UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______________________ to____________________
Commission File Number 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)
(336) 626-8300
(Registrant's telephone number, including area code)
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
The registrant had 3,651,137 shares of $2.50 par value common stock outstanding
at August 13, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FNB Corp. and Subsidiary
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>
June 30,
---------------------------------- December 31,
ASSETS 1998 1997 1997
-------------- ------------- -------------
Cash and due from banks $ 14,117,018 $ 11,065,084 $ 12,914,021
Federal funds sold 3,960,000 -- --
Investment securities:
Available for sale, at estimated fair value
(amortized cost of $44,120,059,
$30,794,985 and $34,997,094) 44,153,638 30,776,055 35,125,191
Held to maturity (estimated fair value of
$53,054,933, $58,383,363 and $52,234,241) 52,381,542 58,548,941 51,755,433
Loans 223,911,710 204,128,158 217,450,749
Less: Allowance for loan losses (2,467,537) (2,091,206) (2,293,495)
------------- ------------- -------------
Net loans 221,444,173 202,036,952 215,157,254
------------- ------------- -------------
Premises and equipment 5,876,280 6,203,051 6,129,335
Other assets 4,898,817 4,298,374 4,574,070
------------- ------------- -------------
TOTAL ASSETS $ 346,831,468 $ 312,928,457 $ 325,655,304
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $ 44,912,667 $ 39,162,055 $ 38,310,654
Interest-bearing deposits:
NOW, savings and money market deposits 93,105,327 87,515,163 88,779,811
Time deposits of $100,000 or more 57,623,890 43,765,858 52,915,324
Other time deposits 104,634,017 101,928,634 100,541,785
------------- ------------- -------------
Total deposits 300,275,091 272,371,710 280,547,574
Retail repurchase agreements 9,169,039 6,029,662 7,436,625
Federal funds purchased -- 900,000 2,400,000
Other liabilities 3,898,742 3,326,509 3,369,747
------------- ------------- -------------
TOTAL LIABILITIES 313,343,682 282,627,881 293,753,946
------------- ------------- -------------
Shareholders' equity:
Preferred stock - $10.00 par value;
authorized 200,000 shares, none issued -- -- --
Common stock - $2.50 par value;
authorized 10,000,000 shares, issued
shares - 3,651,137, 1,812,275 and 1,819,825 9,127,843 4,530,688 4,549,563
Surplus 2,558 340,659 527,627
Retained earnings 24,335,223 25,441,722 26,739,624
Accumulated other comprehensive income:
Net unrealized securities gains (losses) 22,162 (12,493) 84,544
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY 33,487,786 30,300,576 31,901,358
------------- ------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 346,831,468 $ 312,928,457 $ 325,655,304
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
FNB Corp. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $10,201,128 $ 8,997,462
Interest and dividends on investment securities:
Taxable income 2,324,522 2,375,958
Non-taxable income 487,887 452,915
Federal funds sold 107,704 63,795
----------- -----------
Total interest income 13,121,241 11,890,130
----------- -----------
INTEREST EXPENSE:
Deposits 5,523,919 5,014,088
Retail repurchase agreements 208,198 112,922
Federal funds purchased 6,945 8,815
----------- -----------
Total interest expense 5,739,062 5,135,825
----------- -----------
NET INTEREST INCOME 7,382,179 6,754,305
Provision for loan losses 270,000 240,000
----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 7,112,179 6,514,305
----------- -----------
OTHER OPERATING INCOME:
Service charges on deposit accounts 847,603 727,724
Annuity and brokerage commissions 107,210 164,225
Cardholder and merchant services income 166,988 181,613
Other service charges, commissions and fees 201,144 210,103
Other income 229,526 89,741
----------- -----------
Total other operating income 1,552,471 1,373,406
----------- -----------
OTHER OPERATING EXPENSE:
Personnel expense 2,746,343 2,565,184
Net occupancy expense 257,068 289,755
Furniture and equipment expense 426,457 386,497
Data processing services 642,854 550,167
Other expense 1,330,395 1,093,793
----------- -----------
Total other operating expense 5,403,117 4,885,396
----------- -----------
INCOME BEFORE INCOME TAXES 3,261,533 3,002,315
Income taxes 998,930 909,644
----------- -----------
NET INCOME $ 2,262,603 $ 2,092,671
=========== ===========
Net income per common share:
Basic $ .62 $ .58
Diluted .60 .57
=========== ===========
Weighted average number of shares outstanding:
Basic 3,647,692 3,620,110
Diluted 3,795,403 3,686,986
=========== ===========
Cash dividends declared per common share $ .20 $ .18
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
FNB Corp. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $5,126,676 $4,569,390
Interest and dividends on investment securities:
Taxable income 1,214,431 1,167,503
Non-taxable income 250,599 224,924
Federal funds sold 46,626 35,644
---------- ----------
Total interest income 6,638,332 5,997,461
---------- ----------
INTEREST EXPENSE:
Deposits 2,811,969 2,504,155
Retail repurchase agreements 112,584 68,617
Federal funds purchased 5,680 4,207
---------- ----------
Total interest expense 2,930,233 2,576,979
---------- ----------
NET INTEREST INCOME 3,708,099 3,420,482
Provision for loan losses 110,000 115,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,598,099 3,305,482
---------- ----------
OTHER OPERATING INCOME:
Service charges on deposit accounts 441,913 381,815
Annuity and brokerage commissions 62,943 72,998
Cardholder and merchant services income 89,594 95,223
Other service charges, commissions and fees 95,427 107,655
Other income 146,822 51,826
---------- ----------
Total other operating income 836,699 709,517
---------- ----------
OTHER OPERATING EXPENSE:
Personnel expense 1,397,848 1,308,818
Net occupancy expense 127,613 141,287
Furniture and equipment expense 208,838 191,533
Data processing services 337,975 275,502
Other expense 667,619 568,550
---------- ----------
Total other operating expense 2,739,893 2,485,690
---------- ----------
INCOME BEFORE INCOME TAXES 1,694,905 1,529,309
Income taxes 518,259 469,388
---------- ----------
NET INCOME $1,176,646 $1,059,921
========== ==========
Net income per common share:
Basic $ .32 $ .29
Diluted .31 .29
========== ==========
Weighted average number of shares outstanding:
Basic 3,651,008 3,622,640
Diluted 3,798,822 3,692,542
========== ==========
Cash dividends declared per common share $ .10 $ .09
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FNB Corp. and Subsidiary
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Six Months Ended June 30, 1998 and June 30, 1997
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
------------------------------ Retained Comprehensive
Shares Amount Surplus Earnings Income
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,1996 1,806,994 $ 4,517,485 $ 213,510 $ 24,001,259 $ 34,988
Net income -- -- -- 2,092,671 --
Cash dividends declared (652,208)
Common stock issued through:
Dividend reinvestment plan 4,131 10,328 110,541 -- --
Stock option plan 1,150 2,875 16,608 -- --
Change in unrealized securities gains (losses), --
net of applicable income taxes -- -- -- -- (47,981)
------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1997 1,812,275 $ 4,530,688 $ 340,659 $ 25,441,722 $ (12,493)
============ ============ ============ ============ ============
BALANCE, DECEMBER 31,1997 1,819,825 $ 4,549,563 $ 527,627 $ 26,739,624 $ 84,544
Net income -- -- -- 2,262,603 --
Cash dividends declared (730,182)
Two-for-one stock split effected in the form
of a 100% stock dividend 1,825,343 4,563,358 (626,535) (3,936,822)
Common stock issued through:
Dividend reinvestment plan 1 2 24 -- --
Stock option plan 5,968 14,920 101,442 -- --
Change in unrealized securities gains (losses), --
net of applicable income taxes -- -- -- -- (62,382)
------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1998 3,651,137 $ 9,127,843 $ 2,558 $ 24,335,223 $ 22,162
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
FNB Corp. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1998 1997
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,262,603 $ 2,092,671
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of premises and equipment 405,766 370,548
Provision for loan losses 270,000 240,000
Deferred income taxes (benefit) 50,355 (53,522)
Deferred loan fees and costs, net 106,805 242,004
Premium amortization and discount accretion
of investment securities, net (37,133) (21,125)
Amortization of intangibles 12,166 16,166
Net increase in loans held for sale (1,516,795) (318,600)
Increase in other assets (392,838) (84,529)
Increase in other liabilities 643,489 691,346
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,804,418 3,174,959
------------ ------------
INVESTING ACTIVITES:
Available-for-sale securities:
Proceeds from maturities and calls 15,377,098 11,904,437
Purchases (24,453,062) (13,812,126)
Held-to-maturity securities:
Proceeds from maturities and calls 18,142,250 3,375,594
Purchases (18,775,961) (527,224)
Net increase in loans (5,138,204) (8,919,595)
Proceeds from sales of premises and equipment 1,090 1,181
Purchases of premises and equipment (251,246) (283,128)
Other, net 26,715 42,573
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (15,071,320) (8,218,288)
------------ ------------
FINANCING ACTIVITIES:
Net increase in deposits 19,728,327 991,645
Increase in retail repurchase agreements 1,732,414 2,304,733
Increase (decrease) in federal funds purchased (2,400,000) 325,000
Common stock issued 116,389 140,352
Cash dividends paid (747,231) (705,467)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,429,899 3,056,263
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,162,997 (1,987,066)
Cash and cash equivalents at beginning of period 12,914,021 13,052,150
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,077,018 $ 11,065,084
============ ============
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest $ 5,279,666 $ 5,205,171
Income taxes 1,019,107 836,765
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
FNB Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FNB Corp. is a one-bank holding company whose wholly-owned subsidiary
is the First National Bank and Trust Company (the "Bank"). The Bank is
an independent community bank that offers full banking and trust
services to consumer and business customers primarily in the region of
North Carolina that includes Randolph, Montgomery and Chatham counties.
The accompanying consolidated financial statements, prepared without
audit, include the accounts of FNB Corp. and the Bank (collectively the
"Corporation"). All significant intercompany balances and transactions
have been eliminated.
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Certain items for 1997 have been reclassified to conform with the 1998
presentation. The reclassifications have no effect on the financial
position or results of operations as previously reported.
Share and per share information in the consolidated financial
statements and related notes thereto have been restated, where
appropriate, to reflect the two-for-one common stock split declared on
February 19, 1998 and paid to shareholders in the form of a 100% stock
dividend on March 18, 1998.
2. 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.
3. In December 1997, The Corporation adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share", which establishes standards for computing and presenting
earnings per share (EPS) data. SFAS No. 128 simplifies the standards
for computing EPS previously found in APB Opinion No. 15, "Earnings
Per Share", and makes them comparable to international EPS standards.
Under SFAS No. 128, basic EPS replaces the former presentation of
primary EPS. Also, a dual presentation of basic and diluted EPS is
required on the face of the income statement for all entities with
complex capital structures, and a reconciliation must be provided of
the numerator and denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. In
accordance with SFAS No. 128, all prior period EPS data has been
restated.
Basic net income per share, or basic EPS, is computed by dividing net
income by the weighted average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could
occur if the Corporation's dilutive stock options were exercised. The
numerator of
6
<PAGE>
the basic EPS computation is the same as the numerator of the diluted
EPS computation for all periods presented. A reconciliation of the
denominators of the basic and diluted EPS computations is as follows:
<TABLE>
<CAPTION>
<S> <C>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
1998 1997 1998 1997
--------- ---------- --------- ----------
Basic EPS denominator - Weighted
average number of common
shares outstanding 3,651,008 3,622,640 3,647,692 3,620,110
Dilutive share effect arising from
assumed exercise of stock options 147,814 69,902 147,711 66,876
--------- --------- --------- ---------
Diluted EPS denominator 3,798,822 3,692,542 3,795,403 3,686,986
========= ========= ========= =========
</TABLE>
4. On January 1, 1998, The Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income".
SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. It
requires that an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the
accumulated balance of other comprehensive income separately from
retained earnings and surplus in the equity section of a statement of
financial position. In accordance with the provisions of SFAS No. 130,
comparative financial statements presented for earlier periods have
been reclassified to reflect the provisions of the statement.
Comprehensive income is the change in equity of a Corporation during
the period from transactions and other events and circumstances from
nonowner sources and, accordingly, includes both net income and
amounts referred to as other comprehensive income. The Corporation's
other comprehensive income for the three and six months ended June 30,
1998 and 1997 consisted of unrealized gains and losses on certain
investments in debt and equity securities. Comprehensive income for
the three months ended June 30, 1998 and 1997 amounted to $1,130,335
and $1,185,734, respectively, and for the six months then ended
amounted to $2,200,221 and $2,044,690.
5. Loans as presented are reduced by net unearned income of $373,083,
$163,691 and $269,599 at June 30, 1998, June 30, 1997 and December 31,
1997, respectively.
6. Significant components of other expense were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
1998 1997 1998 1997
------- -------- -------- ---------
Advertising and marketing $89,905 $28,006 $210,459 $ 49,869
Stationery, printing and supplies $95,488 $70,559 $184,550 $163,145
</TABLE>
7
<PAGE>
7. On June 3, 1997, the Corporation entered into a definitive
agreement to acquire Home Savings Bank of Siler City, Inc., SSB ("Home
Savings") of Siler City, North Carolina. Under terms of the agreement,
Home Savings shareholders were to receive $15.50 per share, either in
FNB Corp. common stock or in cash or a combination thereof, subject to
the limitation that FNB Corp. common stock issued in the merger would
be not more than 60% and not less than 50% of the total consideration.
On January 28, 1998, as permitted by the agreement, the Board of
Directors of Home Savings exercised its right to terminate the
proposed combination due to the increase in the market value of FNB
Corp. common stock above a specified level.
The Corporation incurred certain costs in connection with the proposed
acquisition. Those costs, which had been initially deferred, amounted
to $305,000 and were charged to expense in the fourth quarter of 1997.
A portion of these costs, amounting to $38,660, was recovered in the
second quarter of 1998 and credited to other income.
8. In the opinion of management, the financial information furnished in
this report includes all adjustments (consisting of normal recurring
accruals) necessary to a fair statement of the results for the periods
presented.
8
<PAGE>
ITEM 2. 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 "Parent Company") and its
wholly-owned subsidiary, First National Bank and Trust Company (the "Bank"),
collectively referred to as the "Corporation". This discussion should be read in
conjunction with the financial information appearing elsewhere in this report.
OVERVIEW
The Corporation earned $2,262,603 in the first six months of 1998, an 8.1%
increase over the same period in 1997. Basic earnings per share, adjusted for
the two-for-one common stock split in March 1998, increased from $.58 to $.62 in
comparing these six-month periods and diluted earnings per share increased from
$.57 to $.60. For the 1998 second quarter, earnings amounted to $1,176,646,
which represents an 11.0% increase from the 1997 second quarter and a gain in
basic earnings per share from $.29 to $.32 and in diluted earnings per share
from $.29 to $.31. Total assets were $346,831,468 at June 30, 1998, up 10.8%
from June 30, 1997 and 6.5% from December 31, 1997. Loans amounted to
$223,911,710 at June 30, 1998, increasing 9.7% from June 30, 1997 and 3.0% from
December 31, 1997. Total deposits grew 10.2% from June 30, 1997 and 7.0% from
December 31, 1997 to $300,275,901 at June 30, 1998.
On June 3, 1997, the Corporation entered into a definitive agreement to
acquire Home Savings Bank of Siler City, Inc., SSB ("Home Savings") of Siler
City, North Carolina. Under terms of the agreement, Home Savings shareholders
were to receive $15.50 per share, either in FNB Corp. common stock or in cash or
a combination thereof, subject to the limitation that FNB Corp. common stock
issued in the merger would be not more than 60% and not less than 50% of the
total consideration. On January 28, 1998, as permitted by the agreement, the
Board of Directors of Home Savings exercised its right to terminate the proposed
combination due to the increase in the market value of FNB Corp. common stock
above a specified level.
The Corporation incurred certain costs in connection with the proposed
acquisition. Those costs, which had been initially deferred, amounted to
$305,000 and were charged to expense in the fourth quarter of 1997. A portion of
these costs, amounting to $38,660, was recovered in the second quarter of 1998
and credited to other income.
EARNINGS REVIEW
The Corporation's net income increased $169,932 or 8.1% in the first six
months of 1998 compared to the same period of 1997 and increased $116,725 or
11.0% in comparing second quarter periods. Earnings were positively impacted in
the first six months and second quarter of 1998 by increases in net interest
income of $627,874 or 9.3% and $287,617 or 8.4%, respectively, and by increases
of $179,065 and $127,182 in total other operating income. As discussed in the
"Overview", other operating income benefited in 1998 from a $38,660 recovery of
merger expenses. These gains were significantly offset, however, by increases in
total other operating expense of $517,721 in the first six months of 1998 and
$254,203 in the 1998 second quarter.
9
<PAGE>
On an annualized basis, return on average assets decreased from 1.35% in
the first six months of 1997 to 1.34% in the first six months of 1998. Return on
average shareholders' equity decreased from 14.12% to 13.75% in comparing the
same periods. In comparing second quarter periods, return on average assets was
unchanged at 1.37% in each period and return on average shareholders' equity
improved from 14.14% to 14.17%.
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 $7,382,179 in the first six months of 1998
compared to $6,754,305 in the same period of 1997. This increase of $627,874 or
9.3% resulted primarily from a 9.2% increase in the level of average earning
assets, the effect of which was partially offset by a decline in the net yield
on earning assets, or net interest margin, from 4.95% in the first six months of
1997 to 4.94% in the same period of 1998. In comparing second quarter periods,
net interest income increased $287,617 or 8.4%, reflecting an 11.0% increase in
average earning assets and a decline in the net interest margin from 4.98% to
4.87%. On a taxable equivalent basis, the increases in net interest income in
the first six months and second quarter of 1998 were $635,000 and $307,000,
respectively, reflecting changes in the relative mix of taxable and non-taxable
earning assets.
Table 1 on page 16 and Table 2 on page 17 set 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. Changes in net interest income on a taxable
equivalent basis, as measured by volume and rate variances, are also analyzed in
Tables 1 and 2. Volume refers to the average dollar level of earning assets and
interest-bearing liabilities.
Changes in the net interest margin and net interest spread tend to
correlate with movements in the prime rate of interest. There are variations,
however, in the degree and timing of rate changes, compared to prime, for the
different types of earning assets and interest-bearing liabilities.
The prime rate of interest has been relatively stable in recent years,
averaging 8.28% in 1996 and 8.44% in 1997. For the first six months of 1998, the
average prime rate was 8.50% compared to 8.38% in the same period of 1997. This
general stability has tended to apply to the interest rates both earned and paid
by the Bank. In comparing six-month periods, the net interest spread
increased by 1 basis point from 4.18% in 1997 to 4.19% in 1998, reflecting an
increase in the average total yield on earning assets that was only partially
offset by an increase in the average rate paid on interest-bearing liabilities,
or cost of funds. The yield on earning assets increased by 8 basis points from
8.50% in 1997 to 8.58% in 1998, while the cost of funds increased by 7 basis
points from 4.32% to 4.39%. In comparing second quarter periods, the net
interest spread declined by 9 basis points from 4.20% to 4.11%, as the yield on
earning assets decreased by 3 basis points while the cost of funds increased by
6 basis points.
10
<PAGE>
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 period'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. Earnings were
negatively impacted in the first six months of 1998 compared to the same period
in 1997 by a $30,000 increase in the provision and were positively affected by a
$5,000 decrease in comparing second quarter periods.
OTHER OPERATING INCOME
Total other operating income, or noninterest income, for the first six
months and second quarter of 1998 increased $179,065 or 13.0% and $127,182 or
17.9%, respectively, compared to the same periods in 1997, reflecting in part
the general increase in the volume of business. The increase in service charges
on deposit accounts was primarily due to the selected increases in service
charge rates that became effective in the 1997 second quarter and to the higher
level of income being generated by a NOW account version that provides a package
of products and services for a stated monthly fee as a result of increases in
the number of such NOW accounts and in the stated monthly fee, the new fee
having become effective in the 1997 fourth quarter. The decline in annuity and
brokerage commissions related to a general decrease in both sales of annuity
products and the volume of brokerage services. Other income was higher due
mainly to increases in trust revenues and in gains on loan sales and to the
$38,660 recovery in the 1998 second quarter of a portion of the merger expenses
initially recorded in the 1997 fourth quarter (see "Overview").
OTHER OPERATING EXPENSE
Total other operating expense, or noninterest expense, was $517,721 or
10.6% higher in the first six months of 1998 compared to the same period in 1997
and for the second quarter was $254,203 or 10.2% higher, due largely to
increased personnel expense, new advertising and marketing programs and the
continuing effects of inflation. Personnel expense was impacted by increased
staffing requirements and normal salary adjustments. Advertising and marketing
expense, included in other expense, increased $160,590 in the first six months
of 1998 and $61,899 in the second quarter due primarily to new programs
undertaken in 1998 that include an advertising campaign based on customer
testimonials and a major marketing plan centered around the phrase "Yes You
Can".
INCOME TAXES
The effective income tax rate of 30.6% in the first six months of 1998 did
not significantly change from the 30.3% rate in the same period of 1997.
LIQUIDITY
Liquidity refers to the continuing ability of the Bank to meet deposit
withdrawals, fund loan and capital expenditure commitments, maintain reserve
requirements, pay operating expenses and provide funds to the Parent Company for
payment of dividends, debt service and other operational requirements. Liquidity
is immediately available from five major sources: (a) cash on hand and on
deposit at other banks, (b) the outstanding balance of federal funds sold, (c)
lines for the purchase of federal funds from other banks, (d) the
11
<PAGE>
$49,000,000 line of credit established at the Federal Home Loan Bank and (e) the
available-for-sale securities portfolio. 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 six 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.
Consistent 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 securities portfolio available for both immediate and
secondary liquidity purposes.
ASSET/LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY
One of the primary objectives of asset/liability management is to maximize
net interest margin while minimizing the earnings risk associated with changes
in interest rates. One method used to manage interest rate sensitivity is to
measure, 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 generally liability-sensitive, meaning that in
a given period there will be more liabilities than assets subject to immediate
repricing as market rates change. When 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 is a portion of the NOW, savings and money market deposits. These
types of deposits historically have not repriced coincidentally with or in the
same proportion as general market indicators.
As a specific asset/liability management tool, the Bank, at June 30, 1998,
had entered into two interest rate floor agreements with a correspondent bank to
protect certain variable-rate loans from the downward effects of their repricing
in the event of a decreasing rate environment. The total notional amount of each
agreement is $10,000,000. The agreements require the correspondent bank to pay
to the Bank the difference between the floor rate of interest of 7.50% in one
agreement and 8.00% in the other agreement as compared to the prime rate of
interest in the event that the prime rate is less. Any payments received under
the agreements, net of premium amortization, will be treated as an adjustment of
interest income on loans.
CAPITAL ADEQUACY
Under guidelines established by the Board of Governors of the Federal
Reserve System, capital adequacy is currently measured for regulatory purposes
by certain risk-based capital ratios, supplemented by a leverage capital ratio.
The risk-based capital ratios are determined by expressing allowable capital
amounts, defined in terms of Tier I and Tier II, 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
12
<PAGE>
sheet exposures. Tier I capital consists primarily of common shareholders'
equity and qualifying perpetual preferred stock, net of goodwill and other
disallowed intangible assets. Tier II capital, which is limited to the total of
Tier I capital, includes allowable amounts of subordinated debt, mandatory
convertible securities, preferred stock and the allowance for loan losses. Under
current requirements, the minimum total capital ratio, consisting of both Tier I
and Tier II capital, is 8.00% and the minimum Tier I capital ratio is 4.00%. At
June 30, 1998, FNB Corp. and the Bank had total capital ratios of 15.54% and
15.15%, respectively, and Tier I capital ratios of 14.47% and 14.08%.
The leverage capital ratio, which serves as a minimum capital standard,
considers Tier I 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. As currently
required, the minimum leverage capital ratio is 4.00%. At June 30, 1998, FNB
Corp. and the Bank had leverage capital ratios of 9.78% and 9.49%, respectively.
The Bank is also required to comply with prompt corrective action
provisions established by the Federal Deposit Insurance Corporation Improvement
Act. To be categorized as well-capitalized, the Bank must have a minimum ratio
for total capital of 10.00%, for Tier I capital of 6.00% and for leverage
capital of 5.00%. As noted above, the Bank met all of those ratio requirements
at June 30, 1998 and, accordingly, is well-capitalized under the regulatory
framework for prompt corrective action.
BALANCE SHEET REVIEW
Total assets at June 30, 1998 were higher than at June 30, 1997 and
December 31, 1997 by $33,903,000 or 10.8% and $21,176,000 or 6.5%, respectively;
deposits were ahead by $27,904,000 or 10.2% and $19,728,000 or 7.0%. A portion
of the asset growth was funded by retail repurchase agreements, which had
increased at June 30, 1998 by $3,139,000 or 52.1% from June 30, 1997 and by
$1,732,000 or 23.3% from December 31, 1997. Average assets increased $27,598,000
or 8.9% in the first six months of 1998 compared to the same period in 1997,
while average deposits increased $19,817,000 or 7.3% and average retail
repurchase agreements increased $4,039,000 or 78.5%, the second quarter
increases being $33,167,000 or 10.7%, $25,416,000 or 9.4% and $3,842,000 or
63.7%, respectively.
INVESTMENT SECURITIES
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 the twelve-month period ended June 30, 1998, when the growth
in total assets exceeded that for loans, the level of investment securities was
increased $7,210,000 or 8.1%, with a larger net increase of $9,654,000 or 11.1%
occurring in the first six months of 1998. 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.
LOANS
The Corporation's primary source of revenue and largest component of
earning assets is the loan portfolio. Loans increased $19,784,000 or 9.7% during
the twelve-month period ended June 30, 1998. The net loan increase during the
first six months of 1998 was $6,461,000 or 3.0%. Average loans were $25,142,000
or 12.6% higher in the first six months of 1998 than in the same period of 1997.
The ratio of
13
<PAGE>
average loans to average deposits, in comparing six-month periods, increased
from 73.4% in 1997 to 77.0% in 1998. The ratio of loans to deposits at June 30,
1998 was 74.6%.
Loan growth and the composition of the loan portfolio are being affected
by management's decision in June 1996 to discontinue the purchase of retail
installment loan contracts from automobile and equipment dealers (see "Business
Development Matters"). The outstanding balance of these loan contracts, which
are primarily included in consumer loans, experienced a net decrease of
$7,939,628 during the twelve-month period ended June 30, 1998. Consequently,
total consumer loans declined significantly during that period. The commercial
and agricultural loan portfolio and the 1-4 family residential mortgage loan
portfolio have each experienced strong gains during both the twelve-month period
ended June 30,1998 and the first six months of 1998.
ASSET QUALITY
Management considers the Bank's asset quality to be of primary importance.
A formal loan review function, independent of loan origination, is used to
identify and monitor problem loans. As part of the loan review function, a third
party assessment group is employed to review the underwriting documentation and
risk grading analysis. 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. This evaluation is inherently
subjective as it requires material estimates, including the amounts and timing
of future cash flows expected to be received on impaired loans that may be
susceptible to significant change.
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
in the determination of the allowance for loan losses.
DEPOSITS
The level and mix of deposits is affected by various factors, including
general economic conditions, the particular circumstances of local markets and
the specific deposit strategies employed. In general, broad interest rate
declines tend to encourage customers to consider alternative investments such as
mutual funds and tax-deferred annuity products, while interest rate increases
tend to have the opposite effect.
The Bank's level and mix of deposits has been specifically affected by the
following factors. Time deposits increased $16,563,000 during the twelve-month
period ended June 30, 1998 and $8,801,000 during the first six months of 1998.
Similarly, money market accounts, during the same periods, grew $6,003,000 and
$2,577,000, respectively, due to a new high-yield product first introduced in
the 1996 fourth quarter. Further, the level of time deposits obtained from
governmental units fluctuates, amounting to $23,162,000, $17,858,000 and
$24,431,000 at June 30, 1998, June 30, 1997 and December 31, 1997, respectively.
14
<PAGE>
BUSINESS DEVELOPMENT MATTERS
As discussed in the "Overview" and in Note 7 to Consolidated Financial
Statements, the Corporation in 1997 entered into a definitive agreement to
acquire Home Savings Bank of Siler City, Inc., SSB ("Home Savings") of Siler
City, North Carolina. On January 28, 1998, as permitted by the agreement, the
Board of Directors of Home Savings exercised its right to terminate the proposed
combination due to the increase in the market value of FNB Corp. common stock
above a specified level.
Management decided in March 1996 that the Bank would discontinue the
purchase of retail installment loan contracts from automobile and equipment
dealers, due largely to the declining yields being experienced in this loan
program. Contracts of this nature included in loans amounted to $6,226,888,
$14,166,516 and $9,674,229 at June 30, 1998, June 30, 1997 and December 31,
1997, respectively. While there will be no purchases of new contracts, current
plans call for the collection of outstanding loans based on their contractual
terms. The funds previously invested in this loan program are being redeployed,
as loan payments occur, to other loan programs or to the investment securities
portfolio.
YEAR 2000 ISSUE
The Corporation is aware of the issue associated with the programming code
in existing computer systems as the year 2000 approaches. The "year 2000"
problem is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two-digit year value to 00. The
issue is whether computer systems and other equipment incorporating computer
components will properly recognize date sensitive information when the year
changes to 2000. Systems that do not properly recognize such information could
generate erroneous data or cause a system to fail.
The Corporation relies on vendors for all computer programming and
equipment. An internal assessment of the year 2000 situation was completed in
January 1997. The assessment included computer software, computer hardware and
other equipment incorporating computer components that are date sensitive. The
Corporation has monitored the status of its vendors and continues to evaluate
vendors for adherence to their year 2000 plans. To date, confirmations have been
received from the Corporation's primary processing vendors that plans have been
implemented to address the processing of transactions in the year 2000.
The Corporation is utilizing both internal and external resources to
identify, correct or reprogram, and test systems for year 2000 compliance. The
vendors anticipate that all reprogramming efforts will be completed by December
31, 1998, allowing adequate time for testing. Management estimates the cost of
year 2000 compliance will be approximately $200,000, the majority of such cost
relating to computer equipment expected to be replaced in 1998 and 1999. Through
June 30, 1998, the cost related to year 2000 compliance was immaterial.
15
<PAGE>
TABLE 1
CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
(Taxable Equivalent Basis, Dollars in Thousands)
<TABLE>
<CAPTION>
<S> <C>
1998 1997
------------------------------ -------------------------------
SIX MONTHS ENDED JUNE 30
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
------- ------- ---- ------- ------- ----
EARNING ASSETS
Loans (2) (3) $224,285 $ 10,213 9.17 % $199,143 $ 9,017 9.11 %
Investment securities:
Taxable income 70,454 2,490 7.07 72,503 2,545 7.02
Non-taxable income (2) 19,404 759 7.83 17,322 706 8.16
Federal funds sold 3,896 108 5.57 2,390 64 5.38
----- ------ ---- ------- ------ ----
Total earning assets 318,039 13,570 8.58 291,358 12,332 8.50
----- ------ ---- ------- ------ ----
Cash and due from banks 10,665 9,786
Other assets, net 8,271 8,233
----- -----
TOTAL ASSETS $336,975 $309,377
======== ========
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
NOW accounts $ 41,070 348 1.71 $ 37,313 330 1.78
Savings deposits 28,082 321 2.31 29,600 345 2.35
Money market accounts 24,012 464 3.89 18,367 315 3.45
Certificates and other time deposits 161,100 4,391 5.50 149,167 4,024 5.44
Retail repurchase agreements 9,186 208 4.57 5,147 113 4.42
Federal funds purchased 241 7 5.81 319 9 5.57
----- ------ ---- ------- ------ ----
Total interest-bearing liabilities 263,691 5,739 4.39 239,913 5,136 4.32
----- ------ ---- ------- ------ ----
Noninterest-bearing demand deposits 36,969 36,969
Other liabilities 3,415 2,845
Shareholders' equity 32,900 29,650
------ ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $336,975 $309,377
======== ========
NET INTEREST INCOME AND SPREAD $ 7,831 4.19 % $ 7,196 4.18 %
======== ======== ========== ========
NET YIELD ON EARNING ASSETS 4.94 % 4.95 %
======== ========
TABLE 1
CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
(Taxable Equivalent Basis, Dollars in Thousands)
SIX MONTHS ENDED JUNE 30 1998 Versus 1997
--------------------------------
Interest Variance
due to (1)
----------------------- Net
Volume Rate Change
------ ---- ------
EARNING ASSETS
Loans (2) (3) $ 1,136 $ 60 $ 1,196
Investment securities:
Taxable income (73) 18 (55)
Non-taxable income (2) 83 (30) 53
Federal funds sold 42 2 44
---- ---- ----
Total earning assets 1,188 50 1,238
---- ---- ----
Cash and due from banks
Other assets, net
TOTAL ASSETS
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
NOW accounts 32 (14) 18
Savings deposits (18) (6) (24)
Money market accounts 105 44 149
Certificates and other time deposits 322 45 367
Retail repurchase agreements 91 4 95
Federal funds purchased (2) -- (2)
---- ---- ----
Total interest-bearing liabilities 530 73 603
---- ---- ----
Noninterest-bearing demand deposits
Other liabilities
Shareholders' equity
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
NET INTEREST INCOME AND SPREAD $ 658 $ (23) $ 635
======== ======== ========
NET YIELD ON EARNING ASSETS
(1) The mix variance, not separately stated, has been proportionally
allocated to the rate and volume variances based on their absolute
dollar amount.
(2) Interest income and yields related to certain investment securities and
loans exempt from both federal and state income tax or from state income
tax alone are stated on a fully taxable equivalent basis, assuming a 34%
federal tax rate and applicable state tax rate, reduced by the
nondeductible portion of interest expense.
(3) 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.
16
<PAGE>
TABLE 2
CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
(Taxable Equivalent Basis, Dollars in Thousands)
1998 1997
----------------------------------- -----------------------------
THREE MONTHS ENDED JUNE 30
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
------- ------- ---- ------- ------- ----
EARNING ASSETS
Loans (2) (3) $225,966 $ 5,133 9.11% $200,738 $ 4,576 9.14%
Investment securities:
Taxable income 75,051 1,303 6.94 71,484 1,251 7.00
Non-taxable income (2) 19,877 390 7.86 17,299 350 8.11
Federal funds sold 3,352 47 5.58 2,607 36 5.48
-------- -------- ---- -------- -------- ----
Total earning assets 324,246 6,873 8.49 292,128 6,213 8.52
-------- -------- ---- -------- -------- ----
Cash and due from banks 10,947 9,820
Other assets, net 8,136 8,214
-------- --------
TOTAL ASSETS $343,329 $310,162
======== ========
INTEREST-BEARING LIABILITIES Interest-bearing deposits:
NOW accounts $ 42,385 175 1.67 $ 38,297 173 1.81
Savings deposits 28,088 161 2.31 29,661 172 2.32
Money market accounts 24,963 243 3.90 18,891 169 3.59
Certificates and other time deposits 162,756 2,233 5.50 146,300 1,990 5.46
Retail repurchase agreements 9,870 112 4.58 6,028 69 4.57
Federal funds purchased 396 6 5.75 293 4 5.76
-------- -------- ---- -------- -------- ----
Total interest-bearing liabilities 268,458 2,930 4.38 239,470 2,577 4.32
-------- -------- ---- -------- -------- ----
Noninterest-bearing demand deposits 38,031 37,658
Other liabilities 3,622 3,060
Shareholders' equity 33,218 29,974
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $343,329 $310,162
======== ========
NET INTEREST INCOME AND SPREAD $ 3,943 4.11% $ 3,636 4.20%
======== ======== ======== ========
NET YIELD ON EARNING ASSETS 4.87% 4.98%
======== ========
THREE MONTHS ENDED JUNE 30 1998 Versus 1997
----------------------------
Interest Variance
due to (1)
------------------ Net
Volume Rate Change
------ ----- ------
EARNING ASSETS
Loans (2) (3) $ 572 $ (15) $ 557
Investment securities:
Taxable income 63 (11) 52
Non-taxable income (2) 51 (11) 40
Federal funds sold 10 1 11
-------- -------- ------
Total earning assets 696 (36) 660
-------- -------- ------
Cash and due from banks
Other assets, net
TOTAL ASSETS
INTEREST-BEARING LIABILITIES Interest-bearing deposits:
NOW accounts 16 (14) 2
Savings deposits (10) (1) (11)
Money market accounts 58 16 74
Certificates and other time deposits 228 15 243
Retail repurchase agreements 42 1 43
Federal funds purchased 2 -- 2
-------- -------- ------
Total interest-bearing liabilities 336 17 353
-------- -------- ------
Noninterest-bearing demand deposits
Other liabilities
Shareholders' equity
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
NET INTEREST INCOME AND SPREAD $ 360 $ (53) $ 307
======= ======= ========
</TABLE>
(1) The mix variance, not separately stated, has been proportionally
allocated to the rate and volume variances based on their absolute
dollar amount.
(2) Interest income and yields related to certain investment securities and
loans exempt from both federal and state income tax or from state income
tax alone are stated on a fully taxable equivalent basis, assuming a 34%
federal tax rate and applicable state tax rate, reduced by the
nondeductible portion of interest expense.
(3) 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.
17
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk reflects the risk of economic loss resulting from adverse
changes in market price and interest rates. This risk of loss can be reflected
in diminished current market values and/or reduced potential net interest income
in future periods.
The Bank's market risk arises primarily from interest rate risk inherent
in its lending and deposit-taking activities. The structure of the Bank's loan
and deposit portfolios is such that a significant decline in interest rates may
adversely impact net market values and net interest income. The Bank does not
maintain a trading account nor is the Bank subject to currency exchange risk or
commodity price risk. Interest rate risk is monitored as part of the Bank's
asset/liability management function, which is discussed above in Item 2
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under the heading "Asset/Liability Management and Interest Rate
Sensitivity".
Management does not believe there has been any significant change in the
overall analysis of financial instruments considered market risk sensitive, as
measured by the factors of contractual maturities, average interest rates and
estimated fair values, since the analysis prepared and presented in conjunction
with the Form 10-K Annual Report for the fiscal year ended December 31, 1997.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of FNB Corp. (the "Corporation") was
held on May 12, 1998. The total number of shares of the Corporation's Common
Stock, par value $2.50 per share, outstanding as of March 26, 1998, the record
date for the Annual Meeting, was 3,650,686.
The following nominees were elected to the Board of Directors for the
terms indicated:
CLASS II DIRECTORS - Elected for Three-Year Terms Expiring with the Annual
Meeting in 2001.
Nominee Votes For Withheld
------- --------- --------
James M. Campbell, Jr. 2,817,013 34,704
Thomas A. Jordan 2,817,013 27,842
Michael C. Miller 2,817,013 27,842
The shareholders approved an amendment to the Corporation's Articles of
Incorporation to increase the number of authorized common shares from 5,000,000
to 10,000,000. The votes on this proposal were as follows:
Votes for 2,736,319
Votes against 96,082
Abstaining 18,034
The shareholders approved an amendment to the Corporation's Stock
Compensation Plan to increase the number of common shares covered by the Plan
from 360,000 to 720,000. The votes on this proposal were as follows:
Votes for 2,474,530
Votes against 121,617
Abstaining 73,724
The shareholders ratified the selection of KPMG Peat Marwick LLP,
Certified Public Accountants, as independent auditors of the Corporation for the
1998 fiscal year. The votes on ratification were as follows:
Votes for 2,815,841
Votes against 1,067
Abstaining 31,548
ITEM 5. OTHER INFORMATION
Unless notice of a matter to be presented by a shareholder of the
Corporation at the next Annual Meeting of Shareholders is received at the
Corporation's principal executive offices on or before February 23, 1999,
Management's proxies for the meeting conferring discretionary authority may be
voted with respect to the matter without including advice in the proxy statement
advising shareholders how the Corporation intends to vote on the matter.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibits to this report are listed in the index to exhibits on pages 21
and 22 of this report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended June 30, 1998.
-----------------------------------------
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FNB Corp.
(Registrant)
Date: August 13, 1998 By: /s/ Jerry A. Little
-------------------
Jerry A. Little
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
20
<PAGE>
FNB CORP.
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
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 June 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.
3.12 Articles of Amendment to Articles of Incorporation of
the Registrant, adopted May 12, 1998.
3.20 Amended and Restated Bylaws of the Registrant, adopted
May 21, 1998.
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.
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, incorporated herein by reference to
Exhibit 10.11 to the Registrant's Form 10-KSB Annual
Report for the fiscal year ended December 31, 1994.
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, as amended, effective
May 12, 1998.
21
<PAGE>
Exhibit No. Description of Exhibit
- ----------- -----------------------
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, incorporated
herein by reference to Exhibit 10.31 to the
Registrant's Form 10-KSB Annual Report for the fiscal
year ended December 31, 1994.
10.32 Form of Nonqualified Stock Option Agreement between FNB
Corp. and certain of its directors, pursuant to the
Registrant's Stock Compensation Plan, incorporated
herein by reference to Exhibit 10.32 to the
Registrant's Form 10-KSB Annual Report for the fiscal
year ended December 31, 1994.
10.40 Copy of Employment Agreement dated as of December 27,
1995 between First National Bank and Trust Company and
Michael C. Miller, incorporated herein by reference to
Exhibit 10.50 to the Registrant's Form 10-KSB Annual
Report for the fiscal year ended December 31, 1995.
27.10 Financial Data Schedule for the six months ended
June 30, 1998.
27.11 Restated Financial Data Schedule for the six months
ended June 30, 1997.
22
ARTICLES OF AMENDMENT
OF
FNB CORP.
The undersigned corporation hereby submits these Articles of Amendment for
the purpose of amending its Articles of Incorporation:
1. The name of the corporation is FNB Corp.
2. The text of the amendment to the Articles of Incorporation of the
corporation is as follows:
RESOLVED, that the Articles of Incorporation of this corporation be and
hereby are amended by deleting the first sentence of Article IV in its
entirety and inserting therefor a new first sentence to read as follows:
"The aggregate number of shares that the corporation shall have
authority to issue is 10,200,000 shares, consisting of 10,000,000
shares of Common Stock, par value $2.50 per share, and 200,000 shares
of Preferred Stock, par value $10.00 per share."
3. The amendment was approved by the shareholders of the corporation on
May 12, 1998 in the manner required by the North Carolina Business Corporation
Act.
This the 31st day of July, 1998.
FNB CORP.
By: _______________________________
Michael C. Miller, President
COMPOSITE COPY
MAY 21, 1998
AMENDED AND RESTATED BYLAWS
OF
FNB CORP.
ARTICLE I
Offices
-------
1. Principal Office. The principal office of the corporation shall be
----------------
located at such place as the Board of Directors may determine.
2. Other Offices. The corporation may have offices at such other places,
-------------
either within or without the State of North Carolina, as the Board of Directors
may from time to time determine, or as the affairs of the corporation may
require.
ARTICLE II
Shareholders' Meetings
----------------------
1. Place of Meetings. All meetings of the shareholders shall be held at
-----------------
the principal office of the corporation, or at such other place, either within
or without the State of North Carolina, as shall be designated in the notice of
the meeting or agreed upon by a majority of the shareholders entitled to vote
thereat.
2. Annual Meetings. The annual meeting of shareholders shall be held on
---------------
the second Tuesday in May, if not a legal holiday, but if a legal holiday, then
on the next day following not a legal holiday, for the purpose of electing
directors of the corporation and for the transaction of such other business as
may be properly brought before the meeting.
3. Substitute Annual Meetings. If the annual meeting shall not be held on
--------------------------
the day designated by these bylaws, a substitute annual meeting may be called in
accordance with the provisions of Section 4 of this Article. A meeting so called
shall be designated and treated for all purposes as the annual meeting.
4. Special Meetings. Special meetings of the shareholders may be called
----------------
at any time by the President, Secretary or Board of Directors of the
corporation.
5. Notice of Meetings. Written or printed notice stating the time and
------------------
place of the meeting shall be delivered no fewer than 10 nor more than 60 days
before the date thereof, either
<PAGE>
personally or by mail, by or at the direction of the President, the Secretary,
or other person calling the meeting, to each shareholder of record entitled to
vote at such meeting and to each nonvoting shareholder entitled to notice of the
meeting. If the corporation is required by law to give notice of proposed action
to nonvoting shareholders and the action is to be taken without a meeting
pursuant to Section 9 of this Article, written notice of such proposed action
shall be delivered to such shareholders not less than 10 days before such action
is taken.
If notice is mailed, such notice shall be effective when deposited in the
United States mail with postage thereon prepaid and correctly addressed to the
shareholder's address shown in the corporation's current record of shareholders.
In the case of an annual or substitute annual meeting, the notice of
meeting need not specifically state the business to be transacted thereat unless
it is a matter with respect to which specific notice to the shareholders is
expressly required by the provisions of the North Carolina Business Corporation
Act. In the case of a special meeting the notice of meeting shall specifically
state the purpose or purposes for which the meeting is called.
When a meeting is adjourned for more than 120 days after the date fixed
for the original meeting or if a new record date for the adjourned meeting is
fixed, notice of the adjourned meeting shall be given as in the case of an
original meeting. When a meeting is adjourned for 120 days or less and no new
record date for the adjourned meeting is fixed, it is not necessary to give
notice of the adjourned meeting other than by announcement at the meeting at
which the adjournment is taken.
6. Waiver of Notice. A shareholder may waive any notice required by law,
----------------
the Articles of Incorporation or these bylaws before or after the date and time
stated in the notice. Such waiver must be in writing, be signed by the
shareholder entitled to the notice, and be delivered to the corporation for
inclusion in the minutes or filing with the corporate records. A shareholder's
attendance at a meeting waives objection to lack of notice or defective notice
of the meeting, unless the shareholder at the beginning of the meeting objects
to holding the meeting or transacting business at the meeting. A shareholder's
attendance at a meeting also waives objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the notice of meeting, unless the shareholder objects to considering the matter
before it is voted upon.
7. Quorum. Shares representing a majority of the outstanding votes
------
entitled to vote upon a particular matter within each voting group represented
in person or by proxy shall constitute a quorum at meetings of shareholders. If
there is no quorum at the opening of a meeting of shareholders, such meeting may
be adjourned from time to time by a vote of a majority of the votes cast on the
motion to adjourn; at any adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the original
meeting unless a new record date is or must be set for the adjourned meeting.
-2-
<PAGE>
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is set for that adjourned
meeting.
8. Voting of Shares. Except as otherwise provided in the Articles of
----------------
Incorporation, each outstanding share having voting rights shall be entitled to
one vote on each matter submitted to a vote at a meeting of the shareholders.
Except in the election of directors, a majority of the votes cast on any matter
at a meeting of shareholders at which a quorum is present shall be the act of
the shareholders on that matter, unless a greater vote is required by law, by
the Articles of Incorporation or by a bylaw adopted by the shareholders of the
corporation.
9. Informal Action by Shareholders. Any action which is required or
-------------------------------
permitted to be taken at a meeting of the shareholders may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed, either before or after the time the action which is the subject of the
shareholder approval is taken, by all of the persons who would be entitled to
vote upon such action at a meeting and delivered to the corporation for
inclusion in the minutes or filing with the corporate records. Unless otherwise
fixed by law or these bylaws, the record date for determining the shareholders
entitled to take action without a meeting shall be the date the first
shareholder signs the consent.
10. Voting Lists. After fixing a record date for a meeting, the
------------
corporation shall prepare an alphabetical list of the names of all the
shareholders entitled to notice of such meeting, arranged by voting group and
within each voting group by class or series of shares, with the address of and
number of shares held by each shareholder. Such list shall be available for
inspection by any shareholder, beginning two business days after notice is given
of the meeting for which the list was prepared and continuing through the
meeting, at the corporation's principal office or at a place identified in the
meeting notice in the city where the meeting will be held. A shareholder, or his
agent or attorney, is entitled on written demand to inspect and, subject to the
requirements of North Carolina law, to copy the list, during regular business
hours and at his expense, during the period it is available for inspection. This
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to inspection by any shareholder, or his agent or attorney,
during the whole time of the meeting or any adjournment.
11. Proxies. Shares may be voted either in person or by one or more agents
-------
authorized by a written appointment form executed by the shareholder or by his
duly authorized attorney in fact. An appointment form is valid for 11 months
from the date of its execution, unless a different period is expressly provided
in the appointment form. An appointment is revocable by the shareholder unless
the appointment form conspicuously states that it is irrevocable and the
appointment is coupled with an interest.
12. Shares Held by Nominees. The corporation may establish a procedure by
-----------------------
which
-3-
<PAGE>
the beneficial owner of shares that are registered in the name of a nominee is
recognized by the corporation as a shareholder. The extent of this recognition
may be determined in the procedure.
ARTICLE III
Directors
1. General Powers. Subject to the Articles of Incorporation, all corporate
--------------
powers shall be exercised by or under the authority of, and the business and
affairs of the corporation be managed under the direction of, its Board of
Directors.
2. Number, Term and Qualifications. The number of directors of the
-------------------------------
corporation shall be not less than nine (9) nor more than twenty-five (25), the
exact number of directors within such minimum and maximum limits to be fixed and
determined from time to time by resolution by a majority of the full Board of
Directors or by resolution of the shareholders at any annual or special meeting
thereof.
The Board of Directors shall be divided into three classes, which shall be
as nearly equal in number as possible. In the event of a change in the number of
directors, the Board of Directors shall determine the class or classes to which
the increased or decreased number of directors shall be apportioned; provided,
however, that no decrease in the number of directors shall affect the term of
any director then in office. The directors elected at the 1995 Annual Meeting of
Shareholders shall be designated as Class I Directors, Class II Directors and
Class III Directors at the time of their election and shall have terms of office
as follows: the term of office of Class I Directors shall expire at the 1996
Annual Meeting of Shareholders, the term of office of Class II Directors shall
expire at the 1997 Annual Meeting of Shareholders, and the term of office of
Class III Directors shall expire at the 1998 Annual Meeting of Shareholders,
with the members of each class of directors to hold office until their
successors are elected and qualified. At each Annual Meeting of Shareholders
subsequent to the 1995 Annual Meeting of Shareholders, directors elected to
succeed those whose terms are expiring shall be elected for a term of office to
expire at the third succeeding Annual Meeting of Shareholders and when their
respective successors are elected and qualified.
Directors need not be residents of the State of North Carolina or
shareholders of the corporation, except insofar as such requirements are imposed
by national banking laws or by regulations of the Federal Reserve and/or the
U.S. Comptroller of the Currency.
3. Election of Directors. Except as provided in Section 5 of this Article,
---------------------
the directors shall be elected at the annual meeting of shareholders by a
plurality of the votes cast.
4. Removal. Directors may be removed from office with or without cause
-------
by the affirmative vote of a majority of the outstanding votes of the
corporation entitled to be cast at
-4-
<PAGE>
an election of the directors. However, unless the entire Board of Directors is
removed, an individual director may be removed only if the number of votes cast
for the removal exceeds the number of votes cast against the removal. If any
directors are so removed, new directors may be elected at the same meeting.
A director may not be removed by the shareholders at a meeting unless the
notice of the meeting states that the purpose, or one of the purposes, of the
meeting is removal of the director.
5. Vacancies. Unless the Articles of Incorporation provide otherwise, if a
---------
vacancy occurs on the Board of Directors, including, without limitation, a
vacancy resulting from an increase in the number of directors or from the
failure by the shareholders to elect the full authorized number of directors,
the vacancy may be filled by the shareholders or the Board of Directors. If the
directors remaining in office constitute fewer than a quorum of the Board of
Directors, vacancies may be filled by the affirmative vote of a majority of all
the directors, or by the sole remaining director. A vacancy that will occur at a
specific later date may be filled before the vacancy occurs but the new director
may not take office until the vacancy occurs. A director elected to fill a
vacancy shall serve for the unexpired term of his predecessor in office and
until his successor is elected and qualified.
6. Chairman. There may be a Chairman of the Board of Directors elected by
--------
the directors from their number at any meeting of the Board. The Chairman shall
preside at all meetings of the Board of Directors and perform such other duties
as may be directed by the Board. The Chairman of the Board shall not be an
officer of the corporation unless specifically so designated by the Board.
7. Compensation. The Board of Directors may compensate a director for his
------------
services as such and may provide for the payment of all expenses incurred by a
director in attending regular and special meetings of the Board or in otherwise
fulfilling his duties as a director.
8. Executive and Other Committees. Unless otherwise provided in the
------------------------------
Articles of Incorporation or the bylaws, the Board of Directors, by resolution
adopted by a majority of the number of directors then in office, may designate
from among its members an executive committee and one or more other committees,
each consisting of two or more directors. To the extent specified by the Board
of Directors or in the Articles of Incorporation of the corporation, such
committees shall have and may exercise all of the authority of the Board of
Directors in the management of the business and affairs of the corporation,
except that a committee may not authorize distributions; approve or propose to
shareholders action that North Carolina law requires be approved by
shareholders; fill vacancies on the Board of Directors or on any committee;
amend the Articles of Incorporation; adopt, amend, or repeal bylaws; approve a
plan of merger not requiring shareholder approval; authorize or approve
reacquisition of shares of capital stock of the corporation, except according to
a formula or method prescribed by the Board of Directors; or authorize or
approve the issuance or sale or
-5-
<PAGE>
contract for sale of shares, or determine the designation and relative rights,
preferences, and limitations of a class or series of shares, except that the
Board of Directors may authorize a committee (or a senior executive officer of
the corporation) to do so within limits specifically prescribed by the Board of
Directors.
ARTICLE IV
Meetings of Directors
---------------------
1. Regular Meetings. The Board of Directors may provide, by resolution,
----------------
the time and place, either within or without the State of North Carolina, for
the holding of regular meetings.
2. Special Meetings. Special meetings of the Board of Directors may be
----------------
called by or at the request of the Chairman of the Board, the President or any
two directors. Such meetings may be held within or without the State of North
Carolina.
3. Notice of Meetings. Regular meetings of the Board of Directors may be
------------------
held without notice.
The person or persons calling a special meeting of the Board of Directors
shall, at least two days before the meeting, give notice thereof by any usual
means of communication. Such notice need not specify the purpose for which the
meeting is called.
4. Waiver of Notice. Any director may waive any required notice before or
----------------
after the date and time stated in the notice. Attendance at or participation by
a director in a meeting shall constitute a waiver of notice of such meeting,
unless the director at the beginning of the meeting (or promptly upon his
arrival) objects to holding the meeting or transacting any business at the
meeting and does not thereafter vote for or assent to action taken at the
meeting.
5. Quorum. A majority of the number of directors prescribed, or, if no
------
number is prescribed, the number in office immediately before the meeting
begins, shall constitute a quorum for the transaction of business at any meeting
of the Board of Directors.
6. Manner of Acting. Except as otherwise provided by law, the Articles of
----------------
Incorporation or these bylaws, an act of the majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors.
The vote of a majority of the directors then holding office shall be
required to adopt, amend or repeal a bylaw, if otherwise permissible. Approval
of a transaction in which one or more directors have an adverse interest shall
require a majority, not less than two, of the disinterested directors then in
office, even though less than a quorum.
-6-
<PAGE>
7. Presumption of Assent. A director of the corporation who is present at
---------------------
a meeting of the Board of Directors or a committee of the Board of Directors
when corporate action is taken shall be deemed to have assented to the action
taken unless his contrary vote is recorded; he objects at the beginning of the
meeting (or promptly upon his arrival) to holding it or transacting business at
the meeting; his dissent or abstention is entered in the minutes of the meeting;
or he files written notice of dissent or abstention with the presiding officer
of the meeting before its adjournment or with the corporation immediately after
the adjournment of the meeting. The right of dissent or abstention is not
available to a director who voted in favor of such action.
8. Informal Action by Directors and Attendance by Telephone. Action taken
--------------------------------------------------------
by a majority of the directors without a meeting is nevertheless Board action if
written consent to the action in question, describing the action taken, is
signed by all the directors and filed with the minutes of the proceedings of the
Board or with the corporate records, whether done before or after the action so
taken. Such action shall be effective when the last director signs the consent,
unless the consent specifies a different effective date. The Board of Directors
may permit any or all directors to participate in a regular or special meeting
by, or conduct the meeting through the use of, any means of communication by
which all directors participating may simultaneously hear each other during the
meeting. A director participating in a meeting by this means is deemed to be
present in person at the meeting.
9. Loans to Directors. Except as otherwise provided by law, the
------------------
corporation shall not directly or indirectly lend money to or guarantee the
obligation of a director of the corporation unless the particular loan or
guarantee is approved by a majority of the votes represented by the outstanding
voting shares of all classes, voting as a single voting group, except the votes
of shares owned by or voted under control of the benefited director, or unless
the corporation's Board of Directors determines that the loan or guarantee
benefits the corporation and either approves the specific loan or guarantee or a
general plan authorizing loans and guarantees. The fact that a loan or guarantee
is made in violation of this Section does not affect the borrower's liability on
the loan.
ARTICLE V
Officers
--------
1. Number. The officers of the corporation shall consist of a Chairman, a
------
President, a Secretary, a Treasurer, and such Vice Presidents, Assistant Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers as
may be elected from time to time. Any two or more offices may be held by the
same person, except the offices of President and Secretary, but no officer may
act in more than one capacity where action of two or more officers is required.
It shall not be necessary for any officer to be a shareholder of the
corporation.
-7-
<PAGE>
2. Election and Term. Except as hereafter provided, the officers of the
-----------------
corporation shall be elected by the Board of Directors. Such election may be
held at any regular or special meeting of the Board. Unless otherwise determined
by the Board of Directors, the Chief Executive Officer may appoint assistant
officers. Each officer shall hold office until his death, resignation,
retirement, removal, disqualification or until his successor is elected and
qualified.
3. Removal. Any officer or agent elected or appointed by the Board of
-------
Directors may be removed by the Board with or without cause. Officers appointed
by the Chief Executive Officer may be removed by him. Any such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
4. Compensation. The compensation of all officers of the corporation other
------------
than assistant officers shall be fixed by the Board of Directors. No officer
shall serve the corporation in any other capacity and receive compensation
therefor unless such additional compensation be authorized by the Board of
Directors. The compensation of all assistant officers shall be fixed by the
Chief Executive Officer of the corporation or his designee.
5. President. The President shall, unless otherwise determined by the
---------
Board of Directors, be the Chief Executive Officer of the corporation and,
subject to the control of the Board of Directors, shall supervise and control
the management of the corporation according to these bylaws. He shall, in the
absence of the Chairman, preside at all meetings of the shareholders. He shall
sign, with any other proper officer, certificates for shares of the corporation,
and any deeds, mortgages, bonds, contracts or other instruments that may
lawfully be executed on behalf of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be delegated by the Board of Directors to
some other officer or agent; and, in general, he shall perform all duties
incident to the office of President and such other duties as may be prescribed
by the Board of Directors from time to time.
6. Vice Presidents. The Vice Presidents shall perform such duties and
---------------
shall have such other powers as the Board of Directors or the President shall
prescribe. The Board of Directors may designate one or more Vice Presidents as
Executive or Senior Vice President, or any other title that the Board of
Directors deems appropriate, and may rank the Vice Presidents in order of
authority. The Vice President, or, if more than one, the highest ranking
available Vice President, shall, in the absence or disability of the President,
perform the duties and exercise the powers of that office.
7. Secretary. The Secretary shall keep accurate records of the acts and
---------
proceedings of all meetings of shareholders and directors. He shall give all
notices required by law and by these bylaws. He shall have general charge of the
corporate records and books and of the corporate seal, and he shall affix the
corporate seal to any lawfully executed instruments requiring it. He shall have
general charge of the stock transfer books of the Corporation and
-8-
<PAGE>
shall keep, at the registered or principal office of the Corporation, a record
of shareholders showing the name and address of each shareholder and the number
and class of the shares held by each. He shall sign such instruments as may
require his signature, and in general, shall perform all duties incident to the
office of Secretary and such other duties as may be assigned to him from time to
time by the President or by the Board of Directors.
8. Treasurer. The Treasurer shall have custody of all funds and securities
---------
belonging to the Corporation and shall receive, deposit or disburse the same
under the direction of the Board of Directors and the President. He shall keep
full and accurate records of the finances of the Corporation in books especially
provided for the purpose; and he shall cause a true statement of the assets and
liabilities as of the close of each fiscal year and of the results of its
operations and of changes in surplus for such fiscal year, all in reasonable
detail, including particulars as to convertible securities then outstanding, to
be made and filed at the registered or principal office of the Corporation
within four months after the end of such fiscal year. The statement so filed
shall be kept available for inspection by any shareholder for a period of ten
years and the Treasurer shall mail or otherwise deliver a copy of the latest
such statement to any shareholder upon his written request therefor. The
Treasurer shall, in general, perform all duties incident to his office and such
other duties as may be assigned to him from time to time by the President or by
the Board of Directors.
9. Assistant Officers. The Assistant Vice Presidents, Secretaries and
------------------
Treasurers shall, in the absence or disability of their superiors, perform the
duties and exercise the powers of those offices and shall, in general, perform
such other duties as shall be assigned to them by the President or by the
respective officers to whom they report.
10. Executive Officers. The Board of Directors may designate any officer
------------------
as Chief Executive Officer, Chief Operating Officer, Chief Financial Officer or
Chief Accounting Officer, which officer shall have such authority as the Board
of Directors may designate.
11. Contract Rights. The appointment of an officer does not itself
---------------
create contract rights in the officer.
12. Bonds. The Board of Directors may by resolution require any or all
-----
officers, agents and employees of the corporation to give bond to the
corporation, with sufficient sureties, conditioned on the faithful performance
of the duties of their respective offices or positions, and to comply with such
other conditions as may from time to time be required by the Board of Directors.
ARTICLE VI
Contracts, Checks and Deposits
------------------------------
1. Contracts. The Board of Directors may authorize any officer or
---------
officers, agent or
-9-
<PAGE>
agents, to enter into any contract or execute and deliver any instrument on
behalf of the corporation, and such authority may be general or confined to
specific instances.
2. Checks and Drafts. All checks, drafts or orders for the payment of
-----------------
money issued in the name of the corporation shall be signed by such officer or
officers, agent or agents of the corporation and in such manner as shall from
time to time be determined by resolution of the Board of Directors.
3. Deposits. All funds of the corporation not otherwise employed shall be
--------
deposited from time to time to the credit of the corporation in such
depositories as the Board of Directors shall direct.
ARTICLE VII
Certificates for Shares and Transfer Thereof
--------------------------------------------
1. Certificates for Shares. The Chairman or the President and the
-----------------------
Secretary or the Treasurer or any other two officers designated by the Board of
Directors shall sign (either manually or in facsimile) share certificates.
Shares may but need not be represented by certificates. Unless otherwise
provided by law, the rights and obligations of shareholders are identical
whether or not their shares are represented by certificates. If shares are
issued without certificates, the corporation shall, within a reasonable time
after such issuance, send the shareholder a written statement of the information
required on certificates by law. At a minimum each share certificate or
information statement shall state on its face the following information: the
name of the corporation and that it is organized under the law of North
Carolina; the name of the person to whom issued; the number and class of shares
and the designation of the series, if any, the certificate or information
statement represents; if the corporation is authorized to issue different
classes of shares or different series within a class, a summary of, or
alternatively, a conspicuous statement on the back or front of the certificate
or contained in the information statement that the corporation will furnish in
writing and without charge, the designations, relative rights, preferences, and
limitations applicable to each class and the variations in rights, preferences,
and limitations determined for each series (and the authority of the Board of
Directors to determine variations for future series); and, a conspicuous
statement of any restrictions on the transfer or registration of transfer of the
shares.
2. Transfer of Shares. Transfer of shares of the corporation evidenced by
------------------
certificates shall be made only on the stock transfer books of the corporation
by the holder of record thereof, or by his legal representative, who shall
furnish proper evidence of authority to transfer, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary or
other officer or agent designated by the Board of
-10-
<PAGE>
Directors, and on surrender for cancellation of the certificate for such shares.
Transfer of shares of the corporation not evidenced by certificates shall be
made upon delivery to the corporation of such documentation as the corporation
shall require.
3. Fixing Record Date. For the purpose of determining the shareholders
------------------
entitled to notice of a meeting of shareholders, to vote, to take any other
action, or to receive a dividend with respect to their shares, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders. Such record date fixed by the Board of Directors
under this Section shall not be more than 70 days before the meeting or action
requiring a determination of shareholders.
If no record date is fixed for the determination of shareholders entitled
to notice of or to vote at a meeting of shareholders, or shareholders entitled
to a dividend, the close of the business day before the first notice is
delivered to shareholders or the date on which the Board of Directors authorizes
the dividend, as the case may be, shall be the record date for such
determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof unless the Board of Directors fixes a new
record date, which it must do if the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting.
4. Lost Certificates. If a shareholder claims that a certificated security
-----------------
has been lost, apparently destroyed or wrongfully taken, the corporation shall
issue a new certificated security or, at the option of the corporation, an
equivalent noncertificated security in place of the original security, if the
shareholder so requests before the corporation has notice that the security has
been acquired by a bona fide purchaser, files with the corporation a sufficient
indemnity bond if so required by the corporation, and satisfies any other
reasonable requirements imposed by the corporation.
5. Holder of Record. The corporation may treat as absolute owner of shares
----------------
the person in whose name the shares stand of record on its books just as if that
person had full competency, capacity and authority to exercise all rights of
ownership irrespective of any knowledge or notice to the contrary or any
description indicating a representative, pledge or other fiduciary relation or
any reference to any other instrument or to the rights of any other person
appearing upon its record or upon the share certificates except that any person
furnishing to the corporation proof of his appointment as a fiduciary shall be
treated as if he were a holder of record of its share.
The corporation may reject a vote, consent, waiver, or proxy appointment
if the Secretary or other officer or agent authorized to tabulate votes, acting
in good faith, has reasonable basis for doubt about the validity of the
signature on it or about the signatory's authority to sign for the shareholder.
-11-
<PAGE>
6. Reacquired Shares. The corporation may acquire its own shares and
-----------------
shares so acquired constitute authorized but unissued shares.
7. Rights, Options and Warrants. The corporation may issue rights, options
----------------------------
or warrants for the purchase of shares of the corporation. The Board of
Directors shall determine the terms upon which the rights, options or warrants
are issued, their form and content, and the consideration for which the shares
are to be issued. Without limitation, the Board of Directors may include on such
rights, options and warrants restrictions or conditions that preclude or limit
the exercise, transfer or receipt of such rights, options or warrants by the
holder or holders, or beneficial owner or owners, of a specified number or
percentage of the outstanding voting shares of the corporation or by any
transferee of such holder or owner, or that invalidate or void such rights,
options or warrants held by any such holder or owner or by such transferee. In
addition, the Board of Directors may implement rights plans that create purchase
or conversion rights that are not exercisable by a hostile bidder involved in a
hostile takeover of the corporation.
ARTICLE VIII.
Indemnification
---------------
1. Extent. In addition to the indemnification otherwise provided by law,
------
the corporation shall indemnify and hold harmless its directors and officers
against liability and litigation expense, including reasonable attorneys' fees,
arising out of their status as directors or officers or their activities in any
of such capacities or in any capacity in which any of them is or was serving, at
the corporation's request, in another corporation, partnership, joint venture,
trust or other enterprise, and the corporation shall indemnify and hold harmless
those directors, officers or employees of the corporation and who are deemed to
be fiduciaries of the corporation's employee pension and welfare benefit plans
as defined under the Employee Retirement Income Security Act of 1974, as amended
("ERISA fiduciaries") against all liability and litigation expense, including
reasonable attorneys' fees, arising out of their status or activities as ERISA
fiduciaries; provided, however, that the corporation shall not indemnify a
director or officer against liability or litigation expense that he may incur on
account of his activities that at the time taken were known or reasonably should
have been known by him to be clearly in conflict with the best interests of the
corporation, and the corporation shall not indemnify an ERISA fiduciary against
any liability or litigation expense that he may incur on account of his
activities that at the time taken were known or reasonably should have been
known by him to be clearly in conflict with the best interests of the employee
benefit plan to which the activities relate. The corporation shall also
indemnify the director, officer, and ERISA fiduciary for reasonable costs,
expenses and attorneys' fees in connection with the enforcement of rights to
indemnification granted herein, if it is determined in accordance with Section 2
of this Article that the director, officer and ERISA fiduciary is entitled to
indemnification hereunder.
-12-
<PAGE>
2. Determination. Any indemnification under Section 1 of this Article
-------------
shall be paid by the corporation in any specific case only after a determination
that the director, officer or ERISA fiduciary did not act in a manner, at the
time the activities were taken, that was known or reasonably should have been
known by him to be clearly in conflict with the best interests of the
corporation, or the employee benefit plan to which the activities relate, as the
case may be. Such determination shall be made (a) by the affirmative vote of a
majority (but not less than two) of directors who are or were not parties to
such action, suit or proceeding or against whom any such claim is asserted
("disinterested directors") even though less than a quorum, or (b) if a majority
(but not less than two) of disinterested directors so direct, by independent
legal counsel in a written opinion, or (c) by the vote of a majority of all of
the voting shares other than those owned or controlled by directors, officers or
ERISA fiduciaries who were parties to such action, suit or proceeding or against
whom such claim is asserted, or by a unanimous vote of all of the voting shares,
or (d) by a court of competent jurisdiction.
3. Advanced Expenses. Expenses incurred by a director, officer or ERISA
-----------------
fiduciary in defending a civil or criminal claim, action, suit or proceeding
may, upon approval of a majority (but not less than two) of the disinterested
directors, even though less than a quorum, or, if there are less than two
disinterested directors, upon unanimous approval of the Board of Directors, be
paid by the corporation in advance of the final disposition of such claim,
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director, officer or ERISA fiduciary to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified against such
expenses by the corporation.
4. Corporation. For purposes of this Article, references to directors,
-----------
officers or ERISA fiduciaries of the "corporation" shall be deemed to include
directors, officers and ERISA fiduciaries of FNB Corp., its subsidiaries, and
all constituent corporations absorbed into FNB Corp. or any of its subsidiaries
by a consolidation or merger.
5. Reliance and Consideration. Any director, officer or ERISA fiduciary
--------------------------
who at any time after the adoption of this Bylaw serves or has served in any of
the aforesaid capacities for or on behalf of the corporation shall be deemed to
be doing or to have done so in reliance upon, and as consideration for, the
right of indemnification provided herein. Such right shall inure to the benefit
of the legal representatives of any such person and shall not be exclusive of
any other rights to which such person may be entitled apart from the provision
of this Bylaw. No amendment, modification or repeal of this Article VIII shall
adversely affect the right of any director, officer or ERISA fiduciary to
indemnification hereunder with respect to any activities occurring prior to the
time of such amendment, modification or repeal.
6. Insurance. The corporation may purchase and maintain insurance on
---------
behalf of its directors, officers, employees and agents and those persons who
were serving at the request of the corporation as a director, officer, partner
or trustee of, or in some other capacity in, another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
-13-
<PAGE>
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article or otherwise. Any
full or partial payment made by an insurance company under any insurance policy
covering any director, officer, employee or agent made to or on behalf of a
person entitled to indemnification under this Article shall relieve the
corporation of its liability for indemnification provided for in this Article or
otherwise to the extent of such payment, and no insurer shall have a right of
subrogation against the corporation with respect to such payment.
ARTICLE IX
General Provisions
------------------
1. Dividends. The Board of Directors may from time to time declare, and
---------
the corporation may pay, dividends on its outstanding shares in such manner and
upon such terms and conditions as are permitted by law and by its Articles of
Incorporation.
2. Waiver of Notice. Whenever any notice is required to be given to any
----------------
shareholder or director under the provisions of the North Carolina Business
Corporation Act or under the provisions of the Articles of Incorporation or
bylaws of the corporation, a waiver thereof in writing signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be equivalent to such notice.
3. Fiscal Year. Unless otherwise ordered by the Board of Directors, the
-----------
fiscal year of the corporation shall be from January 1 to December 31.
4. Inspection of Records by Shareholders. The shareholders shall not be
-------------------------------------
entitled to inspect or copy any accounting records of the corporation or any
records of the corporation with respect to any matter which the corporation
determines in good faith may, if disclosed, adversely affect the corporation in
the conduct of its business or may constitute material nonpublic information at
the time the shareholder's notice of demand to inspect and copy is received by
the corporation.
5. Amendments. Except as otherwise provided herein, these bylaws may be
----------
amended or repealed and new bylaws may be adopted by the affirmative vote of a
majority of the directors then holding office at any regular or special meeting
of the Board of Directors.
The Board of Directors shall have no power to adopt a bylaw: (1) requiring
more than a majority of the voting shares for a quorum at a meeting of
shareholders or more than a majority of the votes cast to constitute action by
the shareholders, except where higher percentages are required by law; (2)
providing for the management of the corporation otherwise than by the Board of
Directors or its Executive or other committees; (3) increasing or decreasing the
number of directors authorized by these bylaws; (4) classifying and staggering
the election of directors.
-14-
<PAGE>
No bylaw adopted or amended by the shareholders shall be altered or
repealed by the Board of Directors unless specifically authorized by the
shareholders at the time of such adoption or amendment.
6. Inapplicability of Article 9. Article 9 of Chapter 55 of the General
----------------------------
Statutes of North Carolina entitled, "The North Carolina Shareholder Protection
Act," shall not apply to this corporation.
7. Inapplicability of Article 9A. Article 9A of Chapter 55 of the General
-----------------------------
Statutes of North Carolina, entitled "Control Share Acquisition Act," shall not
apply to this corporation.
-15-
COMPOSITE COPY
AS OF MAY 12, 1998
FNB CORP.
STOCK COMPENSATION PLAN
ARTICLE I
---------
GENERAL PROVISIONS
------------------
1. Purpose. The Stock Compensation Plan (the "Plan") of FNB Corp. (the
-------
"Company") is intended to allow certain key employees, directors and advisory
directors of the Company and its subsidiaries to have an opportunity to acquire
an ownership interest in the Company as an additional incentive to attract and
retain employees, directors and advisory directors and to encourage them to
promote the Company's business.
2. Elements of the Plan. Options granted under the Plan shall be granted
--------------------
pursuant to either Article II or Article III of the Plan. Options granted
pursuant to Article II are intended to qualify as incentive stock options
("Incentive Stock Options") under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Options granted pursuant to Article III of the
Plan are not intended to qualify as Incentive Stock Options ("Nonqualified
Options"). Stock bonus awards granted pursuant to Article IV of the Plan will be
subject to Section 83 of the Code.
3. Administration. The Plan shall be administered by an option committee
--------------
(the "Committee") appointed by the Board of Directors of the Company (the
"Board"). The Committee shall be comprised of at least two members of the Board,
each of whom shall be an "Outside Director" within the meaning of Section 162(m)
of the Code and any regulations promulgated thereunder. No member of the
Committee or the Board shall be liable for any action or determination made in
good faith with respect to the Plan or to any option or award granted hereunder.
In addition, directors and Committee members shall be eligible for
indemnification from the Company, pursuant to the Company's bylaws, with respect
to any matter arising under the Plan.
4. Authority of Board of Directors and Committee.
---------------------------------------------
(a) Subject to the other provisions of this Plan, the Committee
shall have sole authority in its absolute discretion: to grant options and
stock bonuses under the Plan; to determine the number of shares subject to
any option or stock bonus under the Plan; to fix the option price and the
duration of each option and stock bonus; to establish any other terms and
conditions of options and stock bonuses; and to accelerate the time at
which any outstanding option may be exercised or the time when
restrictions and conditions on stock bonus shares will lapse.
Notwithstanding the foregoing, the Board
<PAGE>
may grant Nonqualified Options to nonemployee directors and advisory board
members of the Company.
(b) Subject to the other provisions of this Plan, and with a view to
effecting its purpose, the Committee shall have sole authority in its
absolute discretion: to construe and interpret the Plan; to define the
terms used herein; to prescribe, amend, and rescind rules and regulations
relating to the Plan; to make any other determinations and to do
everything necessary or advisable to administer the Plan.
(c) All decisions, determinations, and interpretations made by the
Committee shall be binding and conclusive on all participants in the Plan
and on their legal representatives, heirs and beneficiaries.
5. Shares Subject to the Plan. The maximum aggregate number of shares of
--------------------------
Common Stock available pursuant to the Plan, subject to adjustment as provided
in Section 10 of this Article I, shall be 720,000 shares of the Company's Common
Stock, par value $2.50 per share ("Common Stock"). If any option granted
pursuant to the Plan expires or terminates for any reason before it has been
exercised in full, the unpurchased shares subject to that option shall again be
available for the purposes of the Plan, regardless of whether the option was
granted pursuant to Article II or Article III of the Plan. If any shares issued
pursuant to a stock bonus are forfeited, they shall again be available under the
Plan. The Company, during the term of this Plan, will at all times reserve and
keep available such number of shares of its Common Stock as shall be sufficient
to satisfy the requirements of the Plan. Authorized but unissued shares of the
Company shall also be subject to issuance under the Plan.
6. Eligibility.
-----------
(a) Incentive Stock Options and Stock Bonus Awards. Incentive Stock
----------------------------------------------
Options and stock bonus awards may be granted only to key employees of the
Company or any of its subsidiaries (including directors and officers who
are key employees).
(b) Nonqualified Options. Nonqualified Options may be granted only
--------------------
to key employees, officers, directors (whether or not employees) and
advisory board members of the Company or any of its subsidiaries.
(c) Maximum Number of Shares to One Individual. Notwithstanding any
------------------------------------------
other provision of this Plan, the aggregate number of shares of Common
Stock that may be issued to any one individual pursuant to options or
awards granted under the Plan shall not exceed 100,000 shares.
2
<PAGE>
(d) Number of Options and Bonuses. More than one option and more
-----------------------------
than one stock bonus may be granted to the same person, if the person
otherwise is an eligible recipient under this Plan.
7. Terms and Conditions of Options. Stock options granted under the Plan
-------------------------------
shall be evidenced by agreements in such form as the Committee may from time to
time approve, which agreements shall comply with and be subject to the following
terms and conditions, in addition to the provisions of Article II or Article
III, as applicable:
(a) Number of Shares; Designation. Each option shall state the
-----------------------------
number of shares to which it pertains and whether it is an Incentive Stock
Option granted under Article II of the Plan or a Nonqualified Option
granted under Article III of the Plan.
(b) Option Price. Each option shall state the option price, which
------------
shall not be less than the fair market value (as hereinafter defined) per
share of the Common Stock at the time the option is granted (except that
for Incentive Stock Options granted to any employee who owns more than 10%
of the combined voting power of all classes of stock of the Company, or of
its parent or subsidiary, the option price shall not be less than 110% of
fair market value). Fair market value shall be determined by the Committee
on the basis of such factors as it deems appropriate; provided, however,
that fair market value shall be determined without regard to any
restriction other than a restriction which, by its terms, will never
lapse, and further provided that if at the time the determination of fair
market value is made, the Common Stock is admitted to trading on a
national securities exchange for which sales prices are regularly
reported, fair market value shall not be less than the mean of the high
and low asked or closing sales prices reported for the Common Stock on
that exchange on the day (or most recent trading day preceding the day on
which the option is granted). For purposes of this Plan, the term
"national securities exchange" shall include the National Association of
Securities Dealers Automated Quotation System and the over-the-counter
market.
(c) Exercise of Options. Except as otherwise provided in this Plan
-------------------
or in the applicable option agreement, each option shall be exercisable in
installments as follows:
(i) up to 20% of the total shares subject to the option at any
time after one year from the date of grant and prior to termination
of the option;
(ii) up to 40% of the total shares subject to the option (less
any shares previously purchased pursuant to the option) at any time
after two years from the date of grant and prior to termination of
the option;
(iii) up to 60% of the total shares subject to the option
(less any shares previously purchased pursuant to the option) at any
time after three years from the date of grant and prior to
termination of the option; and
3
<PAGE>
(iv) up to 80% of the total shares subject to the option (less
any shares previously purchased pursuant to the option) at any time
after four years from the date of grant and prior to termination of
the option; and
(v) in full at any time after five years from the date of
grant and prior to termination of the option.
Not less than 25 shares may be purchased at any one time unless the number
purchased is the total number that may be purchased under the option at
that time. No option may be exercised for any fraction of a share of
Common Stock.
(d) Written Notice and Payment Required. An option granted pursuant
-----------------------------------
to the terms of this Plan shall be exercised when written notice of that
exercise has been received by the Company at its principal office from the
person entitled to exercise the option and full payment for the shares
with respect to which the option is exercised has been received by the
Company. The purchase price of any shares purchased shall be paid in full
in cash or by certified or cashier's check payable to the order of the
Company or, unless prohibited by the applicable option agreement, by
shares of Common Stock or by a combination of cash, check, and (unless
prohibited by the applicable option agreement) shares of Common Stock. If
any portion of the purchase price is paid in shares of Common Stock, those
shares shall be tendered at their then fair market value as determined in
accordance with Section 7(b) of this Article I.
(e) Compliance With Securities Laws. The options granted under the
-------------------------------
Plan and the shares issuable pursuant to the Plan may, at the option of
the Company, be registered under applicable federal and state securities
laws, but the Company shall have no obligation to undertake any such
registrations. Shares of Common Stock shall not be issued with respect to
any option granted under the Plan unless the exercise of that option and
the issuance and delivery of those shares pursuant to that exercise shall
comply with all relevant provisions of state and federal law including,
without limitation, the Securities Act of 1933, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock
exchange upon which the shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance. The Committee may also require an optionee to furnish evidence
satisfactory to the Company, including a written and signed representation
letter and consent to be bound by any transfer restriction imposed by law,
legend, condition, or otherwise, that the shares are being purchased only
for investment and without any present intention to sell or distribute the
shares in violation of any state or federal law, rule, or regulation.
Further, each optionee shall consent to the imposition of a legend on the
shares of Common Stock subject to his or her option restricting their
transferability as required by law or by this Plan.
4
<PAGE>
(f) Options Not Transferable. Options granted pursuant to this Plan
------------------------
may not be sold, pledged, assigned, or transferred in any manner otherwise
than by will or the laws of descent or distribution and may be exercised
during the lifetime of an optionee only by that optionee.
(g) Duration of Options. Each option and all rights thereunder
-------------------
granted pursuant to the terms of this Plan shall expire on the date
specified in the applicable option agreement, but in no event shall any
option expire later than 10 years from the date on which the option is
granted. Moreover, any Incentive Stock Option granted to an employee who
owns more than 10% of the combined voting power of all classes of stock of
the Company, or of its parent or subsidiary, must expire within five years
from the date of grant. In addition, each option shall be subject to early
termination as provided in the Plan or applicable option agreement.
(h) Termination of Employment, Disability or Death.
----------------------------------------------
(i) Except as otherwise provided in the applicable option
agreement, if an optionee ceases to be employed by the Company, its
parent, or any of its subsidiaries (or a corporation or a parent or
subsidiary of such corporation issuing or assuming a stock option in
a transaction to which Section 424(a) of the Code applies), for any
reason other than disability or death, his or her option may be
exercised at any time up to three months after the date of
termination of employment.
(ii) Except as otherwise provided in the applicable option
agreement, if an optionee becomes disabled within the meaning of
Section 22(e)(3) of the Code while employed by the Company, or any
parent or subsidiary corporation (or a corporation or a parent or
subsidiary of such corporation issuing or assuming a stock option in
a transaction to which Section 424(a) of the Code applies), the
option may be exercised at any time within three months after the
date of termination of employment due to disability.
(iii) Except as otherwise provided in the applicable option
agreement, if an optionee dies while employed by the Company, its
parent or any of its subsidiaries, (or a corporation or a parent or
subsidiary of such corporation issuing or assuming a stock option in
a transaction to which Section 424(a) of the Code applies), his or
her option shall expire one year after the date of death. During
this period, the option may be exercised, except as otherwise
provided in the applicable option agreement, by the person or
persons to whom the optionee's rights under the option shall pass by
will or by the laws of descent and distribution.
5
<PAGE>
(iv) Any option that may be exercised for a period following
termination of the optionee's employment may be exercised only to
the extent it was exercisable immediately before such termination
and in no event after the option would expire by its terms without
regard to such termination.
(i) Option Agreements. The option agreements authorized under the
-----------------
Plan may differ from one another and shall contain such other provisions
not inconsistent with the Plan and Article II or Article III as applicable
as the Committee may in its discretion deem advisable from time to time,
including, without limitation, conditions precedent to the exercise of the
option covered by any agreement, which conditions may include the
satisfaction of specified performance criteria by the Company or the
optionee.
8. Tax Withholding. The exercise of any option granted under the Plan is
---------------
subject to the condition that if at any time the Company shall determine, in its
discretion, that the satisfaction of withholding tax or other withholding
liabilities under any state or federal law is necessary or desirable as a
condition of, or in any connection with, such exercise or the delivery or
purchase of shares pursuant thereto, then in such event, the exercise of the
option shall not be effective unless such withholding tax or other withholding
liabilities shall have been satisfied in a manner acceptable to the Company.
9. Employment. Nothing in the Plan or in any option or stock bonus award
----------
shall confer upon any eligible employee any right to continued employment by the
Company, or by its parent or subsidiary corporations, or limit in any way the
right of the Company or its parent or subsidiary corporation at any time to
terminate or alter the terms of that employment.
10. Adjustments.
-----------
(a) 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, the Committee shall make an appropriate and
proportionate adjustment in the maximum number and kind of shares as to
which options and stock bonuses may be granted under this Plan. A
corresponding adjustment changing the number or kind of shares allocated
to unexercised options that shall have been granted prior to any such
change, shall likewise be made. Any such adjustment in outstanding options
shall be made without change in the aggregate purchase price applicable to
the unexercised portion of the option, but with a corresponding adjustment
in the price for each share or other unit of any security covered by the
option. In making any adjustment pursuant to this Section 10(a), any
fractional shares shall be disregarded.
6
<PAGE>
(b) 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, all outstanding options, unless the applicable option agreement
provides otherwise, shall become exercisable in full immediately prior to
the effective date of any such transaction, regardless of the exercise
schedule.
11. Effective Date of Plan. The Plan shall be effective March 11, 1993,
----------------------
the date of adoption of the Plan by the Board of Directors of the Company,
subject to approval of the Plan by the Shareholders by the vote of the holders
of the majority of the Company's Common Stock present or represented at the duly
held annual meeting of shareholders scheduled to be held on May 11, 1993.
12. Termination and Amendment of Plan. The Plan may be terminated at any
---------------------------------
time by the Board of Directors. Unless sooner terminated the Plan shall
terminate March 10, 2003. No options or stock bonuses shall be granted under the
Plan after the Plan is terminated. Subject to the limitation contained in
Section 13 of this Article I, the Board of Directors may at any time amend or
revise the terms of the Plan, including the form and substance of the option
agreements and stock bonus awards to be used hereunder; provided that no
amendment or revision shall (a) increase the maximum aggregate number of shares
subject to this Plan, except as permitted under Section 10 of this Article I;
(b) change the minimum purchase price for shares subject to options granted
under the Plan; (c) extend the maximum term established under the Plan for any
option or stock bonus award; or (d) permit the granting of an option or stock
bonus award to anyone other than as provided in the Plan.
13. Prior Rights and Obligations. No amendment, suspension, or termination
----------------------------
of the Plan shall, without the consent of the person who has received an option
or stock bonus award, alter or impair any of that person's rights or obligations
under any option or stock bonus award, granted under the Plan prior to such
amendment, suspension, or termination.
14. Construction. The provisions set forth in Article II, III and IV shall
------------
not apply to any other of those Articles.
15. Compliance with Section 16(b). In the case of recipients of options or
-----------------------------
awards hereunder who are or may be subject to Section 16 of the Securities
Exchange Act of 1934, it is the intent of the Company that this Plan and any
such option or award granted hereunder satisfy and be interpreted in a manner
that satisfies the applicable requirements of Rule 16b-3, so that such grantees
will be entitled to the benefits of Rule 16b-3 or any other exemptive rule under
Section 16 and will not be subjected to liability thereunder. If any provision
of the Plan or any option or award would otherwise conflict with the intent
expressed herein, that provision, to the extent possible, shall be interpreted
and deemed amended so as to avoid such
7
<PAGE>
conflict. To the extent of any remaining irreconcilable conflict with such
intent, such provision shall be deemed void as applicable to grantees who are or
may be subject to Section 16.
ARTICLE II
----------
INCENTIVE STOCK OPTIONS
---------------------------
Options granted pursuant to this Article II of the Plan shall constitute
Incentive Stock Options under Section 422 of the Code and shall be designated as
such at the time of grant. Incentive Stock Options granted pursuant to this
Article II shall be subject to the terms, conditions and limitations set forth
in Article I above and to the following:
1. Maximum Amount of Incentive Stock Options. The maximum aggregate fair
-----------------------------------------
market value of Common Stock, determined as of the time the Incentive Stock
Option is granted, for which any employee may be granted Incentive Stock Options
(as defined in Section 422(b) of the Code) exercisable for the first time during
any calendar year under all incentive stock option plans of the Company and any
parent, subsidiary, and predecessor corporations held by such employee shall not
exceed $100,000. Any option in excess of the foregoing limitation shall be
granted pursuant to Article III of this Plan and shall be clearly and
specifically designated as not being an Incentive Stock Option.
2. Compliance with Section 422 of the Code. This Plan is intended to
---------------------------------------
comply in every respect with Section 422 of the Code and the regulations
promulgated thereunder with regard to the grant of Incentive Stock Options and
the purchase and delivery of shares of Common Stock upon the exercise thereof.
In the event any future statute or regulation shall modify Section 422, this
Plan shall be deemed to incorporate by reference such modification for purposes
of granting Incentive Stock Options or the purchase and delivery of any shares
of Common Stock upon the exercise thereof. Any option agreement relating to an
Incentive Stock Option granted pursuant to this Plan that is outstanding and
unexercised at the time any modifying statute or regulation becomes effective
shall also be deemed to incorporate by reference such modification, and no
notice of such modification need be given to the optionee. If any provision of
this Plan is determined to disqualify the shares purchasable pursuant to
Incentive Stock Options granted under this Plan from the special tax treatment
provided by Section 422, such provision shall be deemed to incorporate by
reference for purposes of the Incentive Stock Options the modification required
to qualify the shares for said tax treatment.
ARTICLE III
-----------
NONQUALIFIED STOCK OPTIONS
--------------------------
Options granted pursuant to this Article III shall constitute Nonqualified
Options and shall be designated as not being Incentive Stock Options under
Section 422 of the Code.
8
<PAGE>
Nonqualified Options shall be subject to the terms, conditions and limitations
set forth in Article I above and to the following:
1. Tax Reimbursement. In view of the federal and state income tax savings
-----------------
expected to be realized by the Company by reason of exercise of a Nonqualified
Option granted pursuant to this Article III, the Committee may, in its
discretion, grant Nonqualified Options the terms of which provide that, upon
exercise, the Company will make a cash compensation payment to the optionee (or
his personal representatives or heirs). The basis for determining the amount of
such cash payment shall be specified in the applicable option agreement.
2. Termination of Nonemployee Relationships with the Company. If a
---------------------------------------------------------
nonemployee optionee ceases to serve the Company in the capacity which made the
optionee eligible to receive Nonqualified Options pursuant to Article III of
this Plan, then the optionee's rights upon such termination shall be governed in
the manner of an optionee's rights upon termination of employment as set forth
in Article I of this Plan.
ARTICLE IV
----------
STOCK BONUS AWARDS
------------------
Stock bonus awards granted pursuant to this Article IV shall be subject to
those terms, conditions and limitations set forth in Article I above that are
applicable to stock bonus awards and to the following additional terms:
1. Agreement. Each stock bonus award shall be evidenced by an agreement in
---------
such form and containing such provisions not inconsistent with the Plan as the
Committee may from time to time approve. Each award shall be effective as of the
date so stated in the resolution of the Committee making the award.
2. Restrictions and Conditions. Shares of Common Stock awarded under this
---------------------------
Article IV shall be subject to such restrictions and conditions (if any) as may
be imposed by the Committee at the time of making the award. Such restrictions
and conditions may include, without limitation, the satisfaction of specified
performance criteria by the Company or by the grantee of the stock bonus award;
provided, however, that no award shall require any payment of cash consideration
by the recipient. Restrictions and conditions imposed on shares of Common Stock
awarded under this Article IV may differ from one award to another as the
Committee shall, in its discretion, determine. Any restrictions and conditions
shall lapse, in whole or in part, as provided in the agreement evidencing the
stock bonus award, but in no event later than ten years from the date of the
award.
Shares with respect to which no restrictions or conditions are imposed and
shares with respect to which the restrictions and conditions imposed thereon
have lapsed are hereinafter
9
<PAGE>
referred to as "Unrestricted Shares." Shares with respect to which the
restrictions and conditions imposed thereon have not lapsed are hereinafter
referred to as "Restricted Shares."
3. Rights as a Shareholder. A holder of Unrestricted Shares shall have all
-----------------------
of the rights of a shareholder of the Company with respect thereto and shall be
entitled to receive a stock certificate evidencing such Unrestricted Shares.
A holder of Restricted Shares shall be the owner thereof and shall,
subject to the restrictions and conditions, have all of the rights of a
shareholder with respect thereto, including, but not limited to, the right to
receive all dividends paid on the Common Stock (ordinary or extraordinary,
whether in cash, securities or other property) and the right to vote the
Restricted Shares; provided, however, that each stock certificate evidencing
Restricted Shares shall bear a conspicuous legend stating that the shares
evidenced thereby are subject to forfeiture and shall be deposited by the holder
with the Company or its designee together with a stock power endorsed in blank.
4. Forfeiture. Except as provided in this Section 4 with respect to a
----------
grantee's death or retirement from the employ of the Company or any of its
subsidiaries, upon termination of the grantee's employment with the Company or
any of its subsidiaries for any reason whatsoever (voluntarily or involuntarily,
with or without cause), all Restricted Shares then owned by him shall
automatically and without any action on his part be forfeited and transferred to
the Corporation.
If a grantee shall retire in good standing from the employ of the Company
or any of its subsidiaries under the then established retirement policies of the
Company or if his employment with the Company or any of its subsidiaries is
terminated by reason of his death, then, in either such event, all restrictions
and conditions on his Restricted Shares shall thereupon lapse and such
Restricted Shares shall automatically and without any action on his part be
converted into Unrestricted Shares.
5. Transferability. Restricted Shares held by a grantee shall not be
---------------
subject to alienation, sale, transfer, assignment, pledge, attachment or
encumbrances of any kind, and any attempt to alienate, sell, transfer, assign,
pledge or otherwise encumber any Restricted Shares shall be void. In addition,
the Company may impose such additional restrictions on the issuance of Common
Stock and on the transfer of Unrestricted Shares as it deems necessary or
desirable to ensure compliance with all applicable federal and state securities
laws.
6. Adjustments. If there is a change in the Common Stock of the Company by
-----------
reason of any stock dividend, stock split, merger, consolidation,
recapitalization, exchange of shares, or otherwise, any stock or other
securities or other property issued with respect to Restricted Shares shall be
subject to the same restrictions and conditions as the Restricted Shares, and
the certificates or other evidence of such stock, securities or other property,
together with an appropriate power of attorney, shall be delivered to the
Company or its
10
<PAGE>
successor or designee and held until such time as the restrictions and
conditions applicable thereto lapse or until the stock, securities or other
property is forfeited in accordance with the provisions of Article IV of the
Plan.
7. Tax Reimbursement. In view of the federal and state income tax savings
-----------------
expected to be realized by the Company upon the award of Unrestricted Shares or
upon the lapse of restrictions and conditions applicable to Restricted Shares,
the Committee may, in its discretion, grant stock bonus awards the terms of
which provide that, upon the grantee's receipt of Unrestricted Shares, the
Company will pay to the grantee (or his personal representatives or heirs) an
amount in cash equal to the amount of tax benefit realized or expected to be
realized by the Company through the utilization of deductions claimed for income
tax purposes as a result of the grantee's receipt of Unrestricted Shares. The
tax reimbursement payment provided for herein shall be made on or before the
last day of the calendar year in which taxable income is recognized by a grantee
under Section 83 of the Code.
8. Withholding for Taxes. No grantee shall be entitled to issuance of a
---------------------
stock certificate evidencing Unrestricted Shares until he has paid, or made
arrangements for payment, to the Company of an amount equal to the income and
other taxes that the Company is required to withhold from the grantee as a
result of his receipt of Unrestricted Shares. In addition, such amounts as the
Company is required to withhold by reason of any tax reimbursement payments made
pursuant to Section 7 of this Article IV shall be deducted from such payments.
11
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 14,117,018
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,960,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 44,153,638
<INVESTMENTS-CARRYING> 52,381,542
<INVESTMENTS-MARKET> 0
<LOANS> 223,911,710
<ALLOWANCE> 2,467,537
<TOTAL-ASSETS> 346,831,468
<DEPOSITS> 300,275,901
<SHORT-TERM> 9,169,039
<LIABILITIES-OTHER> 3,898,742
<LONG-TERM> 0
0
0
<COMMON> 9,127,843
<OTHER-SE> 24,359,943
<TOTAL-LIABILITIES-AND-EQUITY> 346,831,468
<INTEREST-LOAN> 10,201,128
<INTEREST-INVEST> 2,812,409
<INTEREST-OTHER> 107,704
<INTEREST-TOTAL> 13,121,241
<INTEREST-DEPOSIT> 5,523,919
<INTEREST-EXPENSE> 5,739,062
<INTEREST-INCOME-NET> 7,382,179
<LOAN-LOSSES> 270,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,403,117
<INCOME-PRETAX> 3,261,533
<INCOME-PRE-EXTRAORDINARY> 3,261,533
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,262,603
<EPS-PRIMARY> .62
<EPS-DILUTED> .60
<YIELD-ACTUAL> 4.65
<LOANS-NON> 534,000
<LOANS-PAST> 157,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,294,000
<CHARGE-OFFS> 192,000
<RECOVERIES> 96,000
<ALLOWANCE-CLOSE> 2,468,000
<ALLOWANCE-DOMESTIC> 2,228,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 240,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE>9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,065,084
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,776,055
<INVESTMENTS-CARRYING> 58,548,941
<INVESTMENTS-MARKET> 0
<LOANS> 204,128,158
<ALLOWANCE> 2,091,206
<TOTAL-ASSETS> 312,928,457
<DEPOSITS> 272,371,710
<SHORT-TERM> 6,929,662
<LIABILITIES-OTHER> 3,326,509
<LONG-TERM> 0
0
0
<COMMON> 4,530,688
<OTHER-SE> 25,769,888
<TOTAL-LIABILITIES-AND-EQUITY> 312,928,457
<INTEREST-LOAN> 8,997,462
<INTEREST-INVEST> 2,828,873
<INTEREST-OTHER> 63,795
<INTEREST-TOTAL> 11,890,130
<INTEREST-DEPOSIT> 5,014,088
<INTEREST-EXPENSE> 5,135,825
<INTEREST-INCOME-NET> 6,754,305
<LOAN-LOSSES> 240,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,885,396
<INCOME-PRETAX> 3,002,315
<INCOME-PRE-EXTRAORDINARY> 3,002,315
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,092,671
<EPS-PRIMARY> .58
<EPS-DILUTED> .57
<YIELD-ACTUAL> 4.65
<LOANS-NON> 9,000
<LOANS-PAST> 103,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,986,000
<CHARGE-OFFS> 215,000
<RECOVERIES> 80,000
<ALLOWANCE-CLOSE> 2,091,000
<ALLOWANCE-DOMESTIC> 1,931,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 160,000
</TABLE>
