UNITED STATES
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, 1999
Commission File Number 0-13823
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FNB CORP.
(Exact name of Registrant as specified in its charter)
North Carolina 56-1456589
(State of incorporation) (I.R.S. Employer Identification No.)
101 Sunset Avenue, Asheboro, North Carolina 27203
(Address of principal executive offices)
(336) 626-8300
(Registrant's telephone number, including area code)
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 3,658,526 shares of $2.50 par value common stock outstanding
at May 12, 1999.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FNB CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
-------------------------- December 31,
1999 1998 1998
---------- ----------- ----------
(in thousands, except share data)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 11,878 $ 12,001 $ 12,787
Federal funds sold - 7,700 -
Investment securities:
Available for sale, at estimated fair value
(amortized cost of $48,305, $37,172
and $44,918 47,787 37,276 44,958
Held to maturity (estimated fair value of
$57,775, $49,423 and $60,859) 57,328 48,806 59,813
Loans 235,087 226,808 229,722
Less: Allowance for loan losses (2,535) (2,375) (2,517)
---------- ----------- ----------
Net loans 232,552 224,433 227,205
---------- ----------- ----------
Premises and equipment 7,464 6,020 6,978
Other assets 5,875 4,747 4,882
---------- ----------- ----------
TOTAL ASSETS $ 362,884 $ 340,983 $ 356,623
========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $ 40,264 $ 36,536 $ 40,222
Interest-bearing deposits:
NOW, savings and money market deposits 100,577 95,380 99,816
Time deposits of $100,000 or more 59,916 58,809 60,672
Other time deposits 103,173 104,239 103,980
---------- ----------- ----------
Total deposits 303,930 294,964 304,690
Retail repurchase agreements 12,179 9,441 11,484
Federal Home Loan Bank advances 7,000 - -
Federal funds purchased 450 - 1,545
Other liabilities 3,958 3,859 3,902
---------- ----------- ----------
Total Liabilities 327,517 308,264 321,621
---------- ----------- ----------
Shareholders' equity:
Preferred stock - $10.00 par value;
authorized 200,000 shares, none issued - - -
Common stock - $2.50 par value;
authorized 10,000,000 shares, issued
shares - 3,657,776, 3,650,686 and 3,655,376 9,144 9,127 9,138
Surplus 137 - 117
Retained earnings 26,427 23,524 25,721
Accumulated other comprehensive income:
Net unrealized securities gains (losses) (341) 68 26
---------- ----------- ----------
Total Shareholders' Equity 35,367 32,719 35,002
---------- ----------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 362,884 $ 340,983 $ 356,623
========== ============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
FNB CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
----------- ----------
(in thousands, except per share data)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 5,002 $ 5,075
Interest and dividends on investment securities:
Taxable income 1,342 1,110
Non-taxable income 255 237
Federal funds sold 27 61
----------- ----------
Total interest income 6,626 6,483
----------- ----------
INTEREST EXPENSE:
Deposits 2,636 2,712
Retail repurchase agreements 111 96
Federal Home Loan Bank advances 62 -
Federal funds purchased 17 1
----------- ----------
Total interest expense 2,826 2,809
----------- ----------
NET INTEREST INCOME 3,800 3,674
Provision for loan losses 65 160
----------- ----------
Net Interest Income After Provision for Loan Losses 3,735 3,514
----------- ----------
NONINTEREST INCOME:
Service charges on deposit accounts 423 406
Annuity and brokerage commissions 121 44
Cardholder and merchant services income 88 77
Other service charges, commissions and fees 144 106
Other income 62 83
----------- ----------
Total noninterest income 838 716
----------- ----------
NONINTEREST EXPENSE:
Personnel expense 1,540 1,348
Net occupancy expense 151 129
Furniture and equipment expense 226 218
Data processing services 383 305
Other expense 641 663
----------- ----------
Total noninterest expense 2,941 2,663
----------- ----------
Income Before Income Taxes 1,632 1,567
Income taxes 487 481
----------- ----------
NET INCOME $ 1,145 1,086
=========== ==========
Net income per common share:
Basic $ .31 $ .30
Diluted .30 .29
=========== ==========
Weighted average number of shares outstanding:
Basic 3,657,200 3,644,339
Diluted 3,803,149 3,791,946
=========== ==========
Cash dividends declared per common share $ .12 $ .10
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
FNB CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Three Months Ended March 31, 1999 and March 31, 1998
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
--------------------- Retained Comprehensive
Shares Amount Surplus Earnings Income Total
--------- ---------- ---------- ---------- ------------- ----------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 1,819,825 $ 4,550 $ 527 $ 26,740 $ 84 $ 31,901
Comprehensive income:
Net income - - - 1,086 - 1,086
Other comprehensive income:
Unrealized securities gains (losses),
net of income tax benefit of $8 - - - - (16) (16)
----------
Total comprehensive income - - - - 1,070
----------
Cash dividends declared - - - (365) - (365)
Two-for-one stock split effected in the form
of a 100% stock dividend 1,825,343 4,563 (626) (3,937) - -
Common stock issued through: -
Dividend reinvestment plan - - - - - -
Stock option plan 5,518 14 99 - - 113
--------- ---------- ---------- ---------- ------------- ----------
BALANCE, MARCH 31, 1998 3,650,686 $ 9,127 $ - $ 23,524 $ 68 $ 32,719
========= ========== ========== ========== ============= ==========
BALANCE, DECEMBER 31, 1998 3,655,376 $ 9,138 $ 117 $ 25,721 $ 26 $ 35,002
Comprehensive income:
Net income - - - 1,145 - 1,145
Other comprehensive income:
Unrealized securities gains (losses),
net of income tax benefit of $189 - - - - (367) (367)
----------
Total comprehensive income - - - - - 778
----------
Cash dividends declared - - - (439) - (439)
Common stock issued through:
Dividend reinvestment plan - - - - - -
Stock option plan 2,400 6 20 - - 26
--------- ---------- ---------- ---------- ------------- ----------
BALANCE, MARCH 31, 1999 3,657,776 $ 9,144 $ 137 $ 26,427 $ (341) $ (35,367)
========= ========== ========== ========== ============= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FNB CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
----------- ----------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,145 $ 1,086
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of premises and equipment 218 203
Provision for loan losses 65 160
Deferred income taxes - 87
Deferred loan fees and costs, net 31 80
Premium amortization and discount accretion
of investment securities, net (60) (33)
Amortization of intangibles 5 6
Net decrease (increase) in loans held for sale 948 (3,570)
Increase in other assets (796) (325)
Increase in other liabilities 169 604
----------- ----------
Net Cash Provided by (Used in) Operating Activities 1,725 (1,702)
----------- ----------
INVESTING ACTIVITIES:
Available-for-sale securities:
Proceeds from maturities and calls 6,965 8,095
Purchases (10,283) (10,233)
Held-to-maturity securities:
Proceeds from maturities and calls 3,484 7,802
Purchases (1,000) (4,855)
Net increase in loans (6,423) (5,929)
Proceeds from sales of premises and equipment - -
Purchases of premises and equipment (708) (192)
Other, net 13 49
----------- ----------
Net Cash Used in Investing Activities (7,952) (5,263)
----------- ----------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (760) 14,416
Increase in retail repurchase agreements 695 2,005
Increase in Federal Home Loan Bank advances 7,000 -
Decrease in federal funds purchased (1,095) (2,400)
Common stock issued 26 113
Cash dividends paid (548) (382)
----------- ----------
Net Cash Provided by Financing Activities 5,318 13,752
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (909) 6,787
Cash and cash equivalents at beginning of period 12,787 12,914
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,878 $ 19,701
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 3,028 $ 2,594
Income taxes 65 65
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
FNB Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FNB Corp. is a one-bank holding company whose wholly-owned subsidiary is
the First National Bank and Trust Company (the "Bank"). The Bank is an
independent community bank that offers a complete line of financial
services, including deposit, loan, investment and trust services, to
individual and business customers primarily in the region of North
Carolina that includes Randolph, Montgomery and Chatham counties.
The accompanying consolidated financial statements, prepared without
audit, include the accounts of FNB Corp. and the Bank (collectively the
"Corporation"). All significant intercompany balances and transactions
have been eliminated. The Corporation adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information", in 1998 without any impact on the
consolidated financial statements as the chief operating decision maker
reviews the results of operations of the Corporation and its subsidiary
as a single enterprise.
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Share and per share information in the consolidated financial statements
and related notes thereto have been restated, where appropriate, to
reflect the two-for-one common stock split effected in the form of a
100% stock dividend paid to shareholders on March 18, 1998.
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. Basic net income per share, or basic earnings per share (EPS), is
computed by dividing net income by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if the Corporation's dilutive stock options
were exercised. The numerator of the basic EPS computation is the same
as the numerator of the diluted EPS computation for all periods
presented. A reconciliation of the denominators of the basic and diluted
EPS computations is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
------ ------
<S> <C> <C>
Basic EPS denominator - Weighted average
number of common shares outstanding 3,657,200 3,644,339
Dilutive share effect arising from assumed
exercise of stock options 145,949 147,607
---------- ---------
Diluted EPS denominator 3,803,149 3,791,946
========== =========
</TABLE>
5
<PAGE>
4. Loans as presented are reduced by net deferred loan fees of $468,000,
$346,000 and $443,000 at March 31, 1999, March 31, 1998 and December 31,
1998, respectively.
5. Significant components of other expense were as follows:
Three Months Ended
March 31,
------------------
1999 1998
------ ----
(in thousands)
Stationery, printing and supplies $116 $ 89
Advertising and marketing 57 121
6. 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.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 "Parent Company") and its
wholly-owned subsidiary, First National Bank and Trust Company (the "Bank"),
collectively referred to as the "Corporation". This discussion should be read in
conjunction with the financial information appearing elsewhere in this report.
OVERVIEW
The Corporation earned $1,145,000 in the first quarter of 1999, a 5.4%
increase over the same period in 1998. Basic earnings per share increased from
$.30 to $.31 in comparing these first quarter periods and diluted earnings per
share increased from $.29 to $.30. Total assets were $362,884,000 at March 31,
1999, up 6.4% from March 31, 1998 and 1.8% from December 31, 1998. Loans
amounted to $235,087,000 at March 31, 1999, increasing 3.7% from March 31, 1998
and 2.3% from December 31, 1998. Total deposits grew 3.0% from March 31, 1998
and declined 0.2% from December 31, 1998 to $303,930,000 at March 31, 1999.
EARNINGS REVIEW
The Corporation's net income increased $59,000 or 5.4% in the first
quarter of 1999 compared to the same period of 1998. Earnings were positively
impacted in the first quarter of 1999 by increases of $126,000 in net interest
income and $122,000 in noninterest income and by a reduction of $95,000 in the
provision for loan losses. These gains were significantly offset, however, by a
$278,000 increase in noninterest expense, which was impacted in 1999 by a major
data processing conversion as discussed in "Noninterest Expense".
On an annualized basis, return on average assets decreased from 1.31% in
the first quarter of 1998 to 1.28% in the first quarter of 1999. Return on
average shareholders' equity decreased from 13.33% to 12.92% in comparing the
same periods.
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 $3,800,000 in the first quarter of 1999 compared
to $3,674,000 in the same period of 1998. This increase of $126,000 or 3.4%
resulted primarily from an 8.1% increase in the level of average earning assets,
the effect of which was partially offset by a decline in the net yield on
earning assets, or net interest margin, from 5.01% in the first quarter of 1998
to 4.83% in the same period of 1999. On a taxable equivalent basis, the increase
in net interest income in the first quarter of 1999 was $166,000, reflecting
changes in the relative mix of taxable and non-taxable earning assets.
Table 1 on page 16 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
7
<PAGE>
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 net interest spread tend to
correlate with movements in the prime rate of interest. There are variations,
however, in the degree and timing of rate changes, compared to prime, for the
different types of earning assets and interest-bearing liabilities.
The prime rate of interest has been relatively stable in recent years,
averaging 8.37%, 8.44% and 8.28% in 1998, 1997 and 1996, respectively. This
general stability has tended to apply to the interest rates both earned and paid
by the Bank. During the last three months of 1998, however, a significant change
occurred in the level of the prime rate when the Federal Reserve took action on
the level of interest rates in response to the downturn of the economies of
certain Asian and Latin American countries and the effects or potential effects
of those downturns on the U.S. economy. In rapid succession, three 25 basis
point cuts were recorded in the prime rate, lowering it from 8.50% to 7.75%.
This decrease in the prime rate has tended to negatively impact the
Corporation's net interest margin and net interest spread.
Following the reductions in late 1998, the prime rate averaged 7.75% in
the first quarter of 1999 compared to 8.50% in the same period of 1998. The net
interest spread, in comparing first quarter periods, declined by 12 basis points
from 4.26% in 1998 to 4.14% in 1999, reflecting the effect of a decrease in the
average total yield on earning assets that was only partially offset by a
decrease in the average rate paid on interest-bearing liabilities, or cost of
funds. The yield on earning assets decreased by 43 basis points from 8.66% in
1998 to 8.23% in 1999, while the cost of funds decreased by 31 basis points from
4.40% to 4.09%.
PROVISION FOR LOAN LOSSES
This provision is the charge against earnings to provide an allowance or
reserve for potential losses inherent in the loan portfolio. 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 positively impacted in the first quarter of 1999 compared to the
same period in 1998 by a $95,000 decrease in the provision, due primarily to a
lower rate of loan growth in 1999 and a reduction in net loan charge-offs.
NONINTEREST INCOME
Noninterest income increased $122,000 or 17.0% in the first quarter of
1999 compared to the same period in 1998, reflecting in part the general
increase in the volume of business. The increase in service charges on deposit
accounts was primarily due to the selected increases in service charge rates
that became effective in the 1999 first quarter. The gain in annuity and
brokerage commissions reflected a significant increase in sales of annuity
products. The level of other service charges, commissions and fees was higher
due largely to a significantly greater annual commission adjustment on sales of
credit life insurance, such adjustment being paid in the first quarter of each
year and based on prior year claims. Other income was lower due mainly to a
reduction in gains on loan sales.
8
<PAGE>
NONINTEREST EXPENSE
Noninterest expense was $278,000 or 10.4% higher in the first quarter of
1999 compared to the same period in 1998, due largely to increased personnel
expense, the effect of a major data processing conversion and the continuing
effects of inflation. Personnel expense was impacted by increased staffing
requirements, especially as related to the data processing conversion, and by
normal salary adjustments. Advertising and marketing expense, included in other
expense, increased in 1998 above the level of prior years due primarily to new
programs undertaken that included an advertising campaign based on customer
testimonials and a major marketing plan centered around the "YES YOU CAN, YES WE
CAN(R)" program. While significant expenditures have continued in 1999 for the
new marketing plan, advertising and marketing expense decreased $64,000 in the
first quarter of 1999 compared to the same period in 1998.
The major data processing conversion from a service bureau arrangement
to an in-house basis, completed on March 26, 1999 and discussed in "Business
Development Matters", has significantly affected operating results for the 1999
first quarter and will continue to have an impact in future periods. The cost of
data processing services in the 1999 first quarter was impacted by the higher
rate charged by the service bureau on a month-to-month basis, subsequent to the
termination of the prior long-term agreement in late 1998. Also, personnel
expense was negatively affected by the staffing and training requirements that
were preliminary to the implementation of the new system.
In future periods, the total cost related to data processing operations
is expected to compare favorably to the cost that was being experienced under
the service bureau arrangement prior to the start of the conversion process in
the 1998 fourth quarter. Noninterest expense components will be significantly
affected, however, as there will be a major decrease in the direct cost of data
processing services, but increases in the levels of personnel expense and
furniture and equipment expense, especially for depreciation.
INCOME TAXES
The effective income tax rate decreased from 30.7% in the first quarter
of 1998 to 29.8% in the same period of 1999 due principally to a decrease in the
ratio of taxable to tax-exempt income.
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 Parent Company for
payment of dividends, debt service and other operational requirements. Liquidity
is immediately available from five major sources: (a) cash on hand and on
deposit at other banks, (b) the outstanding balance of federal funds sold, (c)
lines for the purchase of federal funds from other banks, (d) the $37,000,000
line of credit established at the Federal Home Loan Bank, less existing advances
against that line, and (e) the available-for-sale securities portfolio. 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. 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.
Consistent 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 primarily on a core of
9
<PAGE>
local deposits and the Bank's capital position. To date, the steady increase in
deposits, retail repurchase agreements and capital, supplemented by Federal Home
Loan Bank advances, 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 securities portfolio available for both immediate and
secondary liquidity purposes.
ASSET/LIABILITY MANAGEMENT AND INTEREST RATE SENSTIVITY
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 was liability-sensitive at March 31, 1999. A
liability-sensitive position means that in gap measurement periods of one year
or less there are 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 90 days is a
portion of the NOW, savings and money market deposits. These types of deposits
historically have not repriced coincidentally with or in the same proportion as
general market indicators.
As a specific asset/liability management tool, the Bank, at March 31,
1999, had entered into an interest rate floor agreement with a correspondent
bank to protect certain variable-rate loans from the downward effects of their
repricing in the event of a decreasing rate environment. The notional amount of
the agreement is $10,000,000. The agreement requires the correspondent bank to
pay to the Bank the difference between the floor rate of interest of 7.50% and
the prime rate of interest in the event that the prime rate is less. Any
payments received under the agreement, net of premium amortization, will be
treated as an adjustment of interest income on loans. At March 31, 1999, the
unamortized premium related to the interest rate floor agreement amounted to
$15,000 and had an estimated fair value of $4,000.
CAPITAL ADEQUACY
Under guidelines established by the Board of Governors of the Federal
Reserve System, capital adequacy is currently measured for regulatory purposes
by certain risk-based capital ratios, supplemented by a leverage capital ratio.
The risk-based capital ratios are determined by expressing allowable capital
amounts, defined in terms of Tier I and Tier II, 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 I capital consists primarily of common shareholders' equity and
qualifying perpetual preferred stock, net of goodwill and other disallowed
intangible assets. Tier II capital, which is limited to the total of Tier I
capital, includes allowable amounts of subordinated debt, mandatory convertible
securities, preferred stock and the allowance for loan losses. Under current
requirements, the minimum total capital ratio, consisting of both Tier I and
Tier II capital, is 8.00% and the minimum Tier I capital ratio is 4.00%. At
March 31, 1999, FNB Corp. and the Bank had total capital ratios of 15.86% and
15.45%, respectively, and Tier I capital ratios of 14.81% and 14.39%.
10
<PAGE>
The leverage capital ratio, which serves as a minimum capital standard,
considers Tier I 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. As currently
required, the minimum leverage capital ratio is 4.00%. At March 31, 1999, FNB
Corp. and the Bank had leverage capital ratios of 9.97% and 9.68%, respectively.
The Bank is also required to comply with prompt corrective action
provisions established by the Federal Deposit Insurance Corporation Improvement
Act. To be categorized as well-capitalized, the Bank must have a minimum ratio
for total capital of 10.00%, for Tier I capital of 6.00% and for leverage
capital of 5.00%. As noted above, the Bank met all of those ratio requirements
at March 31, 1999 and, accordingly, is well-capitalized under the regulatory
framework for prompt corrective action.
BALANCE SHEET REVIEW
Total assets at March 31, 1999 were higher than at March 31, 1998 and
December 31, 1998 by $21,901,000 or 6.4% and $6,261,000 or 1.8%, respectively.
Deposits were ahead of the March 31, 1998 level by $8,966,000 or 3.0% and below
December 31, 1998 by $760,000 or 0.2%. A portion of the asset growth was funded
by retail repurchase agreements, which had increased at March 31, 1999 by
$2,738,000 or 29.0% from March 31, 1998 and by $695,000 or 6.1% from December
31, 1998. Asset growth was also funded in the 1999 first quarter by an initial
advance of $7,000,000 from the Federal Home Loan Bank. Average assets increased
8.3% in the first quarter of 1999 compared to the same period in 1998, while
average deposits increased 5.0%.
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, 1999, when
the growth in total assets exceeded that for loans, the level of investment
securities was increased $19,033,000 or 22.1%, with a net increase of $344,000
or 0.3% occurring in the first quarter of 1999. 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. Based on funds requirements, the Bank was a net purchaser
of funds at March 31, 1999.
LOANS
The Corporation's primary source of revenue and largest component of
earning assets is the loan portfolio. Loans increased $8,279,000 or 3.7% during
the twelve-month period ended March 31, 1999. The net loan increase during the
first quarter of 1999 was $5,365,000 or 2.3%. Average loans were $9,263,000 or
4.2% higher in the first quarter of 1999 than in the same period of 1998. The
ratio of average loans to average deposits, in comparing first quarter periods,
decreased from 77.8% in 1998 to 77.1% in 1999. The ratio of loans to deposits at
March 31, 1999 was 77.3%.
The commercial and agricultural loan portfolio has experienced strong
gains during both the twelve-month period ended March 31,1999 and the first
quarter of 1999. The 1-4 family residential mortgage loan portfolio has also
gained significantly during these periods. Loan growth and the composition of
the loan portfolio are being affected by management's decision in March 1996 to
discontinue the purchase of retail installment loan contracts from automobile
and equipment dealers (see "Business Development Matters").
11
<PAGE>
The outstanding balance of these loan contracts, which are primarily included in
consumer loans, experienced a net decrease of $4,904,000 during the twelve-month
period ended March 31, 1999. Consequently, total consumer loans declined
significantly during that period.
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. As part of the loan review function,
a third party assessment group is employed to review the underwriting
documentation and risk grading analysis. 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. For loans
determined to be impaired, the allowance is based on discounted cash flows using
the loan's initial effective interest rate or the fair value of the collateral
for certain collateral dependent loans. This evaluation is inherently subjective
as it requires material estimates, including the amounts and timing of future
cash flows expected to be received on impaired loans that may be susceptible to
significant change. The unallocated portion of the allowance for loan losses
represents management's estimate of the appropriate level of reserve to provide
for potential losses inherent in the loan portfolio. Considerations in
determining the unallocated portion of the allowance for loan losses include
general economic and lending trends and other factors.
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
in the determination of the allowance for loan losses.
At March 31, 1999, nonaccrual loans and accruing loans past due 90 days
or more amounted to $369,000 and $744,000, respectively.
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. In general, broad interest rate
declines tend to encourage customers to consider alternative investments such as
mutual funds and tax-deferred annuity products, while interest rate increases
tend to have the opposite effect.
The Bank's level and mix of deposits has been specifically affected by
the following factors. The growth in money market accounts of $5,859,000 during
the twelve-month period ended March 31, 1999 and $1,843,000 during the first
quarter of 1999 was due to a high-yield product first introduced in the 1996
fourth quarter. Noninterest-bearing demand deposits also experienced strong
growth during the twelve-month period ended March 31, 1999, increasing
$3,728,000. Average demand deposits increased $3,276,000 in the first quarter of
1999 compared to the same period in 1998. Further, the level of time deposits
obtained from governmental units fluctuates, amounting to $22,583,000,
$25,905,000 and $25,905,000 at March 31, 1999, March 31, 1998 and December 31,
1998, respectively.
12
<PAGE>
BUSINESS DEVELOPMENT MATTERS
Prior to March 26, 1999, the Bank's data processing, item capture and
statement rendering operations were outsourced under a service bureau
arrangement. Commencing in the 1998 fourth quarter, the Bank began the process
of converting these operations to an in-house basis. Conversion to the
replacement systems occurred on March 26, 1999. The total capital expenditure
outlay for hardware and software amounted to approximately $1,700,000, of which
approximately one-half was recorded in 1998 and the remainder in 1999. In
addition to capital expenditures for the new system, the Bank incurred certain
expenses in 1998, totaling approximately $302,000, related to deconversion from
the prior arrangement.
In the 1998 fourth quarter, the Bank received regulatory approval for
establishment of a new branch office in Trinity, North Carolina. Construction of
the permanent Trinity facility is expected to be complete in 2000, resulting in
a total capital outlay of approximately $950,000, of which approximately
one-third was recorded in 1998. Prior to completion of the permanent facility, a
temporary mobile office is scheduled to be operated at this site.
Management decided in March 1996 that the Bank would discontinue the
purchase of retail installment loan contracts from automobile and equipment
dealers, due largely to the declining yields being experienced in this loan
program. Contracts of this nature included in loans amounted to $2,687,000,
$7,591,000 and $3,745,000 at March 31, 1999, March 31, 1998 and December 31,
1998, respectively. While there will be no purchases of new contracts, current
plans call for the collection of outstanding loans based on their contractual
terms. The funds previously invested in this loan program are being redeployed,
as loan payments occur, to other loan programs or to the investment securities
portfolio.
YEAR 2000 READINESS DISCLOSURES
The Corporation recognizes and is addressing the potentially serious
implications of the "Year 2000 Issue", which is a general term used to describe
various problems that may result from the improper processing of dates and
date-sensitive calculations by many existing computer programs when the Year
2000 is reached. This issue is ultimately caused by the fact that many of the
world's existing computer programs use only two digits to identify the year in
the date field of a program. These programs were designed and developed without
considering the upcoming change in the century and could experience serious
malfunctions when the last two digits of the year change to "00" as a result of
identifying the "00" year as the year 1900 rather than the year 2000. This
identification error could result in a disruption of normal business operations,
including, among other things, the miscalculation of interest accruals and the
inability to process customer transactions. In addition, non-banking systems,
such as security alarms, elevators and telephones, are subject to malfunction
due to their dependence upon computers for proper operation.
The Corporation first began to assess its Year 2000 readiness in August
1996, completing that assessment in January 1997. The Corporation then developed
a Year 2000 Plan that follows guidelines outlined by the Federal Financial
Institutions Examination Council. The Year 2000 Project Team, which is
responsible for execution of the Plan, includes members of senior management and
departmental management from all areas of the organization. Additionally, an
outside consulting firm has been engaged to assist with the Year 2000 project.
In the implementation of the Year 2000 Plan, a thorough inventory was
first performed to determine all hardware, software and facilities that might be
impacted by the Year 2000 Issue. Since all software is
13
<PAGE>
purchased and no separate in-house programming is performed, the Corporation is
dependent upon its third-party vendors for modifications of its existing systems
to correct any defects related to the Year 2000 Issue. Accordingly, written
documentation has been solicited from all of the software and hardware vendors,
as well as the providers of facilities using embedded chip technology, with
respect to their Year 2000 compliance status. The validation phase of the
Corporation's project includes the receipt and analysis of vendor-performed
testing, as well as the testing of all hardware, software and facilities in the
Corporate environment. Internal testing of mission critical systems is scheduled
to be completed by June 30, 1999.
Prior to March 26, 1999, the Corporation used a service bureau for core
processing and related items processing. Testing of this mission critical system
for Year 2000 compliance was completed by December 31, 1998. In August 1998,
however, the Corporation contracted with third-party vendors for the hardware
and software necessary to convert this entire operation to an in-house basis.
Conversion to the replacement systems occurred on March 26, 1999. Initial
internal testing on a trial basis of these replacement systems for Year 2000
compliance was completed in November 1998. Final testing is to be completed by
June 30, 1999.
The Corporation is informing its customers about the Year 2000 Issue in
general and the efforts it is undertaking to ensure that banking services
continue in the Year 2000 and beyond. Additionally, the Corporation is
contacting its significant commercial customers to determine such customers'
plans with respect to the Year 2000 Issue and the Corporation's vulnerability to
the failure of any such customer to remediate its own problems that may result
from the Year 2000 Issue. As most commercial customers depend on computer
systems that must be Year 2000 compliant, a disruption in their businesses could
result in potentially significant financial difficulties that could affect their
creditworthiness. The Corporation is also initiating contact with key vendors to
determine their plans with respect to the Year 2000 Issue. There can be no
guarantee that customers and vendors will convert their systems on a timely
basis or in a manner that is compatible with the Corporation's systems.
Significant business interruptions or failures by significant commercial
vendors, trading partners or governmental agencies resulting from the effects of
the Year 2000 Issue could have a material adverse effect on the Corporation.
The Corporation's projected cost of Year 2000 compliance is estimated to
be approximately $200,000, the majority of such estimated cost relating to
computer equipment that may need to be replaced. Actual Year 2000 project
expenditures totaled $85,000 at March 31, 1999. Of this total, capital
expenditures amounted to $69,000 on a cumulative basis and were all recorded
prior to 1999. Project expenses amounted to $16,000 on a cumulative basis and
$1,000 for the three months ended March 31, 1999. Funding of Year 2000 project
costs will come from normal operating cash flows; however, the expenses
associated with the Year 2000 Issue will directly reduce otherwise reported net
income for the Corporation.
Management believes that the potential effects on the Corporation's
internal operations of the Year 2000 Issue can be mitigated on a timely basis.
However, if required modifications or conversions are not made or are not
completed on a timely basis, the Year 2000 Issue could disrupt normal business
operations and have a material adverse impact on the Corporation.
Contingency plans are being developed to mitigate the potential effects
of a disruption in normal business operations. Contingency planning includes
developing alternative solutions should a vendor not become compliant, as well
as plans for the resumption of business if, despite the Corporation's best
efforts, there is a disruption in business operations. In the event of what
could be described as a "worst case" scenario, the contingency plans will allow
for limited transactions, including the ability to make certain deposits and
withdrawals, until the Year 2000 problems are fixed.
14
<PAGE>
The costs of the Year 2000 project and the schedule for achieving Year
2000 compliance are based on management's best estimates, which were derived
using numerous assumptions of future events such as the availability of certain
resources (including appropriately trained personnel and other internal and
external resources), third-party vendor plans and other factors. However, there
can be no guarantee that these estimates will be achieved at the cost disclosed
or within the timeframes indicated, and actual results could differ materially
from these plans. Factors that might affect the timely and efficient completion
of the Corporation's Year 2000 project include, but are not limited to, vendors'
abilities to adequately correct or convert software and the effect on the
Corporation's ability to test its systems, the availability and cost of
personnel trained in the Year 2000 areas, the ability to identify and correct
all relevant computer programs, the readiness of key utilities, vendors and
customers, and similar uncertainties.
15
<PAGE>
TABLE 1
AVERAGE BALANCES AND NET INTEREST INCOME ANALYSIS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 1999 1998
---------------------------------- --------------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
---------- ---------- -------- --------- ---------- ----------
(Taxable Equivalent Basis, Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans (2) (3) $ 231,848 $ 5,012 8.74% $ 222,585 $ 5,080 9.23%
Investment securities (2):
Taxable income 82,663 1,445 6.99 65,806 1,187 7.22
Non-taxable income 20,188 396 7.86 18,926 369 7.80
Federal funds sold 2,273 27 4.75 4,446 61 5.57
---------- ---------- -------- --------- ---------- ----------
Total earning assets 336,972 6,880 8.23 311,763 6,697 8.66
---------- ---------- -------- --------- ---------- ----------
Cash and due from banks 11,502 10,380
Other assets, net 9,607 8,407
---------- ---------
TOTAL ASSETS $ 358,081 $ 330,550
========== =========
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
NOW accounts $ 42,675 137 1.30 $ 39,740 173 1.76
Savings deposits 26,162 135 2.10 28,076 160 2.31
Money market accounts 29,309 258 3.57 23,051 221 3.89
Certificates and other time deposits 163,246 2,106 5.23 159,426 2,158 5.49
Retail repurchase agreements 12,064 111 3.73 8,494 96 4.57
Federal Home Loan Bank advances 5,056 62 4.99 - - -
Federal funds purchased 1,457 17 4.71 84 1 6.11
---------- ---------- -------- --------- ---------- ----------
Total interest-bearing liabilities 279,969 2,826 4.09 258,871 2,809 4.40
---------- ---------- -------- --------- ---------- ----------
Noninterest-bearing demand deposits 39,171 35,895
Other liabilities 3,507 3,206
Shareholders' equity 35,434 32,578
---------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 358,081 $ 330,550
========== =========
NET INTEREST INCOME AND SPREAD $ 4,054 4.14% $ 3,888 4.26%
========== ======== ========== ==========
NET YIELD ON EARNING ASSETS 4.83% 5.01%
======== ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 1999 Versus 1998
------------------------------------
Interest Variance
due to (1)
----------------------- Net
Volume Rate Change
---------- ---------- ---------
<S> <C> <C> <C>
EARNING ASSETS
Loans (2) (3) $ 206 $ (274) $ (68)
Investment securities (2):
Taxable income 297 (39) 258
Non-taxable income 24 3 27
Federal funds sold (26) (8) (34)
---------- ---------- ---------
Total earning assets 501 (318) 183
---------- ---------- ---------
Cash and due from banks
Other assets, net
TOTAL ASSETS
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
NOW accounts 12 (48) (36)
Savings deposits (11) (14) (25)
Money market accounts 56 (19) 37
Certificates and other time deposits 52 (104) (52)
Retail repurchase agreements 35 (20) 15
Federal Home Loan Bank advances 62 - 62
Federal funds purchased 16 - 16
---------- ---------- ---------
Total interest-bearing liabilities 222 (205) 17
---------- ---------- ---------
Noninterest-bearing demand deposits
Other liabilities
Shareholders' equity
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
NET INTEREST INCOME AND SPREAD $ 279 $ (113) $ 166
========== ========== =========
</TABLE>
(1) The mix variance, not separately stated, has been proportionally allocated
to the volume and rate variances based on their absolute dollar amount.
(2) Interest income and yields related to certain investment securities and
loans exempt from both federal and state income tax or from state income
tax alone are stated on a fully taxable equivalent basis, assuming a 34%
federal tax rate and applicable state tax rate, reduced by the
nondeductible portion of interest expense.
(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.
16
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk reflects the risk of economic loss resulting from adverse
changes in market price and interest rates. This risk of loss can be reflected
in diminished current market values and/or reduced potential net interest income
in future periods.
The Bank's market risk arises primarily from interest rate risk inherent
in its lending and deposit-taking activities. The structure of the Bank's loan
and deposit portfolios is such that a significant decline in interest rates may
adversely impact net market values and net interest income. The Bank does not
maintain a trading account nor is the Bank subject to currency exchange risk or
commodity price risk. Interest rate risk is monitored as part of the Bank's
asset/liability management function, which is discussed above in Item 2
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under the heading "Asset/Liability Management and Interest Rate
Sensitivity".
Management does not believe there has been any significant change in the
overall analysis of financial instruments considered market risk sensitive, as
measured by the factors of contractual maturities, average interest rates and
estimated fair values, since the analysis prepared and presented in conjunction
with the Form 10-K Annual Report for the fiscal year ended December 31, 1998
17
<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 19 and 20 of this report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March
31,1999.
------------------------------------------
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FNB Corp.
(Registrant)
Date: May 12, 1999 By: /s/ Jerry A. Little
-----------------------------
Jerry A. Little
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
18
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
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 June 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.
3.12 Articles of Amendment to Articles of Incorporation of the
Registrant, adopted May 12, 1998, incorporated herein by
reference to Exhibit 3.12 to the Registrant's Form 10-Q Quarterly
Report for the quarter ended June 30, 1998.
3.20 Amended and Restated Bylaws of the Registrant, adopted May 21,
1998, incorporated herein by reference to Exhibit 3.20 to the
Registrant's Form 10-Q Quarterly Report for the quarter ended
June 30, 1998.
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.
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.
10.30 Copy of Stock Compensation Plan, as amended, effective May 12,
1998, incorporated herein by reference to Exhibit 10.30 the
Registrant's Form 10-Q Quarterly Report for the quarter ended
June 30, 1998.
19
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
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
10.31 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
10.32 to the Registrant's Form 10-KSB Annual Report for the
fiscal year ended December 31, 1994.
10.40 Copy of Employment Agreement dated as of December 27, 1995
between First National Bank and Trust Company and Michael C.
Miller, incorporated herein by reference to Exhibit 10.50 to the
Registrant's Form 10-KSB Annual Report for the fiscal year ended
December 31, 1995.
27 Financial Data Schedule for the three months ended March 31,
1999.
20
<PAGE>
FNB Corp.
PO Box 1328
Asheboro, NC 27203
May 14, 1999
EDGAR TRANSMISSION
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: FNB Corp.
File 0-13823
Form 10-Q for the Quarter Ended March 31, 1999
Gentlemen:
Enclosed herewith for filing with the Commission is the Quarterly Report
on Form 10-Q for the three months ended March 31, 1999, including financial
statements, exhibits, and all other papers and documents filed as a part
thereof.
Very truly yours,
Jerry A. Little
Treasurer and Secretary
JAL/phw
Enclosure
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,878
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,787
<INVESTMENTS-CARRYING> 57,328
<INVESTMENTS-MARKET> 0
<LOANS> 235,087
<ALLOWANCE> 2,535
<TOTAL-ASSETS> 362,884
<DEPOSITS> 303,930
<SHORT-TERM> 12,629
<LIABILITIES-OTHER> 3,958
<LONG-TERM> 7,000
0
0
<COMMON> 9,144
<OTHER-SE> 26,223
<TOTAL-LIABILITIES-AND-EQUITY> 362,884
<INTEREST-LOAN> 5,002
<INTEREST-INVEST> 1,597
<INTEREST-OTHER> 27
<INTEREST-TOTAL> 6,626
<INTEREST-DEPOSIT> 2,636
<INTEREST-EXPENSE> 2,826
<INTEREST-INCOME-NET> 3,800
<LOAN-LOSSES> 65
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,941
<INCOME-PRETAX> 1,632
<INCOME-PRE-EXTRAORDINARY> 1,632
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,145
<EPS-PRIMARY> .31
<EPS-DILUTED> .30
<YIELD-ACTUAL> 4.52
<LOANS-NON> 369
<LOANS-PAST> 744
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,517
<CHARGE-OFFS> 74
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 2,535
<ALLOWANCE-DOMESTIC> 2,206
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 329
</TABLE>
