<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM IO-QSB
X Quarterly report under Section 13 of 15 (d) of the Securities Exchange
- --- Act of 1934 for the quarterly period ended September 30, 1997.
Transition report under Section 13 or 15 (d) of the Exchange Act for
- --- the transition period from to .
-------- --------
COMMISSION FILE NUMBER 0-18827
FIRST COMMUNITY BANKING SERVICES, INC.
(Exact name of small business issuer as specified in its charter)
Georgia 58-1835725
------- ----------
(State or other Jurisdiction) (I.R.S. Employer Identification No.)
of incorporation or organization
300 South Peachtree Parkway, Peachtree City, Georgia 30269
----------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area codes (770)631-2265
-------------------------------------------------------------
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the preceding 12
months, and (2) has been subject to such filing requirements, for the past 90
days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at November 12, 1997
- ------------------------------ --------------------------------
Common Stock, $1.00 Par Value 647,712 shares
Transitional Small Business Disclosure Format:
Yes No X
----- -----
<PAGE> 2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are provided for First Community
Banking Services, Inc. and subsidiary:
A. Consolidated Balance Sheets as of September 30, 1997 and
December 31, 1996.
B. Consolidated Statements of Operations for the three and nine
month periods ended September 30, 1997 and 1996.
C. Consolidated Statements of Cash Flows for the nine month
periods ended September 30, 1997 and 1996.
D. Notes to Consolidated Financial Statements.
2
<PAGE> 3
FIRST COMUNITY BANKING SERVICES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1997, and December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 4,203,263 $ 5,317,785
Federal funds sold -0- 1,860,000
Interest-bearing deposits in other financial institutions 40,815 25,088
Investment securities held to maturity (market value
of $1,675,621 and $1,665,963, respectively) 1,660,024 1,659,519
Investment securities available for sale 22,262,849 13,145,260
Other investments 575,500 273,200
Loans, net of deferred loan fees 87,971,226 81,915,981
Less: Allowance for loan losses 1,601,460 1,214,173
------------- -------------
Loans, net 86,369,766 80,701,808
Premises and equipment, net 3,221,020 3,352,404
Other real estate 449,169 399,199
Accrued interest receivable 1,086,891 885,625
Intangible assets, net of accumulated amortization of
$291,191 and $539,226, respectively 358,809 470,774
Other assets 401,712 463,027
------------- -------------
TOTAL ASSETS $ 120,629,818 $ 108,553,689
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing demand $ 18,666,580 $ 17,122,818
Interest-bearing demand and money market 27,048,958 19,229,218
Savings 6,402,120 5,666,954
Time deposits of $100,000 or more 13,344,128 15,290,467
Other time deposits 43,410,536 40,834,909
------------- -------------
TOTAL DEPOSITS 108,872,322 98,144,366
Federal funds purchased and securities sold under agreements
to repurchase 30,000 -0-
Accrued interest payable 1,124,444 941,468
Other liabilities 341,619 303,139
------------- -------------
TOTAL LIABILITIES 110,368,385 99,388,973
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock -$1.00 par value; 5,000,000 shares authorized,
no shares issued and outstanding -0- -0-
Common stock - $1.00 par value: 5,000,000 shares
authorized, 647,712 and 643,062 issued and outstanding 647,712 643,062
Surplus 6,138,406 6,096,901
Retained earnings 3,544,941 2,562,787
Market valuation reserve on investment securities
available for sale (69,626) (138,034)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 10,261,433 9,164,716
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 120,629,818 $ 108,553,689
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 4
FIRST COMMUNITY BANKING SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Three and Nine Month Periods Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest & fees on loans $ 2,265,031 $ 2,077,631 $ 6,626,223 $ 6,004,242
Interest on taxable securities 365,319 266,087 843,227 649,603
Interest on tax exempt securities 31,592 19,418 73,676 59,630
Interest on federal funds sold 135,275 77,106 285,362 163,167
Interest on deposits with other banks 482 2,813 1,285 8,152
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME 2,797,699 2,443,055 7,829,773 6,884,794
----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits:
Demand 206,225 201,901 480,844 526,307
Savings 36,014 36,783 106,315 108,586
Time 851,193 729,564 2,539,673 2,102,253
Interest on federal funds purchased &
securities sold under agreement to
repurchase 12,276 3,600 20,100 8,767
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 1,105,708 971,848 3,146,932 2,745,913
----------- ----------- ----------- -----------
NET INTEREST INCOME 1,691,991 1,471,207 4,682,841 4,138,881
PROVISION FOR LOAN LOSSES 300,000 270,000 540,000 560,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,391,991 1,201,207 4,142,841 3,578,881
----------- ----------- ----------- -----------
OTHER INCOME
Service charges and fees 126,245 128,031 392,610 360,204
Securities gains (losses), net (11,554) 810 (8,685) (140)
Gains on sale of SBA loans -0- 71,825 60,994 71,825
Other 21,927 22,229 57,164 60,824
----------- ----------- ----------- -----------
TOTAL OTHER INCOME 136,618 222,895 502,083 492,713
----------- ----------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits 478,316 394,432 1,313,954 1,190,792
Occupancy expense 125,599 118,488 387,626 334,056
Other (Note B) 254,613 476,872 1,036,871 1,145,588
----------- ----------- ----------- -----------
TOTAL OTHER EXPENSE 858,528 989,792 2,738,451 2,670,436
----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAX EXPENSE 670,081 434,310 1,906,473 1,401,158
INCOME TAX EXPENSE 249,000 171,600 730,500 557,500
----------- ----------- ----------- -----------
NET INCOME $ 421,081 $ 262,710 $ 1,175,973 $ 843,658
=========== =========== =========== ===========
NET INCOME PER SHARE
(NOTE C) $ .60 $ .39 $ 1.69 $ 1.25
=========== =========== =========== ===========
WEIGHTED AVG NUMBER
OF SHARES OUTSTANDING 700,388 676,714 697,455 676,714
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
FIRST COMMUNITY BANKING SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,175,972 $ 843,658
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of intangibles 113,964 73,393
Depreciation, amortization and accretion 163,163 148,719
Provision for loan losses 540,000 560,000
Securities gains, net 8,685 (140)
Gains on sale of SBA Loans (60,994) (71,825)
Change in:
(Increase) decrease in interest receivable (201,266) (36,763)
Increase (Decrease) in interest payable 182,976 (414,076)
(Increase) decrease in other assets 26,075 39,139
Increase (Decrease) in other liabilities 38,480 201,877
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,985,055 1,343,982
============ ============
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in interest-bearing deposits
with other banks (15,727) -0-
Purchases of investment securities available for sale (16,743,614) (13,349,074)
Purchases of other investments (302,300) (22,200)
Proceeds from sales of investment securities
available for sale 6,678,971 7,293,086
Proceeds from maturities of investment securities -0- 200,000
Proceeds from maturities of investment securities
available for sale 1,050,000 3,750,000
Proceeds from sale of SBA loans -0- 790,075
Proceeds from the sale of loans 1,347,286 3,767,646
Net (increase) decrease in loans (7,943,420) (15,980,582)
Purchase of bank premises and equipment (40,264) (287,182)
Sale of other real estate 399,199 68,931
------------ ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (15,569,869) (13,769,300)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Federal Funds purchased
and securities sold under agreements to repurchase 30,000 (1,161)
Net increase (decrease) in demand and savings
deposits 10,098,668 4,814,287
Net increase (decrease) in time deposits 629,288 7,834,005
Proceeds from exercise of stock options 46,155 -0-
Cash Dividend Payment (193,819) (183,732)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 10,610,292 12,463,399
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (2,974,522) 38,081
============ ============
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,177,785 5,852,249
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,203,263 $ 5,890,330
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH PAID:
Interest $ 2,963,956 $ 3,159,989
============ ============
Income Taxes $ 666,000 $ 628,000
============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING AND
INVESTING ACTIVITIES:
Acquisition of real estate in settlement of loans $ 449,169 $ 399,199
============ ============
</TABLE>
5
<PAGE> 6
FAYETTE COUNTY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
NOTE A
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information, and with the instructions to Form 10-QSB and Item 310 (b)
of Regulation S-B of the Securities and Exchange Commission. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended September 30, 1997, are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997. For further information refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
ACCOUNTING RULE CHANGES
(Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities). The Financial Accounting Standards Board has issued Statement
of Financial Accounting Standards No. 125 (SFAS 125), "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS 125
is effective for such transactions entered into subsequent to December 31, 1996,
and for certain excess servicing rights recorded at December 31, 1996. Under
SFAS 125, a company recognizes the financial and servicing assets it controls
and the liabilities it has incurred and derecognizes financial assets when
control has been surrendered and liabilities when extinguished. The Financial
Accounting Standard Board has issued Statement of Financial Accounting Standards
No. 127 (SFAS 127), `Deferral of the Effective Date of FASB Statements of No.
125, which delays the effective date of certain provisions of SFAS 125 until
1998. The adoption of SFAS 125 and SFAS 127 is not expected to have a
significant impact on the financial conditions or results of operations of the
Company.
(Accounting for Stock Based Compensation). Effective January 1, 1996, the
Company adopted the disclosure requirements of Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." As
provided by SFAS 123, the Company has elected to continued applying the
provisions of APB 25 in determining its net income relative to stock-based
compensation. The Company has adopted the SFAS 123 requirement that a company
disclose the pro forma net income and pro forma earnings per share, as if the
alternative fair-value-based accounting method in SFAS 123 had been used in
determining net income. The adoption of SFAS 123 did not have a significant
impact on the financial condition or results of operations of the Company.
(Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of). Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The provisions of SFAS 121 require the Company to review long-lived assets for
impairment whenever events or changes in circumstances indicated that the
carrying amount of an asset may not be recoverable. The adoption of SFAS 121 did
not have a significant impact on the financial condition or results of
operations of the Company.
PENDING ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128 (SFAS 128), "Earnings per Share." SFAS 128 is
effective for financial statements issued for periods ending after December 15,
1997. This statement supersedes APB Opinion 15 "Earnings per Share," and
simplifies earnings per share computations by replacing primary EPS with Basic
EPS, which shows no effects from dilutive securities. Entities with complex
capital structures will have to show diluted EPS, which is similar to the fully
diluted EPS computation under APB 15. Had SFAS been effective on September 30,
1997, the Company would have had basic earnings per share of $.65 and $.41 and
diluted earnings per share of $.60 and $.39 for the three months ending
September 30, 1997 and 1996, respectively. For the nine months ending September
30, 1997 and 1996, basic earnings per share would have been $1.82 and $1.31 and
diluted earnings per share would have been $1.69 and $1.25 respectively.
6
<PAGE> 7
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 129 "Disclosure of information about capital
structure." SFAS 129 is effective for financial statements issued for periods
ending after December 15, 1997. This standard consolidates existing disclosure
requirements on capital structure. The adoption of SFAS 129 is not expected to
have a significant impact on the financial conditions or results of operations
of the Company.
NOTE B
SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses of 1% of total interest and other income
for the periods ended September 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------------------------------------------
<S> <C> <C> <C> <C>
Printing and supplies $ -- $ -- $ 86,004 $ 86,822
Professional fees -- -- 87,047 --
Data Processing fees 72,690 97,909 229,609 165,159
FDIC assessment -- 185,443 -- 222,017
Directors Fees -- -- -- 77,600
</TABLE>
NOTE C
EARNINGS PER SHARE
Earnings per share have been computed on the weighted average number of common
shares outstanding during the period, adjusted for the dilutive effect of the
options.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements, and the Company's operating
performance each quarter is subject to various risks and uncertainties that are
discussed in detail in the Company's filings with the Securities and Exchange
Commission, including the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1996, as filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Period ended September 30, 1997
First Community Banking Services, Inc. (the "Company") reported net income of
$421,081 for the third quarter of 1997, a 60.28% increase as compared to
$262,710 for the same period in 1996. Net income for the nine month period ended
September 30, 1997, was $1,175,973, an increase of $332,315, or 39.39% from the
same period in 1996. Net earnings per share for the third quarter of 1997 and
1996 were $.61 and $.39, respectively. The increase in net income is primarily
attributable to the increase in net interest income and fees from loans, net of
the increase in provision for loan losses and other expenses. Total assets
increased $12,076,129 to $120,629,818 between December 31, 1996 and September
30, 1997, an increase of 11.12%.
The return on average assets for the Company was 1.31% for the nine month period
ended September 30, 1997, as compared to 1.19% for the same period last year.
The return on average shareholders' equity increased for the first nine months
of 1997 to 16.25 % as compared to 14.57% for the first nine months of 1996. Book
value at September 30, 1997, was $15.85, an increase of $1.59 from December, 31,
1996.
Deposits grew $10,727,956 from December 31, 1996, an increase of 10.93%, to
$108,872,322. Interest bearing demand deposits accounted for $7,819,740 of this
increase, or 72.89%. The increase in deposits, and especially the increase in
interest-bearing deposits, is primarily due to one significant depositor who has
approximately $5 million in a money market account. Time deposits over $100,000
decreased $1,946,339 to $13,344,128, at September 30, 1997. Time deposits less
than $100,000 increased by $2,575,627 from December 31, 1996, an increase of
6.8%. The time deposit growth is attributed to the increase by Fayette County
Bank (the "Bank"), in rates on time deposits in order to fund loan demand. The
Statement of Cash Flows shows a net increase in loans of $7,943,420 for the nine
month period ending September 30, 1997 and an increase of $15,480,582 for the
same period in 1996. The loan loss provision was funded to $540,000 for the nine
month period ended September 30, 1997 as compared to $560,000 for the same
period ending September 30, 1996. This was due to the Bank restoring and
increasing the loan loss reserve to higher levels. The loan loss reserve
represents 1.82% of total loans at September 30, 1997 as
7
<PAGE> 8
compared to 1.48% at December 31, 1996. The Bank charged off one commercial loan
totaling $303,913 in the first quarter of 1997 and recovered $225,000 of this
loan during the second and third quarters of 1997. This loan was classified as
restructured/impaired at December 31, 1996. In order to fund liquidity needs and
reduce credit risk exposure the Bank sold a home improvement portfolio which
totalled $3,767,646 during the third quarter of 1996. The Bank also sold one SBA
loan during the third quarter of 1996 totalling $790,075 of which $71,825 was
recognized as a gain. Both of these sales generated cash that was used for
funding other loan demand as well as purchases of investment securities. A
credit card portfolio totaling $1,347,286 was sold during the first quarter of
1997 in order to reduce credit risk in the overall portfolio. There were no
loans sold during the second and third quarters of 1997.
Loan growth was funded by the increase in deposits and a reduction of Fed Funds
sold, which decreased from $1,860,000 at December 31, 1996 to $-0- at September
30, 1997. Investment securities available-for-sale increased $9,117,589 during
the first nine months of 1997. The Statement of Cash Flows shows the Bank had
$7,728,971 in available-for-sale securities to be sold or mature during the
first nine months of 1997, while the Bank purchased $16,743,614 of
available-for-sale securities. The Bank purchased $250,000 of other investments
during the third quarter of 1997.
An increase in the volume of earning assets resulted in an increase in the
Company's net interest income for the first nine months of 1997 as compared to
the first nine months of 1996. Net interest income for the nine month period
ended September 30, 1997 increased 13.14% to $4,682,841, as compared to
$4,138,881 for the same period in 1996. Net interest income for the three month
period ended September 30, 1997 was $1,691,991, up $220,784 or 15.01% from the
same period ended 1996. The increase in net interest income, due to the increase
in earning assets, was offset partially by a decline in the net interest margin.
The net interest margin for the first nine months of 1996 declined only slightly
to 5.68%, as compared to 6.09% for the same nine month period in 1996.
Other income increased to $502,083, or 1.90%, from $492,713 for the nine month
periods ended September 30, 1997 and 1996, respectively. For the three month
period ending September 30, 1997, other income decreased $86,277, or 38.71%, to
$136,618 from $222,895 for the same period ended September 30, 1996. This is due
mainly to the sale of an SBA loan in the third quarter of 1996, in which the
Bank recognized a $71,825 gain. Service charges on deposit accounts decreased to
$126,245, down $1,786, or 1.39%, from $128,031 during the third quarter of 1997,
as compared to the same period of 1996. This is primarily attributed to the Bank
offering a free business checking account in the third quarter of 1997.
Other expenses increased $68,015 to $2,738,451, from $2,670,436, for the nine
month periods ended September 30, 1997 and 1996, respectively. Salaries and
employee benefits increased $123,162 or 10.34% to $1,313,954 for the nine month
period ending September 30, 1997. Occupancy expense is up 6.00% and 16.04% for
the three and nine month periods ending September 30, 1997. Other expenses
decreased $108,717 for the nine month ending September 30, 1997, primarily due
to the SAIF (Savings Association Insurance Fund) one time assessment during the
third quarter of 1996 in the amount of $167.157.
Asset Quality
Nonperforming assets (nonaccrual and restructured loans and real estate acquired
through foreclosure (OREO)) increased to 1.91% of total loans and OREO at
September 30, 1997, compared to .88 % at December 31, 1996. The increase in
nonaccrual loans is due to two commercial loans becoming past due for more than
90 days. Management is currently working with these credits to minimize any
potential losses of principal.
Nonperforming Assets
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Loans on nonaccrual $1,232,823 $ 14,854
Other real estate owned 449,169 399,199
Restructured/Impaired loans -0- 303,913
---------- ----------
Total non-performing assets $1,681,992 $ 717,966
Loans ninety days past due $1,292,942 $ 560,530
Total nonperforming assets as a percentage of total
loans and other real estate 1.91% .88%
Loans ninety days past due as a percentage of total loans 1.47% .68%
</TABLE>
8
<PAGE> 9
The allowance for loan losses at September 30, 1997, increased $387,287 to
$1,601,460 from December 31, 1996. The allowance at September 30, 1997
represented 1.82% of total loans compared to 1.48% at December 31, 1996. The
allowance at September 30, 1997 represented 95.21% of nonperforming loans
(nonaccrual and restructured) at September 30, 1997, compared to 169.11% of
non-performing loans at December 31, 1996.
Analysis of the Allowance for Loan Losses at
September 30,
<TABLE>
<S> <C> <C>
Allowance for loan losses at December
31, 1996 and 1995, respectively $1,214,173 $ 918,036
Charge offs:
Commercial 311,108 343,099
Real Estate -0- 10,143
Installment 51,028 20,974
Credit Card Related 45,125 93,171
---------- ----------
Total $ 407,261 $ 467,387
Recoveries:
Commercial 231,963 3,585
Real Estate -0- -0-
Installment 17,931 3,319
Credit Card Related 4,654 -0 -
---------- ----------
Total $ 254,548 $ 6,904
Net Charge offs 152,713 460,483
---------- ----------
Provision charged to income 540,000 560,000
---------- ----------
Allowance for loan losses at September
30, 1997 and 1996, respectively $1,601,460 $1,017,553
---------- ----------
</TABLE>
The loan portfolio is periodically reviewed to evaluate the outstanding loans
and to measure both the performance of the portfolio and the adequacy of the
allowance for loan losses. This analysis includes a review of delinquency
trends, actual losses, and internal credit ratings. Management's judgment as to
the adequacy of the allowance is based upon a number of assumptions about future
events which it believes to be reasonable, but which may or may not be accurate.
Because of the inherent uncertainty of assumptions made during the evaluation
process, there can be no assurance that loan losses in future periods will not
exceed the allowance for loan losses or that additional allocations to the
allowance will not be required.
LIQUIDITY AND CAPITAL ADEQUACY
The Bank's net loan to deposit ratio increased only slightly at September 30,
1997, to 79.33 %, as compared to 82.22% at December 31, 1996. This change is a
result of the Bank maintaining a level of loan growth consistent with the level
of deposit growth. During the first nine months of 1997, deposits grew just
under $11 million while gross loans increased by approximately $6 million. The
Bank's liquid assets as a percentage of total deposits were 3.87% at September
30, 1997, compared to 7.32% at December 31, 1996. Management also analyzes the
level of off-balance sheet commitments such as unfunded loan equivalents, loan
repayments, maturity of investment securities, liquid investments, and available
fund lines in an attempt to minimize the possibility that a potential shortfall
will exist. Based on this analysis, management believes that the Company has
adequate liquidity to meet short-term operating requirements. However, no
assurances can be given in this regard.
Shareholders equity increased 11.97% from December 31, 1996, to $10,261,433 at
September 30, 1997. The capital of the Company and the Bank exceeded all
prescribed regulatory capital guidelines. Regulations require that the most
highly rated banks maintain a minimum Tier 1 leverage ratio of 3% plus an
additional cushion of at least 1 to 2 percentage points. Tier 1 capital consists
of common shareholders' equity, less certain intangibles. The Bank's Tier 1
leverage ratio was 8.1% at September 30, 1997, compared to 8.2% at December 31,
1996, a decline
9
<PAGE> 10
which was due to growth in the Bank's assets. Regulations require that the Bank
maintain a minimum total risk weighted capital ratio of 8%, with one-half of
this amount, or 4%, made up of Tier 1 capital. Risk-weighted assets consist of
balance sheet assets adjusted by risk category, and off-balance sheet asset
equivalents similarly adjusted. At September 30, 1997, the Bank had a
risk-weighted total capital ratio of 11.1%, compared to 11.4% at December 31,
1996, and a Tier I risk-weighted capital ratio of 9.9%, compared to 10.2% at
December 31, 1996.
INVESTMENT SECURITIES
At September 30, 1997, the Bank had $22,262,849 in investment securities
available-for-sale and $1,660,024 in securities held-to-maturity. The net
unrealized loss on available-for-sale securities, net of deferred income taxes,
was $69,626 on September 30, 1997. Investment securities comprised approximately
20% of the Bank's assets on September 30, 1997 and December 31, 1996. The Bank
invests primarily in obligations of the United States or obligations guaranteed
as to principal and interest by the United States and other taxable and tax
exempt securities. The Bank has included in its investment portfolio instruments
described as a derivative, primarily, structured note derivatives. Structured
notes are debt securities whose cash flow characteristics depend on one or more
indexes. Structured notes carry high credit ratings and are issued as
floating-rate instruments. In a rising interest rate environment, the market
value of these securities can decrease due to the fact that the embedded
options, puts, calls, etc., become evident. There can be no assurance that as
interest rates change in the future the amount of unrealized loss will not
increase, but if these securities are held until they mature and are repaid in
accordance with their terms, these principal losses will not be realized. The
Bank also engages in Federal Funds transactions with its principal correspondent
banks and primarily acts as a net seller of such funds. The sale of Federal
Funds amounts to a short-term loan from the Bank to another bank.
10
<PAGE> 11
PART 11. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company is a party
or of which its property is the subject.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the quarter
ended September 30, 1997.
Item 5, Other information Not applicable.
Item 6. Exhibits and Report on Form 8-K
<TABLE>
<CAPTION>
a). Exhibits.
Exhibit
Number Description
------ -----------
<S> <C>
3.1* Articles of Incorporation
3.2* Bylaws
10.1** Settlement Agreement and Release with Fayette County
Bancshares, Inc. and Terry L. Miller as of October 21, 1994.
10.2** Fayette County Bancshares, Inc. Stock Option Plan.
27 Financial Data Schedule (for SEC use only)
</TABLE>
*Items 3.1 and 3.2 were previously filed by the Company as Exhibits (with the
same respective Exhibit Numbers as indicated herein) to the Company's
Registration Statement on Form S-18 (Registration No. 33-26658-A) and such
documents are incorporated herein by reference.
**Items 10.1 and 10.2 were previously filed by the Company as Exhibits 10.5 and
10.6 respectively, to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994, and such documents are incorporated herein by
reference.
b) Reports on Form 8-K. No report on Form 8-K was filed during the quarter
ended September 30, 1997.
11
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST COMMUNITY BANKING SERVICES, INC.
Date: November 12, 1997 /s/ Ira Pat Shepherd
-----------------------------
Ira Pat Shepherd,
Principal Executive Officer
Date: November 12, 1997 /s/ Mark Kearsley
-----------------------------
Mark Kearsley,
Principal Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST COMMUNITY BANKING SERVICES, INC FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,203,263
<INT-BEARING-DEPOSITS> 40,815
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,838,349
<INVESTMENTS-CARRYING> 1,660,024
<INVESTMENTS-MARKET> 1,675,621
<LOANS> 87,971,226
<ALLOWANCE> 1,601,460
<TOTAL-ASSETS> 120,629,818
<DEPOSITS> 108,872,322
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,496,063
<LONG-TERM> 0
0
0
<COMMON> 647,712
<OTHER-SE> 9,613,721
<TOTAL-LIABILITIES-AND-EQUITY> 120,629,818
<INTEREST-LOAN> 6,626,223
<INTEREST-INVEST> 1,202,265
<INTEREST-OTHER> 1,285
<INTEREST-TOTAL> 7,829,773
<INTEREST-DEPOSIT> 3,126,832
<INTEREST-EXPENSE> 3,146,932
<INTEREST-INCOME-NET> 4,682,841
<LOAN-LOSSES> 540,000
<SECURITIES-GAINS> (8,685)
<EXPENSE-OTHER> 2,738,451
<INCOME-PRETAX> 1,906,473
<INCOME-PRE-EXTRAORDINARY> 1,906,473
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,175,973
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 1,232,823
<LOANS-PAST> 60,985
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,214,173
<CHARGE-OFFS> 407,261
<RECOVERIES> 254,548
<ALLOWANCE-CLOSE> 1,601,460
<ALLOWANCE-DOMESTIC> 1,601,460
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
