<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Quarterly report under Section 13 of 15 (d) of the Securities
----- Exchange Act of 1934 for the quarterly period ended June 30, 1998
----- 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)
<TABLE>
Georgia 58-1835725
- ------------------------------- ----------------------------
<S> <C>
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
300 S. Peachtree Parkway, Peachtree City, Georgia 30269
-------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (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 of 1934 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:
<TABLE>
<S> <C>
Class Outstanding at August 14, 1998
- ----------------------------- ------------------------------
Common Stock, $1.00 Par Value 1,405,857 shares
</TABLE>
Transitional Small Business Disclosure Format:
Yes______ No__x___
<PAGE> 2
PART I. 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 June 30, 1998 and December 31,
1997.
B. Consolidated Statements of Operations for the three and six month
periods ended June 30, 1998 and 1997.
C. Consolidated Statements of Cash Flows for the six month periods
ended June 30, 1998 and 1997.
D. Consolidated Statements of Changes in Stockholders' Equity for
the six month period ended June 30, 1998 and 1997.
E. Notes to Consolidated Financial Statements.
1
<PAGE> 3
FIRST COMMUNITY BANKING SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------------------------
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,414,533 $ 5,269,173
Federal funds sold -0- 9,550,000
Interest-bearing deposits in other financial institutions 94,351 47,286
Investment securities held to maturity (market value of $1,692,172 and
$1,665,963, respectively) 1,660,053 1,660,034
Investment securities available for sale 21,576,363 25,053,659
Other investments 643,700 575,500
Loans, net of deferred loan fees 90,576,445 85,248,271
Less: Allowance for loan losses (1,663,061) (1,704,318)
------------- -------------
Loans, net 88,913,384 83,543,953
Premises and equipment, net 3,082,476 3,165,026
Other real estate 307,420 502,185
Accrued interest receivable 1,137,208 1,280,200
Intangible assets, net of accumulated amortization of $459,347 and
$539,226, respectively 190,653 223,391
Other assets 587,156 597,415
------------- -------------
TOTAL ASSETS $ 123,607,297 $ 131,467,822
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest-bearing demand $ 18,170,848 $ 27,894,729
Interest-bearing demand and money market 30,275,923 29,136,108
Savings 6,418,201 5,920,380
Time deposits of $100,000 or more 15,277,190 14,240,690
Other time deposits 39,206,559 41,841,970
------------- -------------
TOTAL DEPOSITS 109,348,721 119,033,877
Accrued interest payable 1,633,122 1,429,043
Other liabilities 1,016,541 273,492
------------- -------------
TOTAL LIABILITIES 111,998,384 120,736,412
------------- -------------
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,
1,382,682 shares and 1,369,012 issued and outstanding 1,382,682 1,369,012
Treasury stock, at cost 620 shares (8,386) (8,386)
Surplus 6,389,866 6,332,802
Retained earnings 3,842,578 3,062,154
Accumulated other comprehensive income-market valuation
reserve on investment securities available for sale 2,173 (24,172)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 11,608,913 10,731,410
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 123,607,297 $ 131,467,822
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 4
FIRST COMMUNITY BANKING SERVICES, AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,357,809 $ 2,188,420 $ 4,648,815 $ 4,361,192
Interest on taxable securities 301,228 270,600 615,402 477,909
Interest on tax exempt securities 54,727 22,666 106,448 42,084
Interest on federal funds sold 4,109 111,250 42,147 150,087
Interest on deposits with other banks 1,182 388 2,054 803
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME $ 2,719,055 $ 2,593,324 $ 5,414,866 $ 5,032,075
----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits:
Demand 222,549 143,573 437,507 274,619
Savings 35,093 36,282 69,826 70,302
Time 826,937 879,246 1,653,878 1,688,479
Interest on federal funds purchased &
& securities sold under agreement to
repurchase 23,107 3,066 37,608 7,824
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE $ 1,107,686 $ 1,062,167 $ 2,198,819 $ 2,041,224
----------- ----------- ----------- -----------
NET INTEREST INCOME $ 1,611,369 $ 1,531,157 $ 3,216,047 $ 2,990,851
Provision for loan losses -0- 120,000 -0- 240,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES $ 1,611,369 $ 1,411,157 $ 3,216,047 $ 2,750,851
----------- ----------- ----------- -----------
OTHER INCOME
Service charges and fees 157,753 129,217 300,984 266,365
Securities gains (losses), net (3,668) 2,723 (4,729) 2,868
Gains on sale of SBA loans -0- -0- -0- 60,994
Other 30,959 22,473 28,461 35,237
----------- ----------- ----------- -----------
TOTAL OTHER INCOME 185,044 154,413 324,716 365,464
----------- ----------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits 454,812 407,115 912,878 835,638
Occupancy expense 145,378 119,371 273,973 262,027
Other (Note B) 328,252 369,337 739,256 782,258
----------- ----------- ----------- -----------
TOTAL OTHER EXPENSE 928,442 895,823 1,926,107 1,879,923
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 867,971 669,747 1,614,656 1,236,392
----------- ----------- ----------- -----------
INCOME TAX EXPENSE 334,000 268,500 628,000 481,500
----------- ----------- ----------- -----------
NET INCOME $ 533,971 $ 401,247 $ 986,656 $ 754,892
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE
(NOTE C) $ .39 $ .30 $ .72 $ .55
=========== =========== =========== ===========
DILUTED EARNINGS PER
SHARE ( NOTE C) $ .35 $ .27 $ .65 $ .51
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial
Statements
3
<PAGE> 5
FIRST COMMUNITY BANKING SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net Income $ 986,656 $ 754,892
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization of intangibles 32,738 100,357
Depreciation, amortization and accretion 106,456 106,999
Provision for loan losses -0- 240,000
Securities gains, net 4,729 (2,868)
Gains on Sale of SBA loans -0- (60,994)
Gains on Sale of Other Real Estate 29,240 -0-
Change in:
(Increase) decrease in interest receivable 142,992 (76,365)
Increase (Decrease) in interest payable 204,079 (44,538)
(Increase) decrease in other assets (3,310) 5,866
Increase (Decrease) in other liabilities 743,049 13,261
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,246,629 1,036,610
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in interest-bearing deposits
with other banks (47,065) (9,328)
Purchases of investment securities available for sale (8,106,707) (5,957,261)
Purchases of other investments (68,200) (52,300)
Proceeds from sales of investment securities
available for sale 1,027,959 1,306,272
Proceeds from maturities of investment securities -0- -0-
Proceeds from maturities of investment securities
available for sale 10,595,000 200,000
Proceeds from the sale of loans -0- 1,347,286
Net (increase) in loans (5,611,958) (5,296,104)
Purchase of bank premises and equipment (27,692) (15,391)
Sale of other real estate 408,048 399,199
------------ ------------
NET CASH (USED) BY INVESTING ACTIVITIES (1,830,615) (8,077,627)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Federal Funds purchased
and securities sold under agreements to repurchase -0- -0-
Net increase (decrease) in demand and savings
deposits (8,086,245) 9,646,439
Net increase (decrease) in time deposits (1,598,911) 1,369,135
Proceeds from Stock Sales 70,734 30,000
Cash Dividend Payment (206,232) (193,819)
------------ ------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (9,820,654) 10,851,755
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,404,640) 3,810,738
============ ============
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,819,173 7,177,785
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,414,533 $ 10,988,523
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH PAID:
Interest $ 1,994,741 $ 2,085,762
============ ============
Income Taxes $ 614,000 $ 372,200
============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Acquisition of real estate in settlement of loans $ 242,527 $-0-
============ ============
</TABLE>
4
<PAGE> 6
FIRST COMMUNITY BANKING SERVICES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTH PERIOD ENDED JUNE 30, 1998 AND JUNE 30, 1997
<TABLE>
<CAPTION>
Accum.Other
Comprehensive
Comprehensive Retained Income- Market
Total Income Earnings Valuation Reserve
------------ ------------- ----------- -----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ 10,731,410 $ 3,062,154 $ (24,172)
Comprehensive Income
Net Income 986,656 $ 986,656 986,656
Other comprehensive income,:
Unrealized gains on securities: net of
tax expense of ($8,573) 26,345 26,345 26,345
---------- -----------
Comprehensive Income $1,013,001
----------
Common Stock issued 70,734
Dividends declared on common stock (206,332) (206,232)
------------ -----------
Balance on June 30, 1998 $ 11,608,913 $ 3,842,578 $ 2,173
------------ ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Treasury
Common Stock at
Stock Cost Surplus
---------- -------- ----------
<S> <C> <C> <C>
Balance at December 31, 1997 $1,369,012 $(8,386) $6,332,802
Comprehensive Income
Net Income
Other comprehensive income,:
Unrealized gains on securities: net of
tax expense of ($8,573)
Comprehensive Income
Common Stock issued 13,670 57,064
---------- ----------
Dividends declared on common stock
Balance on June 30, 1998 $1,382,682 $(8,386) $6,389,866
---------- ------- ----------
</TABLE>
<TABLE>
<CAPTION>
Accum.Other
Comprehensive
Comprehensive Retained Income- Market
Total Income Earnings Valuation Reserve
------------ ------------- ----------- ------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ 9,164,716 $ 2,562,787 $ (138,034)
Comprehensive Income
Net Income 754,892 $ 754,892 754,892
Other comprehensive income,:
Unrealized gains on securities: net of
tax expense of ($45,942) 89,174 89,174 89,174
---------- -----------
Comprehensive Income $ 844,066
----------
Common Stock issued 30,000
Dividends declared on common stock (193,818) (193,818)
----------- -----------
Balance on June 30, 1997 $ 9,844,964 $ 3,123,861 $ 48,860
----------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
Treasury
Common Stock at
Stock Cost Surplus
---------- -------- ----------
<S> <C> <C> <C>
Balance at December 31, 1996 $1,286,124 $ -0- $5,453,389
Comprehensive Income
Net Income
Other comprehensive income,:
Unrealized gains on securities: net of
tax expense of ($45,942)
Comprehensive Income
Common Stock issued 6,000 24,000
---------- ----------
Dividends declared on common stock
Balance on June 30, 1997 $1,292,124 $ -0- $5,477,839
---------- ------- ----------
</TABLE>
5
<PAGE> 7
FIRST COMMUNITY BANKING SERVICES 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 and six month period ended June 30, 1998, are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. 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, 1997, as amended.
STOCK DIVIDENDS AND SPLITS
On October 4, 1997, the Board of Directors of the Company declared a 5
percent stock dividend distributable on November 4, 1997, to shareholders of
record on October 14, 1997. The stock dividend resulted in 32,385 additional
shares of common stock being issued. On January 15, 1998, the Board of
Directors of the Company declared a two-for-one stock split distributable on
February 20, 1998. The stock split resulted in 684,506 additional shares of
common stock being issued. All references in the consolidated financial
statements to number of shares, per share amounts, and market prices of the
Company's common stock have been retroactively restated to reflect the
increased number of shares outstanding as if the stock dividends and splits
occurred on January 1, 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 Statement 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.
(Disclosure Information on Capital Structure). Effective December 15, 1997, the
Company adopted Statement of Financial Accounting Standards No. 129,
"Disclosure of Information About Capital Structure." This standard consolidates
existing disclosure requirements on capital structure. The adoption of SFAS 129
did not have a significant impact on the financial conditions or results of
operations of the Company.
(Reporting Comprehensive Income). Effective January 1, 1998, the Company
adopted Statement of Financial Accounting No. 130 (SFAS 130), "Reporting
Comprehensive Income." This statement is effective for financial statements
issued for periods ending after December 15, 1997. Under SFAS 130, a company is
required to show changes in assets and liabilities as comprehensive income in
the statement of stockholders' equity or in alternative income statement
presentations. The adoption of SFAS 130 did not have a significant impact on
the financial condition or results of operations of the Company.
(Disclosure about Segments). The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosure About Segments of an Enterprise and Related Information." SFAS 131
is effective January 1, 1998, and requires disclosure of certain financial
information by segments of a company's business. SFAS-131 disclosures are not
required in interim financial statements in the first year of implementation
The adoption of SFAS 131 is not expected to have a significant impact on the
financial condition or results of operations of the Company
(Accounting for Derivative Instruments and Hedging Activities). In June 1998,
the Financial Accounting Standards Board issued SFAS 133, "Accounting for
Derivitive Instruments and Hedging Activities." SFAS 133 requires companies to
recognize all derivitives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met
a derivitive may be specifically designed as a hedge, the objective of which is
to match the timing of gain or loss recognition on the hedging derivitive with
the recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forcasted transaction. For a derivitive not designated as a
hedging instrument, the gain or loss is recognized in incime in the period of
change. SFAS 133 is effective for all fiscal quarters of fiscal years beginnng
after June 15,
6
<PAGE> 8
1999. Historically, the Company has not entered into derivitives contracts
either to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard on January 1, 2000 to
affect its financial condition.
NOTE B
SUPPLEMENTAL FINANCIAL DATA
Components of other operating expense in excess of 1% of total interest and
other income for the three and six month period ended June 30, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 1998 June 1997 June 1998 June 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Printing and supplies $ 27,865 $ 21,751 $ 50,871 $ 63,143
Data Processing fees 107,867 81,796 266,461 156,919
Director fees 27,100 26,500 72,900 61,150
Amortization of intangibles 16,369 11,607 32,738 100,357
Professional fees 50,177 26,316 79,956 75,088
</TABLE>
NOTE C
EARNINGS PER COMMON SHARE
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." This statement
is effective for financial statements issued for periods ending after December
15, 1997. This statement supersedes Accounting Principles Board Opinion No. 25
(APB 15), "Earnings Per Share," and simplifies earnings per share computations
by replacing primary earnings per share with basic earnings per share, which
shows no effects from dilutive securities. Entities with complex capital
structures have to show diluted earnings per share, which is similar to the
fully diluted earnings per share computation under APB 25.
Basic earnings per common share has been computed based on the weighted
average number of common equivalent shares outstanding during the period. Stock
options are considered to be common stock equivalents for purposes of
calculating diluted earnings per common share. The common stock splits have
been treated retroactively as occurring on January 1, 1997, for earnings per
share computation purposes.
<TABLE>
<CAPTION>
Net Common Per Share
Earning Shares Amount
---------- ------ -----------
<S> <C> <C> <C>
For the three month period ended June 30, 1998
Basic earnings per common share $ 533,971 $ 1,368,385 $ .39
Effect of dilutive stock options 151,536 (.04)
-----------
Diluted earnings per common share $ 1,519,921 $ .35
For the three month period ended June 30, 1997
Basic earnings per common share $ 401,247 $ 1,359,953 $ .30
Effect of dilutive stock options 101,105 (.03)
-----------
Diluted earnings per common share $ 1,461,058 $ .27
For the six month period ended June 30, 1998
Basic earnings per common share $ 986,656 $ 1,367,377 $ .72
Effect of dilutive stock options 146,272 (.07)
-----------
Diluted earnings per common share $ 1,513,649 $ .65
For the six month period ended June 30, 1997
Basic earnings per common share $ 754,892 $ 1,363,051 $ .55
Effect of dilutive stock options 105,521 (.04)
-----------
Diluted earnings per common share 1,468,572 $ .51
</TABLE>
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
PENDING MERGER
On February 12, 1998, the Company and Regions Financial Corporation (Regions)
executed a definitive agreement (Agreement) to merge the two companies, whereby
Regions would acquire all of the issued and outstanding shares of common stock
of the Company in exchange for Regions Common stock. The Agreement provides for
an exchange of .625 shares of Regions common stock for each outstanding share
of the Company's common stock. The merger will be accounted for as a pooling of
interest under generally accepted accounting principles. The merger is subject
to shareholder approval at the annual meeting scheduled for September 9, 1998
and is expected to be consummated on September 30, 1998. See Form 8-K filed on
March 2, 1998 announcing the merger agreement.
RESULTS OF OPERATIONS
PERIOD ENDED JUNE 30, 1998
First Community Banking Services, Inc. (the "Company") reported net income of
$986,656 for the six month period ending June 30, 1998, a 30.70% increase as
compared to $754,892 for the same period in 1997. Net income for the three
month period ending June 30, 1998 increased 33.08% to $533,971, up $132,724
from $401,247 for the same period ended June 30, 1997. Basic earnings per share
for the second quarter of 1998 and 1997 were $.72 and $.55, respectively. The
increase in net income is primarily attributable to the increase in interest
income including fees from loans. Total assets decreased $7,860,525 to
$123,607,297 between December 31, 1997 and June 30, 1998, a decrease of 5.98%.
The return on average assets for the Company was 1.62% for the six month period
ended June 30, 1998, as compared to 1.42% for the same period last year. The
return on average shareholders' equity increased for the first six months of
1998 to 18.24% as compared to 17.24% for the first six months of 1997.
The Statement of Cash Flow shows the cash and cash equivalents at June 30, 1998
decreased $9,404,640. The cash was used to fund an increase in loans and a
decrease in deposits. Loans grew to $90,576,445, up $5,328,174, or 6.25%, for
the six month period ending June 30, 1998, while deposits decreased $9,685,156,
or 8.14%, for the same period. During the first quarter of 1998 a large
depositor of Fayette County Bank closed its demand deposit accounts totaling
approximately $13.5 million. These accounts were non interest bearing and are
reflected on the balance sheet from $27,894,729 at December 31, 1997 to
$18,170,848 at June 30, 1998. Interest bearing demand and savings accounts
increased 3.91% and 8.41% respectively during the six month period ending June
30, 1998. Time deposits decreased approximately $2.6 million as management
elected not to pay above market rates on certificates of deposits that had
matured and were out of area. Time deposits of $100,000 or more increased by
approximately $1.0 million for the six month period ending June 30, 1998.
Investment securities available for sale decreased $3,477,296 as the Bank sold
$1,027,959 and had $10,595,000 to mature or be called and purchased $8,106,707
during the six month period ending June 30, 1998.
Net interest income for the six month period ended June 30, 1998, increased
7.53% to $3,216,046, as compared to $2,990,851 for the same period in 1997. The
net interest margin for the first six months of 1998 increased only slightly to
5.79%, as compared to 5.73% for the same six month period in 1997.
Other income decreased to $324,716, from $365,464, for the six month period
ended June 30, 1998 and 1997, respectively. The Bank had a gain on sale of two
SBA loans totaling $60,994 during the second quarter of 1997, as compared to no
gain being recorded for the same period ending June 30, 1998. Service charges
on deposit accounts increased to $300,984, up $34,619 or 13.00% from $266,365
during the six month period of 1998 as compared to the same period of 1997.
This is primarily attributed to the increase in new accounts during the period.
Other expenses increased $46,184 to $1,926,107, from $1,879,923, for the six
month periods ended June 30, 1998 and 1997, respectively. Salaries and employee
benefits increased $77,240. This increase is due to an increase in the Bank's
bonus plan and employer matching in the 401-k savings incentive plan to
employees and officers of the Bank. Net occupancy expense increased
approximately $12,000, to $273,973 during the second quarter of 1998, from
$262,027 for the same period ending June 30, 1997. This increase is due to
repairs to the offices during 1998, while no such expenses ocurred in 1997.
Other expenses decreased $43,002 during the six month period ended June 30,
1998 as the premium of $77,000 was expensed during the first quarter of 1997.
ASSET QUALITY
Nonperforming assets (nonaccrual and restructured loans and real estate
acquired through foreclosure (OREO)) declined to .78% of total loans and OREO
at June 30, 1998, compared to 1.19% at December 31, 1997. This decline is
attributable to the decrease in nonaccrual
8
<PAGE> 10
loans and other real estate as well as increases in loans.
Nonperforming Assets
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Loans on nonaccrual $399,675 509,038
Other real estate owned 307,420 502,185
Restructured / Impaired loans -0- -0-
--------- ----------
Total non-performing assets $707,095 $1,011,223
========= ==========
Loans 90 days past due $257,879 $ 95,305
--------- ----------
Total nonperforming assets as a percentage of total loans 0.78% 1.19%
and other real estate
Loans ninety days past due as a percentage of total loans 0.28% 0.11%
</TABLE>
The allowance for loan losses at June 30, 1998, decreased $41,257 from December
31, 1997, to $1,663,061 due to the decrease in nonperforming assets. The
allowance at June 30, 1998, represented 1.84% of total loans compared to 2.0%
at December 31, 1997. The allowance at June 30,1998 represented 235.20% of
nonperforming loans (nonaccrual and restructured/impaired) at June 30, 1998,
compared to 168.55% of non-performing loans at December 31, 1997.
Analysis of the Allowance for Loan Losses at
June 30 1998
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Allowance for loan losses at January 1 $ 1,704,318 $ 1,214,173
------------ ------------
Charge-offs:
Commercial 44,166 310,777
Real Estate -0- -0-
Installment 2,859 34,043
Credit card related 45 44,170
------------ ------------
Total 47,070 388,990
------------ ------------
Recoveries:
Commercial 26 31,963
Real Estate -0- -0-
Installment 1,777 13,706
Credit card related 4,010 3,838
------------ ------------
Total 5,813 49,507
------------ ------------
Net Charge-offs 41,257 339,483
------------ ------------
Provision charged to income -0- 240,000
------------ ------------
Allowance for loan losses at June 30, $ 1,663,061 $ 1,114,690
============ ============
</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.
9
<PAGE> 11
LIQUIDITY AND CAPITAL ADEQUACY
The Bank's net loan to deposit ratio increased by 1121 basis points at June 30,
1998, to 82.83%, as compared to 71.62% at December 31, 1997. This change is a
result of the Bank maintaining a modest loan growth as deposits decreased for
the period.During the first six months of 1998, deposits decreased by more than
$9,685,156 while loans net of deferred fees increased by approximately
$5,328,174. The Bank's liquid assets as a percentage of total deposits was
4.96% at June 30, 1998, compared to 12.45% at December 31, 1997. Management
also analyzes the level of off-balance sheet assets such as unfunded loan
equivalents, 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 8.18% from December 31, 1997, to $11,608,913 at
June 30, 1998. 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 l 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 8.6% at June 30, 1998, compared to 8.4% at December 31, 1997, an
increase which was due to the decrease 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 June 30, 1998,
the Bank had a risk-weighted total capital ratio of 11.9%, compared to 11.7% at
December 31, 1997, and a Tier 1 risk-weighted capital ratio of 10.7%, compared
to 10.5% at December 31, 1997.
INVESTMENT SECURITIES
At June 30,1998, the Bank had $21,576,363 in investment securities
available-for-sale and $1,660,053 in securities held-to- maturity. The net
unrealized gain on available-for-sale securities, net of deferred income taxes,
was $2,173 on June 30, 1998.
Investment securities comprised approximately 19.3% and 20.8% of the Bank's
assets on June 30, 1998 and December 31, 1997, respectively. 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. At December 31, 1997 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
and in contrast to predictions. The Bank has no investments in the investment
portfolio at June 30, 1998, classified as structured notes. 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.
YEAR 2000
Like many financial institutions, the Company and the Bank rely upon computers
for the daily conduct of their business and for information systems processing.
There is concern among industry experts that on January 1, 2000 computers will
be unable to "read" the new year and there may be widespread computer
malfunctions. The Company and the Bank generally rely on software and hardware
developed by independent third parties to provide the information systems used
by the Company and the Bank. The Company is seeking assurances about the Year
2000 compliance with respect to the third party hardware or software system it
uses, and the Company believes that its internal systems and software and the
network connections it maintains will be adequately programmed to address the
Year 2000 issue. Based on information currently available, management does not
believe that the Company or the Bank will incur significant costs in connection
with the Year 2000 issue. Nevertheless, there can be no assurances that all
hardware and software that either the Company or the Bank uses will be Year
2000 compliant, and the Company cannot predict with any certainty the costs the
company or the Bank will incur to respond to any Year 2000 issues. Further, the
business of many of the Bank's customers may be negatively affected by the Year
2000 issue, and any financial difficulties incurred by the Bank's customers in
solving Year 2000 issues could negatively affect such customer's ability to
repay any loans which the Bank may have extended. Therefore, even if the
Company or the Bank do not incur significant direct costs in connection with
responding to Year 2000 issue, there can be no assurance that the failure or
delay of the Bank's customers or other third parties in addressing the Year
2000 issue or the costs involved in such process will not have a material
adverse effect on the Bank's business, financial condition and results of
operations.
10
<PAGE> 12
PART II. 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 June 30, 1998.
Item 5. Other information
Not applicable.
Item 6. Exhibits and Report on Form 10-K
Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
3.1* Articles of Incorporation
3.2* Bylaws
10.5*** Settlement Agreement and Release with Fayette County Bancshares,
Inc. and Terry L. Miller as of October 21,1994.
10.6*** Fayette County Bancshares, Inc. Stock Option Plan
10.7**** Purchase Agreement-Credit Card Accounts dated January 23, 1997
between Fayette County Bank and Carolina First
10.8***** Employment agreement between Fayette County Bank and Rick A.
Duncan dated February 21, 1996.
10.9***** Employment agreement between Fayette County Bank and Malcolm R.
Godwin dated February 21, 1996.
10.10***** Employment agreement between Fayette County Bank and Ira P.
Shepherd dated February 21, 1996.
10.11***** Employment agreement between Fayette County Bank and Mark B.
Kearsley dated February 21, 1996.
10.12***** Employment agreement between Fayette County Bank and Richard A.
Rodriguez dated February 21, 1996.
21.1** Subsidiaries of the Company
27 Financial Data Schedule for quarter ended March 31, 1998
27.1****** Restated Financial Data Schedule for year ended December 31, 1995
27.2****** Restated Financial Data Schedule for year ended December 31, 1996
27.3****** Restated Financial Data Schedule for quarter ended March 31, 1996
27.4****** Restated Financial Data Schedule for quarter ended June 30, 1996
27.5****** Restated Financial Data Schedule for quarter ended September 30,
1996
27.6****** Restated Financial Data Schedule for quarter ended March 31, 1997
27.7****** Restated Financial Data Schedule for quarter ended June 30, 1997
27.8****** Restated Financial Data Schedule for quarter ended September 30,
1997
</TABLE>
* Previously filed as exhibits to the Company's Registration Statement on
Form S-18 (Registration No. 33-6658-A) and incorporated herein by
reference.
** Previously filed as exhibit to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1990.
*** Previously filed as exhibits to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1994.
**** Previously filed as exhibits to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996.
***** Previously filed as exhibits to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997.
****** Previously filed as exhibits to the Company's Form 10-QSB for the
quarter ended March 31, 1998.
Reports on Form 8-K
The Company filed a Form 8-K on March 2, 1998 announcing a merger
agreement between First Community Banking Services, Inc. and Regions Financial
Corporation.
11
<PAGE> 13
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.
(Registrant)
/s/ Ira Pat Shepherd
Date: August 15, 1998 ------------------------------------------
Ira Pat Shepherd,
Principal Executive Officer
/s/ Mark Kearsley
Date: August 15, 1998 ------------------------------------------
Mark Kearsley,
Principal Financial and Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 5,414,533
<INT-BEARING-DEPOSITS> 94,351
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,576,363
<INVESTMENTS-CARRYING> 1,660,053
<INVESTMENTS-MARKET> 1,692,172
<LOANS> 90,576,445
<ALLOWANCE> 1,663,061
<TOTAL-ASSETS> 123,607,297
<DEPOSITS> 109,348,721
<SHORT-TERM> 760,000
<LIABILITIES-OTHER> 1,889,663
<LONG-TERM> 0
0
0
<COMMON> 1,382,682
<OTHER-SE> 10,226,231
<TOTAL-LIABILITIES-AND-EQUITY> 11,608,913
<INTEREST-LOAN> 4,648,815
<INTEREST-INVEST> 763,997
<INTEREST-OTHER> 2,054
<INTEREST-TOTAL> 5,414,866
<INTEREST-DEPOSIT> 2,161,211
<INTEREST-EXPENSE> 2,198,819
<INTEREST-INCOME-NET> 3,216,047
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (4,729)
<EXPENSE-OTHER> 1,926,107
<INCOME-PRETAX> 1,614,656
<INCOME-PRE-EXTRAORDINARY> 1,614,656
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 986,656
<EPS-PRIMARY> .72
<EPS-DILUTED> .65
<YIELD-ACTUAL> 0
<LOANS-NON> 399,675
<LOANS-PAST> 257,879
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,704,318
<CHARGE-OFFS> 47,070
<RECOVERIES> 5,813
<ALLOWANCE-CLOSE> 1,663,061
<ALLOWANCE-DOMESTIC> 1,663,061
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
