Florida		6711		25-1255406
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

Frederick W. Dreher, Esq. Carolyn E. Mullins, Esq. Duane Morris LLP 4200 One Liberty Place Philadelphia, PA 19103 (215) 979-1234		Richard D. Rose, Esq. Jennifer R. Minter, Esq. Buchanan Ingersoll PC One Oxford Centre 301 Grant Street, 20th Floor Pittsburgh, PA 15219 (412) 562-8425

---

 

	Sincerely,
	David B. Hartman
	President and Chief Executive Officer

---

 

	(1) To consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger, dated as of April 22, 2005, between F.N.B. Corporation (“FNB”) and us, pursuant to which we will merge with and into FNB and all outstanding shares of our common stock, other than treasury shares and shares as to which appraisal rights are perfected, will be converted into shares of FNB common stock, or at FNB’s option if the average closing price of FNB common stock on the New York Stock Exchange for the 20 consecutive trading days ending on the fifth trading day prior to the consummation of the merger is less than $18.00 per share, a combination of FNB shares and cash, having an aggregate value of $107 per North East share, as described in the accompanying proxy statement/prospectus;
	(2) To consider and vote upon a proposal to grant discretionary authority to adjourn our special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of our special meeting to approve and adopt the merger agreement; and
	(3) To transact such other business as may be properly presented for action at our special meeting and any adjournment, postponement or continuation of our special meeting.

	By Order of our Board of Directors,
	David B. Hartman
	President and Chief Executive Officer

---

 

---

 

			Page
QUESTIONS AND ANSWERS ABOUT THE MERGER AND OUR SPECIAL MEETING				1
SUMMARY				3
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF FNB				9
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF NORTH EAST				11
SELECTED CONSOLIDATED UNAUDITED PRO FORMA FINANCIAL INFORMATION				12
RISK FACTORS RELATING TO THE MERGER				16
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS				20
OUR SPECIAL MEETING				21
	General			21
	When and Where Our Special Meeting Will Be Held			21
	Matters to Be Considered			21
	Record Date; Shares Outstanding and Entitled to Vote			22
	Quorum			22
	Shareholder Vote Required			22
	Director and Executive Officer Voting			22
	Proxies			23
	Recommendation of Our Board of Directors			24
	Attending Our Special Meeting			24
	Questions and Additional Information			24
INFORMATION ABOUT FNB AND NORTH EAST				25
THE MERGER				25
	Background of the Merger			26
	FNB’s Reasons for the Merger			27
	Our Board of Directors’ Reasons for the Merger; Recommendation			27
	Opinion of Our Financial Advisor			29
	Compensation of Boenning			38
	Structure of the Merger and the Merger Consideration			38
	Procedures for the Exchange of Shares of Our Common Stock			39
	Resale of FNB Common Stock			40
	Interests of Our Directors and Executive Officers in the Merger			40
	Boards of Directors of FNB and FNB Bank Following the Merger			41
	Regulatory Approvals Required for the Merger			41
	Public Trading Markets			43
	FNB Dividends			43
	Appraisal Rights			43
THE MERGER AGREEMENT				47
	Merger Consideration			47
	Closing and Effective Time of the Merger			47
	Representations, Warranties, Covenants and Agreements			47
	Declaration and Payment of Dividends			51
	Agreement Not to Solicit Offers			51

---

 

			Page
	Expenses and Fees			53
	Conditions to Completion of the Merger			53
	Amendment, Waiver and Termination of the Merger Agreement			53
	Effect of Termination; Break-up Fee; Expenses			54
	Employee Benefit Plans			55
ACCOUNTING TREATMENT				55
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER				55
	Tax Opinion and Merger			56
	North East Shareholders Who Receive FNB Common Stock			56
	North East Shareholders Who Receive Cash and FNB Common Stock			56
	Fractional Shares			57
	Material Federal Income Tax Consequences to FNB and North East			58
	Tax Consequences If the Merger Does Not Qualify as a Reorganization Under Section 368(a) of the Code			58
	Backup Withholding			58
DESCRIPTION OF NORTH EAST				58
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF NORTH EAST				60
CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS				63
DESCRIPTION OF NORTH EAST COMMON STOCK				63
DESCRIPTION OF FNB CAPITAL STOCK				63
	FNB Common Stock			63
	FNB Preferred Stock			64
COMPARISON OF SHAREHOLDER RIGHTS				65
COMPARATIVE MARKET PRICES AND DIVIDENDS				76
BENEFICIAL OWNERSHIP OF NORTH EAST STOCK				76
ADJOURNMENT PROPOSAL				77
LEGAL MATTERS				77
EXPERTS				78
OTHER MATTERS				78
WHERE YOU CAN FIND MORE INFORMATION				79
INDEX TO FINANCIAL STATEMENTS OF NORTH EAST				F-1
APPENDICES:
Appendix A — Agreement and Plan of Merger dated as of April 22, 2005 between F.N.B. Corporation and North East Bancshares, Inc.				A-1
Appendix B — Opinion of Boenning & Scattergood, Inc.				B-1
Appendix C — Subchapter D and Section 1930 of the Pennsylvania Business Corporation Law of 1988, as amended				C-1

ii

---

 

Q.		What matters will be considered at our special meeting?
A.		At our special meeting, our shareholders will be asked to vote on a proposal to approve and adopt the merger agreement whereby we will merge with, and into, FNB. We sometimes refer to this proposal as the “merger proposal” in this proxy statement/ prospectus. Our shareholders will also be asked to vote upon a proposal to grant discretionary authority to adjourn our special meeting, if necessary, to solicit additional proxies if we have not received sufficient votes to approve the merger at the time of our special meeting. We sometimes refer to this proposal as the “adjournment proposal” in this proxy statement/ prospectus.
Q.		What will I receive upon consummation of the merger?
A.		Upon consummation of the merger, you will have the right to receive shares of FNB common stock in exchange for the shares of our common stock that you own, in accordance with the exchange ratio, subject to customary antidilution adjustments. At FNB’s option if the average closing price of FNB common stock on the New York Stock Exchange for the 20 consecutive trading days ending on the fifth trading day prior to the consummation of the merger is less than $18.00 per share, you would receive a combination of cash and shares of FNB common stock.
Q.		What is the recommendation of our board of directors?
A.		Our board of directors has unanimously determined that the merger is fair to you and in the best interests of our shareholders and us and unanimously recommends that you vote for the merger proposal.
		In making this determination, our board of directors considered the opinion of Boenning & Scattergood, Inc., our independent financial advisor, whom we refer to as “Boenning” in this proxy statement/ prospectus, as to the fairness from a financial point of view of the exchange ratio in the merger agreement. Our board of directors also reviewed and evaluated the terms and conditions of the merger agreement and the merger with the assistance of our independent legal counsel.
		Our board of directors also recommends that you vote for the adjournment proposal.
Q.		What was the opinion of our financial advisor?
A.		Boenning presented an opinion to our board of directors on April 21, 2005 to the effect that, as of April 15, 2005 and then again as of August 12, 2005 and based upon the assumptions made by Boenning, the matters it considered and the limitations of its review as set forth in its opinion, the merger consideration in the merger agreement is fair to our shareholders from a financial point of view.
Q.		What do I need to do now?
A.		After you carefully read this proxy statement/prospectus and decide how you want to vote on the merger proposal and the adjournment proposal, you should complete, date and sign your proxy card and mail it in the enclosed return envelope as soon as possible so that your shares may be represented at our special meeting, even if you plan to attend our special meeting and vote in person.
Q.		Why is my vote important?
A.		Our Articles of Incorporation require the affirmative vote of a majority of the holders of our outstanding shares of common stock in order to approve and adopt the merger proposal. Therefore, if you fail to vote or abstain from voting on the merger proposal, it will have the same effect as a vote against the merger proposal.
Q.		How do I vote in person?
A.		If you attend our special meeting and wish to vote in person, we will give you a ballot when you arrive at our special meeting. If your shares are held in street name, which means that your shares are registered in the name of a bank, broker, nominee or other holder of record instead of your own name, you must bring an account statement or a letter from your holder of record showing that you are the beneficial owner of the shares on August 9, 2005, the record date for determining our shareholders who are entitled to notice of, and to vote at, our special meeting, in order to be permitted to cast a ballot at our special meeting.

1

---

 

Q.		How do I vote my shares if they are held in street name?
A.		If you are not a holder of record but you are a “beneficial holder,” meaning that your shares are registered in a name other than your own, such as a street name, you must either direct the holder of record of your shares as to how you want your shares to be voted or obtain a proxy from the holder of record that you may vote yourself.
Q.		What if I fail to instruct my broker?
A.		Brokers may not vote shares of our common stock that they hold for the benefit of another person either for or against the approval of the merger proposal without specific instructions from the person who beneficially owns those shares. Therefore, if your shares are held by a broker and you do not give your broker instructions on how to vote your shares, this will have the same effect as voting against the approval of the merger proposal.
Q.		May I change my vote after I have mailed my signed proxy?
A.		Yes. You may revoke your proxy at any time before the vote is taken at our special meeting. If you have not voted through a bank, broker, nominee or other holder of record, you may revoke your proxy by:
		• submitting written notice of revocation to our corporate secretary prior to the voting of that proxy at our special meeting;
		• submitting a properly executed proxy with a later date; or
		• voting in person at our special meeting.
		However, simply attending our special meeting without voting will not revoke an earlier proxy.
		If your shares are held in the name of a bank, broker, nominee or other holder of record, you should follow the instructions of the bank, broker, nominee or other holder of record regarding the revocation of proxies.
Q.		When do you expect to complete the merger?
A.		We anticipate that we will obtain all necessary regulatory approvals to consummate the merger in the fourth quarter of 2005. However, we cannot assure you when or if the merger will occur. We must first obtain the approval of our shareholders at our special meeting, and we and FNB must obtain the requisite regulatory approvals.
Q.		Should I send my stock certificates now?
A.		No. Holders of our common stock should not submit their North East stock certificates for exchange until they receive the transmittal instructions from the exchange agent, Registrar and Transfer Company.
Q.		What rights do I have to an appraisal of my shares?
A.		If you do not vote in favor of the merger proposal and if you comply precisely with the applicable procedural requirements, Pennsylvania law entitles you to a judicial appraisal of the fair value of your shares. You must carefully and precisely follow the applicable procedures under Pennsylvania law in order to exercise your appraisal rights. A complete copy of the relevant sections of the Pennsylvania Business Corporation Law of 1988, as amended, or BCL, is included in this proxy statement/prospectus as Appendix C. The fair value of your shares as determined in an appraisal rights proceeding may be more or less than the merger consideration you are entitled to receive from FNB under the merger agreement.
Q.		Who can help answer my questions?
A.		If you have additional questions about the merger or would like additional copies of this proxy statement/ prospectus, please call David B. Hartman, President and Chief Executive Officer, at (814) 725-7222.

2

---

 

3

---

 

4

---

 

5

---

 

6

---

 

7

---

 

8

---

 

9

---

 

10

---

 

11

---

 

12

---

 

13

---

 

14

---

 

15

---

 

	FNB may encounter integration difficulties or may fail to realize the anticipated benefits of the merger.

	Future results of the combined companies may materially differ from the pro forma financial information presented in this proxy statement/ prospectus.

	The merger agreement limits our ability to pursue alternatives to the merger.

	FNB’s status as a holding company makes it dependent on dividends from its subsidiaries to meet its obligations.

	Interest rate volatility could significantly harm FNB’s business.

16

---

 

	FNB’s results of operations are significantly affected by the ability of its borrowers to repay their loans.

	•	credit risks of a particular borrower;
	•	changes in economic and industry conditions;
	•	the duration of the loan; and
	•	in the case of a collateralized loan, uncertainties as to the future value of the collateral.

	FNB’s financial condition and results of operations would be adversely affected if its allowance for loan losses were not sufficient to absorb actual losses.

	•	a regular review of the quality, mix and size of the overall loan portfolio;
	•	historical loan loss experience;
	•	evaluation of non-performing loans;
	•	assessment of economic conditions and their effects on FNB’s existing portfolio; and
	•	the amount and quality of collateral, including guarantees, securing loans.

	FNB’s financial condition may be adversely affected if it is unable to attract sufficient deposits to fund its anticipated loan growth.

	FNB could experience significant difficulties and complications in connection with its growth and acquisition strategy.

17

---

 

	•	potential exposure to unknown or contingent liabilities of banks and non-bank entities FNB acquires;
	•	exposure to potential asset quality issues of acquired banks and non-bank entities;
	•	potential disruption to FNB’s business;
	•	potential diversion of the time and attention of FNB’s management; and
	•	the possible loss of key employees and customers of the banks and other businesses FNB acquires.

	FNB could be adversely affected by changes in the law, especially changes in the regulation of the banking industry.

	•	the payment of dividends;
	•	mergers with or acquisitions of other institutions;
	•	investments;
	•	loans and interest rates;
	•	the provision of securities, insurance or trust services; and
	•	the types of non-deposit activities in which FNB’s financial institution subsidiaries may engage.

18

---

 

	FNB’s results of operations could be adversely affected due to significant competition.

	•	changes in regulation;
	•	changes in technology and product delivery systems; and
	•	the accelerated pace of consolidation among financial services providers.

	FNB’s continued pace of growth may require it to raise additional capital in the future, but that capital may not be available when it is needed.

	Adverse economic conditions in FNB’s market area may adversely impact its results of operations and financial condition.

	Certain provisions of FNB’s Articles of Incorporation and By-laws and Florida law may discourage takeovers.

	•	classify its board of directors into three classes, so that shareholders elect only one-third of its board of directors each year;
	•	permit shareholders to remove directors only for cause;
	•	do not permit shareholders to take action except at an annual or special meeting of shareholders;

19

---

 

	•	require shareholders to give FNB advance notice to nominate candidates for election to its board of directors or to make shareholder proposals at a shareholders’ meeting;
	•	permit FNB’s board of directors to issue, without shareholder approval unless otherwise required by law, preferred stock with such terms as its board of directors may determine; and
	•	require the vote of the holders of at least 75% of FNB’s voting shares for shareholder amendments to its By-laws.

	Loss of members of FNB’s executive team could have a negative impact on its business.

	•	the businesses of FNB and North East may not be integrated successfully or the integration may be more difficult, time-consuming or costly than currently anticipated;
	•	expected revenue synergies and cost savings from the merger may not be realized within the expected time frame or at all;
	•	revenues may be lower than expected following the merger;
	•	deposit attrition, operating costs, loss of customers and business disruption, including, without limitation, difficulties in maintaining relationships with our employees, customers or suppliers may be greater than anticipated following the merger;

20

---

 

	•	the regulatory approvals for the merger may not be obtained on acceptable terms, on the anticipated schedule or at all;
	•	the merger may not be approved by the requisite vote of our shareholders;
	•	competitive pressure among financial services companies is intense;
	•	general economic conditions may be less favorable than expected;
	•	political conditions and related actions by the United States military abroad may adversely affect economic conditions as a whole;
	•	changes in the interest rate environment may reduce interest margins and impact funding sources;
	•	changes in market rates and prices may adversely impact the value of financial products and assets;
	•	legislation or changes in the regulatory environment may adversely affect the businesses in which FNB and North East are engaged; and
	•	litigation liabilities, including costs, expenses, settlements and judgments, may adversely affect either FNB or North East or their businesses.

	•	Proposal 1 — A proposal to approve and adopt the merger agreement between FNB and us;
	•	Proposal 2 — A proposal to grant discretionary authority to adjourn our special meeting if necessary to permit further solicitation of proxies because we have not received sufficient votes at the time of our special meeting to approve the merger proposal; and

21

---

 

	•	Such other business as may properly come before our special meeting and any adjournment, postponement or continuation of our special meeting.

22

---

 

	•	submitting written notice of revocation to our corporate secretary prior to the voting of that proxy at our special meeting;
	•	submitting a properly executed proxy with a later date; or
	•	voting in person at our special meeting.

23

---

 

24

---

 

25

---

 

26

---

 

	•	its understanding of FNB’s business, operations, financial condition, earnings and prospects and of North East’s business, operations, financial condition, earnings and prospects, including our geographic position in the Erie, Pennsylvania region;
	•	its understanding of the current and prospective environment in which FNB and North East operate, including regional and local economic conditions, the competitive environment for financial institutions generally and continuing consolidation in the financial services industry, and the likely effect of these factors on FNB in light of, and in absence of, the proposed merger;
	•	the fact that focus of FNB’s planned expansion strategy is on strategic acquisitions;
	•	the fact that the merger will provide FNB Bank with additional branches in Erie;
	•	review with its legal advisors of the structure and terms of the merger;
	•	the fact that the complementary nature of the respective customer bases, business products and skills of FNB and North East could result in opportunities to obtain synergies as products are cross-marketed and distributed over broader customer bases and best practices are compared and applied across businesses; and
	•	the likelihood that the regulatory approvals needed to complete the transaction will be obtained.

	•	Our board of directors’ familiarity with and review of information concerning our business, results of operations, financial condition, competitive position and future prospects;

27

---

 

	•	The current and prospective environment in which we operate, including national, regional and local economic conditions, the competitive environment for banks and other financial institutions generally, the increased regulatory burdens on financial institutions and the trend toward consolidation in the banking and financial services industries;
	•	The financial presentation of Boenning and the opinion of Boenning that, as of April 15, 2005, the merger consideration was fair, from a financial point of view, to our shareholders (see “— Opinion of Our Financial Advisor,” beginning on Page 29);
	•	Losses recently encountered by North East Bank;
	•	The results that might be obtained by us if we continued to operate independently and the likely benefits to our shareholders of such a course, compared with the value of the exchange ratio offered by FNB;
	•	The financial attributes of our and FNB’s common stock, dividend yield, liquidity and corporate fundamentals;
	•	The financial terms of the proposed merger. Our shareholders would receive shares of FNB common stock in exchange for shares of our common stock they had held according to the Exchange Ratio, subject to adjustment for antidilution. Our board of directors considered the presentation of Boenning at its April 21, 2005 meeting concerning the financial terms of the proposed merger. Among other comparisons and financial reports, Boenning presented an analysis of comparable companies, an analysis of discounted dividends, an analysis of comparable transactions and a hurdle rate analysis. (See “— Opinion of Our Financial Advisor,” beginning on Page 29);
	•	In comparison to FNB’s history of paying cash dividends on its common stock, our board of directors considered whether we, as an independent enterprise, could produce the earnings necessary to result in a value comparable to the value to be received in the merger;
	•	FNB trades on the New York Stock Exchange under the symbol “FNB.” Our board of directors found the enhanced liquidity associated with FNB’s common stock, compared with the more limited trading market of our common stock, to be a favorable factor in its analysis;
	•	Our favorable opinion of the experience and expertise of the FNB management team;
	•	The expected qualification of the merger as a reorganization under Section 368 of the Internal Revenue Code of 1986, as amended, referred to as the Code;
	•	Our board of directors and our management performed an extensive review of FNB. As a part of our due diligence review, we reviewed FNB’s business, operations, financial conditions, earnings and prospects. These factors were found to be favorable. Our board of directors emphasized FNB’s most recent operating history and performance;
	•	Our current condition and historical operating results;
	•	Our concerns in meeting the capital requirements imposed by our amended formal written agreement with the OCC;
	•	The effects of the merger on our depositors and customers and the communities served by us, which was deemed to be favorable given that they would be served by an organization with greater resources than we have; and
	•	The future business prospects of FNB.

28

---

 

	•	reviewed the historical financial performance, current financial position and general prospects of North East and F.N.B. and reviewed certain internal financial analyses and forecasts prepared by management of North East;
	•	reviewed the merger agreement;
	•	reviewed and analyzed the stock market performance of North East and FNB.;

29

---

 

	•	studied and analyzed the consolidated financial and operating data of North East and FNB;
	•	considered the terms and conditions of the merger between North East and FNB compared with the terms and conditions of bank, bank holding company and financial holding company mergers and acquisitions that Boenning deemed comparable;
	•	met and/or communicated with certain members of North East’s and FNB’s senior management to discuss their respective operations, historical financial statements and future prospects;
	•	reviewed a draft of this proxy statement/prospectus in the case of the Proxy Opinion;
	•	compared the financial performance of North East and FNB and the prices and trading activity of the stocks of North East and FNB with those of certain other publicly-traded banks, bank holding companies and financial holding companies and their securities that Boenning deemed comparable;
	•	discussed the strategic objectives of the merger and the plans for the combined company with senior executives of North East and FNB, including estimates of the cost savings and other synergies projected by North East for the combined company;
	•	participated in discussions and negotiations among representatives of North East and FNB and their advisors; and
	•	conducted such other financial analyses, studies and investigations as it deemed appropriate.

30

---

 

Aggregate Consideration		$	15.5  million
Consideration Per Common Share		$	107.00
Aggregate Consideration/Last Twelve Months Reported Net Income			NM
Aggregate Consideration/Common Shareholders’ Equity			227.6	%
Aggregate Consideration/Tangible Common Shareholders’ Equity			227.6	%
Consideration Per Common Share/Market Price Per Common Share at Announcement			105.8	%

	•	GNB Financial Services Inc., Gratz, PA (1);
	•	First National Bank of Groton, Groton, NY (1);
	•	Exchange Bancshares, Inc., Luckey, OH (1);
	•	Northern New York Bancorp, Inc., Watertown, NY (2);
	•	First National Bank of Port Allegany, Port Allegany, PA (2);
	•	Tri-State 1st Banc, Inc., East Liverpool, OH (1);
	•	FNBM Financial Corporation, Minersville, PA (2);
	•	First National Bank of Wellston, Wellston, OH (1);
	•	BNB Bancorp Incorporated, Brookville, OH (2);
	•	F&M Bancorp, Miamisburg, OH (1);
	•	Community First Bancorp, Incorporated, Reynoldsville, PA (2);
	•	Vernon Bank Corporation, Vernon, NY (2);
	•	Halifax National Bank, Halifax, PA (1);
	•	Canton Bancorp, Inc., Canton, PA (2); and
	•	Citizens National Bank of Meyersdale, Meyersdale, PA (1);

(1)	Most recent publicly available information as of December 31, 2004.
(2)	Most recent publicly available information as of September 30, 2004.

31

---

 

			North East				Peer Median
			($ in millions)
Total Assets			$	68	.7		$	84	.0
Common Equity Capital/Assets				9	.9%			11	.8%
Loans/Deposits				84	.6%			61	.8%
Nonperforming Assets(1)/Assets				4	.86%			0	.52%
Return on Average Assets				(0	.95)%			0	.76%
Return on Average Common Equity				(9	.05)%			6	.37%
Non-Interest Income/Average Assets				0	.86%			0	.58%
Non-Interest Expense/Average Assets				4	.93%			2	.90%
Efficiency Ratio(2)				102	.8%			70	.5%
Net Interest Margin				4	.30%			3	.86%
Four Year Average Results:
Return on Average Assets				(0	.05)%			0	.75%
Return on Average Common Equity				(0	.35)%			6	.33%
Efficiency Ratio(2)				87	.8%			72	.6%
Net Interest Margin				4	.56%			4	.02%
Compound Annual Growth Rate(3)
	Assets			(6	.2)%			5	.7%
	Loans			(1	.5)%			1	.4%
	Deposits			(6	.2)%			5	.8%
Common Equity Market Capitalization			$	7	.5		$	8	.9
Price/52 Week High Price				98	.1%			100	.00%
Price to:
	Book Value Per Common Share			110	.6%			111	.4%
	Tangible Book Value Per Common Share			110	.6%			111	.4%
	LTM(4) Earnings Per Common Share			NA				18	.5x
	LTM(4)(5) Dividend Payout Ratio			NA				34	.2%
Avg. Weekly Volume/Common Shares Outstanding				NA				0	.03%

(1)	Defined as total nonaccrual loans plus other real estate owned plus accruing loans that are 90 days past due.
(2)	Defined as non-interest expense less intangible amortization divided by the sum of net interest income plus non-interest income.
(3)	Reflects that compound annual growth rate from fiscal year 2000 to December 31, 2004, except where noted.
(4)	LTM stands for the latest twelve months.

32

---

 

	•	Wilmington Trust Corporation, Wilmington, DE (1);
	•	Hudson United Bancorp, Mahwah, NJ (1);
	•	Susquehanna Bancshares, Inc., Lititz, PA (1);
	•	Provident Bankshares Corporation, Baltimore, MD (1);
	•	First Commonwealth Financial Corporation, Indiana, PA (1):
	•	Riggs National Corporation, Washington, D.C. (1);
	•	National Penn Bancshares, Inc., Boyertown, PA (1);
	•	Community Bank System, Inc., DeWitt, NY (1);
	•	NBT Bancorp Inc., Norwich, NY (1);
	•	Signature Bank, New York, NY (1);
	•	Sun Bancorp, Inc., Vineland, NJ (2);
	•	Harleysville National Corporation, Harleysville, PA (1);
	•	S&T Bancorp, Inc., Indiana, PA (1); and
	•	Yardville National Bancorp, Hamilton, NJ (1);

(1)	Most recent publicly available information as of December 31, 2004.
(2)	Most recent publicly available information as of September 30, 2004.

		FNB				Peer Median
		($ In millions)
Total Assets		$	5,027.0			$	4,436.3
Common Equity Capital/ Assets			6.5	%			9.3	%
Loans/ Deposits			94.2	%			91.3	%
Nonperforming Assets(1)/ Assets			0.86	%			0.38	%
Return on Average Assets			1.29	%			1.18	%
Return on Average Common Equity			23.53	%			12.06	%
Non-Interest Income/ Average Assets			1.46	%			1.03	%
Non-Interest Expense/ Average Assets			2.95	%			2.81	%
Efficiency Ratio(2)			57.2	%			58.2	%
Net Interest Margin			3.94	%			3.59	%

33

---

 

			FNB				Peer Median
			($ In millions)
Four Year Average Results:
Return on Average Assets				1.02	%			1.00	%
Return on Average Common Equity				15.55	%			11.89	%
Efficiency Ratio(2)				59.7	%			56.8	%
Net Interest Margin				4.41	%			3.79	%
Compound Annual Growth Rate(3)
	Assets			5.9	%			9.1	%
	Loans			3.0	%			9.3	%
	Deposits			2.8	%			9.3	%
Common Equity Market Capitalization			$	1,038.9			$	777.4
Price/52 Week High Price				80.6	%			80.9	%
Price to:
	Book Value Per Common Share			285.3	%			194.6	%
	Tangible Book Value Per Common Share			418.0	%			246.6	%
	LTM(4) Earnings Per Common Share			14.3	x			16.0x
	Next Fiscal Year I/B/E/S Est. Earnings Per Share			14.7	x			14.2x
	Following Fiscal Year I/B/E/S Est. Earnings Per Share			13.7	x			13.1x
LTM(4) Dividend Payout Ratio				71.3	%			50.9	%
Avg. Weekly Volume/ Common Shares Outstanding				1.17	%			1.06	%

(1)	Defined as total nonaccrual loans plus other real estate owned plus accruing loans that are 90 days past due.
(2)	Defined as non-interest expense less intangible amortization divided by the sum of net interest income plus non-interest income.
(3)	Reflects that compound annual growth rate from fiscal year 2000 to December 31, 2004, except where noted.
(4)	LTM stands for latest twelve months.

34

---

 

		Terminal Multiple
		16.5x				17.5x				18.5x				19.5x				20.5x
EPS Growth Rate(%)
0.0		$	45.34			$	47.99			$	50.64			$	53.28			$	55.93
2.5			50.00				52.93				55.85				58.77				61.69
5.0			55.02				58.23				61.45				64.66				67.88
7.5			60.40				63.93				67.46				71.00				74.53
10.0			66.16				70.04				73.91				77.78				81.66

35

---

 

																							Market
			FNB/North				National				Regional				Performance				Recent				Area
			East				Median				Median				Median				Median				Median
Number of Transactions				N/A				59				6				7				14				7
Seller Information:
Total Assets (in millions)			$	68.7			$	80.9			$	59.9			$	73.6			$	75.1			$	532.3
Common Equity Capital/ Assets				9.9	%			9.0	%			10.7	%			8.4	%			9.2	%			8.4	%
LTM(1) Return on Average Assets				(0.95	)%			0.72	%			0.02	%			(0.59	)%			0.43	%			0.78	%
LTM(1) Return on Average Common Equity				(9.05	)%			7.64	%			0.25	%			(6.93	)%			4.66	%			10.44	%
NPAs(2)/ Assets				4.86	%			0.37	%			0.81	%			1.99	%			0.42	%			0.67	%
Implied Per Share Values:
	Book Value		$	107.00			$	93.69			$	70.54			$	80.05			$	71.52			$	144.51
	Tangible Book Value			107.00				96.32				71.00				86.62				74.08				168.69
	LTM(1) Earnings			107.00				NM				NM				NM				NM				NM
	Deposits			107.00				90.62				66.57				65.67				71.68				147.97
	Assets			107.00				91.69				67.03				67.49				67.03				116.8

(1)	LTM stands for latest twelve months.
(2)	Defined as total nonaccrual loans and other real estate owned.

		North East on				Pro Forma
Common Share Values as of April 15, 2005		a Stand-Alone Basis				North East Equivalent
2005 Diluted Earnings		$	3.42			$	7.52	(1)
Quarterly Cash Dividend Annualized			0.00				5.47
Book Value			47.00				39.60	(2)
Tangible Book Value			47.00				26.53	(2)

(1)	Equivalent does not include any assumed synergies arising from the consolidation or any purchase accounting adjustments.
(2)	Equivalents include certain purchase accounting adjustments.

36

---

 

		Discount Rate
Terminal Multiple		5.0%				6.3%				10.0%
16.0x			20.5	%			22.0	%			26.1	%
17.0x			19.1				20.5				24.6
18.5x			17.1				18.5				22.5
20.0x			15.2				16.6				20.6
21.0x			14.1				15.5				19.5

37

---

 

	•	if the average closing price of FNB common stock is $18.00 or higher, that number of shares of FNB common stock as is determined by dividing $107.00 by the average closing price of FNB common stock on the New York Stock Exchange for the 20 consecutive trading days ending on the fifth trading day prior to consummation of the merger; or
	•	if the average closing price of FNB common stock is less than $18.00, as determined using the formula set forth above at the discretion of FNB, either:

	•	that number of shares of FNB common stock as is determined by dividing $107.00 by the average closing price computed as provided above; or
	•	a combination of cash, but not more than $53.00 per North East share, and that number of shares of FNB common stock as is determined by dividing $107.00, less the cash paid per North East share, by the average closing price of FNB common stock computed as provided above.

38

---

 

39

---

 

40

---

 

	•	the continued indemnification of our current directors and executive officers under the merger agreement and providing these individuals with directors’ and officers’ insurance; and
	•	the severance payment due to David B. Hartman, our President and Chief Executive Officer, pursuant to the terms of an executive employment agreement.

41

---

 

	•	that will result in a monopoly or be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States;
	•	if its effect in any section of the country may be substantially to lessen competition or tend to create a monopoly; or
	•	if it would in any other manner be a restraint of trade,

42

---

 

43

---

 

	•	The shareholder must notify us in writing before the date of our special meeting of the shareholder’s intention to demand that the shareholder be paid the fair value for the shareholder’s shares if the merger is consummated. Neither a proxy nor a vote against the merger proposal will constitute the required notice.
	•	The shareholder must make no change in the beneficial ownership of the shareholder’s shares from the date the shareholder files the written notice continuously through the effective time of the merger.
	•	The shareholder must refrain from voting the shareholder’s shares in favor of the merger proposal. Neither an abstention from voting with respect to, nor a failure to vote in person or by proxy against approval of, the merger proposal will constitute a waiver of a shareholder’s appraisal rights. However, a signed proxy that is returned without any instruction as to how the proxy should be voted will be voted in favor of the merger proposal and will be deemed to be a waiver of the shareholder’s appraisal rights.

44

---

 

	•	Our closing balance sheet and statement of income for the fiscal year ending not more than 16 months before the date of remittance or notice, together with our latest available interim financial statements;
	•	A statement of our estimate of the fair value of the shares; and
	•	A notice of the right of the shareholder to demand payment or supplemental payment, as the case may be, accompanied by a copy of Subchapter D.

45

---

 

46

---

 

	•	if the average closing price of FNB common stock is $18.00 or higher, into that number of shares of FNB common stock as is determined by dividing $107.00 by the average closing price of FNB common stock on the New York Stock Exchange for the 20 consecutive trading days ending on the fifth trading day prior to consummation of the merger; or
	•	if the average closing price of FNB common stock is less than $18.00, at the discretion of FNB, either:

	•	into that number of shares of FNB common stock as is determined by dividing $107.00 by the average closing price computed as provided above; or
	•	into a combination of cash, but not more than $53.00 per North East share, and that number of shares of FNB common stock as is determined by dividing $107.00, less the cash paid per North East share, by the average closing price of FNB common stock for the 20 consecutive trading days ending on the fifth trading day prior to consummation of the merger.

	•	our shareholders approve and adopt the merger agreement by the necessary vote;
	•	we and FNB obtain all required governmental and regulatory consents and approvals and no injunctions are filed to prevent the merger;
	•	the registration statement of which this proxy statement/prospectus is a part becomes effective; and
	•	all other conditions to the merger set forth in this proxy statement/prospectus and the merger agreement are either satisfied or waived.

47

---

 

	•	corporate matters, including due organization, qualification and authority;
	•	capitalization and issuance of capital stock;
	•	subsidiaries;
	•	corporate power and authority to conduct its business;
	•	authority relative to execution and delivery of the merger agreement and the absence of conflicts with, or violations of, organizational documents or other obligations as a result of the merger;
	•	required governmental filings and consents for approval of the merger and the absence of any defaults;
	•	the timely filing of reports with governmental entities, and the absence of investigations by regulatory agencies;
	•	the absence of material adverse effects;
	•	legal proceedings;
	•	compliance with applicable laws;
	•	broker’s fees payable in connection with the merger;
	•	financial statements and the absence of undisclosed liabilities;
	•	material contracts and the absence of defaults thereunder;
	•	employee benefit plans;
	•	labor matters;
	•	environmental matters;
	•	tax matters;
	•	agreements with regulatory agencies;
	•	risk management instruments;
	•	all real and intellectual property;
	•	loans and nonperforming and classified assets;
	•	fiduciary accounts;
	•	books and records;
	•	insurance;
	•	allowance for loan losses;
	•	required vote needed to approve this merger;
	•	the absence of knowledge preventing the merger from qualifying as a reorganization;
	•	the receipt of a fairness opinion from our financial advisor; and
	•	the accuracy of information supplied for inclusion in this proxy statement/prospectus and other similar documents.

48

---

 

	•	corporate matters, including due organization, qualification and authority;
	•	capitalization;
	•	subsidiaries;
	•	corporate power and authority to conduct its business;
	•	authority relative to execution and delivery of the merger agreement and the absence of conflicts with, or violations of, organizational documents or other obligations as a result of the merger;
	•	required governmental filings and consents for approval of the merger and the absence of any defaults;
	•	the timely filing of reports with governmental entities, and the absence of investigations by regulatory agencies;
	•	financial statements and the absence of undisclosed liabilities;
	•	legal proceedings and the compliance with applicable laws;
	•	the broker’s fees payable in connection with the merger;
	•	tax matters;
	•	material contracts and the absence of defaults thereunder;
	•	the absence of agreements with regulatory agencies;
	•	interest rate risk management instruments;
	•	the absence of material adverse effects; and
	•	the absence of knowledge preventing the merger from qualifying as a reorganization.

	•	conduct our business in the ordinary course in all material respects; and
	•	use commercially reasonable best efforts to maintain and preserve intact our business organization, employees and advantageous business relationships.

	•	issue, sell or otherwise permit to become outstanding any shares of our common stock or options or other rights to acquire our common stock;
	•	make, declare or pay any dividends or other distributions on any shares of our capital stock;
	•	adjust, split, combine, reclassify, redeem, purchase or acquire any shares of our common stock;
	•	except as contemplated by the merger agreement, enter into or amend any employment or severance agreement or grant any salary increase other than:

	•	normal increases in the ordinary course of business that, in the aggregate, do not exceed 3%;
	•	changes required by applicable law;
	•	changes pursuant to existing plans or commitments as disclosed to FNB;
	•	severance payments as disclosed to FNB; and
	•	grants of awards to newly-hired employees consistent with past practice.

49

---

 

	•	hire or promote any employee, except to satisfy existing contractual obligations or to fill vacancies where employment is terminable at our will and where the total compensation does not exceed $30,000;
	•	enter into, establish, amend or make any contributions to any employee benefit plan, except as is required by applicable law or to satisfy existing contractual obligations or take any action to accelerate the vesting or exercisability of stock options or other benefits;
	•	other than in the ordinary course of business, sell, transfer, mortgage, encumber or otherwise dispose of any assets, deposits, business or properties;
	•	acquire, other than by foreclosure or in satisfaction of debts in the ordinary course of business, any assets, business, deposits or properties of any other entity;
	•	make any capital expenditure other than in the ordinary course of business and in amounts not exceeding $10,000 individually or $25,000 in the aggregate;
	•	amend our Articles of Incorporation or By-laws or those of our subsidiaries except as required by law;
	•	implement or adopt any change in our tax accounting or financial accounting principles, practices or methods, except as required by changes in law or regulations or generally accepted accounting principles;
	•	other than in the ordinary course of business and as permitted by the merger agreement, enter into or terminate any material contract or amend any material contract in any material respect;
	•	enter into any settlement of any action, proceeding, order or investigation to which we are a party that involves the payment of more than $25,000 by us or that would impose any material restriction on our business;
	•	enter into any new material line of business or change our lending, investment, underwriting, risk and asset liability management or other banking and operating policies that are material to us, except as required by applicable law, or open or close any branch location;
	•	enter into any derivatives contract or acquire other investment securities;
	•	other than in the ordinary course of business, incur any indebtedness or assume, guarantee, endorse or otherwise become responsible for the indebtedness of any other person or prepay any indebtedness;
	•	other than in the ordinary course of business, acquire any debt security or equity security other than federal funds or United States Government or agency securities with a term of one year or less or restructure or materially change our investment securities portfolio or gap position;
	•	other than in the ordinary course of business, make, renew or otherwise modify:

	•	(i) any loan, loan commitment, letter of credit or other extension of credit (individually, a “Loan” and collectively, “Loans”) to any Person if, immediately after making (x) a Loan or Loans (other than a permanent Loan secured by an owner-occupied 1-4 single-family residence or a secured commercial Loan), such Person would be indebted to North East Bank in an aggregate amount in excess of $25,000, (y) a secured commercial Loan, such Person would be indebted to North East Bank in an aggregate amount in excess of $100,000 or (z) a permanent Loan secured by an owner-occupied 1-4 single-family residence, such Person would be indebted to North East Bank in an aggregate amount in excess of $200,000; or
	•	(ii) any Loan that contains terms that involve an exception to North East Bank’s credit policy manual, provided, however, that if FNB does not object to a written request for approval within two business days after receipt, the request shall be deemed approved. North East Bank further agrees that it will review with representatives of FNB the circumstances and terms of problem or work-out Loans before establishing a work-out plan or otherwise taking any action with respect to any such Loan and shall provide notice to FNB of, and permit representatives of FNB at FNB’s discretion to attend, meetings of North East Bank’s loan committee;

50

---

 

	•	other than in the ordinary course of business, make any investment or commitment to invest in real estate or a real estate development project other than in foreclosures, acquisitions in fiduciary capacity or in satisfaction of a debt previously contracted;
	•	take any action that would, or is reasonably likely to, prevent the merger from qualifying as a reorganization;
	•	fail to hold our special meeting;
	•	take any action that is intended, or is reasonably likely, to result in:

	•	any representations or warranties under the merger agreement becoming untrue in any material respect;
	•	any of the conditions to the merger not being satisfied; or
	•	a material violation of the merger agreement or the bank merger agreement;

	•	take any action that would adversely affect or materially delay necessary governmental or regulatory approvals, or our ability to perform our covenants and agreements under the merger agreement or to consummate the transactions contemplated by the merger agreement; or
	•	enter into any contract or otherwise agree or commit to do any of the foregoing.

	•	take any action that would, or is reasonably likely to, prevent the merger from qualifying as a reorganization;
	•	take any action that is intended, or is reasonably likely to, result in:

	•	any representations or warranties under the merger agreement becoming untrue in any material respect;
	•	any of the conditions to the merger not being satisfied; or
	•	a material violation of the merger agreement or the bank merger agreement.

	•	take any action that would adversely affect or materially delay necessary governmental or regulatory approvals, or its ability to perform its covenants and agreements under the merger agreement or to consummate the transactions contemplated by the merger agreement; or
	•	enter into any agreement or otherwise agree or commit to do any of the foregoing.

	•	initiate, solicit, encourage or take any action to facilitate any inquiries or proposals for any “Acquisition Proposal,” as defined below;

51

---

 

	•	participate in any discussions or negotiations, furnish any information to or approve, recommend or enter into any agreement, regarding any “Acquisition Proposal”; or
	•	approve, endorse, recommend or enter into a letter of intent or any similar document or contract, agreement or commitment contemplating an acquisition proposal.

	•	we have first entered into a confidentiality agreement with the party proposing the Superior Proposal with confidentiality terms no less favorable to us than those contained in our confidentiality agreement with FNB; and
	•	our board of directors concludes in good faith, after consultation with our outside legal counsel, that failure to take these actions would cause our board of directors to violate its fiduciary duties to our shareholders.

	•	to notify FNB promptly, and in any event within 24 hours, after we receive any Acquisition Proposal, or any information related thereto, which notification shall describe the Acquisition Proposal and the third party making it; and
	•	to cease any existing discussions or negotiations with any persons with respect to any Acquisition Proposal.

	•	direct or indirect acquisition or purchase of a business of a substantial portion of the net revenues, net income or net assets of us or any of our subsidiaries;
	•	direct or indirect acquisition of our common stock representing 10% or more of the voting power of our common stock;
	•	tender offer or exchange offer that if consummated would result in any person beneficially owning 10% or more of our common stock; or
	•	merger, consolidation, business combination, recapitalization, liquidation or dissolution involving us, other than our proposed merger with FNB.

	•	is on terms that are more favorable from a financial point of view to our shareholders than the terms of the proposed merger with FNB;

52

---

 

	•	has financing, to the extent required, that is fully committed or reasonably determined to be available to the party making the offer; and
	•	is reasonably capable of being completed.

	•	the approval and adoption of the merger agreement and the approval of the merger by the holders of a majority of our outstanding shares of common stock;
	•	the receipt and effectiveness of all governmental and other approvals, registrations and consents, and the expiration of all related waiting periods required to complete the merger;
	•	the absence of any law, statute, regulation, judgment, decree, injunction or other order in effect by any court or other governmental entity that prohibits completion of the transactions contemplated by the merger agreement;
	•	this registration statement with respect to the FNB common stock to be issued in the merger shall have become effective under the Securities Act and no stop order or proceedings for that purpose will have been initiated or threatened by the SEC;
	•	the approval of the listing of the FNB common stock to be issued in the merger on the New York Stock Exchange, subject to official notice of issuance;
	•	the truth and correctness of the representations and warranties of FNB and North East in the merger agreement, subject to the materiality standard provided in the merger agreement, and the performance by each of FNB and us in all material respects of our respective obligations under the merger agreement and the receipt by each of us of certificates from the other to that effect; and
	•	the receipt by each of FNB and North East of a legal opinion with respect to certain federal income tax consequences of the merger.

53

---

 

	•	provided the terminating party is not then in material breach, if there is a breach by the other party that would cause the failure of the closing conditions described above, unless the breach is capable of being, and is, cured within 30 days of notice of the breach;
	•	if the merger has not been consummated by January 31, 2006, unless the failure to consummate the merger by that date is due to the terminating party’s actions;
	•	if any of the required regulatory approvals for the merger are denied and the denial is final and nonappealable; or
	•	if our shareholders do not approve and adopt the merger agreement and approve the merger by the requisite vote, provided that we are not in material breach of our covenant to hold our special meeting and our board of directors is not in breach of its covenant to recommend such approval.

	•	if we have failed to have our board of directors recommend that our shareholders approve and adopt the merger agreement and approve the merger, or if our board of directors has withdrawn or modified its recommendation in a manner adverse to FNB;
	•	if we have breached in any material respect our obligations with respect to Acquisition Proposals and Superior Proposals as described on Pages 51 through 53; or
	•	if we have breached in any material respect our obligation to hold our special meeting.

	•	termination will not relieve a breaching party from liability for its willful breach giving rise to the termination; and
	•	the confidentiality agreement between the parties will survive termination.

	•	our board of directors fails to make or withdraw its recommendation of the merger proposal;
	•	because we have breached our obligations regarding acquisition or superior proposals;
	•	a tender offer or exchange offer for 25% or more of our outstanding common stock is commenced, and our board fails to reject such offer within 10 business days; or
	•	we fail to call, give notice of, convene or hold the special meeting to receive shareholder approval of the merger proposal.

54

---

 

	•	shareholders who received their shares of North East common stock as compensation;
	•	shareholders who hold their shares of North East common stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment;
	•	shareholders, including, without limitation, financial institutions, insurance companies, tax-exempt organizations, dealers or traders in securities and shareholders subject to the alternative minimum tax, who may be subject to special rules;
	•	shareholders whose functional currency is not the U.S. dollar; or
	•	shareholders who, for U.S. federal income tax purposes, are non-resident alien individuals, foreign corporations, foreign partnerships, foreign estates or foreign trusts.

55

---

 

	•	FNB of an opinion from its outside counsel to the effect that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code; and
	•	North East of an opinion from its outside counsel to the effect that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code.

56

---

 

57

---

 

58

---

 

59

---

 

		Year Ended
		December 31, 2004
Average equity as a percentage of average assets:			9.82	%
Equity to total assets at end of period:			9.85
Return on average assets:			(1.35	)
Return on average equity:			(13.79	)
Non-interest expense to average assets:			4.91
Nonperforming loans and foreclosed real estate to total assets at end of period:			4.85

60

---

 

				2004												2003
								Interest												Interest
				Average				and				Average				Average				and				Average
				Balance				Dividends				Yield/Rate				Balance				Dividends				Yield/Rate
Interest-earning assets:
	Loans			$	51,876			$	3,359				6.48	%		$	56,781			$	3,762				6.63	%
	Securities				8,376				200				2.39				7,062				84				1.19
	Other interest earning assets				7,213				83				1.15				7,965				93				1.16
		Total interest earning assets			67,465				3,642				5.40				71,808				3,939				5.49
Non-interest-earning assets					7,858												9,008
Total Assets:					75,323												80,816
Interest-bearing liabilities:
	Deposit accounts				22,118				80				.36				24,305				85				.35
	Time deposits				31,951				656				2.05				35,256				855				2.43
	Other borrowings				303				21				6.93				325				22				6.77
Total interest-bearing liabilities					54,372				757				1.39				59,886				962				1.61
Non-interest-bearing liabilities					13,554												12,250
Stockholders’ equity					7,397												8,680
Total liabilities and stockholders’ equity					75,323												80,816
Net interest income									2,885												2,977
Interest-rate spread													4.01												3.88
Net interest margin													4.28												4.15
Ratio of average interest-earning assets to average interest-bearing liabilities					1.24												1.20

61

---

 

		Payments Due by Period
						Less Than												More Than
		Total				One Year				1-3 Years				3-5 Years				5 Years
Long-Term Debt Obligations:		$	297,000			$	10,000			$	23,000			$	27,000			$	237,000
Operating Lease Obligations:			85,000				22,000				44,000				19,000				—
Total Contractual Obligations		$	382,000			$	32,000			$	67,000			$	46,000			$	237,000

62

---

 

63

---

 

64

---

 

North East		FNB
Our By-laws provide that members of our board of directors may be removed with or without a vote of the shareholders. Pennsylvania law and our By-laws provide that vacancies on our board of directors, including vacancies resulting from an increase in the number of directors, shall be filled by a majority vote of the remaining directors, though less than a quorum, to serve until his or her successor is elected by the shareholders.		Under Florida law, unless the Articles of Incorporation of a corporation provide otherwise, directors may be removed by the corporation’s shareholders with or without cause; provided that, if a director is elected by a voting group, only the shareholders of that voting group may participate in the vote to remove him or her. Article 6 of FNB’s Articles of Incorporation, however, provides that, subject to the rights of holders of any preferred stock, any director or the entire board of directors may be removed without cause by the affirmative vote of the holders of at least 75% of the then outstanding shares of FNB common stock. Florida law and FNB’s By-laws provide that vacancies on the FNB board of directors, including vacancies resulting from an increase in the number of directors or resulting from removal from office, may be filled by a majority vote of the remaining directors, though less than a quorum.

North East		FNB
Pennsylvania law and our By-laws provide that the holders of a majority of votes entitled to be cast on a matter to be considered, represented in person or by proxy, constitute a quorum of that voting group for action on the matter. Pennsylvania law and our By-laws further provide that, if a meeting called for the election of directors is adjourned, the shareholders who attend the resumption of the adjourned meeting, although less than a quorum, shall nevertheless constitute a quorum for the purpose of electing directors.		FNB’s By-laws and Florida law provide that the holders of a majority of votes entitled to be cast on a matter to be considered, represented in person or by proxy, constitute a quorum of that voting group for action on the matter. FNB’s By-laws further provide that whenever the holders of any class or series of shares are entitled to vote separately on a specified item of business, the holders of a majority of the votes of that class or series entitled to be cast, represented in person or by proxy, shall constitute a quorum of such class or series.

65

---

 

North East		FNB
Pennsylvania law and our By-laws provide that any regular or special meeting of shareholders may be adjourned for such periods as may be directed by the shareholders present in person or by proxy at the meeting who are entitled to vote at that meeting.		FNB’s By-laws and Florida law provide that, if a quorum is not present or represented at a shareholders meeting, the shareholders present and entitled to vote at the meeting may adjourn such meeting from time to time.

North East		FNB
Our By-laws provide that special meetings of our shareholders may be called at any time by the President, Board of Directors or shareholders entitled to cast one-fifth of the votes at the meeting.		FNB’s By-laws provide that special meetings of shareholders may be called only by the chairman of the board, the president or the secretary of FNB pursuant to a resolution or written direction of at least 75% of the members of the FNB board or by the holders of not less than 10% of the outstanding shares of FNB.

North East		FNB
Pennsylvania law and our By-laws provide that any action that may be taken at a meeting of the shareholders may be taken without a meeting, if a consent or consents in writing setting forth the action so taken shall be signed by all of the shareholders who would be entitled to vote at a meeting for such purpose and shall be filed with our secretary.		Florida law permits any action that may be taken at a meeting of the shareholders of FNB to be taken without a meeting, if, prior or subsequent to the action, one or more written consents signed by a majority the shareholders who would be entitled to vote at a meeting for such purpose are delivered to FNB.

North East		FNB
Under Pennsylvania law, dissenters’ rights are generally afforded to shareholders in the event of corporate actions involving certain mergers, share exchanges, transfers of all or substantially all of the assets of the corporation, as well as certain other fundamental transactions in which the corporation is not the acquiring corporation. Under Pennsylvania law, dissenters’ rights generally are denied to holders of shares that are listed on a national securities exchange, quoted on the Nasdaq National Market or held beneficially or of record by more than 2,000 shareholders when a plan of merger converts the shares into shares of the acquiring, surviving, new or other corporation, whether or not the shares of the acquiring, surviving, new or other corporation are listed on the exchange or privately held.		Under Florida law, dissenters’ appraisal rights are available in connection with corporate actions involving certain mergers, share exchanges, sales or other dispositions of all or substantially all of the property of the corporation other than in the ordinary course of business, the approval of certain control- share acquisitions and amendments of the Articles of Incorporation that would materially and adversely affect the rights or preferences of shares held by the dissenting shareholders. Under Florida law, appraisal rights generally are denied to holder of shares listed on a national securities exchange or the Nasdaq National Market and when the corporation’s shares are held of record by at least 2,000 persons and such outstanding shares have a market value of at least $10 million, not counting the value of certain insider shares.

66

---

 

North East		FNB
Under Pennsylvania law, derivative actions may be brought by a shareholder, even if the shareholder was not a shareholder at the time of the alleged wrongdoing, if a court determines that there is a strong prima facie case in favor of the claim and a serious injustice will result without such action.		Under Florida law, a derivative action may be brought only by a person who was a shareholder of FNB at the time of the alleged wrongdoing unless the person became a shareholder through transfer by operation of law from one who was a shareholder at the time of the alleged wrongdoing.

North East		FNB
Subject to any restrictions in a corporation’s Articles of Incorporation, Pennsylvania law generally provides that a corporation may make distributions to its shareholders unless after giving effect thereto (i) the corporation would not be able to pay its debts as they become due in the usual course of business, or (ii) the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed upon the dissolution of the corporation to satisfy the preferential rights of shareholders having superior preferential rights to those shareholders receiving the distribution. Our Articles of Incorporation do not contain any restrictions on the payment of dividends or the making of distributions to shareholders.		Subject to any restrictions in a corporation’s Articles of Incorporation, Florida law generally provides that a corporation may make distributions to its shareholders unless after giving effect thereto (i) the corporation would not be able to pay its debts as they become due in the usual course of business, or (ii) the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed upon the dissolution of the corporation to satisfy the preferential rights of shareholders having superior preferential rights to those shareholders receiving the distribution. FNB’s Articles of Incorporation do not contain any restrictions on the payment of dividends or the making of distributions to shareholders.

North East		FNB
We only have one authorized class of stock, common stock that has no preferential rights.		The Articles of Incorporation of FNB authorize it to issue multiple classes of stock that may have rights preferential to the FNB common stock to be received by North East shareholders as a result of the merger. No such stock is currently outstanding. Such preferential rights include rights to preferential dividend rates compared to such rates for FNB common stock, rights to prevent dividends being paid on the common stock until dividends have been paid on the preferred stock, rights to preferential payments upon any liquidation of FNB, independent class voting rights with respect to certain fundamental transactions and rights to convert shares of FNB preferred stock into FNB common stock at a conversion ratio that protects such preferred shareholders against a decline in the price of FNB common stock by further diluting the common stock.

67

---

 

North East		FNB
Our By-laws provide that our board of directors shall consist of 5 members divided into three classes, as equal in number as possible, with each director serving a staggered four-year term. Under Pennsylvania law and pursuant to our By-laws, a director must be at least 18 years of age, and not have attained their 65th birthday prior to election, but need not be a resident of Pennsylvania or a shareholder.		FNB’s By-laws provide that the board of directors of FNB shall consist of such number of directors as may be determined by the board of directors of FNB, which number shall be not less than 5 nor more than 25. FNB’s By-laws further provide that FNB’s board of directors shall be divided into three classes as equal in number as possible, with each director having a staggered, three-year term. Under Florida law and FNB’s By-laws, a director need not be a resident of Florida or a shareholder of FNB to qualify to serve as a director. FNB’s By-laws further provide that the directors must be at least 21 years of age.

North East		FNB
Our By-laws provide that directors may be nominated by the Board of Directors, or by a proxy committee appointed by the Board of Directors, or by any shareholder entitled to vote in the election of Directors generally may nominate one or more persons for the election as directors at a meeting only if written notice of such shareholders intent to make such nomination is given 45 days in advance of an annual meeting, or, the seventh day following notice of a special meeting. The notice of a shareholder’s intention to nominate a director must include, among other things: • the name and address of the nominating shareholder; • a representation that the shareholder is a holder of North East and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice;) • a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; and • the written consent of each nominee to serve as a director of North East if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.		FNB’s By-laws provide that directors may be nominated for election to FNB’s board of directors by either a resolution of the board of directors or by a shareholder of FNB. FNB’s By-laws provide that a shareholder may make nominations for director by providing FNB with written notice of the shareholder’s intention to nominate a director, which written notice generally must be received not less than 14 days prior to the meeting of shareholders called for the election of directors. The notice of a shareholder’s intention to nominate a director must include, among other things: • the name and address of the nominating shareholder; • a representation that the shareholder is a holder of record of FNB voting stock and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; • information regarding each nominee as would have been required under the SEC’s proxy rules; • a description of all arrangements or understandings among the shareholder and each nominee pursuant to which the nomination or nominations are to be made by the shareholder; and • the written consent of each nominee to serve as a director of FNB if so elected.

68

---

 

North East		FNB
In an election of directors under cumulative voting, each share of stock normally having one vote for each director to be elected is entitled to a number of votes equal to the number of directors to be elected times the number of shares held with the right to distribute that number of votes among one or more candidates. Under Pennsylvania law, cumulative voting in the election of directors is available unless otherwise provided for in the Articles of Incorporation of the corporation. We allow cumulative voting in the election of directors in our By-laws and in our Articles of Incorporation.		Under Florida law, cumulative voting in the election of directors is not available unless provided for in the Articles of Incorporation of the corporation. FNB has not provided for cumulative voting in its Articles of Incorporation.

North East		FNB
Pennsylvania law permits a corporation to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement incurred by them in connection with any pending, threatened or completed action or proceeding, and permits such indemnification against expenses incurred in connection with any pending, threatened or completed derivative action, if the director or officer has acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his conduct was unlawful. Pennsylvania law further provides that expenses incurred in defending any action or proceeding may be paid by the corporation in advance of the final disposition upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined that the director or officer is not entitled to be indemnified by the corporation. Under Pennsylvania law, the statutory provisions for indemnification and advancement of expenses are non-exclusive with respect to any other rights, such as contractual rights or rights granted pursuant to a bylaw or by vote of shareholders or disinterested directors, to which a person seeking indemnification or advancement of expenses may be entitled. Such rights may, for example, provide for indemnification against judgments, fines and amounts paid in settlement incurred by the indemnified person in connection with derivative actions. Pennsylvania law permits such derivative action indemnification in any case except where the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness. Our By-laws also preclude indemnification where it has		Florida law permits a corporation to indemnify a director or officer who was or is a party to any threatened, pending or completed action, suit or other type of proceeding other than an action by or in the right of the corporation by reason of the fact that he is or was a director or officer or is now serving at the request of the corporation as a director or officer of another entity against expenses, including attorneys’ fees, judgments, fines, penalties and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding. These indemnification rights apply if the director or officer acted in good faith and in a manner in which he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to a criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. In addition, under Florida law, FNB may indemnify and hold harmless an officer or director who is a party in an action by or in the right of the corporation against expenses, including attorneys’ fees, and certain amounts paid in settlement, actually and reasonably incurred in connection with the defense or settlement of such proceeding, including any appeal thereof. Such indemnification shall be authorized if the director or officer has acted in good faith and in a manner in which he reasonably believed to be in or not opposed to the best interests of the corporation, except indemnification is not authorized where there is an adjudication of liability, unless a court determines, in view of all the circumstances, that such person is fairly and reasonably entitled to indemnity for such expenses. Florida law further provides that indemnification against the costs and expenses of defending any action is required to be made to any officer or

69

---

 

North East		FNB
been adjudged liable to the Corporation for conduct of the director or officer that constituted gross negligence, willful misconduct, dereliction of duty, bad faith or recklessness. Pennsylvania law permits us to purchase and maintain insurance on behalf of our directors and officers against any liability asserted against the director or officer and incurred in such capacity, whether or not we would have the power to indemnify a director or officer against such liability. Our Articles of Incorporation further provide that our directors and officers are entitled to be indemnified to the fullest extent permitted by law.		director who is successful in defending an action of the type referred to in the immediately preceding paragraph. Except with regard to the costs and expenses of successfully defending an action as may be ordered by a court, indemnification as described in the previous paragraph is only required to be made to a director or officer if a determination is made that indemnification is proper under the circumstances. Such determination shall be made in accordance with the provisions of Florida law. Florida law further provides that expenses incurred in defending any action or proceeding may be paid by the corporation in advance of the final disposition upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined that the director or officer is not entitled to be indemnified by the corporation. Under Florida law, the provisions for indemnification and advancement of expenses are not exclusive. Accordingly, a corporation may make any other or further indemnification or advancement of expenses of any of its officers or directors, both as to action in his official capacity and as to action in another capacity while holding such office. Under Florida law, indemnification or advancement of expenses, however, shall generally not be made to or on behalf of any officer or director if a judgment or other final adjudication establishes that his actions or omissions were material to the cause of action so adjudicated and constitute: • a violation of the criminal law; • a transaction from which the officer or director derived an improper personal benefit; • an unlawful distribution; or • willful misconduct or a conscious disregard for the best interests of the corporation. Florida law and FNB’s Articles of Incorporation permit FNB to purchase and maintain insurance on behalf of any director or officer of FNB against any liability asserted against the director or officer and incurred in such capacity, whether or not FNB would have the power to indemnify the director or officer against such liability. FNB’s Articles of Incorporation further provide that its directors, officers and any other person designated by the board of directors of FNB is entitled to be indemnified to the fullest extent permitted by law.

70

---

 

North East		FNB
Pennsylvania law and our By-laws include a provision limiting the personal liability of directors for monetary damages for actions taken as a director, other than as would constitute criminal conduct or with respect to liability for nonpayment of taxes, and except to the extent that the director has breached or failed to perform his duties to the corporation and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.		Under Florida law, a director is not liable for monetary damages for any statement, vote, decision or failure to act regarding corporate management or policy, unless the director breached or failed to perform his duties as a director and the director’s breach of, or failure to perform, those duties constitutes a violation of criminal law, self-dealing, an unlawful distribution, willful misconduct or recklessness. FNB’s By-laws contain a provision limiting the liability of its directors to the fullest extent permitted by law.

North East		FNB
Pennsylvania law requires the affirmative vote of a majority of the votes cast by all shareholders entitled to vote thereon to amend a corporation’s Articles of Incorporation, provided that shareholder approval is not required for certain non-material amendments. Our Articles of Incorporation vest power to amend our Articles of Incorporation in our shareholders. Under Pennsylvania law, the power to adopt, amend or repeal By-laws may generally be vested, pursuant to the By-laws, in the directors, with certain statutory exceptions and subject to the power of the shareholders to change such action. Pennsylvania law further provides that, unless the Articles of Incorporation provide otherwise, the board of directors does not have the authority to adopt or change a bylaw on any subject that is committed expressly to the shareholders by statute, other than on the subject shareholder quorum rules if the corporation is a registered corporation such as us. Our By-laws provide that our By-laws may be amended by a majority vote of shareholders present at a regular or special meeting.		In order to amend the Articles of Incorporation of a Florida corporation, Florida law generally requires that, unless the Articles of Incorporation provide for a greater vote, the votes cast in favor of such an amendment must exceed the votes cast against such an amendment at a meeting at which a quorum is present; provided, however, that a majority of the outstanding votes entitled to be cast on the amendment is required with respect to amendments that would create dissenters’ rights under Florida law. Further, under Florida law, shareholder approval is not required for certain non-material amendments. Under Florida law, a corporation’s By-laws may be amended or repealed by the board of directors or shareholders; provided, however, that the board may not amend or repeal the corporation’s By-laws if the Articles of Incorporation reserve such power to the shareholders, or the shareholders, in amending or repealing the By-laws, expressly provide that the board of directors may not amend or repeal the By-laws or a particular bylaw provision. FNB’s By-laws provide that they may be altered or amended and new By-laws adopted by the affirmative vote of at least 75% of the members of FNB’s board of directors or by the affirmative vote of the holders of at least 75% of the outstanding shares entitled to vote thereon.

71

---

 

North East		FNB
Under Pennsylvania law and our Articles of Incorporation, a merger, consolidation, share exchange, dissolution or sale of substantially all of a corporation’s assets other than in the ordinary course of business must be approved by the affirmative vote of a majority of the votes cast by all shareholders entitled to vote thereon. Except as otherwise provided by the By-laws of a corporation, the shareholders of a corporation do not have to approve a board of directors-approved plan of merger if, among other situations, immediately prior to the transaction, another corporation that is a party to the transaction directly or indirectly owns 80% or more of the outstanding shares of each class of the constituent corporation, or if • the surviving or new corporation is a business corporation incorporated in Pennsylvania with Articles of Incorporation that are identical to the Articles of Incorporation of the merged corporation, except for changes permitted by a board of directors without shareholder approval under Pennsylvania law; • each share of the merged corporation outstanding immediately prior to the effective date of the merger is to continue to be outstanding or will be converted into an identical share of the surviving or new corporation after the effective date of the merger; and • the shareholders of the merged corporation are to hold, in the aggregate, shares of the surviving or new corporation to be outstanding immediately after effectiveness of the plan of merger at least a majority of the votes entitled to be cast generally for the election of directors.		Under Florida law, generally, a merger, consolidation, share exchange, dissolution or sale of substantially all of a corporation’s assets other than in the ordinary course of business must be approved by the affirmative vote of the holders of a majority of the shares entitled to vote thereon unless the corporation’s Articles of Incorporation require a higher vote. Florida law further provides that, unless required by its Articles of Incorporation, the shareholders approval of a plan of merger if is not required if: • the Articles of Incorporation of the surviving corporation will not differ (except for certain minor amendments approved by the board of directors as provided by Florida law) from its articles before the merger; and • each shareholder of the surviving corporation whose shares were outstanding immediately prior to the effective date of the merger will hold the same number of shares, with identical designations, preferences, limitations and relative rights, immediately after the merger. FNB’s Articles of Incorporation require an affirmative vote of the holders of at least 75% of the outstanding shares of FNB common stock entitled to vote to approve a merger, consolidation or sale, lease, exchange or other disposition, in a single transaction or series of related transactions, of all or substantially all or a substantial part of the properties or assets of FNB, unless the board of directors of FNB has approved and recommended the transaction prior to the consummation thereof.

North East		FNB
We are not a registered company and thus Pennsylvania’s interested shareholder law (Section 2538 of Subchapter D and Subchapter F of Chapter 25 of the Pennsylvania Business Corporation Law) does not apply to us.		Florida law contains a number of provisions that require supermajority approval for certain affiliate transactions. Under Florida law, if any person who together with his or her affiliates and associates beneficially owns 10% or more of any voting stock of the corporation (an ‘Interested Person”) is a party to any merger, consolidation, disposition of all or a substantial part of the assets of the corporation or a subsidiary of the corporation, or exchange of securities requiring shareholder approval (a ‘Business Combination”), such transaction shall be approved by the affirmative vote of the holders of two-thirds of the voting shares other than the shares beneficially owned by the Interested Person; provided, that such approval is not required if

72

---

 

North East		FNB
		(1) the Interested Person transaction has been approved by a majority of the disinterested directors; (2) the corporation has not had more than 300 shareholders of record at any time during the three years preceding the date of the transaction’s announcement; (3) the Interested Person has been the beneficial owner of at least 80% of the corporation’s outstanding voting shares for at least five years preceding the date of the transaction’s announcement; (4) the Interested Person is the beneficial owner of at least 90% of the outstanding voting shares of the corporation, exclusive of shares acquired directly from the corporation in a transaction not approved by a majority of the disinterested directors; (5) the corporation is an investment company registered under the Investment Company Act of 1940 or (6) the consideration to be received by holders of the stock of the corporation meets certain minimum levels determined by a formula under Section 607.0901(4)(f) of the Florida Business Corporations Act.

North East		FNB
Under Pennsylvania law and pursuant to our By-laws, a director shall perform his duties as a director in good faith, in a manner he reasonably believes to be in the best interests of the corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances, and shall be entitled in performing his duties to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, prepared or presented by: (1) one or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented; (2) counsel, public accountants or other persons as to matters which the director reasonably believes to be within the professional or expert competence of such person or (3) a committee of the board upon which he does not serve, as to matters within its designated authority, which committee the director reasonably believes to merit confidence. Pennsylvania law further provides that a director may, in considering the best interests of a corporation, consider (1) the effects of any action on shareholders, employees, suppliers, customers and creditors of the corporation, and upon communities in which offices or other facilities of the corporation are located, (2) the short-term and long-term interests of the corporation, including the possibility that the best		FNB’s Articles of Incorporation provide that the board of directors of FNB, in evaluating a proposal for an extraordinary corporate transaction, shall consider all relevant factors, including, without limitation, the long-term prospects and interests of the corporation and its shareholders, the social, economic, legal or other effects of any action on the employees, suppliers and customers of the corporation and its subsidiaries, the communities and societies in which FNB and its subsidiaries operate, and the economy of the state and the nation. FNB’s Articles of Incorporation further provide that, if the board of directors of FNB determines that such a proposal should be rejected, it may take any lawful action to accomplish its purpose. Under Florida law, a director is required to discharge his duties in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances and in a manner reasonably believed to be in the best interests of the corporation. In discharging his duties, a director is entitled to rely on: (1) information, opinions, reports, or statements, including financial statements and other financial data, if presented or prepared by officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented; (2) legal counsel, public

73

---

 

North East		FNB
interests of the corporation may be served by the continued independence of the corporation, (3) the resources, intent and conduct of any person seeking to acquire control of the corporation and (4) all other pertinent factors. Our By-laws also permit a director to consider the effects of any action upon employees, suppliers and customers of the corporation and upon communities in which offices or other establishments of the corporation are located and all other pertinent factors. Our By-laws incorporate by reference the standard of care set forth under Pennsylvania law.		accountants or other persons as to matters the director reasonably believes are within the person’s professional or expert competence or (3) a committee of the Board of which the director is not a member if the director reasonably believes the committee merits confidence.

North East		FNB
Pennsylvania law permits an amendment to the corporation’s Articles of Incorporation or other corporate action, if approved by shareholders, to provide mandatory special treatment for specified groups of nonconsenting shareholders of the same class. Pennsylvania law also provides that directors may, in discharging their duties, consider the interests of a number of different constituencies, including shareholders, employees, suppliers, customers, creditors and the communities in which the corporation is located. Directors are not required to consider the interests of shareholders to a greater degree than other constituencies’ interests. Pennsylvania law expressly provides that directors do not violate their fiduciary duties solely by relying on poison pills or the anti-takeover provisions of Pennsylvania law. We are not a registered corporation and thus the anti-takeover provisions of Chapter 25 of the Pennsylvania Business Corporation Law do not apply to us.		FNB is subject to statutory “anti-takeover” provisions under Florida law. Section 607.0902 of the Florida Business Corporations Act restricts the voting rights of certain shares of a corporation’s stock when those shares are acquired by a party who, by such acquisition, would control at least 20% of all voting rights of the corporation’s issued and outstanding stock. The statute provides that the acquired shares (the “control shares”) will, upon such acquisition, cease to have any voting rights. The acquiring party may, however, petition the corporation to have voting rights re-assigned to the control shares by way of an ‘acquiring person’s statement‘ submitted to the corporation in compliance with the requirements of the statute. Upon receipt of such request, the corporation must submit, for shareholder approval, such request. Voting rights may be reassigned to the control shares by a resolution of a majority of the corporation’s shareholders for each class and series of stock, with the control shares not voting. Florida law further provides that a corporation may, by amendment to its Articles of Incorporation or By-laws, provide that, if the party acquiring the control shares does not submit an acquiring person’s statement in accordance with the statute, the corporation may redeem the control shares at any time during the period ending 60 days after the acquisition of control shares. If the acquiring party files an acquiring person’s statement, the control shares are not subject to redemption by the corporation unless the shareholders, acting on the acquiring party’s request for re-assignment, deny full voting rights to the control shares. Neither FNB’s Articles of Incorporation nor its By-laws have been amended to include such a provision. The statute does not alter the voting rights of any stock of the corporation acquired in certain specified transactions.

74

---

 

North East		FNB
		In addition, there are various provisions in FNB’s Articles of Incorporation and By-laws that may serve as anti-takeover protections including: • the ability of the board of directors of FNB to fill vacancies resulting from an increase in the number of directors; • the supermajority voting requirements for certain corporate transactions; • the broad range of factors that the board of directors of FNB may consider in evaluating an unsolicited offer including a tender offer proposal; and • provisions in FNB’s Articles of Incorporation which authorize the board of directors of FNB, without further shareholder action, to issue from time to time, up to 20,000,000 shares of FNB preferred stock. The board of directors of FNB is empowered to divide any and all of the shares of the FNB preferred stock into series and to fix and determine the relative rights and preferences of the shares of any series so established. The “anti-takeover” provisions of Florida law and FNB’s Articles of Incorporation and By-laws may have the effect of deterring merger proposals, tender offers or other attempts to effect changes in control of FNB that are not negotiated with and approved by the board of directors of FNB. FNB is not aware of any effort or intent to gain control of FNB or any effort to organize a proxy contest or to accumulate shares of FNB.

75

---

 

	•	the high and low trading prices of shares of FNB common stock as reported on the New York Stock Exchange since December 17, 2003 and prior thereto on the Nasdaq Stock Market, as adjusted to reflect a 5% stock dividends declared on April 28, 2003;
	•	the high and low trading prices of shares of our common stock as reported by the National Quotation Bureau, Inc. These quotations reflect inter-dealer prices without retail markup, markdown or commission and may not necessarily represent actual transactions. In each case, this information is based on published sources; and
	•	quarterly cash dividends paid per share by FNB and us for the periods indicated.

		FNB Common Stock(1)												North East Common Stock
		High				Low				Dividend				High				Low				Dividend
2003:
First quarter		$	27.62			$	25.52			$	.21			$	45.80			$	45.10			$	.10
Second quarter			31.04				27.20				.24				46.75				44.50				—
Third quarter			35.08				29.35				.25				49.25				46.00				—
Fourth quarter			35.48				31.68				.24				50.00				48.75				—
2004:
First quarter			22.79				18.79				.23				54.00				50.00				—
Second quarter			22.63				18.80				.23				52.75				49.00				—
Third quarter			20.50				19.91				.23				51.25				49.00				—
Fourth quarter			22.82				19.88				.23				52.00				50.00				—
2005:
First quarter			20.80				18.55				.23				52.00				51.15				—
Second quarter			19.85				18.00				.23				104.50				90.00				—
Third quarter (through August 11, 2005)			21.00				18.30				—				106.75				104.25				—

(1)	On January 1, 2004, FNB distributed one share of First National Bankshares of Florida, Inc., which until that date was a wholly owned subsidiary of FNB, for each share held of FNB, and the prices of FNB common stock since January 1, 2004 reflect that distribution.

76

---

 

		Amount and Nature of				Percent of
Name of Individual or Identity of Group		Beneficial Ownership(1)(2)				Class(3)
5% or Greater Holders:
Miriam I. O’Leary — North East, PA			8,100				5.58	%
CEDE & Co. — New York, NY			78,940				54.38	%
James S. Bryan — North East, PA			19,710	(4)			13.58	%
Directors and Executive Officers:
George F.S. Bennett, Sr.			100				—
James S. Bryan			19,710	(4)			13.58	%
Jerry E. Cass			260				—
Martin C. Haas			3,899				2.69	%
David B. Hartman			1,390				—
Ann H. Neckers			100				—
Douglas C. Sceiford			100				—
Louis I. Sherwood			375				—
All Officers and Directors as a group (8 persons)			25,934				17.86	%

(1)	Information furnished by our directors and officers.
(2)	The securities “beneficially owned” by an individual are determined in accordance with the definition of “beneficial ownership” set forth in the General Rules and Regulations of the SEC and may include securities owned by or for the individual’s spouse and minor children and any other relative who has the same home, as well as securities to which the individual has or shares voting or investment power. Beneficial ownership may be disclaimed as to certain of the securities. Except as otherwise indicated, the address for each of the following persons is our principal corporate address.
(3)	Less than 1% unless otherwise indicated.
(4)	The shares noted for Mr. Bryan include 16,500 shares owned by the Orris C. and Beatrice Dewey Hirtzel Foundation, North East, Pennsylvania. Mr. Bryan is a director and officer of the Foundation and has the right to vote the shares in accordance with the instructions of the Foundation’s Board of Trustees.

77

---

 

78

---

 

79

---

 

		Page
Independent Auditors’ Report			F-2
Consolidated Balance Sheet as of December 31, 2004			F-3
Consolidated Statement of Income for the Year Ended December 31, 2004			F-4
Consolidated Statement of Changes in Stockholders’ Equity for the Year Ended December 31, 2004			F-5
Consolidated Statement of Cash Flows for the Year Ended December 31, 2004			F-6
Notes to Consolidated Financial Statements			F-7

F-1

---

 

	/s/ Parente Randolph LLC

F-2

---

 

ASSETS
ASSETS:
	Cash and due from banks					$	1,957,407
	Federal funds sold						579,000
		Cash and cash equivalents					2,536,407
	Interest bearing deposits in other banks						116,887
	Investment securities available-for-sale						8,646,985
	Loans, net						50,016,441
	Premises and equipment						5,512,182
	Leased equipment						121,692
	Accrued interest and other assets						1,727,721
				TOTAL		$	68,678,315
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
	Deposits:
		Non-interest-bearing demand				$	13,840,900
		Interest-bearing demand					9,569,104
		Money market					2,919,802
		Savings					7,000,365
		Time					28,105,944
			Total deposits				61,436,115
	Borrowed funds						297,551
	Accrued interest and other liabilities						121,418
			Total liabilities				61,855,084
STOCKHOLDERS’ EQUITY:
	Common stock, no par value; 202,500 shares authorized, 145,468 shares issued						1,161,680
	Retained earnings						5,681,047
							6,842,727
	Treasury stock, at cost (300 shares)						(4,000	)
	Accumulated other comprehensive (loss) income						(15,496	)
			Total stockholders’ equity				6,823,231
				TOTAL		$	68,678,315

F-3

---

 

INTEREST INCOME:
	Interest and fees on loans				$	3,358,838
	Interest-bearing deposits in other banks					2,978
	Federal funds sold					80,109
	Investment securities:
		Taxable interest				199,129
		Tax-exempt interest				660
			Total interest income			3,641,714
INTEREST EXPENSE:
	Deposits					735,639
	Other borrowed funds					21,233
			Total interest expense			756,872
NET INTEREST INCOME						2,884,842
PROVISION FOR LOAN LOSSES						848,478
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES						2,036,364
NONINTEREST INCOME:
	Service charges					363,859
	Gains on sales of loans, net					5,804
	Other income					272,904
			Total noninterest income			642,567
NONINTEREST EXPENSE:
	Salaries and employee benefits					1,823,836
	Occupancy expense					327,834
	Office furnishing, equipment, fees, and data processing					467,345
	Other expense					1,080,288
			Total noninterest expense			3,699,303
NET LOSS					$	(1,020,372	)
LOSS PER SHARE					$	(7.03	)
AVERAGE SHARES OUTSTANDING						145,168

F-4

---

 

																Accumulated
																Other				Total
				Common				Retained				Treasury				Comprehensive				Stockholders’				Comprehensive
				Stock				Earnings				Stock				Income (Loss)				Equity				Loss
Balance, December 31, 2003				$	1,161,680			$	6,701,419			$	(4,000	)		$	2,561			$	7,861,660
Comprehensive loss:
	Net loss				—				(1,020,372	)			—				—				(1,020,372	)		$	(1,020,372	)
	Net unrealized loss on securities available for sale, net of tax benefit of $9,302				—				—				—				(18,057	)			(18,057	)			(18,057	)
		Comprehensive loss																						$	(1,038,429	)
Balance, December 31, 2004				$	1,161,680			$	5,681,047			$	(4,000	)		$	(15,496	)		$	6,823,231

F-5

---

 

OPERATING ACTIVITIES:
	Net loss				$	(1,020,372	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Depreciation, amortization, and accretion				434,174
		Proceeds from the sale of loans				901,337
		Originations of loans held for sale				(895,533	)
		Gain on sales of loans, net				(5,804	)
		Gain on sales of premises and equipment				(8	)
		Gain (loss) on sales of other real estate owned				22,961
		Provision for loan losses				848,478
		Increase in accrued interest receivable				(109,967	)
		Decrease in accrued interest payable				(41,796	)
		Deferred income taxes				(59,923	)
		Deferred tax asset valuation allowance				59,923
		Other, net				94,194
			Net cash provided by operating activities			227,664
INVESTING ACTIVITIES:
	Net change in interest-bearing deposits in bank					227,981
	Investment securities available for sale:
		Proceeds from maturities				55,125,000
		Purchases				(54,620,092	)
	Decrease in loans, net					1,019,017
	Purchases of premises and equipment					(175,829	)
	Proceeds from sales of other real estate owned					450,228
	Purchases of equipment leased for customers					(44,113	)
	Proceeds from sale of leased equipment					724
	Decrease in Federal Home Loan Bank stock					(400	)
	Proceeds from the sale of premises and equipment					2,200
			Net cash provided by investing activities			1,984,716
FINANCING ACTIVITIES:
	Net decrease in deposits					(11,677,761	)
	Principal payments on other borrowed funds					(9,752	)
	Cash dividends					—
			Net cash used in financing activities			(11,687,513	)
DECREASE IN CASH AND CASH EQUIVALENTS						(9,475,133	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR						12,011,540
CASH AND CASH EQUIVALENTS, END OF YEAR					$	2,536,407
SUPPLEMENTAL CASH FLOW INFORMATION:
	Cash paid during the year for:
		Interest on deposits and other borrowed funds			$	739,807
		Income taxes			$	—
	Loans transferred to real estate owned				$	661,193

F-6

---

 

1.	Nature Of Operations And Summary Of Significant Accounting Policies

	Nature of Operations And Basis of Presentation

	Investment Securities Available-For-Sale

	Loans

F-7

---

 

	Allowance For Loan Losses

	Premises And Equipment

	Loan Servicing Rights (“SRs”)

F-8

---

 

	Real Estate Owned

	Transfer Of Financial Assets

	Advertising Costs

	Federal Income Taxes

	Earnings Per Share

	Comprehensive Income

	Cash Flow Information

2.	Regulatory Agreement

F-9

---

 

		December 31,				June 30,				December 31,
		2004				2005				2005
Tier 1 Capital (to risk-weighted assets)			12.0	%			12.5	%			13.0	%
Tier 1 Capital (to adjusted total assets)			8.0	%			8.5	%			9.0	%

3.	Investment Securities Available-For-Sale

		2004
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Market
		Cost				Gains				Losses				Value
Obligations of U.S. government agencies and corporations		$	8,670,464			$	8,504			$	(31,983	)		$	8,646,985

							Estimated
			Amortized				Market
			Cost				Value
Due in one year or less			$	1,774,499			$	1,765,861
Due after one year through five years				924,509				914,864
Due after five through ten years				2,000,000				2,006,250
Due after ten years				3,971,456				3,960,010
	Total debt securities		$	8,670,464			$	8,646,985

F-10

---

 

		Less than 12 Months												12 months or more												Total
		# of								Unrealized				# of				Fair				Unrealized				# of								Unrealized
Description of Securities		Securities				Fair Value				Losses				Securities				Value				Losses				Securities				Fair Value				Losses
U.S. Government agency securities			15			$	5,658,175			$	(31,983	)			—			$	—			$	—				15			$	5,658,175			$	(31,983	)

4.	Loans

			2004
Mortgage loans on real estate:
	Residential 1-4 family		$	6,241,842
	Commercial, multi-family, and farm			22,937,743
	Construction			3,375,302
	Second mortgages			1,220,940
	Equity lines of credit			4,203,100
				37,978,927
Commercial loans				10,958,149
Tax-exempt loans				333,975
Consumer installment loans:
	Personal			2,219,627
	Credit cards and other			555,165
				52,045,843
Allowance for loan losses				(1,950,491	)
Deferred fees				(78,911	)
	Net loans		$	50,016,441

F-11

---

 

		2004
Loans for which there is a related allowance for loan losses		$	2,816,035
Loans for which there is no related allowance for loan losses			—
		$	2,816,035
Related allowance for loan losses		$	454,383
Average recorded balance of impaired loans			3,488,519
Interest income recognized on impaired loans			13,993

		2004
Balance, January 1		$	58,810
SRs capitalized			—
SRs amortized			19,047
Balance, December 31		$	39,763

		2004
Balance, January 1		$	896,882
Additions			294,400
Collections			(67,070	)
Balance, December 31		$	1,124,212

F-12

---

 

5.	Allowance For Loan Losses

Balance, January 1			$	1,199,736
Add:
	Provision charged to operations			848,478
	Recoveries			222,081
Less loans charged off				(319,804	)
Balance, December 31			$	1,950,491

6.	Premises And Equipment

Land			$	850,508
Buildings and building improvements				4,399,659
Furniture, fixtures, and equipment				2,642,250
				7,892,417
Less accumulated depreciation				(2,380,235	)
	Total		$	5,512,182

7.	Leased Equipment

			2004
Equipment cost			$	280,466
Less accumulated depreciation				(158,774	)
	Total		$	121,692

2005			$	71,427
2006				28,444
2007				17,852
	Total		$	117,723

8.	Deposits

F-13

---

 

Three months or less			$	14,302,541
Three to six months				2,338,843
Six months to one year				1,818,942
One year to three years				8,152,935
Three to five years				881,658
Five to ten years				611,025
Over ten years				—
	Total		$	28,105,944

9.	Borrowed Funds

		2004
						Interest
Stated Maturity		Amount				Rate
December 2010		$	297,551				7.01	%

2005		$	10,458
2006			11,215
2007			12,027
2008			12,898
2009			13,832
2010 and thereafter			237,121
		$	297,551

F-14

---

 

10.	Income Taxes

		2004
Current		$	(13,760	)
Deferred			(341,879	)
Valuation allowance			355,639
		$	—

				2004
Deferred tax assets:
	Allowance for loan losses			$	627,486
	Net operating loss and charitable contribution carryforward				264,751
	Deferred origination fees, net				6,287
	Net unrealized loss on securities				7,983
	Other				13,194
		Total gross deferred tax assets			919,701
	Less valuation allowance				(640,531	)
		Total net deferred tax assets			279,170
Deferred tax liabilities:
	Premises and equipment				(171,799	)
	Net unrealized gain on securities				—
		Total gross deferred tax liabilities			(171,799	)
		Net deferred tax assets		$	107,371

		2004
						% of
						Pre-Tax
		Amount				Income
Provision (benefit) at statutory rate		$	(346,926	)			(34.0	)%
Effect of tax-exempt income			(7,601	)			(0.7	)
Nondeductible interest expense			228				—
Valuation allowance			355,639				34.8
Other, net			(1,340	)			(0.1	)
Actual tax expense (benefit) and effective rate		$	—				0.0	%

F-15

---

 

11.	Profit Sharing Plan

12.	Commitments

			2004
Commitments to extend credit			$	12,021,000
Standby letters of credit				646,000
	Total		$	12,667,000

13.	Regulatory Restrictions

	Cash And Due From Banks

	Loans

F-16

---

 

	Dividends

14.	Regulatory Capital Requirements

												For Capital								To Be Well
				Actual								Adequacy Purposes								Capitalized
As of December 31, 2004:
	Total Capital (to risk weighted assets):
		North East Bancshares, Inc.		$	7,543,477				13.4	%		$	4,510,400				³8.0	%			N/A				N/A
		The National Bank of North East			7,500,221				13.3	%			4,510,400				³8.0	%		$	5,638,000				³10.0	%
	Tier I Capital (to risk weighted assets):
		North East Bancshares, Inc.			6,838,727				12.1	%			2,255,200				³4.0	%			N/A				N/A
		The National Bank of North East			6,795,471				12.1	%			2,255,200				³4.0	%			3,382,800				³6.0	%
	Tier I Capital (to average assets):
		North East Bancshares, Inc.			6,838,727				9.8	%			2,798,480				³4.0	%			N/A				N/A
		The National Bank of North East			6,795,471				9.7	%			2,798,480				³4.0	%			3,498,100				³5.0	%

F-17

---

 

15.	Fair Value Of Financial Instruments

			Carrying				Fair
			Value				Value
			(In thousands)
Financial assets:
	Cash and due from banks, interest-bearing deposits in other banks, and federal funds sold		$	2,653			$	2,653
	Investment securities available for sale			8,647				8,647
	Net loans			50,016				50,747
	Regulatory stock			141				141
	Accrued interest receivable			379				379
Financial liabilities:
	Deposits			61,436				61,484
	Other borrowed funds			298				330
	Accrued interest payable			81				81

	Cash And Due From Banks, Interest-Bearing Deposits In Other Banks, Federal Funds Sold, Regulatory Stock, Accrued Interest Receivable, And Accrued Interest Payable

	Investment Securities Available For Sale

F-18

---

 

	Loans Held For Sale

	Loans, Deposits, And Other Borrowed Funds

	Commitments To Extend Credit And Commercial Letters Of Credit

16.	Parent Company

					December 31,
					2004
ASSETS:
	Cash				$	13,687
	Investment in bank subsidiary					6,783,974
	Investment in nonbank subsidiary					25,570
	Other assets					—
		Total assets			$	6,823,231
STOCKHOLDERS’ EQUITY:
	Common stock				$	1,161,680
	Retained earnings					5,681,047
	Treasury stock					(4,000	)
	Accumulated other comprehensive income					(15,496	)
		Total stockholders’ equity				6,823,231
			Total liabilities and stockholders’ equity		$	6,823,231

F-19

---

 

				December 31,
				2004
INCOME,
	Other			$	300
EXPENSES,
	Other				5,002
	Loss before income taxes				(4,702	)
	Income tax benefit				—
	Loss before equity in undistributed net income of subsidiaries				(4,702	)
	Equity in undistributed net loss of subsidiaries				(1,015,670	)
		NET LOSS		$	(1,020,372	)

					December 31,
					2004
OPERATIVE ACTIVITIES:
	Net loss				$	(1,020,372	)
	Adjustments to reconcile net loss to net cash
		Provided by (used in) operating activities:
			Equity in undistributed net income of subsidiaries			1,015,670
			Other			8,614
			Net cash provided by (used in) operating activities			3,912
FINANCING ACTIVITIES,
	Cash dividends					—
		Net cash used for financing activities				—
		Increase (decrease) in cash				3,912
CASH, BEGINNING OF YEAR						9,775
CASH, END OF YEAR					$	13,687

F-20

---

 

---

 

						Page
ARTICLE I CERTAIN DEFINITIONS							A-1
	1.1			Certain Definitions			A-1
ARTICLE II THE MERGER							A-5
	2.1			The Merger			A-5
	2.2			Effective Date and Effective Time; Closing			A-6
ARTICLE III MERGER CONSIDERATION; EXCHANGE PROCEDURES							A-7
	3.1			Conversion of Shares			A-7
	3.2			Fractional Shares			A-7
	3.3			Exchange Procedures			A-7
	3.4			Adjustments for Dilution and Other Matters			A-9
	3.5			Withholding Rights			A-9
	3.6			Bank Merger			A-9
ARTICLE IV ACTIONS PENDING CLOSING							A-9
	4.1			Forbearances of North East			A-9
	4.2			Forbearances of Parent			A-12
ARTICLE V REPRESENTATIONS AND WARRANTIES							A-12
	5.1			Disclosure Schedules			A-12
	5.2			Standard			A-13
	5.3			Representations and Warranties of North East			A-13
	5.4			Representations and Warranties of Parent			A-24
ARTICLE VI COVENANTS							A-28
	6.1			Reasonable Best Efforts			A-28
	6.2			Shareholder Meeting			A-28
	6.3			Registration Statement			A-28
	6.4			Regulatory Filings			A-29
	6.5			Press Releases			A-29
	6.6			Access; Information			A-30
	6.7			Affiliates			A-30
	6.8			Certain Actions			A-30
	6.9			Certain Policies			A-32
	6.10			NYSE Listing			A-32
	6.11			Indemnification			A-33
	6.12			Benefit Plans			A-34
	6.13			Notification of Certain Matters			A-34
	6.14			Regulatory Conditions			A-35
	6.15			Director Agreements			A-35
	6.16			Extension of OCC Capital Requirement Deadline			A-35

A-i

---

 

						Page
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER							A-35
	7.1			Conditions to Each Party’s Obligation to Effect the Merger			A-35
	7.2			Conditions to Obligation of North East			A-35
	7.3			Conditions to Obligation of Parent			A-36
ARTICLE VIII TERMINATION							A-36
	8.1			Termination			A-36
	8.2			Effect of Termination			A-38
ARTICLE IX MISCELLANEOUS							A-38
	9.1			Survival			A-38
	9.2			Waiver; Amendment			A-38
	9.3			Counterparts			A-38
	9.4			Governing Law			A-38
	9.5			Expenses			A-38
	9.6			Notices			A-39
	9.7			Entire Understanding; No Third Party Beneficiaries			A-39
	9.8			Severability			A-39
	9.9			Enforcement			A-40
	9.10			Interpretation			A-40
	9.11			Assignment			A-40
	9.12			Alternative Structure			A-40
ANNEX A — Form of Bank Merger Agreement							A-42
ANNEX B — Form of Affiliate Letter							B-1
ANNEX C — Form of Voting Agreement							C-1

A-ii

---

 

	“Acquisition Proposal” has the meaning set forth in Section 6.8(e)(i).
	“Affiliate” has the meaning set forth in Section 3.3(h).
	“Affiliate Letter” has the meaning set forth in Section 6.7.
	“Agreement” means this Agreement, as amended or modified from time to time in accordance with Section 9.2.
	“Approval Recommendation” has the meaning set forth in Section 6.2.
	“Articles of Merger” has the meaning set forth in Section 2.2(a).
	“Average Closing Price” as of any specified date shall mean the average composite closing price of Parent Common Stock on the NYSE as reported in “New York Stock Exchange Composite Transactions” in The Wall Street Journal (Eastern Edition) for each of the 20 consecutive trading days ending on and including the fifth such trading day prior to the specified date rounded to the nearest whole cent.
	“Bank Insurance Fund” means the Bank Insurance Fund maintained by the FDIC.
	“Bank Merger Agreement” means the Agreement of Merger by and between Parent Bank and North East Bank, the form of which is attached as Annex A.
	“Bank Merger” has the meaning set forth in Section 3.6.
	“Bank Regulatory Authority” means the Federal Reserve Board, the OCC, the FDIC and any other state or federal bank regulatory agency charged with the supervision or regulation of North East, North East Bank, Parent or Parent Bank or the insurance of the deposits of North East Bank or Parent Bank.
	“Bank Secrecy Act” means the Bank Secrecy Act of 1970, as amended.

A-1

---

 

	“Benefit Plans” has the meaning set forth in Section 5.3(m)(i).
	“Break-up Fee” has the meaning set forth in Section 6.8(f).
	“Business Day” means Monday through Friday of each week, except a legal holiday recognized as such by the U.S. Government or any day on which banking institutions in the Commonwealth of Pennsylvania are authorized or obligated to close.
	“Certificate” means any certificate that immediately prior to the Effective Time represented shares of North East Common Stock.
	“Change in North East Recommendation” has the meaning set forth in Section 6.8(b).
	“Closing” and “Closing Date” have the meanings set forth in Section 2.2(b).
	“Code” has the meaning set forth in the recitals to this Agreement.
	“Community Reinvestment Act” means the Community Reinvestment Act of 1977, as amended.
	“Confidentiality Agreements” has the meaning set forth in Section 6.6(c).
	“Derivatives Contract” has the meaning set forth in Section 5.3(q).
	“Determination Date” means the date on which the last required Bank Regulatory Authority is obtained with respect to the Transaction, without regard to a requisite waiting period.
	“Disclosure Schedule” has the meaning set forth in Section 5.1.
	“DOL” means the Department of Labor.
	“Effective Date” has the meaning set forth in Section 2.2(a).
	“Effective Time” has the meaning set forth in Section 2.2(a).
	“Environmental Laws” has the meaning set forth in Section 5.3(o)(ii).
	“Equal Credit Opportunity Act” means the Equal Credit Opportunity Act, as amended.
	“Equity Investment” means (i) an Equity Security, (ii) any ownership interest in any company or other entity, any membership interest that includes a voting right in any company or other entity or any interest in real estate or (iii) any investment or transaction which in substance falls into any of these categories even though it may be structured as some other form of investment or transaction.
	“Equity Security” means any stock (other than adjustable-rate preferred stock, money market (auction rate) preferred stock or other instrument determined by the OCC to have the character of debt securities), certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, or voting-trust certificate; any security convertible into such a security; any security carrying any warrant or right to subscribe to or purchase any such security and any certificate of interest or participation in, temporary or interim certificate for or receipt for any of the foregoing.
	“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
	“ERISA Affiliate” has the meaning set forth in Section 5.3(m)(iii).
	“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
	“Exchange Agent” means such entity selected by Parent to effect the exchange of North East Common Stock for Parent Common Stock and cash, as determined in Section 3.1(a).
	“Exchange Fund” has the meaning set forth in Section 3.3(a).
	“Exchange Ratio” has the meaning set forth in Section 3.1(a).

A-2

---

 

	“Fair Housing Act” means the Fair Housing Act, as amended.
	“FDIC” means the Federal Deposit Insurance Corporation.
	“Federal Reserve Act” means the Federal Reserve Act, as amended.
	“Federal Reserve Board” means the Board of Governors of the Federal Reserve System.
	“FLBC” means the Florida Business Corporation Act, as amended.
	“Florida Merger Filing” has the meaning set forth in Section 2.2(a).
	“GAAP” means generally accepted accounting principles and practices as in effect from time to time in the United States.
	“Governmental Authority” means any federal, state or local court, administrative agency or commission or other governmental authority or instrumentality.
	“Hazardous Substance” has the meaning set forth in Section 5.3(o)(ii).
	“Home Mortgage Disclosure Act” means the Home Mortgage Disclosure Act, as amended.
	“Indemnified Parties” and “Indemnifying Party” have the meanings set forth in Section 6.11(a).
	“Insurance Amount” has the meaning set forth in Section 6.11(c).
	“Insurance Policies” has the meaning set forth in Section 5.3(w).
	“IRS” means the Internal Revenue Service.
	“Liens” means any charge, mortgage, pledge, security interest, restriction, claim, lien or encumbrance.
	“Loans” has the meaning set forth in Section 4.1(q).
	“Majority Vote” has the meaning set forth in Section 5.3(e).
	“Material Adverse Effect” means, with respect to Parent or North East, any effect that (i) is material and adverse to the financial position, results of operations or business of Parent and its Subsidiaries taken as a whole or North East and its Subsidiaries taken as a whole, as the case may be, or (ii) would materially impair the ability of any of Parent and its Subsidiaries or North East and its Subsidiaries to perform their respective obligations under this Agreement or the Bank Merger Agreement or otherwise materially impede the consummation of the Transaction; provided, however, that Material Adverse Effect shall not be deemed to include the impact of (a) changes after the date hereof in banking and similar laws of general applicability or interpretations thereof by Governmental Authorities, (b) changes after the date hereof in GAAP or regulatory accounting requirements applicable to banks, federal savings institutions and their holding companies generally, (c) changes after the date hereof in general economic or market conditions affecting banks and their holding companies generally, including changes in interest rates, (d) public disclosure of the transactions contemplated hereby, (e) costs incurred in connection with the Transaction including, without limitation, change in control and severance payments, investment banking fees, legal fees, accounting fees and printing costs, in each case in accordance with GAAP and (f) any action or omission of North East or Parent taken with the prior consent of the other or as otherwise contemplated by this Agreement in connection with the consummation of the Transaction.
	“Material Contract” has the meaning set forth in Section 5.3(k)(i).
	“Merger” has the meaning set forth in Section 2.1(a).
	“Merger Consideration” means the number of whole shares of Parent Common Stock, or a combination of whole shares of Parent Common Stock and cash, plus cash in lieu of any fractional share interest into which shares of North East Common Stock shall be converted pursuant to the provisions of Article III.

A-3

---

 

	“NASD” means the National Association of Securities Dealers, Inc.
	“National Labor Relations Act” means the National Labor Relations Act, as amended.
	“North East” has the meaning set forth in the preamble to this Agreement.
	“North East Articles” means the Articles of Incorporation of North East, as amended.
	“North East Bank” means National Bank of the North East, a national association and wholly owned subsidiary of North East.
	“North East Board” means the Board of Directors of North East.
	“North East Bylaws” means the Bylaws of North East, as amended.
	“North East Common Stock” means the common stock, no par value per share, of North East.
	“North East Group” means any “affiliated group”, as defined in Section 1504(a) of the Code without regard to the limitations contained in Section 1504(b) of the Code, that includes North East and its Subsidiaries or any predecessor of or any successor to North East, or to another such predecessor or successor.
	“North East Loan Property” has the meaning set forth in Section 5.3(o)(i).
	“North East Meeting” has the meaning set forth in Section 6.2.
	“North East Regulatory Authorities” has the meaning set forth in Section 5.3(i)(i).
	“NYSE” means The New York Stock Exchange, Inc.
	“OCC” means the Office of the Comptroller of the Currency.
	“OCC Agreement” means that certain agreement dated June 25, 2003 by and between North East Bank and the OCC as amended on December 16, 2004.
	“OREO” means other real estate owned.
	“Parent” has the meaning set forth in the preamble to this Agreement.
	“Parent Articles” means the Articles of Incorporation of Parent, as amended.
	“Parent Bank” means First National Bank of Pennsylvania, a national association and wholly owned subsidiary of Parent.
	“Parent Benefit Plans” has the meaning set forth in Section 6.12(a).
	“Parent Board” means the Board of Directors of Parent.
	“Parent Common Stock” means the common stock, par value $.01 per share, of Parent.
	“Parent Preferred Stock” means the preferred stock, par value $.01 per share, of Parent.
	“Parent Regulatory Authorities” has the meaning set forth in Section 5.4(i)(i).
	“Payment Event” has the meaning set forth in Section 6.8(g).
	“PBCL” means the Pennsylvania Business Corporation Law of 1988, as amended.
	“Pennsylvania Merger Filing” has the meaning set forth in Section 2.2(a).
	“Pension Plan” has the meaning set forth in Section 5.3(m)(ii).
	“Person” means a natural Person or any legal, commercial, or governmental entity, such as, but not limited to, a corporation, general partnership, joint venture, limited partnership, limited liability company, trust, business association, group acting in concert, a common enterprise, or any person acting in a representative capacity.

A-4

---

 

	“Previously Disclosed” by a party shall mean information set forth in a section of its Disclosure Schedule corresponding to the section of this Agreement where such term is used.
	“Proxy Statement” has the meaning set forth in Section 6.3(a).
	“Registration Statement” has the meaning set forth in Section 6.3(a).
	“Representatives” has the meaning set forth in Section 6.8(a).
	“Rights” means, with respect to any Person, warrants, options, rights, convertible securities and other arrangements or commitments that obligate the Person to issue or dispose of any of its capital stock or other ownership interests.
	“SEC” means the Securities and Exchange Commission.
	“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
	“Securities Documents” has the meaning set forth in Sections 5.3(g)(i) and 5.4(g)(i) in the case of North East and Parent, respectively.
	“Subsidiary” has the meaning ascribed thereto in Rule 1-02 of Regulation S-X of the SEC.
	“Superior Proposal” has the meaning set forth in Section 6.8(e)(ii).
	“Surviving Corporation” has the meaning set forth in Section 2.1(a).
	“Tax” and “Taxes” mean all federal, state, local or foreign income, gross income, gains, gross receipts, sales, use, ad valorem, goods and services, capital, production, transfer, franchise, windfall profits, license, withholding, payroll, employment, disability, employer health, excise, estimated, severance, stamp, occupation, property, environmental, custom duties, unemployment or other taxes of any kind whatsoever, together with any interest, additions or penalties thereto and any interest in respect of such interest and penalties.
	“Tax Returns” means any return, declaration or other report (including elections, declarations, schedules, estimates and information returns) with respect to any Taxes.
	“Third Party” has the meaning set forth in Section 6.8(g)(iv).
	“Transaction” means the Merger and the Bank Merger and any other transactions contemplated by this Agreement.
	“Treasury Shares” means shares of North East Common Stock held by North East or any of its Subsidiaries or by Parent or any of its Subsidiaries, other than in a fiduciary, including custodial or agency, capacity or as a result of debts previously contracted in good faith.

A-5

---

 

A-6

---

 

A-7

---

 

A-8

---

 

	(a) Ordinary Course.

	(i) Conduct its business other than in the ordinary and usual course consistent with past practice or fail to use reasonable best efforts to preserve intact its business organization and advantageous business relationships;
	(ii) Fail to use commercially reasonable best efforts to keep available the present services of its employees and preserve for itself and Parent the goodwill of the customers of North East and its Subsidiaries and others with whom business relations exist; and
	(iii) Take any action that would adversely affect or materially delay the ability of either North East or Parent to obtain any necessary approvals of any regulatory agency required for the

A-9

---

 

	transactions contemplated hereby or to perform its covenants and agreements under this Agreement or to consummate the transactions contemplated hereby.

	(b) Capital Stock. (i) Issue, sell or otherwise permit to become outstanding, or authorize the creation of, any additional shares of stock or any Rights or (ii) permit any shares of stock to become subject to grants of employee or director stock options or other Rights.
	(c) Dividends; Etc.

	(i) Make, declare, pay or set aside for payment any dividend on or in respect of, or declare or make any other distribution on any shares of North East capital stock, other than dividends from wholly owned Subsidiaries to North East or another wholly owned Subsidiary of North East or as set forth on Schedule 4.1(c) of the North East Disclosure Schedule; or
	(ii) Directly or indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any shares of its capital stock.

	(d) Compensation; Employment Agreements; Etc. Enter into or amend or renew any employment, consulting, severance or similar agreements or arrangements with any director, officer or employee of North East or its Subsidiaries or grant any salary or wage increase or increase any employee benefit, including discretionary or other incentive or bonus payments, except:

	(i) for normal increases in compensation and bonuses to employees in the ordinary course of business consistent with past practice, provided that no such increases shall result in an annual aggregate adjustment in compensation or bonus of more than 3%;
	(ii) for other changes that are required by applicable law;
	(iii) to pay the amounts or to provide payments under plans and/or commitments set forth in Schedule 4.1(d) of the North East Disclosure Schedule;
	(iv) severance payments pursuant to the severance agreements or employment agreements that are set forth in Schedule 4.1(d) of the North East Disclosure Schedule; or
	(v) for grants of awards to newly hired employees consistent with past practice.

	(e) Hiring. Hire any person as an employee of North East or any of its Subsidiaries or promote any employee, except (i) to satisfy contractual obligations existing as of the date hereof and set forth on Schedule 4.1(e) of the North East Disclosure Schedule, or (ii) to fill any vacancies arising after the date hereof at a comparable level of compensation with persons whose employment is terminable at the will of North East or a Subsidiary of North East, as applicable, provided, however, that such total compensation may not exceed $30,000.
	(f) Benefit Plans. Enter into, establish, adopt, amend or make any contributions to (except (i) as may be required by applicable law or (ii) to satisfy contractual obligations existing as of the date hereof and set forth on Schedule 4.1(f) of the North East Disclosure Schedule), any pension, retirement, stock option, stock purchase, savings, profit sharing, deferred compensation, consulting, bonus, group insurance or other employee benefit, incentive or welfare contract, plan or arrangement, or any trust agreement or similar arrangement related thereto, in respect of any director, officer or employee of North East or its Subsidiaries. With respect to any North East Benefit Plan that provides for vesting, there shall be no discretionary vesting without Parent’s prior written consent whether or not such discretionary vesting is provided for under the North East Benefit Plan, and North East shall not take any action to accelerate the vesting or exercisability of stock options, restricted stock or other compensation or benefits payable thereunder.
	(g) Dispositions. Sell, transfer, mortgage, encumber or otherwise dispose of or discontinue any of its assets, deposits, business or properties except in the ordinary course of business consistent with past practice and in a transaction that, together with all other such transactions, is not material to North East and its Subsidiaries taken as a whole.

A-10

---

 

	(h) Acquisitions. Acquire, other than by way of foreclosures or acquisitions of control in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary and usual course of business consistent with past practice, all or any portion of the assets, business, deposits or properties of any other entity.
	(i) Capital Expenditures. Make any capital expenditures other than capital expenditures in the ordinary course of business consistent with past practice in amounts not exceeding $10,000 individually or $25,000 in the aggregate, provided, however, that if Parent does not object to a written request for approval within two business days after receipt, the request shall be deemed approved.
	(j) Governing Documents. Amend the North East Articles or the North East Bylaws or the articles of incorporation or bylaws (or equivalent documents) of any Subsidiary of North East, except as may be required by law.
	(k) Accounting Methods. Implement or adopt any change in its tax accounting or financial accounting principles, practices or methods, other than as may be required by changes in laws or regulations or GAAP.
	(l) Contracts. Except in the ordinary course of business consistent with past practice or as otherwise permitted under this Section 4.1, enter into or terminate any Material Contract or amend or modify in any material respect any of its existing Material Contracts.
	(m) Claims. Enter into any settlement or similar agreement with respect to any action, suit, proceeding, order or investigation to which North East or any of its Subsidiaries is or becomes a party, which settlement, agreement or action involves payment by North East or any of its Subsidiaries of an amount that exceeds $25,000 and/or would impose any material restriction on the business of North East or any of its Subsidiaries or create precedent for claims that are reasonably likely to be material to North East and its Subsidiaries taken as a whole.
	(n) Banking Operations. Enter into any new material line of business; change its material lending, investment, underwriting, risk and asset liability management and other material banking and operating policies, except as required by applicable law, regulation or policies imposed by any Governmental Authority; or file any application or make any contract with respect to opening or closing a branching or site location or branching or site relocation.
	(o) Indebtedness. (i) Incur any indebtedness for borrowed money, other than deposits, federal funds purchased, cash management accounts, Federal Home Loan Bank borrowings that mature within one year and securities sold under agreements to repurchase that mature within 90 days, in each case in the ordinary course of business consistent with past practice, or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other Person, other than in the ordinary course of business consistent with past practice or (ii) prepay any indebtedness.
	(p) Investment Securities. (i) Acquire, other than by way of foreclosures or acquisitions in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary course of business consistent with past practice, any debt security or Equity Investment other than federal funds or United States Government securities or United States Government agency securities, in each case with a term of one (1) year or less, (ii) restructure or materially change its investment securities portfolio or its gap position or (iii) enter in any Derivatives Contract, provided, however, that if Parent does not object to a written request for approval within two business days after receipt, the request shall be deemed approved.
	(q) Loans. Make, renew or otherwise modify (i) any loan, loan commitment, letter of credit or other extension of credit (individually, a “Loan” and collectively, “Loans”) to any Person if, immediately after making (x) a Loan or Loans (other than a permanent Loan secured by an owner-occupied 1-4 single-family residence or a secured commercial Loan), such Person would be indebted to North East Bank in an aggregate amount in excess of $25,000, (y) a secured commercial Loan, such Person would be indebted to North East Bank in an aggregate amount in excess of $100,000 or (z) a permanent

A-11

---

 

	Loan secured by an owner-occupied 1-4 single-family residence, such Person would be indebted to North East Bank in an aggregate amount in excess of $200,000 or (ii) any Loan that contains terms that involve an exception to North East Bank’s Credit Policy Manual, provided, however, that if Parent does not object to a written request for approval within two business days after receipt, the request shall be deemed approved. North East Bank further agrees that will review with representatives of Parent Bank the circumstances and terms of problem or work-out Loans before establishing a work-out plan or otherwise take any action with respect to any such Loans and shall provide notice to Parent Bank of, and permit representatives of Parent Bank at Parent Bank’s discretion to attend, meetings of North East Bank’s loan committee.
	(r) Investments in Real Estate. Make any investment or commitment to invest in real estate or in any real estate development project, other than by way of foreclosure or acquisitions in a bona fide fiduciary capacity or in satisfaction of a debt previously contracted in good faith, in each case in the ordinary course of business consistent with past practice.
	(s) Adverse Actions. Take any action that (i) would, or is reasonably likely to, prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code, (ii) is intended or is reasonably likely to result in (x) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Effective Time, (y) any of the conditions to the Merger set forth in Article VII not being satisfied or (z) a material violation of any provision of this Agreement or the Bank Merger Agreement, in either case, except as may be required by applicable law or regulation and (iii) would adversely affect or materially delay the ability of either Parent or North East to obtain any necessary approvals required of any regulatory agency for the transactions contemplated hereby or to perform its covenants and agreements under this Agreement or to consummate the transactions contemplated hereby.
	(t) Commitments. Enter into any contract with respect to, or otherwise agree or commit to do, any of the foregoing.

	(a) Adverse Actions. Take any action that (i) would, or is reasonably likely to, prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code, (ii) is intended or is reasonably likely to result in (x) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Effective Time, (y) any of the conditions to the Merger set forth in Article VII not being satisfied or (z) a material violation of any provision of this Agreement or the Bank Merger Agreement, except as may be required by applicable law or regulation or (iii) would adversely affect or materially delay the ability of either Parent or North East to obtain any necessary approvals required of any regulatory agency for the transactions contemplated hereby or to perform its covenants and agreements under this Agreement or to consummate the transactions contemplated hereby.
	(b) Commitments. Enter into any contract with respect to, or otherwise agree or commit to do, any of the foregoing.

A-12

---

 

	(a) Organization, Standing and Authority. North East is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania. North East is duly qualified to do business and is in good standing in each jurisdiction where its ownership or leasing of property or assets or the conduct of its business requires it to be so qualified. North East has in effect all federal, state, local and foreign governmental authorizations necessary for it to own or lease its properties and assets and to carry on its business as now conducted.
	(b) North East Capital Stock. The authorized capital stock of North East consists solely of 202,500 shares of North East Common Stock, of which 145,168 shares are issued and outstanding as of the date hereof. As of the date hereof, no shares of North East Common Stock were held in treasury by North East or otherwise directly or indirectly owned by North East. The outstanding shares of North East Common Stock have been duly authorized and validly issued and are fully paid and non-assessable, and none of the outstanding shares of North East Common Stock have been issued in violation of the preemptive rights of any Person. Except as set forth in as set forth in Schedule 5.3(b) of the North East Disclosure Schedule, there are no shares of North East Common Stock reserved for issuance, North East does not have any Rights issued or outstanding with respect to North East Common Stock and North East does not have any commitment to authorize, issue or sell any North East Common Stock or Rights.
	(c) Subsidiaries.

	(i) (A) Schedule 5.3(c) of the North East Disclosure Schedule sets forth a list of all of its Subsidiaries together with the jurisdiction of organization of each such Subsidiary; (B) except as set forth on Schedule 5.3(c) of the North East Disclosure Schedule, North East owns, directly or indirectly, all the issued and outstanding equity securities of each of its Subsidiaries; (C) no equity securities of any of its Subsidiaries are or may become required to be issued (other than to North East) by reason of any Right or otherwise; (D) there are no contracts, commitments, understandings or arrangements by which any of its Subsidiaries is or may be bound to sell or otherwise transfer any of its equity securities other than to North East or any of its wholly owned Subsidiaries; (E) there are no contracts, commitments, understandings or arrangements relating to North East’s rights to vote or to dispose of such equity securities of North East’s Subsidiaries and (F) all the equity securities of North East’s Subsidiaries held by North East or its Subsidiaries are fully paid and nonassessable and are owned by North East or its Subsidiaries free and clear of any Liens.
	(ii) Except as set forth in Schedule 5.3(c) of the North East Disclosure Schedules and except for securities and other interests held in a fiduciary capacity and beneficially owned by third parties or taken in consideration of debts previously contracted, ownership interests in North East’s

A-13

---

 

	Subsidiaries [and stock in the Federal Home Loan Bank of Pittsburgh], North East does not own beneficially, directly or indirectly, any equity securities or similar interests of any Person or any interest in a partnership or joint venture of any kind.
	(iii) Each of North East’s Subsidiaries has been duly organized and is validly existing in good standing under the laws of the jurisdiction of its organization and is duly qualified to do business and in good standing in the jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified.
	(iv) The deposit accounts of North East Bank are insured by the Bank Insurance Fund, in the manner and to the maximum extent provided by applicable law, and North East Bank has paid all deposit insurance premiums and assessments required by applicable laws and regulations.

	(d) Corporate Power. Each of North East and its Subsidiaries has the corporate power and authority to carry on its business as it is now being conducted and to own all its properties and assets; and North East has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the Transaction, subject to receipt of all necessary approvals of Governmental Authorities and the approval of North East’s shareholders of this Agreement, and no other corporate proceedings are necessary on the part of North East to approve this Agreement or to consummate the Transaction.
	(e) Corporate Authority. Subject to the approval of this Agreement by the holders of not less than a majority of the outstanding shares of North East Common Stock (a “Majority Vote”), this Agreement and the Transaction have been authorized by all necessary corporate action of North East and the North East Board on or prior to the date hereof. North East has duly executed and delivered this Agreement and, assuming due authorization, execution and delivery by Parent of this Agreement, this Agreement is a valid and legally binding obligation of North East, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, receivership, conservatorship, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles.
	(f) Regulatory Approvals; No Defaults.

	(i) No consents or approvals of, or waivers by, or filings or registrations with, any Governmental Authority or with any third party are required to be made or obtained by North East or any of its Subsidiaries in connection with the execution, delivery or performance by North East and North East Bank of this Agreement and the Bank Merger Agreement, respectively, or to consummate the Transaction except for (A) filings of applications or notices with, and approvals or waivers by, the OCC, the FDIC and the Federal Reserve Board, (B) filings with the FDIC and state securities authorities, as applicable, in connection with the submission of this Agreement for the approval of the holders of North East Common Stock and the registration of Parent Common Stock issuable in the Merger, (C) the filing of Articles of Merger with the Secretary of State of the Commonwealth of Pennsylvania pursuant to the PBCL and the Secretary of State of the State of Florida pursuant to the FLBC with respect to the Merger and (D) the approval and adoption of this Agreement by a Majority Vote. As of the date hereof, North East is not aware of any reason why the approvals set forth above and referred to in Section 7.1(b) will not be received in a timely manner and without the imposition of a condition, restriction or requirement of the type described in Section 7.1(b).
	(ii) Subject to receipt, or the making, of the consents, approvals, waivers and filings referred to in the preceding paragraph and the expiration of related waiting periods, the execution, delivery and performance of this Agreement and the Bank Merger Agreement by North East and North East Bank, respectively, and the consummation of the Transaction do not and will not (A) except as Previously Disclosed, constitute a breach or violation of, or a default under, or give rise to any Lien, any acceleration of remedies or any right of termination under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of North East or any of its Subsidiaries or to which North East or any of its Subsidiaries or any of their

A-14

---

 

	respective properties is subject or bound, (B) constitute a breach or violation of, or a default under, the North East Articles, the North East Bylaws or similar governing documents of North East’s Subsidiaries or (C) require any consent or approval under any such law, rule, regulation, judgment, decree, order, governmental permit or license, agreement, indenture or instrument.

	(g) Financial Reports; Undisclosed Liabilities.

	(i) North East’s annual reports filed with the Federal Reserve Board containing audited consolidated financial statements for the fiscal years ended December 31, 2004, 2003 and 2002 and all other reports, registration statements, definitive proxy statements or information statements filed or to be filed by it subsequent to December 31, 2002 with the OCC or the FDIC (collectively, North East’s “Securities Documents”), as of the date filed or to be filed and as amended prior to the date hereof, (A) complied or will comply in all material respects as to form with the applicable regulations of the OCC or the Federal Reserve Board as the case may be and (B) did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that information as of a later date shall be deemed to modify information as of an earlier date; and each of the consolidated statements of financial condition contained in any such Securities Documents, including the related notes and schedules thereto, fairly presents, or will fairly present, the consolidated financial position of North East and its Subsidiaries as of its date, and each of the consolidated statements of income, shareholders’ equity and cash flows or equivalent statements in North East’s Securities Documents, including any related notes and schedules thereto, fairly presents, or will fairly present, the consolidated results of operations, changes in shareholders’ equity and changes in cash flows, as the case may be, of North East and its Subsidiaries for the periods to which they relate, in each case in accordance with GAAP consistently applied during the periods involved, except in each case as may be noted therein.
	(ii) Neither North East nor any of its Subsidiaries has incurred any liability other than in the ordinary course of business consistent with past practice, excluding the incurrence of expenses related to this Agreement and the Transaction.
	(iii) Since December 31, 2004, (A) North East and its Subsidiaries have conducted their respective businesses in the ordinary and usual course consistent with past practice (excluding the incurrence of expenses related to this Agreement and the Transaction); (B) neither North East nor any of its Subsidiaries has taken nor permitted or entered into any contract with respect to, or otherwise agreed or committed to do or take, any of the actions set forth in Sections 4.1(d), (f), (g), (h), (j), (k) and (n) hereof between December 31, 2004 and the date hereof; (C) neither North East nor any of its Subsidiaries has taken or permitted or entered into any contract with respect to, or otherwise agreed or committed to do or take, any of the actions set forth in Sections 4.1(e), (i), (l), (m), (p), (q) and (r) between January 1, 2005 and the date hereof and (D) except as set forth in North East Securities Documents, since December 31, 2004, no event has occurred or circumstance arisen that, individually or taken together with all other facts, circumstances and events described in any paragraph of this Section 5.3 or otherwise, is reasonably likely to have a Material Adverse Effect with respect to North East.
	(iv) No agreement pursuant to which any loans or other assets have been or shall be sold by North East or its Subsidiaries entitled the buyer of such loans or other assets, unless there is material breach of a representation or covenant by North East or its Subsidiaries, to cause North East or its Subsidiaries to repurchase such loan or other asset or the buyer to pursue any other form of recourse against North East or its Subsidiaries. To the knowledge of North East, there has been no material breach of a representation or covenant by North East or its Subsidiaries in any such agreement. Except as disclosed in North East’s Securities Documents filed prior to the date hereof, since December 31, 2002, no cash, stock or other dividend or any other distribution with respect to the capital stock of North East or any of its Subsidiaries has been declared, set aside or paid. Except as disclosed in North East’s Securities Documents filed prior to the date hereof, no shares of capital

A-15

---

 

	stock of North East have been purchased, redeemed or otherwise acquired, directly or indirectly, by North East since December 31, 2004, and no agreements have been made to make any such purchase, redemption or acquisition.

	(h) Litigation. No litigation, claim or other proceeding before any court or governmental agency is pending against North East or any of its Subsidiaries and, to North East’s knowledge, no such litigation, claim or other proceeding has been threatened and there are no facts that could reasonably give rise to such litigation, claim or other proceeding. Neither North East nor any of its Subsidiaries is a party to any order, judgment or decree that has or could reasonably be expected to have a Material Adverse Effect with respect to North East.
	(i) Regulatory Matters.

	(i) Neither North East nor any of its Subsidiaries nor any of their respective properties is a party to or is subject to any order, decree, agreement, memorandum of understanding or similar arrangement with, or a commitment letter or similar submission to, or supervisory letter from, any Bank Regulatory Authority or any federal or state governmental agency or authority charged with the supervision or regulation of issuers of securities or the supervision or regulation of it (collectively, the “North East Regulatory Authorities”). North East and its Subsidiaries have paid all assessments made or imposed by any North East Regulatory Authority.
	(ii) Neither North East nor any of its Subsidiaries has been advised by, nor does it have any knowledge of facts that could give rise to an advisory notice by, any North East Regulatory Authority that such North East Regulatory Authority is contemplating issuing or requesting, or is considering the appropriateness of issuing or requesting, any such order, decree, agreement, memorandum of understanding, commitment letter, supervisory letter or similar submission.
	(iii) North East and each of its Subsidiaries have timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since January 1, 2002 with (A) the Federal Reserve Board, (B) the OCC and (C) any other federal or state regulatory authority, and all other reports and statements required to be filed by them since January 1, 2002, and have paid all fees and assessments due and payable in connection therewith. Except as set forth in Schedule 5.3(i) of the North East Disclosure Schedule and except for normal examinations conducted by Bank Regulatory Authorities, (A) no Bank Regulatory Authority has initiated or has pending any proceeding or, to the knowledge of North East, investigation into the business or operations of North East or any of its Subsidiaries since January 1, 2002, except where such proceedings or investigation are not reasonably likely to have, either individually or in the aggregate, a North East Material Adverse Effect, and (B) there is no unresolved violation, criticism or exception by any Bank Regulatory Authority with respect to the business, operations, policies or procedures of North East or North East Bank since January 1, 2002 that are reasonably likely to have, either individually or in the aggregate, a North East Material Adverse Effect.
	(iv) The current deadline under the OCC Agreement with respect to North East Bank’s achievement of certain increased capital requirements is October 31, 2005.

	(j) Compliance With Laws. Each of North East and its Subsidiaries:

(i) is in material compliance with all applicable federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto or to the employees conducting such businesses, including, without limitation, Sections 23A and 23B of the Federal Reserve Act and FDIC and OCC regulations pursuant thereto, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Bank Secrecy Act and all other applicable fair lending laws and other laws relating to discriminatory business practices;

A-16

---

 

	(ii) has all permits, licenses, authorizations, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Authorities that are required in order to permit it to own or lease its properties and to conduct its business as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to North East’s knowledge, no suspension or cancellation of any of them is threatened; and
	(iii) has received, since December 31, 2002, no notification or communication from any Governmental Authority (A) asserting that North East or any of its Subsidiaries is not in compliance with any of the statutes, regulations or ordinances that such Governmental Authority enforces or (B) threatening to revoke any license, franchise, permit or governmental authorization nor, to North East’s knowledge, do any grounds for any of the foregoing exist.

	(k) Material Contracts; Defaults.

	(i) Except for documents listed as exhibits to North East’s Securities Documents or as set forth in Schedule 5.3(k) of the North East Disclosure Schedule, neither North East nor any of its Subsidiaries is a party to, bound by or subject to any agreement, contract, arrangement, commitment or understanding, whether written or oral, (A) with respect to the employment of any of its directors, officers, employees or consultants; (B) that would entitle any present or former director, officer, employee or agent of North East or any of its Subsidiaries to indemnification from North East or any of its Subsidiaries; (C) that is a material contract (as defined in Item 601(b)(10) of Regulation S-K of the SEC); (D) that is a consulting agreement, including data processing, software programming and licensing contracts, not terminable on 60 days or less notice and involving the payment of more than $12,500 per annum or (E) that materially restricts the conduct of any business by North East or by any of its Subsidiaries (collectively, “Material Contracts”). North East has set forth in Schedule 5.3(k) of the North East Disclosure Schedule and made available to Parent true, correct and complete copies of each such Material Contract.
	(ii) Neither North East nor any of its Subsidiaries is in material default under any contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which it is a party, by which its assets, business or operations may be bound or affected, or under which it or its respective assets, business or operations receives benefits, and there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a default. Except as provided in this Agreement, no power of attorney or similar authorization given directly or indirectly by North East or any of its Subsidiaries is currently outstanding.

	(l) No Brokers. Except as set forth in Schedule 5.3(l) of the North East Disclosure Schedule, no action has been taken by North East or any of its Subsidiaries that would give rise to any valid claim against any party hereto for a brokerage commission, finder’s fee or other like payment with respect to the Transaction.
	(m) Employee Benefit Plans.

(i) All benefit and compensation plans, contracts, policies or arrangements covering current or former employees of North East and its Subsidiaries and current or former directors of North East and its Subsidiaries including, but not limited to, “employee benefit plans” within the meaning of Sections 3(1), 3(2), 3(3) and 3(37) of ERISA, and deferred compensation, stock option, stock purchase, stock appreciation rights, stock based, incentive and bonus plans (the “Benefit Plans”), have been set forth in Schedule 5.3(m) of the North East Disclosure Schedule. True and complete copies of the following have been provided or made available to Parent: (A) all Benefit Plans including, but not limited to, any trust instruments and insurance contracts forming a part of any Benefit Plans and all amendments thereto; (B) the most recent annual report (Form 5500), together with all schedules, as required, filed with the Internal Revenue Service (“IRS”) or Department of Labor (the “DOL”), as applicable, and any financial statements and opinions required by Section 103(e)(3) of ERISA with respect to each Benefit Plan; (C) for each Benefit Plan that is a “top-hat” plan, a copy of filings with the DOL; (D) the most recent determination letter issued by

A-17

---

 

	the IRS for each Benefit Plan that is intended to be “qualified” under Section 401(a) of the Code; (E) the most recent summary plan description and any summary of material modifications, as required, for each Benefit Plan; (F) the most recent actuarial report, if any, relating to each Benefit Plan; (G) the most recent actuarial valuation, study or estimate of any retiree medical and life insurance benefits plan or supplemental retirement benefits plan and (H) the most recent summary annual report for each Benefit Plan required to provide summary annual reports by Section 104 of ERISA.
	(ii) Each Benefit Plan has been administered to date in all material respects in accordance with the applicable provisions of ERISA, the Code and applicable law and with the terms and provisions of all documents, contracts or agreements pursuant to which such Benefit Plan is maintained. Each Benefit Plan that is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA (a “Pension Plan”) and that is intended to be qualified under Section 401(a) of the Code, has received a favorable determination letter from the IRS or is the adoption of a prototype plan for which the prototype sponsor has a favorable determination letter from the IRS, and North East is not aware of any circumstances likely to result in revocation of any such favorable determination letter or the loss of the qualification of such Pension Plan under Section 401(a) of the Code. Neither North East nor any of its Subsidiaries has received any correspondence or written or verbal notice from the IRS, DOL, any other governmental agency, any participant in or beneficiary of, a Benefit Plan or any agent representing any of the foregoing that brings into question the qualification of any such Benefit Plan. There is no material pending or, to North East’s knowledge, threatened litigation relating to the Benefit Plans. Neither North East nor any of its Subsidiaries has engaged in a transaction with respect to any Benefit Plan or Pension Plan that, assuming the taxable period of such transaction expired as of the date hereof, could subject North East or any of its Subsidiaries to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA. There are no matters pending before the IRS, DOL or other governmental agency with respect to any Benefit Plans, nor does North East have knowledge that any is threatened.
	(iii) No liability under Subtitle C or D of Title IV of ERISA has been or to North East’s knowledge is presently expected to be incurred by North East or any of its Subsidiaries with respect to any ongoing, frozen or terminated “single-employer plan,” within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them or the single-employer plan of any entity that is considered one employer with North East under Section 4001 of ERISA or Section 414 of the Code (an “ERISA Affiliate”). Neither North East nor any of its Subsidiaries has incurred, and neither expects to incur, to North East’s knowledge, any withdrawal liability with respect to a multiemployer plan under Subtitle E of Title IV of ERISA, regardless of whether based on contributions of an ERISA Affiliate. No notice of a “reportable event,” within the meaning of Section 4043 of ERISA for which the 30-day reporting requirement has not been waived, has been required to be filed for any Pension Plan or by any ERISA Affiliate.
	(iv) All contributions required to be made under the terms of any Benefit Plan have been timely made. Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate has an “accumulated funding deficiency”, whether or not waived, within the meaning of Section 412 of the Code or Section 302 of ERISA and no ERISA Affiliate has an outstanding funding waiver. Except as set forth in Schedule 5.3(m) of the North East Disclosure Schedule, neither North East nor any of its Subsidiaries has provided, or is required to provide, security to any Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code.
	(v) Except as set forth in Schedule 5.3(m) of the North East Disclosure Schedule, neither North East nor any of its Subsidiaries has any obligations for retiree health and life benefits under any Benefit Plan, other than coverage as may be required under Section 4980B of the Code or Part 6 of Title I of ERISA, or under the continuation of coverage provisions of the laws of any state or locality. No event or condition exists with respect to a Benefit Plan that could subject North East to tax under Section 4980B of the Code.

A-18

---

 

	(vi) None of the execution of this Agreement, shareholder approval of this Agreement or consummation of the Transaction will, except as set forth in Schedule 5.3(m) of North East Disclosure Schedule, (A) entitle any employees of North East or any of its Subsidiaries to severance pay or any increase in severance pay upon any termination of employment after the date hereof, (B) accelerate the time of payment or vesting or trigger any payment or funding, through a grantor trust or otherwise, of compensation or benefits under, increase the amount payable or trigger any other material obligation pursuant to, any of the Benefit Plans, (C) result in any breach or violation of, or a default under, any of the Benefit Plans or (D) result in any payment that would be a “parachute payment” to a “disqualified individual” as those terms are defined in Section 280G of the Code, without regard to whether such payment is reasonable compensation for personal services performed or to be performed in the future.
	(vii) All required reports and descriptions, including but not limited to Form 5500 annual reports and required attachments, Forms 1099-R, summary annual reports, Forms PBGC-1 and summary plan descriptions, have been filed or distributed appropriately with respect to each Benefit Plan. All required tax filings with respect to each Benefit Plan have been made, and any taxes due in connection with such filings have been paid.

	(n) Labor Matters. Neither North East nor any of its Subsidiaries is a party to or is bound by any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is North East or any of its Subsidiaries the subject of a proceeding asserting that it has committed an unfair labor practice within the meaning of the National Labor Relations Act or seeking to compel North East or any of its Subsidiaries to bargain with any labor organization as to wages or conditions of employment, nor is there any strike or other labor dispute involving it or any of its Subsidiaries pending or, to North East’s knowledge, threatened, nor is North East or any of its Subsidiaries aware of any activity involving its employees seeking to certify a collective bargaining unit or engaging in other organizational activity.
	(o) Environmental Matters.

(i) North East and its Subsidiaries are in compliance with applicable Environmental Laws; (ii) except as Previously Disclosed or as set forth in Schedule 5.3(o) of the North East Disclosure Schedule, to North East’s knowledge, no real property, including buildings or other structures, currently or formerly owned or operated by North East or any of its Subsidiaries, or any property in which North East or any of its Subsidiaries has held a security interest, Lien or a fiduciary or management role (“North East Loan Property”), has been contaminated with, or has had any release of, any Hazardous Substance except in compliance with Environmental Laws; (iii) neither North East nor any of its Subsidiaries could be deemed the owner or operator of, nor has it participated in the management regarding Hazardous Substances of, any North East Loan Property that has been contaminated with, or has had any release of, any Hazardous Substance; (iv) neither North East nor any of its Subsidiaries has any liability for any Hazardous Substance disposal or contamination on any third party property; (v) neither North East nor any of its Subsidiaries has received any notice, demand letter, claim or request for information alleging any violation of, or liability under, any Environmental Law; (vi) neither North East nor any of its Subsidiaries is subject to any order, decree, injunction or other agreement with any Governmental Authority or any third party relating to any Environmental Law; (vii) except as set forth in Schedule 5.3(o) of the North East Disclosure Schedule, to North East’s knowledge, there are no circumstances or conditions (including the presence of asbestos, underground storage tanks, lead products, polychlorinated biphenyls, prior manufacturing operations, dry-cleaning or automotive services) involving North East or any of its Subsidiaries, any currently or formerly owned or operated property, or any North East Loan Property, that could reasonably be expected to result in any claims, liability or investigations against North East or any of its Subsidiaries, result in any restrictions on the ownership, use or transfer of any property pursuant to any Environmental Law or adversely affect the value of any North East Loan Property, (viii) North East has set forth in Schedule 5.3(o) of the North East Disclosure Schedule and made available to Parent copies of all environmental reports or

A-19

---

 

	studies, sampling data, correspondence and filings in its possession or reasonably available to it relating to North East, its Subsidiaries and any currently owned or operated property of North East and (ix) North East has made available to Parent copies of all environmental reports or studies, sampling data, correspondence and filings in the possession or reasonably available to it relating to any North East Loan.
	(ii) As used herein, the term “Environmental Laws” means any federal, state or local law, regulation, order, decree, permit, authorization, opinion or agency requirement relating to: (A) the protection or restoration of the environment, health, safety or natural resources; (B) the handling, use, presence, disposal, release or threatened release of any Hazardous Substance or (C) wetlands, indoor air, pollution, contamination or any injury or threat of injury to persons or property in connection with any Hazardous Substance; and the term “Hazardous Substance” means any substance that is: (A) listed, classified or regulated pursuant to any Environmental Law; (B) any petroleum product or by-product, asbestos-containing material, lead-containing paint or plumbing, polychlorinated biphenyls, radioactive materials or radon or (C) any other substance that is the subject of regulatory action by any Governmental Authority in connection with any Environmental Law.

	(p) Tax Matters.

	(i) (A) All Tax Returns that are required to be filed on or before the Effective Date (taking into account any extensions of time within which to file that have not expired) by or with respect to the North East Group, including North East and its Subsidiaries, have been or will be timely filed on or before the Effective Date; (B) all such Tax Returns are or will be true and complete in all material respects; (C) all Taxes due of the North East Group, including North East and its Subsidiaries, whether or not shown on any Tax Returns referred to in clause (A) have been or will be timely paid in full; (D) the Tax Returns referred to in clause (A) have not been examined by the IRS or the appropriate Tax authority, the North East Group has not extended the statute of limitations for any such Tax Returns and the period for assessment of the Taxes in respect of which such Tax Returns were required to be filed has expired; (E) all deficiencies asserted or assessments made as a result of examinations conducted by any Governmental Authority have been paid in full; (F) no issues that have been raised by the relevant Governmental Authority in connection with the examination of any of the Tax Returns referred to in clause (A) are currently pending and (G) no member of the North East Group has extended any statutes of limitation with respect to any Taxes of North East.
	(ii) North East has made available to Parent true and correct copies of the United States federal income Tax Returns filed by North East for each of the three most recent fiscal years for which such returns have been filed.
	(iii) Neither North East nor any of its Subsidiaries has any liability with respect to income, franchise or similar Taxes that accrued on or before the end of the most recent period covered by North East’s Securities Documents filed prior to the date hereof in excess of the amounts accrued or subject to a reserve with respect thereto that are reflected in the financial statements included in North East’s Securities Documents filed on or prior to the date hereof.
	(iv) Neither North East nor any of its Subsidiaries is a party to any Tax allocation or sharing agreement, is or has been a member of an affiliated group filing consolidated or combined Tax Returns other than a group the common parent of which is or was North East or otherwise has any liability for the Taxes of any Person other than a member of the North East Group, as a transferee or successor, by contract, or otherwise.
	(v) No closing agreements, private letter rulings, technical advice memoranda or similar agreements or rulings have been entered into or issued by any Governmental Authority with respect to North East and its Subsidiaries.

A-20

---

 

	(vi) Neither North East nor any of its Subsidiaries maintains any compensation plans, programs or arrangements the payments under which would not reasonably be expected to be deductible as a result of the limitations under Section 162(m) of the Code and the regulations issued thereunder.
	(vii) As of the date hereof, North East has no reason to believe that any conditions exist that might prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.
	(viii) (A) No Tax is required to be withheld pursuant to Section 1445 of the Code as a result of the Transaction and (B) all Taxes that North East or any of its Subsidiaries is or was required by law to withhold or collect have been duly withheld or collected and, to the extent required by applicable law, have been paid to the proper Governmental Authority or other Person.
	(ix) There are no Liens for Taxes on any of the assets of North East or any of its Subsidiaries, except for Liens for Taxes not yet due and payable.
	(x) Neither North East nor any of its Subsidiaries (A) has agreed, or is required, to make any adjustment under Section 481(a) of the Code or any comparable provision of state, local or foreign law or has any knowledge that a Governmental Authority has proposed any such adjustment or change in accounting method with respect to North East or its Subsidiaries or (B) has any application pending with any Governmental Authority requesting permission for any change in accounting method.
	(xi) Neither North East nor any of its Subsidiaries is a successor for Tax purposes to any Person by way of merger, reorganization or similar transaction.
	(xii) No claim has ever been made by a Governmental Authority in a jurisdiction where North East or any of its Subsidiaries does not file Tax Returns that North East or such Subsidiaries is or may be subject to taxation by that jurisdiction.
	(xiii) Neither North East nor any of its Subsidiaries has been the “distributing corporation” within the meaning of Section 355(c)(2) of the Code or has been the subject of a distribution with respect to a transaction described in Section 355 of the Code within the five-year period ending as of the date of this Agreement.
	(xiv) Neither North East nor any of its Subsidiaries has participated in any “reportable transaction” or “listed transaction” that is required to be reported pursuant to Section 1.6011-4 of the Treasury Regulations.
	(xv) Neither North East nor any of its Subsidiaries is required to include any item of income in, or exclude any item of deduction or loss from, taxable income for any taxable period or portion thereof beginning on or after the Closing Date as a result of (i) a change in method of accounting for a taxable period beginning prior to the Closing Date, (ii) any “closing agreement,” as described in Section 7121 of the Code, or any corresponding provision of state, local or foreign law, executed on or before the Closing Date, (iii) any sale reported on the installment method where such sale occurred on or prior to the Closing Date, (iv) any prepaid amount received by North East or any of its Subsidiaries on or prior to the Closing Date of (v) any intercompany transactions or excess loss account described in Treasury Regulations under Section 1502 of the Code, or any corresponding provision of state, local or foreign law.
	(xvi) Neither North East nor any of its Subsidiaries have pending any ruling requests filed by it or on its behalf with any Governmental Authority.
	(xvii) Neither North East nor any of its Subsidiaries has made any payments, is obligated to make any payments or is a party to any agreement that under certain circumstances could obligate it to make any payments that would constitute “excess parachute payments” under Section 280G of the Code, or any corresponding provision of state, local or foreign law, and neither North East nor

A-21

---

 

	any of its Subsidiaries is obligated to “gross-up” or otherwise compensate any Person for any Tax liability incurred by such Person under Sections 4999 or 409A of the Code.

	(q) Risk Management Instruments. Neither North East nor any of its Subsidiaries is a party or has agreed to enter into an exchange traded or over-the-counter equity, interest rate, foreign exchange or other swap, forward, future, option, cap, floor or collar or any other contract that is not included on North East’s consolidated statement of financial condition and is a derivatives contract (including various combinations thereof) (each, a “Derivatives Contract”) nor does North East or any of its Subsidiaries own securities that (i) are referred to generically as “structured notes,” “high risk mortgage derivatives,” “capped floating rate notes” or “capped floating rate mortgage derivatives” or (ii) are likely to have changes in value as a result of interest or exchange rate changes that significantly exceed normal changes in value attributable to interest or exchange rate changes.
	(r) Loans; Nonperforming and Classified Assets.

	(i) Except as set forth in Schedule 5.3(r) of the North East Disclosure Schedule, each Loan on the books and records of North East and its Subsidiaries was made and has been serviced in all material respects in accordance with their customary lending standards in the ordinary course of business, is evidenced in all material respects by appropriate and sufficient documentation and, to the knowledge of North East, constitutes the legal, valid and binding obligation of the obligor named therein, subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditor’s rights or by general equity principles.
	(ii) North East has set forth in Schedule 5.3(r) of the North East Disclosure Schedule as to North East and each North East Subsidiary as of the latest practicable date prior to the date of this Agreement: (A) any written or, to North East’s knowledge, oral Loan under the terms of which the obligor is 60 or more days delinquent in payment of principal or interest, or to North East’s knowledge, in default of any other material provision thereof; (B) each Loan that has been classified as “substandard,” “doubtful,” “loss” or “special mention” or words of similar import by North East, a North East Subsidiary or an applicable regulatory authority; (C) a listing of the OREO acquired by foreclosure or by deed-in-lieu thereof, including the book value thereof and (D) each Loan with any director, executive officer or five percent or greater shareholder of North East or a North East Subsidiary, or to the knowledge of North East, any Person controlling, controlled by or under common control with any of the foregoing.

	(s) Properties. All real and personal property owned by North East or a Subsidiary of North East or presently used by any of them in their respective business is in an adequate condition, ordinary wear and tear excepted, and is sufficient to carry on its business in the ordinary course of business consistent with its past practices. North East has good and marketable fee simple title free and clear of all Liens to all of the material properties and assets, real and personal, reflected on the consolidated statement of financial condition of North East as of December 31, 2004 included in North East’s Securities Documents or acquired after such date, other than properties sold by North East in the ordinary course of business, except (i) Liens for current taxes and assessments not yet due or payable, (ii) pledges to secure deposits and other Liens incurred in the ordinary course of its banking business and (iii) such imperfections of title, easements and encumbrances, if any, as are not material in character, amount or extent and as are reflected on the consolidated statement of financial condition of North East as of December 31, 2004 included in North East’s Securities Documents. Except as set forth in Schedule 5.3(s) of the North East Disclosure Schedule, all real and personal property that is material to North East’s business on a consolidated basis and leased or licensed by North East or a Subsidiary of North East is held pursuant to leases or licenses that are valid and enforceable in accordance with their respective terms and such leases will not terminate or lapse prior to the Effective Time.
	(t) Intellectual Property. North East and each Subsidiary of North East owns or possesses valid and binding licenses and other rights to use without payment of any material amount all material patents, copyrights, trade secrets, trade names, service marks and trademarks used in its businesses, all of which

A-22

---

 

	have been Previously Disclosed by North East, and none of North East or any of its Subsidiaries has received any notice of conflict with respect thereto that asserts the right of others. North East and each of its Subsidiaries have performed in all material respects all the obligations required to be performed by them and are not in default under any contract, agreement, arrangement or commitment relating to any of the foregoing. Schedule 5.3(t) to the North East Disclosure Schedule sets forth a description of all patents, trademarks, copyrights, service marks and all licenses relating to intellectual property rights of North East and each Subsidiary of North East, including, without limitation, patents, trademarks, copyrights, service marks and all licenses relating thereto.
	(u) Fiduciary Accounts. North East and its Subsidiaries do not administer accounts for which they act as a fiduciary, including but not limited to accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents and applicable laws and regulations.
	(v) Books and Records. The books and records of North East and its Subsidiaries have been fully, properly and accurately maintained in material compliance with applicable legal and accounting requirements, and such books and records accurately reflect in all material respects all dealings and transactions in respect of the business, assets, liabilities and affairs of North East and its Subsidiaries.
	(w) Insurance. North East has set forth in Schedule 5.3(w) of the North East Disclosure Schedule a description of all of the material insurance policies, binders or bonds currently maintained by North East and its Subsidiaries (“Insurance Policies”). North East and its Subsidiaries are insured with reputable insurers against such risks and in such amounts as the management of North East reasonably has determined to be prudent in accordance with industry practices. All the Insurance Policies are in full force and effect; North East and its Subsidiaries are not in material default thereunder and all claims thereunder have been filed in due and timely fashion.
	(x) Allowance For Loan Losses. North East’s allowance for loan losses is sufficient at the date of this Agreement for its reasonably anticipated loan losses, is in compliance with the standards established by applicable Governmental Authorities and GAAP and, to the knowledge of North East, is adequate.
	(y) Required Vote. A Majority Vote of the holders of the outstanding shares of North East Common Stock is necessary to approve this Agreement and the Merger on behalf of North East. No other vote of the shareholders of North East is required by law, the North East Articles, the North East Bylaws or otherwise to approve this Agreement and the Merger.
	(z) Fairness Opinion. The North East Board has received an opinion of Boenning & Scattergood, Inc. to the effect that as of the date hereof the Merger Consideration is fair to the holders of North East Common Stock from a financial point of view.
	(aa) Absence of Certain Changes or Events.

	(i) Except as publicly disclosed in the North East Securities Documents filed prior to the date of this Agreement, since January 1, 2005, no event or events have occurred that have had or are reasonably likely to have, either individually or in the aggregate, a North East Material Adverse Effect.
	(ii) Except as publicly disclosed in North East Securities Documents filed prior to the date of this Agreement, North East and its Subsidiaries have carried on their respective business in all material respects in the ordinary course.

	(bb) Disclosure. The representations and warranties contained in this Section 5.3, when considered as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 5.3 not misleading.

A-23

---

 

	(a) Organization, Standing and Authority. Parent is duly organized, validly existing and in good standing under the laws of the State of Florida. Parent is duly qualified to do business and is in good standing in each jurisdiction where its ownership or leasing of property or assets or the conduct of its business requires it to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect on Parent. Parent has in effect all federal, state, local and foreign governmental authorizations necessary for it to own or lease its properties and assets and to carry on its business as it is now conducted.
	(b) Parent Stock.

	(i) As of the date hereof, the authorized capital stock of Parent consists solely of 500,000,000 shares of Parent Common Stock, of which 56,274,780 shares were issued and outstanding as of March 31, 2005, and 20,000,000 shares of Parent Preferred Stock, of which no shares were issued and outstanding as of the date hereof. The outstanding shares of Parent Common Stock have been duly authorized and validly issued and are fully paid and non-assessable, and none of the shares of Parent Common Stock have been issued in violation of the preemptive rights of any Person. As of the date hereof, there are no Rights authorized, issued or outstanding with respect to the capital stock of Parent, except for shares of Parent Common Stock issuable pursuant to the Parent Benefits Plans and by virtue of this Agreement.
	(ii) The shares of Parent Common Stock to be issued in exchange for shares of North East Common Stock in the Merger, when issued in accordance with the terms of this Agreement, will be duly authorized, validly issued, fully paid and nonassessable and the issuance thereof is not subject to any preemptive right.

	(c) Subsidiaries.

	(i) Each of Parent’s Subsidiaries has been duly organized and is validly existing in good standing under the laws of the jurisdiction of its organization, and is duly qualified to do business and is in good standing in the jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect on Parent. Parent Bank is duly licensed by the OCC and its deposits are insured by the Bank Insurance Fund in the manner and to the maximum extent provided by law.
	(ii) As of the date hereof, (A) except as set forth in Schedule 5.4(c) of Parent’s Disclosure Schedule, Parent owns, directly or indirectly, all the issued and outstanding equity securities of each of its Subsidiaries; (B) no equity securities of any of Parent’s Subsidiaries are or may become required to be issued other than to Parent by reason of any Right or otherwise; (C) there are no contracts, commitments, understandings or arrangements by which Parent’s Subsidiaries are or may be bound to sell or otherwise transfer any of its equity securities other than to Parent or any of its wholly owned Subsidiaries and (D) there are no contracts, commitments, understandings or arrangements relating to Parent’s right to vote or to dispose of such securities.

	(d) Corporate Power. Each of Parent and its Subsidiaries has the corporate power and authority to carry on its business as it is now being conducted and to own all its properties and assets. Parent has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the Transaction, subject to the receipt of all necessary approvals of Governmental Authorities, and no other corporate proceedings are necessary on the part of Parent to approve this Agreement or the consummation of the Transaction.
	(e) Corporate Authority. This Agreement and the Transaction have been authorized by all necessary corporate action of Parent and the Parent Board. This Agreement has been duly executed and delivered by Parent and, assuming due authorization, execution and delivery by North East, this Agreement is a valid and legally binding agreement of Parent enforceable in accordance with its terms,

A-24

---

 

	except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles.
	(f) Regulatory Approvals; No Defaults.

	(i) No consents or approvals of, or waivers by, or filings or registrations with, any Governmental Authority or with any third party are required to be made or obtained by Parent or any of its Subsidiaries in connection with the execution, delivery or performance by Parent and Parent Bank of this Agreement and the Bank Merger Agreement, respectively, or to consummate the Transaction, except as Previously Disclosed, and except for (A) filings of applications or notices with and approvals or waivers by the Federal Reserve Board, the OCC and the FDIC; (B) filings with the SEC and state securities authorities, as applicable, in connection with the registration of Parent Common Stock issuable in the Merger and (C) the approval of the listing on the NYSE of the Parent Common Stock to be issued in the Merger and (D) the filing of Articles of Merger with the Secretary of State of the Commonwealth of Pennsylvania pursuant to the PBCL and with the Secretary of State of the State of Florida pursuant to the FLBC with respect to the Merger. As of the date hereof, Parent is not aware of any reason why the approvals set forth above and referred to in Section 7.1(b) will not be received in a timely manner and without the imposition of a condition, restriction or requirement of the type described in Section 7.1(b).
	(ii) Subject to receipt, or the making, of the consents, approvals, waivers and filings referred to in the preceding paragraph and expiration of the related waiting periods, the execution, delivery and performance of this Agreement and the Bank Merger Agreement by Parent and Parent Bank, respectively, and the consummation of the Transaction do not and will not (A) constitute a breach or violation of, or a default under, or give rise to any Lien, any acceleration of remedies or any right of termination under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of Parent or of any of its Subsidiaries or to which Parent or any of its Subsidiaries or properties is subject or bound, (B) constitute a breach or violation of, or a default under, the articles of incorporation or bylaws or similar governing documents of Parent or any of its Subsidiaries or (C) require any consent or approval under any such law, rule, regulation, judgment, decree, order, governmental permit or license, agreement, indenture or instrument.

	(g) Financial Reports and Securities Documents; Material Adverse Effect.

(i) Parent’s Annual Report on Form 10-K for the years ended December 31, 2004, 2003 and 2002 and all other reports, registration statements, definitive proxy statements or information statements filed or to be filed by it subsequent to December 31, 2002 under the Securities Act, or under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act in the form filed or to be filed (collectively, Parent’s “Securities Documents”) with the SEC, as of the date filed or to be filed, (A) complied or will comply in all material respects as to form with the applicable requirements under the Securities Act or the Exchange Act, as the case may be and (B) did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that information as of a later date shall be deemed to modify information as of an earlier date. Each of the consolidated statements of financial condition contained in or incorporated by reference into any such Securities Document, including the related notes and schedules thereto, fairly presents, or will fairly present, the consolidated financial position of Parent and its Subsidiaries as of its date, and each of the consolidated statements of operations, shareholders’ equity and comprehensive income and cash flows or equivalent statements in such Securities Documents, including any related notes and schedules thereto, fairly presents, or will fairly present, the consolidated results of operations, changes in shareholders’ equity and cash flows, as the case may be, of Parent and its Subsidiaries for the periods to which they relate, in each case in

A-25

---

 

	accordance with GAAP consistently applied during the periods involved, except in each case as may be noted therein.
	(ii) Except as Previously Disclosed, since December 31, 2004, neither Parent nor any of its Subsidiaries has incurred any liability other than in the ordinary course of business consistent with past practice, excluding the incurrence of expenses related to this Agreement and the Transaction.
	(iii) Since December 31, 2004, (A) Parent and its Subsidiaries have conducted their respective businesses in the ordinary and usual course consistent with past practice (excluding the incurrence of expenses related to this Agreement and the Transaction); (B) except as Previously Disclosed, neither Parent nor any of its Subsidiaries has taken nor permitted any of the actions set forth in Section 4.2 between December 31, 2004 and the date hereof and (C) no event has occurred or circumstance arisen that, individually or taken together with all other facts, circumstances and events described in any paragraph of this Section 5.4 or otherwise, is reasonably likely to have a Material Adverse Effect with respect to Parent.
	(iv) Parent maintains disclosure controls and procedures required by Rule 13a-15 or 15d-15 under the Exchange Act; such controls and procedures are effective to ensure that all material information concerning Parent and its Subsidiaries is made known on a timely basis to the individuals responsible for the preparation of Parent’s Securities Documents and other public disclosure documents. The Chief Executive Officer and the Chief Financial Officer of Parent have signed, and Parent has furnished to the SEC, all certifications required by Rule 13a-14 or 15d-14 under the Exchange Act or 18 U.S.C. § 1350; such certifications contain no qualifications or exceptions to the matters certified therein and have not been modified or withdrawn; and neither Parent nor any of its officers has received notice from any Governmental Authorities questioning or challenging the accuracy, completeness, form or manner of filing or submission of such certifications.

	(h) Litigation. No litigation, claim or other proceeding before any court or governmental agency is pending against Parent or its Subsidiaries that could reasonably be expected to have a Material Adverse Effect with respect to Parent and, to Parent’s knowledge, no such litigation, claim or other proceeding has been threatened and there are no facts that could reasonably give rise to such litigation, claim or other proceeding. Neither Parent nor any of its Subsidiaries is a party to any order, judgment or decree that has or could reasonably be expected to have a Material Adverse Effect with respect to Parent.
	(i) Regulatory Matters.

	(i) Neither Parent nor any of its Subsidiaries nor any of any of their respective properties is a party to or is subject to any order or decree, agreement, memorandum of understanding or similar arrangement with, or commitment letter or similar submission to, or extraordinary supervisory letter from, any federal or state governmental agency or authority charged with the supervision or regulation of financial institutions or issuers of securities or engaged in the insurance of deposits or the supervision or regulation of it (“Parent Regulatory Authorities”). Parent and its Subsidiaries have paid all assessments made or imposed by any Parent Regulatory Authority.
	(ii) Neither Parent nor any its Subsidiaries has been advised by, and does not have any knowledge of facts that could give rise to an advisory notice by, any Parent Regulatory Authority that such Parent Regulatory Authority is contemplating issuing or requesting, or is considering the appropriateness of issuing or requesting, any such order, decree, agreement, memorandum of understanding, commitment letter, supervisory letter or similar submission.
	(iii) Parent and each of its Subsidiaries have timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since January 1, 2002 with (A) the Federal Reserve Board, (B) the FDIC, (C) the OCC, (D) any state regulatory authority and (E) the SEC, and all other reports and statements required to be filed by them since January 1, 2002, and have paid all fees and assessments due and payable in connection therewith. Except as set forth in Schedule 5.4(i) of Parent Disclosure

A-26

---

 

Schedule and except for normal examinations conducted by Bank Regulatory Authorities, (A) no Bank Regulatory Authority has initiated Ror has pending any proceeding or, to the knowledge of Parent, investigation into the business or operations of Parent or any of its Subsidiaries since January 1, 2002, except where such proceedings or investigation are not reasonably likely to have, either individually or in the aggregate, a Parent Material Adverse Effect and (B) there is no unresolved violation, criticism or exception by any Bank Regulatory Authority with respect to the business, operations, policies or procedures of Parent or Parent Bank since January 1, 2002 that are reasonably likely to have, either individually or in the aggregate, a Parent Material Adverse Effect.

	(j) Compliance With Laws. Except for matters that could not reasonably be expected to have a Material Adverse Effect with respect to Parent and its Subsidiaries, each of Parent and its Subsidiaries:

	(i) is in material compliance with all applicable federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto or to the employees conducting such businesses, including without limitation Sections 23A and 23B of the Federal Reserve Act, FDIC and OCC regulations pursuant thereto, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Bank Secrecy Act and all other applicable fair lending laws and other laws relating to discriminatory business practices;
	(ii) has all permits, licenses, authorizations, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Authorities that are required in order to permit them to own or lease their properties and to conduct their businesses as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to Parent’s knowledge, no suspension or cancellation of any of them is threatened; and
	(iii) has received, since December 31, 2002, no notification or communication from any Governmental Authority (A) asserting that Parent or any of its Subsidiaries is not in compliance with any of the statutes, regulations or ordinances which such Governmental Authority enforces or (B) threatening to revoke any license, franchise, permit or governmental authorization nor, to Parent’s knowledge, do any grounds for any of the foregoing exist.

	(k) No Brokers. No action has been taken by Parent or its Subsidiaries that would give rise to any valid claim against any party hereto for a brokerage commission, finder’s fee or other like payment with respect to the Transaction.
	(l) Tax Matters. As of the date hereof, Parent does not have any reason to believe that any conditions exist that might prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.
	(m) Risk Management Instruments. Neither Parent nor any of its Subsidiaries is a party to, or has agreed to enter into, any Derivatives Contract that is not included on Parent’s consolidated statement of financial condition nor does Parent or any of its Subsidiaries own securities that (i) are referred to generically as “structured notes,” “high risk mortgage derivatives,” “capped floating rate notes” or “capped floating rate mortgage derivatives” or (ii) are likely to have changes in value as a result of interest or exchange rate changes that significantly exceed normal changes in value attributable to interest or exchange rate changes.
	(n) Ownership of North East Common Stock. Except as set forth on Schedule 5.4(n) of the Parent Disclosure Schedule, none of Parent or any of its Subsidiaries, or to Parent’s knowledge, any of its other affiliates or associates as such terms are defined under the Exchange Act, owns beneficially or of record, directly or indirectly, or is a party to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of, shares of North East Common Stock other than shares held in a fiduciary capacity that are beneficially owned by third parties or as a result of debts previously contracted.

A-27

---

 

	(o) Disclosure. The representations and warranties contained in this Section 5.4, when considered as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 5.4 not misleading.
	(p) Absence of Certain Changes or Events.

	(i) Except as publicly disclosed in the Parent Securities Documents filed prior to the date of this Agreement, since January 1, 2005, no event or events have occurred that have had or are reasonably likely to have, either individually or in the aggregate, a Parent Material Adverse Effect.
	(ii) Except as publicly disclosed in the Parent Securities Documents filed prior to the date of this Agreement, Parent and its Subsidiaries have carried on their respective businesses in all material respects in the ordinary course.

A-28

---

 

A-29

---

 

A-30

---

 

	(i) The term “Acquisition Proposal” means any inquiry, proposal or offer, filing of any regulatory application or notice, whether in draft or final form, or disclosure of an intention to do any of the foregoing from any person relating to any (w) direct or indirect acquisition or purchase of a business that constitutes a substantial portion of the net revenues, net income or net assets of North East or any of its Subsidiaries, (x) the direct or indirect acquisition or purchase of any class of equity securities representing 10% or more of the voting power of North East’s Common Stock, (y) tender offer or exchange offer that if consummated would result in any person beneficially owning 10% or more of any class of equity securities of North East or (z) merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving North East other than the transactions contemplated by this Agreement.
	(ii) The term “Superior Proposal” means any bona fide, unsolicited written Acquisition Proposal made by a Third Party to acquire more than 50% of the combined voting power of the shares of North East Common Stock then outstanding or all or substantially all of North East’s consolidated assets for consideration consisting of cash and/or securities that is on terms that the Board of Directors of North East in good faith concludes, after consultation with its financial advisors and outside counsel, taking into account, among other things, all legal, financial, regulatory and other aspects of the proposal and the person making the proposal, including any break-up fees, expense reimbursement provisions and conditions to consummation, (A) is on terms that the Board of Directors of North East in its good faith judgment believes to be more favorable from a financial point of view to its shareholders than the Merger; (B) for which financing, to the extent required, is then fully committed or reasonably determined to be available by the Board of Directors of North East and (C) is reasonably capable of being completed.

A-31

---

 

	(i) the termination of this Agreement by Parent pursuant to Section 8.1(f);
	(ii) the termination of this Agreement by North East pursuant to Section 8.1(g);
	(iii) a tender offer or exchange offer for 25% or more of the outstanding common stock of North East is commenced and North East shall not have sent to its shareholders, within 10 business days after the commencement of such tender offer or exchange offer, a statement that the North East Board recommends rejection of such tender offer or exchange offer; or
	(iv) the occurrence of any of the following events within eighteen months of the termination of this Agreement pursuant to Section 8.1(e), provided that an Acquisition Proposal shall have been made by a Third Party after the date hereof and prior to such termination that shall not have been withdrawn in good faith prior to such termination: (A) North East enters into an agreement to merge with or into, or be acquired, directly or indirectly, by merger or otherwise by, such Third Party; (B) such Third Party, directly or indirectly, acquires substantially all of the total assets of North East and its Subsidiaries, taken as a whole; (C) such Third Party, directly or indirectly, acquires more than 50% of the outstanding North East Common Stock or (D) North East adopts or implements a plan of liquidation, recapitalization or share repurchase relating to more than 50% of the outstanding North East Common Stock or an extraordinary dividend relating to substantially all of the outstanding North East Common Stock or substantially all of the assets of North East and its Subsidiaries, taken as a whole. As used herein, “Third Party” means any person as defined in Section 13(d) of the Exchange Act other than Parent or its Affiliates.

A-32

---

 

A-33

---

 

A-34

---

 

	(a) Shareholder Approval. This Agreement and the Merger shall have been duly approved by the requisite vote of the holders of outstanding shares of North East Common Stock.
	(b) Regulatory Approvals. All regulatory approvals required to consummate the Merger shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired and no such approvals shall contain any conditions, restrictions or requirements that the Parent Board reasonably determines in good faith would, individually or in the aggregate, materially reduce the benefits of the Transaction to such a degree that Parent would not have entered into this Agreement had such conditions, restrictions or requirements been known at the date hereof.
	(c) No Injunction. No Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order, whether temporary, preliminary or permanent, that is in effect and prohibits consummation of the Transaction.
	(d) Registration Statement. The Registration Statement shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated by the SEC and not withdrawn.
	(e) Listing. The shares of Parent Common Stock to be issued in the Merger shall have been approved for listing on the NYSE.

(a) Representations and Warranties. The representations and warranties of Parent set forth in this Agreement, subject in all cases to the standard set forth in Section 5.2, shall be true and correct as of the date of this Agreement and as of the Effective Date as though made on and as of the Effective Date, except that representations and warranties that by their terms speak as of the date of this Agreement or some other date shall be true and correct as of such date, and North East shall have received a certificate,

A-35

---

 

	dated the Effective Date, signed on behalf of Parent by the Chief Executive Officer and the Chief Financial Officer of Parent to such effect.
	(b) Performance of Obligations of Parent. Parent shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Effective Time in order to consummate the Merger, and North East shall have received a certificate, dated the Effective Date, signed on behalf of Parent by the Chief Executive Officer and the Chief Financial Officer of Parent to such effect.
	(c) Tax Opinion. North East shall have received the written opinion of Buchanan Ingersoll P.C., dated as of the Effective Date, which shall be based on such written representations from Parent, North East and others as such counsel shall reasonably request, to the effect that the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code.
	(d) Other Actions. Parent shall have furnished North East with such certificates of its respective officers or others and such other documents to evidence fulfillment of the conditions set forth in Sections 7.1 and 7.2 as North East may reasonably request.

	(a) Representations and Warranties. The representations and warranties of North East set forth in this Agreement, subject in all cases to the standard set forth in Section 5.2, shall be true and correct as of the date of this Agreement and as of the Effective Date as though made on and as of the Effective Date, except that representations and warranties that by their terms speak as of the date of this Agreement or some other date shall be true and correct as of such date, and Parent shall have received a certificate, dated the Effective Date, signed on behalf of North East by the President and the Chief Financial Officer (or an equivalent officer) of North East to such effect.
	(b) Performance of Obligations of North East. North East shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Effective Time in order to consummate the Merger, and Parent shall have received a certificate, dated the Effective Date, signed on behalf of North East by the President and the Chief Financial Officer of North East to such effect.
	(c) Tax Opinion. Parent shall have received the written opinion of Duane Morris LLP, dated as of the Effective Date, which shall be based on such written representations from Parent, North East and others as such counsel shall reasonably request, to the effect that the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code.
	(d) Environmental Reports. North East shall have furnished Parent with a Phase I environmental study with respect to all real property owned by North East or North East Bank, the findings of which studies shall be acceptable to Parent who shall not unreasonably withhold such acceptance.
	(e) Other Actions. North East shall have furnished Parent with such certificates of its officers or others and such other documents to evidence fulfillment of the conditions set forth in Sections 7.1 and 7.3 as Parent may reasonably request.

	(a) Mutual Consent. By the mutual consent in writing of Parent and North East if the Board of Directors of each so determines by vote of a majority of the members of its entire Board.

A-36

---

 

	(b) Breach. Provided that the terminating party is not then in material breach of any representation, warranty, covenant or agreement contained therein, subject in all cases to the standard set forth in Section 5.2, by Parent or North East, if its Board of Directors so determines by vote of a majority of the members of its entire Board, in the event of: (i) a breach by Parent, on the one hand, or North East, on the other hand, as the case may be, of any representation or warranty contained herein, subject to the standard set forth in Section 5.2, which breach cannot be or has not been cured within 30 days after the giving of written notice to the breaching party or parties of such breach; or (ii) a breach by Parent, on the one hand, or North East, on the other hand, as the case may be, of any of the covenants or agreements contained herein, which breach cannot be or has not been cured within 30 days after the giving of written notice to the breaching party or parties of such breach, which breach, whether under (i) or (ii), would be reasonably expected, individually or in the aggregate with other breaches, to result in a Material Adverse Effect with respect to Parent or North East, as the case may be.
	(c) Delay. By Parent or North East, if its Board of Directors so determines by vote of a majority of the members of its entire Board, in the event that the Merger is not consummated by January 31, 2006, except to the extent that the failure of the Merger then to be consummated by such date shall be due to the failure of the party seeking to terminate pursuant to this Section 8.1(c) to perform or observe the covenants and agreements of such party, in the case of Parent, set forth in this Agreement.
	(d) No Regulatory Approval. By Parent or North East, if its Board of Directors so determines by a vote of a majority of the members of its entire Board, in the event the approval of any Governmental Authority required for consummation of the Merger and the other transactions contemplated by this Agreement shall have been denied by final nonappealable action of such Governmental Authority or an application therefor shall have been permanently withdrawn at the request of a Governmental Authority, provided, however, that no party shall have the right to terminate this Agreement pursuant to this Section 8.1(d) if such denial shall be due to the failure of the party seeking to terminate this Agreement to perform or observe the covenants of such party set forth herein.
	(e) No North East Shareholder Approval. By Parent, or by North East provided that North East shall not be in material breach of any of its obligations under Section 6.2, if any approval of the shareholders of North East contemplated by this Agreement shall not have been obtained by reason of the failure to obtain the required vote at the North East Meeting or at any adjournment or postponement thereof.
	(f) North East Failure to Recommend. At any time prior to the North East Meeting, by Parent if (i) North East shall have breached Section 6.8 in any respect materially adverse to Parent, (ii) the North East Board shall have failed to make its Approval Recommendation or shall have effected a Change in North East Recommendation, (iii) the North East Board shall have recommended approval of an Acquisition Proposal or (iv) North East shall have materially breached its obligations under Section 6.2 by failing to call, give notice of, convene and hold the North East Meeting.
	(g) Superior Proposal. At any time prior to the date of mailing of the Proxy Statement, by North East in order to enter concurrently into an Acquisition Proposal that has been received by North East and the North East Board of Directors in compliance with Sections 6.8(a) and (b) and that North East’s Board of Directors concludes in good faith, in consultation with its financial and legal advisors, that such Acquisition Proposal is a Superior Proposal; provided, however, that this Agreement may be terminated by North East pursuant to this Section 8.1(g) only after the fifth Business Day following North East’s provision of written notice to Parent advising Parent, that the North East Board of Directors is prepared to accept a Superior Proposal and only if (i) during such five-Business Day period, North East has caused its financial and legal advisors to negotiate with Parent in good faith to make such adjustments in the terms and conditions of this Agreement such that such Acquisition Proposal would no longer constitute a Superior Proposal, (ii) North East’s Board of Directors has considered such adjustments in the terms and conditions of this Agreement resulting from such negotiations and has concluded in good faith, based upon consultation with its financial and legal advisers, that such Acquisition Proposal remains a Superior Proposal even after giving effect to the adjustments proposed by Parent and further

A-37

---

 

	provided that such termination shall not be effective until North East has paid the Break-up Fee to Parent.

A-38

---

 

	North East Bancshares, Inc.
	5999 Station Road, P.O. Box 270
	North East, Pennsylvania 16478

	Attention:	David B. Hartman,

	President and Chief Executive Officer
	Fax:

	Buchanan Ingersoll P.C.
	One Oxford Centre
	301 Grant Street, 20th Floor
	Pittsburgh, Pennsylvania 15219
	Attention: Richard D. Rose, Esq.
	Fax: (412) 562-1041

	F.N.B. Corporation
	One F.N.B. Boulevard
	Hermitage, Pennsylvania 16148

	Attention:	Stephen J. Gurgovits

	President and Chief Executive Officer
	Fax: (724) 983-3515

	Duane Morris LLP
	4200 One Liberty Place
	Philadelphia, PA 19103
	Attention: Frederick W. Dreher, Esq.
	Fax: (215) 979-1213

A-39

---

 

A-40

---

 

	F.N.B. CORPORATION

	By:	/s/ Stephen J. Gurgovits

	Stephen J. Gurgovits,
	President and Chief Executive Officer
	NORTH EAST BANCSHARES, INC.

	By:	/s/ David B. Hartman

	David B. Hartman,
	President and Chief Executive Officer

A-41

---

 

	1.     The Merger. Subject to the terms and conditions of the Agreement and this Agreement of Merger, at the Effective Time (as defined in Section 2), North East Bank shall merge with and into Parent Bank (the “Bank Merger”) under the laws of the United States. Parent Bank shall be the surviving bank of the Bank Merger (the “Surviving Bank”).
	2.     Effective Time. The Bank Merger shall become effective on the date and at the time that Articles of Combination are filed with the Office of the Comptroller of the Currency (the “OCC”) unless a later date and time is specified as the Effective Time in such Articles of Combination (the “Effective Time”).
	3.     Charter; Bylaws. The Charter and Bylaws of Parent Bank in effect immediately prior to the Effective Time shall be the Charter and Bylaws of the Surviving Bank, until altered, amended or repealed in accordance with their terms and applicable law.
	4.     Name; Offices. The name of the Surviving Bank shall be “First National Bank of Pennsylvania.” The main office of the Surviving Bank shall be the main office of Parent Bank immediately prior to the Effective Time. All branch offices of North East Bank and Parent Bank that were in lawful operation immediately prior to the Effective Time shall be the branch offices of the Surviving Bank upon consummation of the Bank Merger, subject to the opening or closing of any offices that may be authorized by North East Bank, Parent Bank and the OCC after the date hereof. Schedule I hereto contains a list of each of the deposit taking offices of North East Bank and Parent Bank that shall be operated by the Surviving Bank, subject to the opening or closing of any offices that may be authorized by North East Bank, Parent Bank and the OCC after the date hereof.
	5.     Directors and Executive Officers. Upon consummation of the Bank Merger, (i) the directors of the Surviving Bank immediately prior to the Effective Time shall continue as directors of the Surviving Bank and (ii) the executive officers of the Surviving Bank shall be the executive officers of Parent Bank immediately prior to the Effective Time.

A-42

---

 

	6.     Effects of the Bank Merger. Upon consummation of the Bank Merger, and in addition to the effects set forth at 12 U.S.C. § 215a and other applicable law:

	(a) all rights, franchises and interests of North East Bank in and to every type of property (real, personal and mixed), tangible and intangible, and choses in action shall be transferred to and vested in the Surviving Bank by virtue of the Bank Merger without any deed or other transfer, and the Surviving Bank, without any order or other action on the part of any court or otherwise, shall hold and enjoy all rights of property, franchises and interests, including appointments, designations and nominations, and all other rights and interests as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver and committee, and in every other fiduciary capacity, in the same manner and to the same extent as such rights, franchises and interest were held or enjoyed by North East Bank immediately prior to the Effective Time; and
	(b) the Surviving Bank shall be liable for all liabilities of North East Bank, fixed or contingent, including all deposits, accounts, debts, obligations and contracts thereof, matured or unmatured, whether accrued, absolute, contingent or otherwise, and whether or not reflected or reserved against on balance sheets, books of account or records thereof, and all rights of creditors or obligees and all liens on property of North East Bank shall be preserved unimpaired; after the Effective Time, the Surviving Bank will continue to issue savings accounts on the same basis as immediately prior to the Effective Time.

	7.     Effect on Shares of Stock.

	(a) Each share of Parent Bank common stock issued and outstanding immediately prior to the Effective Time shall be unchanged and shall remain issued and outstanding.
	(b) At the Effective Time, each share of North East Bank common stock issued and outstanding prior to the Bank Merger shall, by virtue of the Bank Merger and without any action on the part of the holder thereof, be canceled. Any shares of North East Bank common stock held in the treasury of North East Bank immediately prior to the Effective Time shall be retired and canceled.

	8.     Additional Actions. If, at any time after the Effective Time, the Surviving Bank shall consider that any further assignments or assurances in law or any other acts are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in the Surviving Bank its rights, title or interest in, to or under any of the rights, properties or assets of North East Bank acquired or to be acquired by the Surviving Bank as a result of, or in connection with, the Bank Merger, or (b) otherwise carry out the purposes of this Agreement of Merger, North East Bank and its proper officers and directors shall be deemed to have granted to the Surviving Bank an irrevocable power of attorney to (i) execute and deliver all such proper deeds, assignments and assurances in law and to do all acts necessary or proper to vest, perfect or confirm title to and possession of such rights, properties or assets in the Surviving Bank and (ii) otherwise to carry out the purposes of this Agreement of Merger. The proper officers and directors of the Surviving Bank are fully authorized in the name of North East Bank or otherwise to take any and all such action.
	9.     Counterparts. This Agreement of Merger may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one agreement.
	10.     Governing Law. This Agreement of Merger shall be governed in all respects, including, but not limited to, validity, interpretation, effect and performance, by the laws of the United States.
	11.     Amendment. Subject to applicable law, this Agreement of Merger may be amended, modified or supplemented only by written agreement of Parent Bank and North East Bank at any time prior to the Effective Time.
	12.     Waiver. Any of the terms or conditions of this Agreement of Merger may be waived at any time by whichever of the parties hereto is, or the shareholders of which are, entitled to the benefit thereof by action taken by the Board of Directors of such waiving party.

A-43

---

 

	13.     Assignment. This Agreement of Merger may not be assigned by any party hereto without the prior written consent of the other party.
	14.     Termination. This Agreement of Merger shall terminate upon the termination of the Agreement in accordance with its terms.
	15.     Procurement of Approvals. This Agreement of Merger shall be subject to the approval of Parent as the sole shareholder of Parent Bank and North East as the sole shareholder of North East Bank at meetings to be called and held or by consent in lieu thereof in accordance with the applicable provisions of law and their respective organizational documents. Parent Bank and North East Bank shall proceed expeditiously and cooperate fully in the procurement of any other consents and approvals and in the taking of any other action, and the satisfaction of all other requirements prescribed by law or otherwise necessary for consummation of the Bank Merger on the terms provided herein, including without limitation the preparation and submission of such applications or other filings for approval of the Bank Merger to the OCC as may be required by applicable laws and regulations.
	16.     Conditions Precedent. The obligations of the parties under this Agreement of Merger shall be subject to: (i) the approval of this Agreement of Merger by Parent as the sole shareholder of Parent Bank and North East as the sole shareholder of North East Bank at meetings of shareholders duly called and held, or by consent or consents in lieu thereof, in each case without any exercise of such dissenters’ rights as may be applicable; (ii) receipt of approval of the Bank Merger from all governmental and banking authorities whose approval is required; (iii) receipt of any necessary regulatory approval to operate the main office and the branch offices of North East Bank as offices of the Surviving Bank and (iv) the consummation of the Parent Merger pursuant to the Agreement on or before the Effective Time.
	17.     Effectiveness of Agreement. Notwithstanding anything to the contrary contained herein, the execution and delivery of this Agreement of Merger by the parties hereto shall not be deemed to be effective unless and until the requirements of 12 C.F.R. § 5.33 are met.

A-44

---

 

	FIRST NATIONAL BANK OF PENNSYLVANIA

	By:

	Gary J. Roberts,
	President and Chief Executive Officer
	NATIONAL BANK OF THE NORTH EAST

	By:

	David B. Hartman,
	President and Chief Executive Officer

A-45

---

 

	I shall not make any sale, transfer or other disposition of such shares of Parent Common Stock unless (i) such sale, transfer or other disposition has been registered under the Securities Act, (ii) such sale, transfer or other disposition is made in conformity with the provisions of Rule 145 under the Securities Act or (iii) in the opinion of counsel in form and substance reasonably satisfactory to Parent or under a “no-action” letter obtained by me from the staff of the SEC, such sale, transfer or other disposition will not violate the registration requirements of, or is otherwise exempt from registration under, the Securities Act.
	I understand that Parent is under no obligation to register the sale, transfer or other disposition of shares of Parent Common Stock by me or on my behalf under the Securities Act or to take any other action necessary in order to make compliance with an exemption from such registration available.
	I understand that stop transfer instructions will be given to Parent’s transfer agent with respect to shares of Parent Common Stock issued to me as a result of the Merger and that there will be placed on the certificates for such shares, or any substitutions therefor, a legend stating in substance:

“The shares represented by this certificate were issued as a result of the merger of North East Bancshares, Inc. with and into F.N.B. Corporation, on                     , 2005 in a transaction to which Rule 145 promulgated under the Securities Act of 1933 applies. The shares represented by this certificate may be transferred only in accordance with the terms of a letter agreement between the registered holder hereof and F.N.B. Corporation, a copy of which agreement is on file at the principal offices of F.N.B. Corporation.”

	I understand that, unless transfer by me of the Parent Common Stock issued to me as a result of the Merger has been registered under the Securities Act or such transfer is made in conformity with the provisions of Rule 145(d) under the Securities Act, Parent reserves the right, in its sole discretion, to place the following legend on the certificates issued to my transferee:

	“The shares represented by this certificate have not been registered under the Securities Act of 1933 and were acquired from [SHAREHOLDER] who, in turn, received such shares as a result of the merger of North East Bancshares, Inc. with and into F.N.B. Corporation on                     , 2005 in a transaction to which Rule 145 under the Securities Act of 1933 applies. The shares have not been

A-46

---

 

	acquired by the holder with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act of 1933 and may not be offered, sold, pledged or otherwise transferred except in accordance with an exemption from the registration requirements of the Securities Act of 1933.”

	Very truly yours,
	Name:

	F.N.B. CORPORATION

	By:

	[name]
	[title]

A-47

---

 

	I agree to vote or cause to be voted for approval and adoption of the Agreement and the transactions contemplated thereby all shares of North East common stock over which I have or share voting power, individually or, to the extent of my proportionate interest, jointly with other persons, and will use my reasonable best efforts to cause any shares of North East common stock over which I share voting power to be voted for approval and adoption of the Agreement and the transactions contemplated thereby. Beneficial ownership shall have the meaning assigned to it under the Securities Exchange Act of 1934.
	On or prior to the record date for the meeting of the North East shareholders to vote on approval and adoption of the Agreement and the transactions contemplated thereby, I agree not to offer, sell, transfer or otherwise dispose of, or to permit the offer, sale, transfer or other disposition of, any shares of North East common stock over which I have sole or shared voting power and beneficial ownership, except to the extent that I may be permitted under law to make charitable gifts or as permitted by paragraph (f) hereof.
	I have sole or shared beneficial ownership over the number of shares of North East common stock set forth below opposite my name below.
	I agree that North East shall not be bound by any attempted sale of any shares of North East common stock over which I have sole voting power, and North East’s transfer agent shall be given appropriate stop transfer orders and shall not be required to register any such attempted sale, unless the sale has been effected in compliance with the terms of this Letter Agreement.
	I represent that I have the capacity to enter into this Letter Agreement and that it is a valid and binding obligation enforceable against me in accordance with its terms, subject to bankruptcy, insolvency and other laws affecting creditors’ rights and general equitable principles.
	I may transfer any or all of the shares of North East common stock over which I have sole or shared beneficial ownership to my spouse, ancestors or descendants; provided, however, that in any such case, prior to and as a condition to the effectiveness of such transfer, each person to which any of such shares or

A-48

---

 

	any interest in any of such shares is or may be transferred shall have executed and delivered to FNB an agreement to be bound by the terms of this Letter Agreement. In addition, I may sell, transfer or assign shares of North East common stock to the extent and on behalf of trusts or estates of which I am not a beneficiary in order to comply with fiduciary obligations or legal requirements.
	I am signing this Letter Agreement solely in my capacity as a shareholder of North East and not in any other capacity, such as a director or officer of North East or as a fiduciary of any trusts in which I am not a beneficiary. Notwithstanding anything herein to the contrary: (a) I make no agreement or understanding herein in any capacity other than in my capacity as a beneficial owner of North East common stock and (b) nothing herein shall be construed to limit or affect any action or inaction by me or any of my representatives, as applicable, serving on North East’s Board of Directors or as an officer of North East, acting in my capacity as a director, officer or fiduciary of North East or as fiduciary of any trust of which I am not a beneficiary.

	Very truly yours,
	[Name]

	Acknowledged and Agreed:
	NORTH EAST BANCSHARES, INC.

	By:

	David B. Hartman,
	President and Chief Executive Officer
	F.N.B. CORPORATION

	By:

	Stephen J. Gurgovits
	President and Chief Executive Officer

A-49

---

 

B-1

---

 

	Sincerely,
	/s/ Boenning & Scattergood, Inc.
	BOENNING & SCATTERGOOD, INC.

B-2

---

 

	Section 1906(c) (relating to dissenters rights upon special treatment).
	Section 1930 (relating to dissenters rights).
	Section 1931(d) (relating to dissenters rights in share exchanges).
	Section 1932(c) (relating to dissenters rights in asset transfers).
	Section 1952(d) (relating to dissenters rights in division).
	Section 1962(c) (relating to dissenters rights in conversion).
	Section 2104(b) (relating to procedure).
	Section 2324 (relating to corporation option where a restriction on transfer of a security is held invalid).
	Section 2325(b) (relating to minimum vote requirement).
	Section 2704(c) (relating to dissenters rights upon election).
	Section 2705(d) (relating to dissenters rights upon renewal of election).
	Section 2904(b) (relating to procedure).
	Section 2907(a) (relating to proceedings to terminate breach of qualifying conditions).
	Section 7104(b)(3) (relating to procedure).

(1) Except as otherwise provided in paragraph (2), the holders of the shares of any class or series of shares shall not have the right to dissent and obtain payment of the fair value of the shares under this subchapter if, on the record date fixed to determine the shareholders entitled to notice of and to vote at the meeting at which a plan specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to be voted on, or on the date of the first public announcement that such a plan has been approved by the shareholders by consent without a meeting, the shares are either:

	(i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc.; or
	(ii) held beneficially or of record by more than 2,000 persons.

C-1

---

 

	(2) Paragraph (1) shall not apply to and dissenters rights shall be available without regard to the exception provided in that paragraph in the case of:

	(i) (Repealed.)
	(ii) Shares of any preferred or special class or series unless the articles, the plan or the terms of the transaction entitle all shareholders of the class or series to vote thereon and require for the adoption of the plan or the effectuation of the transaction the affirmative vote of a majority of the votes cast by all shareholders of the class or series.
	(iii) Shares entitled to dissenters rights under section 1906(c) (relating to dissenters rights upon special treatment).

(3) The shareholders of a corporation that acquires by purchase, lease, exchange or other disposition all or substantially all of the shares, property or assets of another corporation by the issuance of shares, obligations or otherwise, with or without assuming the liabilities of the other corporation and with or without the intervention of another corporation or other person, shall not be entitled to the rights and remedies of dissenting shareholders provided in this subchapter regardless of the fact, if it be the case, that the acquisition was accomplished by the issuance of voting shares of the corporation to be outstanding immediately after the acquisition sufficient to elect a majority or more of the directors of the corporation.

	(1) a statement of the proposed action and a statement that the shareholders have a right to dissent and obtain payment of the fair value of their shares by complying with the terms of this subchapter; and
	(2) a copy of this subchapter.

C-2

---

 

	(1) State where and when a demand for payment must be sent and certificates for certificated shares must be deposited in order to obtain payment.
	(2) Inform holders of uncertificated shares to what extent transfer of shares will be restricted from the time that demand for payment is received.

C-3

---

 

	(3) Supply a form for demanding payment that includes a request for certification of the date on which the shareholder, or the person on whose behalf the shareholder dissents, acquired beneficial ownership of the shares.
	(4) Be accompanied by a copy of this subchapter.

	(1) The closing balance sheet and statement of income of the issuer of the shares held or owned by the dissenter for a fiscal year ending not more than 16 months before the date of remittance or notice together with the latest available interim financial statements.
	(2) A statement of the corporation’s estimate of the fair value of the shares.
	(3) A notice of the right of the dissenter to demand payment or supplemental payment, as the case may be, accompanied by a copy of this subchapter.

C-4

---

 

	(1) effectuation of the proposed corporate action;
	(2) timely receipt of any demands for payment under section 1575 (relating to notice to demand payment); or
	(3) timely receipt of any estimates pursuant to section 1578 (relating to estimate by dissenter of fair value of shares);

C-5

---

 

C-6

---

 

Item 21.	Exhibits and Financial Statement Schedules.

Exhibit No.				Description of Exhibit
	2.1			Agreement and Plan of Merger dated as of April 22, 2005 between F.N.B. Corporation and North East Bancshares, Inc. (included as Appendix A to this proxy statement/ prospectus)
	5.1			Opinion of Duane Morris LLP*
	8.1			Tax Opinion of Duane Morris LLP*

II-1

---

 

Exhibit No.				Description of Exhibit
	8.2			Tax Opinion of Buchanan Ingersoll PC*
	10.1			Executive Employment Agreement between David B. Hartman and North East Bancshares, Inc.*
	15.1			Acknowledgement of Ernst & Young LLP dated June 20, 2005 to the Board of Directors of F.N.B. Corporation*
	23.1			Consent of Ernst & Young LLP
	23.2			Consent of Parente Randolph, LLC
	23.3			Consent of Buchanan Ingersoll PC (included in Exhibit 8.2)*
	23.4			Consent of Boenning & Scattergood, Inc.
	23.5			Consent of Duane Morris LLP (included in Exhibits 5.1 and 8.1)*
	24.1			Power of Attorney (included on pages II-4 and II-5 of the initial filing of this registration statement)
	99.1			Proxy for Special Meeting of Shareholders of North East Bancshares, Inc.
	99.2			Opinion of Boenning & Scattergood, Inc. (included as Appendix B to this proxy statement/ prospectus)

*	Filed with the initial filing of this registration statement.

Item 22.	Undertakings.

	(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

	(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
	(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
	(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change in such information in the registration statement.

	(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
	(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

II-2

---

 

(2) The registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-3

---

 

	F.N.B. CORPORATION

	By:	/s/ Stephen J. Gurgovits

	Stephen J. Gurgovits
	President and Chief Executive Officer

Signature				Title		Date
*   Peter Mortensen				Chairman of the Board		August 12, 2005
/s/ Stephen J. Gurgovits   Stephen J. Gurgovits				President, Chief Executive Officer and Director (principal executive officer)		August 12, 2005
/s/ Brian F. Lilly   Brian F. Lilly				Vice President and Chief Financial Officer (principal financial and accounting officer)		August 12, 2005
*   William B. Campbell				Director		August 12, 2005
*   Henry M. Ekker				Director		August 12, 2005
*   Robert B. Goldstein				Director		August 12, 2005
*   David J. Malone				Director		August 12, 2005
*   Harry F. Radcliffe				Director		August 12, 2005
*   John W. Rose				Director		August 12, 2005
*   William J. Strimbu				Director		August 12, 2005

II-4

---

 

Signature				Title		Date
*   Earl K. Wahl, Jr.				Director		August 12, 2005
*   Archie O. Wallace				Director		August 12, 2005

*By:	/s/ Brian F. Lilly

Brian F. Lilly, attorney-in-fact

II-5

---

 

Exhibit
No.				Description of Exhibit
	2	.1		Agreement and Plan of Merger dated as of April 22, 2005 between F.N.B. Corporation and North East Bancshares, Inc. (included as Appendix A to this proxy statement/ prospectus)
	5	.1		Opinion of Duane Morris LLP*
	8	.1		Tax Opinion of Duane Morris LLP*
	8	.2		Tax Opinion of Buchanan Ingersoll PC*
	10	.1		Executive Employment Agreement between David B. Hartman and North East Bancshares, Inc.*
	15	.1		Acknowledgement of Ernst & Young LLP dated June 20, 2005 to the Board of Directors of F.N.B. Corporation
	23	.1		Consent of Ernst & Young LLP
	23	.2		Consent of Parente Randolph, LLC
	23	.3		Consent of Buchanan Ingersoll PC (included in Exhibit 8.2)*
	23	.4		Consent of Boenning & Scattergood, Inc.
	23	.5		Consent of Duane Morris LLP (included in Exhibits 5.1 and 8.1)*
	24	.1		Power of Attorney (included on pages II-4 and II-5 of the initial filing of this registration statement)
	99	.1		Proxy for Special Meeting of Shareholders of North East Bancshares, Inc.
	99	.2		Opinion of Boenning & Scattergood, Inc. (included as Appendix B to this proxy statement/ prospectus)

*	Filed with the initial filing of this registration statement.