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 March 31, 1999
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 April 15, 1999
-1-
<PAGE>
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (unaudited) at March 31, 1999 3
Consolidated Statements of Earnings (unaudited) for the Three
Months Ended March 31, 1999 and 1998 4
Consolidated Statements of Comprehensive Income (unaudited)
for the Three Months Ended March 31, 1999 and 1998 5
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
-2-
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Balance Sheet
March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Cash and due from banks $ 8,988,442
Federal funds sold 19,084,416
Interest-bearing deposits with other banks 500,000
Investment securities held to maturity 6,598,307
Investment securities available for sale 22,416,627
Other investments 825,700
Mortgage loans held for sale 1,540,039
Loans 147,700,607
Less: Unearned interest and fees (345,031)
Allowance for loan losses (1,880,817)
-----------
Loans, net 145,474,759
Premises and equipment, net 8,231,147
Accrued interest receivable and other assets 1,547,967
-----------
$ 215,207,404
===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Noninterest-bearing $ 33,991,231
Interest-bearing 153,487,191
-----------
Total deposits 187,478,422
FHLB advances 2,361,607
Notes payable 402,779
Accrued interest payable and accrued liabilities 1,139,196
-----------
Total liabilities 191,382,004
-----------
Stockholders' equity:
Common stock, $1 par value; 5,000,000 shares
authorized; 807,800 shares issued and outstanding 807,800
Retained earnings 22,235,031
Accumulated other comprehensive income 782,569
-----------
Total stockholders' equity 23,825,400
-----------
$ 215,207,404
===========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
1999 1998
--------------- -------------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 3,782,511 3,803,825
Interest on investment securities:
Tax-exempt 90,977 88,579
Taxable 351,237 267,707
Interest on federal funds sold 138,670 133,191
---------- -----------
Total interest income 4,363,395 4,293,302
---------- -----------
Interest expense:
Deposits 1,588,360 1,518,689
Federal funds purchased and FHLB advances 35,167 23,671
Notes payable 7,036 10,702
---------- -----------
Total interest expense 1,630,563 1,553,062
---------- -----------
Net interest income 2,732,832 2,740,240
Provision for loan losses 419,600 143,950
---------- -----------
Net interest income after provision for loan losses 2,313,232 2,596,290
---------- -----------
Other operating income:
Service charges on deposit accounts 362,999 345,095
Fees for trust services 30,000 30,000
Securities gains, net - 2,453
Other operating income 237,346 141,749
---------- -----------
Total other operating income 630,345 519,297
---------- -----------
Other operating expense:
Salaries and employee benefits 1,275,199 1,173,681
Occupancy and equipment 392,530 363,124
Other operating expense 585,100 543,430
---------- -----------
Total other operating expense 2,252,829 2,080,235
---------- -----------
Earnings before income taxes 690,748 1,035,352
Income taxes 208,514 349,359
---------- -----------
Net earnings $ 482,234 685,993
---------- -----------
Net earnings per common share based on average outstanding
shares of 807,800 in 1999 and 1998: $ .60 .85
---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net earnings $ 482,234 685,993
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale:
Holding gains (losses) arising during period, net of tax
of $131,752 and $233,586 (214,963) 381,113
Reclassification adjustment for gains included
in net earnings, net of tax of $932 for 1998 - (1,521)
--------- ----------
Total other comprehensive income (loss) (214,963) 379,592
--------- ----------
Comprehensive income $ 267,271 1,065,585
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements
-5-
<PAGE>
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 482,233 685,993
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provision for loan losses 419,600 143,950
Depreciation, amortization and accretion 154,586 130,195
Gain on sales of investment securities - (2,453)
Gain on sale of other real estate and repossessed collateral (87,596) -
Change in assets and liabilities:
Mortgage loans held for sale 1,009,386 (797,505)
Interest receivable 153,759 113,923
Interest payable (9,813) (23,420)
Other, net 290,209 263,997
--------- ----------
Net cash provided by operating activities 2,412,364 514,680
--------- ----------
Cash flows from investing activities:
Proceeds from maturities and paydowns of investment securities held to maturity 481,059 1,182,899
Proceeds from maturities and paydowns of investment securities available for sale 3,810,695 468,319
Proceeds from sales of investment securities available for sale - 1,051,333
Purchases of investment securities available for sale (5,000,000) (6,977,769)
Net change in loans 978,323 912,042
Proceeds from sales of other real estate and repossessed collateral (44,893) 23,477
Purchases of premises and equipment (117,358) (333,463)
--------- ----------
Net cash provided by (used by) investing activities 107,826 (3,673,162)
--------- ----------
Cash flows from financing activities:
Net change in deposits 12,934,021 (999,315)
Repayments of note payable (41,667) (41,666)
Repayments of FHLB advances (31,250) -
Payment of cash dividend (525,070) (484,680)
--------- ----------
Net cash provided by (used by) financing activities 12,336,034 (1,525,661)
--------- ----------
Net change in cash and cash equivalents 14,856,224 (4,684,143)
Cash and cash equivalents at beginning of period 13,216,634 21,775,498
--------- ----------
Cash and cash equivalents at end of period $ 28,072,858 17,091,355
--------- ----------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,640,376 1,576,482
Noncash investing and financing activities:
Change in net unrealized gains (losses) on investment
securities available for sale, net of tax $ (214,963) 381,113
Transfers of loans to other real estate $ 236,583 67,375
Financed sales of other real estate $ 287,769 33,983
</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.
-7-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the Three Months in the Periods Ended
March 31, 1999 and 1998
Forward-Looking Statement
This discussion contains forward-looking statements under the Private
Securities Litigation Reform Act of 1995 that involve risks and
uncertainties. Although the Company believes that the assumptions
underlying the forward-looking statements contained in the discussion are
reasonable, any of the assumptions could be inaccurate, and therefore, no
assurance can be made that any of the forward-looking statements included in
this discussion will be accurate. Factors that could cause actual results to
differ from results discussed in forward-looking statements include, but are
not limited to: economic conditions (both generally and in the markets
where the Company operates); competition from other providers of financial
services offered by the Company; government regulation and legislation;
changes in interest rates; material unforeseen changes in the financial
stability and liquidity of the Company's credit customers; material
unforeseen complications related to the Year 2000 issues for the Company,
its suppliers, customers and governmental agencies, all of which are
difficult to predict and which may be beyond the control of the Company. The
Company undertakes no obligation to revise forward-looking statements to
reflect events or changes after the date of this discussion or to reflect
the occurrence of unanticipated events.
Financial Condition
Total assets at March 31, 1999, were $215,207,404, representing a
$12,425,489 (6.13%) increase from December 31, 1998. Deposits increased
$12,934,021 (7.41%) from December 31, 1998. Loans decreased $1,389,440
(.95%). The allowance for loan losses at March 31, 1999, totaled $1,880,817,
representing 1.27% of total loans compared to December 31, 1998 total of
$1,707,913 representing 1.15% of total loans. Cash and cash equivalents
increased $14,856,224 from December 31, 1998.
The total of nonperforming assets which includes nonaccruing loans,
repossessed collateral and loans for which payments are more than 90 days
past due increased 31.85% or $493,000 from $1,548,000 at December 31, 1998,
to $2,041,000 at March 31, 1999. The increase is due to the addition of a
commercial loan relationship of $1,031,000 to non-accrual status during the
first three months of 1999. There were no related party loans which were
considered nonperforming at March 31, 1999.
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
For the three months ended March 31, 1999, the Company reported net income
of $482,234, or $0.60 per share, compared to $685,993, or $0.85 per share,
for the same period in 1998. Net income for the three months ended March 31,
1999 decreased $203,759, or 30%, compared to the same period in 1998. The
decrease was the primary result of the increase in the provision for loan
losses of $275,650, compared to the same period in 1998.
Net interest income is the primary source of the Company's operating income.
Net interest income decreased approximately $7,400 (.27%) in the first three
months of 1999 compared to the same period for 1998. Interest income for the
first three months of 1999 was $4,363,395, representing an increase of
$70,093 (1.63%) over the same period in 1998. Interest expense for the first
three months of 1999 increased $77,501 (5.00%) compared to the same period
in 1998. The increase in interest income and interest expense during the
first three months of 1999 compared to the same period in 1998 is primarily
attributable to the increase in the volume of both investment securities and
deposits.
The provision for loan losses for the three months of 1999 increased
$275,650 compared to the same period for 1998. The increase in the
provision for loan losses is primarily attributable to one commercial loan
relationship of approximately $1,120,000 that has been downgraded to
substandard and a possible substantial loss could be realized on this
relationship throughout the remainder of the year. Net loan charge-offs for
the three months ended March 31, 1999 were $222,331, compared to $50,477,
for the same period in 1998. It is management's belief that the allowance
for loan losses is adequate to absorb probable losses in the portfolio.
-8-<PAGE>
<PAGE>
Other operating income increased for the three months ended March 31, 1999
by $111,048, or 21.38%, compared to the same period in 1998, primarily due
to two other real estate properties that were sold and gains of $87,596 were
recognized on those sales during 1999.
Other operating expenses for the first three months of 1999 increased
$172,594 (8.30%) compared to the first three months in 1998. The net
increase is primarily attributable to an increase in employee costs due to
an increase in the number of employees necessary to handle asset growth of
$101,518, an increase in depreciation expense of $45,209 related to Year
2000 purchases and also due to increase in deposit accounts charged-off
during the year of $54,389, compared to the same period in 1998.
Income tax expense, expressed as a percentage of earnings before income
taxes, decreased as tax exempt income relative to pre-tax earnings
increased, causing the income tax to decrease in the first three months of
1999 compared to the same period in 1998.
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 automated teller machines,
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.
The Bank's State of Readiness
The Bank is under the authority of the Office of the Comptroller of the
Currency (the "OCC") who working together with the 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,
and established timelines for completion of each phase. The Bank believes
its mission critical applications are within those guidelines. The Bank
believes that all necessary remediations were completed prior to December
31, 1998.
The Bank established a credit risk management program and a liquidity risk
program to review its business relationships for Year 2000 readiness and
determine any potential risks or exposure. This program includes letters and
questionnaires to major deposit and loan customers, certain suppliers and
vendors. The Bank believes that any issues that may arise due to customer or
vendor risk will be manageable.
Costs Associated with the Bank's Year 2000 Issues
To date, the Bank has spent approximately $500 thousand on upgrading
hardware and software. It has spent at least $100 thousand on testing,
including costs for outside reviews and consultants. Soft costs including
employee time and other resources are estimated to reach $150 thousand.
Many of the upgrades would have occurred in the normal course of business
over the next several years, but were accelerated due to the Year 2000
issue.
-9-<PAGE>
<PAGE>
Risk of the Bank's Year 2000 Issues
All the bank's major systems have been remediated and tested. Testing is
nearly complete for all other systems and review of the testing
documentation is underway. While the Bank believes it will be adequately
prepared, no assurances can be given that it will not be exposed to
potential losses resulting from problems with its internal systems
associated with the century date change.
Further, the impact of non-compliance by outside parties cannot be
accurately determined. The Year 2000 issue may have a material impact on the
financial condition of the Bank if borrowers of the Bank become insolvent
and are unable to repay loans.
This Bank and others are reliant on the Federal Reserve Bank of Atlanta to
process much of its work. While some functions, such as wire transfers,
could continue by telephone if the Federal Reserve's automated system does
not perform as expected, certain applications, such as check processing and
automated clearing house transactions are critical to the operation of the
Bank, and if disrupted, would seriously impact the Bank's ability to serve
its customers. The Bank believes the Federal Reserve Bank of Atlanta is
aggressively pursuing a Year 2000 compliance strategy and that the risk of
their non-compliance is slight, but it is beyond the control of the Bank and
must be considered.
Other outsiders whose non-compliance could severely impact the Bank include
the local power provider and telephone companies.
The Bank's Contingency Plans
The Bank has a Business Disruption Contingency Plan that would be
implemented in the event of any internal or external system failure. The
Plan calls for switching to PC or manual processing, depending on the system
and the nature of the failure. The Bank is continually reviewing and
refining its plan. The Bank believes it could continue to operate
regardless of the failure. It has plans to make loans and process deposits,
receive and disperse cash and update account balances.
Capital
The following tables present FNB Banking Company's regulatory capital
position at March 31, 1999:
Risk-Based Capital Ratios
-------------------------
Tier 1 Tangible Capital, Actual 15.2%
Tier 1 Tangible Capital minimum requirement 4.0%
----
Excess 11.2%
----
Total Capital, Actual 16.4%
Total Capital minimum requirement 8.0%
----
Excess 8.4%
----
Leverage Ratio
--------------
Tier 1 Tangible Capital to adjusted total assets
("Leverage Ratio") 11.0%
Minimum leverage requirement 4.0%
----
Excess 7.0%
-10-<PAGE>
<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
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
-11-
<PAGE>
<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: May 13, 1999
----------------------------------
By: /s/ William K. Holmes
-------------------------------------
William K. Holmes
Assistant Treasurer
(Principal Accounting Officer)
Date: May 13, 1999
----------------------------------
-12-
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,966,214
<INT-BEARING-DEPOSITS> 722,228
<FED-FUNDS-SOLD> 19,084,416
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,416,627
<INVESTMENTS-CARRYING> 6,598,307
<INVESTMENTS-MARKET> 7,731,178
<LOANS> 145,474,759
<ALLOWANCE> 1,880,817
<TOTAL-ASSETS> 215,207,404
<DEPOSITS> 187,478,422
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,139,196
<LONG-TERM> 2,764,386
0
0
<COMMON> 807,800
<OTHER-SE> 23,017,600
<TOTAL-LIABILITIES-AND-EQUITY> 215,207,404
<INTEREST-LOAN> 3,782,511
<INTEREST-INVEST> 442,214
<INTEREST-OTHER> 138,670
<INTEREST-TOTAL> 4,363,395
<INTEREST-DEPOSIT> 1,588,360
<INTEREST-EXPENSE> 1,630,563
<INTEREST-INCOME-NET> 2,732,832
<LOAN-LOSSES> 419,600
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,252,829
<INCOME-PRETAX> 690,748
<INCOME-PRE-EXTRAORDINARY> 690,748
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 482,234
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.64
<LOANS-NON> 1,263,000
<LOANS-PAST> 778,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,707,913
<CHARGE-OFFS> 296,198
<RECOVERIES> 49,502
<ALLOWANCE-CLOSE> 1,880,817
<ALLOWANCE-DOMESTIC> 1,880,817
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
