UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the quarterly period ended September 30, 2003
or
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-24141
FNB Corporation
(Exact name of registrant as specified in its charter)
Virginia 54-1791618
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
105 Arbor Drive, Christiansburg, Virginia 24073
(Address of principal executive offices) (Zip Code)
(540) 382-4951
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report.)
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. X Yes No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). X Yes No
7,227,395 shares outstanding as of October 8, 2003
1
FNB CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet as of
September 30, 2003 3
Consolidated Balance Sheet as of December 31, 2002 4
Unaudited Consolidated Statements of Income and
Comprehensive Income for the quarter and nine-month
periods ended September 30, 2003 and 2002 5-6
Unaudited Consolidated Statements of Cash Flows for the
nine-month periods ended September 30, 2003 and 2002 7-8
Unaudited Consolidated Statement of Changes in Stockholders'
Equity for the nine-month period ended September 30, 2002 9
Unaudited Consolidated Statement of Changes in Stockholders'
Equity for the nine-month period ended September 30, 2003 10
Notes to Consolidated Financial Statements 11-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-20
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 21-22
Item 4. Controls and Procedures 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
Certifications 26-29
Index to Exhibits 30-31
2
CONSOLIDATED BALANCE SHEET
FNB Corporation and subsidiaries
September 30, 2003
In Thousands, Except Share and Per Share Data
(Unaudited)
ASSETS
Cash and due from banks $ 39,103
Federal funds sold 8,100
Securities available-for-sale, at fair value 160,013
Securities held-to-maturity, at amortized cost (fair
value approximated $12,582) 12,144
Other investments at cost 9,774
Mortgage loans held for sale 17,511
Loans:
Commercial 114,198
Consumer 161,538
Real estate - commercial 242,637
Real estate - construction 62,634
Real estate - mortgage 396,985
Total loans, net of unearned income 977,992
Less allowance for loan losses 11,677
Loans, net 966,315
Bank premises and equipment, net 25,075
Other real estate owned 1,831
Goodwill 42,590
Core deposit intangibles 7,050
Other assets 25,998
Total assets $ 1,315,504
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $ 140,215
Interest-bearing demand and savings deposits 358,400
Time deposits 422,915
Certificates of deposit of $100,000 and over 119,244
Total deposits 1,040,774
Short term borrowings 34,461
Long term debt 93,186
Other liabilities 8,285
Total liabilities 1,176,706
Stockholders' equity:
Common stock, $5.00 par value, Authorized 25,000,000
shares; issued and outstanding 7,227,395 shares 36,137
Surplus 82,087
Unearned ESOP shares (22,333 shares) (346)
Retained earnings 19,142
Accumulated other comprehensive income (loss) 1,778
Total stockholders' equity 138,798
Total liabilities and stockholders' equity $ 1,315,504
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED BALANCE SHEET
FNB Corporation and subsidiaries
December 31, 2002
In Thousands, Except Share and Per Share Data
ASSETS
Cash and due from banks $ 29,241
Federal funds sold 11,150
Securities available-for-sale, at fair value 141,888
Securities held-to-maturity, at amortized cost (fair
value approximated $16,681) 16,075
Other investments at cost 5,320
Mortgage loans held for sale 34,271
Loans:
Commercial 76,665
Consumer 133,304
Real estate - commercial 225,316
Real estate - construction 49,186
Real estate - mortgage 207,190
Total loans, net of unearned income 691,661
Less allowance for loan losses 9,466
Loans, net 682,195
Bank premises and equipment, net 23,201
Other real estate owned 1,001
Goodwill 21,735
Core deposit intangibles 4,804
Other assets 21,550
Total assets $ 992,431
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $ 104,710
Interest-bearing demand and savings deposits 291,391
Time deposits 358,273
Certificates of deposit of $100,000 and over 91,314
Total deposits 845,688
Short term borrowings 8,071
Long term debt 38,531
Other liabilities 5,042
Total liabilities 897,332
Stockholders' equity:
Common stock, $5.00 par value. Authorized 25,000,000
shares; issued and outstanding 5,807,508 shares 29,038
Surplus 51,289
Unearned ESOP shares (49,490 shares) (721)
Retained earnings 12,588
Accumulated other comprehensive income (loss) 2,905
Total stockholders' equity 95,099
Total liabilities and stockholders' equity $ 992,431
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FNB Corporation and subsidiaries
Quarter and Nine Months Ended September 30, 2003 and 2002
In Thousands, Except Share and Per Share Data
(Unaudited)
Quarter Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
Interest income:
Interest and fees on loans $ 13,961 12,465 37,724 37,099
Interest on securities:
Taxable 1,538 2,104 4,527 6,362
Nontaxable 256 373 864 1,199
Interest on federal funds sold and
short term investments 387 225 1,021 575
Total interest income 16,142 15,167 44,136 45,235
Interest expense:
Interest on interest-bearing
demand and savings deposits 431 856 1,511 2,523
Interest on time deposits 2,839 3,145 8,477 9,653
Interest on certificates of
deposit of $100,000 and over 919 990 2,690 3,091
Interest on federal funds purchased
and securities sold under
agreements to repurchase 15 30 45 84
Interest on long term debt 914 529 1,905 1,513
Total interest expense 5,118 5,550 14,628 16,864
Net interest income 11,024 9,617 29,508 28,371
Provision for loan losses 587 224 1,546 1,006
Net interest income after
provision for loan losses 10,437 9,393 27,962 27,365
Noninterest income:
Service charges on deposit accounts 1,264 810 3,626 2,129
Loan origination fees 1,808 736 5,089 1,715
Other service charges and fees 568 401 1,679 1,406
Other income 640 435 1,617 1,417
Gain on sale of bankcards - - - 1,206
Securities gains (losses), net (4) 135 42 291
Total noninterest income 4,276 2,517 12,053 8,164
5
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Continued)
FNB Corporation and subsidiaries
Quarter and Nine Months Ended September 30, 2003 and 2002
In Thousands, Except Share and Per Share Data
(Unaudited)
Quarter Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
Noninterest expense:
Salaries and employee benefits $ 5,188 4,224 14,329 12,150
Occupancy and equipment expense,net 1,434 1,275 4,238 3,714
Cardholder/merchant processing 172 175 432 576
Supplies expense 219 213 597 641
Telephone expense 181 206 478 565
Amortization of core deposit
intangibles 333 267 813 801
Other expenses 1,770 1,686 4,873 4,561
Total noninterest expense 9,297 8,046 25,760 23,008
Income before income tax expense 5,416 3,864 14,255 12,521
Income tax expense 1,856 1,186 4,684 4,022
Net income $ 3,560 2,678 9,571 8,499
Other comprehensive income (loss),
net of income tax expense (benefit):
Gross unrealized gains (losses) on
available-for-sale securities (1,175) 891 (1,085) 2,218
Less: Reclassification
adjustment for (gains)
losses included in
net income 4 (135) (42) (291)
Other comprehensive income (1,171) 756 (1,127) 1,927
Comprehensive income $ 2,389 3,434 8,444 10,426
Basic earnings per share $ 0.53 0.47 1.57 1.48
Diluted earnings per share $ 0.52 0.46 1.55 1.46
Dividends declared per
share $ 0.18 0.17 0.52 0.51
Average number basic
shares outstanding 6,732,055 5,750,556 6,097,252 5,759,599
Average number diluted
shares outstanding 6,799,766 5,836,690 6,163,042 5,833,433
See accompanying notes to consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
FNB Corporation and subsidiaries
Nine Months Ended September 30, 2003 and 2002
In Thousands
(Unaudited)
2003 2002
Cash flows from operating activities:
Net income $ 9,571 8,499
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 1,546 1,006
Depreciation and amortization of bank
premises and equipment 1,906 1,833
Amortization of core deposit intangibles 813 801
ESOP compensation 243 418
Stock awards compensation 209 122
Amortization of premiums and accretion
of discounts, net 1,117 540
Gain on sale of securities, net (42) (291)
Net gain on sale of fixed assets and
other real estate (85) (119)
Gain on sale of bankcard portfolio - (1,206)
Net (increase) decrease in mortgage loans
held for sale 18,491 (9,277)
(Increase) decrease in other assets (2,053) 906
Increase (decrease) in other liabilities 1,370 (13,729)
Net cash provided by (used in)
operating activities 33,086 (10,497)
Cash flows from investing activities:
Net decrease in federal funds sold 3,050 1,910
Net decrease in short term investments - 16,549
Proceeds from sales of securities available-
for-sale 13,585 5,718
Proceeds from calls and maturities of
securities available-for-sale 71,674 64,599
Proceeds from calls and maturities of
securities held-to-maturity 4,361 13,223
Purchase of securities available-for-sale (98,300) (84,176)
Purchase of securities held-to-maturity (430) (356)
Sale of bankcard portfolio - 10,266
Net cash acquired from purchase of subsidiary 9,605 -
Net increase in loans (48,031) (43,273)
Proceeds from sale of fixed assets and
other real estate owned 1,250 1,354
Recoveries on loans previously charged off 333 829
Bank premises and equipment expenditures (1,789) (2,166)
Change in bank owned life insurance - (10,874)
Net cash used in investing
activities (44,692) (26,397)
7
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FNB Corporation and subsidiaries
Nine Months Ended September 30, 2003 and 2002
In Thousands
(Unaudited)
2003 2002
Cash flows from financing activities:
Net increase in demand and savings deposits 18,058 50,820
Net decrease in time deposits and
certificates of deposit (11,440) (18,159)
Net increase in federal funds purchased
and securities sold under
agreements to repurchase 10,390 12,762
Proceeds from issuance of trust preferred
securities 12,372 -
Net increase (decrease) in long term debt (5,357) 747
Principal payments on ESOP debt 375 (418)
Repurchase FNB Corporation stock (94) (1,569)
Stock options exercised 181 -
Dividends paid (3,017) (2,958)
Net cash provided by financing
activities 21,468 41,225
Net increase in cash and due from banks 9,862 4,331
Cash and due from banks at beginning of period 29,241 28,817
Cash and due from banks at end of period $ 39,103 33,148
See accompanying notes to consolidated financial statements.
8
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FNB Corporation and subsidiaries
Nine Months Ended September 30, 2002
In thousands, except per share data
(Unaudited)
Accumu-
lated
Other
Unearned Compre-
Common ESOP Retained hensive
Stock Surplus Shares Earnings Income Total
Balances at
December 31, 2001 $27,696 47,481 (1,139) 11,718 877 $86,633
Net Income - - - 8,499 - 8,499
Cash dividends,
$0.51 per share - - - (2,942) - (2,942)
6% Stock dividend 1,649 4,633 - (6,282) - -
Cash payment for
fractional shares
on 6% stock
dividend - - - (16) - (16)
ESOP shares
allocated upon
loan repayment - - 418 - - 418
Stock awards
issued 37 133 - - - 170
Stock options
exercised 3 (22) - - - (19)
Repurchase and
retirement of
common stock (376) (1,226) - - - (1,602)
Change in net
unrealized gains
(losses) on
securities
available-for-
sale, net of
tax effect of
$993 - - - - 1,927 1,927
Adjustment related
to purchase of
Salem Community
Bankshares, Inc. 13 39 - - - 52
Balances at
September 30, 2002 $29,022 51,038 (721) 10,977 2,804 $93,120
See accompanying notes to consolidated financial statements.
9
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FNB Corporation and subsidiaries
Nine Months Ended September 30, 2003
In thousands, except per share data
(Unaudited)
Accumu-
lated
Other
Unearned Compre-
Common ESOP Retained hensive
Stock Surplus Shares Earnings Income Total
Balances at
December 31, 2002 $29,038 51,289 (721) 12,588 2,905 $ 95,099
Net Income - - - 9,571 - 9,571
Cash dividends,
$0.52 per share - - - (3,017) - (3,017)
ESOP shares
allocated upon
loan repayment - 243 375 - - 618
Stock awards
issued 49 219 - - - 268
Stock options
exercised 55 126 - - - 181
Repurchase and
retirement of
common stock (16) (78) - - - (94)
Acquisition of
subsidiary 7,011 30,288 - - - 37,299
Change in net
unrealized gains
(losses) on
securities
available-for-
sale, net of
tax effect of
$(581) - - - - (1,127) (1,127)
Balances at
September 30, 2003 $36,137 82,087 (346) 19,142 1,778 $138,798
See accompanying notes to consolidated financial statements.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FNB Corporation and subsidiaries
September 30, 2003 and 2002
In Thousands, Except Percent and Share Data
(Unaudited)
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
the consolidated balance sheets of FNB Corporation and subsidiaries
(referred to herein as "FNB", "the Corporation" or "the Company")
as of September 30, 2003; the consolidated statements of income, for the
three and nine-months ended September 30, 2003 and 2002, and the
consolidated statements of changes in stockholders' equity, and the
consolidated statements of cash flows for the nine-months ended
September 30, 2003 and 2002.
The consolidated balance sheet as of December 31, 2002 has been
extracted from the audited financial statements included in the
Company's 2002 annual report to stockholders. Financial statements
and notes are presented in accordance with the instructions for Form
10-Q. The information contained in the footnotes included in FNB's
2002 Annual Report on Form 10-K should be referred to in connection
with the reading of these unaudited interim consolidated financial
statements.
Interim financial performance is not necessarily indicative of
performance for the full year.
(2) Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(3) Changes in Significant Accounting Policies
Stock options
The Company has a stock option plan for certain executives and directors
accounted for under the intrinsic value method in accordance with
Accounting Principles Board ("APB") 25. Because the exercise price of
the Company's employee/director stock options equals the market price
of the underlying stock on the date of grant, no compensation expense
is recognized. The effect of option shares on earnings per share
relates to the dilutive effect of the underlying options outstanding.
To the extent the granted exercise share price is less than the current
market price, ("in the money"), there is an economic incentive for the
shares to be exercised and an increase in the dilutive effect on
earnings per share.
In December 2002, the FASB issued FAS 148, "Accounting for Stock-
Based Compensation." This new standard provides alternative methods
of transition for a voluntary change to the fair value method of
11
accounting for stock-based compensation. In addition, the Statement
amends the disclosure requirements of FAS 123 to require prominent
disclosure in both annual and interim financial statements about the
method of accounting for stock-based compensation and the underlying
effect of the method used on reported results until exercised.
Assuming use of the fair value method of accounting for stock options,
pro forma net income and earnings per share for the three month and
nine month periods ended September 30, 2003 and 2002 would have been
estimated as follows:
Quarter Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Net income as reported $ 3,560 2,678 9,571 8,499
Less: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects 35 31 98 84
$ 3,525 2,647 9,473 8,415
Earnings per share:
Basic as reported $ 0.53 0.47 1.57 1.48
Basic pro forma 0.52 0.46 1.55 1.46
Diluted as reported 0.52 0.46 1.55 1.46
Diluted pro forma 0.52 0.45 1.54 1.44
Basic average shares 6,732 5,751 6,097 5,760
Diluted average shares 6,800 5,837 6,163 5,833
Guarantees
In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." This
interpretation expands the disclosures to be made by a guarantor in its
financial statements about its obligations under certain guarantees and
requires the guarantor to recognize a liability for the fair value of
an obligation assumed under a guarantee. FIN 45 clarifies the
requirements of FAS 5, "Accounting for Contingencies", relating to
guarantees. In general, FIN 45 applies to contracts or indemnification
agreements that contingently require the guarantor to make payments to
the guaranteed party based on changes in an underlying value that is
related to an asset, liability, or equity security of the guaranteed
party. Certain guarantee contracts are excluded from both the
disclosure and recognition requirements of this interpretation,
including, among others, guarantees relating to employee
compensation, residual value guarantees under capital lease
arrangements, commercial letters of credit, loan commitments,
subordinated interests in a special purpose entity, and guarantees of a
company's own future performance. Other guarantees are subject to the
disclosure requirements of FIN 45 but not to the recognition provisions
and include, among others, a guarantee accounted for as a derivative
instrument under FAS 133, a parent's guarantee of debt owed to a
third party by its subsidiary or vice versa, and a guarantee which is
based on performance rather than price. FIN 45 requires disclosure of
12
the nature of the guarantee, the maximum potential amount of future
payments that the guarantor could be required to make under the
guarantee, and the current amount of the liability, if any, for the
guarantor's obligations under the guarantee. The requirements of FIN
45 did not have a material impact on results of operations, financial
position, or liquidity in the first nine months of 2003.
(4) Allowance for Loan Losses and Impaired Loans
A loan is considered impaired when, based on management's judgment, the
Corporation will probably not be able to collect all amounts due
according to the contractual terms of the loan. In making such
assessment, management considers the individual strength of borrowers,
the strength of particular industries, the payment history of individual
loans, the value and marketability of collateral and general economic
conditions. The Corporation's methodology for evaluating the
collectibility of a loan after it is deemed to be impaired does not
differ from the methodology used for nonimpaired loans.
A summary of the changes in the allowance for loan losses (including
allowances for impaired loans) follows:
Quarter Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Balance at beginning of period $ 10,074 9,312 9,466 8,827
Reserve acquired through merger 1,382 - 1,382 -
Provisions for loan losses 587 224 1,546 1,006
Loan recoveries 165 584 333 829
Loan charge-offs (531) (545) (1,050) (1,087)
Balance at end of period $ 11,677 9,575 11,677 9,575
Nonperforming assets consist of the following:
September 30 December 31,
2003 2002
Nonaccrual loans $ 2,531 2,914
Other real estate owned 1,831 1,001
Loans past due over 90 days 1,285 596
Total nonperforming assets $ 5,647 4,511
There were no material commitments to lend additional funds to customers
whose loans were classified as nonperforming at September 30, 2003.
(5) Short Term Borrowings and Long Term Debt
Securities sold under agreements to repurchase (repurchase agreements)
at September 30, 2003 and December 31, 2002 were collateralized by
investment securities controlled by the Corporation with a book
value of $9,306 and $13,427, respectively.
Advances from the Federal Home Loan Bank of Atlanta totaled $93,380
and $23,067 on September 30, 2003 and December 31, 2002, respectively.
The interest rates on the advances as of September 30, 2003 range from
1.2 to 7.3 percent and have maturity dates through January 28, 2013.
The advances are collateralized under a blanket floating lien agreement
13
whereby the Corporation gives a blanket pledge of residential first
mortgage loans for 1-4 properties.
FNB Corporation participated in a pool of subordinated debt securities
issued by FNB Corporation and other financial institutions to a trust
in a method generally referred to as trust preferred financing. FNB
Corporation borrowed $15,464 that matures on December 18, 2031.
Interest is payable quarterly at the three month LIBOR rate plus 3.60%.
The rate may not exceed 12.5% prior to December 18, 2006, and the
borrowing may be repaid on or after this date without penalty.
Proceeds were principally used to pay cash to Salem Community
Bankshares, Inc. shareholders. The loan proceeds are treated as
capital of FNB Corporation for regulatory purposes. In addition,
FNB Corporation borrowed $12,372 that matures on June 26, 2033.
Interest is payable quarterly at the three month LIBOR rate plus
3.10%. The rate may not exceed 11.75% prior to June 26, 2008, and
the borrowing may be repaid on or after this date without penalty.
Proceeds were principally used to pay cash to Bedford Bancshares,
Inc. shareholders. The loan proceeds are treated as capital of FNB
Corporation for regulatory purposes.
(6) Recent Accounting Pronouncements
In April 2003, FASB issued FAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This new standard
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for
hedging activities FAS 133, "Accounting for Derivative Instruments
and Hedging Activities." The statement is effective for contracts
entered into or modified after June 30, 2003. Adoption of this
statement is not expected to have a material effect on the Company.
In April 2003, FASB issued FAS 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." This new statement establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is (1) issued in the form
of shares that is mandatorily redeemable, (2) at inception embodies
an obligation to repurchase the issuer's equity, or is indexed to such
an obligation, and that requires or may require the issuer to settle
the obligation by transferring assets, or (3) embodies an unconditional
obligation, or a financial instrument other than an outstanding share
that embodies a conditional obligation, that the issuer must or may
settle by issuing a variable number of its equity shares provided
certain conditions are met; as a liability (or asset in some
circumstances). FAS 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning
after June 15, 2003. Adoption of this statement is not expected to
have a material effect on the Company, as it has previously reported
its trust preferred securities as a liability.
(7) SEGMENT INFORMATION
The Corporation operates two business segments: community banking and
mortgage banking. These segments are primarily identified by the
products and services offered and the channels through which they are
offered. The banking segment consists of full-service banks that offer
14
customers traditional banking products and services through various
delivery channels. The Corporation's mortgage banking segment consists
of mortgage brokerage facilities that originate and sell mortgage
products. The accounting policies for each of the business segments
are the same as those of the Corporation described in Note 1.
YTD September 30, 2003
Community Mortgage Elimi-
Banking Banking Parent nations Total
Net interest income $ 29,454 704 (650) - 29,508
Provision for loan
losses 1,546 - - - 1,546
Net interest income
after provision
for loan losses 27,908 704 (650) - 27,962
Other income 6,957 5,096 9,685 (9,685) 12,053
Other expenses 22,670 2,584 10,191 (9,685) 25,760
Income (loss)
before income
taxes 12,195 3,216 (1,156) - 14,255
Income tax
(benefit) 3,993 1,093 (402) - 4,684
Net income $ 8,202 2,123 (754) - 9,571
Average assets $ 1,038,050 27,254 128,738 (120,956) 1,073,086
YTD September 30, 2002
Community Mortgage Elimi-
Banking Banking Parent nations Total
Net interest income $ 28,718 227 (574) - 28,371
Provision for loan
losses 1,006 - - - 1,006
Net interest income
after provision
for loan losses 27,712 227 (574) - 27,365
Other income 6,627 1,537 8,439 (8,439) 8,164
Other expenses 21,176 1,074 9,197 (8,439) 23,008
Income (loss)
before income
taxes 13,163 690 (1,332) - 12,521
Income tax
(benefit) 4,263 235 (476) - 4,022
Net income $ 8,900* 455 (856) - 8,499
Average assets $ 933,419 10,237 106,056 (100,034) 949,678
* Includes $796 non-recurring gain on sale of bankcard portfolio.
15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of factors that significantly affected the
financial condition and results of operations of FNB Corporation, a bank
holding company, and its wholly owned subsidiaries (collectively, the
"Corporation"). This discussion should be read in connection with the
consolidated financial statements, statistical disclosures and other financial
information presented herein. All amounts presented are denoted in thousands
except per share and percentage data.
Forward Looking Information
This report may contain forward-looking statements with respect to the
financial condition, results of operations and business of the Corporation.
These forward-looking statements involve risks and uncertainties and are based
on the beliefs and assumptions of the management of the Corporation, and on
the information available to management at the time that these disclosures
were prepared. Factors that may cause actual results to differ materially
from those contemplated by such forward-looking statements include, among
others, the following possibilities: (1) competitive pressures between
depository and other financial institutions may increase significantly; (2)
changes in the interest rate environment may reduce margins; (3) general
economic conditions, either nationally or regionally, may be less favorable
than expected, resulting in, among other things, a deterioration in credit
quality and/or a reduced demand for credit; (4) legislative or regulatory
changes, including changes in accounting standards, may adversely affect the
businesses in which the Corporation is engaged; (5) costs or difficulties
related to the integration of the businesses of the Corporation and its merger
partners may be greater than expected; (6) competitors may have greater
financial resources and develop products that enable such competitors to
compete more successfully than the Corporation; and (7) adverse changes may
occur in the securities markets.
Acquisitions
On August 1, 2003, the Corporation acquired Bedford Bancshares, Inc. and its
subsidiary, Bedford Federal Savings Bank, FSB. Bedford Bancshares, Inc.
shareholders received 1.405 million shares of FNB Corporation stock and
$11,593 cash. Bedford Bancshares, Inc. was liquidated and Bedford Federal
Savings Bank, FSB became a subsidiary of FNB Corporation and was recorded
under the "purchase" method of accounting. Because it was recorded under the
"purchase method of accounting", the results of its operations are only
included in the accompanying financial statements from the date of acquisition
(August 1, 2003).
Nonrecurring item (2002)
In the second quarter of 2002, the Corporation sold its bankcard portfolio
($9.1 million in balances) and realized a pre-tax gain of $1,206 and an after-
tax gain of $796. The bankcard portfolio was sold because the Corporation did
not have enough volume to achieve the desired level of profitability and
provide enough options for customers. The Corporation will continue to issue
cards under the FNB brand. The card portfolio is serviced and managed by a
high-volume card issuer enabling the Corporation to re-deploy capital while
providing a more diverse and competitive credit card product line to its
customer base.
16
Proforma Financial Information
The following unaudited pro-forma financial information shows the effect of
FNB Corporation for year-to-date September 30, 2003 with Bedford excluded so
as to make it comparable with year-to-date September 30, 2002. The gain on
the bankcard sale was excluded from 2002 because it was a nonrecurring item.
Sept. 30, Sept. 30,
2003 2002
Sept. 30, Bedford Excluding Sept. 30, Bankcard Less
2003 Impact Bedford 2002 Sale Bankcard
Net interest
income $29,508 1,820 27,688 28,371 - 28,371
Provision
for loan
loss 1,546 75 1,471 1,006 - 1,006
Noninterest
income 12,053 110 11,943 8,164 1,206 6,958
Noninterest
expense 25,760 818 24,942 23,008 - 23,008
Income
before
taxes 14,255 1,037 13,218 12,521 1,206 11,315
Taxes 4,684 431 4,253 4,022 410 3,612
Net income $ 9,571 606 8,965 8,499 796 7,703
Net Income
Net income for the third quarter 2003 was $3,560 compared to $2,678 in the
same quarter last year. Excluding Bedford Federal Saving Bank, FSB earnings
were $2,954 for an increase of 10.3%. Basic earnings per share were $.53
compared to $.47 last year for an increase of 12.8%. Year-to-date September
net income was $9,571 compared to $8,499 last year. Excluding Bedford Federal
Saving Bank, FSB and the gain on the bankcard sale last year, net income was
$8,965 in 2003 and $7,703 in 2002 for an increase of 16.4%. Basic earnings
per share were $1.57 in 2003 compared to $1.48 ($1.34 excluding the bankcard
gain) in 2003 for an increase of 6.1% including the bankcard gain and 17.2%
excluding the bankcard gain.
Excluding the impact of the acquisition of Bedford Federal Savings Bank, FSB,
the increase in net income excluding the bankcard gain for both the quarter
and year-to-date were up primarily due to higher noninterest revenues,
partially offset by lower net interest income and higher noninterest expense.
Net Interest Income
Net interest income currently provides over 70% of the revenue of the
Corporation. Net interest income is the amount of interest earned on
interest-bearing assets less the amount of interest paid on deposits and other
interest-bearing liabilities.
Net interest income before provision for loan losses and net interest margin
respectively were $11,024 and 4.00% for the three months ending September 30,
2003 compared to $9,617 and 4.42% for the same period last year. The increase
attributable to the acquisition of Bedford Federal Savings Bank, FSB amounted
to $1,820 and the increase attributed to growth amounted to $605. These
favorable variances were offset by a decline in net interest income of $1,018
due primarily to the unfavorable impact of a decline in rates. Yields on
investments dropped 1.56 basis points and loan yields dropped 1.13 basis
17
points. The cost of interest-bearing deposits dropped only 80 basis points.
Further reductions in deposit costs are limited because many products are
close to pricing floors.
Year-to-date September 30 net interest income before provision for loan losses
and net interest margin respectively were $29,508 and 4.10% compared to
$28,371 and 4.47% for the same period last year. Net interest income was
favorably impacted by $1,820 due to the merger of Bedford Federal Savings
Bank, FSB, by growth in the balance sheet which amounted to $1,669 and by a
shift in the composition of the deposit base from higher cost certificates of
deposit and IRAs to lower cost checking accounts and other transactions
deposit accounts. This resulted in a $671 improvement in net interest income.
These favorable variances were offset by an unfavorable variance of $3,023
due primarily to reduced yields on investments and loans relative to the
reduction in rates paid on deposits as discussed above.
Provision for Loan Losses
The provision for loan losses increased from $224 in the third quarter of 2002
to $587 in the third quarter of this year, and from $1,006 in the first nine
months of 2002 to $1,546 for the same period this year. These increases were
due primarily to loan growth. Net charge-offs increased from $259 through
September 30 of last year to $717 this year due to a net recovery of $558 from
one large credit last year. Excluding this recovery, net charge-offs were
down $100. Net charge-offs as a percent of loans excluding the $558 recovery
were .12% this year compared to .17% last year.
The allowance as a percent of loans declined from 1.37% at year-end 2002 to
1.19% at September 30, 2003 due to the acquisition of Bedford Federal Savings
Bank, FSB. Bedford Federal's reserve is lower because its loan portfolio
consists primarily of loans secured by residential real estate which have a
much lower risk of loss than commercial loans or regular consumer loans.
Noninterest Income
Noninterest income, which includes service charges on deposit accounts, loan
origination and service release fees on mortgage loans sold, other service
charges, other income and net securities gains (losses), was $4,276 in the
third quarter of 2003 compared to $2,517 in the third quarter of last year for
a difference of $1,759. This increase was primarily due to higher mortgage
revenue of $1,056 due to the lower interest rate environment and resultant
high level of refinancing activity plus the establishment of a wholesale
mortgage operation. Mortgage volume increased from $75 million in the third
quarter of last year to $142 million this year. The remainder of the increase
in noninterest income was due primarily to revenue realized from the
successful launch of a new "Overdraft Privilege" product in October 2002 and
to the acquisition of Bedford Federal Savings Bank, FSB.
Year-to-date September 30, 2003 noninterest income was $12,053 compared to
$8,164 for the same period last year. Excluding the bankcard sale,
noninterest income increased $2,683. This increase was due primarily to
mortgage volume, the "Overdraft Privilege" product discussed above and the
acquisition of Bedford Federal Savings Bank, FSB.
Noninterest Expense
Noninterest expense, consisting of salaries and employee benefits, occupancy
and equipment costs, checkcard and merchant processing, supplies and other
expenses increased $1,251, from $8,046 in the third quarter 2002 to $9,297 for
the three months ended September 30, 2003. This increase was attributable to
the merger of Bedford Federal Savings Bank, FSB ($818), higher expenses
18
associated with growth in the secondary mortgage function ($664) and the new
"Overdraft Privilege" product.
Year-to-date September 30 noninterest expense increased $2,752, from $23,008
last year to $25,760 this year. The acquisition of Bedford Federal Savings
Bank, FSB accounted for $818 and $1,510 was due to higher expense associated
with the secondary market function. The remainder of the increase was due to
higher benefit costs, partially offset by lower bankcard expense due to the
sale of the bankcard portfolio and one-time merger expenses incurred last
year.
Income Taxes
Income tax expense as a percentage of pre-tax income as of September 30, 2003
increased to 32.9% from 32.1% for the same period last year. This was due
primarily to the continued decline of nontaxable interest on securities as a
percentage of income before income taxes.
Decisions as to which securities to purchase are based on taxable equivalent
yields for specific terms. The Corporation has increased its investments in
certain taxable securities which had higher yields than nontaxable securities
when measured on a taxable equivalent basis.
Balance Sheet
Total assets of the Corporation increased from $992,431 at December 31, 2002
to $1,315,504 at September 30, 2003 due primarily to the acquisition of
Bedford Federal Savings Bank, FSB which accounted for $291,280 of the
increase. Excluding Bedford Federal Savings Bank, FSB, total assets increased
3.2% due primarily to loan growth.
Total loans grew from $691,661 to $977,992 due to Bedford Federal Savings
Bank, FSB ($240,592) and 6.6% due to core growth. The growth occurred
principally in the commercial and consumer real estate categories.
Fed funds sold, securities and other investments are up $15,598 primarily due
to the acquisition of Bedford Federal Savings Bank, FSB. Mortgage loans held
for sale balances are down $16,760 due to a drop in re-financing activity as a
result of the recent rise in mortgage rates.
Goodwill and core deposit intangibles are up $23,101 due almost exclusively to
the Bedford Federal Savings Bank, FSB acquisition and represents the excess of
the purchase price over the fair value of Bedford Federal Savings Bank, FSB on
August 1, 2003, the consummation date of the acquisition.
Total deposits were up from $845,688 at December 31, 2002 to $1,040,774 at
September 30, 2003 due primarily to the Bedford Federal Savings Bank, FSB
acquisition ($188,468). Excluding the impact of the acquisition, lower-cost
core noninterest-bearing and interest-bearing demand and savings deposits grew
4.6% while higher cost time deposits and certificates of deposit over $100,000
(CDs) declined $11,440 due to highly competitive pricing in our market. The
Corporation attempts to price CDs so the excess funds provided can be invested
profitability in the investment portfolio.
Short-term borrowings were up $26,390 from year-end 2002 to September 30,
2003. Bedford Federal Savings Bank, FSB had $16,000 which was used to
partially fund their mortgage loan portfolio. An additional $5,000 resulted
from moving long-term borrowings at the Federal Home Loan Bank to shorter term
borrowings in order to take advantage of the lower borrowing costs at the
short end of the yield curve. An additional $5,000 was borrowed to employ a
leveraging strategy whereby funds from these low-cost borrowings were used to
19
purchase longer duration securities at profitable spreads.
Long term debt increased by $54,655 primarily due to the acquired borrowings
of Bedford Federal Savings Bank, FSB ($47,640 Federal Home Loan Bank
borrowings)and the issuance of $12,372 of trust preferred stock via
participation in a trust-preferred pool, the proceeds of which were used to
pay the cash portion of the consideration to the stockholders of Bedford
Federal Savings Bank, FSB. These increases were offset by the transfer of
$5,000 to short-term borrowings as discussed above.
Stockholders' equity increased $43,699 from December 31, 2002 to September 30,
2003 primarily due to the issuance of 1.405 million shares for the acquisition
of Bedford Federal Savings Bank, FSB amounting to $37,299. The remainder of
the increase was due primarily to earnings net of dividends ($6,554).
Nonperforming Assets
Nonperforming assets which consist of loans past due 90 days and over on which
interest was still accruing, other real estate and nonaccrual loans totaled
$5,647 at September 30, 2003 compared to $4,511 at December 31, 2002, of which
$492 of the increase was due to the acquisition of Bedford Federal Savings
Bank, FSB. Expressed as a percent of total loans plus other real estate,
nonperforming assets declined from .65% to .58%.
20
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The effective management of market risk is essential to achieving the
Corporation's strategic financial objectives. As a financial institution, the
Corporation's most significant market risk exposure is interest rate risk.
The primary objective of interest rate risk management is to minimize the
effect that changes in interest rates have on net interest income. This is
accomplished through active management of asset and liability portfolios with
a focus on the strategic pricing of asset and liability accounts and
management of maturity mixes for assets and liabilities. The goal of these
activities is the development of appropriate maturity and repricing
opportunities in the Corporation's portfolios of assets and liabilities that
will produce consistent net interest income during periods of changing
interest rates. The Corporation's Asset Liability Management Committee and
boards monitor loan, investment and liability portfolios to ensure
comprehensive management of interest rate risk.
The asset/liability management process is designed to achieve relatively
stable net interest margins and assure liquidity by coordinating the volumes,
maturities or repricing opportunities of earning assets, deposits and borrowed
funds. It is the responsibility of the above Committee to determine and
achieve the most appropriate volume and mix of earning assets and interest-
bearing liabilities, as well as ensure an adequate level of liquidity and
capital, within the context of corporate performance goals. The Committee
also sets policy guidelines and establishes long-term strategies with respect
to interest rate risk exposure and liquidity. The Committee meets regularly
to review interest rate risk and liquidity positions in relation to present
and prospective market and business conditions, and adopts funding and balance
sheet management strategies that are intended to ensure that the potential
impact on earnings and liquidity as a result of fluctuations in interest rates
is within acceptable standards.
The majority of assets and liabilities of financial institutions are
monetary in nature and differ greatly from most commercial and industrial
companies that have significant investments in fixed assets and inventories.
Fluctuations in interest rates and actions of the Board of Governors of the
Federal Reserve System ("FRB") to regulate the availability and cost of
credit have a greater effect on a financial institution's profitability than
do the effects of higher costs for goods and services. Through its balance
sheet management function, the Corporation is positioned to respond to
changing interest rates and inflationary trends.
Management uses interest sensitivity simulation analysis ("Simulation") to
measure the sensitivity of projected earnings to changes in interest rates.
Simulation takes into account the current contractual agreements that the
Corporation has made with its customers on deposits, borrowings, loans,
investments and any commitments to enter into those transactions. Management
monitors the Corporations' interest sensitivity by means of a computer model
that incorporates the current volumes, average rates and scheduled maturities
and payments of asset and liability portfolios, together with multiple
scenarios of projected prepayments, repricing opportunities and anticipated
volume growth. Using this information, the model projects earnings based on
projected portfolio balances under multiple interest rate scenarios. This
level of detail is needed to simulate the effect that changes in interest
rates and portfolio balances may have on the earnings of the Corporation.
This method is subject to the accuracy of the assumptions that underlie the
process, however, it provides a better illustration of the sensitivity of
earnings to changes in interest rates than other analyses such as static or
dynamic gap.
21
The asset/liability management process requires a number of key assumptions.
Management determines the most likely outlook for the economy and interest
rates by analyzing external factors, including published economic projections
and data, the effects of likely monetary and fiscal policies as well as any
enacted or prospective regulatory changes. The Corporations' current and
prospective liquidity position, current balance sheet volumes and projected
growth, accessibility of funds for short-term needs and capital maintenance
are also considered. This data is combined with various interest rate
scenarios to provide management with information necessary to analyze interest
sensitivity and to aid in the development of strategies to reach performance
goals.
The following table shows the effect that the indicated changes in interest
rates would have on net interest income projected for the next twelve
months using the interest simulation model. Key assumptions in the
preparation of the table include prepayment speeds of mortgage-related assets,
cash flows, changes in market conditions, loan volumes and pricing, deposit
sensitivity, customer preferences and capital plans. The resulting change in
net interest income reflects the level of sensitivity that net interest income
has in relation to changing interest rates.
INTEREST SENSITIVITY SIMULATION ANALYSIS
Annualized Hypothetical
Change in Prime Percentage Change in
Rate Over 12 Months Net Interest Income
+ 3.00% 5.92%
+ 2.00 3.96
+ 1.00 1.88
- 1.00 -1.57
- 2.00 -3.26
- 3.00 -4.99
Management has established parameters for asset/liability management which
prescribe a maximum impact on net interest income, net income or market
value of equity resulting from a change in interest rates over twelve months,
and from a 100 and 200 basis point instant change referred to as "interest
rate shock." It is management's ongoing objective to effectively manage the
impact of changes in interest rates and minimize the resulting effect on
earnings and market value of equity. At July 31, 2003 the Corporations'
sensitivity to changes in interest rates were within management's targets.
22
Item 4. CONTROLS AND PROCEDURES
We maintain a system of internal controls and procedures designed to provide
reasonable assurance as to the reliability of our published financial
statements and other disclosures included in this report. Within the 90-day
period prior to the date of this report, we evaluated the effectiveness of
the design and operation of our disclosure controls and procedures pursuant
to Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that
evaluation, our Chief Executive Officer and our Principal Financial Officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information relating to FNB Corporation (including
its consolidated subsidiaries) required to be included in this quarterly
report on Form 10-Q.
There have been no significant changes in our internal controls or in other
factors which could significantly affect internal controls subsequent to the
date that we carried out our evaluation.
23
Part II OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
See index to exhibits
(B) Reports on Form 8-K:
A report on form 8-K was filed on July 25, 2003 (with a Date
of Report of July 25, 2003) disclosing under Item 9 the
following information, which is intended to be furnished under
Item 12, "Results of Operations and Financial Condition," is
instead being furnished under Item 9, "Regulation FD
Disclosure."
On July 25, 2003, FNB Corporation issued a press release
commenting on 2003 second quarter performance, the expected
closing of the merger with Bedford Bancshares, Inc. and
approval by the Board of Directors of a 2003 third quarter
cash dividend.
A report on Form 8-K was filed on August 1, 2003 (with a Date
of Report of August 1, 2003) disclosing under Item 2 the
completed merger on August 1, 2003 of Bedford Bancshares, Inc.
with and into FNB Corporation, pursuant to an Agreement and
Plan of Merger dated March 20, 2003.
24
Signatures
Pursuant to the requirements 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 Corporation
Date November 7, 2003 s/William P. Heath, Jr.
William P. Heath, Jr.
President & Chief Executive Officer
Date November 7, 2003 s/Daniel A. Becker
Daniel A. Becker
Senior Vice President & Chief Financial Officer
25
CERTIFICATIONS
I, William P. Heath, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of FNB
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
26
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 7, 2003 s/William P. Heath, Jr.
William P. Heath, Jr.
President & Chief Executive Officer
27
CERTIFICATIONS
I, Daniel A. Becker., certify that:
1. I have reviewed this quarterly report on Form 10-Q of FNB
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
28
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 7, 2003 s/Daniel A. Becker
Daniel A. Becker
Senior Vice President & Chief Financial Officer
29
INDEX TO EXHIBITS
Exhibit # Description
(2) Plan of Merger
(2)A Merger agreement dated July 31, 2001 between FNB Corporation and
Salem Community Bankshares, Inc. filed with the Commission as
Exhibit (2)D on Form 10-Q for the quarter ended June 30, 2001, is
incorporated herein by reference.
(2)B Amendment to merger agreement dated August 7, 2001 between FNB
Corporation and Salem Community Bankshares, Inc. filed with the
Commission as exhibit (2)E on Form 10-Q for the quarter ended
June 30, 2001, is incorporated herein by reference.
(2)C Merger agreement dated March 20, 2003 between FNB Corporation
and Bedford Bancshares, Inc. filed with the Commission as
Exhibit (2)C on Form 10-Q for the quarter ended March 31, 2003,
is incorporated herein by reference.
(3)(i)(a) Articles of Incorporation
Registrant's Articles of Incorporation, filed with the Commission
as exhibit 3.1 to the Annual Report on Form 10-K for the year
ended December 31, 1996, is incorporated herein by reference.
(3)(i)(b) Articles of Amendment to Articles of Incorporation, incorporated
herein by reference to Exhibit 3.3 of Registrant's
Registration Statement on Form S-4 dated September 13, 2000.
(3)(i)(c) Articles of Amendment to Articles of Incorporation, filed with
the Commission as exhibit (3)(i)(c) on Form 10-Q for the quarter
ended June 30, 2002, is incorporated herein by reference.
(3)(ii) Registrant's Amended Bylaws, filed with the Commission as exhibit
(3)(iii) on Form 10-Q for the quarter ended June 30, 2001, is
incorporated herein by reference.
(3)(iii) Registrant's Amended Bylaws, filed with the Commission as exhibit
(3)(iii) on Form 10-Q for the quarter ended March 31, 2003, is
incorporated herein by reference.
(10) Material Contracts
(10)A First Amendment to Consulting and Noncompetition Agreement dated
December 23, 1999, between Samuel H. Tollison and FNB Corporation,
filed with the Commission as Exhibit (10)B on Form 10-K for the
year ended December 31, 1999, is incorporated herein by
reference.
(10)B Employment agreement dated April 1, 2002 between FNB Corporation
and Julian D. Hardy, Jr., filed with the Commission as exhibit
(10)A on Form 10-Q for the quarter ended June 30, 2002, is
incorporated herein by reference.
(10)C Employment agreement dated April 1, 2002 between FNB Corporation
and Peter A. Seitz, filed with the Commission as exhibit (10)B
on Form 10-Q for the quarter ended June 30, 2002, is incorporated
herein by reference.
30
(10)D Employment agreement dated April 1, 2002 between FNB Corporation
and Litz H. Van Dyke, filed with the Commission as exhibit (10)C
on Form 10-Q for the quarter ended June 30, 2002, is incorporated
herein by reference.
(10)E Employment agreement dated June 2, 2003 between FNB Corporation
and William P. Heath, Jr., filed with the Commission as exhibit
(10)E on Form 10-Q for the quarter ended June 30, 2003, is
incorporated herein by reference.
31
1