10-Q 1 june10q.txt FORM 10-Q 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 June 30, 2003 ------------- 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 June 30, 2003 -------------------------------- ---------------------------- (Common stock, $0.315 par value) 800,000 Page 1 of 24 FNB FINANCIAL CORPORATION INDEX Page PART I - FINANCIAL INFORMATION Condensed consolidated balance sheets - June 30, 2003 and December 31, 2002 4 Condensed consolidated statements of income - Three months ended June 30, 2003 and 2002 5 Condensed consolidated statements of income - Six months ended June 30, 2003 and 2002 6 Condensed consolidated statements of comprehensive income - Six months ended June 30, 2003 and 2002 7 Condensed consolidated statements of cash flows - Six months ended June 30, 2003 and 2002 8 Notes to condensed consolidated financial statements 9-10 Management's discussion and analysis of financial condition and results of operations 11-14 PART II - OTHER INFORMATION 16 Signatures 17 Exhibits 18-24 Page 2 of 24 PART I - FINANCIAL INFORMATION Page 3 of 24 FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 2003 December 31, 2002* (Unaudited) (Audited*) ASSETS Cash and due from banks $ 4,435,536 $ 3,650,351 Interest-bearing deposits with banks 904,124 968,266 Investment securities Held-to-maturity (Market value - 2003 $ 514,997 and 2002 $ 692,188) 515,270 692,839 Available-for-sale 23,147,442 20,583,684 Federal Reserve, Atlantic Central Bankers Bank, Federal Home Loan Bank 905,400 666,000 Federal Funds Sold 311,000 0 Loans 102,330,375 101,455,355 Less: Allowance for loan losses ( 974,785) ( 928,488) --------------- --------------- Loans, net 101,355,590 100,526,867 Bank building, equipment, furniture & fixtures, net 3,349,961 2,723,375 Accrued interest receivable 660,039 658,856 Deferred income tax charges 2,212 51,703 Other real estate owned 66,512 66,512 Cash surrender value of life insurance 2,453,102 2,405,020 Other assets 359,739 371,932 --------------- --------------- Total assets $ 138,465,927 $ 133,365,405 =============== =============== LIABILITIES Deposits Demand deposits $ 15,829,696 $ 13,930,687 Savings deposits 27,694,295 30,520,623 Time certificates 68,876,540 65,934,931 Other time deposits 519,248 306,118 --------------- --------------- Total deposits 112,919,779 110,692,359 Accrued interest payable & other liabilities Liability for other borrowed funds 9,895,133 7,232,659 Dividends payable 128,000 264,000 --------------- --------------- Total liabilities 123,710,705 119,188,582 --------------- --------------- STOCKHOLDERS' EQUITY Capital stock, common, par value - $ 0.315; 12,000,000 shares authorized, 800,000 outstanding 252,000 252,000 Additional paid-in capital 1,789,833 1,789,833 Retained earnings 12,226,911 11,746,170 Accumulated other comprehensive income 486,478 388,820 --------------- --------------- Total stockholders' equity 14,755,222 14,176,823 --------------- --------------- Total liabilities and stockholders' equity $ 138,465,927 $ 133,365,405 =============== ===============

*Condensed from audited financial statements. The accompanying notes are an integral part of these condensed financial statements. Page 4 of 24 FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended June 30, 2003 and 2002 (UNAUDITED) 2003 2002 Interest & Dividend Income Interest & fees on loans $1,705,250 $1,803,483 Interest on investment securities: Obligations of other U.S. Government Agencies 251,055 129,396 Obligations of State & Political Subdivisions 88,791 102,123 Interest on deposits with banks 10,765 3,903 Dividends on Equity Securities 9,015 3,484 Interest on federal funds sold 4,968 30,599 ---------- ---------- Total Interest & Dividend Income 2,069,844 2,072,988 ---------- ---------- Interest Expense Interest on deposits 741,750 850,237 Interest on other borrowed money 99,744 80,857 ---------- ---------- Total Interest Expense 841,494 931,094 ---------- ---------- Net interest income 1,228,350 1,141,894 Provision for loan losses 36,000 36,000 ---------- ---------- Net interest income after Provision for loan losses 1,192,350 1,105,894 ---------- ---------- Other income Service charges on deposit accounts 57,619 74,443 Other service charges, collection & exchange charges, commissions and fees 85,105 81,001 Other income 10,325 8,151 Net gain/(loss) on disposal of other assets 0 ( 1,636) Net securities gains/(losses) 45,859 0 ---------- ---------- Total other income 198,908 161,959 ---------- ---------- Other expenses 941,906 832,091 ---------- ---------- Income before income taxes 449,352 435,762 Applicable income taxes 134,895 72,230 ---------- ---------- Net income $ 314,457 $ 363,532 ========== ========== Earnings per share of Common Stock: Net income per share $ 0.39 $ 0.45 Cash dividend declared per share $ 0.16 $ 0.14 Weighted average number of shares outstanding 800,000 800,000

The accompanying notes are an integral part of these condensed financial statements. Page 5 of 24 FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME Six Months Ended June 30, 2003 and 2002 (UNAUDITED) 2003 2002 Interest & Dividend Income Interest & fees on loans $ 3,480,554 $ 3,541,524 Interest on investment securities: Obligations of other U.S. Government Agencies 403,583 270,046 Obligations of State & Political Subdivisions 178,916 209,412 Subdivisions Interest on deposits with banks 20,577 20,337 Dividends on Equity Securities 18,322 12,439 Interest on federal funds sold 4,968 54,889 ------------- ----------- Total Interest & Dividend Income 4,106,920 4,108,647 ------------- ----------- Interest Expense Interest on deposits 1,492,900 1,748,425 Interest on other borrowed money 190,258 165,051 ------------- ----------- Total Interest Expense 1,683,158 1,913,476 ------------- ----------- Net interest income 2,423,762 2,195,171 Provision for loan losses 72,000 66,000 ------------- ----------- Net interest income after provision for loan losses 2,351,762 2,129,171 ------------- ----------- Other income Service charges on deposit accounts 148,456 145,643 Other service charges, collection & exchange charges, commissions and fees 140,538 134,826 Other income 77,651 63,994 Net gain/(loss) on disposal of other assets 0 ( 1,636) Net securities gains/(losses) 48,057 8,025 ------------- ----------- Total other income 414,702 350,852 ------------- ----------- Other expenses 1,812,755 1,685,225 ------------- ----------- Income before income taxes 953,709 794,798 Applicable income taxes 240,968 152,046 ------------- ----------- Net income $ 712,741 $ 642,752 ============= =========== Earnings per share of Common Stock: Net income per share $ 0.89 $ 0.80 Cash dividend declared per share $ 0.29 $ 0.26 Weighted average number of shares outstanding 800,000 800,000

The accompanying notes are an integral part of these condensed financial statements. Page 6 of 24 FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Six Months Ended June 30, 2003 and 2002 (UNAUDITED) 2003 2002 Net Income $ 712,741 $ 642,752 ---------- ---------- Other Comprehensive: Gross unrealized holding gains (losses) 196,024 113,244 Reclassification adjustment for (gains)losses realized in net income ( 48,057) ( 8,025) ---------- ---------- Net unrealized holding gains (losses) before taxes 147,967 105,219 Tax effect ( 50,309) ( 35,774) ---------- ---------- Other comprehensive income (loss) 97,658 69,445 ---------- ---------- Comprehensive Income $ 810,399 $ 712,197 ========== ==========

The accompanying notes are an integral part of these condensed financial statements. Page 7 of 24 FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2003 and 2002 (UNAUDITED) 2003 2002 ---- ---- Cash flows from operating activities: Net income $ 712,741 $ 642,752 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization 157,388 126,069 Provision for loan losses 72,000 66,000 Increase in Cash Surrender value of Life Insurance ( 48,082) ( 45,945) Net (gain)/loss on sales of investments ( 48,057) ( 8,025) Deferred income taxes 0 ( 26,675) (Increase) decrease in accrued interest receivable ( 1,183) ( 34,498) Loss on Disposal of Other Assets 0 1,636 Increase (decrease) in accrued interest payable and other liabilities ( 231,771) ( 359,278) (Increase) decrease in other assets 45,761 47,206 ------------ ------------ Net cash provided (used) by operating activities: 658,797 409,242 ------------ ------------ Cash flows from investing activities: Net (increase) decrease in interest- bearing deposits with banks 64,142 1,806,251 Purchases of Available-for-sale securities ( 7,004,394) ( 1,288,977) Proceeds from maturities and calls of securities 4,634,317 3,251,469 Proceeds sale of available-for-sale securities 179,094 48,150 Net (increase) decrease in loans ( 900,723) ( 6,707,002) Proceeds from sale of other real estate owned 0 73,111 Purchases of bank premises & equipment (net) ( 783,974) ( 32,855) Purchases of investment in insurance company ( 33,568) ( 8,000) (Purchase) sale of other bank stock ( 239,400) 321,900 ------------ ------------ Net cash provided (used) by investing activities ( 4,084,506) ( 2,535,953) ------------ ------------ Cash flows from financing activities: Net increase (decrease) in deposits 2,227,420 759,792 Net increase (decrease) in other borrowings 2,662,474 ( 3,335) Cash dividends paid ( 368,000) ( 312,000) ------------ ------------ Net cash provided (used) by financing activities 4,521,894 444,457 ------------ ------------ Net increase (decrease) in cash & cash equivalents 1,096,185 ( 1,682,254) Cash & cash equivalents, beginning balance 3,650,351 11,400,929 ------------ ------------ Cash & cash equivalents, ending balance $ 4,746,536 $ 9,718,675 ============ ============

The accompanying notes are an integral part of these condensed financial statements. Page 8 of 24 FNB FINANCIAL CORPORATION JUNE 30, 2003 (UNAUDITED) REVIEW OF INTERIM FINANCIAL STATEMENTS The condensed consolidated financial statements as of and for the three and six month periods ended June 30, 2003 and 2002 have been reviewed by independent certified public accountants. Their 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 six months ended June 30, 2003 and June 30, 2002 is unaudited. Information presented at December 31, 2002, 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 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. Page 9 of 24 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. Page 10 of 24 FNB FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY Net income for the first six months of 2003 was $ 712,741, compared to $ 642,752 for the first six months of 2002. This represents an increase of $ 69,989 or 10.89% from 2002. Net income on an adjusted per share basis for the first six months of 2003 was $ 0.89 which is an increase of $ 0.09 from the $ 0.80 per share for the six months ended June 30, 2002. NET INTEREST INCOME Total interest and dividend income for the first six months of 2003 was $ 4,106,920 compared to $ 4,108,647 for the first six months of 2002, a decrease of $ 1,727. The slight decrease is due primarily to the continuing decline in rates, which has been offset by the growth in the loan portfolio. This growth was concentrated in commercial loans and real estate mortgages which increased 3.3% and 11.7%, respectively, over average balances for the first half of 2002. Effective yields on earning assets continue to be below yields realized in the first half of 2002. The increases in the volume of earning assets and the shift in the growth of earning assets more toward higher yielding loans has offset the decreases in average yields to allow interest income to remain relatively consistent with totals for the first six months of 2002. In order to sustain desired net interest margins, deposit rates were lowered to decrease funding costs. Interest expense for the six months ended June 30, 2003, was $ 1,683,158, a decrease of $ 230,318 from the $ 1,913,476 for the same period in 2002. Total deposits increased only $ 198,000 from totals at June 30, 2002. However, the mix of deposits has shifted away from interest bearing transaction accounts to demand deposit accounts which represent the lowest cost of funds. This coupled with the aforementioned general reduction in deposit rates and the increase in volume of earning assets allowed us to produce a 10.4% increase in net interest income over second quarter 2002. The net interest margin has increased 22 basis points to 3.96% for the first six months of 2003 from that of the first six months of 2002 which was 3.74%. Management will continue to competitively price its loan and deposit products to maintain desired net interest spreads. Page 11 of 24 PROVISION AND ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses is summarized as follows: 2003 2002 (000 Omitted) Allowance for loan losses beginning of the year $ 928 $ 884 Loans charged-off during the year Real estate mortgages 0 19 Installment loans 64 50 Commercial and all other 0 0 ------ ------ Total charge offs 64 69 ------ ------ Recoveries of loans previously charged-off: Real estate mortgages 0 8 Installment loans 39 11 Commercial and all other 0 0 ------ ------ Total recoveries 39 19 ------ ------ Net loans charged-off (recovered) 25 50 Provision for loan losses charged to operations 72 66 ------ ------ Allowance for loan losses, June 30 $ 975 $ 900 ====== ======

We utilize a comprehensive systematic review of our loan portfolio on a quarterly basis in order to determine the adequacy of the Allowance for Loan losses. Each quarter the loan portfolio is categorized into various Pools as follows: POOL #1 Specific allowances for any individually identified trouble loans POOL #2 Commercial and Industrial POOL #3 Commercial and Industrial - Real Estate Secured POOL #4 Consumer Demand and Installment POOL #5 Guaranteed Loans and Farmers and Commercial

Lines of credit and non-secured commercial loans with balances of $ 100,000 and over are individually reviewed. Also, loans that are 90 days or more past due or have been previously classified as substandard are individually reviewed. Allocations to the Allowance for Loan Losses are based upon classifications assigned to those loans. Loan classifications utilized are consistent with OCC regulatory guidelines and are as follows: Allowance Factors ----------------- Loss Charge-off Doubtful 20% - 50% Substandard 10% - 20% Special Mention 5% - 10% Watch 1% - 5%

The remaining portion of the Pools are evaluated as groups with allocations made to the Allowance based on historical loss experience, current and anticipated trends in delinquencies, and general economic conditions within the bank's trading area. Page 12 of 24 In addition to the aforementioned internal loan review, the Bank engaged an outside Firm to conduct an independent loan review during the first quarter of 2003 in order to validate the methodologies used internally and to independently test the adequacy of the Allowance for Loan Losses. Delinquencies are well below peer group averages and management is not aware of any problem loans that are indicative of trends, events, or uncertainties that would significantly impact operations, liquidity, or capital. NON-INTEREST INCOME AND EXPENSES Total noninterest income for the first six months of 2003 increased $ 63,850 over totals for the first half of 2002 due primarily to service charges on deposit accounts and securities gains. Operating expenses for the period ended June 30, 2003, were $ 1,812,755, a $ 127,530 increase from the operating expenses incurred for the same period in 2002 of $ 1,685,225. This increase was mainly the result of increases in data processing costs in connection with a core system conversion in March 2003. Our income tax provision for the first six months of 2003 was $ 240,968 as compared to $ 152,046 for the first six months of 2002. We continue to operate with a marginal tax rate of 34% during the first half of 2003. The effective income tax rate for the first six months of 2003 was 25.3% compared to 19.13% for the first six months of 2002. BALANCE SHEET AND EQUITY CHANGES Total assets as of June 30, 2003, were $ 138,465,927, an increase of $ 5,508,035 from the period ended June 30, 2002, representing an increase of 4.1%. This increase was primarily due to the aforementioned growth in the loan portfolio. Loans as of June 30, 2003, were $ 102,330,375 compared to $ 97,709,045 as of June 30, 2002. Total equity as of June 30, 2003, was $ 14,755,222, 10.65% of total assets, as compared to $ 13,892,193, 10.45% of total assets as of June 30, 2002. The Company's risk based capital ratios continue to exceed regulatory minimum requirements. Page 13 of 24 CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. The company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the chief executive and chief financial officers of the company concluded that the company's disclosure controls and procedures were adequate. (b) Changes in internal controls. The Company made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of the controls by the Chief Executive or Chief Financial officers. Page 14 of 24 PART II - OTHER INFORMATION Page 15 of 24 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: 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 99 Report of Independent Accountant's on Interim Financial Statements b. Reports on Form 8-K - None Page 16 of 24 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 of the Bank (Duly Authorized Officer) Date August 11, 2003 /s/Dale M. Fleck ---------------- ----------------------------------- Dale M. Fleck Controller of the Bank (Principal Financial & Accounting Officer) Page 17 of 24 Exhibit 31.1 CERTIFICATION I, John C. Duffey, President/CEO, certify, that: ----------------------------- 1. I have reviewed this quarterly report on Form 10-Q of FNB Financial Corporation. 2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and (c) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Page 18 of 24 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 11, 2003 By: /s/John C. Duffey --------------- ------------------------- John C. Duffey, President/CEO (Principal Executive Officer) Page 19 of 24 Exhibit 31.2 CERTIFICATION I, Dale M. Fleck, Controller, certify, that: ------------------------- 1. I have reviewed this quarterly report on Form 10-Q of FNB Financial Corporation. 2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and (c) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Page 20 of 24 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 11, 2003 By: /s/Dale M. Fleck --------------- ------------------------- Dale M. Fleck Controller (Principal Financial Officer) Page 21 of 24 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of FNB Financial Corporation (the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John C. Duffey, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ John C. Duffey ----------------------------- Chief Executive Officer August 11, 2003 Page 22 of 24 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of FNB Financial Corporation (the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dale M. Fleck, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Dale M. Fleck ----------------------------- Chief Financial Officer August 11, 2003 Page 23 of 24 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 June 30, 2003 and the related consolidated statements of income for the three and six month periods ended June 30, 2003 and 2002 and consolidated statements of comprehensive income for the six months ended June 30, 2003 and 2002 and consolidated statements of cash flows for the six months ended June 30, 2003 and 2002. 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. /s/ Smith Elliott Kearns & Company, LLC --------------------------------------- SMITH ELLIOTT KEARNS & COMPANY, LLC Chambersburg, Pennsylvania August 11, 2003 Page 24 of 24

FNB FINANCIAL CORP /PA/ 10-Q