FNBF Fnb Financial Services Corp (MM)

FNB Financial Services Corporation (NASDAQ:FNBF) ("FNB"), parent of FNB Southeast (the "Bank"), today reported second quarter 2005 net income of $2.14 million and earnings for the first six months of $4.18 million. This represents earnings per diluted share of $0.29 and $0.58, respectively. FNB earned $2.51 million in the second quarter of 2004 and $4.41 for the first six months a year ago. Excluding a one-time after-tax gain of $548,000 from the sale of a banking operation in the second quarter of 2004, quarterly earnings and year to date earnings for 2005 increased 8.7% and 8.2%, respectively. FNB's second quarter 2005 results produced an annualized return on average assets of 0.90% and an annualized return on average equity of 11.87%, compared with prior year results of 1.27% and 14.94%, respectively. "From an operating standpoint, we are pleased with our results," noted Ernest J. Sewell, Vice Chairman, President and Chief Executive Officer. "Our core banking business is performing very well, we have experienced bankers in key markets, and we continue to build a loyal base of satisfied customers in North Carolina and Virginia." Interest income was $15.06 million and $10.44 million for the three months ended June 30, 2005 and 2004, respectively. On a year-to-date basis, interest income amounted to $28.44 million in 2005 and $20.88 million in 2004. Interest expense totaled $5.98 million in the 2005 second quarter, an increase of $2.58 million from one year earlier. Interest expense on deposits was $5.25 million in the current quarter, compared to $2.97 million for the same quarter a year ago. The current rising interest rate environment, combined with a 24.7% increase in average interest-bearing deposits over the second quarter of 2004, is the principal source of this increase in deposit interest expense. FNB recorded provisions for credit losses of $638,000 and $272,000 for the three months ended June 30, 2005 and 2004, respectively. The increase in the provision is primarily due to the significant growth in the loan portfolio. Noninterest income totaled $1.82 million in the second quarter of 2005, compared with $2.60 million for the same period a year ago. During the second quarter of 2004, FNB disposed of its Richlands, VA banking operation and realized a pre-tax gain of $825,000. Noninterest expense totaled $7.05 million for the second quarter of 2005, compared with $5.59 million for the same period in 2004. Expense items significantly contributing to this increase include personnel expense, occupancy and equipment expense, and other items related to the continued growth and expansion of the company. Pressley Ridgill, President of FNB Southeast, commented: "We are poised to join the select group of community banks with $1 billion in assets. FNB's assets topped $979 million at the end of the second quarter and brought this milestone within reach." As of June 30, 2005 assets were $979.4 million, a $114.1 million, or 13.2%, increase during the first six months of 2005. Outstanding loans totaled $763.3 million at the end of the current quarter compared to $663.4 million at December 31, 2004. Net credit losses for the second quarter of 2005 amounted to $102,000, or 0.06% of average outstanding loans on an annualized basis, a decrease from 0.20% recorded in the 2004 second quarter. Nonperforming assets continue to trend downward, declining 17.5% in the 2005 second quarter, compared to a year ago. The allowance for credit losses to outstanding loans was 1.10% at June 30, 2005, compared to 1.20% one year earlier. FNB recorded a fraud loss of $250,000 for the quarter ended June 30, 2005, which represents the deductible amount under FNB's blanket bond policy. The loss reported is a result of some improper loans made in violation of certain policies and procedures of the Bank. Management of FNB and the Bank is in the process of conducting an investigation of this matter as well as an internal audit of the relevant loan portfolio. In addition, the Bank has engaged an outside consultant to conduct a comprehensive, independent credit review of that loan portfolio. Deposits at June 30, 2005 were $811.4 million, compared with $638.6 million one year earlier. Over the past year, FNB has focused its marketing efforts on increasing core deposits by promoting transaction accounts. As a result of this initiative, money market account balances have increased $86.2 million, and demand deposits grew $17.7 million during the previous twelve months. Other borrowings were $89.2 million and $77.8 million at June 30, 2005 and 2004, respectively. Shareholders' equity increased 9.8%, from $66.8 million at June 30, 2004 to $73.4 million at the end of the current period. During 2005, the Company repurchased 34,920 shares of its common stock at an average cost of $18.13. In May 2005, FNB completed a five-for-four common stock split effected in the form of a 25 percent stock dividend. Relevant information has been restated to reflect this action. FNB Financial Services Corporation is a financial holding company with one subsidiary, FNB Southeast, a North Carolina chartered commercial bank. FNB Southeast currently operates 17 banking offices located in North Carolina and Virginia. FNB Southeast Mortgage Corporation and FNB Southeast Investment Services, Inc. are operating subsidiaries of FNB Southeast. Information in this press release may contain "forward-looking statements." These statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation, the effects of future economic conditions, governmental fiscal and monetary policies, legislative and regulatory changes, the risks of changes in interest rates and the effects of competition. Additional factors that could cause actual results to differ materially are discussed in the Company's recent filings with the Securities and Exchange Commission, including, but not limited to, its Annual Report on Form 10-K and its other periodic reports. -0- *T FINANCIAL SUMMARY ------------------ 2005 2004 --------------------- ----------------------------- Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter ----------- --------- --------- --------- --------- Average Balances (Dollars in thousands) Assets $954,786 $899,083 $851,696 $830,732 $791,065 Loans 737,735 691,180 646,078 619,178 598,329 Investment securities 153,411 141,963 142,290 138,554 133,874 Earning assets 899,522 842,142 797,623 776,481 739,630 Noninterest- bearing deposits 86,656 78,685 78,260 77,690 77,054 Interest-bearing deposits 694,494 659,834 649,198 621,170 556,897 Interest-bearing liabilities 781,663 736,051 695,436 675,685 636,629 Shareholders' equity 72,154 70,820 69,666 67,827 67,269 Second Six Months Ended Quarter June 30 2005-2004 ---------------------------- Percent Percent Variance 2005 2004 Variance ---------------- --------- --------- -------- Average Balances (Dollars in thousands) Assets 20.7% $927,089 $789,666 17.4 % Loans 23.3 714,586 594,206 20.3 Investment securities 14.6 147,719 139,452 5.9 Earning assets 21.6 870,990 740,907 17.6 Noninterest-bearing deposits 12.5 82,693 73,424 12.6 Interest-bearing deposits 24.7 677,260 561,854 20.5 Interest-bearing liabilities 22.8 758,983 639,910 18.6 Shareholders' equity 7.3 71,490 67,019 6.7 Period-End Balances (Dollars in thousands) Second Quarter 2005 2004 2005- --------------------- --------------------------- 2004 Second First Fourth Third Second Percent Quarter Quarter Quarter Quarter Quarter Variance ----------- --------- --------- --------- ------- -------- Assets $979,446 $920,520 $865,335 $844,646 $786,383 24.6 % Loans 763,255 713,310 663,425 641,057 600,526 27.1 Investment securities 155,568 144,666 141,603 145,800 131,331 18.5 Earning assets 924,506 860,575 807,482 789,233 734,296 25.9 Noninterest- bearing deposits 95,335 84,707 78,810 75,614 77,621 22.8 Interest- bearing deposits 716,031 682,792 645,475 648,281 561,015 27.6 Interest- bearing liabilities 805,184 758,375 712,009 696,079 638,816 26.0 Shareholders' equity 73,360 71,386 70,430 69,273 66,830 9.8 Asset Quality Data (Dollars in thousands) 2005 2004 -------------- ----------------------- Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter ------- ------- ------- ------- ------- Nonperforming loans $4,002 $2,613 $3,515 $4,354 $2,719 Other nonperforming assets 2,554 5,357 5,559 4,966 5,231 Net credit losses 102 189 318 127 292 Allowance for credit losses 8,380 7,843 7,352 7,341 7,183 Nonperforming loans to outstanding loans 0.52 % 0.37 % 0.53 % 0.68 % 0.45 % Annualized net credit losses to average loans 0.06 0.11 0.20 0.08 0.20 Allowance for credit losses to outstanding loans 1.10 1.10 1.11 1.15 1.20 Allowance for credit losses to nonperforming loans 2.09 X 3.00 X 2.09 X 1.69 X 2.64 X Asset Quality Data Six Months Ended (Dollars in thousands) June 30, 2005 2004 ------ ------ Nonperforming loans $4,002 $2,719 Other nonperforming assets 2,554 5,231 Net credit losses 291 601 Allowance for credit losses 8,380 7,183 Nonperforming loans to outstanding loans 0.52 % 0.45 % Annualized net credit losses to average loans 0.08 0.20 Allowance for credit losses to outstanding loans 1.10 1.20 Allowance for credit losses to nonperforming loans 2.09 X 2.64 X 2005 2004 ------------------ ------------------------- Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter --------- -------- -------- -------- ------- Income Statement Data (Dollars in thousands, except share data) Interest income: Loans $13,630 $12,102 $11,081 $10,030 $9,311 Other 1,431 1,275 1,236 1,245 1,130 ----------- -------- -------- -------- ------- Total interest income 15,061 13,377 12,317 11,275 10,441 Interest expense 5,975 4,864 4,211 3,891 3,396 ----------- -------- -------- -------- ------- Net interest income 9,086 8,513 8,106 7,384 7,045 Provision for credit losses 638 680 330 285 272 ----------- -------- -------- -------- ------- Net interest income after provision for credit losses 8,448 7,833 7,776 7,099 6,773 Noninterest income 1,815 2,138 1,945 1,695 2,604 Noninterest expense 7,045 6,892 6,760 5,969 5,590 ----------- -------- -------- -------- ------- Income before income tax expense 3,218 3,079 2,961 2,825 3,787 Income tax expense 1,083 1,036 941 913 1,274 ----------- -------- -------- -------- ------- Net income $2,135 $2,043 $2,020 $1,912 $2,513 =========== ======== ======== ======== ======= Net income per share: Basic $0.30 $0.30 $0.30 $0.28 $0.36 Diluted $0.29 $0.29 $0.28 $0.27 $0.35 Cash dividends per share $0.11 $0.11 $0.11 $0.10 $0.10 Second Six Months Ended Quarter June 30 2005-2004 -------------------------- Percent Percent Variance 2005 2004 Variance ---------- -------- -------- -------- Income Statement Data (Dollars in thousands, except share data) Interest income: Loans 46.4 % $25,732 $18,498 39.1 % Other 26.6 2,706 2,381 13.6 -------- -------- Total interest income 44.2 28,438 20,879 36.2 Interest expense 75.9 10,839 6,985 55.2 -------- -------- Net interest income 29.0 17,599 13,894 26.7 Provision for credit losses 134.6 1,318 660 99.7 -------- -------- Net interest income after provision for credit losses 24.7 16,281 13,234 23.0 Noninterest income (30.3) 3,953 4,445 (11.1) Noninterest expense 26.0 13,937 11,036 26.3 -------- -------- Income before income tax expense (15.0) 6,297 6,643 (5.2) Income tax expense (15.0) 2,119 2,235 (5.2) -------- -------- Net income (15.0) $4,178 $4,408 (5.2) ======== ======== Net income per share: Basic (16.7)% $0.60 $0.64 (6.3)% Diluted (17.1)% $0.58 $0.62 (6.5)% Cash dividends per share 10.0 % $0.22 $0.20 10.0 % Other Data 2005 2004 ------------------ ------------------------- Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter --------- -------- -------- -------- ------- Return on average assets 0.90 % 0.92 % 0.95 % 0.92 % 1.27 % Return on average equity 11.87 11.71 11.60 11.28 14.94 Net yield on earning assets 4.12 4.18 4.15 3.90 3.91 Efficiency 63.67 63.73 66.17 64.48 56.90 Net interest position to total assets/a 12.34 11.80 12.00 12.13 13.02 Equity to assets 7.56 7.88 8.18 8.16 8.50 Loans to assets 77.27 76.88 75.86 74.53 75.64 Loans to deposits 94.44 93.59 88.81 88.60 94.38 Noninterest - bearing deposits to total deposits 11.09 10.65 10.76 11.12 12.15 /a: Net interest position is average earning assets less average interest-bearing liabilities. NOTE: Per share data have been adjusted for the five-for-four (5:4) stock split, effected as a 25% stock dividend, effective May 31, 2005. Six Months Ended June 30, Other Data 2005 2004 ------ ------- Return on average assets 0.91 % 1.12 % Return on average equity 11.79 13.15 Net yield on earning assets 4.15 3.90 Efficiency 63.70 59.06 Net interest position to total assets/a 12.08 12.79 Equity to assets 7.71 8.49 Loans to assets 77.08 75.25 Loans to deposits 94.03 93.53 Noninterest - bearing deposits to total deposits 10.88 11.56 /a: Net interest position is average earning assets less average interest-bearing liabilities. NOTE: Per share data have been adjusted for the five-for-four (5:4) stock split, effected as a 25% stock dividend, effective May 31, 2005. COMMON STOCK - PER SHARE ------------------------ 2005 2004 ----------------- -------------------------- Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter -------- -------- -------- -------- -------- Market value: End of period $18.39 $18.00 $18.24 $15.40 $13.61 High 20.25 18.74 18.68 15.58 16.24 Low 16.82 16.66 15.03 13.10 13.46 Book value 10.49 10.22 10.15 10.12 9.73 Dividend 0.11 0.11 0.11 0.10 0.10 Shares traded 263,966 504,388 829,240 690,955 452,901 NOTE: Per share data have been adjusted for the five-for-four (5:4) stock split, effected as a 25% stock dividend, effective May 31, 2005. *T