FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
Commission file number: 33-66014
FNB Financial Corporation
(Exact name of registrant as specified in its charter)
Commonwealth of Pennsylvania 23-2466821
(State or other jurisdiction of (I.R.S. Employer incorporation
or organization) Identification No.)
101 Lincoln Way West, McConnellsburg, PA 17233
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 717/485-3123
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 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.
Page 1 of 20 Pages
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 2000
(Common stock, $0.63 par value) 400,000
Page 2 of 20 Pages
FNB FINANCIAL CORPORATION
INDEX
This 10-Q/A is being filed to restate the condensed consolidated statement
of income for the three months ended June 30, 2000 for a transposition error
in reporting net interest income.
Page
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets -
June 30, 2000 and December 31, 1999 5
Condensed consolidated statements of income -
Three months ended June 30, 2000 and 1999 6
Condensed consolidated statements of income -
Six months ended June 30, 2000 and 1999 7
Condensed consolidated statements of comprehensive
income -
Six months ended June 30, 2000 and 1999 8
Condensed consolidated statements of cash flows -
Six months ended June 30, 2000 and 1999 9
Notes to condensed consolidated financial
statements 10-13
Table #1 - Schedule of held to maturity and
available for sale investment activity for the
period January 1, 2000 through June 30, 2000 13
Table #2 - Schedule of gross unrealized gains and
unrealized losses within the held to maturity and
available for sale investment portfolios by
investment type 14
Management's discussion and analysis of financial
condition and results of operations 15-17
PART II - OTHER INFORMATION 18
Signatures 20
Page 3 of 20 Pages
PART I - FINANCIAL INFORMATION
Page 4 of 20 Pages
FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<S> <C> <C>
June 30, December 31,
2000 1999
ASSETS: (reviewed) (audited*)
Cash and Due from banks $ 6,258,165 $ 3,565,173
Interest-bearing deposits with banks 715,026 723,094
Marketable Debt Securities
Held-to-maturity (Market value - 2000
$1,209,121 and 1999: $1,556,865) 1,315,426 1,669,712
Available-for-sale 26,699,046 27,886,136
Marketable Equity Securities
Available for Sale 184,228 199,112
Federal Reserve, Atlantic Central Banker's Bank
and Federal Home Loan Bank Stock 833,700 681,200
Federal Funds Sold 0 0
Loans, net of unearned discount &
Allowance for loan losses 81,360,951 76,137,080
Bank buildings, equipment, furniture &
fixtures, net 3,013,207 3,119,101
Accrued interest receivable 728,232 687,259
Deferred income tax charges 680,410 676,502
Other real estate owned 124,953 165,603
Intangible Assets 153,295 161,491
Cash surrender value of life insurance 2,160,488 2,107,104
Other assets 214,151 150,616
Total Assets $124,441,278 $117,929,183
========== ==========
LIABILITIES :
Deposits:
Demand deposits $11,881,794 $10,959,096
Savings deposits 27,259,562 27,567,017
Time certificates 61,994,299 60,509,040
Other time deposits 543,371 294,783
Total deposits $101,679,026 $99,329,936
Accrued interest payable & other liabilities 940,940 861,514
Liability for other borrowed funds 10,162,491 6,364,996
Dividends payable 88,000 172,000
Total Liabilities $112,870,457 $106,728,446
STOCKHOLDERS' EQUITY:
Capital stock, Common, par value $0.63;
6,000,000 shares authorized; 400,000
outstanding $ 252,000 $ 252,000
Additional paid-in capital 1,789,833 1,789,833
Retained earnings 10,440,978 10,125,145
Accumulated other comprehensive income (911,990) (966,241)
Total Stockholders' Equity $11,570,821 $11,200,737
Total Liabilities & Stockholders' Equity$124,441,278 $117,929,183
========== ==========
</TABLE>
*Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed
financial statements.
Page 5 of 20 Pages
FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30, 2000 and 1999
(UNAUDITED)
<TABLE>
<S> <C> <C>
2000 1999
Interest & Dividend Income
Interest & fees on loans $1,711,647 $1,376,289
Interest on investment securities:
U.S. Treasury Securities 0 0
Obligations of other U.S.
Government Agencies 327,387 344,105
Obligations of State & Political
Subdivisions 107,025 121,150
Interest on deposits with banks 11,519 16,463
Dividends on Equity Securities 15,077 7,128
Interest on federal funds sold 0 30,664
Total Interest & Dividend Income 2,172,655 1,895,799
Interest Expense
Interest on deposits 1,018,012 993,963
Interest on Other borrowed money 141,021 2,776
Total Interest Expense 1,159,033 996,739
Net interest income 1,013,622 899,060
Provision for loan losses 45,000 36,000
Net interest income after
Provision for loan losses 968,622 863,060
Other income
Service charges on deposit accounts 38,687 27,603
Other service charges, collection &
exchange charges, commissions
and fees 76,956 66,705
Other income 37,347 32,051
Net gain/(loss) on sale of other real estate (19,983) 0
Net Securities gains/(losses) (474) 53,366
Total other income 132,533 179,725
Other expenses 793,522 750,953
Income before income taxes 307,633 291,832
Applicable income taxes 65,356 56,192
Net income $242,277 $235,640
======= =======
Earnings per share of Common Stock:
Net income per share $0.61 $0.59
Cash dividend declared per share $0.22 $0.19
Weighted average number of shares outstanding 400,000 400,000
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
Page 6 of 20 Pages
FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended June 30, 2000 and 1999
(UNAUDITED)
<TABLE>
<S> <C> <C>
2000 1999
Interest & Dividend Income
Interest & fees on loans $3,342,945 $2,695,187
Interest on investment securities:
U.S. Treasury Securities 0 1,585
Obligations of other U.S.
Government Agencies 656,956 698,626
Obligations of State & Political
Subdivisions 218,779 249,926
Interest on deposits with banks 21,560 44,540
Dividends on Equity Securities 29,285 15,291
Interest on federal funds sold 0 73,229
Total Interest & Dividend Income 4,269,525 3,778,392
Interest Expense
Interest on deposits 2,004,659 2,011,503
Interest on other borrowed money 269,299 5,571
Total Interest Expense 2,273,958 2,017,074
Net interest income 1,995,567 1,761,318
Provision for loan losses 105,000 66,000
Net interest income after
Provision for loan losses 1,890,567 1,695,318
Other income
Service charges on deposit accounts 80,895 50,543
Other service charges, collection &
exchange charges, commissions
and fees 140,926 129,980
Other income 84,230 65,145
Net gain/(loss) on sale of other real estate (806) 0
Net Securities gains/(losses) (474) 49,675
Total other income 304,771 295,343
Other expenses 1,588,203 1,468,335
Income before income taxes 607,135 522,326
Applicable income taxes 122,750 97,229
Net income $484,385 $425,097
======= =======
Earnings per share of Common Stock:
Net income per share $1.21 $1.06
Cash dividend declared per share $0.42 $0.37
Weighted average number of shares outstanding 400,000 400,000
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
Page 7 of 20 Pages
FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Six Months Ended June 30, 2000 and 1999
(UNAUDITED)
<TABLE>
<S> <C> <C>
2000 1999
Net Income $484,385 $425,097
Other Comprehensive income, net of tax
Unrealized holding gains/(losses for period 54,251 (718,595)
Comprehensive Income $ 538,636 $(293,498)
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
Page 8 of 20 Pages
FNB FINANCIAL CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2000 and 1999
<TABLE>
<S> <C> <C>
(UNAUDITED)
2000 1999
Cash flows from operating activities:
Net income $ 484,385 $ 425,097
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation & amortization 136,496 133,608
Provision for loan losses 105,000 66,000
Increase in Cash Surrender value
of Life Insurance (53,384) (40,797)
Net (gain)/loss on sales of
investments 474 (49,675)
Deferred income taxes (31,856) (7,578)
Net Loss on Disposal of other Real Estate 805 2,887
(Increase) decrease in accrued
interest receivable (40,973) 47,868
Loss on Disposal of Other Assets (445) 5,000
Increase (decrease) in accrued interest
payable and other liabilities 79,426 (88,793)
Other (net) (67,640) (60,243)
Net cash provided (used)by operating
activities 612,288 433,374
Cash flows from investing activities:
Net (increase) decrease in interest-
bearing deposits with banks 8,068 922,289
Purchases of Held-to-maturity securities 0 0
Purchases of Available-for-sale
securities 0 (2,221,470)
Proceeds from sales of Available-for-
sale securities 0 1,077,301
Proceeds from maturities of Held-to-
maturity securities 354,286 267,802
Proceeds from maturities of Available-
for-sale securities 1,283,713 3,693,048
Purchases of marketable equity securities 0 0
Proceeds from sales of marketable equity
securities 0 74,200
Net (increase) decrease in loans (5,559,260) (4,912,067)
Proceeds from sale of Other real estate owned 273,787 122,637
Purchases of bank premises & equipment (net) (22,681) (198,703)
Proceeds from sale of other assets 0 15,000
Proceeds from sale of furniture and fixtures 706 0
Purchase of other bank stock (152,500) (20,900)
Net cash provided (used) by investing
activities (3,813,881) (1,180,863)
Cash flows from financing activities:
Net increase (decrease) in deposits 2,349,090 (1,178,705)
Net increase (decrease) in other borrowings 3,797,495 (2,345)
Cash dividends paid (252,000) (180,000)
Net cash provided (used) by financing activities 5,894,585 (1,361,050)
Net increase (decrease) in cash & cash equivalents 2,692,992 (2,108,539)
Cash & cash equivalents, beginning balance 3,565,173 7,270,802
Cash & cash equivalents, ending balance $6,258,165 $5,162,263
========= =========
Supplemental disclosure of cash flows information
Cash paid during the year for:
Interest $2,242,291 $2,074,762
Income taxes $105,756 145,886
Supplemental schedule of noncash investing &
financing activities
Unrealized gain (loss) on Available-for-sale
securities net of tax effects 54,261 (718,595)
Accrued dividends payable 88,000 76,000
Loan advanced in partial settlement for sale of
other real estate 0 35,000
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
Page 9 of 20 Pages
FNB FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
Review of Interim Financial Statements
The condensed consolidated financial statements as of and for
the three and six month periods ended June 30, 2000 and 1999
have been reviewed by independent certified public
accountants. Their report on their review is attached as
Exhibit 99 to this 10-Q filing.
NOTE 1 - BASIS OF PRESENTATION
The financial information presented at and for the six
months ended June 30, 2000 and June 30, 1999 is unaudited.
Information presented at December 31, 1999, is condensed from
audited year-end financial statements. However, this
unaudited information reflects all adjustments, consisting
solely of normal recurring adjustments, that are, in the
opinion of management, necessary for a fair presentation of
the financial position, results of operations and cash
flows for the interim period.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
the corporation and its wholly-owned subsidiary, The First
National Bank of McConnellsburg. All significant
intercompany transactions and accounts have been
eliminated.
NOTE 3 - CASH FLOWS
For purposes of the statements of cash flows, the corporation
has defined cash and cash equivalents as those amounts
included in the balance sheet captions "cash and due from
banks" and "federal funds sold". As permitted by Statement
of Financial Accounting Standards No. 104, the corporation
has elected to present the net increase or decrease in
deposits in banks, loans and time deposits in the statement
of cash flows.
NOTE 4 - FEDERAL INCOME TAXES
For financial reporting purposes the provision for loan
losses charged to operating expense is based on management's
judgement, whereas for federal income tax purposes, the
amount allowable under present tax law is deducted.
Additionally, certain expenses are charged to operating
expense in the period the liability is incurred for financial
reporting purposes, whereas for federal income tax purposes,
these expenses are deducted when paid. As a result of these
timing differences, deferred taxes were computed after
reducing pre-tax accounting income for nontaxable municipal
and loan income.
Page 10 of 20 Pages
NOTE 5 - INVESTMENTS
The activity within the held to maturity and available for
sale portfolios for the period January 1, 2000, through
June 30, 2000, is summarized in Table #1 on page 13. No
sales were conducted from securities contained within the
held to maturity portfolio.
The amortized cost and estimated market values of investments
by investment type and classification as available for sale
or held to maturity along with each portfolio's gross
unrealized gain or gross unrealized loss are contained in
Table #2 on page 14.
Management has reviewed the unrealized gains and losses in
the investment portfolio and has determined they are a direct
result of the current interest rate environment and are
temporary in nature in that they will fluctuate accordingly
based upon the Federal Reserve's interest rate philosophy in
effect at the time of pricing. Fluctuations in market value
are not a reflection of a downgrading in the investment
quality of the securities contained within the corporation's
portfolio.
Management has purchased for the portfolio mortgage-backed
securities. The large portion of these securities have a
variable rate coupon and all have scheduled principal
payments. During periods of rising interest rates, payments
from variable rate mortgage-backed securities may accelerate
as prepayments of underlying mortgages occur as home-owners
refinance to a fixed rate while during periods of declining
interest rates, prepayments on high fixed rate mortgage-
backed securities may accelerate as home owners refinance to
lower rate mortgages. These prepayments cause yields on
mortgage-backed securities to fluctuate as larger payments of
principal necessitate the acceleration of premium
amortization or discount accretion. Due to the low dollar
amount of mortgage-backed securities in relation to the total
portfolio, management feels that interest rate risk and
prepayment risks associated with mortgage-backed securities
will not have a material impact on the financial condition of
the Bank.
In regard to Collateralized Mortgage Obligations (CMOs), the
Bank presently has none of these types of investments in its
portfolio.
Page 11 of 20 Pages
NOTE 6 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as
follows:
<TABLE>
<S> <C> <C>
2000 1999
Allowance for loan losses beginning of the year $746,067 $731,641
Loans charged-off during the year:
Real estate mortgages 1,000 100,000
Installment loans 50,083 18,802
Commercial & all other 12,718 31,973
Total charge-offs 63,801 150,775
Recoveries of loans previously charged-off:
Real estate mortgages 0 200
Installment loans 10,910 12,896
Commercial & all other 895 1,077
Total recoveries 11,805 14,173
Net loans charged-off (recovered) 51,996 136,602
Provision for loan losses charged to operations 105,000 66,000
Allowance for loan losses, June 30 $799,071 $661,039
========= ========
</TABLE>
The following table shows the principal balance of nonaccrual
loans as of June 30, 2000:
<TABLE>
<S> <C>
Nonaccrual loans $ 307,760.79
==========
Interest income that would have been
accrued at original contract rates $ 13,443.09
Amount recognized as interest income 7,293.99
Foregone revenue $ 6,149.10
=========
</TABLE>
NOTE 7 - IMPAIRED LOANS
As the Bank has undertaken a more rigorous review of loans,
their underlying collateral values and ability to repay,
management has determined that based upon this review there
are presently loans on the Bank's books which may not be paid
in full according to contractual terms and may require
additional specific provisions to the allowance for loan
losses. As of June 30, 2000, the dollar amount outstanding
on these impaired loans was $1,154,384; the underlying
collateral values for these loans based upon contractual
lending terms was $1,388,991; and the specific amount
allocated for these loans in the allowance for loan losses
was $216,010.
Page 12 of 20 Pages
NOTE 8 - OTHER COMMITMENTS
In the normal course of business, the bank makes various
commitments and incurs certain contingent liabilities which
are not reflected in the accompanying financial statements.
These commitments include various guarantees and commitments
to extend credit. The bank does not anticipate any losses
as a result of these transactions.
NOTE 9 - SUBSEQUENT EVENTS
At a meeting of the Board of Directors of FNB Financial
Corporation, held on July 12, 2000, the Directors of the
Corporation approved and adopted an Amendment to the
Corporation's Articles of Incorporation. The Amendment
changes the par value per share of Common Stock from $0.63
per share to $0.315 per share and increases the number of
authorized shares of the Corporation's Common Stock from
6,000,000 shares to 12,000,000 shares, thereby effecting a
two-for-one split of the Corporation's Common Stock.
Articles of Amendment containing the amendment to the
Articles of Incorporation will be filed with the Commonwealth
of Pennsylvania, Department of State, Corporation Bureau.
The Amendment to the Articles of Incorporation and the two-
for-one Common Stock split will become effective at 12:01
a.m., prevailing time, on September 1, 2000.
TABLE #1
SCHEDULE OF HELD TO MATURITY AND AVAILABLE FOR SALE
DEBT SECURITY PORTFOLIOS
TRANSACTION SUMMARY
FOR THE PERIOD JANUARY 1, 2000 THROUGH JUNE 30, 2000
<TABLE>
<S> <C> <C> <C>
HELD TO AVAILABLE TOTAL
MATURITY FOR SALE INVESTMENT
PORTFOLIO PORTFOLIO PORTFOLIO
BEGINNING BALANCE 1/1/00 $1,669,712 $29,339,102 $31,008,814
PURCHASES 0 0 0
PROCEEDS FROM SALES 0 0 0
NET LOSSES/(GAINS) 0 474 474
MATURITIES/CALLS PAYDOWNS/
PREMIUM AMORTIZATION/DISCOUNT
ACCRETION 354,286 1,283,713 1,637,999
ENDING BALANCE 6/30/00 $1,315,426 $28,054,915 $29,371,289
========= ========== ==========
</TABLE>
Page 13 of 20 Pages
TABLE #2
SCHEDULE OF UNREALIZED GAINS AND UNREALIZED LOSSES
WITHIN THE HELD TO MATURITY AND AVAILABLE FOR SALE
INVESTMENT PORTFOLIOS BY INVESTMENT TYPE
JUNE 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD TO HELD TO HELD TO HELD TO AVAILABLE AVAILABLE AVAILABLE AVAILABLE
MATURITY MATURITY MATURITY MATURITY FOR SALE FOR SALE FOR SALE FOR SALE
BOOK MARKET UNREALIZED UNREALIZED BOOK MARKET UNREALIZED UNREALIZED
SECURITY PORTFOLIO VALUE VALUE GAIN LOSS VALUE VALUE GAIN LOSS
U.S. GOVERNMENT TREASURIES 0 0 0 0 0 0 0 0
U.S. GOVERNMENT TREASURIES 0 0 0 0 0 0 0 0
U.S. GOVERNMENT AGENCIES 0 0 0 0 0 0 0 0
U.S. GOVERNMENT AGENCIES 507,725 407,796 0 (99,929) 17,402,704 16,490,700 0 (912,004)
SBA GUARANTEED LOAN POOL
CERTIFICATES 162,889 162,921 33 0 240,690 242,681 1,990 0
SBA GUARANTEED LOAN POOL
CERTIFICATES 569,813 563,195 0 (6,617) 712,427 699,237 0 (13,190)
MORTGAGE-BACKED SECURITIES 0 0 0 0 350,021 353,085 3,064 0
MORTGAGE-BACKED SECURITIES 0 0 0 0 631,927 603,730 0 (28,197)
SECURITIES ISSUED BY STATES
& POLITICAL SUBDIVISIONS IN
THE U.S. 75,000 75,209 209 0 649,836 653,260 3,423 0
SECURITIES ISSUED BY STATES
& POLITICAL SUBDIVISIONS IN
THE U.S. 0 0 0 0 8,067,309 7,656,354 (410,955)
MARKETABLE EQUITY SECURITIES 0 0 0 0 98,250 104,300 6,050 0
MARKETABLE EQUITY SECURITIES 0 0 0 0 111,898 79,928 0 (31,970)
FEDERAL RESERVE BANK STOCK,
ATLANTIC CENTRAL BANKERS BANK
STOCK AND FEDERAL HOME LOAN
BANK STOCK 0 0 0 0 833,700 833,700 0 0
GRAND TOTALS 1,315,426 1,209,121 241 (106,546) 29,098,762 27,716,974 14,527 (1,396,316)
========= ========= ====== ====== ========== ========== ======= =======
</TABLE>
CLASSIFICATION OF HELD TO MATURITY AND AVAILABLE FOR SALE
SECURITIES
Due to the implementation of FAS 115, management has segregated
securities as Held to Maturity, Available for Sale or Trading
securities. At the implementation of FAS 115 on January 1, 1994,
management determined that no securities were Trading securities;
that tax-free municipal with maturity dates less than the year
2000 were classified as Held to maturity securities due to
management's intention to hold these securities for tax planning
purposes; and that all other securities were classified as
Available for Sale securities due to management's intention to
hold these securities for liquidity planning purposes. Purchases
of tax-free municipals with maturities of 5 years or less made
following implementation of FAS 115 are classified as Held to
Maturity securities with all other purchase Available for Sale;
however, management may decide on a case-by-case basis that a
security may be either classified as Held to Maturity or Available
for Sale depending upon the reasons for purchase. Held to
Maturity classifications are typically used for securities
purchased specifically for interest rate management or tax-
planning purposes while Available for Sale classifications are
typically used for liquidity planning purposes.
Page 14 of 20 Pages
FNB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net income for the first six months of 2000 was $484,385 compared
to $425,097 for the same period in 1999 and $325,280 for the same
period in 1998. This represents a increase of $59,288 or 13.94%
over 1999 and an increase of $159,105 or 48.91% from 1998. Net
income on an adjusted per share basis for the first six months of
2000 was $1.21, an increase of $0.15 from the $1.06 per share for
the six months ended June 30, 1999, and an increase of $0.40 from
the $0.81 per share for the six months ended June 30, 1998. This
increase in net income from 1999 is a direct result of an increase
in net interest income which increased $234,249 for the first six
months in 2000 compared to the first six months in 1999.
Total interest and dividend income for the first six months of
2000 was $4,269,525 compared to $3,778,392 for the first six
months of 1999, an increase of $491,133, and compared to
$3,777,365 for the six months ended June 30, 1998, representing an
increase of $492,160. This increase is a result of an increase in
interest income on loans which has increased $647,758 from 1999.
Since June 30, 1999, net loans have increased $14,578,702. This
increase in loans, our highest yielding interest-earning asset,
has increased our interest income for the first six months of
2000.
During the first six months of 2000, interest rates on loans have
increased as the Federal Reserve has increased short term interest
rates 100 basis points since December 31, 2000. In order to
retain and attract deposits, we have increased deposit rates while
at the same time borrowing costs of loans at the Federal Home Loan
Bank of Pittsburgh utilized to fund loan demand have also
increased. The combination of the increase in loan balances and
in loan interest rates has resulted in an increase in our net
interest income and an increase in our net interest margin. We
anticipate the increase in interest rates on loans and the
increase of deposit rates will result in a slight improvement of
our net interest margin during the next few earning periods over
the net interest margin in 1999.
Interest expense for the six months ended June 30, 2000, was
$2,273,958, an increase of $256,884 from the $2,017,074 for the
same period in 1999, and an increase of $272,437 from the
$2,001,521 incurred for the same period in 1998. This increase is
due to an increase in the balance of other borrowed funds. Total
other borrowed funds increased $9,996,072 since June 30, 2000.
Interest expense on deposits was $2,004,659 as of June 30, 2000, a
decrease of $6,844 from the $2,011,503 incurred for the same
period in 1999 while interest expense on other borrowed money was
$269,299 for the period ended June 30, 2000, an increase of
$263,728 over the $5,571 incurred for the same period in 1999.
Page 15 of 20 Pages
The tax-adjusted net interest margin has increased 14 basis points
to 3.80% for the first six months of 2000 from that of the first
six months of 1999 which was 3.66%. This increase was the result
of an increase in the yield on earning assets which occurred
during the latter part of 1999 and continued into 2000. The tax-
equivalent yield on earning assets for the first six months of
2000 increased .30% to 7.88% from 7.58% for the same period in
1999 while the cost of interest-bearing liabilities increased .19%
to 4.71% from 4.52% for the same period in 1999. The increased
yield on earning assets is due to adjustable rate loans increasing
to higher interest rates and new loans having higher interest
rates. The increased cost of interest-bearing liabilities is due
mainly to the our use of borrowed funds. The cost of deposits
increased only slightly from 4.52% as of June 30, 1999, to 4.59%
as of June 30, 2000. The cost of borrowings during the six months
was 5.91% with average borrowings during the quarter of
$9,115,088. We anticipate net interest margin throughout the year
to improve slightly. Recent increases in interest rates on
adjustable rate loans and securities will be offset by maturing
lower cost time deposits repriced to higher yielding deposits.
Through the retention of savings and NOW account deposit interest
rates at their present levels, we will strive to maintain and
improve the net interest margin.
Total noninterest income for the first six months of 2000
increased $9,428 from the same period in 1999. Service charges
on deposit accounts increased $30,352 from 1999, the result of
increased insufficient fund charges and minimum balance charges.
Other Service Charges increased $10,946 while other income
increased $19,085 due mainly to an increase in the cash value of
life insurance. These increases in other income were offset by a
decrease in net security gains in the amount of $50,149 due to
security gains taken in 1999.
Operating expenses for the period ended June 30, 2000, were
$1,588,203, a $127,868 increase from the operating expenses
incurred for the same period in 1999 of $1,460,335. This increase
is the result of a $77,649 increase in wages and benefits; a
$9,634 increase in occupancy expenses; and a $17,734 increase in
advertising and promotional expenses.
Our income tax provision for the first six months of 2000 was
$122,750 as compared to $97,229 for the first six months of 1999.
We continue to operate with a marginal tax rate of 34%, during
the first quarter of 2000. The effective income tax rate for the
first six months of 2000 was 20.22%, a 1.61% increase compared to
18.61% for the first six months of 1999.
Total assets as of June 30, 1999, were $124,441,278, an increase
of $6,512,095 from the period ending December 31, 1999,
representing an increase of 5.52%. This increase in total assets
Page 16 of 20 Pages
was a result of increased lending activity. Net loans as of June
30, 2000, were $81,360,951 compared to $76,137,080 as of December
31, 1999, an increase of $5,223,871 or 6.86%, a result of
commercial loan settlements. To fund this increase in assets,
total deposits increased $2,349,090 to $101,679,026 as of June 30,
2000, from $99,329,936 as of December 31, 1999. Additional
funding was provided by increases in borrowed funds of $3,797,495
from $6,364,996 as of December 31, 1999, to $10,162,491 as of June
30, 2000. The allowance for loan losses at the end of the six
months was $799,071 compared to $746,067 at year end 1999 and is
considered adequate, in our opinion, to absorb possible losses on
existing loans. The provision for loan losses for the first six
months of 2000 was $105,000 compared to $66,000 for the first six
months of 1999 and $291,114 for the same period in 1998. This
increase from the 1999 provision is a result of increased
commercial loan activity.
Total equity as of June 30, 2000, was $11,570,821, 9.30% of total
assets, as compared to $11,200,737, 9.50% of total assets as of
December 31, 1999. This ratio decrease is a result of total asset
increase of $6,512,095 or 5.52% while equity accounts increased
$370,084 or 3.30%.
We have risk-based capital ratios exceeding regulatory
requirements. Risk-based capital guidelines require a minimum
ratio of 8.0%. At June 30, 2000, the risk-based capital ratio of
the Corporation was 15.91% while at December 31, 1999, the risk-
based capital ratio was 16.43%. The following table presents our
risk-based capital ratios:
<TABLE>
<S> <C> <C>
June 30, Regulatory
2000 Minimum
Leverage Ratio 9.17% 4.00%
Risk-based capital ratios:
Tier I (core capital) 14.87% 4.00%
Total Capital
(Tier I and Tier II Capital) 15.91% 8.00%
</TABLE>
Page 17 of 20 Pages
PART II - OTHER INFORMATION
Page 18 of 20 Pages
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
At a meeting of the Board of Directors of FNB Financial
Corporation, held on July 12, 2000, the Directors of the
Corporation approved and adopted an Amendment to the
Corporation's Articles of Incorporation. The Amendment
changes the par value per share of Common Stock from $0.63
per share to $0.315 per share and increases the number of
authorized shares of the Corporation's Common Stock from
6,000,000 shares to 12,000,000 shares, thereby effecting a
two-for-one split of the Corporation's Common Stock.
Articles of Amendment containing the amendment to the
Articles of Incorporation will be filed with the Commonwealth
of Pennsylvania, Department of State, Corporation Bureau.
The Amendment to the Articles of Incorporation and the two-
for-one Common Stock split will become effective at 12:01
a.m., prevailing time, on September 1, 2000.
Item 6 - Index to Exhibits and Reports on Form 8-K
a. Exhibits:
Exhibit Number Referred to
Item 601 of Regulation S-K Description of Exhibit
27 Financial Data Schedule
99 Report of Independent
Accountant's on Interim
Financial Statements
b. Reports on Form 8-K - None
Page 19 of 20 Page
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
/s/John C. Duffey
(John C. Duffey, President
and Director of the Company and
President of the Bank)
(Duly Authorized Officer)
Date July 28, 2000 /s/Daniel E. Waltz
(Daniel E. Waltz, Treasurer
and Director of the Company and
Senior Vice President/CFO of
the Bank)
(Principal Financial &
Accounting Officer)
Page 20 of 20 Pages
EX-27
ARTICLE 9 FDS FOR 10-Q
9
1,000
6-MOS
DEC-31-2000
JUN-30-2000
6,258
715
0
0
26,699
1,315
1,209
81,361
799
124,441
101,679
10,001
1,029
161
252
0
0
11,319
124,441
3,343
905
22
4,270
2,005
2,274
1,996
105
0
1,588
607
607
0
0
484
1.21
1.21
3.80
308
76
0
1,154
746
64
12
799
799
0
0
Exhibit 99
INDEPENDENT ACCOUNTANT'S REPORT
Board of Directors
FNB Financial Corporation
McConnellsburg, Pennsylvania
We have reviewed the accompanying consolidated balance sheet
of FNB Financial Corporation and Subsidiary as of June 30, 2000
and the related consolidated statements of income for the three
and six month periods ended June 30, 2000 and 1999 and
consolidated statements of comprehensive income for the six month
periods ended June 30, 2000 and 1999 and consolidated statements
of cash flows for the six month periods ended June 30, 2000 and
1999. These financial statements are the responsibility of the
corporation's management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data
and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the consolidated financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying consolidated
financial statements for them to be in conformity with generally
accepted accounting principles.
/s/ Smith Elliott Kearns & Company, LLC
SMITH ELLIOTT KEARNS & COMPANY, LLC
Chambersburg, Pennsylvania
August 4, 2000
