<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 June 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 August 1, 1999.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FNB BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
(UNAUDITED) (AUDITED)
------------- -----------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and due from Banks $ 1,319,260 $ 1,017,765
Federal Funds Sold 1,590,000 2,350,000
------------ ------------
2,909,260 3,367,765
Securities:
Securities held to maturity (estimated market 2,199,291 1,799,791
value of $2,176,748 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 26,056,667 20,254,948
Less Allowance for loan loss (386,832) (303,248)
------------ ------------
Loans, net 25,669,835 19,951,700
Premises and equipment 2,177,885 1,803,557
Accrued Interest Receivable 178,257 127,576
Other Assets 385,176 413,590
------------ ------------
Total Assets $ 33,603,404 $ 28,035,079
============ ============
LIABILITIES
Deposits:
Non-interest bearing transaction accounts $ 4,488,212 $ 3,070,299
Interest bearing transaction accounts 4,372,943 3,281,387
Savings 5,673,743 3,115,763
Time deposits $100,000 and over 3,899,216 2,988,725
Other time deposits 8,935,196 8,639,662
------------ ------------
27,369,310 21,095,836
Securities sold under agreements to repurchase 199,726 869,269
Accrued Interest Payable 38,040 47,799
Other Liabilities 135,002 185,602
------------ ------------
Total Liabilities $ 27,742,078 $ 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) (257,155) (281,908)
------------ ------------
Total Stockholders' equity 5,861,326 5,836,573
------------ ------------
Total Liabilities and Stockholders' equity $ 33,603,404 $ 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 JUNE 30
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
INTEREST INCOME
Loans, including fees $575,072 $403,696
Investment securities, taxable 32,472 28,376
Federal funds sold 34,556 58,555
Time Deposits with Other Banks 0 7,233
-------- --------
Total Interest Income 642,100 497,860
-------- --------
INTEREST EXPENSE
Time deposits $100,000 and over 44,517 42,781
Other deposits 178,714 136,899
Securities sold under agreement to repurchase 6,498 5,500
-------- --------
Total Interest Expense 229,729 185,180
-------- --------
NET INTEREST INCOME 412,371 312,680
Provision for loan loss 47,750 45,000
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 364,621 267,680
-------- --------
OTHER INCOME
Service charges on deposit accounts 9,068 5,724
Sold Loan Fees 9,682 7,339
NSF/Overdraft Fees 33,932 20,065
Other service charges, commissions and fees 15,741 8,695
-------- --------
68,423 41,823
-------- --------
OTHER EXPENSE
Salaries and employee benefits 192,675 147,649
Occupancy Expense 33,354 23,660
Furniture and equipment 35,656 26,019
Office Supplies 10,927 7,290
Data Processing 34,006 16,637
Other operating expense 89,788 68,355
-------- --------
396,406 289,610
-------- --------
INCOME (LOSS) BEFORE TAXES 36,638 19,893
INCOME TAX EXPENSE (BENEFIT) 12,650 0
-------- --------
NET INCOME (LOSS) $ 23,988 $ 19,893
======== ========
PER SHARE
Average shares outstanding 616,338 616,338
Net income (loss) $ .04 $ .03
</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 SIX MONTHS ENDED JUNE 30
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
INTEREST INCOME
Loans, including fees $1,089,840 $756,664
Investment securities, taxable 63,980 53,088
Federal funds sold 61,148 108,798
Time Deposits with Other Banks 0 14,612
---------- --------
Total Interest Income 1,214,968 933,162
---------- --------
INTEREST EXPENSE
Time deposits $100,000 and over 84,144 81,262
Other deposits 337,319 251,750
Securities sold under agreement to repurchase 11,028 11,957
---------- --------
Total Interest Expense 432,491 344,969
---------- --------
NET INTEREST INCOME 782,477 588,193
Provision for loan loss 86,750 85,000
---------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 695,727 503,193
---------- --------
OTHER INCOME
Service charges on deposit accounts 16,365 10,750
Sold Loan Fees 67,933 10,741
NSF/Overdraft Fees 63,134 33,653
Other service charges, commissions and fees 33,288 22,211
---------- --------
180,720 77,355
---------- --------
OTHER EXPENSE
Salaries and employee benefits 386,186 292,808
Occupancy Expense 65,190 49,433
Furniture and equipment 71,187 50,869
Disposal of assets 45,894 0
Office Supplies 23,587 13,790
Data Processing 67,552 28,621
Other operating expense 179,378 137,765
---------- --------
838,974 573,286
---------- --------
INCOME (LOSS) BEFORE TAXES 37,473 7,262
INCOME TAX EXPENSE (BENEFIT) 12,720 0
---------- --------
NET INCOME (LOSS) $ 24,753 $ 7,262
========== ========
PER SHARE
Average shares outstanding 616,338 616,338
Net income (loss) $ .04 $ .01
</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 JUNE 30
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
NET INCOME (LOSS) $23,988 $19,893
Other comprehensive income,
net of tax 0 0
Total other comprehensive income 0 0
Comprehensive income (loss) $23,988 $19,893
======= =======
</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 SIX MONTHS ENDED JUNE 30
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
NET INCOME (LOSS) $24,753 $7,262
Other comprehensive income,
net of tax 0 0
Total other comprehensive income 0 0
Comprehensive income (loss) $24,753 $7,262
======= ======
</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 JUNE 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 24,753 24,753
------- ------ ---------- --------- ----------
BALANCE, JUNE 30, 1999 616,338 $6,163 $6,112,318 $(257,155) $5,861,326
======= ====== ========== ========= ==========
</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 JUNE 30
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 24,753 $ 7,262
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Provision for loan losses 86,750 85,000
Depreciation 85,912 45,111
Accretion and premium amortization 502 223
Increase in interest receivable (50,681) (13,825)
Increase (decrease) in interest payable (9,759) (30,402)
(Increase) decrease in other assets 28,414 11,266
Increase (decrease) in other liabilities (50,600) (59,384)
----------- -----------
Net cash used by operating activities 115,291 45,251
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase securities held to maturity (1,562,602) (799,500)
Maturity of securities held to maturity 1,150,000 750,000
Purchase Time Deposits 0 (500,000)
Maturity of Time Deposits 500,000 600,000
Net increase in loans made to customers (5,804,885) (3,220,804)
Net increase in premises and equipment (460,240) (42,459)
----------- -----------
Net cash used by investing activities (6,177,727) (3,212,763)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, interest bearing
transaction accounts and savings accounts 5,067,449 1,755,309
Net increase in time deposits 1,206,025 3,597,396
Net increase(decrease) in Repurchase Agreements (669,543) 110,904
----------- -----------
Net cash provided by financing activities 5,603,931 5,463,609
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (458,505) 2,296,097
----------- -----------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,367,765 2,437,433
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,909,260 $ 4,733,530
=========== ===========
</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 June
30, 1999 compared to December 31, 1998, and the results of operations for the
three months ended June 30, 1999 compared to the three months ended June 30,
1998, as well as the six months ended June 30, 1999 compared to the six months
ended June 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 June 30, 1999 was $412,371
compared to $312,680 for the three month period ended June 30, 1998. Net
interest income for the six month period ended June 30, 1999 was $782,477
compared to $588,193 for the six month period ended June 30, 1998. The interest
rate spread was 4.30% at June 30, 1999 and 3.93% at June 30, 1998. The increased
income is primarily attributed to growth in the loan portfolio, as the amount of
total loans increased to $25.7 million at June 30, 1999 as compared to $17.4
million at June 30, 1998. The largest component of interest income was interest
on loans, which increased to $575,072 for the three months ended June 30, 1999
as compared to $403,696 for the three months ended June 30, 1998, and $1,089,840
for the six months ended June 30, 1999 as compared to $756,664 for the six
months ended June 30, 1998. These increases were primarily attributable to
growth in the Bank's loan portfolio. Interest on investment securities increased
to $32,472 for the three months ended June 30, 1999 as compared to $28,376 for
the three months ended June 30, 1998, and $63,980 for the six months ended June
30, 1999 as compared to $53,088 for the six months ended June 30, 1998. This
increase is due primarily to growth in the investment portfolio from $1,550,608
at June 30, 1998 to $2,199,291 at June 30, 1999. The increases in interest
income were partially offset by increases in interest expense to $229,729 for
the three months ended June 30, 1999 as compared to $185,180 for the three
months ended June 30, 1998, and $432,491 for the six months ended June 30, 1999
as compared to $344,969 for the six months ended June 30, 1998.
Provision and Allowance for Loan Losses
The provision for loan losses is the charge to operating earnings that
management believes is necessary to maintain the allowance for possible loan
losses at an adequate level. For the three months ended June 30, 1999, the
provision charged to expense was $47,750 compared to $45,000 charged to expense
for the three months ended June 30, 1998. For the six months ended June 30,
1999, the provision charged to expense was $86,750 compared to $85,000 charged
to expense for the six months ended June 30, 1998. The loan loss reserve was
$386,832 as of June 30, 1999, or 1.48% 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 June 30, 1999 was $68,423 as
compared to $41,823 for the three months ended June 30, 1998. Non-interest
income for the six months ended June 30, 1999 was $180,720 as compared to
$77,355 for the six months ended June 30, 1998. Of the amount for three months
ended June 30, 1999 $9,068 was a result of deposit account service charges,
account maintenance fees; $33,932 was a result of NSF and overdraft fees;
$15,741 was other miscellaneous service charges; and $9,682 was due to sold loan
fees. Of the amount for six months ended June 30, 1999 $16,365 was a result of
deposit account service charges, account maintenance fees; $63,134 was a result
of NSF and overdraft fees; $33,288 was other miscellaneous service charges; and
$67,933 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 June 30, 1999 was $396,406
as compared to $289,610 for the three month period ended June 30, 1998. Salaries
and employee benefits comprise $192,675 and $147,649 respectively of this
amount. Depreciation of buildings, furniture and equipment accounted for $44,235
and $22,791 for the three month periods ended June 30, 1999 and June 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 $10,927 and $7,290 for the three month periods ended June 30, 1999 and June
30, 1998, respectively. Data Processing accounted for $34,006 and $16,637 for
the three month periods ended June 30, 1999 and June 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 six month period ended June 30, 1999 was $838,974
as compared to $573,286 for the six month period ended June 30, 1998. Salaries
and employee benefits comprise $386,186 and $292,808 respectively of this
amount. Depreciation of buildings, furniture and equipment accounted for $85,912
and $45,111 for the six month periods ended June 30, 1999 and June 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 $23,587 and $13,790 for the six month periods ended June 30, 1999 and June
30, 1998, respectively. Data Processing accounted for $67,552 and $28,621 for
the six month periods ended June 30, 1999 and June 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 six month period ended June 30, 1999 is due
to disposal of leasehold improvements at the previous main office location.
ASSETS AND LIABILITIES
During the first six months of 1999, total assets increased $5,568,325, or 20%,
when compared to December 31, 1998. The primary growth in assets was in loans
with an increase of $5,801,719, or 29%, since December 31, 1998. Total
liabilities increased $5,543,572, or 25%, when compared to December 31, 1998.
Within the deposit area, savings accounts, which include money market accounts,
increased 82%, interest bearing transaction accounts increased 33%, non-interest
bearing transaction accounts increased 46%, and time deposits increased 10%.
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.
11
<PAGE> 12
PART I - FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION (CONTINUED)
Loans
Balances within the major loan categories as of June 30, 1999 and December 31,
1998 are as follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Commercial and Industrial $ 5,204,628 $ 5,212,393
Real Estate - Construction 50,102 566,720
Real Estate - Other 14,662,512 9,571,462
Installment and consumer credit lines 6,139,425 4,904,373
----------- -----------
$26,056,667 $20,254,948
=========== ===========
Allowance for loan loss, December 31, 1998 $ 303,248
Provision 86,750
Recoveries 9,138
Charge-offs 12,304
Allowance for loan loss, June 30, 1999 $ 386,832
Gross loans outstanding, December 31, 1998 $20,254,948
Gross loans outstanding, June 30, 1999 $26,056,667
Allowance for loan losses to loans outstanding, December 31, 1998 1.50 %
-----------
Allowance for loan losses to loans outstanding, June 30, 1999 1.48 %
-----------
</TABLE>
Deposits
Balances within the major deposit categories as of June 30, 1999 and December
31, 1998 are as follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Non-interest bearing demand deposits $ 4,488,212 $ 3,070,299
Interest bearing demand deposits 4,372,943 3,281,387
Savings deposits 5,673,743 3,115,763
Time deposit $100,000 and over 3,899,216 2,988,725
Other Time Deposits 8,935,196 8,639,662
----------- -----------
$27,369,310 $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 95% at June 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 $24,753 to $5,861,326 at June 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 June 30, 1999
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Shareholders' equity $ 5,861
Less: intangibles 188
-------
Tier 1 capital $ 5,673
=======
Plus: allowance for loan losses (1) 325
-------
Total Capital $ 5,998
=======
Risk-Weighted assets $25,964
Risk based capital ratios
Tier 1 21.85%
Total capital 23.10%
Leverage ratio 17.22%
</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 bank
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 regulatory 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.
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 systems, 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 financial institutions is the preparedness of their customers. The Company
is addressing with its customers the possible consequences of
14
<PAGE> 15
PART I - FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION (CONTINUED)
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 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 is also
taking the appropriate measures to secure additional lines 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
The following issue was voted upon at the Annual Meeting of Shareholders held on
April 27, 1999.
1. The Company's Bylaws provides that the Board of Directors shall be
divided into three classes with each class to be as nearly equal in
number as possible. The Bylaws also provide that the three classes of
directors are to have staggered terms, so that the terms of only
approximately one-third of the Board members will expire at each annual
meeting of shareholders. The current Class I directors are Barry L.
Hamrick and Harold D. Pennington Jr. The current Class II directors are
Richard D. Gardner, Harold D. Pennington, Sr., and Heyward W. Porter.
The current Class III directors are Haskell D. Mallory, Bill H. Mason,
and V. Stephen Moss. The current terms of the Class I directors expired
at this year's annual meeting held April 27, 1999 therefore leaving the
Class I directors up for reelection. There were 344,565 votes for the
reelection of Barry L. Hamrick, 0 votes withheld, and no votes against
Mr. Hamrick's reelection. There were 344,565 votes for the reelection
of Harold D. Pennington, Jr., 0 votes withheld, and no votes against
Mr. Pennington, Jr.'s reelection. The terms of the Class II directors
will expire at the 2000 Annual Shareholders Meeting, and the terms of
the Class III directors will expire at the 2001 Annual Shareholders
Meeting.
ITEM 5. OTHER INFORMATION
Not Applicable
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 June 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: August 1, 1999 By: /s/ V. Stephen Moss
-------------------------------------------------
V. Stephen Moss
President and Chief Executive Officer
By: /s/ John F. Hobbs
-------------------------------------------------
John F. Hobbs
Principal Accounting and Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,319,260
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,590,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 2,199,291
<INVESTMENTS-MARKET> 2,176,748
<LOANS> 26,056,667
<ALLOWANCE> 386,832
<TOTAL-ASSETS> 33,603,404
<DEPOSITS> 27,369,310
<SHORT-TERM> 199,726
<LIABILITIES-OTHER> 173,042
<LONG-TERM> 0
0
0
<COMMON> 6,163
<OTHER-SE> 5,855,163
<TOTAL-LIABILITIES-AND-EQUITY> 33,603,404
<INTEREST-LOAN> 1,089,840
<INTEREST-INVEST> 125,128
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,214,968
<INTEREST-DEPOSIT> 421,463
<INTEREST-EXPENSE> 432,491
<INTEREST-INCOME-NET> 782,477
<LOAN-LOSSES> 86,750
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 838,974
<INCOME-PRETAX> 37,473
<INCOME-PRE-EXTRAORDINARY> 37,473
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,753
<EPS-BASIC> .04
<EPS-DILUTED> .04
<YIELD-ACTUAL> 8.42
<LOANS-NON> 16,822
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 303,248
<CHARGE-OFFS> 12,304
<RECOVERIES> 9,138
<ALLOWANCE-CLOSE> 386,832
<ALLOWANCE-DOMESTIC> 386,832
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
