,334)
Deferred loan fees and costs, net.................................. (504,202) 12,986 99,437
Premium amortization and discount accretion of
investment securities, net....................................... 417,395 571,730 195,142
Amortization of intangibles........................................ 78,107 100,171 116,216
Net decrease (increase) in loans held for sale..................... 1,089,594 (989,094) (100,500)
Decrease (increase) in other assets................................ (273,155) 93,412 137,660
Increase (decrease) in other liabilities........................... 320,447 (109,077) (223,349)
Net Cash Provided By Operating Activities........................ 4,879,340 3,098,297 4,004,630
INVESTING ACTIVITIES
Available-for-sale securities:
Proceeds from maturities........................................... 6,690,357 -- --
Purchases.......................................................... (3,400,725) -- --
Held-to-maturity securities:
Proceeds from maturities........................................... 18,249,914 34,125,117 24,941,737
Purchases.......................................................... (21,708,597) (31,966,917) (23,223,865)
Net increase in loans................................................ (11,743,814) (9,684,761) (19,616,174)
Proceeds from sales of premises and equipment........................ 183,292 8,265 26,484
Purchases of premises and equipment.................................. (239,939) (503,150) (331,602)
Net cash acquired in branch acquisition.............................. -- -- 3,299,646
Other, net........................................................... (213,423) (66,493) 50,809
Net Cash Used In Investing Activities............................ (12,182,935) (8,087,939) (14,852,965)
FINANCING ACTIVITIES
Net increase in deposits............................................. 5,665,256 781,846 10,314,217
Increase in retail repurchase agreements............................. 3,526,226 -- --
Increase in federal funds purchased.................................. 1,250,000 1,800,000 --
Cash dividends paid.................................................. (840,000) (816,000) (792,000)
Net Cash Provided By Financing Activities........................ 9,601,482 1,765,846 9,522,217
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... 2,297,887 (3,223,796) (1,326,118)
Cash and cash equivalents at beginning of year......................... 7,050,226 10,274,022 11,600,140
CASH AND CASH EQUIVALENTS AT END OF YEAR............................... $ 9,348,113 $ 7,050,226 $ 10,274,022
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest........................................................... $ 6,911,446 $ 7,050,559 $ 8,449,382
Income taxes....................................................... 749,993 1,318,848 1,070,963
Noncash investing and financing activity -- transfer of investment
securities to available-for-sale category............................ -- 29,318,080 --
</TABLE>
See notes to consolidated financial statements.
[22]
<PAGE>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of FNB Corp. (the
Corporation) and its wholly-owned subsidiary, First National Bank and Trust
Company (the Bank). All significant intercompany balances and transactions
have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks, and federal funds sold. Generally, federal
funds are purchased and sold for one-day periods.
INVESTMENT SECURITIES
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". SFAS No. 115 addresses the
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securites. These investments are
to be categorized and accounted for as follows:
(Bullet) Held-to-maturity securities -- Debt securities that the enterprise
has the positive intent and ability to hold to maturity. Reported at
amortized cost.
(Bullet) Trading securities -- Debt and equity securities bought and held
principally for the purpose of being sold in the near future.
Reported at fair value, with unrealized gains and losses included in
earnings.
(Bullet) Available-for-sale securities -- Debt and equity securities not
classified as either held-to-maturity securities or trading
securities. Reported at fair value, with unrealized gains and
losses, net of related tax effect, excluded from earnings and
reported as a separate component of shareholders' equity.
Effective December 31, 1993, the Corporation adopted SFAS No. 115 and
classified certain debt and equity securities as available-for-sale
securities. As a result of this change in accounting principle, the carrying
value of the securities so classifed was increased by a fair value adjustment
of $115,025, representing the net unrealized gain at December 31, 1993. In
related adjustments, shareholders' equity and deferred income tax liabilities
were increased by $75,916 and $39,109, respectively. The Corporation intends
to hold the available-for-sale securities for an indefinite period of time
but may sell them prior to maturity. All other securities, which the
Corporation has the positive intent and ability to hold to maturity, are
classified as held-to-maturity securities.
Interest income on debt securities is adjusted using the level yield method
for the amortization of premiums and accretion of discounts. The adjusted
cost of the specific security is used to compute gains or losses on the
disposition of securities.
Prior to December 31, 1993, a mutual fund investment was carried at the lower
of cost or market. An adjustment to the valuation of this investment had been
established by a charge to shareholders' equity. In conjunction with the
adoption of SFAS No. 115, the valuation adjustment was reversed.
LOANS
Unearned income on certain installment loans is recognized as income over the
life of the loans by the sum-of-the-months'-digits method which is not
materially different from the interest method. Interest on all other loans is
calculated by using the constant yield method based on the daily outstanding
balance. The recognition of interest revenue is discontinued when, in
management's opinion, the collection of all or a portion of interest becomes
doubtful.
Loan fees and the incremental direct costs associated with making loans are
deferred and subsequently recognized over the life of the loan as an
adjustment of interest income. Residential mortgage loans held for sale are
valued at the lower of cost or market as determined by outstanding
commitments from investors or current investor yield requirements, calculated
on the aggregate loan basis.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan". SFAS No. 114 prescribes the recognition criterion for
loan impairment and the measurement methods for certain impaired loans and
loans whose terms are modified in troubled debt restructurings. When a loan
is impaired, a creditor must measure impairment based on (1) the present
value of the impaired loan's expected future cash flows discounted at the
loan's original effective interest rate, (2) the observable market price of
the impaired loan, or (3) the fair value of the collateral for a
collateral-dependent loan. Any measurement losses are to be recognized
through additions to the allowance for loan losses. In October 1994, SFAS
[23]
<PAGE>
<TABLE>
<S> <C> <C>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
No. 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures", was issued as an amendment to SFAS No. 114 to
allow a creditor to use existing methods for recognizing interest income on
impaired loans. Both SFAS No. 114 and SFAS No. 118 are effective for fiscal
years beginning after December 15, 1994. At this time, management estimates
that adoption of SFAS No. 114, as amended by SFAS No. 118, will not have a
significant effect on the consolidated financial statements of the
Corporation.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents an amount considered adequate to
absorb loan losses inherent in the portfolio. Management's evaluation of the
adequacy of the allowance is based on a review of individual loans,
historical loan loss experience, the value and adequacy of collateral, and
economic conditions in the Bank's market area. Losses are charged and
recoveries are credited to the allowance for loan losses. While management
uses the best information available to make evaluations, future adjustments
may be necessary if economic and other conditions differ substantially from
the assumptions used.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize changes to the
allowance based on their judgments about information available to them at the
time of their examination.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using both straight-line and
accelerated methods based on the estimated useful lives of the assets as
follows: buildings and components, 10 to 50 years and furniture and
equipment, 3 to 10 years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the estimated life of the improvement
or the term of the lease.
INTANGIBLE ASSETS
Deposit base premiums, arising from deposit and branch purchase acquisitions,
amounted to $202,694 and $280,801 at December 31, 1994 and 1993,
respectively, and are included in other assets. The premium amounts are
amortized on an accelerated basis over ten-year periods.
INCOME TAXES
Effective January 1, 1993, the Corporation adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Incomes Taxes", resulting in an immaterial financial statement impact. Prior
to the adoption of SFAS No. 109, the Corporation accounted for income taxes
under Accounting Principles Board Opinion (APB) No. 11. SFAS No. 109 requires
a change to the asset and liability method from the deferred method of APB
No. 11. Under the asset and liability method, deferred tax assets and
liabilities are established for the temporary differences between the
financial reporting basis and the tax basis of the Corporation's assets and
liabilities at enacted tax rates expected to be in effect when such amounts
are realized or settled.
Pursuant to the deferred method of APB No. 11, which was applied in 1992,
annual income tax expense was matched with pretax accounting income by
providing deferred taxes at current tax rates for timing differences between
the determination of net income for financial reporting and tax purposes.
EMPLOYEE BENEFIT PLANS
The Corporation has a defined benefit pension plan covering substantially all
full-time employees. Pension costs, which are actuarially determined using
the projected unit credit method, are charged to current operations. Annual
funding contributions are made up to the maximum amounts allowable for
Federal income tax purposes.
Statement of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions", establishes new
financial accounting and reporting standards for certain postretirement
employee benefits. Effective January 1, 1993, the Corporation adopted the
provisions of SFAS No. 106 with respect to medical and life insurance
benefits provided on a postretirement basis under defined benefit plans
covering substantially all full-time employees. Postretirement benefit costs,
which are actuarially determined using the attribution method and recorded on
an unfunded basis, are charged to current operations and credited to a
liability account on the consolidated balance sheet. The unrecognized net
transition liability is being amortized over a twenty-year period.
RECLASSIFICATIONS
Certain amounts for prior years have been reclassified to conform with the
presentation for 1994. The reclassifications had no effect on shareholders'
equity or net income as previously reported.
</TABLE>
[24]
<PAGE>
<TABLE>
<S> <C> <C>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS
On December 3, 1992, the Bank acquired a branch office located in Archdale,
North Carolina from another commercial bank. The acquisition was accounted
for as a purchase. The principal amounts acquired included deposits of
$4,870,195, loans of $1,112,097 and net cash of $3,299,646. The resulting
deposit base premium intangible amounted to $61,802.
On December 30, 1993, the Corporation entered into definitive agreements to
acquire two mutual savings banks, Home Savings Bank of Siler City, SSB
("Home") of Siler City, North Carolina and Randleman Savings Bank, SSB
("Randleman") of Randleman, North Carolina, in merger/conversion
transactions, pursuant to which the savings banks would convert from mutual
to stock form and the Corporation would simultaneously acquire the shares
issued in the conversions. Consummation of the proposed acquisitions is
subject to regulatory approval by the Federal Deposit Insurance Corporation,
the Board of Governors of the Federal Reserve System and the Administrator of
the North Carolina Savings Institutions Division. At December 31, 1994, Home
operated one office and had approximately $43,614,000 in total assets,
$37,732,000 in deposits and $5,105,000 in retained earnings. On this same
date, Randleman had approximately $15,610,000 in total assets, $13,459,000 in
deposits and $2,100,000 in retained earnings.
Regulatory applications for approval to consummate the proposed acquisitions
were filed in April, 1994. Substantial changes in regulatory policy occurring
shortly after the applications were filed effectively resulted in a
moratorium on federal approval of merger/conversions, and the Corporation
subsequently withdrew the applications to the FDIC and the Federal Reserve.
The Corporation and the savings banks are exploring other methods of
effecting a combination and continue to monitor developments in federal
regulations and policy with respect to merger/conversions.
The Corporation has incurred certain costs in connection with the proposed
acquisitions. Those costs, which amounted to $179,143 at December 31, 1994,
have been deferred and are included in other assets on the consolidated
balance sheet.
</TABLE>
[25]
<PAGE>
<TABLE>
<S> <C> <C>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENT SECURITIES
Summaries of the amortized cost and estimated fair value of investment
securities and the related gross unrealized gains and losses are presented
below:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
AVAILABLE FOR SALE
DECEMBER 31, 1994
U.S. Treasury..................................... $ 8,009,763 $ 1,374 $ 246,699 $ 7,764,438
Mortgage-backed securities........................ 12,557,862 2,074 451,834 12,108,102
Equity securities................................. 5,145,734 762 450,000 4,696,496
Total........................................... $25,713,359 $ 4,210 $1,148,533 $24,569,036
DECEMBER 31, 1993
U.S. Treasury..................................... $ 5,359,043 $ 234,262 $ 4,769 $ 5,588,536
Mortgage-backed securities........................ 18,844,012 127,685 52,153 18,919,544
Equity securities................................. 5,000,000 -- 190,000 4,810,000
Total........................................... $29,203,055 $ 361,947 $ 246,922 $29,318,080
HELD TO MATURITY
DECEMBER 31, 1994
U.S. Treasury..................................... $ 7,702,064 $ 4,231 $ 92,599 $ 7,613,696
U.S. Government agencies and corporations......... 34,361,214 10,098 1,463,032 32,908,280
State, county and municipal....................... 10,350,916 129,679 193,061 10,287,534
Total........................................... $52,414,194 $ 144,008 $1,748,692 $50,809,510
DECEMBER 31, 1993
U.S. Treasury..................................... $12,260,047 $ 207,004 $ 891 $12,466,160
U.S. Government agencies and corporations......... 26,374,169 453,391 20,921 26,806,639
State, county and municipal....................... 10,390,870 645,793 11,609 11,025,054
Other securities.................................. 144,632 1,325 -- 145,957
Total........................................... $49,169,718 $1,307,513 $ 33,421 $50,443,810
</TABLE>
The amortized cost and estimated fair value of debt securities at December
31, 1994, by contractual maturity, are shown below. Actual maturities may
differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
Available For Sale Held To Maturity
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
Due in one year or less......................... $ -- $ -- $10,185,478 $10,153,018
Due after one year through five years........... 7,487,534 7,255,651 32,059,670 30,932,812
Due after five years through ten years.......... 522,229 508,787 9,825,284 9,398,846
Due after ten years............................. -- -- 343,762 324,834
Total..................................... 8,009,763 7,764,438 52,414,194 50,809,510
Mortgage-backed securities...................... 12,557,862 12,108,102 -- --
Total debt securities..................... $20,567,625 $19,872,540 $52,414,194 $50,809,510
</TABLE>
Debt securities with an estimated fair value of $40,555,570 were pledged to
secure public funds and trust funds on deposit and retail repurchase
agreements at December 31, 1994.
There have been no securities sales in the three-year period ended December
31, 1994.
[26]
<PAGE>
<TABLE>
<S> <C> <C>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LOANS
Major classifications of loans are as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31
<S> <C> <C>
1994 1993
Commercial and agricultural................................................ $ 41,776,681 $ 40,858,190
Real estate -- construction................................................ 1,331,342 2,162,570
Real estate -- mortgage:
Loans held in portfolio.................................................. 79,168,845 68,692,871
Loans held for sale...................................................... -- 1,089,594
Consumer................................................................... 46,050,953 44,498,690
Total loans............................................................ $168,327,821 $157,301,915
</TABLE>
Loans as presented are net of unearned income of $944,168 and $3,861,961 at
December 31, 1994 and 1993, respectively. There were no loans on a nonaccrual
basis at December 31, 1994 and 1993.
Loans are primarily made in the region of North Carolina that includes
Randolph, Montgomery and Chatham counties. The real estate loan portfolio can
be affected by the condition of the local real estate markets. Included in
loans at December 31, 1994 and 1993 are $35,412,788 and $33,297,446,
respectively, of retail installment loan contracts purchased primarily from
automobile dealers.
Loans have been made by the Bank to directors and executive officers of the
Corporation and its subsidiary and to the associates of such persons, as
defined by the Securities and Exchange Commission. Such loans were made in
the ordinary course of business on substantially the same terms, including
rate and collateral, as those prevailing at the time in comparable
transactions with other borrowers and do not involve more than normal risk of
collectibility. A summary of the activity during 1994 with respect to related
party loans is as follows:
<TABLE>
<S> <C>
Balance, December 31, 1993............................................... $ 7,731,405
New loans during 1994.................................................... 19,234,088
Repayments during 1994................................................... (19,138,407)
Balance, December 31, 1994............................................... $ 7,827,086
</TABLE>
5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
<S> <C> <C> <C>
1994 1993 1992
Balance at beginning of year....................................... $1,744,820 $1,766,193 $1,484,277
Provision for losses charged to operations......................... 220,000 370,000 575,000
Loans charged off.................................................. (436,157) (566,791) (421,170)
Recoveries on loans previously charged off......................... 191,054 175,418 128,086
Balance at end of year............................................. $1,719,717 $1,744,820 $1,766,193
</TABLE>
[27]
<PAGE>
<TABLE>
<S> <C> <C>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31
<S> <C> <C>
1994 1993
Land............................................................................ $1,003,619 $ 984,171
Buildings and improvements...................................................... 3,986,315 3,929,867
Furniture and equipment......................................................... 3,360,975 3,755,210
Leasehold improvements.......................................................... 394,390 391,241
Total..................................................................... 8,745,299 9,060,489
Less accumulated depreciation and amortization.................................. 3,720,777 3,681,454
Premises and equipment, net..................................................... $5,024,522 $5,379,035
</TABLE>
7. INCOME TAXES
As discussed in Note 1, the Corporation adopted Statement of Financial
Accounting Standards No. 109 as of January 1, 1993. There was no cumulative
effect adjustment necessary to adopt this new accounting pronouncement.
Income taxes as reported in the consolidated income statement included the
following expense (benefit) components:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Current:
Federal.......................................................... $ 818,773 $1,063,542 $1,214,091
State............................................................ 45,055 -- --
Total.......................................................... 863,828 1,063,542 1,214,091
Deferred -- Federal................................................ 295,558 (57,690) (114,334)
Total income taxes............................................. $1,159,386 $1,005,852 $1,099,757
</TABLE>
A reconciliation of income tax expense computed at the statutory Federal
income tax rate to actual income tax expense is presented below:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Amount of tax computed using Federal statutory tax rate of 34%..... $1,355,326 $1,256,552 $1,362,785
Increases (decreases) resulting from:
Effect of tax-exempt loan and investment securities income....... (233,114) (253,801) (279,468)
Other............................................................ 37,174 3,101 16,440
Total.......................................................... $1,159,386 $1,005,852 $1,099,757
</TABLE>
[28]
<PAGE>
<TABLE>
<S> <C> <C>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The sources of deferred tax assets and liabilities and the tax effect of each
are as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31
<S> <C> <C>
1994 1993
Deferred tax assets:
Allowance for loan losses...................................................... $ 411,177 $419,712
Net unrealized loss on available-for-sale securities........................... 389,070 --
Accrued expenses, not currently deductible..................................... 331,794 308,888
Other.......................................................................... 64,158 92,972
Total........................................................................ 1,196,199 821,572
Deferred tax liabilities:
Depreciable basis of premises and equipment.................................... 224,994 252,115
Taxable basis of investment securities......................................... 237,413 110,012
Prepaid pension cost........................................................... 126,770 101,491
Net deferred loan fees and costs............................................... 157,584 --
Other.......................................................................... 4,985 46,122
Total........................................................................ 751,746 509,740
Net deferred tax assets included in other assets................................. $ 444,453 $311,832
</TABLE>
There is no valuation allowance for deferred tax assets as it is management's
contention that realization of the deferred tax assets is more likely than
not based upon the Corporation's history of taxable income and estimates of
future taxable income.
As previously reported for the year ended December 31, 1992, deferred income
tax expense (benefit) resulted from timing differences between the
determination of net income for financial reporting and tax purposes. The
sources and tax effects of those timing differences were as follows:
<TABLE>
<CAPTION>
1992
<S> <C>
Provision for loan losses..................................................................... $ (95,852)
Depreciation and amortization of premises and equipment....................................... 28,408
Other......................................................................................... (46,890)
Total......................................................................................... $(114,334)
</TABLE>
8. EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Corporation has a noncontributory defined benefit pension plan covering
substantially all full-time employees who qualify as to age and length of
service. Benefits are based on the employee's compensation, years of service
and age at retirement. The Corporation's funding policy is to contribute
annually to the plan an amount which is not less than the minimum amount
required by the Employee Retirement Income Security Act of 1974 and not more
than the maximum amount deductible for income tax purposes.
[29]
<PAGE>
<TABLE>
<S> <C> <C>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information concerning the funded status of the plan is as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31
<S> <C> <C>
1994 1993
Actuarial present value of benefit obligation:
Vested benefit obligation................................................... $ 3,079,017 $ 3,029,021
Non-vested benefit obligation............................................... 19,385 17,268
Total accumulated benefit obligation...................................... $ 3,098,402 $ 3,046,289
Projected benefit obligation for service rendered............................. $(3,793,730) $(3,848,527)
Plan assets at fair value, primarily marketable securities.................... 3,360,752 3,309,283
Projected benefit obligation in excess of plan assets......................... (432,978) (539,244)
Unrecognized net transition liability......................................... 150,319 171,794
Unrecognized prior service cost............................................... 800,747 898,421
Unrecognized net gain......................................................... (145,235) (232,469)
Prepaid pension cost included on the consolidated balance sheet........... $ 372,853 $ 298,502
</TABLE>
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Service cost -- benefits earned during the period..................... $ 82,674 $ 96,954 $ 86,833
Interest cost on projected benefit obligation......................... 280,736 269,063 253,756
Actual return on plan assets.......................................... 101,768 (271,289) (192,562)
Net amortization and deferral......................................... (279,824) 123,188 85,668
Net periodic pension cost............................................. $ 185,354 $ 217,916 $ 233,695
</TABLE>
The rates used in determining the actuarial present value of the projected
benefit obligation were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Discount rate........................................................................ 8.0% 7.5% 8.0%
Rate of increase in compensation levels.............................................. 6.0 6.0 6.0
Expected long-term rate of return on plan assets..................................... 8.0 8.0 8.0
</TABLE>
OTHER POSTRETIREMENT DEFINED BENEFIT PLANS
The Corporation has postretirement medical and life insurance plans covering
substantially all full-time employees who qualify as to age and length of
service. The medical plan is contributory, with retiree contributions
adjusted whenever medical insurance rates change. The life insurance plan is
noncontributory. As discussed in Note 1, the Corporation adopted Statement of
Financial Accounting Standards No. 106 as of January 1, 1993.
Information reconciling the plans, which are unfunded, with the amount
included on the consolidated balance sheet is as follows:
<TABLE>
<CAPTION>
December 31
<S> <C> <C>
1994 1993
Accumulated postretirement benefit obligation:
Retirees........................................................................ $(288,503) $(282,522)
Fully eligible active participants.............................................. (79,915) (85,445)
Other active plan participants.................................................. (86,610) (98,071)
Total accumulated postretirement benefit obligation........................... (455,028) (466,038)
Unrecognized net transition liability............................................. 363,938 384,156
Unrecognized net loss............................................................. 26,124 48,087
Accrued postretirement benefit cost included on the consolidated balance
sheet......................................................................... $ (64,966) $ (33,795)
</TABLE>
[30]
<PAGE>
<TABLE>
<S> <C> <C>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net periodic postretirement benefit cost included the following components:
</TABLE>
<TABLE>
<S> <C> <C>
1994 1993
Service cost -- benefits earned during the period.................................... $ 6,880 $ 6,727
Interest cost on accumulated postretirement benefit obligation....................... 34,468 35,095
Net amortization and deferral........................................................ 20,218 20,218
Net periodic postretirement benefit cost............................................. $61,566 $62,040
</TABLE>
For measurement purposes, the annual rate of increase assumed for the cost of
medical benefits was 16% in 1994, decreasing gradually to 6% in 2004 and
assumed to remain at that level therafter. Increasing the assumed medical
cost trend rate by one percentage point in each year would not have a
significant effect on either the accumulated postretirement benefit
obligation at January 1, 1994 or the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for the year
ended December 31, 1994. The discount rate used in determining the
accumulated postretirement benefit obligation was 8.0% in 1994 and 7.5% in
1993.
MATCHING RETIREMENT/SAVINGS PLAN
The Corporation has a matching retirement/savings plan which permits eligible
employees to make contributions to the plan up to a specified percentage of
compensation as defined by the plan. A portion of the employee contributions
are matched by the Corporation based on the plan formula. The matching
contributions amounted to $71,484 in 1994, $75,599 in 1993 and $77,833 in
1992.
9. LEASES
Future obligations for minimum rentals under noncancellable operating lease
commitments, all relating to premises, are as follows:
<TABLE>
<CAPTION>
Year ending December 31
<S> <C>
1995........................................................................................... $ 46,772
1996........................................................................................... 45,522
1997........................................................................................... 42,432
1998........................................................................................... 42,432
1999........................................................................................... 42,432
2000 and later years........................................................................... 63,650
Total minimum lease payments............................................................... $283,240
</TABLE>
Net rental expense for all operating leases amounted to $50,908 in 1994,
$51,370 in 1993 and $44,164 in 1992. One operating lease for real property
contains a purchase option considered to approximate fair market value.
10. SUPPLEMENTARY INCOME STATEMENT INFORMATION
Significant components of other expense were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
FDIC insurance.......................................................... $503,379 $494,312 $471,537
Stationery, printing and supplies....................................... 304,997 290,810 242,842
</TABLE>
11. FNB CORP. (PARENT COMPANY) FINANCIAL DATA
The Parent Company's principal asset is its investment in the Bank
subsidiary, and its principal source of income is dividends from that
subsidiary.
[31]
<PAGE>
<TABLE>
<S> <C> <C>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain regulatory requirements restrict the lending of funds by the Bank to
the Parent Company and the amount of dividends which can be paid to the
Parent Company. In 1995, the maximum amount of dividends the Bank can pay to
the Parent Company, without the approval of the Comptroller of the Currency,
is $3,571,905 plus an additional amount equal to the retained net income in
1995 up to the date of any dividend declaration.
The Parent Company's condensed balance sheets as of December 31, 1994 and
1993, and the related condensed statements of income and cash flows for the
three-year period ended December 31, 1994 are as follows:
CONDENSED BALANCE SHEETS
</TABLE>
<TABLE>
<CAPTION>
December 31
<S> <C> <C>
1994 1993
Assets:
Cash........................................................................ $ 201,744 $ 91,035
Investment in wholly-owned bank subsidiary.................................. 22,978,009 22,115,377
Other assets................................................................ 199,377 17,021
Total assets.............................................................. $23,379,130 $22,223,433
Liabilities and Shareholders' Equity:
Accrued liabilities......................................................... $ -- $ --
Shareholders' equity........................................................ 23,379,130 22,223,433
Total liabilities and shareholders' equity................................ $23,379,130 $22,223,433
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
<S> <C> <C> <C>
1994 1993 1992
Income:
Dividends from bank subsidiary................................... $1,146,000 $ 816,000 $ 792,000
Other income..................................................... 1,345 887 1,737
Total income................................................... 1,147,345 816,887 793,737
Operating expenses................................................. 21,017 7,277 38,188
Income before income tax benefit and equity in undistributed net
income of bank subsidiary........................................ 1,126,328 809,610 755,549
Income tax benefit................................................. 6,738 2,173 12,349
Income before equity in undistributed net income of bank
subsidiary....................................................... 1,133,066 811,783 767,898
Equity in undistributed net income of bank subsidiary.............. 1,693,800 1,878,105 2,140,536
Net income..................................................... $2,826,866 $2,689,888 $2,908,434
</TABLE>
[32]
<PAGE>
<TABLE>
<S> <C> <C>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
<S> <C> <C> <C>
1994 1993 1992
Operating activities:
Net income..................................................... $ 2,826,866 $ 2,689,888 $ 2,908,434
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed net income of bank subsidiary........ (1,693,800) (1,878,105) (2,140,536)
Other, net................................................... (2,245) 6,747 27,017
Net cash provided by operating activities.................. 1,130,821 818,530 794,915
Investing activities:
Decrease (increase) in other assets............................ (180,112) 62 16,305
Financing activities:
Cash dividends paid............................................ (840,000) (816,000) (792,000)
Net increase in cash............................................. 110,709 2,592 19,220
Cash at beginning of year........................................ 91,035 88,443 69,223
Cash at end of year.............................................. $ 201,744 $ 91,035 $ 88,443
</TABLE>
12. STOCK OPTIONS
The Corporation has a stock compensation plan that allows for the granting of
incentive and nonqualified stock options to key employees and directors.
Under terms of the plan, options are granted at prices equal to the fair
market value of the common stock on the date of grant. Options become
exercisable after one year in equal, cumulative installments over a five-year
period. No option shall expire later than ten years from the date of grant. A
maximum of 120,000 shares of common stock has been reserved for issuance
under the stock compensation plan.
In 1994, the Corporation granted options on one date covering a total of
44,000 shares at a price of $24.41 per share. At December 31, 1994, options
outstanding remained at 44,000 shares and no options were exercisable.
13. COMMITMENTS
In the normal course of business, various commitments are outstanding that
are not reflected in the consolidated financial statements. At December 31,
1994, a summary of significant commitments is as follows:
<TABLE>
<S> <C>
Commitments to extend credit.............................................. $27,686,614
Standby letters of credit................................................. 1,969,619
</TABLE>
In management's opinion, these commitments will be funded from normal
operations with not more than the normal risk of loss.
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank based on a percentage of deposits. For the reserve maintenance
period in effect at December 31, 1994, the average daily reserve requirement
was $2,574,000.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
for each class of financial instruments.
CASH AND CASH EQUIVALENTS. For cash on hand, amounts due from banks, and
federal funds sold, the carrying value is considered to be a reasonable
estimate of fair value.
INVESTMENT SECURITIES. The fair value of investment securities is based on
quoted market price, if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar securities.
[33]
<PAGE>
<TABLE>
<S> <C> <C>
FNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOANS. The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
DEPOSITS. The fair value of noninterest-bearing demand deposits and NOW,
savings and money market deposits is the amount payable on demand at the
reporting date. The fair value of time deposits is estimated using the rates
currently offered for deposits of similar remaining maturities.
OTHER INTEREST-BEARING LIABILITIES. The carrying value of retail repurchase
agreements and federal funds purchased is considered to be a reasonable
estimate of fair value.
COMMITMENTS. The fair value of commitments to extend credit is considered to
approximate carrying value, since the large majority of these commitments
would result in loans that have variable rates and/or relatively short terms
to maturity. For other commitments, generally of a short-term nature, the
carrying value is considered to be a reasonable estimate of fair value. The
various commitment items are disclosed in Note 13.
The estimated fair values of financial instruments are as follows (in
thousands):
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
<S> <C> <C> <C> <C>
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 9,348 $ 9,348 $ 7,050 $ 7,050
Investment securities:
Available for sale...................................... 24,569 24,569 29,318 29,318
Held to maturity........................................ 52,414 50,810 49,170 50,444
Loans..................................................... 166,608 163,250 155,557 156,717
FINANCIAL LIABILITIES
Deposits.................................................. 229,925 229,861 224,260 224,958
Retail repurchase agreements.............................. 3,526 3,526 -- --
Federal funds purchased................................... 3,050 3,050 1,800 1,800
</TABLE>
The fair value estimates are made at a specific point in time based on
relevant market and other information about the financial instruments.
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 such 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.
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.
[34]
<PAGE>
GENERAL INFORMATION
CORPORATE HEADQUARTERS
FNB Corp.
101 Sunset Avenue
Post Office Box 1328
Asheboro, North Carolina 27204
COMMON STOCK
FNB Corp. Common stock is traded on the NASDAQ National Market System under the
symbol FNBN. At December 31, 1994, there were 1,051 shareholders of record.
MARKET MAKERS
Interstate/Johnson Lane Corporation
J. C. Bradford & Co., Incorporated
Scott & Stringfellow, Inc.
The Robinson-Humphrey Company, Inc.
Wheat First Securities, Inc.
ANNUAL MEETING
The annual Meeting of Shareholders of FNB Corp. will be held at the AVS Banquet
Centre, 2045 North Fayetteville Street, Asheboro, North Carolina, on Tuesday,
May 9, 1995 at 1:00 p.m., preceded by a buffet luncheon beginning at 12:15 p.m.
FORM 10-KSB
Copies of the FNB Corp. Annual Report to the Securities and Exchange Commission
on Form 10-KSB may be obtained by any shareholder upon written request to Jerry
A. Little, Treasurer.
EQUAL OPPORTUNITY EMPLOYER
FNB Corp. and First National Bank and Trust Company are equal opportunity
employers. All matters regarding recruiting, hiring, training, compensation,
benefits, promotions, transfers and all other personnel policies will continue
to be free from all discriminatory practices.
STOCK TRANSFER AGENT AND REGISTRAR
First National Bank and Trust Company
Post Office Box 1328
Asheboro, North Carolina 27204
Attention: Mrs. Susan G. Brown, Assistant Secretary
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Greensboro, North Carolina
[35]
EXHIBIT 21
Subsidiaries of the Registrant
The Registrant has one direct, wholly-owned subsidiary as follows:
First National Bank and Trust Company -
National banking association headquartered in the State of
North Carolina.
EXHIBIT 23
Consent of Independent Auditors
The Board of Directors
FNB Corp.
We consent to incorporation by reference in the registration statement
on Form S-8 of FNB Corp. of our report dated February 3, 1995, relating
to the consolidated balance sheets of FNB Corp. and subsidiary as of
December 31, 1994 and 1993 and the related consolidated statements of
income, shareholders' equity and cash flows for each of the years in the
three year period ended December 31, 1994, which report appears in the
December 31, 1994 annual report on Form 10-KSB of FNB Corp. Our report
contains an explanatory paragraph for the changes in the methods of
accounting for certain investments in debt and equity securities and for
post retirement benefits other than pensions.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Greensboro, North Carolina
March 27, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Form
10-KSB for the fiscal year ended December 31, 1994 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 9,348,113
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,569,036
<INVESTMENTS-CARRYING> 52,414,194
<INVESTMENTS-MARKET> 0
<LOANS> 168,327,821
<ALLOWANCE> 1,719,717
<TOTAL-ASSETS> 261,615,709
<DEPOSITS> 229,925,312
<SHORT-TERM> 6,576,226
<LIABILITIES-OTHER> 1,735,041
<LONG-TERM> 0
<COMMON> 3,000,000
0
0
<OTHER-SE> 20,379,130
<TOTAL-LIABILITIES-AND-EQUITY> 261,615,709
<INTEREST-LOAN> 13,228,841
<INTEREST-INVEST> 4,368,181
<INTEREST-OTHER> 91,034
<INTEREST-TOTAL> 17,688,056
<INTEREST-DEPOSIT> 6,880,389
<INTEREST-EXPENSE> 6,978,734
<INTEREST-INCOME-NET> 10,709,322
<LOAN-LOSSES> 220,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,577,948
<INCOME-PRETAX> 3,986,252
<INCOME-PRE-EXTRAORDINARY> 3,986,252
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,826,866
<EPS-PRIMARY> 2.36
<EPS-DILUTED> 2.36
<YIELD-ACTUAL> 4.46
<LOANS-NON> 0
<LOANS-PAST> 118,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,745,000
<CHARGE-OFFS> 436,000
<RECOVERIES> 191,000
<ALLOWANCE-CLOSE> 1,720,000
<ALLOWANCE-DOMESTIC> 1,501,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 219,000
</TABLE>
