10-Q 1 june10q.txt Page 5 of 30 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549-1004 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 2004 Commission file number: 33-66014 FNB Financial Corporation (Exact name of registrant as specified in its charter) Commonwealth of Pennsylvania 23-2466821 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 101 Lincoln Way West, McConnellsburg, PA 17233 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: 717/485-3123 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at June 30, 2004 (Common stock, $0.315 par value) 800,000 FNB FINANCIAL CORPORATION INDEX Page PART I - FINANCIAL INFORMATION Condensed consolidated balance sheets - June 30, 2004 and December 31, 2003 4 Condensed consolidated statements of income - Three months ended June 30, 2004 and 2003 5 Condensed consolidated statements of income - Six months ended June 30, 2004 and 2003 6 Condensed consolidated statements of comprehensive income - Six months ended June 30, 2004 and 2003 7 Condensed consolidated statements of cash flows - Six months ended June 30, 2004 and 2003 8 Notes to condensed consolidated financial statements 9-10 Management's discussion and analysis of financial condition and results of operations 11-14 PART II - OTHER INFORMATION 16 Signatures 17 Exhibits 18-24 PART I - FINANCIAL INFORMATION FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 31, 2004 2003 (unaudited) (audited*) ASSETS: Cash and Due from banks $ 6,730,525 $ 3,495,604 Interest-bearing deposits with banks 775,499 1,518,766 Investment Securities Held-to-maturity (Market value - 2004 $ 299,269; 2003 $ 325,957) 299,970 326,809 Available-for-sale 35,888,340 32,039,636 Federal Reserve, Atlantic Central Banker's Bank and Federal Home Loan Bank Stock 1,721,000 1,136,500 Loans 106,744,626 102,177,917 Less: Allowance for loan losses ( 984,879) ( 892,933) --------------- --------------- Loans, net 105,759,747 101,284,984 Bank building, equipment, furniture and fixtures, net 3,194,498 3,269,724 Accrued interest receivable 587,622 555,760 Cash surrender value of life insurance 2,784,495 2,747,474 Other assets 1,181,983 659,758 --------------- --------------- Total Assets $ 158,923,679 $ 147,035,015 =============== =============== LIABILITIES : Deposits: Demand deposits $ 16,994,700 $ 15,901,219 Savings deposits 33,371,946 32,535,398 Time certificates 66,017,086 68,000,625 Other time deposits 505,836 284,667 --------------- --------------- Total deposits 116,889,568 116,721,909 Accrued interest payable & other liabilities 751,259 640,972 Liability for other borrowed funds 26,708,445 14,680,992 Dividends payable 128,000 272,000 --------------- --------------- Total Liabilities STOCKHOLDERS' EQUITY Capital stock, common, par value $ 0.315; 6,000,000 shares autorized; 800,000 outstanding 252,000 252,000 Additional paid-in capital 1,789,833 1,789,833 Retained earnings 12,659,854 12,330,729 Accumulated other comprehensive income (loss) ( 255,280) 346,580 --------------- --------------- Total Stockholders' Equity 14,446,407 14,719,142 --------------- --------------- Total Liabilities & Stockholders' Equity $ 158,923,679 $ 147,035,015 =============== ===============

* Condensed from audited financial statements The accompanying notes are an integral part of these condensed financial statements. FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended June 30, 2004 and 2003 (UNAUDITED) 2004 2003 Interest & Dividend Income Interest & fees on loans $1,737,700 $1,705,250 Interest on investment securities: Obligations of other U.S. Government Agencies 186,917 251,055 Obligations of State & Political Subdivisions 112,925 88,791 Interest on deposits with banks 2,258 10,765 Dividends on Equity Securities 6,895 9,015 Interest on federal funds sold 566 4,968 ---------- ---------- Total Interest & Dividend Income 2,047,261 2,069,844 ---------- ---------- Interest Expense Interest on deposits 628,126 741,750 Interest on other borrowed money 143,927 99,744 ---------- ---------- Total Interest Expense 772,053 841,494 ---------- ---------- Net interest income 1,275,208 1,228,350 Provision for loan losses 54,000 36,000 ---------- ---------- Net interest income after provision for loan losses 1,221,208 1,192,350 ---------- ---------- Other income Service charges on deposit accounts 114,358 57,619 Other service charges, collection & exchange charges, commissions and fees 96,257 85,105 Other income 27,490 10,325 Net securities gains/(losses) 0 45,859 ---------- ---------- Total other income 238,105 198,908 ---------- ---------- Other expenses 1,055,671 941,906 ---------- ---------- Income before income taxes 403,642 449,352 Applicable income taxes 102,500 134,895 ---------- ---------- Net income $ 301,142 $ 314,457 ========== ========== Earnings per share of Common Stock: Net income per share $ 0.38 $ 0.39 Cash dividend declared per share $ 0.16 $ 0.16 Weighted average number of shares outstanding 800,000 800,000

The accompanying notes are an integral part of these condensed financial statements. FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME Six Months Ended June 30, 2004 and 2003 (UNAUDITED) 2004 2003 Interest & Dividend Income Interest & fees on loans $ 3,466,945 $ 3,480,554 Interest on investment securities: Obligations of other U.S. Government Agencies 382,414 403,583 Obligations of State & Political Subdivisions 216,174 178,916 Interest on deposits with banks 5,683 20,577 Dividends on Equity Securities 16,387 18,322 Interest on federal funds sold 603 4,968 ------------- ------------- Total Interest & Dividend Income 4,088,206 4,106,920 ------------- ------------- Interest Expense Interest on deposits 1,297,989 1,492,900 Interest on other borrowed money 267,003 190,258 ------------- ------------- Total Interest Expense 1,564,992 1,683,158 ------------- ------------- Net interest income 2,523,214 2,423,762 Provision for loan losses 152,000 72,000 ------------- ------------- Net interest income after provision for loan losses 2,371,214 2,351,762 ------------- ------------- Other income Service charges on deposit accounts 195,502 148,456 Other service charges, collection & exchange charges, commissions and fees 204,970 140,538 Other income 56,550 77,651 Net securities gains/(losses) 79,417 48,057 ------------- ------------- Total other income 536,439 414,702 ------------- ------------- Other expenses 2,133,379 1,812,755 ------------- ------------- Income before income taxes 774,274 953,709 Applicable income taxes 205,149 240,968 ------------ ------------ Net income $ 569,125 $ 712,741 ============ ============ Earnings per share of Common Stock: Net income per share $ 0.71 $ 0.89 Cash dividend declared per share $ 0.30 $ 0.29 Weighted average number of shares outstanding 800,000 800,000

The accompanying notes are an integral part of these condensed financial statements. FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Six Months Ended June 30, 2004 and 2003 (UNAUDITED) 2004 2003 Net Income $ 569,125 $ 712,741 ---------- ---------- Other Comprehensive: Gross unrealized holding gains (losses) ( 832,491) 196,024 Reclassification adjustment for (gains) losses realized in net income ( 79,417) ( 48,057) ---------- ---------- Net unrealized holding gains (losses) before taxes ( 911,908) 147,967 Tax effect 310,048 ( 50,309) ---------- ---------- Other comprehensive income (loss) ( 601,860) 97,658 ---------- ---------- Comprehensive income (loss) ($ 32,735) $ 810,399 ========== ==========

The accompanying notes are an integral part of these condensed financial statements. FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2004 and 2003 (UNAUDITED) 2004 2003 Cash flows from operating activities: Net income $ 569,125 $ 712,741 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization 160,161 157,388 Provision for loan losses 152,000 72,000 Increase in Cash Surrender value of Life Insurance ( 37,021) ( 48,082) Net (gain)/loss on sales of investments ( 79,417) ( 48,057) (Increase) decrease in accrued interest receivable ( 31,862) ( 1,183) Increase (decrease) in accrued interest payable and other liabilities 110,287 ( 231,771) (Increase) decrease in other assets ( 212,177) 45,761 ----------- ----------- Net cash provided (used) by operating activities: 631,096 658,797 ----------- ----------- Cash flows from investing activities: Net (increase) decrease in interest- bearing deposits with banks 743,267 64,142 Purchases of Available-for-sale securities ( 12,462,521) ( 7,004,394) Proceeds from maturities and calls of securities 1,822,137 4,634,317 Proceeds sale of available-for-sale securities 5,986,028 179,094 Net (increase) decrease in loans ( 4,626,763) ( 900,723) Purchases of bank premises & equipment (net) ( 84,935) ( 783,974) Purchases of investment in insurance company 0 ( 33,568) (Purchase) sale of other bank stock ( 584,500) ( 239,400) ----------- ----------- Net cash provided (used) by investing activities ( 9,207,287) ( 4,084,506) ----------- ----------- Cash flows from financing activities: Net increase (decrease) in deposits 167,659 2,227,420 Net increase (decrease) in other borrowings 12,027,453 2,662,474 Cash dividends paid ( 384,000) ( 368,000) ----------- ----------- Net cash provided (used) by financing activities 11,811,112 4,521,894 ----------- ----------- Net increase (decrease) in cash & cash equivalents 3,234,921 1,096,185 Cash & cash equivalents, beginning balance 3,495,604 3,650,351 ----------- ----------- Cash & cash equivalents, ending balance $ 6,730,525 $ 4,746,536 =========== ===========

The accompanying notes are an integral part of these condensed financial statements. FNB FINANCIAL CORPORATION JUNE 30, 2004 (UNAUDITED) REVIEW OF INTERIM FINANCIAL STATEMENTS The condensed consolidated financial statements as of and for the three and six month periods ended June 30, 2004 and 2003 have been reviewed by independent certified public accountants. Their report on their review is attached as Exhibit 99 to this 10-Q. NOTE 1 - BASIS OF PRESENTATION The financial information presented at and for the six months ended June 30, 2004 and June 30, 2003 is unaudited. Information presented at December 31, 2003, is condensed from audited year-end financial statements. However, this unaudited information reflects all adjustments, consisting solely of normal recurring adjustments, that are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim period. NOTE 2 - PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the corporation and its wholly-owned subsidiaries, The First National Bank of McConnellsburg and FNB Mortgage Brokers, Inc. All significant intercompany transactions and accounts have been eliminated. NOTE 3 - CASH FLOWS For purposes of the statements of cash flows, the Corporation has defined cash and cash equivalents as those amounts included in the balance sheet captions "cash and due from banks" and "federal funds sold". As permitted by Statement of Financial Accounting Standards No. 104, the Corporation has elected to present the net increase or decrease in deposits in banks, loans and deposits in the statement of cash flows. NOTE 4 - FEDERAL INCOME TAXES For financial reporting purposes the provision for loan losses charged to operating expense is based on management's judgment, whereas for federal income tax purposes, the amount allowable under present tax law is deducted. Additionally, certain expenses are charged to operating expense in the period the liability is incurred for financial reporting purposes, whereas for federal income tax purposes, these expenses are deducted when paid. As a result of these timing differences, deferred taxes were computed after reducing pre-tax accounting income for nontaxable municipal and loan income. NOTE 5 - OTHER COMMITMENTS In the normal course of business, the bank makes various commitments and incurs certain contingent liabilities which are not reflected in the accompanying financial statements. These commitments include various guarantees and commitments to extend credit. The bank does not anticipate any losses as a result of these transactions. NOTE 6 - SUBSEQUENT EVENTS On July 16, 2004 FNB Financial Corporation's wholly owned subsidiary, the First National Bank of McConnellsburg, acquired the deposits of the Hancock Branch of Farmers and Merchants Bank (F&M). Total deposits acquired aggregated $ 10,016,872 which were acquired at a premium of 10.66% FNB FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY Net income for the first six months of 2004 was $ 569,125 compared to $ 712,741, for the first six months of 2003. This represents a decrease of $ 143,616 or 20.15% from 2003. Net income on an adjusted per share basis for the first six months of 2004 was $ 0.71 which is a decrease of $ 0.18 from the $ 0.89 per share for the six months ended June 30, 2003. NET INTEREST INCOME Total interest and dividend income for the first six months of 2004 was $ 4,088,206 compared to $ 4,106,920 for the first six months of 2003, a decrease of $ 18,714. This decrease was due primarily to a small decrease in income from Investments and interest and fees on loans. Loan growth has stabilized and the banks loan portfolio increased 4.35% over average balances for the first six months of 2003. Effective yields on earning assets continue to be below yields realized in the first six months of 2003. The stabilization in the growth of earning assets and the reduced interest margins has resulted in a decrease in interest and fees on loans of $ 13,609. In order to sustain desired net interest margins, deposit rates were lowered in the end of the first quarter to decrease funding costs of the lower rates on loans. Interest expense for the six months ended June 30, 2004, was $ 1,564,992, a decrease of $ 118,166 from the $ 1,683,158 for the same period in 2003. Total deposits increased $ 3,802,130 from totals at June 30, 2003. This increase of $ 5,796,000 in interest bearing accounts and a decrease in demand deposit accounts by $1,994,000 further pressured our margins. This coupled with the aforementioned general reduction in loan rates and the lack of growth in loans outstanding caused an increase in net interest income by only 4.10% over the first six months of 2003. The bank further shored up its allowance for loan losses during the first six months by increasing the provision by $ 80,000 or 111% over the $ 72,000 provision over the previous period in 2003. The net interest margin has decreased 27 basis points to 3.69% for the first six months of 2004 from that of the first six months of 2003 which was 3.96%. Management will continue to competitively price its loan and deposit products to maintain desired net interest spreads. PROVISION AND ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses is summarized as follows: 2004 2003 (000 Omitted) Allowance for loan losses beginning of the year $ 893 $ 928 Loans charged-off during the year Real estate mortgages 0 0 Installment loans 69 48 Commercial and all other 15 0 ----- ----- Total charge offs 84 48 ----- ----- Recoveries of loans previously charged-off: Real estate mortgages 0 0 Installment loans 24 13 Commercial and all other 0 0 ----- ----- Total recoveries 24 13 ----- ----- Net loans charged-off (recovered) 60 35 Provision for loan losses charged to 152 36 operations ----- ----- Allowance for loan losses, June 30 $ 985 $ 929 ===== =====

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

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

The remaining portion of the Pools are evaluated as groups with allocations made to the Allowance based on historical loss experience, current and anticipated trends in delinquencies, and general economic conditions within the bank's trading area. In addition to the aforementioned internal loan review, the Bank engaged an outside Firm to conduct an independent loan review during the first quarter of 2004 in order to validate the methodologies used internally and to independently test the adequacy of the Allowance for Loan Losses. Delinquencies are well below peer group averages and management is not aware of any problem loans that are indicative of trends, events, or uncertainties that would significantly impact operations, liquidity or capital. NON-INTEREST INCOME AND EXPENSES Total noninterest income for the first six months of 2004 increased $ 121,737 over totals for the first six months of 2003. This was due primarily to $ 138,741 in loan origination revenue produced by FNB Mortgage Brokers, Inc. This company began operations in September 2003. Operating expenses for the period ended June 30, 2004, were $ 2,133,379, a $ 320,624 increase from the operating expenses incurred for the same period in 2003 of $1,812,755. This increase was mainly the result of increased personnel costs and $ 143,000 in expenses associated with FNB Mortgage Brokers, Inc. Our income tax provision for the first six months of 2004 was $ 205,149 as compared to $ 240,968 for the first six months of 2003. We continue to operate with a marginal tax rate of 34% during the first six months of 2004. The effective income tax rate for the first six months of 2004 was 26.50% compared to 25.27% for the first six months of 2003. BALANCE SHEET AND EQUITY CHANGES Total assets as of June 30, 2004, were $ 158,923,679, an increase of $ 11,388,664 from the period ended June 30, 2003, representing an increase of 7.75%. This increase was primarily due to the increased borrowings from the Federal Home Loan Bank. Borrowings as of June 30, 2004, were $ 26,708,445 compared to $ 14,680,992 as of June 30, 2003. Total equity as of June 30, 2004, was $ 14,446,407, 9.09% of total assets, as compared to $ 14,755,222, 10.66% of total assets as of June 30, 2003. The decline was due to unrealized losses from the decline in market value of investments available for sale. At the end of the reporting period there was a significant increase in U. S. Treasury yield rates which resulted in a reduction in market values of our investment portfolio. We believe this movement to be temporary. The Company's risk based capital ratios continue to exceed regulatory minimum requirements. CONTROLS AND PROCEDURES The company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the company's disclosure controls and procedures (as such term is defined in Rules 13a-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of June 30, 2004. Based on such evaluation, such officers have concluded that, as of June 30, 2004, the company's disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the company (including its consolidated subsidiaries) required to be included in the company's periodic filings under the Exchange Act. CHANGES IN INTERNAL CONTROLS There have not been any significant changes in the company's internal control over financial reporting or in other factors that could significantly affect such control during the second quarter of 2004. PART II - OTHER INFORMATION PART II - OTHER INFORMATION Item 1 - Legal Proceedings None Item 2 - Changes in Securities None Item 3 - Defaults Upon Senior Securities Not Applicable Item 4 - Submission of Matters to a Vote of Security Holders None Item 5 - Other Information None Item 6 - Exhibits and Reports on Form 8-K a. Exhibits: Exhibit Number Referred to Item 601 of Regulation S-K: Description of Exhibit: 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. 99 Report of Independent Accountant's on interim financial statements. b. Reports on Form 8-K - None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date August 9, 2004 /s/John C. Duffey ------------------------------------ John C. Duffey, President and Director of the Company and President/CEO of the Bank (Duly Authorized Officer) Date August 9, 2004 /s/Dale M. Fleck ------------------------------------ Dale M. Fleck Controller of the Bank (Principal Financial & Accounting Officer) Exhibit 31.1 CERTIFICATION I, John C. Duffey, President/CEO, certify, that: 1. I have reviewed this quarterly report on Form 10-Q of FNB Financial Corporation. 2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and (c) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 9, 2004 By: /s/John C. Duffey ------------------------------ -------------------- John C. Duffey, President/CEO (Principal Executive Officer) Exhibit 31.2 CERTIFICATION I, Dale M. Fleck, Controller, certify, that: 1. I have reviewed this quarterly report on Form 10-Q of FNB Financial Corporation. 2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and (c) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 9, 2004 By: /s/Dale M. Fleck ------------------------------ -------------------- Dale M. Fleck Controller (Principal Financial Officer) Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of FNB Financial Corporation (the "Company") on Form 10-Q for the period ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John C. Duffey, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: 1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ John C. Duffey --------------------------- Chief Executive Officer August 9, 2004 Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of FNB Financial Corporation (the "Company") on Form 10-Q for the period ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dale M. Fleck, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Dale M. Fleck ----------------------------- Chief Financial Officer August 9, 2004 Exhibit 99 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of DirectorsFNB Financial Corporation McConnellsburg, Pennsylvania We have reviewed the accompanying consolidated balance sheet of FNB Financial Corporation and Subsidiaries as of June 30, 2004 and the related consolidated statements of income for the three and six months ended June 30, 2004 and 2003 and consolidated statements of comprehensive income for the six months ended June 30, 2004 and 2003 and consolidated statements of cash flows for the six months ended June 30, 2004 and 2003. These financial statements are the responsibility of the corporation's management. We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. /s/ Smith Elliott Kearns & Company, LLC --------------------------------------- SMITH ELLIOTT KEARNS & COMPANY, LLC Chambersburg, Pennsylvania August 9, 2004

FNB FINANCIAL CORP /PA/ 10-Q