<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For Quarter Ended: September 30, 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
----- -----
2,481,029 common shares were outstanding as of September 30, 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
September 30, 1997 and December 31, 1996 1
Consolidated Statement of Income
Three months and nine months ended September 30, 1997
and 1996 2
Consolidated Statement of Changes in Shareholders Equity
September 30, 1997 and December 31, 1996 3
Regulatory Capital Ratio Requirements 4
Consolidated Statement of Cash Flows
Nine months ended September 30, 1997 and 1996 5 - 6
Notes to Consolidated Financial Statements 7 - 12
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 14
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>
September 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks 10,144 6,467
Federal funds sold 2,515 0
-------- --------
Total cash and cash equivalents 12,659 6,467
Securities available for sale 47,667 51,929
Other equity securities 1,392 643
Loans 212,276 144,585
Less: Allowance for loan losses (2,078) (1,638)
-------- --------
Net Loans 210,198 142,947
Property and equipment, net 6,505 4,686
Intangible assets 696 766
Accrued income and other assets 2,941 2,358
-------- --------
Total Assets 282,058 209,796
======== ========
Liabilities and Shareholders Equity
Deposits
Noninterest bearing 27,409 21,914
Interest bearing:
Savings accounts 16,895 17,945
NOW accounts 19,501 18,352
MMI accounts 15,986 13,646
Other time accounts 153,699 107,523
-------- --------
Total deposits 233,490 179,380
Federal funds purchased and securities
sold under repurchase agreements 9,387 8,650
Other borrowings 15,000 0
Accrued expenses and other liabilities 2,309 1,380
-------- --------
Total Liabilities 260,186 189,410
Shareholders Equity
Common stock, $1.00 par; authorized
3,000,000 shares; 2,481,029 shares
issued in 1997; 1,383,105 shares
issued in 1996 2,481 1,383
Paid in Capital 3,071 2,728
Net unrealized gain/(loss) on securities
available for sale 200 156
Retained earnings 16,120 16,119
-------- --------
Total Shareholders Equity 21,872 20,386
Total liabilities and
shareholders equity 282,058 209,796
======== ========
</TABLE>
1
<PAGE> 4
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Consolidated Income Statement
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------------------- ---------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans 4,777 3,112 12,291 8,854
Interest on federal funds sold 42 34 118 51
Interest and dividends on investments:
U.S. Treasury securities 87 243 448 602
Federal Agency securities 509 354 1,469 1,289
State, County and Municipal securities 80 161 283 524
Other securities 14 11 38 41
------ ------ ------ ------
Total Interest Income 5,509 3,915 14,647 11,361
INTEREST EXPENSE
Interest on savings deposits 85 100 258 288
Interest on other time deposits 2,291 1,524 6,175 4,449
Interest on federal funds purchased,
borrowed funds, and securities sold
under agreement to repurchase 184 116 414 251
------ ------ ------ ------
Total Interest Expense 2,560 1,740 6,847 4,988
Net Interest Income 2,949 2,175 7,800 6,373
Provision for loan losses 230 101 460 302
------ ------ ------ ------
Net interest income after loan
loss provision 2,719 2,074 7,340 6,071
NONINTEREST INCOME
Deposit service charge 233 187 650 555
Insurance commissions 14 18 46 54
Net securities gains/(losses) 4 54 36 112
Unrealized gain/(loss) on mortgages 14 (1) 16 14
Other operating income 92 22 209 71
------ ------ ------ ------
Total noninterest income 357 280 957 806
NONINTEREST EXPENSE
Salaries and employee benefits 1,233 872 3,349 2,570
Net occupancy expense 144 84 392 244
Furniture and equipment expense 160 117 440 343
Insurance 19 9 43 26
Printing and supplies 61 47 182 138
Net loss on disposition of asset (1) 0 24 38
Other operating expense 417 258 1,163 917
------ ------ ------ ------
Total noninterest expense 2,033 1,387 5,593 4,276
Income Before Income Taxes 1,043 967 2,704 2,601
Applicable income taxes 359 310 897 798
------ ------ ------ ------
NET INCOME 684 657 1,807 1,803
====== ====== ====== ======
PER SHARE DATA
Net income $0.28 $0.27 $0.73 $0.74
Cash dividends $0.10 $0.09 $0.29 $0.26
Weighted average shares outstanding 2,478,081 2,456,135 2,467,616 2,451,788
</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,
1997 1996
------------- ------------
<S> <C> <C>
Common Stock
Balance at beginning of year 1,383 1,098
Stock dividend 1,082 275
Shares issued 11 0
Exercise of stock options 5 7
Employee stock awards 0 3
------- -------
Balance at end of year 2,481 1,383
Paid in Capital
Balance at beginning of year 2,728 2,580
Shares issued 293 60
Exercise of stock options 49 84
Employee stock awards 1 4
------- -------
Balance at end of year 3,071 2,728
Retained Earnings
Balance at beginning of year 16,119 14,837
Net income for year 1,807 2,410
Cash dividends (710) (848)
Stock dividend (1,082) (275)
Cash paid for fractional shares (14) (5)
------- -------
Balance at end of year 16,120 16,119
Net unrealized gains/(loss) on
securities held for sale 200 156
Total Shareholders Equity 21,872 20,386
======= =======
</TABLE>
3
<PAGE> 6
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Regulatory Capital Ratio Requirements
<TABLE>
<CAPTION>
Minimum Nine Months Ended
Standard September 30, 1997
-------- ------------------
<S> <C> <C>
Capital Adequacy - Risk Based
- -----------------------------
Tier 1 4.0% 9.52%
Total Capital 8.0% 10.47%
Leverage Ratio
- --------------
Tier 1 4.0% 7.98%
</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>
Nine Months Ended
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Interest received 14,340 10,921
Fees and commissions 1,462 1,022
Interest paid (7,189) (5,008)
Noninterest expense paid (4,974) (3,772)
Proceeds from loans/participations sold 8,268 281
Income taxes paid (963) (1,117)
------- -------
Net cash provided/(used) by operating activities: 10,944 2,327
Cash flows from investing activities:
Acquisition, net of cash used 0 537
Proceeds from sale of securities 38,600 30,972
Proceeds from maturity of securities 13,617 7,130
Purchase of securities (48,006) (30,616)
(Purchase)/Sale of asset 269 (342)
Capital expenditure (2,154) (1,234)
(Increase)/Decrease in other real estate (109) 159
(Increase)/Decrease in overnight investments (2,515) 0
(Increase)/Decrease in net loans (74,844) (24,338)
------- -------
Net cash provided/(used) by investing activities: (75,142) (17,732)
Cash flows from financing activities:
Increase/(Decrease) in DDA, NOW, Savings 8,836 10,578
Increase/(Decrease) in time deposits 46,176 9,546
Increase/(Decrease) in repurchase agreements 737 (2,766)
Increase/(Decrease) in other borrowings 15,000 0
Proceeds from stock issuance 366 93
Dividends paid (710) (626)
Purchase of fractional shares (15) (6)
------- -------
Net cash provided/(used) by investing activities: 70,390 16,819
Net Increase/(Decrease) in cash equivalents 6,192 1,414
Cash and cash equivalents as of January 1 6,467 4,647
------- -------
Cash and cash equivalents as of September 30 12,659 6,061
======= =======
</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,
1997 1996
------------- -------------
<S> <C> <C>
Net Income 1,807 1,804
Adjustments to reconcile net income to cash:
Provision for loan loss 460 302
Depreciation 341 282
Accretion and amortization 196 189
(Gain)/Loss on sale of securities (36) (112)
(Gain)/Loss on sale of assets 24 38
(Gain)/Loss on sale mortgages (16) 8
Proceeds from loans sold 8,268 281
(Increase)/Decrease in interest receivable (701) (187)
(Increase)/Decrease in prepaid expense (77) (9)
(Increase)/Decrease in accrued income (14) (10)
(Increase)/Decrease in miscellaneous assets 6 (394)
Increase/(Decrease) in taxes payable 66 (64)
Increase/(Decrease) in interest payable 248 (21)
Increase/(Decrease) in accrued expenses 262 146
Increase/(Decrease) in prepaid income 4 6
Increase/(Decrease) in miscellaneous liabilities 106 68
------- ------
Net cash provided by operations 10,944 2,327
</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, 1997.
2. Stock Split
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 to be issued on April 30, 1997. As a result,
$461,790 ($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 $6,098. All per
share data in the financial statements have been adjusted to reflect the
split.
On August 12, 1997 the Board of Directors declared another one-for-three
split of the common stock in the form of a 33 1/3% stock dividend to
shareholders of record on September 5, 1997 to be issued on September 12,
1997. As a result, $620,047 ($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 $8,599. All per share data in the financial statements have been adjusted
to reflect the split.
7
<PAGE> 10
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
3. Investment Securities
<TABLE>
<CAPTION>
September 30, 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 6,118 6,135 13,075 13,076
U.S. Agency Securities 36,266 36,247 31,906 31,760
State and Political sub-divisions 4,954 5,285 6,693 7,093
------ ------ ------ ------
Total Available for Sale 47,338 47,667 51,674 51,929
====== ====== ====== ======
Other equity securities 1,392 1,392 643 643
====== ====== ====== ======
</TABLE>
8
<PAGE> 11
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
4. Loans
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Loan category
Home equity 18,377 13,516
Commercial/agricultural 127,522 21,350
Credit line/other 2,411 1,095
Simple interest 19,489 15,517
Mortgage loans 44,477 93,107
------- -------
Total Loans* 212,276 144,585
======= =======
</TABLE>
* The Bank has no foreign loan activity.
The Company is currently reviewing all loans based on purpose, collateral,
and other characteristics in determining the most appropriate loan
category placement.
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, September 30,
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 92 55
----- -----
92 55
Recoveries:
Commercial, financial, agricultural 0 0
Real estate - construction 0 0
Real estate - mortgage 0 0
Consumer 72 38
----- -----
72 38
----- -----
Net Charge-Offs 20 17
----- -----
Allowance charged to operations 460 302
----- -----
Balance at end of period 2,078 1,543
===== =====
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.02 0.02
===== =====
Ratio of allowance for loan loss to
month end loans 0.98 1.15
===== =====
</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, 1997 September 30, 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 1,222 60% 791 15%
Real estate - mortgage 180 21% 163 2%
Consumer 221 19% 378 62%
Unallocated 408 0% 187 21%
----- --- ----- ---
Total balance sheet allocation 2,031 100% 1,519 100%
=== ===
Off balance sheet commitments 47 24
----- -----
Total allocation 2,078 1,543
===== =====
</TABLE>
11
<PAGE> 14
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
7. Nonperforming Assets
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------- --------------
<S> <C> <C>
Nonaccrual (1) 1,269 405
Past due 90 days or more 0 0
Other real estate 143 33
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 September 30, 1997 was 4.1% more than
the same quarter last year, while earnings for the year to date improved 0.2%
over 1996. Earnings this year have been reduced by expenditures in connection
with a very aggressive expansion program into new markets, which we anticipate
will greatly benefit 1998.
Interest Income and Interest Expense
Total third quarter interest income increased 40.7% over the same quarter last
year, with a 33.5% gain in earning assets. Quarterly income from loans was 53.5%
higher, as average loan balances increased 48.9%, with the loan yield improving
from 9.26% to 9.54% in the current quarter. Average investment securities
declined 8.4% resulting in less income of 10.8%, as the portfolio was shortened
and reduced, to complement the growth in loans. For the year to date this year,
interest income was 28.9% higher (38.8% in loans), on a 24.7% increase in
average earning assets.
Total interest expense in the third quarter this year was 47.1% more than the
same quarter last year, with average interest bearing liabilities up 38.5%, as
growth has occurred primarily in relatively higher cost certificates of deposit.
The weighted rate paid for time deposits increased to 4.74% this quarter,
compared to 4.33% in the 1996 third quarter, as a result of the increased mix of
certificates of deposit and aggressive pricing to fund loan growth. Purchased
funds have been utilized to a greater extent recently, with FHLB borrowings
replacing shorter-term municipal jumbo certificates. For the nine months to
date, interest expense increased 37.3%, with average interest bearing
liabilities 29.8% ahead of 1996.
Comparable interest rate spreads were as follows:
Third Quarter, 1997 8.87% - 4.23% = 4.64%
Third Quarter, 1996 8.47% - 3.87% = 4.60%
Year to Date, 1997 8.70% - 4.18% = 4.52%
Year to Date, 1996 8.52% - 3.85% = 4.67%
13
<PAGE> 16
Noninterest Income and Expense
Noninterest income in the third quarter this year was up 27.5% from 1996,
including 24.6% more in deposit service charges. This year also benefited from
greatly increased fees in connection with a bank card center opened in the last
quarter of 1996. For the full nine months, noninterest income was 18.8% higher
this year, with deposit service charges up 17.0% and bank card fee income
$132,000 higher than 1996, offset by a reduction of $76,000 in gains on
securities sales.
Noninterest expense was 46.6% more in the current quarter, which includes a
41.4% increase in personnel expenses and 51.2% in occupancy/equipment expense,
with both variances caused principally by our office expansion program. Printing
and supplies expense increased 30.5% during the quarter and other operating
expense was up 61.0%. For the nine months to date, 1997 expenses were 30.8%
higher, with variances similar in nature and effect to the quarterly
differences.
The loan loss provision was increased 128% for the quarter end and 52.1% for the
year to date, despite only marginal loan losses, as the explosive loan growth
dictated a higher allowance level.
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 11/11/97 /s/ Ernest J. Sewell
--------------------------------------------
Ernest J. Sewell
(President & Chief Executive Officer)
Date 11/11/97 /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 NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,144
<INT-BEARING-DEPOSITS> 206,081
<FED-FUNDS-SOLD> 2,515
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,667
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 212,276
<ALLOWANCE> (2,078)
<TOTAL-ASSETS> 282,058
<DEPOSITS> 233,490
<SHORT-TERM> 19,387
<LIABILITIES-OTHER> 2,309
<LONG-TERM> 10,000
0
0
<COMMON> 2,481
<OTHER-SE> 19,391
<TOTAL-LIABILITIES-AND-EQUITY> 282,058
<INTEREST-LOAN> 12,291
<INTEREST-INVEST> 2,238
<INTEREST-OTHER> 118
<INTEREST-TOTAL> 14,647
<INTEREST-DEPOSIT> 6,433
<INTEREST-EXPENSE> 6,847
<INTEREST-INCOME-NET> 7,800
<LOAN-LOSSES> 460
<SECURITIES-GAINS> 36
<EXPENSE-OTHER> 6,593
<INCOME-PRETAX> 2,704
<INCOME-PRE-EXTRAORDINARY> 2,704
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,807
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
<YIELD-ACTUAL> 8.70
<LOANS-NON> 1,269
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,638
<CHARGE-OFFS> 92
<RECOVERIES> 72
<ALLOWANCE-CLOSE> 2,078
<ALLOWANCE-DOMESTIC> 2,031
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 47
</TABLE>
