<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: March 31, 1997
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
----------- -----------
1,384,451 common shares were outstanding as of March 31, 1997, with a par value
of $1.00.
<PAGE> 2
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
INDEX
PART I FINANCIAL INFORMATION PAGE NUMBER
Item 1 Financial Statements
Consolidated Balance Sheet
March 30, 1997 and December 31, 1996 1
Consolidated Statement of Income
Three months ended March 31, 1997 and 1996 2
Consolidated Statement of Changes in Shareholders Equity
March 31, 1997 and December 31, 1996 3
Regulatory Capital Ratio Requirements 4
Consolidated Statement of Cash Flows
Three months ended March 31, 1997 and 1996 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
<PAGE> 3
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks 10,151 6,467
Federal funds sold 3,350 0
-------- --------
Total cash and cash equivalents 13,501 6,467
Securities available for sale 56,405 51,929
Other equity securities 740 643
Loans 157,992 144,585
Less: Allowance for loan losses (1,713) (1,638)
-------- --------
Net Loans 156,279 142,947
Property and equipment, net 5,826 4,686
Intangible assets 742 766
Accrued income and other assets 2,476 2,358
-------- --------
Total Assets 235,969 209,796
======== ========
Liabilities and Shareholders Equity
Deposits
Noninterest bearing 23,285 21,914
Interest bearing:
Savings accounts 17,404 17,945
NOW accounts 16,716 18,352
MMI accounts 14,571 13,646
Other time accounts 134,410 107,523
-------- --------
Total deposits 206,386 179,380
Federal funds purchased and securities
sold under repurchase agreements 7,087 8,650
Accrued expenses and other liabilities 1,894 1,380
-------- --------
Total Liabilities 215,367 189,410
Shareholders Equity
Common stock, $1.00 par; authorized
3,000,000 shares; 1,384,451 shares
issued in 1997; 1,101,686 shares
issued in 1996 1,384 1,383
Paid in Capital 2,759 2,728
Net unrealized gain/(loss) on securities
available for sale 60 156
Retained earnings 16,399 16,119
-------- --------
Total Shareholders Equity 20,602 20,386
Total liabilities and
shareholders equity 235,969 209,796
======== ========
</TABLE>
1
<PAGE> 4
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Consolidated Income Statement
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
INTEREST INCOME 1997 1996
---------- ----------
<S> <C> <C>
Interest and fees on loans 3,394 2,763
Interest on federal funds sold 47 6
Interest and dividends on investments:
U.S. Treasury securities 172 114
Federal Agency securities 472 516
State, County and Municipal securities 103 199
Other securities 11 23
---------- ----------
Total Interest Income 4,199 3,621
INTEREST EXPENSE
Interest on savings deposits 88 88
Interest on other time deposits 1,778 1,414
Interest on federal funds purchased,
borrowed funds, and securities sold
under agreement to repurchase 100 64
---------- ----------
Total Interest Expense 1,966 1,566
Net Interest Income 2,233 2,055
Provision for loan losses 80 101
---------- ----------
Net interest income after loan
loss provision 2,153 1,954
NONINTEREST INCOME
Deposit service charge 195 181
Insurance commissions 16 18
Net securities gains/(losses) 0 4
Net gain/(loss) on sale of assets 0 0
Unrealized gain/(loss) on mortgages (2) (5)
Other operating income 45 25
---------- ----------
Total noninterest income 254 223
NONINTEREST EXPENSE
Salaries and employee benefits 994 830
Net occupancy expense 118 76
Furniture and equipment expense 125 110
Insurance 9 9
Printing and supplies 54 46
Net loss on disposition of asset 33 36
Other operating expense 342 308
---------- ----------
Total noninterest expense 1,675 1,415
Income Before Income Taxes 732 762
Applicable income taxes 226 219
---------- ----------
NET INCOME 506 543
========== ==========
PER SHARE DATA
Net income $ 0.37 $ 0.39
Cash dividends $ 0.16 $ 0.14
Weighted average shares outstanding 1,384,002 1,376,125
</TABLE>
2
<PAGE> 5
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Changes
in Shareholders Equity
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------- -------
Common Stock
<S> <C> <C>
Balance at beginning of year 1,383 1,098
Stock dividend 0 275
Dividend reinvestment plan 1 60
Exercise of stock options 0 7
Employee stock awards 0 3
------- -------
Balance at end of year 1,384 1,443
Paid in Capital
Balance at beginning of year 2,728 2,580
Dividend reinvestment plan 30 60
Exercise of stock options 0 84
Employee stock awards 0 4
------- -------
Balance at end of year 2,758 2,728
Retained Earnings
Balance at beginning of year 16,119 14,837
Net income for years 506 2,410
Cash dividends (225) (848)
Stock dividend 0 (275)
Cash paid for fractional shares 0 (5)
------- -------
Balance at end of year 16,400 16,119
Net unrealized gains/(loss) on
securities held for sale 60 156
Total Shareholders Equity 20,602 20,446
======= =======
</TABLE>
3
<PAGE> 6
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Regulatory Capital Ratio Requirements
<TABLE>
<CAPTION>
Minimum Three Months Ended
Standard March 31, 1997
-------- ------------------
<S> <C> <C>
Capital Adequacy - Risk Based
- ------------------------------
Tier 1 4.0 % 11.92 %
Total Capital 8.0 % 12.97 %
Leverage Ratio
- --------------
Tier 1 3.0 % 8.93 %
</TABLE>
4
<PAGE> 7
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Cash Flows
(In thousands)
Increase/(Decrease) in Cash and Cash Equivalents:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Interest received 3,487 3,212
Fees and commissions 397 345
Interest paid (1,775) (1,595)
Noninterest expense paid (1,717) (1,485)
Income taxes paid (70) (77)
------- -------
Net cash provided/(used) by operating activities: 322 400
Cash flows from investing activities:
Acquisition, net of cash used 0 537
Proceeds from sale of securities 5,215 10,009
Proceeds from maturity of securities 6,107 3,379
Purchase of securities (15,997) (16,105)
Purchase of asset 0 (342)
Capital expenditure (1,213) (331)
(Increase)/Decrease in other real estate (27) 115
(Increase)/Decrease in net loans (13,408) (10,285)
------- -------
Net cash provided/(used) by investing activities: (19,323) (13,023)
Cash flows from financing activities:
Increase/(Decrease) in DDA, NOW, Savings 1,021 5,115
Increase/(Decrease) in time deposits 26,886 10,790
Increase/(Decrease) in repurchase agreements (1,563) (2,926)
Increase/(Decrease) in long term debt 0 0
Proceeds from stock issuance 31 72
Dividends paid (225) (198)
Purchase of fractional shares 0 (5)
------- -------
Net cash provided/(used) by investing activities: 26,150 12,848
Net Increase/(Decrease) in cash equivalents 7,149 225
Cash and cash equivalents as of January 1 6,467 4,647
------- -------
Cash and cash equivalents as of March 31 13,616 4,872
======= =======
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>
Three Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Net Income 506 543
Adjustments to reconcile net income to cash:
Provision for loan loss 80 101
Depreciation 94 93
Accretion and amortization 51 40
(Gain)/Loss on sale of securities 0 (4)
(Gain)/Loss on sale of assets 32 36
(Gain)/Loss on sale mortgages 2 5
(Increase)/Decrease in interest receivable (187) (294)
(Increase)/Decrease in prepaid expense (167) (72)
(Increase)/Decrease in accrued income (4) (2)
(Increase)/Decrease in miscellaneous assets 276 (56)
Increase/(Decrease) in taxes payable (159) 142
Increase/(Decrease) in interest payable 91 (29)
Increase/(Decrease) in accrued expenses (35) (127)
Increase/(Decrease) in prepaid income (4) 16
Increase/(Decrease) in miscellaneous liabilities (254) 8
---- ----
Net cash provided by operations 322 400
</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.
Additionally, on April 10, 1997, the Board of Directors declared a
one-for-three split of the common stock in the form of a 33 1/3% stock
dividend to shareholders of record on April 23, 1997. The dividend was
payable on April 30, 1997. No per share data in the financial statements
have been adjusted to reflect this split.
7
<PAGE> 10
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
3. Investment Securities
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------------- -----------------------
<S> <C> <C> <C> <C>
Securities available for sale
U.S. Treasury Securities 16,016 15,990 13,075 13,076
U.S. Agency Securities 33,798 36,604 31,906 31,760
State and Political sub-divisions 6,491 6,811 6,693 7,093
------ ------ ------ ------
Total Available for Sale 56,305 59,405 51,674 51,929
====== ====== ====== ======
Other equity securities 740 740 643 643
====== ====== ====== ======
</TABLE>
8
<PAGE> 11
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
4. Loans
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Loan category
Home equity 14,782 13,516
Commercial / agricultural 22,557 21,350
Credit line / other 1,344 1,095
Simple interest 15,782 15,517
Mortgage loans 103,527 93,107
------- -------
Total Loans * 157,992 144,585
======= =======
</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
March 31, March 31,
1997 1996
----- -----
<S> <C> <C>
Balance at beginning of period 1,638 1,258
Charge-offs:
Commercial, financial, agricultural 0 0
Real estate - construction 0 0
Real estate - mortgage 0 0
Consumer 26 18
----- -----
26 18
Recoveries:
Commercial, financial, agricultural 0 0
Real estate - construction 0 0
Real estate - mortgage 0 0
Consumer 21 10
----- -----
21 10
----- -----
Net Charge-Offs 5 8
----- -----
Allowance charged to operations 80 101
----- -----
Balance at end of period 1,713 1,351
===== =====
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.01 0.01
===== =====
Ratio of allowance for loan loss to
month end loans 1.08 1.11
===== =====
</TABLE>
10
<PAGE> 13
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
6. Allocation of Allowance for Loan Loss
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
---------------------------------- -----------------------------------
% 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 1,020 53% 648 20%
Real estate - construction 12 2% 10 2%
Real estate - mortgage 157 25% 141 57%
Consumer 163 20% 321 21%
Unallocated 326 0% 210 0%
------------------------------ --------------------------------
Total balance sheet allocation 1,678 100% 1,330 100%
========== ========
Off balance sheet commitments 35 21
------------ --------
Total allocation 1,713 1,351
============ ========
</TABLE>
11
<PAGE> 14
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
7. Nonperforming Assets
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
------------------ ------------------
<S> <C> <C>
Nonaccrual (1) 555 87
Past due 90 days or more 0 0
Other real estate 75 77
Renegotiated trouble debt 0 0
</TABLE>
(1) Other than amounts listed above, there are 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.
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 March 31, 1997 was 6.7% less than the
same quarter last year. The earnings decrease is principally a result of
additional up-front expenses in connection with an aggressive expansion strategy
into several new markets.
Interest Income and Interest Expense
Total first quarter interest income was up 16.0%, with average earning assets up
18.1%. Loans outstanding averaged 26.1% more in this year's first quarter, with
income from loans climbing 22.8%. Loan yields were down 14 basis points, at
9.31. Investment securities income was 11.1% less in the 1997 quarter, with
average balances declining by 5.6%.
Total interest expense 25.5% higher as average interest-bearing liabilities
increased by 27.4%. Rates paid on deposits were up 19 basis points over 1996,
with growth up strongly in relatively more expensive certificates of deposit.
Pricing this year was also more aggressive to fund the burgeoning loan growth.
Comparable net interest margins were as follows:
First Quarter, 1997 8.45% - 4.09% = 4.35%
First Quarter, 1996 8.65% - 3.87% = 4.78%
Noninterest Income and Expense
Noninterest income in the first quarter this year was up $31,000 or 13.9%.
Deposit service charges were 7.8% higher this year, and other income advanced 3
8.0% because of fees earned from the start-up bank card center.
Noninterest expense was $260,000 or 18.4% higher in the 1997 quarter, which
included $163,000 or 129.7% in personnel expense caused by normal year-beginning
salary adjustments and salaries/incentives for new office locations.
Occupancy/furniture & equipment expense was up $58,000 (31.2%) in the current
quarter, again principally because of new offices. Other line items increasing
at least $10,000 and 10% were marketing, legal,checkbook and two new line items
with no comparable expense in the 1996 first quarter, bank card processing and
premium on deposits
13
<PAGE> 16
purchased. Line items decreasing by the same parameters were net cash shortages,
directors fees, conventions and professional fees.
Income tax expense was marginally higher in 1997 despite lower income before
taxes as tax-beneficial municipal securities were greatly reduced this year.
14
<PAGE> 17
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
PART 2 - ITEM 3
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
27 Financial Data Schedule (for SEC use only).
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 5/12/97 /s/ Ernest J. Sewell
--------------------------------------------------
Ernest J. Sewell
(President & Chief Executive Officer)
Date 5/12/97 /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 THREE
MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 10,151
<INT-BEARING-DEPOSITS> 183,101
<FED-FUNDS-SOLD> 3,350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,405
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 157,992
<ALLOWANCE> (1,713)
<TOTAL-ASSETS> 235,969
<DEPOSITS> 206,386
<SHORT-TERM> 7,087
<LIABILITIES-OTHER> 1,894
<LONG-TERM> 0
0
0
<COMMON> 1,384
<OTHER-SE> 19,218
<TOTAL-LIABILITIES-AND-EQUITY> 235,969
<INTEREST-LOAN> 3,394
<INTEREST-INVEST> 758
<INTEREST-OTHER> 47
<INTEREST-TOTAL> 4,199
<INTEREST-DEPOSIT> 1,866
<INTEREST-EXPENSE> 1,966
<INTEREST-INCOME-NET> 2,153
<LOAN-LOSSES> 80
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,675
<INCOME-PRETAX> 732
<INCOME-PRE-EXTRAORDINARY> 732
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 506
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 8.49
<LOANS-NON> 555
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,638
<CHARGE-OFFS> 26
<RECOVERIES> 21
<ALLOWANCE-CLOSE> 1,713
<ALLOWANCE-DOMESTIC> 1,678
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 326
</TABLE>
