10-Q/A 1 march0210qa.txt FORM 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549-1004 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 2002 Commission file number: 33-66014 FNB Financial Corporation (Exact name of registrant as specified in its charter) Commonwealth of Pennsylvania 23-2466821 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 101 Lincoln Way West, McConnellsburg, PA 17233 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: 717/485-3123 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 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at March 31, 2002 (Common stock, $0.315 par value) 800,000 FNB FINANCIAL CORPORATION INDEX Page PART I - FINANCIAL INFORMATION Condensed consolidated balance sheets - March 31, 2002 and December 31, 2001 4 Condensed consolidated statements of income - Three months ended March 31, 2002 and 2001 5 Condensed consolidated statements of comprehensive income - Three months ended March 31, 2002 and 2001 6 Condensed consolidated statements of cash flows - Three months ended March 31, 2002 and 2001 7 Notes to condensed consolidated financial statements 8-9 Management's discussion and analysis of financial condition and results of operations 10-11 PART II - OTHER INFORMATION 13 Signatures 14 Exhibits 15-17 PART I - FINANCIAL INFORMATION FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, 2002 2001 (unaudited) (audited*) ASSETS: Cash and Due from $ 3,948,414 $ 5,400,929 Interest-bearing deposits with banks 2,249,938 2,572,574 Investment Securities Held-to-maturity (Market value - 2002 $ 1,027,510; 2001 $ 1,088,459) 1,073,983 1,114,764 Available-for-sale 18,310,210 19,554,290 Federal Reserve, Atlantic Central Banker's Bank and Federal Home Loan Bank Stock 501,700 833,700 Federal Funds Sold 6,000,000 6,000,000 Loans 92,842,360 91,050,008 Less: Allowance for loan losses ( 884,400) ( 882,330) Loans, net 91,957,960 90,167,678 Bank building, equipment, furniture and fixtures, net 2,848,115 2,914,416 Accrued interest receivable 672,045 619,464 Deferred income tax charges 254,110 160,529 Other real estate owned 83,318 103,568 Cash surrender value of life insurance 2,336,102 2,313,129 Other assets 489,296 405,475 Total Assets $ 130,725,191 $ 132,160,516 LIABILITIES : Deposits: Demand deposits $ 13,385,572 $ 13,343,930 Savings deposits 30,999,098 32,659,787 Time certificates 65,755,610 65,647,473 Other time deposits 530,907 311,190 Total deposits 110,671,187 111,962,380 Accrued interest payable & other liabilities 1,099,865 1,190,681 Liability for other borrowed funds 5,402,040 5,403,458 Dividends payable 96,000 216,000 Total Liabilities 117,269,092 118,772,519 STOCKHOLDERS' EQUITY: Capital stock, Common, par value $ 0.315; 6,000,000 shares authorized; 800,000 outstanding 252,000 252,000 Additional paid-in capital 1,789,833 1,789,833 Retained earnings 11,308,077 11,124,857 Accumulated other comprehensive income 106,189 221,307 Total Stockholders' Equity 13,456,099 13,387,977 Total Liabilities & Stockholders' Equity $ 130,725,191 $ 132,160,516

*Condensed from audited financial statements. The accompanying notes are an integral part of these condensed financial statements. FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended March 31, 2002 and 2001 (UNAUDITED) 2002 2001 Interest & Dividend Income Interest & fees on loans $ 1,738,041 $ 1,781,087 Interest on investment securities: Obligations of other U.S. Government Agencies 140,650 289,655 Obligations of State & Political Subdivisions 107,289 100,166 Interest on deposits with banks 16,434 19,258 Dividends on Equity Securities 8,955 16,286 Interest on federal funds sold 24,290 38,440 Total Interest & Dividend Income 2,035,659 2,244,892 Interest Expense Interest on deposits 898,188 1,153,683 Interest on Other Borrowed Money 84,194 81,781 Total interest expense 982,382 1,235,464 Net interest income 1,053,277 1,009,428 Provision for loan losses 30,000 36,000 Net interest income after provision for loan losses 1,023,277 973,428 Other income Service charges on deposit accounts 71,200 49,842 Other service charges, collection & exchange charges, commissions and fees 53,825 62,404 Gain/(loss) on Sale of Other Real Estate 0 ( 10,887) Other income 55,843 41,809 Net Securities gains/(losses) 8,025 6,235 Total other income 188,893 149,403 Other expenses 853,134 844,473 Income before income taxes 359,036 278,358 Applicable income taxes 79,816 41,103 Net income $ 279,220 $ 237,255 Earnings per share of Common Stock: Net income per share $ 0.35 $ 0.30 Cash dividend declared per share $ 0.12 $ 0.11 Weighted average number of shares outstanding 800,000 800,000

The accompanying notes are an integral part of these condensed financial statements. FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended March 31, 2002 and 2001 (UNAUDITED) 2002 2001 Net income $ 279,220 $ 237,258 Other Comprehensive income: Gross unrealized holding gains (losses) ( 166,396) 406,296 Reclassification adjustment for (gains) losses realized in net income ( 8,025) ( 6,235) Net unrealized holding gains (losses) before taxes ( 174,421) 400,061 Tax effect 59,303 ( 136,021) Other comprehensive income (loss) ( 115,118) 264,040 Comprehensive Income $ 164,102 $ 501,928

The accompanying notes are an integral part of these condensed financial statements. FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 2002 and 2001 (UNAUDITED) 2002 2001 Cash flows from operating activities: Net income $ 279,220 $ 237,255 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization 60,596 72,103 Provision for loan losses 30,000 36,000 Net (gain)/loss on sales of investments ( 8,025) ( 6,235) (Increase) decrease in accrued interest receivable ( 52,581) 91,233 (Gain)/Loss on Disposal of Other Real Estate 0 10,887 Deferred Income Taxes ( 2,675) ( 17,781) Increase (decrease) in accrued interest payable and other liabilities ( 90,816) 105,132 Increase in cash value of insurance ( 22,973) ( 26,444) Increase in other assets ( 115,423) ( 167,594) Net cash provided (used)by operating activities 77,323 334,556 Cash flows from investing activities: Net (increase) decrease in interest-bearing deposits with banks 322,636 ( 1,072,946) Purchases of Available-for-sale securities ( 119,560) ( 635,000) Proceeds from maturities and calls of securities 1,189,875 3,372,170 Proceeds from sale of available for sale securities 48,150 22,970 Net (increase) decrease in loans ( 1,820,282) ( 1,430,050) Proceeds from sale of Other real estate owned 20,250 34,463 Purchases of bank premises & equipment (net) ( 6,365) ( 54,144) Proceeds from Sale of Furniture & Fixtures 12,069 0 Sale of other bank stock 332,000 0 Net cash provided (used) by investing activities( 21,227) 237,463 Cash flows from financing activities: Net increase (decrease) in deposits ( 1,291,193) 3,017,735 Net increase (decrease) in Other borrowings ( 1,418) ( 769,327) Cash dividends paid ( 216,000) ( 192,000) Net cash provided (used) by financing activities( 1,508,611) 2,056,408 Net increase (decrease) in cash & cash equivalents ( 1,452,515) 2,628,427 Cash & cash equivalents, beginning balance 11,400,929 4,020,479 Cash & cash equivalents, ending balance $ 9,948,414 $ 6,648,906

The accompanying notes are an integral part of these condensed financial statements. FNB FINANCIAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (UNAUDITED) REVIEW OF INTERIM FINANCIAL STATEMENTS The condensed consolidated financial statements as of and for the three month periods ended March 31, 2002 and 2001 have been reviewed by independent certified public accountants. The report on their review is attached as Exhibit 99 to this 10-Q. NOTE 1 - BASIS OF PRESENTATION The financial information presented at and for the three months ended March 31, 2002 and March 31, 2001 is unaudited. Information presented at December 31, 2001, is condensed from audited year-end financial statements. However, this unaudited information reflects all adjustments, consisting solely of normal recurring adjustments, that are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim period. NOTE 2 - PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the corporation and its wholly-owned subsidiary, The First National Bank of McConnellsburg. All significant intercompany transactions and accounts have been eliminated. NOTE 3 - CASH FLOWS For purposes of the statements of cash flows, the corporation has defined cash and cash equivalents as those amounts included in the balance sheet captions "cash and due from banks" and "federal funds sold". As permitted by Statement of Financial Accounting Standards No. 104, the corporation has elected to present the net increase or decrease in deposits in banks, loans and time deposits in the statement of cash flows. NOTE 4 - FEDERAL INCOME TAXES For financial reporting purposes the provision for loan losses charged to operating expense is based on management's judgment, whereas for federal income tax purposes, the amount allowable under present tax law is deducted. Additionally, certain expenses are charged to operating expense in the period the liability is incurred for financial reporting purposes, whereas for federal income tax purposes, these expenses are deducted when paid. As a result of these timing differences, deferred taxes were computed after reducing pre-tax accounting income for nontaxable municipal and loan income. NOTE 5 - OTHER COMMITMENTS In the normal course of business, the bank makes various commitments and incurs certain contingent liabilities which are not reflected in the accompanying financial statements. These commitments include various guarantees and commitments to extend credit. The bank does not anticipate any losses as a result of these transactions. FNB FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net income for the first three months of 2002 was $ 279,220, compared to $ 237,255 for the first three months of 2001. This represents an increase of $ 41,965 or 17.7% from 2001. Net income on an adjusted per share basis for the first three months of 2002 was $ 0.35 which is an increase of $ 0.05 from the $ 0.30 per share for the three months ended March 31, 2001. Total interest and dividend income for the first three months of 2002 was $ 2,035,659 compared to $ 2,244,892 for the first three months of 2001, a decrease of $ 209,233. This decrease was due primarily to the downward trend of effective yields on earning assets as rates continue to be well below yields realized in the first quarter of 2001. Although the loan portfolio has grown by $ 7,500,372 or 8.8% over totals at the end of the first quarter of 2001, the decreasing interest rate environment along with a shift of earning assets from investments to Federal funds has resulted in a 9.3% decrease in total interest income from first quarter of 2001. Due to the depressed interest rate environment, investment securities with call features have been exercised by the issuer resulting in excess funds being invested in lower yielding federal funds until such time as they can be invested in loans or other securities. In order to sustain desired net interest margins, deposit rates were lowered to decrease our funding costs. Interest expense for the three months ended March 31, 2002, was $ 982,382, a decrease of $ 253,082 from the $ 1,235,464 for the same period in 2001. Total deposits increased $ 4,020,964 from totals at March 31, 2001. This increase was concentrated in demand deposit accounts which represent our lowest cost of funds. This coupled with the aforementioned general reduction in deposit rates decreased the cost of funds enough to more than compensate for the decrease in interest income and allowed us to produce a slightly higher net interest income over first quarter 2001. The tax-adjusted net interest margin has decreased 27 basis points to 3.40% for the first three months of 2002 from that of the first three months of 2001 which was 3.67%. Management will continue to competitively price its loan and deposit products while maintaining desired net interest spreads. Total noninterest income for the first three months of 2002 increased $ 39,490 over totals for the first quarter of 2001 due to security gains, trust referral income and net earnings from the Company's investment in CBIA, which is a joint venture with several other community banks to provide property and casualty insurance products. Operating expenses for the period ended March 31, 2002, were $ 853,134, a $ 8,661 increase from the operating expenses incurred for the same period in 2001 of $ 844,473. This increase was mainly the result of a increases in wages and benefits. Our income tax provision for the first three months of 2002 was $ 79,816 as compared to $ 41,103 for the first three months of 2001. We continue to operate with a marginal tax rate of 34% during the first quarter of 2002. The effective income tax rate for the first three months of 2002 was 22.23% a 7.46% increase compared to 14.77% for the first three months of 2001. Total assets as of March 31, 2002, were $ 130,725,191, a decrease of $ 1,435,325 from the period ending December 31, 2001, representing a decrease of 1.1%. This decrease was primarily due to a 1.3 million decrease in deposits during the first quarter of 2002 which was anticipated as a result of adjusting rates downward. Loans as of March 31, 2002, were $ 92,842,360 compared to $ 91,050,008 as of December 31, 2001, an increase of $ 1,792,352 or 2.0%, a result of commercial loan settlements. The allowance for loan losses at the end of the three months was $ 884,400 compared to $ 882,330 at year end 2001. The provision for loan losses for the first three months of 2002 was $ 30,000 compared to $ 36,000 for the first three months of 2001. Total equity as of March 31, 2002, was $ 13,456,099, 10.29% of total assets, as compared to $ 13,387,997, 10.13% of total assets as of December 31, 2001. The Company's risk based capital ratios continue to exceed regulatory minimum requirements. PART II - OTHER INFORMATION PART II - OTHER INFORMATION Item 1 - Legal Proceedings None Item 2 - Changes in Securities None Item 3 - Defaults Upon Senior Securities Not Applicable Item 4 - Submission of Matters to a Vote of Security Holders None Item 5 - Other Information None Item 6 - Exhibits and Reports on Form 8-K a. Exhibits: Exhibit Number Referred to Item 601 of Regulation S-K Description of Exhibit 27 Financial data schedule 99 Report of independent Accountant's on interim financial statements b. Reports on Form 8-K - None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. /s/John C. Duffey (John C. Duffey, President and Director of the Company and President/CEO of the Bank) (Duly Authorized Officer) Date July 26, 2002 /s/Dale M. Fleck (Dale M. Fleck Controller of the Bank Principal Financial & Accounting Officer) EX-27 ARTICLE 9 FDS FOR 10-Q 9 1,000 3-MOS DEC-31-2002 MAR-31-2002 3,948 2,250 6,000 0 18,310 1,074 1,028 92,842 884 130,725 110,671 0 1,196 5,402 252 0 0 13,204 130,725 1,738 257 41 2,036 898 982 1,054 30 8 853 359 359 0 0 279 .35 .35 3.40 594 1,079 0 860 882 36 8 884 884 0 0 EXHIBIT 99 INDEPENDENT ACCOUNTANT'S REPORT Board of Directors FNB Financial Corporation McConnellsburg, Pennsylvania We have reviewed the accompanying consolidated balance sheet of FNB Financial Corporation and Subsidiary as of March 31, 2002 and the related consolidated statements of income for the three month periods ended March 31, 2002 and 2001 and consolidated statements of comprehensive income for the three months ended March 31, 2002 and 2001 and consolidated statements of cash flows for the three months ended March 31, 2002 and 2001. These financial statements are the responsibility of the corporation's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. SMITH ELLIOTT KEARNS & COMPANY, LLC /s/ Smith Elliott Kearns & Company, LLC Chambersburg, Pennsylvania May 7, 2002

FNB FINANCIAL CORP /PA/ 10-Q/A