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 September 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
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1255406
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One F.N.B. Boulevard, 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
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(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
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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 October 31, 1997
----- -------------------------------
Common Stock, $2 Par Value 14,025,570 Shares
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<PAGE>
F.N.B. CORPORATION
FORM 10-Q
September 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
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
UNAUDITED
-------------
ASSETS
Cash and due from banks $ 76,154 $ 107,476
Interest bearing deposits with banks 2,645 1,334
Federal funds sold 48,581 6,425
Loans held for sale 1,469 9,610
Securities available for sale 337,367 322,068
Securities held to maturity (fair
value of $130,087 and $173,677) 130,010 174,551
Loans, net of unearned income of
$18,151 and $23,763 1,739,278 1,728,132
Allowance for loan losses (25,764) (27,800)
------------- ------------
NET LOANS 1,713,514 1,700,332
------------- ------------
Premises and equipment 55,847 46,714
Other assets 63,459 49,897
------------- ------------
$ 2,429,046 $ 2,418,407
============= ============
LIABILITIES
Deposits:
Non-interest bearing $ 227,263 $ 231,264
Interest bearing 1,764,949 1,782,624
------------- ------------
TOTAL DEPOSITS 1,992,212 2,013,888
Other liabilities 34,069 34,825
Short-term borrowings 131,795 112,230
Long-term debt 56,131 58,179
------------- ------------
TOTAL LIABILITIES 2,214,207 2,219,122
------------- ------------
STOCKHOLDERS' EQUITY
Preferred stock - $10 par value
Authorized - 20,000,000 shares
Issued - 290,000 and 352,531 shares
Aggregate liquidation value -
$7,250 and $8,813 2,900 3,525
Common stock - $2 par value
Authorized - 100,000,000 shares
Issued - 14,113,056 and 13,305,369 shares 28,226 26,611
Additional paid-in capital 116,858 101,445
Retained earnings 65,475 66,625
Net unrealized securities gains 4,145 2,566
Treasury stock - 89,379 and 62,723
shares at cost (2,765) (1,487)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 214,839 199,285
------------- ------------
$ 2,429,046 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- --------------------
1997 1996 1997 1996
---------- ---------- ---------- ---------
INTEREST INCOME
Loans, including fees $ 40,369 $ 39,039 $ 121,829 $ 114,763
Securities:
Taxable 6,200 5,651 18,702 17,848
Tax exempt 529 579 1,699 1,687
Dividends 271 176 814 525
Other 739 344 2,105 1,586
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME 48,108 45,789 145,149 136,409
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 18,406 17,214 55,223 51,566
Short-term borrowings 1,477 1,475 4,345 4,008
Long-term debt 1,023 609 2,630 1,996
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 20,906 19,298 62,198 57,570
---------- ---------- ---------- ----------
NET INTEREST INCOME 27,202 26,491 82,951 78,839
Provision for loan losses 2,382 1,850 8,140 5,517
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 24,820 24,641 74,811 73,322
---------- ---------- ---------- ----------
NON-INTEREST INCOME
Insurance commissions and fees 1,045 1,264 2,938 3,155
Service charges 2,997 2,168 8,751 7,557
Trust 360 384 1,216 1,150
Gain on sale of securities 420 205 859 788
Other 1,231 1,409 3,295 2,909
---------- ---------- ---------- ----------
TOTAL NON-INTEREST INCOME 6,053 5,430 17,059 15,559
---------- ---------- ---------- ----------
30,873 30,071 91,870 88,881
---------- ---------- ---------- ----------
NON-INTEREST EXPENSES
Salaries and employee benefits 10,660 10,296 34,698 31,136
Net occupancy 1,661 1,769 5,153 5,133
Equipment 1,603 1,417 4,863 4,441
Recapitalization of Savings
Association Insurance Fund 2,965 2,965
Other 5,451 6,866 21,579 20,577
---------- ---------- ---------- ----------
TOTAL NON-INTEREST EXPENSES 19,375 23,313 66,293 64,252
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 11,498 6,758 25,577 24,629
Income taxes 3,537 2,083 7,971 7,720
---------- ---------- ---------- ----------
INCOME BEFORE
EXTRAORDINARY ITEM 7,961 4,675 17,606 16,909
Gain on sale of subsidiary,
net of tax 5,227
---------- ---------- ---------- ----------
NET INCOME $ 7,961 $ 4,675 $ 22,833 $ 16,909
========== ========== ========== ==========
INCOME PER COMMON SHARE BEFORE
EXTRAORDINARY ITEM:
Primary $ 1.19
==========
Fully Diluted $ 1.17
==========
NET INCOME PER COMMON SHARE:
Primary $ .54 $ .32 $ 1.56 $ 1.16
========== ========== ========== ==========
Fully Diluted $ .53 $ .31 $ 1.52 $ 1.12
========== ========== ========== ==========
CASH DIVIDENDS PER COMMON SHARE $ .16 $ .15 $ .47 $ .45
========== ========== ========== ==========
AVERAGE COMMON
SHARES OUTSTANDING 14,018,037 13,865,367 13,981,369 13,819,924
========== ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Dollars in thousands
Unaudited
Nine Months Ended September 30 1997 1996
---------- ----------
OPERATING ACTIVITIES
Net income $ 22,833 $ 16,909
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,319 5,000
Provision for loan losses 8,140 5,517
Deferred taxes 1,307 (637)
Net gain on sale of securities (859) (788)
Net (gain) loss on sale of loans (1,069) 52
Extraordinary gain on sale
of subsidiary, net of tax (5,227)
Proceeds from sale of loans 21,440 21,621
Loans originated for sale (12,671) (17,816)
Net change in:
Interest receivable (1,888) 1,046
Interest payable 1,270 772
Other, net (1,793) 5,822
---------- ----------
Net cash flows from operating activities 36,802 37,498
---------- ----------
INVESTING ACTIVITIES
Net change in:
Interest bearing deposits with banks (1,333) 1,960
Federal funds sold (42,156) 38,716
Loans (122,504) (157,858)
Securities available for sale:
Purchases (157,866) (79,859)
Sales 27,238 45,144
Maturities 114,298 67,614
Securities held to maturity:
Purchases (6,325) (40,645)
Maturities 39,461 33,261
Increase in premises and equipment (14,617) (6,627)
Net cash paid for divestitures (5,976)
---------- ----------
Net cash flows from investing activities (169,780) (98,294)
---------- ----------
FINANCING ACTIVITIES
Net change in:
Non-interest bearing deposits 9,631 (6,980)
Interest bearing deposits 82,175 27,307
Short-term borrowings 20,675 69,460
Increase in long-term debt 24,234 8,016
Decrease in long-term debt (26,201) (24,844)
Net acquisition of treasury stock (1,819) (785)
Cash dividends paid (7,039) (5,160)
---------- ----------
Net cash flows from financing activities 101,656 67,014
---------- ----------
NET INCREASE (DECREASE) IN CASH
AND DUE FROM BANKS (31,322) 6,218
Cash and due from banks at beginning of period 107,476 90,656
---------- ----------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 76,154 $ 96,874
========== ==========
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 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. (WCBI) 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 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 affect 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 primary
earnings per share is replaced with basic earnings per share. Basic
earnings per share will be calculated by dividing income available to
common stockholders by the weighted average shares outstanding for the
period, without the dilutive effect of stock options. Diluted earnings per
share will replace fully diluted earnings per share, and will reflect the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that would share in net earnings.
The impact of FAS No. 128 on the calculations of primary and fully diluted
earnings per share is immaterial for the three month and nine month periods
ended September 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.
FAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the reporting of financial
information from operating segments in annual and interim financial
statements. It requires that financial information be reported on the
basis that it is reported internally for evaluating segment performance and
deciding how to allocate resources to segments. Because this statement
addresses how supplemental financial information is disclosed in annual and
interim reports, the adoption will have no material impact on the financial
statements. 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):
Nine months ended September 30 1997 1996
-------- --------
Cash paid for:
Interest $ 60,928 $ 56,779
Income taxes 6,287 7,895
Noncash Investing and Financing Activities:
Acquisition of real estate in settlement of loans 2,603 1,672
Loans granted in the sale of other real estate 1,188 319
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. Results
for 1996 are restated to reflect this acquisition as a pooling-of-
interests.
The Corporation completed its merger with WCBI, a bank holding
company headquartered in Cape Coral, Florida, effective April 18, 1997.
Under the terms of the merger agreement, each outstanding share of WCBI'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 WCBI for the nine
months ended September 30, 1996, prior to restatement are (in thousands):
F.N.B.
Corporation Southwest WCBI Combined
----------- --------- --------- -----------
Net interest income $ 60,237 $13,136 $ 5,466 $78,839
Net income 13,446 2,616 847 16,909
<PAGE>
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 common stock, having an estimated
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 a $5.2
million after-tax extraordinary gain. The Corporation has reflected its
original ownership interest as well as subsequent purchases of Sun common
stock as an equity investment included in other assets. At September 30,
1997, the Corporation's investment in Sun had a market value totaling $20.7
million and a cost basis totaling $19.4 million. The Corporation
recognized equity earnings from Sun totaling $325,000 for the three months
ended September 30, 1997.
The Corporation completed its merger with Indian Rocks State Bank
(Indian Rocks), a community bank headquartered in Largo, Florida, effective
October 17, 1997. Under the terms of the merger agreement, each
outstanding share of Indian Rocks common stock was converted into 1.8
shares of the Corporation's common stock with cash being paid in lieu of
fractional shares. A total of 630,000 shares of the Corporation's common
stock were issued. The merger has been accounted for as a pooling-of-
interests, except that financial statements will not be restated due to
immateriality.
On July 29, 1997, the Corporation signed a definitive merger
agreement with Mercantile Bank of Southwest Florida (Mercantile), a $120
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. The Corporation has
received all of the necessary approvals and 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 November of 1997.
On August 13, 1997, the Corporation signed a definitive merger
agreement with West Coast Bank (West Coast), a $100 million state chartered
bank with two offices in Sarasota County, Florida. Under the terms of the
agreement, the Corporation will exchange the Corporation's common stock for
all of the outstanding common stock of West Coast. The exchange ratio,
which is based upon the average price of the Corporation's common stock
prior to closing, ranges from 1 to 1.1 shares of the Corporation's common
stock for each share of West Coast common stock. At September 30, 1997,
West Coast had 579,063 shares of common stock outstanding. The
transaction, which will be accounted for as a pooling-of-interests, is
expected to close during the first quarter of 1998.
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 $28.0 million was unused at
September 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.
<PAGE>
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, caused from
differences in the dollar amount of interest earning assets and interest
bearing liabilities repricing within a given period of time, 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 amortization, maturity
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 positive. Assuming no restructuring or modifications to
asset/liability composition, an increase in interest rates would result in
an increase in net interest income, over a one year period. Likewise, a
decrease in interest rates would result in a decrease in net interest
income over a one year period. Fluctuations in net interest income are
dependent on asset/liability composition, which is influenced by
competitive factors.
Following is the gap analysis as of September 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 $ 2,645 $ 2,645
Federal funds sold 48,581 48,581
Loans held for sale 1,469 1,469
Securities:
Available for sale 23,956 $ 54,069 $ 209,932 $ 49,410 337,367
Held to maturity 14,188 30,245 76,364 9,213 130,010
Loans, net of unearned 527,178 432,799 630,921 148,380 1,739,278
--------- --------- --------- ---------- ----------
618,017 517,113 917,217 207,003 2,259,350
Other assets 169,696 169,696
--------- --------- --------- ---------- ----------
$ 618,017 $ 517,113 $ 917,217 $ 376,699 $2,429,046
========= ========= ========= ========== ==========
INTEREST BEARING LIABILITIES
Deposits:
Interest checking $ 90,308 $ 187,976 $ 278,284
Savings 184,613 331,951 516,564
Time deposits 270,319 $ 369,421 $ 327,366 2,995 970,101
Short-term borrowings 91,613 10,276 29,906 131,795
Long-term debt 6,547 4,245 25,279 20,060 56,131
--------- --------- --------- ---------- ----------
643,400 383,942 352,645 572,888 1,952,875
Other liabilities 261,332 261,332
Stockholders' equity 214,839 214,839
--------- --------- --------- ---------- ----------
$ 643,400 $ 383,942 $ 352,645 $1,049,059 $2,429,046
========= ========= ========= ========== ==========
PERIOD GAP $ (25,383)$ 133,171 $ 564,572 $ (672,360)
========= ========= ========= ==========
CUMULATIVE GAP $ (25,383)$ 107,788 $ 672,360
========= ========= =========
CUMULATIVE GAP AS
A PERCENT OF
TOTAL ASSETS (1.0%) 4.4% 27.7%
========= ========= =========
RATE SENSITIVE ASSETS/RATE
SENSITIVE LIABILITIES
(CUMULATIVE) 0.96 1.10 1.49 1.16
========= ========= ========= ==========
<PAGE>
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.
Capital management is a continuous process. Since December 31, 1996,
stockholders' equity has increased $15.8 million as a result of earnings
retention. For the nine months ended September 30, 1997, the return on
average equity was 14.86%. Total cash dividends declared represented
30.83% of net income. Book value per common share was $14.80 at September
30, 1997, compared to $13.70 at December 31, 1996.
LOANS
Following is a summary of loans (dollars in thousands):
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ -----------
Real estate:
Residential $ 726,838 $ 682,600
Commercial 391,883 421,057
Construction 55,508 41,661
Installment loans to individuals 325,355 395,628
Commercial, financial and agricultural 215,936 189,411
Lease financing 41,909 21,538
Unearned income (18,151) (23,763)
---------- ----------
$1,739,278 $1,728,132
========== ==========
During the third quarter, the Corporation significantly reduced its
exposure to sub-prime motor vehicle loans as approximately $16.3 million of
such loans were sold to a third party. The sale resulted in the
Corporation recognizing an after-tax loss of $250,000, after reducing the
allowance for loan losses by $2.5 million.
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.
<PAGE>
Following is a summary of non-performing assets (dollars in
thousands):
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
Non-performing assets:
Non-accrual loans $ 7,256 $ 9,571
Restructured loans 1,842 2,146
------- -------
Total non-performing loans 9,098 11,717
Other real estate owned 4,060 7,039
------- -------
Total non-performing assets $13,158 $18,756
======= =======
Asset quality ratios:
Non-performing loans as percent of total loans .53% .68%
Non-performing assets as percent of total assets .54% .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. Losses are recognized where appropriate.
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 Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
Balance at beginning of period $ 28,075 $ 25,343 $ 27,800 $ 24,250
Reduction arising from the sale
of a subsidiary (1,443)
Reduction arising from the sale
of loans (2,479) (2,479)
Charge-offs (2,497) (2,076) (7,261) (5,548)
Recoveries 283 346 1,007 1,244
-------- -------- -------- --------
Net charge-offs (2,214) (1,730) (6,254) (4,304)
Provision for loan losses 2,382 1,850 8,140 5,517
-------- -------- -------- --------
Balance at end of period $ 25,764 $ 25,463 $ 25,764 $ 25,463
======== ======== ======== ========
Allowance for loan losses to:
Total loans, net of unearned income 1.49% 1.50%
Non-performing loans 283.18% 233.99%
The increase in the level of charge-offs and the provision for loan
losses during 1997 resulted primarily from the consistent application of
the Corporation's charge-off policy and methodology for determining the
adequacy of the allowance for loan losses to WCBI.
<PAGE>
REGULATORY MATTERS
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 September 30,
1997, that the Corporation and each of its banking subsidiaries meet all
capital adequacy requirements to which they are subject.
As of June 30, 1997, the Corporation and each of its banking
subsidiaries have been categorized as "well capitalized" under the
regulatory framework for prompt corrective action. Following are capital
ratios as of September 30, 1997 for the Corporation (dollars in thousands):
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purpose Action Provisions
----------------- ---------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------- -------- ------- --------- -------
Total Capital $240,175 14.3% $ 134,700 8.0% $ 168,375 10.0%
(to risk-
weighted assets)
Tier 1 Capital 209,069 12.4% 67,350 4.0% 101,025 6.0%
(to risk-
weighted assets)
Tier 1 Capital 209,069 8.7% 95,658 4.0% 119,573 5.0%
(to average assets)
The Corporation and its banking subsidiaries are subject to various
regulatory capital requirements administered by the state and federal
banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and 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.
FINANCIAL INFORMATION SUMMARY
Net income for the first nine months of 1997 was $22.8 million
compared to $16.9 million for the first nine months of 1996. Primary
earnings per share for those periods were $1.56 and $1.16, respectively,
and $1.52 and $1.12 on a fully diluted basis. Highlights for the first
nine months of 1997 include:
o Recognition of a $5.2 million after tax extraordinary gain on the
sale of the Corporation's former wholly-owned subsidiary, Bucktail
Bank and Trust Company.
o Recognition of $4.7 million in merger costs, severance payments
and other non-recurring charges.
o Recurring net income, which excludes all merger costs and other
non-recurring charges and the extraordinary gain on the sale of
Bucktail in 1997 and the one-time charge of $1.9 million, net of
tax, to recapitalize the Savings Association Insurance Fund in
1996, totaled $21.9 million and $18.8 million for the first nine
months of 1997 and 1996, respectively, providing a return on
average assets of 1.20% in 1997 and 1.10% in 1996 and a return
on average equity of 14.24% in 1997 and 13.06% in 1996.
o Net interest margin on a fully taxable equivalent basis of 4.95%,
as compared to 5.06% during the first nine months of 1996.
o A 7.68% increase in net interest earning assets.
o A 9.12% increase in commissions, fees and service charges.
<PAGE>
FIRST NINE MONTHS OF 1997 AS COMPARED TO FIRST NINE 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):
Nine Months Ended
September 30 1997 1996
--------------------------- ---------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
--------- ---------- ------ ---------- ---------- ------
ASSETS
Interest earning
assets:
Interest bearing
deposits with
banks $ 2,281 $ 104 6.08% $ 3,664 $ 156 5.68%
Federal funds
sold 48,376 2,001 5.52 34,477 1,430 5.53
Securities:
U.S. Treasury
and other U.S.
Government
agencies and
corporations 398,878 18,702 6.27 389,208 17,848 6.13
States of the
U.S. and
political sub-
divisions (1) 54,568 2,405 5.88 53,872 2,357 5.83
Other
securities (1) 21,308 885 5.54 18,758 634 4.51
Loans (1) (2) 1,755,336 122,569 9.34 1,625,684 115,608 9.50
---------- -------- ---------- --------
Total
interest
earning
assets 2,280,747 146,666 8.60 2,125,663 138,033 8.67
---------- -------- ---------- --------
Cash and due
from banks 73,342 83,389
Allowance for
loan losses (28,698) (25,055)
Premises and
equipment 49,836 42,714
Other assets 55,668 51,731
---------- ----------
$2,430,895 $2,278,442
========== ==========
LIABILITIES
Interest bearing
liabilities:
Deposits:
Interest
bearing
demand $ 303,279 $ 5,454 2.40 $ 324,215 $ 4,455 1.84
Savings 542,253 10,737 2.65 462,937 9,841 2.84
Other time 953,767 39,032 5.47 912,998 37,270 5.45
Short-term
borrowings 119,816 4,345 4.85 96,851 4,008 5.53
Long-term debt 45,913 2,630 7.64 35,183 1,996 7.56
---------- -------- ---------- --------
Total interest
bearing
liabilities 1,965,028 62,198 4.23 1,832,184 57,570 4.20
---------- -------- ---------- --------
Non-interest
bearing demand
deposits 226,682 217,448
Other
liabilities 33,814 36,112
---------- ----------
2,225,524 2,085,744
========== ==========
STOCKHOLDERS'
EQUITY 205,371 192,698
---------- ----------
$2,430,895 $2,278,442
========== ==========
Net interest
earning
assets $ 315,719 $ 293,479
========== ==========
Net interest income $ 84,468 $ 80,463
======== ========
Net interest spread 4.37% 4.47%
====== ======
Net interest margin (3) 4.95% 5.06%
====== ======
(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 nine months of 1997, net interest income,
on a fully taxable equivalent basis, totaled $84.5 million, representing a
4.98% increase over the first nine months of 1996. Net interest income
consisted of interest income of $146.7 million and interest expense of
$62.2 million for the first nine months of 1997 compared to $138.0 million
and $57.6 million for each, respectively, for the first nine months of
1996. Net interest margin fell to 4.95% at September 30, 1997 from 5.06%
at September 30, 1996, as the yield on total interest earning assets
declined by 7 basis points as compared to a 3 basis point increase in cost
of funds. Strong competitive factors resulted in a 16 basis point decrease
in the average yield on loans. Changes in deposit and borrowing mix were
the primary factor in the increase 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 nine
months ending September 30, 1997 as compared to the nine months ending
September 30, 1996 (in thousands):
Volume Rate Net
------- ------- -------
INTEREST INCOME
Interest bearing deposits with banks $ (66) $ 14 $ (52)
Federal funds sold 574 (3) 571
Securities:
U.S. Treasury and other U.S. Government
agencies and corporations 445 409 854
States of the U.S. and political
subdivisions 31 17 48
Other securities 94 157 251
Loans 8,825 (1,864) 6,961
------- ------- -------
9,903 (1,270) 8,633
------- ------- -------
INTEREST EXPENSE
Deposits:
Interest bearing demand (263) 1,262 999
Savings 1,470 (574) 896
Other time 1,628 134 1,762
Short-term borrowings 700 (363) 337
Long-term debt 613 21 634
------- ------- -------
4,148 480 4,628
------- ------- -------
NET CHANGE $ 5,755 $(1,750) $ 4,005
======= ======== =======
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 net size of the rate and volume changes.
Interest income on loans, on a fully taxable equivalent basis,
increased 6.02% from $115.6 million for the nine months ended September 30,
1996 to $122.6 million for the nine months ended September 30, 1997. This
increase was the result of an increase in average loans of 7.98% over this
same period last year.
Interest expense on deposits increased $3.7 million or 7.09% for the
nine months ended September 30, 1997, compared to the nine months ended
September 30, 1996. This increase was the result of an increase in average
deposits of 5.83% over this same nine month period. The average balance in
savings and time deposits increased $120.1 million as the average balance
in interest bearing demand deposits decreased by $20.9 million. Interest
expense on short-term borrowings increased $337,000 or 8.41% for these same
periods due to an increase in average short-term borrowings of 23.71%,
which was partially offset by a decline in rate paid of 68 basis points.
<PAGE>
The provision for loan losses totaled $8.1 million for the first nine
months of 1997, as compared to $5.5 million for the first nine months of
1996. In connection with the Corporation's acquisition of WCBI, the
Corporation recognized an additional provision for loan losses of $1.7
million after applying the Corporation's allowance for loan loss policy and
methodology for evaluating the adequacy of the allowance to WCBI.
Non-interest income increased by 9.64% during the first nine months
of 1997 as compared to the first nine months of 1996, primarily due to an
increase of 9.12% in service charges and other fees.
Total non-interest expenses increased 3.18% during the first nine
months of 1997, compared to the first nine months of 1996. The majority of
this increase resulted from recognition of various non-recurring items
including $2.2 million in merger related costs and $2.5 million in
severance payments. During the nine month period ended September 30, 1996,
the Corporation was assessed a one-time non-recurring charge of $3.0
million in order to recapitalize the SAIF. Excluding these non-recurring
items from both the nine month periods ended September 30, 1997 and 1996
resulted in non-interest expense remaining relatively flat.
Income tax expense for the nine months ended September 30, 1997
totaled $8.0 million, providing an effective tax rate of 31.16% compared to
31.35% for the nine months ended September 30, 1996.
Consolidated net income before extraordinary items was $17.6 million
for the first nine months of 1997, representing a $697,000 or 4.12%
increase over the first nine months of 1996.
THIRD QUARTER OF 1997 AS COMPARED TO THIRD QUARTER OF 1996:
During the third quarter of 1997, net interest income increased
$711,000 or 2.68% over the third quarter of 1996. Total interest income
increased $2.3 million or 5.06%, primarily the result of an increase in
loan volume. Total interest expense increased $1.6 million or 8.33% during
the third quarter of 1997, compared to the same period of 1996. Interest
expense on deposits accounted for the majority of this increase, $1.2
million, due to an increase in average deposits.
The provision for loan losses totaled $2.4 million for the third
quarter of 1997, as compared to $1.9 million for the third quarter of 1996.
The increase in the provision corresponds to the increase in lending
activity coupled with the Corporation's exit from sub-prime motor vehicle
lending.
Non-interest income increased 11.47% during the third quarter of 1997
compared to the same period of 1996. Total non-interest expenses decreased
4.78% during the third quarter of 1997, compared to the third quarter of
1996, after excluding the one-time assessment of $3.0 million in 1996 to
recapitalize the SAIF. This decrease in recurring non-interest expenses
was attributable to expenses in 1996 relating to the Corporation's wholly-
owned subsidiary, Bucktail which was sold in June of 1997.
Income tax expense totaled $3.5 million during the quarter providing
an effective tax rate of 30.76% compared to 30.82% in 1996. Net income
totaled $8.0 million for the third quarter of 1997, compared to $4.7
million for the third quarter of 1996. Excluding the impact of the non-
recurring items, net income totaled $6.6 million for the third quarter of
1996.
<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
Not applicable
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
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
--------- -------- --------- ---------
PRIMARY
Net Income $ 7,961 $ 4,675 $ 22,833 $ 16,909
Less: Preferred Stock
Dividends
Declared (139) (186) (454) (595)
---------- ---------- ---------- ----------
Net Income
Applicable to
Common Stock $ 7,822 $ 4,489 $ 22,379 $ 16,314
========== ========== ========== ==========
Average Common Shares
Outstanding 14,018,037 13,865,367 13,981,369 13,819,924
Net Effect of Dilutive
Stock Options and
Stock Warrants -
Based on the
Treasury Stock
Method Using Average
Market Price 400,924 309,581 372,528 303,780
---------- ---------- ---------- ----------
14,418,961 14,174,948 14,353,897 14,123,704
========== ========== ========== ==========
Net Income per
Common Share $.54 $.32 $1.56 $1.16
==== ==== ===== =====
FULLY DILUTED
Net Income Applicable
to Common Stock $ 7,961 $ 4,675 $ 22,833 $ 16,909
========== ========== ========== ==========
Average Common Shares
Outstanding 14,018,037 13,865,367 13,981,369 13,819,924
Series A Convertible
Preferred Stock 17,391 27,581 17,391 27,581
Series B Convertible
Preferred Stock 593,700 804,861 630,638 881,339
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 407,249 309,899 407,061 303,780
---------- --------- --------- ---------
15,036,377 15,007,708 15,036,459 15,032,624
========== ========== ========== ==========
Net Income per
Common Share $.53 $.31 $1.52 $1.12
==== ==== ===== =====
<PAGE>
27. Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Corporation
during the three months ended September 30, 1997.
<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: 11/4/97 /s/ Peter Mortensen
------------------------------ -----------------------------
Peter Mortensen
Chairman and President
(Principal Executive Officer)
Dated: 11/4/97 /s/ John D. Waters
------------------------------ -----------------------------
John D. Waters
Vice President and Chief
Financial Officer
(Principal Financial Officer)
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