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FNB Foresees Loss Provision

After discovering that several bad loans had been made at its bank subsidiary financial services holding company here said that it expects significant additional provision to recover from the resulting credit losses.

FNB Financial Services Corp. and its bank subsidiary, FNB Southeast, are conducting investigations of loans in FNB Southeast's Harrisonburg, Va., region made in violation of certain of the bank's lending policies and procedures. The bank's management, internal audit personnel and independent consulting firms have undertaken these investigations.

According to FNB Financial Services Corp., the company expects to record a significant additional provision for credit losses in its fourth-quarter financial reports as a result of bad loans made from the bank's Harrisonburg branch. The bank discovered fraudulent loans in the second quarter of 2005 and has already recorded a fraud loss of $250,000 related to the actions of a former loan officer. FNB Financial Services also made a claim under its fidelity bond for $1.2 million in potential losses.

Additionally, these and related matters have been reviewed by the bank's primary federal banking regulator in the course of the regulator's periodic examination of the bank.

Management of the bank anticipates that a significant additional provision to the bank's allowance for credit losses will be recorded in the financial results for the year ending Dec. 31, 2005. The amount of extra money to be set aside to cover the fraudulent loans has not been specified.

Additionally, management expects that the evaluations and considerations necessary to establish the amount of the additional provision will be completed in the latter part of this month.

FNB Southeast has entered into a repayment agreement with the former loan officer, who was not identified. Bank managers expect to know the extent of the loan loss provisions that will be required later this month.

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