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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
AMENDMENT NO. 1
(MARK ONE)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
- ---- FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NO. 333-1546
FNB BANCSHARES, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
SOUTH CAROLINA 57-1033165
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
POST OFFICE BOX 1539, GAFFNEY, SOUTH CAROLINA 29342
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(864) 488-2265
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT)
CHECK WHETHER THE ISSUER: (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(D) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH
SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2)
HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
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STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON EQUITY, AS OF THE LATEST PRACTICABLE DATE:
616,338 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, WERE ISSUED
AND OUTSTANDING AS OF NOVEMBER 6, 1998.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES NO X
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PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The following is a discussion of the Company's financial condition as of
September 30, 1998 compared to December 31, 1997, and the results of operations
for the three months ended September 30, 1998 compared to the three months ended
September 30, 1997 as well as the nine months ended September 30, 1998 compared
to the nine months ended September 30, 1997. These comments should be read in
conjunction with the Company's condensed consolidated financial statements and
accompanying footnotes appearing in this report.
This report contains "forward-looking statements" relating to, without
limitation, future economic performance, plans and objectives of management for
future operations, and projections of revenues and other financial items that
are based on the beliefs of the Company's management, as well as assumptions
made by and information currently available to the Company's management. The
words "expect," "anticipate," and "believe," as well as similar expressions, are
intended to identify forward-looking statements. The Company's actual results
may differ materially from the results discussed in the forward-looking
statements, and the Company's operating performance each quarter is subject to
various risks and uncertainties that are discussed in detail in the Company's
filings with the Securities and Exchange Commission, including the "Risk
Factors" section in the Company's Registration Statement on Form S-1
(Registration Number 333-1546) as filed with and declared effective by the
Securities and Exchange Commission.
RESULTS OF OPERATIONS FOR 1998 COMPARED TO 1997:
Net Interest Income
Net interest income for the three month period ended September 30, 1998 was
$348,373 compared to $247,892 for the three month period ended September 30,
1997. Net interest income for the nine month period ended September 30, 1998 was
$936,343 compared to $591,304 for the nine month period ended September 30,
1997. The interest rate spread was 5.31% at September 30, 1998 and 5.0% at
September 30, 1997. The increased income is primarily attributed to growth in
the loan portfolio, as the amount of total loans increased to $19.2 million at
September 30, 1998 as compared to $11.5 million at September 30, 1997. The
largest component of interest income was interest on loans, which increased to
$460,805 for the three months ended September 30, 1998 as compared to $264,551
for the three months ended September 30, 1997, and $1,217,470 for the nine
months ended September 30, 1998 as compared to $570,001 for the nine months
ended September 30, 1997. These increases were primarily attributable to growth
in the Bank's loan portfolio. Interest on investment securities decreased to
$26,107 for the three months ended September 30, 1998 as compared to $31,123 for
the three months ended September 30, 1997. This decrease is due to the Bank's
shift of funds from Treasuries to certificates of deposit in 1998 in order to
increase investment yield. Interest on investment securities increased to
$78,969 for the nine months ended September 30, 1998 as compared to $58,428 for
the nine months ended September 30, 1997. The increases in interest income were
partially offset by increases in interest expense, to $187,679 for the three
months ended September 30, 1998 as compared to $111,515 for the three months
ended September 30, 1997, and $532,648 for the nine months ended September 30,
1998 as compared to $269,027 for the nine months ended September 30, 1997.
Provision and Allowance for Loan Losses
The provision for loan losses is the charge to operating earnings that
management feels is necessary to maintain the allowance for possible loan losses
at an adequate level. For the three months ended September 30, 1998, the
provision charged to expense was $40,000, compared to $39,000 charged to expense
for the three months ended September 30, 1997. For the nine months ended
September 30, 1998, the provision charged to expense was $125,000, compared to
$108,000 charged to expense for the nine months ended September 30, 1997. The
loan loss reserve was $272,864 as of September 30, 1998, or 1.42% of gross
loans, as compared to $152,614 as of December 31, 1997, or 1.08% of gross loans.
The loan portfolio is periodically reviewed to evaluate the outstanding loans
and to measure both the performance of the
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portfolio and the adequacy of the allowance for loan losses. This analysis
includes a review of delinquency trends, actual losses, and internal credit
ratings. Management's judgment as to the adequacy of the allowance is based upon
a number of assumptions about future events which it believes to be reasonable,
but which may or may not be accurate. Because of the inherent uncertainty of
assumptions made during the evaluation process, there can be no assurance that
loan losses in future periods will not exceed the allowance for loan losses or
that additional allocations will not be required.
Non-Interest Income
Non-interest income for the three months ended September 30, 1998 was $49,704,
as compared to $22,339 for the three months ended September 30, 1997.
Non-interest income for the nine months ended September 30, 1998 was $134,540,
as compared to $78,449 for the nine months ended September 30, 1997. Of the
three months ended September 30, 1998; $35,153 was a result of deposit account
service charges, account maintenance fees, NSF and overdraft fees, and $14,551
was other miscellaneous service charges. Of the amount for the nine months ended
September 30, 1998 $85,895 was a result of deposit account service charges,
account maintenance fees, NSF and overdraft fees, and $48,645 was other
miscellaneous service charges. This increase in fees is attributed to overall
growth of the deposit portfolio.
Non-Interest Expense
Non-Interest Expense for the three month period ended September 30, 1998 was
$301,721, as compared to $260,164 for the three month period ended September 30,
1997. Salaries and employee benefits comprise $155,982 and $134,646 respectively
of this amount. Depreciation of buildings, furniture and equipment accounted for
$23,185 and $21,632 for the three month periods ended September 30, 1998 and
September 30, 1997, respectively.
Non-Interest Expense for the nine month period ended September 30, 1998 was
$882,265, as compared to $812,073 for the nine month period ended September 30,
1997. Salaries and employee benefits comprise $448,789 and $445,798 respectively
of this amount. Depreciation of buildings, furniture and equipment accounted for
$68,300 and $64,089 for the nine month periods ended September 30, 1998 and
September 30, 1997, respectively.
ASSETS AND LIABILITIES
During the first nine months of 1998, total assets increased $5,903,145, or 30%,
when compared to December 31, 1997. The primary growth in assets was in loans
with an increase of $4,999,582, or 35%, since December 31, 1997. Total
liabilities increased $5,863,112, or 41%, when compared to December 31, 1997.
Within the deposit area, savings accounts, which include money market accounts,
increased 73% , interest bearing transaction accounts increased 21%,
non-interest bearing transaction accounts increased 12%, and time deposits
increased 50%. However, this tremendous growth rate is a reflection of the fact
that the Bank is relatively young, as it opened for business on October 18,
1996, and the Company does not expect to maintain or duplicate this growth rate.
The Company's management closely monitors and seeks to maintain appropriate
levels of interest earning assets and interest bearing liabilities so that
maturities of assets are such that adequate funds are provided to meet customer
withdrawals and demand. Management expects asset and liability growth to
continue at a rapid pace during the coming months, with the growth tapering off
to a slower, more deliberate and controllable pace over the longer term, and
believes capital should continue to be adequate for the next 12 months.
Loans
Balances within the major loan categories as of September 30, 1998 and December
31, 1997 are as follows:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
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<S> <C> <C>
Commercial and Industrial $ 5,664,497 $ 3,227,562
Real Estate - Construction 459,614 206,531
Real Estate - Other 8,428,942 6,724,721
Installment and consumer credit lines 4,615,361 4,010,018
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$ 19,168,414 $ 14,168,832
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Allowance for loan loss, December 31, 1997 $ 152,614
</TABLE>
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<TABLE>
<S> <C>
Provision 125,000
Charge-offs 4,750
Allowance for loan loss, September 30, 1998 $ 272,864
Gross loans outstanding, December 31, 1997 $ 14,168,832
Gross loans outstanding, September 30, 1998 $ 19,168,414
Allowance for loan losses to loans outstanding, December 31, 1997 1.08%
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Allowance for loan losses to loans outstanding, September 30, 1998 1.42%
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</TABLE>
Deposits
Balances within the major deposit categories as of September 30, 1998 and
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
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<S> <C> <C>
Non-interest bearing demand deposits $ 2,771,792 $ 2,478,018
Interest bearing demand deposits 3,054,488 2,532,105
Savings deposits 2,356,018 1,358,378
Time deposit $100,000 and over 2,531,078 2,141,145
Other Time Deposits 8,230,643 5,050,222
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$ 18,944,019 $ 13,559,868
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</TABLE>
Liquidity
Liquidity needs are met by the Company through scheduled maturities of loans and
investments on the asset side and through pricing policies on the liabilities
side for interest-bearing deposit accounts. The level of liquidity is measured
by the loan-to-total borrowed funds ratio which was 96% at September 30, 1998
and 101% at December 31, 1997.
Capital Resources
Total shareholders' equity increased $40,033 to $5,749,214 at September 30,
1998. The increase is attributable to income for the period.
Bank holding companies and their banking subsidiaries are required by banking
regulators to meet certain minimum levels of capital adequacy which are
expressed in the form of certain ratios. Capital is separated into Tier 1
capital (essentially common shareholders' equity less intangible assets) and
Tier 2 capital (essentially the allowance for loan losses limited to 1.25% of
risk weighted assets). The first two ratios, which are based on the degree of
credit risk in the Company's assets, require the weighting of assets based on
assigned risk factors and include off-balance sheet items such as loan
commitments and stand-by letters of credit. The ratio of Tier 1 capital to
risk-weighted assets must be at least 4% and the ratio of total capital (Tier 1
capital plus Tier 2) to risk-weighted assets must be at least 8%. The capital
leverage ratio supplements the risk-based capital guidelines. The leverage ratio
is Tier 1 capital divided by the adjusted quarterly average total assets. Banks
and bank holding companies are required to maintain a minimum leverage ratio of
3.0%.
The following table summarizes the Company's risk-based capital at September 30,
1998(in thousands):
<TABLE>
<S> <C>
Shareholders' equity $ 5,749
Less: intangibles 267
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Tier 1 capital $ 5,482
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Plus: allowance for loan losses (1) 246
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Total Capital $ 5,728
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Risk-Weighted assets $19,704
Risk based capital ratios
Tier 1 27.82%
</TABLE>
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<TABLE>
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Total capital 29.07%
Leverage ratio 21.65%
</TABLE>
(1) limited to 1.25% of risk-weighted assets
YEAR 2000 READINESS
YEAR 2000 ISSUES
Some computers, software, and other equipment include programming codes
in which calendar year data is abbreviated to only two digits. As a
result of this design decision, some of these systems could fail to
operate or fail to produce correct results if "00" is interpreted to
mean 1900, rather than 2000. These problems are widely expected to
increase in frequency and severity as the year 2000 approaches and are
commonly referred to as the "Year 2000 Problem."
ASSESSMENT
The Year 2000 Problem could affect computers, software, and other
equipment that FNB uses. Accordingly, FNB has completed its review of
its internal computer programs and systems to determine whether they
will be Year 2000 compliant. FNB believes that its computer systems
will be Year 2000 compliant in a timely manner. Because the primary
hardware and software systems are presently certified by their vendors
as Year 2000 compliant, FNB has not incurred any significant costs to
date relating to software modifications or new installations for the
other systems. Most systems are made compliant through periodic
software upgrades provided by the various vendors as part of the
license agreements. However, while FNB does not expect the cost of
these efforts to be material to its financial position or any year's
operating results, there can be no assurance to this effect.
INTERNAL INFRASTRUCTURE
FNB utilizes an outsourced data processing system for most of its
accounting functions. FNB's primary systems have been tested by proxy
with the software provider, who has tested in environments with like
software and hardware systems as FNB. Banking regulators have approved
this type of testing as a valid means of testing. FNB has received
results and the results FNB believes that it has identified
substantially all of the major computers, software applications, and
related equipment used in connection with its internal operations that
must be modified, upgraded, or replaced to minimize the possibility of
a material disruption of its business. Management has completed
upgrading and is in the process of testing the systems that it has
determined are not prepared for the year 2000. Management believes that
the testing of its systems should be completed by March 31, 1999.
Management has spent approximately $40,000 to get all of its systems
Year 2000 compliant. FNB does not believe that the cost related to
these efforts will be material to its business, financial condition, or
operating results.
SYSTEMS OTHER THAN INFORMATION TECHNOLOGY SYSTEMS
In addition to computers and related systems, the operation of FNB's
office and facilities equipment, such as fax machines, photocopiers,
telephone switches, security systems, and other devices, may be
affected by the Year 2000 Problem. FNB has completed its assessment of
the potential effect of, and the costs of remediating, the Year 2000
Problem on this equipment. FNB estimates that its total cost of
completing any required modifications, upgrades, or replacements of
these internal systems will not have a material effect on its business,
financial condition, or operating results.
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SUPPLIERS AND OTHER THIRD PARTIES
FNB has been gathering information from and has initiated
communications with its suppliers and other third parties to identify
and, to the extent possible, resolve issues involving the Year 2000
Problem. However, FNB has limited or no control over the actions of its
suppliers and others. Therefore, while FNB expects that it will be able
to resolve any significant Year 2000 Problem with its own system, it
cannot guarantee that its suppliers or others will resolve any or all
Year 2000 Problems with their systems before the occurrence of a
material disruption to its business. Any failure of these suppliers or
others to resolve the Year 2000 Problems with their systems in a timely
manner could have a material adverse effect on FNB's business,
financial condition, or operating results.
CUSTOMERS
FNB believes that the largest Year 2000 Problem exposure to most banks
is the preparedness of the customers of the banks. Management is
addressing with its customers the possible consequences of not being
prepared for Year 2000. Should large borrowers not sufficiently address
this issue, FNB may experience an increase in loan defaults. The amount
of potential loss from this issue is not quantifiable. Management is
attempting to reduce this exposure by educating its customers.
MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS
FNB expects to identify and resolve all Year 2000 Problems that could
materially adversely affect its business, financial condition, or
operating results. However, FNB believes that it is not possible to
determine with complete certainty that all Year 2000 Problems affecting
it have been identified or corrected. The number of devices that could
be affected and the interactions among these devices are simply too
numerous. In addition, FNB cannot accurately predict how many failures
related to the Year 2000 Problem will occur with its suppliers,
customers, or other third parties or the severity, duration, or
financial consequences of such failures. As a result, FNB expects that
it could possibly suffer the following consequences:
- - A number of operational inconveniences and inefficiencies for FNB, its
service providers, or its customers that may divert FNB's time and
attention and financial and human resources from its ordinary business
activities;
- - System malfunctions that may require significant efforts by FNB or its
service providers or customers to prevent or alleviate material
business disruptions.
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CONTINGENCY PLANS
FNB is currently developing contingency plans to be implemented as part
of its efforts to identify and correct Year 2000 Problems affecting its
internal systems. FNB expects to complete its contingency plans by the
end of the first quarter of 1999. Depending on the systems affected,
these plans could include (a) accelerated replacement of affected
equipment or software; (b) short term use of backup equipment and
software; (c) increased work hours for FNB's personnel or use of
contract personnel to correct on an accelerated schedule any Year 2000
Problems which arise; and (d) other similar approaches. If FNB is
required to implement any of these contingency plans, these plans could
have a material adverse effect on its business, financial condition, or
operating results.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FNB BANCSHARES, INC.
------------------------------------------------
(Registrant)
Date: January 29, 1999 By: /s/ V. Stephen Moss
--------------------------------------------
V. Stephen Moss
President and Chief Executive Officer
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