FNB FINANCIAL CORPORATION
PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD APRIL 28, 1998
GENERAL
________________________________
Introduction, Day, Date, Time and Place of Meeting
This Proxy Statement is being furnished in
connection with the solicitation by the Board of
Directors of FNB FINANCIAL CORPORATION (the
"Corporation"), a Pennsylvania business corpora-tion, of
proxies to be voted at the Annual Meeting of
Shareholders of the Corporation to be held at the main
office of The First National Bank of McConnellsburg, 101
Lincoln Way West, McConnellsburg, Pennsylvania, 17233,
on Tuesday, April 28, 1998, at 1:00 p.m., prevailing
time, and at any adjournment or postponement of the
Annual Meeting.
The principal executive office of the Corporation
is located at 101 Lincoln Way West, McConnellsburg,
Pennsylvania 17233. The telephone number for the
Corporation is (717) 485-3123. All inquiries should be
directed to Daniel E. Waltz, Treasurer of the
Corporation. The First National Bank of McConnellsburg
is a wholly-owned subsidiary of the Corporation.
Solicitation and Voting of Proxies
This Proxy Statement and the enclosed form of proxy
(the "Proxy") are first being sent to shareholders of
the Corporation on or about March 23, 1998.
Shares represented by proxies on the accompanying
Proxy, if properly signed and returned, will be voted in
accordance with the specifications made thereon by the
shareholder(s). Any Proxy not specifying to the
contrary will be voted FOR the election of the four (4)
nominees for Class 2 Director named below and FOR the
ratification of the selection of Smith Elliott Kearns
and Company, Certified Public Accountants, of
Chambersburg, Pennsylvania, as the independent auditors
for the Corporation for the year ending December 31,
1998. Execution and return of the enclosed Proxy will
not affect a shareholder's right to attend the Annual
Meeting and vote in person, after giving written notice
to the Secretary of the Corporation. The cost of
preparing, assembling, printing, mailing, and soliciting
proxies, and any additional material which the
Corporation may furnish shareholders in connection with
the Annual Meeting, will be borne by the Corporation.
In addition to the use of the mails, certain directors,
officers and employees of the Corporation may solicit
proxies personally by telephone and tele-copier.
Arrangements will be made with brokerage houses and
other custodians, nominees and fiduciaries to forward
proxy solicitation material to the beneficial owners of
stock held of record by these persons, and, upon request
therefor, the Corporation will reimburse them for their
reasonable forwarding expenses.
Revocability of Proxy
A shareholder who returns a Proxy may revoke the
Proxy at any time before it is voted only: (1) by giving
written notice of revocation to George S. Grissinger,
Secretary, FNB Financial Corporation, 101 Lincoln Way
West, McConnellsburg, Pennsylvania, 17233; (2) by
executing a later-dated Proxy and giving written notice
thereof to the Secretary of the Corporation; or (3) by
voting in person after giving written notice to the
Secretary of the Corporation.
Voting Securities and Quorum
At the close of business on Monday, March 9, 1998,
the Corporation had issued and outstanding 400,000
shares of common stock, par value $0.63 per share, the
only authorized class of stock (the "Common Stock").
Only shareholders of Common Stock of record at the
close of business on Monday, March 9, 1998 will be
entitled to notice of and to vote at the Annual Meeting.
Cumulative voting rights do not exist with respect to
the election of directors. On all matters to come
before the Annual Meeting, each share of common stock is
entitled to one vote.
Quorum
Under Pennsylvania law and the By-laws of the
Corporation, the presence in person or by proxy, of
shareholders entitled to cast at least a majority of the
votes that all shareholders are entitled to cast shall
constitute a quorum for the transaction of business at
the Annual Meeting. Votes withheld and abstentions will
be counted in determining the presence of a quorum for
the particular matter. Broker non-votes will not be
counted in determining the presence of a quorum for the
particular matter as to which the broker withheld
authority.
Assuming the presence of a quorum, the four (4)
nominees for director receiving the highest number of
votes cast by shareholders entitled to vote for the
election of directors shall be elected. Votes withheld
from a nominee and broker non-votes will not be cast for
such nominee.
Assuming the presence of a quorum, the affirmative
vote of a majority of all votes cast by shareholders is
required for the ratification of the selection of
independent auditors. Abstentions and broker non-votes
are not deemed to constitute "votes cast" and therefore
do not count either for or against such ratification.
Abstentions and broker non-votes, however, have the
practical effect of reducing the number of affirmative
votes required to achieve a majority for such matter by
reducing the total number of shares voted from which the
required majority is calculated.
PRINCIPAL BENEFICIAL OWNERS OF THE CORPORATION'S STOCK
Principal Owners
The following table sets forth, as of March 9,
1998, the name and address of each person who owns of
record or who is known by the Board of Directors to be
the beneficial owner of five percent (5%) or more of the
Corporation's outstanding Common Stock, the number of
shares beneficially owned by such person and the
percentage of the outstanding Common Stock so owned. The
footnotes to this table are set forth below the
"Beneficial Ownership by Officers, Directors and
Nominees" table, immediately following. Unless otherwise
indicated, all shares are individually owned by the
reporting person.
Amount and Nature
Of Beneficial
Percent of
Name and Address Ownership(1)(2)
Class
Forrest R. Mellott 30,426
7.60%
HCR 80 Box 1
Big Cove Tannery, PA 17212
Harvey J. Culler 20,029
5.01%
371 South Second Street
McConnellsburg, PA 17233
Beneficial Ownership by Officers, Directors and Nominees
The following table sets forth, as of March 9,
1998, the amount and percentage of the Common Stock of
the Corporation beneficially owned by each director,
each nominee, and all officers and directors of the
Corporation as a group. Unless otherwise indicated, all
shares are individually owned by the reporting person.
Name of Individual or Amount and Nature of
Percent of
Identity of Group (1) Beneficial Ownership (2)(3)
Class (4)
Nominees for Class 2 Directors (to serve until 2001)
and Current Class 2 Directors (to serve until 1998)
Harvey J. Culler 20,029 (5)
5.01%
John C. Duffey 1,405 (8)
---
George S. Grissinger 12,100 (9)
3.03%
Forrest R. Mellott 30,426 (11)
7.60%
Class 3 Directors (to serve until 1999)
Henry W. Daniels 9,000 (6)
2.25%
H. Lyle Duffey 3,910 (7)
---
David A. Washabaugh, III 5,000 (13)
1.25%
Daniel E. Waltz 390 (14)
---
Class 1 Directors (to serve until 2000)
Patricia A. Carbaugh 270 (15)
---
Harry D. Johnston, D.O. 16,305 (10)
4.08%
Paul T. Ott 4,720 (12)
1.18%
Lonnie W. Palmer 110 (16)
---
All Officers and Directors as a
Group (12 persons) 103,665
25.92%
(1) Each named individual has full authority to vote
those
securities beneficially owned.
(2) The securities "beneficially owned" by an
individual are determined in accordance with the
definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and
Exchange Commission and may include securities owned by
or for the individual's spouse and minor children and
any other relative who has the same home, as well as
securities to which the individual has, or shares,
voting or investment power or has the right to acquire
beneficial ownership within 60 days after March 9, 1998.
Beneficial ownership may be disclaimed as to certain
securities.
(3) Information furnished by the directors and the
Corporation.
(4) Less than 1% unless otherwise indicated.
(5) Includes 100 Shares held individually by Mr. Culler
and
19,929 Shares held in trust for the benefit of his
children.
Mr. Culler has sole power to vote the shares held in
trust
and to revoke the trust.
(6) Includes 3,375 Shares held individually by Mr.
Daniels,
3,250 Shares held individually by his spouse, and 2,375
Shares held jointly with his son.
(7) Includes 3,160 Shares held individually by Mr.
Duffey, and 750 shares held jointly and equally with his
three sons.
(8) Includes 1,400 Shares held individually by Mr.
Duffey and 5 Shares held by his daughter over which he
has voting power.
(9) Includes 2,000 Shares held individually by Mr.
Grissinger and 10,100 Shares held jointly with his
spouse.
(10) Includes 6,088 Shares held individually by Dr.
Johnston; 8,857 Shares held individually by his spouse;
710 shares held in trust, and 650 Shares over which Dr.
Johnston has voting power.
(11) Includes 30,426 Shares held Individually by Mr.
Mellott.
(12) Includes 1,600 Shares held individually by Mr. Ott
and
3,020 Shares held jointly with his spouse, and 100
Shares held individually by his spouse.
(13) Includes 289 Shares held individually by Mr.
Washabaugh; 542 Shares held individually by his spouse;
and 4,169 Shares held jointly with his spouse.
(14) Includes 390 Shares held individually by Mr. Waltz.
(15) Includes 270 Shares held individually by Ms.
Carbaugh.
(16) Includes 110 Shares held jointly by Mr. Palmer and
his spouse.
ELECTION OF DIRECTORS
In accordance with the By-laws of the Corporation,
at the 1998 Annual Meeting of Shareholders, four (4)
Class 2 Directors shall be elected to serve for a three-
year term and until their successors are elected and
qualified.
Therefore, the By-laws provide for a classified
Board of Directors with staggered three-year terms of
office.
Unless otherwise instructed, the Proxyholders' will
vote the Proxies received by them for the election of
the four (4) nominees for Class 2 Director named below.
If any nominee should become unavailable for any
reason, Proxies will be voted in favor of a substitute
nominee as the Board of Directors of the Corporation
shall determine. The Board of Directors has no reason
to believe that, if elected, the nominees named will be
unable to serve. Any vacancy occurring on the Board of
Directors of the Corporation for any reason may be
filled by a majority vote of the directors then in
office until the expiration of the term of the vacancy.
In addition, there is no cumulative voting for the
election of the directors. Each share of Common Stock
is entitled to cast only one vote for each nominee. For
example, if a shareholder owns ten (10) shares of Common
Stock, he or she may cast up to ten votes for each of
the named four Class 2 directors to be elected.
INFORMATION AS TO NOMINEES, DIRECTORS AND OFFICERS
The following table contains certain information
with respect to the Corporation's executive officers,
corporate nominees for Class 2 Director whose term
expires in 2001 and the
current Class 2 Directors whose term expires in 1998,
and the Class 3 Directors and Class 1 Directors whose
terms expire in 1999 and 2000, respectively, and Bank
Directors who are appointed annually by the
Corporation's Board of Directors:
Principal Occupation for
Past Five Years and Position
Held with the Corporation and Bank
________________________________
NOMINEE FOR CLASS 2 DIRECTOR
WHOSE TERM EXPIRES IN 2001
AND
CURRENT CLASS 2 DIRECTORS
WHOSE TERM EXPIRES IN 1998
____________________________
Director of
Corporation/
Name Age Occupation
Bank Since
Harvey J. Culler 72 Chairman of the Board,
1987/1960
(2)(4)(6)(9)(11)(12) H.J. Culler Inc.
John C. Duffey 44 President and CEO of
1988/1988
(2)(3)(4)(6)(7)(8)(9)(11)* the Corporation and
of the Bank
George S. Grissinger 81 Secretary of the
1987/1959
(1)(5)(7)(10)(11)(13) Corporation; Retired
Forrest R. Mellott** 59 Chairman, Mellott
NA /1998
Enterprises, Inc. &
H.B. Mellott Estates,
Inc.
___________________________
CLASS 3 DIRECTORS
WHOSE TERM EXPIRES IN 1999
____________________________
Director of
Corporation/
Name Age Occupation
Bank Since
Henry W. Daniels 76 Vice Chariman of the
1987/1956
(1)(3)(5)(6)(7)(9)(12)(13) Corporation; Retired
H. Lyle Duffey 75 Chairman of the Board
1987/1956
(1)(2)(3)(4)(6)(9)(11)(13)* of the Corporation;
Retired Minister
David A. Washabaugh III 62 Retired President of
1987/1980
(3)(4)(7)(8)(9)(11) Fulton Motor Sales, Inc.
Daniel E. Waltz 35 Treasurer of the
1995/1990
(1)(2)(3)(4)(11)(13) Corporation; Sr VP/CFO
and Secretary of the
Bank
________________________________
CLASS 1 DIRECTORS
WHOSE TERM EXPIRES IN 2000
________________________________
Director of
Corporation/
Name Age Occupation
Bank Since
Harry D. Johnston, D.O. 61 Physician; VP of
1987/1980
(2)(4)(6)(8)(9)(10)(12) of the Corporation
Paul T. Ott 75 Retired
1987/1980
(1)(3)(7)(8)(11)(13)
Patricia A. Carbaugh 54 Chairman of the Board
1997/1990
(9) of the Bank; Admin Asst
Lonnie W. Palmer 45 Vice Chairman of the
1997/1994
(3)(7) Board of the Bank;
Dairy Farmer
_________________________________
BANK DIRECTORS
WHO ARE APPOINTED ANNUALLY
_________________________________
All of the above named Corporate Directors also
serve as Directors on the Board of Directors of The
First National Bank of McConnellsburg.
* H. Lyle Duffey, Chairman of the Board of the
Corporation and John C. Duffey, Director and President
of the Corporation and the Bank, are father and son,
respectively.
**Mr. Mellott was appointed to the Bank's Board of
Directors on January 14, 1998 and is a candidate for
Class 2 Director to serve until 2001.
(1) Member of the Bank's Audit Committee. The Audit
Committee met 2 times in 1997 to supervise the internal
audit activities of the Bank and to supervise and direct
the Bank and Corporation's internal and external
auditors.
(2) Member of the Bank's Asset/Liability Committee.
The Asset/
Liability Committee met 8 times during 1997 to assist in
the allocation of funds within the guidelines
established by Bank policy based upon such matters as
interest rate sensitivity, deposit structures,
liquidity, loans, investments and policy adequacy. The
committee also makes recommendations on dividends and
capital adequacy.
(3) Member of the Bank's Loan Committee. The Loan
Committee met 47 times during 1997 to review and approve
loans within the limits set forth in the Bank's Loan
Policy.
(4) Member of the Bank's Investment Committee. The
Investment Committee met 3 times during 1997. The
committee reviews and recommends investment strategies
in line with the Bank's Investment Policy.
(5) Member of the Corporation's Nominating Committee.
The Nominating Committee met 1 time during 1997 to set
nominations for directors at the Annual Meeting of
Shareholders.
(6) Member of the Bank's Executive Committee. The
Executive Committee met 5 times in 1997 to discuss and
review matters which needed immediate action beyond the
scope of daily management.
(7) Member of the Bank's Appraisal Committee. The
Appraisal Committee met 1 time during 1997 to assess
real estate property lending standards.
(8) Member of the Bank's Public Relations Committee.
The Public Relations Committee met 3 times during 1997
to discuss public relations and marketing matters.
(9) Member of the Bank's Personnel Committee. The
Personnel Committee met 2 times during 1997 to oversee
personnel and employment matters of the Bank.
(10) Member of the Bank's Security Committee. The
Security Committee met 1 time during 1997 to discuss
matters regarding the Bank's physical and employee
security.
(11) Member of the Bank's Building Committee. The
Building Committee met 2 times during 1997 to oversee
the Corporation's and Bank's physical facilities.
(12) Member of the Compensation Committee. The
Compensation Committee met 1 time during 1997 to review,
discuss and set salary schedules for the Bank's
executive officers.
(13) Member of the EDP Committee. The EDP Committee met
1
time during 1997 to review issues related to the bank's
internal computer system and to deal with Year 2000
issues.
______________________________________________
A shareholder who desires to propose an individual
for consideration by the Board of Directors as a nominee
for director should submit a proposal in writing to the
Secretary of the Corporation in accordance with Section
202 of the By-laws of the Corporation.
During 1997, the Bank's Board of Directors held
twenty-four (24) meetings. The Corporation's Board of
Directors met four (4) times in 1997. Each of the
Directors of the Corporation who is also a Director of
the Bank attended at least 75% of the combined total
number of meetings of the Board of Directors and the
committees on which he or she serves.
EXECUTIVE COMPENSATION
Shown below is information concerning the annual
compensation for services in all capacities to the
Corporation and the Bank for the fiscal years ended
December 31, 1997, 1996 and 1995 for the Chief Executive
Officer. There was no executive officer of the
Corporation or the Bank whose total annual salary and
bonus during that time frame exceeded $100,000.
Summary Compensation Table
(a) (b) (c) (d) (e) (f) (g)
(h)
Other
All
Annual
Other
Compen- Stock
Option/ Compen-
Salary Bonus sation Awards SARs
sation
Name Year ($)(1) ($) ($) ($) (#)
($)(2)
John C. 1997 86,208 2,835 -- -- --
3,943
Duffey, 1996 84,048 4,645 -- -- --
3,975
CEO 1995 78,565 5,625 -- -- --
3,107
(1) Includes Mr. Duffey's salary as the Cheif Executive
Officer, an annual director's retainer fee of $2,000,
and $2,900 in fees for his service as a director in
1997, $3,050 in 1996, and $2,675 in 1995.
(2) Represents insurance premiums paid by the Bank for
straight term life insurance for Mr. Duffey in the
following amounts: $230 in 1997, $204 in 1996, and $204
in 1995. This figure also includes the Bank's share of
the contribution to Mr. Duffey's 401-K Plan of $3,713 in
1997, $3,771 in 1996, and $2,903 in 1995.
Compensation Committee Report On Executive Compensation
The Corporation's overall executive compensation
philosophy, which is carried out by the Compensation
Committee, is to:
* Attract and retain quality talent, which is
critical to
both the short-term and long-term success of the
Corporation.
* Reinforce strategic performance objectives
through the use
of incentive bonus programs.
* Create a mutuality of interest between executive
officers
and shareholders through compensation structures
that
share the rewards and risks of strategic
decision-making.
Total Compensation - The Committee's approach to
total compensation is to offer competitive salaries and
benefits as they relate to comparisons with similar
market practices. The Committee annually examines
market compensation levels and trends observed in the
labor market through the use of available survey data.
For its purposes, the Committee has defined the labor
market as the pool of executives who are employed in
similar positions within financial institutions of
similar asset size and geographic region as the First
National Bank of McConnellsburg utilizing as the guide
the total compensation paid by banks who participate in
the annual LR Webber Associates Salary and Benefits
Survey. This survey reports on salary information as
it relates to one hundred fifty three (153) Pennsylvania
financial institutions. In addition, the committee
considers executive performance as it relates to the
First National Bank's financial performance as compared
to peer groups analyzed in the Uniform Bank Performance
Report as prepared by the Federal Financial Institutes
Examination Council (FFIEC). Market and survey
information are used as a frame of reference for annual
total compensation adjustments.
The named executive officer listed in the summary
compensation table has entered into an employment
contract as described in a later section of this proxy
statement entitled "Employment and Severance
Agreements". This contract contains a section entitled
"Annual Direct Salary" which specifies that annually,
the Executive's base salary shall be adjusted to assure
that his salary is, at a minimum, equal to the weighted
average base salary published in the latest L.R. Webber
salary and benefits survey for the Cheif Executive
Officer category as related to banks of similar asset
size. The executive's base salary is then factored as a
part of the total compensation figure. Total
compensation includes base salary, bonus, and other
taxable compensation.
The total compensation paid to the named executive
officer listed in the summary compensation table, as
compared to the aforementioned LR Webber survey
information, places the named executive's total
compensation at 77.83% of the average total compensation
paid to CEO's in banks with similar asset sizes, and
72.71% of average total compensation paid to CEO's in
banks within the Franklin and Fulton County labor market
area. As related to the bank's financial performance,
the Committee feels the executive's total compensation
accurately reflects the Bank's relative position and
related performance as compared to other banks of
similar asset size and regional location.
As related to the total compensation package for
other executive officers not named in the compensation
table, the Committee makes salary decisions utilizing an
annual review process with input from the CEO. The
annual review process considers the decision-making
responsibilities of each executive management position,
as well as the experience, work performance, and related
skills of position incumbents. Review factors are
utilized, and weighted in accordance with the particular
job position. To help quantify these measures, the
Committee does utilize the LR Webber Associates wage and
salary survey.
The Compensation Committee consists of Directors
Harvey J. Culler, Henry W. Daniels and Harry D.
Johnston.
Annual Bonus Plan - The Bank does provide for bonus
payments to reward executive officers for accomplishing
certain annual goals and objectives. Individual
executive officer goals and objectives are established
utilizing a strategic plan approach.
The bonus earned by the CEO in 1997 was 3.29% of
salary as compared to 5.53% in 1996. The average bonus
earned in 1997 by the five executive officers of the
bank other than the CEO was 3.77% of base salary,
compared with 5.07% in 1996. The decrease in bonus
payments to these individuals is directly related to the
decrease in financial performance of the organization in
1997. The committee notes that the decrease in
financial performance in 1997 was anticipated due to the
bank's growth mode philosophy as previously disclosed to
shareholders in dividend letters.
Employment and Severance Agreements - The executive
named in the Summary Compensation Table has entered into
an Employment Agreement with the Corporation. This
agreement specifies a term of employment of five (5)
years beginning August 1, 1995 and ending July 31, 2000.
This agreement provides that the executive shall serve
as the Chief Executive Officer of the Corporation and
the Bank and as a board member of the Corporation and
the Bank. During this employment term, the executive
has agreed to devote substantially all his working time
to the business of the Corporation and the Bank and has
agreed not to enter any business arrangement which would
be deemed competitive to the Corporation or the Bank.
The Employment Agreement provides for a minimum
guaranteed base salary as described in the above section
entitled "Total Compensation". The Employment Agreement
also provides for an incentive compensation bonus plan
as described in the above section entitled "Annual Bonus
Plan".
The Employment Agreement provides fringe benefits
equal to those of other employees of the bank. In
addition, the Employment Agreement provides for the use
of a Bank purchased or leased automobile and
reimbursement for all operating expenses of this said
automobile. The Agreement also provides for
reimbursement of all expenses for the executive and the
executive's spouse to attend Pennsylvania trade
association conventions. The Agreement also provides
for payment of physical examinations of the Executive on
an every other year basis by a physician chosen by the
Executive.
The Employment Agreement provides that employment
shall be at will, but if employment is terminated
without cause as defined in the "Agreement", or the
executive resigns for good reason as defined in the
"Agreement", the executive can receive the greater of
twenty-four (24) months' salary or an amount equal to
the remaining time of the Employment Agreement. The
Corporation may also be required to pay certain
additional benefits. The Employment Agreement also
provides that the executive whose employment has
terminated shall keep certain information confidential
and shall not compete with the Corporation or its
subsidiaries for a period of one year.
The Employment Agreement does contain a "Change of
Control" clause which provides for a Severance Allowance
for the Executive in the event of a "Change in Control"
equal to the greater of twenty-four (24) months' salary
or an amount equal to the remaining time of the
Employment Agreement. The Employment Agreement defines
"Change of Control" as (a) the acquisition of the
beneficial ownership of at least twenty five (25%) of
the Corporation's voting securities or all or
substantially all of the assets of the Corporation by a
single person or entity or a group of affiliated persons
or entities other than the Corporation or a person or
persons who are officers or directors of the
Corporation, (b) the merger, consolidation or
combination of the Corporation or Bank with an
unaffiliated corporation in which the Directors of the
Corporation or Bank, as a result of such merger,
consolidation or combination constitute less than a
majority of the corporate Board of Directors of the
surviving, new or combined entity, unless such reason
results from a catastrophic accident, (c) during any
period of two (2) consecutive terms of this Agreement,
individuals who at the beginning of such period
constitute the Board of Directors of the Corporation
cease, for any reason, to constitute at least a majority
thereof, unless the election of each director who was
not a director at the beginning of such period has been
approved in advance by directors representing at least
two-thirds (2/3) of the directors then in office who
were directors at the beginning of the period; and (d)
any other reason which would be deemed a "Change of
Control" by any federal or state regulatory body.
401-K Plan and Non-Executive Officer Cash Bonus Policy
The Corporation does not have a retirement or
pension plan. The Bank, however, maintains a 401-K Plan
(the "Plan") covering all eligible employees who have
attained the age of 20 years and completed six months of
service. Employees become fully vested after six (6)
years of service. Normal retirement is at sixty-five
(65) years of age, with a provision for early retirement
at age fifty-five (55). The Bank's total contribution
to the plan for the year ending December 31, 1997 was $
64,518.
The Bank does make annual bonus payments to non-
executive officer employees and non-officer employees
based on the discretion of the Board of Directors.
Factors considered by the Board of Directors in making a
bonus decision include the financial performance of the
bank and the degree in which non-executive officers and
non-officer employees were able to impact the
performance of the organization.
The bonus is distributed to this group of employees
based on a percentage of total wages.
Compensation of Directors
During 1997, the Bank's Board of Directors received
$125 for each meeting attended, $25 for each committee
meeting attended, and a $2,000 annual fee. The
Directors of the Corporation do not receive renumeration
for attendance at the Corporation's Board of Director
meetings. In the aggregate, the Bank paid $68,099 in
1997 to all Directors for attending all meetings of the
Board of Directors and the committees of the Board of
Directors.
CERTAIN TRANSACTIONS
There have been no material transactions between
the Corp-
oration and the Bank, nor any material transactions
proposed, with any Director or executive officer of the
Corporation and the Bank, or any associate of any of the
foregoing persons during 1997. The Corporation and the
Bank have had and intend to continue to have banking and
financial transactions in the ordinary course of
business with directors and officers of the Corporation
and the Bank and their associates on comparable terms
and with similar interest rates and collateral, as those
prevailing at the time for other customers of the
Corporation and the Bank.
Total loans outstanding from the Corporation and
the Bank as of December 31, 1997, to the Corporation's
and Bank's officers and directors as a group and members
of their immediate families and companies in which they
had ownership interest of 10% or more was $1,894,579 or
17.6% of the Bank's total equity capital. Loans to such
persons were made in the ordinary course of business,
were made on substantially the same terms, including
interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons,
and did not involve more than the normal risk of
collection or present other unfavorable features. The
largest aggregate amount of indebtedness outstanding at
any time during fiscal year 1997 to officers and
directors of the Corporation and the Bank was
$3,245,233. The aggregate amount of indebtedness
outstanding as of the latest practicable date, January
31, 1998, to the above described group was $3,349,323.
PRINCIPAL OFFICERS OF THE CORPORATION
The following tables set forth selected information
about the principal officers of the Corporation, each of
whom is elected by the Board of Directors and each of
whom holds office at the discretion of the Board of
Directors:
Age
Bank # of Shares
as of
Office and Held Employee Beneficially
Mar. 9
Name Position Held Since Since Owned
1998
H. Lyle Chairman of
Duffey the Board 1987 (1) 3,910
75
Henry W.
Daniels Vice Chairman 1987 (1) 9,000
76
John C.
Duffey President 1995 1982 1,405
44
Harry D.
Johnston Vice President 1987 (1) 17,194
61
George S.
Grissinger Secretary 1987 (1) 12,100
81
Daniel E.
Waltz Treasurer 1994 1983 390
35
(1) Messrs. H.L. Duffey, Daniels, Johnston and
Grissinger are not
employees of the Bank.
PRINCIPAL SENIOR OFFICERS OF THE BANK
Age
Bank # of
Shares as of
Office and Held Employee
Beneficially Mar. 9
Name Position Held Since Since Owned
1998
John C. President and 1993 1982 1,405
44
Duffey Chief Executive
Officer
Daniel E. Sr V President 1993 1983 390
35
Waltz and Chief
Financial Officer
Thomas H. Vice President 1993 1971 200
46
DeShong and Cashier
Brenda Vice President 1993 1972 204
48
Gordon and Sr. Loan Officer
Mary Anne Vice President 1993 1983 1,010
57
Garland and Customer Service Officer
Margaret Human Resources 1997 1983 10
46
A. Kobel Officer
LEGAL PROCEEDINGS
The nature of the Corporation's and the Bank's
business generates a certain amount of litigation
involving matters arising in the ordinary course of
business. However, in the opinion of management of the
Corporation and Bank, there are no proceedings pending
to which the Corporation and Bank are a party or to
which their property is subject, which, if determined
adversely to the Corporation and Bank, would be material
in relation to the Corporation's and Bank's undivided
profits or financial condition, nor are there any
proceedings pending other than ordinary routine
litigation incident to the business of the Corporation
and Bank. In addition, no material proceedings are
pending or are known to be threatened or contemplated
against the Corporation and Bank by government
authorities.
RATIFICATION OF INDEPENDENT AUDITORS
Unless instructed to the contrary, it is intended
that votes will be cast pursuant to the Proxies for the
ratification of the selection of Smith Elliott Kearns &
Company, Certified Public Accountants, of Chambersburg,
Pennsylvania as the Corporation's independent auditors
for its 1998 fiscal year. The Corporation has been
advised by Smith Elliott Kearns & Company that none of
its members has any financial interest in the
Corporation. Ratification of Smith Elliott Kearns &
Company will require the affirmative vote of a majority
of the shares of Common Stock represented in person or
by proxy at the Annual Meeting. Smith Elliott Kearns &
Company served as the Corporation's independent auditors
for the 1997 fiscal year. In addition to performing
customary audit services, Smith Elliott Kearns & Company
assisted the Corporation and the Bank with the
preparation of their federal and state tax returns, and
provided assistance in connection with regulatory
matters, charging the Bank for such services at its
customary hourly billing rates. These non-audit
services were approved by the Corporation's and the
Bank's Board of Directors prior to the rendering of such
services after due consideration of the effect of the
performance thereof on the independence of the
accountants and after the conclusions by the Corporation
and the Bank's Board of Directors that there was no
effect on the independence of the auditors. In the event
that the shareholders do not ratify the selection of
Smith Elliott Kearns & Company, as the Corporation's
independent auditors for the 1998 fiscal year, another
accounting firm may be chosen to provide independent
audit services for the 1998 fiscal year.
The Board of Directors recommends that the
shareholders vote FOR the ratification of the selection
of Smith Elliott Kearns & Company as the independent
auditors for the Corporation for the year ending
December 31, 1998.
ANNUAL REPORT
A copy of the Corporation's Annual Report for its
fiscal year ended December 31, 1997 is enclosed with
this Proxy Statement. A representative of Smith Elliott
Kearns & Company, the accounting firm which examined the
financial statements in the Annual Report, will attend
the Annual Meeting. This representative of Smith
Elliott Kearns & Company will have the opportunity to
make a statement, if he/she desires to do so, and will
be available to respond to any appropriate questions
presented by shareholders at the Annual Meeting.
SHAREHOLDER PROPOSALS
Any shareholder who, in accordance with and subject
to the provisions of the proxy rules of the Securities
and Exchange Commission, wishes to submit a proposal for
inclusion in the Corporation's Proxy Statement for its
1999 Annual Meeting of Shareholders must deliver such
proposal in writing to the Chairman of FNB Financial
Corporation at the corporation's principal executive
offices at 101 Lincoln Way West, McConnellsburg,
Pennsylvania 17233, not later than Monday, November 23,
1998.
OTHER MATTERS
The Board of Directors does not know of any matters
to be presented for consideration other than those
matters described in the Notice of Annual Meeting of
Shareholders, but if any matters are properly presented,
it is the intention of the persons named in the
accompanying Proxy to vote on such matters in accordance
with their best judgement.
