UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





---







FORM 10-Q





Quarterly Report Pursuant to Section 13 or 15(d)


of the Securities Exchange Act of 1934





For the quarterly period ended September 30, 2002





Commission File Number 0-13823








---




FNB CORP.





(Exact name of Registrant as specified in its charter)








North Carolina



56-1456589(State of incorporation)



(I.R.S. Employer Identification No.)





101 Sunset Avenue, Asheboro, North Carolina 27203


(Address of principal executive offices)





(336) 626-8300


(Registrants telephone number, including area code)





---




Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days.    Yes x    No  ̈





The registrant had 5,412,431 shares of $2.50 par value common stock outstanding at November 8, 2002.







---




PART I.    FINANCIAL INFORMATION





Item 1.    Financial Statements





FNB Corp. and Subsidiaries





CONSOLIDATED BALANCE SHEETS





September 30, (unaudited)


December 31,2002


2001


2001(in thousands, except share data)ASSETSCash and due from banks

$
20,387


$
14,092


$
13,490Interest-bearing bank accounts


14,165







Federal funds sold


118



5,852



127Investment securitiesAvailable for sale (amortized cost of $164,228, $141,679 and $161,685)


170,905



145,093



163,150Loans:Loans held for sale


2,189



2,905



12,836Loans held for investment


493,909



392,730



378,796Less allowance for loan losses


(5,824
)


(4,422
)


(4,417
)Net loans


490,274



391,213



387,215Premises and equipment, net


13,454



9,974



10,268Goodwill


12,601







Other assets


20,686



18,675



19,492Total Assets

$
742,590


$
584,899


$
593,742LIABILITIES AND SHAREHOLDERS' EQUITYDeposits:Noninterest-bearing demand deposits

$
58,523


$
45,543


$
49,089Interest-bearing deposits:Demand, savings and money market deposits


182,618



137,205



140,496Time deposits of $100,000 or more


115,941



106,382



109,187Other time deposits


223,168



190,486



181,458Total deposits


580,250



479,616



480,230Retail repurchase agreements


15,813



13,879



14,812Federal Home Loan Bank advances


53,409



25,000



30,000Federal funds purchased


600







6,000Other borrowed funds


11,000







Other liabilities


8,089



7,815



6,793Total Liabilities


669,161



526,310



537,835Shareholders' equity:Preferred stock$10.00 par value; authorized 200,000 shares, none issued










Common stock$2.50 par value; authorized 10,000,000 shares, issued shares5,412,226, 4,912,212 and
4,763,261


13,531



12,281



11,908Surplus


8,760



854



Retained earnings


46,733



43,200



43,032Accumulated other comprehensive income


4,405



2,254



967Total Shareholders' Equity


73,429



58,589



55,907Total Liabilities and Shareholders' Equity

$
742,590


$
584,899


$
593,742





See accompanying notes to consolidated financial statements.




2




---




FNB Corp. and Subsidiaries





CONSOLIDATED STATEMENTS OF INCOME





Three Months Ended September 30, (unaudited)

Nine Months Ended September 30, (unaudited)2002


2001

2002

2001(in thousands, except per share data)Interest IncomeInterest and fees on loans

$
7,885


$
7,807

$
21,331

$
24,411Interest and dividends on investment securities:Taxable income


2,005



2,202


6,513


6,171Non-taxable income


305



235


888


716Other interest income


74



25


120


167Total interest income


10,269



10,269


28,852


31,465Interest ExpenseDeposits


3,004



4,580


8,932


15,032Retail repurchase agreements


66



103


190


346Federal Home Loan Bank advances


469



325


1,195


926Federal funds purchased


2



7


10


45Other borrowed funds


52






52


Total interest expense


3,593



5,015


10,379


16,349Net Interest Income


6,676



5,254


18,473


15,116Provision for loan losses


285



205


1,325


490Net Interest Income After Provision for Loan Losses


6,391



5,049


17,148


14,626Noninterest IncomeService charges on deposit accounts


1,163



644


2,524


1,873Annuity and brokerage commissions


131



61


271


175Cardholder and merchant services income


183



146


537


441Other service charges, commissions and fees


247



172


633


537Bank owned life insurance


155



161


459


477Net gain on sales of loans


351



235


1,021


664Other income (charge)


(44
)


34


114


200Total noninterest income


2,186



1,453


5,559


4,367Noninterest ExpensePersonnel expense


3,053



2,294


8,288


6,783Net occupancy expense


257



217


750


621Furniture and equipment expense


429



365


1,173


1,066Data processing services


273



188


686


529Other expense


1,265



1,033


3,355


3,008Total noninterest expense


5,277



4,097


14,252


12,007Income Before Income Taxes


3,300



2,405


8,455


6,986Income taxes


1,007



685


2,483


1,986Net Income

$
2,293


$
1,720

$
5,972

$
5,000Net income per common share:Basic

$
.45


$
.34

$
1.22

$
.99Diluted


.43



.34


1.18


.97Weighted average number of shares outstanding:Basic


5,151,852



5,009,017


4,890,662


5,044,566Diluted


5,372,825



5,117,112


5,049,612


5,130,706Cash dividends declared per common share

$
.14


$
.12

$
.42

$
.36





See accompanying notes to consolidated financial statements.




3




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FNB Corp. and Subsidiaries





CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME





Nine Months Ended September 30, 2002 and September 30, 2001 (unaudited)





Common Stock


Surplus


Retained Earnings


Accumulated Other Comprehensive Income
(Loss)


TotalShares


Amount(in thousands, except share data)Balance, December 31, 2000

$
5,059,641


$
12,649


$
2,836


$
40,000


$
(363
)

$
55,122Comprehensive income:Net income














5,000







5,000Other comprehensive income:Unrealized securities gains, net of income taxes of $1,346


















2,617



2,617Total comprehensive income






















7,617Cash dividends declared














(1,800
)






(1,800
)Common stock issued through:Stock option plan


24,461



61



174











235Common stock repurchased


(171,890
)


(429
)


(2,156
)










(2,585
)Balance, September 30, 2001


4,912,212


$
12,281


$
854


$
43,200


$
2,254


$
58,589Balance, December 31, 2001


4,763,261


$
11,908


$



$
43,032


$
967


$
55,907Comprehensive income:Net income














5,972







5,972Other comprehensive income:Unrealized securities gains, net of income taxes of $1,774


















3,438



3,438Total comprehensive income






















9,410Cash dividends declared














(2,090
)






(2,090
)Common stock issued through:Stock option plan


104,249



261



303











564Merger acquisition of subsidiary bank


603,859



1,510



7,584











9,094Other merger consideration for fair value of stock options assumed










1,531











1.531Common stock repurchased


(59,143
)


(148
)


(658
)


(181
)






(987
)Balance, September 30, 2002


5,412,226


$
13,531


$
8,760


$
46,733


$
4,405


$
73,429





See accompanying notes to consolidated financial statements.




4




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FNB Corp. and Subsidiaries





CONSOLIDATED STATEMENTS OF CASH FLOWS





Nine Months Ended September 30, (unaudited)2002


2001(in thousands)Operating Activities:Net income

$
5,972


$
5,000Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization of premises and equipment


955



856Provision for loan losses


1,325



490Deferred income taxes (benefit)


(209
)


31Deferred loan fees and costs, net


45



65Premium amortization and discount accretion of investment securities, net


24



(6
)Amortization of intangibles


13



7Net decrease in loans held for sale


10,647



6,965Increase in other assets


(318
)


(1,221
)Increase (decrease) in other liabilities


(1,955
)


142Net Cash Provided by Operating Activities


16,499



12,329Investing Activities:Available-for-sale securities:Proceeds from maturities and calls


57,485



96,723Purchases


(55,143
)


(105,452
)Net increase in loans held for investment


(21,036
)


(7,949
)Purchases of premises and equipment


(1,043
)


(1,234
)Net cash received in merger acquisition of subsidiary bank


6,885



Other, net


4



552Net Cash Used in Investing Activities


(12,848
)


(17,360
)Financing Activities:Net increase (decrease) in deposits


(1,100
)


7,168Increase in retail repurchase agreements


467



2,678Increase in Federal Home Loan Bank advances


15,000



10,000Decrease in federal funds purchased


(5,400
)


(4,750
)Increase in other borrowed funds


11,000



Common stock issued


564



235Common stock repurchased


(987
)


(2,585
)Cash dividends paid


(2,142
)


(1,973
)Net Cash Provided by Financing Activities


17,402



10,773Net Increase in Cash and Cash Equivalents


21,053



5,742Cash and cash equivalents at beginning of period


13,617



14,202Cash and Cash Equivalents at End of Period

$
34,670


$
19,944Supplemental disclosure of cash flow information:Cash paid during the period for:Interest

$
11,580


$
16,609Income taxes


2,385



2,195Noncash transactions:Transfer of held-to-maturity securities to available-for-sale securities






59,361Foreclosed loans transferred to other real estate


327



626Unrealized securities gains, net of income taxes


3,438



2,617Merger acquisition of subsidiary bank:Fair value of assets acquired


134,208



Fair value of common stock issued and stock options assumed


10,625



Cash paid


11,205



Liabilities assumed


112,378









See accompanying notes to consolidated financial statements.




5




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FNB Corp. and Subsidiaries





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





|1. |  | Basis of Presentation
|-- |  | ---------------------




FNB Corp. is a multi-bank holding company whose wholly-owned subsidiaries are the First National Bank and Trust Company (First National Bank) and Rowan Savings Bank SSB, Inc. (Rowan Bank). First
National Bank has one wholly-owned subsidiary, First National Investor Services, Inc. Through its subsidiaries, FNB Corp. offers a complete line of consumer, mortgage and business banking services, including loans, deposits, cash management,
investment management and trust services, to individual and business customers primarily in the region of North Carolina that includes Chatham, Montgomery, Moore, Randolph, Richmond, Rowan and Scotland counties.





The accompanying consolidated financial statements, prepared without audit, include the accounts of FNB Corp. and its subsidiaries
(collectively the Corporation). All significant intercompany balances and transactions have been eliminated. The chief operating decision maker reviews the results of operations of the Corporation and its subsidiaries as a single
enterprise.





The preparation of the consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.





|2. |  | Cash and Cash equivalents
|-- |  | -------------------------




For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold. Generally, federal funds are purchased and sold for one-day
periods.





|3. |  | Merger Information
|-- |  | ------------------




On August 1, 2002, the Corporation completed a merger for the acquisition of Rowan Bancorp, Inc. (Rowan Bancorp), holding company for Rowan Savings Bank SSB, Inc. (Rowan Bank), headquartered in China
Grove, North Carolina. Per the terms of the merger agreement, Rowan Bank will be operated as a separate subsidiary of FNB Corp. for a period of not less than 24 months; provided, however, that the Board of Directors of Rowan Bank may elect to cause
Rowan Bank to merge with First National Bank or another subsidiary of FNB Corp. prior to the termination of the 24-month period. At the date of merger, Rowan Bank operated three offices and, based on estimated fair values, had $134,208,000 in total
assets, $95,738,000 in loans and $101,205,000 in deposits.







6




---




Pursuant to the terms of the merger, each share of Rowan Bancorp common stock was
converted into either 2.3715 shares of FNB Corp. common stock or $36.00 in cash or a combination of stock and cash, the overall conversion to stock being limited to 45% of Rowan Bancorp shares. The aggregate purchase price was $21,830,000,
consisting of $11,205,000 of cash payments, 603,859 shares of FNB Corp. common stock valued at $9,094,000 and outstanding Rowan Bancorp stock options valued at $1,531,000.





The merger transaction has been accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of Rowan Bank
were recorded based on a preliminary estimate of fair values as of August 1, 2002, subject to possible adjustment during the one-year period from that date. The consolidated financial statements include the results of operations of Rowan Bank
since August 1, 2002.





The estimated fair values of the assets acquired and liabilities assumed at the date of
merger based on the information currently available is as follows (in thousands):





August 1, 2002AssetsCash and due from banks

$
5,270Interest-bearing bank balances


12,820Investment securities


4,926Loans:Loans held for sale


Loans held for investment


95,738Less allowance for loan losses


(1,039)Net loans


94,699Premises and equipment, net


3,124Intangible assets


12,857Other assets acquired


512Total assets acquired


134,208LiabilitiesDeposits


101,205Retail repurchase agreements


534Federal Home Loan Bank advances


8,423Other liabilities


2,216Total liabilities assumed


112,378Net Assets Acquired and Purchase Price

$
21,830







7




---




The portion of the purchase price allocated to goodwill and other intangible
assets is presented below (in thousands):





August 1, 2002Purchase price

$
21,830Tangible shareholders equity of Rowan Bank


10,145Excess of purchase price over carrying value ofnet tangible assets acquired


11,685Fair value adjustments


(570
)Direct acquisition costs


1,611Deferred and recoverable income taxes


131Total intangible assets


12,857Core deposit intangible


256Goodwill

$
12,601





The core deposit intangible will be amortized on the
sum-of-the-years-digits basis over a six-year life. The amortization method and valuation of the core deposit intangible are based upon a historical study of the deposits acquired. Goodwill will not be amortized but will be tested at least annually
for impairment in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. None of the goodwill is expected to be deductible for income tax purposes.





The following unaudited pro forma financial information presents the combined results of operations of FNB Corp. and Rowan Bancorp as if
the merger had occurred as of the beginning of the period for each period presented, after giving effect to certain adjustments, including amortization of the core deposit intangible and related income tax effects. The pro forma financial
information does not necessarily reflect the results of operations that would have occurred had FNB Corp. and Rowan Bancorp constituted a single entity during such periods.





Three Months Ended September 30,

Nine Months Ended September 30,2002

2001

2002

2001(in thousands, except per share data)Net interest income

$
7,080

$
6,234

$
21,135

$
17,932Noninterest income


2,263


1,627


6,095


4,900Net income


2,386


1,938


6,448


5,620Net income per common share:Basic


.45


.35


1.20


.99Diluted


.43


.33


1.15


.96







8




---




Direct acquisition costs of $1,611,000 associated with the merger are included in
goodwill and are summarized as follows:





September 30, 2002Total Costs

Amounts Paid

Remaining Accrual(in thousands)Investment banking and professional fees

$
1,067

$
963

$
104Contract termination costs


460


368


92Other


84


55


29Total

$
1,611

$
1,386

$
225





The contract termination costs include a payment required to be
made to an executive pursuant to an employment contract and estimated payments to be incurred in connection with the termination of certain data processing contracts.





|4. |  | Adoption of SFAS No. 133
|-- |  | ------------------------




On January 1, 2001, the Corporation adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as further amended by
Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Financial Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 138 (collectively referred to as SFAS No. 133).
This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. As permitted by
SFAS No. 133, on January 1, 2001, the Corporation transferred all of its securities from the held-to-maturity portfolio to the available-for-sale portfolio as follows:





Securities TransferredAmortized Cost

Estimated Fair Value

Unrealized Gain (Loss)(in thousands)U.S. Government agencies and corporations

$
36,089

$
35,759

$
(330
)Mortgage-backed securities


483


488


5State, county and municipal


19,735


20,352


617Other debt securities


3,054


3,128


74Total

$
59,361

$
59,727

$
366





As of January 1, 2001, the transfer of the securities had a net of
tax effect of $242,000 on other comprehensive income.




9




---




On January 1, 2001, the Corporation had no embedded derivative instruments
requiring separate accounting treatment. The Corporation does not engage in hedging activities and has identified fixed rate conforming loan commitments as its only freestanding derivative instruments. The fair value of these commitments was not
material and therefore the adoption of SFAS No. 133 on January 1, 2001, did not have a material impact on the Corporations consolidated financial statements. The fair value of these commitments at September 30, 2002 and 2001 was not material
to the Corporations consolidated financial statements. The Corporation had no other derivative instruments requiring separate accounting treatment at September 30, 2002 and 2001.





|5. |  | Earnings Per Share (EPS)
|-- |  | ------------------------




Basic net income per share, or basic earnings per share (EPS), is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if the Corporations dilutive stock options were exercised. The numerator of the basic EPS computation is the same as the numerator of the diluted EPS computation for all periods presented. A reconciliation
of the denominators of the basic and diluted EPS computations is as follows:





Three Months Ended September 30,

Nine Months Ended September 30,2002

2001

2002

2001Basic EPS denominatorWeightedaverage number of common shares outstanding

5,151,852

5,009,017

4,890,662

5,044,566Dilutive share effect arising fromassumed exercise of stock options

220,973

108,095

158,950

86,140Diluted EPS denominator

5,372,825

5,117,112

5,049,612

5,130,706





|6. |  | Loans
|-- |  | -----




Loans as presented are reduced by net deferred loan fees of $814,000, $470,000 and $514,000 at September 30, 2002, September 30, 2001 and December 31, 2001, respectively.




10




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|7. |  | Allowance for Loan Losses
|-- |  | -------------------------




Changes in the allowance for loan losses were as follows:





Three Months Ended September 30,

Nine Months Ended September 30,2002

2001

2002

2001(in thousands)Balance at beginning of period

$
4,672

$
4,353

$
4,417

$
4,352Charge-offs


277


166


1,135


481Recoveries


105


30


178


104Net loan charge-offs


172


136


957


377Provision for loan losses


285


205


1,325


490Allowance adjustment for loans assumed in merger


1,039





1,039


Allowance adjustment for loans sold











(43
)Balance at end of period

$
4,422

$
5,824

$
5,824

$
4,422





|8. |  | Supplementary Income Statement Information
|-- |  | ------------------------------------------




Significant components of other expense were as follows:





Three Months Ended September 30,

Nine Months Ended September 30,2002

2001

2002

2001(in thousands)Stationery, printing and supplies

$
141

$
126

$
372

$
385Advertising and marketing


119


84


318


254





|9. |  | Adoption of New Accounting Pronouncement
|-- |  | ----------------------------------------




In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS No. 141), and Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 141 also specifies criteria which
must be met for intangible assets acquired in a purchase method business combination to be recognized and reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized,
but instead be tested for impairment at least annually in accordance with the provisions of SFAS No. 142. Also, SFAS No. 142 requires that identifiable intangible assets with definite useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and be reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The adoption of SFAS No. 141 and SFAS No. 142 impacted the
Corporations consolidated financial statements




11




---

by requiring enhanced disclosures for mortgage servicing rights and other intangible assets. As of January 1, 2002, the Corporation had no goodwill and had an intangible asset related to mortgage
servicing rights of $482,000.





Mortgage Servicing Rights





The rights to service mortgage loans for others are included in other assets on the consolidated balance sheet. MSRs are capitalized based
on the allocated cost which is determined when the underlying loans are sold. MSRs are amortized over the life of the underlying loan as an adjustment of servicing income. Impairment reviews of MSRs are performed on a quarterly basis.





MSRs totaled $890,000 and $482,000 at September 30, 2002 and December 31, 2001, respectively. Amortization expense totaled
$100,000 and $28,000 for the nine months ended September 30, 2002 and 2001, respectively, and $42,000 and $12,000 for the third quarter periods of 2002 and 2001.





The estimated amortization expense for MSRs in future periods based on the unamortized balance at December 31, 2001 is as follows: $66,000 in 2002, $44,000 in 2003, $41,000 in 2004, $39,000 in 2005,
$35,000 in 2006 and $257,000 in 2007 and later years. The estimated amortization expense is based on current information regarding loan payments. The actual amortization expense in future periods is subject to change based on the volume of
prepayments.





Other Intangible Assets





As discussed in Note 3, the Corporation completed a merger for the acquisition of Rowan Bancorp, holding company for Rowan Bank, on August 1, 2002. The Corporation, which
reports as one reporting unit, recorded intangible assets in conjunction with the merger as follows (in thousands):





September 30, 2002Goodwill

$
12,601Core deposit intangible


256Less accumulated amortization


(12
)Total

$
12,845





The estimated amortization expense for the core deposit intangible
in future periods based on the initial amount of $256,000 as determined at August 1, 2002 is as follows: $30,000 in 2002, $68,000 in 2003, $56,000 in 2004, $44,000 in 2005, $32,000 in 2006, $19,000 in 2007 and $7,000 in 2008.




12




---




Item 2.    Managements Discussion and Analysis of Financial Condition and
Results of Operations





The purpose of this discussion and analysis is to assist in the understanding and
evaluation of the financial condition, changes in financial condition and results of operations of FNB Corp. (the Parent Company) and its wholly-owned subsidiaries, First National Bank and Trust Company (First National Bank)
and Rowan Savings Bank SSB, Inc. (Rowan Bank), collectively referred to as the Corporation. This discussion should be read in conjunction with the financial information appearing elsewhere in this report.





Overview





On August 1, 2002, the Corporation completed a merger for the acquisition of Rowan Bancorp, Inc. (Rowan Bancorp), holding company for Rowan Savings Bank SSB, Inc. (Rowan Bank), headquartered in China Grove,
North Carolina. Per the terms of the merger agreement, Rowan Bank will be operated as a separate subsidiary of FNB Corp. for a period of not less than 24 months; provided, however, that the Board of Directors of Rowan Bank may elect to cause Rowan
Bank to merge with First National Bank or another subsidiary of FNB Corp. prior to the termination of the 24-month period. At the date of merger, Rowan Bank operated three offices and, based on estimated fair values, had $134,208,000 in total
assets, $95,738,000 in loans and $101,205,000 in deposits.





Pursuant to the terms of the merger, each share of
Rowan Bancorp common stock was converted into either 2.3715 shares of FNB Corp. common stock or $36.00 in cash or a combination of stock and cash, the overall conversion to stock being limited to 45% of Rowan Bancorp shares. The aggregate purchase
price was $21,830,000, consisting of $11,205,000 of cash payments, 603,859 shares of FNB Corp. common stock valued at $9,094,000 and outstanding Rowan Bancorp stock options valued at $1,531,000.





The merger transaction has been accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of Rowan
Bank were recorded based on a preliminary estimate of fair values as of August 1, 2002, subject to possible adjustment during the one-year period from that date. The consolidated financial statements include the results of operations of Rowan Bank
since August 1, 2002.





In the 2000 fourth quarter, management adopted a balance sheet restructuring project to
reduce the level of lower yielding, 14 family residential mortgage loans by selling those loans and redeploying the funds in other types of assets, including specific purchases of bank owned life insurance and a more general redeployment to
other loan programs and investment securities. 14 family residential mortgage loans totaling $20,938,000 were transferred to loans held for sale, and of that amount, $12,199,000 were sold in 2000 and the remainder were sold in the first
quarter of 2001. In December 2000, single premium purchases of life insurance amounting to $10,000,000 were recorded as bank owned life insurance in other assets on the consolidated balance sheet. Income relating to the bank owned life insurance is
being recorded as noninterest income, while the loans sold had generated interest income. The effective reduction of interest income will tend to lower the net yield on earning assets and net interest spread in future periods. Management believes
that the income resulting from the bank owned life insurance, which is not subject to income tax, will produce a greater contribution to net income than did the income from the loans sold.





The Corporation earned $5,972,000 in the first nine months of 2002, a 19.4% increase over the same period in 2001. Reflecting the effect of a stock buyback programs
implemented in May 2001 and August




13




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2002, earnings per share amounts increased by a higher percentage than did net income in comparing these
nine-month periods. Basic earnings per share increased from $.99 to $1.22 and diluted earnings per share increased from $.97 to $1.18 for percentage increases of 23.2% and 21.6%, respectively. As noted above, Rowan Bank was acquired as a subsidiary
through a merger effective August 1, 2002, impacting both net income and the calculation of earnings per share since that time. For the 2002 third quarter, earnings amounted to $2,293,000, which represents a 33.3% increase from the 2001 third
quarter. Basic earnings per share in comparing third quarter periods increased from $.34 to $.45 and diluted earnings per share increased from $.34 to $.43 for percentage increases of 32.4% and 26.5%, respectively. Under the May 2001 buyback
program, which expired in May 2002, the Corporation repurchased 320,841 shares of common stock in 2001 and 17,243 shares in the first quarter of 2002. Under the new buyback program for the repurchase of up to 300,000 shares of common stock during
the period commencing August 1, 2002 and ending July 31, 2003, the Corporation repurchased 41,900 shares through September 30, 2002.





Largely reflecting the acquisition of Rowan Bank on August 1, 2002 as discussed above, total assets were $742,590,000 at September 30, 2002, up 27.0% from September 30, 2001 and 25.1% from December 31, 2001. Loans amounted
to $496,098,000 at September 30, 2002, increasing 25.4% from September 30, 2001 and 26.7% from December 31, 2001. Total deposits were up 21.0% from September 30, 2001 and 20.8% from December 31, 2001, amounting to $580,250,000 at September 30, 2002.
Investment securities of $170,905,000 at September 30, 2002 were 17.8% higher compared to September 30, 2001 and 4.8% higher compared to December 31, 2001.





Critical Accounting Policies





The Corporations significant accounting
policies are set forth in Note 1 to the Consolidated Financial Statements contained in the Form 10-K Annual Report for the fiscal year ended December 31, 2001. Of these significant accounting policies, the Corporation considers its policy regarding
the allowance for loan losses to be its most critical accounting policy, because it requires managements most subjective and complex judgments. In addition, changes in economic conditions can have a significant impact on the allowance for loan
losses and therefore the provision for loan losses and results of operations. The Corporation has developed appropriate policies and procedures for assessing the adequacy of the allowance for loan losses, recognizing that this process requires a
number of assumptions and estimates with respect to its loan portfolio. The Corporations assessments may be impacted in future periods by changes in economic conditions, the impact of regulatory examinations, and the discovery of information
with respect to borrowers which is not known to management at the time of the issuance of the consolidated financial statements. For additional discussion concerning the Corporations allowance for loan losses and related matters, see
Asset Quality.





Earnings Review





The Corporations net income increased $972,000 or 19.4% in the first nine months of 2002 compared to the same period of 2001 and increased $573,000 or 33.3% in
comparing third quarter periods, reflecting in part the acquisition of Rowan Bank on August 1, 2002 as discussed above. Earnings were positively impacted in the first nine months and third quarter of 2002 by increases in net interest income of
$3,357,000 or 22.2% and $1,422,000 or 27.1%, respectively, and by increases of $1,192,000 and $733,000 in noninterest income. These gains were significantly offset, however, by increases in noninterest expense of $2,245,000 in the first nine months
of 2002 and $1,180,000 in the 2002 third quarter and by increases in the provision for loan losses of $835,000 and $80,000. Noninterest income has been favorably impacted by the increase in service charges on deposit accounts resulting from the
implementation of an overdraft protection




14




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program in July 2002 and by the increase in the net gain on sales of loans as long-term conforming
mortgage rates have remained at historical lows.





On an annualized basis, return on average assets increased from
1.15% in the first nine months of 2001 to 1.27% in the first nine months of 2002. Return on average shareholders equity increased from 11.52% to 13.11% in comparing the same periods. In comparing third quarter periods, return on average assets
increased from 1.17% to 1.34% and return on average shareholders equity increased from 11.70% to 13.46%. Return on tangible equity, excluding goodwill, amounted to 13.75% for the first nine months of 2002 and 15.35% for the 2002 third quarter.





Net Interest Income





Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits. Changes in net interest income result from
changes in interest rates and in the volume, or average dollar level, and mix of earning assets and interest-bearing liabilities.





Net interest income was $18,473,000 in the first nine months of 2002 compared to $15,116,000 in the same period of 2001. This increase of $3,357,000 or 22.2% resulted partially from the acquisition of Rowan Bank on August 1, 2002 as
discussed above, but was primarily due to an improvement in the net yield on earning assets, or net interest margin, from 3.93% in the first nine months of 2001 to 4.49% in the same period of 2002 coupled with a 6.9% increase in the level of average
earning assets. In comparing third quarter periods, net interest income increased $1,422,000 or 27.1% reflecting an increase in the net interest margin from 4.05% to 4.44% and a 14.9% increase in average earning assets. On a taxable equivalent
basis, the increase in net interest income in the first nine months and third quarter of 2002 were $3,549,000 and $1,454,000, respectively, reflecting changes in the relative mix of taxable and non-taxable earning assets in each period.





Table 1 on page 25 and Table 2 on page 26 set forth for the periods indicated information with respect to the
Corporations average balances of assets and liabilities, as well as the total dollar amounts of interest income (taxable equivalent basis) from earning assets and interest expense on interest-bearing liabilities, resultant rates earned or
paid, net interest income, net interest spread and net yield on earning assets. Net interest spread refers to the difference between the average yield on earning assets and the average rate paid on interest-bearing liabilities. Net yield on earning
assets, or net interest margin, refers to net interest income divided by average earning assets and is influenced by the level and relative mix of earning assets and interest-bearing liabilities. Changes in net interest income on a taxable
equivalent basis, as measured by volume and rate variances, are also analyzed in Tables 1 and 2. Volume refers to the average dollar level of earning assets and interest-bearing liabilities.





Changes in the net interest margin and net interest spread tend to correlate with movements in the prime rate of interest. There are variations, however, in the degree and
timing of rate changes, compared to prime, for the different types of earning assets and interest-bearing liabilities.





Until the significant interest rate declines in 2001, there had been a much greater degree of stability for several years in the interest rates both earned and paid by the Bank. After rate cuts totaling 4.75%, the prime rate averaged
6.99% in 2001 compared to the average prime rates of 9.21%, 7.99% and 8.37% in 2000, 1999 and 1998, respectively. Due to a general slowdown in the economy that began to be perceived in the




15




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2000 fourth quarter, the Federal Reserve acted to provide a stimulus through a series of interest rate
reductions commencing in the 2001 first quarter, resulting in eight 50 basis point reductions and three 25 basis point reductions in the prime rate that lowered it to the 4.75% level at December 31, 2001. The reductions in the prime rate tended to
negatively impact the net interest margin and net interest spread until the 2001 third quarter when these measures began to improve.





Following the rate cuts in 2001, the prime rate averaged 4.75% in the first nine months of 2002 compared to 7.61% in the first nine months of 2001. The prime rate averaged 4.75% in the third quarter of 2002 compared to 6.64%
in the 2001 third quarter. The net interest spread, in comparing nine-month periods, increased by 83 basis points from 3.29% in 2001 to 4.12% in 2002, reflecting the effect of a decrease in the average rate paid on interest-bearing liabilities, or
cost of funds, that more than offset the decrease in the average total yield on earning assets. The yield on earning assets decreased by 107 basis points from 7.94% in 2001 to 6.87% in 2002, while the cost of funds decreased by 190 basis points from
4.65% to 2.75%. In comparing third quarter periods, the net interest spread increased by 63 basis points from 3.49% to 4.12%, as the yield on earning assets decreased by 98 basis points while the cost of funds decreased by 161 basis points.





Provision for Loan Losses





This provision is the charge against earnings to provide an allowance or reserve for probable losses inherent in the loan portfolio. The amount of each periods charge is affected by several
considerations including managements evaluation of various risk factors in determining the adequacy of the allowance (see Asset Quality), actual loan loss experience and loan portfolio growth. Earnings were negatively impacted in
2002 by provisions of $1,325,000 for the first nine months and $285,000 for the third quarter compared to 2001 provisions of $490,000 and $205,000, respectively.





The allowance for loan losses, as a percentage of loans held for investment, amounted to 1.18% at September 30, 2002, 1.13% at September 30, 2001 and 1.17% at December 31, 2001. The increase in the
allowance percentage from September 30, 2001 to September 30, 2002 related primarily to asset quality considerations, increases in historical charge-off trends and general economic conditions.





Noninterest Income





Noninterest income for the
first nine months and third quarter of 2002 increased $1,192,000 or 27.3% and $733,000 or 50.4%, respectively, compared to the same periods in 2001, reflecting in part the acquisition of Rowan Bank on August 1, 2002 as discussed above and also the
general increase in the volume of business. The increase, in comparing nine-month periods, was primarily due to a $651,000 increase in service charges on deposit accounts and to a $357,000 increase in the net gain on sales of loans. Similarly, in
comparing third quarter periods, there was a $519,000 increase in service charges on deposit accounts and a $116,000 increase in the net gain on sales of loans. The increase in service charges on deposit accounts was primarily due to the
implementation of an overdraft protection program in July 2002. Other factors favorably affecting the level of service charges on deposit accounts in 2002 were the selected increases in service charge rates that became effective in the 2002 first
and third quarters and the increase in the level of deposit accounts subject to service charges. The net gain on sales of loans was affected in 2002 by long-term conforming mortgage rates that have remained at historical lows.




16




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Noninterest Expense





Noninterest expense was $2,245,000 or 18.7% higher in the first nine months of 2002 compared to the same period in 2001 and for the third quarter was $1,180,000 or 28.8%
higher, due in part to the acquisition of Rowan Bank on August 1, 2002 as discussed above. The largest factor resulting in higher noninterest income was the generally increased level of personnel expense, which was impacted by increased staffing
requirements in addition to the acquisition of Rowan Bank, by normal salary adjustments and by higher costs of fringe benefits. Other expense was affected in 2002 by increases in advertising and marketing expense, by expenses related to
nonperforming assets, by losses recorded on disposal of fixed asset and by expenses related to the new overdraft protection program (see Noninterest Income).





Income Taxes





The effective income tax rate increased from
28.4% in the first nine months of 2001 to 29.4% in the same period of 2002 due principally to an increase in the ratio of taxable to non-taxable income.





Liquidity





Liquidity refers to the continuing ability of First National Bank and Rowan Bank
to meet deposit withdrawals, fund loan and capital expenditure commitments, maintain reserve requirements, pay operating expenses and provide funds to the Parent Company for payment of dividends, debt service and other operational requirements.
Liquidity is immediately available from five major sources: (a) cash on hand and on deposit at other banks, (b) the outstanding balance of federal funds sold, (c) lines for the purchase of federal funds from other banks, (d) the lines of credit
established at the Federal Home Loan Bank ($71,200,000 for First National Bank and $23,700,000 for Rowan Bank), less existing advances against those lines, and (e) the investment securities portfolio. All debt securities are of investment grade
quality and, if the need arises, can be promptly liquidated on the open market or pledged as collateral for short-term borrowing.





Consistent with the general approach to liquidity, First National Bank and Rowan Bank as a matter of policy do not solicit or accept brokered deposits for funding asset growth. Instead, loans and other assets are based primarily on a
core of local deposits and the banks capital position. To date, the steady increase in deposits, retail repurchase agreements and capital, supplemented by Federal Home Loan Bank advances, has been adequate to fund loan demand in the each
banks market area, while maintaining the desired level of immediate liquidity and an investment securities portfolio available for both immediate and secondary liquidity purposes.





Commitments, Contingencies and Off-Balance Sheet Risk





In the normal course of business, various commitments are outstanding that are not reflected in the consolidated financial statements. At September 30, 2002, a summary of significant commitments is as follows:





Commitments to extend credit

$
135,210,000Standby letters of credit


466,000





In managements opinion, these commitments will be funded from
normal operations with not more than the normal risk of loss.




17




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Commitments to extend credit and undisbursed advances on customer lines of 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
commitments expire without being drawn, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary, upon extension of credit is based on the credit evaluation of the borrower.





Standby letters
of credit are commitments issued by the Corporation to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that in extending loans to customers.





There were no binding commitments for the origination of mortgage loans intended to be held for sale at September 30, 2002.





The Corporation does not have any special purpose entities or other similar forms of off-balance sheet financing.





Asset/Liability Management and Interest Rate Sensitivity





One of the primary objectives of asset/liability management is to maximize the net interest margin while minimizing the earnings risk associated with changes in interest
rates. One method used to manage interest rate sensitivity is to measure, over various time periods, the interest rate sensitivity positions, or gaps; however, this method addresses only the magnitude of timing differences and does not address
earnings or market value. Therefore, management uses an earnings simulation model to prepare, on a regular basis, earnings projections based on a range of interest rate scenarios in order to more accurately measure interest rate risk.





The Corporations balance sheet was liability-sensitive at September 30, 2002. A liability-sensitive position means that
in gap measurement periods of one year or less there are more liabilities than assets subject to immediate repricing as market rates change. Because immediately rate sensitive interest-bearing liabilities exceed rate sensitive assets, the earnings
position could improve in a declining rate environment and could deteriorate in a rising rate environment, depending on the correlation of rate changes in these two categories. Included in interest-bearing liabilities subject to rate changes within
90 days is a portion of the interest-bearing demand, savings and money market deposits. These types of deposits historically have not repriced coincidentally with or in the same proportion as general market indicators.





Capital Adequacy





Under guidelines established by the Board of Governors of the Federal Reserve System, capital adequacy is currently measured for regulatory purposes by certain risk-based capital ratios, supplemented by a leverage capital ratio. The
risk-based capital ratios are determined by expressing allowable capital amounts, defined in terms of Tier 1, Tier 2 and Tier 3, as a percentage of risk-weighted assets, which are computed by measuring the relative credit risk of both the asset
categories on the balance sheet and various off-balance sheet exposures. Tier 1 capital consists primarily of common shareholders equity and qualifying perpetual preferred stock, net of goodwill and other disallowed intangible assets. Tier 2
capital, which is limited to the total of Tier 1 capital, includes allowable amounts of subordinated debt, mandatory convertible debt,




18




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preferred stock and the allowance for loan losses. Tier 3 capital, applicable only to financial
institutions subject to certain market risk capital guidelines, is capital allocated to support the market risk related to a financial institutions ongoing trading activities. At September 30, 2002, FNB Corp. and each of the subsidiary banks
were not subject to the market risk capital guidelines and, accordingly, had no Tier 3 capital allocation. Total capital, for risk-based purposes, consists of the sum of Tier 1, Tier 2 and Tier 3 capital. Under current requirements, the minimum
total capital ratio is 8.00% and the minimum Tier 1 capital ratio is 4.00%. At September 30, 2002, FNB Corp. had a total capital ratio of 12.00% and a Tier 1 capital ratio of 10.87%. First National Bank and Rowan Bank had total capital ratios of
13.54% and 13.74%, respectively, and Tier 1 capital ratios of 12.44% and 12.48%, respectively.





The leverage
capital ratio, which serves as a minimum capital standard, considers Tier 1 capital only and is expressed as a percentage of average total assets for the most recent quarter, after reduction of those assets for goodwill and other disallowed
intangible assets at the measurement date. As currently required, the minimum leverage capital ratio is 4.00%. At September 30, 2002, FNB Corp. had a leverage capital ratio of 8.42%. First National Bank and Rowan Bank had leverage capital ratios of
9.25% and 8.22%, respectively.





First National Bank and Rowan Bank are also required to comply with prompt
corrective action provisions established by the Federal Deposit Insurance Corporation Improvement Act. To be categorized as well-capitalized, a bank must have a minimum ratio for total capital of 10.00%, for Tier 1 capital of 6.00% and for leverage
capital of 5.00%. As noted above, both First National Bank and Rowan Bank met all of those ratio requirements at September 30, 2002 and, accordingly, are well-capitalized under the regulatory framework for prompt corrective action.





Balance Sheet Review





Largely reflecting the acquisition of Rowan Bank as discussed in the Overview, total assets at September 30, 2002 were higher than at September 30, 2001 and December 31, 2001 by $157,691,000 or 27.0% and $148,848,000 or
25.1%, respectively; deposits were ahead by $100,634,000 or 21.0% and $100,020,000 or 20.8%. The level of total assets was also affected by advances from the Federal Home Loan Bank to First National Bank, which at September 30, 2002 had increased by
$20,000,000 compared to September 30, 2001 and $15,000,000 compared to December 31, 2001. Average assets increased 7.6% in the first nine months of 2002 compared to the same period in 2001, while average deposits increased 6.2%, the third quarter
increases being 16.5% and 13.6%, respectively.





Investment Securities





Additions to the investment securities portfolio depend to a large extent on the availability of investable funds that are not otherwise needed to satisfy loan demand.
Reflecting in part the the acquisition of Rowan Bank on August 1, 2002 as discussed in the Overview, the level of investment securities was increased $25,812,000 during the twelve-month period ended September 30, 2002 and $7,755,000
during the first nine months of 2002. Investable funds not otherwise utilized are temporarily invested as federal funds sold or as interest-bearing balances at other banks, the level of which is affected by such considerations as near-term loan
demand and liquidity needs.




19




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Loans





The Corporations primary source of revenue and largest component of earning assets is the loan portfolio. Due primarily to the acquisition of Rowan Bank on August 1, 2002 as discussed in the
Overview, loans increased $100,463,000 or 25.4% during the twelve-month period ended September 30, 2002. The loan increase during the first nine months of 2002 was $104,466,000 or 26.7%. Average loans were $18,766,000 or 4.8% higher in
the first nine months of 2002 than in the same period of 2001. The ratio of average loans to average deposits, in comparing nine-month periods, decreased from 81.7% in 2001 to 80.6% in 2002. The ratio of loans to deposits at September 30, 2002 was
85.5%.





While the level of the entire loan portfolio has been adversely affected by the general slowdown in the
economy, the portfolios related to commercial and agricultural loans, construction loans and commercial and other real estate loans experienced gains during both the twelve-month period ended September 30, 2002 and the first nine months of 2002. The
balance of the 1-4 family residential mortgage loan portfolio has been negatively affected by the high level of refinancing activity, especially since certain loans previously included in the held for investment category were refinanced
and subsequently sold.





Asset Quality





Management considers the Corporations asset quality to be of primary importance. A formal loan review function, independent of loan origination, is used to identify and monitor problem loans. As
part of the loan review function, a third party assessment group is employed to review the underwriting documentation and risk grading analysis.





In determining the allowance for loan losses and any resulting provision to be charged against earnings, particular emphasis is placed on the results of the loan review process. Consideration is also
given to a review of individual loans, historical loan loss experience, the value and adequacy of collateral, and economic conditions in the market areas of First National Bank and Rowan Bank. For loans determined to be impaired, the allowance is
based on discounted cash flows using the loans initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. This evaluation is inherently subjective as it requires material estimates, including
the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the
allowance for loan losses. Such agencies may require First National Bank and Rowan Bank to recognize changes to the allowance based on their judgments about information available to them at the time of their examination. Loans are charged off when,
in the opinion of management, they are deemed to be uncollectible. Recognized losses are charged against the allowance, and subsequent recoveries are added to the allowance.





At September 30, 2002, the Corporation had impaired loans which totaled $1,560,000 and were also on nonaccrual status. The related allowance for loan losses on these loans
amounted to $610,000. At September 30, 2002, nonperforming loans were $5,150,000 in total, nonaccrual loans and accruing loans past due 90 days or more amounting to $4,552,000 and $598,000, respectively. At September 30, 2001, nonperforming loans
were $5,814,000 in total, nonaccrual loans and accruing loans past due 90 days or more amounting to $3,705,000 and $2,109,000, respectively.




20




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A model that considers both allocated and unallocated components of the allowance
for loan losses is used on a quarterly basis to analyze the adequacy of the allowance to absorb probable losses inherent in the loan portfolio. Homogeneous pools of loans are segregated, and classifications of individual loans within certain of
these pools are identified using risk grades derived from regulatory guidelines. Allocations of estimated reserves are assigned to the most adversely classified loans based upon an individual analysis of present-value repayment and/or liquidation
projections of each loan. The reserve is allocated to each pool, and remaining classifications within pools, based upon a two-year historical loss ratio, concentrations within industries, economic and industry-specific trends, portfolio trends, and
other subjective factors. An additional portion of the reserve is unallocated to any specific portion of the loan portfolio, and is based upon the mix and weight of the several homogeneous pools. The determination within the allowance model of
allocated and unallocated components is not necessarily indicative of future losses or allocations. The entire balance of the allowance for loan losses is available to absorb losses in the loan portfolio.





The allowance for loan losses, as a percentage of loans held for investment, amounted to 1.18% at September 30, 2002, 1.13% at September
30, 2001 and 1.17% at December 31, 2001. The increase in the allowance percentage from September 30, 2001 to September 30, 2002 related primarily to asset quality considerations, increases in historical charge-off trends and general economic
conditions.





Management believes the allowance for loan losses of $5,824,000 at September 30, 2002 is adequate to
cover probable losses in the loan portfolio; however, assessing the adequacy of the allowance is a process that requires considerable judgment. Managements judgments are based on numerous assumptions about current events which it believes to
be reasonable, but which may or may not be valid. Thus there can be no assurance that loan losses in future periods will not exceed the current allowance or that future increases in the allowance will not be required. No assurance can be given that
managements ongoing evaluation of the loan portfolio in light of changing economic conditions and other relevant circumstances will not require significant future additions to the allowance, thus adversely affecting the operating results of
the Corporation.





The following table presents an analysis of the changes in the allowance for loan losses.





Three Months Ended September 30,

Nine Months Ended September 30,2002

2001

2002

2001(in thousands)Balance at beginning of period

$
4,672

$
4,353

$
4,417

$
4,352Charge-offs


277


166


1,135


481Recoveries


105


30


178


104Net loan charge-offs


172


136


957


377Provision for loan losses


285


205


1,325


490Allowance adjustment for loans assumed in merger


1,039





1,039


Allowance adjustment for loans sold











(43
)Balance at end of period

$
5,824

$
4,422

$
5,824

$
4,422




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Deposits





The level and mix of deposits is affected by various factors, including general economic conditions, the particular circumstances of local markets and the specific deposit strategies employed. In general, broad interest rate declines
tend to encourage customers to consider alternative investments such as mutual funds and tax-deferred annuity products, while interest rate increases tend to have the opposite effect.





In addition to the acquisition of Rowan Bank on August 1, 2002 as discussed in the Overview, the level and mix of deposits has been specifically affected by the
following factors. Money market deposits, excluding the amount of Rowan Bank deposits initially added on August 1, 2002, had the most significant growth of any component of deposits, increasing $17,986,000 during the twelve-month period ended
September 30, 2002 and $16,638,000 during the first nine months of 2002. By similar comparison, time deposits, reflecting the effect of deposit maturities related to prior promotions for premium-rate certificates of deposit, decreased $36,622,000
during the twelve-month period ended September 30, 2002 and $30,399,000 during the first nine months of 2002. Further, the level of time deposits obtained from governmental units fluctuates, amounting to $47,002,000, $51,607,000 and $53,573,000 at
September 30, 2002, September 30, 2001 and December 31, 2001, respectively.





Business Development Matters





As discussed in the Overview and in Note 3 to Consolidated Financial Statements, the Corporation completed a merger on August
1, 2002 for the acquisition of Rowan Bancorp, Inc. (Rowan Bancorp), holding company for Rowan Savings Bank SSB, Inc. (Rowan Bank), headquartered in China Grove, North Carolina, in a transaction accounted for using the
purchase method of accounting for business combinations.





As discussed in the Overview, management
adopted a balance sheet restructuring project in the 2000 fourth quarter that has affected loans and other balance sheet categories in both the 2000 fourth quarter and the 2001 first quarter.





In the 1998 fourth quarter, First National Bank received regulatory approval for establishment of a new branch office in Trinity, North Carolina. Construction of the
permanent Trinity facility was completed in February 2002, resulting in a total capital outlay of approximately $1,400,000. Prior to completion of the permanent facility, a temporary mobile office, which opened in August 1999, was operated at this
site.





In April 2002, First National Bank received regulatory approval for establishment of a new branch office in
Pinehurst, North Carolina. The office, located in a leased facility which had previously been used as a banking office by another financial institution, was renovated and then opened for business in October 2002.





Accounting Pronouncement Matters





In August 2001, the FASB issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (SFAS No. 143), which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the associated asset retirement cost. SFAS No. 143 requires the Corporation to record the fair value of an asset retirement obligation as a liability in the period in which
it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The




22




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Corporation also is to record a corresponding increase to the carrying amount of the related long-lived asset and to depreciate that cost over
the life of the asset. The liability is changed at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the initial fair value measurement. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. At this time, the Corporation is assessing the impact of SFAS No. 143 on its financial condition and results of operations.





In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144), which
addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This standard provides guidance on differentiating between long-lived assets to be held and used, long-lived assets to be disposed of other than by
sale and long-lived assets to be disposed of by sale. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 144 also supersedes APB Opinion No. 30,
Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001. The Corporation adopted the provisions of SFAS No. 144 effective January 1, 2002 with no effect on its consolidated financial statements.





In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS
No. 146), which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 applies to costs associated with an exit activity that does not involve an entity newly acquired in a business combination or with
a disposal activity covered by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Those costs include, but are not limited to, the following: (a) termination benefits provided to current employees that are
involuntarily terminated under the terms of a benefit arrangement that, in substance, is not an ongoing benefit arrangement or an individual deferred compensation contract (hereinafter referred to as one-time termination benefits), (b) costs to
terminate a contract that is not a capital lease and (c) costs to consolidate facilities or relocate employees. SFAS No. 146 does not apply to costs associated with the retirement of a long-lived asset covered by SFAS No. 143, Accounting for
Asset Retirement Obligations. A liability for a cost associated with an exit or disposal activity shall be recognized and measured initially at its fair value in the period in which the liability is incurred. A liability for a cost associated
with an exit or disposal activity is incurred when the definition of a liability is met. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged.
The impact of adoption on the Corporation is not known at this time.





In October 2002, the FASB issued Statement
of Financial Accounting Standards No. 147, Acquisitions of Certain Financial Institutions (SFAS No. 147), which brings all business combinations involving financial institutions, except mutuals, into the scope of SFAS No.
141, Business Combinations. SFAS No. 147 requires that all acquisitions of financial institutions that meet the definition of a business, including acquisitions of part of a financial institution that meet the definition of a business,
must be accounted for in accordance with SFAS No. 141 and the related intangibles accounted for in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 147 removes such acquisitions from the scope of SFAS No. 72,
Accounting for Certain Acquisitions of Banking or Thrift Institutions, which was adopted in February 1983 to address financial institutions acquisitions during a period when many of such




23




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acquisitions involved troubled institutions. SFAS No. 147 also amends SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions. SFAS No. 147 is generally effective immediately and provides guidance with respect to amortization and impairment of
intangibles recognized in connection with acquisitions previously within the scope of SFAS No. 72. The Corporation adopted the provisions of SFAS No. 147 with no effect on its consolidated financial statements.





Cautionary Statement for Purpose of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995





The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (as
such term is defined in the Private Securities Litigation Reform Act of 1995), which can be identified by the use of forward-looking terminology such as believes, expects, plans, projects,
goals, estimates, may, could, should, or anticipates or the negative thereof or other variations thereon of comparable terminology, or by discussions of strategy that involve
risks and uncertainties. In addition, from time to time, the Corporation or its representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but are not limited to,
various filings made by the Corporation with the Securities and Exchange Commission, or press releases or oral statements made by or with the approval of an authorized executive officer of the Corporation. Forward-looking statements are based on
managements current views and assumptions and involve risks and uncertainties that could significantly affect expected results. The Corporation wishes to caution the reader that factors, such as those listed below, in some cases have affected
and could affect the Corporations actual results, causing actual results to differ materially from those in any forward-looking statement. These factors include: (i) expected cost savings from the merger may not materialize within the expected
time frame, (ii) revenues following the merger may not meet expectations, (iii) costs or difficulties related to the integration of the businesses of FNB Corp. and Rowan Bancorp may be greater than anticipated, (iv) competitive pressure in the
banking industry or in the Corporations markets may increase significantly, (v) changes in the interest rate environment may reduce margins, (vi) general economic conditions, either nationally or regionally, may be less favorable than
expected, resulting in, among other things, credit quality deterioration, (vii) changes may occur in banking legislation and in the environment, (viii) changes may occur in general business conditions and inflation and (ix) changes may occur in the
securities markets. Readers should also consider information on risks and uncertainties contained in the discussions of competition, supervision and regulation, and effect of governmental policies contained in the Corporations most recent
Annual Report on Form 10-K.




24




---




Table 1


Average
Balances and Net Interest Income Analysis





NINE MONTHS ENDED SEPTEMBER 30

2002


20012002 Versus 2001Average

Interest Income/

Average Rates Earned/


Average

Interest Income/

Average Rates Earned/


Interest Variance due to (1)


Net ChangeBalance

Expense

Paid


Balance

Expense

Paid


Volume


Rate(Taxable Equivalent Basis, Dollars in Thousands)Earning AssetsLoans (2) (3)

$
409,072

$
21,456

7.01
%

$
390,306

$
24,496

8.38
%

$
1,127


$
(4,167
)

$
(3,040
)Investment securities (2):Taxable income


137,918


6,969

6.74



129,568


6,599

6.79



419



(49
)


370Non-taxable income


24,864


1,395

7.48



19,237


1,102

7.64



317



(24
)


293Other earning assets


9,873


123

1.66



4,865


167

4.58



104



(148
)


(44
)Total earning assets


581,727


29,943

6.87



543,976


32,364

7.94



1,967



(4,388
)


(2,421
)Cash and due from banks


12,423








12,238Goodwill


2,816








Other assets, net


27,978








24,538Total Assets

$
624,944







$
580,752Interest-Bearing LiabilitiesInterest-bearing deposits:Demand deposits

$
62,343


319

0.69


$
54,849


357

0.87



43



(81
)


(38
)Savings deposits


38,461


287

1.00



34,377


413

1.61



45



(171
)


(126
)Money market deposits


55,875


827

1.98



41,416


1,092

3.53



308



(573
)


(265
)Certificates and other time deposits


297,590


7,499

3.37



301,775


13,170

5.83



(181
)


(5,490
)


(5,671
)Retail repurchase agreements


14,125


190

1.80



12,637


346

3.66



37



(193
)


(156
)Federal Home Loan Bank advances


33,364


1,195

4.79



23,850


926

5.19



345



(76
)


269Federal funds purchased


631


10

2.06



1,103


45

5.46



(14
)


(21
)


(35
)Other borrowed funds


1,938


52

3.62












52







52Total interest-bearing liabilities


504,327


10,379

2.75



470,007


16,349

4.65



635



(6,605
)


(5,970
)Noninterest-bearing demand deposits


53,143








45,495Other liabilities


6,733








7,363Shareholders' equity


60,741








57,887Total Liabilities and Shareholders Equity

$
624,944







$
580,752Net Interest Income and Spread




$
19,564

4.12
%




$
16,015

3.29
%

$
1,332


$
2,217


$
3,549Net Yield on Earning Assets







4.49
%







3.93
%


|(1) |  | The mix variance, not separately stated, has been proportionally allocated to the rate and volume variances based on their absolute dollar amount.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Interest income and yields related to certain investment securities and loans exempt from both federal and state income tax or from state income tax alone are
stated on a fully taxable equivalent basis, assuming a 34% federal tax rate and applicable state tax rate, reduced by the nondeductible portion of interest expense.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | Nonaccrual loans are included in the average loan balance. Loan fees and the incremental direct costs associated with making loans are deferred and subsequently
recognized over the life of the loan as an adjustment of interest income.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



25




---




Table 2


Average
Balances and Net Interest Income Analysis





THREE MONTHS ENDED SEPTEMBER 30

2002


20012002 Versus 2001Average

Interest Income/

Average Rates Earned/


Average

Interest Income/

Average Rates Earned/


Interest Variancedue to (1)


NetBalance

Expense

Paid


Balance

Expense

Paid


Volume


Rate


Change(Taxable Equivalent Basis, Dollars in Thousands)Earning AssetsLoans (2) (3)

$
457,781

$
7,928

6.89
%

$
389,993

$
7,842

7.99
%

$
1,255


$
(1,169
)

$
86Investment securities (2):Taxable income


129,578


2,145

6.62



136,918


2,356

6.88



(124
)


(87
)


(211
)Non-taxable income


25,289


468

7.41



18,977


363

7.66



117



(12
)


105Other earning assets


18,189


77

1.66



3,029


25

3.23



69



(17
)


52Total earning assets


630,837


10,618

6.70



548,917


10,586

7.68



1,317



(1,285
)


32Cash and due from banks


13,592








12,071Goodwill


8,356








Other assets, net


30,764








25,900Total Assets

$
683,549







$
586,888Interest-Bearing LiabilitiesInterest-bearing deposits:Demand deposits

$
65,066


114

0.70


$
55,136


100

0.72



17



(3
)


14Savings deposits


44,857


113

1.00



34,361


113

1.31



30



(30
)


Money market deposits


61,136


301

1.95



44,277


320

2.87



101



(120
)


(19
)Certificates and other time deposits


320,604


2,476

3.06



301,799


4,047

5.32



239



(1,810
)


(1,571
)Retail repurchase agreements


14,735


66

1.76



13,944


103

2.93



6



(43
)


(37
)Federal Home Loan Bank advances


39,982


469

4.65



25,000


325

5.15



178



(34
)


144Federal funds purchased


306


2

2.15



700


7

4.07



(3
)


(2
)


(5
)Other borrowed funds


5,751


52

3.62












52







52Total interest-bearing liabilities


552,437


3,593

2.58



475,217


5,015

4.19



620



(2,042
)


(1,422
)Noninterest-bearing demand deposits


54,707








45,446Other liabilities


8,280








7,417Shareholders equity


68,125








58,808Total Liabilities and Shareholders Equity

$
683,549







$
586,888Net Interest Income and Spread




$
7,025

4.12
%




$
5,571

3.49
%

$
697


$
757


$
1,454Net Yield on Earning Assets







4.44
%







4.05
%


|(1) |  | The mix variance, not separately stated, has been proportionally allocated to the rate and volume variances based on their absolute dollar amount.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Interest income and yields related to certain investment securities and loans exempt from both federal and state income tax or from state income tax alone are
stated on a fully taxable equivalent basis, assuming a 34% federal tax rate and applicable state tax rate, reduced by the nondeductible portion of interest expense.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | Nonaccrual loans are included in the average loan balance. Loan fees and the incremental direct costs associated with making loans are deferred and subsequently
recognized over the life of the loan as an adjustment of interest income.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



26




---




Item 3.     Quantitative and Qualitative Disclosures about Market Risk





Market risk reflects the risk of economic loss resulting from adverse changes in market price and interest
rates. This risk of loss can be reflected in diminished current market values and/or reduced potential net interest income in future periods.





The Corporations market risk arises primarily from interest rate risk inherent in its lending and deposit-taking activities. The structure of the Banks loan and deposit portfolios is such
that a significant decline in interest rates may adversely impact net market values and net interest income. The Bank does not maintain a trading account nor is the Bank subject to currency exchange risk or commodity price risk. Interest rate risk
is monitored as part of the Banks asset/liability management function, which is discussed above in Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations under the heading
Asset/Liability Management and Interest Rate Sensitivity.





Management does not believe there has been
any significant change in the overall analysis of financial instruments considered market risk sensitive, as measured by the factors of contractual maturities, average interest rates and estimated fair values, since the analysis prepared and
presented in conjunction with the Form 10-K Annual Report for the fiscal year ended December 31, 2001.





Item
4.     Controls and Procedures





Based on their evaluation of the Corporations
disclosure controls and procedures, which was completed within 90 days prior to the filing of this report, the Chief Executive Officer and the Chief Financial Officer of the Corporation have concluded that the Corporationss disclosure controls
and procedures are effective to ensure that information required to be disclosed by the Corporation in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commissions rules and forms. In reaching this conclusion, the Corporations Chief Executive Officer and Chief Financial Officer determined that the Corporations disclosure
controls and procedures are effective in ensuring that such information is accumulated and communicated to the Corporations management to allow timely decisions regarding required disclosure.





There were no significant changes in the Corporationss internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.




27




---




PART II. OTHER INFORMATION





Item 6.     Exhibits and Reports on Form 8-K





(a)     Exhibits.





Exhibits to this report are listed in the index to
exhibits on pages 30 and 31 of this report.





(b)     Reports on Form 8-K.





During the quarter ended September 30, 2002, the Registrant filed a Current Report on Form 8-K dated August 1, 2002, which
reported under Item 2 that the Registrant had completed its acquisition of Rowan Bancorp, Inc.





---




SIGNATURES





In accordance with the requirements of the
Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





FNB Corp.


(Registrant)








Date: November 14, 2002

By:

/s/    JERRY A. LITTLEJerry A. Little Treasurer and Secretary (Principal Financial and Accounting Officer)




28




---




CERTIFICATIONS





I, Michael C. Miller, certify that:





|1. |  | I have reviewed this quarterly report on Form 10-Q of FNB Corp.;
|-- |  | ----------------------------------------------------------------




|2. |  | Based on my knowledge, this 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 officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (a) |  | designed such disclosure controls and procedures 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 as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date:

November 14, 2002





/s/    MICHAEL C. MILLERMichael C. Miller Chief Executive Officer




29




---




I, Jerry A. Little, certify that:





|1. |  | I have reviewed this quarterly report on Form 10-Q of FNB Corp.;
|-- |  | ----------------------------------------------------------------




|2. |  | Based on my knowledge, this 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 officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (a) |  | designed such disclosure controls and procedures 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 as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date:

November 14, 2002





/s/    JERRY A. LITTLEJerry A. Little Chief Financial Officer




30




---




INDEX TO EXHIBITS





Exhibit No.


Description of Exhibit2.10


Agreement and Plan of Merger dated as of February 11, 2002 by and between the Registrant and Rowan Bancorp, Inc.,
incorporated herein by reference to Exhibit 2.10 to the Registrants Form 10-K Annual Report for the fiscal year ended December 31, 20013.10


Articles of Incorporation of the Registrant, incorporated herein by reference to Exhibit 3.1 to the Registrants
Form S-14 Registration Statement (No. 2-96498) filed June 16, 1985.3.11


Articles of Amendment to Articles of Incorporation of the Registrant, adopted May 10, 1988, incorporated herein by
reference to Exhibit 19.10 to the Registrants Form 10-Q Quarterly Report for the quarter ended June 30, 1988.3.12


Articles of Amendment to Articles of Incorporation of the Registrant, adopted May 12, 1998, incorporated herein by
reference to Exhibit 3.12 to the Registrants Form 10-Q Quarterly Report for the quarter ended June 30, 1998.3.20


Amended and Restated Bylaws of the Registrant, adopted May 21, 1998, incorporated herein by reference to Exhibit 3.20
to the Registrants Form 10-Q Quarterly Report for the quarter ended June 30, 1998.4


Specimen of Registrants Common Stock Certificate, incorporated herein by reference to Exhibit 4 to Amendment
No. 1 to the Registrants Form S-14 Registration Statement (No. 2-96498) filed April 19, 1985.10.10
*

Form of Split Dollar Insurance Agreement dated as of November 1, 1987 between First National Bank and Trust Company
and certain of its key employees and directors, incorporated herein by reference to Exhibit 19.20 to the Registrants Form 10-Q Quarterly Report for the Quarter ended June 30, 1988.10.11
*

Form of Amendment to Split Dollar Insurance Agreement dated as of November 1, 1994 between First National Bank and
Trust Company and certain of its key employees and directors, incorporated herein by reference to Exhibit 10.11 to the Registrants Form 10-KSB Annual Report for the fiscal year ended December 31, 1994.10.20
*

Stock Compensation Plan as amended effective May 12, 1998, incorporate herein by reference to Exhibit 10.30 the
Registrants Form 10-Q Quarterly Report for the quarter ended June 30, 1998.




31




---

Exhibit No.


Description of Exhibit10.21
*

Form of Incentive Stock Option Agreement between FNB Corp. and certain of its key employees, pursuant to the
Registrants Stock Compensation Plan, incorporated herein by reference to Exhibit 10.31 to the Registrants Form 10-KSB Annual Report for the fiscal year ended December 31, 1994.10.22
*

Form of Nonqualified Stock Option Agreement between FNB Corp. and certain of its directors, pursuant to the
Registrants Stock Compensation Plan, incorporated herein by reference to Exhibit 10.32 to the Registrants Form 10-KSB Annual Report for the fiscal year ended December 31, 1994.10.30
*

Employment Agreement dated as of December 27, 1995 between First National Bank and Trust Company and Michael C.
Miller, incorporated herein by reference to Exhibit 10.50 to the Registrants Form 10-KSB Annual Report for the fiscal year ended December 31, 1995.10.31
*

Carolina Fincorp, Inc. Stock Option Plan (assumed by the Registrant on April 10, 2000), incorporated herein by
reference to Exhibit 99.1 to the Registrants Registration Statement on Form S-8 (File No. 333-54702).10.32
*

Employment Agreement dated as of April 10, 2000 between First National Bank and Trust Company and R. Larry Campbell,
incorporated herein by reference to Exhibit 10.32 to the Registrants Form 10-K Annual Report for the fiscal year ended December 31, 2000.10.33
*

Nonqualified Supplemental Retirement Plan with R. Larry Campbell, incorporated herein by reference to Exhibit 10(c)
to the Annual Report on Form 10-KSB of Carolina Fincorp, Inc. for the fiscal year ended June 30, 1997.10.34
*

Employment Agreement dated as of August 1, 2002 between Rowan Savings Bank SSB, Inc. and Bruce D. Jones.


---

|* |  | Management contract, or compensatory plan or arrangement.
|- |  | ---------------------------------------------------------



32