Washington, DC 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-13823
FNB CORP.
(Exact name of registrant as specified in its charter)
North Carolina 56-1456589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Sunset Avenue, Asheboro,
North Carolina 27203
(Address of principal executive offices) (Zip Code)
(910) 626-8300
(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
The registrant had 1,200,000 shares of $2.50 par value common
stock outstanding at May 1, 1995.
Transitional Small Business Disclosure Format (Check One):
Yes No X
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FNB Corp. and Subsidiary
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C> <C>
March 31, December 31,
ASSETS 1995 1994 1994
Cash and due from
banks $10,104,157 $ 8,429,076 $9,348,113
Federal funds sold 2,615,000 2,525,000 -
Investment securities:
Available for sale,
at estimated fair
value (amortized
cost of $19,129,126,
$27,743,003 and
$25,713,359) 18,952,290 27,565,744 24,569,036
Held to maturity
(estimated fair
value of $52,859,384,
$50,808,858 and
$50,809,510) 53,367,045 50,354,879 52,414,194
Loans 168,265,885 157,491,084 168,327,821
Less: Allowance for
loan losses (1,748,616) (1,752,172) (1,719,717)
Net loans 166,517,269 155,738,912 166,608,104
Premises and
equipment 5,062,624 5,396,263 5,024,522
Other assets 3,470,772 3,458,413 3,651,740
TOTAL ASSETS $ 260,089,157 $ 253,468,287 $ 261,615,709
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing
demand deposits $ 36,476,499 $ 35,324,571 $ 37,282,808
Interest-bearing
deposits: NOW,
savings and money
market deposits 77,536,821 87,128,591 82,400,774
Time deposits of
$100,000 or more 23,308,267 20,789,056 20,191,213
Other time
deposits 92,839,636 85,966,177 90,050,517
Total deposits 230,161,223 229,208,395 229,925,312
Retail repurchase
agreements 3,729,667 - 3,526,226
Federal funds
purchased - - 3,050,000
Other liabilities 2,263,449 1,769,966 1,735,041
TOTAL LIABILITIES 236,154,339 230,978,361 238,236,579
Shareholders' equity:
Preferred stock -
$10.00 par value;
authorized 200,000
shares; none issued - - -
Common stock - $2.50
par value;
authorized 5,000,000
shares; issued
1,200,000 shares 3,000,000 3,000,000 3,000,000
Surplus 900,000 900,000 900,000
Retained earnings 20,151,529 18,706,917 20,234,383
Net unrealized
securities losses (116,711) (116,991) (755,253)
TOTAL
SHAREHOLDERS'
EQUITY 23,934,818 22,489,926 23,379,130
TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY $ 260,089,157 $ 253,468,287 $ 261,615,709
See accompanying notes to consolidated financial statements.
</TABLE>
1
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FNB Corp. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
1995 1994
<TABLE>
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 3,697,073 $ 3,083,062
Interest and dividends on
investment securities:
Taxable income 999,144 889,926
Non-taxable income 159,433 175,437
Federal funds sold 13,640 11,370
Total interest income 4,869,290 4,159,795
INTEREST EXPENSE:
Deposits 2,026,107 1,660,822
Retail repurchase agreements 40,080 -
Federal funds purchased 12,563 1,328
Total interest expense 2,078,750 1,662,150
NET INTEREST INCOME 2,790,540 2,497,645
Provision for loan losses 95,000 35,000
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,695,540 2,462,645
OTHER OPERATING INCOME:
Service charges on deposit accounts 303,601 282,613
Annuity and brokerage commissions 63,916 104,845
Credit card income 52,403 10,919
Other service charges, commissions
and fees 79,818 91,034
Losses on sales of securities (414,596) -
Other income 31,516 56,310
Total other operating income 116,658 545,721
OTHER OPERATING EXPENSE:
Personnel expense 1,088,626 1,204,061
Net occupancy expense 118,427 121,034
Furniture and equipment expense 119,242 136,593
Data processing services 208,124 38,759
Restructuring charges 460,457 -
Other expense 691,947 577,780
Total other operating expense 2,686,823 2,078,227
INCOME BEFORE INCOME TAXES 125,375 930,139
Income taxes (7,771) 266,739
NET INCOME $ 133,146 $ 663,400
PER SHARE DATA:
Net income $ .11 $ .55
Cash dividends declared .18 .17
Average number of shares
outstanding 1,200,000 1,200,000
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
FNB Corp. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 133,146 $ 663,400
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization
of premises and equipment 102,675 110,115
Provision for loan losses 95,000 35,000
Deferred income taxes (232,238) 59,266
Deferred loan fees and costs, net (12,410) (239,244)
Premium amortization and discount
accretion of investment securities,
net 51,393 157,084
Amortization of intangibles 14,779 19,796
Losses on sales of securities 414,596 -
Net decrease in loans held for sale - 1,089,594
Decrease (increase) in other assets 63,267 (383,512)
Increase in other liabilities 528,388 310,951
NET CASH PROVIDED BY OPERATING
ACTIVITIES 1,158,596 1,822,450
INVESTING ACTIVITES:
Available-for-sale securities:
Proceeds from sales 5,896,328 -
Proceeds from maturities 478,592 2,944,239
Purchases (249,405) (1,477,631)
Held-to-maturity securities:
Proceeds from maturities 4,580,000 5,193,000
Purchases (5,540,477) (6,540,591)
Net decrease (increase) in loans 31,086 (932,641)
Proceeds from sales of premises
and equipment 20 155
Purchases of premises and equipment (140,777) (82,241)
Other, net (16,271) 32,771
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 5,039,096 (862,939)
FINANCING ACTIVITIES:
Net increase in deposits 235,911 4,948,339
Increase in retail repurchase
agreements 203,441 -
Decrease in federal funds purchased (3,050,000) (1,800,000)
Cash dividends paid (216,000) (204,000)
NET CASH PROVIDED BY (USED IN
FINANCING ACTIVITIES (2,826,648) 2,944,339
NET INCREASE IN CASH AND CASH
EQUIVALENTS 3,371,044 3,903,850
Cash and cash equivalents at
beginning of period 9,348,113 7,050,226
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 12,719,157 $ 10,954,076
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest $ 1,856,513 $ 1,669,813
Income taxes 322,622 29,000
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
FNB Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements, prepared
without audit, include the accounts of FNB Corp. (the
Corporation) and its wholly-owned subsidiary, First National
Bank and Trust Company (the Bank). All significant
intercompany balances and transactions have been eliminated in
consolidation.
2. For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, and
federal funds sold. Generally, federal funds are purchased
and sold for one-day periods.
3. Loans as presented are net of unearned income of $602,876,
$2,849,749 and $944,168 at March 31, 1995, March 31, 1994 and
December 31, 1994, respectively.
4. Significant components of other expense were as follows:
Three Months Ended
March 31,
1995 1994
FDIC insurance $127,974 $123,956
Stationery, printing and
supplies 72,109 70,107
Deferred acquisition costs
charged to expense 113,833 -
5. In 1995, management adopted a comprehensive restructuring
project for the purpose of reengineering all Bank operations
to become more competitive and cost-effective in developing
business and servicing customers and to improve long-term
profitability. This project, scheduled for completion in
1995, will eliminate or realign some positions within the
bank and will result in one-time charges to earnings. The
most significant costs are expected to be incurred in the
first half of 1995.
A summary of the restructuring charges incurred or accrued
during the three months ended March 31, 1995 is as follows:
Retirement benefits $256,266
Other personnel costs 48,431
Total personnel costs 304,697
Professional fees related
to restructuring project 155,760
Total restructuring charges $460,457
6. Certain amounts for 1994 have been reclassified to conform
with the presentation for 1995. The reclassifications had no
effect on shareholders' equity or net income as previously
reported.
7. In the opinion of management, the financial information
furnished in this report includes all adjustments (consisting
of normal recurring accruals) necessary to a fair statement of
the results for the periods presented.
4
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
The purpose of this discussion and analysis is to assist in
the understanding and evaluation of the financial condition,
changes in financial condition and results of operations of FNB
Corp. (the Corporation) and its wholly-owned subsidiary, First
National Bank and Trust Company (the Bank). This discussion and
analysis should be read in conjunction with the financial
information appearing elsewhere in this report.
OVERVIEW
The Corporation earned $133,146 in the first quarter of1995,
a 79.9% decline from the same period in 1994. Earning per share
decreased from $.55 to $.11 in comparing these first quarter
periods. The 1995 first quarter results were impacted by certain
special charges described in more detail in the "Earnings Review".
Total assets were $260,089,157 at March 31, 1995, up 2.6% from
March 31, 1994 and down 0.6% from December 31, 1994. Loans
amounted to $168,265,885 at March 31, 1995, increasing 6.8% from
March 31, 1994 and decreasing 0.04% from December 31, 1994. Total
deposits of $230,161,223 at March 31, 1995 were relatively
unchanged from these comparative balance sheet dates.
In December 1993, the Corporation entered into definitive
agreements to acquire two mutual savings banks, Home Savings Bank
of Siler City, SSB and Randleman Savings Bank, SSB, which had
total assets at December 31, 1994 of $43,614,000 and $15,610,000,
respectively. In 1994, the Corporation withdrew the applications
it had filed with the FDIC and Federal Reserve for approval of the
acquisitions as substantial changes in regulatory policy in 1994
effectively resulted in a moratorium on federal approval of such
merger/conversion transactions. The Corporation and savings banks
are exploring other methods of effecting a combination and continue
to monitor developments in federal regulations and policy with
respect to merger/conversions.
EARNINGS REVIEW
The Corporation's net income declined $530,254 or 79.9% in the
first quarter of 1995 compared to the same period of 1994. The
1995 first quarter was negatively affected by restructuring charges
of $460,457 and losses on sales of securities of $414,596, which
are considered one-time charges taken for the strategic purposes
discussed in "Business Development Matters". Additionally, and as
further discussed in "Other Operating Expense", there was a
$113,833 charge to expense related to costs that had been deferred
in connection with the proposed acquisition of two mutual savings
banks. Earnings were positively impacted in the 1995 first quarter
by an increase of $292,895 or 11.7% in net interest income.
Return on average assets, affected by the special charges in
1995, declined from 1.06% in the first quarter of 1994 to 0.20% in
the first quarter of 1995. Similarly, return on average
shareholders' equity declined from 11.79% to 2.24% in comparing the
same periods.
5
<PAGE>
Net Interest Income
Net interest income is the difference between interest income,
principally from loans and investments, and interest expense,
principally on customer deposits. Changes in net interest income
result from changes in interest rates and in the volume, or average
dollar level, and mix of earning assets and interest-bearing
liabilities.
Net interest income was $2,790,540 in the first quarter of
1995 compared to $2,497,645 in the same period of 1994. This
increase of $292,895 or 11.7% resulted from an improvement in the
net yield on earning assets, or net interest margin, from 4.41% in
the 1994 first quarter to 4.72% in the same period of 1995 coupled
with a 4.1% increase in the level of average earning assets. The
net interest margin, affected for some period prior to early 1994
by a significant decline in the interest rate structure, had
generally improved until the second quarter of 1993 as a result of
lower deposit rates and then decreased as the impact of declining
yields on earning assets became more significant. The interest
rate scenario changed significantly in 1994, influenced by actions
taken by the Federal Reserve to combat a possible resurgence in
inflation. The interest rate increases in 1994 and early 1995 have
resulted in an improvement in the net interest margin.
Additionally, there has been a continuing negative impact on the
margin from certain variable-rate time deposits with minimum rates
in excess of current market rates. Such variable-rate time
deposits are being phased out over a two-year period that commenced
in January 1994. On a taxable equivalent basis, the increase in
net interest income in the first quarter of 1995 was slightly lower
at $290,000, reflecting a decline in the level and yield of non-taxable
investment securities.
Table 1 on page 12 sets forth for the periods indicated
information with respect to the Corporation's average balances of
assets and liabilities, as well as the total dollar amounts of
interest income (taxable equivalent basis) from earning assets and
interest expense on interest-bearing liabilities, resultant rates
earned or paid, net interest income, net interest spread and net
yield on earning assets. Net interest spread refers to the
difference between the average yield on earning assets and the
average rate paid on interest-bearing liabilities. Net yield on
earning assets, or net interest margin, refers to net interest
income divided by average earning assets and is influenced by the
level and relative mix of earning assets and interest-bearing
liabilities. Changes in net interest income on a taxable
equivalent basis, as measured by volume and rate variances, are
also analyzed in Table 1. Volume refers to the average dollar
level of earning assets and interest-bearing liabilities.
Changes in the net interest margin and spread tend to
correlate with movements in the prime rate of interest. The prime
rate, which had been 6.00% at December 31, 1992 and 1993, moved up
significantly in 1994 to close the year at 8.50%. The average
prime for those three years amounted to 6.25%, 6.00% and 7.09%,
respectively. The prime rate had declined significantly from 1991
to 1993, but began to increase in 1994 following steps taken by the
Federal Reserve to combat a possible resurgence in inflation. The
prime rate increased towards the end of the first quarter in 1994
and an additional four times during the remainder of that year. In
the first quarter of 1995, it increased again to 9.00% and there
appears some possibility of a further 1995 increase. The average
prime was 8.79% in the first quarter of 1995 compared to 6.02% in
the same period of 1994. In comparing first quarter periods, the
net interest spread improved 13 basis points from 3.79% in 1994 to
3.92% in 1995 due to the fact that a higher level of interest rates
has to this point resulted in a greater increase in the average
total yield on earning assets than in the average rate paid on
interest-bearing liabilities, or cost of funds. The average yield
increased by 89 basis points from 7.27% in 1994 to 8.16% in 1995,
while the cost of funds increased by 76 basis points in moving from
3.48% to 4.24%.
6
<PAGE>
Provision for Loan Losses
This provision is the charge against earnings to provide an
allowance or reserve for possible future losses on loans. The
amount of each period's charge is affected by several
considerations including management's evaluation of various risk
factors in determining the adequacy of the allowance (see "Asset
Quality"), actual loan loss experience and loan portfolio growth.
Earnings were negatively impacted in the first quarter of 1995
compared to the same period in 1994 by a $60,000 increase in the
provision.
Other Operating Income
Total other operating, or noninterest, income decreased
$429,063 or 78.6% in the first quarter of 1995 compared to the same
period in 1994 due principally to losses on sales of securities in
1995 of $414,596 (see "Business Development Matters"). The
increase in service charges on deposit accounts resulted primarily
from the change in the 1994 fourth quarter in the method of
collecting fees on returned checks and overdraft items. Annuity
and brokerage commissions declined because of a reduction in sales
of tax-deferred annuity products. There was a lower level of
"other income" due to a reduction in gains on loan sales.
Increases in mortgage loan rates have negatively impacted both
mortgage loan activity and the average level of profitability on
loans actually sold. Credit card income increased due to a new
program (see "Business Development Matters").
Other Operating Expense
Total other operating, or noninterest, expense increased
$608,596 or 29.3% in the first quarter of 1995 compared to the same
period of 1994 due primarily to restructuring charges in 1995 of
$460,457 (see "Business Development Matters") and to deferred
acquisition costs charged to expense in 1995 of $113,833. The
components of other operating expense have been significantly
changed by the Bank's decision in 1994 to outsource its data
processing operations (see "Business Development Matters"). The
conversion of data processing operations to a service bureau
arrangement was completed in the 1994 fourth quarter.
Consequently, the level of expense for data processing services,
which includes trust and credit card processing costs in addition
to basic data processing operations, has increased significantly in
1995. Personnel and equipment costs are being reduced, however, as
a result of the outsourcing decision. A change in credit card
operations (see "Business Development Matters") has also
contributed to a higher cost of data processing services.
Personnel expense, as noted above, has been positively
impacted by the outsourcing of data processing operations with only
a slight offset from the change implemented in mid-1994 in credit
card operations. There are expected to be additional reductions in
personnel and other expenses from the comprehensive project being
undertaken in 1995 for the reengineering of all bank operations
(see "Business Development Matters"). The restructuring charges
noted above are expected to constitute the majority of the costs to
be incurred in connection with this project. The number of
full-time equivalent employees decreased in 1994, reflecting in
particular the outsourcing of data processing operations. A
further decrease occurred in the 1995 first quarter as the benefits
of the reengineering project began to be realized. Additional
reductions are subsequently expected in 1995. As is the situation
for other operating expenses, personnel expense is subject to the
continuing effects of inflation through normal salary adjustments
and higher costs of fringe benefits.
7
<PAGE>
As discussed in the "Overview", the Corporation has entered
into definitive agreements to acquire two mutual savings banks.
Changes in regulatory policy, however, have effectively resulted
in a moratorium on federal approval of such merger/conversion
transactions. Based on the results of the continuing evaluation
of the progress toward finding a method of effecting a
combination, the Corporation has elected to charge to expense in
the first quarter of 1995 certain costs, amounting to $113,833,
that had been deferred in connection with the proposed
acquisitions. The remaining deferred costs amounted to $70,392
at March 31, 1995.
Because of the Federal Deposit Insurance Corporation
Improvement Act (FDICIA) enacted in 1989, FDIC insurance expense
was increased substantially, with the Bank's expense amounting to
$503,379 in the year ended December 31, 1994 and $127,974 in the
first quarter of 1995. The FDIC has two separate insurance funds,
which are the Bank Insurance Fund (BIF) and the Savings
Association Insurance Fund (SAIF). When each fund reaches the
1.25 percent reserve ratio required by FDICIA, then the
corresponding insurance assessment rates can be lowered starting
within that semiannual period. While the BIF fund is expected to
reach the mandated reserve ratio in mid-1995, the SAIF fund may
not reach this level for several years. Since most of the Bank's
deposits are insured through BIF, the Bank could experience a
significant savings in FDIC insurance expense, if as currently
projected, the effective BIF rate is lowered by as much as 83%.
Income Taxes
Based on the interaction of the significant level of special
charges incurred and the normal level of tax-exempt income, there
was an income tax benefit recorded in the first quarter of 1995.
The effective rate of income tax expense of 28.7% in the first
quarter of 1994 did not significantly change from the 28.6% rate in
the same period of 1993.
LIQUIDITY
Liquidity refers to the continuing ability of the Bank to meet
deposit withdrawals, fund loan and capital expenditure commitments,
maintain reserve requirements, pay operating expenses and provide
funds to the Corporation for payment of dividends, debt service and
other operational requirements. Liquidity is immediately available
from three major sources: (a) cash on hand and on deposit at other
banks, (b) the outstanding balance of federal funds sold and (c)
the available-for-sale securities portfolio. While additional
liquidity is readily obtainable by purchasing federal funds from
other banks, the Bank has not found it necessary to utilize this
resource to any substantial extent in recent years. Further, while
available-for-sale securities are intended to be a source of
immediate liquidity, the entire investment securities portfolio is
managed to provide both income and a ready source of liquidity.
The average portfolio life of debt securities is approximately
three years, resulting in a substantial level of maturities each
year. All debt securities are of investment grade quality and, if
the need arises, can be promptly liquidated on the open market or
pledged as collateral for short-term borrowing.
In line with its approach to liquidity, the Bank as a matter
of policy does not solicit or accept brokered deposits for funding
asset growth. Instead, loans and other assets are based on a solid
core of local deposits and the Bank's strong capital position. To
date, the steady increase in deposits, retail repurchase agreements
and capital has been adequate to fund loan demand in the Bank's
market area, while maintaining the desired level of immediate
liquidity and a substantial investment portfolio available for both
immediate and secondary liquidity purposes.
8
<PAGE>
ASSET/LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY
One of the primary objectives of asset/liability management
is to maximize net interest margin while minimizing the earnings
risk associated with changes in interest rates. One method used
to manage interest rate sensitivity is to measure, over various
time periods, the interest rate sensitivity positions, or gaps;
however, this method addresses only the magnitude of timing
differences and does not address earnings or market value.
Therefore, management uses an earnings simulation model to
prepare, on a regular basis, earnings projections based on a range
of interest rate scenarios in order to more accurately measure
interest rate risk.
The Bank's balance sheet is liability-sensitive, meaning that
in a given period there will be more liabilities than assets
subject to immediate repricing as market rates change. Because
immediately rate sensitive interest-bearing liabilities exceed
rate sensitive assets, the earnings position could improve in a
declining rate environment and could deteriorate in a rising rate
environment, depending on the correlation of rate changes in these
two categories. Included in interest-bearing liabilities subject
to rate changes within 30 days are NOW, savings, and money market
deposits totaling $77,537,000 as of March 31, 1995. These types
of deposits historically have not repriced coincidentally with or
in the same proportion as general market indicators.
CAPITAL ADEQUACY
Under guidelines established by the Federal Reserve Board,
capital adequacy is currently measured for regulatory purposes by
certain risk-based capital ratios, supplemented by a leverage
ratio. The risk-based capital ratios are determined by expressing
allowable capital amounts, defined in terms of Tier 1 and Tier 2,
as a percentage of risk-adjusted assets, which are computed by
measuring the relative credit risk of both the asset categories on
the balance sheet and various off-balance sheet exposures. Tier 1
capital consists primarily of common shareholders' equity and
qualifying perpetual preferred stock, net of goodwill and other
disallowed intangible assets. Tier 2 capital, which is limited to
the total of Tier 1 capital, includes allowable amounts of
subordinated debt, mandatory convertible securities, preferred
stock and the allowance for loan losses. Under current
requirements, the minimum Tier 1 capital ratio is 4% and the
minimum total capital ratio, consisting of both Tier 1 and Tier 2
capital, is 8%. At March 31, 1995, the Corporation had a Tier 1
capital ratio of 13.89% and a total capital ratio of 14.90%.
The leverage ratio, which serves as a minimum capital
standard, considers Tier 1 capital only and is expressed as a
percentage of average total assets for the most recent quarter,
after reduction of those assets for goodwill and other disallowed
intangible assets at the measurement date. The required ratio
ranges from 3% to 5%, subject to federal bank regulatory evaluation
of the organization's overall safety and soundness. At March 31,
1995, the Corporation had a leverage ratio of 9.21%.
BALANCE SHEET REVIEW
Total assets grew during the last twelve months but declined
slightly compared to the prior year end. The level of deposits
has been affected by the new retail repurchase agreements program.
Total assets at March 31, 1995 were higher than at March 31, 1994
by $6,621,000 or 2.6% and lower than at December 31, 1994 by
$1,527,000 or 0.6%; deposits were ahead by $953,000 or 0.4% and
$236,000 or 0.1%, respectively. A new retail repurchase
agreements program that commenced in the second quarter of 1994
generated $3,526,000 of the total asset balance at December 31,
1994 and $3,730,000 at March 31, 1995. Average total assets
increased $9,279,000 or 3.7% in the first quarter of 1995 compared
to the same period in 1994, while deposits increased $3,643,000 or
1.6%.
9
<PAGE>
Investment Securities
Additions to the investment securities portfolio depend to a
large extent on the availability of investable funds that are not
otherwise needed to satisfy loan demand. During the twelve-month
period ended March 31, 1995, when loan growth was at a much higher
rate than that for either total assets or deposits, there was a
reduction in the level of investment securities, amounting to
$5,602,000 or 7.2%. Approximately $2,000,000 of this decrease,
however, is considered temporary due to the reinvestment
subsequent to March 31, 1995 of proceeds from certain securities
sold in March 1995 for strategic purposes (see "Business
Development Matters"). Investable funds not otherwise utilized
are temporarily invested on an overnight basis as federal funds
sold, the level of which is affected by such considerations as
near-term loan demand and liquidity needs.
Loans
The Corporation's primary source of revenue and largest
component of earning assets is the loan portfolio. Loans increased
$10,775,000 or 6.8% during the twelve-month period ended March 31,
1995. Compared to December 31, 1994, however, loans decreased
$62,000 as a result of the more volatile nature of the commercial
loan portfolio which tends to have larger fluctuations, both
increases and decreases, than other portfolio components. Average
loans were $11,939,000 or 7.6% higher in the first quarter of 1995
than in the same period of 1994. The ratio of average loans to
average deposits, in comparing first quarter periods, increased from
69.2% in 1994 to 73.2% in 1995. Part of this increase is due to the
effect of the new retail repurchase agreements program which began
generating additional funds in 1994 that can be used for loan growth
and other purposes. The ratio of loans to deposits at March 31, 1995
was 73.1%.
The residential construction and mortgage loan portfolio
accounted for more than half the loan increase during the last twelve
months. Consumer loan growth resulted primarily from an increase in
the balances related to the home equity line of credit program.
Automobile lending was especially strong in the first part of 1994,
but the pace has significantly subsided since that time.
Asset Quality
Management considers the Bank's asset quality to be of primary
importance. A formal loan review function, independent of loan
origination, is used to identify and monitor problem loans. In
determining the allowance for loan losses and any resulting provision
to be charged against earnings, particular emphasis is placed on the
results of the loan review process. Consideration is also given to
historical loan loss experience, the value and adequacy of collateral,
and economic conditions in the Bank's market area.
Management's policy in regard to past due loans is conservative
and normally requires a prompt charge-off to the allowance for loan
losses following timely collection efforts and a thorough review.
Further efforts are then pursued through various means available.
Loans carried in a nonaccrual status are generally collateralized and
the possibility of future losses is considered minimal.
Deposits
The level and mix of deposits is affected by various factors,
including general economic conditions, the particular circumstances of
local markets and the specific deposit strategies employed. Broad
interest rate declines such as have occurred from 1991 to early 1994
tend to encourage customers to consider alternative investments
10
<PAGE>
such as mutual funds and tax-deferred annuity products. Interest rate
increases subsequent to this last broad decline have tended to reduce
the consideration of these alternative investments.
The Bank's level and mix of deposits has been specifically
affected by the following factors. Certain variable-rate time
deposits with minimum rates in excess of current market rates are
being phased out over a two-year period that commenced in January
1994. A retail repurchase agreements program, established in the
second quarter of 1994, has tended to transfer funds away from
deposits. The balance of retail repurchase agreements was $3,526,000
at December 31, 1994 and $3,730,000 at March 31, 1995. Further, the
level of public funds on deposit fluctuates, amounting to $13,497,000,
$12,526,000 and $10,940,000 at March 31, 1995, March 31, 1994 and
December 31, 1994, respectively.
BUSINESS DEVELOPMENT MATTERS
As discussed in the "Overview" and "Other Operating Expense"
above, the Corporation has entered into definitive agreements to
acquire two mutual savings banks.
During 1994, a new credit card operation was established in
which the Bank carries its own credit card receivables as opposed
to the former fee-based arrangement under which accounts were
generated for and owned by a correspondent bank. As part of the
new credit card strategy, extensive customer solicitation efforts
are being undertaken in 1995. Additionally, the merchant aspect of
credit card operations has been shifted to an in-house basis from
the prior correspondent arrangement.
In a significant 1994 development, the Bank elected to
outsource all of its data processing, item capture and statement
rendering operations. The conversion to a service bureau
arrangement was completed in the 1994 fourth quarter. The major
items of data processing equipment that were no longer needed by
the Bank were acquired by the new processor. While the Bank does
not plan to resume any major data processing operations, the level
of computer equipment is expected to be significantly increased in
1995 through expanded use of personal computer networks. The new
networks will allow for a more direct input of basic loan and
deposit account information to the data files maintained by the
service bureau. Capital expenditures for these and other projects
are expected to be approximately $900,000 in 1995.
In 1995, management adopted a comprehensive restructuring
project for the purpose of reengineering all Bank operations to
become more competitive and cost-effective in developing business
and servicing customers and to improve long-term profitability.
This project, scheduled for completion in 1995, will eliminate or
realign some positions within the Bank and will result in one-time
charges to earnings. While the most significant restructuring
charges are expected to be incurred in the first half of 1995, it
is believed that the majority of these costs have been incurred or
accrued in the 1995 first quarter. The total recorded in the first
quarter was $460,457, of which $304,697 related to personnel costs
and $155,760 to professional fees. The Bank also decided in March
1995 to recognize losses of $414,596 from the sales of certain
securities held in the available-for-sale investment portfolio in
order to gain favorable tax treatment for the losses and to take
advantage of reinvestment opportunities at higher coupon rates.
While these actions will have a significant adverse impact on 1995
earnings, management believes these decisions will enhance the
long-term value of FNB Corp. and insure the competitive edge of its
community banking operations.
11
<PAGE>
Table 1
CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
(Taxable Equivalent Basis) (Dollar amounts in thousands)
<TABLE>
1995 1994
THREE MONTHS ENDED MARCH 31 Average
Interest Rates
Average Income/ Earned/ Average
Balance Expense Paid Balance
<S>
EARNING ASSETS <C> <C> <C> <C>
Loans (2) (3) $ 168,628 $ 3,714 8.90% $ 156,689
Investment securities:
Taxable income 65,588 999 6.10 67,257
Non-taxable income (2) 10,279 239 9.32 10,390
Federal funds sold 870 14 6.36 1,469
Total earning assets 245,365 4,966 8.16 235,805
Cash and due from banks 8,806 8,149
Other assets, net 6,094 7,032
TOTAL ASSETS $ 260,265 $ 250,986
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
NOW accounts $ 31,357 166 2.15 $ 31,889
Savings deposits 30,238 217 2.92 31,382
Money market accounts 19,075 144 3.06 21,778
Certificates and other
time deposits 114,171 1,499 5.32 108,226
Retail repurchase
agreements 3,215 40 5.06 -
Federal funds purchased 873 13 5.84 168
Total interest-bearing
liabilities 198,929 2,079 4.24 193,443
Noninterest-bearing
demand deposits 35,394 33,317
Other liabilities 2,154 1,718
Shareholders' equity 23,788 22,508
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $260,265 $250,986
NET INTEREST INCOME
AND SPREAD $ 2,887 3.92%
NET YIELD ON EARNING
ASSETS 4.72%
</TABLE>
(1) The mix variance, not separately stated, has been proportionally
allocated to the rate and volume variances based on their absolute dollar
amount.
(2) Interest income related to tax-exempt securities and to certain loans
exempt from federal income tax is stated on a taxable equivalent basis,
assuming a 34% tax rate.
(3) Nonaccrual loans are included in the average loan balance. Loan fees
and the incremental direct costs associated with making loans are deferred
and subsequently recognized over the life of the loan as an adjustment of
interest income.
12(a)
<PAGE>
Table 1
CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
(Taxable Equivalent Basis) (Dollar amounts in thousands)
<TABLE>
1994
THREE MONTHS ENDED MARCH 31 Average 1995 Versus 1994
Interest Rates Interest Variance
Income/ Earned/ due to (1) Net
Expense Paid Volume Rate Change
<S> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans (2) (3) $ 3,095 7.97% $ 245 $ 374 $ 619
Investment securities:
Taxable income 890 5.29 (23) 132 109
Non-taxable income (2) 263 10.12 (3) (21) (24)
Federal funds sold 11 3.14 (6) 9 3
Total earning assets 4,259 7.27 213 494 707
Cash and due from banks
Other assets, net
TOTAL ASSETS
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
NOW accounts $ 157 2.00 (3) 12 9
Savings deposits 199 2.57 (7) 25 18
Money market accounts 126 2.35 (17) 35 18
Certificates and other
time deposits 1,179 4.42 68 252 320
Retail repurchase
agreements - - 40 - 40
Federal funds purchased 1 3.21 10 2 12
Total interest-bearing
liabilities 1,662 3.48 91 326 417
Noninterest-bearing
demand deposits
Other liabilities
Shareholders' equity
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
NET INTEREST INCOME
AND SPREAD $ 2,597 3.79% $ 122 $ 168 $ 290
NET YIELD ON EARNING
ASSETS 4.41%
</TABLE>
(1) The mix variance, not separately stated, has been proportionally
allocated to the rate and volume variances based on their absolute dollar
amount.
(2) Interest income related to tax-exempt securities and to certain loans
exempt from federal income tax is stated on a taxable equivalent basis, assuming
a 34% tax rate.
(3) Nonaccrual loans are included in the average loan balance. Loan fees
and the incremental direct costs associated with making loans are deferred and
subsequently recognized over the life of the loan as an adjustment of interest
income.
12(b)
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibits to this report are listed in the index to
exhibits on pages 14 and 15 of this report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter
ended March 31, 1995.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FNB Corp.
(Registrant)
Date: May 8, 1995 By: /s/ Jerry A. Little
Jerry A. Little
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
13
<PAGE>
FNB CORP.
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit Page No.
3.10 Articles of Incorporation of the
Registrant, incorporated herein by
reference to Exhibit 3.1 to the
Registrant's Form S-14 Registration
Statement (No. 2-96498) filed March
16, 1985.
3.11 Articles of Amendment to Articles of
Incorporation of the Registrant,
adopted May 10, 1988, incorporated
herein by reference to Exhibit 19.10
to the Registrant's Form 10-Q
Quarterly Report for the quarter
ended June 30, 1988.
3.20 Amended and Restated Bylaws of the
Registrant, adopted October 11, 1990,
incorporated herein by reference to
Exhibit 19 to the Registrant's Form
10-Q Quarterly Report for the quarter
ended September 30, 1990.
3.21 Amendment to Bylaws of the Registrant,
adopted September 19, 1991, incorporated
herein by reference to Exhibit 19 to the
Registrant's Form 10-Q Quarterly Report
for the quarter ended September 30, 1991.
3.22 Amendment to Bylaws of the Registrant,
adopted December 16, 1993, incorporated
herein by reference to Exhibit 3.22 to
the Registrant's Form 10-KSB Annual
Report for the fiscal year ended
December 31, 1993.
4 Specimen of Registrant's Common Stock
Certificate, incorporated herein by
reference to Exhibit 4 to Amendment
No. 1 to the Registrant's Form S-14
Registration Statement (No. 2-96498)
filed April 19, 1985.
10.10 Form of Split Dollar Insurance
Agreement dated as of November 1,
1987 between First National Bank
and Trust Company and certain of its
key employees and directors,
incorporated herein by reference to
Exhibit 19.20 to the Registrant's
Form 10-Q Quarterly Report for the
Quarter ended June 30, 1988.
14
<PAGE>
Exhibit No. Description of Exhibit Page No.
10.11 Form of Amendment to Split Dollar
Insurance Agreement dated as of
November 1, 1994 between First
National Bank and Trust Company
and certain of its key employees
and directors, incorporated herein
by reference to Exhibit 10.11 to
the Registrant's Form 10-KSB Annual
Report for the fiscal year ended
December 31, 1994.
10.20 Copy of Split Dollar Insurance
Agreement dated as of May 28, 1989
between First National Bank and Trust
Company and James M. Culberson, Jr.,
incorporated herein by reference
to Exhibit 10.30 to the Registrant's
Form 10-K Annual Report for the
fiscal year ended December 31, 1989.
10.30 Copy of Stock Compensation Plan
adopted May 11, 1993, incorporated
herein by reference to Exhibit 10.40
to the Registrant's Form 10-QSB
Quarterly Report for the quarter
ended June 30, 1993.
10.31 Form of Incentive Stock Option
Agreement between FNB Corp. and
certain of its key employees,
pursuant to the Registrant's Stock
Compensation Plan, incorporated
herein by reference to Exhibit 10.11
to the Registrant's Form 10-KSB
Annual Report for the fiscal year
ended December 31, 1994.
10.32 Form of Nonqualified Stock Option
Agreement between FNB Corp. and
certain of its directors, pursuant
to the Registrant's Stock Compensation
Plan, incorporated herein by reference
to Exhibit 10.11 to the Registrant's
Form 10-KSB Annual Report for the
fiscal year ended December 31, 1994.
10.40 Copy of FNB Corp. Savings Institutions
Management Stock Compensation Plan
adopted May 10, 1994, incorporated
herein by reference to Exhibit 10.40
to the Registrant's Form 10-QSB
Quarterly Report for the quarter
ended June 30, 1994.
27 Financial Data Schedule.
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
Form 10-QSB for the quarterly period ended March 31, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 10,104,157
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,615,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,952,290
<INVESTMENTS-CARRYING> 53,367,045
<INVESTMENTS-MARKET> 0
<LOANS> 168,265,885
<ALLOWANCE> 1,748,616
<TOTAL-ASSETS> 260,089,157
<DEPOSITS> 230,161,223
<SHORT-TERM> 3,729,667
<LIABILITIES-OTHER> 2,263,449
<LONG-TERM> 0
<COMMON> 3,000,000
0
0
<OTHER-SE> 20,934,818
<TOTAL-LIABILITIES-AND-EQUITY> 260,089,157
<INTEREST-LOAN> 3,697,073
<INTEREST-INVEST> 1,158,577
<INTEREST-OTHER> 13,640
<INTEREST-TOTAL> 4,869,290
<INTEREST-DEPOSIT> 2,026,107
<INTEREST-EXPENSE> 2,078,750
<INTEREST-INCOME-NET> 2,695,540
<LOAN-LOSSES> 95,000
<SECURITIES-GAINS> (414,596)
<EXPENSE-OTHER> 2,686,823
<INCOME-PRETAX> 125,375
<INCOME-PRE-EXTRAORDINARY> 125,375
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,146
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
<YIELD-ACTUAL> 4.57
<LOANS-NON> 0
<LOANS-PAST> 224
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,720,000
<CHARGE-OFFS> 93,000
<RECOVERIES> 27,000
<ALLOWANCE-CLOSE> 1,749,000
<ALLOWANCE-DOMESTIC> 1,530,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 219,000
</TABLE>
