Exhibit 99.2
FNB Corporation
CONSOLIDATED BALANCE SHEET
FNB Corporation and subsidiaries
September 30, 2007
In thousands, except share and per share data
(Unaudited)
ASSETS | ||||
Cash and due from banks | $ | 29,333 | ||
Federal funds sold | 42,800 | |||
Cash and cash equivalents | 72,133 | |||
Securities available-for-sale, at fair value | 207,643 | |||
Securities held-to-maturity, at amortized cost (fair value approximated $1,231) | 1,233 | |||
Other investments at cost | 8,341 | |||
Mortgage loans held for sale | 8,577 | |||
Loans, net of unearned income | 1,119,726 | |||
Less allowance for loan losses | 11,634 | |||
Loans, net | 1,108,092 | |||
Bank premises and equipment, net | 27,993 | |||
Other real estate owned | 973 | |||
Goodwill | 44,473 | |||
Core deposit intangibles | 2,321 | |||
Other assets | 33,935 | |||
Total assets | $ | 1,515,714 | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||
Deposits: | ||||
Noninterest-bearing demand deposits | $ | 150,038 | ||
Interest-bearing demand and savings deposits | 461,352 | |||
Time deposits | 455,614 | |||
Certificates of deposit of $100,000 and over | 193,201 | |||
Total deposits | 1,260,205 | |||
FHLB advances | 52,399 | |||
Trust preferred | 12,372 | |||
Other borrowings | 1,237 | |||
Other liabilities | 8,684 | |||
Total liabilities | 1,334,897 | |||
Shareholders’ equity: | ||||
Common stock, $5.00 par value. Authorized 25,000,000 shares; issued and outstanding 7,373,657 shares | 36,868 | |||
Surplus | 84,753 | |||
Retained earnings | 60,696 | |||
Accumulated other comprehensive income (loss) | (1,500 | ) | ||
Total shareholders’ equity | 180,817 | |||
Total liabilities and shareholders’ equity | $ | 1,515,714 | ||
See accompanying notes to consolidated financial statements.
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CONSOLIDATED BALANCE SHEET
FNB Corporation and subsidiaries
December 31, 2006
In thousands, except share and per share data
ASSETS | ||||
Cash and due from banks | $ | 36,877 | ||
Federal funds sold | 10,600 | |||
Cash and cash equivalents | 47,477 | |||
Securities available-for-sale, at fair value | 178,821 | |||
Securities held-to-maturity, at amortized cost (fair value approximated $1,585) | 1,583 | |||
Other investments at cost | 9,075 | |||
Mortgage loans held for sale | 18,489 | |||
Loans, net of unearned income | 1,170,073 | |||
Less allowance for loan losses | 13,920 | |||
Loans, net | 1,156,153 | |||
Bank premises and equipment, net | 26,194 | |||
Other real estate owned | 637 | |||
Goodwill | 44,473 | |||
Core deposit intangibles | 2,996 | |||
Other assets | 32,817 | |||
Total assets | $ | 1,518,715 | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||
Deposits: | ||||
Noninterest-bearing demand deposits | $ | 158,464 | ||
Interest-bearing demand and savings deposits | 447,928 | |||
Time deposits | 469,232 | |||
Certificates of deposit of $100,000 and over | 187,358 | |||
Total deposits | 1,262,982 | |||
FHLB advances | 62,634 | |||
Trust preferred | 12,372 | |||
Other borrowings | 45 | |||
Other liabilities | 7,265 | |||
Total liabilities | 1,345,298 | |||
Shareholders’ equity: | ||||
Common stock, $5.00 par value. Authorized 25,000,000 shares; issued and outstanding 7,348,823 shares | 36,744 | |||
Surplus | 84,212 | |||
Retained earnings | 53,545 | |||
Accumulated other comprehensive income (loss) | (1,084 | ) | ||
Total shareholders’ equity | 173,417 | |||
Total liabilities and shareholders’ equity | $ | 1,518,715 | ||
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FNB Corporation and subsidiaries
Three and Nine Months Ended September 30, 2007 and 2006
In thousands, except share and per share data
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||
Interest income: | |||||||||||
Interest and fees on loans | $ | 21,328 | 21,499 | 64,327 | 62,253 | ||||||
Interest on securities: | |||||||||||
Taxable | 2,685 | 2,544 | 7,722 | 6,760 | |||||||
Nontaxable | 153 | 76 | 313 | 252 | |||||||
Interest on federal funds sold and short term investments | 875 | 284 | 2,314 | 718 | |||||||
Total interest income | 25,041 | 24,403 | 74,676 | 69,983 | |||||||
Interest expense: | |||||||||||
Deposits | 10,725 | 9,372 | 31,346 | 25,676 | |||||||
Federal funds purchased and securities sold under agreements to repurchase | 11 | 25 | 25 | 81 | |||||||
Debt | 963 | 1,166 | 2,800 | 3,537 | |||||||
Total interest expense | 11,699 | 10,563 | 34,171 | 29,294 | |||||||
Net interest income | 13,342 | 13,840 | 40,505 | 40,689 | |||||||
Provision for loan losses | 1,623 | 354 | 2,301 | 1,341 | |||||||
Net interest income after provision for loan losses | 11,719 | 13,486 | 38,204 | 39,348 | |||||||
Noninterest income: | |||||||||||
Service charges on deposit accounts | 1,290 | 1,308 | 3,798 | 4,361 | |||||||
Origination fees on loans sold | 722 | 910 | 2,013 | 2,488 | |||||||
Other service charges and fees | 606 | 522 | 1,795 | 1,658 | |||||||
Trust/investment product sales revenue | 329 | 317 | 1,091 | 1,107 | |||||||
Other income | 551 | 758 | 1,852 | 1,974 | |||||||
Securities gains (losses), net | — | — | — | 25 | |||||||
Total noninterest income | 3,498 | 3,815 | 10,549 | 11,613 | |||||||
Noninterest expense: | |||||||||||
Salaries and employee benefits | $ | 5,456 | 5,509 | 16,949 | 16,195 | ||||||
Occupancy and equipment expense, net | 1,548 | 1,420 | 4,610 | 4,350 | |||||||
Cardholder/merchant processing | 292 | 273 | 816 | 743 | |||||||
Supplies expense | 266 | 178 | 754 | 717 | |||||||
Telephone expense | 187 | 172 | 560 | 526 | |||||||
Other real estate owned expense, net | 12 | 11 | 30 | 118 | |||||||
Amortization of core deposit intangibles | 225 | 266 | 675 | 797 | |||||||
Other expenses | 2,364 | 2,425 | 6,708 | 6,809 | |||||||
Total noninterest expense | 10,350 | 10,254 | 31,102 | 30,255 | |||||||
Income before income tax expense | 4,867 | 7,047 | 17,651 | 20,706 | |||||||
Income tax expense | 1,582 | 2,383 | 5,853 | 6,994 | |||||||
Net income | $ | 3,285 | 4,664 | 11,798 | 13,712 | ||||||
Other comprehensive income (loss), net of income tax expense (benefit): | |||||||||||
Gross unrealized gains (losses) on available-for-sale securities | 1,873 | 2,149 | (416 | ) | 103 | ||||||
Less: Reclassification adjustment for (gains) losses included in net income | — | — | — | (25 | ) | ||||||
Other comprehensive income (loss) | 1,873 | 2,149 | (416 | ) | 78 | ||||||
Comprehensive income | $ | 5,158 | 6,813 | 11,382 | 13,790 | ||||||
Basic earnings per share | $ | 0.45 | 0.64 | 1.60 | 1.87 | ||||||
Diluted earnings per share | $ | 0.44 | 0.63 | 1.59 | 1.85 | ||||||
Dividends declared per share | $ | 0.21 | 0.21 | 0.63 | 0.61 | ||||||
Average number basic shares outstanding | 7,369,004 | 7,342,560 | 7,361,328 | 7,331,486 | |||||||
Average number diluted shares outstanding | 7,440,074 | 7,425,014 | 7,441,423 | 7,410,368 | |||||||
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
FNB Corporation and subsidiaries
Nine Months Ended September 30, 2007 and 2006
In thousands
(Unaudited)
September 30, 2007 | September 30, 2006 | |||||||
Operating activities: | ||||||||
Net income | $ | 11,798 | $ | 13,712 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for loan losses | 2,301 | 1,341 | ||||||
Depreciation and amortization of premises and equipment | 1,863 | 1,798 | ||||||
Amortization of core deposit intangibles | 675 | 797 | ||||||
Stock-based compensation expense | 419 | 266 | ||||||
Amortization of security premiums and accretion of discounts, net | (141 | ) | 182 | |||||
(Gain) on sale of securities, net | — | (25 | ) | |||||
(Gain) loss on disposition of property and other real estate | (93 | ) | 81 | |||||
Decrease (increase) in mortgage loans held for sale | 9,912 | (5,635 | ) | |||||
(Increase) decrease in other assets | (882 | ) | 18 | |||||
Increase in accrued expenses and other liabilities | 1,419 | 1,453 | ||||||
Net cash provided by operating activities | 27,271 | 13,988 | ||||||
Investing activities: | ||||||||
Proceeds from calls and maturities of securities available-for-sale | 26,147 | 31,742 | ||||||
Proceeds from calls and maturities of securities held-to-maturity | 346 | 661 | ||||||
Purchase of securities available-for-sale | (54,730 | ) | (59,716 | ) | ||||
Net decrease (increase) in loans | 44,561 | (11,849 | ) | |||||
Proceeds from sales of fixed assets and other real estate owned | 677 | 312 | ||||||
Recoveries on loans previously charged off | 671 | 381 | ||||||
Payments for purchase of premises and equipment | (4,054 | ) | (3,231 | ) | ||||
Net cash provided by (used in) investing activities | 13,618 | (41,700 | ) | |||||
Financing activities: | ||||||||
Net increase in demand and savings deposits | 4,999 | 8,918 | ||||||
Net (decrease) increase in time deposits | (7,776 | ) | 28,754 | |||||
Net decrease in Federal Home Loan Bank advances | (10,235 | ) | (15,290 | ) | ||||
Net increase (decrease) in other borrowings | 1,192 | (6,532 | ) | |||||
Stock options exercised | 234 | 367 | ||||||
Dividends paid | (4,647 | ) | (4,478 | ) | ||||
Net cash (used in) provided by financing activities | (16,233 | ) | 11,739 | |||||
Net increase (decrease) in cash and cash equivalents | 24,656 | (15,973 | ) | |||||
Cash and cash equivalents: | ||||||||
Beginning of the period | 47,477 | 47,089 | ||||||
End of the period | $ | 72,133 | $ | 31,116 | ||||
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FNB Corporation and subsidiaries
September 30, 2007 and 2006
In thousands, except percent, share and per share data
(Unaudited)
(1) | Basis of Presentation |
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated balance sheet of FNB Corporation and subsidiaries (referred to herein as “FNB”) as of September 30, 2007; the consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2007 and 2006, and the consolidated statements of cash flows for the nine months ended September 30, 2007 and 2006.
Financial statements and notes are presented in accordance with the instructions for Form 10-Q. The information contained in the footnotes included in FNB’s 2006 Annual Report on Form 10-K should be referred to in connection with the reading of these unaudited interim consolidated financial statements. The consolidated balance sheet as of December 31, 2006 has been extracted from the audited financial statements included in FNB’s 2006 Annual Report on Form 10-K.
Interim financial performance is not necessarily indicative of performance for the full year.
(2) | Use of Estimates |
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(3) | Stock Compensation Plans |
At September 30, 2007 FNB had a stock-based compensation plan (the “Plan”) approved by shareholders and designed to provide incentives to current and prospective employees and non-employee directors of FNB and its subsidiaries. Under the Plan, FNB may award incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and unrestricted stock to eligible participants.
Stock options
FNB may award both incentive stock options and non-qualified stock options. Options granted under FNB’s Plan generally expire ten years after the date of grant and are granted at or above the fair market value (closing price) of the stock on the date of grant. Generally, an option will vest over a four year period. If the merger between FNB and Virginia Financial Group, Inc. (referred to herein as “VFG”) is consummated, however, accelerated vesting of outstanding options will occur pursuant to change in control provisions.
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FNB uses the Black-Scholes model to calculate fair values of options awarded. This model requires assumptions as to expected volatility, dividends, terms, and risk-free interest rates. Assumptions used for the periods covered herein are outlined in the table below:
Nine Months Ended September 30, 2007 | |||
Expected volatility | 32.69 | % | |
Expected dividend | 2.27 | % | |
Expected term (years) | 6.25 | ||
Risk-free interest rate | 4.73 | % |
Expected volatilities are based on historical volatility trends of FNB’s stock and other factors. Expected dividends reflect actual dividends paid on FNB’s stock. Expected term represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on the U.S Treasury yield curve in effect at the time of grant for the appropriate life of each option.
The following table presents the activity of FNB’s outstanding stock options, for the nine month period ended September 30, 2007:
Stock Options: | Number of Shares | Weighted Average Price per Share | Weighted Average Remaining Contractual Terms | Aggregate Intrinsic Value | |||||||
Options outstanding, December 31, 2006 | 215,520 | $ | 19.83 | $ | 2,210 | ||||||
Options granted | 21,650 | $ | 36.97 | — | |||||||
Options exercised | (13,376 | ) | $ | 17.50 | — | ||||||
Options forfeited | — | — | — | ||||||||
Options expired | — | — | — | ||||||||
Options outstanding, September 30, 2007 | 223,794 | $ | 21.63 | 5.13 | $ | 2,042 | |||||
Exercisable at September 30, 2007 | 202,144 | $ | 19.99 | 4.45 | $ | 2,042 | |||||
Unexercisable at September 30, 2007 | 21,650 | $ | 36.97 | 9.40 | $ | — |
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The following table presents the values of option grants and exercises for the three-month and nine-month periods ended September 30, 2007:
Three Months Ended September 30, 2007 | Nine Months Ended September 30, 2007 | |||||
Grant date weighted average fair value per share of options granted during the period | $ | — | $ | 36.97 | ||
Total intrinsic value of options exercised during the period | 79 | 224 |
Stock awards
Unrestricted stock granted without performance-based restrictions vests immediately. Restricted stock awards granted without performance-based restrictions vest in annual installments over periods ranging from one to five years commencing on the date of the grant. The vesting schedules are intended to encourage officers, directors, and employees to make long-term commitments to FNB. If the merger between FNB and VFG is consummated, however, accelerated vesting of outstanding restricted stock awards will occur pursuant to change in control provisions.
For the quarter ended September 30, 2007, FNB awarded 65 shares of unrestricted stock valued at $2 thousand. Fair value for unvested restricted shares is determined based on the closing price of FNB’s stock on the grant date.
A summary of the status of FNB’s unvested restricted shares for the three months ended September 30, 2007 is presented below:
Unvested Shares: | Number of Shares | Weighted Average Price per Share | ||||
Outstanding, June 30, 2007 | 13,276 | |||||
Granted | 65 | |||||
Vested | (1,244 | ) | $ | 30.81 | ||
Forfeited | — | |||||
Outstanding, September 30, 2007 | 12,097 |
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A summary of the status of FNB’s unvested restricted shares for the nine months ended September 30, 2007 is presented below:
Unvested Shares: | Number of Shares | Weighted Average Price per Share | ||||
Outstanding, December 31, 2006 | 13,258 | |||||
Granted | 2,765 | |||||
Vested | (3,926 | ) | $ | 34.48 | ||
Forfeited | — | |||||
Outstanding, September 30, 2007 | 12,097 |
(4) | Allowance for Loan Losses and Impaired Loans |
A loan is considered impaired when, in management’s judgment, FNB will probably not be able to collect all amounts due according to the contractual terms of the loan. In making such assessment, management considers the individual strength of borrowers, trends in particular industries, the payment history of individual loans, the value and marketability of collateral and general economic conditions.
FNB’s methodology for evaluating the collectibility of a loan after it is deemed to be impaired does not differ from the methodology used for nonimpaired loans.
A summary of the changes in the allowance for loan losses (including allowances for impaired loans) follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
Balance at beginning of period | $ | 13,886 | 14,421 | 13,920 | 14,412 | ||||||||
Provisions for loan losses | 1,623 | 354 | 2,301 | 1,341 | |||||||||
Loan recoveries | 314 | 75 | 671 | 381 | |||||||||
Loan charge-offs | (4,189 | ) | (261 | ) | (5,258 | ) | (1,545 | ) | |||||
Balance at end of period | $ | 11,634 | 14,589 | 11,634 | 14,589 | ||||||||
Nonperforming assets consist of the following:
September 30, 2007 | December 31, 2006 | ||||
Nonaccrual loans | $ | 13,759 | 5,074 | ||
Other real estate owned | 973 | 637 | |||
Loans past due 90 days or more | 567 | 362 | |||
Total nonperforming assets | $ | 15,299 | 6,073 | ||
FNB was committed to lend $1,059 to a customer whose loans were classified as nonperforming at September 30, 2007.
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(5) | Short Term Borrowings and Long Term Debt |
Securities sold under agreements to repurchase (repurchase agreements) at September 30, 2007 and December 31, 2006 were collateralized by investment securities controlled by FNB with a book value of $1,998 and $1,998, respectively.
Advances from the Federal Home Loan Bank of Atlanta totaled $52,399 and $62,634 at September 30, 2007 and December 31, 2006, respectively. The interest rates on the advances as of September 30, 2007 range from 3.76% to 7.26% with a weighted average rate of 5.20% and have maturity dates through June 7, 2010. The advances are collateralized under a blanket floating lien agreement whereby FNB gives a blanket pledge of residential first mortgage loans.
(6) | Proposed Merger |
As previously announced, on July 26, 2007, FNB entered into a definitive agreement with VFG to combine in a merger of equals transaction, creating the largest independent bank holding company headquartered in the Commonwealth of Virginia. FNB and VFG will consolidate their banking subsidiaries into one state-chartered bank.
Under the terms of the merger agreement, FNB shareholders will receive 1.5850 shares of common stock of the combined company for each of their shares of FNB common stock, with each share of VFG common stock becoming one share of common stock of the combined company. Each option to purchase a share of FNB common stock outstanding immediately prior to the effective date of the merger will be converted into an option to purchase shares of common stock of the combined company, adjusted for the 1.5850 exchange ratio.
In the merger agreement, FNB and VFG have each agreed not to solicit proposals relating to alternative business combination transactions or, subject to certain exceptions, to enter into discussions or negotiations or provide confidential information in connection with any proposals for alternative business combination transactions.
In connection with entering into the merger agreement, FNB and VFG entered into separate reciprocal stock option agreements (referred to herein as the “Option Agreements”), pursuant to which each company granted to the other a stock option (referred to herein as an “Option”) to purchase up to 19.9% of its total outstanding common shares. Neither of the Options is currently exercisable and, pursuant to the terms of the Option Agreements, will only become exercisable upon the occurrence of certain events relating to a third party acquisition proposal relating to the issuer of the shares covered by the respective Option. Each company’s total realizable value under the Option it has been granted is subject to a cap of $11,750. Under certain circumstances, each of the companies may be required to repurchase for cash the applicable Option or the shares acquired pursuant to the exercise of such Option.
The merger is subject to customary closing conditions, including approval by VFG’s and FNB’s shareholders and by both companies’ regulators. The Federal Reserve Board approved the proposed merger on October 12, 2007, and the Virginia State Corporation Commission approved the proposed merger on November 1, 2007. Approval of both companies’ shareholders is still pending. The merger is expected to be completed during the last quarter of 2007.
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