UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________ to ___________
Commission file number 2-94292
FNB Banking Company
-------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1479370
------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
318 South Hill Street
Griffin, Georgia 30224
---------------- -----
(Address of principal executive offices) (Zip Code)
770-227-2251
------------
(Telephone Number)
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 XX NO
-- --
Common stock, par value $1 per share: 807,800 shares
outstanding as of July 25, 1998.
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (unaudited) at June 30, 1998 3
Consolidated Statements of Earnings (unaudited) for the Three
Months and the Six Months Ended June 30, 1998 and 1997 4
Consolidated Statements of Comprehensive Income (unaudited)
for the Three Months and the Six Months Ended June 30, 1998
and 1997 5
Consolidated Statements of Cash Flows (unaudited) for the Six
Months Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Balance Sheet
June 30, 1998
(Unaudited)
Assets
------
Cash and due from banks $ 7,210,565
Federal funds sold 7,544,867
Interest-bearing deposits with other banks 500,000
Investment securities held to maturity 7,852,453
Investment securities available for sale 20,997,637
Other investments 825,700
Mortgage loans held for sale 503,820
Loans 143,267,931
Less: Unearned income (368,148)
Allowance for loan losses (1,542,088)
--------------
Loans, net 141,357,695
Premises and equipment, net 7,673,120
Other assets 1,708,734
--------------
$ 196,174,591
==============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Noninterest-bearing $ 29,246,592
Interest-bearing 140,754,454
--------------
Total deposits 170,001,046
FHLB advances 1,285,714
Notes payable 527,779
Other liabilities 1,767,744
--------------
Total liabilities 173,582,283
--------------
Stockholders' equity:
Common stock, $1 par value; authorized
5,000,000 shares; issued and outstanding
807,800 shares 807,800
Retained earnings 20,724,176
Accumulated other comprehensive income 1,060,332
--------------
Total stockholders' equity 22,592,308
--------------
$ 196,174,591
==============
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Statements of Earnings
For the Three Months and the Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $ 3,850,286 3,701,730 7,654,111 7,185,403
Investment securities:
Tax exempt 88,793 106,178 177,372 212,191
Taxable 328,170 264,096 595,877 512,118
Federal funds sold 119,144 28,191 252,335 62,768
--------- --------- --------- ---------
Total interest income 4,386,393 4,100,195 8,679,695 7,972,480
--------- --------- --------- ---------
Interest expense:
Deposits 1,570,288 1,309,683 3,088,977 2,563,724
Federal funds purchased and FHLB advances 23,172 74,631 46,843 150,965
Notes payable 10,168 13,871 20,870 27,154
--------- --------- --------- ---------
Total interest expense 1,603,628 1,398,185 3,156,690 2,741,843
--------- --------- --------- ---------
Net interest income 2,782,765 2,702,010 5,523,005 5,230,637
Provision for loan losses 129,625 161,650 273,575 297,450
--------- --------- --------- ---------
Net interest income after provision for loan losses 2,653,140 2,540,360 5,249,430 4,933,187
--------- --------- --------- ---------
Other operating income:
Service charges on deposit accounts 365,542 398,343 710,637 761,702
Fees for trust services 30,000 45,000 60,000 90,000
Securities losses, net - (1,250) 2,453 (13,421)
Other operating income 167,017 152,601 308,766 263,192
--------- --------- --------- ---------
Total other operating income 562,559 594,694 1,081,856 1,101,473
--------- --------- --------- ---------
Other operating expense:
Salaries and other personnel expense 1,207,194 1,131,125 2,380,875 2,151,333
Net occupancy and equipment expense 346,940 330,131 710,064 673,233
Other operating expense 629,903 488,542 1,173,333 1,011,307
--------- --------- --------- ---------
Total other operating expense 2,184,037 1,949,798 4,264,272 3,835,873
--------- --------- --------- ---------
Earnings before income taxes 1,031,662 1,185,256 2,067,014 2,198,787
Income taxes 350,888 430,100 700,247 804,900
--------- --------- --------- ---------
Net earnings $ 680,774 755,156 1,366,767 1,393,887
========= ========= ========= =========
Earnings per common share based on average outstanding
shares of 807,800 in 1998 and 1997:
Net earnings per share $ .84 .93 1.69 1.73
=== === ==== ====
Dividends declared per common share $ .60 .50 .60 .50
=== === === ===
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
For the Three Months and the Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
1998 1997 1998 1997
---- ---- ---- -----
<S> <C> <C> <C> <C>
Net earnings $ 680,774 755,156 1,366,767 1,393,887
Other comprehensive income, net of tax:
Unrealized gains on securities available for sale:
Holding gains (loss) arising during period, net of tax
of $29,997, $34,962, $203,588 and $4,944 (48,943) 57,044 332,170 8,067
Reclassification adjustment for (gains) losses included
in net earnings, net of tax of $475, $932 and $5,100 - 775 (1,521) 8,321
------- ------- --------- ---------
Total other comprehensive income (loss) (48,943) 57,819 330,649 16,388
------- ------- --------- ---------
Comprehensive income $ 631,831 812,975 1,697,416 1,410,275
======= ======= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
- 5 -<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,366,767 1,393,887
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provision for loan losses 273,575 297,450
Gain on sale of repossessed collateral - (15,925)
Depreciation, amortization and accretion 233,340 249,371
(Gains) losses on sales of investment securities (2,453) 13,421
Change in assets and liabilities:
Interest receivable (95,468) 17,477
Interest payable (34,122) 37,059
Other, net 58,626 70,646
Mortgage loans held for sale 146,530 325,802
--------- ---------
Net cash provided by operating activities 1,946,795 2,389,188
--------- ---------
Cash flows from investing activities:
Proceeds from maturities and paydowns of
investment securities held to maturity 1,553,466 224,115
Proceeds from maturities and paydowns of
investment securities available for sale 1,155,685 365,880
Proceeds from sales of investment securities available for sale 1,051,333 3,087,750
Purchases of investment securities available for sale (10,020,581) (2,882,871)
Net change in loans (3,282,974) (10,052,127)
Purchases of other investments - (196,800)
Purchases of premises and equipment (1,019,875) (531,587)
Proceeds from sale of repossessed collateral 23,477 53,363
----------- ----------
Net cash used by investing activities (10,539,469) (9,932,277)
----------- ----------
Cash flows from financing activities:
Net change in deposits 2,283,478 4,150,128
Net change in federal funds purchased - 1,650,000
Proceeds from FHLB Advances - 8,000,000
Repayments of long-term debt (83,333) (83,333)
Repayments of FHLB Advances (142,857) (6,642,857)
Dividends paid (484,680) (484,680)
----------- ----------
Net cash provided by financing activities 1,572,608 6,589,258
----------- ----------
Net decrease in cash and cash equivalents (7,020,066) (953,831)
Cash and cash equivalents at beginning of period 21,775,498 12,461,860
----------- ----------
Cash and cash equivalents at end of period $ 14,755,432 11,508,029
=========== ==========
Supplemental cash flow information:
Cash paid for income taxes $ 689,500 700,000
Cash paid for interest $ 3,190,812 2,704,784
</TABLE>
See accompanying notes to consolidated financial statements.
- 6 -<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
---------------------
The consolidated financial statements include the accounts of FNB
Banking Company (the Company) and its wholly-owned subsidiary, the
First National Bank of Griffin (Griffin). All significant intercompany
accounts and transactions have been eliminated in consolidation.
The consolidated financial information furnished herein reflects all
adjustments which are, in the opinion of management, necessary to
present a fair statement of the results of operations and financial
position for the periods covered herein. All such adjustments are of
a normal recurring nature.
(2) Cash and Cash Equivalents
-------------------------
For presentation purposes in the consolidated statements, cash and cash
equivalents include cash on hand, amounts due from banks and federal
funds sold.
(3) Comprehensive Income
--------------------
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 established standards for the reporting
and display of comprehensive income and its components in a full set
of general-purpose financial statements. The Company has elected to
present comprehensive income in a separate consolidated statement of
comprehensive income. Accumulated other comprehensive income is solely
related to the net of tax effect of unrealized gains on securities
available for sale.
- 7 -<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the Six Months in the Periods Ended
June 30, 1998 and 1997
FINANCIAL CONDITION
Total assets at June 30, 1998 were $196,174,591 representing a
$3,356,008 (1.7%) increase from December 31, 1997. Deposits increased
$2,283,478 (1.4%) from December 31, 1997. Loans increased $2,479,326 (1.8%).
The allowance for loan losses at June 30, 1998 totaled $1,542,088,
representing 1.1% of total loans compared to December 31, 1997 total of
$2,012,795 representing 1.4% of total loans. Cash and cash equivalents
decreased $7,020,066 from December 31, 1997.
The total of nonperforming assets which includes nonaccruing loans,
repossessed collateral and loans for which payments are more than 90 days
past due decreased 36.7% or $1,031,000 from $2,813,000at December 31, 1997
to $1,782,000 at June 30, 1998. The decrease is due to a partial liquidation
of collateral on a $1.9 million non-accruing loan during the first three
months of 1998 and a related chargeoff of approximately $600,000 in the
three months ended June 30, 1998. There were no related party loans which
were considered nonperforming at June 30, 1998.
The Company's subsidiary bank was most recently examined by its primary
regulatory authority in January 1998. There were no recommendations by the
regulatory authority that in management's opinion will have material effects
on the Company's liquidity, capital resources or operations.
RESULTS OF OPERATIONS
Net interest income increased $292,368 (5.6%) in the first six months
of 1998 compared to the same period for 1997. Interest income for the first
six months of 1998 was $8,679,695, representing an increase of $707,215
(8.9%) over the same period in 1997. Interest expense for the first six
months of 1998 increased $414,847 (15.1%) compared to the same period in
1997. The increase in interest income and interest expense during the first
six months of 1998 compared to the same period in 1997 is primarily
attributable to the increase in the volume of both loans and deposits.
The provision for loan losses for the six months of 1998 decreased
$23,875 compared to the same period for 1997. The decrease is primarily
attributable to the decline in the rate of loan growth during the six months
ended June 30, 1998 compared to the same period for 1997 and due to the
significant loan that was classified as nonaccrual during 1997. It is
management's belief that the allowance for loan losses is adequate to absorb
probable losses in the portfolio.
Other operating expenses for the six months of 1998 increased $428,399
(11.2 %) compared to the first six months in 1997. The net increase is
primarily attributable to an increase in employee costs of approximately
$230,000 due to an increase in the number of employees necessary to handle
asset growth, an increase of $62,000 in equipment and software maintenance
and security costs associated with a new branch in Henry County, Georgia and
a special contribution to Habitat for Humanity of $40,000.
- 8 -
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, continued
For the Six Months in the Periods Ended
June 30, 1998 and 1997
CAPITAL
The following tables present FNB Banking Company's regulatory capital
position at June 30, 1998:
Risk-Based Capital Ratios
-------------------------
Tier 1 Tangible Capital, Actual 15.0%
Tier 1 Tangible Capital minimum requirement 4.0%
-----
Excess 11.0%
=====
Total Capital, Actual 16.1%
Total Capital minimum requirement 8.0%
-----
Excess 8.1%
Leverage Ratio
--------------
Tier 1 Tangible Capital to adjusted total assets
("Leverage Ratio") 11.4%
Minimum leverage requirement 4.0%
-----
Excess 7.4%
=====
YEAR 2000 PREPAREDNESS
The use of computer software that relies on a two digit number to
define the applicable year may cause processing problems for computer
controlled systems when the year 2000 arrives. Malfunction could occur at
several other noted dates as well, such as September 9, 1999. In view of
the potential adverse impact of the Year 2000 problem on the Company and its
subsidiary bank, its customers and its ability to continue to operate as a
business, careful planning must be undertaken to ensure minimal disruption.
The Company has established a centralized function to implement a process to
this end.
The Company's subsidiary, FNB Griffin, performs most of its data
processing in-house using purchased banking software and hardware for its
main applications, such as loans and deposits. Included in these in-house
operations are a teller processing system, a check sorter system, a check
imaging system, and a trust processing system. Besides its main
applications, the bank has a number of ancillary systems connected to
various vendors to process specific work, such as ATMs, credit cards,
accounts receivable and accounts payable, mortgage loans, payroll and the
like. In addition, the Bank uses several non-information systems that are
vital to its operation. These include vault and alarm systems,
communications, postal services, utilities and such.
The Bank is also aware of the potential exposure it has to its
viability as a business based on the year 2000 preparedness of third parties
such as its customers and correspondent banking relationships including the
Federal Reserve Bank.
- 9 -
<PAGE>
The Bank is under the authority of the Office of the Comptroller of the
Currency (the OCC) who together with other bank regulatory agencies have
released an Interagency Statement under which guidance the Bank is managing
the Year 2000 Project. This Statement describes five phases: Awareness,
Assessment, Renovation, Validation and Implementation.
The Awareness Stage is completed. The Bank has defined the problem,
gained executive support to allocate the resources required, established a
Y2K team and developed a strategy for dealing with all systems both in-house
and outsourced.
The Assessment stage is completed. All hardware, software, networks,
processing platforms, customer and vendor relationships and environmental
systems have been assessed for their level of Year 2000 readiness.
The Renovation stage has begun. Each system needing an upgrade has been
scheduled, and all will be completed by December 31, 1998. Updates of the
main banking software have been completed, and upgrade and testing schedules
are in place for other providers including the Federal Reserve Bank.
Both the Validation and the Implementation stages are in progress.
Some systems are already tested and certified Year 2000 compliant. Testing
for most other systems is already scheduled, and those not yet on the
calendar will be scheduled prior to December 31, 1998.
To date, the Bank has spent more than $335,000 on upgrading hardware
and software. It anticipates spending another $150,000 to $200,000 on
further upgrades and testing, including costs for outside programmers. Soft
costs, including employee time and other resources are estimated to reach
$100,000.
The Bank believes that its systems will be ready well ahead of the year
2000. Testing is expected to bear this out. The most likely worst case
scenario will have to do with events outside our control such as loan
customers who have done inadequate testing for themselves, or who rely on
vendors critical to their operation who have not adequately prepared. If
these businesses fail the Bank must rely on the underlying assets it has as
security to repay the loans. The loan review process which documents the
Bank's exposure on all large loans is taking into account its customer's
year 2000 preparedness in assessing the adequacy of the allowance for loan
losses.
The OCC has reviewed the Bank's Year 2000 preparedness, and will
continue to monitor our progress in light of the Interagency Statement
mentioned above. Failure to comply with these and other regulatory
directives could subject the Bank to formal enforcement actions including
orders to cease and desist from unsafe and unsound banking practices.
The Bank has agreements with backup sites operating parallel systems
whose Y2K preparedness is independent of the Bank's. These backup sites are
certifying to the Bank their own state of readiness, testing, etc. The
backup sites are tested on a regular schedule and are expected to be Year
2000 compliant.
- 10 -<PAGE>
PART II. OTHER INFORMATION
FNB BANKING COMPANY AND SUBSIDIARY
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) FNB Banking Company's annual meeting of stockholders was
held on April 8, 1998
(b) The following is a summary of matters submitted to a vote
of security holders:
1. The election * of the following directors to serve the
current year term:
C.A. Knowles
James A. Mankin
Ernest F. Carlisle, III
John T. Newton, Jr.
David G. Newton
J. Henry Cheatham, III
Gilliam Cheatham
A tabulation of votes concerning the above issues is as
follows:
Director
Election
--------
Shares voted by proxy in favor 683,892
Shares voted in person in favor 32,476
Shares voted in person against -
Shares abstained from voting 796
-------
Total shares represented 717,164
=======
Total shares outstanding 807,800
=======
* - Directors were elected by slate, not individually.
Vote tabulation is therefore by slate.
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit 27 - Financial Data Schedule
There were no reports on Form 8-K.
- 11 -<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
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 BANKING COMPANY
By: /s/ C.A. Knowles
C.A. Knowles, President and Treasurer
(Principal Executive Officer)
Date: August 13, 1998
By: /s/ William K. Holmes
William K. Holmes
Assistant Treasurer
(Principal Accounting Officer)
Date: August 13, 1998
- 12 -
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000757262
<NAME> FNB BANKING COMPANY
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,910,924
<INT-BEARING-DEPOSITS> 799,641
<FED-FUNDS-SOLD> 7,544,867
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,997,637
<INVESTMENTS-CARRYING> 7,852,453
<INVESTMENTS-MARKET> 7,849,268
<LOANS> 141,357,695
<ALLOWANCE> 1,542,088
<TOTAL-ASSETS> 196,174,591
<DEPOSITS> 170,001,046
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,767,744
<LONG-TERM> 1,813,493
0
0
<COMMON> 807,800
<OTHER-SE> 21,784,508
<TOTAL-LIABILITIES-AND-EQUITY> 196,174,591
<INTEREST-LOAN> 7,654,111
<INTEREST-INVEST> 773,249
<INTEREST-OTHER> 252,335
<INTEREST-TOTAL> 8,679,695
<INTEREST-DEPOSIT> 3,088,977
<INTEREST-EXPENSE> 3,156,690
<INTEREST-INCOME-NET> 5,523,005
<LOAN-LOSSES> 273,575
<SECURITIES-GAINS> 2,453
<EXPENSE-OTHER> 4,264,272
<INCOME-PRETAX> 2,067,014
<INCOME-PRE-EXTRAORDINARY> 2,067,014
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,366,767
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 0
<YIELD-ACTUAL> 6.15
<LOANS-NON> 1,782,000
<LOANS-PAST> 457,000
<LOANS-TROUBLED> 252,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,012,795
<CHARGE-OFFS> 854,260
<RECOVERIES> 109,978
<ALLOWANCE-CLOSE> 1,542,088
<ALLOWANCE-DOMESTIC> 1,542,088
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
