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<PAGE> 1
FORM 10-Q SB
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, 1996
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 Number)
202 South Main Street, 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
------------ ------------
1,381,576 common shares were outstanding as of September 30, 1996, with a par
value of $1.00.
<PAGE> 2
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NUMBER
<S> <C>
Item 1 Financial Statements
Consolidated Balance Sheet
September 30, 1996 and December 31, 1995 1
Consolidated Statement of Income
Nine months ended September 30, 1996 and 1995 2
Consolidated Statement of Changes in Shareholders Equity
September 30, 1996 and December 31, 1995 3
Regulatory Capital Ratio Requirements 4
Consolidated Statement of Cash Flows
Nine months ended September 30, 1996 and 1995 5 - 6
Notes to Consolidated Financial Statements 7 - 12
Item 2 Management's Discussion and Analysis of Financial Condition 13 - 14
and Results of Operations
PART II OTHER INFORMATION
Item 3 Exhibits and Reports on Form 8-K 15
</TABLE>
<PAGE> 3
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and due from banks 6,061 4,647
Federal funds sold 1,260 0
---------------- ----------------
Total cash and cash equivalents 7,321 4,647
Securities available for sale 47,730 56,436
Other equity securities 647 1,059
Loans 134,272 111,708
Less: Unearned income 0 0
Less: Allowance for loan losses (1,543) (1,258)
---------------- ----------------
Net Loans 132,729 110,450
Property and equipment, net 4,364 3,434
Intangible assets 789 0
Accrued income and other assets 2,669 1,871
---------------- ----------------
Total Assets 196,249 177,897
================= ================
Liabilities and Shareholders Equity
Deposits
Noninterest bearing 23,722 19,329
Interest bearing:
Savings accounts 18,114 15,413
NOW accounts 18,083 16,634
MMI accounts 14,558 12,355
Other time accounts 100,256 90,669
---------------- ----------------
Total deposits 174,733 154,400
Federal funds purchased and securities
sold under repurchase agreements 386 3,152
Accrued expenses and other liabilities 1,299 1,363
---------------- ----------------
Total Liabilities 176,418 158,915
Shareholders Equity
Common stock, $1.00 par; authorized
3,000,000 shares; 1,381,576 shares
issued in 1996; 1,372,900 shares
issued in 1995 1,380 1,098
Paid in Capital 2,666 2,580
Net unrealized gain/(loss) on securities
available for sale 51 467
Retained earnings 15,734 14,837
---------------- ----------------
Total Shareholders Equity 19,831 18,982
Total liabilities and
shareholders equity 196,249 177,897
================ ================
</TABLE>
1
<PAGE> 4
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Consolidated Income Statement
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
INTEREST INCOME 1996 1995 1996 1995
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Interest and fees on loans 3,112 2,379 8,854 6,499
Interest on federal funds sold 34 85 51 152
Interest and dividends on investments:
U.S. Treasury securities 243 12 602 49
Federal Agency securities 354 616 1,289 2,487
State, County and Municipal securities 161 205 524 648
Other securities 11 13 41 53
-------------- ------------- -------------- --------------
Total Interest Income 3,915 3,310 11,361 9,888
INTEREST EXPENSE
Interest on savings deposits 100 89 288 268
Interest on other time deposits 1,524 1,320 4,449 3,745
Interest on federal funds purchased,
borrowed funds, and securities sold
under agreement to repurchase 116 4 251 598
-------------- ------------- -------------- --------------
Total Interest Expense 1,740 1,413 4,988 4,611
Net Interest Income 2,175 1,897 6,373 5,277
Provision for loan losses 101 48 302 128
-------------- ------------- -------------- --------------
Net interest income after loan
loss provision 2,074 1,849 6,071 5,149
NONINTEREST INCOME
Deposit service charge 187 173 555 510
Insurance commissions 18 17 54 50
Net securities gains/(losses) 54 13 112 74
Net gain/(loss) on sale of assets 0 (2) (38) (24)
Unrealized gain/(loss) on mortgages (1) 20 14 189
Other operating income 22 23 71 77
-------------- ------------- -------------- --------------
Total operating income 280 244 768 876
NONINTEREST EXPENSE
Salaries and employee benefits 872 786 2,570 2,177
Net occupancy expense 84 75 244 222
Furniture and equipment expense 117 100 343 322
Insurance, including FDIC assessment 9 0 26 167
Marketing 19 12 68 84
Printing and supplies 47 40 138 125
Other operating expense 239 184 848 629
-------------- ------------- -------------- --------------
Total noninterest expense 1,387 1,197 4,237 3,726
Income Before Income Taxes 967 896 2,602 2,299
Applicable income taxes 310 280 798 680
-------------- ------------- -------------- --------------
NET INCOME 657 616 1,804 1,619
============== ============= ============== ==============
PER SHARE DATA
Net income $ 0.48 $ 0.45 $ 1.31 $ 1.18
Cash dividends $ 0.16 $ 0.14 $ 0.45 $ 0.39
Weighted average shares outstanding 1,381,576 1,372,900 1,379,131 1,372,761
</TABLE>
2
<PAGE> 5
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Changes
in Shareholders Equity
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Common Stock
Balance at beginning of year 1,098 1,097
Stock dividend 275 0
Exercise of stock options 7 0
Employee stock awards 0 1
------ ------
Balance at end of year 1,380 1,098
Paid in Capital
Balance at beginning of year 2,580 2,562
Exercise of stock options 83 0
Employee stock awards 3 18
------ ------
Balance at end of year 2,666 2,580
Retained Earnings
Balance at beginning of year 14,837 13,403
Net income for years 1,804 2,170
Cash dividends (626) (736)
Stock dividend (275) 0
Cash paid for fractional shares (6) 0
------ ------
Balance at end of year 15,734 14,837
Net unrealized gains/(loss) on
securities held for sale 51 467
Total Shareholders Equity 19,831 18,982
====== ======
</TABLE>
3
<PAGE> 6
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Regulatory Capital Ratio Requirements
<TABLE>
<CAPTION>
Minimum Nine Months Ended
Standard September 30, 1996
-------- ------------------
<S> <C> <C>
Capital Adequacy - Risk Based
Tier 1 4.0 % 14.01 %
Total Capital 8.0 % 15.16 %
Leverage Ratio
Tier 1 3.0 % 9.26 %
</TABLE>
<PAGE> 7
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Cash Flows
(In Thousands)
Increase/(Decrease) in Cash and Cash Equivalents:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Interest received 10,921 9,960
Fees and commissions 1,022 799
Interest paid (5,008) (4,696)
Noninterest expense paid (3,772) (3,314)
Income taxes paid (1,117) (753)
------- -------
Net cash provided/(used) by operating activities: 2,046 1,996
Cash flows from investing activities:
Acquisition, net of cash used 537 0
Proceeds from sale of securities 30,972 37,731
Proceeds from maturity of securities 7,130 5,913
Purchase of securities (30,616) (17,714)
Purchase of asset (342) 0
Capital expenditure (1,234) (244)
(Increase)/Decrease in other real estate 159 74
(Increase)/Decrease in net loans (24,057) (23,125)
------- -------
Net cash provided/(used) by investing activities: (17,451) 2,635
Cash flows from financing activities:
Increase/(Decrease) in DDA, NOW, Savings 10,578 2,987
Increase/(Decrease) in time deposits 9,546 12,347
Increase/(Decrease) in repurchase agreements (2,766) (948)
Increase/(Decrease) in long term debt 0 (20,000)
Proceeds from stock issuance 93 17
Dividends paid (626) (538)
Purchase of fractional shares (6) 0
------- -------
Net cash provided/(used) by investing activities: 16,819 (6,135)
Net Increase/(Decrease) in cash equivalents 1,414 (1,504)
Cash and cash equivalents as of January 1 4,647 6,352
------- -------
Cash and cash equivalents as of September 30 6,061 4,848
======= =======
Noncash investing and financing activities none none
</TABLE>
5
<PAGE> 8
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Cash Flows
(In Thousands)
Reconciliation of net income to net
cash provided by operating activities:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Net Income 1,804 1,619
Adjustments to reconcile net
income to cash:
Provision for loan loss 302 128
Depreciation 282 263
Accretion and amortization 189 284
(Gain)/Loss on sale of securities (112) (74)
(Gain)/Loss on sale of assets 38 24
(Gain)/Loss on sale mortgages 8 (189)
(Increase)/Decrease in interest receivable (187) (268)
(Increase)/Decrease in prepaid expense (9) (70)
(Increase)/Decrease in accrued income (10) (19)
(Increase)/Decrease in miscellaneous
assets (394) 129
Increase/(Decrease) in taxes payable (64) (72)
Increase/(Decrease) in interest payable (21) (85)
Increase/(Decrease) in accrued expenses 146 219
Increase/(Decrease) in prepaid income 6 7
Increase/(Decrease) in miscellaneous
liabilities 68 100
----- -----
Net cash provided by operations 2,046 1,996
</TABLE>
6
<PAGE> 9
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 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 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1996.
2. Stock Split
On February 8, 1996, the Board of Directors declared a one-for-four split of
the common stock in the form of a 25% stock dividend to shareholders of
record on March 8, 1996 to be issued on March 29, 1996. As a result,
$275,194 ($1.00 for each share issued pursuant to the stock split) was
transferred from retained earnings to the common stock account. Cash was
paid in lieu of fractional shares from retained earnings of $5,344.98. All
per share data in the financial statements have been adjusted to reflect the
split.
<PAGE> 10
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
3. Investment Securities
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Securities available for sale
U.S. Treasury Securities 17,602 17,571 4,220 4,226
U.S. Agency Securities 20,262 19,838 38,386 38,218
State and Political sub-divisions 9,782 10,321 13,064 13,992
----------- ----------- ----------- -----------
Total Available for Sale 47,646 47,730 55,670 56,436
=========== =========== =========== ===========
Other equity securities 647 647 1,059 1,059
=========== =========== =========== ===========
</TABLE>
8
<PAGE> 11
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
4. Loans
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---------------- ----------------
<S> <C> <C>
Loan category
Home equity 12,478 9,579
Commercial / agricultural 20,515 17,327
Credit line / other 637 1,234
Simple interest 15,109 14,540
Mortgage loans 85,533 69,028
=============== ===============
Total Loans * 134,272 111,708
=============== ===============
</TABLE>
* The Bank has no foreign loan activity.
9
<PAGE> 12
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
5. Analysis of Allowance for Loan Loss
<TABLE>
<CAPTION>
Nine Months Ended
September 30, December 31,
1996 1995
------------------- -------------------
<S> <C> <C>
Balance at beginning of period 1,258 1,052
Charge-offs:
Commercial, financial, agricultural 0 0
Real estate - construction 0 0
Real estate - mortgage 0 0
Consumer 55 111
------------------ ------------------
55 111
Recoveries:
Commercial, financial, agricultural 0 2
Real estate - construction 0 0
Real estate - mortgage 0 0
Consumer 38 50
------------------ ------------------
38 52
------------------ ------------------
Net Charge-Offs 17 59
------------------ ------------------
Allowance charged to operations 302 128
------------------ ------------------
Balance at end of period 1,543 1,121
================== ==================
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.01 0.09
================== ==================
Ratio of allowance for loan loss to
month end loans 1.15 1.09
================== ==================
</TABLE>
10
<PAGE> 13
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
6. Allocation of Allowance for Loan Loss
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
------------------------------- -------------------------------
% of Loans in % of Loans in
Balance at end of period Each Category Each Category
applicable to: Allowance to Total Loans Allowance to Total Loans
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Commercial 791 15% 502 15%
Real estate - construction 7 2% 7 2%
Real estate- mortgage 156 62% 123 59%
Consumer 378 21% 325 24%
Unallocated 187 0% 142 0%
------------------------------- -------------------------------
Total balance sheet allocation 1,519 0% 1,099 100%
================== ==================
Off balance sheet commitments 24 22
------------- -------------
Total allocation 1,543 1,121
============= =============
</TABLE>
11
<PAGE> 14
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
7. Nonperforming Assets
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
---------------- ----------------
<S> <C> <C>
Nonaccrual (1) 405 154
Past due 90 days or more 0 3
Other real estate 47 191
Renogotiated trouble debt 0 0
</TABLE>
(1) Other than amounts listed above, there are no loans which: (a)
represent or result from trends or uncertainties which management
reasonably expect 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.
12
<PAGE> 15
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
PART 1 - ITEM 2
Management's Analysis of Financial Condition
and Results of Operation
Summary
Net interest income for the quarter ended September 30, 1996 was 6.7% more than
the same quarter last year, while earnings for the full nine month period had
increased 11.4% over 1995. The annualized return on assets for the year to date
was 1.25%, compared with 1.27% last year. The earnings increase is primarily a
result of higher net interest income, attributed to excellent loan growth.
Interest Income and Interest Expense
Total third quarter interest income on a fully tax equivalent basis increased
16.9% over the same quarter last year, on a 19.4% increase in average earning
assets. Excluding any tax considerations, interest income was 18.3% higher. The
third quarter earning asset yield was 8.47%, down from 8.65% in 1995, as loan
yields declined 28 basis points and investment yields declined 66 basis points.
Interest rates were generally lower in the 1996 quarter, with the prime rate on
loans averaging about 1/2 % less than 1995. Investment yields fell as the
portfolio structure changed dramatically to add liquidity in support of
excellent and continuing loan growth (short term Treasury's were added, while
mortgage-backed Agencies and municipal securities both declined substantially).
In the 1995 third quarter, average loans represented just 63% of average earning
assets, while in the 1996 quarter, that percentage had jumped to 71%. At the
same time, average investments fell from 33.4% of earning assets in 1995 to
27.5% this year. For the full nine months this year, tax equivalent interest
income was up 13.8%, on a 12.4% increase in average earning assets.
Total interest expense in the third quarter this year was 23.1% more than the
comparable quarter in 1995, while average interest bearing liabilities increased
an identical 23.1%. The average cost of funds was up 5 basis points to 3.87%, as
the bulk of our deposit growth occurred in relatively higher cost certificates
of deposit and individual retirement accounts. For the nine month period this
year, interest expense increased 8.2% on a 10.7% increase in average interest
bearing liabilities.
Comparable net interest margins were as follows:
Third Quarter, 1996 8.47% - 3.87% = 4.60%
Third Quarter, 1995 8.65% - 3.82% = 4.83%
Year to Date, 1996 8.52% - 3.85% = 4.67%
Year to Date, 1995 8.35% - 4.00% = 4.35%
<PAGE> 16
Noninterest Income and Expense
Noninterest income in the third quarter this year was up $36,000 or 14.8%, which
included $41,000 more in net securities gains and $14,000 in deposit service
charges; net unrealized gains on mortgages fell $21,000. For the nine month
period, income was down $108,000 or 12.3%, which included $175,000 less in gains
on mortgages. Deposit service charges were $45,000 more and net securities gains
finished $38,000 higher.
Noninterest expense in the third quarter this year was up $190,000 or 15.9% over
1995. Personnel expense was $86,000 higher (10.9%), which included $53,000 more
in full time salaries and wages (salary increases and larger staff) and $24,000
more in other compensation for funding of profit-based incentive plans.
Occupancy and equipment expense was up $26,000 (14.9%), while all other expenses
were up $78,000 (33.1%), with the largest single increase of $23,000 for
amortization of deposit premium paid on a branch purchase. Year to date expenses
thru nine months were up $511,000, or 13.7% more, including $393,000 in
personnel expense for reasons stated earlier. Other increases of $10,000 or
more, or 10% or greater, were incurred for occupancy, furniture/equipment, cash
differences, directors fees, legal, printing/supplies, telephone,
dues/subscriptions, travel and entertainment, postage, contribution, FRB service
provided, checkbook expense, conventions, professional and miscellaneous.
Because of reduction in FDIC premiums, insurance expense was down $140,000.
The provision for loan losses was increased by 136% to $302,000 in order to
maintain an appropriate level of reserves on a much higher level of loans
outstanding. Net charge-offs and past due loans are still at very minimal
levels, in comparison with our national peer group of banks.
14
<PAGE> 17
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
PART 2 - ITEM 3
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
NONE.
15
<PAGE> 18
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 11/13/96 /s/ Ernest J. Sewell
--------------------- -----------------------------------------------
Ernest J. Sewell
(President & Chief Executive Officer)
Date 11/13/96 /s/ Robert F. Albright
--------------------- -----------------------------------------------
Robert F. Albright
(Senior Vice President & Chief Financial Officer)
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FNB FINANCIAL SERVICES CORPORATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,061
<INT-BEARING-DEPOSITS> 151,011
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,730
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 134,272
<ALLOWANCE> (1,543)
<TOTAL-ASSETS> 196,249
<DEPOSITS> 174,733
<SHORT-TERM> 1,299
<LIABILITIES-OTHER> 626
<LONG-TERM> 0
0
0
<COMMON> 1,380
<OTHER-SE> 18,451
<TOTAL-LIABILITIES-AND-EQUITY> 196,249
<INTEREST-LOAN> 8,854
<INTEREST-INVEST> 2,466
<INTEREST-OTHER> 41
<INTEREST-TOTAL> 11,361
<INTEREST-DEPOSIT> 4,737
<INTEREST-EXPENSE> 4,988
<INTEREST-INCOME-NET> 6,373
<LOAN-LOSSES> 302
<SECURITIES-GAINS> 112
<EXPENSE-OTHER> 4,237
<INCOME-PRETAX> 2,602
<INCOME-PRE-EXTRAORDINARY> 2,602
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,804
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 1.31
<YIELD-ACTUAL> 8.52
<LOANS-NON> 47
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,258
<CHARGE-OFFS> 55
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 1,543
<ALLOWANCE-DOMESTIC> 1,356
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 187
</TABLE>
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