Item 1. Business
General. Subsequent to December 31, 1995, The Board of Directors of First National Bank (the "Bank") approved a reorganization whereby a bank holding company (FNB Corporation) was incorporated under the laws of the Commonwealth of Virginia. On June 11, 1996, the shareholders of the Bank approved a plan for the holding company to exchange one share of its stock for each share of stock of the Bank. A registration statement was filed with the Securities and Exchange Commission (SEC) to register the stock of the holding company, and such registration statement was subsequently declared effective by the SEC. On July 11, 1996, the Office of the Comptroller of the Currency (OCC) approved the plan, and the exchange was subsequently consummated. As a result, the Bank became a wholly owned subsidiary of the holding company during the third quarter of 1996, and the holding company began filing periodic reports under the Securities Exchange Act of 1934. Prior to the consummation of the exchange, the Bank filed periodic reports with the OCC.
The financial statements included herein reflect the balances and activity of the Bank and its subsidiaries for periods ending prior to the consummation of the reorganization and of the holding company and its subsidiaries (collectively, the "Corporation")for periods ending subsequent to the reorganization. The exchange of stock was accounted for using the pooling of interests method. That is, the bases of the assets and liabilities of the Bank prior to the reorganization were carried forward without adjustment. Because of this, and because the holding company's revenues, expenses and changes in financial position subsequent to the reorganization have been minimal, the consolidated financial statements for periods subsequent to the reorganization are comparable to those for periods prior to the reorganization.
First National Bank, which was organized in 1905, does a general banking business, serving the commercial, agricultural, and personal banking needs of its trade territory, commonly referred to as the New River Valley, which consists of Montgomery County, Virginia and portions of adjacent counties. The Bank engages in and offers a full range of banking services, including trust services; demand, savings, and time deposits used to fund the loan demand in our trade area; commercial, farm, consumer installment, mortgage, credit card, FHA and SBA guaranteed loans.
Under national banking law, nontraditional activities of a bank must be operated through a corporate subsidiary of the bank. During 1992, FNB formed a wholly-owned subsidiary in order to expand its business operations. FNB Financial Services, Inc. is a member of the Virginia Title Center, L.L.C. and acts as an agent in the issuance of title insurance policies. Additionally, this subsidiary has been licensed by the Commonwealth of Virginia to offer annuity products through First National's Trust Department. Any reference in this report to the operations of the Corporation shall include the activities of FNB Financial Services, Inc.
The local economy is tied primarily to the area's three largest employers - Virginia Polytechnic Institute and State University, with a student population in excess of 23,000; Radford University, with a student population in excess of 9,000; and the Radford Arsenal, a large munitions plant operated under contract to the U.S. Army by the Hercules Corporation. Other industries
include a wide variety of manufacturing concerns and agriculture-related enterprises. The Bank's main office is located in Christiansburg, the County Seat, with offices strategically located to take advantage of its trade area's population mix. Of the Bank's ten full service offices, eight are located in Montgomery County, one in the City of Radford and one in the Town of Dublin. One paying and receiving office is located in Montgomery County.
Refer to the Corporation's 1997 Annual Report to Stockholders under the heading "Selected Consolidated Financial Information" for a five year summary of selected consolidated financial information which is incorporated by reference into this Form 10-K.
Construction of a new corporate headquarters facility was completed during the first quarter of 1997.
Competition. The Corporation is the largest bank in the area, with approximately 65 percent of those deposits held by independent banks. It is estimated that the Corporation holds 37 percent of total deposits in its trade area including the offices of those state-wide and multi-state bank holding companies located in our trade area. Competition in the trade area consists of seven state-wide and multi-state bank holding companies, one independent bank, two offices of a regional bank, and five credit unions.
Loan Commitments. The portfolio is not concentrated within any single industry or group of related industries, nor is there any material risk other than that which is expected in the normal course of business of a bank in this location. Corporation policy establishes lending limits for each officer. Loan requests for amounts exceeding loan officer lending authority are referred to the officer loan committee which can approve loans up to 80% of the bank's legal lending limit. Loan requests exceeding this limit are referred to the Executive Committee of the Board of Directors. The following table relates outstanding loans for the dates indicated (in thousands):
The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.
The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
Unless noted otherwise, the Corporation does not require collateral or other security to support the following financial instruments with credit risk (in thousands):
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management's credit evaluation of the customer. Collateral held varies but may include securities, accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral held varies but may include securities, accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.
Deposit Concentrations. The Corporation's deposits are obtained from a wide range of depositors. There are no material concentrations of deposits from any individual or organization.
Employees. The Corporation had 204 full-time equivalent employees as of December 31, 1997, of which 63 were officers.
Securities Act Guide 3. Statistical Disclosure by Bank Holding Companies. The following schedules are included:
Average Balance Sheets Rate/Volume Variance Securities Available-For-Sale at Fair Value Securities Held-To-Maturity at Amortized Cost Securities--Maturity/Yield Schedule Types of Loans Loan Maturities and Interest Sensitivity Nonperforming Assets and Past Due Loans Pro forma/Recorded Interest on Nonaccrual Loans Analysis of Allowance for Loan Losses Allocation of Allowance for Loan Losses Deposit Maturities Interest Sensitivity Analysis
(1) Interest on nonaccrual loans has been included only to the extent reflected in the statements of income. Nonaccrual loans are included in average balances for yield computations. (2) Income and rates on non-taxable loans and securities are computed on a tax equivalent basis using a federal tax rate of 34% for 1997.
(1) Interest on nonaccrual loans has been included only to the extent reflected in the statements of income. Nonaccrual loans are included in average balances for yield computations. (2) Income and rates on non-taxable loans and securities are computed on a tax equivalent basis using a federal tax rate of 34% for 1996.
(1) Interest on nonaccrual loans has been included only to the extent reflected in the statements of income. Nonaccrual loans are included in average balances for yield computations. (2) Income and rates on non-taxable loans and securities are computed on a tax equivalent basis using a federal tax rate of 34% for 1995.
Variances caused by changes in rate times the changes in volume are allocated equally.
(1) Yields on non-taxable investment securities are computed on a tax equivalent basis using a federal tax rate of 34%.
(1) Yields on non-taxable investment securities are computed on a tax equivalent basis using a federal tax rate of 34%.
Interest related to nonaccrual loans is recognized on the cash basis. Loans are generally placed on nonaccrual status when the collection of principal or interest is 90 days or more past due, unless the obligation is both well-secured and in the process of collection. Pro forma interest represents the amount of interest that would have been recorded if the loans had been current in accordance with their original terms.
Management continually reviews the loan portfolio for signs of deterioration. In making their evaluation of the portfolio, factors considered include the individual strength of borrowers, the strength of the individual industries, the value and marketability of collateral, specific market strengths and weaknesses, and general economic conditions. Management believes that the allowance for loan losses at December 31, 1997 is adequate to cover potential loan losses inherent in the loan portfolio.
Refer to the Bank's 1997 Annual Report to Stockholders under the heading "Selected Consolidated Financial Information" for a five year summary of financial information which includes return on equity, return on assets and other ratios, which is incorporated by reference into this Form 10-K.
Item 2.
Item 2. Properties
The Corporation has ten full service offices and one paying and receiving office at the following locations:
Full Service
1. Christiansburg Office, 50 North Franklin Street, Christiansburg, Virginia, containing 9,000 square feet; 2. Blacksburg Office, 601 North Main Street, Blacksburg, Virginia, containing 8,750 square feet; 3. Riner Office, Route 8, Riner, Virginia, containing 1,600 square feet; 4. Hills Office, l340 Roanoke Street, Christiansburg, Virginia, containing 1,200 square feet; 5. Radford Office, 50 First Street, Radford, Virginia, containing 8,000 square feet; 6. New River Valley Mall Office, 646 New River Road, Christiansburg, Virginia, containing 917 square feet. 7. Corporate Research Center Office, 1872 Pratt Drive, Suite 1125, Blacksburg, Virginia, containing 360 square feet. 8. Shawsville Office, 250 Alleghany Spring Road, Shawsville, Virginia, containing 2,712 square feet. 9. Dublin Office, 2 Town Center Drive, Dublin, Virginia, containing 2,640 square feet. 10. FNB Center, 105 Arbor Drive, Christiansburg, Virginia, containing 72,816 square feet.
Paying and Receiving
11. Foothills Office, 1580 North Franklin Street, Christiansburg, Virginia, containing 652 square feet.
All of such space is used by the Corporation in its operations. The Corporation owns properties 1, 2, 3, 5, 8, 9 and 10 and leases properties 4, 6, 7 and 11 from independent parties on terms which management believes are satisfactory.
Other Real Estate.
Other Real Estate is composed of one residential property. There were no covered transactions.
Item 3.
Item 3. Legal Proceedings
From time to time, the Corporation is a party to lawsuits arising in the normal course of business in which claims for money damages are asserted. Management, after consulting with legal counsel handling the respective matters, is of the opinion that the ultimate outcome of such pending actions, whether or not adverse to the Corporation, will not have a material effect upon the Corporation's financial condition.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of 1997.
PART II
Item 5.
Item 5. Market for the Corporation's Common Stock and Related Security Holder Matters
The Corporation has only one (1) class of Common Stock with a Par Value of $5 per share. There were approximately 1,028 stockholders of record as of December 31, 1997, holding 3,323,800 shares of the authorized 5,000,000 shares. The Corporation's stock is listed on the over-the-counter bulletin board. Trading activity has been light. The recent market prices and other related shareholder data is incorporated by reference into this Form 10-K from the section entitled, "Market Price and Dividend Data," in the Corporation's 1997 Annual Report to Stockholders which is filed as Exhibit 13 to this Annual Report on Form 10-K. The Corporation has consistently paid a semi-annual dividend on its common stock. Beginning in the second quarter of 1997, the dividend payment was changed to a quarterly basis, which is currently anticipated to be the normal frequency for the foreseeable future. There are no known restrictions on the retained earnings that would affect the ability to pay further dividends other than those imposed by regulatory agencies. See Note 13 of the notes to consolidated financial statements in the Corporation's 1997 Annual Report to Stockholders under the caption Dividend Restrictions and Capital Requirements, which is filed as Exhibit 13 to this Form 10-K and is incorporated herein by reference.
Item 6.
Item 6. Selected Financial Data
Selected financial data is located in the Corporation's 1997 Annual Report to Stockholders, which is filed as Exhibit 13 to this Form 10-K, under the caption "Selected Consolidated Financial Information," which is incorporated herein by reference.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations is located in the section of the Corporation's 1997 Annual Report to Stockholders, which is filed as Exhibit 13 to this Form 10-K, under the same heading, and is incorporated herein by reference.
Item 7(A) Quantitative and Qualitative Disclosures About Market Risk
Information regarding market risks is included in the section of the 1997 Annual Report to Stockholders entitled "Market Risks Related to Financial Instruments," which is filed as Exhibit 13 to this Form 10-K and is incorporated herein by reference.
Item 8.
Item 8. Financial Statements and Supplementary Data
The following independent auditors' report, consolidated financial statements, and supplementary financial information included in the Corporation's 1997 Annual Report to Stockholders, which is filed as Exhibit 13 to this Form 10-K, are incorporated herein by reference:
Independent Auditors' Report Consolidated Balance Sheets - December 31, 1997 and 1996 Consolidated Statements of Income - Years ended December 31, 1997, 1996, and 1995 Consolidated Statements of Cash Flows - Years ended December 31, 1997, 1996, and 1995 Consolidated Statements of Changes in Stockholders' Equity - Years ended December 31, 1997, 1996, and 1995 Notes to Consolidated Financial Statements
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Corporation
Information on directors is incorporated by reference from the Corporation's Proxy Statement for the 1998 Annual Meeting of Stockholders under the heading "Election of Directors."
Information on executive officers is incorporated by reference from the Corporation's Proxy Statement for the 1998 Annual Meeting of Stockholders under the heading "Executive Officers of the Corporation."
Election of Directors. A total of 1,463,123 shares of a possible 1,661,900 shares or 88.0 percent of eligible shares were voted at the May 13, 1997, stockholders meeting. No class of voting stock withheld or cast against any nominee for Director in aggregate five percent or more of total shares cast by such class.
Item 11.
Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the Corporation's Proxy Statement for the 1998 Annual Meeting of Stockholders under the heading "Executive Compensation."
Employee Stock Ownership Plan. The Corporation instituted a qualified employee stock ownership plan in 1983 which covers substantially all employees. The Corporation makes periodic contributions to the plan that are used to purchase the Corporation's common stock from available sources. The shares are then allocated among plan participants based upon compensation and years of service. Stock allocated to a particular participant (or its value) is generally distributed upon retirement, death, disability, or (under certain circumstances) attaining a specified age. The plan is administered by a committee appointed by the Corporation's Board of Directors. Information on the Corporation's leveraged ESOP is included in Note 11 of notes to consolidated financial statements, and is incorporated by reference from the Corporation's 1997 Annual Report to Stockholders which is included as Exhibit 13 to this Form 10-K.
Information on compensation of directors compensation committee and executive compensation matters is incorporated by reference from the Corporation's Proxy Statement for the 1998 Annual Meeting of Stockholders under the heading "Board of Directors and Committees of the Board."
The Corporation's performance graph is incorporated by reference from the Corporation's Proxy Statement under the heading "Performance Graph."
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Principal Security Holders. The Corporation knows of no person or group that beneficially owned more than five percent of the outstanding shares of Common Stock as of March 5, 1998.
Executive Officers. The persons currently serving as executive officers of the Corporation, their security ownership, and their length of service with the Corporation and it's predecessor (the Bank), are as follows: Percent of Title and Length Number Shares Owned Outstanding Name (Age) of Service as of 3/5/98(A)(B) Shares
Samuel H. President & Chief 137,873 4.15 Tollison (65) Executive Officer since January, 1971
Julian D. Executive Vice 36,815 1.11 Hardy, Jr. (48) President since November 19, 1984
Perry D. Chief Financial Officer 26,586 * Taylor (51) since January 1, 1989
* Less than one percent.
(A) Includes shares that may be deemed beneficially owned due to sole or joint ownership, voting power or investment power; including shares owned by or held for the benefit of an executive officer's spouse or another immediate family member residing in the household of the executive officer that may be deemed beneficially owned.
(B) Includes estimated 1997 Employee Stock Ownership Plan allocation.
Directors. Information on security ownership of directors is incorporated by reference from the Corporation's Proxy Statement for the 1998 Annual Meeting of Stockholders under the heading "Election of Directors."
Item 13.
Item 13. Certain Relationships and Related Transactions
Directors and officers of the Corporation and persons with whom they are associated have had and expect to have in the future, banking transactions with the Corporation in the ordinary course of their businesses. In the opinion of management of the Corporation, all such loans and commitments for loans were made on substantially the same terms, including interest rates, collateral and repayment terms as those prevailing at the same time for comparable transactions with other persons, were made in the ordinary course of business, and do not involve more than a normal risk of collectibility or present other unfavorable features. The aggregate amount of direct loans to any one director, officer or principal stockholder (and related persons), does not exceed 10 percent of the Corporation's equity capital accounts (nor 20 percent of such accounts for all such persons as a group) and did not during the previous two fiscal years.
Information on transactions with management is incorporated herein by reference from the Corporation's Proxy Statement for the 1998 Annual Meeting of Stockholders under the heading "Transactions with Management."
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a(1). Consolidated Financial Statements. See index to Consolidated Financial Statements.
a(2). Financial Statement Schedules. The financial statement schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.
a(3). Exhibits. See index to Exhibits
b. Reports on Form 8-K. The Corporation did not file any reports on Form 8-K during the fourth quarter of 1997.
c. Exhibits. Included in item 14a(3) above
d. Financial Statement Schedules. Included in item 14a(2) above
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FNB Corporation
By: s/Samuel H. Tollison Samuel H. Tollison President & Chief Executive Officer
By: s/Perry D. Taylor Perry D. Taylor Chief Financial Officer
Date: March 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following directors on behalf of the registrant and in that capacity and on the dates indicated.
Signature Date
s/Kendall O. Clay March 25, 1998 Kendall O. Clay
s/Daniel D. Hamrick March 25, 1998 Daniel D. Hamrick
s/Julian D. Hardy, Jr. March 25, 1998 Julian D. Hardy, Jr.
s/Joan H. Munford March 25, 1998 Joan H. Munford
s/Samuel H. Tollison March 25, 1998 Samuel H. Tollison
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following independent auditors' report and consolidated financial statements of the Corporation are incorporated by reference from the Corporation's 1997 Annual Report to Stockholders included within this document as an Exhibit:
Independent Auditors' Report
Consolidated Balance Sheets -- December 31, 1997 and 1996
Consolidated Statements of Income -- Years Ended December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows -- Years Ended December 31, 1997, 1996, and 1995
Consolidated Statements of Changes in Stockholders' Equity -- Years Ended December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
All schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.
INDEX TO EXHIBITS
Exhibit # Description
(2) Plan of Reorganization
Agreement and Plan of Reorganization dated as of February 1, 1996, between the Registrant, First National Bank, and FNB Bank, filed as Exhibit 2 to the Registration Statement on Form S-4 filed by FNB Corporation with the Securities and Exchange Commission May 3, 1996 (Registration number 333-2524) is incorporated herein by reference.
(3.1) Articles of Incorporation
Registrant's Articles of Incorporation, filed with the Commission as Exhibit 3.1 to the Annual Report on Form 10-K for the year ended December 31, 1996, is incorporated herein by reference.
(3.2) Registrant's Bylaws
(10) Material Contracts
(10)A The construction contract dated October 2, 1995, with J. M. Turner & Co., Inc. filed as Exhibit 10.9 to the Registration Statement on Form S-4 filed by FNB Corporation with the Securities and Exchange Commission May 3, 1996 (Registration number 333-2524) is incorporated herein by reference.
(10)B Employment agreement dated September 11, 1997 between Samuel H. Tollison, First National Bank, and Registrant, filed with the Commission as Exhibit (10)A on Form 10-Q for the quarter ended September 30, 1997, is incorporated herein by reference.
(10)C Employment agreement dated September 11, 1997 between Julian D. Hardy, Jr., First National Bank, and Registrant, filed with the Commission as Exhibit (10)B on Form 10-Q for the quarter ended September 30, 1997, is incorporated herein by reference.
(10)D Change in control agreements with seven senior officers of First National Bank. All agreements have identical terms and, as such, only a sample copy of the agreements was filed with the Commission as Exhibit (10)C on Form 10-Q for the quarter ended September 30, 1997, and is incorporated herein by reference. The officers covered by the agreements are as follows:
(1) Darlene S. Lancaster, Senior Vice President, Manager, Mortgage Loan Department, dated August 25, 1997 (2) R. Bruce Munro, Senior Vice President, Chief Credit Administration Officer, dated August 25, 1997 (3) Woody B. Nester, Senior Vice President, Cashier, dated August 25, 1997
(4) Fred L. Newhouse, Jr., Senior Vice President, Branch Administrator, dated August 25, 1997 (5) Peter A. Seitz, Senior Vice President, General Counsel, dated August 25, 1997 (6) Perry D. Taylor, Senior Vice President, Chief Financial Officer, dated August 25, 1997 (7) Litz H. Van Dyke, Senior Vice President, Manager, Commercial Banking Department, dated August 25, 1997
(13) 1997 Annual Report to Stockholders
(21) Subsidiaries of the Registrant
(27) Financial Data Schedule