UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
-------------
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 0-8144
F.N.B. CORPORATION
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1255406
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Hermitage Square, Hermitage, PA 16148
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(Address of principal executive offices) (Zip Code)
(412) 981-6000
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(Registrant's telephone number, including area code)
Not applicable
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1996
----- ----------------------------
Common Stock, $2 Par Value 9,169,695 Shares
- -------------------------- ----------------
<PAGE>
F.N.B. CORPORATION
FORM 10-Q
June 30, 1996
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet 2
Consolidated Income Statement 3
Consolidated Statement of Cash Flows 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 17
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F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Dollars in thousands
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
(Unaudited) (Note)
------------ ------------
ASSETS
Cash and due from banks $ 67,877 $ 59,795
Interest bearing deposits with banks 1,556 2,603
Federal funds sold 11,917 22,335
Securities available for sale 202,538 223,479
Securities held to maturity (fair
value of $151,201 and $136,801) 155,239 136,969
Loans held for sale 7,273 10,154
Loans, net of unearned income of
$23,660 and $26,609 1,271,432 1,212,741
Allowance for loan losses (22,102) (21,550)
------------ ------------
NET LOANS 1,256,603 1,201,345
------------ ------------
Premises and equipment 24,294 22,504
Other assets 39,501 37,963
------------ ------------
$ 1,759,525 $ 1,706,993
============ ============
LIABILITIES
Deposits:
Non-interest bearing $ 159,442 $ 167,700
Interest bearing 1,297,693 1,274,409
------------ ------------
TOTAL DEPOSITS 1,457,135 1,442,109
Short-term borrowings 92,801 55,224
Other liabilities 27,703 25,988
Long-term debt 32,916 39,755
------------ ------------
TOTAL LIABILITIES 1,610,555 1,563,076
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock - $10 par value
Authorized - 20,000,000 shares
Outstanding - 426,313 and 451,638 shares
Aggregate liquidation value -
$10,658 and $11,291 4,263 4,516
Common stock - $2 par value
Authorized - 20,000,000 shares
Outstanding - 9,067,869 and 8,611,814 shares 18,225 17,268
Additional paid-in capital 67,955 58,631
Retained earnings 56,683 60,034
Net unrealized securities gains 2,906 3,932
Treasury stock - 44,674 and 22,340 shares at cost (1,062) (464)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 148,970 143,917
------------ ------------
$ 1,759,525 $ 1,706,993
============ ============
NOTE: The balance sheet at December 31, 1995 was derived from the audited
financial statements at that date.
See accompanying Notes to Consolidated Financial Statements
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F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
Dollars in thousands, except per share data
Unaudited
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
INTEREST INCOME
Loans, including fees $ 29,357 $ 28,383 $ 58,441 $ 56,019
Securities:
Taxable 4,687 4,369 9,321 8,601
Tax exempt 427 439 800 745
Dividends 183 74 349 299
Other 194 569 647 805
--------- --------- --------- ---------
TOTAL INTEREST INCOME 34,848 33,834 69,558 66,469
--------- --------- --------- ---------
INTEREST EXPENSE
Deposits 12,970 13,113 26,219 25,010
Short-term borrowings 979 821 1,841 1,670
Long-term debt 645 741 1,387 1,522
--------- --------- --------- ---------
TOTAL INTEREST EXPENSE 14,594 14,675 29,447 28,202
--------- --------- --------- ---------
NET INTEREST INCOME 20,254 19,159 40,111 38,267
Provision for loan losses 1,438 1,393 2,806 2,934
--------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 18,816 17,766 37,305 35,333
--------- --------- --------- ---------
NON-INTEREST INCOME
Insurance commissions and fees 970 1,601 1,891 2,338
Service charges 1,631 1,682 3,226 3,413
Trust 382 349 766 755
Gain on sale of securities 278 194 566 361
Other 514 498 1,002 866
--------- --------- --------- ---------
TOTAL NON-INTEREST INCOME 3,775 4,324 7,451 7,733
--------- --------- --------- ---------
22,591 22,090 44,756 43,066
--------- --------- --------- ---------
NON-INTEREST EXPENSES
Salaries and employee benefits 7,747 7,348 15,511 14,812
Net occupancy 1,223 1,089 2,420 2,253
Amortization of intangibles 260 322 530 650
Equipment 895 976 1,745 1,921
Deposit insurance 306 934 615 1,868
Other 4,748 4,904 9,547 9,185
--------- --------- --------- ---------
TOTAL NON-INTEREST EXPENSES 15,179 15,573 30,368 30,689
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 7,412 6,517 14,388 12,377
Income taxes 2,336 2,172 4,445 4,048
--------- --------- --------- ---------
NET INCOME $ 5,076 $ 4,345 $ 9,943 $ 8,329
========= ========= ========= =========
NET INCOME PER COMMON SHARE:
Primary $ .53 $ .46 $ 1.04 $ .87
========= ========= ========= =========
Fully Diluted $ .51 $ .44 $ .99 $ .84
========= ========= ========= =========
CASH DIVIDENDS PER COMMON SHARE $ .16 $ .07 $ .31 $ .13
========= ========= ========= =========
AVERAGE COMMON SHARES OUTSTANDING 9,047,103 9,021,249 9,042,690 9,024,612
========= ========= ========= =========
See accompanying Notes to Consolidated Financial Statements
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F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Dollars in thousands
Unaudited
Six Months Ended June 30 1996 1995
--------- ---------
OPERATING ACTIVITIES
Net income $ 9,943 $ 8,329
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,205 2,394
Provision for loan losses 2,806 2,934
Deferred taxes 514 100
Gain on securities available for sale (566) (357)
(Gain) loss on sale of loans (144) (30)
Proceeds from sale of loans 12,210 16,180
Loans originated for sale (9,185) (14,610)
Change in:
Interest receivable (654) 49
Interest payable (133) 1
Other, net 472 (731)
--------- ---------
Net cash flows from operating activities 17,468 14,259
--------- ---------
INVESTING ACTIVITIES
Net change in interest bearing deposits with banks 1,047 (6,788)
Net change in federal funds sold 10,418 (3,554)
Purchase of securities available for sale (49,331) (42,349)
Purchase of securities held to maturity (30,410) (22,619)
Proceeds from sale of securities available for sale 20,359 1,296
Proceeds from maturity of securities available for sale 48,796 26,500
Proceeds from maturity of securities held to maturity 12,107 34,265
Net change in loans (60,980) (6,350)
Increase in premises and equipment (3,292) (1,541)
--------- ---------
Net cash flows from investing activities (51,286) (21,140)
--------- ---------
FINANCING ACTIVITIES
Net change in non-interest bearing deposits (8,258) 6,523
Net change in interest bearing deposits 23,284 19,937
Net change in short-term borrowings 37,577 (14,344)
Increase in long-term debt 6,309 3,719
Decrease in long-term debt (13,148) (3,462)
Proceeds from sale of stock 1,158 695
Purchase of treasury stock (1,784) (913)
Cash dividends paid (3,238) (1,599)
--------- ---------
Net cash flows from financing activities 41,900 10,556
--------- ---------
NET INCREASE IN CASH AND DUE FROM BANKS 8,082 3,675
Cash and due from banks at beginning of period 59,795 60,451
--------- ---------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 67,877 $ 64,126
========= =========
See accompanying Notes to Consolidated Financial Statements
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F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. 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 six-month
period ended June 30, 1996 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Corporation's annual report on Form 10-K for the year ended December 31,
1995.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in financial statements. Actual
results could differ from those estimates.
PER SHARE AMOUNTS
Per share amounts have been adjusted for the 5% common stock dividend in
the second quarter of 1996.
Primary earnings per common share is calculated by dividing net income,
adjusted for preferred stock dividends declared, by the sum of the weighted
average number of shares of common stock outstanding and the number of shares
of common stock which would be issued assuming the exercise of stock options
during each period.
Fully diluted earnings per common share is calculated by dividing net
income by the weighted average number of shares of common stock outstanding,
assuming the conversion of outstanding convertible preferred stock from the
beginning of the year or date of issuance and the exercise of stock options.
Cash dividends per common share are based on the actual cash dividends
declared adjusted for stock dividends. Book value per common share is based on
shares outstanding at each period end adjusted retroactively for stock
dividends.
CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information (in
thousands):
Six months ended June 30 1996 1995
------- -------
Cash paid for:
Interest $29,579 $29,950
Income taxes 4,252 3,090
Noncash Investing and Financing Activities:
Acquisition of real estate in settlement of loans 409 984
Loans granted in the sale of other real estate 139 133
Conversion of minority interest 540
MERGERS AND ACQUISITIONS
On February 2, 1996, the Corporation signed a definitive merger agreement
with Southwest Banks, Inc. (Southwest), a bank holding company headquartered in
Naples, Florida with assets of approximately $400 million. The merger
agreement calls for an exchange of .819 share of F.N.B. Corporation common
stock for each share of Southwest
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common stock after giving effect to the 5% stock dividend announced on April
24, 1996. The Corporation has reserved 3,276,700 shares to be issued in
conjunction with the merger.
In connection with the merger agreement, Southwest granted the Corporation
an option to purchase, under certain circumstances, up to 727,163 shares of
Southwest common stock at a price of $15.00 per share. The exchange ratio,
number of shares under option and the price of the option are all subject to
possible adjustment. The planned merger has recently been approved by both the
Federal Reserve Bank of Cleveland and the Shareholders of Southwest Banks, Inc.
The transaction will be accounted for as a pooling of interests, and is
expected to close in early 1997, following Florida's statutory waiting period.
EFFECT OF NEW ACCOUNTING STANDARDS
The following Statements of Financial Accounting Standards (FAS) became
effective for the Corporation in 1996.
FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be disposed of," requires impairment losses to be recorded
on long-lived assets used in operations when indicators of impairment are
present. The undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amount. Adoption of this Statement did not
have a material effect on the Corporation's financial position or results of
operations.
FAS No. 122, "Accounting for Mortgage Servicing Rights," an amendment of
FAS No. 65, allows enterprises engaging in mortgage banking activities to
recognize as separate assets rights to service mortgage loans originated for
sale. Additionally, the enterprise must periodically assess its capitalized
mortgage servicing rights for impairment based on the fair value of those
rights. Adoption of this Statement did not have a material effect on the
Corporation's financial position or results of operations, as the Corporation
does not significantly engage in the sale of mortgage loans.
PART I
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Interest Rate Sensitivity
The Corporation monitors its liquidity position on an ongoing basis to
assure that it is able to meet the need for funds at all times. Given the
monetary nature of its assets and liabilities and the significant source of
liquidity provided by its securities portfolio, the Corporation generally has
sufficient sources of funds available as needed to meet its routine,
operational cash needs.
In addition to normal liquidity provided from operations, the Corporation
has external sources of funds available should it desire to use them. These
include approved lines of credit with several major domestic banks, of which
$24.0 million was unused at June 30, 1996. To further meet its liquidity
needs, the Corporation also has access to the Federal Reserve System, the
Federal Home Loan Bank and other uncommitted funding sources.
Interest rate sensitivity measures the impact that future changes in
interest rates will have on net interest income. The cumulative gap reflects a
point-in-time net position of assets and liabilities repricing in specified
time periods. The gap is one measurement of risk inherent in a balance sheet
as it relates to changes in interest rates and their effect on net interest
income.
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<PAGE>
The gap analysis which follows is based on a combination of asset and
liability amortizations, maturities and repricing opportunities. Non-maturity
deposit balances have been allocated to various repricing intervals to more
accurately depict their true behavior and characteristics. This allocation was
done in accordance with FDIC guidance. Based on the cumulative one year gap in
this table and assuming no restructuring or modifications to asset/liability
composition, a rise in interest rates would have a negative impact on net
interest income.
Gap analyses alone do not accurately measure the magnitude of changes in
net interest income since changes in interest rates do not affect all
categories of assets and liabilities equally or simultaneously. Recognizing
that traditional gap analyses do not measure dynamically the exposure to
interest rate changes, the Corporation also relies on computer simulation
modeling to measure the effect of upward and downward interest rate changes on
net interest income. Simulation is currently in use at all of the
Corporation's banking affiliates.
Through the review of gap analyses and simulation modeling, management
continually monitors the Corporation's exposure to changing interest rates.
Management attempts to mitigate repricing mismatches through asset and
liability pricing and through matched maturity funding.
Following is the gap analysis as of June 30, 1996 (in thousands):
Within 4-12 1-5 Over
3 Months Months Years 5 years Total
--------- --------- --------- --------- ----------
Interest Earning Assets
Interest bearing deposits
with banks $ 1,456 $ 100 $ 1,556
Federal funds sold 11,917 11,917
Securities:
Available for sale 18,288 91,347 $ 75,431 $ 17,472 202,538
Held to maturity 449 5,479 145,849 3,462 155,239
Loans, net of unearned 290,958 241,862 504,794 241,091 1,278,705
--------- --------- --------- --------- ----------
323,068 338,788 726,074 262,025 1,649,955
Other assets 109,570 109,570
--------- --------- --------- --------- ----------
$ 323,068 $ 338,788 $ 726,074 $ 371,595 $1,759,525
========= ========= ========= ========= ==========
Interest Bearing Liabilities
Deposits:
Interest checking $ 8,649 $ 26,935 $ 137,378 $ 172,962
Savings 33,978 100,945 264,406 399,329
Time deposits 178,023 272,302 271,116 $ 3,961 725,402
Short-term borrowings 52,237 20,618 19,946 92,801
Long-term debt 812 3,738 14,528 13,838 32,916
--------- --------- --------- --------- ----------
273,699 424,538 707,374 17,799 1,423,410
Other liabilities 187,145 187,145
Stockholders' equity 148,970 148,970
--------- --------- --------- --------- ----------
$ 273,699 $ 424,538 $ 707,374 $ 353,914 $1,759,525
========= ========= ========= ========= ==========
Period Gap $ 49,369 $ (85,750) $ 18,700 $ 244,226
========= ========= ========= =========
Cumulative Gap $ 49,369 $ (36,781) $ (17,681)
========= ========= =========
Rate Sensitive Assets/Rate
Sensitive Liabilities
(Cumulative) 1.18 0.95 0.99 1.16
========= ========= ========= =========
Cumulative Gap as a Percent
of Total Assets 2.8% (2.1%) (1.0%)
========= ========= =========
Capital Resources
The assessment of capital adequacy depends on a number of factors such as
asset quality, liquidity, earnings performance and changing competitive
conditions and economic forces. The Corporation maintains a strong capital
base to support its growth and expansion activities, to provide stability to
current operations and to promote public confidence.
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The capital management function is a continuous process. Central to this
process is internal equity generation accomplished mainly by earnings
retention. Since December 31, 1995, total stockholders' equity has increased
$6.1 million as a result of earnings retention. For the six months ended June
30, 1996, the return on average equity was 13.63%. Total cash dividends
declared represented 32.57% of net income. Book value per share was $15.25 at
June 30, 1996, compared to $14.67 at December 31, 1995.
The Corporation's capital position continues to exceed regulatory
minimums. The primary indicators relied on by the Federal Reserve Board and
other regulators in measuring strength of capital position are the Core
Capital, Total Risk-Based Capital and Leverage ratios. Following is a table
summarizing these ratios and the related regulatory minimums as of June 30,
1996 and December 31, 1995:
JUNE 30, DECEMBER 31, REGULATORY
1996 1995 MINIMUMS
---------- ------------ ----------
Capital Ratios:
Core Capital 11.78% 11.74% 4.00%
Total Risk-Based Capital 13.86 13.86 8.00
Leverage 8.29 8.16 5.00
Core Capital consists of common and qualifying preferred stockholders'
equity less non-qualifying intangibles and Total Risk-Based Capital consists of
Core Capital, qualifying subordinated debt and a portion of the allowance for
loan losses. Both are calculated with reference to risk-weighted assets
consisting of on- and off- balance sheet financial instruments. The Leverage
ratio consists of Core Capital divided by quarterly average assets less non-
qualifying intangibles.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
Non-performing assets include non-performing loans and other real estate
owned. Non-performing loans include non-accrual loans and restructured loans.
Non-accrual loans represent loans on which interest accruals have been
discontinued. Generally, it is the Corporation's policy to discontinue
interest accruals when principal or interest is due and has remained unpaid for
90 days or more unless the loan is both well secured and in the process of
collection. When a loan is placed on non-accrual status, unpaid interest
credited to income in the current year is reversed and unpaid interest accrued
in prior years is charged against the allowance for loan losses. Interest
received on non-accrual loans is either applied against principal or reported
as interest income, according to management's judgement as to the
collectibility of principal. Loans which reach non-accrual status may not be
restored to accrual status until all delinquent principal and interest has been
paid, or the loan becomes both secured and in the process of collection.
Restructured loans are loans in which the borrower has been granted a
concession on the interest rate or the original repayment terms due to
financial distress.
Following is a summary of non-performing assets (dollars in thousands):
JUNE 30, DECEMBER 31,
1996 1995
----------- -----------
Non-performing assets:
Non-accrual loans $ 7,252 $ 5,605
Restructured loans 1,586 3,075
------- -------
Total non-performing loans 8,838 8,680
Other real estate owned 2,643 2,742
------- -------
Total non-performing assets $11,481 $11,422
======= =======
Asset quality ratios:
Non-performing loans as percent of total loans .69% .71%
Non-performing assets as percent of total assets .65% .67%
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Non-performing loans are closely monitored on an ongoing basis as part of
the Corporation's loan review process. The potential risk of loss on these
loans is evaluated by comparing the loan balance to the present value of
projected future cash flows or the value of any underlying collateral,
recognizing losses where appropriate.
Management's analysis of the allowance for loan losses includes the
evaluation of the loan portfolio based on internally generated loan review
reports and the historical loss experience of the remaining balances of the
various homogeneous loan pools which comprise the loan portfolio. Specific
factors which are evaluated include the previous loan loss experience with the
customer, the status of past due interest and principal payments on the loan,
the collateral position of the loan, the quality of financial information
supplied by the borrower and the general financial condition of the borrower.
Historical loss experience on the remaining portfolio segments is considered in
conjunction with current status of economic conditions, loan loss trends,
delinquency and non-accrual trends, credit administration, concentrations of
credit and off-balance sheet risk.
Following is a summary of changes in the allowance for loan losses and
selected ratios (dollars in thousands):
At or for the At or for the
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
Balance at beginning of period $21,696 $20,922 $21,550 $20,295
Charge-offs (1,462) (1,544) (3,054) (2,886)
Recoveries 430 402 800 830
------- ------- ------- -------
Net charge-offs (1,032) (1,142) (2,254) (2,056)
Provision for loan losses 1,438 1,393 2,806 2,934
------- ------- ------- -------
Balance at end of period $22,102 $21,173 $22,102 $21,173
======= ======= ======= =======
Net charge-offs as percent of
average loans, net of
unearned (annualized) .36% .35%
Allowance for loan losses to:
Total loans, net of unearned income 1.73% 1.77%
Non-performing loans 250.08% 221.96%
FINANCIAL INFORMATION SUMMARY
Net income for the first six months of 1996 was $9.9 million compared to
$8.3 million for the first six months of 1995. Primary earnings per share for
those periods were $1.04 and $.87, respectively, and $.99 and $.84 on a fully
diluted basis. Highlights for the first six months of 1996 include:
* A 13.63% return on average equity and a 1.15% return on average
assets.
* A net interest margin on a fully taxable equivalent basis of 5.04%.
* The provision for loan losses for the first six months of 1996 at
$2.8 million was 4.36% lower than the provision recorded for the
first six months of 1995.
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First Six Months of 1996 as Compared to First Six Months of 1995:
The following table provides information regarding the average balances
and yields and rates on interest earning assets and interest bearing
liabilities (dollars in thousands):
Six Months Ended March 31 1996 1995
-----------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- -------- ------ ---------- -------- ------
Assets
Interest earning assets:
Interest bearing deposits
with banks $ 2,999 $ 99 6.62% $ 4,646 $ 141 6.09%
Federal funds sold 18,095 548 6.06 22,014 664 6.03
Securities:
U.S. Treasury and other
U.S. Government agencies
and corporations 314,310 9,321 5.96 314,647 8,601 5.51
States of the U.S. and
political subdivisions (1) 39,195 1,144 5.84 35,135 1,121 6.38
Other securities (1) 16,513 387 4.71 14,064 337 4.81
Loans (1) (2) 1,245,022 58,948 9.52 1,196,115 56,670 9.55
---------- -------- ---------- --------
Total interest
earning assets 1,636,134 70,447 8.66 1,586,621 67,534 8.58
---------- -------- ---------- --------
Cash and due from banks 54,697 52,900
Allowance for loan losses (21,869) (21,047)
Premises and equipment 23,507 23,009
Other assets 39,895 45,319
---------- ----------
$1,732,364 $1,686,802
========== ==========
Liabilities
Interest bearing liabilities:
Deposits:
Interest bearing demand $ 163,038 $ 1,222 1.51 $ 154,542 $ 1,364 1.78
Savings 396,775 4,892 2.48 433,760 5,404 2.51
Other time 736,088 20,105 5.49 685,271 18,242 5.37
Short-term borrowings 60,632 1,841 6.25 55,978 1,670 6.01
Long-term debt 36,023 1,387 7.70 39,524 1,522 7.70
---------- -------- ---------- --------
Total interest
bearing liabilities 1,392,556 29,447 4.25 1,369,075 28,202 4.15
---------- -------- ---------- --------
Non-interest bearing
demand deposits 158,304 158,228
Other liabilities 34,767 28,601
---------- ----------
1,585,627 1,555,904
========== ==========
Stockholders' equity 146,737 130,898
---------- ----------
$1,732,364 $1,686,802
========== ==========
Excess of interest earning
assets over interest
bearing liabilities $ 243,578 $ 217,546
========== ==========
Net interest income $ 41,000 $ 39,332
======== ========
Net interest spread 4.41% 4.43%
===== =====
Net interest margin (3) 5.04% 5.00%
===== =====
(1) The amounts are reflected on a fully taxable equivalent basis using the
federal statutory tax rate of 35% adjusted for certain federal tax
preferences.
(2) Average balance includes non-accrual loans. Loans consist of average
total loans less average unearned income. The amount of loan fees
included in interest income on loans is immaterial.
(3) Net interest margin is calculated by dividing the difference between
total interest earned and total interest paid by total interest earning
assets.
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Net interest income, the Corporation's primary source of earnings, is the
amount by which interest and fees generated by interest earning assets,
primarily loans and securities, exceed interest expense on deposits and
borrowed funds. During the first six months of 1996, net interest income, on a
fully taxable equivalent basis, totaled $41.0 million, representing a 4.24%
increase over the first six months of 1995. Net interest income as a
percentage of average earning assets (commonly referred to as the margin) rose
to 5.04% at June 30, 1996 from 5.00% at June 30, 1995.
Net interest income can be analyzed in terms of the impact of changing
volumes of interest earning assets and interest bearing liabilities. The
following table sets forth certain information regarding changes in net
interest income attributable to changes in the volumes of interest earning
assets and interest bearing liabilities and changes in the rates for the six
months ending June 30, 1996 as compared to the six months ending June 30, 1995
(in thousands):
Volume Rate Net
------- ------- -------
Interest Income
Interest bearing deposits with banks $ (107) $ 65 $ (42)
Federal funds sold (238) 122 (116)
Securities:
U.S. Treasury and other U.S.
Government agencies and corporations (19) 739 720
States of the U.S. and political subdivisions 247 (224) 23
Other securities 115 (65) 50
Loans 4,659 (2,381) 2,278
------- ------- -------
4,657 (1,744) 2,913
------- ------- -------
Interest Expense
Deposits:
Interest bearing demand 145 (287) (142)
Savings (918) 406 (512)
Other time 2,776 (913) 1,863
Short-term borrowings 362 (191) 171
Long-term debt (269) 134 (135)
------- ------- -------
2,096 (851) 1,245
------- ------- -------
Net Change $ 2,561 $ (893) $ 1,668
======= ======= =======
The amount of change not solely due to rate or volume changes was
allocated between the change due to rate and the change due to volume based on
the relative size of the rate and volume changes.
Total interest income on a fully taxable equivalent basis increased $2.9
million or 5.06% for the first six months of 1996, compared to the first six
months of 1995. Interest income on loans increased 4.02% from $56.7 million
for the first six months of 1995 to $58.9 million for the first six months of
1996, a result of greater loan demand. Average loans increased 4.09% over
these same time periods. Interest on U.S. Treasury and other U.S. Government
agencies and corporations increased 8.37% to $9.3 million for the first six
months of 1996 as compared to the first six months of 1995 as a result of
higher yielding securities being purchased by the Corporation.
Total interest expense increased $1.2 million or 4.41% for the six months
ended June 30, 1996, compared to the six months ended June 30, 1995. Interest
expense on deposits increased 4.83% to $26.2 million over these time periods,
due to an increase of 10.21% in interest expense on time deposits. This was
primarily the result of increased market rates of interest and the continuing
shift in the deposit mix from transaction and savings accounts into higher
paying time deposit accounts.
The provision for loan losses totaled $2.8 million for the first six
months of 1996, representing a decrease of 4.36% from the first six months of
1995. The reduction in the provision for loan losses is a direct result of
improving asset quality and management's analysis of the adequacy of the
allowance for loan losses which takes into consideration all factors relevant
to the collectibility of the existing portfolio.
-11-
<PAGE>
Total non-interest income decreased 3.65% during the first six months of
1996 compared to the same period of 1995. This decrease was attributable to
decreases in insurance commissions and fees and service charges offset by an
increase in securities gains.
Total non-interest expenses decreased 1.05% during the first six months of
1996, compared to the first six months of 1995. Deposit insurance accounted
for the majority of this variance by decreasing 67.08% for the first six months
of 1996, as compared to the first six months of 1995. This was the result of
the Federal Deposit Insurance Corporation (FDIC) lowering the insurance premium
for banks, now that the Bank Insurance Fund has been funded to the required
level. This decrease was offset by an increase in salaries and employee
benefits.
Income before taxes was $14.4 million for the first six months of 1996,
representing an increase of $2.0 million or 16.25% over the same period of
1995. Income taxes increased $397,000 or 9.81% over the same periods due to
more taxable income being generated by the Corporation.
Consolidated net income was $9.9 million for the first six months of 1996,
representing a $1.6 million or 19.38% increase over the first six months of
1995. The Corporation's return on average assets was 1.15% and 1.00% for the
first six months of 1996 and 1995, respectively, while the return on average
equity was 13.63% and 12.83% for those same periods.
Second Quarter of 1996 as Compared to Second Quarter of 1995
During the second quarter of 1996, net interest income increased $1.1
million or 5.72% over the second quarter of 1995. Total interest income
increased $1.0 million or 3.00% over these same periods, primarily the result
of an increase of 3.43% in interest income on loans, including fees. This
increase was a result of greater loan demand.
Total interest expense decreased slightly during the second quarter of
1996, compared to the same period of 1995. Interest expense on deposits
accounted for the majority of this decrease due to the increased interest rate
environment and the change in the deposit mix from savings accounts to higher
paying certificate accounts.
The provision for loan losses remained constant at $1.4 million for the
second quarter of both 1995 and 1996.
Total non-interest income decreased $549,000 or 12.70% during the second
quarter of 1996, compared to the second quarter of 1995, largely as a result of
decreases in insurance commissions and fees. Total non-interest expenses
decreased slightly to $15.2 million from $15.6 million for the second quarter
of 1996 and 1995, respectively. Deposit insurance decreased $628,000 or 67.24%
from the second quarter in 1995 due to the lower insurance premiums being
charged by the FDIC.
Income before taxes increased to $7.4 million in the second quarter of
1996 from $6.5 million in the same period of 1995. Income tax expense
increased to $2.3 million from $2.2 million over these same periods. Net
income totaled $5.1 million for the second quarter of 1996, compared to $4.3
million for the second quarter of 1995.
-12-
<PAGE>
PART II
Item 1. Legal Proceedings
No material pending legal proceedings exist to which the Corporation or
any of its subsidiaries is a party, or of which any of their property is the
subject, except ordinary routine proceedings which are incidental to the
ordinary conduct of business. In the opinion of management, pending legal
proceedings will not have a material adverse effect on the consolidated
financial position of the Corporation and its subsidiaries.
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
The Annual Meeting of Shareholders of F.N.B. Corporation was held
on April 24, 1996. Proxies for the meeting were solicited pursuant to
Section 14(a) of the Securities Exchange Act of 1934 and there was no
solicitation in opposition to the Corporation's solicitations.
All of the Corporation's nominees for directors as listed in the
proxy statement were elected with the following vote:
Shares Voted Shares
"For" "Withheld"
------------ ----------
Stephen J. Gurgovits 6,471,685 79,312
W. Richard Blackwood 6,477,336 73,661
William B. Campbell 6,477,885 73,112
John R. Perkins 6,464,438 86,559
George A. Seeds 6,467,843 83,154
Donna C. Winner 6,442,578 108,419
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1. Articles of Incorporation as currently in effect and any amendments
thereto (Incorporated by reference to Exhibit 3.1. of the
Corporation's Form 10-K for the year ended December 31, 1992).
3.2. By-laws of the Corporation as currently in effect (Incorporated by
reference to Exhibit 4 of the Corporation's Form 10-Q for the
quarter ended June 30, 1994).
-13-
<PAGE>
4 The rights of holders of equity securities are defined in portions
of the Articles of Incorporation and By-laws. The Articles of
Incorporation are incorporated by reference to Exhibit 3.1. of the
registrant's Form 10-K for the year ended December 31, 1992. The
By-laws are incorporated by reference to Exhibit 4 of the
registrant's Form 10-Q for the quarter ended June 30, 1994. A
designation statement defining the rights of F.N.B. Corporation
Series A - Cumulative Convertible Preferred Stock is incorporated
by reference to Form S-14, Registration Statement of F.N.B.
Corporation, File No. 2-96404. A designation statement defining
the rights of F.N.B. Corporation Series B - Cumulative Convertible
Preferred Stock is incorporated by reference to Exhibit 4 of the
registrant's Form 10-Q for the quarter ended June 30, 1992. The
Corporation agrees to furnish to the Commission upon request copies
of all instruments not filed herewith defining the rights of
holders of long-term debt of the Corporation and its subsidiaries.
10.1. Form of agreement regarding deferred payment of directors' fees by
First National Bank of Pennsylvania (Incorporated by reference to
Exhibit 10.1. of the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993).
10.2. Form of agreement regarding deferred payment of directors' fees by
F.N.B. Corporation (Incorporated by reference to Exhibit 10.2. of
the Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993).
10.3. Form of Deferred Compensation Agreement by and between First
National Bank of Pennsylvania and four of its executive officers
(Incorporated by reference to Exhibit 10.3. of the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993).
10.4. Employment Agreement between The Metropolitan Savings Bank of
Youngstown and Samuel K. Sollenberger (Incorporated by reference to
Exhibit 10.4. of the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993).
10.5. Employment Agreement between F.N.B. Corporation and Peter Mortensen
(Incorporated by reference to Exhibit 10.5. of the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990). Amendment No. 2 to Employment Agreement (Incorporated by
reference to exhibit 10.5. of the Corporation's Form 10-Q for the
quarter ended June 30, 1995). Rescinding of Amendment No. 2 to
Employment Agreement (Incorporated by reference to Exhibit 10.5. of
the Corporation's Form 10-Q for the quarter ended September 30,
1995).
10.6. Employment Agreement between F.N.B. Corporation and Stephen J.
Gurgovits (Incorporated by reference to Exhibit 10.6. of the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
10.7. Employment Agreement between F.N.B. Corporation and Samuel K.
Sollenberger (Incorporated by reference to Exhibit 10.7. of the
Corporation's Form 10-Q for the quarter ended March 31, 1994).
10.8. Employment Agreement between F.N.B. Corporation and William J.
Rundorff (Incorporated by reference to Exhibit 10.8. of the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991). Amendment No. 2 to Employment Agreement
(Incorporated by reference to Exhibit 10.8. of the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
-14-
<PAGE>
10.9. Basic Retirement Plan (formerly the Supplemental Executive
Retirement Plan) of F.N.B. Corporation effective January 1, 1992
(Incorporated by reference to Exhibit 10.9. of the Corporation's
Annual Report on From 10-K for the fiscal year ended December 31,
1993).
10.10. F.N.B. Corporation 1990 Stock Option Plan, as amended effective
February 2, 1996. (Incorporated by reference to Exhibit 10.10. of
the Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.11. F.N.B. Corporation Restricted Stock Bonus Plan dated January 1,
1994 (Incorporated by reference to Exhibit 10.11. of the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993).
10.12. Employment Agreement between F.N.B. Corporation and John W. Rose
(Incorporated by reference to Exhibit 10.12. of the Corporation's
Form 10-Q for the quarter ended September 30, 1995). Amendment
No. 1 to Employment Agreement (Incorporated by reference to Exhibit
10.12. of the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.13. Employment Agreement between F.N.B. Corporation and John D. Waters
(Incorporated by reference to Exhibit 10.13. of the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
10.14. F.N.B. Corporation Restricted Stock and Incentive Bonus Plan
(Incorporated by reference to Exhibit 10.14. of the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
10.15. F.N.B. Corporation 1996 Stock Option Plan (Incorporated by
reference to Exhibit 10.15. of the Corporation's Annual Report in
Form 10-K for the fiscal year ended December 31, 1995).
10.16. F.N.B. Corporation Director's Compensation Plan (Incorporated by
reference to Exhibit 10.16. of the Corporation's From 10-Q for the
quarter ended March 31, 1996).
-15-
<PAGE>
11 F.N.B. Corporation
Statement re Computation of Per Share Earnings
Dollars in thousands
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1996 1995 1996 1995
---------- --------- ---------- ---------
Primary
Net Income $ 5,076 $ 4,345 $ 9,943 $ 8,329
Less: Preferred Stock
Dividends Declared (199) (213) (410) (425)
---------- --------- ---------- ---------
Net Income Applicable
to Common Stock $ 4,877 $ 4,132 $ 9,533 $ 7,904
========== ========= ========== =========
Average Common Shares
Outstanding 9,047,103 9,021,249 9,042,690 9,024,612
Net Effect of Dilutive Stock
Options - Based on the Treasury
Stock Method Using Average
Market Price 85,651 37,935 81,947 34,862
---------- --------- ---------- ---------
9,132,754 9,059,184 9,124,637 9,059,474
========== ========= ========== =========
Net Income per Common Share $.53 $.46 $1.04 $.87
==== ==== ===== ====
Fully Diluted
Net Income Applicable
to Common Stock $ 5,076 $ 4,345 $ 9,943 $ 8,329
========== ========= ========== =========
Average Common Shares
Outstanding 9,047,103 9,021,249 9,042,690 9,024,612
Series A Convertible
Preferred Stock 27,069 35,036 27,069 35,036
Series B Convertible
Preferred Stock 839,182 839,415 856,056 839,479
Net Effect of Dilutive Stock
Options - Based on the Treasury
Stock Method Using the Period-End
Market Price, If Higher than
Average Market Price 88,113 40,485 88,113 40,485
---------- --------- ---------- ---------
10,001,467 9,936,185 10,013,928 9,939,612
========== ========= ========== =========
Net Income per Common Share $.51 $.44 $.99 $.84
==== ==== ==== ====
27. Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
A report on Form 8-K, dated May 15, 1996, was filed by the
Corporation. The Form 8-K disclosed pro-forma financial
information for the period ended March 31, 1996, relating to
the definitive merger agreement between F.N.B. Corporation and
Southwest Banks, Inc.
A report on Form 8-K, dated June 28, 1996, was filed by the
Corporation. The Form 8-K disclosed information contained in the
1995 Annual Report to Shareholders of Southwest Banks, Inc.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
F.N.B. Corporation
_____________________________________
(Registrant)
Dated: 7/26/96 /s/ Peter Mortensen
_________________________ _____________________________________
Peter Mortensen
Chairman and President
(Principal Executive Officer)
Dated: 7/26/96 /s/ John D. Waters
_________________________ _____________________________________
John D. Waters
Vice President and Chief Financial
Officer
(Principal Financial Officer)
-17-
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