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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 [Fee Required]
For the fiscal year ended December 31, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act
of 1934 [No Fee required]
For the transition period from _______ to _______.
Commission file number 33-66014
FNB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
COMMONWEALTH OF PENNSYLVANIA 23-2466821
(State or other jurisdiction of incorporation
(I.R.S. Employer
or organization)
Identification No.)
101 Lincoln Way West, McConnellsburg, PA
17233 (Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: 717-485-3123
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Class Outstanding as of March 15, 2000
Common Stock, $0.63 Par Value 400,000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ( 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of the
registrants as of March 6, 2000:
Common Stock, $0.63 Par Value - $20,000,000.00
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended December 31,
1999, are
incorporated by reference into Parts I, II and IV.
Portions of the proxy statement for the annual shareholders meeting to be
held
April 25, 2000, are incorporated by reference into Part III.
Portions of Form SB-2 Registration Statement No. 33-66014 as filed with the
Securities and Exchange Commission on September 8, 1993, are incorporated by
reference into Part IV.
A copy of a Common Stock Certificate of FNB Financial Corporation as
filed with the Securities and Exchange Commission with Form 10-K for
the fiscal year ended December
31, 1995 is incorporated by reference into Part IV.
PART I
Item 1. Business
Description of Business
FNB Financial Corporation (the Company), a Pennsylvania
business corporation, is a bank holding company
registered
with and supervised by the Board of Governors of the
Federal
Reserve System (the "Federal Reserve Board"). The
Company was
incorporated on June 22, 1987, under the business
corporation
law of the Commonwealth of Pennsylvania for the
purpose of
becoming a bank holding company. Since commencing
operations,
the Company's business has consisted primarily of
managing and
supervising The First National Bank of
McConnellsburg (the
Bank) and its principal source of income has been
dividends
paid by the Bank. The Company has one wholly-owned
subsidiary, the Bank.
The Bank was established in 1906 as a national
banking
association under the supervision of the Comptroller
of the
Currency, the Comptroller. The Bank is a member of
the
Federal Reserve System and customers' deposits held
by the
Bank are insured by the Federal Deposit Insurance
Corporation
to the maximum extent permitted by law. The Bank is
engaged
in a full service commercial and consumer banking
business
including the acceptance of time and demand deposits
and the
making of secured and unsecured loans. The Bank
provides its
services to individuals, corporations, partnerships,
associations, municipalities and other governmental
bodies.
As of January 1, 1999, the Bank had three (3)
offices and (1)
drive-up ATM located in Fulton County, one (1)
branch
office facility located in Fort Loudon, Franklin
County
Pennsylvania and one (1) branch office facility
located in
Hancock, Washington County, Maryland. During 1995
the Bank
received regulatory approval from The Comptroller to
purchase
and assume the deposits, real estate and building of
the Fort
Loudon Branch Office of Dauphin Deposit Bank located
in Franklin
County, Pennsylvania. Due to the location of
this office,
management and the Board felt the acquisition of
this office
was strategically important in order to officially
expand the
Bank's market area into the Franklin County, PA area
and
diversify its current primary market of Fulton
County, PA. It
is anticipated this office will generate new loan
and deposit
demand for the Bank in the coming years. During
1996 the Bank
received regulatory approval from The Comptroller to
open its
first interstate Branch office in Hancock, Maryland
after
management became aware of the closing of a branch
office of
First Federal Savings Bank of Western Maryland.
This office is
known as "Hancock Community Bank, A Division of The
First
National Bank of McConnellsburg". The location of
this office
is felt to be strategically important in order to
expand the
Bank's operations into Washington County, Maryland
and northern
Morgan County, West Virginia. This office will also
be the
Bank's first supermarket branch office. As soon as
the owner of
the adjacent supermarket completes extensive
renovations, the
wall between the branch office and the supermarket
will be
removed, allowing customers to enter the branch
directly from
the supermarket. This office is expected to enhance
demand for
the Bank's loan and deposit products as well as
retain deposits
of customers in southern Fulton County,
Pennsylvania.
The Bank received permission from the Comptroller to
expand its main office facilities in downtown
McConnellsburg
to allow for larger customer service, loan
department and data
processing areas. This expansion was completed on
September 1,
1996, at a cost of approximately $1,700,000. In
February 1999,
the Bank purchased an adjacent property to the main
office
facility at 115 Lincoln Way West in downtown
McConnellsburg from
the Fulton Overseas Veterans Association. This site
is 54' by
218' and has situated on it a three story building
comprised
of 4,577 usable square feet on the first floor and a
28' by 60'
finished basement. The second and third stories of
the building
are not usable. The Bank has no immediate plans for
this
facility but felt it was a wise decision to purchase
it for
strategic planning purposes. The Bank has one
wholly-owned
subsidiary, First Fulton County Community
Development
Corporation, which is a Community Development
Corporation formed
under 12USC24/2CFR24 whose primary regulator is the
Office of
the Comptroller of the Currency, The Comptroller.
The First
Fulton County Community Development Corporation was
incorporated
with the Commonwealth of Pennsylvania on May 30,
1995. The
primary business of this community development
corporation is to
provide and promote community welfare through the
establishment
and offering of low interest rate loan programs to
stimulate
economic rehabilitation and development for the
Borough of
McConnellsburg and the entire community of Fulton
County, PA.
Competition
Our primary market area includes all of Fulton
County
and portions of Huntingdon, Bedford and Franklin
Counties,
portions of Washington County, Maryland and portions
of Morgan
County, West Virginia. Our major competitor is a
one
bank holding company headquartered in
McConnellsburg,
Pennsylvania which has 7 branches located throughout
Fulton,
Franklin and Huntingdon Counties. As of December
31, 1999, we
were ranked second in total deposits when compared
to our major
competitor. Also, in this market area we compete
with
regionally-based commercial banks (all of which have
greater
assets, capital and lending limits), savings banks,
savings and
loan associations, money market funds, insurance
companies,
stock brokerage firms, regulated small loan
companies, credit
unions and with issuers of commercial paper and
other
securities.
Although deregulation has allowed us to become more
competitive
in the market place in regard to pricing of loan and
deposit
rates, there are disparities in taxing law which
give some of
our nonbank competitors advantages which commercial
banks do not
enjoy and many burdensome and costly regulations
with which we
must comply. We meet these challenges by developing
and
promoting our locally-owned community bank image; by
offering
friendly and professional customer service; and by
striving to
maintain competitive interest rates for both loans
and deposits.
Regulation and Supervision
Our operations are subject to the provisions of the
Bank Holding
Company Act of 1956, as amended (the "Bank Holding
Company
Act"), and to supervision by the Federal Reserve
Board. The
Bank Holding Company Act requires us to secure the
prior
approval of the Federal Reserve Board before we own
or control,
directly or indirectly, more than five percent (5%)
of the
voting shares of substantially all of the assets of
an
institution, including another bank. The Bank
Holding Company
Act prohibits acquisition by the Company of more
than five
percent (5%) of the voting shares of, or interest
in, all or
substantially all of the assets of any bank located
outside of
Pennsylvania unless such acquisition is specifically
authorized
by the laws of the state in which such bank is
located.
Our operations are subject to federal and state
statutes
applicable to banks chartered under the banking laws
of the
United States, to members of the Federal Reserve
System
and to banks whose deposits are insured by the FDIC.
Our
operations are also subject to regulations of the
Comptroller,
the Federal Reserve Board and the FDIC. Our primary
supervisory
authority is the Comptroller, which regulates and
examines us. The Comptroller has authority to prevent
national banks from
engaging in unsafe or unsound practices in
conducting their
businesses.
Legislation and Regulatory Changes
From time to time, legislation is enacted which has
the effect
of increasing the cost of doing business, limiting
or
expanding permissible activities or affecting the
competitive
balance between banks and other financial
institutions.
Proposals to change the laws and regulations
governing the
operations and taxation of banks, bank holding
companies and
other financial institutions are frequently made in
Congress,
and before various bank regulatory agencies. No
prediction
can be made as to the likelihood of any major
changes or the
impact such changes might have on the Company and
its
subsidiary, the Bank. Certain changes of potential
significance to the Company which have been enacted
recently
are discussed below.
The Federal Reserve Board, the FDIC and the
Comptroller have
issued risk-based capital guidelines, which
supplement
existing capital requirements. The guidelines
require all
United States banks and bank holding companies to
maintain a
minimum risk-based capital ratio of 8.0% (of which
at least
3.0% must be in the form of common stockholders'
equity).
Assets are assigned to five risk categories, with
higher
levels of capital being required for the categories
perceived
as representing greater risk. The required capital
will
represent equity and (to the extent permitted)
nonequity
capital as a percentage of total risk-weighted
assets. On the
basis of an analysis of the rules and the projected
composition of the Company's consolidated assets, it
is not
expected these rules will have a material effect on
the
Company's business and capital plans. The company
presently
has capital ratios exceeding all regulatory
requirements.
The Financial Institution Reform, Recovery and
Enforcement Act
of 1989 ("FIRREA") was enacted in August 1989. This
law was
enacted primarily to improve the supervision of
savings
associations by strengthening capital, accounting
and other
supervisory standards. In addition, FIRREA
reorganized the
FDIC by creating two deposit insurance funds to be
administered by the FDIC: the Savings Association
Insurance
Fund and the Bank Insurance Fund. Customers'
deposits held by
the Bank are insured under the Bank Insurance Fund.
FIRREA
also regulated real estate appraisal standards and
the
supervisory/enforcement powers and penalty
provisions in
connection with the regulation of the Bank.
In December 1991 the Federal Deposit Insurance
Corporation
Improvement Act of 1991 ("FDICIA") became law.
Under FDICIA,
institutions must be classified, based on their
risk-based
capital ratios into one of five defined categories
(well
capitalized, adequately capitalized,
undercapitalized,
significantly undercapitalized and critically
undercapitalized) as outlined below:
Total Tier 1
Under a
Risk- Risk- Tier
1 Capital
Based Based
Leverage Order or
Ratio Ratio Ratio
Directive
CAPITAL CATEGORY
Well capitalized >10.0% >6.0%
>5.0% No
Adequately capitalized > 8.0% >4.0%
>4.0%*
Undercapitalized < 8.0% <4.0%
<4.0%*
Significantly
Undercapitalized < 6.0% <3.0% <3.0%
Critically undercapitalized <2.0%
*3.0% for those banks having the highest available
regulatory rating.
Under FDICIA financial institutions are subject to
increased
regulatory scrutiny and must comply with certain
operational,
managerial and compensation standards to be
developed by
Federal Reserve Board Regulations. FDICIA also
required the
regulators to issue new rules establishing certain
minimum
standards to which an institution must adhere
including
standards requiring a minimum ratio of classified
assets to
capital, minimum earnings necessary to absorb losses
and
minimum ratio of market value to book value for
publicly held
institutions. Additional regulations are required
to be
developed relating to internal controls, loan
documentation,
credit underwriting, interest rate exposure, asset
growth and
excessive compensation, fees and benefits.
Annual full-scope, on-site examinations are required
for all
FDIC-insured institutions except institutions with
assets
under $100 million which are well capitalized, well
managed
and not subject to a recent change in control, in
which case,
the examination period is every eighteen (18)
months. FDICIA
also required banking agencies to reintroduce loan-
to-value
("LTV") ratio regulations which were previously
repealed by
the 1982 Act. LTV's will limit the amount of money
a
financial institution may lend to a borrower, when
the loan is
secured by real estate, to no more than a percentage
to be set
by regulation of the value of the real estate.
A separate subtitle within FDICIA, called the "Bank
Enterprise
Act of 1991", requires "truth-in-savings" on
consumer deposit
accounts so that consumers can make meaningful
comparisons
between the competing claims of banks with regard to
deposit
accounts and products. Under this provision which
became
effective on June 21, 1993, the Bank is required to
provide
information to depositors concerning the terms and
fees of
their deposit accounts and to disclose the annual
percentage
yield on interest-bearing deposit accounts.
Federal regulators recently issued proposed
regulations to
implement the privacy provisions of the Gramm-Leach-
Bliley Act
(Financial Services Modernization Act). This new
law requires
banks to notify consumers about their privacy
policies and to
give them an opportunity to "opt-out" or prevent the
bank from
sharing "nonpublic personal information" about them
with
nonaffiliated third parties. Proposed regulations
are expected
to take effect in November 2000. We are in the
process of
developing privacy policies and procedures to
provide timely
disclosure of such policies and a convenient means
for consumers
to opt our of the sharing of their information with
unaffiliated
third parties.
We do not anticipate compliance with environmental
laws and
regulations to have any material effect on their
respective
capital, expenditures, earnings, or competitive
position.
Employees
As of December 31, 1999, we employed 56 persons on a
full-time
equivalent basis.
Statistical Data
Computation of our regulatory capital requirements
for the
periods December 31, 1999, and December 31, 1998, on
page 33 of the annual shareholders report for the
year ended
December 31, 1999, is incorporated herein by
reference.
Loan Portfolio
We make loans to both individual consumers and
commercial
entities. The types offered include auto, personal,
mortgage,
home equity, school, home repair, small business,
commercial,
and home construction loans. Within these loans
types, we
make installment loans, which have set payments
allowing the
loan to be amortized over a fixed number of
payments, demand
loans, which have no fixed payment and which are
payable in full
on demand and are normally issued for a term of less
than one
year, and mortgage loans, which are secured with
marketable real
estate and have fixed payment amounts for a pre-
established
payment period.
We do not assume undue risk on any loan within the
loan
portfolio, and take appropriate steps to secure all
loans as
necessary.
We have adopted the following loan-to-value ratios,
in
accordance with standards adopted by our bank
supervisory
agencies:
Loan Category Loan-to-Value
Limit
Raw Land 65%
Land Development
75%
Construction:
Commercial, Multifamily, and other
Nonresidential 1 to 4 Family Residential
80%
Improved Property
85%
Owner-occupied 1 to 4 Family and Home Equity
90%
We are neither dependent upon nor exposed to loan
concentrations to a single customer or to a single
industry,
the loss of any one or more of which would have a
material
adverse effect on the financial condition of the
Bank;
however, a portion of the Bank's customers' ability
to honor
their contracts is dependent upon the construction
and land
development and agribusiness economic sector. As a
majority
of our loan portfolio is comprised of loans to
individuals and
businesses in Fulton County, PA, a significant
portion of our
customers' abilities to honor their contracts is
dependent upon
the general economic conditions in South Central
Pennsylvania.
Loan Portfolio composition as of December 31, 1999,
and
December 31, 1998, on page 14 of the annual
shareholders
report for the year ended December 31, 1999, is
incorporated
herein by reference.
Maturities of loans as of December 31, 1999, on page
15 of the
annual shareholders report for the year ended
December 31,
1999, is incorporated herein by reference.
Nonperforming loans consist of nonaccruing loans and
loans 90
days or more past due. Nonaccruing loans are
comprised of
loans that are no longer accruing interest income
because of
apparent financial difficulties of the borrower.
Interest on
nonaccruing loans is recorded when received only
after past
due principal and interest are brought current. Our
general
policy is to classify loans as nonaccrual when they
become past
due in principal and interest for over 90 days and
collateral is
insufficient to allow continuation of interest
accrual. At that
time, the accrued interest on the nonaccrual loan is
reversed
from the current year earnings and interest is not
accrued until
the loan has been brought current in accordance with
contractual terms.
Nonaccrual volume for 1999 increased $363,616 from
the December
31, 1998, level due to a $155,000 residential
mortgage loan and
several other residential mortgage loans which were
classified
as nonaccrual. Nonaccrual volume for 1998 decreased
$354,805
from December 31, 1997, due to a $125,000 loan
secured by a 1-4
family residential property in the Hagerstown, MD
area being
moved to Other Real Estate and sold in 1998; the
amount charged-
off as a result of this movement and sale was
approximately
$32,000; the charge-off in 1998 of a $100,000
commercial loan
secured by inventory; and the charge-off of a
$12,000 unsecured
line of credit. The remaining decrease in 1998 was
the result of
1-4 family mortgages classified as nonaccrual as of
December 31,
1997, being brought current.
Nonaccrual volume for 2000 is anticipated to
increase due to
some commercial loans and residential mortgage loans
which may
experience cash flow difficulties in 2000.
Anticipated charge-
offs for 2000 are expected to remain approximately
the same as
the total charge-offs in 1999 of $201,000.
Nonaccrual, Past Due and Restructured Loans as of
December 31,
1999, December 31, 1998, and December 31, 1997, on
page 15 of
the annual shareholders report for the year ended
December
31, 1999, are incorporated herein by reference.
Allowance for Loan Loss Analysis
The allowance for loan losses is maintained at a
level to
absorb potential future loan losses contained in the
loan
portfolio and is formally reviewed by us on a
quarterly basis.
The allowance is increased by provisions charged to
operating
expense and reduced by net charge-offs. Our basis
for the level
of the allowance and the annual provisions is our
evaluation of
the loan portfolio, current and projected domestic
economic
conditions, the historical loan loss experience,
present and
prospective financial condition of the borrowers,
the level of
nonperforming assets, best and worst case scenarios
of possible
loan losses and other relevant factors. While we
use available
information to make such evaluations, future
adjustments of the
allowance may be necessary if economic conditions
differ
substantially from the assumptions used in making
the
evaluation. Loans are charged against the allowance
for loan
losses when we believe that the collectability of
the principal
is unlikely.
Activity in the allowance for loan losses and a
breakdown of
the allowance for loan losses as of December 31,
1999, and
December 31, 1998, on page 15 of the annual
shareholders
report for the year ended December 31, 1999, are
incorporated
herein by reference.
Although loans secured by 1-4 family residential
mortgages
comprise approximately 51% of the entire loan
portfolio, until
recently these mortgages have historically resulted
in little or
no loss. The allocation of the Allowance for Loan
Losses for
these mortgages is based upon this historical fact.
Due to a
more critical evaluation of our commercial,
industrial, and
agricultural loan portfolio, the allocation of the
Allowance
for Loan Losses for commercial, industrial, and
agriculture
loans has been accordingly increased.
Deposits
Time Certificates of Deposit of $100,000 and over as
of
December 31, 1999, and December 31, 1998, totaled
$12,292,000
and $11,231,000 respectively.
Maturities and rate sensitivity of total interest
bearing
liabilities as of December 31, 1999, on page 32 of
the annual
shareholders report for the year ended December 31,
1999, is
incorporated herein by reference.
Returns on Equity and Assets
Returns on equity and assets and other statistical
data for
1999, 1998 and 1997 on page 20 of the annual
shareholders
report for the year ended December 31, 1999, is
incorporated
herein by reference.
Item 2. Properties
The physical properties where the Bank conducts its
business
in the Commonwealth of Pennsylvania are all owned by
the
Bank while the property where the Bank conducts its
business
in the State of Maryland is leased. The properties
owned by the
Bank are as follows: the main office located at 101
Lincoln Way
West, McConnellsburg, Pennsylvania, has been
attached by a two
story brick and frame addition, to a building
located at 111
South Second Street, McConnellsburg, Pennsylvania
which houses
the Bank's loan department on the first floor and
future
expansion space on the second floor; a property
adjacent
to the main office facility at 115 Lincoln Way West
in downtown
McConnellsburg comprised of a 54' by 218' city lot
which has
situated on it a three story building consisting of
4,577
usable square feet on the first floor, a 28' by 60'
finished basement, second and third stories which
are unusable
and a detached garage; a branch office located on
Route 522
South, Needmore, Pennsylvania; a property located at
Routes 16
and 30 East, McConnellsburg, Pennsylvania which
contains a
drive-up automatic teller machine and a five (5)
lane drive-up
branch accessible from both Route 30 and Route 16;
and a branch
office located at 30 Mullen Street, Fort Loudon,
Pennsylvania,
for which the Bank received regulatory approval from
the Office
of the Comptroller of the Currency to purchase
effective
November 13, 1995. The branch office leased by the
Bank in the
state of Maryland is located in the Hancock Shopping
Center at
343 North Pennsylvania Avenue in Hancock, Maryland
next to a
supermarket.
The main office located in downtown McConnellsburg
is housed
in a two story brick and frame building, consisting
of
approximately 28,277 square feet. It has been
attached (by a
two story brick and frame addition which houses the
data
processing/operations center on the first floor and
executive
offices and a meeting room on the second floor) to
the
building located at 111 South Second Street, a brick
and frame
building situated on a one town lot which has been
expanded
and renovated to house the loan department on the
first floor
and future offices and rest rooms on the second
floor. The
main office contains one (1) external time and
temperature
sign, seven (7) internal teller stations, a customer
service
office area, executive offices, one (1) drive-up
teller station,
an automatic teller machine, three (3) vaults (one
containing
safe deposit boxes for customer use and one
containing a fire
proof/data-secure vault in the operations center), a
night
depository, a data processing center with a security
controlled
computer operations center, a loan department with a
large file
room, a kitchen and a 5,000 square foot basement
storage
area.
The Needmore Branch Office, a brick and frame
building
situated on approximately five (5) acres, consists
of
approximately 3,000 square feet, of which 750 square
feet is
rented as office space. The branch office houses
three (3)
internal teller stations, one (1) drive-up teller
station, a
customer service office area, one (1) vault which
contains
safe deposit boxes for customer use, one (1)
kitchen, and
storage areas.
The East End Express Banking Center, located on a
property of
approximately 68,000 square feet at Routes 16 and
30, has
situated on it one (1) drive-up automatic teller
machine and
one (1) night depository (both housed in a brick and
frame
building of approximately 121 square feet), and a
drive-up
branch office, a brick and frame building of
approximately 576
square feet, which contains four (4) drive-up teller
stations
with the potential for a total of five (5) drive-up
teller
stations in the future.
The Fort Loudon Branch Office, which was expanded
and completely
renovated in 1997 at an approximate cost of
$200,000, is a brick
and frame building situated on approximately .23
acres. It
consists of approximately 1,035 square feet. The
branch office
houses three (3) internal teller stations, one (1)
drive-up
teller station, one (1) vault which contains safe
deposit
boxes for customer use, a manager's office, one (1)
kitchen,
storage areas and a basement for storage which
consists of
approximately 620 square feet.
The leased office in Hancock, Maryland housing
Hancock Community
Bank is approximately 1,400 square feet and is
leased from the
owner of the shopping center next to a supermarket.
It contains
two (2) offices, one (1) automated teller machine,
two (2)
drive-up teller lanes, a lobby, a safe deposit box
vault for
customers and three (3) teller stations.
Item 3. Legal Proceedings
In our opinion, there are no proceedings pending to
which the
Company or the Bank is a party or to which our
property is
subject, which, if determined adversely to the
Company or the
Bank, would be material in relation to the our
retained earnings
or financial condition. There are no proceedings
pending other
than ordinary routine litigation incident to our
business.
In addition, no material proceedings are known to be
threatened
or contemplated against the us by government
authorities.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
Our common stock is not traded on a national securities
exchange
but is traded inactively in the over-the-counter
market and is
only occasionally and sporadically traded through
local and
regional brokerage houses or through the facilities
of the Bank.
The Stock Market Analysis and Dividends for 1999 and
1998 on
page 34 of the annual shareholders report for the
year ended
December 31, 1999, is incorporated herein by
reference.
Item 6. Selected Financial Data
The Selected Five-Year Financial Data on page 20 of
the annual
shareholders report for the year ended December 31,
1999, is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition
and Results of Operations
Management's discussion and analysis of financial
condition
and results of Operations on pages 25 through 36 of
the annual
shareholders report for the year ended December 31,
1999, is
incorporated herein by reference. This discussion
includes an
extensive analysis and review of the Corporation's
Year 2000
Readiness Plan.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data,
some of which
is required under Guide 3 (Statistical Disclosures
by Bank
Holding Companies) are shown on pages 6 through 24
of the
annual shareholders report for the year ended
December 31, 1999,
are incorporated herein by reference.
The Summary of Quarterly Financial Data on page 21
of the
annual shareholders report for the year ended
December 31,
1999, is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Officers of the Registrant
The information contained on pages 3 through 15 of
FNB
Financial Corporation's Proxy Statement For the
Annual Meeting
of Shareholders to be Held April 25, 2000, with
respect to
directors and executive officers of the Company, is
incorporated herein by reference in response to
this item.
Item 11. Executive Compensation
The information contained on pages 9 through 13 of
FNB
Financial Corporation's Proxy Statement For the
Annual Meeting
of Shareholders to be Held April 25, 2000, with
respect to
executive compensation, transactions and contracts,
is
incorporated herein by reference in response to
this item.
Item 12. Security Ownership of certain Beneficial Owners and
Management
The information contained on pages 3 through 5 and
pages 14 and
15 of FNB Financial Corporation's Proxy Statement
For the
Annual Meeting to be Held April 25, 2000, with
respect to
security ownership of certain beneficial owners and
management,
is incorporated herein by reference in response to
this item.
Item 13. Certain Relationships and Related Transactions
The information contained on pages 7, 8, and 14 of
FNB
Financial Corporation's Proxy Statement For the
Annual Meeting
to be Held April 25, 2000, with respect to certain
relationships and related transactions, is
incorporated herein
by reference in response to this item.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports of Form
8-k.
(a) (1) - List of Financial Statements
The following consolidated financial statements of
FNB
Financial Corporation and its subsidiary, included
in the
annual report of the registrant to its shareholders
for the
year ended December 31, 1999, are incorporated by
reference
in Item 8:
Consolidated balance sheets - December 31, 1999,
and 1998
Consolidated statements of income - Years ended
December 31,
1999, 1998 and 1997
Consolidated statements of stockholders' equity -
Years
ended December 31, 1999, 1998 and 1997
Consolidated statements of cash flows - Years
ended December
31, 1999, 1998 and 1997
Notes to consolidated financial statements -
December 31,
1999
(2) - List of Financial Statement Schedules
Schedule I - Marketable Securities - Other
Investments
Schedule III - Condensed Financial
Information of
Registrant
Schedule VIII - Valuation and Qualifying
Accounts
All other schedules for which provision is
made in
the applicable accounting regulation of the
Securities and Exchange Commission are not
required
under the related instructions or are
inapplicable
and therefore have been omitted.
(3) Listing of Exhibits
Exhibit (3)(i) Articles of incorporation
Exhibit (3)(ii) Bylaws
Exhibit (4) Instruments defining the rights of
security holders including indentures
Exhibit (10) Material Contracts
Exhibit (22) Subsidiaries of the registrant
All other exhibits for which provision is
made in
the applicable accounting regulation of
the
Securities and Exchange Commission are not
required
under the related instructions or are
inapplicable
and therefore have been omitted.
(b) Reports on Form 8-K filed
None.
(c) Exhibits
Exhibit (3)(i) Articles of incorporation -
Exhibit 3A
of Form SB-2 Registration Statement No. 33-
66014 are
incorporated herein by reference.
Exhibit (3)(ii) Bylaws - Exhibit 3B of Form
SB-2
Registration Statement No. 33-66014 are
incorporated
herein by reference.
Exhibit (4) Instruments defining the rights
of
security holders including debentures -
Document #1 of
Form 10-K for FNB Financial Corporation for
fiscal year
ended December 31, 1995 is incorporated
herein by
reference.
Exhibit (10.1) Executive Supplemental
Retirement Plan for
Select Officers - incorporated herein by
reference.
Exhibit (10.2) Director Fee Continuation
Agreement for
Select Directors - incorporated herein by
reference.
Exhibit (13) Annual report to security
holders -
incorporated herein by reference.
Exhibit (22) Subsidiaries of the registrant -
As of
this report, The First National Bank of
McConnellsburg is the only subsidiary of the
Registrant and is explained further within
the
Business Section (Item 1) of this report.
The First National Bank of McConnellsburg has
one
subsidiary as of the date of this report,
First
Fulton County Community Development
Corporation and
is explained further within the Business
Section
(Item 1) of this report.
(d) Financial Statement Schedules
Schedule I - Marketable Securities - Other
Investments
Schedules of Marketable Securities included
on pages
13 and 14 of the annual report of the
registrant to its
shareholders for the year ended December 31,
1999,
are incorporated herein by reference.
Schedule III - Condensed Financial
Information of
Registrant
Condensed Financial Information of the
Registrant
included on page 17 and 18 of the annual
report of the
registrant to its shareholders for the year
ended
December 31, 1999, is incorporated herein by
reference.
Schedule VIII - Valuation and Qualifying
Accounts
The schedule of the Allowance for Loan losses
included
on page 15 of the annual report of the
registrant to
its shareholders for the year ended December
31,
1999, is incorporated herein by reference.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FNB FINANCIAL CORPORATION
(Registrant)
/s/John C. Duffey
3/8/2000
John C. Duffey Date
Director and President
of the Corporation
President & CEO of the Bank
(Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and
on the dates indicated.
/s/H. Lyle Duffey 3/8/2000 /s/Henry W. Daniels
3/8/2000
H. Lyle Duffey Date Henry W. Daniels
Date
Director, Chairman Director, Vice Chairman
/s/John C. Duffey 3/8/2000 /s/Harry D. Johnston
3/8/2000
John C. Duffey Date Harry D. Johnston, D.
O. Date
Director, President Director, Vice
President
/s/George S. Grissinger 3/8/2000 /s/Patricia A. Carbaugh
3/8/2000
George S. Grissinger Date Patricia A. Carbaugh
Date
Director, Secretary Director
Harvey J. Culler /s/Forrest R. Mellott
3/8/2000
Harvey J. Culler Date Forrest R. Mellott
Date
Director Director
/s/Lonnie W. Palmer 3/8/2000 /s/Paul T. Ott
3/8/2000
Lonnie W. Palmer Date Paul T. Ott
Date
Director Director
/s/D. A. Washabaugh, III 3/8/2000 /s/Daniel E. Waltz
3/8/2000
D. A. Washabaugh, III Date Daniel E. Waltz
Date
Director Director, Treasurer
(Principal Financial
and
Accounting Officer)
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
AGREEMENT
This Agreement, made and entered into this 3rd day of March, 1998, by and
between
First National Bank of McConnellsburg, a Bank organized and existing under the
laws of the
State of Pennsylvania hereinafter referred to as "the Bank", and John C.
Duffey, a Key Employee
and the Executive of the Bank, hereinafter referred to as "the Executive".
The Executive has been in the employ of the Bank for several years and has now
and for
years past faithfully served the Bank. It is the consensus of the Board of
Directors of the Bank
(the Board) that the Executive's services have been of exceptional merit, in
excess of the
compensation paid and an invaluable contribution to the profits and position of
the Bank in its
field of activity. The Board further believes that the Executive's experience,
knowledge of
corporate affairs, reputation and industry contacts are of such value and his
continued services
are so essential to the Bank's future growth and profits that it would suffer
severe financial loss
should the Executive terminate his services.
Accordingly, it is the desire of the Bank and the Executive to enter into this
Agreement
under which the Bank will agree to make certain payments to the Executive upon
his retirement
and, alternatively, to his beneficiary(ies) in the event of his premature death
while employed by
the Bank.
It is the intent of the parties hereto that this Agreement be considered an
arrangement
maintained primarily to provide supplemental retirement benefits for the
Executive, as a member
of a select group of management or highly-compensated employees of the Bank for
purposes of
the Employee Retirement Security Act of 1974 (ERISA). The Executive is fully
advised of the
Bank's financial status and has had substantial input in the design and
operation of this benefit
plan.
Therefore, in consideration of the Executive's services performed in the past
and those to
be performed in the future and based upon the mutual promises and covenants
herein contained,
the Bank and the Executive, agree as follows:
I. DEFINITIONS
A. Effective Date:
The Effective Date of this Agreement shall be March 3, 1998.
B. Plan Year:
Any reference to "Plan Year" shall mean a calendar year from January 1 to
December 31. In the year of implementation, the term "Plan Year" shall mean the
period from the effective date to December 31 of the year of the effective date.
C. Retirement Date:
Retirement Date shall mean retirement from service with the Bank which becomes
effective on the first day of the calendar month following the month in which
the
Executive reaches his sixtieth (60th) birthday or such later date as the
Executive may
actually retire.
D. Termination of Service:
Termination of Service shall mean voluntary resignation of service by the
Executive
or the Bank's discharge of the Executive without cause ["cause" defined in
Subparagraph III (D) hereinafter], prior to the Normal Retirement Age
[described in
Subparagraph I (J) hereinafter].
E. Pre-Retirement Account:
A Pre-Retirement Account shall be established as a liability reserve account on
the
books of the Bank for the benefit of the Executive. Prior to termination of
service or
the Executive's retirement, such liability reserve account shall be increased
each Plan
Year (including the Plan Year in which the Executive ceases to be employed by
the
Bank) by an amount equal to the annual earnings for that Plan Year determined
by
the Index [described in Subparagraph I (G) hereinafter], less the Cost of Funds
Expense for that Plan Year [described in Subparagraph I (H) hereinafter]. The
amount of the increase of said account shall depend on the account balance. In
the
event that there is a negative or zero account balance, then the increase, if
any, shall
be the difference between earnings (determined as set forth above) of that year
and
the negative account balance, until said account balance is positive. When the
account balance is positive, then no loss will be recorded to the existing
balance.
The existing balance will remain constant through any loss and, in the event
there are
earnings in any year, said positive account will be increased by the total
amount of
earnings (determined as set forth above) without subtracting any loss.
F. Index Retirement Benefit:
The Index Retirement Benefit for the Executive for any year shall be equal to
the
excess of the annual earnings (if any) determined by the Index [Subparagraph I
(G)]
for that Plan Year over the Cost of Funds Expense [Subparagraph I (H)] for that
Plan
Year.
G. Index:
The Index for any Plan Year shall be the aggregate annual after-tax income from
the
life insurance contracts described hereinafter as defined by FASB Technical
Bulletin
85-4. This Index shall be applied as if such insurance contracts were purchased
on
the effective date hereof
Insurance Company: Security Life of Denver
Policy Form: Whole Life
Policy Name: Corp 4
Insured's Age and Sex: 44, Male
Riders: None
Ratings: None
Face Amount: $1,216,274
Premiums Paid: $462,000
Number of Premium Payments: One
Assumed Purchase Date: March 2, 1998
If such contracts of life insurance are actually purchased by the Bank then the
actual
policies as of the dates they were purchased shall be used in calculations under
this
Agreement. If such contracts of life insurance are not purchased or are
subsequently
surrendered or lapsed, then the Bank shall receive annual policy illustrations
that
assume the above described policies were purchased from the above named
insurance company(ies) on the Effective Date from which the increase in policy
value will be used to calculate the amount of the Index.
In either case, references to the life insurance contract are merely for
purposes of
calculating a benefit. The Bank has no obligation to purchase such life
insurance
and, if purchased, the Executive and his beneficiary(ies) shall have no
ownership
interest in such policy and shall always have no greater interest in the
benefits
under this Agreement than that of an unsecured general creditor of the Bank.
H. Cost of Funds Expense:
The Cost of Funds Expense for any Plan Year shall be calculated by taking the
sum of the amount of premiums set forth in the Indexed policies described above
plus the amount of any after-tax benefits paid to the Executive pursuant to
this
Agreement (Paragraph III hereinafter) plus the amount of all previous years
after-tax Costs of Funds Expense, and multiplying that sum by the average after-
tax cost of funds of the Bank's third quarter Call Report for the Plan Year as
filed
with the Federal Reserve.
I. Change of Control:
Change of control shall be deemed to be the cumulative transfer of more than
twenty-five percent (25%) of the voting stock of the Bank Holding Company
from the Effective Date of this Agreement. For the purposes of this Agreement,
transfers on account of deaths or gifts, transfers between family members or
transfers to a qualified retirement plan maintained by the Bank shall not be
considered in determining whether there has been a change in control.
J. Normal Retirement Age:
Normal Retirement Age shall mean the date on which the Executive attains age
sixty (60).
II. EMPLOYMENT
No provision of this Agreement shall be deemed to restrict or limit any
existing
employment agreement by and between the Bank and the Executive, nor shall any
conditions herein create specific employment rights to the Executive nor limit
the right
of the Employer to discharge the Executive with or without cause. In a similar
fashion,
no provision shall limit the Executive's rights to voluntarily sever his
employment at any
time.
III. INDEX BENEFITS
The following benefits provided by the Bank to the Executive are in the nature
of a
fringe benefit and shall in no event be construed to effect nor limit the
Executive's
current or prospective salary increases, cash bonuses or profit-sharing
distributions or
credits.
A. Retirement Benefits:
Should the Executive continue to be employed by the Bank until his "Normal
Retirement Age" defined in Subparagraph I (J), the Executive shall be entitled
to
receive the balance in his Pre-Retirement Account [as defined in Subparagraph I
(E)] and he shall have the option, to be exercised at least one (1) year
preceding
the date of the first benefit payment, to receive said balance in his Pre-
Retirement Account in either a lump sum, or five (5) or ten (10) equal annual
installments commencing thirty (30) days following the Executive's Retirement
Date. In the event that the Executive fails to exercise said option within the
time
period above, then the payments shall be made as set forth herein in ten (10)
equal annual installments. In addition to these payments, commencing with the
Plan Year in which the Executive attains his Retirement Date, the Index
Retirement Benefit [as defined in Subparagraph I (F) above] for each year shall
be paid to the Executive until his death.
B. Termination of Service:
Subject to Subparagraph III (D) hereinafter, should the Executive suffer a
termination of service [defined in Subparagraph I (D)], he shall be entitled to
receive fifty percent (50%) at the time of the plan implementation, plus an
additional ten percent (10%) times the number of full years the Executive has
served from the date of the plan implementation (to a combined maximum of
100%) with the Bank, times the balance in the PreRetirement Account paid over
ten (10) years in equal installments commencing at the Retirement Date
[Subparagraph I (C)]. In addition to these payments, subject to Subparagraph
III
(D) hereinafter, fifty percent (50%) at the time of plan implementation, plus
an
additional ten percent (10%) times full years of service with the Bank since
the
date of the plan implementation (to a combined maximum of 100%), times the
Index Retirement Benefit for each year shall be paid to the Executive until his
death.
C. Death:
Should the Executive die prior to having received the full balance of the Pre-
Retirement Account, the unpaid balance of the Pre-Retirement Account shall be
paid in a lump sum to the beneficiary(ies) selected by the Executive and filed
with the Bank. In the absence of or a failure to designate a beneficiary(ies),
the
unpaid balance shall be paid in a lump sum to the personal representative of
the
Executive's estate.
D. Discharge for Cause:
Should the Executive be discharged for cause at any time prior to his
Retirement
Date, all Index Benefits under this Agreement [Subparagraphs III (A), (B) or
(C)] shall be forfeited. The term "for cause" shall mean the conviction of a
felony or gross misdemeanor involving fraud, dishonesty or willful violation of
any law that results in any adverse effect on the Bank. If a dispute arises as
to
discharge "for cause", such dispute shall be resolved by arbitration as set
forth in
this Agreement.
E. Death Benefit:
Except as set forth above, there is no death benefit provided under this
Agreement.
IV. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any fund or
money with
which to pay its obligations under this Agreement. The Executive, his
beneficiary(ies) or
any successor in interest to him shall be and remain simply a general creditor
of the Bank
in the same manner as any other creditor having a general claim for matured and
unpaid
compensation.
The Bank reserves the absolute right, at its sole discretion, to either fund the
obligations
undertaken by this Agreement or to refrain from funding the same and to
determine the
exact nature and method of such funding. Should the Bank elect to fund this
Agreement,
in whole or in part, through the purchase of life insurance, mutual funds,
disability policies
or annuities, the Bank reserves the absolute right, in its sole discretion, to
terminate such
funding at any time, in whole or in part. At no time shall the Executive be
deemed to have
any lien or right, title or interest in or to any specific funding investment or
to any assets of
the Bank.
If the Bank elects to invest in a life insurance, disability or annuity policy
upon the life of
the Executive, then the Executive shall assist the Bank by freely submitting to
a physical
exam and supplying such additional information necessary to obtain such
insurance or
annuities.
V. CHANGE OF CONTROL
Upon a Chance of Control [as defined in Subparagraph I (I) herein], if the
Executive's
employment is subsequently terminated then he shall receive the benefits
promised in this
Agreement upon attaining Normal Retirement Age, as if he had been continuously
employed by the Bank until his Normal Retirement Age. The Executive will also
remain
eligible for all promised death benefits in this Agreement. In addition, no
sale, merger or
consolidation of the Bank shall take place unless the new or surviving entity
expressly
acknowledges the obligations under this Agreement and agrees to abide by its
terms.
VI. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
Neither the Executive, his/her surviving spouse nor any other beneficiary(ies)
under
this Agreement shall have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, commute, modify or otherwise encumber in advance any of
the
benefits payable hereunder nor shall any of said benefits be subject to seizure
for the
payment of any debts, judgments, alimony or separate maintenance owed by the
Executive or his beneficiary(ies), nor be transferable by operation of law in
the event
of bankruptcy, insolvency or otherwise. In the event the Executive or any
beneficiary(ies) attempts assignment, commutation, hypothecation, transfer or
disposal
of the benefits hereunder, the Bank's liabilities shall forthwith cease and
terminate.
B. Binding Obligation of Bank and any Successor in Interest:
The Bank expressly agrees that it shall not merge or consolidate into or with
another
bank or sell substantially all of its assets to another bank, firm or person
until such
bank, firm or person expressly agrees, in writing, to assume and discharge the
duties
and obligations of the Bank under this Agreement. This Agreement shall be
binding
upon the parties hereto, their successors, beneficiary(ies), heirs and personal
representatives.
C. Revocation:
It is agreed by and between the parties hereto that, during the lifetime of the
Executive,
this Agreement may be amended or revoked at any time or times, in whole or in
part,
by the mutual written assent of the Executive and the Bank.
D. Gender:
Whenever in this Agreement words are used in the masculine or neuter gender,
they
shall be read and construed as in the masculine, feminine or neuter gender,
whenever
they should so apply.
E. Effect on Other Bank Benefit Plans:
Nothing contained in this Agreement shall affect the right of the Executive to
participate in or be covered by any qualified or non-qualified pension, profit-
sharing,
group, bonus or other supplemental compensation or fringe benefit plan
constituting a
part of the Bank's existing, or future compensation structure.
F. Headings:
Headings and subheadings in this Agreement are inserted for reference and
convenience only and shall not be deemed a part of this Agreement.
G. Applicable Law:
The validity and interpretation of this Agreement shall be governed by the laws
of the
State of Pennsylvania.
VII. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
The "Named Fiduciary and Plan Administrator" of this Plan shall be First
National
Bank of McConnellsburg until its removal by the Board. As Named Fiduciary and
Administrator, the Bank shall be responsible for the management, control and
administration of the Salary Continuation Agreement as established herein. The
Named Fiduciary may delegate to others certain aspects of the management and
operation responsibilities of the plan including the employment of advisors and
the
delegation of ministerial duties to qualified individuals.
B. Claims Procedure and Arbitration:
In the event a dispute arises over benefits under this Agreement and benefits
are not
paid to the Executive (or to his beneficiary in the case of the Executive's
death) and
such claimants feel they are entitled to receive such benefits, then a written
claim must
be made to the Plan Administrator named above within ninety (90) days from the
date
payments are refused. The Plan Administrator shall review the written claim and
if the
claim is denied, in whole or in part, they shall provide in writing within
ninety (90)
days of receipt of such claim their specific reasons for such denial, reference
to the
provisions of this Agreement upon which the denial is based and any additional
material or information necessary to perfect the claim. Such written notice
shall
further indicate the additional steps to be taken by claimants if a further
review of the
claim denial is desired. A claim shall be deemed denied if the Plan
Administrator fails
to take any action within the aforesaid ninety-day period.
If claimants desire a second review they shall notify the Plan Administrator in
writing
within ninety (90) days of the first claim denial. Claimants may review this
Agreement
or any documents relating thereto and submit any written issues and comments
they
may feel appropriate. In its sole discretion, the Plan Administrator shall then
review
the second claim and provide a written decision within ninety (90) days of
receipt of
such claim. This decision shall likewise state the specific reasons for the
decision and
shall include reference to specific provisions of this Agreement upon which the
decision is based.
If claimants continue to dispute the benefit denial based upon completed
performance
of this Agreement or the meaning and effect of the terms and conditions thereof,
then
claimants may submit the dispute to a Board of Arbitration for final
arbitration. Said
Board shall consist of one member selected by the claimant, one member selected
by
the Bank, and the third member selected by the first two members. The Board
shall
operate under any generally recognized set of arbitration rules. The parties
hereto
agree that they and their heirs, personal representatives, successors and
assigns shall be
bound by the decision of such Board with respect to any controversy properly
submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the Executive "for cause",
such
dispute shall likewise be submitted to arbitration as above described and the
parties
hereto agree to be bound by the decision thereunder.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully read
this Agreement and executed the original thereof on the 3rd day of
March, 1998 and that, upon execution, each has received a
conforming copy.
FIRST NATIONAL BANK
OF MCCONNELLSBURG
By:
Witness Title
Witness John C. Duffey
DIRECTOR FEE CONTINUATION AGREEMENT
THE AGREEMENT, made and entered into this 3rd day of March, 1998 by and between
First National Bank of McConnellsburg, a Pennsylvania Bank (hereinafter called
"Bank"), and H.
Lyle Duffey (hereinafter called the "Director").
WITNESSETH:
WHEREAS, the Director has been and continues to be a valued Director of the
Bank, and is now serving the Bank as a Director: and,
WHEREAS, it is the consensus of the Board of Directors that the Director's
services to
the Bank in the past have been of exceptional merit and have constituted an
invaluable
contribution to the general welfare of the Bank and in bringing it to its
present status of operating
efficiency, and its present position in its field of activity; and,
WHEREAS, the experience of the Director, his knowledge of the affairs of the
Bank, his
reputation and contacts in the industry are of such value that the Bank would
suffer if the
Director terminated his service with the Bank; and,
WHEREAS, it is the desire of the Bank that his services be retained as herein
provided,
and,
WHEREAS, the Director is willing to continue in the employ of the Bank provided
the
Bank agrees to pay to him or his beneficiaries certain benefits in accordance
with the terms and
conditions hereinafter set forth:
ACCORDINGLY, it is the desire of the Bank and the Director to enter into this
agreement under which the Bank will agree to make certain payments to the
Director at
retirement or his beneficiary in the event of his premature death while employed
by the Bank;
and,
FURTHERMORE, it is the intent of the parties hereto that this agreement be
considered an unfunded arrangement maintained primarily to provide
supplemental benefits for the Director, as a member of a select
group of management or highly compensated employees of the Bank
for the purposes of the Employee Retirement Income Security Act of
1974, (E.R.I.S.A.):
NOW, THEREFORE, in consideration of services performed in the past and to be
performed in the future as well as of the mutual promises and covenants herein
contained it is
agreed as follows:
I. EMPLOYMENT
The Bank agrees to employ the Director in such capacity as the Bank may from
time to
time determine. The Director will continue in the employ of the Bank in such
capacity
and with such duties and responsibilities as may be assigned to him, and with
such
compensation as may be determined from time to time by the Board of Directors of
the
Bank. Active employment shall include temporary disability not to exceed six
months
and other "leave of absences" specifically granted by the Board of Directors.
1
II. FRINGE BENEFITS
The salary continuation benefits provided by this agreement are granted by the
Bank as a fringe benefit to the Director and are not part of any salary
reduction
plan or an arrangement deferring a bonus or a salary increase. The Director
has
no option to take any current payment or bonus in lieu of these salary
continuation benefits except as set forth hereinafter.
III. RETIREMENT DATE
The Director's Retirement Date shall mean retirement from service on the Board
of Directors of the Bank (the Board) which becomes effective on the first day
of
the calendar month following the month in which the Director reaches age eighty
(80) or such later date as the Director may actually retire.
IV. RETIREMENT BENEFIT AND POST-RETIREMENT DEATH BENEFIT
Upon said retirement the Bank, commencing with the first day of the month
following the date of such retirement, shall pay Director an annual benefit
equal
to $5,028.00 immediately prior to retirement for a period of ten (10) years,
provided that if less than ten (10) such annual payments have been made prior
to
the death of the Director, the Bank shall continue such annual payments to
whomever the Director shall designate in writing and filed with the Bank, until
the full number of ten (10) annual payments have been made. In the absence of
any effective designation of beneficiary, any such amounts becoming due and
payable upon the death of the Director shall be payable to the duly qualified
executor or administrator of his estate.
V. DEATH BENEFIT PRIOR TO RETIREMENT
In the event the Director should die while actively employed by the Bank at any
time
after the date of this Agreement but prior to attaining age eighty (80) (or such
later age as
may be agreed upon) the Bank will pay an annual benefit equal to the accrued
balance of
the Director's liability reserve account multiplied by the Director's cumulative
vested
percentage (number of years times annual vesting percentage to a maximum of
100%)
payable immediately after his death in a lump sum to such individual or
individuals as
the Director may have designated in writing and filed with the Bank. In the
absence of
any effective designation of beneficiary, any such amounts becoming due and
payable
upon the death of the Director shall be payable to the duly qualified executor
or
administrator of his estate. Provided, however, that anything hereinabove to
the contrary
notwithstanding, no death benefit shall be payable hereunder if it is determined
that the
Director's death was caused by suicide on or before March 3, 1998.
VI. BENEFIT ACCOUNTING
The Bank shall account for this benefit using the regulatory accounting
principles of the Bank's primary federal regulator. The Bank shall establish
an
accrued liability retirement account for the Director into which appropriate
reserves shall be accrued.
VII. VESTING
Director's interest in the benefits that are the subject of this Agreement shall
be
subject to an annual vesting percentage of ten percent (10%) per year
commencing on the date of the Director's first election to the Board of the
Bank.
2
VIII. OTHER TERMINATION OF EMPLOYMENT
Subject to Subparagraph VIII(A) herein, in the event that the employment of the
Director shall terminate prior to retirement from active employment, as provided
in Paragraph III, by his voluntary action, or by his discharge by the Bank, then
this Agreement shall terminate upon the date of such termination of employment
and the Bank shall pay to the Director as severance compensation an amount of
money equal to the accrued balance of Director's liability reserve account
multiplied by Director's cumulative vested percentage (number of years times
annual vesting percentage to a maximum of 100%). This severance
compensation shall be paid in ten (10) equal annual installments beginning on
the date of said termination.
A. Discharge for Cause:
Should a director be discharged for cause, all benefits under this Agreement
shall
be forfeited. The term "for cause" shall mean the conviction of a felony or
gross
misdemeanor involving fraud, dishonesty, or wilful violation of any law that
results in any adverse effect on the Bank. If a dispute arises as to discharge
"for
cause," such dispute shall be resolved by arbitration.
In the event the Director's death should occur after such severance but prior to
the
completion of the monthly payments provided for in this Paragraph VIII, the
remaining
installments shall be paid to such individual or individuals as the Director may
have
designated in writing and filed with the Bank. In the absence of any effective
designation of beneficiary, any such amounts shall be payable to the duly
qualified
executor or administrator of his estate.
IX. PARTICIPATION IN OTHER PLANS
The benefits provided hereunder shall be in addition to Director's annual
salary
as determined by the Board of Directors, and shall not affect the right of
Director
to participate in any current or future Bank Retirement Plan, group insurance,
bonus, or in any supplemental compensation arrangement which constitutes a
part of the Bank's regular compensation structure.
X. NON-COMPETE AND CHANGE OF CONTROL
The payment of benefits under this Agreement shall be continent upon the
Director's not
engaging in any activity that directly or indirectly competes with the Banks
interests,
within 25 miles of any office of the Bank existing at the time of Directors
retirement or
termination.
In the event there is a change in control of the ownership of the Bank, Director
shall
become 100% vested for the purposes of Paragraph VIII hereinabove. Change of
control
shall be deemed to be the cumulative transfer of more than twenty-five percent
(25%) of
the voting stock of the Bank from the Effective Date of this Agreement. For
the
purposes of this Agreement, transfers on account of deaths or gifts, transfers
between
family members or transfers to a qualified retirement plan maintained by the
Bank shall
not be considered in determining whether there has been a change in control.
XI. ALIENABILITY
It is agreed that neither Director, nor his/her spouse, nor any other assignee,
shall
have any right to commute, sell, assign, transfer or otherwise convey the right
to
receive any payments hereunder, which payments and the right thereto are
expressly declared to be non-assignable and non-transferable; and, in the event
of any attempted assignment or transfer, the Bank shall have no further
liability
hereunder.
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XII. RESTRICTIONS ON FUNDING
The Bank shall have no obligation to set aside earmark, or entrust any fund or
money with which to pay
its obligations under this Agreement. The Bank reserves the absolute right at
its sole discretion to either
fund the obligations undertaken by this Agreement or to refrain from funding,
the same and determine the
extent, nature, and method of such funding.
XIII. GENERAL ASSETS OF THE BANK
The rights of the Director under this Agreement and of any beneficiary of the
Director shall be solely
those of an unsecured creditor of the Bank. If the Bank shall acquire an
insurance policy or any other
asset in connection with the liabilities assumed by it hereunder, it is
expressly understood and agreed that
neither Director nor any beneficiary of Director shall have any right with
respect to, or claim against,
such policy or other asset. Such policy or asset shall not be deemed to be held
under any trust for the
benefit of Director or his beneficiaries or to be held in any way as collateral
security for the fulfilling of
the obligations of the Bank under this Agreement. It shall be and remain, a
general, unpledged,
unrestricted asset of the Bank and Director or any of his beneficiaries shall
not have a greater claim to the
insurance policy or other assets, or any interest in either of them, than any
other general creditor of the
Bank.
XIV. REORGANIZATION
The Bank agrees that if the Bank merges or consolidates with any other company
or organization,
or permits its business activities to be taken over by any other organization,
or ceases its business
activities or terminates its existence. The Director will be considered to be
vested in one
hundred percent (100%) of the retirement benefit to be paid to the Director
pursuant to Paragraph
IV above.
XV. AMENDMENT
This Agreement may be amended in whole or in part from time to time by the
Employer, but only
in writing.
XVI. NOT A CONTRACT OF EMPLOYMENT
This Agreement shall not be deemed to constitute a contract of employment
between the parties
hereto, nor shall any provision hereof restrict the right of the Bank to
discharge the Director, or
restrict the right of the Director to terminate his employment.
XVII. HEADINGS
Headings and subheadings of this Agreement are inserted for reference and
convenience only and shall
not be deemed a part of this agreement.
XVIII. APPLICABLE LAW
The validity and interpretation of this Agreement shall be governed by the laws
of the State of
Pennsylvania.
XIX. EFFECTIVE DATE
The effective date of this agreement shall be March 3, 1998.
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XX. CLAIMS PROCEDURE
In the event that benefits under this Agreement are not paid to the Director (or
his beneficiary in the case
of the Director's death), and such person feels entitled to receive them, a
claim shall be made in writing to
the Plan Administrator within ninety (90) days from the date payments are not
made. Such claim shall be
reviewed by the Plan Administrator and the Bank. If the claim is denied, in
full or in part, the Plan
Administrator shall provide a written notice within ninety (90) days setting
forth the specific reasons for
denial, specific reference to the provisions of this Agreement upon which the
denial is based, and any
additional material or information necessary to perfect the claim, if any.
Also, such written notice shall
indicate the steps to be taken if a review of the denial is desired.
If a claim is denied and a review is desired, the Director (or his beneficiary
in the case of the Director's
death), shall notify the Plan Administrator in writing within ninety (90) days
[and a claim shall be
deemed denied if the Plan Administrator does not take any action with the
aforesaid ninety (90) day
period]. In requesting a review, the Director or his beneficiary may review
this Agreement or any
documents relating to it and submit any written issues and comments he or she
may feel appropriate. In
its sole discretion the Plan Administrator shall then review the claim and
provide a written decision
within ninety (90) days. This decision likewise shall state the specific
provisions of the Agreement on
which the decision is based.
XXI. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
For purposes of implementing this claims procedure (but not for any other
purpose), First
National Bank of McConnellsburg, is hereby designated as the Named Fiduciary and
Plan
Administrator of Plan Agreement. As Named Fiduciary and Plan Administrator,
First National
Bank of McConnellsburg shall be responsible for the management, control and
administration of
the agreement as established herein. The Named Fiduciary may delegate to
certain aspects of the
management a operation responsibilities of the Plan including the employment of
advisors and
the delegation of ministerial duties to qualified individuals.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be signed in its
corporate name by its
duly authorized officer, and attested by its Secretary, and Director hereunto
set his hand and seal, all on the day
and year first above written.
FIRST NATIONAL BANK
OF MCCONNELLSBURG
By:
Secretary Title
Witness H. Lyle Duffey
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