<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(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, 1999
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
--------------- ----------------
Commission File No. 333-1546
FNB BANCSHARES, INC.
--------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
South Carolina 57-1033165
-------------- ---------
(State of Incorporation) (I.R.S. Employer Identification No.)
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 [ ]
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 5, 1999.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE> 2
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
FNB BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
(UNAUDITED) (AUDITED)
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and due from Banks $ 2,043,554 $ 1,017,765
Federal Funds Sold 1,170,000 2,350,000
------------ ------------
3,213,554 3,367,765
Securities:
Securities held to maturity (estimated market 2,349,304 1,799,791
value of $2,321,211 in 1999 and $1,803,397 in 1998)
Nonmarketable equity securities 83,700 71,100
Time Deposits with other Banks 0 500,000
Loans Receivable 27,465,586 20,254,948
Less Allowance for loan loss (409,295) (303,248)
------------ ------------
Loans, net 27,056,291 19,951,700
Premises and equipment 2,186,512 1,803,557
Accrued Interest Receivable 188,796 127,576
Other Assets 438,389 413,590
------------ ------------
Total Assets $ 35,516,546 $ 28,035,079
============ ============
LIABILITIES
Deposits:
Non-interest bearing transaction accounts $ 4,760,813 $ 3,070,299
Interest bearing transaction accounts 5,042,306 3,281,387
Savings 5,039,453 3,115,763
Time deposits $100,000 and over 3,511,902 2,988,725
Other time deposits 10,822,613 8,639,662
------------ ------------
29,177,087 21,095,836
Securities sold under agreements to repurchase 208,850 869,269
Accrued Interest Payable 46,818 47,799
Other Liabilities 158,384 185,602
------------ ------------
Total Liabilities 29,591,139 22,198,506
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 10,000,000
shares authorized and unissued
Common Stock, $.01 par value; 10,000,000
shares authorized; 616,338 shares issued 6,163 6,163
Capital surplus 6,112,318 6,112,318
Retained earnings (deficit) (193,074) (281,908)
------------ ------------
Total Stockholders' equity 5,925,407 5,836,573
------------ ------------
Total Liabilities and Stockholders' equity $ 35,516,546 $ 28,035,079
============ ============
</TABLE>
See Accompanying Notes to Financial Statements
2
<PAGE> 3
PART I - FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
- ----------------------------------------
FNB BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $647,949 $457,404
Investment securities, taxable 33,792 26,293
Federal funds sold 26,845 41,919
Time Deposits with Other Banks 0 7,221
-------- --------
Total Interest Income 708,586 532,837
-------- --------
INTEREST EXPENSE
Time deposits $100,000 and over 47,668 41,400
Other deposits 196,063 140,586
Securities sold under agreement to repurchase 5,394 5,692
-------- --------
Total Interest Expense 249,125 187,678
-------- --------
NET INTEREST INCOME 459,461 345,159
Provision for loan loss 25,000 40,000
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 434,461 305,159
-------- --------
OTHER INCOME
Service charges on deposit accounts 9,069 6,705
Sold Loan Fees 5,154 5,009
NSF/Overdraft Fees 36,774 25,303
Other service charges, commissions and fees 14,600 12,373
-------- --------
65,597 49,390
-------- --------
OTHER EXPENSE
Salaries and employee benefits 196,526 153,403
Occupancy Expense 34,158 23,550
Furniture and equipment 37,353 26,255
Office Supplies 10,681 8,644
Data Processing 33,927 19,917
Other operating expense 90,322 66,424
-------- --------
402,967 298,193
-------- --------
INCOME (LOSS) BEFORE TAXES 97,091 56,356
INCOME TAX EXPENSE (BENEFIT) 33,010 23,585
-------- --------
NET INCOME (LOSS) $ 64,081 $ 32,771
======== ========
PER SHARE
Average shares outstanding 616,338 616,338
Net income (loss) $ .10 $ .05
</TABLE>
See Accompanying Notes to Financial Statements
3
<PAGE> 4
PART I - FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
- ----------------------------------------
FNB BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $1,737,789 $1,214,068
Investment securities, taxable 97,772 79,379
Federal funds sold 87,993 150,718
Time Deposits with Other Banks 0 21,834
---------- ----------
Total Interest Income 1,923,554 1,465,999
---------- ----------
INTEREST EXPENSE
Time deposits $100,000 and over 131,812 122,662
Other deposits 533,386 391,994
Securities sold under agreement to repurchase 16,418 17,993
---------- ----------
Total Interest Expense 681,616 532,649
---------- ----------
NET INTEREST INCOME 1,241,938 933,350
Provision for loan loss 111,750 125,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,130,188 808,350
---------- ----------
OTHER INCOME
Service charges on deposit accounts 25,435 17,455
Sold Loan Fees 73,087 15,751
NSF/Overdraft Fees 101,476 58,956
Other service charges, commissions and fees 46,320 34,585
---------- ----------
246,318 126,747
---------- ----------
OTHER EXPENSE
Salaries and employee benefits 582,712 446,210
Occupancy Expense 99,347 72,983
Furniture and equipment 108,540 77,125
Disposal of assets 45,894 0
Office Supplies 34,265 22,436
Data Processing 101,476 48,539
Other operating expense 269,708 204,186
---------- ----------
1,241,942 871,479
---------- ----------
INCOME (LOSS) BEFORE TAXES 134,564 63,618
INCOME TAX EXPENSE (BENEFIT) 45,730 23,585
---------- ----------
NET INCOME (LOSS) $ 88,834 $ 40,033
========== ==========
PER SHARE
Average shares outstanding 616,338 616,338
Net income (loss) $ .14 $ .06
</TABLE>
See Accompanying Notes to Financial Statements
4
<PAGE> 5
PART I - FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
- ----------------------------------------
FNB BANCSHARES, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
NET INCOME (LOSS) $ 64,081 $ 32,771
Other comprehensive income,
net of tax 0 0
Total other comprehensive income 0 0
Comprehensive income (loss) $ 64,081 $ 32,771
======== ========
</TABLE>
See Accompanying Notes to Financial Statements
5
<PAGE> 6
PART I - FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
- ----------------------------------------
FNB BANCSHARES, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
NET INCOME (LOSS) $ 88,834 $ 40,033
Other comprehensive income,
net of tax 0 0
Total other comprehensive income 0 0
Comprehensive income (loss) $ 88,834 $ 40,033
======== ========
</TABLE>
See Accompanying Notes to Financial Statements
6
<PAGE> 7
PART I - FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
- ----------------------------------------
FNB BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Retained
Common Stock Capital Earnings
Shares Amount Surplus (Deficit) Total
-------- ------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 616,338 $ 6,163 $ 6,112,318 $ (281,908) $ 5,836,573
Net income (loss) 0 0 0 88,834 88,834
-------- ------- ----------- ---------- -----------
BALANCE, SEPTEMBER 30, 1999 616,338 $ 6,163 $ 6,112,318 $ (193,074) $ 5,925,407
======== ======= =========== ========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
7
<PAGE> 8
PART I - FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
- ----------------------------------------
FNB BANCSHARES, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
FROM DECEMBER 31 TO SEPTEMBER 30
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 88,834 $ 40,033
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Provision for loan losses 111,750 125,000
Depreciation 130,922 68,300
Accretion and premium amortization 489 76
Increase in interest receivable (61,220) (16,924)
Increase (decrease) in interest payable (981) (31,735)
(Increase) decrease in other assets (24,799) 13,715
Increase (decrease) in other liabilities (27,218) (28,218)
----------- -----------
Net cash used by operating activities 217,777 170,247
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase securities held to maturity (1,912,602) (2,099,735)
Maturity of securities held to maturity 1,350,000 1,700,000
Purchase Time Deposits 0 (1,000,000)
Maturity of Time Deposits 500,000 1,100,000
Net increase in loans made to customers (7,216,341) (5,004,332)
Net increase in premises and equipment (513,877) (378,069)
----------- -----------
Net cash used by investing activities (7,792,820) (5,682,136)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, interest bearing
transaction accounts and savings accounts 5,375,123 1,813,797
Net increase in time deposits 2,706,128 3,570,354
Net increase(decrease) in Repurchase Agreements (660,419) 538,914
----------- -----------
Net cash provided by financing activities 7,420,832 5,923,065
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (154,211) 411,176
----------- -----------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,367,765 2,437,433
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,213,554 $ 2,848,609
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
8
<PAGE> 9
PART I - FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
- ----------------------------------------
FNB BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
- -----------------------------------------------
ORGANIZATION AND CONSOLIDATION - FNB Bancshares, Inc. a bank holding company
(the "Company") and its subsidiary, First National Bank of the Carolinas (the
"Bank"), provide banking services to domestic markets principally in Cherokee
County, South Carolina. The Bank commenced operations on October 18, 1996. The
consolidated financial statements include the accounts of the parent company
and its wholly-owned subsidiary after elimination of all significant
intercompany balances and transactions.
BASIS OF PRESENTATION. The accompanying consolidated financial statements have
been prepared in accordance with the requirements for interim financial
statements and, accordingly, they are condensed and omit disclosures which
would substantially duplicate those contained in the most recent annual report
to shareholders. The financial statements for the interim periods are unaudited
and, in the opinion of management, include all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation. The
financial information as of December 31, 1998 has been derived from audited
financial statements as of that date. For further information, refer to the
financial statements and the notes included in FNB Bancshares, Inc.'s 1998
Annual report.
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, 1999 compared to December 31, 1998, and the results of operations
for the three months ended September 30, 1999 compared to the three months
ended September 30, 1998, as well as the nine months ended September 30, 1999
compared to the nine months ended September 30, 1998. 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.
9
<PAGE> 10
PART I - FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION (CONTINUED)
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS FOR 1999 COMPARED TO 1998:
Net Interest Income
- -------------------
Net interest income for the three month period ended September 30, 1999 was
$459,461,compared to $345,159 for the three month period ended September 30,
1998. Net interest income for the nine month period ended September 30, 1999
was $1,241,938 compared to $933,350 for the nine month period ended September
30, 1998. The interest rate spread was 4.67% at September 30, 1999 and 4.34% at
September 30, 1998. The increased income is primarily attributed to growth in
the loan portfolio, as the amount of total loans increased to $27.1 million at
September 30, 1999 as compared to $18.9 million at September 30, 1998. The
largest component of interest income was interest on loans, which increased to
$647,949 for the three months ended September 30, 1999 as compared to $457,404
for the three months ended September 30, 1998, and $1,737,789 for the nine
months ended September 30, 1999 as compared to $1,214,068 for the nine months
ended September 30, 1998. These increases were primarily attributable to growth
in the Bank's loan portfolio. Interest on investment securities increased to
$33,792 for the three months ended September 30, 1999 as compared to $26,293
for the three months ended September 30, 1998, and $97,772 for the nine months
ended September 30, 1999 as compared to $79,379 for the nine months ended
September 30, 1998. This increase is due primarily to growth in the investment
portfolio from $1,900,990 at September 30, 1998 to $2,349,304 at September 30,
1999. The increases in interest income were partially offset by increases in
interest expense to $249,125 for the three months ended September 30, 1999 as
compared to $187,678 for the three months ended September 30, 1998, and
$681,616 for the nine months ended September 30, 1999 as compared to $532,649
for the nine months ended September 30, 1998.
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, 1999, the
provision charged to expense was $25,000 compared to $40,000 charged to expense
for the three months ended September 30, 1998. For the nine months ended
September 30, 1999, the provision charged to expense was $111,750 compared to
$125,000 charged to expense for the nine months ended September 30, 1998. The
loan loss reserve was $409,295 as of September 30, 1999, or 1.49% of gross
loans as compared to $303,248 as of December 31, 1998, or 1.50% of gross loans.
The loan portfolio is periodically reviewed to evaluate the outstanding loans
and to measure both the performance of the 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, 1999 was $65,597
as compared to $49,390 for the three months ended September 30, 1998.
Non-interest income for the nine months ended September 30, 1999 was $246,318
as compared to $126,747 for the nine months ended September 30, 1998. Of the
amount for three months ended September 30, 1999; $9,069 was a result of
deposit account service charges, account maintenance fees; $36,774 was a result
of NSF and overdraft fees; $14,600 was other miscellaneous service charges, and
$5,154 was due to sold loan fees. Of the amount for nine months ended September
30, 1999; $25,435 was a result of deposit account service charges, account
maintenance fees; $101,476 was a result of NSF and overdraft fees; $46,320 was
other miscellaneous service charges, and $73,087 was due to sold loan fees. Of
the sold loan fees, $44,250 was due to the sale of one large commercial loan.
This increase in fees is attributed to overall growth of the deposit portfolio
as well as the Bank now selling mortgage loans on the secondary market.
10
<PAGE> 11
PART I - FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION (CONTINUED)
- -------------------------------------------------------------------------------
Non-Interest Expense
- --------------------
Non-Interest Expense for the three month period ended September 30, 1999 was
$402,967 as compared to $298,193 for the three month period ended September 30,
1998. Salaries and employee benefits comprise $196,526 and $153,403
respectively of this amount. Depreciation of buildings, furniture and equipment
accounted for $45,010 and $23,189 for the three month periods ended September
30, 1999 and September 30, 1998, respectively. The increase in depreciation is
due to the Company's new main office facility, which was occupied in January
1999. Office Supplies accounted for $10,681 and $8,644 for the three month
periods ended September 30, 1999 and September 30, 1998, respectively. Data
Processing accounted for $33,927 and $19,917 for the three month periods ended
September 30, 1999 and September 30, 1998, respectively. The increase in both
office supplies and data processing expenses are attributed to the growth in
the number of Bank customers and customer accounts.
Non-Interest Expense for the nine month period ended September 30, 1999 was
$1,241,942 as compared to $871,479 for the nine month period ended September
30, 1998. Salaries and employee benefits comprise $582,712 and $446,210
respectively of this amount. Depreciation of buildings, furniture and equipment
accounted for $130,922 and $68,300 for the nine month periods ended September
30, 1999 and September 30, 1998, respectively. The increase in depreciation is
due to the Company's new main office facility, which was occupied in January
1999. Office Supplies accounted for $34,265 and $22,436 for the nine month
periods ended September 30, 1999 and September 30, 1998, respectively. Data
Processing accounted for $101,476 and $48,539 for the nine month periods ended
September 30, 1999 and September 30, 1998, respectively. The increase in both
office supplies and data processing expenses are attributed to the growth in
the number of Bank customers and customer accounts. The disposal of asset
expense of $45,894 for the nine month period ended September 30, 1999 is due to
disposal of leasehold improvements at the previous main office location.
ASSETS AND LIABILITIES
During the first nine months of 1999, total assets increased $7,481,467 or 27%
when compared to December 31, 1998. The primary growth in assets was in loans
with an increase of $7,210,638 or 36% since December 31, 1998. Total
liabilities increased $7,392,633 or 33% when compared to December 31, 1998.
Within the deposit area, savings accounts, which include money market accounts,
increased 62%, interest bearing transaction accounts increased 54%,
non-interest bearing transaction accounts increased 55%, and time deposits
increased 23%. However, this tremendous growth rate is a reflection of the fact
that the Bank is relatively young, 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, 1999 and December
31, 1998 are as follows:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Commercial and Industrial $ 5,787,458 $ 5,212,393
Real Estate - Construction 437,235 566,720
Real Estate - Other 15,555,531 9,571,462
Installment and consumer credit lines 5,685,362 4,904,373
----------- -----------
$27,465,586 $20,254,948
=========== ===========
</TABLE>
11
<PAGE> 12
PART I - FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION (CONTINUED)
- -------------------------------------------------------------------------------
Loans(continued)
- ----------------
<TABLE>
<S> <C>
Allowance for loan loss, December 31, 1998 $ 303,248
Provision 111,750
Recoveries 9,671
Charge-offs 15,374
Allowance for loan loss, September 30, 1999 $ 409,295
Gross loans outstanding, December 31, 1998 $ 20,254,948
Gross loans outstanding, September 30, 1999 $ 27,465,586
</TABLE>
<TABLE>
<S> <C>
Allowance for loan losses to loans outstanding, December 31, 1998 1.50%
----
Allowance for loan losses to loans outstanding, September 30, 1999 1.49%
----
</TABLE>
Deposits
- --------
Balances within the major deposit categories as of September 30, 1999 and
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Non-interest bearing demand deposits $ 4,760,813 $ 3,070,299
Interest bearing demand deposits 5,042,306 3,281,387
Savings deposits 5,039,453 3,115,763
Time deposit $100,000 and over 3,511,902 2,988,725
Other Time Deposits 10,822,613 8,639,662
------------ ------------
$ 29,177,087 $ 21,095,836
============ ============
</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 93% at
September 30, 1999 and 92% at December 31, 1998.
12
<PAGE> 13
PART I - FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION (CONTINUED)
- -------------------------------------------------------------------------------
Capital Resources
- -----------------
Total shareholders' equity increased $88,834 to $5,925,407 at September 30,
1999. 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, 1999 (in thousands):
<TABLE>
<S> <C>
Shareholders' equity $ 5,925
Less: intangibles 191
--------
Tier 1 capital $ 5,734
========
Plus: allowance for loan losses(1) 341
--------
Total Capital $ 6,075
========
Risk-Weighted assets $ 27,278
Risk based capital ratios
Tier 1 21.02%
Total capital 22.27%
Leverage ratio 16.49%
</TABLE>
(1)limited to 1.25% of risk-weighted assets
13
<PAGE> 14
PART I - FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION (CONTINUED)
- -------------------------------------------------------------------------------
THE 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 the Company uses. In June 1996, the Federal Financial
Institutions Examination Council alerted the banking industry that serious
challenges could be encountered with Year 2000 issues. In addition, the OCC has
issued guidelines to require compliance with Year 2000 issues. In accordance
with these guidelines, we have developed and are executing a plan to ensure
that our computer and telecommunication systems do not have these Year 2000
problems. We rely on third party vendors to supply our computer and
telecommunication systems and other office equipment, and to process our data
and account information. Our technology and processing vendors work with many
other financial institutions, all of whom, like us, are required by their
regulators to be Year 2000 compliant. Because our systems are substantially
similar to those used in many other banks, we believe that the scrutiny imposed
by our regulators and the banking industry in general have significantly
reduced the Year 2000 related risks we might otherwise have faced. Nonetheless,
there is a risk that the Year 2000 issues could negatively affect our business.
Internal Infrastructure. The Company utilizes an outsourced data processing
system, Fiserv, for most of its accounting functions. Fiserv is a
well-established company and provides computer systems and data processing for
numerous financial institutions. Fiserv has tested its systems with software
and hardware similar to the Company's. The Company has reviewed these test
results and is relying on them as a proxy for a test of its own systems with
Fiserv. Banking regulators have approved this type of testing as a valid means
of testing. Based on this review, the Company does not believe that its data
processing system has any material Year 2000 issues. The Company believes that
it has also 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. The Company has completed
upgrading and testing of its systems and has spent approximately $40,000 to get
all of its systems Year 2000 compliant. The Company does not believe that any
additional 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 the Company'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. The
Company has completed its assessment of the potential effect of, and the costs
of remediating, the Year 2000 Problem on this equipment. The Company 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.
14
<PAGE> 15
PART I - FINANCIAL INFORMATION (CONTINUED)
- ------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION (CONTINUED)
- -------------------------------------------------------------------------------
THE YEAR 2000 (CONTINUED)
Suppliers and Other Third Parties. The Company 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, the Company has limited or no control over the
actions of its suppliers and others. Therefore, while the Company 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 the Company's business, financial condition, or
operating results.
Customers. The Company believes that the largest Year 2000 Problem exposure to
most companies is the preparedness of their customers. The Company is
addressing with its customers the possible consequences of not being prepared
for Year 2000. Should large borrowers not sufficiently address this issue, the
Company may experience an increase in loan defaults. The amount of potential
loss from this issue is not quantifiable. The Company is attempting to reduce
this exposure by educating its customers. The Company has implemented a
comprehensive Year 2000 credit review policy for all existing loans that exceed
$100,000 as well as an underwriting policy for all new loan requests. At
present, the Company's review indicates that the Company's exposure to credit
risks associated with Year 2000 is considered to be low. The Company's credit
review procedures will continue to include these policies throughout 1999.
Most Likely Consequences of Year 2000 Problems. The Company expects to identify
and resolve all Year 2000 Problems that could materially adversely affect its
business, financial condition, or operating results. However, the Company
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, the Company 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, the Company expects that it could possibly suffer the following
consequences:
- A number of operational inconveniences and inefficiencies for
the Company, its service providers, or its customers that may
divert the Company's time and attention and financial and
human resources from its ordinary business activities; and
- System malfunctions that may require significant efforts by
the Company or its service providers or customers to prevent
or alleviate material business disruptions.
Additionally, there may be a higher than usual demand for liquidity immediately
prior to the century change due to deposit withdrawals by customers concerned
about Year 2000 issues. To address this possible demand, the Company has
secured an additional line of credit with the Federal Home Loan Bank. The
Company has also secured an additional line of credit at the Federal Reserve
Discount Window.
Contingency Plans. The Company has developed contingency plans to be
implemented as part of its efforts to identify and correct Year 2000 Problems
affecting its internal systems. The Company's Board of Directors approved the
contingency plans on October 27, 1998. Depending on the systems affected, these
plans include (a) accelerated replacement of affected equipment or software;
(b) short term use of backup equipment and software; (c) increased work hours
for the Company'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 the Company 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.
15
<PAGE> 16
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
Not Applicable
ITEM 2. CHANGES IN SECURITIES
- -----------------------------
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ---------------------------------------
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
Not Applicable
ITEM 5. OTHER INFORMATION
- -------------------------
On November 4, 1999, the U.S. Senate and House of Representatives each passed
the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act is expected to be signed into law by
President Clinton in early November 1999. Among other things, the Act repeals
the restrictions on banks affiliating with securities firms contained in
sections 20 and 32 of the Glass-Steagall Act. The Act also creates a new
"financial holding company" under the Bank Holding Company Act, which will
permit holding companies to engage in a statutorily provided list of financial
activities, including insurance and securities underwriting and agency
activities, merchant banking, and insurance company portfolio investment
activities. The Act also authorizes activities that are "complementary" to
financial activities. The Act is intended to grant to community banks certain
powers as a matter of right that larger institutions have accumulated on an ad
hoc basis. Nevertheless, the Act may have the result of increasing the amount
of competition that the Company faces from larger institutions and other types
of companies. In fact, it is not possible to predict the full effect that the
Act will have on the Company.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
- ---------------------------------------
(a) Exhibits - 27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended September 30, 1999
16
<PAGE> 17
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: November 11, 1999 By: /s/ V. Stephen Moss
--------------------------------------------
V. Stephen Moss
President and Chief Executive Officer
By: /s/ John W. Hobbs
--------------------------------------------
John W. Hobbs
Principal Accounting and Chief Financial Officer
17
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<PERIOD-START> JAN-01-1999
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