<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1995
------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the transition period from to
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Commission file number 0-13086
-----------------
FNB FINANCIAL SERVICES CORPORATION
202 South Main Street
Reidsville, North Carolina 27320
(910) 342-3346
Incorporated in the State of North Carolina
IRS Employer Identification No. 56-1382275
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
----
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, Par Value $1.00 Per Share
---------------------------------------
FNB Financial Services Corporation (the "Registrant") has filed all
reports required to be filed by Section 13 of 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and has been subject to such filing
requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and is not contained in the definitive proxy statement
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
The Registrant's revenues for the year ended December 31, 1995 were
$14,619,000.
<PAGE> 2
The aggregate market value of the Registrant's Common Stock held by
those other than executive officers and directors at March 8, 1996, based on
the closing sales price for the Common Stock on that day, was approximately
$24,620,000.
As of December 31, 1995, the Registrant had outstanding 1,098,450
shares of Common Stock, $1.00 par value.
Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 1995 are incorporated by reference into parts I
and II of this report.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held April 9, 1996, filed with the Securities and Exchange
Commission via EDGAR on March 8, 1996, are incorporated by reference into Part
III of this report.
<PAGE> 3
FORM 10-KSB CROSS REFERENCE INDEX
As indicated below, portions of (i) the Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1995, and (ii) the
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held
April 9, 1996, filed with the Securities and Exchange Commission via EDGAR on
March 8, 1996, are incorporated by reference into Parts I, II and III of this
report.
<TABLE>
<CAPTION>
Key
- ---
<S> <C>
A.R. Annual Report to Shareholders for the fiscal year ended December 31, 1995
Proxy Proxy Statement for the Annual Meeting of Shareholders to be held April 9, 1996
10-KSB This Form 10-KSB
</TABLE>
<TABLE>
<CAPTION>
Index Document
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<S> <C> <C>
PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-KSB, p. 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-KSB, p. 5
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-KSB, p. 5
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . N/A
PART II Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.R.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . A.R.
Item 7. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . A.R.
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . N/A
PART III Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . Proxy
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proxy
Item 11. Security Ownership of Certain
Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . Proxy
Item 12. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . Proxy
Item 13. Exhibits and Reports on Form 8-K
(a) Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-KSB, p.6
(b) No Reports on Form 8-K were filed for the three months ended December 31, 1995
</TABLE>
<PAGE> 4
PART I
ITEM 1. DESCRIPTION OF BUSINESS
FNB Financial Services Corporation was incorporated on August 19, 1983
under the laws of the State of North Carolina, for the purpose of becoming a
one bank holding company and to acquire all the outstanding stock of the First
National Bank of Reidsville. Effective January 1, 1985, the Company acquired
the outstanding Bank stock through a one-for-one exchange of shares.
The Bank was established in 1918 as a national banking association and
is a full service commercial bank. The services it offers include checking,
NOW accounts, money market rate accounts, savings accounts, certificates of
deposit, individual retirement accounts, loans for business, agriculture, real
estate, personal use, home improvements and automobiles, safe deposit boxes and
trust services. The Bank has no material concentration of deposits from any
single customer or group of customers nor does it have a significant portion of
its loans concentrated in a single industry or group of related industries.
The Bank is in competition with several larger commercial banks in
Rockingham County, as well as savings banks and credit unions. Further
competition is provided by banks located in adjoining counties, together with
other financial intermediaries such as insurance companies, finance companies,
pension funds and brokerage houses.
The Bank, as a national banking association, is subject to regulatory
supervision, including regular bank examinations by the Comptroller of the
Currency. The Bank is a member of the Federal Deposit Insurance Corporation
which insures its deposits, and is a member of the Federal Reserve System.
The Company is registered as a bank holding company with and subject
to the regulations of the Board of Governors of the Federal Reserve System. As
such, it is subject to examination by the Federal Reserve Board, and is
required to file with them annual reports and other information regarding its
business operations and those of its subsidiary.
At December 31, 1995, the Bank had approximately 90 employees. The
Company has no employees who are not also employed by the Bank. The Bank
considers its relationship with employees to be good and provides for them
several employee benefit programs, including an employee retirement plan, a
stock compensation plan for eligible officers, group life and health insurance,
a 401(k) plan, a section 125 flexible spending plan, paid vacations and sick
leave.
Under the Federal Deposit Insurance Corporation Improvement Act, banks
are placed into categories depending upon how well capitalized they are. If a
bank's capital ratios should fall to an undercapitalized status, it becomes
subject to a series of increasingly restrictive actions, such as increased
monitoring, submission and approval of a capital restoration plan, restrictions
<PAGE> 5
on growth and certain expansion limitations requiring appropriate banking
agency prior approval. Even more serious restrictions may be imposed if
capital ratios should fall to a significantly undercapitalized status.
ITEM 2. DESCRIPTION OF PROPERTY
The executive offices of the Company and the Bank are located in a
two-story office building at 202 South Main Street, Reidsville, North Carolina.
The premises consist of approximately 27,000 square feet of office space,
adequate parking and a three lane drive-in teller facility. The Bank also
maintains full service branches on Freeway Drive and adjacent to Pennrose Mall
in Reidsville, and at Eden Mall, Eden Plaza and on N. Fieldcrest Road (in the
Draper community) in Eden. All but the Eden Plaza and Draper locations include
automated teller machines. The properties are owned free and clear of
encumbrances, except the Draper, Eden Mall and Eden Plaza locations, which are
occupied under leases expiring in 2008, 2001 and 1996, respectively. An
additional remote automated teller machine is maintained on Freeway Drive near
Belmont Square, under a lease expiring in 1998.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant is not a party to any pending legal proceeding, nor is
its property the subject of any pending legal proceeding, other than routine
litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the security holders of
the Registrant during the fourth quarter of the Registrant's fiscal year ending
December 31, 1995.
PART II
ITEMS 5 THROUGH 7.
Incorporated by reference to the Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1995.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS; ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
<PAGE> 6
PART III
ITEM 9 THROUGH 12.
Incorporated by reference to the Registrant's Proxy Statement for the
Annual Meeting of Shareholders to be held April 9, 1996, filed with the
Securities and Exchange Commission via EDGAR on March 8, 1996.
ITEM 13. INDEX TO EXHIBITS.
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page No.
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3(a)(1) Articles of Incorporation of the Registrant
dated August 19, 1983, filed as Exhibit 3(a)(1)
to the Registrant's Form 10-K for the fiscal
year ended December 31, 1988 filed with the
Securities and Exchange Commission, which is
incorporated herein by reference to such Form
10-K.
3(a)(2) Articles of Amendment of Articles of
Incorporation of the Registrant dated March 1,
1984, filed as Exhibit 3(a)(2) to the
Registrant's Form 10-K for the fiscal year ended
December 31, 1988, filed with the Securities and
Exchange Commission, which is incorporated by
reference to such Form 10-K.
3(a)(3) Articles of Amendment of Articles of
Incorporation of the Registrant dated April 13,
1984, filed as Exhibit 3(a)(2) to the
Registrant's Form 10-K for the fiscal year ended
December 31, 1988, filed with the Securities and
Exchange Commission, which is incorporated by
reference to such Form 10-K.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
3(a)(4) Articles of Amendment of Articles of
Incorporation of the Registrant dated June 13,
1988, filed as Exhibit 3(a)(2) to the
Registrant's Form 10-K for the fiscal year ended
December 31, 1988, filed with the Securities and
Exchange Commission, which is incorporated by
reference to such Form 10-K.
3(a)(5) Articles of Amendment of Articles of
Incorporation of the Registrant dated April 25,
1989 filed as Exhibit 4(a)(5) to the
Registrant's Form S-8 (No. 33-33186), filed with
the Securities and Exchange Commission, which is
incorporated herein by reference to such Form S-
8.
3(b)(1) Bylaws of the Registrant filed as Exhibit 3(b)
to the Registrant's Form 10-K for the fiscal
year ended December 31, 1988, filed with the
Securities and Exchange Commission, which is
incorporated herein by reference to such Form
10-K.
3(b)(2) Amendment of Bylaws of the Registrant filed as
Exhibit 3(b)(2) to the Registrant's Form 10-K
for the fiscal year ended December 31, 1991,
filed with the Securities and Exchange
Commission, which is incorporated herein by
reference to such Form 10-K.
4 Specimen Common Stock Certificate, filed as
Exhibit 4 to the Registrant's Registration
Statement on Form S-14 (File No. 2-90095), filed
with the Securities and Exchange Commission,
which is incorporated herein by reference to
such Form S-14.
</TABLE>
<PAGE> 8
<TABLE>
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10(a) Stock Compensation Plan of the Registrant
approved April 11, 1989 by the Shareholders of
the Registrant, with forms of stock option and
stock bonus agreements attached, filed as
Exhibit 28 to the Registrant's Form S-8 (No. 33-
33186), filed with the Securities and Exchange
Commission, which is incorporated herein by
reference to such Form S-8.
10(b) Severance Policy for Senior Officers of the
Registrant, filed as Exhibit 10(b) to the
Registrant's Form 10-K for the fiscal year ended
December 31, 1989, filed with the Securities and
Exchange Commission, which is incorporated
herein by reference to such Form 10-K.
10(c) Revised Severance Policy for Senior Officers of
the Registrant, filed as Exhibit 10(c) to the
Registrant's Form 10-KSB for the fiscal year
ended December 31, 1994, filed with the
Securities and Exchange Commission, which is
incorporated herein by reference to such 10-KSB.
10(d) Severance Compensation Agreement dated December
11, 1986 by and among FNB Financial Services
Corporation, First National Bank of Reidsville
and Willis Wade Apple, filed as Exhibit 10(c) to
the Registrant's Form 10-K for the fiscal year
ended December 31, 1989, filed with the
Securities and Exchange Commission, which is
incorporated herein by reference to such Form
10-K.
</TABLE>
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<TABLE>
<CAPTION>
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10(e) Equipment Sale Agreement and related agreements
dated September 24, 1992 by and among the
Registrant and Information Technology, Inc.
filed as Exhibit 10(d) to the Registrant's Form
10-KSB for the fiscal year ended December 31,
1992, filed with the Securities and Exchange
Commission, which is incorporated herein by
reference to such Form 10-KSB.
10(f) Benefit Equivalency Plan effective January 1,
1994, filed as Exhibit 10 to the Registrant's
Form 10-QSB for the fiscal quarter ended June
30, 1995, filed with the Securities and Exchange
Commission, which is incorporated by reference
to such Form 10-QSB.
10(g) Annual Management Incentive Plan filed as
Exhibit 10C to the Registrant's Form 10-QSB for
the fiscal quarter ended June 30, 1995, filed
with the Securities and Exchange Commission,
which is incorporated by reference to such Form
10-QSB.
10(h) Long Term Incentive Plan filed as Exhibit F to
the Registrant's Form 10-QSB for the fiscal
quarter ended June 30, 1995, filed with the
Securities and Exchange Commission, which is
incorporated by reference to such Form 10-QSB.
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
<S> <C> <C>
10(i) Employment Agreement dated May 18, 1995 between
the Registrant and First National Bank of
Reidsville, jointly, as employer, and Ernest J.
Sewell, President and Chief Executive Officer of
the Registrant and the Bank, filed as Exhibit
10E to the Registrant's Form 10-QSB for the
fiscal quarter ended June 30, 1995, filed with
the Securities and Exchange Commission, which is
incorporated herein by reference to such Form
10-QSB.
13 Those portions of the Registrant's 1995 Annual
Report to Shareholders which have been
incorporated by reference into this Form 10-KSB.
(Except for those portions thereof which are
incorporated herein by reference, such Annual
Report is furnished for the information of the
Commission and is not deemed "filed" as a part
of this Form 10-KSB Annual Report for the fiscal
year ended December 31, 1995).
21 Subsidiaries of the Registrant.
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23 Consent of Cherry, Bekaert & Holland, L.L.P.
------
27 Financial Schedule
------
</TABLE>
<PAGE> 11
Pursuant to the requirements of Section 13 or 15(d) 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
BY (Ernest J. Sewell)
--------------------------------
DATE: March 28, 1996 Ernest J. Sewell, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
(Ernest J. Sewell) President and Director March 28, 1996
---------------------------------- (Principal Executive Officer)
Ernest J. Sewell
(Robert F. Albright) Senior Vice President (Principal March 28, 1996
---------------------------------- Financial & Accounting Officer)
Robert F. Albright
(W. B. Apple, Jr.) Director March 28, 1996
----------------------------------
W. B. Apple, Jr.
(Charles A. Britt) Director March 28, 1996
----------------------------------
Charles A. Britt
(O. E. Green) Director March 28, 1996
---------------------------------
O. E. Green
(Joseph H. Kinnarney) Director March 28, 1996
---------------------------------
Joseph H. Kinnarney
Director
---------------------------------
Phillip J. Lambeth
Director
----------------------------------
Clifton G. Payne
Director
----------------------------------
Elton H. Trent, Jr.
(Kenan C. Wright) Director March 28, 1996
----------------------------------
Kenan C. Wright
</TABLE>
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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This discussion is provided to aid in understanding and evaluating the
financial condition and results of operations of the Company and its
wholly-owned subsidiary and focuses on significant changes which have affected
those factors. It is intended to supplement and highlight information contained
in the accompanying consolidated financial statements and other selected
financial data presented elsewhere in this report.
<TABLE>
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PERFORMANCE SUMMARY
Net income in 1995 was a record $2,170,000, which represented
an increase of 36.3% over the previous year, following a
RETURN ON AVERAGE 25.2% decline in 1994 from 1993. The return on average assets
ASSETS increased in 1995 to 1.27%, compared with 1.03% in 1994,
while the return on average equity was also higher at 12.91%,
[GRAPH] versus 9.76% last year. The higher earnings resulted from a
9.2% improvement in net interest income, a 33.3% increase in
noninterest income and a 2.7% decline in noninterest expense,
only partially offset by a 147.6% increase in funding for the
credit loss allowance.
Average loans outstanding this year were $94.7 million, up
17.9% over last year, which followed several years of flat to
reduced growth. The increase is attributed to extensive new
customer contacts and aggressiveness, concurrent with the
hiring of a new chief executive officer in early 1995.
Investment portfolio securities averaged $65.3 million, up
just 1.2% because of the significant loan growth, following
an increase of 18.8% in 1994. The major focus of the
investment portfolio has changed from a heavy emphasis on
income generation to a greater need for liquidity, resulting
in a reduction and eventual elimination of mortgage-backed
securities. Total deposits averaged $144.3 million in 1995,
an increase of 8.2% over last year, which followed minimal
growth of .4% in 1994 over 1993. Average shareholders equity
of $16.8 million this year was 3.0% higher than 1994,
following growth of 6.6% the previous year.
More specific data on operating and other financial
information for the most recent five years is contained in
Table 1, Summary of Selected Financial Data, on Page 5.
NET INTEREST INCOME
Net interest income represents the gross profit from the
lending and investment activities of a banking organization
RETURN ON AVERAGE and is the principal source and most significant factor
SHAREHOLDERS EQUITY affecting earnings of the Company. Net interest income is the
difference between interest income and fees derived from
[GRAPH] earning assets (primarily loans and investment securities)
and the cost of the funds (primarily deposits) supporting
them. This interest margin is affected by changes in interest
rates, volume and the mix of these various components. Table
3 on Page 6 indicates that current year net interest income
on a fully tax equivalent basis was 8.6% more than the
previous year, following a reduction of 1.9% in 1994 from
1993. Actual net interest income increased 9.2% in 1995 and
declined 1.6% in 1994. Average earning assets increased 11.4%
this year, fueled by consistently outstanding loan growth
(for the full year, average loans equaled 58.2% of average
earning assets, but the percentage grew to 65.7% by
December). The favorable mix of higher-yielding loans more
than offset lower interest margins during 1995, as the gross
yield on earning assets rose 51 basis points over 1994 to
8.42%. Margins were detrimentally affected during the first
half by an arbitrage position established with the Federal
Home Loan Bank which, although profitable, was not as
generous as those achieved from our core business and the
arbitrage was discontinued in the second quarter.
</TABLE>
Four
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
- --------------------------------------------------------------------------------
TABLE 1
SUMMARY OF SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income...................... $13,382.7 $11,136.5 $11,633.5 $12,008.1 $12,844.6
Interest expense..................... 6,132.8 4,495.8 4,886.2 5,749.5 7,352.8
--------- --------- --------- --------- ---------
Net interest income.................. 7,249.9 6,640.7 6,747.3 6,258.6 5,491.8
Provision for loan losses............ 260.0 105.0 190.0 340.0 350.0
--------- --------- --------- --------- ---------
Net interest income after
provision.......................... 6,989.9 6,535.7 6,557.3 5,918.6 5,141.8
Non interest income.................. 1,235.8 926.7 1,206.1 1,168.5 943.4
Non interest expense................. 5,190.3 5,332.4 4,788.7 4,526.2 4,025.8
--------- --------- --------- --------- ---------
Income before income taxes........... 3,035.4 2,130.0 2,974.7 2,560.9 2,059.4
Applicable income taxes.............. 865.6 538.1 845.7 603.8 443.5
--------- --------- --------- --------- ---------
Net income........................... $ 2,169.8 $ 1,591.9 $ 2,129.0 $ 1,957.1 $ 1,615.9
========= ========= ========= ========= =========
Per share....................... $ 1.98 $ 1.45 $ 1.94 $ 1.77 $ 1.45
Dividends declared on common stock... $ 735.9 $ 657.5 $ 629.2 $ 586.8 $ 478.0
Per share....................... $ 0.67 $ 0.60 $ 0.57 $ 0.53 $ 0.43
Payout ratio.................... 33.92% 41.30% 29.55% 29.99% 29.58%
AVERAGE BALANCES
Loans, net........................... $ 94,692 $ 80,329 $ 86,191 $ 86,107 $ 85,667
Investment securities................ 65,260 64,478 54,258 48,768 42,847
Assets............................... 171,489 154,663 150,288 145,274 140,212
Deposits............................. 144,256 133,362 132,766 128,057 125,134
Shareholders equity.................. 16,810 16,315 15,304 14,092 12,829
RATIOS
Return on average assets............. 1.27% 1.03% 1.42% 1.35% 1.15%
Return on average shareholders
equity............................. 12.91 9.76 13.91 13.89 12.59
Average earning assets to average
total assets....................... 94.92 94.45 94.33 94.35 94.04
Average shareholders equity to
average:
Loans, net......................... 17.75 20.31 17.76 16.37 14.98
Total assets....................... 9.80 10.55 10.18 9.70 9.15
Total deposits..................... 11.65 12.23 11.53 11.00 10.25
</TABLE>
TABLE 2
DEPOSIT MATURITY SCHEDULE
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------
Time Certificates Other Time
of Deposit Deposits Total
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<S> <C> <C> <C>
Time Deposits of $100,000 or more
3 months or less............................... $11,807 $2,347 $14,154
Over 3 - 6 months.............................. 1,134 442 1,576
Over 6 - 12 months............................. 1,293 377 1,670
Over 12 months................................. 4,522 6,473 10,995
------- ------ -------
Total....................................... $18,756 $9,639 $28,395
======= ====== =======
</TABLE>
Five
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
- --------------------------------------------------------------------------------
TABLE 3
AVERAGE BALANCE AND NET INTEREST INCOME ANALYSIS
FULLY TAXABLE EQUIVALENT BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------- ------------------------------- -------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance(3) Expense Rate Balance(3) Expense Rate Balance(3) Expense Rate
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans, net (2)......... $ 94,692 $ 9,066.7 9.57% $ 80,329 $ 7,312.4 9.09% $ 86,191 $ 8,014.1 9.30%
Taxable Investment
securities........... 50,859 3,224.8 6.14 51,194 2,880.1 5.53 41,724 2,625.4 6.29
Tax-exempt Investment
securities........... 13,451 1,284.3 9.99(1) 12,588 1,288.2 10.92(1) 11,670 1,376.2(1) 11.79
Other securities....... 950 67.0 7.06 696 41.3 5.93 864 47.4 5.48
Deposits with Federal
Home Loan Bank....... 219 13.4 6.11
Federal funds sold and
securities purchased
under agreements to
resell............... 2,815 163.1 5.80 1,276 52.4 4.11 1,314 38.3 2.92
-------- --------- ---- -------- --------- ----- -------- --------- -----
Total earning
assets............. 162,986 13,819.3 8.42 146,083 11,574.4 7.91 141,763 12,101.4 8.54
NON-EARNING ASSETS:
Cash and due from
banks................ 4,417 4,468 4,547
Premises and equipment,
net.................. 3,438 3,545 3,519
Other assets........... 1,752 1,686 1,662
Less allowance for loan
losses............... (1,104) (1,119) (1,203)
-------- -------- --------
Total Assets......... $171,489 $154,663 $150,288
======== ======== ========
INTEREST BEARING LIABILITIES:
Savings and time
deposits............. $125,523 5,508.5 4.39% $116,683 4,254.5 3.65% $117,777 4,842.9 4.11%
Federal funds
purchased, borrowed
funds and securities
sold under agreements
to repurchase........ 9,920 624.3 6.29% 4,672 241.3 5.16% 1,584 43.3 2.74%
-------- --------- ---- -------- --------- ----- -------- --------- -----
Total interest
bearing
liabilities........ 135,443 6,132.8 4.52% 121,355 4,495.8 3.70% 119,361 4,886.2 4.09%
OTHER LIABILITIES AND
SHAREHOLDERS' EQUITY:
Demand deposits........ 18,733 16,679 14,989
Other liabilities...... 503 314 634
Shareholders' equity... 16,810 16,315 15,304
-------- -------- --------
Total liabilities and
equity............. $171,489 $154,663 $150,288
======== ======== ========
Net interest income and
net yield on earning
assets(3)(4)......... $ 7,686.5 4.72% $ 7,078.6 4.84% $ 7,215.2 5.09%
========= ==== ========= ===== ========= =====
Interest rate
spread(5)............ 3.90% 4.21% 4.45%
==== ===== =====
</TABLE>
- ---------------
(1)The fully tax equivalent basis is computed using a federal tax rate of 34%.
(2)The average loan balances include non-accruing loans.
(3)The average balances for years 1995 and 1994 include market adjustments to
fair value for securities and loans available/held for sale, with such
adjustments excluded for purposes of computing average yield.
(4)Net yield on earning assets is computed by dividing net interest income by
average earning assets.
(5)Earning asset yield minus interest bearing liabilities rate.
Six
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
- --------------------------------------------------------------------------------
NET YIELD ON The weighted yield on loans in 1995 increased
EARNING ASSETS to 9.57% from 9.09%, which is attributed to a
progressively higher prime rate throughout 1994,
[GRAPH] which was maintained in 1995. Investment
portfolio yields were 38 basis points higher to
6.90%, which conformed to generally higher rates
this year and an increase in higher yielding
municipal bonds, computed on a tax-equivalent
basis. Yields on overnight federal funds sold to
other banks were 169 basis points higher in
1995, because of increased rates this year.
Interest-bearing deposit costs averaging
4.39% this year were 74 basis points more than
1994, which is attributed primarily to higher
interest rates, accompanied by reductions in
lower cost regular savings, NOW and money market
deposits. This particular growth pattern is
unfavorable to the extent that deposit cost is
greater, but beneficial because certificates of
deposit and IRA's added to the portfolio have
longer maturities and provide a greater degree
of stability to the deposit base.
Total tax equivalent interest income
increased $2,245,000 in 1995 from the prior
year, while total interest expense was
$1,637,000 more than 1994. Table 7 provides an
analysis of the variances in interest income and
interest expense attributable to both volume and rate for the last two calendar
years, while Table 3 provides a net interest and yield/cost analysis for the
last three years.
NONINTEREST INCOME AND EXPENSE
Noninterest income totaled $1,236,000 in 1995, which was $309,000 or 33.3%
more than the prior year. A significant portion of the variance occurred because
of the effect of Financial Accounting Standard 65, which requires that any loans
which are specifically held for sale be marked to the lower of cost or market,
with adjustments in value absorbed into earnings. In 1994, with interest rates
rising throughout the year, we incurred a writedown of $214,000 on a block of
fixed-rate mortgages held for sale. The following year, as interest rate levels
drifted lower, we recovered $192,000 of the total 1994 writedown, accounting for
much of the yearly variance. Gains from securities sales of $88,000 were 82.6%
higher, while deposit service charges of $694,000 increased 4.8%, because of
volume and pricing changes.
In 1994 noninterest income decreased $279,000 from the prior year,
principally because of $156,000 in net gains on loan sales in 1993, as opposed
to losses in 1994. Additionally, gains from securities sales were $91,000 lower
in 1994 and all other fees/services $33,000 less, including $26,000 in insurance
commissions.
Noninterest expense of $5,190,000 in 1995 was $142,000 or 2.7% less than
the previous year, following an 11.4% increase in 1994 over 1993. Personnel
expense increased 10.6% or $295,000, which included $150,000 for management
incentives in connection with the achievement of targeted profit levels. Regular
full time salaries were just 2.7% higher, while both overtime and part time
salaries were down substantially from 1994. Employee benefits expense increased
$106,000 or 19.2%, which included the initial year of funding for a long term
incentive program and higher expenses for health insurance and 401K plan
funding. Occupancy/furniture and equipment expense was 2.2% lower than 1994,
with reduced expenditures for maintenance/repairs, utilities and building
depreciation offsetting higher costs for maintenance contracts and equipment
depreciation. All other operating expense fell $226,000, which included $201,000
spent in 1994 in the unsuccessful attempt to acquire a Virginia thrift
institution. Other significant reductions were realized in FDIC insurance, down
$149,000 because of substantial premium reductions and marketing expense, which
was $35,000 lower. Line items which exceeded 1994 by at least $10,000 and 10%
were professional fees, checkbook expense, conventions, directors fees, postage
and miscellaneous.
The 1994 noninterest expense increase over 1993 included the $201,000
thrift acquisition expenditure, $129,000 more in occupancy/equipment expenses
for new computer hardware and $59,000 or 2.7% more for personnel expense.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses, which is utilized to absorb actual losses in
the portfolio, is maintained at a level deemed sufficient to provide for
estimated potential write-offs of noncollectible loans. Management
Seven
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
- --------------------------------------------------------------------------------
periodically reviews the adequacy of the allowance, taking into consideration
current and future economic conditions, the growth and composition of the loan
portfolio, historical loss experience and current levels of nonaccrual, past due
and other potential problem loans. The provision for loan losses represents a
charge against income, in an amount necessary to maintain the allowance at an
appropriate level.
The 1995 provision of $260,000 compares with
just $105,000 in 1994 and $190,000 in 1993. Net
charge offs were only $54,000 in 1995, or .06%
PROVISION, ALLOWANCE of average annual loans outstanding, compared
AND NET CHARGE OFFS with $227,000 in 1994 and $177,000 in 1993. A
relative lack of loan growth in the prior two
[GRAPH] years and aggressive funding of the reserve in
previous years allowed us to reduce the
provision in 1993 and 1994. Consequently, even
with the record low levels of charge offs and
total past due loans during 1995, the growth in
the loan portfolio made it prudent to increase
our allowance level with a higher provision in
1995. The ratio of allowance for loan losses to
year end loans was 1.42%, 1.32% and 1.13% in
1993, 1994 and 1995, respectively.
INCOME TAXES
Income tax expense was $866,000 in 1995,
compared with $538,000 in 1994 and $846,000 in
1993. The effective tax rate as a percentage of
pretax income was 28.5% in 1995, 25.3% in 1994
and 28.4% in 1993. These tax rates are lower
than the statutory federal and state tax rates,
primarily due to investment in municipal
securities earning interest which is exempt from
federal taxes and, for in-state bonds, state
taxes as well.
The 1994 reduction in the effective tax rate
was principally a result of maintaining the same
approximate level of municipal securities
income, while overall net income before tax was
greatly reduced. A more comprehensive analysis
of income taxes for the last three years is
contained in note 9 on Page 25 & 26.
SHAREHOLDERS' EQUITY CAPITAL RESOURCES
AT YEAR END A strong capital position is vital to the
continued profitability of the Company because
[GRAPH] it promotes depositor and investor confidence
and provides a solid foundation for the future
growth of the organization. Shareholders equity
was up 27.2% at December 31,1995 from one year
ago, compared with a decline of 7.6% in 1994 and
an increase of 9.5% in 1993. More volatility has
been introduced into equity balances with the
approval of Financial Accounting Standard 115,
which specifies that investments which are
categorized as available for sale must be
periodically marked to market, with the
adjustment included in equity, net of applicable
taxes. At year end 1994, interest rates were
higher and a negative adjustment of $2,142,000
reduced equity balances. At year end 1995,
interest rate levels were lower and a positive
adjustment of $467,000 increased equity
balances. Depending primarily upon the interest
rate environment, the adjustment will continue
to fluctuate between positive and negative.
Under current risk-based capital guidelines,
total qualifying capital is categorized into two
components: Tier 1 and Tier 2. These ratios are
expressed as a percentage of risk-adjusted
assets, which include various risk-weighted
percentages of off-balance sheet exposures, as well as assets on the balance
sheet. By year end 1992, a minimum Tier 1 capital ratio of 4% and total capital
ratio of 8% were required. At December 31, 1995, the Company had a Tier 1
capital ratio of 15.3% and a total capital ratio of 16.3%, both of which are
significantly in excess of the required minimum levels. A final regulatory
measure is the Tier 1
Eight
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
- --------------------------------------------------------------------------------
leverage ratio, which expresses Tier 1 capital as a percentage of total assets.
The regulatory minimum is 3%, whereas the Company had a ratio of 10.4% as of
December 31, 1995.
INTEREST RATE SENSITIVITY AND LIQUIDITY MANAGEMENT
The primary objective of interest rate sensitivity management is to plan
and control the composition and maturities of interest earning assets and
interest bearing liabilities, in order to maximize net interest income while
attempting to ensure the stability of earnings. Rate sensitive assets and
liabilities have interest rates which are adjustable within a specific time
period, due either to their maturity or to contractual agreements which allow
repricing of the instrument. Interest rate sensitivity management seeks to
ensure that both assets and liabilities respond to changes in interest rates in
a similar time frame, thereby minimizing to some degree, the effect of interest
rate movements on net interest income.
A change in the mix of earning assets or interest paying liabilities may
either increase or decrease the net interest margin, without affecting interest
rate sensitivity. Additionally, the interest rate spread between an asset and
its supporting liability may vary significantly, while the timing of repricing
for both the asset and liability remain the same, thus impacting net interest
income. Because of these factors, management of the Company uses computerized
interest rate simulation to model the effect of possible changes, in addition to
the interest sensitivity analysis report. Management also periodically evaluates
the condition of the economy, the pattern of market interest rates and other
economic data, to determine the appropriate mix and repricing characteristics of
assets and liabilities required to produce the optimal net interest margin.
Table 6 on Page 11 indicates a ratio of interest sensitive assets to
interest sensitive liabilities within one year of 59%, compared with 62% and 57%
for the two prior years end. This ratio is an indication that net interest
income would decline in a rising rate environment, since a greater amount of
liabilities than assets would reprice at the higher rates. This effect is
mitigated to some extent by the inclusion of all regular savings and NOW account
balances as subject to immediate rate change, since they have not exhibited rate
variation to the same degree as other deposit products. We do, however, normally
experience a greater degree of liability interest rate sensitivity and
constantly endeavor to increase our levels of floating rate assets and fixed
rate liabilities.
The interest sensitivity analysis provides only a general indication of
interest sensitivity at a specific point in time, whereas an ongoing computer
simulation model incorporates the dynamics of balance sheet and interest rate
changes and reflects the related effect on net interest income. This latter
analysis is more informative and useful in enabling us to measure and respond to
interest rate movement.
Liquidity management involves the ability to meet day-to-day cash flow
requirements of the Company's customers, whether they are depositors wishing to
withdraw funds or borrowers requiring funds to meet their credit needs.
Liquidity is provided from sources such as investment security maturities and
sales, principal and interest payments on loans, deposit growth and access to
borrowed funds. Over the last several years, growth experienced in deposits has
been more than adequate to fully fund the increase in loans with the excess
funds being used to build liquidity by purchasing investment securities and
other short term investments. Based upon our loan growth in 1995, however, and
expectations for further increases, our funds gathering process will probably
become more aggressive and be accompanied by some reduction in the level of
investment securities. Longer term funding is also available to us as a member
of the Federal Home Loan Bank system, with several credit programs accessible at
competitive rates.
The Company is not aware of any current recommendations by the regulatory
authorities which, if they were to be implemented, will have or are reasonably
likely to have a material effect on our liquidity, capital resources or
operations.
EFFECTS OF INFLATION
Inflation affects financial institutions in ways that are different from
most commercial and industrial companies, which have significant investments in
fixed assets and inventories. The effect of inflation on interest rates can
materially impact bank operations, which rely on interest margins as a major
source of earnings. Noninterest expenses, such as salaries and wages, occupancy
and equipment cost are also negatively impacted by inflation.
Nine
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
- --------------------------------------------------------------------------------
TABLE 4
SUMMARY OF ALLOWANCE FOR LOAN LOSSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period........................ $1,052 $1,174 $1,161 $ 958 $ 825
Charge-offs:
Commercial, financial and agricultural.............. -- -- 28 118 220
Real estate -- construction......................... -- -- -- -- --
Real estate -- mortgage............................. -- 15 -- -- --
Consumer............................................ 128 332 214 95 101
------ ------ ------ ------ ------
128 347 242 213 321
Recoveries:
Commercial, financial and agricultural.............. 2 52 5 44 13
Real estate -- construction......................... -- -- -- -- --
Real estate -- mortgage............................. -- -- -- -- --
Consumer............................................ 72 68 60 32 91
------ ------ ------ ------ ------
74 120 65 76 104
Net charge-offs....................................... 54 227 177 137 217
------ ------ ------ ------ ------
Additions charged to operations....................... 260 105 190 340 350
------ ------ ------ ------ ------
Balance at end of period.............................. $1,258 $1,052 $1,174 $1,161 $ 958
====== ====== ====== ====== ======
Ratio of net charge-offs during the period to average
loans outstanding during the period................. 0.06% 0.28% 0.21% 0.16% 0.25%
====== ====== ====== ====== ======
Ratio of allowance for loan losses to year end
loans............................................... 1.13% 1.32% 1.42% 1.35% 1.15%
====== ====== ====== ====== ======
</TABLE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----------------- ----------------- ----------------- ----------------- ----------------
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Each Each Each Each Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amt. Loans Amt. Loans Amt. Loans Amt. Loans Amt. Loans
----- ---------- ----- ---------- ----- ---------- ----- ---------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to:
Commercial................ 512 16% 546 11% 611 9% 622 39% 439 39%
Real
estate -- construction... 9 2 -- 0 1 2 1 1 1 1
Real estate -- mortgage... 131 60 50 61 51 60 67 19 36 20
Consumer.................. 320 22 224 28 164 29 211 41 127 40
Unallocated............... 286 0 232 0 347 0 260 0 355 0
----- --- ----- --- ----- --- ----- --- --- ---
Total allocation............ 1,258 100% 1,052 100% 1,174 100% 1,161 100% 958 100%
===== === ===== === ===== === ===== === === ===
</TABLE>
Ten
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
- --------------------------------------------------------------------------------
TABLE 5
AVERAGE DEPOSITS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1995 1994 1993
----------------- ----------------- -----------------
Amount Rate Amount Rate Amount Rate
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing..................... $ 18,733 $ 16,679 $ 14,989
Interest bearing:
Savings accounts...................... 15,895 2.24% 16,461 2.36% 15,563 2.61%
NOW accounts.......................... 16,550 1.67 16,859 1.80 16,219 2.04
Money market investment................. 11,634 3.07 12,243 2.56 13,610 2.45
Certificates of deposit, $100,000 or
more.................................. 13,062 5.86 7,373 4.08 6,366 3.60
Other time deposits..................... 68,382 5.49 63,747 4.63 66,019 5.37
-------- -------- --------
Total deposits..................... $144,256 $133,362 $132,766
======== ======== ========
</TABLE>
TABLE 6
INTEREST SENSITIVITY ANALYSIS(1)
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Total Total
1-90 91-180 181-365 Sensitive Sensitive
Day Day Day Within Over
Sensitive Sensitive Sensitive One Year One Year Total
--------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Loans, net....................... $ 43,950 $ 3,912 $ 8,971 $ 56,833 $ 54,833 $111,666
Taxable investment securities.... 2,081 1,081 5,243 8,405 35,201 43,606
Tax-exempt investment
securities..................... 1,100 313 104 1,517 10,547 12,064
Other investment securities...... 647 647 400 1,047
Deposits with Federal Home Loan
Bank........................... 219 219 219
-------- ------- ------- -------- -------- --------
Total interest earning
assets...................... $ 47,997 $ 5,306 $14,318 $ 67,621 $100,981 $168,602
Interest bearing liabilities:
Savings deposits................. $ 15,413 $ 15,413 $ 15,413
Other time deposits.............. 78,125 11,867 6,412 96,404 23,294 119,698
Federal funds purchased.......... 3,152 3,152 3,152
-------- ------- ------- -------- -------- --------
Total interest bearing
liabilities................. $ 96,690 $11,867 $ 6,412 $114,969 $ 23,294 $138,263
======== ======= ======= ======== ======== ========
Interest sensitivity gap......... $(48,693) $(6,561) $ 7,906 $(47,348)
Ratio of interest sensitive
assets to interest sensitive
liabilities.................... 0.50 0.45 2.23 0.59
</TABLE>
- ---------------
(1) A comprehensive discussion of interest rate sensitivity is included at page
9.
Eleven
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
- --------------------------------------------------------------------------------
TABLE 7
VOLUME AND RATE VARIANCE ANALYSIS
YEAR ENDED DECEMBER 31, 1995 AND 1994
FULLY TAXABLE EQUIVALENT BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
--------------------------------- ---------------------------------
Volume(2) Rate(2) Total Volume(2) Rate(2) Total
Variance Variance Variance Variance Variance Variance
--------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans, net.............................. $1,307.0 $ 447.3 $1,754.3 $ (537.0) $(164.8) $(701.7)
Taxable investment securities........... 39.9 330.5 370.3 638.1 (389.4) 248.6
Tax exempt investment securities(1)..... 112.7 (116.6) (3.9) 15.6 (103.6) (88.0)
Deposits with Federal Home Loan Bank.... 13.4 13.4
Federal funds sold and securities
purchased under agreements to
resell................................ 72.3 38.3 110.8 (1.1) 15.2 14.1
-------- -------- -------- -------- ------- -------
Total interest income................. $1,531.9 $ 712.9 $2,244.9 $ 115.6 $(642.6) $(527.0)
Interest expense:
Savings and time deposits............... 322.2 931.8 1,254.1 (45.0) (543.4) (588.4)
Federal funds purchased, borrowed funds
and securities sold under agreements
to repurchase......................... 271.1 111.9 383.0 84.0 114.0 198.0
-------- -------- -------- -------- ------- -------
Total interest expense................ $ 593.3 $1,043.7 $1,637.1 $ 39.0 $(429.0) $(390.4)
-------- -------- -------- -------- ------- -------
Increase (decrease) in net interest
income................................ $ 938.6 $ (330.8) $ 607.8 $ 76.6 $(213.2) $(136.6)
======== ======== ======== ======== ======= =======
</TABLE>
- ---------------
(1)The fully tax equivalent basis is computed using a federal tax rate of 34%.
(2)Changes attributable to both volume and rate have been allocated
proportionately.
TABLE 8
INVESTMENT SECURITIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1995 December 31, 1994
----------------------------------------- -----------------------------------------
Average Weighted Average Weighted
Amortized Market Maturity Average Amortized Market Maturity Average
Cost Value in Years Yield Cost Value in Years Yield
--------- ------- -------- -------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities........ $ 4,220 $ 4,226 2.5 5.98% $ 4,037 $ 3,905 1.1 4.55%
U.S. Government Agency
obligations................... 38,386 38,218 13.3 6.42 63,552 59,964 23.9 6.01
State, county and municipal
obligations................... 13,064 13,992 7.2 9.84(1) 12,428 12,637 6.0 11.09(1)
Other securities................ 1,059 1,059 7.06 1,110 1,110 5.93
------- ------- ------- -------
Total investment securities... $56,729 $57,495 11.1 7.19(1) $81,127 $77,616 20.0 6.71(1)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------------------------------------------------
After One After Five
Within Year to Years to After
One Year Five Years Ten Years Ten Years Weighted
-------------- --------------- -------------- --------------- Average
Amount Yield Amount Yield Amount Yield Amount Yield Total Yield(1)
------ ----- ------- ----- ------ ----- ------- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities............ $ 999 4.88 2,001 6.36 $1,220 6.26 $ 4,220 5.98
U.S. Government Agency
obligations........... 1,001 6.13 $16,719 6.82 $20,666 6.11 38,386 6.42
State, county and
municipal
obligations........... 1,517 8.52(1) 2,482 12.21(1) 5,654 9.67(1) 3,411 9.03(1) 13,064 9.84(1)
Other securities........ 1,059 7.06 1,059 7.06
------ ------- ------ ------- -------
Total investment
securities.......... $3,517 6.81(1) $21,202 7.41(1) $6,874 9.06(1) $25,136 6.54(1) $56,729 7.19(1)
====== ======= ====== ======= =======
</TABLE>
- ---------------
(1)The fully tax equivalent basis is computed using a federal tax rate of 34%.
Twelve
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
- --------------------------------------------------------------------------------
TABLE 9
LOAN PORTFOLIO
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1995 1994 1993(1) 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural.......... $ 16,773 $ 9,075 $ 9,089 $33,586 $32,832
Real estate -- construction..................... 2,147 0 445 582 560
Real estate -- mortgage......................... 67,505 48,336 48,896 16,176 16,483
Consumer........................................ 25,283 22,376 24,019 35,956 33,265
-------- ------- ------- ------- -------
Total loans, net of unearned income*.......... $111,708 $79,787 $82,449 $86,300 $83,140
======== ======= ======= ======= =======
</TABLE>
- ---------------
* The bank has no foreign loan activity.
(1) During the second quarter in 1993, the bank reclassified these loans to more
accurately reflect their collateral and purpose by balance sheet
classification. This reclassification was accomplished during a computer
hardware and software conversion with greater loan reporting capabilities.
Previous year's reporting reflects loan volume based on collateral, purpose
and the ability to process loans by less sophisticated application software.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------------------
Rate Structure for Loans
Maturity Maturing Over One Year
----------------------------------------- ---------------------------
One Over One Over Predetermined Floating or
Year or Year to Five Interest Adjustable
Less Five Years Years Total Rate Rate
------- ---------- ------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural................. $ 4,380 $ 9,421 $ 2,972 $ 16,773 $ 5,537 $ 6,856
Real estate -- construction.... 2,147 2,147
Real estate -- mortgage........ 7,457 22,887 37,161 67,505 41,906 18,142
Consumer....................... 5,015 10,686 9,582 25,283 10,689 9,579
------- -------- ------- -------- ------- -------
$18,999 $ 42,994 $49,715 $111,708 $58,132 $34,577
======= ======== ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Non-performing assets:
Nonaccrual (1)........................................... $ 44 $154 $634 $363 $1,062
Past due 90 days or more................................. 3 231 32 192
Other real estate........................................ 192 191 240 491 931
Renegotiated troubled debt............................... 243 338
</TABLE>
- ---------------
(1) If nonperforming loans outstanding at December 31, 1995 had been performing
in accordance with their terms, $3,426 more in interest income would have
been recorded in 1995. Actual interest income recorded in 1995 was $2,764.
Refer to Note 1 -- Loans on page 21 for a discussion of discontinuance of
accruals on loans.
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.
Thirteen
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
- --------------------------------------------------------------------------------
TABLE 10
STOCK PRICES AND DIVIDENDS DECLARED
On May 4, 1995, the stock of the Company was listed on the National Market
tier of The NASDAQ Stock Market under the symbol: FNBF. Prior to that time, the
stock of the Company was not listed or traded on any exchange or established
over-the-counter market; however, J.C. Bradford & Co., Inc. of Reidsville, North
Carolina provided an informal match market for persons desiring to buy or sell
stock of the Company. The following table sets forth the range of high and low
dollar price for shares of the Company's stock traded during the last two
calendar years (but does not reflect any retail mark-up, mark-down or
commissions related to such trades). Prior to May 4, 1995, the quotations are
from J.C. Bradford & Co., Inc., with regard to trades in which that firm acted
as agent. After May 4, 1995, the quotations are from NASDAQ.
<TABLE>
<CAPTION>
1995 1994
Price Range Price Range
--------------- ---------------
High/Low High/Low
--------------- ---------------
<S> <C> <C>
First Quarter................................. $16.75 / $15.50 $16.00 / $15.00
Second Quarter................................ $18.00 / $15.50* $15.75 / $14.50
Third Quarter................................. $19.00 / $16.00 $21.00 / $15.00
Fourth Quarter................................ $22.00 / $18.00 $24.00 / $16.75
</TABLE>
- ---------------
*The price range during the Second Quarter of 1995, prior to the Company's
affiliation with NASDAQ on May 4, 1995, was a high of $15.75 and a low of
$15.50. From May 4, 1995 to the end of the Second Quarter, the price range was
a high of $18.00 and a low of $16.75.
There were approximately 666 record holders of the Company stock at January
1, 1996. The following table shows the frequency and amount of cash dividends
(on a per share basis) declared on stock of the Company for the two most recent
calendar years.
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------
Calendar Quarter 1995 1994
----------------------------------------------------------------- ---- ----
<S> <C> <C>
First............................................................ $.16 $.15
Second........................................................... $.16 $.15
Third............................................................ $.17 $.15
Fourth........................................................... $.18 $.15
---- ----
Total Annual Dividends...................................... $.67 $.60
==== ====
</TABLE>
Fourteen
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Registrant
The registrant's sole subsidiary is First National Bank of
Reidsville, a national bank, which is wholly owned by the
Registrant
<PAGE> 1
EXHIBIT 23
CONSENT OF CHERRY, BEKAERT & HOLLAND, L.L.P.
We have issued our report dated January 26, 1996, accompanying the consolidated
financial statements incorporated by reference or included in the annual report
of FNB Financial Services Corporation and Subsidiary on Form 10-KSB for the
year ended December 31, 1995 (the "Annual Report"). We hereby consent to the
incorporation by reference of said reports in the Annual Report.
(Cherry, Bekaert & Holland, L.L.P.)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1995
ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
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0
0
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</TABLE>
