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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee required]
For the transition period from _______ to _______.
Commission file number 33-66014
FNB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
COMMONWEALTH OF PENNSYLVANIA 23-2466821
(State or other jurisdiction of incorporation (I.R.S.
Employer
or organization) Identification No.)
101 Lincoln Way West, McConnellsburg, PA 17233
(Address of principal executive offices) (Zip
Code)
Registrant's telephone number, including area code: 717-485-
3123
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date.
Class Outstanding as of March 5,
2001
Common Stock, $0.315 Par Value 800,000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K ( 229.405 of this chapter)
is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-
affiliates of the registrants as of March 5, 2001:
Common Stock, $0.63 Par Value - $20,000,000.00
Page 1 of 16 Pages
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended
December 31, 2000, are incorporated by reference into Parts I, II
and IV.
Portions of the proxy statement for the annual shareholders
meeting to be held April 24, 2001, are incorporated by reference
into Part III.
Portions of Form SB-2 Registration Statement No. 33-66014 as
filed with the Securities and Exchange Commission on September 8,
1993, are incorporated by reference into Part IV.
The Executive Contract for the President and CEO of the Bank dated
August 1, 2000, is incorporated herein by reference into Part III.
The Executive Change of Control Agreement for the Senior Vice
President and CFO of the Bank dated August 1, 2000, is
incorporated herein by reference into Part III.
A copy of a Common Stock Certificate of FNB Financial Corporation
as filed with the Securities and Exchange Commission with Form 10-
K for the fiscal year ended December 31, 1995 is incorporated by
reference into Part IV.
Page 2 of 16 Pages
PART I
Item 1. Business
Description of Business
FNB Financial Corporation (the Company), a Pennsylvania
business corporation, is a bank holding company registered
with and supervised by the Board of Governors of the
Federal
Reserve System (the "Federal Reserve Board"). The Company
was
incorporated on June 22, 1987, under the business
corporation
law of the Commonwealth of Pennsylvania for the purpose of
becoming a bank holding company. Since commencing
operations,
the Company's business has consisted primarily of managing
and
supervising The First National Bank of McConnellsburg (the
Bank) and its principal source of income has been
dividends
paid by the Bank. The Company has one wholly-owned
subsidiary, the Bank.
The Bank was established in 1906 as a national banking
association under the supervision of the Comptroller of
the
Currency, the Comptroller. The Bank is a member of the
Federal Reserve System and customers' deposits held by the
Bank are insured by the Federal Deposit Insurance
Corporation
to the maximum extent permitted by law. The Bank is
engaged
in a full service commercial and consumer banking business
including the acceptance of time and demand deposits and
the
making of secured and unsecured loans. The Bank provides
its
services to individuals, corporations, partnerships,
associations, municipalities and other governmental
bodies.
As of January 1, 2001, the Bank had three (3) offices and
(1)
drive-up ATM located in Fulton County, one (1) branch
office facility located in Fort Loudon, Franklin County
Pennsylvania and one (1) branch office facility located in
Hancock, Washington County, Maryland. During 1995 the
Bank
received regulatory approval from The Comptroller to
purchase
and assume the deposits, real estate and building of the
Fort
Loudon Branch Office of Dauphin Deposit Bank located in
Franklin County, Pennsylvania. Due to the location of
this
office, management and the Board felt the acquisition of
this
office was strategically important in order to officially
expand the Bank's market area into the Franklin County, PA
area and diversify its current primary market of Fulton
County, PA. It is anticipated this office will generate
new
loan and deposit demand for the Bank in the coming years.
During 1996 the Bank received regulatory approval from the
Comptroller to open its first interstate Branch office in
Hancock, Maryland after management became aware of the
closing
of a branch office of First Federal Savings Bank of
Western
Maryland. This office is known as "Hancock Community
Bank, A
Division of The First National Bank of McConnellsburg".
The
location of this office is felt to be strategically
important
in order to expand the Bank's operations into Washington
Page 3 of 16 Pages
County, Maryland and northern Morgan County, West
Virginia.
This office is also the Bank's first supermarket branch
office. In October 2000, the owner of the adjacent
supermarket completed extensive renovations at which time
the
wall between the branch office and the supermarket was
removed, allowing customers to enter the branch directly
from
the supermarket. This office is expected to enhance
demand
for the Bank's loan and deposit products as well as retain
deposits of customers in southern Fulton County,
Pennsylvania.
The Bank received permission from the Comptroller to
expand its main office facilities in downtown
McConnellsburg
to allow for larger customer service, loan department and
data
processing areas. This expansion was completed on
September
1,1996, at a cost of approximately $1,700,000. In February
1999, the Bank purchased an adjacent property to the main
office facility at 115 Lincoln Way West in downtown
McConnellsburg from the Fulton Overseas Veterans
Association.
This site is 54' by 218' and has situated on it a three
story
building comprised of 4,577 usable square feet on the
first
floor and a 28' by 60' finished basement. The second and
third stories of the building are not usable. The Bank
has no
immediate plans for this facility but felt it was a wise
decision to purchase it for strategic planning purposes.
The
Bank has one wholly-owned subsidiary, First Fulton County
Community Development Corporation, which is a Community
Development Corporation formed under 12USC24/2CFR24 whose
primary regulator is the Office of the Comptroller of the
Currency, The Comptroller. The First Fulton County
Community
Development Corporation was incorporated with the
Commonwealth
of Pennsylvania on May 30, 1995. The primary business of
this
community development corporation is to provide and
promote
community welfare through the establishment and offering
of
low interest rate loan programs to stimulate economic
rehabilitation and development for the Borough of
McConnellsburg and the entire community of Fulton County,
PA.
Competition
Our primary market area includes all of Fulton County
and portions of Huntingdon, Bedford and Franklin Counties,
portions of Washington County, Maryland and portions of
Morgan
County, West Virginia. Our major competitor is a one
bank holding company headquartered in McConnellsburg,
Pennsylvania which has 7 branches located throughout
Fulton,
Franklin and Huntingdon Counties. As of December 31,
2000, we
were ranked second in total deposits when compared to our
major competitor. Also, in this market area we compete
with
regionally-based commercial banks (all of which have
greater
assets, capital and lending limits), savings banks,
savings
and loan associations, money market funds, insurance
companies, stock brokerage firms, regulated small loan
companies, credit unions and with issuers of commercial
paper
and other securities.
Page 4 of 16 Pages
Although deregulation has allowed us to become more
Competitive in the market place in regard to pricing of
loan
and deposit rates, there are disparities in taxing law
which
give some of our nonbank competitors advantages which
commercial banks do not enjoy and many burdensome and
costly
regulations with which we must comply. We meet these
challenges by developing and promoting our locally-owned
community bank image; by offering friendly and
professional
customer service; and by striving to maintain competitive
interest rates for both loans and deposits.
Regulation and Supervision
Our operations are subject to the provisions of the Bank
Holding Company Act of 1956, as amended (the "Bank Holding
Company Act"), and to supervision by the Federal Reserve
Board. The Bank Holding Company Act requires us to secure
the
Prior approval of the Federal Reserve Board before we own
or
control, directly or indirectly, more than five percent
(5%)
of the voting shares of substantially all of the assets of
an
institution, including another bank. The Bank Holding
Company
Act prohibits acquisition by the Company of more than five
percent (5%) of the voting shares of, or interest in, all
or
substantially all of the assets of any bank located
outside of
Pennsylvania unless such acquisition is specifically
Authorized by the laws of the state in which such bank is
located.
Our operations are subject to federal and state statutes
applicable to banks chartered under the banking laws of
the
United States, to members of the Federal Reserve System
and to banks whose deposits are insured by the FDIC. Our
operations are also subject to regulations of the
Comptroller,
the Federal Reserve Board and the FDIC. Our primary
supervisory authority is the Comptroller, which regulates
and
examines us. The Comptroller has authority to prevent
national banks from engaging in unsafe or unsound
practices in
conducting their businesses.
Legislation and Regulatory Changes
From time to time, legislation is enacted which has the
effect
of increasing the cost of doing business, limiting or
expanding permissible activities or affecting the
competitive
balance between banks and other financial institutions.
Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies
and
other financial institutions are frequently made in
Congress,
and before various bank regulatory agencies. No
prediction
can be made as to the likelihood of any major changes or
the
impact such changes might have on the Company and its
subsidiary, the Bank. Certain changes of potential
significance to the Company which have been enacted
recently
are discussed below.
The Federal Reserve Board, the FDIC and the Comptroller
have
issued risk-based capital guidelines, which supplement
existing capital requirements. The guidelines require all
Page 5 of 16 Pages
United States banks and bank holding companies to maintain
a
minimum risk-based capital ratio of 8.0% (of which at
least
3.0% must be in the form of common stockholders' equity).
Assets are assigned to five risk categories, with higher
levels of capital being required for the categories
perceived
as representing greater risk. The required capital will
represent equity and (to the extent permitted) nonequity
capital as a percentage of total risk-weighted assets. On
the
basis of an analysis of the rules and the projected
composition of the Company's consolidated assets, it is
not
expected these rules will have a material effect on the
Company's business and capital plans. The company
presently
has capital ratios exceeding all regulatory requirements.
The Financial Institution Reform, Recovery and Enforcement
Act
of 1989 ("FIRREA") was enacted in August 1989. This law
was
enacted primarily to improve the supervision of savings
associations by strengthening capital, accounting and
other
supervisory standards. In addition, FIRREA reorganized
the
FDIC by creating two deposit insurance funds to be
administered by the FDIC: the Savings Association
Insurance
Fund and the Bank Insurance Fund. Customers' deposits
held by
the Bank are insured under the Bank Insurance Fund.
FIRREA
also regulated real estate appraisal standards and the
supervisory/enforcement powers and penalty provisions in
connection with the regulation of the Bank.
In December 1991 the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") became law. Under
FDICIA,
institutions must be classified, based on their risk-based
capital ratios into one of five defined categories (well
capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically
undercapitalized) as outlined below:
Total Tier 1
Under a
Risk- Risk- Tier 1
Capital
Based Based Leverage
Order or
Ratio Ratio Ratio
Directive
CAPITAL CATEGORY
Well capitalized >10.0% >6.0% >5.0% No
Adequately capitalized > 8.0% >4.0% >4.0%*
Undercapitalized 8.0% 4.0% 4.0%*
Significantly
Undercapitalized 6.0% 3.0% 3.0%
Critically undercapitalized 2.0%
*3.0% for those banks having the highest available regulatory
rating.
Under FDICIA financial institutions are subject to
increased
regulatory scrutiny and must comply with certain
operational,
managerial and compensation standards to be developed by
Federal Reserve Board Regulations. FDICIA also required
the
regulators to issue new rules establishing certain minimum
standards to which an institution must adhere including
Page 6 of 16 Pages
standards requiring a minimum ratio of classified assets
to
capital, minimum earnings necessary to absorb losses and
minimum ratio of market value to book value for publicly
held
institutions. Additional regulations are required to be
developed relating to internal controls, loan
documentation,
credit underwriting, interest rate exposure, asset growth
and
excessive compensation, fees and benefits.
Annual full-scope, on-site examinations are required for
all
FDIC-insured institutions except institutions with assets
under $100 million which are well capitalized, well
managed
and not subject to a recent change in control, in which
case,
the examination period is every eighteen (18) months.
FDICIA
also required banking agencies to reintroduce loan-to-
value
("LTV") ratio regulations which were previously repealed
by
the 1982 Act. LTV's will limit the amount of money a
financial institution may lend to a borrower, when the
loan is
secured by real estate, to no more than a percentage to be
set
by regulation of the value of the real estate.
A separate subtitle within FDICIA, called the "Bank
Enterprise
Act of 1991", requires "truth-in-savings" on consumer
deposit
accounts so that consumers can make meaningful comparisons
between the competing claims of banks with regard to
deposit
accounts and products. Under this provision which became
effective on June 21, 1993, the Bank is required to
provide
information to depositors concerning the terms and fees of
their deposit accounts and to disclose the annual
percentage
yield on interest-bearing deposit accounts.
Federal regulators recently issued proposed regulations to
implement the privacy provisions of the Gramm-Leach-Bliley
Act
(Financial Services Modernization Act). This new law
requires
banks to notify consumers about their privacy policies and
to
give them an opportunity to "opt-out" or prevent the bank
from
sharing "nonpublic personal information" about them with
nonaffiliated third parties. Proposed regulations are
expected to take effect during 2001. We are in the
process of developing privacy policies and procedures to
provide timely disclosure of such policies and a
convenient
means for consumers to opt our of the sharing of their
information with unaffiliated third parties.
We do not anticipate compliance with environmental laws
and
regulations to have any material effect on their
respective
capital, expenditures, earnings, or competitive position.
Employees
As of December 31, 2000, we employed 56 persons on a full-
time
equivalent basis.
Statistical Data
Computation of our regulatory capital requirements for the
periods December 31, 2000, and December 31, 1999, on
page 43 of the annual shareholders report for the year
ended
December 31, 2000, is incorporated herein by reference.
Page 7 of 16 Pages
Loan Portfolio
We make loans to both individual consumers and commercial
entities. The types offered include auto, personal,
mortgage,
home equity, school, home repair, small business,
commercial,
and home construction loans. Within these loans types, we
make installment loans, which have set payments allowing
the
loan to be amortized over a fixed number of payments,
demand
loans, which have no fixed payment and which are payable
in
full on demand and are normally issued for a term of less
than
one year, and mortgage loans, which are secured with
marketable real estate and have fixed payment amounts for
a
pre-established payment period.
We do not assume undue risk on any loan within the loan
portfolio, and take appropriate steps to secure all loans
as
necessary.
We have adopted the following loan-to-value ratios, in
accordance with standards adopted by our bank supervisory
agencies:
Loan Category Loan-to-Value Limit
Raw Land 65%
Land Development 75%
Construction:
Commercial, Multifamily, and other
Nonresidential 1 to 4 Family Residential 80%
Improved Property 85%
Owner-occupied 1 to 4 Family and Home Equity 90%
We are neither dependent upon nor exposed to loan
concentrations to a single customer or to a single
industry,
the loss of any one or more of which would have a material
adverse effect on the financial condition of the Bank;
however, a portion of the Bank's customers' ability to
honor
their contracts is dependent upon the construction and
land
development and agribusiness economic sector. As a
majority
of our loan portfolio is comprised of loans to individuals
and
businesses in Fulton County, PA, a significant portion of
our
customers' abilities to honor their contracts is dependent
upon the general economic conditions in ,South Central
Pennsylvania.
Loan Portfolio composition as of December 31, 2000, and
December 31, 1999, on page 13 of the annual shareholders
report for the year ended December 31, 2000, is
incorporated
herein by reference.
Maturities of loans as of December 31, 2000, on page 14 of
the
annual shareholders report for the year ended December 31,
2000, is incorporated herein by reference.
Nonperforming loans consist of nonaccruing loans and loans
90
days or more past due. Nonaccruing loans are comprised of
loans that are no longer accruing interest income because
of
Page 8 of 16 pages
apparent financial difficulties of the borrower. Interest
on
nonaccruing loans is recorded when received only after
past
due principal and interest are brought current. Our
general
policy is to classify loans as nonaccrual when they become
past due in principal and interest for over 90 days and
collateral is insufficient to allow continuation of
interest
accrual. At that time, the accrued interest on the
nonaccrual
loan is reversed from the current year earnings and
interest
is not accrued until the loan has been brought current in
accordance with contractual terms.
Nonaccrual volume for 2000 decreased $99,283 from the
December
31, 1999, level due to the foreclosure and sale of a
residential property which was sold in the spring of
Nonaccrual volume for 1999 increased $363,616 from the
December 31, 1998, level due to a $155,000 residential
mortgage loan and several other residential mortgage loans
which were classified as nonaccrual. Nonaccrual volume for
1998 decreased $354,805 from December 31, 1997, due to a
$125,000 loan secured by a 1-4 family residential property
in the Hagerstown, MD area being moved to Other Real
Estate and sold in 1998; the amount charged-off as a
result of this movement and sale was approximately
$32,000; the charge-off in 1998 of a $100,000 commercial
loan secured by inventory; and
the charge-off of a $12,000 unsecured line of credit. The
remaining decrease in 1998 was the result of 1-4 family
mortgages classified as nonaccrual as of December 31,
1997,
being brought current.
Nonaccrual volume for 2001 is anticipated to increase due
to
some commercial loans and residential mortgage loans which
may
experience cash flow difficulties in 2001 as a result of
an
economic slowdown. Anticipated charge-offs for 2001 are
expected to remain approximately the same as the total
charge-
offs in 2000 of $203,000.
Nonaccrual, Past Due and Restructured Loans as of December
31,
2000, December 31, 1999, and December 31, 1998, on page 15
of
the annual shareholders report for the year ended December
31, 2000, are incorporated herein by reference.
Allowance for Loan Loss Analysis
The allowance for loan losses is maintained at a level to
absorb potential future loan losses contained in the loan
portfolio and is formally reviewed by us on a quarterly
basis.
The allowance is increased by provisions charged to
operating
expense and reduced by net charge-offs. Our basis for the
level of the allowance and the annual provisions is our
evaluation of the loan portfolio, current and projected
domestic economic conditions, the historical loan loss
experience, present and prospective financial condition of
the
borrowers, the level of nonperforming assets, best and
worst
case scenarios of possible loan losses and other relevant
factors. While we use available information to make such
evaluations, future adjustments of the allowance may be
necessary if economic conditions differ substantially from
the
assumptions used in making the evaluation. Loans are
charged
against the allowance for loan losses when we believe that
the
collectability of the principal is unlikely.
Page 9 of 16 Pages
Activity in the allowance for loan losses and a breakdown
of
the allowance for loan losses as of December 31, 2000, and
December 31, 1999, on page 15 of the annual shareholders
report for the year ended December 31, 2000, are
incorporated
herein by reference.
Although loans secured by 1-4 family residential mortgages
comprise approximately 42% of the entire loan portfolio,
until
recently these mortgages have historically resulted in
little
or no loss. The allocation of the Allowance for Loan
Losses
for these mortgages is based upon this historical fact.
Due
to a more critical evaluation of our commercial,
industrial,
and agricultural loan portfolio, the allocation of the
Allowance for Loan Losses for commercial, industrial, and
Agriculture loans has been accordingly increased.
Deposits
Time Certificates of Deposit of $100,000 and over as of
December 31, 2000, and December 31, 1999, totaled
$12,383,000
and $12,292,000 respectively.
Maturities and rate sensitivity of total interest bearing
liabilities as of December 31, 2000, on page 42 of the
annual
shareholders report for the year ended December 31, 2000,
is
incorporated herein by reference.
Returns on Equity and Assets
Returns on equity and assets and other statistical data
for
2000, 1999 and 1998 on page 24 of the annual shareholders
report for the year ended December 31, 2000, is
incorporated
herein by reference.
Item 2. Properties
The physical properties where we conduct our business in
the
Commonwealth of Pennsylvania are all owned by us while the
property where we conduct business in the State of
Maryland is
leased. The properties owned by us are as follows: the
main
office located at 101 Lincoln Way West, McConnellsburg,
Pennsylvania, has been attached by a two story brick and
frame
addition, to a building located at 111 South Second
Street,
McConnellsburg, Pennsylvania which houses the Bank's
consumer
loan department on the first floor and commercial loan
department and future expansion space on the second floor;
a
property adjacent to the main office facility at 115
Lincoln
Way West in downtown McConnellsburg comprised of a 54' by
218'
city lot which has situated on it a three story building
consisting of 4,577 usable square feet on the first floor,
a
28' by 60' finished basement, second and third stories
which
are unusable and a detached garage; a branch office
located on
Route 522 South, Needmore, Pennsylvania; a property
located at
Routes 16 and 30 East, McConnellsburg, Pennsylvania which
contains a drive-up automatic teller machine and a five
(5)
lane drive-up branch accessible from both Route 30 and
Route
16; and a branch office located at 30 Mullen Street, Fort
Page 10 of 16 Pages
Loudon, Pennsylvania, for which we received regulatory
approval from the Office of the Comptroller of the
Currency to
purchase effective November 13, 1995. The branch office
leased by us in the state of Maryland is located in the
Hancock Shopping Center at 343 North Pennsylvania Avenue
in
Hancock, Maryland next to a supermarket.
The main office located in downtown McConnellsburg is
housed
in a two story brick and frame building, consisting of
approximately 28,277 square feet. It has been attached
(by a
two story brick and frame addition which houses the data
processing/operations center on the first floor and
executive
offices and a meeting room on the second floor) to the
building located at 111 South Second Street, a brick and
frame
building situated on a one town lot which has been
expanded
and renovated to house the consumer loan department on the
first floor and commercial loan department and future
offices
and rest rooms on the second floor. The main office
contains
one (1) external time and temperature sign, seven (7)
internal
teller stations, a customer service office area, executive
offices, one (1) drive-up teller station, an automatic
teller
machine, three (3) vaults (one containing safe deposit
boxes
for customer use and one containing a fire proof/data-
secure
vault in the operations center), a night depository, a
data
processing center with a security controlled computer
operations center, a loan department with a large file
room, a
kitchen and a 5,000 square foot basement storage area.
The Needmore Branch Office, a brick and frame building
situated on approximately five (5) acres, consists of
approximately 3,000 square feet, of which 750 square feet
is
rented as office space. The branch office houses three
(3)
internal teller stations, one (1) drive-up teller station,
a
customer service office area, one (1) vault which contains
safe deposit boxes for customer use, one (1) kitchen, and
storage areas.
The East End Express Banking Center, located on a property
of
approximately 68,000 square feet at Routes 16 and 30, has
situated on it one (1) drive-up automatic teller machine
and
one (1) night depository (both housed in a brick and frame
building of approximately 121 square feet), and a drive-up
branch office, a brick and frame building of approximately
576
square feet, which contains four (4) drive-up teller
stations
with the potential for a total of five (5) drive-up teller
stations in the future.
The Fort Loudon Branch Office, which was expanded and
Completely renovated in 1997 at an approximate cost of
$200,000, is a brick and frame building situated on
approximately .23 acres. It consists of approximately
1,035
square feet. The branch office houses three (3) internal
teller stations, one (1) drive-up teller station, one (1)
vault which contains safe deposit boxes for customer use,
a
manager's office, one (1) kitchen, storage areas and a
basement for storage which consists of approximately 620
square feet.
Page 11 of 16 Pages
The leased office in Hancock, Maryland housing Hancock
Community Bank is approximately 1,400 square feet and is
leased from the owner of the shopping center next to a
supermarket. It contains two (2) offices, one (1)
automated
teller machine, two (2) drive-up teller lanes, a lobby, a
safe
deposit box vault for customers and three (3) teller
stations.
Item 3. Legal Proceedings
In our opinion, there are no proceedings pending to which
we
are a party or to which our property is subject, which, if
determined adversely to us would be material in relation
to
the our retained earnings or financial condition. There
are
no proceedings pending other than ordinary routine
litigation
incident to our business. In addition, no material
proceedings
are known to be threatened or contemplated against the us
by
government authorities.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
Our common stock is not traded on a national securities
Exchange but is traded inactively in the over-the-counter
market and is only occasionally and sporadically traded
through local and regional brokerage houses or through the
facilities of the Bank.
The Stock Market Analysis and Dividends for 2000 and 1999
on
page 44 of the annual shareholders report for the year
ended
December 31, 2000, is incorporated herein by reference.
Item 6. Selected Financial Data
The Selected Five-Year Financial Data on page 24 of the
annual
shareholders report for the year ended December 31, 2000,
is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition
and Results of Operations
Management's discussion and analysis of financial
condition
and results of Operations on pages 29 through 44 of the
annual
shareholders report for the year ended December 31, 2000,
is
incorporated herein by reference.
Page 12 of 16 Pages
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data, some of
which
is required under Guide 3 (Statistical Disclosures by Bank
Holding Companies) are shown on pages 2 through 28 of the
annual shareholders report for the year ended December 31,
2000, are incorporated herein by reference.
The Summary of Quarterly Financial Data on page 25 of the
annual shareholders report for the year ended December 31,
2000, is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Officers of the Registrant
The information contained on pages 3 through 15 of FNB
Financial Corporation's Proxy Statement For the Annual
Meeting of Shareholders to be Held April 25, 2001, with
respect to directors and executive officers of the
Company,
is incorporated herein by reference in response to this
item.
Item 11. Executive Compensation
The information contained on pages 13 through 17 of FNB
Financial Corporation's Proxy Statement For the Annual
Meeting of Shareholders to be Held April 24, 2001, with
respect to executive compensation, transactions and
contracts, is incorporated herein by reference in
response to
this item. The Executive Employment Contract of the
President and CEO of the Bank and the Executive Change of
Control Agreement for the Senior Vice President and CFO
of
the Bank both dated October 2000, are incorporated herein
by
reference in response to this item.
Item 12. Security Ownership of certain Beneficial Owners and
Management
The information contained on pages 3 through 5 and pages
18
And 19 of FNB Financial Corporation's Proxy Statement For
the
Annual Meeting to be Held April 24, 2001, with respect to
security ownership of certain beneficial owners and
management, is incorporated herein by reference in
response
to this item.
Item 13. Certain Relationships and Related Transactions
The information contained on pages 9, 17, and 18 of FNB
Financial Corporation's Proxy Statement For the Annual
Meeting to be Held April 24, 2001, with respect to
certain
relationships and related transactions, is incorporated
herein by reference in response to this item.
Page 13 of 16 Pages
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports of
Form
8-k.
(a) (1) - List of Financial Statements
The following consolidated financial statements of FNB
Financial Corporation and its subsidiary, included in the
annual report of the registrant to its shareholders for
the
year ended December 31, 2000, are incorporated by
reference
in Item 8:
Consolidated balance sheets - December 31, 2000, and
1999
Consolidated statements of income - Years ended December
31,
2000, 1999 and 1998
Consolidated statements of stockholders' equity - Years
ended December 31, 2000, 1999 and 1998
Consolidated statements of cash flows - Years ended
December
31, 2000, 1999 and 1998
Notes to consolidated financial statements - December
31,
2000
(2) - List of Financial Statement Schedules
Schedule I - Marketable Securities - Other
Investments
Schedule III - Condensed Financial Information of
Registrant
Schedule VIII - Valuation and Qualifying Accounts
All other schedules for which provision is made in
the applicable accounting regulation of the
Securities and Exchange Commission are not required
under the related instructions or are inapplicable
and therefore have been omitted.
(3) Listing of Exhibits
Exhibit (3)(i) Articles of incorporation
Exhibit (3)(ii) Bylaws
Exhibit (4) Instruments defining the rights of
security holders including indentures
Exhibit (10) Material Contracts
Exhibit (13) Annual report to security holders
Exhibit (22) Subsidiaries of the registrant
Exhibit (27) Financial data schedule
All other exhibits for which provision is made in
the applicable accounting regulation of the
Securities and Exchange Commission are not
required
under the related instructions or are
inapplicable
and therefore have been omitted.
(b) Reports on Form 8-K filed
None.
Page 14 of 16 Pages
(c) Exhibits
Exhibit (3)(i) Articles of incorporation - Exhibit
3A
of Form SB-2 Registration Statement No. 33-66014
are
incorporated herein by reference.
Exhibit (3)(ii) Bylaws - Exhibit 3B of Form SB-2
Registration Statement No. 33-66014 are
incorporated
herein by reference.
Exhibit (4) Instruments defining the rights of
security holders including debentures - Document #1
of
Form 10-K for FNB Financial Corporation for fiscal
year
ended December 31, 1995 is incorporated herein by
reference.
Exhibit (10.1) Executive Supplemental Retirement
Plan
For Select Officers - incorporated by reference to
the company's Form 10-K for the year ended December
31, 1999.
Exhibit (10.2) Director Fee Continuation Agreement
for
Select Directors - incorporated by reference to the
company's Form 10-K for the year ended December 31,
1999.
Exhibit (10.3) Executive Employment Contract for
the
President and CEO of the Bank dated October 2000 -
filed herewith.
Exhibit (10.4) Executive Change of Control
Agreement
for the Senior Vice President and CFO of the Bank
dated
October 2000 is filed herewith.
Exhibit (13) Annual report to security holders -
filed herewith.
Exhibit (22) Subsidiaries of the registrant - As of
this report, The First National Bank of
McConnellsburg is the only subsidiary of the
Registrant and is explained further within the
Business Section (Item 1) of this report.
The First National Bank of McConnellsburg has one
subsidiary as of the date of this report, First
Fulton County Community Development Corporation and
is explained further within the Business Section
(Item 1) of this report.
(d) Financial Statement Schedules
Schedule I - Marketable Securities - Other
Investments
Schedules of Marketable Securities included on page
28 of the annual report of the registrant to its
shareholders for the year ended December 31, 2000,
are incorporated herein by reference.
Schedule III - Condensed Financial Information of
Registrant
Page 15 of 16 pages
Condensed Financial Information of the Registrant
included on page 24 of the annual report of the
registrant to its shareholders for the year ended
December 31, 2000, is incorporated herein by
reference.
Schedule VIII - Valuation and Qualifying Accounts
The schedule of the Allowance for Loan losses
included
on page 15 of the annual report of the registrant
to
its shareholders for the year ended December 31,
2000, is incorporated herein by reference.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FNB FINANCIAL CORPORATION
(Registrant)
/s/John C. Duffey 3/14/2001
John C. Duffey Date
Director and President
of the Corporation
President & CEO of the Bank
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates
indicated.
H. Lyle Duffey /s/Henry W. Daniels
3/14/2001
H. Lyle Duffey Date Henry W. Daniels Date
Director, Chairman Director, Vice Chairman
/s/John C. Duffey 3/14/2001 /s/Harry D. Johnston
3/14/2001
John C. Duffey Date Harry D. Johnston, D. O.
Date
Director, President Director, Vice President
/s/George S. Grissinger3/14/2001 /s/Patricia A.
Carbaugh3/14/2000
George S. Grissinger Date Patricia A. Carbaugh Date
Director Director
Harvey J. Culler /s/Lonnie W. Palmer
3/14/2001
Harvey J. Culler Date Lonnie W. Palmer Date
Director
/s/Paul T. Ott 3/14/2001 /s/Daniel E. Waltz
3/14/2001
Lonnie W. Palmer Date Daniel E. Waltz Date
Director Director, Secretary,
Treasurer
(Principal Financial and
/s/D. A. Washabaugh, III 3/14/2001 Accounting Officer)
D. A. Washabaugh, III Date
Director
Page 16 of 16 Pages
Exhibit
10.3
EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement is made as of the _____ day of October,
2000, by and between the FNB Financial Corporation, a
Pennsylvania bank holding company ("Corporation"), The First
National Bank of McConnellsburg, PA ("Bank"), and John C.
Duffey, an adult individual and resident of the Commonwealth of
Pennsylvania ("Executive").
W I T N E S S E T H:
WHEREAS, the Corporation is a registered bank holding
company;
WHEREAS, the Bank is a subsidiary of the Corporation;
WHEREAS, any reference solely to Corporation in this
Agreement shall mean Corporation or Bank, unless otherwise
stated;
WHEREAS, the Corporation desires to employ the Executive as
its Chief Executive Officer under the terms and conditions set
forth herein; and
WHEREAS, the Executive desires to serve the Corporation and
Bank in an executive capacity under the terms and conditions set
forth in this Agreement; and
WHEREAS, the Executive acknowledges that this Agreement is
a renewal of the preceding Agreement which expired on August 1,
2000 (the "Prior Agreement") upon substantially the same terms
and conditions of the Prior Agreement;
WHEREAS, the Executive acknowledges that any changes that
have been made have been negotiated in good faith and are not
substantially different from the terms and conditions of the
Prior Agreement; and
WHEREAS, the Executive agrees to waive any claims that he
had, has or which may arise in the future, under the Prior
Agreement, including but not limited to, a claim that this
Agreement does not contain substantially the same terms and
conditions of the Prior Agreement expiring on August 1, 2000.
NOW, THEREFORE, in consideration of the mutual covenants
and agreements set forth herein and intending to be legally
bound hereby, the parties agree as follows:
1. TERM OF EMPLOYMENT. The Corporation and Bank employ
the Executive and the Executive accepts employment with the
Corporation and Bank for an approximate period of five (5) years
beginning on the first day of August, 2000 and ending on the
last day of July, 2005, subject, however, to prior termination
of this Agreement as set forth below.
Page 1 of 13 Pages
2. POSITION AND DUTIES.
(a) The Executive shall serve as the Chief Executive
Officer of the Corporation and the Bank and a member of the
Board of Directors of the Corporation and the Bank,
reporting only to the Board of Directors of the Corporation
and Bank respectively, and shall have those powers and
duties as may from time to time be prescribed by the Board
of Directors of the Corporation and the Bank, provided that
such duties are consistent with the Executive's position as
the Chief Executive Officer.
(b) The Executive represents to Corporation and Bank
that he is not subject or a party to any employment
agreement, non-competition covenant, non-disclosure
agreement or other agreement, covenant, understanding or
restriction which would prohibit Executive from executing
this Agreement and performing fully his duties and
responsibilities hereunder, or which would in any manner,
directly or indirectly, limit or affect the duties and
responsibilities which may now or in the future be assigned
to Executive by the Corporation and Bank.
(c) The Executive shall also be available to assist
other subsidiaries or divisions of the Corporation as he
may be directed by the Board of Directors of the
Corporation and/or Bank.
3. ENGAGEMENT IN OTHER EMPLOYMENT. The Executive shall
devote substantially all his working time, ability and attention
to the business of the Corporation and the Bank during the term
of this Agreement. Except as previously disclosed, the
Executive shall seek approval from the Board of Directors of the
Corporation and Bank in writing before the Executive engages in
any other business or commercial activities, duties or pursuits,
including, but not limited to, directorships of other companies.
Under no circumstances may the Executive engage in any business
or commercial activities, duties or pursuits which compete with
the business or commercial activities of the Corporation or
which are prohibited under the provisions of the Bank's Code of
Ethics, nor may the Executive serve as a director or officer or
in any other capacity in a company or financial institution
which competes with the Corporation.
4. COMPENSATION.
(a) ANNUAL DIRECT SALARY. As compensation for all
services rendered by the Executive under this
Agreement, the Executive shall be entitled to
receive from the Corporation an initial salary of
$90,000 per year (the "Annual Direct Salary"),
payable in substantially equal bi-weekly
installments, prorated on a weekly basis for any
partial employment period. The Annual Direct
Salary will be reviewed by the Executive
Committee of the Board of Directors of the
Corporation annually following the Corporation
and Bank's annual reorganization meeting. As
part of the salary review process, the Executive
Committee shall compare the Executive's salary
and performance to the salaries and performance
of executives in similar positions in like
Page 2 of 13 Pages
financial institutions utilizing available survey
data (like financial institutions shall mean
financial institutions of similar asset size
within the State of Pennsylvania and the
immediate surrounding region). With due
consideration to this salary and performance
information, the Executive Committee will
recommend an annual salary increase to the Board
of Directors. The Executive's final salary level
will be set at the discretion of the Board of
Directors. In no event shall the Annual Direct
Salary be decreased unless substantial
circumstances occur which warrant and require all
employees of the Corporation and/or Bank to
accept decreases in wages or salaries.
(b) INCENTIVE COMPENSATION. The Board of Directors
of the Corporation shall establish an Incentive
Compensation Plan for the Executive. The Incentive
Compensation Plan shall provide for the payment of a yearly
bonus, expressed as a percentage of the Executive's Annual
Salary (not to exceed 10% thereof) which amount shall be
paid to the Executive within thirty (30) days of the end of
the fiscal year in the event the financial and business
goals of the Corporation and the Bank are met for that year
as set forth by the Board of Directors. As part of the
Incentive Compensation Plan, the Board of Directors, in its
sole discretion, may also provide for payment of a yearly
bonus in the event some, but not all, of the financial and
business goals of the Corporation and the Bank as set forth
by the Board of Directors are met for the year in question.
(c) DIRECTOR FEES. As long as the Executive is a
duly elected and qualified member of the Board of Directors
of the Corporation or Bank, or both, the Executive shall be
entitled to the same compensation as paid to other members
of the Board of Directors of the Corporation and/or Bank,
or both.
5. FRINGE BENEFITS, VACATION, EXPENSES, AND PERQUISITES.
It is agreed that nothing paid to the Executive under any of
the below, described benefit plans or arrangements shall be
deemed to be in lieu of compensation to the Executive hereunder.
The Executive shall be entitled to:
(a) EMPLOYEE BENEFIT PLANS. The Executive shall
participate in and receive benefits under all Corporation
and Bank employment benefit plans, including but not
limited to any profit sharing plan, savings plan, stock
option plan, hospitalization plan, life insurance, and
health and accident plan or arrangement made available by
the Corporation to its executives. It is understood and
agreed that the Executive shall be entitled to the
following benefits, at minimum:
(i) Pension Plan: The Executive shall be
entitled to participate in the 401-K pension plan of
the Bank as established for all employees. Vesting
shall be in accordance with the plan outline.
Page 3 of 13 Pages
(ii) Life Insurance: The Corporation shall
provide and maintain life insurance for the Executive
if he qualifies therefore on a standard underwriting
basis. Such life insurance shall at all times be
maintained at an amount equal to three (3) times the
Executive's Annual Direct Salary.
(iii) Disability Insurance: The Corporation
shall make available both a short-term and long-term
disability insurance policy to the Executive.
(iv) Medical Coverage: All costs of the
Executive's medical insurance for both individual and
family coverage will be paid by the Corporation for
the remaining term of the Executive's employment with
the Corporation.
(b) VACATION AND HOLIDAYS. During the term of this
contract, the Executive shall be entitled to 4 weeks
vacation during the year 2001, and 5 weeks vacation during
the years 2002, 2003, 2004, and 2005. In the event that
the Executive does not take vacation, or is unable to take
vacation, the Executive's compensation shall be
supplemented at the discretion of the Board of Directors.
The Executive shall also be entitled to all paid holidays
given by the Bank to its employees.
(c) BUSINESS EXPENSES. During the term of his
employment hereunder, the Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses
incurred by him in performing services hereunder, provided
that the Executive properly accounts therefore in
accordance with the Corporation and Bank's policy.
(d) BANK INDUSTRY CONVENTIONS. The Executive and the
Executive's spouse may attend the conventions of the
Pennsylvania Association of Community Bankers and/or
Pennsylvania Bankers Association, or those same trade
associations should they change their respective names
during the term of this Agreement, at the expense of the
Bank. Expense will include convention registration,
lodging, meals, travel expenses and other associated
expenses.
(e) AUTOMOBILE. The Executive shall be entitled to
the use of one Bank purchased or leased automobile. The
Executive shall also be entitled to reimbursement for all
operating expenses of the automobile, including but not
limited to oil, gasoline, maintenance, repairs and
insurance.
(f) PHYSICAL EXAMINATION. The Corporation will
provide and pay for regular physical examinations of the
Executive on an every other year basis by a qualified
physician chosen by the Executive, however, the Corporation
is not implying that a regular physical examination is
required of the Executive.
Page 4 of 13 Pages
(g) OTHER PERQUISITES AND BENEFITS. The Executive
shall receive such other perquisites and fringe benefits
(including continuing education workshops and seminars in
financial or bank related matters) as the Board of
Directors of the Corporation deems appropriate in its sole
discretion.
6. OFFICES. The Executive agrees to serve, if elected or
appointed thereto, in one or more offices or as a director of
any subsidiary of the Corporation; provided that the Executive
is indemnified for so serving on a basis no less favorable than
is currently provided under the Corporation's Articles of
Incorporation or By-Laws, as amended or supplemented. Such
indemnification shall be provided as described in paragraph 7
below.
7. INDEMNIFICATION. The Corporation shall indemnify the
Executive for any and all liability exposure and all costs of
litigation, including attorney's fees, if the Executive has
provided notice to the Corporation and the Corporation has had
an opportunity to provide a defense. The Corporation shall
indemnify the Executive, to the fullest extent permitted by
Pennsylvania law, with respect to any threatened, pending or
completed action, suit or proceeding (including any final
judgment resulting therefrom) brought against him by reason of
the fact that he is or was a director, officer, employee or
agent of the Corporation or any of its subsidiaries or is or was
serving at the request of the Corporation as a director,
officer, employee or agent of another person or entity. To the
fullest extent permitted by Pennsylvania law, the Corporation
shall in advance of final disposition pay any and all expenses
incurred by the Executive in connection with any threatened,
pending or completed action, suit or proceeding with respect to
which the Executive may be entitled to indemnification
hereunder. The Executive's right to indemnification provided
herein is not exclusive, and any other rights or indemnification
to which the Executive may be entitled under any bylaw,
agreement, vote of shareholders or otherwise, shall continue
beyond the term of this Agreement. The Executive's right to
indemnification provided herein, however, shall have no effect
should the Executive have committed an unlawful act or willingly
engaged in unauthorized conduct. The Corporation shall use its
best efforts to obtain insurance coverage for the Executive
under an insurance policy covering officers and directors of the
Corporation against lawsuits, arbitrations or other proceedings;
however, nothing herein shall be construed to require the
Corporation to obtain such insurance if the Board of Directors
of the Corporation determines that such coverage cannot be
obtained at a commercially reasonable price.
8. UNAUTHORIZED DISCLOSURE. During the period of his
employment hereunder, or at any later time, the Executive shall
not, without the written consent of the Board of Directors of
the Corporation or a person authorized thereby, knowingly
disclose to any person, other than an employee of the
Corporation or a person to whom disclosure is reasonably
necessary or appropriate in connection with the performance by
the Executive of his duties as an executive of the Corporation,
any material confidential information obtained by him while in
the employ of the Corporation with respect to any of the
Corporation's services, products, improvements, formulas,
designs or styles, processes, customers, methods of business or
any business practices the disclosure of which could be or will
be materially damaging to the Corporation; provided, however,
that confidential
Page 5 of 13 Pages
information shall not include any information known generally to
the public (other than as a result of unauthorized disclosure by
the Executive or any person with the assistance, consent or at
the direction of the Executive) or any information of a type not
otherwise considered confidential by persons engaged in the same
business or a business similar to that conducted by the
Corporation, or any information that need be disclosed as
required by law.
9. RESTRICTIVE COVENANT. The Executive hereby
acknowledges and recognizes the highly competitive nature of the
business of the Corporation and accordingly agrees that within
the marketing area of the Corporation (defined as any area
having its main or subsidiary office within fifty (50) miles of
the Corporation's headquarters or twenty-five (25) miles of any
of the Corporation's subsidiary offices), he shall not directly
or indirectly compete with the Corporation or any of its
subsidiaries for a period of one (1) year after the date of
termination of the Executive's employment if the Executive's
employment is terminated for Cause by Corporation pursuant to
paragraph 10(c) of the Agreement or such termination is a result
of a resignation by the Executive for other than a "Health and
Good Reason" under paragraph 10(d) of this Agreement. The
Executive further agrees that direct or indirect competition
includes any of the following:
(a) be engaged (other than by the Corporation),
directly or indirectly, either for his own account or as
agent, consultant, employee, partner, officer, director,
proprietor, investor (except as an investor owning less
than 5% of the stock of a publicly owned company) or
otherwise of any person, firm, corporation or enterprise
engaged in (1) the banking (including bank holding company)
or financial services industry, or (2) any other activity
in which the Corporation or any of its subsidiaries are
engaged during the Executive's employment or at the date of
termination of the Executive's employment; or
(b) provide financial or other assistance (other that
through Corporation) to any person, firm, corporation, or
enterprise engaged in (1) the banking (including bank
holding company) or financial services industry, or (2) any
other activity in which Corporation or any of its
subsidiaries is engaged during the Executive's employment;
or
(c) other than on behalf of the Corporation, solicit,
directly or indirectly, current and former customers of the
Corporation or any of its subsidiaries; or
(d) other than on behalf of the Corporation, solicit,
directly or indirectly, current or former employees of the
Corporation or any of its subsidiaries.
The existence of any immaterial claim or cause of action of
the Executive against the Corporation, whether predicated on
this Agreement or otherwise, shall not constitute a defense to
the enforcement by the Corporation of this covenant. The
Executive agrees that any breach of the restrictions set forth
in paragraphs 8 or 9 will result in irreparable injury to the
Corporation or the
Bank for which it shall have no adequate remedy at law and the
Page 6 of 13 Pages
Corporation and the Bank shall be entitled to injunctive relief
in order to enforce the provisions hereof. In the event that
this paragraph shall be determined by any court of competent
jurisdiction to be unenforceable in part by reason of it being
too great a period of time or covering too great a geographical
area, it shall be in full force and effect as to that period of
time or geographical area determined to be reasonable by the
Court.
10. TERMINATION. The Executive's employment hereunder may
be terminated without any breach of this Agreement only under
the following circumstances:
(a) DEATH. The Executive's employment hereunder
shall terminate upon his death.
(b) DISABILITY.
(i) Suspension of compensation. If, as a result
of physical or mental injury or impairment, the
Executive is unable to perform all of the essential
job functions of his position on a full-time basis
with or without reasonable accommodation and without
posing a direct threat to himself and others, for a
period of one hundred eighty (180) days, all
obligations of the Corporation to pay the Executive an
Annual Direct Salary, as set forth in paragraph 4(a)
of this Agreement are suspended. Any paid time off,
sick leave, or short-term disability pay the Executive
may be entitled to receive, pursuant to an established
disability plan or program of the Corporation shall be
considered part of the compensation the Executive
shall receive while disabled, and shall not be in
addition to the compensation received by the Executive
under this provision of the Agreement.
(ii) Disability termination. The Executive
agrees that should he remain unable to perform all of
the essential functions of his position on a full-time
basis, with or without a reasonable accommodation and
without posing a direct threat to himself or others,
after one hundred eighty (180) days, the Corporation
will suffer an undue hardship by continuing the
Executive in his position. Upon this event, all
compensation and employment obligations of the
Corporation under this Agreement shall cease (with the
exception of the Executive's rights under the
Corporation's then existing short-term and/or long-
term disability plans) and this Agreement shall
terminate.
(c) CAUSE. The Corporation may terminate the
Executive's employment hereunder for Cause. For the
purposes of this Agreement, the Corporation shall have
"Cause" to terminate the Executive's employment hereunder
upon (i) the failure by the Executive to substantially
perform his duties hereunder, other than any such failure
resulting from the Executive's incapacity due to physical
or mental illness, or (ii) the engagement by the Executive
in misconduct materially injurious to the Corporation or
the Bank (misconduct shall mean the commission of a
felony), or (iii) the violation by the Executive of the
provisions of Paragraph 3 or 8 hereof after notice from the
Corporation and a failure to cure the violation within
thirty (30) days of said
Page 7 of 13 Pages
notice, or if said violation cannot be cured within thirty
(30) days, or within a reasonable time thereafter if the
Executive is attempting to cure the violation, or (iv) the
gross negligence of the Executive in the performance of his
duties, or (v) receipt of a final written directive or
order of any governmental body or entity having
jurisdiction over the Corporation or any of its
subsidiaries requiring termination or removal of the
Executive as Chief Executive Officer or Director of the
Corporation or any of its subsidiaries or (vi) the
Executive's unlawful discrimination, including harassment,
against Corporation or Bank's employees, customers,
business associates, contractors or visitors.
(d) HEALTH AND GOOD REASON. The Executive may
terminate his employment hereunder by providing not less
than fourteen (14) days prior written notice to the
Corporation (i) if his health should become impaired to an
extent that it makes continued performance of his duties
hereunder hazardous to his physical or mental health or his
life, provided that the Executive shall furnish the
Corporation with a written statement from a qualified
doctor to such effect, and provided further, that at the
Corporation's request, the Executive shall submit to an
examination by an independent doctor selected by the
Corporation and the doctor shall have concurred with the
conclusion of the Executive's doctor or (ii) for Good
Reason. The term "Good Reason" shall mean (aa) any removal
of the Executive from or any failure to re-elect the
Executive to any of the positions indicated in Section 2
hereof, except in connection with termination of the
Executive's employment for Cause, (bb) a reduction of the
Executive's rate of compensation as provided in Section 4
hereof, (cc) failure of the Corporation or Bank to comply
with Section 5 hereof, (dd) any other material breach by
the Corporation or Bank of this Agreement, provided that
the Executive shall have given the Board of Directors of
Corporation thirty (30) days written notice of any of the
breaches set forth in subsections (aa), (bb), (cc) or (dd)
of this paragraph and such breach shall not have been cured
within such thirty (30) day period after receipt of notice;
or (ee) any Change of Control as defined under Section 14.
(e) RETIREMENT. At any time during the term of this
contract, the Executive may, provided he has reached the
age of fifty-five (55), announce his voluntary retirement
from active employment. Such announcement of voluntary
retirement shall not be considered a breach of the
contract. Such announcement must be given at least ninety
(90) days before the Executive voluntarily commences
retirement.
11. PAYMENTS UPON TERMINATION.
(a) DEATH, DISABILITY OR FOR CAUSE. If the
Executive's employment shall be terminated because of
death, disability or for Cause, the Corporation shall pay
the Executive his full Annual Direct Salary through the
date of termination at the rate in effect at the time of
termination and any other earned but unused vacation days,
personal days, holidays, or other fringe benefits owing to
Executive at the date of termination as established by
Corporation policy, and the Corporation and Bank shall have
no further obligations to the Executive under this
agreement.
Page 8 of 13 Pages
(b) UNILATERAL AND GOOD REASON TERMINATION. If the
Executive's employment is terminated by the Corporation
(other than pursuant to Paragraphs 10(a) Death, 10(b)
Disability, or 10(c) Cause hereof or as a result of non-
renewal of this Agreement), or if the Executive shall
terminate his employment for Good Reason, then the
Corporation shall pay the Executive a lump sum payment
equal to two times (2.00 X) the Annual Direct Salary. In
such event, the Corporation shall also maintain in full
force and effect, for the continued benefit of the
Executive for the full term of this Agreement, all employee
benefit plans and programs to which the Executive was
entitled prior to the date of termination if the
Executive's continued participation is possible under the
general terms and provisions of such plans and programs.
In the event that the Executive's participation in any such
plan or program is barred, the Executive shall be entitled
to receive an amount equal to the annual contribution,
payments, credits or allocations made by the Corporation to
him, to his account or on his behalf under such plans and
programs from which his continued participation is barred;
except that if the Executive's participation in any health,
medical, life insurance, or disability plan or program is
barred, the Corporation shall obtain and pay for, on
Executive's behalf, individual insurance plans, policies or
programs which provide to the Executive health, medical,
life and disability insurance coverage which is equivalent
to the insurance coverage to which Executive was entitled
prior to the date of termination.
In the event the payment described herein, when added
to all other amounts or benefits provided to or on behalf
of the Executive in connection with his termination of
employment, would result in the imposition of an excise tax
under Code Section 4999, such payment shall be
retroactively (if necessary) reduced to the extent
necessary to avoid such excise tax imposition. Upon
written notice to the Executive, together with calculation
of the Corporation's independent auditors, the Executive
shall remit to the Corporation the amount of reduction plus
such interest as may be necessary to avoid the imposition
of such excise tax. Notwithstanding the foregoing or any
other provision of this contract to the contrary, if any
portion of the amount herein payable to the Executive is
determined to be non-deductible pursuant to the regulations
promulgated under Section 280G of the Code, then the
Corporation shall be required only to pay the Executive the
amount determined to be deductible under Section 280G.
(c) NON-RENEWAL AGREEMENT AND SEVERANCE ALLOWANCE.
In the event the Executive serves the full term of this
Agreement, and the Corporation does not offer to renew this
Agreement, for reasons other than those listed in
paragraphs 10(a), 10(b) or 10(c), upon substantially the
same terms and conditions for an additional five (5) year
term, the Executive shall be entitled to a severance
allowance equal to two times (2.00 X) his Annual Direct
Salary, as well as such vested employee benefits when due
and payable, and the Corporation shall have no further
obligations.
Page 9 of 13 Pages
In the event the payment described herein, when added
to all other amounts or benefits provided to or on behalf
of the Executive in connection with his termination of
employment, would result in the imposition of an excise tax
under Code Section 4999, such payment shall be
retroactively (if necessary) reduced to the extent
necessary to avoid such excise tax imposition. Upon
written notice to the Executive, together with calculation
of the Corporation's independent auditors, the Executive
shall remit to the Corporation the amount of reduction plus
such interest as may be necessary to avoid the imposition
of such excise tax. Notwithstanding the foregoing or any
other provision of this contract to the contrary, if any
portion of the amount herein payable to the Executive is
determined to be non-deductible pursuant to the regulations
promulgated under Section 280G of the Code, then the
Corporation shall be required only to pay the Executive the
amount determined to be deductible under Section 280G.
In the event that Executive should choose not to renew
this contract upon substantially the same terms and
conditions for an additional five (5) year term, the
Executive shall be required to follow the guidelines listed
in the paragraph 9 (relating to restrictive covenants) and
the Corporation shall have no further obligations to
Executive under this Agreement or otherwise.
Nothing in this Agreement shall be construed to mean
that certain terms of this Agreement cannot be renegotiated
or that terms cannot be added to this Agreement when
negotiated in good faith.
(d) RETIREMENT. If the Executive's employment shall
be terminated because of the Executive's announced
voluntary retirement per the guidelines of Section 10 (e) ,
the Corporation shall pay the Executive his full Annual
Direct Salary and Benefits through the date of his
retirement at the rate in effect at the time of Executive's
announcement of retirement and any other earned but unused
vacation days, personal days, holidays or other fringe
benefits owing to the Executive on the date of retirement,
and the Corporation shall have no further obligations to
the Executive under this agreement.
12. REVIEW OF AGREEMENT. No later than three (3) months
before the termination date of this Agreement, the Corporation
shall cause the Executive Committee of its Board of Directors to
review with the Executive his performance and general
relationships with the members of the Board of Directors,
employees, customers and shareholders of the Corporation and its
subsidiaries in his role as Chief Executive Officer. Such
committee shall notify the Corporation's Board of Directors and
the Executive no later than two (2) months before the date of
termination of this Agreement of its recommendation as to a
renewal or non-renewal of Executive's employment with the
Corporation for an additional five (5) year term. Such renewal
shall not result in a decrease of the salary and benefits as set
forth under this Agreement.
13. DAMAGES FOR BREACH OF CONTRACT. In the event of a
breach of this Agreement by either the Corporation or the
Executive resulting in damages to either party, that party may
recover from the party breaching the Agreement any and all
damages that may be sustained.
Page 10 of 13 Pages
14. DEFINITION OF CHANGE OF CONTROL. For purposes of this
Agreement, the term "Change of Control" shall mean:
(a) (i) the merger, consolidation or division
involving the Corporation, (ii) a sale, exchange, transfer
or other disposition of substantially all the assets of the
Corporation, or (iii) a purchase by the Corporation of
substantially all the assets of another entity, unless (aa)
such merger, consolidation, division, sale, exchange,
transfer, purchase or disposition is approved in advance by
sixty percent (60%) or more of the members of the Board of
Directors of the Corporation who are not interested in the
transaction and (bb) a majority of the members of the Board
of Directors of the legal entity resulting from or existing
after any such transaction remain the majority of the Board
of Directors of the resulting entity's parent corporation;
or
(b) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities and Exchange Act of 1934
(the "Exchange Act")), other than the Corporation or any
"person" who on the date hereof is a director or officer of
the Corporation is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) , directly or
indirectly, owns securities of the Corporation representing
twenty-four and 99/100 percent (24.99%) or more of the
combined voting power of the Corporation's then outstanding
securities; or
(c) during any period of two (2) consecutive years
during the term of this Agreement, individuals who at the
beginning of such period constitute the Board of Directors
of the Corporation cease, for any reason, to constitute at
least a majority thereof, unless the election of each
director who was not a director at the beginning of such
period has been approved in advance by directors
representing at least two-thirds (2/3) of the directors
then in office who were directors at the beginning of the
period; or
(d) any other change in control of the Corporation
similar in effect to any of the foregoing or any other
reason which would be deemed change of control by any
federal or state regulatory body.
15. DEFINITION OF DATE OF CHANGE OF CONTROL. For purposes
of this Agreement, the date of Change of Control shall mean the
earlier of:
(a) the first date on which a single person and/or
entity, or group of affiliated persons and/or entities
other than the Corporation or a person or persons who are
officers or directors of the Corporation, acquire the
beneficial ownership of twenty-five percent (25%) or more
of the Corporation's voting securities;
(b) the date of the transfer of all or substantially
all of the Corporation's assets;
(c) the date on which a merger, consolidation or
combination is consummated, as applicable;
Page 11 of 13 Pages
(d) the date on which individuals who formerly
constituted a majority of the Board of Directors of the
Corporation ceased to be a majority, unless otherwise
provided under paragraph 14 (c); or
(e) the date of change of control determined by any
federal or state regulatory body.
16. NOTICE. For the purposes of this Agreement, notices
and other communications provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or mailed by United States certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to Executive:
John C. Duffey
120 West North Street
McConnellsburg, PA 17233
If to Bank or Corporation:
Board of Directors
FNB Financial Corporation
101 Lincoln Way West
McConnellsburg, PA 17233
or to such other address as any party may have furnished to the
others in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
17. SUCCESSORS. This Agreement shall inure to the benefit
of and be binding upon the Executive, the Corporation and any
successors to the Corporation.
18. VALIDITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
19. AMENDMENT. This Agreement may be amended or canceled
only by mutual agreement of the parties in writing without the
consent of any other person and, so long as the Executive lives,
no person other than the parties hereto, shall have any rights
under or interest in this Agreement or the subject matter
hereof.
20. ATTORNEYS' FEES AND COSTS. If any action at law or in
equity is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to reasonable
attorney's fees, costs, and necessary disbursements in addition
to any other relief that may be proper.
21. PAYMENT OF MONEY DUE DECEASED EXECUTIVE. If the
Executive dies prior to the expiration of the term of
employment, any monies that may be due him from the Bank under
this Agreement as of the date of death shall be paid to the
executor, administrator, or other personal representative of the
Executive's estate.
Page 12 of 13 Pages
22. LAW GOVERNING. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of
Pennsylvania.
23. DEFINITION OF CORPORATION. In those places within
this Agreement where the term "Corporation" is used, unless
otherwise noted, the term Corporation shall mean FNB Financial
Corporation as the parent company of any and all of its
subsidiary operations, including The First National Bank of
McConnellsburg, Pennsylvania.
24. ENTIRE AGREEMENT. This Agreement supersedes any and
all agreements, either oral or in writing, between the parties
with respect to the employment of the Executive by the
Corporation, and this Agreement contains all the covenants and
agreements between the parties with respect to such employment.
25. SEVERABILITY. If any provision of this Agreement is
declared unenforceable for any reason, the remaining provisions
of this Agreement shall be unaffected thereby and shall remain
in full force and effect.
WITNESS: EXECUTIVE:
John C. Duffey
ATTEST: FNB FINANCIAL CORPORATION
Daniel E. Waltz, Secretary Henry W. Daniels
Vice Chairman of the Board
(SEAL)
Page 13 of 13 Pages
Exhibit 10.4
Execution Copy
October 19,
2000
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT is made as of the ___ day of October, 2000,
among FNB FINANCIAL CORPORATION ("Corporation"), a Pennsylvania
business corporation having a place of business at 101 Lincoln
Way West, McConnellsburg, PA 17233-1398, FIRST NATIONAL BANK OF
MCCONNELLSBURG, ("Bank") a national banking association having a
place of business at 101 Lincoln Way West, McConnellsburg,
Pennsylvania 17233-1398, and DANIEL E. WALTZ ("Executive"), an
individual residing at 212 South Second Street, McConnellsburg,
Pennsylvania 17233.
WITNESSETH:
WHEREAS, the Corporation is a registered bank holding
company; and
WHEREAS, the Bank is a subsidiary of the Corporation; and
WHEREAS, Corporation and Bank desire to continue to retain
Executive to serve in the capacity of Chief Financial Officer of
Bank under the terms and conditions set forth herein; and
WHEREAS, Executive desires to continue to serve the
Corporation and Bank in an executive capacity under the terms
and conditions set forth herein; and
WHEREAS, Executive has determined that he does not wish to
have an agreement with substantially similar terms and
conditions of the Agreement that he had with Corporation and
Bank which agreement expired on August 1, 2000; and
WHEREAS, Executive agrees to waive any claims that he has
under the prior employment agreement, including, but not limited
to, a claim that the Corporation or Bank failed to provide him
with an employment agreement with substantially similar terms
and conditions as the prior agreement expiring on August 1,
2000; and
WHEREAS, Executive acknowledges that this Change in Control
Agreement has been negotiated in good faith; and
WHEREAS, the purpose of this Agreement is to define certain
severance benefits that would be paid by the Corporation and
Bank in the event of a Change in Control (as defined herein),
but is not intended to affect, nor does it affect, the terms of
the Executive's employment at-will, in the absence of a Change
in Control (as defined herein) of the Corporation or Bank; and
WHEREAS, Executive agrees to give written notice to the
Corporation and Bank before terminating his employment with
Corporation and Bank no less than six (6) weeks before the date
of termination.
Page 1 of 6 Pages
Execution Copy
October 19,
2000
AGREEMENT:
NOW THEREFORE, in consideration of the mutual covenants,
undertakings and agreements set forth herein, the parties
hereto, intending to be legally bound, agree as follows:
1. Employment. Executive is employed by Corporation and Bank
on an "at will" basis and there is no employment agreement
between them. The requirement set forth in this Agreement
that Executive provide Corporation and Bank with six (6)
weeks notice before termination of employment does not
alter Executive's "at will" employment status; the
requirement is merely consideration for the granting of
this Change in Control Agreement. This Agreement is
granted by Corporation and Bank in order to set forth terms
and conditions between Corporation, Bank and Executive in
the event of a Change in Control (as defined herein).
2. Rights in Event of Termination of Employment following
Change in Control. If a Change in Control (as defined
herein) occurs and Executive's employment is terminated by
Corporation or Bank other than for Cause (as defined
herein) on or before the two (2) year anniversary of the
Date of a Change in Control (as defined herein), or if
Executive terminates his employment on or before the one
(1) year anniversary of the Date of a Change in Control (as
defined herein), then Corporation or Bank shall pay to
Executive, in lieu of any other severance benefits to which
Executive may be entitled, an amount equal to(a)
Executive's annual salary for the year in which the date of
termination occurs, multiplied by (b) two (2), such payment
to be made in a lump sum on or before the fifth day
following the date of termination and which shall be
subject to applicable taxes and withholdings. However, if
the lump sum payment under this paragraph 2, when added to
all other amounts or benefits provided to or on behalf of
the Executive in connection with his termination of
employment, would result in the imposition of an excise tax
under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), such payment shall be reduced to the
extent necessary to avoid such excise tax imposition.
Notwithstanding the foregoing or any other provision of
this Agreement to the contrary, if any portion of the
amount herein payable to the Executive is determined to be
non-deductible pursuant to the regulations promulgated
under Section 280G of the Code, the Corporation or Bank
shall be required only to pay to Executive the amount
determined to be deductible under Section 280G. The
determination of any reduction in the lump sum payment
under this paragraph 2 pursuant to the foregoing provisions
shall be made by Corporation's independent auditors.
3. Termination of Employment for Cause. For purposes of this
Agreement, termination for "Cause" shall mean any of the
following:
(a) Executive's conviction of or plea of guilty or nolo
contendere to a felony, a crime of falsehood or a
crime involving moral turpitude, or the actual
incarceration of Executive for a period of twenty (20)
consecutive days or more;
Page 2 of 6 Pages
(b) Executive's willful failure to follow the good
faith lawful instructions of the Board of Directors of
Corporation or Bank with respect to its operations,
after written notice from Corporation or Bank and a
failure to cure such violation within twenty (20) days
of said written notice;
(c) Executive's willful failure to substantially perform
Executive's duties to Corporation or Bank, other than
a failure resulting from Executive's incapacity
because of physical or mental illness, after notice
from Corporation or Bank and a failure to cure such
violation within twenty (20) days of said notice;
(d) dishonesty or negligence by the Executive in the
performance of his duties;
(e) Executive's violation of any law, rule or regulation
governing banks or bank officers or any final cease
and desist order issued by a bank regulatory
authority;
(f) conduct on the part of the Executive which brings
public discredit to Corporation or Bank;
(g) Executive's breach of fiduciary duty involving
personal profit;
(h) the willful engaging by the Executive in misconduct
injurious to the Corporation or Bank;
(i) Executive's unlawful discrimination, including
harassment, against Corporation or Bank's employees,
customers, business associates, contractors or
visitors;
(j) Executive's theft or abuse of Corporation or Bank's
property or the property of Corporation or Bank's
customers, employees, contractors, vendors or business
associates; or
(k) the direction or recommendation of a state or federal
bank regulatory authority to remove Executive from his
positions with Corporation or Bank as identified
herein.
During the period of time between the execution of an Agreement
to effect a Change in Control (as defined herein) and the actual
Date of Change in Control (as defined herein), termination of
the Executive's employment shall only be for Cause (as defined
in this paragraph). If during said period of time, Executive is
terminated other than for Cause (as defined in this paragraph),
then the Executive shall be paid as set forth in paragraph 2 of
this Agreement.
Page 3 of 6 Pages
4. Change in Control Defined. As used in this Agreement,
"Change in Control" shall mean a Change in Control (other than
one occurring by reason of an acquisition of the Corporation by
Executive) of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A or any
successor rule or regulation promulgated under the Securities
Exchange Act of 1934, as amended (the "Act"); provided that
without limiting the foregoing, a Change in Control shall be
deemed to have occurred if:
(a) (i) a merger, consolidation or division involving
Corporation or Bank, (ii) a sale, exchange, transfer
or other disposition of substantially all of the
assets of Corporation or Bank, or (iii) a purchase by
Corporation or Bank of substantially all of the assets
of another entity, unless (y) such merger,
consolidation, division, sale, exchange, transfer,
purchase or disposition is approved in advance by
sixty percent (60%) or more of the members of the
Board of Directors of Corporation or Bank who are not
interested in the transaction and (z) a majority of
the members of the Board of Directors of the legal
entity resulting from or existing after any such
transaction and of the Board of Directors of such
entity's parent corporation, if any, are former
members of the Board of Directors of Corporation or
Bank; or
(b) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act")), other than Corporation or Bank or
any "person" who on the date hereof is a director or
officer of Corporation or Bank is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities
of Corporation or Bank representing twenty-five (25%)
percent or more of the combined voting power of
Corporation or Bank's then outstanding securities, or
(c) during any period of two (2) consecutive years during
the term of Executive's employment under this
Agreement, individuals who at the beginning of such
period constitute the Board of Directors of
Corporation or Bank cease, for any reason to
constitute at least a majority thereof, unless the
election of each director who was not a director at
the beginning of such period has been approved in
advance by directors representing at least two-thirds
(2/3) of the directors then in office who were
directors at the beginning of the period; or
(d) any other change in control of Corporation or Bank
similar in effect to any of the foregoing or any other
reason which would be deemed a Change in Control by
any federal or state regulatory body.
5. Date of Change in Control Defined. For purposes of this
Agreement, the date of Change in Control shall mean:
(a) the first date on which a single person and/or entity,
or group of affiliated persons and/or entities,
acquire the beneficial ownership of twenty-five (25%)
or more of the Bank or Corporation's voting
securities, or
(b) the date of the closing of an Agreement, transferring
all or substantially all of the Bank or Corporation's
assets, or
Page 4 of 6 Pages
(c) the date on which a merger, consolidation or business
combination is consummated, as applicable, or
(d) the date on which individuals who formerly constituted
a majority of the Board of Directors of the Bank or
the Corporation under paragraph 4(c) above, cease to
be a majority.
6. No Employment Contract. This Agreement is not an
employment contract. Nothing contained herein shall
guarantee or assure Executive of continued employment by
Corporation or Bank. Rather, Corporation and Bank's
obligations to Executive hereunder shall arise only if
Executive continues to be employed by Corporation and Bank
in his present or in a higher capacity and then only in the
event the conditions described herein for payment to
Executive have been met.
7. Waiver. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by Executive
and an executive officer specifically designated by the
Boards of Directors of Corporation and Bank. No waiver by
either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or
subsequent time.
8. Attorneys' Fees and Costs. If any action at law or in
equity is necessary to enforce or interpret the terms of
this Agreement, each party shall bear their own attorneys'
fees, costs, and necessary disbursements.
9. Entire Agreement. This Agreement supersedes any and all
understandings and agreements, either oral or in writing,
between the parties with respect to any severance that may
become due as a result of or in connection with a Change in
Control. This Agreement contains all the covenants and
agreements between the parties with respect to any
severance that may become due as a result of or in
connection with a Change in Control.
10. Successors; Binding Agreement. This Agreement shall be
binding upon and inure to the benefit of Corporation, Bank
and Executive, and their respective successors, assigns,
heirs and personal representatives.
11. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity
or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
12. Applicable Law. This Agreement shall be governed by and
construed in accordance with the domestic, internal laws of
the Commonwealth of Pennsylvania, without regard to its
conflicts of laws principles.
13. Headings. The section headings of this Agreement are for
convenience only and shall not control or affect the
meaning or construction or limit the scope or intent of any
of the provisions of this Agreement.
Page 5 of 6 Pages
14. Notice. For the purposes of this Agreement, notices and
all other communications provided for in this Agreement
shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States Certified
Mail, Return Receipt Requested, postage prepaid, addressed
as follows:
If to the Executive: Daniel E. Waltz
212 South Second Street
McConnellsburg, PA 17233
If to the Corporation or Bank: Board of Directors
FNB FINANCIAL CORPORATION
101 Lincoln Way West
McConnellsburg, PA 17233-
1398
or to such other address as Executive or Corporation or
Bank may have furnished to the other in writing in
accordance herewith, except that notices of change of
address shall be effective only upon receipt.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
ATTEST: FNB FINANCIAL CORPORATION
______________________________
By______________________________
, Secretary Henry W. Daniels, Vice
Chairman of the Board
ATTEST: FIRST NATIONAL BANK OF
MCCONNELLSBURG
______________________________
By______________________________
, Secretary Henry W. Daniels, Vice
Chairman of the Board
WITNESS:
____________________________ ___________________________
_
Daniel E. Waltz, Executive
Page 6 of 6 Pages
Exhibit 13
FNB FINANCIAL CORPORATION
2000 ANNUAL FINANCIAL REPORT
C O N T E N T S
Page
INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheets 2
Statements of income 3
Statements of changes in stockholders' equity 4
Statements of cash flows 5 and 6
Notes to consolidated financial statements 7 - 23
ACCOMPANYING FINANCIAL INFORMATION
Selected five year financial data 24
Summary of quarterly financial data 25
Distribution of assets, liabilities and stockholders' equity,
interest
rates, and interest differential 26
Changes in net interest income 27
Maturities of investment securities 28
Management's discussion and analysis of financial condition and
results of operations 29-44
INDEPENDENT AUDITOR'S REPORT
Board of Directors
FNB Financial Corporation
McConnellsburg, Pennsylvania
We have audited the accompanying consolidated balance sheets
of FNB Financial Corporation and its wholly-owned subsidiary as of
December
31, 2000 and 1999, and the related consolidated statements of income,
changes in
stockholders' equity, and cash flows for each of the three years ended
December 31,
2000. These consolidated financial statements are the
responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated
2001. financial statements based on our audits.
We conducted our audits in accordance with auditing
standards generally
accepted in the United States of America. Those standards require
that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement.
An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated financial
statements. An audit also includes assessing the accounting
principles used and
significant estimates made by management, as well as evaluating the
overall
financial statement presentation. We believe that our audits provide
a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements
referred to above
present fairly, in all material respects, the financial position of
FNB Financial
Corporation and its wholly-owned subsidiary as of December 31, 2000
and 1999
and the results of their operations and their cash flows for each of
the three years ended December 31, 2000 in conformity with accounting
principles generally accepted in
the United States of America.
/s/ Smith Elliott Kearns &
Company, LLC
Chambersburg, Pennsylvania
February 14, 2001
FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
ASSETS
2000 1999
Cash and due from banks $ 4,020,479 $
3,565,173
Interest-bearing deposits with banks 778,546 723,094
Investment securities:
Available for sale 26,768,521 28,085,248
Held to maturity (fair value $ 1,135,971 - 2000;
$ 1,556,865 - 1999) 1,207,835 1,669,712
Federal Reserve, Atlantic Central Banker's
Bank and Federal Home Loan Bank stock 833,700 681,200
Loans, net of unearned discount and allowance
for loan losses 83,112,173 76,137,080
Bank building, equipment, furniture and fixtures, net 3,069,015 3,119,101
Accrued interest and dividends receivable 789,393 687,259
Deferred income taxes 291,325 676,502
Other real estate owned 168,653 165,603
Cash surrender value of life insurance 2,209,915 2,107,104
Other assets
376,680 312,107
Total assets $ 123,626,235 $ 117,929,183
LIABILITIES
Deposits:
Demand deposits $ 11,798,431 $
10,959,096
Savings deposits 29,407,101 27,567,017
Time certificates 62,129,564 60,509,040
Other time deposits 297,392
294,783
Total deposits 103,632,488 99,329,936
Liability for borrowed funds 6,176,901 6,364,996
Accrued dividends payable 192,000 172,000
Accrued interest payable and other liabilities 1,076,819
861,514
Total liabilities 111,078,208 106,728,446
STOCKHOLDERS' EQUITY
Capital stock, common, par value $ .315; 12,000,000 shares
authorized; 800,000 shares issued and outstanding 252,000 252,000
Additional paid-in capital 1,789,833 1,789,833
Retained earnings 10,623,726 10,125,145
Accumulated other comprehensive income (loss) ( 117,532) (
966,241)
Total stockholders' equity 12,548,027
11,200,737
Total liabilities and stockholders' equity $ 123,626,235 $
117,929,183
The Notes to Consolidated Financial Statements are an integral part
of these statements.
- -2-
FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2000, 1999 and 1998
2000 1999
1998
Interest and Dividend Income
Interest and fees on loans $ 6,902,812 $ 5,766,741 $ 5,450,880
Interest on investment securities:
U. S. Treasury securities 0 1,585 12,522
Obligations of other U. S.
Government agencies 1,296,141 1,366,191 1,405,213
Obligations of States and
political subdivisions 421,345 485,198 492,672
Interest on deposits with banks 49,664 68,182 81,635
Dividends on equity securities 61,901 33,995 28,329
Interest on federal funds sold 22,725 80,297 249,941
8,754,588 7,802,189 7,721,192
Interest Expense
Interest on borrowed funds 455,828 88,932 11,368
Interest on deposits 4,240,673 4,030,292 4,101,076
Net interest income 4,058,087 3,682,965 3,608,748
Provision for Loan Losses 231,319 190,000 474,814
Net interest income after provision
for loan losses 3,826,768 3,492,965 3,133,934
Other Income
Service charges on deposit accounts 181,902 123,731 85,375
Other service charges, collection and
exchange charges, commissions and fees 283,232 260,990 228,450
Other income, net 159,272 186,085 72,820
Securities gains (losses) ( 474) 49,655 143,288
623,932 620,461 529,933
Other Expenses
Salaries and wages 1,341,280 1,251,344 1,129,581
Pensions and other employee benefits 355,250 326,859 288,473
Net occupancy expense of bank premises 252,023 236,758 209,206
Furniture and equipment expenses 269,592 258,525 241,535
Other operating expenses 1,048,825 956,086 903,406
3,266,970 3,029,572 2,772,201
Income before income taxes 1,183,730 1,083,854 891,666
Applicable income taxes 229,149 180,572 109,716
Net income $ 954,581 $ 903,282 $ 781,950
Earnings per share of common stock:
Net income $ 1.19 $ 1.13 $ 0.98
Weighted average shares outstanding 800,000 800,000 800,000
The Notes to Consolidated Financial Statements are an integral
part of these statements.
- -3-
FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2000, 1999 and 1998
Accumulated
Additional Other
Total
Common
Paid-In Retained Comprehensive Stockholders'
Stock
Capital Earnings Income (Loss) Equity
Balance, December 31, 1997 $ 252,000 $ 1,789,833 $ 9,163,913
$ 184,003 $ 11,389,749
Comprehensive income:
Net income 0 0 781,950 0 781,950
Changes in unrealized gain
on securities available for
sale, net of taxes of
$ 35,477 0 0 0
68,867 68,867
Total comprehensive income 850,817
Cash dividends declared on
common stock ($ .405
per share) 0 0 ( 324,000)
0
324,000)
Balance, December 31, 1998 252,000 1,789,833 9,621,863 252,870 11,916,566
Comprehensive income:
Net income 0 0 903,282 0 903,282
Changes in unrealized gain
(loss) on securities
available for sale, net
of taxes of ($ 628,026) 0 0 0
1,219,111)
Total comprehensive income ( 315,829)
Cash dividends declared on
common stock ($ .50
per share) 0 0 ( 400,000)
0 ( 400,000)
Balance, December 31, 1999 252,000 1,789,833 10,125,145
966,241) 11,200,737
Comprehensive income:
Net income 0 0 954,581 0 954,581
Changes in unrealized gain
on securities available for
sale, net of taxes of
$ 437,213 0 0 0
848,709
Total comprehensive income 1,803,290
Cash dividends declared on
common stock ($ .57
per share) 0 0 ( 456,000)
0 ( 456,000)
Balance, December 31, 2000 $ 252,000 $ 1,789,833 $ 10,623,726
($ 117,532) $ 12,548,027
The Notes to Consolidated Financial Statements are an integral part of
these statements.
- -4-
FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
Cash flows from operating activities:
Net income $ 954,581 $ 903,282 $ 781,950
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 288,168 278,402 269,418
Provision for loan losses 231,319 190,000 474,814
Deferred income taxes ( 52,037) ( 31,487) ( 120,346)
Loss on sale of other real estate 805 12,281 9,904
Increase in cash surrender value of life insurance ( 102,811)
81,594)
40,510)
(Gain) loss on sales/maturities of investments 474 ( 49,655)
143,288)
865) ( 554) 0
(Increase) decrease in accrued interest
receivable ( 102,134) 31,285 ( 108,303)
Increase (decrease) in accrued interest
payable and other liabilities 215,305 ( 6,617) 129,932
(Increase) decrease in other assets ( 84,490) 14,124
17,511
Net cash provided by operating activities 1,348,315 1,259,467 1,271,082
Cash flows from investing activities:
Net (increase) decrease in interest bearing
deposits with banks ( 55,453) 1,296,518 4,030,934
Maturities of held-to-maturity securities 461,877 779,909 1,072,165
Purchases of held-to-maturity securities 0 0 ( 545,947)
Proceeds from sales of available-for-sale securities 0 1,151,501 3,746,590
Maturities of available-for-sale securities 2,742,252
4,145,757 6,135,245
140,076) (
2,292,472) ( 16,183,311)
Proceeds from sales of other real estate owned 274,087 207,527 156,912
Net (increase) in loans ( 7,480,801) ( 14,466,397) ( 3,371,383)
Purchase of other bank stock ( 152,500) ( 287,100)
4,500)
Purchases of bank premises and
equipment, net ( 222,058) ( 187,627) ( 106,587)
Purchase of life insurance 0 0 ( 1,985,000)
Proceeds from sale of equipment 1,206 1,054
0
Net cash (used) by investing activities ( 4,571,466) ( 9,651,330)
( 7,054,882)
Cash flows from financing activities:
Net increase in deposits 4,302,552 ( 1,173,998) 7,244,245
Cash dividends paid ( 436,000) ( 336,000) ( 320,000)
Net short-term borrowings ( 2,933,000) 3,701,000 0
Proceeds from long-term borrowings 12,250,000 2,500,000 0
Principal payments on borrowings ( 9,505,095) ( 4,768)
291,955)
Net cash provided by financing activities 3,678,457 4,686,234
6,632,290
The Notes to Consolidated Financial Statements are an integral
part of these statements.
- -5-
FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
Net increase (decrease) in cash and cash equivalents $ 455,306 ($ 3,705,629)
$ 848,490
Cash and cash equivalents, beginning balance 3,565,173 7,270,802
6,422,312
Cash and cash equivalents, ending balance $ 4,020,479 $ 3,565,173 $ 7,270,802
Supplemental disclosure of cash flows information:
Cash paid during the year for:
Interest $ 4,610,819 $ 4,118,343 $ 4,114,164
Income taxes 167,419 226,385 159,550
Supplemental schedule of noncash investing and
financing activities:
Unrealized gain (loss) on securities
available-for-sale, net of income tax effect $ 848,709 ($ 1,219,111)
68,867
Other real estate acquired in settlement of loans 274,389 59,900 100,000
Loan advanced for sale of other real estate owned 0 0 93,000
The Notes to Consolidated Financial Statements are an integral part of
these statements.
- -6-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
Nature of Operations
FNB Financial Corporation's primary activity consists of owning
and supervising its subsidiary, The First National Bank of
McConnellsburg, which is engaged in providing banking and bank
related services in South Central Pennsylvania, and
Northwestern Maryland. Its five offices are located in
McConnellsburg (2), Fort Loudon and Needmore, Pennsylvania, and
Hancock, Maryland.
Principles of Consolidation
The consolidated financial statements include the accounts of
the corporation and its wholly-owned subsidiary, The First
National Bank of McConnellsburg. All significant intercompany
transactions and accounts have been eliminated.
First Fulton County Community Development Corporation (FFCCDC)
was formed as a wholly-owned subsidiary of The First National
Bank of McConnellsburg. The purpose of FFCCDC is to serve the
needs of low-to-moderate income individuals and small business
in Fulton County under the Community Development and Regulatory
Improvement Act of 1995.
Basis of Accounting
The Corporation uses the accrual basis of accounting.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance
for losses on loans and the valuation of real estate acquired
in connection with foreclosures or in satisfaction of loans.
In connection with the determination of the allowances for
losses on loans and foreclosed real estate, management obtains
independent appraisals for significant properties.
While management uses available information to recognize losses
on loans and foreclosed real estate, future additions to the
allowances may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the
Corporation's allowance for losses on loans and foreclosed real
estate. Such agencies may require the corporation to recognize
additions to the allowances based on their judgments about
information available to them at the time of their examination.
Because of these factors, management's estimate of credit
losses inherent in the loan portfolio and the related allowance
may change in the near term.
- -7-
Note 1. Significant Accounting Policies (Continued)
Cash Flows
For purposes of the statements of cash flows, the Corporation
has defined cash and cash equivalents as those amounts included
in the balance sheet captions "Cash and Due From Banks" and
"Federal Funds Sold". As permitted by Statement of Financial
Accounting Standards No. 104, the Corporation has elected to
present the net increase or decrease in deposits in banks,
loans and deposits in the Statements of Cash Flows.
Investment Securities
In accordance with Statement of Financial Accounting Standards
Number 115 (SFAS 115) the Corporation's investments in
securities are classified in three categories and accounted for
as follows:
? Trading Securities. Securities held principally for resale
in the near term are classified as
trading securities and recorded at their fair values.
Unrealized gains and losses on trading securities are
included in other income.
? Securities to be Held to Maturity. Bonds and notes for
which the Corporation has the
positive intent and ability to hold to maturity are reported
at cost, adjusted for amortization of premiums and accretion
of discounts which are recognized in interest income using
the interest method over the period to maturity.
? Securities Available for Sale. Securities available for
sale consist of equity securities,
bonds and notes not classified as trading securities nor as
securities to be held to maturity. These are securities
that management intends to use as a part of its asset and
liability management strategy and may be sold in response
to changes in interest rates, resultant prepayment risk and
other related factors. Unrealized holding gains and
losses, net of tax, on securities available for sale are
reported as a net amount in other comprehensive income
until realized. Gains and losses on the sale of securities
available for sale are determined using the specific-
identification method.
Fair values for investment securities are based on quoted
market prices.
The Corporation had no trading securities in 2000 or 1999.
Federal Reserve Bank, Atlantic Central Banker's Bank, and
Federal Home Loan Bank Stock
These investments are carried at cost. The Corporation is
required to maintain minimum investment balances in these
stocks, which are not actively traded and therefore have no
readily determinable market value.
Other Real Estate Owned
Real estate properties acquired through, or in lieu of, loan
foreclosure are to be sold and are initially recorded at the
lower of carrying value or fair value of the underlying
collateral less cost to sell. After foreclosure, valuations
are periodically performed by management and the real estate is
carried at the lower of carrying amount or fair value less cost
to sell. Legal fees and other costs related to foreclosure
proceedings are expensed as they are incurred.
- -8-
Note 1. Significant Accounting Policies (Continued)
Loans and Allowance for Possible Loan Losses
Loans are stated at the amount of unpaid principal, reduced by
unearned discount, deferred loan origination fees, and an
allowance for loan losses. Unearned discount on installment
loans is recognized as income over the terms of the loans by
the interest method. Interest on other loans is calculated by
using the simple interest method on daily balances of the
principal amount outstanding. Amortization of premiums and
accretion of discounts on acquired loans are recognized in
interest income using the interest method over the period to
maturity. The allowance for loan losses is established through
a provision for loan losses charged to expense. Loans are
charged against the allowance for loan losses when management
believes that the collectibility of the principal is unlikely.
The allowance is an amount that management believes will be
adequate to absorb possible losses on existing loans that may
become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic
conditions that may affect the borrowers' ability to pay.
In accordance with SFAS No. 91, loan origination fees and
certain direct loan origination costs are being deferred and
the net amount amortized as an adjustment of the related loan's
yield. The Corporation is amortizing these amounts over the
contractual life of the related loans. Deferred loan
origination fees were $ 225,776 and $ 215,670 at December 31,
2000 and 1999, respectively. Deferred loan costs were $
108,763 and $ 113,885 at December 31, 2000 and 1999,
respectively.
Nonaccrual/Impaired Loans
The accrual of interest income on loans ceases when principal
or interest is past due 90 days or more and collateral is
inadequate to cover principal and interest or immediately if,
in the opinion of management, full collection is unlikely.
Interest accrued but not collected as of the date of placement
on nonaccrual status is reversed and charged against current
income unless fully collateralized. Subsequent payments
received either are applied to the outstanding principal
balance or recorded as interest income, depending on
management's assessment of the ultimate collectibility of
principal. Interest income generally is not recognized on
specific impaired loans unless the likelihood of further loss
is remote. Interest payments received on such loans are
applied as a reduction of the loan principal balance. Interest
income on other impaired loans is recognized only to the e