<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000.
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 of (I.R.S. Employer
incorporation or organization) Identification Number)
202 South Main Street, Reidsville, NC 27320
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
336-342-3346
- --------------------------------------------------------------------------------
(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 [ ]
4,484,213 common shares were outstanding as of April 30, 2000, with a par value
of $1.00 per share.
<PAGE> 2
FNB FINANCIAL SERVICES CORPORATION
AND SUBSIDIARIES
INDEX
PAGE NUMBER
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 1
Consolidated Statements of Income and Comprehensive Income
Three months ended March 31, 2000 and 1999 2
Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999 3 - 4
Notes to Consolidated Financial Statements 5 - 8
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 12
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 12
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 13
ITEM 2 Changes in Securities and Use of Proceeds 13
ITEM 3 Defaults Upon Senior Securities 13
ITEM 4 Submission of Matters to a Vote of Security Holders 13
ITEM 5 Other Information 13
ITEM 6 Exhibits and Reports on Form 8 - K 13
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FNB Financial Services Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited; in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $ 21,615 $ 24,391
Investment securities:
Securities available for sale 131,059 129,445
Federal Home Loan Bank and Federal Reserve Bank Stock 3,622 2,573
Loans, net allowance for credit losses of $4,932 at
March 31, 2000, and $4,436 at December 31, 1999 437,741 408,821
Loans held for sale 830 754
Premises and equipment, net 10,147 9,807
Accrued income and other assets 12,043 12,628
--------- ---------
Total Assets $ 617,057 $ 588,419
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 50,396 $ 47,915
Interest bearing 443,620 436,327
--------- ---------
Total deposits 494,016 484,242
Federal funds purchased and retail repurchase agreements 14,878 15,599
Other borrowings 51,500 31,500
Accrued expenses and other liabilities 5,354 6,348
--------- ---------
Total liabilities 565,748 537,689
--------- ---------
Shareholders' Equity
Preferred stock no par; authorized 10,000,000 shares;
none issued -- --
Common stock, $1.00 par; authorized
40,000,000 shares;
outstanding 4,484,213 at March 31, 2000
and 4,478,545 at December 31, 1999 4,484 4,479
Paid-in capital 25,717 25,653
Retained earnings 24,504 23,458
Accumulated other comprehensive income (loss) (3,396) (2,860)
--------- ---------
Total shareholders' equity 51,309 50,730
--------- ---------
Total Liabilities and Shareholders' Equity $ 617,057 $ 588,419
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
1
<PAGE> 4
FNB Financial Services Corporation and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
(Unaudited; in thousands, except per share date)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Interest income
Loans $ 9,646 $ 7,965
Federal funds sold & overnight deposits 118 38
Investment securities
Taxable 1,786 1,944
Tax exempt 149 85
Other 47 32
----------- -----------
Total interest income 11,746 10,064
----------- -----------
Interest expense
Deposits 5,660 5,021
Federal funds purchased and other borrowings 676 279
----------- -----------
Total interest expense 6,336 5,300
----------- -----------
Net interest income 5,410 4,764
Provision for credit losses 536 229
----------- -----------
Net interest income after provision for credit loss 4,874 4,535
Other income
Service charges on deposit accounts 444 368
Bankcard fees 115 112
Net gain on sale of loans 14 60
Net gain of on sale credit card operations 148 0
Net gain on securities available for sale -- 90
Other income 84 84
----------- -----------
Total other income 805 714
Other expenses
Salaries and employee benefits 1,927 2,020
Occupancy expense 204 177
Furniture and equipment expense 345 353
Insurance expense, including FDIC assessment 36 26
Printing and supply expense 82 81
Bankcard processing 99 85
Other expenses 767 798
----------- -----------
Total other expenses 3,460 3,540
Income before income taxes 2,219 1,709
Income tax expense 717 550
----------- -----------
Net income 1,502 1,159
Other comprehensive income (loss) (536) (921)
----------- -----------
Comprehensive income $ 966 $ 238
=========== ===========
Per share data
Net income, basic $ 0.34 $ 0.26
Net income, diluted $ 0.33 $ 0.25
Cash dividends $ 0.11 $ 0.08
Weighted average shares outstanding, basic 4,480,502 4,493,124
Weighted average shares outstanding, diluted 4,506,213 4,609,607
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE> 5
FNB Financial Services Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited; in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 11,922 $ 9,886
Fees and commissions received 895 845
Interest paid (6,081) (5,474)
Noninterest expense paid (4,214) (3,537)
Income taxes paid (263) (232)
Proceeds from mortgage loans 818 1,863
-------- --------
Net cash provided by operating activities 3,077 3,351
-------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale 1,460 43,698
Proceeds from maturities of securities available for sale 146 --
Purchase of securities (5,309) (24,918)
Capital expenditures (607) (303)
(Increase) decrease in other real estate owned 42 445
(Increase) decrease in loans (30,251) (12,657)
-------- --------
Net cash used in investing activities (34,519) 6,265
-------- --------
Cash flows from financing activities:
Increase (decrease) in demand, savings and interest checking accounts 7,078 387
Increase (decrease) in time deposits 2,696 (4.239)
Increase (decrease) in federal funds purchased and retail repurchase
agreements (721) (3,830)
Increase (decrease) in other borrowings 20,000 5,000
Proceeds from issuance of common stock 69 109
Repurchase of common stock -- (2,084)
Dividends paid (456) (363)
-------- --------
Net cash provided by financing activities 28,666 (5,020)
-------- --------
Net increase (decrease) in cash and cash equivalents (2,776) 4,596
Cash and cash equivalents, January 1 24,391 15,739
-------- --------
Cash and cash equivalents, March 31 $ 21,615 $ 20,335
======== ========
Supplemental disclosure of non-cash transactions:
Non-cash transfers from loans to other real estate $ 59 $ 157
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE> 6
FNB Financial Services Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited; in thousands)
Reconciliation of net income to net cash provided by operating activities:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
2000 1999
------- -------
<S> <C> <C>
Net income $ 1,502 $ 1,159
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for credit losses 536 229
Depreciation 265 238
Accretion and amortization 108 141
(Gain) loss on sale of securities available for sale -- (90)
(Gain) loss on sale of mortgage loans (14) (60)
Proceeds from mortgage loans 818 1,863
(Gain) loss on other assets (128) 58
(Increase) decrease in accrued income and other assets 984 (134)
Increase (decrease) in accrued expenses and other liabilities (994) (53)
------- -------
Net cash provided by operating activities $ 3,077 $ 3,351
======= =======
</TABLE>
See notes to unaudited consolidated financial statements
4
<PAGE> 7
FNB Financial Services Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
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, these statements do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three month period ended March 31, 2000 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2000.
2. Significant Activities
On August 31, 1999, the Company completed the acquisition of Black Diamond
Savings Bank, F.S.B., ("Black Diamond") through the issuance of 1.3333
shares of the Company's common stock for each share of Black Diamond's
outstanding common stock, or 1,113,997 shares. The acquisition has been
accounted for as a pooling of interests, and accordingly, all historical
financial information has been restated to include the balances and
operations of both entities.
Separate information of the pooled entities for the year ended December 31,
1999, is as follows:
FNB Southeast Black Diamond Combined
------------- ------------- --------
Total assets $445,172 $143,147 $588,419
Total income 34,477 11,033 45,410
Net interest income 16,749 3,678 20,427
Net income 3,744 504 4,248
During April of this year, FNB Southeast opened three new offices in
North Carolina. The Bank added two full-service banking offices in
Greensboro, and a Wilmington office with primary emphasis in construction
and mortgage lending.
FNB Southeast operates 13 offices in North Carolina, and Black Diamond
operates 5 offices in Virginia.
3. Comprehensive Income
The Company's other comprehensive income for the three month period ended
March 31, 2000, and 1999 consists of unrealized gains and losses on
available for sale securities, net of related income taxes.
4. Segment information
During the year ended December 31, 1998, the Bank adopted SFAS 131,
"Disclosure about Segments of an Enterprise and Related Information." SFAS
131 establishes standards for determining an entity's operating segments
and the type and level of financial information to be disclosed in both
annual and interim financial statements. It also establishes standards for
related disclosures about products and services, geographic areas, and
major customers.
Information related to the Company's segments is as follows:
FNB Southeast Black Diamond Combined
------------- ------------- --------
March 31, 2000
Total assets $471,609 $145,448 $617,057
Total income 9,655 2,896 12,551
Net income 1,226 276 1,502
March 31, 1999
Total assets 413,320 130,666 543,986
Total income 8,202 2,575 10,777
Net income 840 319 1,159
5
<PAGE> 8
5. Net Income Per Share
Basic and diluted earnings per share amounts have been computed based upon
net income as presented in the accompanying income statements divided by
the weighted average number of common shares outstanding or assumed to be
outstanding as summarized.
Three Month Ended
March 31,
------------------------
2000 1999
--------- ---------
Weighted average number of shares
used in basic EPS 4,480,502 4,493,124
Effect of dilutive stock options 25,711 116,483
--------- ---------
Weighted average number of common
shares and dilutive potential common
shares used in dilutive EPS 4,506,213 4,609,607
========= =========
6. Investment Securities
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
---------------------- -----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- -------- --------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 200 $ 200 $ 200 $ 200
U.S. Agency securities 122,269 116,939 122,604 118,002
State and municipal obligations 12,377 12,379 9,989 9,959
Other debt securities 1,598 1,541 1,340 1,284
Other equity 3,622 3,622 2,573 2,573
-------- -------- -------- --------
Total investment securities $140,066 $134,681 $136,706 $132,018
======== ======== ======== ========
</TABLE>
7. Loans
March 31, 2000 December 31, 1999
-------------- -----------------
Loan Category
Real estate - commercial $125,379 $115,434
Real estate - residential 134,250 130,676
Real estate - construction 43,755 34,680
Commercial, financial and
agricultural 65,730 58,002
Consumer - direct 34,383 32,778
Consumer - home equity 34,041 32,836
Consumer - other 5,965 9,605
-------- --------
Total loans $443,503 $414,011
======== ========
6
<PAGE> 9
8. Allocation of Allowance for Credit Losses
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
------------------------- ----------------------------
% of Loans in % of Loan in
Each Category Each Category
Allowance to Total Loans Allowance to Total Loans
--------- -------------- ---------- ---------------
<S> <C> <C> <C> <C>
Balance at end of period applicable to :
Real estate - construction $ 6 10% $ 50 8%
Real estate - mortgage 1,008 30 868 60
Commercial 2,594 43 2,087 14
Consumer 1,324 17 1,276 18
General 0 155 0 0
------ --- ------ ---
Total allocation $4,932 100% $4,436 100%
====== === ====== ===
</TABLE>
9. Analysis of Allowance for Credit Losses
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
2000 1999
------ ------
<S> <C> <C>
Balance, beginning of period $4,436 $3,452
Charge-offs 83 121
Recoveries 43 17
------ ------
Net Charge-offs 40 104
------ ------
Allowance charged to operations 536 229
------ ------
Balance, end of period $4,932 $3,577
====== ======
Ratio of annualized net charge-offs during the
period to average loans outstanding
during the period 0.04% 0.13%
====== ======
Ratio of allowance for loan loss to
month end loans 1.11% 0.96%
====== ======
</TABLE>
7
<PAGE> 10
10. Nonperforming Assets
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Nonaccrual (1) $ 1,937 $ 1,195
Past due 90 days or more and still accruing interest 79 117
Other real estate 492 534
Renegotiated troubled debt -- --
</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.
8
<PAGE> 11
PART I - ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Information set forth below contains various forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which statements represent the Company's
judgment concerning the future and are subject to risks and uncertainties that
could cause the Company's actual operating results to differ materially. Such
forward-looking statements can be identified by the use of forward-looking
terminology, such as "may", "will", "expect", "anticipate", "estimate",
"believe", or "continue", or the negative thereof or other variations thereof or
comparable terminology. The Company cautions that such forward-looking
statements are further qualified by important factors that could cause the
Company's actual operating results to differ materially from those in the
forward-looking statements, including the factors set forth under "Risk Factors"
in the Company's Annual report on Form 10-K filed with the Securities and
Exchange Commission (File No. 333-82873).
Summary
Net income of $1.50 million for the quarter ended March 31, 2000 represented a
29.6% increase over the $1.16 million earned in the first quarter last year.
Diluted earnings per share for the current quarter was $0.33 per share, a 32.0%
increase from $0.25 reported one year earlier.
Assets at March 31, 2000 stood at $617.1 million, an increase of $73.1 million
compared to $544.0 million one year earlier. Assets have increased $28.6 million
since December 31, 1999. The increase in assets is due to loan growth of $70.3
million over the proceeding twelve months, with $29.5 million of this growth
occurring in the first quarter of 2000.
To support this asset growth over the past year, deposits have increased $38.3
million, and other borrowings have increased $29.0 million.
Interest Income and Interest Expense
First quarter total interest income was $11.7 million, an increase of 16.7% over
the same quarter last year. Average earning assets for the quarter were $572.6
million, compared to $517.3 million for the year ago period. Interest income
from loans was $9.65 million, up 21.1% from $7.96 million one year earlier. The
increase was driven by an 18.8% increase in average loans, and an increase in
the average yield to 9.04% from 8.69%.
Interest income on investments totaled $1.94 million, for the current quarter,
down $94,000 from the year ago quarter. The decrease is attributable to a
decrease in average investments to $132.8 million in 2000 compared to $143.1
million in 1999.
First quarter total interest expense was $6.34 million compared to $5.30 from
last year, a 19.5% increase. Average interest bearing liabilities for the first
quarter 2000 increased 12.3% to $496.6 million. Overall cost of funds for the
first quarter was 5.10% and 4.79% for 2000 and 1999, respectively.
Interest expense on deposits for the quarter increased 8.9% to $5.66 million as
average interest bearing deposits increased 7.9% to $443.9 million. The average
rate on interest bearing deposits increased to 5.10% from 4.88% one year
earlier.
9
<PAGE> 12
Interest expense on federal funds purchased and other borrowings was $676,000,
up 142.3%, from $279,000 in the first quarter of 1999. The increase is primarily
attributable to an increase in average purchased funds from $30.9 million in the
1999 first quarter compared to $52.7 million in the 2000 first quarter.
Comparable net interest margins as follows:
Liability
Time Period Asset Yield Rate Interest Rate Spread
- ----------- ----------- --------- --------------------
First Quarter, 2000 8.26% - 5.10% = 3.16%
First Quarter, 1999 7.82% - 4.79% = 3.03%
Noninterest Income and Expense
Noninterest income in the first quarter this year increased 12.9% to $805,000,
primarily due to a $148,000 gain on the sale of the Company's credit card
portfolio. For the current quarter, there were no net securities gains compared
to $90,000 recorded one year earlier. For the current quarter, net gains on
sales of mortgages were $14,000 compared to $60,000 recorded one year earlier, a
decrease of $46,000. Increases in noninterest income resulted from deposit
service charges and bankcard fees. Deposit service charges increased 20.6% to
$444,000 for the 2000 first quarter compared to $368,000 in the same period last
year. Bankcard fees also increased for the 2000 first quarter to $115,000 up
2.7% over the $112,000 recorded last year. However, as the credit card operation
was sold during the quarter, these fees will no longer be a source of
noninterest income for the company.
Noninterest expense for the first quarter of 2000 was $3.46 million, a 2.2%
decrease from the first quarter of 1999. The decline is due to a $93,000, or a
4.6% decline in salaries and modest increases in other expense categories.
Bankcard processing expense was $99,000 and $85,000 for the 2000 first quarter
and 1999 first quarter, respectively. These expenses primarily are related to
the credit card operation that was sold during the 2000 quarter, therefore, a
large percent of the expenses will no longer be necessary for the Company.
The provision for loan losses was funded at a higher level due to overall loan
growth. Consolidated provision expense for the first quarter was $536,000
compared to $229,000 in the first quarter of 1999. The allowance ratio at
quarter end stood at 1.11% for 2000, compared to 0.96% in 1999.
The effective income for rate of 32.3% for the three months of 2000 did not
significantly change from the 32.2% rate in the same period of 1999.
Financial Condition
The Company's total assets at March 31, 2000 and 1999, were $617.1 million and
$544.0 million, respectively. The $73.1 million increase represents a 13.4%
increase over one year earlier. Since December 31, 1999, assets have increased
$28.6 million. Average earning assets for the current quarter were $572.1
million, or 10.7% higher than the $517.3 million average in the same quarter
last year.
Loans at March 31, 2000, totaled $443.5 million compared to $373.0 million one
year earlier, an increase of 18.8%. Loans have increased 7.1% from $414.0
million at December 31, 1999. Average loans for quarter were $427.0 million, or
16.5% higher than one year ago.
10
<PAGE> 13
Investment securities of $134.7 million at March 31, 2000, were 1.0% lower than
$136.1 million one year earlier. Average investment securities were $132.8
million and $143.1 million for the 2000 and 199 first quarter, respectively.
Deposits totaled $494.0 million at March 31, 2000, an 8.4% increase versus one
year ago, and a 2.0% increase over the $484.2 million recorded at December 31,
1999. At March 31, 2000, noninterest bearings deposits were $50.4 million., or
10.2% of total deposits.
At the end of the current quarter, borrowings at the Federal Home Loan Bank of
Atlanta totaled $45.0 million. The Company has access to approximately $88.5
million in lines of credit at the Federal Home Loan Bank of Atlanta through its
subsidiaries. In recent years, the Company has increasingly utilized these
borrowings to supplement deposit growth in order to fund loan growth.
Shareholders equity increased to $51.3 million at quarter end, compared to $50.7
million at the previous year-end.
Asset Quality
The allowance ratio at March 31, 2000, stood at 1.11% compared to 1.07% at
December 31, 1999, and 0.96% at March 31, 1999. For the first quarter 2000,
provision charges against earnings totaled $536,000 compared to $229,000 in the
first quarter one year earlier. Net loan losses for the quarter totaled $40,000,
or a 0.04% annualized loss ratio based on average loans outstanding. During the
quarter nonaccrual loans increased to $1.94 million, from $1.20 million at
prior year end.
The Company's allowance for loan loss is analyzed quarterly by management. This
analysis includes a methodology that segments the loan portfolio by selected
types and considers the current status of the portfolio, historical charge-off
experience, current levels of delinquent, impaired and non-performing loans, as
well as economic and other risk factors. It is also subject to regulatory
examinations and determinations and determinations as to adequacy, which may
take into account such factors as the methodology employed and other analytical
measures in comparison to a group of peer banks. Management believes the
allowance for loan losses is sufficient to absorb known risk in the portfolio.
No assurances can be given that future economic conditions will not adversely
affect borrowers and result in increased losses.
Other real estate owned decreased to $492,000 at March 31, 2000, compared to
$534,000 at December 31, 1999. The decline resulted from the sale of other real
estate during the year. A loss of $20,000 was recorded in conjunction with the
sale of such property.
Capital Resources
Banks and bank holding companies, as regulated institutions, must meet required
levels of capital. The Office of the Commissioner of Banks in North Carolina,
the Office of Thrift Supervision and the Federal Reserve, which are the primary
regulatory agencies for FNB Southeast, Black Diamond and the Company,
respectively, have adopted minimum capital regulations or guidelines that
categorize components and the level of risk associated with various types of
assets. Financial institutions are required to maintain a level of capital
commensurate with the risk profile assigned to its assets in accordance with the
guidelines. As shown in the table below, the Company and its wholly-owned
subsidiaries, have capital levels exceeding the minimum levels for "well
capitalized" banks and bank holding companies as of March 31, 2000.
11
<PAGE> 14
Regulatory Guidelines Actual
------------------------ -------------------------------
Well Adequately FNB Black
Ratio Capitalized Capitalized Company Southeast Diamond
- ----- ----------- ----------- ------- --------- -------
Total Capital 10.0% 8.0% 13.7% 13.8% 12.1%
Tier 1 Capital 6.0 4.0 12.6 12.8 10.6
Leverage Capital 5.0 4.0 9.1 9.5 6.5
Liquidity Management
Liquidity management refers to the ability to meet day-to-day cash flow
requirements based primarily on activity in loan and deposit accounts of the
Company's customers. Deposit withdrawal, loan funding, dividends to
shareholders, and general corporate activities create a need for liquidity for
the Company. Liquidity is derived from sources such as deposit growth,
maturities/calls/sales of investment securities, principal and interest payments
on loans, access to borrowed funds or lines of credit, and profits. Internal
liquidity analysis indicates the Company has the ability to generate sufficient
amounts of cash to cover day-to-day activity and fund earning assets growth over
the twelve month period analyzed.
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 net interest margins as a major source of
earnings. Non-interest expenses, such as salaries and wages, occupancy and
equipment cost are also negatively impacted by inflation.
PART I - ITEM 3
Quantitative and Qualitative Disclosures About Market Risk
Market risk is the possible chance of loss from unfavorable changes in
market prices and rates. These changes may result in a reduction of
current and future period net interest income, which is the favorable
spread earned from the excess of interest income on interest-earning
assets, over interest expense on interest-bearing liabilities.
The Company considers interest rate risk to be its most significant
market risk, which could potentially have the greatest impact on
operating earnings. The Company is asset sensitive, which means that
falling interest rates could result in a reduced amount of net interest
income. The monitoring of interest rate risk is part of the Company's
overall asset/liability management process. The primary oversight of
asset/liability management rests with the Company's Asset and Liability
Committee. The Committee meets on a regular basis to review
asset/liability activities and to monitor compliance with established
policies.
12
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1.
Legal proceedings
None.
ITEM 2.
Changes in Securities and Use of Proceeds
None
ITEM 3.
Defaults Upon Senior Securities
Not Applicable.
ITEM 4.
Submission of Matters to a Vote of Security Holders
None.
ITEM 5.
Other Information
None.
ITEM 6.
Exhibits and Reports on Form 8-K
(a) Exhibits
27.01 Financial Data Schedule
(b) Reports on Form 8-K.
None.
13
<PAGE> 16
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 May 12, 2000 /s/ Michael W. Shelton
--------------------------------------------
Michael W. Shelton
(Vice President and Chief Financial Officer)
14
<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, 2000, 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 21,615
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 131,059
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0
0
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<INTEREST-TOTAL> 11,746
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<ALLOWANCE-DOMESTIC> 4,932
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<ALLOWANCE-UNALLOCATED> 0
</TABLE>
