-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VY1k2Hm5FtyEmiDyQl3lEtC43kmDFz01Gfm7TaAZhodz0MqwlAtWaKaBHLEWHuHy yP6W2+D+KsWe/Ky9jxpBwQ== 0000950168-96-000569.txt : 19960402 0000950168-96-000569.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950168-96-000569 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FNB CORP/NC CENTRAL INDEX KEY: 0000764811 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 561456589 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-13823 FILM NUMBER: 96543384 BUSINESS ADDRESS: STREET 1: 101 SUNSET AVE STREET 2: P O BOX 1328 CITY: ASHEBORO STATE: NC ZIP: 27203 BUSINESS PHONE: 9106268300 MAIL ADDRESS: STREET 1: P.O. BOX 1328 CITY: ASHEBORO STATE: NC ZIP: 27203 10KSB 1 FNB CORP. 10-KSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-KSB [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission File Number 0-13823 FNB CORP. (Exact name of registrant as specified in its charter) North Carolina 56-1456589 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 101 Sunset Avenue, Asheboro, North Carolina 27203 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 626-8300 Securities registered under Section 12(b) of the Act: None Securities registered under Section 12(g) of the Act: Common Stock, par value $2.50 per share (Title of Class)
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-B 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-KSB or any amendment to the Form 10-KSB. [ ] The registrant's revenues for the year ended December 31, 1995 were $22,431,927. As of March 10, 1996, the aggregate market value of voting stock held by nonaffiliates of the registrant, assuming, without admission, that all directors and officers of the registrant may be deemed affiliates, was $37,622,568. The registrant had 1,800,296 shares of $2.50 par value common stock outstanding at March 10, 1996. Transitional Small Business Disclosure Format (Check One): Yes No X DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended December 31, 1995 are incorporated by reference into Part II. Portions of the definitive proxy statement for the Annual Meeting of Shareholders to be held on May 14, 1996 are incorporated by reference into Part III. PART I Item 1. Description of Business FNB Corp. (the "Parent Company") is a bank holding company incorporated under the laws of the State of North Carolina in 1984. On July 2, 1985, through an exchange of stock, the Parent Company acquired its wholly-owned bank subsidiary, First National Bank and Trust Company (the "Bank"), a national banking association founded in 1907. The Parent Company and the Bank are collectively referred to as the "Corporation". The Bank, a full-service commercial bank, currently conducts all of its operations in Randolph, Montgomery and Chatham counties in North Carolina. Four offices, including the main office, are located in Asheboro. Additional community offices are located in Archdale (two offices), Biscoe, Ramseur, Randleman, Seagrove and Siler City. Some of the major services offered include checking accounts, NOW accounts (including package account versions that offer a variety of products and services), money market accounts, savings accounts, certificates of deposit, holiday club accounts, individual retirement accounts, credit cards and loans, both secured and unsecured, for business, agricultural and personal use. The Bank also has automated teller machines and is a member of "Honor", a regional teller machine network that, through arrangements with other networks, allows access to automated teller machines located in a total of forty-five states, Washington D.C. and Puerto Rico. The Bank has a Trust and Investment Services Division that offers traditional trust and estate settlement services, investment management programs, brokerage services and tax-deferred annuities. In 1995, the Trust and Investment Services Division began offering investment products and services available through "The Wall Street Corner", a division of Liberty Securities. On December 30, 1993, the Corporation entered into definitive agreements to acquire two mutual savings banks, Home Savings Bank of Siler City, SSB of Siler City, North Carolina and Randleman Savings Bank, SSB of Randleman, North Carolina, in merger/conversion transactions, pursuant to which the savings banks would convert from mutual to stock form and the Corporation would simultaneously acquire the shares issued in the conversions. Regulatory applications for approval to consummate the proposed acquisitions were filed in April 1994. Substantial changes in regulatory policy occurring shortly after the applications were filed effectively resulted in a moratorium on federal approval of merger/conversions, and the Corporation subsequently withdrew the applications to the FDIC and the Federal Reserve and postponed the ultimate decision to proceed with the acquisitions until it was clear what the regulatory obstacles might be. In 1995, the agreements expired without the acquisitions having been completed due to changes in federal and state regulatory policies which strictly limited the circumstances under which such transactions would be permitted. The Corporation incurred certain costs in connection with the proposed acquisitions. Those costs, which had been deferred, amounted to $186,350 and are included in other expense in the consolidated statement of income for the year ended December 31, 1995. During 1994, a new credit card operation was established in which the Bank carries its own credit card receivables as opposed to the former fee-based arrangement under which accounts were generated for and owned by a correspondent bank. As part of the new credit card strategy, extensive marketing efforts were undertaken in 1995, primarily to existing Bank customers. Credit card 1 receivables amounted to $1,524,718 at December 31, 1995. Additionally, the merchant aspect of credit card operations has been shifted to an in-house basis from the prior correspondent arrangement. In a significant 1994 development, the Bank elected to outsource all of its data processing, item capture and statement rendering operations. The conversion to a service bureau arrangement was completed in the 1994 fourth quarter. The major items of data processing equipment that were no longer needed by the Bank were acquired by the new processor. While the Bank does not plan to resume any major data processing operations, the level of computer equipment was significantly increased in 1995 through expanded use of personal computer networks. The new networks will allow for a more direct input of basic loan and deposit account information to the data files maintained by the service bureau. Capital expenditures in 1995, which totaled $1,302,230, related primarily to the increase in computer equipment. Since most of this equipment was not placed into service until late in 1995, the majority of the effect on annual depreciation expense will not occur until 1996. In 1995, management adopted a comprehensive restructuring project for the purpose of reengineering Bank operations to become more competitive and cost-effective in developing business and servicing customers and to improve long-term profitability. In connection with this project, certain positions within the Bank have either been realigned or eliminated. Total restructuring charges in 1995, with the expectation that all significant costs were incurred and paid during that period, amounted to $460,457, of which $301,116 related to personnel costs and $159,341 to professional fees. The Bank also decided in March 1995 to recognize losses of $414,596 from the sales of certain investment securities held in the available-for-sale portfolio in order to gain favorable tax treatment for the losses and to take advantage of reinvestment opportunities at higher coupon rates. While these actions had a significant adverse impact on 1995 earnings, management believes these decisions will enhance the long-term value of the Corporation and strengthen the competitive position of its community banking operations. Management decided in March 1996 that the Bank would discontinue the purchase of retail installment loan contracts from automobile and equipment dealers, due largely to the declining yields being experienced in this loan program. Contracts of this nature included in loans at December 31, 1995 amounted to $33,525,143. While there will be no purchases of new contracts, current plans call for the collection of outstanding loans based on their contractual terms. It is expected that the funds previously invested in this loan program will be redeployed, as loan payments occur, to other loan programs or to the investment securities portfolio. Competition The commercial banking industry within the Bank's marketing area is extremely competitive. The Bank faces direct competition in Randolph, Montgomery and Chatham counties from approximately twenty different financial institutions, including commercial banks, savings institutions and credit unions. Although none of these entities is dominant, the Bank considers itself one of the major financial institutions in the area in terms of total assets and deposits. Further competition is provided by banks located in adjoining counties, as well as other types of financial institutions such as insurance companies, finance companies, pension funds and brokerage houses and other money funds. 2 Supervision and Regulation The Parent Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and is registered as such with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). A bank holding company is required to file with the Federal Reserve Board annual reports and other information regarding its business operations and those of its subsidiaries. It is also subject to examination by the Federal Reserve Board and is required to obtain Federal Reserve Board approval prior to acquiring, directly or indirectly, ownership or control of any voting shares of any bank if, after such acquisition, it would own or control, directly or indirectly, more than five percent of the voting stock of such bank, unless it already owns a majority of the voting stock of such bank. Furthermore, a bank holding company, with limited exceptions, is prohibited from acquiring direct or indirect ownership or control of more than five percent of the voting stock of any company which is not a bank or a bank holding company and must engage only in the business of banking or managing or controlling banks or furnishing services to or performing services for its subsidiary banks. One of the exceptions to this prohibition is the ownership of shares in a company the activities of which the Federal Reserve Board has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Federal Reserve Board has determined that certain activities are closely related to banking, and that bank holding companies may apply to the Federal Reserve Board for permission to form, retain or acquire an interest in a company engaging or proposing to engage in these activities. The permitted nonbanking activities include, without limitation: (1) making, acquiring or servicing loans or other extensions of credit such as consumer finance, credit card, mortgage, commercial finance and factoring companies would make; (2) acting as an investment or financial advisor; (3) leasing real or personal property or acting as agent, broker, or advisor in leasing such property if the lease is to serve as the functional equivalent of an extension of credit to the lessee of the property and certain other conditions are met; (4) providing bookkeeping or data processing services under certain circumstances; (5) acting as an insurance agent or broker with respect to insurance that is directly related to the extension of credit with other financial services; (6) acting as an underwriter for credit life insurance and credit accident and health insurance directly related to extensions of credit by the holding company system; and (7) providing securities brokerage services and related securities credit activities. As a national banking association, the Bank is subject to regulatory supervision, of which regular bank examinations by the Comptroller of the Currency are a part. The Bank is a member of the Federal Deposit Insurance Corporation (the "FDIC") which currently insures the deposits of each member bank to a maximum of $100,000 per depositor. For this protection, each bank pays a quarterly statutory assessment and is subject to the rules and regulations of the FDIC. The Bank is also a member of the Federal Reserve System and is therefore subject to the applicable provisions of the Federal Reserve Act, which imposes restrictions on loans by subsidiary banks to a holding company and its other subsidiaries and on the use of stock or securities as collateral security for loans by subsidiary banks to any borrower. The ability of the Parent Company to pay dividends depends to a large extent upon the amount of dividends the Bank pays to the Parent Company. Approval of the Comptroller of the Currency, or his designate, will be required for any dividend to the Parent Company by the Bank if the total of all dividends, including any proposed dividend, declared by the Bank in any calendar year exceeds the total of its net profits for that year combined with its retained net profits for the preceding two years, less any required transfers to surplus or a fund for the retirement of any preferred stock. 3 Effect of Governmental Policies The operations and earnings of the Bank and, therefore, of the Parent Company are affected by legislative changes and by the policies of various regulatory agencies. In particular, the Bank is affected by the monetary and fiscal policies of the Federal Reserve Board. The instruments of monetary policy used by the Federal Reserve Board include its open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements on member bank deposits. The actions of the Federal Reserve Board influence the growth of bank loans, investments and deposits and also affect interest rates charged on loans or paid on deposits. Employees As of December 31, 1995, the Parent Company had three officers, all of whom were also officers of the Bank. On that same date, the Bank had 117 full-time employees and 24 part-time employees. The Bank considers its relationship with its employees to be excellent. The Bank provides employee benefit programs, including a noncontributory defined benefit pension plan, matching retirement/savings plan, group life, health and dental insurance, paid vacations, sick leave, and health care and life insurance benefits for retired employees. Item 2. Description of Property The main offices of the Bank and the principal executive offices of the Corporation are located in an office building at 101 Sunset Avenue, Asheboro, North Carolina. The premises contain approximately 36,500 square feet of office space. The Bank also has other community offices in Asheboro, Archdale, Biscoe, Ramseur, Randleman, Seagrove and Siler City, North Carolina. Except as noted below, all premises are owned by the Bank in fee. The Randolph Mall office in Asheboro, an automated teller machine location at the Randolph Mall and another automated teller machine location in Asheboro are under leases expiring December 31, 1999, December 31, 1996 and May 31, 1996, respectively. The Bush Hill office in Archdale is under a lease expiring January 31, 2002, with lease renewal options for up to an additional 20-year term. The land on which the Seagrove Office is situated is under a lease expiring June 30, 2016. At that time, the land is subject to a purchase option at a fixed price or lease renewal options for up to an additional 30-year term. Item 3. Legal Proceedings Not applicable. Item 4. Submission of Matters To A Vote Of Security Holders Not applicable. 4 PART II Item 5. Market for Common Equity and Related Stockholder Matters Information with respect to FNB Corp. common stock, appearing under the headings "Common Stock" and "Market Makers" of the section entitled "General Information" and under the heading "Table 10 - Quarterly Financial Data" of the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1995 Annual Report to Shareholders, is incorporated herein by reference. Item 6. Management's Discussion and Analysis or Plan of Operation The sections entitled "Five Year Financial History" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1995 Annual Report to Shareholders are incorporated herein by reference. Item 7. Financial Statements The consolidated financial statements of the Corporation and its subsidiary and the opinion of KPMG Peat Marwick LLP, independent certified public accountants, with respect thereto, are incorporated herein by reference, as identified below, from the 1995 Annual Report to Shareholders. Independent Auditors' Report Consolidated Balance Sheets, December 31, 1995 and 1994 Consolidated Statements of Income, years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Shareholders' Equity, years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows, years ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure Not Applicable. 5 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act Information with respect to directors, appearing under the heading "Election of Directors" in the Registrant's definitive proxy statement for the Annual Meeting of Shareholders to be held on May 14, 1996, is incorporated herein by reference. Information with respect to executive officers, appearing under the heading "Executive Officers" in the Registrant's definitive proxy statement for the Annual Meeting of Shareholders to be held on May 14, 1996, is incorporated herein by reference. Information with respect to compliance with Section 16(a) of the Exchange Act, appearing under the heading "Security Ownership of Management" in the Registrant's definitive proxy statement for the Annual Meeting of Shareholders to be held on May 14, 1996, is incorporated herein by reference. Item 10. Executive Compensation Information with respect to executive compensation, appearing under the heading "Executive Compensation" in the Registrant's definitive proxy statement for the Annual Meeting of Shareholders to be held on May 14, 1996, is incorporated herein by reference. Item 11. Security Ownership of Certain Beneficial Owners and Management Information with respect to security ownership of certain beneficial owners and management, appearing under the headings "Voting Securities Outstanding and Principal Shareholders" and "Security Ownership of Management" in the Registrant's definitive proxy statement for the Annual Meeting of Shareholders to be held on May 14, 1996, is incorporated herein by reference. Item 12. Certain Relationships and Related Transactions Information with respect to certain relationships and related transactions, appearing under the heading "Indebtedness of Officers and Directors" in the Registrant's definitive proxy statement for the Annual Meeting of Shareholders to be held on May 14, 1996, is incorporated herein by reference. 6 PART IV Item 13. Exhibits and Reports on Form 8-K (a) Exhibits to this report are listed in the index to exhibits on pages 10 and 11 of this report. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last quarter of the period covered by this report. 7 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FNB Corp. (Registrant) Date: March 26, 1996 By: Michael C. Miller President and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 26, 1996. Signature Title /s/ Michael C. Miller President, Chief Executive Michael C. Miller Officer and Director /s/ Jerry A. Little Treasurer and Secretary Jerry A. Little (Principal Financial and Accounting Officer) /s/ James M. Culberson, Jr. Chairman of the Board James M. Culberson, Jr. /s/ James M. Campbell, Jr. Director James M. Campbell, Jr. /s/ Wilbert L. Hancock Director Wilbert L. Hancock /s/ Thomas A. Jordan Director Thomas A. Jordan /s/ R. Reynolds Neely, Jr. Director R. Reynolds Neely, Jr. 8 Signature Title Director Richard K. Pugh /s/ J. M. Ramsay III Director J. M. Ramsay III /s/ Charles W. Stout, M.D. Director Charles W. Stout, M.D. /s/ Earlene V. Ward Director Earlene V. Ward /s/ E. C. Watkins, Jr. Director E. C. Watkins, Jr. 9 FNB CORP. INDEX TO EXHIBITS Exhibit No. Description of Exhibit 3.10 Articles of Incorporation of the Registrant, incorporated herein by reference to Exhibit 3.1 to the Registrant's Form S-14 Registration Statement (No. 2-96498) filed March 16, 1985. 3.11 Articles of Amendment to Articles of Incorporation of the Registrant, adopted May 10, 1988, incorporated herein by reference to Exhibit 19.10 to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1988. 3.20 Amended and Restated Bylaws of the Registrant, adopted May 9, 1995, incorporated herein by reference to Exhibit 3.20 to the Registrant's Form 10-QSB Quarterly Report for the quarter ended June 30, 1995. 4 Specimen of Registrant's Common Stock Certi- ficate, incorporated herein by reference to Exhibit 4 to Amendment No. 1 to the Registrant's Form S-14 Registration Statement (No. 2-96498) filed April 19, 1985. 10.10 Form of Split Dollar Insurance Agreement dated as of November 1, 1987 between First National Bank and Trust Company and certain of its key employees and directors, incorporated herein by reference to Exhibit 19.20 to the Registrant's Form 10-Q Quarterly Report for the Quarter ended June 30, 1988. 10.11 Form of Amendment to Split Dollar Insurance Agreement dated as of November 1, 1994 between First National Bank and Trust Company and certain of its key employees and directors, incorporated herein by reference to Exhibit 10.11 to the Registrant's Form 10-KSB Annual Report for the fiscal year ended December 31, 1994. 10 Exhibit No. Description of Exhibit 10.20 Copy of Split Dollar Insurance Agreement dated as of May 28, 1989 between First National Bank and Trust Company and James M. Culberson, Jr., incorporated herein by reference to Exhibit 10.30 to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1989. 10.30 Copy of Stock Compensation Plan adopted May 11, 1993, incorporated herein by reference to Exhibit 10.40 to the Registrant's Form 10-QSB Quarterly Report for the quarter ended June 30, 1993. 10.31 Form of Incentive Stock Option Agreement between FNB Corp. and certain of its key employees, pursuant to the Registrant's Stock Compensation Plan, incorporated herein by reference to Exhibit 10.31 to the Registrant's Form 10-KSB Annual Report for the fiscal year ended December 31, 1994. 10.32 Form of Nonqualified Stock Option Agreement between FNB Corp. and certain of its directors, pursuant to the Registrant's Stock Compensation Plan, incorporated herein by reference to Exhibit 10.32 to the Registrant's Form 10-KSB Annual Report for the fiscal year ended December 31, 1994. 10.40 Copy of FNB Corp. Savings Institutions Management Stock Compensation Plan adopted May 10, 1994, incorporated herein by reference to Exhibit 10.40 to the Registrant's Form 10-QSB Quarterly Report for the quarter ended June 30, 1994. 10.50 Copy of Employment Agreement dated as of December 27, 1995 between First National Bank and Trust Company and Michael C. Miller. 13 Portions of the Registrant's 1995 Annual Report to Shareholders, which are incorporated within this report at the items so designated. 21 Subsidiaries of the Registrant. 23 Consent of Independent Auditors. 27 Financial Data Schedule. 11 EX-10 2 EXHIBIT 10.50 EXHIBIT 10.50 EMPLOYMENT AGREEMENT THIS AGREEMENT made and entered into as of the 27th day of December, 1995, by and between FIRST NATIONAL BANK AND TRUST COMPANY, a national banking corporation (the "Bank"), and MICHAEL C. MILLER (the "Employee"). W I T N E S S E T H: WHEREAS, the Employee has been designated the principal executive officer of the Bank as of January 1, 1994; and WHEREAS, the Bank desires to assure the continuing services of the Employee, and the parties desire to set forth in this Agreement the respective rights and responsibilities of the Employee and the Bank; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties agree as follows: 1. Employment. The Employee shall continue as an executive employee of the Company, at such salary and benefits as shall be mutually agreed upon from time to time between the Employee and the Board of Directors of the Bank. 2. Term. The term of Employee's employment hereunder shall continue until either party gives 60 days' prior written notice to the other of its desire to terminate. 3. Change in Position or Employment Conditions. The Employee may terminate his employment immediately upon written notice to the Bank following a "change in control" of the Company of any one of the following events: (i) The Employee determines within 90 days following a change in control that he does not wish to continue his employment with the Bank, or its successor; (ii) At any time following a change in control if, without his consent, Employee's authority and/or responsibility are substantially reduced, or if his salary and/or benefits are reduced, below that which was in effect immediately prior to the change in control; or (iii) At any time following the change in control the Employee is advised that he must change his residence or principal place of business from Asheboro, North Carolina. If the Employee's employment is terminated pursuant to this paragraph 3, the Employee shall be entitled to receive in three equal installments payable on the date of the termination of his employment hereunder and on the first and second anniversaries thereof, an aggregate amount equal to 2.99 multiplied by the average of the Employee's total cash compensation for the five fiscal years immediately preceding the change in control, PROVIDED, HOWEVER, that if any portion of these payments, together with any other payments paid or payable to Employee by the Company, would not be deductible in whole or in part by the Company in the calculation of its federal income tax by reason of Section 280G of the Internal Revenue Code or would cause, either directly or indirectly, an "excess parachute payment" to exist within the meaning of said Section 280G, such payments shall be reduced until no portion of the payments would fail to be deductible by reason of being an "excess parachute payment." For purposes of this paragraph, a change in control shall be deemed to have occurred upon the occurrence of any of the following events: (i) Any "person" (as such term is used in Sections 13(d) and 14(d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") but excluding any employee benefit plan of the Bank or its parent, FNB Corp. ("FNB"), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Bank or FNB representing 50% or more of the combined voting power of the Bank's or FNB's outstanding securities then entitled ordinarily (and apart from rights accruing under special circumstances) to vote for the election of directors; or (ii) Individuals who are "Continuing Directors" (as hereinafter defined) cease for any reason to constitute at least a majority of the Board of Directors; or (iii) The Board of Directors shall approve a sale of all or substantially all of the assets and/or deposit liabilities of the Bank or FNB; or (iv) The Board of Directors shall approve any merger, consolidation, or like business combination or reorganization of the Bank or FNB the consummation of which would result in the occurrence of any event described in clause (i) or (ii) above. 2 For purposes of the foregoing, "Continuing Directors" shall mean (i) the directors of the Bank or FNB in office on the date hereof and (ii) any successor to any such director (and any additional director) who after the date hereof (y) was nominated or selected by a majority of the Continuing Directors in office at the time of his nomination or selection and (z) who is not an "affiliate" or "associate" (as defined in Regulation 12B under the Exchange Act) of any person who is the beneficial owner, directly or indirectly, of securities representing 50% or more of the combined voting power of the Bank's or FNB's outstanding securities then entitled ordinarily to vote for the election of directors. 4. No Solicitation. The Employee hereby agrees that he will not solicit, counsel or encourage a change in control without the prior approval of the Board of Directors of the Bank or of FNB. A violation of this paragraph 4 shall be deemed to constitute a forfeiture by the Employee of all of his rights under paragraph 3. 5. Covenants Not to Compete. (a) The Employee hereby promises and agrees that, unless waived in writing by the Bank, during the term of his employment under this Agreement, or during the period during which the Employee is receiving payments under Section 3(iii) hereof, or for a period of one year following his termination of employment, whichever last occurs: (i) He will not, directly or indirectly, own any interest in, manage, operate, control, be employed by, render consulting or advisory services to or participate in or be connected with the management or control of any business that is then engaged in the operation of a bank, savings and loan association or similar financial institution within a 40 mile radius of Asheboro, N.C. (ii) He will not, directly or indirectly, influence or attempt to influence any customer of the Bank or FNB to discontinue its use of the Bank's or FNB's services or to divert such business to any other person, firm or corporation; (iii) He will not, directly or indirectly, interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between the Bank or FNB and any of its respective suppliers, principals, distributors, lessors or licensers; and (iv) He will not, directly or indirectly, solicit any employee of the Bank or FNB, whose base annual salary at the time of the Employee's 3 termination was $20,000 or more, to work for any other person, firm or corporation. (b) It is the desire and intent of the parties that the provisions of paragraph 5(a) shall be enforced to the fullest extend permitted under the laws and public policies of each jurisdiction in which enforcement is sought. Accordingly, if any particular portion of paragraph 5(a) shall be adjudicated to be invalid or unenforceable, such adjudication shall apply only with respect to the operation of that portion in the particular jurisdiction in which such adjudication is made, and all other portions shall continue in full force and effect. (c) It is expressly agreed that the provisions and covenants in this paragraph 5 shall not apply and shall be of no force or effect in the event that the Bank fails to honor its obligations hereunder. 6. Injunctive Relief. The Employee acknowledges and agrees that the Bank would suffer irreparable injury in the event of a breach by him of any of the provisions of paragraph 5 of this Agreement and that the Bank shall be entitled to an injunction restraining him from any breach or threatened breach thereof. Nothing herein shall be construed, however, as prohibiting the Bank from pursuing any other remedies at law or in equity which it may have for any such breach or threatened breach of any provision of paragraph 5 hereof, including the recovery of damages from the Employee. 7. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the Employee and his personal representatives, estate and heirs and to the Bank and its successors and assigns, including without limitation any corporation or other entity to which the Bank may transfer all or substantially all of its assets and business (by operation or law or otherwise) and to which the Bank may assign this Agreement. The Employee may not assign this Agreement or any part hereof without the prior written consent of the Bank, which consent may be withheld by the Bank for any reason it deems appropriate. 8. Entire Agreement. This Agreement, together with any agreements and similar documents entered into between the Bank and the Employee under any stock option, stock compensation or similar employee benefit plans maintained by the Bank, contains the entire agreement of the parties with respect to the employment of the Employee by the Bank and supersedes and replaces all other understandings and agreements, whether oral or in writing, if any, previously entered into by the parties with respect to such employment. 4 9. Amendment; Waiver. No provision of this Agreement may be amended, modified or waived unless such amendment, modification or waiver is agreed to in writing and signed by the Employee and by a duly authorized officer of the Bank. No waiver by either party of any breach by the other party of any provision of this Agreement shall be deemed a waiver of any other breach. 10. Notices. All notices or other communications given pursuant to this Agreement shall be in writing and either delivered personally or by prepaid registered or certified mail, return receipt requested. Notices and other communications mailed to the Employee shall be addressed to his last address as shown on the personnel records of the Bank, and notices and other communications to the Bank shall be addressed to First National Bank and Trust Company, 101 Sunset Avenue, Asheboro, North Carolina 27203, Attn: Secretary. Either party may change the address to which notices are to be mailed pursuant to this paragraph 10, by written notice given in accordance herewith. Any notice pursuant to this paragraph 10 shall be effective for all purposes on the date delivered or mailed as herein provided. 11. Severability. If any one or more of the provisions contained in this Agreement shall be invalid, illegal, or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provision shall not in any way be affected or impaired thereby. 12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws and judicial decisions of the State of North Carolina. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. FIRST NATIONAL BANK AND TRUST COMPANY By: /s/ James M. Culberson, Jr. Employee: /s/ Michael C. Miller (SEAL) Michael C. Miller 5 EX-13 3 EXHIBIT 13 ANNUAL REPORT Annual Report 1995 (FNB Corp. logo) FIVE YEAR FINANCIAL HISTORY (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
1995 1994 1993 1992 1991 SUMMARY OF OPERATIONS Interest income............................................ $ 20,606 $ 17,688 $ 17,507 $ 18,594 $ 18,542 Interest expense........................................... 9,002 6,979 6,945 8,083 9,949 Net interest income........................................ 11,604 10,709 10,562 10,511 8,593 Provision for loan losses.................................. 515 220 370 575 330 Net interest income after provision for loan losses........ 11,089 10,489 10,192 9,936 8,263 Losses on sales of securities.............................. (415) -- -- -- -- Other operating income..................................... 2,241 2,075 1,810 1,609 1,385 Restructuring charges...................................... 460 -- -- -- -- Other operating expense.................................... 8,654 8,578 8,306 7,536 6,502 Income before income taxes................................. 3,801 3,986 3,696 4,009 3,146 Income taxes............................................... 1,101 1,159 1,006 1,100 743 Net income................................................. $ 2,700 $ 2,827 $ 2,690 $ 2,909 $ 2,403 PER SHARE DATA (1) Net income................................................. $ 1.50 $ 1.57 $ 1.49 $ 1.62 $ 1.34 Cash dividends declared.................................... .52 .47 .45 .44 .40 Book value................................................. 14.46 12.99 12.35 11.22 10.09 BALANCE SHEET INFORMATION Total assets............................................... $283,678 $261,616 $249,698 $245,205 $228,410 Investment securities...................................... 84,536 76,983 78,488 81,020 82,986 Loans...................................................... 179,923 168,328 157,302 147,032 126,756 Deposits................................................... 250,144 229,925 224,260 223,478 208,294 Shareholders' equity....................................... 25,995 23,379 22,223 20,204 18,157 RATIOS (AVERAGES) Return on assets........................................... 1.00% 1.11% 1.09% 1.24% 1.15% Return on shareholders' equity............................. 10.93 12.33 12.62 15.16 13.90 Shareholders' equity to assets............................. 9.17 8.98 8.65 8.19 8.27 Dividend payout ratio...................................... 34.62 29.71 30.34 27.23 29.96 Loans to deposits.......................................... 73.10 70.67 66.76 64.47 65.22 Net yield on earning assets, taxable equivalent basis...... 4.84 4.73 4.86 5.17 4.83
(1) All per share data has been retroactively adjusted to reflect the three-for-two common stock split effected in the form of a 50% stock dividend paid in the second quarter of 1995. 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The purpose of this discussion and analysis is to assist in the understanding and evaluation of the financial condition, changes in financial condition and results of operations of FNB Corp. (the "Parent Company") and its wholly-owned subsidiary, First National Bank and Trust Company (the "Bank"), collectively referred to as the "Corporation". This discussion should be read in conjunction with the consolidated financial statements and supplemental financial information appearing elsewhere in this report. The Corporation earned $2,700,457 in 1995, a 4.5% decrease in net income from 1994. Earnings OVERVIEW per share, adjusted for the three-for-two common stock split in 1995, decreased from $1.57 in 1994 to $1.50 in 1995. The 1995 results were impacted by restructuring charges and losses on sales of investment securities discussed in more detail in the "Earnings Review" and in "Business Development Matters". Total assets were $283,678,112 at December 31, 1995, up 8.4% from year-end 1994. Loans amounted to $179,922,737 at December 31, 1995, up 6.9% from the prior year. Total deposits grew 8.8% to $250,144,476 in 1995. On December 30, 1993, the Corporation entered into definitive agreements to acquire two mutual savings banks, Home Savings Bank of Siler City, SSB of Siler City, North Carolina and Randleman Savings Bank, SSB of Randleman, North Carolina, in merger/conversion transactions, pursuant to which the savings banks would convert from mutual to stock form and the Corporation would simultaneously acquire the shares issued in the conversions. Regulatory applications for approval to consummate the proposed acquisitions were filed in April 1994. Substantial changes in regulatory policy occurring shortly after the applications were filed effectively resulted in a moratorium on federal approval of merger/conversions, and the Corporation subsequently withdrew the applications to the FDIC and the Federal Reserve and postponed the ultimate decision to proceed with the acquisitions until it was clear what the regulatory obstacles might be. In 1995, the agreements expired without the acquisitions having been completed due to changes in federal and state regulatory policies which strictly limited the circumstances under which such transactions would be permitted. The Corporation's net income declined $126,409 in 1995, down 4.5% from 1994. Earnings were EARNINGS REVIEW negatively affected in 1995 by restructuring charges of $460,457 and losses on sales of investment securities of $414,596, which where charges taken for the strategic purposes discussed in "Business Development Matters". The 1995 results were further negatively affected by a $295,000 increase in the provision for loan losses. Additionally, certain costs, amounting to $186,350, that had been deferred in connection with the proposed acquisitions discussed in the "Overview" were charged to expense in 1995. Earnings were positively impacted in 1995 by an increase of $894,160 or 8.3% in net interest income. In 1994, earnings increased $136,978 or 5.1% from 1993. The increase in net income in 1994 primarily resulted from an increase in net interest income and a $150,000 decrease in the provision for loan losses. The increase in total other operating income of $264,544 in 1994 approximately offset the effect of a $271,724 increase in total other operating expense. Return on average assets, affected by restructuring charges and losses on sales of investment securities in 1995, declined from 1.11% in 1994 to 1.00% in 1995. Return on average assets improved in 1994 from 1.09% in 1993, reflecting the effect of a faster rate of growth in net income than in average total assets. Return on average shareholders' equity, similarly affected by restructuring charges and losses on sales of investment securities, declined to 10.93% in 1995 compared to 12.33% in 1994 and 12.62% in 1993. 5 NET INTEREST INCOME Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits. Changes in net interest income result from changes in interest rates and in the volume, or average dollar level, and mix of earning assets and interest-bearing liabilities. Net interest income was $11,603,482 in 1995 compared to $10,709,322 in 1994. The increase of $894,160 or 8.3% resulted from an improvement in the net yield on earning assets, or net interest margin, from 4.73% in 1994 to 4.84% in 1995 coupled with a 5.5% increase in the level of average earning assets. In 1994, there was only a $147,692 or 1.4% increase in net interest income because a decline of 13 basis points in the net interest margin from 4.86% in 1993 significantly offset the effect of a 3.6% increase in average earning assets. The net interest margin, affected for some period prior to early 1994 by a significant decline in the interest rate structure, had generally improved until the second quarter of 1993 as a result of lower deposit rates and then decreased as the impact of declining yields on earning assets became more significant. The interest rate scenario changed significantly in 1994, influenced by actions taken by the Federal Reserve to combat a possible resurgence in inflation. The interest rate increases in 1994 and early 1995, later offset to some extent by Federal Reserve action to reduce rates in the second half of 1995, have resulted in an improvement in the net interest margin. Additionally, there had been a continuing negative impact on the margin from certain variable-rate time deposits with rate floors above the current market rates. Such variable-rate time deposits were phased out over a two-year period that commenced in January 1994. On a taxable equivalent basis, the increases in net interest income in 1995 and 1994 were $918,000 and $74,000, reflecting changes in the relative mix of taxable and non-taxable earning assets in each year. Table 1 sets forth for the periods indicated information with respect to the Corporation's average balances of assets and liabilities, as well as the total dollar amounts of interest income (taxable equivalent basis) from earning assets and interest expense on interest-bearing liabilities, resultant rates earned or paid, net interest income, net interest spread and net yield on earning assets. Net interest spread refers to the difference between the average yield on earning assets and the average rate paid on interest-bearing liabilities. Net yield on earning assets, or net interest margin, refers to net interest income divided by average earning assets and is influenced by the level and relative mix of earning assets and interest-bearing liabilities. 6 TABLE 1 AVERAGE BALANCES AND NET INTEREST INCOME ANALYSIS (TAXABLE EQUIVALENT BASIS, DOLLARS IN THOUSANDS)
1995 1994 1993 Average Average Interest Rates Interest Rates Interest Average Income/ Earned/ Average Income/ Earned/ Average Income/ Balance Expense Paid Balance Expense Paid Balance Expense EARNING ASSETS Loans (1)(2)................................ $174,139 $15,698 9.01% $161,121 $13,299 8.25 % $149,045 $12,674 Investment securities (1): Taxable income............................ 65,397 4,418 6.76 66,679 3,911 5.87 69,701 4,317 Non-taxable income........................ 10,610 970 9.14 10,042 1,021 10.17 10,360 1,146 Federal funds sold.......................... 3,042 177 5.82 2,174 91 4.19 2,593 77 Total earning assets.................. 253,188 21,263 8.40 240,016 18,322 7.63 231,699 18,214 Cash and due from banks..................... 9,226 8,625 8,002 Other assets, net........................... 6,884 6,631 6,872 TOTAL ASSETS.......................... $269,298 $255,272 $246,573 INTEREST-BEARING LIABILITIES Interest-bearing deposits: NOW accounts.............................. $ 32,442 695 2.14 $ 32,521 658 2.02 $ 29,953 657 Savings deposits.......................... 29,945 845 2.82 31,820 830 2.61 29,999 852 Money market accounts..................... 16,659 508 3.05 21,261 543 2.55 23,102 597 Certificates and other time deposits...... 122,743 6,773 5.52 106,759 4,850 4.54 106,989 4,836 Retail repurchase agreements................ 3,358 167 4.97 2,101 84 4.00 -- -- Federal funds purchased..................... 239 14 5.77 307 14 4.64 89 3 Total interest-bearing liabilities.... 205,386 9,002 4.38 194,769 6,979 3.58 190,132 6,945 Noninterest-bearing demand deposits......... 36,444 35,614 33,212 Other liabilities........................... 2,765 1,964 1,909 Shareholders' equity........................ 24,703 22,925 21,320 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................. $269,298 $255,272 $246,573 NET INTEREST INCOME AND SPREAD.............. $12,261 4.02% $11,343 4.05 % $11,269 NET YIELD ON EARNING ASSETS................. 4.84% 4.73 % Average Rates Earned/ Paid EARNING ASSETS Loans (1)(2)................................ 8.50 % Investment securities (1): Taxable income............................ 6.19 Non-taxable income........................ 11.06 Federal funds sold.......................... 2.97 Total earning assets.................. 7.86 Cash and due from banks..................... Other assets, net........................... TOTAL ASSETS.......................... INTEREST-BEARING LIABILITIES Interest-bearing deposits: NOW accounts.............................. 2.19 Savings deposits.......................... 2.84 Money market accounts..................... 2.59 Certificates and other time deposits...... 4.52 Retail repurchase agreements................ -- Federal funds purchased..................... 3.28 Total interest-bearing liabilities.... 3.65 Noninterest-bearing demand deposits......... Other liabilities........................... Shareholders' equity........................ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................. NET INTEREST INCOME AND SPREAD.............. 4.21 % NET YIELD ON EARNING ASSETS................. 4.86 %
(1) Interest income and yields related to certain investment securities and loans exempt from both federal and state income tax or from state income tax alone are stated on a fully taxable equivalent basis, assuming a 34% federal tax rate and applicable state tax rate, reduced by the nondeductible portion of interest expense. (2) Nonaccrual loans are included in the average loan balance. Loan fees and the incremental direct costs associated with making loans are deferred and subsequently recognized over the life of the loan as an adjustment of interest income. Changes in the net interest margin and net interest spread tend to correlate with movements in the prime rate of interest. There are variations, however, in the degree and timing of rate changes, compared to prime, for the different types of earning assets and interest-bearing liabilities. The prime rate, which had been 6.00% at December 31, 1993, moved up significantly in 1994 to close the year at 8.50% and, after certain changes during 1995, remained at that level at December 31, 1995. The average prime for those three years amounted to 6.00%, 7.09% and 8.82%, respectively. The prime rate had declined significantly from 1991 to 1993, but began to increase in 1994 following steps taken by the Federal Reserve to combat a possible resurgence in inflation. The prime rate increased towards the end of the first quarter in 1994 and an additional four times during the remainder of that year. In the first quarter of 1995, it increased again to 9.00% and remained at that level until the second half of the year when, in response to actions taken by the Federal Reserve, it decreased twice. In early 1996, the prime rate decreased again to 8.25%. In 1995, the net interest spread declined modestly by 3 basis points from 4.05% in 1994 to 4.02% in 1995 due to the fact that the average total yield on earning assets increased by slightly less than the average rate paid on interest-bearing liabilities, or cost of 7 funds. The yield on earning assets increased by 77 basis points from 7.63% in 1994 to 8.40% in 1995, while the cost of funds increased by 80 basis points in moving from 3.58% to 4.38%. In 1994, the 16 basis points decline in net interest spread resulted from a 23 basis points decline in the yield on earning assets from 7.86% to 7.63% versus only a 7 basis points decline in the cost of funds. As noted above, the average cost of deposits is receiving a positive impact from the phasing out of certain variable-rate time deposits with rate floors above the current market rates. This phase out began in January 1994 and was completed over a two-year period. The 1995 and 1994 changes in net interest income on a taxable equivalent basis, as measured by volume and rate variances, are analyzed in Table 2. Volume refers to the average dollar level of earning assets and interest-bearing liabilities. TABLE 2 VOLUME AND RATE VARIANCE ANALYSIS (TAXABLE EQUIVALENT BASIS, IN THOUSANDS)
1995 Versus 1994 1994 Versus 1993 Variance Variance due to (1) due to (1) Volume Rate Net Change Volume Rate Net Change INTEREST INCOME Loans (2)................................................. $1,121 $1,278 $2,399 $1,005 $(380) $ 625 Investment securities (2): Taxable income.......................................... (76 ) 583 507 (180 ) (226) (406) Non-taxable income...................................... 55 (106) (51) (33 ) (92) (125) Federal funds sold........................................ 44 42 86 (13 ) 27 14 Total interest income................................. 1,144 1,797 2,941 779 (671) 108 INTEREST EXPENSE Interest-bearing deposits: NOW accounts............................................ (2 ) 39 37 54 (53) 1 Savings deposits........................................ (50 ) 65 15 50 (72) (22) Money market accounts................................... (130 ) 95 (35) (45 ) (9) (54) Certificates and other time deposits.................... 788 1,135 1,923 (9 ) 23 14 Retail repurchase agreements.............................. 59 24 83 84 -- 84 Federal funds purchased................................... (3 ) 3 -- 10 1 11 Total interest expense................................ 662 1,361 2,023 144 (110) 34 NET INTEREST INCOME......................................... $ 482 $ 436 $ 918 $ 635 $(561) $ 74
(1) The mix variance, not separately stated, has been proportionally allocated to the volume and rate variances based on their absolute dollar amount. (2) Interest income related to certain investment securities and loans exempt from both federal and state income tax or from state income tax alone is stated on a fully taxable equivalent basis, assuming a 34% federal tax rate and applicable state tax rate, reduced by the nondeductible portion of interest expense. PROVISION FOR LOAN LOSSES This provision is the charge against earnings to provide an allowance or reserve for possible future losses on loans. The amount of each year's charge is affected by several considerations including management's evaluation of various risk factors in determining the adequacy of the allowance (see "Asset Quality"), actual loan loss experience and loan portfolio growth. In 1995, earnings were negatively impacted by an increase in the provision of $295,000, while in 1994 there was a positive impact from a $150,000 provision decrease. 8 OTHER OPERATING INCOME Total other operating income, or noninterest income, decreased $248,712 or 12.0% in 1995 due principally to losses on sales of investment securities in the 1995 first quarter of $414,596 (see "Business Development Matters"). In 1994, noninterest income increased $264,544 or 14.6%, reflecting in part the general increase in the volume of business, a factor that also affected the 1995 results, exclusive of the losses on sales of securities. The increase in 1994 was primarily due to commissions from sales of tax-deferred annuity products, a program which began in July 1993 and also contributed significantly to the 1993 level of noninterest income. Partially as a result of comparatively higher deposit rates through much of 1995, sales of tax deferred annuity products were significantly lower in 1995 than in 1994 as reflected by a $136,218 decrease in annuity and brokerage commissions. The significant increase in credit card income in both 1995 and 1994 is due to the new credit card operation discussed in "Business Development Matters". The increase in service charges on deposit accounts in 1995 resulted primarily from a change in the 1994 fourth quarter in the method of collecting fees on returned checks and overdraft items and from the selected increases in service charge rates that became effective in the 1995 second quarter and included the initial implementation of daily charges on overdraft balances. Partially offseting these earnings improvement factors was the negative effect of higher interest rates on the earnings allowance offset against service charges on commercial accounts. The 1994 increase in service charges on deposit accounts was due both to the selected increases in service charge rates that became effective in the second quarter of 1993 and to the change in the 1994 fourth quarter in the method of collecting fees on returned checks and overdraft items. There was a lower level of "other income" in both 1995 and 1994 compared to 1993 due principally to a reduction in gains on loan sales. Increases in mortgage loan rates since 1993 have negatively impacted both mortgage loan activity and the average level of profitability on loans actually sold. OTHER OPERATING EXPENSE Total other operating, or noninterest, expense increased $535,678 or 6.2% in 1995 due primarily to restructuring charges of $460,457 (see "Business Development Matters") and to certain costs charged to "other expense", amounting to $186,350, that had been deferred in connection with proposed acquisitions (see "Overview"). Additionally, the 1995 results were generally impacted by the continuing effects of inflation. Noninterest expense was favorably affected in 1995 by a $221,485 reduction in FDIC insurance expense, reflecting the effect of a rate reduction as discussed below. In 1994, noninterest expense increased $271,724 or 3.3% due largely to costs associated with new or changed operations, increased personnel expense and the continuing effects of inflation. The components of other operating expense have been significantly changed by the Bank's decision in 1994 to outsource its data processing operations (see "Business Development Matters"). The conversion of data processing operations to a service bureau arrangement was completed in the 1994 fourth quarter. Consequently, the level of expense for data processing services, which includes trust and credit card processing costs in addition to basic data processing operations, has increased significantly in 1995. Personnel and equipment costs are being reduced, however, as a result of the outsourcing decision. A change in the credit card operation (see "Business Development Matters") has also contributed to a higher cost of data processing services. Personnel expense, as noted above, has been positively impacted by the outsourcing of data processing operations with only a slight offset from the change implemented in mid-1994 in credit card operations. Additional reductions in personnel and other expenses are resulting from the comprehensive project undertaken in 1995 for the reengineering of bank operations (see "Business Development Matters"). The restructuring charges noted above are expected to constitute all significant costs to be incurred in connection with this project. The number of full- 9 time equivalent employees decreased in 1994, reflecting in particular the outsourcing of data processing operations. A further decrease has occurred in 1995 as the benefits of the reengineering project have begun to be realized. As is the situation for other operating expenses, personnel expense is subject to the continuing effects of inflation through normal salary adjustments and higher costs of fringe benefits. Because of the Federal Deposit Insurance Corporation Improvement Act (FDICIA) enacted in 1989, FDIC insurance expense was increased substantially, with the Bank's expense amounting to $503,379 in the year ended December 31, 1994. The FDIC has two separate insurance funds, which are the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF). When each fund reaches the 1.25 percent reserve ratio required by FDICIA, then the corresponding insurance assessment rates can be lowered starting within that semiannual period. While the SAIF fund has not yet reached the mandated reserve ratio, the BIF fund was found in the third quarter of 1995 to have reached this level by the end of May 1995. Accordingly, the BIF rate was reduced effective June 1, 1995, and currently there is only a minimum annual charge of $2,000 for the majority of financial institutions with BIF-insured deposits. Since most of the Bank's deposits are insured through BIF, the Bank experienced a significant reduction in FDIC insurance expense commencing in the 1995 third quarter when the effect of the rate adjustment was initially recorded. Consequently, FDIC insurance expense for the entire 1995 year amounted to only $281,894 and should be significantly lower in 1996. Under legislation now being considered in connection with the SAIF fund, the FDIC insurance rate on SAIF deposits could be lowered to match that on BIF deposits. As part of this legislation, financial institutions would be charged a special, one-time assessment at the rate of 85 to 90 basis points on their SAIF deposits. The Bank's maximum, one-time assessment for its SAIF deposits at December 31, 1995, under the proposed legislation as described, would be $140,000. INCOME TAXES The effective income tax rate of 29.0% in 1995 did not significantly change from the 29.1% rate in 1994. The effective income tax rate increased from 27.2% in 1993 to 29.1% in 1994 due to both the effect of state income tax expense recognition in 1994 but not in 1993 and an increase in the ratio of taxable to tax-exempt income. Liquidity refers to the continuing ability of the Bank to meet deposit withdrawals, fund loan and LIQUIDITY capital expenditure commitments, maintain reserve requirements, pay operating expenses and provide funds to the Parent Company for payment of dividends, debt service and other operational requirements. Liquidity is immediately available from three major sources: (a) cash on hand and on deposit at other banks, (b) the outstanding balance of federal funds sold and (c) the available-for-sale securities portfolio. While additional liquidity is readily obtainable by purchasing federal funds from other banks, the Bank has not found it necessary to utilize this resource to any substantial extent in recent years. Further, while available-for-sale securities are intended to be a source of immediate liquidity, the entire investment securities portfolio is managed to provide both income and a ready source of liquidity. The average portfolio life of debt securities is approximately four years, resulting in a substantial level of maturities each year. All debt securities are of investment grade quality and, if the need arises, can be promptly liquidated on the open market or pledged as collateral for short-term borrowing. In line with its approach to liquidity, the Bank as a matter of policy does not solicit or accept brokered deposits for funding asset growth. Instead, loans and other assets are based on a core of local deposits and the Bank's capital position. To date, the steady increase in deposits, retail repurchase agreements and capital has been adequate to fund loan demand in the Bank's market area, while maintaining the desired level of immediate liquidity and a substantial investment securities portfolio available for both immediate and secondary liquidity purposes. 10 One of the primary objectives of asset/liability management is to maximize net interest margin ASSET/LIABILITY MANAGE-while minimizing the earnings risk associated with MENT AND INTEREST RATE changes in interest rates. One method used SENSITIVITY to manage interest rate sensitivity is to measure, over various time periods, the interest rate sensitivity positions, or gaps; however, this method addresses only the magnitude of timing differences and does not address earnings or market value. Therefore, management uses an earnings simulation model to prepare, on a regular basis, earnings projections based on a range of interest rate scenarios in order to more accurately measure interest rate risk. The Bank's balance sheet is liability-sensitive, meaning that in a given period there will be more liabilities than assets subject to immediate repricing as market rates change. Because immediately rate sensitive interest-bearing liabilities exceed rate sensitive assets, the earnings position could improve in a declining rate environment and could deteriorate in a rising rate environment, depending on the correlation of rate changes in these two categories. Included in interest-bearing liabilities subject to rate changes within 30 days are NOW, savings, and money market deposits totaling $78,728,000 as of December 31, 1995. These types of deposits historically have not repriced coincidentally with or in the same proportion as general market indicators. Table 3 presents information about the periods in which the interest-sensitive assets and liabilities at December 31, 1995 will either mature or be subject to repricing in accordance with market rates, and the resulting interest-sensitivity gaps. This table shows the sensitivity of the balance sheet at one point in time and is not necessarily indicative of what the sensitivity will be on other dates. TABLE 3 INTEREST RATE SENSITIVITY ANALYSIS (DOLLARS IN THOUSANDS)
December 31, 1995 Rate Maturity In Days Beyond 1-90 91-180 181-365 One Year Total EARNING ASSETS Loans........................................................... $ 77,552 $ 6,236 $ 13,432 $82,703 $179,923 Investment securities........................................... 3,230 3,746 8,073 69,487 84,536 Federal funds sold.............................................. 2,600 -- -- -- 2,600 Total earning assets.......................................... 83,382 9,982 21,505 152,190 267,059 INTEREST-BEARING LIABILITIES NOW accounts.................................................... 32,407 -- -- -- 32,407 Savings deposits................................................ 30,092 -- -- -- 30,092 Money market accounts........................................... 16,229 -- -- -- 16,229 Time deposits of $100,000 or more............................... 14,481 12,807 7,484 1,655 36,427 Other time deposits............................................. 28,509 19,120 20,020 28,749 96,398 Retail repurchase agreements.................................... 4,642 -- -- -- 4,642 Federal funds purchased......................................... -- -- -- -- -- Total interest-bearing liabilities............................ 126,360 31,927 27,504 30,404 216,195 INTEREST SENSITIVITY GAP.......................................... $(42,978) $(21,945) $ (5,999) $121,786 $ 50,864 Cumulative gap.................................................... $(42,978) $(64,923) $(70,922) $50,864 $ 50,864 Ratio of interest-sensitive assets to interest-sensitive liabilities..................................................... 66% 31% 78% 501 % 124%
11 Under guidelines established by the Federal Reserve Board, capital adequacy is currently CAPITAL ADEQUACY measured for regulatory purposes by certain risk-based capital ratios, supplemented by a leverage ratio. The risk-based capital ratios are determined by expressing allowable capital amounts, defined in terms of Tier 1 and Tier 2, as a percentage of risk-adjusted assets, which are computed by measuring the relative credit risk of both the asset categories on the balance sheet and various off-balance sheet exposures. Tier 1 capital consists primarily of common shareholders' equity and qualifying perpetual preferred stock, net of goodwill and other disallowed intangible assets. Tier 2 capital, which is limited to the total of Tier 1 capital, includes allowable amounts of subordinated debt, mandatory convertible securities, preferred stock and the allowance for loan losses. Under current requirements, the minimum Tier 1 capital ratio is 4% and the minimum total capital ratio, consisting of both Tier 1 and Tier 2 capital, is 8%. At December 31, 1995, the Corporation had a Tier 1 capital ratio of 13.77% and a total capital ratio of 14.78%. The leverage ratio, which serves as a minimum capital standard, considers Tier 1 capital only and is expressed as a percentage of average total assets for the most recent quarter, after reduction of those assets for goodwill and other disallowed intangible assets at the measurement date. The required ratio ranges from 3% to 5%, subject to federal bank regulatory evaluation of the organization's overall safety and soundness. At December 31, 1995, the Corporation had a leverage ratio of 9.16%. Asset and deposit growth was higher in 1995 than in 1994. Total assets increased $22,062,000 or BALANCE SHEET REVIEW 8.4% in 1995 compared to $11,918,000 or 4.8% in 1994. Deposits grew $20,219,000 or 8.8% and $5,665,000 or 2.5%, respectively, in the same periods. A new retail repurchase agreements program that commenced in the second quarter of 1994 generated $4,642,000 of the asset increase at December 31, 1995 and $3,526,000 at December 31, 1994. The average asset growth rates were 5.5% in 1995 and 3.5% in 1994. The corresponding average deposit growth rates were 4.5% and 2.1%. As discussed in Note 1 to Consolidated Financial Statements, the Corporation adopted State- INVESTMENT SECURITIES ment of Financial Accounting Standards (SFAS) No. 115 as of December 31, 1993 and transferred certain debt and equity securities at that time to the available-for-sale category. Also, as further discussed in Note 1 and permitted on a one-time basis by the Financial Accounting Standards Board in an implementation guide for SFAS No. 115, certain investment securities that had been included in the held-to-maturity category were transferred in December 1995 to the available-for-sale category. Investments are carried on the consolidated balance sheet at estimated fair value for available-for-sale securities and at amortized cost for held-to-maturity securities. Table 4 presents information, on the basis of selected maturities, about the composition of the investment securities portfolio for each of the last three years. 12 TABLE 4 INVESTMENT SECURITIES PORTFOLIO ANALYSIS (DOLLARS IN THOUSANDS)
December 31 1995 Estimated Taxable 1994 1993 Amortized Fair Equivalent Carrying Carrying Cost Value Yield (1) Value Value AVAILABLE FOR SALE U.S. Treasury: One to five years....................................... $ 4,999 $ 5,038 7.11% $ 7,256 $ 5,334 Five to ten years....................................... 4,440 4,526 6.67 509 254 Total................................................. 9,439 9,564 6.91 7,765 5,588 U.S. Government agencies and corporations: Within one year......................................... 2,050 2,060 6.96 -- -- One to five years....................................... 6,104 6,129 6.07 -- -- Five to ten years....................................... 450 452 6.03 -- -- Total................................................. 8,604 8,641 6.28 -- -- Mortgage-backed securities................................ 9,996 10,020 6.63 12,108 18,920 Total debt securities..................................... 28,039 28,225 6.62 19,873 24,508 Equity securities......................................... 144 150 4,696 4,810 Total available-for-sale securities................... $28,183 $28,375 $24,569 $29,318 HELD TO MATURITY U.S. Treasury: Within one year......................................... $ -- $ -- -- $ 4,954 $ 8,303 One to five years....................................... -- -- -- 2,748 3,957 Total................................................. -- -- -- 7,702 12,260 U.S. Government agencies and corporations: Within one year......................................... 2,854 2,861 6.51 3,151 5,503 One to five years....................................... 23,800 24,032 6.93 26,294 17,543 Five to ten years....................................... 17,022 17,193 8.00 4,916 3,328 Over ten years.......................................... 300 301 8.64 -- -- Total................................................. 43,976 44,387 7.33 34,361 26,374 State, county and municipal: Within one year......................................... 1,203 1,214 11.63 2,081 1,831 One to five years....................................... 2,590 2,691 9.85 3,017 4,483 Five to ten years....................................... 4,959 5,189 8.52 4,909 3,535 Over ten years.......................................... 3,433 3,527 8.25 344 542 Total................................................. 12,185 12,621 9.03 10,351 10,391 Total debt securities..................................... 56,161 57,008 7.70 52,414 49,025 Other securities.......................................... -- -- -- 145 Total held-to-maturity securities..................... $56,161 $57,008 $52,414 $49,170
(1) Yields are stated on a fully taxable equivalent basis, assuming a 34% federal income tax rate and applicable state income tax rate, reduced by the nondeductible portion of interest expense. 13 Additions to the investment securities portfolio depend to a large extent on the availability of investable funds that are not otherwise needed to satisfy loan demand. Because of a growth rate in total assets exceeding that for loans, the level of investment securities was increased $7,553,000 or 9.8% in 1995. In 1994, however, when loan growth was at a much higher rate than that for either total assets or deposits, there was a reduction in the level of investment securities, amounting to $1,505,000 or 1.9%. Investable funds not otherwise utilized are temporarily invested on an overnight basis as federal funds sold, the level of which is affected by such considerations as near-term loan demand and liquidity needs. The Corporation's primary source of revenue and largest component of earning assets is the LOANS loan portfolio. Loans experienced growth of $11,595,000 or 6.9% in 1995 and $11,026,000 or 7.0% in 1994. Average loans increased $13,018,000 or 8.1% and $12,076,000 or 8.1%, respectively. The ratio of average loans to average deposits increased from 70.7% in 1994 to 73.1% in 1995. Part of this increase is due to the effect of the new retail repurchase agreements program which began generating additional funds in 1994 that can be used for loan growth and other purposes. The ratio of loans to deposits at December 31, 1995 was 71.9%. Table 5 sets forth the major categories of loans and information regarding residential mortgage loans held for sale for each of the last five years. The maturity distribution and interest sensitivity of selected loan categories at December 31, 1995 are presented in Table 6. TABLE 5 LOAN PORTFOLIO COMPOSITION (DOLLARS IN THOUSANDS)
December 31 1995 1994 1993 1992 1991 Amount % Amount % Amount % Amount % Amount Commercial and agricultural............. $ 47,317 26.3 $ 41,777 24.8 40,858 26.0 34,630 23.5 27,600 Real estate -- construction............. 759 .4 1,331 .8 2,163 1.4 1,313 .9 1,956 Real estate -- mortgage................. 85,467 47.5 79,169 47.0 69,782 44.3 61,269 41.7 53,836 Consumer................................ 46,380 25.8 46,051 27.4 44,499 28.3 49,820 33.9 43,364 Total loans........................... $179,923 100.0 $168,328 100.0 $157,302 100.0 $147,032 100.0 $126,756 Residential mortgage loans held for sale.................................. $ 406 $ -- $ 1,090 $ 101 $ -- % Commercial and agricultural............. 21.8 Real estate -- construction............. 1.5 Real estate -- mortgage................. 42.5 Consumer................................ 34.2 Total loans........................... 100.0 Residential mortgage loans held for sale..................................
TABLE 6 SELECTED LOAN MATURITIES (IN THOUSANDS)
December 31, 1995 One Year One to Over or Less Five Years Five Years Total Commercial and agricultural............................................... $40,755 $5,059 $1,503 $47,317 Real estate -- construction............................................... 759 -- -- 759 Total selected loans.................................................... $41,514 $5,059 $1,503 $48,076 Sensitivity to rate changes: Fixed interest rates.................................................... $ 1,690 $5,059 $1,503 $ 8,252 Variable interest rates................................................. 39,824 -- -- 39,824 Total................................................................... $41,514 $5,059 $1,503 $48,076
14 The residential construction and mortgage loan portfolio accounted for slightly more than half of the 1995 loan increase. The Bank is qualified as a seller and servicer of mortgage loans for the Federal National Mortgage Association (Fannie Mae) and, due to favorable market conditions in 1993, had brisk mortgage loan activity in that year and sold a substantial portion of the loans originated to Fannie Mae. Increased mortgage loan rates in 1994 and 1995 have led to a decline in originations. Because of a reduction in the level of profitability on sales to Fannie Mae, however, the Bank has increased the percentage of loans added to its own portfolio. Commercial loan growth also added significantly to the 1995 increase in loans. Consumer loan growth related primarily to credit cards and home equity lines of credit. Changes in the credit card operation are discussed in "Business Development Matters". Management considers the Bank's asset quality to be of primary importance. A formal loan ASSET QUALITY review function, independent of loan origination, is used to identify and monitor problem loans. In determining the allowance for loan losses and any resulting provision to be charged against earnings, particular emphasis is placed on the results of the loan review process. Consideration is also given to historical loan loss experience, the value and adequacy of collateral, and economic conditions in the Bank's market area. This evaluation is inherently subjective as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Management's policy in regard to past due loans is conservative and normally requires a prompt charge-off to the allowance for loan losses following timely collection efforts and a thorough review. Further efforts are then pursued through various means available. Loans carried in a nonaccrual status are generally collateralized and the possibility of future losses is considered minimal. 15 Table 7 presents an analysis of the changes in the allowance for loan losses and of the level of nonperforming assets for each of the last five years. Information about management's allocation of the allowance for loan losses by loan category is presented in Table 8. TABLE 7 ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS (DOLLARS IN THOUSANDS)
1995 1994 1993 1992 1991 ALLOWANCE FOR LOAN LOSSES Balance at beginning of year.............................................. $1,720 $1,745 $1,766 $1,484 $1,323 Charge-offs: Commercial and agricultural............................................. 84 16 57 159 64 Real estate -- construction............................................. -- -- -- -- -- Real estate -- mortgage................................................. -- 1 24 34 12 Consumer................................................................ 393 419 486 228 221 Total charge-offs..................................................... 477 436 567 421 297 Recoveries: Commercial and agricultural............................................. 8 6 8 24 48 Real estate -- construction............................................. -- -- -- -- -- Real estate -- mortgage................................................. 3 5 7 1 2 Consumer................................................................ 134 180 161 103 78 Total recoveries...................................................... 145 191 176 128 128 Net loan charge-offs...................................................... 332 245 391 293 169 Provision for loan losses................................................. 515 220 370 575 330 Balance at end of year.................................................... $1,903 $1,720 $1,745 $1,766 $1,484 NONPERFORMING ASSETS, AT END OF YEAR Nonaccrual loans.......................................................... $ 26 $ -- $ -- $ 68 $ 791 Accruing loans past due 90 days or more................................... 317 118 136 388 72 Total nonperforming loans............................................. 343 118 136 456 863 Foreclosed assets......................................................... 64 78 134 159 -- Other real estate owned................................................... -- -- -- 52 52 Total nonperforming assets............................................ $ 407 $ 196 $ 270 $ 667 $ 915 RATIOS Net loan charge-offs to average loans..................................... .19% .15% .26% .21% .14% Net loan charge-offs to allowance for loan losses......................... 17.45 14.25 22.43 16.59 11.40 Allowance for loan losses to year-end loans............................... 1.06 1.02 1.11 1.20 1.17 Total nonperforming loans to year-end loans............................... .19 .07 .09 .31 .68
TABLE 8 ALLOCATION OF ALLOWANCE FOR LOAN LOSSES (IN THOUSANDS)
December 31 1995 1994 1993 1992 1991 Commercial and agricultural................................................. $ 572 $ 490 $ 451 $ 418 $ 454 Real estate -- construction................................................. 9 14 25 23 20 Real estate -- mortgage..................................................... 384 346 281 261 250 Consumer.................................................................... 695 651 569 343 286 Unallocated................................................................. 243 219 419 721 474 Total allowance for loan losses........................................... $1,903 $1,720 $1,745 $1,766 $1,484
16 The level and mix of deposits is affected by various factors, including general economic DEPOSITS conditions, the particular circumstances of local markets and the specific deposit strategies employed. In general, broad interest rate declines tend to encourage customers to consider alternative investments such as mutual funds and tax-deferred annuity products, while interest rate increases tend to have the opposite effect. The Bank's level and mix of deposits has been specifically affected by the following factors. Certain variable-rate time deposits with minimum rates in excess of current market rates were phased out over a two-year period that commenced in January 1994. A retail repurchase agreements program, established in the second quarter of 1994, has tended to transfer funds away from deposits. The balance of retail repurchase agreements was $4,642,000 at December 31, 1995 and $3,526,000 at December 31, 1994. Further, the level of public funds on deposit fluctuates, amounting to $24,412,000, $10,940,000 and $10,636,000 at December 31, 1995, 1994 and 1993, respectively. Table 9 shows the year-end and average deposit balances for the years 1995, 1994 and 1993 and the changes in 1995 and 1994. TABLE 9 ANAYLSIS OF DEPOSITS (DOLLARS IN THOUSANDS)
1995 1994 Change from Change from Prior Year Prior Year 1993 Balance Amount % Balance Amount % Balance YEAR-END BALANCES Interest-bearing deposits: NOW accounts...................................... $ 32,407 $ 505 1.6 $ 31,902 $ 157 .5 $ 31,745 Savings deposits.................................. 30,092 (828 ) (2.7) 30,920 34 .1 30,886 Money market accounts............................. 16,229 (3,350 ) (17.1) 19,579 (2,330 ) (10.6) 21,909 Total........................................... 78,728 (3,673 ) (4.5) 82,401 (2,139 ) (2.5) 84,540 Certificates and other time deposits.............. 132,825 22,583 20.5 110,242 5,160 4.9 105,082 Total interest-bearing deposits................. 211,553 18,910 9.8 192,643 3,021 1.6 189,622 Noninterest-bearing demand deposits................. 38,591 1,309 3.5 37,282 2,644 7.6 34,638 Total deposits.................................. $250,144 $20,219 8.8 $229,925 $5,665 2.5 $224,260 AVERAGE BALANCES Interest-bearing deposits: NOW accounts...................................... $ 32,442 $ (79 ) (.2) $ 32,521 $2,568 8.6 $ 29,953 Savings deposits.................................. 29,945 (1,875 ) (5.9) 31,820 1,821 6.1 29,999 Money market accounts............................. 16,659 (4,602 ) (21.6) 21,261 (1,841 ) (8.0) 23,102 Total........................................... 79,046 (6,556 ) (7.7) 85,602 2,548 3.1 83,054 Certificates and other time deposits.............. 122,743 15,984 15.0 106,759 (230 ) (.2) 106,989 Total interest-bearing deposits................. 201,789 9,428 4.9 192,361 2,318 1.2 190,043 Noninterest-bearing demand deposits................. 36,444 830 2.3 35,614 2,402 7.2 33,212 Total deposits.................................. $238,233 $10,258 4.5 $227,975 $4,720 2.1 $223,255
17 As discussed in the "Overview" and in Note 15 to Consolidated Financial Statements, the BUSINESS DEVELOPMENT Corporation had entered into definitive agreements to acquire two mutual savings banks. In MATTERS 1995, the agreements expired without the acquisitions having been completed due to changes in federal and state regulatory policies which strictly limited the circumstances under which such transactions would be permitted. During 1994, a new credit card operation was established in which the Bank carries its own credit card receivables as opposed to the former fee-based arrangement under which accounts were generated for and owned by a correspondent bank. As part of the new credit card strategy, extensive marketing efforts were undertaken in 1995, primarily to Bank customers. Credit card receivables amounted to $1,524,718 at December 31, 1995. Additionally, the merchant aspect of credit card operations has been shifted to an in-house basis from the prior correspondent arrangement. In a significant 1994 development, the Bank elected to outsource all of its data processing, item capture and statement rendering operations. The conversion to a service bureau arrangement was completed in the 1994 fourth quarter. The major items of data processing equipment that were no longer needed by the Bank were acquired by the new processor. While the Bank does not plan to resume any major data processing operations, the level of computer equipment was significantly increased in 1995 through expanded use of personal computer networks. The new networks will allow for a more direct input of basic loan and deposit account information to the data files maintained by the service bureau. Capital expenditures in 1995, which totaled $1,302,230, related primarily to the increase in computer equipment. Since most of this equipment was not placed into service until late in 1995, the majority of the effect on annual depreciation expense will not occur until 1996. In 1995, as discussed in Note 14 to Consolidated Financial Statements, management adopted a comprehensive restructuring project for the purpose of reengineering Bank operations to become more competitive and cost-effective in developing business and servicing customers and to improve long-term profitability. In connection with this project, certain positions within the Bank have either been realigned or eliminated. Total restructuring charges in 1995, with the expectation that all significant costs were incurred and paid during that period, amounted to $460,457, of which $301,116 related to personnel costs and $159,341 to professional fees. The Bank also decided in March 1995 to recognize losses of $414,596 from the sales of certain investment securities held in the available-for-sale portfolio in order to gain favorable tax treatment for the losses and to take advantage of reinvestment opportunities at higher coupon rates. While these actions had a significant adverse impact on 1995 earnings, management believes these decisions will enhance the long-term value of the Corporation and strengthen the competitive position of its community banking operations. Management decided in March 1996 that the Bank would discontinue the purchase of retail installment loan contracts from automobile and equipment dealers, due largely to the declining yields being experienced in this loan program. Contracts of this nature included in loans at December 31, 1995 amounted to $33,525,143. While there will be no purchases of new contracts, current plans call for the collection of outstanding loans based on their contractual terms. It is expected that the funds previously invested in this loan program will be redeployed, as loan payments occur, to other loan programs or to the investment securities portfolio. 18 In March 1995, the Financial Accounting Standards Board (the "FASB") issued Statement of ACCOUNTING Financial Accounting Standards (SFAS) No. 121, "Accounting PRONOUNCEMENT for Impairment of Long-Lived MATTERS Assets and for Long-Lived Assets to be Disposed Of", which establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for those to be disposed of. This statement requires that long-lived assets and certain intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. SFAS No. 121 is effective for fiscal years beginning after December 15, 1995. At this time, management has not determined what effect, if any, that adoption of SFAS No. 121 will have on the consolidated financial statements. In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No. 65". SFAS No. 122 amends FASB Statement No. 65 to require that the rights to service mortgage loans for others, however those servicing rights are acquired, be recognized as separate assets, eliminating the previously existing accounting distinction between servicing rights acquired through purchase transactions and those acquired through loan originations. SFAS No. 122 is required to be adopted and applied prospectively for fiscal years beginning after December 15, 1995 to transactions involving the sale or securitization of mortgage loans with servicing rights retained. At this time, management estimates that adoption of SFAS No. 122 will not have a significant effect on the consolidated financial statements. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 defines a fair value based method of accounting for an employee stock option or similar equity instrument. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees". Entities electing to remain with the accounting in APB Opinion No. 25 must make pro forma disclosures of net income and, if presented, earnings per share, as if the fair value based method of accounting defined in SFAS No. 123 had been applied. The accounting requirements of SFAS No. 123 are effective for transactions entered into in fiscal years that begin after December 15, 1995, though they may be adopted on issuance. At this time, management estimates that adoption of SFAS No. 123 will not have a significant effect on the consolidated financial statements. The operations of the Bank and therefore of the Corporation are subject to the effects of EFFECTS OF INFLATION inflation through interest rate fluctuations and changes in the general price level of noninterest operating expenses. Such costs as salaries, fringe benefits and utilities have tended to increase at a rate comparable to or even greater than the general rate of inflation. Broadly speaking, all operating expenses have risen to higher levels as inflationary pressures have increased. Management has responded to this situation by evaluating and adjusting fees charged for specific services and by emphasizing operating efficiencies. The level of interest rates is also considered to be influenced by inflation, rising whenever inflationary expectations and the actual level of inflation increase and declining whenever the inflationary outlook appears to be improving. Management constantly monitors this situation, attempting to adjust both rates received on earning assets and rates paid on interest-bearing liabilities in order to maintain the desired net yield on earning assets. 19 TABLE 10 QUARTERLY FINANCIAL DATA (IN THOUSANDS EXCEPT PER SHARE DATA)
First Second Third Fourth 1995 Interest income.................................................................... $4,870 $5,062 $5,230 $5,444 Interest expense................................................................... 2,079 2,193 2,317 2,413 Net interest income................................................................ 2,791 2,869 2,913 3,031 Provision for loan losses.......................................................... 95 125 130 165 Net interest income after provision for loan losses................................ 2,696 2,744 2,783 2,866 Losses on sales of securities...................................................... (415) -- -- -- Other operating income............................................................. 531 552 561 597 Restructuring charges.............................................................. 460 -- -- -- Other operating expense............................................................ 2,227 2,128 2,083 2,216 Income before income taxes......................................................... 125 1,168 1,261 1,247 Income taxes (benefit)............................................................. (8) 368 375 366 Net income......................................................................... $ 133 $ 800 $ 886 $ 881 Per share data (1): Net income....................................................................... $ .07 $ .44 $ .49 $ .49 Cash dividends declared.......................................................... .12 .12 .13 .15 Common stock price (2): High........................................................................... 16.67 18.00 21.00 24.00 Low............................................................................ 15.33 15.33 16.50 18.50 1994 Interest income.................................................................... $4,159 $4,311 $4,515 $4,703 Interest expense................................................................... 1,662 1,650 1,762 1,905 Net interest income................................................................ 2,497 2,661 2,753 2,798 Provision for loan losses.......................................................... 35 50 30 105 Net interest income after provision for loan losses................................ 2,462 2,611 2,723 2,693 Other operating income............................................................. 546 546 462 521 Other operating expense............................................................ 2,078 2,117 2,192 2,191 Income before income taxes......................................................... 930 1,040 993 1,023 Income taxes....................................................................... 267 310 283 299 Net income......................................................................... $ 663 $ 730 $ 710 $ 724 Per share data (1): Net income....................................................................... $ .37 $ .41 $ .39 $ .40 Cash dividends declared.......................................................... .11 .11 .12 .12 Common stock price (2): High........................................................................... 13.33 16.00 16.67 16.67 Low............................................................................ 12.67 12.67 14.67 15.67
(1) All per share data has been retroactively adjusted to reflect the three-for-two common stock split effected in the form of a 50% stock dividend paid in the second quarter of 1995. (2) FNB Corp. common stock began trading on the NASDAQ National Market System on June 14, 1994, and stock price data from that date forward reflects actual sales prices. Prior to June 14, 1994, the stock was traded on an over-the-counter basis and bid quotations are reported. Such bid quotations reflect interdealer prices without retail mark-up, mark-down or commissions and may not represent actual transactions. 20 INDEPENDENT AUDITORS' REPORT The Board of Directors FNB Corp. We have audited the accompanying consolidated balance sheets of FNB Corp. and subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 Corp. and subsidiary as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in note 1 to the consolidated financial statements, the Corporation changed its method of accounting for investments to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", at December 31, 1993. KPMG PEAT MARWICK LLP Greensboro, North Carolina February 2, 1996 21 FNB CORP. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
December 31 ASSETS 1995 1994 Cash and due from banks............................................................. $ 8,764,539 $ 9,348,113 Federal funds sold.................................................................. 2,600,000 -- Investment securities: Available for sale, at estimated fair value (amortized cost of $28,183,155 in 1995 and $25,713,359 in 1994)........................................................ 28,375,645 24,569,036 Held to maturity (estimated fair value of $57,008,236 in 1995 and $50,809,510 in 1994)........................................................................... 56,160,814 52,414,194 Loans............................................................................... 179,922,737 168,327,821 Less: Allowance for loan losses................................................... (1,902,640) (1,719,717) Net loans....................................................................... 178,020,097 166,608,104 Premises and equipment.............................................................. 6,029,541 5,024,522 Other assets........................................................................ 3,727,476 3,651,740 TOTAL ASSETS.................................................................... $283,678,112 $261,615,709 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing demand deposits............................................... $ 38,590,985 $ 37,282,808 Interest-bearing deposits: NOW, savings and money market deposits.......................................... 78,728,366 82,400,774 Time deposits of $100,000 or more............................................... 36,427,161 20,191,213 Other time deposits............................................................. 96,397,964 90,050,517 Total deposits................................................................ 250,144,476 229,925,312 Retail repurchase agreements........................................................ 4,641,527 3,526,226 Federal funds purchased............................................................. -- 3,050,000 Other liabilities................................................................... 2,897,038 1,735,041 Total Liabilities............................................................. 257,683,041 238,236,579 Shareholders' Equity: Preferred stock, $10.00 par value; authorized 200,000 shares, none issued......... -- -- Common stock, $2.50 par value; authorized 5,000,000 shares, issued 1,797,995 shares in 1995 and 1,200,000 shares in 1994............................................ 4,494,988 3,000,000 Surplus........................................................................... 18,705 900,000 Retained earnings................................................................. 21,354,335 20,234,383 Net unrealized securities gains (losses).......................................... 127,043 (755,253) Total Shareholders' Equity.................................................... 25,995,071 23,379,130 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................... $283,678,112 $261,615,709 Commitments (Note 12)
See notes to consolidated financial statements. 22 FNB CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31 1995 1994 1993 INTEREST INCOME Interest and fees on loans............................................. $15,638,486 $13,228,841 $12,610,672 Interest and dividends on investment securities: Taxable income....................................................... 4,170,724 3,722,957 4,095,951 Non-taxable income................................................... 619,480 645,224 723,372 Federal funds sold..................................................... 177,071 91,034 77,128 Total interest income.............................................. 20,605,761 17,688,056 17,507,123 INTEREST EXPENSE Deposits............................................................... 8,821,404 6,880,389 6,942,569 Retail repurchase agreements........................................... 167,076 84,094 -- Federal funds purchased................................................ 13,799 14,251 2,924 Total interest expense............................................. 9,002,279 6,978,734 6,945,493 NET INTEREST INCOME...................................................... 11,603,482 10,709,322 10,561,630 Provision for loan losses.............................................. 515,000 220,000 370,000 Net Interest Income After Provision for Loan Losses...................... 11,088,482 10,489,322 10,191,630 OTHER OPERATING INCOME Service charges on deposit accounts.................................... 1,356,083 1,218,066 1,153,374 Annuity and brokerage commissions...................................... 182,091 318,309 95,110 Credit card income..................................................... 263,678 100,816 38,692 Other service charges, commissions and fees............................ 284,994 270,280 240,438 Losses on sales of investment securities............................... (414,596) -- -- Other income........................................................... 153,916 167,407 282,720 Total other operating income....................................... 1,826,166 2,074,878 1,810,334 OTHER OPERATING EXPENSE Personnel expense...................................................... 4,479,773 4,902,442 4,807,246 Net occupancy expense.................................................. 461,992 447,645 455,991 Furniture and equipment expense........................................ 452,094 503,296 529,228 Data processing services............................................... 881,757 297,670 113,255 Restructuring charges.................................................. 460,457 -- -- Other expense.......................................................... 2,377,553 2,426,895 2,400,504 Total other operating expense...................................... 9,113,626 8,577,948 8,306,224 Income Before Income Taxes............................................... 3,801,022 3,986,252 3,695,740 Income taxes............................................................. 1,100,565 1,159,386 1,005,852 NET INCOME............................................................... $ 2,700,457 $ 2,826,866 $ 2,689,888 Net income per share..................................................... $ 1.50 $ 1.57 $ 1.49 Average number of shares outstanding..................................... 1,798,717 1,800,000 1,800,000
See notes to consolidated financial statements. 23 FNB CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended December 31, 1995, 1994 and 1993
NET UNREALIZED COMMON STOCK RETAINED SECURITIES SHARES AMOUNT SURPLUS EARNINGS GAINS (LOSSES) BALANCE, DECEMBER 31, 1992.......................... 1,200,000 $3,000,000 $900,000 $16,373,629 $ (70,000) Net income, 1993.................................... -- -- -- 2,689,888 -- Cash dividends declared, $.453 per share............ -- -- -- (816,000) -- Reversal of unrealized loss on mutual fund investment................................... -- -- -- -- 70,000 Recognize net unrealized gain on available-for-sale securities..................... -- -- -- -- 75,916 BALANCE, DECEMBER 31, 1993.......................... 1,200,000 3,000,000 900,000 18,247,517 75,916 Net income, 1994.................................... -- -- -- 2,826,866 -- Cash dividends declared, $.467 per share............ -- -- -- (840,000) -- Change in net unrealized gains (losses) on available-for-sale securities..................... -- -- -- -- (831,169) BALANCE, DECEMBER 31, 1994.......................... 1,200,000 3,000,000 900,000 20,234,383 (755,253) Net income, 1995.................................... -- -- -- 2,700,457 -- Cash dividends declared, $.52 per share............. -- -- -- (935,017) -- Three-for-two stock split effected in the form of a 50% stock dividend................................ 599,968 1,499,920 (900,000) (599,920) -- Cash paid for fractional shares..................... -- -- -- (768) -- Common stock issued through dividend reinvestment plan................................. 1,227 3,068 18,705 -- -- Common stock repurchased............................ (3,200) (8,000) -- (44,800) -- Change in net unrealized gains (losses) on available-for-sale securities..................... -- -- -- -- 882,296 BALANCE, DECEMBER 31, 1995.......................... 1,797,995 $4,494,988 $ 18,705 $21,354,335 $ 127,043
See notes to consolidated financial statements. 24 FNB CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31 1995 1994 1993 OPERATING ACTIVITIES Net income........................................................... $ 2,700,457 $ 2,826,866 $ 2,689,888 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises and equipment............ 397,979 408,730 415,971 Provision for loan losses.......................................... 515,000 220,000 370,000 Deferred income taxes.............................................. 36,206 295,558 (57,690) Deferred loan fees and costs, net.................................. (130,477) (504,202) 12,986 Premium amortization and discount accretion of investment securities, net.................................................. 157,127 417,395 571,730 Losses on sales of investment securities........................... 414,596 -- -- Amortization of intangibles........................................ 59,115 78,107 100,171 Net decrease (increase) in loans held for sale..................... (405,503) 1,089,594 (989,094) Decrease (increase) in other assets................................ (557,531) (273,155) 93,412 Increase (decrease) in other liabilities........................... 732,884 320,447 (109,077) Net Cash Provided By Operating Activities........................ 3,919,853 4,879,340 3,098,297 INVESTING ACTIVITIES Available-for-sale securities: Proceeds from sales................................................ 5,896,328 -- -- Proceeds from maturities........................................... 2,659,634 6,690,357 -- Purchases.......................................................... (249,405) (3,400,725) -- Held-to-maturity securities: Proceeds from maturities........................................... 21,184,527 18,249,914 34,125,117 Purchases.......................................................... (36,279,578) (21,708,597) (31,966,917) Net increase in loans................................................ (11,376,742) (11,743,814) (9,684,761) Proceeds from sales of premises and equipment........................ 2,718 183,292 8,265 Purchases of premises and equipment.................................. (1,302,230) (239,939) (503,150) Other, net........................................................... (26,031) (213,423) (66,493) Net Cash Used In Investing Activities............................ (19,490,779) (12,182,935) (8,087,939) FINANCING ACTIVITIES Net increase in deposits............................................. 20,219,164 5,665,256 781,846 Increase in retail repurchase agreements............................. 1,115,301 3,526,226 -- Increase (decrease) in federal funds purchased....................... (3,050,000) 1,250,000 1,800,000 Common stock issued.................................................. 21,773 -- -- Common stock repurchased............................................. (52,800) -- -- Cash dividends and fractional shares paid............................ (666,086) (840,000) (816,000) Net Cash Provided By Financing Activities........................ 17,587,352 9,601,482 1,765,846 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... 2,016,426 2,297,887 (3,223,796) Cash and cash equivalents at beginning of year......................... 9,348,113 7,050,226 10,274,022 CASH AND CASH EQUIVALENTS AT END OF YEAR............................... $ 11,364,539 $ 9,348,113 $ 7,050,226 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest........................................................... $ 8,233,042 $ 6,911,446 $ 7,050,559 Income taxes....................................................... 1,075,350 749,993 1,318,848 Noncash investing and financing activity -- Transfer of investment securities to available-for-sale category............................ 11,353,710 -- 29,318,080
See notes to consolidated financial statements. 25 FNB CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS/CONSOLIDATION FNB Corp. is a one-bank holding company whose wholly-owned subsidiary is the First National Bank and Trust Company (the "Bank"). The Bank is an independent community bank that offers full banking and trust services to consumer and business customers primarily in the region of North Carolina that includes Randolph, Montgomery and Chatham counties. The consolidated financial statements include the accounts of FNB Corp. and the Bank (collectively the "Corporation"). All significant intercompany balances and transactions have been eliminated. The preparation of the consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. INVESTMENT SECURITIES In May 1993, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 addresses the reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. These investments are to be categorized and accounted for as follows: (Bullet) Held-to-maturity securities -- Debt securities that the Corporation has the positive intent and ability to hold to maturity. Reported at amortized cost. (Bullet) Trading securities -- Debt and equity securities bought and held principally for the purpose of being sold in the near future. Reported at fair value, with unrealized gains and losses included in earnings. (Bullet) Available-for-sale securities -- Debt and equity securities not classified as either held-to-maturity securities or trading securities. Reported at fair value, with unrealized gains and losses, net of related tax effect, excluded from earnings and reported as a separate component of shareholders' equity. Effective December 31, 1993, the Corporation adopted SFAS No. 115 and classified certain debt and equity securities as available-for-sale securities. As a result of this change in accounting principle, the carrying value of the securities so classified was increased by a fair value adjustment of $115,025, representing the net unrealized gain at December 31, 1993. In related adjustments, shareholders' equity and deferred income tax liabilities were increased by $75,916 and $39,109, respectively. The Corporation intends to hold the available-for-sale securities for an indefinite period of time but may sell them prior to maturity. All other securities, which the Corporation has the positive intent and ability to hold to maturity, are classified as held-to-maturity securities. In November 1995, the FASB issued an implementation guide for SFAS No. 115. The FASB stated that the transition provisions included in the guide permit a one-time opportunity for companies to reconsider their ability and intent to hold the securities accounted for under SFAS No. 115 to maturity and allow entities to transfer securities from the held-to-maturity category without tainting their remaining held-to-maturity securities. The FASB emphasized that this would be a one-time event and that any transfers from the held-to-maturity category to the available-for-sale category under this provision must be made by December 31, 1995. The Corporation transferred $11,353,710 in investment securities from the held-to-maturity category to the available-for-sale category as allowed under the provisions of the implementation guide. On the date of the transfer, the held-to-maturity securities were recorded as available-for-sale securities at their current fair value, which resulted in the recognition of an unrealized gain of $54,908 being recorded, net of the related tax effect, as an addition to shareholders' equity. Interest income on debt securities is adjusted using the level yield method for the amortization of premiums and accretion of discounts. The adjusted cost of the specific security is used to compute gains or losses on the disposition of securities. Prior to December 31, 1993, a mutual fund investment was carried at the lower of cost or market. An adjustment to the valuation of this investment had been established by a charge to shareholders' equity. In conjunction with the adoption of SFAS No. 115, the valuation adjustment was reversed. 26 FNB CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LOANS Effective January 1, 1995, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures". Under SFAS No. 114, the 1995 allowance for loan losses relating to loans that are determined to be impaired is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. The Corporation previously measured loan impairment in a method generally comparable to the methods prescribed in SFAS No. 114. Accordingly, no additional provisions for loan losses were required as a result of the adoption of SFAS No. 114. Unearned income on certain installment loans is recognized as income over the life of the loans by the sum-of-the-months'-digits method which is not materially different from the interest method. Interest on all other loans is calculated by using the constant yield method based on the daily outstanding balance. The recognition of interest revenue, including interest income on impaired loans, is discontinued when, in management's opinion, the collection of all or a portion of interest becomes doubtful. Loan fees and the incremental direct costs associated with making loans are deferred and subsequently recognized over the life of the loan as an adjustment of interest income. Residential mortgage loans held for sale are valued at the lower of cost or market as determined by outstanding commitments from investors or current investor yield requirements, calculated on the aggregate loan basis. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses represents an amount considered adequate to absorb loan losses inherent in the portfolio. Management's evaluation of the adequacy of the allowance is based on a review of individual loans, historical loan loss experience, the value and adequacy of collateral, and economic conditions in the Bank's market area. Losses are charged and recoveries are credited to the allowance for loan losses. This evaluation is inherently subjective as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize changes to the allowance based on their judgments about information available to them at the time of their examination. PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using both straight-line and accelerated methods based on the estimated useful lives of the assets as follows: buildings and components, 10 to 50 years and furniture and equipment, 3 to 10 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated life of the improvement or the term of the lease. INTANGIBLE ASSETS Deposit base premiums, arising from deposit and branch purchase acquisitions, amounted to $143,579 and $202,694 at December 31, 1995 and 1994, respectively, and are included in other assets. The premium amounts are amortized on an accelerated basis over ten-year periods. INCOME TAXES Income tax expense includes both a current provision based on the amounts computed for income tax return purposes and a deferred provision that results from application of the asset and liability method of accounting for deferred taxes. Under the asset and liability method, deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of the Corporation's assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. EMPLOYEE BENEFIT PLANS The Corporation has a defined benefit pension plan covering substantially all full-time employees. Pension costs, which are actuarially determined using the projected unit credit method, are charged to current operations. Annual funding contributions are made up to the maximum amounts allowable for Federal income tax purposes. 27 FNB CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Medical and life insurance benefits are provided by the Corporation on a postretirement basis under defined benefit plans covering substantially all full-time employees. Postretirement benefit costs, which are actuarially determined using the attribution method and recorded on an unfunded basis, are charged to current operations and credited to a liability account on the consolidated balance sheet. RECLASSIFICATIONS AND RESTATEMENTS Certain amounts for prior years have been reclassified to conform with the presentation for 1995. The reclassifications had no effect on shareholders' equity or net income as previously reported. Share and per share information in the consolidated financial statements and related notes thereto have been restated, where appropriate, to reflect the three-for-two common stock split effected in the form of a 50% stock dividend paid to shareholders on May 26, 1995. 2. INVESTMENT SECURITIES Summaries of the amortized cost and estimated fair value of investment securities and the related gross unrealized gains and losses are presented below:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value AVAILABLE FOR SALE DECEMBER 31, 1995 U.S. Treasury....................................... $ 9,439,250 $134,291 $ 8,658 $ 9,564,883 U.S. Government agencies and corporations........... 8,604,302 49,133 12,213 8,641,222 Mortgage-backed securities.......................... 9,995,875 51,692 27,617 10,019,950 Equity securities................................... 143,728 5,862 -- 149,590 Total............................................. $28,183,155 $240,978 $ 48,488 $28,375,645 DECEMBER 31, 1994 U.S. Treasury....................................... $ 8,009,763 $ 1,374 $ 246,699 $ 7,764,438 Mortgage-backed securities.......................... 12,557,862 2,074 451,834 12,108,102 Equity securities................................... 5,145,734 762 450,000 4,696,496 Total............................................. $25,713,359 $ 4,210 $1,148,533 $24,569,036 HELD TO MATURITY DECEMBER 31, 1995 U.S. Government agencies and corporations........... $43,975,874 $466,103 $ 54,515 $44,387,462 State, county and municipal......................... 12,184,940 447,387 11,553 12,620,774 Total............................................. $56,160,814 $913,490 $ 66,068 $57,008,236 DECEMBER 31, 1994 U.S. Treasury....................................... $ 7,702,064 $ 4,231 $ 92,599 $ 7,613,696 U.S. Government agencies and corporations........... 34,361,214 10,098 1,463,032 32,908,280 State, county and municipal......................... 10,350,916 129,679 193,061 10,287,534 Total............................................. $52,414,194 $144,008 $1,748,692 $50,809,510
28 FNB CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The amortized cost and estimated fair value of investment securities at December 31, 1995, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.
Available For Sale Held To Maturity Amortized Estimated Amortized Estimated Cost Fair Value Cost Fair Value Due in one year or less......................... $ 7,048,463 $ 7,099,115 $ 4,057,491 $ 4,075,193 Due after one year through five years........... 10,545,089 10,655,169 26,390,055 26,723,157 Due after five years through ten years.......... 450,000 451,821 21,980,455 22,381,731 Due after ten years............................. -- -- 3,732,813 3,828,155 Total..................................... 18,043,552 18,206,105 56,160,814 57,008,236 Mortgage-backed securities...................... 9,995,875 10,019,950 -- -- Equity securities............................... 143,728 149,590 -- -- Total investment securities............... $28,183,155 $28,375,645 $56,160,814 $57,008,236
Debt securities with an estimated fair value of $46,887,507 were pledged to secure public funds and trust funds on deposit and retail repurchase agreements at December 31, 1995. Proceeds from the sale of investment securities classified as available-for-sale amounted to $5,896,328 in 1995. Gross losses of $414,596 were realized on these sales. There were no securities sales in 1994 and 1993. 3. LOANS Major classifications of loans are as follows:
December 31 1995 1994 Commercial and agricultural................................................ $ 47,317,352 $ 41,776,681 Real estate -- construction................................................ 759,263 1,331,342 Real estate -- mortgage: Loans held in portfolio.................................................. 85,061,216 79,168,845 Loans held for sale...................................................... 405,503 -- Consumer................................................................... 46,379,403 46,050,953 Total loans............................................................ $179,922,737 $168,327,821
Loans as presented are increased by net deferred expense of $133,400 at December 31, 1995 and are reduced by net unearned income of $944,168 at December 31, 1994. Nonaccrual loans at December 31, 1995 amounted to $25,576. There were no loans on a nonaccrual basis at December 31, 1994. Lost interest income on nonaccrual loans was not material. Under the criteria of SFAS No. 114, as discussed in Note 1, there were no loans considered to be impaired at December 31, 1995. Loans are primarily made in the region of North Carolina that includes Randolph, Montgomery and Chatham counties. The real estate loan portfolio can be affected by the condition of the local real estate markets. Included in loans at December 31, 1995 and 1994 are $33,525,143 and $35,412,788, respectively, of retail installment loan contracts purchased primarily from automobile dealers. 29 FNB CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Loans have been made by the Bank to directors and executive officers of the Corporation and to the associates of such persons, as defined by the Securities and Exchange Commission. Such loans were made in the ordinary course of business on substantially the same terms, including rate and collateral, as those prevailing at the time in comparable transactions with other borrowers and do not involve more than normal risk of collectibility. A summary of the activity during 1995 with respect to related party loans is as follows: Balance, December 31, 1994............................................... $ 7,827,086 New loans during 1995.................................................... 21,865,682 Repayments during 1995................................................... (21,080,548) Balance, December 31, 1995............................................... $ 8,612,220
4. ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses were as follows:
Year Ended December 31 1995 1994 1993 Balance at beginning of year....................................... $1,719,717 $1,744,820 $1,766,193 Provision for losses charged to operations......................... 515,000 220,000 370,000 Loans charged off.................................................. (476,977) (436,157) (566,791) Recoveries on loans previously charged off......................... 144,900 191,054 175,418 Balance at end of year............................................. $1,902,640 $1,719,717 $1,744,820
5. PREMISES AND EQUIPMENT Premises and equipment are summarized as follows:
December 31 1995 1994 Land........................................................................... $ 1,003,619 $1,003,619 Buildings and improvements..................................................... 4,045,155 3,986,315 Furniture and equipment........................................................ 4,572,809 3,360,975 Leasehold improvements......................................................... 394,390 394,390 Total.................................................................... 10,015,973 8,745,299 Less accumulated depreciation and amortization................................. 3,986,432 3,720,777 Premises and equipment, net.................................................... $ 6,029,541 $5,024,522
6. INCOME TAXES Income taxes as reported in the consolidated income statement included the following expense (benefit) components:
1995 1994 1993 Current: Federal.......................................................... $1,045,564 $ 818,773 $1,063,542 State............................................................ 18,795 45,055 -- Total.......................................................... 1,064,359 863,828 1,063,542 Deferred -- Federal................................................ 36,206 295,558 (57,690) Total income taxes............................................. $1,100,565 $1,159,386 $1,005,852
30 FNB CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A reconciliation of income tax expense computed at the statutory Federal income tax rate to actual income tax expense is presented below:
1995 1994 1993 Amount of tax computed using Federal statutory tax rate of 34%..... $1,292,348 $1,355,326 $1,256,552 Increases (decreases) resulting from: Effect of tax-exempt loan and investment securities income....... (213,390) (233,114) (253,801) Other............................................................ 21,607 37,174 3,101 Total.......................................................... $1,100,565 $1,159,386 $1,005,852
The sources of deferred tax assets and liabilities and the tax effect of each are as follows:
December 31 1995 1994 Deferred tax assets: Allowance for loan losses...................................................... $473,370 $ 411,177 Net unrealized loss on available-for-sale securities........................... -- 389,070 Accrued expenses, not currently deductible..................................... 326,010 331,794 Other.......................................................................... 73,001 64,158 Total........................................................................ 872,381 1,196,199 Deferred tax liabilities: Depreciable basis of premises and equipment.................................... 236,963 224,994 Taxable basis of investment securities......................................... 47,066 237,413 Prepaid pension cost........................................................... 250,717 126,770 Net deferred loan fees and costs............................................... 309,318 157,584 Other.......................................................................... 74,587 4,985 Total........................................................................ 918,651 751,746 Net deferred tax assets (liabilities)............................................ $(46,270) $ 444,453
There is no valuation allowance for deferred tax assets as it is management's contention that realization of the deferred tax assets is more likely than not based upon the Corporation's history of taxable income and estimates of future taxable income. 7. EMPLOYEE BENEFIT PLANS PENSION PLAN The Corporation has a noncontributory defined benefit pension plan covering substantially all full-time employees who qualify as to age and length of service. Benefits are based on the employee's compensation, years of service and age at retirement. The Corporation's funding policy is to contribute annually to the plan an amount which is not less than the minimum amount required by the Employee Retirement Income Security Act of 1974 and not more than the maximum amount deductible for income tax purposes. 31 FNB CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Information concerning the funded status of the plan is as follows:
December 31 1995 1994 Actuarial present value of benefit obligation: Vested benefit obligation................................................... $ 4,059,993 $ 3,079,017 Non-vested benefit obligation............................................... 40,180 19,385 Total accumulated benefit obligation...................................... $ 4,100,173 $ 3,098,402 Projected benefit obligation for service rendered............................. $(4,706,895) $(3,793,730) Plan assets at fair value, primarily marketable securities.................... 4,428,752 3,360,752 Projected benefit obligation in excess of plan assets......................... (278,143) (432,978) Unrecognized net transition liability......................................... 128,844 150,319 Unrecognized prior service cost............................................... 720,672 800,747 Unrecognized net loss (gain).................................................. 166,029 (145,235) Prepaid pension cost included on the consolidated balance sheet........... $ 737,402 $ 372,853
Net periodic pension cost included the following components:
1995 1994 1993 Service cost -- benefits earned during the period..................... $ 71,275 $ 82,674 $ 96,954 Interest cost on projected benefit obligation......................... 311,432 280,736 269,063 Actual return on plan assets.......................................... (458,088) 101,768 (271,289) Net amortization and deferral......................................... 290,002 (279,824) 123,188 Net periodic pension cost......................................... $ 214,621 $ 185,354 $ 217,916
The rates used in determining the actuarial present value of the projected benefit obligation were as follows:
1995 1994 1993 Discount rate........................................................................ 7.0% 8.0% 7.5% Rate of increase in compensation levels.............................................. 6.0 6.0 6.0 Expected long-term rate of return on plan assets..................................... 8.0 8.0 8.0
OTHER POSTRETIREMENT DEFINED BENEFIT PLANS The Corporation has postretirement medical and life insurance plans covering substantially all full-time employees who qualify as to age and length of service. The medical plan is contributory, with retiree contributions adjusted whenever medical insurance rates change. The life insurance plan is noncontributory. Information reconciling the plans, which are unfunded, with the amount included on the consolidated balance sheet is as follows:
December 31 1995 1994 Accumulated postretirement benefit obligation: Retirees........................................................................ $(330,919) $(288,503) Fully eligible active participants.............................................. (25,500) (79,915) Other active plan participants.................................................. (173,295) (86,610) Total accumulated postretirement benefit obligation........................... (529,714) (455,028) Unrecognized net transition liability............................................. 343,720 363,938 Unrecognized prior service cost................................................... 97,673 -- Unrecognized net loss (gain)...................................................... (18,285) 26,124 Accrued postretirement benefit cost included on the consolidated balance sheet......................................................................... $(106,606) $ (64,966)
32 FNB CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net periodic postretirement benefit cost included the following components:
1995 1994 1993 Service cost -- benefits earned during the period.......................... $12,523 $ 6,880 $ 6,727 Interest cost on accumulated postretirement benefit obligation............. 35,998 34,468 35,095 Net amortization and deferral.............................................. 28,239 20,218 20,218 Net periodic postretirement benefit cost............................... $76,760 $61,566 $62,040
For measurement purposes, the annual rate of increase assumed for the cost of medical benefits was 15% in 1995, decreasing gradually to 6% in 2004 and assumed to remain at that level thereafter. Increasing the assumed medical cost trend rate by one percentage point in each year would not have a significant effect on either the accumulated postretirement benefit obligation at January 1, 1995 or the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 1995. The discount rate used in determining the accumulated postretirement benefit obligation was 7.0% in 1995, 8.0% in 1994 and 7.5% in 1993. MATCHING RETIREMENT/SAVINGS PLAN The Corporation has a matching retirement/savings plan which permits eligible employees to make contributions to the plan up to a specified percentage of compensation as defined by the plan. A portion of the employee contributions are matched by the Corporation based on the plan formula. The matching contributions amounted to $77,835 in 1995, $71,484 in 1994 and $75,599 in 1993. 8. LEASES Future obligations for minimum rentals under noncancellable operating lease commitments, all relating to premises, are as follows:
Year ending December 31 1996........................................................................................... $ 46,754 1997........................................................................................... 43,581 1998........................................................................................... 43,581 1999........................................................................................... 43,581 2000........................................................................................... 14,100 2001 and later years........................................................................... 49,550 Total minimum lease payments............................................................... $241,147
Net rental expense for all operating leases amounted to $55,122 in 1995, $50,908 in 1994 and $51,370 in 1993. One operating lease for real property contains a purchase option considered to approximate fair market value. 9. SUPPLEMENTARY INCOME STATEMENT INFORMATION Significant components of other expense were as follows:
1995 1994 1993 FDIC insurance.......................................................... $281,894 $503,379 $494,312 Stationery, printing and supplies....................................... 280,665 304,997 290,810
33 FNB CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. FNB CORP. (PARENT COMPANY) FINANCIAL DATA The Parent Company's principal asset is its investment in the Bank subsidiary, and its principal source of income is dividends from that subsidiary. Certain regulatory requirements restrict the lending of funds by the Bank to the Parent Company and the amount of dividends which can be paid to the Parent Company. In 1996, the maximum amount of dividends the Bank can pay to the Parent Company, without the approval of the Comptroller of the Currency, is $3,591,531 plus an additional amount equal to the retained net income in 1996 up to the date of any dividend declaration. The Parent Company's condensed balance sheets as of December 31, 1995 and 1994, and the related condensed statements of income and cash flows for the three-year period ended December 31, 1995 are as follows: CONDENSED BALANCE SHEETS
December 31 1995 1994 Assets: Cash........................................................................ $ 220,312 $ 201,744 Investment in wholly-owned bank subsidiary.................................. 25,758,036 22,978,009 Other assets................................................................ 286,422 199,377 Total assets.............................................................. $26,264,770 $23,379,130 Liabilities and Shareholders' Equity: Accrued liabilities......................................................... $ 269,699 $ -- Shareholders' equity........................................................ 25,995,071 23,379,130 Total liabilities and shareholders' equity................................ $26,264,770 $23,379,130
CONDENSED STATEMENTS OF INCOME
Year Ended December 31 1995 1994 1993 Income: Dividends from bank subsidiary................................... $ 936,000 $1,146,000 $ 816,000 Other income (expense)........................................... (315) 1,345 887 Total income................................................... 935,685 1,147,345 816,887 Operating expenses................................................. 201,916 21,017 7,277 Income before income tax benefit and equity in undistributed net income of bank subsidiary........................................ 733,769 1,126,328 809,610 Income tax benefit................................................. 68,957 6,738 2,173 Income before equity in undistributed net income of bank subsidiary....................................................... 802,726 1,133,066 811,783 Equity in undistributed net income of bank subsidiary.............. 1,897,731 1,693,800 1,878,105 Net income..................................................... $2,700,457 $2,826,866 $2,689,888
34 FNB CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31 1995 1994 1993 Operating activities: Net income..................................................... $ 2,700,457 $ 2,826,866 $ 2,689,888 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of bank subsidiary........ (1,897,731) (1,693,800) (1,878,105) Other, net................................................... (82,601) (2,245) 6,747 Net cash provided by operating activities.................. 720,125 1,130,821 818,530 Investing activities: Decrease (increase) in other assets............................ (4,444) (180,112) 62 Financing activities: Common stock issued............................................ 21,773 -- -- Common stock repurchased....................................... (52,800) -- -- Cash dividends and fractional shares paid...................... (666,086) (840,000) (816,000) Net cash used in financing activities...................... (697,113) (840,000) (816,000) Net increase in cash............................................. 18,568 110,709 2,592 Cash at beginning of year........................................ 201,744 91,035 88,443 Cash at end of year.............................................. $ 220,312 $ 201,744 $ 91,035
11. STOCK OPTIONS The Corporation has a stock compensation plan that allows for the granting of incentive and nonqualified stock options to key employees and directors. Under terms of the plan, options are granted at prices equal to the fair market value of the common stock on the date of grant. Options become exercisable after one year in equal, cumulative installments over a five-year period. No option shall expire later than ten years from the date of grant. A maximum of 180,000 shares of common stock has been reserved for issuance under the stock compensation plan. A summary of stock option activity during 1995, adjusted to reflect the stock split disclosed in Note 1, is as follows:
Options Option Price Outstanding Per Share Balance, December 31, 1994................................................... 66,000 $ 16.27 Granted...................................................................... 40,000 24.00 Cancelled.................................................................... (8,625) 16.27 Balance, December 31, 1995................................................... 97,375 16.27 - 24.00 Options exercisable.......................................................... 11,475 16.27
12. COMMITMENTS In the normal course of business, various commitments are outstanding that are not reflected in the consolidated financial statements. At December 31, 1995, a summary of significant commitments is as follows: Commitments to extend credit.............................................. $37,737,000 Standby letters of credit................................................. 3,992,000
In management's opinion, these commitments will be funded from normal operations with not more than the normal risk of loss. 35 FNB CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Bank is required to maintain average reserve balances with the Federal Reserve Bank based on a percentage of deposits. For the reserve maintenance period in effect at December 31, 1995, the average daily reserve requirement was $2,923,000. 13. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value for each class of financial instruments. CASH AND CASH EQUIVALENTS. For cash on hand, amounts due from banks, and federal funds sold, the carrying value is considered to be a reasonable estimate of fair value. INVESTMENT SECURITIES. The fair value of investment securities is based on quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. LOANS. The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. DEPOSITS. The fair value of noninterest-bearing demand deposits and NOW, savings and money market deposits is the amount payable on demand at the reporting date. The fair value of time deposits is estimated using the rates currently offered for deposits of similar remaining maturities. OTHER INTEREST-BEARING LIABILITIES. The carrying value of retail repurchase agreements and federal funds purchased is considered to be a reasonable estimate of fair value. COMMITMENTS. The fair value of commitments to extend credit is considered to approximate carrying value, since the large majority of these commitments would result in loans that have variable rates and/or relatively short terms to maturity. For other commitments, generally of a short-term nature, the carrying value is considered to be a reasonable estimate of fair value. The various commitment items are disclosed in Note 12. The estimated fair values of financial instruments are as follows (in thousands):
December 31, 1995 December 31, 1994 Estimated Estimated Carrying Fair Carrying Fair Value Value Value Value FINANCIAL ASSETS Cash and cash equivalents................................. $ 11,365 $ 11,365 $ 9,348 $ 9,348 Investment securities: Available for sale...................................... 28,375 28,375 24,569 24,569 Held to maturity........................................ 56,161 57,008 52,414 50,810 Net loans................................................. 178,020 179,173 166,608 163,250 FINANCIAL LIABILITIES Deposits.................................................. 250,144 250,795 229,925 229,861 Retail repurchase agreements.............................. 4,642 4,642 3,526 3,526 Federal funds purchased................................... -- -- 3,050 3,050
The fair value estimates are made at a specific point in time based on relevant market and other information about the financial instruments. Because no market exists for a significant portion of the Corporation's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and such other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. 36 FNB CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. RESTRUCTURING CHARGES In 1995, management adopted a comprehensive restructuring project for the purpose of reengineering Bank operations to become more competitive and cost-effective in developing business and servicing customers and to improve long-term profitability. In connection with this project, certain positions within the Bank have been either realigned or eliminated. It is expected that all significant project costs were incurred and paid in 1995. A summary of the restructuring charges is as follows: Retirement benefits............................................................................... $256,266 Other personnel costs............................................................................. 44,850 Total personnel costs......................................................................... 301,116 Professional fees related to restructuring project................................................ 159,341 Total restructuring charges................................................................... $460,457
15. ACQUISITIONS On December 30, 1993, the Corporation entered into definitive agreements to acquire two mutual savings banks, Home Savings Bank of Siler City, SSB of Siler City, North Carolina and Randleman Savings Bank, SSB of Randleman, North Carolina, in merger/conversion transactions, pursuant to which the savings banks would convert from mutual to stock form and the Corporation would simultaneously acquire the shares issued in the conversions. Regulatory applications for approval to consummate the proposed acquisitions were filed in April 1994. Substantial changes in regulatory policy occurring shortly after the applications were filed effectively resulted in a moratorium on federal approval of merger/conversions, and the Corporation subsequently withdrew the applications to the FDIC and the Federal Reserve and postponed the ultimate decision to proceed with the acquisitions until it was clear what the regulatory obstacles might be. In 1995, the agreements expired without the acquisitions having been completed due to changes in federal and state regulatory policies which strictly limited the circumstances under which such transactions would be permitted. The Corporation incurred certain costs in connection with the proposed acquisitions. Those costs, which had been deferred, amounted to $186,350 and are included in other expense in the consolidated statement of income for the year ended December 31, 1995. 37 GENERAL INFORMATION CORPORATE HEADQUARTERS FNB Corp. 101 Sunset Avenue Post Office Box 1328 Asheboro, North Carolina 27204 COMMON STOCK FNB Corp. Common stock is traded on the NASDAQ National Market System under the symbol FNBN. At December 31, 1995, there were 1,049 shareholders of record. MARKET MAKERS Interstate/Johnson Lane Corporation J. C. Bradford & Co., Incorporated ANNUAL MEETING The annual Meeting of Shareholders of FNB Corp. will be held at the AVS Banquet Centre, 2045 North Fayetteville Street, Asheboro, North Carolina, on Tuesday, May 14, 1996 at 1:00 p.m., preceded by a buffet luncheon beginning at 12:15 p.m. FORM 10-KSB Copies of the FNB Corp. Annual Report to the Securities and Exchange Commission on Form 10-KSB may be obtained by any shareholder upon written request to Jerry A. Little, Treasurer. EQUAL OPPORTUNITY EMPLOYER FNB Corp. and First National Bank and Trust Company are equal opportunity employers. All matters regarding recruiting, hiring, training, compensation, benefits, promotions, transfers and all other personnel policies will continue to be free from all discriminatory practices. STOCK TRANSFER AGENT AND REGISTRAR DIVIDEND REINVESTMENT SERVICES First National Bank and Trust Company Post Office Box 1328 Asheboro, North Carolina 27204 Attention: Mrs. Susan G. Brown, Assistant Secretary (910) 626-8300 INDEPENDENT AUDITORS KPMG Peat Marwick LLP Greensboro, North Carolina FNB CORP. P.O. Box 1328 Asheboro, N.C. 27204 EX-21 4 EXHIBIT 21 EXHIBIT 21 Subsidiaries of the Registrant The Registrant has one direct, wholly-owned subsidiary as follows: First National Bank and Trust Company - National banking association headquartered in the State of North Carolina. EX-23 5 EXHIBIT 23 EXHIBIT 23 Consent of Independent Auditors The Board of Directors FNB Corp. We consent to incorporation by reference in the registration statement (No. 33-72686) on Form S-8 of FNB Corp. of our report dated February 2, 1996, relating to the consolidated balance sheets of FNB Corp. and subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995, which report appears in the December 31, 1995 annual report on Form 10-KSB of FNB Corp. Our report refers to the fact that on December 31, 1993, FNB Corp. adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". KPMG PEAT MARWICK LLP Greensboro, North Carolina March 29, 1996 EX-27 6 EXHIBIT 27
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1995 DEC-31-1995 8,764,539 0 2,600,000 0 28,375,645 56,160,814 0 179,922,737 1,902,640 283,678,112 250,144,476 4,641,527 2,897,038 0 0 4,494,988 0 21,500,083 283,678,112 15,638,486 4,790,204 177,071 20,605,761 8,821,404 9,002,279 11,603,482 515,000 (414,596) 9,113,626 3,801,022 3,801,022 0 0 2,700,457 1.50 1.50 4.58 26,000 317,000 0 0 1,720,000 477,000 145,000 1,903,000 1,660,000 0 243,000
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