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, 1997
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-8144
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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
incorporation or organization) Identification No.)
Hermitage Square, Hermitage, PA 16148
- ----------------------------------------------------------------------------
(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, 1997
----- ----------------------------
Common Stock, $2 Par Value 14,081,550 Shares
- -------------------------- -----------------
<PAGE>
F.N.B. CORPORATION
FORM 10-Q
June 30, 1997
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 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 18
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Dollars in thousands, except par values
JUNE 30, DECEMBER 31,
1997 1996
------------- ------------
UNAUDITED
-------------
ASSETS
Cash and due from banks $ 94,404 $ 107,476
Interest bearing deposits with banks 1,417 1,334
Federal funds sold 8,750 6,425
Loans held for sale 7,078 9,610
Securities available for sale 310,301 322,068
Securities held to maturity (fair
value of $150,047 and $173,677) 150,689 174,551
Loans, net of unearned income of
$22,838 and $23,763 1,710,043 1,728,132
Allowance for loan losses (28,075) (27,800)
------------- ------------
NET LOANS 1,681,968 1,700,332
------------- ------------
Premises and equipment 50,886 46,714
Other assets 66,852 49,897
------------- ------------
$ 2,372,345 $ 2,418,407
============= ============
LIABILITIES
Deposits:
Non-interest bearing $ 218,471 $ 231,264
Interest bearing 1,729,909 1,782,624
------------- -------------
TOTAL DEPOSITS 1,948,380 2,013,888
Other liabilities 35,531 34,825
Short-term borrowings 130,305 112,230
Long-term debt 48,859 58,179
------------- ------------
TOTAL LIABILITIES 2,163,075 2,219,122
------------- ------------
STOCKHOLDERS' EQUITY
Preferred stock - $10 par value
Authorized - 20,000,000 shares
Outstanding - 306,055 and 352,531 shares
Aggregate liquidation value -
$7,653 and $8,813 3,061 3,525
Common stock - $2 par value
Authorized - 100,000,000 shares
Outstanding - 14,081,550 and 13,305,369 shares 28,163 26,611
Additional paid-in capital 116,760 101,445
Retained earnings 60,349 66,625
Net unrealized securities gains 2,299 2,566
Treasury stock - 56,343 and 62,723 shares at cost (1,362) (1,487)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 209,270 199,285
------------- ------------
$ 2,372,345 $ 2,418,407
============= ============
See accompanying Notes to Consolidated Financial Statements
<PAGE>
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,
---------------------- ---------------------
1997 1996 1997 1996
---------- ---------- ---------- ---------
INTEREST INCOME
Loans, including fees $ 41,264 $ 38,109 $ 81,459 $ 75,724
Securities:
Taxable 6,408 6,200 12,502 12,197
Tax exempt 587 584 1,171 1,108
Dividends 256 183 543 349
Other 584 398 1,366 1,242
---------- ---------- ---------- ---------
TOTAL INTEREST INCOME 49,099 45,474 97,041 90,620
---------- ---------- ---------- ---------
INTEREST EXPENSE
Deposits 18,624 17,020 36,815 34,353
Short-term borrowings 1,451 1,308 2,869 2,532
Long-term debt 854 645 1,608 1,387
---------- ---------- ---------- ---------
TOTAL INTEREST EXPENSE 20,929 18,973 41,292 38,272
---------- ---------- ---------- ---------
NET INTEREST INCOME 28,170 26,501 55,749 52,348
Provision for loan losses 3,530 1,940 5,758 3,667
---------- ---------- ---------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 24,640 24,561 49,991 48,681
---------- ---------- ---------- ---------
NON-INTEREST INCOME
Insurance commissions and fees 1,075 970 2,106 1,891
Service charges 2,842 2,739 5,754 5,389
Trust 417 382 856 766
Gain (loss)on sale of securities (54) 295 439 583
Gain on sale of subsidiary 8,042 8,042
Other 1,236 615 2,224 1,500
---------- ---------- ---------- ---------
TOTAL NON-INTEREST INCOME 13,558 5,001 19,421 10,129
---------- ---------- ---------- ---------
38,198 29,562 69,412 58,810
---------- ---------- ---------- ---------
NON-INTEREST EXPENSES
Salaries and employee benefits 12,410 10,433 24,038 20,840
Net occupancy 2,098 1,711 3,865 3,364
Equipment 1,705 1,540 3,260 3,024
Other 9,891 6,819 16,129 13,711
---------- ---------- ---------- ---------
TOTAL NON-INTEREST EXPENSES 26,104 20,503 47,292 40,939
---------- ---------- ---------- ---------
INCOME BEFORE INCOME TAXES 12,094 9,059 22,120 17,871
Income taxes 4,010 2,901 7,248 5,637
---------- ---------- ---------- ---------
NET INCOME $ 8,084 $ 6,158 $ 14,872 $ 12,234
========== ========== ========== =========
NET INCOME PER COMMON SHARE:
Primary $ .55 $ .42 $ 1.02 $ .84
========== ========== ========== =========
Fully Diluted $ .54 $ .41 $ .99 $ .82
========== ========== ========== =========
CASH DIVIDENDS PER COMMON SHARE $ .16 $ .15 $ .31 $ .30
========== ========== ========== =========
AVERAGE COMMON SHARES OUTSTANDING 13,990,500 13,798,818 13,962,772 13,794,184
========== ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Dollars in thousands
Unaudited
Six Months Ended June 30 1997 1996
---------- ----------
OPERATING ACTIVITIES
Net income $ 14,872 $ 12,234
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,895 2,662
Provision for loan losses 5,758 3,667
Deferred taxes 1,722 514
Net (gain)on sale of securities (439) (583)
Net (gain) loss on sale of loans (778) (355)
Net gain on sale of subsidiary (8,042)
Proceeds from sale of loans 6,395 16,838
Loans originated for sale (3,526) (9,185)
Net change in (net of effects of
sale of subsidiary):
Interest receivable (1,859) (836)
Interest payable (116) (322)
Other, net (357) (979)
---------- ----------
Net cash flows from operating activities 17,525 23,655
---------- ----------
INVESTING ACTIVITIES
Net change in (net of effects of
sale of subsidiary):
Interest bearing deposits with banks (105) 681
Federal funds sold (2,325) 33,282
Loans (87,103) (97,484)
Securities available for sale:
Purchases (108,744) (73,635)
Sales 15,417 21,376
Maturities 100,784 60,726
Securities held to maturity:
Purchases (6,325) (36,537)
Maturities 18,734 21,400
Increase in premises and equipment (8,254) (5,051)
Net cash paid for divestitures (5,976)
---------- ----------
Net cash flows from investing activities (83,897) (75,242)
---------- ----------
FINANCING ACTIVITIES
Net change in (net of effects of
sale of subsidiary):
Non-interest bearing deposits 839 (4,645)
Interest bearing deposits 47,135 36,805
Short-term borrowings 19,185 46,863
Increase in long-term debt 16,073 6,309
Decrease in long-term debt (25,312) (23,177)
Net acquisition of treasury stock 19 (583)
Cash dividends paid (4,639) (3,423)
---------- ----------
Net cash flows from financing activities 53,300 58,149
---------- ----------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS
(13,072) 6,562
Cash and due from banks at beginning of period 107,476 90,656
---------- ----------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 94,404 $ 97,218
========== ==========
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements give
retroactive effect to the mergers of Southwest Banks, Inc. (Southwest) and West
Coast Bancorp, Inc. (West Coast) with and into F.N.B. Corporation (the
Corporation). The mergers which were consummated on January 21, 1997 and April
18, 1997, resulted in the Corporation issuing 2,851,907 and 1,197,128 shares of
common stock, respectively. These transactions have been accounted for as
poolings-of-interests, and such financial statements are presented as if the
mergers had been consummated for all the periods presented. The 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. For further information, refer to the
supplemental consolidated financial statements for the year ended December 31,
1996 and footnotes thereto included in the Corporation's Current Report on Form
8-K filed with the Securities and Exchange Commission on July 22, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that effect the amounts reported in the financial statements.
Actual results could differ from those estimates.
PER SHARE AMOUNTS
Per share amounts are adjusted for the common stock dividends, including
the 5% stock dividend issued on May 31, 1997.
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 vested 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 vested stock
options.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (FAS No. 128), "Earnings per Share," which is required to be adopted on
December 31, 1997. At that time, the Corporation will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating earnings per share, the
dilutive effect of stock options will be excluded. The impact of FAS No. 128
on the calculations of primary and fully diluted earnings per share is
immaterial for the three month and six month periods ended June 30, 1997 and
1996.
<PAGE>
NEW ACCOUNTING STANDARDS
FAS No. 130, "Reporting Comprehensive Income," establishes new standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive income is defined
as the change in equity during a period from transactions and other events and
circumstances from non shareholder sources, such as changes in net unrealized
securities gains. It includes all changes in equity during a period except
those resulting from investments by shareholders and distributions to
shareholders. This statement is effective for the Corporation's fiscal year
ending December 31, 1998.
CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information (in
thousands):
Six months ended June 30 1997 1996
-------- --------
Cash paid for:
Interest $ 41,234 $ 38,641
Income taxes 4,718 5,598
Noncash Investing and Financing Activities:
Acquisition of real estate
in settlement of loans 960 409
Loans granted in the sale of
other real estate 1,031 139
MERGERS AND DIVESTITURE
The Corporation completed its merger with Southwest, a multi-bank holding
company headquartered in Naples, Florida, effective January 21, 1997. Under the
terms of the merger agreement, each outstanding share of Southwest's common
stock was converted into .819 share of the Corporation's common stock with cash
being paid in lieu of fractional shares. A total of 2,851,907 shares of the
Corporation's common stock were issued.
The Corporation completed its merger with West Coast, a bank holding
company headquartered in Cape Coral, Florida, effective April 18, 1997. Under
the terms of the merger agreement, each outstanding share of West Coast's common
stock was converted into .794 share of the Corporation's common stock with cash
being paid in lieu of fractional shares. A total of 1,197,128 shares of the
Corporation's common stock were issued. Results for 1996 are restated to
reflect this acquisition as a pooling-of-interests.
Operating results of the Corporation, Southwest and West Coast for the six
months ended June 30, 1996, prior to restatement are (in thousands):
F.N.B.
Corporation Southwest West Coast Combined
----------- --------- ---------- --------
Net interest income $ 40,111 $ 8,587 $ 3,650 $ 52,348
Net income 9,943 1,701 590 12,234
The Corporation completed the sale of its subsidiary, Bucktail Bank and
Trust Company (Bucktail), to Sun Bancorp, Inc. (Sun), a bank holding company
headquartered in Selinsgrove, Pennsylvania. Under the sales agreement, Sun
issued 565,384 shares of Sun's common stock, having a value of $17.6 million,
in exchange for 100% ownership of Bucktail. At consummation, Bucktail had
assets of $124.9 million and liabilities of $115.3 million. The sale resulted
in the Corporation recognizing an $8.0 million pre-tax gain. The Corporation
has reflected its ownership interest in Sun as an equity investment included in
other assets.
<PAGE>
On May 12, 1997, the Corporation signed a definitive merger agreement with
Indian Rocks State Bank (Indian Rocks), a community bank headquartered in Largo,
Florida with assets of approximately $78 million. The merger agreement calls
for an exchange of 2 shares of the Corporation's common stock for each share of
Indian Rocks common stock. The exchange ratio is subject to possible
adjustment. The transaction will be accounted for as a pooling-of-interests and
is expected to close during the fourth quarter of 1997, subject to approval by
certain regulatory authorities and Indians Rocks' shareholders.
On July 29, 1997, the Corporation signed a definitive merger agreement with
Mercantile Bank of Southwest Florida (Mercantile), a $108 million bank located
in Naples, Florida. Under the terms of the agreement, the Corporation will pay
$17.72 per share for each of the 847,006 outstanding shares of Mercantile's
common stock. Upon receiving both regulatory and shareholder approval,
Mercantile will be merged into the Corporation's existing affiliate, First
National Bank of Naples. The transaction will be accounted for as a purchase
and is expected to close during the fourth quarter of 1997.
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 available for sale securities portfolio, the
Corporation has sufficient sources of funds available to meet its cash needs.
Additionally, 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 $25.0 million was unused at June 30,
1997. To further meet its liquidity needs, the Corporation also has access to
the Federal Home Loan Bank and the Federal Reserve System, as well as other
funding sources.
Through the review of the gap analysis and net interest income 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 matched maturity funding.
Interest rate sensitivity estimates the impact that future changes in
interest rates will have on net interest income. The gap is one measurement of
risk inherent in the balance sheet as it relates to changes in interest rates
and their effect on net interest income.
The gap analysis which follows is based on the amortizations, maturities
and repricing of assets and liabilities. Non-maturity deposit balances have
been allocated to various repricing intervals to estimate their
characteristics. The cumulative gap reflects the net position of assets and
liabilities repricing in specified time periods. The cumulative one year gap
is slightly negative, thus assuming no restructuring or modifications to
asset/liability composition, a change in interest rates would result in
minimal fluctuations in net interest income, over a one year period.
Attaining minimal fluctuations in net interest income is highly dependent
on maintaining the current asset/liability composition, which is
significantly influenced by competitive factors.
<PAGE>
Following is the gap analysis as of June 30, 1997 (in thousands):
WITHIN 4-12 1-5 OVER
3 MONTHS MONTHS YEARS 5 YEARS TOTAL
---------- --------- ---------- --------- ----------
INTEREST EARNING ASSETS
Interest bearing deposits
with banks $ 1,317 $ 100 $ 1,417
Federal funds sold 8,750 8,750
Loans held for sale 7,078 7,078
Securities:
Available for sale 16,748 36,833 $ 199,080 $ 76,364 329,025
Held to maturity 21,117 45,170 78,536 5,866 150,689
Loans, net of unearned 430,787 392,566 651,795 234,895 1,710,043
---------- --------- --------- ---------- ----------
485,797 474,669 929,411 317,125 2,207,002
Other assets 165,343 165,343
---------- --------- --------- ---------- ----------
$ 485,797 $ 474,669 $ 929,411 $ 482,468 $2,372,345
========== ========= ========= ========== ==========
INTEREST BEARING LIABILITIES
Deposits:
Interest checking $ 95,621 $ 197,996 $ 293,617
Savings 174,980 338,044 513,024
Time deposits 188,167 $ 392,948 $ 337,939 4,214 923,268
Short-term borrowings 60,651 39,743 29,911 130,305
Long-term debt 1,231 8,447 24,848 14,333 48,859
---------- --------- --------- ---------- ---------
520,650 441,138 362,787 584,498 1,909,073
Other liabilities 254,002 254,002
Stockholders' equity 209,270 209,270
---------- --------- --------- ---------- ---------
$ 520,650 $ 441,138 $ 362,787 $1,047,770 $2,372,345
========== ========= ========= ========== ==========
PERIOD GAP $ (34,853) $ 33,531 $ 566,624 $ (565,302)
========== ========= ========= ==========
CUMULATIVE GAP $ (34,853) $ (1,322)$ 565,302
========== ========= =========
CUMULATIVE GAP AS A PERCENT
OF TOTAL ASSETS (1.5%) (0.1%) 23.8%
===== ===== =====
RATE SENSITIVE ASSETS/RATE
SENSITIVE LIABILITIES
(CUMULATIVE) 0.93 1.00 1.43 1.16
==== ==== ==== ====
CAPITAL RESOURCES
The assessment of capital adequacy depends on a number of factors such as
asset quality, liquidity, earnings performance, changing competitive conditions
and economic forces. The Corporation seeks to maintain a strong capital base
to support its growth and expansion activities, to provide stability to current
operations and to promote public confidence.
The capital management function is a continuous process. Central to this
process is internal equity generation accomplished by earnings retention. Since
December 31, 1996, stockholders' equity has increased $10.2 million as a result
of earnings retention. For the six months ended June 30, 1997, the return on
average equity was 14.84%. Total cash dividends declared represented 31.19% of
net income. Book value per share was $14.38 at June 30, 1997, compared to
$13.70 at December 31, 1996.
<PAGE>
LOANS
Following is a summary of loans (dollars in thousands):
JUNE 30, DECEMBER 31,
1997 1996
----------- -----------
Real estate:
Residential $ 725,984 $ 682,600
Commercial 387,170 421,057
Construction 48,210 41,661
Installment loans to individuals 337,450 395,628
Commercial, financial and agricultural 197,568 189,411
Lease financing 36,499 21,538
Unearned income (22,838) (23,763)
----------- -----------
$1,710,043 $1,728,132
=========== ===========
NON-PERFORMING ASSETS
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. 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. Non-accrual loans may not be restored
to accrual status until all delinquent principal and interest has been paid, or
the loan becomes both well secured and in the process of collection. Consumer
installment loans are generally charged off against the allowance for loan
losses upon reaching 90 to 180 days past due, depending on the installment loan
type. 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,
1997 1996
------------ ------------
Non-performing assets:
Non-accrual loans $ 7,806 $ 9,571
Restructured loans 1,896 2,146
------- -------
Total non-performing loans 9,702 11,717
Other real estate owned 4,331 7,039
------- -------
Total non-performing assets $14,033 $18,756
======= =======
Asset quality ratios:
Non-performing loans as percent
of total loans .57% .68%
Non-performing assets as percent
of total assets .59% .78%
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.
<PAGE>
ALLOWANCE FOR LOAN LOSSES
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 and concentrations of
credit risk.
Following is a summary of changes in the allowance for loan losses and
selected ratios (dollars in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
Balance at beginning of period $ 28,320 $ 24,520 $ 27,800 $ 24,250
Transfers arising from the sale
of a subsidiary (1,443) (1,443)
Charge-offs (2,813) (1,587) (4,764) (3,472)
Recoveries 481 470 724 898
-------- -------- -------- --------
Net charge-offs (2,332) (1,117) (4,040) (2,574)
Provision for loan losses 3,530 1,940 5,758 3,667
-------- -------- -------- --------
Balance at end of period $ 28,075 $ 25,343 $ 28,075 $ 25,343
======== ======== ======== ========
Allowance for loan losses to:
Total loans, net of unearned income 1.64% 1.54%
Non-performing loans 289.37% 212.32%
The increase in the level of charge-offs and the provision for loan losses
during the quarter ended June 30, 1997 resulted from the consistent application
of the Corporation's charge-off-policy and methodology for determining the
adequacy of the allowance for loan losses to West Coast.
REGULATORY MATTERS
The Corporation and its banking subsidiaries are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Corporation's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Corporation and its banking subsidiaries must meet
specific capital guidelines that involve quantitative measures of assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Corporation's and banking subsidiaries' capital
amounts and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
<PAGE>
Quantitative measures established by regulators to ensure capital adequacy
require the Corporation and its banking subsidiaries to maintain minimum amounts
and ratios of total and tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of tier 1 capital to average assets (as
defined). Management believes, as of June 30, 1997, that the Corporation and
each of its banking subsidiaries meet all capital adequacy requirements to which
they are subject. Following are capital ratios as of June 30, 1997 for the
Corporation (dollars in thousands):
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------- ------- --------- ------- --------- -------
Total Capital $236,133 14.2% $132,874 8.0% $166,093 10.0%
(to risk-weighted assets)
Tier 1 Capital 205,264 12.4% 66,437 4.0% 99,656 6.0%
(to risk-weighted assets)
Tier 1 Capital 205,264 8.4% 98,317 4.0% 122,896 5.0%
(to average assets)
As of March 31, 1997, the Corporation and each of its banking subsidiaries
have been categorized as "well capitalized" under the regulatory framework for
prompt corrective action.
FINANCIAL INFORMATION SUMMARY
Net income for the first six months of 1997 was $14.9 million compared to
$12.2 million for the first six months of 1996. Primary earnings per share for
those periods were $1.02 and $.84, respectively, and $.99 and $.82 on a fully
diluted basis. Highlights for the first six months of 1997 include:
o An $8.0 million pre-tax gain on the sale of Bucktail.
o Recognition of $2.1 million in merger related costs and a $1.7
million additional provision for loan losses associated with
the Corporation's acquisition of West Coast.
o Recognition of $2.6 million in severance payments and certain
other non-recurring charges.
o Return on average equity and return on average assets of 14.84%
and 1.22%, respectively. Excluding the above items, return on
average equity was 13.88% and return on average assets was 1.14%.
o Net interest margin on a fully taxable equivalent basis of 4.98%.
<PAGE>
FIRST SIX MONTHS OF 1997 AS COMPARED TO FIRST SIX MONTHS OF 1996:
The following table provides information regarding the average balances and
yields and rates on interest earning assets and interest bearing liabilities
(dollars in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended June 30 1997 1996
------------------------------ -----------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- ----------- ------- ---------- ---------- -------
ASSETS
Interest earning assets:
Interest bearing deposits
with banks $ 2,475 $ 77 6.22% $ 3,082 $ 99 6.42%
Federal funds sold 50,600 1,289 5.09 38,162 1,143 5.99
Securities:
U.S. Treasury and other
U.S. Government agencies
and corporations 398,550 12,502 6.33 399,799 12,197 6.14
States of the U.S. and
political subdivisions (1) 56,516 1,638 5.80 52,961 1,546 5.84
Other securities (1) 23,107 684 5.92 18,362 387 4.22
Loans (1) (2) 1,770,699 81,940 9.33 1,601,736 76,293 9.58
---------- ---------- -------- ---------- ---------- --------
Total interest
earning assets 2,301,947 98,130 8.59 2,114,102 91,665 8.72
---------- ---------- -------- ---------- ---------- --------
Cash and due from banks 74,601 85,392
Allowance for loan losses (29,236) (24,806)
Premises and equipment 48,202 42,167
Other assets 52,956 51,468
---------- ----------
$2,448,470 $2,268,323
========== ==========
LIABILITIES
Interest bearing liabilities:
Deposits:
Interest bearing demand $ 302,113 $ 3,631 2.42 $ 304,558 $ 2,950 1.95
Savings 562,222 7,413 2.66 480,618 6,561 2.75
Other time 953,853 25,771 5.45 911,244 24,842 5.48
Short-term borrowings 122,944 2,869 4.71 87,991 2,532 5.79
Long-term debt 43,079 1,608 7.47 37,033 1,387 7.49
---------- ---------- -------- ---------- --------- ---------
Total interest
bearing liabilities 1,984,211 41,292 4.20 1,821,444 38,272 4.22
---------- ---------- -------- ---------- --------- ---------
Non-interest bearing
demand deposits 229,181 216,862
Other liabilities 33,002 39,054
---------- ----------
2,246,394 2,077,360
---------- ----------
STOCKHOLDERS' EQUITY 202,076 190,964
---------- ----------
$2,448,470 $2,268,324
========== ==========
Excess of interest earning
assets over interest
bearing liabilities $ 317,736 $ 292,658
========== ==========
Net interest income $ 56,838 $ 53,393
========== ==========
Net interest spread 4.39% 4.50%
====== ======
Net interest margin (3) 4.98% 5.08%
====== ======
</TABLE>
(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.
<PAGE>
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 1997, net interest income, on a fully
taxable equivalent basis, totaled $56.8 million, representing a 6.45% increase
over the first six months of 1996. Net interest income consisted of interest
income of $98.1 million and interest expense of $41.3 million for the first six
months of 1997 compared to $91.7 million and $38.3 million for each,
respectively, for the first six months of 1996. Net interest margin fell to
4.98% at June 30, 1997 from 5.08% at June 30, 1996, as the yield on total
interest earning assets declined by 13 basis points as compared to only a 2
basis point reduction in cost of funds.
The following table sets forth certain information regarding changes in net
interest income attributable to changes in the volumes and rates of interest
earning assets and interest bearing liabilities for the six months ending June
30, 1997 as compared to the six months ending June 30, 1996 (in thousands):
VOLUME RATE NET
------- ------- -------
INTEREST INCOME
Interest bearing deposits with banks $ (19) $ (3) $ (22)
Federal funds sold 271 (125) 146
Securities:
U.S. Treasury and other U.S.
Government agencies and corporations (34) 339 305
States of the U.S. and political
subdivisions 102 (10) 92
Other securities 116 181 297
Loans 7,503 (1,856) 5,647
------- ------- -------
7,939 (1,474) 6,465
------- ------- -------
INTEREST EXPENSE
Deposits:
Interest bearing demand (23) 704 681
Savings 1,056 (204) 852
Other time 1,052 (123) 929
Short-term borrowings 635 (298) 337
Long-term debt 227 (6) 221
------- ------- -------
2,947 73 3,020
------- ------- -------
NET CHANGE $4,992 $(1,547) $3,445
======= ======= =======
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.
Interest income on loans, on a fully taxable equivalent basis, increased
7.40% from $76.3 million for the six months ended June 30, 1996 to $81.9 million
for the six months ended June 30, 1997. This increase was the result of an
increase in average loans of 10.55% over this same period last year.
Interest expense on deposits increased $2.5 million or 7.17% for the six
months ended June 30, 1997, compared to the six months ended June 30, 1996.
This increase was the result of an increase in average deposits of 7.18% over
this same six month period. Interest expense on short-term borrowings increased
$337,000 or 13.31% for these same periods due to an increase in average
short-term borrowings of 39.72%.
The provision for loan losses totaled $5.7 million for the first six months
of 1997, as compared to $3.7 million for the first six months of 1996. In
connection with the Corporation's acquisition of West Coast, the Corporation
recognized an additional provision for loan losses of $1.7 million, in excess
of the Corporation's normal provision. This additional provision was required
after applying the Corporation's allowance for loan loss policy and methodology
for evaluating the adequacy of the allowance to West Coast.
<PAGE>
Excluding the $8.0 million gain on the sale of Bucktail, non-interest
income increased by 12.34% during the first six months of 1997 as compared to
the first six months of 1996.
Total non-interest expenses increased 4.04% during the first six months of
1997, compared to the first six months of 1996, after excluding various
non-recurring items, including $2.1 million in merger-related costs and $2.6
million in severance payments and other miscellaneous charges. The majority
of the increase in non-interest expenses resulted from an increase in
occupancy and personnel costs due to the opening of new branch offices at
two of the Corporation's affiliates.
Income tax expense for the six months ended June 30, 1997 totaled $7.3
million, providing an effective tax rate of 32.77% compared to 31.55% for the
six months ended June 30, 1996. The higher effective tax rate reflects the
lower level of tax exempt instruments held by the Corporation during the first
six months of 1997 compared to the same period in 1996 and the nondeductibility
of certain merger related costs.
Consolidated net income was $14.9 million for the first six months of 1997,
representing a $2.6 million or 21.57% increase over the first six months of
1996. The Corporation's return on average assets was 1.22% and 1.08% for the
six months ended June 30, 1997 and 1996, while the return on average equity was
14.84% and 12.88% for those same periods, respectively. Recurring net income
for the six months ended June 30, 1997 totaled $13.9 million, resulting in
returns on average assets and equity of 1.14% and 13.88%, respectively.
SECOND QUARTER OF 1997 AS COMPARED TO SECOND QUARTER OF 1996:
During the second quarter of 1997, net interest income increased $1.7
million or 6.30% over the second quarter of 1996. Total interest income
increased $3.6 million or 7.97% over these periods, primarily the result of an
increase in loan volume.
Total interest expense increased $2.0 million or 10.31% during the second
quarter of 1997, compared to the same period of 1996. Interest expense on
deposits accounted for the majority of this increase, $1.6 million, due to an
increase in average deposits.
The provision for loan losses totaled $3.5 million for the second quarter
of 1997, as compared to $1.9 million for the second quarter of 1996. This
increase resulted from applying the Corporation's allowance for loan loss policy
and methodology for evaluating the adequacy of the allowance to the recently
acquired affiliate, West Coast.
Excluding the gain of $8.0 million recognized on the sale of Bucktail,
non-interest income increased 10.28% during the second quarter of 1997 compared
to the same period of 1996. Total non-interest expenses increased 4.61%
during the second quarter of 1997, compared to the second quarter of 1996,
after excluding various non-recurring items, including $2.1 million in
merger-related costs and $2.6 million in severance payments and other
miscellaneous charges. The increase in recurring non-interest expenses was
attributable to increases in personnel and occupancy costs associated with the
opening of new branch offices at two of the Corporation's affiliates.
Income tax expense totaled $4.0 million during the quarter providing an
effective tax rate of 33.15% compared to 32.03% in 1996. Net income totaled
$8.1 million for the second quarter of 1997, compared to $6.2 million for the
second quarter of 1996. Excluding the impact of the non-recurring items, net
income totaled $7.1 million.
<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 23, 1997. Proxies 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"
------------- ------------
Charles T. Cricks 9,148,923 59,161
Henry M. Ekker 9,144,579 63,505
Thomas W. Hodge 9,145,160 62,924
James S. Lindsay 9,150,038 58,046
Paul P. Lynch 9,130,016 78,068
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<PAGE>
11. F.N.B. Corporation
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Dollars in thousands
<TABLE>
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
PRIMARY
Net Income $ 8,084 $ 6,157 $ 14,872 $ 12,233
Less: Preferred Stock
Dividends Declared (154) (199) (315) (410)
---------- ---------- ---------- ----------
Net Income Applicable
to Common Stock $ 7,930 $ 5,958 $ 14,557 $ 11,823
========== ========== ========== ==========
Average Common Shares
Outstanding 13,990,500 13,798,818 13,962,772 13,794,184
Net Effect of Dilutive
Stock Options and
Stock Warrants -
Based on the Treasury
Stock Method Using
Average Market Price 376,414 305,789 372,913 301,013
---------- ---------- ---------- ----------
14,366,914 14,104,607 14,335,685 14,095,197
========== ========== ========== ==========
Net Income per
Common Share $.55 $.42 $1.02 $.84
==== ==== ===== ====
FULLY DILUTED
Net Income Applicable
to Common Stock $ 8,084 $ 6,157 $ 14,872 $ 12,233
========== ========== ========== ==========
Average Common Shares
Outstanding 13,990,500 13,798,818 13,962,772 13,794,184
Series A Convertible
Preferred Stock 21,118 28,422 21,118 28,422
Series B Convertible
Preferred Stock 624,604 881,141 649,413 898,859
Net Effect of Dilutive
Stock Options and
Stock Warrants -
Based on the Treasury
Stock Method Using the
Period-End Market Price,
If Higher than Average
Market Price 431,042 308,692 431,028 279,517
---------- ---------- ---------- ----------
15,067,264 15,017,073 15,064,331 15,000,982
========== ========== ========== ==========
Net Income per
Common Share $.54 $.41 $.99 $.82
==== ==== ==== ====
</TABLE>
<PAGE>
27. Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
A report on Form 8-K, dated April 21, 1997, was filed by the Corporation.
The Form 8-K disclosed information relating to the consummation of the
merger with West Coast Bancorp, Inc.
A report on Form 8-K, dated July 22 1997, was filed by the Corporation.
The Form 8-K included Audited Supplemental Consolidated Financial
Statements for the years ended December 31, 1996, 1995 and 1994 with
Report of Independent Auditors and Management's Discussion and Analysis
<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: AUGUST 13, 1997 /S/PETER MORTENSEN
------------------------------ --------------------------------------
Peter Mortensen
Chairman and President
(Principal Executive Officer)
Dated: AUGUST 13, 1997 /S/JOHN D. WATERS
------------------------------ --------------------------------------
John D. Waters
Vice President and
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 94,404
<INT-BEARING-DEPOSITS> 1,417
<FED-FUNDS-SOLD> 8,750
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 310,301
<INVESTMENTS-CARRYING> 150,689
<INVESTMENTS-MARKET> 150,047
<LOANS> 1,710,043
<ALLOWANCE> 28,075
<TOTAL-ASSETS> 2,372,345
<DEPOSITS> 1,948,380
<SHORT-TERM> 130,305
<LIABILITIES-OTHER> 35,531
<LONG-TERM> 48,859
0
3,061
<COMMON> 28,163
<OTHER-SE> 178,046
<TOTAL-LIABILITIES-AND-EQUITY> 2,372,345
<INTEREST-LOAN> 41,264
<INTEREST-INVEST> 7,251
<INTEREST-OTHER> 584
<INTEREST-TOTAL> 49,099
<INTEREST-DEPOSIT> 18,624
<INTEREST-EXPENSE> 20,929
<INTEREST-INCOME-NET> 28,170
<LOAN-LOSSES> 3,530
<SECURITIES-GAINS> (54)
<EXPENSE-OTHER> 26,104
<INCOME-PRETAX> 12,094
<INCOME-PRE-EXTRAORDINARY> 12,094
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,084
<EPS-PRIMARY> .55
<EPS-DILUTED> .54
<YIELD-ACTUAL> 8.59
<LOANS-NON> 7,806
<LOANS-PAST> 2,861
<LOANS-TROUBLED> 1,896
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 28,320
<CHARGE-OFFS> 2,813
<RECOVERIES> 481
<ALLOWANCE-CLOSE> 28,075
<ALLOWANCE-DOMESTIC> 28,075
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
