UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT of 1934.
For the fiscal year ended December 31, 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
incorporation or organization) Identification No.)
105 Arbor Drive, Christiansburg, Virginia 24073
(Address of principal executive offices) (Zip Code)
(540)382-4951
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $5 par value
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 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES X NO
The aggregate market value of voting and non-voting stock held by non-
affiliates of the registrant as of June 30, 2003, was $143,747,468.
There were 7,259,962 shares outstanding as of March 3, 2004.
1
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Corporation's Annual Report to Stockholders for the year ended
December 31, 2003, are incorporated into Parts I and II hereof. Portions of
the Corporation's Notice of Annual Meeting and Proxy Statement for the Annual
Meeting of May 11, 2004, are incorporated into Part III hereof.
2
TABLE OF CONTENTS
PART I
Item 1. Business Page
General development of business 4
Description of business 4
Supervision and Regulation 4
Competition 5
Governmental Monetary Policies 5
Employees 5
Available information 5
Securities Act Guide 3. Statistical
Disclosure by Bank Holding Companies 6
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of
Security Holders 20
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 21
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
Item 7(A) Quantitative and Qualitative Disclosures About
Market Risks 21
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 22
Item 9(A) Controls and Procedures 22
PART III
Item 10. Directors and Executive Officers of the Registrant 23
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners
and Management 23
Item 13. Certain Relationships and Related Transactions 24
Item 14. Principal Accounting Fees and Services 25
PART IV
Item 15. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 26
Index to Consolidated Financial Statements 26
Signatures 27
Index to Exhibits 29
3
PART I
Item 1. Business
General development of business. FNB Corporation, a Virginia corporation, was
organized in 1996 as a bank holding company for First National Bank, a
national banking association formed in 1905. In 2001 FNB acquired FNB
Southwest (formerly Southwest Virginia Savings Bank, F.S.B.) which was formed
in 1927 and two First Union National Bank branches. Also on
December 31, 2001, FNB acquired Salem Bank and Trust, National Association,
which was incorporated in 1976. FNB Southwest and Salem Bank and Trust,
National Association, merged on May 6, 2002, into a single charter with
the name "FNB Salem Bank and Trust, National Association." On August 1, 2003,
FNB acquired Bedford Federal Savings Bank, FSB. In 1992, FNB formed FNB
Financial Services, Inc., a wholly-owned subsidiary, to allow the company to
participate as an agent in the real estate title insurance business.
Additionally, this subsidiary has been licensed by the Commonwealth of
Virginia to offer annuity products through First National's Trust Division.
For more information regarding recent merger and acquisition activity of the
Company, please read Note 23 of the notes to consolidated financial statements
included in the Corporation's Annual Report to Stockholders for the year ended
December 31, 2003 incorporated as Exhibit 13.
Description of business. FNB through its three banking subsidiaries (bank or
banks) provides a full complement of consumer and commercial banking services
to its primary service areas which include the New River Valley, consisting of
Montgomery County, Virginia and surrounding counties, the Cities of Roanoke
and Salem, Virginia and Roanoke and contiguous counties, including Bedford and
Franklin, Virginia. With an emphasis on personal service, the Company offers
a broad range of commercial and retail banking products and services including
checking, savings and time deposits, individual retirement accounts, merchant
bankcard processing, residential and commercial mortgages, home equity loans,
credit card and consumer installment loans, agricultural loans, investment
loans, small business, agricultural, and FHA and SBA guaranteed loans,
commercial loans, lines and letters of credit as well as trust services. In
addition to its twenty-six branches, three loan production offices, a
financial services center, telephone, and online banking, the Company has
fifty-two ATMs located both on premises and in other strategic positions
within its primary market areas. 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 customers traditional banking products and services through
various delivery channels. For more information regarding the two primary
segments of the Company, community banking and mortgage banking, please read
Note 24 of the notes to consolidated financial statements included in the
Corporation's Annual Report to Stockholders for the year ended December 31,
2003 incorporated as Exhibit 13.
Supervision and Regulation. FNB Corporation is a bank holding company within
the definition of the Bank Holding Company Act of 1956, as amended, and is
supervised and examined by the Federal Reserve Bank. As national
associations, the primary supervisory authority over First National Bank and
FNB Salem Bank and Trust, N.A. is the Office of the Comptroller of the
Currency which regularly examines such areas as loans and reserves,
investments, management practices and other aspects of the bank's operations.
The Office of Thrift Supervision is the primary supervisor of Bedford Federal
Savings Bank, FSB and is responsible for periodic examinations of the Bank.
4
These examinations are focused primarily on the protection of the depositors
of the bank. In addition, the banks are members of the Federal Deposit
Insurance Corporation ("FDIC") which insures the deposits of customers of the
bank up to the statutory maximum.
Competition. The bank not only competes with local, regional and local
offices of multi-state bank holding companies for both deposits and loans but
also with diversified providers of financial services such as brokers and
mutual funds and mortgage and finance companies. Deposits are acquired from a
highly diversified customer base that includes individuals, small and large
businesses and municipal and other governmental entities, none of which
represent a material concentration of the bank's core deposits. The bank's
loan portfolio is not concentrated in any single industry or group of related
industries, nor is there any material risk other than that which is expected
in the normal course of business of a bank in this location. The bank does
not experience a material seasonal fluctuation in its business.
Governmental Monetary Policies. The policies of the Federal Reserve Board
have a direct effect on the banks' loans and deposits and the interest rates
charged and paid thereon. While future economic conditions and the policies
of the Federal Reserve Board designed to deal with those conditions cannot
accurately be predicted, they can materially affect the revenue and income of
commercial banks.
Employees. The Corporation had 462 full-time equivalent employees as of
December 31, 2003.
Available Information. FNB Corporation files annual, quarterly, and special
reports, proxy statements, and other information with the SEC. The public
may read and copy any documents each company files at the SEC's Public
Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public
may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. SEC filings are also available to the
public from the SEC's Internet website at http://www.sec.gov.
FNB Corporation makes available free of charge on or through its Internet
website at www.fnbonline.com its annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act as soon as reasonably practicable after it electronically
files such material with, or furnishes it to the SEC. FNB Corporation's
Code of Conduct and the charter of its Audit Committee are available on
FNB's Internet site at www.fnbonline.com. The Code of Conduct and the
charter may be obtained by writing to the Corporate Secretary at
P.O. Box 600, Christiansburg, Virginia 24068-0600.
5
Securities Act Guide 3. Statistical Disclosure by Bank Holding Companies.
The following schedules are included:
Average Balance Sheet and Analysis of Net Interest Earnings
Rate/Volume Variance
Securities Available-For-Sale at Fair Value
Securities Held-To-Maturity at Amortized Cost
Securities--Maturity/Yield Schedule
Types of Loans
Loan Maturities and Interest Sensitivity
Nonperforming Assets and Past Due Loans
Pro forma/Recorded Interest on Nonaccrual Loans
Analysis of the Allowance for Loan Losses
Allocation of Allowance for Loan Losses
Deposit Maturities
Return on Equity and Assets
Interest Sensitivity Analysis
6
GUIDE 3. I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
A. and B. AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST EARNINGS
2003
Average
Average Income/ Yield/
(thousands) Balance Expense Rate
ASSETS
Loans (Net of unearned income) (1)(2) $ 826,969 52,803 6.39%
Securities:
Taxable 151,924 6,447 4.24
Nontaxable (2) 22,888 1,658 7.24
Total securities 174,812 8,105 4.64
Short term investments 30,785 1,211 3.93
Total interest-earning assets 1,032,566 62,119 6.02
Allowance for loan losses (10,645)
Cash and due from banks, noninterest-
bearing 26,650
Bank premises and equipment, net 23,930
Other real estate owned 1,323
Other assets 60,219
Total assets $1,134,043
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Demand and savings $ 324,823 1,986 0.61%
Time 378,967 11,342 2.99
Certificates of deposit of
$100,000 and over 104,347 3,617 3.47
Total interest-bearing deposits 808,137 16,945 2.10
Federal funds purchased and securities
sold under agreements to repurchase 20,003 66 0.33
Other borrowed funds 61,712 2,924 4.74
Total interest-bearing liabilities 889,852 19,935 2.24
Demand deposits, noninterest-bearing 120,945
Other liabilities 8,439
Stockholders' equity 114,807
Total liabilities and
stockholders' equity $1,134,043
Interest income and rate earned $ 62,119 6.02%
Interest expense and rate paid 19,935 2.24
Interest rate spread 3.78
NET INTEREST INCOME AND NET YIELD
ON AVERAGE EARNING ASSETS $ 42,184 4.09%
(1) Interest on nonaccrual loans has been included only to the extent
reflected in the statements of income. Nonaccrual loans are included in
average balances for yield computations.
(2) Income and rates on non-taxable loans and securities are computed on a tax
equivalent basis using a federal tax rate of 34%.
7
A. and B. AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST EARNINGS
2002
Average
Average Income/ Yield/
(thousands) Balance Expense Rate
ASSETS
Loans (net of unearned income)(1)(2) $ 666,213 49,398 7.41%
Securities:
Taxable 150,390 7,988 5.31
Nontaxable(2) 32,040 2,314 7.22
Total securities 182,430 10,302 5.65
Short term investments 27,760 813 2.93
Total interest-earning assets 876,403 60,513 6.90
Allowance for loan losses (9,393)
Cash and due from banks, noninterest-
bearing 23,300
Bank premises and equipment, net 22,908
Other real estate owned 1,077
Other assets 44,995
Total assets $ 959,290
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Demand and savings $ 269,952 3,225 1.19%
Time 357,464 12,756 3.57
Certificates of deposit of
$100,000 and over 88,817 4,070 4.58
Total interest-bearing deposits 716,233 20,051 2.80
Federal funds purchased and securities
sold under agreements to repurchase 9,013 111 1.23
Other borrowed funds 36,617 2,034 5.55
Total interest-bearing liabilities 761,863 22,196 2.91
Demand deposits, noninterest-bearing 100,265
Other liabilities 7,415
Stockholders' equity 89,747
Total liabilities and
stockholders' equity $ 959,290
Interest income and rate earned $ 60,513 6.90%
Interest expense and rate paid 22,196 2.91
Interest rate spread 3.99
NET INTEREST INCOME AND NET YIELD
ON AVERAGE EARNING ASSETS $ 38,317 4.37%
(1) Interest on nonaccrual loans has been included only to the extent
reflected in the statements of income. Nonaccrual loans are included in
average balances for yield computations.
(2) Income and rates on non-taxable loans and securities are computed on a tax
equivalent basis using a federal tax rate of 34%.
8
A. and B. AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST EARNINGS
2001
Average
Average Income/ Yield/
(thousands) Balance Expense Rate
ASSETS
Loans (Net of unearned income) (1)(2) $ 458,756 39,603 8.63%
Securities:
Taxable 92,921 5,829 6.27
Nontaxable (2) 38,382 2,803 7.30
Total securities 131,303 8,632 6.57
Short term investments 20,224 730 3.61
Total interest-earning assets 610,283 48,965 8.02
Allowance for loan losses (6,399)
Cash and due from banks, noninterest-
bearing 15,341
Bank premises and equipment, net 18,266
Other real estate owned 303
Other assets 11,817
Total assets $ 649,611
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Demand and savings $ 166,065 3,683 2.22%
Time 257,988 13,601 5.27
Certificates of deposit of
$100,000 and over 71,165 4,195 5.89
Total interest-bearing deposits 495,218 21,479 4.34
Federal funds purchased and securities
sold under agreements to repurchase 8,325 271 3.26
Other borrowed funds 19,249 1,077 5.60
Total interest-bearing liabilities 522,792 22,827 4.37
Demand deposits, noninterest-bearing 62,719
Other liabilities 6,363
Stockholders' equity 57,737
Total liabilities and
stockholders' equity $ 649,611
Interest income and rate earned $ 48,965 8.02%
Interest expense and rate paid 22,827 4.37
Interest rate spread 3.66
NET INTEREST INCOME AND NET YIELD
ON AVERAGE EARNING ASSETS $ 26,138 4.28%
(1) Interest on nonaccrual loans has been included only to the extent
reflected in the statements of income. Nonaccrual loans are included in
average balances for yield computations.
(2) Income and rates on non-taxable loans and securities are computed on a tax
equivalent basis using a federal tax rate of 34%.
9
A. RATE/VOLUME VARIANCE
2003 Compared to 2002 2002 Compared to 2001
Due to Due to Due to Due to
(thousands) Change Volume Rate Change Volume Rate
INTEREST INCOME
Loans(1) $ 3,405 11,092 (7,687) 9,795 16,646 (6,851)
Securities:
Taxable (1,541) 73 (1,614) 2,159 3,329 (1,170)
Nontaxable(1) (656) (662) 6 (489) (461) (28)
Federal funds sold 398 104 294 83 246 (163)
Total 1,606 10,607 (9,001) 11,548 19,760 (8,212)
INTEREST EXPENSE
Demand and savings (1,239) 496 (1,735) (458) 1,773 (2,231)
Time (1,414) 705 (2,119) (845) 4,397 (5,242)
Certificates of deposit
of $100,0000 and over (453) 625 (1,078) (125) 925 (1,050)
Federal funds purchased
and securities sold
under agreements to
repurchase (45) 86 (131) (160) 15 (175)
Other borrowed funds 890 1,292 (402) 957 968 (11)
Total (2,261) 3,204 (5,465) (631) 8,078 (8,709)
Net interest income $ 3,867 7,403 (3,536) 12,179 11,682 497
Variances caused by changes in rate times the changes in volume are allocated
equally.
(1) Income and rates on non-taxable loans and securities are computed on a
tax equivalent basis using a federal tax rate of 34%.
10
GUIDE 3. II. INVESTMENT PORTFOLIO
A. SECURITIES AVAILABLE-FOR-SALE AT FAIR VALUE
December 31,
(thousands) 2003 2002 2001
U.S. Treasury $ 151 - 503
U.S. Government agencies and
corporations 57,133 16,234 50,884
Mortgage-backed 69,950 77,616 38,756
States and political subdivisions 19,362 21,974 23,302
Corporate 27,045 26,064 32,892
Totals $ 173,641 141,888 146,337
A. SECURITIES HELD-TO-MATURITY AT AMORTIZED COST
December 31,
(thousands) 2003 2002 2001
U.S. Government agencies and
corporations $ - - 6,331
Mortgage-backed 180 259 376
States and political subdivisions 9,494 15,816 24,105
Totals $ 9,674 16,075 30,812
11
B. SECURITIES--MATURITY/YIELD SCHEDULE
As of December 31, 2003
Securities Available-for-Sale
Approximate Taxable
Amortized Fair Equivalent
(thousands) Costs Values Yield(1)
U.S. Government agencies and
corporations:
1 through 5 years $ 18,236 18,472 3.89
6 through 10 years 40,123 40,254 4.31
Over 10 years 67,793 68,357 4.89
Total 126,152 127,083 4.56
States and political
subdivisions:
Within 1 year 1,176 1,186 5.91
1 through 5 years 9,250 9,451 5.90
6 through 10 years 5,095 5,063 5.75
Over 10 years 3,520 3,662 6.77
Total 19,041 19,362 6.02
Other securities:
Within 1 year 1,043 1,069 7.24
1 through 5 years 20,490 21,984 5.95
6 through 10 years 1,097 1,135 4.60
Over 10 years 3,041 3,008 3.17
Total 25,671 27,196 5.62
$ 170,864 173,641 4.89
(1) Yields on non-taxable investment securities are computed on a tax
equivalent basis using a federal tax rate of 34%.
12
B. SECURITIES--MATURITY/YIELD SCHEDULE
As of December 31, 2003
Securities Held-To-Maturity
Approximate Taxable
Amortized Fair Equivalent
(thousands) Costs Values Yield(1)
U.S. Government agencies and
corporations:
6 through 10 years $ 82 88 8.00
Over 10 years 98 100 4.54
Total 180 188 6.10
States and political
subdivisions:
Within 1 year 4,502 4,608 7.25
1 through 5 years 4,078 4,260 6.81
6 through 10 years 914 953 5.19
Total 9,494 9,821 6.86
$ 9,674 10,009 6.85
(1) Yields on non-taxable investment securities are computed on a tax
equivalent basis using a federal tax rate of 34%.
13
GUIDE 3. III LOANS
A. TYPES OF LOANS
December 31,
2003 2002 2001
% of % of % of
(thousands) Amount Total Amount Total Amount Total
Commercial $ 87,826 8.8 76,665 11.1 75,705 11.7
Consumer 159,722 16.0 133,304 19.3 130,072 20.1
Real estate - commercial 282,366 28.2 225,316 32.6 193,575 29.9
Real estate - construction 90,663 9.1 49,186 7.1 42,404 6.5
Real estate - mortgage 379,311 37.9 207,190 29.9 206,507 31.8
$999,888 100.0 691,661 100.0 648,263 100.0
TYPES OF LOANS
December 31,
2000 1999
% of % of
(thousands) Amount Total Amount Total
Commercial $ 76,023 18.6 76,796 20.1
Consumer 77,395 18.9 69,278 18.1
Real estate - commercial 108,338 26.4 104,608 27.4
Real estate - construction 20,326 5.0 19,449 5.1
Real estate - mortgage 127,504 31.1 112,141 29.3
$409,586 100.0 382,272 100.0
14
B. LOAN MATURITIES AND INTEREST SENSITIVITY
As of December 31, 2003
One
Within Through Over
(thousands) One Year Five Years Five Years Total
Commercial:
Fixed interest rates $ 10,521 19,575 5,269 35,365
Floating interest rates 19,441 14,786 18,234 52,461
Total 29,962 34,361 23,503 87,826
Real estate-commercial:
Fixed interest rates 5,290 47,360 45,551 98,201
Floating interest rates 39,896 112,033 32,236 184,165
Total 45,186 159,393 77,787 282,366
Real estate-construction:
Fixed interest rates 31,152 5,783 - 36,935
Floating interest rates 21,757 26,729 5,242 53,728
Total 52,909 32,512 5,242 90,663
$ 128,057 226,266 106,532 460,855
15
C. NONPERFORMING ASSETS AND PAST DUE LOANS
December 31,
(thousands) 2003 2002 2001 2000 1999
Nonaccrual loans $ 3,142 2,914 2,815 2,391 4,517
Other real estate owned 1,872 1,001 1,420 281 129
Accruing loans past due
90 days 437 596 1,031 410 25
Total nonperforming assets $ 5,451 4,511 5,266 3,082 4,671
PRO FORMA/RECORDED INTEREST ON NONACCRUAL LOANS
(thousands) 2003 2002 2001 2000 1999
Pro forma interest-nonaccrual
loans $ 224 225 248 239 406
Recorded interest-nonaccrual
loans $ - - 64 - 1
Interest related to nonaccrual loans is recognized on the cash basis. Loans
are generally placed on nonaccrual status when the collection of principal or
interest is 90 days or more past due, unless the obligation is both well-
secured and in the process of collection. Pro forma interest represents the
amount of interest that would have been recorded if the loans had been current
in accordance with their original terms.
16
GUIDE 3. IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(thousands)
2003 2002 2001 2000 1999
AVERAGE LOANS OUTSTANDING $ 826,969 666,213 458,756 397,154 359,268
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period $ 9,466 8,827 5,670 5,173 4,640
Provision for loan losses 2,158 1,369 1,637 1,082 1,445
Reserve acquired through merger 1,382 - 2,956 - -
Additional reserve for branch
loans purchased - - 188 - -
13,006 10,196 10,451 6,255 6,085
Loans charged off:
Commercial 358 299 980 377 713
Consumer 997 1,034 950 494 355
Real estate - commercial 35 60 - - 50
Real estate - construction - - - - -
Real estate - mortgage 50 278 59 - 15
Total loans charged off 1,440 1,671 1,989 871 1,133
Recovery of loans previously
charged off:
Commercial 165 117 111 22 9
Consumer 212 402 249 249 178
Real estate - commercial - 383 - - -
Real estate - construction - - - - -
Real estate - mortgage 59 39 5 15 34
Total recoveries 436 941 365 286 221
Net loans charged off 1,004 730 1,624 585 912
Balance, end of period $ 12,002 9,466 8,827 5,670 5,173
Net charge-offs to average
loans outstanding 0.12% 0.11 0.35 0.15 0.25
17
B. ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(thousands)
December 31,
2003 2002 2001 2000 1999
Commercial $ 2,993 2,642 2,794 3,140 2,555
Consumer 2,420 2,179 1,894 837 839
Real estate - commercial 3,003 2,117 2,178 867 612
Real estate - construction 705 649 534 164 66
Real estate - mortgage 1,803 1,314 1,016 576 538
Unassigned portion of allowance 1,078 565 411 86 563
$ 12,002 9,466 8,827 5,670 5,173
Management continually reviews the loan portfolio for signs of deterioration.
In making their evaluation of the portfolio, factors considered include the
individual strength of borrowers, the strength of the individual industries,
the value and marketability of collateral, specific market strengths and
weaknesses, and general economic conditions. Management believes that the
allowance for loan losses at December 31, 2003 is adequate to cover potential
loan losses inherent in the loan portfolio.
GUIDE 3. V. DEPOSITS
D. DEPOSIT MATURITIES
As of December 31, 2003
Mature Within
Over Six
Three Over Three Months
Months Months Through Over
or Through Twelve Twelve
(thousands) Less Six Months Months Months Total
Certificates of
deposit and other
time deposits of
$100M and over $ 15,305 16,171 30,829 61,531 123,836
All other deposits 248,595 81,961 153,209 441,201 924,966
Total deposits $ 263,900 98,132 184,038 502,732 1,048,802
GUIDE 3. VI. RETURN ON EQUITY AND ASSETS
Refer to the Bank's 2003 Annual Report to Stockholders under the heading
"Selected Consolidated Financial Information" for a five year summary of
financial information which includes return on equity, return on assets and
other ratios, which is incorporated by reference into this Form 10-K.
18
INTEREST SENSITIVITY ANALYSIS
As of December 31, 2003
Mature or Reprice Within
Over Three
Three Months Over One
Months Through Year To Over
or Twelve Five Five
(thousands) Less Months Years Years Total
INTEREST-EARNING ASSETS
Loans $ 378,791 212,782 349,217 55,956 996,746
Securities:
Available-for-sale,
at fair value 16,260 2,065 54,666 100,650 173,641
Held-to-maturity,
at amortized cost 650 3,941 3,510 1,573 9,674
Other interest-earning
assets 7,657 12,474 - 9,922 30,053
Total interest-
earning assets $ 403,358 231,262 407,393 168,101 1,210,114
INTEREST-BEARING LIABILITIES
Certificates of deposit
and other time deposits
of $100M and over $ 15,004 47,096 61,226 510 123,836
Time 61,129 175,160 172,097 1,619 410,005
All other deposits 180,430 39,873 159,839 - 380,142
Federal funds purchased
and securities sold
under agreements to
repurchase 6,064 - - - 6,064
Other borrowed funds 42,531 6,000 45,175 30,676 124,382
Total interest-
bearing
liabilities $ 305,158 268,129 438,337 32,805 1,044,429
Interest sensitivity
gap per period $ 98,200 (36,867) (30,944) 135,296 165,685
Cumulative interest
sensitivity gap 98,200 61,333 30,389 165,685 -
19
Item 2. Properties
The principal offices of the Corporation are located in the 73,000 square
foot FNB Center which is owned and located at 105 Arbor Drive in
Christiansburg, Virginia. The FNB Center also contains the primary
operations, mortgage loan and data processing departments of the
Corporation.
In addition to its main office, the Corporation owns 17 branches, two
operation centers and one loan production office, and leases 9 branches,
two loan production offices and a financial services office.
The majority of such space is used by the Corporation in its operations.
The leased properties are from independent parties on terms which management
believes are reasonable in relationship to other available properties in
similar markets.
Item 3. Legal Proceedings
From time to time, the Corporation is a party to lawsuits arising in the
normal course of business in which claims for money damages are asserted.
Management, after consulting with legal counsel handling the respective
matters, is of the opinion that the ultimate outcome of such pending actions,
whether or not adverse to the Corporation, will not have a material effect
upon the Corporation's financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 2003.
20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Corporation has one class of Common Stock with a Par Value of $5 per
share. There were approximately 1,895 stockholders of record as of December
31, 2003, holding 7,234,050 shares of the authorized 25,000,000 shares of
common stock. On July 9, 2002, FNB Corporation was formally named to the
Russell 2000 stock index. The Russell 2000 index is comprised of the
3,000 largest U.S. corporations ranked in order of total market
capitalization (excluding from that group the 1000 largest companies).
The Corporation's stock began appearing on the Nasdaq Stock Market? under
the symbol FNBP on July 7, 1998.
The recent market prices and other related shareholder data is incorporated by
reference into this Form 10-K from the section entitled, "Market Price and
Dividend Data," in the Corporation's 2003 Annual Report to Stockholders which
is filed as Exhibit 13 to this Annual Report on Form 10-K. At March 3,
2004, the closing price was $28.25.
Beginning in the second quarter of 1997, the Corporation changed its policy
and began paying dividends on a quarterly basis, which is currently
anticipated to be the normal frequency for the foreseeable future. There are
no known restrictions on retained earnings that would affect the ability to
pay further dividends other than those imposed by regulatory agencies. See
Note 13 of the notes to consolidated financial statements in the
Corporation's 2003 Annual Report to Stockholders under the caption "Dividend
Restrictions and Capital Requirements," which is filed as Exhibit 13 to this
Form 10-K and is incorporated herein by reference.
Item 6. Selected Financial Data
Selected financial data is presented in the Corporation's 2003 Annual Report
to Stockholders, which is filed as Exhibit 13 to this Form 10-K, under the
caption "Selected Consolidated Financial Information," which 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 is included in the section of the Corporation's 2003 Annual Report
to Stockholders, which is filed as Exhibit 13 to this Form 10-K, under the
same heading, and is incorporated herein by reference.
Item 7(A) Quantitative and Qualitative Disclosures About Market Risk
Information regarding market risks is included in the section of the 2003
Annual Report to Stockholders entitled "Market Risks Related to Financial
Instruments," which is filed as Exhibit 13 to this Form 10-K and is
incorporated herein by reference.
21
Item 8. Financial Statements and Supplementary Data
The following independent auditors' report, consolidated financial statements,
and supplementary financial information included in the Corporation's 2003
Annual Report to Stockholders, which is filed as Exhibit 13 to this Form 10-K,
are incorporated herein by reference:
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 2003 and 2002
Consolidated Statements of Income and Comprehensive Income - Years
ended December 31, 2003, 2002,and 2001
Consolidated Statements of Cash Flows - Years ended December 31,
2003, 2002, and 2001
Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 2003, 2002, and 2001
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Item 9(A) Controls and Procedures
We have carried out an evaluation, under the supervision and the participation
of our management, including our President and Chief Executive Officer (our
"CEO") and our Senior Vice President and Chief Financial Officer (our "CFO"),
of the effectiveness of the design and operation of our disclosure controls
and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Act") as of the end of the
fiscal year covered by this report. Based upon that evaluation, our CEO and
CFO concluded that our disclosure controls and procedures are effective in
providing reasonable assurance that (a) the information required to be
disclosed by us in the reports that we file or submit under the Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms, and (b) such
information is accumulated and communicated to our management, including our
CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure.
There has been no change in our internal control over financial reporting
during the fourth quarter of the year covered by this report that has
materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
22
PART III
Item 10. Directors and Executive Officers of the Registrant
Information on directors is incorporated by reference to the Corporation's
Proxy Statement for the 2004 Annual Meeting of Stockholders under the heading
"Proposal No. 1 - Election of Directors."
Information on executive officers is incorporated by reference
to the Corporation's Proxy Statement for the 2004 Annual Meeting of
Stockholders under the heading "Non-Director Executive Officers of
the Corporation."
The Corporation adopted a Code of Conduct dated January 29, 2004 which is
attached as Exhibit 14.
Information on audit committee financial expert is incorporated by
reference to the Corporation's Proxy Statement for the 2004 Annual Meeting
of Stockholders under the heading "Board of Directors and Committees of the
Board."
Information on Section 16(a) reporting is incorporated by reference to the
Corporation's Proxy Statement for the 2004 Annual Meeting of Stockholders
under Section 16(a) "Beneficial Ownership Reporting Compliance."
Item 11. Executive Compensation
Information on executive compensation is incorporated by reference to the
Corporation's Proxy Statement for the 2004 Annual Meeting of Stockholders
under the heading "Executive Compensation."
Information on compensation of directors is incorporated by reference to the
Corporation's Proxy Statement for the 2004 Annual Meeting of Stockholders
under the heading "Director Compensation."
The Corporation's performance graph is incorporated by reference to the
Corporation's Proxy Statement for the 2004 Annual Meeting of Stockholders
under the heading "Performance Graph."
Item 12. Security Ownership of Certain Beneficial Owners and Management
Principal Security Holders. The Corporation knows of no person or group that
beneficially owned more than five percent of the outstanding shares of Common
Stock as of March 3, 2004.
Security Ownership of Directors and Executive Management. Information on
security ownership of directors and executive officers is incorporated by
reference to the Corporation's Proxy Statement for the 2004 Annual Meeting of
Stockholders under the heading "Security Ownership of Certain Beneficial
Owners and Management."
23
In 2000 the Corporation's stockholders approved the FNB Corporation 2000
Incentive Stock Plan which makes up to 424,000 shares of common stock
available for awards to key employees and non-employee directors of the
Corporation in the form of stock options, stock appreciation rights and
stock awards. For a full description of the Corporation's stock compensation
plans please read Note 22 of the notes to consolidated financial statements
included in the Corporation's Annual Report to Stockholders for the year ended
December 31, 2003 incorporated as Exhibit 13.
Securities Authorized for Issuance Under Equity Compensation Plans
Number of
securities
remaining
available
for future
issuance
Plan category Number of Weighted- under equity
securities average compensation
to be issued exercise plans
upon exercise price of (excluding
of outstanding outstanding securities
options, options, reflected in
warrants and warrants and column
rights rights (a))
(a) (b) (c)
Equity compensation
plans approved by
security holders 259,349 $17.183 132,554
Equity compensation
plans not approved
by security holders - - -
Total 259,349 $17.183 132,554
Item 13. Certain Relationships and Related Transactions
Directors and officers of the Corporation and persons with whom they are
associated have had and expect to have in the future, banking transactions
with the Corporation in the ordinary course of their businesses. In the
opinion of management of the Corporation, all such loans and commitments for
loans were made on substantially the same terms, including interest rates,
collateral and repayment terms as those prevailing at the same time for
comparable transactions with other persons, were made in the ordinary course
of business, and do not involve more than a normal risk of collectibility or
present other unfavorable features. The aggregate amount of direct loans to
any one director, officer or principal stockholder (and related persons), does
not exceed 10 percent of the Corporation's equity capital accounts (nor 20
percent of such accounts for all such persons as a group) and did not during
the previous two fiscal years.
Information on transactions with management is incorporated herein by
reference to the Corporation's Proxy Statement for the 2004 Annual Meeting
of Stockholders under the heading "Transactions with Management."
24
Item 14. Principal Accounting Fees and Services
Information related to audit fees, pre-approval policies and procedures for
audit and permitted non-audit services is incorporated by reference to the
Corporation's Proxy Statement for the 2004 Annual Meeting of Stockholders
under the heading "Audit and Non-Audit Fees" and "Audit Committee Pre-
Approval Policy."
25
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1). Consolidated Financial Statements. The following independent
auditor's report and consolidated financial statements of the
Corporation are incorporated by reference from the
Corporation's 2003 Annual Report to Stockholders included
within this document as Exhibit 13:
Independent Auditor's Report
Consolidated Balance Sheets -- December 31, 2003 and 2002
Consolidated Statements of Income and Comprehensive Income --
Years Ended December 31, 2003, 2002, and 2001
Consolidated Statements of Cash Flows --
Years Ended December 31, 2003, 2002, and 2001
Consolidated Statements of Changes in Stockholders' Equity --
Years Ended December 31, 2003, 2002, and 2001
Notes to Consolidated Financial Statements
(2). Financial Statement Schedules. The financial statement
schedules are omitted as the required information is
inapplicable or the information is presented in the
consolidated financial statements or related notes.
(3). Exhibits.
See Index to Exhibits
(b). Reports on Form 8-K. A report on Form 8-K was filed on
November 11, 2003 (with a Date of Report of October 24, 2003)
disclosing under Item 12 2003 third quarter performance and
approval by the Board of Directors of a 2003 fourth quarter
cash dividend.
A report on Form 8-K was filed on October 10, 2003 (with
a Date of Report of October 10,2003) disclosing under Item 5
the resignation of Peter A. Seitz, Executive Vice President/
Chief Administrative Officer and Corporate Secretary.
(c). Exhibits.
Included in item 15(a)(3) above
(d). Financial Statement Schedules.
Included in item 15(a)(2) above
26
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 Corporation
By: s/William P. Heath, Jr.
William P. Heath, Jr.
President & Chief Executive Officer
By: s/Daniel A. Becker
Daniel A. Becker
Senior Vice President &
Chief Financial Officer
Date: March 3, 2004
27
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following directors on behalf of the
registrant and in that capacity and on the dates indicated.
Signature Date
s/Kendall O. Clay March 3, 2004
Kendall O. Clay
s/Hugh H. Bond March 3, 2004
Hugh H. Bond
s/Douglas Covington March 3, 2004
Douglas Covington
s/Beverley E. Dalton March 3, 2004
Beverley E. Dalton
s/Daniel D. Hamrick March 3, 2004
Daniel D. Hamrick
s/William P. Heath, Jr. March 3, 2004
William P. Heath, Jr.
s/F. Courtney Hoge March 3, 2004
F. Courtney Hoge
s/Steven D. Irvin March 3, 2004
Steven D. Irvin
s/Harold K. Neal March 3, 2004
Harold K. Neal
s/Clark Owen, Jr. March 3, 2004
Clark Owen, Jr.
s/Charles W. Steger March 3, 2004
Charles W. Steger
s/Carl E. Tarpley, Jr. March 3, 2004
Carl E. Tarpley, Jr.
s/Jon T. Wyatt March 3, 2004
Jon T. Wyatt
28
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 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.
29
(10)C 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)D 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.
(10)E Separation agreement dated October 10, 2003 between FNB
Corporation and Peter A. Seitz.
(13) 2003 Annual Report to Stockholders
(14) Code of Conduct
(21) Subsidiaries of the Registrant
Name of Subsidiary Incorporation
First National Bank United States
FNB Financial Services, Inc. Virginia
FNBO Co., Inc. Virginia
FNB Salem Bank and Trust, N.A. United States
Bedford Federal Savings Bank, FSB United States
31(A) Certification by Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31(B) Certification by Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32 Certification to the Securities and Exchange Commission by Chief
Executive Officer and Chief Financial Officer, as required by
Section 906 of the Sarbanes-Oxley Act of 2002.
30