**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-QSB**

**[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

For the Quarterly Period Ended March 31, 2002

**OR**

**[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

For the Transition Period from __________ to __________

Commission file number 2-94292

FNB Banking Company(Exact name of registrant as specified in its charter)

Georgia 
58-1479370
(State of Incorporation) 
(I.R.S. Employer Identification No.)   
318 South Hill Street  
Griffin, Georgia 
30224
(Address of principal executive offices) 
(Zip Code)   
 
770-227-2251(Telephone Number)
          Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

YES XX   NO     

Common stock, par value $1 per share: 731,045 sharesoutstanding as of May 8, 2002
 
**FNB BANKING COMPANY AND SUBSIDIARY**

**INDEX**

Page No.
 
PART I

FINANCIAL INFORMATION
 
Item 1.

Financial Statements
 
Consolidated Balance Sheet (unaudited) at March 31, 2002

3
 
Consolidated Statements of Earnings (unaudited) for the Three

  Months Ended March 31, 2002 and 2001

4
 
Consolidated Statements of Comprehensive Income (unaudited)

  for the Three Months Ended March 31, 2002 and 2001

5
 
Consolidated Statements of Cash Flows (unaudited) for the

  Three Months Ended March 31, 2002 and 2001

6
 
Notes to Consolidated Financial Statements (unaudited)

7
 
Item 2.

Management’s Discussion and Analysis of Financial Condition and

  Results of Operations

8-9
 
PART II.
 
OTHER INFORMATION
 
Item 1.

Legal Proceedings

10
 
Item 2.

Changes in Securities

10
 
Item 3.

Defaults Upon Senior Securities

10
 
Item 4.

Submission of Matters to a Vote of Security Holders

10
 
Item 5.

Other Information

10
 
Item 6.

Exhibits and Reports on Form 8-K

10
 
Signatures

 

11
- 2 -
   
**PART I. FINANCIAL INFORMATION**

Item 1.  Financial Statements

**FNB BANKING COMPANY AND SUBSIDIARY**

Consolidated  Balance Sheet

March 31, 2002(Unaudited)

Assets

Cash and due from banks

$

11,932,730

Federal funds sold

  6,887,137
     
Cash and cash equivalents

18,819,867

Interest-bearing deposits with other banks

500,000

Investment securities available for sale

40,309,100

Other investments

848,200

Mortgage loans held for sale

1,092,940

Loans

175,338,776

Less:  Unearned interest and fees

335,701

           Allowance for loan losses

    1,909,835
     
Loans, net

173,093,240

Premises and equipment, net

7,716,836

Accrued interest receivable and other assets

    1,708,213
     
$

244,088,396
     
Liabilities and Stockholders’ Equity

Liabilities:

Deposits:

Noninterest-bearing

  $

34,867,314

Interest-bearing

168,695,021
     
Total deposits

203,562,335

Retail repurchase agreements

12,534,025

FHLB advances

843,750

Accrued interest payable and accrued liabilities

    1,293,311
     
Total liabilities

218,233,421

Stockholders’ equity:

Common stock, $1 par value; 5,000,000 shares authorized;

733,909 shares issued and outstanding

733,909

Retained earnings

23,985,879

Accumulated other comprehensive income

    1,135,187
     
Total stockholders’ equity

  25,854,975
     
$

244,088,396
     
See accompanying notes to consolidated financial statements.

- 3 -
   
**FNB BANKING COMPANY AND SUBSIDIARY**

Consolidated  Statements of Earnings

For the Three Months Ended March 31, 2002 and 2001(Unaudited)
 
2002

2001
 
Interest income:

Interest and fees on loans

$

3,622,104

4,232,718 

Interest on investment securities:

Tax-exempt

131,160

121,607 

Taxable

427,162

472,269 

Interest on federal funds sold

39,707

191,616 
 
Total interest income

4,220,133

5,018,210 
 
Interest expense:

Deposits and repurchase agreements

1,289,365

2,016,306 

Federal funds purchased and FHLB advances

-

13,633 

Notes payable

11,946

1,866 
 
Total interest expense

1,301,311

2,031,805 
 
Net interest income

2,918,822

2,986,405 

Provision for loan losses

200,804

174,112 
 
Net interest income after provision for loan losses

2,718,018

2,812,293 
 
Other operating income:

Service charges on deposit accounts

456,088

453,773 

Fees for trust services

30,000

30,000 

Securities losses

-

(2,500)

Other operating income

88,042

113,699 
 
Total other operating income

574,130

594,972 
 
Other operating expense:

Salaries and employee benefits

1,438,313

1,341,792 

Occupancy and equipment

443,186

411,719 

Other operating expense

519,861

550,286 
 
Total other operating expense

2,401,360

2,303,797 
 
Earnings before income taxes

890,788

1,103,468 

Income taxes

279,227

362,147 
 
Net earnings

$

611,561

741,321 
 
Net earnings per common share based on average outstanding

          shares of 743,221 and 778,812 in 2002 and 2001, respectively

$

.82

.95 

See accompanying notes to consolidated financial statements.

- 4-
   
**FNB BANKING COMPANY AND SUBSIDIARY**

Consolidated Statements of Comprehensive Income

For the Three Months Ended March 31, 2002 and 2001(Unaudited)
 
2002

2001
 
Net earnings

$

611,561 

741,321 
 
Other comprehensive income (loss), net of tax:

Unrealized holding gains (losses) on investment securities available

for sale arising during the period

333,484 

627,760 

Reclassification adjustment for losses on investment securities available forsale

- 

(2,500)
 
Total othercomprehensive income (loss), before tax

333,484 

625,260 
 
Income taxes related to other comprehensive income:

Unrealized holding gains (losses) on investment securities available

for sale arising during the period

(126,724)

(238,549)

Reclassification adjustment for losses on investment securities available forsale

- 

950 
 
Total income taxes related to other comprehensive income (loss)

(126,724)

(237,599)
 
Total other comprehensive income, net of tax

206,760 

387,661 
 
Total comprehensive income

$

818,321 

1,128,982 

See accompanying notes to consolidated financial statements

- 5 -
   
**FNB BANKING COMPANY AND SUBSIDIARY**

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2002 and 2001(Unaudited)

 
  
2002

2001
 
Cash flows from operating activities:
  
Net earnings

$

611,561 

741,321 

Adjustments to reconcile net earnings to net cash provided by operatingactivities:
  
Provision for loan losses

200,804 

174,112 

Depreciation, amortization and accretion

160,346 

114,469 

Loss on sale of investment securities

- 

2,500 

Change in assets and liabilities:
 
Mortgage loans held for sale

1,672,565 

450,965 

Interest receivable

105,843 

236,622 

Interest payable

(61,617)

14,359 

Other, net

58,761 

123,019 
 
Net cash provided by operating activities

2,748,263 

1,857,367 
 
Cash flows from investing activities:

Proceeds from sales of investment securities

- 

997,500 

Proceeds from maturities, calls and paydowns of investment securities    available for sale

1,771,482 

10,074,941 

Purchases of investment securities available for sale

(1,690,999)

(13,864,256)

Net change in loans

(643,419)

2,604,998 

Purchases of premises and equipment

(396,096)

(62,248)
 
Net cash provided by (used by) investing activities

(959,032)

(249,065)
 
Cash flows from financing activities:

Net change in deposits

996,927 

12,128,525 

Net change in retail repurchase agreements

(1,609,523)

3,175,276 

Repayments of note payable

- 

(41,667)

Repayments of FHLB advances

(31,250)

(31,250)

Payment of cash dividend

(540,403)

(548,733)

Purchase and retirement of common stock

(1,999,995)

- 
 
Net cash provided by (used by) financing activities

(3,184,244)

14,682,151 
 
Net change in cash and cash equivalents

(1,395,013)

16,290,453 

Cash and cash equivalents at beginning of period

20,214,880 

15,488,744 
 
Cash and cash equivalents at end of period

$

18,819,867 

31,779,197 
 
Supplemental disclosures of cash flow information:

Cash paid for interest

$

1,362,928 

2,017,446 

Cash paid for income taxes

- 

12,000 

Noncash investing and financing activities:

Change in net unrealized gains (losses) on investment

      securities available for sale, net of tax

$

206,760

387,661 

See accompanying notes to consolidated financial statements.

- 6 -
   
**FNB BANKING COMPANY AND SUBSIDIARY**

Notes  to Consolidated Financial Statements(Unaudited)

(1)     Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared inaccordance with generally accepted accounting principles for interim financial information and with the instructions for Form10-QSB.  Accordingly, they do not include all the information and footnotes required by generally accepted accountingprinciples for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurringadjustments) considered necessary for a fair presentation have been included.  Operating results for the three-month periodended March 31, 2002, are not necessarily indicative of the results that may be expected for the year ending December 31,2002.  For further information, refer to the consolidated financial statements and footnotes included in the Company’sannual report on Form 10-KSB for the year ended December 31, 2001.

(2)     Repurchase and Retirement of Common Stock

On January 25, 2002, the Company repurchased and retired 38,095 shares for$1,999,995.

(3)     Pending Business Combination and BorrowingArrangement

The Company expects to close its acquisition of American Community Bank of Georgia(“ACB”), a Georgia banking corporation based in Stockbridge (Henry County), Georgia in the second quarter of2002.  In preparation for the pending acquisition of ACB, the Company entered into a credit facility with a correspondent bankthat provides for borrowings up to $7,750,000.  The credit facility bears interest at the prime interest rate less 110 basispoints payable quarterly and matures on May 31, 2003.  Borrowings under the facility will be collateralized by the stock ofFirst National Bank of Griffin, the Company’s commercial bank subsidiary.  The borrowing arrangement includes certaincovenants that impose minimum capital levels and ratios, return on asset ratios, non-performing asset limits and allowance for loanloss levels.  There were no borrowings under this arrangement at March 31, 2002.  Borrowing under this facility will beused to assist the Company in the acquisition of ACB.  Further information on this pending transaction is included in thenotes to the consolidated financial statements included in Form 10-KSB for the year ended December 31, 2001.

(4)     Subsequent Event

In April 2002, the Company sold certain equity securities included in its available forsale portfolio for net proceeds of approximately $1,019,000 and realized a gain on sale of approximately $723,000.  Theproceeds of the investment sale will be used to fund a portion of the purchase of ACB.

                     

- 7 -
   
Item 2. 

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION****AND RESULTS OF OPERATIONS**

For the Three Months in the Periods EndedMarch 31, 2002 and 2001

**Forward-Looking Statement**

This discussion contains forward-looking statements under the Private SecuritiesLitigation Reform Act of 1995 that involve risks and uncertainties.  Although the Company believes the assumptions underlyingthe forward-looking statements contained in the discussion are reasonable, any of the assumptions could be inaccurate, andtherefore, no assurance can be made that any of the forward-looking statements included in this discussion will be accurate.Factors that could cause actual results to differ from results discussed in forward-looking statements include, but are not limitedto:  economic conditions (both generally and in the markets where the Company operates); competition from other providers offinancial services offered by the Company; government regulation and legislation; changes in interest rates; and materialunforeseen changes in the financial stability and liquidity of the Company’s credit customers;  all of which aredifficult to predict and which may be beyond the control of the Company. The Company undertakes no obligation to reviseforward-looking statements to reflect events or changes after the date of this discussion or to reflect the occurrence ofunanticipated events.

**Financial Condition**

Total assets at March 31, 2002, were $244 million, representing a $2.3 million (1%)decrease from December 31, 2001. Deposits increased $1 million (.5%) from December 31, 2001. Loans (gross) increased $437,000(.25%). The allowance for loan losses at March 31, 2002, totaled $1.90 million, representing 1.08% of total loans compared toDecember 31, 2001 total of $1.88 million representing 1.07% of total loans. Cash and cash equivalents decreased $1.4 million fromDecember 31, 2001.

The following summarizes non-performing assets:
  
March 31,2002

December 31,2001
      
Other real estate and repossessions

$

99,000     

-      

Accruing loans 90 days or more past due

29,000     

186,000      

Non-accrual loans

2,402,000     

1,177,000      
   
$

2,530,000     

1,363,000     
 
Non-accrual loans increased $1.2 million principally due to one lending relationship for$1.1 million to a real estate development company.  The loan is collateralized by approximately 250 acres of undevelopedland.  Additionally, the non-accrual loan increase consisted of a transfer of one loan for $66,000, collateralized by variousequipment, that on December 31, 2001, was included in accruing loans 90 days or more past due.  Finally, seven other loanstotaling approximately $150,000 were transferred to non-accrual during the quarter ended March 31, 2002.  These loans werecollateralized principally by improved residential real estate.  A total of $290,000 of valuation allowances are maintained atMarch 31, 2002, for these non-accrual loans. 

Other real estate at March 31, 2002, consisted of one single-family residence that wasunder contract for sale.  The Company expects no loss on the disposition of the other real estate.

The Company’s subsidiary bank was most recently examined by its primary regulatoryauthority in January 2001. There were no recommendations by the regulatory authority that in management’s opinion will havematerial effects on the Company’s liquidity, capital resources or operations.

- 8 -
   
**Results of Operations**

For the three months ended March 31, 2002, the Company reported net earnings of $611,500,or $.82 per share, compared to $741,321, or $.95 per share, for the same period in 2001.

Net interest income is the primary source of the Company’s operating income. Net interest income decreased approximately $67,500 (2.2%) in the first three months of 2002 compared to the same period for 2001.Interest income for the first three months of 2002 was $4.2 million, representing a decrease of $798,000 (16%) over the same periodin 2001. Interest expense for the first three months of 2002 decreased $730,500 (36%) compared to the same period in 2001. Thedecrease in net interest income during the first three months of 2002 compared to the same period in 2001 is primarily due tosignificant general interest rate decreases that more than offset the volume increases for the respective periods.  At March31, 2002, the net interest margin was 5.09% compared to 5.27% at March 31, 2001.  The Company expects the net interest marginto improve in the last three quarters of 2002.

The provision for loan losses for the first three months of 2002 increased approximately$26,700 compared to the same period for 2001. For the three months ended March 31, 2002, the Bank experienced net loan charge-offsof approximately $120,000, compared to net charge-offs of $64,000 for the corresponding three-month period in 2001.  It ismanagement’s belief that the allowance for loan losses is adequate to absorb probable losses in the portfolio.

Other operating income decreased for the three months ended March 31, 2002 byapproximately $21,000, or 4%, compared to the same period in 2001, primarily due to a $15,000 decrease in gains on sales ofmortgageloans. 

Other operating expenses for the first three months of 2002 increased approximately$98,000 (4%) compared to the first three months in 2001. Salaries and benefit expenses increased approximately $97,000 (7%) dueprimarily to merit increases to the existing workforce.  Occupancy expenses increased approximately $31,000 (8%) due primarilyto a $14,000 increase in building repairs and maintenance expense and a $12,000 increase in depreciation on equipment.  Allother operating expenses declined by approximately $30,000 (5.5%); this decrease is attributable to a variety of expenses ratherthan a few single types.

Income tax expense, expressed as a percentage of earnings before income taxes, decreasedto 31% for the period ended March 31, 2002 compared to 33% for the same period in 2001 as tax exempt income expressed as apercentage of pretax earnings increased in 2002.

**Capital**

The following tables present FNB Banking Company’s regulatory capital position atMarch 31, 2002:

Risk-Based Capital Ratios

Tier 1 Capital, Actual

13.9%

Tier 1 Capital minimum requirement

  4.0%
     
Excess

  9.9%
     
Total Capital, Actual

14.9%

Total Capital minimum requirement

  8.0%
     
Excess

  6.9%
     
Leverage Ratio

Tier 1 Tangible Capital to adjusted total assets

   (“Leverage Ratio”)

10.1%

Minimum leverage requirement

  3.0%
     
Excess

  7.1%

- 9 -
   
**PART II.  OTHER INFORMATION**

**FNB BANKING COMPANY AND SUBSIDIARY**

Item 1.         LegalProceedings

                   None

Item2.       Changes inSecurities

                   None

Item3.        DefaultsUpon Senior Securities

                   None

Item4.         Submissionof Matters to a Vote of Security Holders

                   None

Item 5.        OtherInformation

                   None

Item6.        Exhibitsand Reports on Form 8-K

                   None

- 10 -
   
**FNB BANKING COMPANY AND SUBSIDIARY**

**SIGNATURES**

         Pursuant to the requirements of theSecurities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereuntoduly authorized.
 
**FNB BANKING COMPANY**     
By:  /s/ ***C.A. Knowles***            C.A. Knowles, President and Treasurer