FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Quarterly report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For Quarter Ended: September 30, 1995
Commission File Number: 0-13086
FNB FINANCIAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 56-1382275
(State or other jurisdiction (I.R.S. Employer
incorporation of organization) Identification No.)
202 S. Main St., Reidsville, N. C. 27320
(Address of principal executive offices) (Zip Code)
910-342-3346
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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
1,098,320 common shares were outstanding as of September 30, 1995,
with a par value of $1.00.
<PAGE>
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION:
Page
Number
Item 1. Financial Statements
Consolidated Balance Sheet 1
September 30, 1995, and December
31, 1994
Consolidated Statement of Income 2
Nine months ended September 30,
1995, and 1994
Consolidated Statement of changes in 3
Shareholder's Equity September 30,
1995, and December 31, 1994
Regulatory Capital Ratio Requirements 3a
Consolidated Statement of Cash Flows 4 - 4a
Nine months ended September 30,
1995, and 1994
Notes to Consolidated Financial Statements 5 - 9
Item 2. Management's Discussion and Analysis of 10 - 11
Financial Condition and Results of Operations
PART II. OTHER INFORMATION:
Item 3. Exhibits and Reports on Form 8-K 12
<PAGE>
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheet
(In Thousands)
<TABLE>
<S> <C> <C>
September 30, December 31,
1995 1994
Assets:
Cash and non-interest
bearing deposits $ 4,363 $ 6,352
Federal funds sold 485 -
Total cash and cash
equivalents 4,848 6,352
Securities available for sale 54,715 76,506
Other equity securities 756 1,110
Loans 103,030 79,787
Less unearned income - < 2>
Less allowance for credit
losses < 1,121> < 1,052>
Net loans 101,909 78,735
Property and equipment, net 3,458 3,477
Accrued income and other assets 1,835 3,051
Total Assets $167,521 $169,231
LIABILITIES AND SHAREHOLDER'S
EQUITY
Deposits
Non Interest Bearing $ 19,398 $ 15,624
Interest Bearing
Savings Accounts 15,819 16,332
NOW Accounts 16,539 17,017
Money Market Investment 11,911 11,706
Other time deposits 84,140 87,418
Total deposits 147,807 132,473
Federal funds purchased and
securities sold under
repurchase agreements 182 1,130
Long term debt - 20,000
Accrued expenses and other
liabilities 1,094 707
Total Liabilities $149,083 $154,310
SHAREHOLDERS EQUITY:
Common stock, $1.00 par value;
authorized 3,000,000 shares,
1,098,320 shares issued in
1995; 1,097,320 shares
issued in 1994 1,098 1,097
Paid-In Capital 2,577 2,562
Net unrealized holding
gain/<loss> on available for
sale securities 279 < 2,142>
Retained Earnings 14,484 13,404
Total Shareholder's Equity 18,438 14,921
Total Liabilities and
Shareholder's Equity $167,521 $169,231
</TABLE>
1
<PAGE>
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Income
(In thousands, except per share data)
<TABLE>
<S> <C> <C> <C> <C>
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
INTEREST INCOME
Interest and fees
on loans $2,379 $1,858 $6,499 $5,452
Interest on federal
funds sold 85 30 152 44
Interest and dividends
on investments:
U.S. Treasury
securities 12 52 49 170
Federal Agency
Securities 616 601 2,487 1,805
State, County, and
Municipal Secur. 205 192 648 641
Other Securities 13 9 53 28
Total Interest Income $3,310 $2,743 $9,888 $8,139
INTEREST EXPENSE
Interest on savings
deposits $ 89 $ 94 $ 268 $ 296
Interest on other time
deposits 1,320 987 3,745 2,829
Interest on federal
funds purchased,
borrowed funds, and
secur. sold under
repurchase agreements 4 9 598 26
Total Interest Expense $1,413 $1,090 $4,611 $3,151
NET INTEREST INCOME $1,897 $1,653 $5,278 $4,988
Provision for possible
loan losses 48 45 128 90
Net Interest Income after
possible loan loss
provision $1,849 $1,608 $5,150 $4,898
NON INTEREST INCOME
Deposit Service Charges $ 173 $ 160 $ 510 $ 488
Insurance Commissions 17 22 50 71
Net Securities Gains 13 - 74 46
Net Gain/<Loss> on sale
of assets < 2> < 11> < 24> < 36>
Unrealized Gain/<Loss>
on mortgages 20 < 39> 189 < 189>
Other Operating Income 23 25 $ 77 $ 80
Total Non Interest
Income $ 244 $ 157 $ 876 $ 460
NON INTEREST EXPENSE
Salaries and employee
benefits $ 786 $ 629 $2,177 $2,083
Net occupancy expense 75 80 222 251
Furniture and equipment
expense 100 107 322 325
Insurance, including
FDIC assessment - 84 167 253
Marketing 12 44 84 113
Printing and supplies 40 48 125 133
Terminated buyout of
Mutual Savings Bank - 202 - 202
Other operating Expense 184 150 629 521
Total Non Interest
Expense $1,197 $1,344 $3,726 $3,881
INCOME BEFORE INCOME
TAXES $ 896 $ 421 $2,299 $1,477
Applicable Income Taxes < 280> < 106> < 680> < 367>
NET INCOME $ 616 $ 315 $1,619 $1,110
PER SHARE DATA
Net Income .56 .29 1.47 1.01
Cash Dividends .17 .15 .49 .45
Weighted average shares
outstanding 1,098,320 1,093,986 1,098,209 1,095,431
</TABLE>
2
<PAGE>
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Consolidated Statements of Changes in Shareholder's Equity
<TABLE>
<S> <C> <C>
Nine Months Ended Twelve Months Ended
September 30, December 31,
1995 1994
Common Stock
Balances at
beginning of years $ 1,097,320 $ 1,098,986
Treasury stock
cancelled < 5,000>
Exercise stock options 3,189
Sale of common stock 1,000 145
Balances at end
of years $ 1,098,320 $ 1,097,320
Paid-In Capital
Balances at beginning
of years $ 2,561,753 $ 2,514,425
Exercise stock options 44,646
Proceeds from sale of
treasury stock in
excess of cost 15,500 2,682
Balances at end
of years $ 2,577,253 $ 2,561,753
Retained Earnings
Balances at beginning
of years $ 13,403,167 $ 12,539,348
Net income for years 1,618,839 1,591,791
Cash dividend paid < 538,177> < 657,470>
Treasury stock
cancelled < 70,502>
Balances at end
of years $ 14,483,829 $ 13,403,167
Net unrealized holding
gains <losses> on
available-for-sale
securities $ 278,823 $< 2,142,087>
Treasury Stock
Balances at beginning
of years - -
Cost of 5,000 shares
of common stock
acquired for treasury - < 75,502>
Treasury stock sold
or cancelled - 75,502
Balances at end
of years - -
Total shareholder's
equity $ 18,438,225 $ 14,920,153
</TABLE>
3
<PAGE>
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Regulatory Capital Ratio Requirements
Nine Months Ended
Minimum September 30, 1995
Standard Current Ratio
Capital Adequacy-Risk Based
Tier I 4.0 % 16.5 %
Total Capital 8.0 % 17.5 %
Leverage Ratio
Tier I 3.0 % 10.8 %
3A
<PAGE>
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Cash Flows
(In Thousands)
<TABLE>
<S> <C> <C>
Nine Months Ended
September 30,
1995 1994
Increase (Decrease) in Cash and
Cash Equivalents
Cash flows from operating activities:
Interest received $ 9,960 $ 7,944
Fees and Commission received 799 747
Interest paid < 4,696> < 3,105>
Non Interest expense paid < 3,314> < 3,799>
Income taxes paid < 753> < 286>
Net cash provided by operating activities $ 1,996 $ 1,501
Cash flows from investing activities:
Proceeds from sale of securities 37,731 6,452
Proceeds from maturities of securities 5,913 8,913
Purchase in investment securities <17,714> <25,932>
Capital expenditures < 244> < 239>
(Incr)/decr in other real estate owned 74 35
Net <increase>/decr in loans to customes <25,278> 937
Proceeds from sale of mortgage loans 2,153 701
Net cash used in investing activities 2,635 < 9,133>
Cash flows from financing activities:
<Decrease>/Increase in demand, savings,
and interest checking accounts 2,987 810
Increase/(Decrease) in CD's and other
time deposits 12,347 < 417>
Dividends Paid < 538> < 493>
Proceeds from issuance of common stock 17 -
Purchase of common stock - < 76>
Decrease in long term debt <20,000> -
Increase/(Decrease) in repurchase
agreements and funds borrowed < 948> 7,734
Net cash provided by financing activities < 6,135> 7,558
Net increase (decrease) in cash
equivalents < 1,504> < 74>
Cash and cash equivalents on January 1 6,352 5,168
Cash and cash equivalents on September 30 $ 4,848 $ 5,094
Schedule on noncash investing and financing
activities NONE NONE
</TABLE>
4
<PAGE>
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Cash Flows
(In Thousands)
<TABLE>
<S> <C> <C>
Nine Months Ended
September 30,
1995 1994
Reconciliation of net income to net
cash provided by operating activities:
Net Income $ 1,619 $ 1,110
Adjustments to reconcile net income
to cash:
Provision for loan losses 128 90
(Gain)/Loss on sale of securities < 74> < 46>
(Gain)/Loss on sale of assets 24 233
Increase/(Decrease) in taxes payable < 72> 79
Increase/(Decrease) in interest payable < 85> 46
(Increase)/Decrease in interest
receivable < 268> < 211>
Increase/(Decrease) in accrued expenses 219 < 112>
Increase in prepaid income 7 7
(Increase)/Decrease in prepaid expenses < 70> < 63>
(Increase)/Decrease in accrued income < 19> 3
Increase/(Decrease) in miscellaneous
liabilities 100 < 273>
Accretion and amortization 284 363
Depreciation 263 257
(Increase)/Decrease in miscellaneous
assets 129 26
(Gain)/Loss on mortgages sold < 189> < 8>
Net cash provided by operations $ 1,996 $ 1,501
</TABLE>
4A
<PAGE>
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three
month period ended are not necessarily indicative of the results
that may be expected for the year ended December 31, 1995.
5
<PAGE>
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Notes to Consolidated Balance Sheet
<TABLE>
<S> <C> <C> <C> <C>
(In Thousands) (In Thousands)
Nine Months Ended Twelve Months Ended
September 30, 1995 December 31, 1994
Amortized Market Book Market
Cost Value Value Value
2. Investment
Securities*
A) Securities
available
for sale
U.S. Treasury
Securities $ 998 $ 985 $ 4,037 $ 3,905
Obligations of
other U.S.
Government
agencies and
corporations 40,339 40,016 63,552 59,964
Obligations of
states and
political
sub-divisions 12,920 13,713 12,428 12,637
Total Available
for Sale $54,257 $54,714 $80,017 $76,506
C) Other Equity
Securities $ 756 $ 756 $ 1,110 $ 1,110
</TABLE>
6
<PAGE>
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Notes to Consolidated Balance Sheet
<TABLE>
<S> <C> <C>
(In Thousands)
Nine Months Ended Twelve Months Ended
September 30, 1995 December 31, 1994
3. Loans:
Home Equity $ 9,620 $ 9,708
Commercial/
Agricultural 14,952 9,067
Credit Line 409 410
Consumer
Installment 7 23
Simple Interest 14,843 12,242
Mortgage Loans 63,096 48,329
Overdrafts 103 8
Total Loans (*) $103,030 $ 79,787
</TABLE>
(*) The bank has no foreign loan activity.
7
<PAGE>
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
4. Analysis of the Allowance for Loan Losses
(In Thousands)
<TABLE>
<S> <C> <C>
Nine Months Ended
September 30,
1995 1994
Balance at beginning of period 1,052 1,174
Charge-offs:
Commercial, Financial and Agricultural - -
Real Estate-Construction - -
Real Estate-Mortgage - -
Consumer 111 255
111 255
Recoveries:
Commercial, Financial and Agricultural 2 50
Real Estate-Construction - -
Real Estate-Mortgage - -
Consumer 50 45
52 95
Net Charge-Offs 59 160
Additions Charged to Operations 128 90
Balance at End of Period 1,121 1,104
Ratio of net charge-offs during the
period to average loans outstanding
during the period .09 .27
Ratio of allowance for loan losses to
month end loans 1.09 1.37
</TABLE>
8
<PAGE>
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
5. Allocation of the Allowance for Loan Losses
(In Thousands)
<TABLE>
<S> <C> <C> <C> <C>
Nine Months Ended
September 30,
1995 1994
Percent of Percent of
Loans in Loans in
Each Category Each Category
Amt. to Total Loans Amt. to Total Loans
Balance at end
of period
applicable to:
Commercial 502 15% 584 11%
Real Estate-
Construction 7 2% - 0%
Real Estate-
Mortgage 123 59% 49 61%
Consumer 325 24% 230 28%
Unallocated 142 0% 114 0%
Total balance
sheet
allocation 1,099 100% 977 100%
Off balance
sheet
commitments 22 - 127 -
Total
Allocation 1,121 100% 1,104 100%
</TABLE>
6. Non-performing assets:
(In Thousands)
Nine Months Ended Twelve Months Ended
September 30, December 31,
1995 1994
Nonaccrual (1) $ 221 $ 154
Past due 90 days
or more 0 3
Other real estate 117 191
Renegotiated troubled debt --- ---
(1) Other than amounts listed above, there were no other loans
which (a)represent or result from trends or uncertainties which
management reasonably expects will materially impact future
operating results, liquidity, or capital resources, or
(b) represent material credits about which management is aware of
any information which causes management to have serious doubts as
to the ability of such borrowers to comply with the loan repayment
terms.
9
<PAGE>
PART 1 - ITEM 2
Management's Analysis of Financial Condition
and Results of Operation
Summary
Net income for the quarter ended September 30, 1995 was 95.7% more
than the same quarter last year, while earnings for the nine months
to date were 45.9% higher than 1994. The annualized return on
average assets was 1.27% in 1995, compared with .98% last year.
The earnings improvement this year was principally caused by a much
higher level of non interest income and secondarily by a lower
level of non interest expense. Additionally, net interest income
is beginning to show accelerated growth, because of substantial
increases in loans outstanding.
Interest Income and Interest Expense
Total third quarter interest income on a fully tax equivalent basis
increased 20.2%, on a 10.0% increase in average earning assets.
The third quarter earning asset yield of 8.65% was 73 basis points
more than 1994. Loan yields were 40 basis points higher, mainly
because of several increases in the prime rate from 7 1/4% on July
1, 1994, to 9% one year later. Bond portfolio yields were up 83
basis points, as Agency yields improved 80 basis points due to
higher rates and less prepayments on mortgage backed bonds. Fed
funds sold yields were 139 basis points more, as a series of
Federal Reserve tightenings raised interest rates. The change in
mix also affected overall yields as average loans equaled 63% of
total earning assets this quarter, compared with 56% in 1994. For
the full nine months this year, tax equivalent interest income was
up 20.7%, on a 13.3% increase in average earning assets.
Total interest expense in the third quarter this year was 29.6%
more than the comparable quarter in 1994, with average interest
bearing liabilities increasing 7.9%. The average cost of funds
increased 60 basis points, as deposit rates were generally higher.
We also experienced significant growth in higher-yielding
certificates of deposit and IRA's, while lower yielding regular
savings, NOW accounts and money market investment balances all
declined in 1995. For the nine months this year, interest expense
increased 46.3%, on a 14.9% increase in average interest bearing
liabilities. Comparable net interest margins were as follows:
10
<PAGE>
Third quarter, 1995 8.65% - 3.82% = 4.83%
Third quarter, 1994 7.92% - 3.22% = 4.70%
Year to date, 1995 8.35% - 4.00% = 4.35%
Year to date, 1994 7.95% - 3.14% = 4.81%
During the first half this year, and affecting 1995 year to date
performance, margins were detrimentally affected by a capital
leveraging plan which involved a borrowing and re-investment of $20
million. Although the leveraging was marginally profitable,
margins were reduced.
Non Interest Income and Expense
Non interest income in the third quarter this year was up $87,300
(55.7%) over the comparable quarter in 1994, with higher deposit
service charges (8.4%) and net securities gains, as well as $20,000
in gains on mortgage sales compared with a loss of $41,000 last
year. For the nine month period, income was $416,000 more (90.4%),
principally because of $189,000 in mortgage gains this year, versus
losses of $180,000 in 1994.
Non interest expenses in the third quarter were 10.9% lower in
1995, including $200,000 less in connection with a failed thrift
merger and $83,000 less in FDIC insurance. Year to date expenses
declined $154,900 (4.0%), as a $93,900 increase in personnel
expense (4.5%) offset a portion of the expense savings already
mentioned.
The loan loss provision was 42.2% higher, even with the much lower
net chargeoff level, because of the greatly elevated loans
outstanding.
11
<PAGE>
FNB FINANCIAL SERVICES CORPORATIONS
AND SUBSIDIARY
Item 3. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
NONE
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
FNB FINANCIAL SERVICES CORPORATION
(Registrant)
Date: 11-14-95 /s/Ernest J. Sewell
Ernest J. Sewell
President & Chief Executive Officer
Date: 11-14-95 /s/Robert F. Albright
Robert F. Albright
(Senior Vice President)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 4,363
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 485
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,715
<INVESTMENTS-CARRYING> 756
<INVESTMENTS-MARKET> 0
<LOANS> 103,030
<ALLOWANCE> (1,121)
<TOTAL-ASSETS> 167,521
<DEPOSITS> 147,807
<SHORT-TERM> 182
<LIABILITIES-OTHER> 1,094
<LONG-TERM> 0
<COMMON> 1,098
0
0
<OTHER-SE> 17,340
<TOTAL-LIABILITIES-AND-EQUITY> 167,521
<INTEREST-LOAN> 2,379
<INTEREST-INVEST> 846
<INTEREST-OTHER> 85
<INTEREST-TOTAL> 3,310
<INTEREST-DEPOSIT> 1,409
<INTEREST-EXPENSE> 1,413
<INTEREST-INCOME-NET> 1,897
<LOAN-LOSSES> 48
<SECURITIES-GAINS> 13
<EXPENSE-OTHER> 1,197
<INCOME-PRETAX> 896
<INCOME-PRE-EXTRAORDINARY> 616
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 616
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
<YIELD-ACTUAL> 8.65
<LOANS-NON> 221
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,052
<CHARGE-OFFS> 111
<RECOVERIES> 52
<ALLOWANCE-CLOSE> 1,121
<ALLOWANCE-DOMESTIC> 1,121
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 142
</TABLE>
