SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Date of Report: February 13, 1998
F.N.B. CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 0-8144 25-1255406
----------------------- ------------- -----------------
(State of Incorporation) (Commission (IRS Employer
File Number) Identification No.)
One F.N.B. Blvd., Hermitage, Pennsylvania 16148
------------------------------------------ --------
(Address of principal executive offices) (Zip code)
(724) 981-6000
----------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
On January 20, 1998, F.N.B. Corporation (the Corporation) completed its
acquisition of West Coast Bank. Accordingly, the Corporation's Consolidated
Financial Statements and Related Management's Discussion and Analysis of
Financial Condition and Results of Operations have been provided giving
retroactive effect to this merger using the pooling of interests method of
accounting. Such supplemental consolidated financial statements will become
the historical consolidated financial statements when the Corporation reports
first quarter 1998 results. The Corporation is hereby filing with the
Securities and Exchange Commission a copy of the Audited Supplemental
Consolidated Financial Statements for the years ended December 31, 1996, 1995
and 1994 and Management's Discussion and Analysis.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(C). Exhibits (all filed herewith)
Exhibit 23.1 Consent of Ernst & Young LLP
Exhibit 23.2 Consent of Hill, Barth & King, Inc.
Exhibit 23.3 Consent of Coopers & Lybrand L.L.P.
Exhibit 99.1 Audited Supplemental Consolidated Financial
Statements for the years December 31, 1996,
1995 and 1994 with Report of Independent
Auditors and Management's Discussion and
Analysis
Exhibit 99.2 Report of Independent Auditors Hill, Barth
& King, Inc. for the 1996, 1995 and 1994
Audits of Southwest Banks, Inc.
Exhibit 99.3 Report of Independent Auditors Coopers &
Lybrand, L.L.P. for the 1996 and 1995
Audits of West Coast Bancorp, Inc.
Exhibit 99.4 Report of Independent Auditors Coopers &
Lybrand, L.L.P. for the 1995 and 1994
Audits of West Coast Bancorp, Inc.
<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 hereunto duly authorized.
F.N.B. CORPORATION
(Registrant)
By: /s/John D. Waters
------------------------------
Name: John D. Waters
Title: Vice President and
Chief Financial Officer
Dated: February 13, 1998
<PAGE>
EXHIBIT INDEX
23.1 Consent of Ernst & Young LLP
23.2 Consent of Hill, Barth & King, Inc.
23.3 Consent of Coopers & Lybrand L.L.P.
99.1 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
99.2 Report of Independent Auditors Hill, Barth & King, for the 1996,
1995 and 1994 Audits of Southwest Banks, Inc.
99.3 Report of Independent Auditors Coopers & Lybrand L.L.P. 1996 and
1995 Audits of West Coast Bancorp, Inc.
99.4 Report of Independent Auditors Coopers & Lybrand L.L.P. 1995 and
1994 Audits of West Coast Bancorp, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Regarding:
1) Registration Statement on Form S-8 relating to the F.N.B. Corporation
Voluntary Dividend Reinvestment and Stock Purchase Plan (File #333-
00943).
2) Registration Statement on Form S-8 relating to F.N.B. Corporation
1990 Stock Option Plan (File #33-78114).
3) Registration Statement on Form S-8 relating to F.N.B. Corporation
Restricted Stock Bonus Plan (File #33-78134).
4) Registration Statement on Form S-8 relating to F.N.B. Corporation
1996 Stock Option Plan (File #333-03489).
5) Registration Statement on Form S-8 relating to F.N.B. Corporation
Restricted Stock and Incentive Bonus Plan (File #333-03493).
6) Registration Statement on Form S-8 relating to F.N.B. Corporation
Directors Compensation Plan (File #333-03495).
7) Registration Statement on Form S-8 relating to F.N.B. Corporation
401(k) Plan (File #333-03503).
8) Post-Effective Amendment No.1 on Form S-8 to Registration Statement
on Form S-4 (File #333-01997).
9) Post-Effective Amendment No.1 on Form S-8 to Registration Statement
on Form S-4 (File #333-22909).
10) Registration Statement on Form S-3 relating to the F.N.B. Corporation
Subordinated Notes and Daily Cash Accounts (File #333-31909).
11) Registration Statement on Form S-3 relating to the Voluntary Dividend
Reinvestment and Stock Purchase Plan (File #333-35637).
12) Registration Statement on Form S-8 relating to stock options assumed
in the acquisition of Mercantile Bank of Southwest Florida (File
#333-42333).
We consent to the incorporation by reference in the above listed
Registration Statements of our report dated February 13, 1998, with respect
to the supplemental consolidated financial statements of F.N.B. Corporation
and subsidiaries as of December 31, 1996 and 1995 and for each of the three
years in the period ended December 31, 1996 included in this Current Report
on Form 8-K.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
February 13, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF HILL, BARTH & KING, INC., INDEPENDENT AUDITORS
We consent to the use in this Current Report of F.N.B.Corporation on
Form 8-K of our report dated January 22, 1997, relating to the consolidated
financial statements of Southwest Banks, Inc. which have been incorporated
into the Audited Supplemental Consolidated Financial Statements for the years
ended December 31, 1996, 1995 and 1994 appearing elsewhere in this Current
report.
Hill, Barth & King, Inc.
Certified Public Accountants
Naples, Florida
February 12, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of F.N.B. Corporation on Forms S-3 (Registration Nos. 333-31909 and 333-35637)
and Forms S-8 (Registration Nos. 333-00943, 33-78114, 33-78134, 333-03489,
333-03493, 333-3495, 333-03503, 333-01997, 333-22909 and 333-42333) of our
reports dated January 24, 1997 and January 19, 1996, on our audits of the
consolidated financial statements of West Coast Bancorp, Inc. for the years
ended December 31, 1996 and 1995, and the year ended December 31, 1994,
respectively, which reports are included as exhibits in F.N.B. Corporation's
Current Report on Form 8-K.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
February 13, 1998
<PAGE>
EXHIBIT 99.1
Supplemental Consolidated Financial Statements
and Management's Discussion and Analysis
F.N.B. Corporation and Subsidiaries
Years ended December 31, 1996, 1995 and 1994
with Report of Independent Auditors
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
AND MANAGEMENT'S DISCUSSION AND ANALYSIS
Years ended December 31, 1996, 1995 and 1994
CONTENTS
Report of Independent Auditors ................................ 1
Supplemental Consolidated Financial Statements
Supplemental Consolidated Balance Sheet ............ 2
Supplemental Consolidated Income Statement ......... 3
Supplemental Consolidated
Statement of Stockholders' Equity ............... 4
Supplemental Consolidated
Statement of Cash Flows ......................... 5
Notes to Supplemental Consolidated
Financial Statements ............................ 6
Supplemental Selected Financial Data ......................... 28
Supplemental Quarterly Earnings Summary ...................... 29
Management's Discussion and Analysis of
Financial Conditions and Results of Operations ........... 30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
F.N.B. Corporation
We have audited the supplemental consolidated balance sheets of F.N.B.
Corporation and subsidiaries (F.N.B. Corporation) as of December 31, 1996 and
1995 and the related supplemental consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. The supplemental consolidated financial statements
give retroactive effect to the merger of F.N.B. Corporation and West Coast Bank
on January 20, 1998, which has been accounted for using the pooling of interests
method as described in the notes to the supplemental consolidated financial
statements. These supplemental consolidated financial statements are the
responsibility of the management of F.N.B. Corporation. Our responsibility is
to express an opinion on these supplemental consolidated financial statements
based on our audits. We did not audit the financial statements of Southwest
Banks, Inc. and subsidiaries or West Coast Bancorp, Inc. and subsidiary which
statements reflect total assets constituting approximately 28% for 1996 and 23%
for 1995 of the related supplemental consolidated financial statement totals,
and which reflect net income constituting approximately 10% of the related
supplemental consolidated financial statement totals for the three year period
ended December 31, 1996. Those statements were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar as it relates
to data included for Southwest Banks, Inc. and subsidiaries and West Coast
Bancorp, Inc. and subsidiary, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
supplemental consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of F.N.B.
Corporation at December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, after giving retroactive effect to the merger of West
Coast Bank, as described in the notes to the supplemental consolidated financial
statements, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
February 13, 1998
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
Dollars in thousands, except par values
December 31 1996 1995
---------- ----------
ASSETS
Cash and due from banks................... $ 111,542 $ 97,239
Interest bearing deposits with banks...... 1,334 4,699
Federal funds sold........................ 11,510 66,139
Loans held for sale....................... 10,088 16,583
Securities available for sale............. 327,259 289,157
Securities held to maturity (fair
value of $173,677 and $174,546)......... 174,551 174,483
Loans, net of unearned income
of $23,846 and $27,377.................. 1,794,576 1,607,782
Allowance for loan losses................. (28,649) (24,967)
--------- ---------
NET LOANS............................... 1,765,927 1,582,815
Premises and equipment.................... 49,296 43,152
Other assets.............................. 51,073 47,512
---------- ----------
$2,502,580 $2,321,779
========== ==========
LIABILITIES
Deposits:
Non-interest bearing.................... $ 244,844 $ 242,607
Interest bearing........................ 1,841,008 1,727,589
--------- ---------
TOTAL DEPOSITS 2,085,852 1,970,196
Other liabilities......................... 35,229 30,235
Short-term borrowings..................... 116,126 75,716
Long-term debt............................ 58,179 50,784
--------- ---------
TOTAL LIABILITIES..................... 2,295,386 2,126,931
STOCKHOLDERS' EQUITY
Preferred stock - $10 par value
Authorized - 20,000,000 shares
Outstanding - 352,531 and 451,638
shares Aggregate liquidation
value - $8,813 and $11,291............... 3,525 4,516
Common Stock - $2 par value
Authorized - 100,000,000 shares
Outstanding - 13,879,872 and 13,272,588.. 27,760 26,545
Additional paid-in capital................. 103,467 94,118
Retained earnings.......................... 71,353 67,300
Net unrealized securities gains............ 2,576 3,222
Employee Stock Ownership Plan.............. 0 (389)
Treasury stock - 62,723 and 22,340
shares at cost.......................... (1,487) (464)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY............. 207,194 194,848
---------- ----------
$2,502,580 $2,321,779
========== ==========
See accompanying Notes to Supplemental Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED INCOME STATEMENT
Dollars in thousands, except per share data
Year Ended December 31 1996 1995 1994
--------- --------- ---------
INTEREST INCOME
Loans, including fees................... $ 160,315 $ 149,869 $ 127,723
Securities:
Taxable............................... 23,364 22,993 22,151
Tax exempt............................ 2,261 1,939 1,910
Dividends............................. 1,097 928 700
Other................................... 2,766 2,885 1,499
--------- --------- ---------
TOTAL INTEREST INCOME............... 189,803 178,614 153,983
INTEREST EXPENSE
Deposits................................ 71,747 68,412 54,459
Short-term borrowings................... 3,915 5,457 4,116
Long-term debt.......................... 4,384 3,258 2,869
--------- --------- ---------
TOTAL INTEREST EXPENSE.............. 80,046 77,127 61,444
NET INTEREST INCOME................. 109,757 101,487 92,539
Provision for loan losses............... 9,876 7,235 9,241
--------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES........... 99,881 94,252 83,298
NON-INTEREST INCOME
Insurance commissions and fees.......... 4,116 4,284 4,195
Service charges......................... 11,740 11,037 8,914
Trust................................... 1,461 1,390 1,504
Gain on sale of securities.............. 787 493 1,225
Gain on sale of loans................... 772 585 167
Other................................... 2,150 2,095 1,739
-------- --------- ---------
TOTAL NON-INTEREST INCOME........... 21,026 19,884 17,744
-------- --------- ---------
120,907 114,136 101,042
NON-INTEREST EXPENSES
Salaries and employee benefits.......... 42,732 39,187 35,494
Net occupancy........................... 6,931 6,821 6,057
Amortization of intangibles............. 1,047 1,246 1,705
Equipment............................... 6,436 5,768 5,604
Professional service fees............... 4,431 3,855 3,836
Deposit insurance....................... 972 3,159 4,538
Recapitalization of Savings
Association Insurance Fund............ 2,752
Promotional............................. 2,618 3,226 2,696
Insurance claims paid................... 1,707 1,738 1,820
Other................................... 19,735 16,144 15,137
--------- --------- ---------
TOTAL NON-INTEREST EXPENSES......... 89,361 81,144 76,887
--------- --------- ---------
INCOME BEFORE INCOME TAXES.......... 31,546 32,992 24,155
Income taxes............................ 10,549 10,870 8,060
--------- --------- ---------
NET INCOME.......................... $ 20,997 $ 22,122 $ 16,095
========= ========= =========
NET INCOME PER COMMON SHARE
BASIC............................... $1.38 $1.47 $1.08
===== ===== =====
DILUTED............................. $1.34 $1.42 $1.06
===== ===== =====
AVERAGE COMMON SHARES
OUTSTANDING............................. 14,634,868 14,512,111 14,075,942
========== ========== ==========
See accompanying Notes to Supplemental Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Dollars in thousands, except per share data
<TABLE>
<C> <C> <C> <C> <C> <C> <C>
Net Employee
Addt'l Unrealized Stock
Preferred Common Paid-In Retained Securities Ownership Treasury
Stock Stock Capital Earnings Gain/Loss Plan Stock
--------- -------- -------- -------- ---------- --------- --------
<S>
Balance at
January 1,1994 $ 4,582 $ 22,220 $ 68,877 $ 51,535 ($227)
Cumulative
effect of
adoption of
FAS No. 115.... $ 2,163
Net income 16,095
Cash dividends
declared:
Preferred stock (853)
Common stock
$.23 per share
(FNB) and $.17
per share (WCBI) (2,563)
Purchase of
common stock.... (1,143)
Issuance
(retirement) of
common stock.... 2,339 11,449 3 1,061
Stock dividend... 887 5,745 (6,634)
Conversion of
preferred stock. (19) 9 24
Obligation under
ESOP plan....... ($141)
Change in net
unrealized
securities
gains/losses.... (2,858)
------- -------- -------- -------- --------- --------- ---------
BALANCE AT
DECEMBER 31,
1994............. 4,563 25,455 86,095 57,583 (695) (141) (309)
Net income....... 22,122
Cash dividends
declared:
Preferred stock. (849)
Common stock
$.33 per share
(FNB) and $.20
per share (WCBI) (3,489)
Purchase of
common stock.... (1,447)
Issuance
(retirement) of
common stock.... 75 389 1,292
Stock dividend.. 930 7,132 (8,067)
Conversion of
preferred stock. (47) 85 502
Obligation under
ESOP plan....... (248)
Change in net
unrealized
securities
gains/losses... 3,917
BALANCE AT
DECEMBER 31, ------- -------- -------- -------- --------- -------- ---------
1995............ 4,516 26,545 94,118 67,300 3,222 (389) (464)
Net income...... 20,997
Cash dividends
declared:
Preferred
stock.......... (766)
Common stock
$.60 per share
(FNB) and $.23
per share
(WCBI)......... (6,123)
Purchase of
common stock.... (3,421)
Issuance
(retirement) of
common stock.... (44) (438) 2,398
Stock dividend.. 860 9,195 (10,055)
Conversion of
preferred stock. (991) 399 592
Obligation under
ESOP plan....... 389
Change in net
unrealized
securities
gains/losses.... (646)
-------- -------- -------- -------- -------- ------- ---------
BALANCE AT
DECEMBER 31,
1996............$ 3,525 $ 27,760 $103,467 $ 71,353 $ 2,576 $ 0 ($1,487)
======== ======== ======== ======== ======== ======= =========
</TABLE>
See accompanying Notes to Supplemental Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
Dollars in thousands
Year Ended December 31 1996 1995 1994
-------- -------- --------
OPERATING ACTIVITIES
Net income............................... $ 20,997 $ 22,122 $ 16,095
Adjustments to reconcile
net income to net cash provided
by operating activities:
Depreciation and amortization........ 6,257 6,520 7,360
Provision for loan losses............ 9,876 7,235 9,241
Provision for valuation allowance
on other real estate owned......... 664 100 31
Deferred taxes....................... (1,783) (704) (1,601)
Gain on securities available
for sale........................... (787) (493) (1,225)
(Gain) loss on sale of loans......... (772) (585) (167)
Gain on sale of premises
and equipment...................... (243)
Proceeds from sale of loans.......... 59,802 60,067 76,204
Loans originated for sale............ (52,535) (64,373)(106,606)
Net change in:
Interest receivable................ 1,318 (1,718) (1,337)
Interest payable................... 611 1,983 1,282
Other, net........................... 6,426 5,871 7,202
------- -------- -------
Net cash flows from
operating activities............. 50,074 35,782 6,479
INVESTING ACTIVITIES
Net change in:
Interest bearing deposits
with banks........................... 3,365 (334) 3,446
Federal funds sold..................... 54,629 (48,133) 15,715
Loans.................................. (198,649) (106,709)(127,740)
Purchase of securities
available for sale..................... (188,920) (130,887)(109,761)
Purchase of securities held to
maturity............................... ( 41,862) (45,264) (41,036)
Proceeds from sale of securities
available for sale..................... 42,171 7,555 15,989
Proceeds from maturity of securities
available for sale..................... 108,395 90,495 100,285
Proceeds from maturity of securities
held to maturity....................... 41,678 76,474 69,327
Increase in premises and equipment....... (11,645) (7,277) (12,051)
-------- -------- -------
Net cash flows from
investing activities.............. (190,838) (164,080) (85,826)
FINANCING ACTIVITIES
Net change in:
Non-interest bearing deposits.......... 2,237 22,269 13,631
Interest bearing deposits.............. 113,419 142,078 26,619
Short-term borrowings.................. 40,409 (14,065) 16,979
Increase in long-term debt............... 32,899 9,274 36,312
Decrease in long-term debt............... (25,504) (15,104) (15,226)
Proceeds from the sale and
issuance of stock...................... 1,917 1,756 14,867
Purchase of treasury stock............... (3,421) (1,447) (1,143)
Cash dividends paid...................... (6,889) (4,343) (3,419)
------- -------- -------
Net cash flows from
financing activities.............. 155,067 140,418 88,620
------- -------- -------
NET INCREASE IN CASH
AND CASH EQUIVALENTS................... 14,303 12,120 9,273
Cash and Cash Equivalents
At Beginning Of Year................... 97,239 85,119 75,846
-------- -------- --------
CASH AND CASH EQUIVALENTS
AT END OF YEAR......................... $111,542 $ 97,239 $ 85,119
======== ======== ========
See accompanying Notes to Supplemental Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The supplemental consolidated financial statements give retroactive effect to
the merger of West Coast Bank (West Coast) with and into F.N.B. Corporation (the
Corporation). The merger was consummated on January 20, 1998 and resulted in
the Corporation issuing a total of 584,063 shares of common stock. The
transaction has been accounted for on a pooling-of-interests basis, and the
financial statements are presented as if the merger had been consummated for all
the periods presented. As required by generally accepted accounting principles,
the supplemental consolidated financial statements will become the historical
consolidated financial statements upon issuance of the Corporation's
consolidated financial statements for the quarter ended March 31, 1998.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business:
The Corporation is a bank holding company headquartered in Hermitage,
Pennsylvania. As of December 31, 1997, it operates 9 banks through 71
offices and a consumer finance company through 35 offices in Pennsylvania, Ohio,
Florida and New York.
Basis of Presentation:
The supplemental consolidated financial statements include the accounts of the
Corporation and its subsidiaries, including West Coast. All significant
intercompany balances and transactions have been eliminated.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Securities:
Debt securities are classified as held to maturity when management has the
positive intent and ability to hold securities to maturity. Securities held to
maturity are carried at amortized cost.
Debt securities not classified as held to maturity and marketable equity
securities are classified as available for sale. Securities available for sale
are carried at fair value with net unrealized securities gains (losses) reported
separately as a component of stockholders' equity, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net
securities gains (losses). The adjusted cost of specific securities sold is
used to compute gains or losses on sales.
Presently, the Corporation has no intention of establishing a trading
securities classification.
<PAGE>
Loans Held for Sale:
Loans held for sale are recorded at the lower of aggregate cost or market
value. Gain or loss on the sale of loans is included in non-interest income.
In May of 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (FAS) No. 122, "Accounting for Mortgage Servicing
Rights," an amendment of FAS No. 65. This Statement, which was adopted in 1996
on a prospective basis, allows entities originating mortgage loans for sale to
recognize as an asset rights to service these loans. Additionally, the
Corporation must periodically assess its capitalized mortgage servicing rights
for impairment based on the fair value of those rights. The impact of this
Statement did not have a material impact on the Corporation's results of
operations or financial position.
Loans and the Allowance for Loan Losses:
Loans that management has the intent and ability to hold for the foreseeable
future, until maturity or payoff are reported at their outstanding principal
adjusted for any charge-offs and any deferred fees or costs on originated loans.
Interest income on loans is accrued on the principal amount outstanding. 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. Loan origination fees and related costs are deferred and recognized over
the life of the loans as an adjustment of yield.
The allowance for loan losses is based on management's evaluation of potential
losses in the loan portfolio, which includes an assessment of past experience,
current and estimated future economic conditions, known and inherent risks in
the loan portfolio, the estimated value of underlying collateral and industry
standards. Additions are made to the allowance through periodic provisions
charged to income and recovery of principal on loans previously charged off.
Losses of principal are charged to the allowance when the loss actually occurs
or when a determination is made that a loss is probable.
<PAGE>
On January 1, 1995, the Corporation adopted FAS No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by FAS No. 118 "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures." These
standards require that impaired loans be identified and measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate, or at the loan's observable market price or at the fair value of
the collateral if the loan is collateral dependent. If the recorded investment
in the loan exceeds the measure of fair value, a valuation allowance is
established as a component of the allowance for loan losses. Impaired loans
consist of non-homogeneous loans, which based on the evaluation of current
information and events, management has determined that it is probable that the
Corporation will not be able to collect all amounts due according to the
contractual terms of the loan agreement. The Corporation evaluates all
commercial and commercial real estate loans which have been classified for
regulatory reporting purposes, including non-accrual and restructured loans, in
determining impaired loans. The adoption of these accounting standards had no
material impact on the Corporation's financial position or results of
operations.
Premises and Equipment:
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed generally on the straight-line method.
Other Real Estate Owned:
Assets acquired in settlement of indebtedness are included in other assets at
the lower of fair value minus estimated costs to sell or at the carrying amount
of the indebtedness. Subsequent write-downs and net direct operating expenses
attributable to such assets are included in other expenses.
Amortization of Intangibles:
Core deposit intangibles are being amortized on accelerated methods over
various lives ranging from 10-17 years.
Accounting for Postretirement Benefits Other than Pensions:
The Corporation recognizes the projected future cost of providing
postretirement benefits, such as health care and life insurance, as an expense
as employees render service.
Income Taxes:
Income taxes are computed utilizing the liability method. Under this method
deferred taxes are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
Per Share Amounts:
Earnings and cash dividends per share have been adjusted for common stock
dividends, including the stock dividend issued on April 23, 1997.
In 1997, the Financial Accounting Standards Board issued Statement No. 128
(FAS No. 128), "Earnings per Share." FAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
restated to conform to the FAS No. 128 requirements.
<PAGE>
Basic 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.
Diluted earnings per common share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding, assuming
conversion of outstanding convertible preferred stock from the beginning of the
year or date of issuance and the exercise of stock options and warrants. Such
adjustments to net income and the weighted average number of shares of common
stock outstanding are made only when such adjustments dilute earnings per common
share.
Cash Equivalents:
The Corporation considers cash and due from banks as cash and cash
equivalents.
New Accounting Standards:
FAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," establishes new standards for determining
whether a transfer constitutes a sale and, if so, the determination of the
resulting gain or loss. These standards are based on the consistent application
of a financial components approach that focuses on control. Under this
approach, an entity recognizes the financial and servicing assets it controls
and the liabilities it has incurred, derecognizes financial assets when control
has been surrendered, and derecognizes liabilities when extinguished.
Provisions of this Statement are effective for certain transactions entered into
in 1997 and 1998. Adoption of this Standard did not have a material effect on
the Corporation's financial position or results of operations.
MERGERS, ACQUISITIONS AND DIVESTITURE
The Corporation completed its merger with Southwest Banks, Inc. (SWBI), a
multi-bank holding company headquartered in Naples, Florida, effective
January 21, 1997. Under the terms of the merger agreement, each outstanding
share of SWBI'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 was issued. Results for all
periods presented have been restated to reflect this acquisition as a
pooling-of-interests.
The Corporation completed its merger with West Coast Bancorp, Inc. (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 all periods
presented have been restated to reflect this acquisition as a
pooling-of-interests.
<PAGE>
On June 30, 1997, 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 in exchange for 100%
ownership of Bucktail. The sale resulted in the Corporation recognizing an
extraordinary after-tax gain of $5.2 million. Bucktail had assets of
approximately $125.4 million as of the date of the sale.
The Corporation completed its merger with Indian Rocks National Bank (IRNB), a
community bank headquartered in Largo, Florida, effective October 17, 1997.
Under the terms of the merger agreement, each outstanding share of IRNB's 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 have not been restated
due to immateriality.
On November 20, 1997, the Corporation completed its acquisition of Mercantile
Bank of Southwest Florida (Mercantile), a $120 million bank located in Naples,
Florida. Under the terms of the agreement, the Corporation paid $17.72 per
share for each of the 847,006 outstanding shares of Mercantile's common stock.
Mercantile was merged into the Corporation's existing affiliate, First National
Bank of Naples. The transaction was accounted for as a purchase, and resulted
in the recognition of approximately $7.0 million in goodwill.
On February 2, 1998, the Corporation signed a definitive merger agreement with
Seminole Bank (Seminole), a community bank headquartered in Seminole, Florida
with assets of $94.0 million. The merger agreement calls for an exchange of
1.457 shares of the Corporation's common stock for each share of Seminole common
stock. Seminole will be merged into an existing subsidiary of the Corporation,
IRNB. The transaction, which is expected to close during the second quarter of
1998 pending regulatory and shareholder approval, will be accounted for as a
pooling-of-interests.
<PAGE>
SECURITIES
The amortized cost of securities and their approximate fair values are as
follows:
Securities available for sale (in thousands):
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1996 COST GAINS LOSSES VALUE
--------- --------- ----------- -------
U.S. Treasury and other
U.S. Government
agencies and
corporations................. $ 262,719 $ 409 $ (806)$ 262,322
Mortgage-backed
securities of U.S............
Government agencies.......... 44,334 632 (176) 44,790
Other debt securities......... 2,000 (16) 1,984
TOTAL DEBT SECURITIES..... 309,053 1,041 (998) 309,096
Equity securities............. 14,235 3,942 (14) 18,163
--------- --------- --------- --------
$ 323,288 $ 4,983 $ (1,012) $327,259
========= ========= ========= ========
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1995 COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
U.S. Treasury and other
U.S. Government agencies
and corporations............ $ 243,161 $ 1,754 $ (137) $244,778
Mortgage-backed
securities of U.S...........
Government agencies......... 26,679 184 (130) 26,733
Other debt securities........ 2,000 (5) 1,995
--------- --------- --------- --------
TOTAL DEBT SECURITIES.... 271,840 1,938 (272) 273,506
Equity securities............ 12,347 3,304 15,651
--------- --------- --------- --------
$ 284,187 $ 5,242 $ (272) $289,157
========= ========= ========= ========
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1994 COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
U.S. Treasury and other
U.S. Government agencies and
corporations................. $ 129,975 $ (2,448) $127,527
Mortgage-backed securities of
U.S. Government
agencies..................... 9,166 $ 3 (757) 8,412
Other debt securities......... 1,000 (11) 989
--------- --------- --------- --------
TOTAL DEBT SECURITIES..... 140,141 3 (3,216) 136,928
Equity securities............. 13,213 2,202 (81) 15,334
--------- --------- --------- --------
$ 153,354 $ 2,205 $ (3,297) $152,262
========= ========= ========= ========
Securities held to maturity (in thousands):
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1996 COST GAINS LOSSES VALUE
--------- ---------- --------- -------
U.S. Treasury and
other U.S. Government
agencies and
corporations................. $ 15,388 $ 57 $ (22) $ 15,423
States of the U.S.
and political
subdivisions................. 55,569 147 (438) 55,278
Mortgage-backed
securities of U.S.
Government agencies.......... 103,551 98 (712) 102,937
Other debt securities......... 43 (4) 39
--------- --------- --------- --------
$ 174,551 $ 302 $ (1,176) $173,677
========= ========= ========= ========
<PAGE>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1995 COST GAINS LOSSES VALUE
--------- ---------- --------- ---------
U.S. Treasury and other U.S.
Government agencies
and corporations............ $ 22,367 $ 170 $ (37)$ 22,500
States of the U.S. and
political subdivisions....... 47,505 197 (288) 47,414
Mortgage-backed securities of
U.S. Government agencies..... 104,555 447 (421) 104,581
Other debt securities......... 56 (5) 51
--------- --------- --------- ---------
$ 174,483 $ 814 $ (751)$ 174,546
========= ========= ========= =========
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1994 COST GAINS LOSSES VALUE
--------- --------- ----------- ---------
U.S. Treasury and other
U.S. Government agencies
and corporations........... $ 175,913 $ 1 $ (4,989) $ 170,925
States of the U.S. and
political subdivisions..... 44,805 67 (3,095) 41,777
Mortgage-backed securities
of U.S. Government
agencies................... 83,288 3 (5,052) 78,239
Other debt securities........ 61 (8) 53
--------- --------- -------- ---------
$ 304,067 $ 71 $(13,144) $ 290,994
========= ========= ======== =========
In December of 1995, the Corporation transferred $97.5 million of debt
securities from the held to maturity category to the available for sale category
in accordance with the implementation guidance issued on FAS No. 115. At the
time of transfer, the market value of the securities totaled $97.8 million, and
the unrealized gain, net of taxes, of $118,000 was recorded as an increase to
stockholders' equity.
At December 31, 1996, securities with a carrying value of $136.5 million were
pledged to secure public deposits, trust deposits and for other purposes as
required by law. Securities with a carrying value of $68.8 million at December
31, 1996, were pledged as collateral for other borrowings.
As of December 31, 1996, the Corporation had not entered into any off-balance
sheet derivative transactions.
As of December 31, 1996, the amortized cost and fair value of securities, by
contractual maturities, were as follows (in thousands):
HELD TO MATURITY AVAILABLE FOR SALE
-------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR
December 31, 1996 COST VALUE COST VALUE
--------- --------- --------- ---------
Due in one year or less........ $ 12,269 $ 12,276 $ 120,365 $ 120,555
Due from one to five years..... 46,926 46,594 126,148 125,632
Due from five to ten years..... 11,386 11,447 17,499 17,412
Due after ten years............ 419 423 707 707
--------- --------- --------- ---------
71,000 70,740 264,719 264,306
Mortgage-backed securities of
U.S. Government Agencies...... 103,551 102,937 44,334 44,790
Equity Securities.............. 14,235 18,163
--------- --------- --------- ---------
$ 174,551 $ 173,677 $ 323,288 $ 327,259
========= ========= ========= =========
<PAGE>
Maturities may differ from contractual terms because borrowers may have the
right to call or prepay obligations with or without penalties. Periodic
payments are received on mortgage-backed securities based on the payment
patterns of the underlying collateral.
Proceeds from sales of securities available for sale during 1996, 1995 and
1994 were $42.2 million, $7.6 million and $16.0 million, respectively. Gross
gains and gross losses were realized on those sales as follows (in thousands):
1996 1995 1994
------ ------ ------
Gross gains..................... $ 880 $ 530 $1,351
Gross losses.................... 93 37 126
------ ------ ------
$ 787 $ 493 $1,225
====== ====== ======
LOANS
Following is a summary of loans (in thousands):
December 31 1996 1995
---------- ----------
Real estate:
Residential............................ $ 716,672 $ 634,335
Commercial............................. 441,767 401,030
Construction........................... 44,296 37,043
Installment loans to individuals........ 397,600 385,506
Commercial, financial and agricultural.. 196,549 172,208
Lease financing......................... 21,538 5,037
Unearned income......................... (23,846) (27,377)
---------- ----------
$1,794,576 $1,607,782
========== ==========
Certain directors and executive officers of the Corporation and its
significant subsidiaries, as well as associates of such persons, were loan
customers during 1996. Such loans were made in the ordinary course of business
under normal credit terms and do not represent more than a normal risk of
collection. Following is a summary of the amount of loans in which the
aggregate of the loans to any such persons exceeded $60,000 during the year
(in thousands):
Total loans at December 31, 1995 $ 30,866
New loans....................... 43,345
Repayments...................... (39,225)
Other........................... (2,669)
---------
Total loans at December 31, 1996 $ 32,317
=========
Other represents the net change in loan balances resulting from changes in
related parties during the year.
<PAGE>
NON-PERFORMING ASSETS
Following is a summary of non-performing assets (in thousands):
December 31 1996 1995 1994
-------- -------- --------
Non-accrual loans.............. $ 9,644 $ 9,567 $ 11,244
Restructured loans............. 2,146 3,075 3,157
-------- -------- --------
TOTAL NON-PERFORMING LOANS... 11,790 12,642 14,401
Other real estate owned........ 7,070 4,835 4,902
-------- -------- --------
TOTAL NON-PERFORMING ASSETS.. $ 18,860 $ 17,477 $ 19,303
======== ======== ========
For the years ended December 31, 1996, 1995 and 1994, income recognized on
non-accrual and restructured loans was $763,000, $684,000 and $676,000,
respectively. Income that would have been recognized during 1996, 1995 and
1994 on such loans if they were in accordance with their original terms was
$1.4 million, $1.3 million and $1.8 million, respectively. Loans past due 90
days or more were $3.0 million, $3.9 million and $2.8 million at December 31,
1996, 1995 and 1994, respectively.
Following is a summary of information pertaining to loans considered to be
impaired under FAS 114 (in thousands):
At of For the Year Ended December 31 1996 1995
--------- ---------
Impaired loans with an allocated allowance... $ 4,735 $ 7,739
Impaired loans without an allocated allowance 5,298 7,575
------- -------
Total impaired loans...................... $10,033 $15,314
======= =======
Allocated allowance on impaired loans........ $ 1,475 $ 1,496
======= =======
Portion of impaired loans on non-accrual..... $ 4,818 $ 5,760
======= =======
Average impaired loans....................... $12,909 $18,690
======= =======
Income recognized on impaired loans.......... $ 752 $ 1,117
======= =======
ALLOWANCE FOR LOAN LOSSES
Following is an analysis of changes in the allowance for loan losses (in
thousands):
Year Ended December 31 1996 1995 1994
-------- -------- --------
Balance at beginning of year....... $ 24,967 $ 23,018 $ 18,622
Charge-offs........................ (7,811) (7,237) (6,839)
Recoveries......................... 1,617 1,951 1,994
-------- -------- --------
NET CHARGE-OFFS................ (6,194) (5,286) (4,845)
Provision for loan losses.......... 9,876 7,235 9,241
-------- -------- --------
Balance at end of year............. $ 28,649 $ 24,967 $ 23,018
======== ======== ========
PREMISES AND EQUIPMENT
Following is a summary of premises and equipment (in thousands):
December 31 1996 1995
-------- --------
Land.............................. $ 9,976 $ 8,967
Premises.......................... 44,372 36,784
Equipment......................... 32,593 30,476
-------- --------
86,941 76,227
Accumulated depreciation.......... (37,645) (33,075)
-------- --------
$ 49,296 $ 43,152
======== ========
<PAGE>
Depreciation expense was $5.5 million for 1996, $4.7 million for 1995 and $4.5
million for 1994. The Corporation completed construction of a new multi-story
building in Hermitage, as well as several new branches in 1997. Construction,
equipment and furnishing costs totaled $14.3 million, of which $5.3 million has
been funded as of December 31, 1996.
The Corporation has operating leases extending to 2044 for certain land,
office locations and equipment. Leases that expire are generally expected to be
renewed or replaced by other leases. Rental expense was $2.6 million for 1996,
$2.7 million for 1995 and $2.1 million for 1994. Total minimum rental
commitments under such leases were $22.0 million at December 31, 1996.
Following is a summary of future minimum lease payments for years following
December 31, 1996 (in thousands):
1997 . . . . . . . . . . . . . . .$1,762
1998 . . . . . . . . . . . . . . . 1,504
1999 . . . . . . . . . . . . . . . 996
2000 . . . . . . . . . . . . . . . 757
2001 . . . . . . . . . . . . . . . 647
Later years. . . . . . . . . . . .16,289
DEPOSITS
Following is a summary of deposits (in thousands):
December 31 1996 1995
---------- ----------
Non-interest bearing................. $ 244,844 $ 242,607
Savings and NOW...................... 891,084 798,936
Certificates of deposit and
other time deposits................ 949,924 928,653
---------- ----------
$2,085,852 $1,970,196
========== ==========
Following is a summary of the scheduled maturities of time deposits for each
of the five years following December 31, 1996 (in thousands):
1997 . . . . . . . . . . . . . . .$636,618
1998 . . . . . . . . . . . . . . . 170,673
1999 . . . . . . . . . . . . . . . 59,874
2000 . . . . . . . . . . . . . . . 63,816
2001 . . . . . . . . . . . . . . . 17,797
Later years. . . . . . . . . . . . 1,146
Time deposits of $100,000 or more were $180.2 million and $165.7 million at
December 31, 1996 and 1995, respectively. Following is a summary of these time
deposits by remaining maturity at December 31, 1996(in thousands):
CERTIFICATES OTHER TIME
December 31, 1996 OF DEPOSIT DEPOSITS TOTAL
------------ ----------- ----------
Three months or less....... $57,419 $ 4,151 $ 61,570
Three to six months........ 34,615 2,496 37,111
Six to twelve months....... 34,395 4,986 39,381
Over twelve months......... 23,622 18,523 42,145
-------- -------- --------
$150,051 $ 30,156 $180,207
======== ======== ========
<PAGE>
SHORT-TERM BORROWINGS
Following is a summary of short-term borrowings (in thousands):
December 31 1996 1995
-------- --------
Securities sold under repurchase agreements $ 38,367 $ 23,482
Federal funds purchased.................... 21,052
Other short-term borrowings................ 1,506 4,872
Subordinated notes......................... 55,201 47,362
-------- --------
$116,126 $ 75,716
======== ========
Credit facilities amounting to $25.0 million at December 31, 1996 and December
31, 1995 were maintained with various banks with rates which are at or below
prime rate. The facilities and their terms are periodically reviewed by the
banks and are generally subject to withdrawal at their discretion. The amount
of these credit facilities which were unused amounted to $25.0 million at
December 31, 1996 and $22.0 million at December 31, 1995.
In addition, certain subsidiaries have lines of credit with the Federal Home
Loan Bank, which if used would require collateralization. No amounts were used
as of December 31, 1996.
LONG-TERM DEBT
Following is a summary of long-term debt (in thousands):
December 31 1996 1995
-------- --------
Real estate mortgages payable......... $ 147 $ 284
Federal Home Loan Bank advances....... 24,042 13,106
Subordinated notes.................... 33,990 37,394
-------- --------
$ 58,179 $ 50,784
======== ========
The Federal Home Loan Bank advances are secured by residential real estate
loans and Federal Home Loan Bank Stock and are scheduled to mature in various
amounts annually from 1997 through 1999. Interest rates paid on these advances
range from 5.10% to 5.38%.
Subordinated notes are unsecured and subordinated to other indebtedness of the
Corporation. The subordinated notes are scheduled to mature in various amounts
annually from 1997 through the year 2006. At December 31, 1996, $24.0 million
of long-term subordinated debt is redeemable prior to maturity at a discount
equal to three months of interest. The issuer may require the holder to give
30 days prior written notice. No sinking fund is required and none has been
established to retire the debt. The weighted average interest rate on long-term
subordinated debt was 7.69% at December 31, 1996 and 7.79% at December 31, 1995.
Scheduled annual maturities for all of the long-term debt for each of the five
years following December 31, 1996 are as follows (in thousands):
1997..................... $24,284
1998..................... 4,607
1999..................... 12,042
2000..................... 1,932
2001..................... 963
Later years.............. 14,351
<PAGE>
COMMITMENTS AND CREDIT RISK
The Corporation has commitments to extend credit and standby letters of credit
which involve certain elements of credit risk in excess of the amount stated in
the consolidated balance sheet. The Corporation's exposure to credit loss in
the event of non-performance by the customer is represented by the contractual
amount of those instruments. Consistent credit policies are used by the
Corporation for both on- and off-balance sheet items.
Following is a summary of off-balance sheet credit risk information (in
thousands):
December 31 1996 1995
-------- --------
Commitments to extend credit................ $290,824 $233,538
Standby letters of credit................... 16,014 13,357
At December 31, 1996, funding of approximately 75% of the commitments to
extend credit is dependent on the financial condition of the customer. The
Corporation has the ability to withdraw such commitments at its discretion.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Based on management's
credit evaluation of the customer, collateral may be deemed necessary.
Collateral requirements vary and may include accounts receivable, inventory,
property, plant and equipment and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the
Corporation which may require payment at a future date. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
STOCKHOLDERS' EQUITY
Series A - Cumulative Convertible Preferred Stock (Series A Preferred) was
created for the purpose of acquiring Reeves Bank. Holders of Series A Preferred
are entitled to 5.4 votes for each share held. The holders do not have
cumulative voting rights in the election of directors. Dividends are cumulative
from the date of issue and are payable at $.42 per share each quarter.
Series A Preferred is convertible at the option of the holder into shares of
the Corporation's common stock having a market value of $25.00 at time of
conversion. The Corporation has the right to require the conversion of the
balance of all outstanding shares at the conversion rate. During 1996, 1,250
shares of Series A Preferred were converted to 1,336 shares of common stock.
At December 31, 1996, 27,101 shares of common stock were reserved by the
Corporation for the conversion of the remaining 23,588 outstanding shares.
Series B - Cumulative Convertible Preferred Stock (Series B Preferred) was
issued during 1992 for the purpose of raising capital for the Erie acquisition.
Holders of Series B Preferred have no voting rights. Dividends are cumulative
from the date of issue and are payable at $.46875 per share each quarter.
Series B Preferred has a stated value of $25.00 per share and is convertible at
the option of the holder at any time into shares of the Corporation's common
stock at a price of $11.64 per share. The Corporation has the right to require
the redemption of the balance of all outstanding shares at the conversion rate.
During 1996, 97,857 shares of Series B Preferred were converted to 197,792
shares of common stock. At December 31, 1996, 706,424 shares of common stock
were reserved by the Corporation for the conversion of the remaining 328,943
outstanding shares.
<PAGE>
STOCK INCENTIVE PLANS
The Corporation has available up to 913,962 shares of common stock to be
issued under the restricted stock and incentive bonus and restricted stock bonus
plans to key employees of the Corporation. All shares of stock awarded under
these plans vest in equal installments over a five year period on each
anniversary of the date of grant. At December 31, 1996, 2,102 shares were
vested under these plans. Participants have full voting rights on all shares
regardless of vesting unless forfeited. The shares of stock awarded under the
plan are held in the participants name and are enrolled in the Voluntary
Dividend Reinvestment and Stock Purchase Plan. During 1996, the Corporation
awarded 1,470 shares, 20% of which become vested in January 1997.
The Corporation has available up to 2,151,362 shares of common stock to be
issued under both incentive and non-qualified stock option plans to key
employees of the Corporation. The options are granted at a price equal to
the fair market value at the date of the grant and are exercisable within ten
years from the date of the grant. The Corporation has elected to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25), and related interpretations in accounting for its
employee stock options. Under APB No. 25, because the exercise price of the
Corporation's stock options equals the market price of the underlying stock on
the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required
by FAS No. 123, "Accounting for Stock-Based Compensation." FAS No. 123 also
requires that the pro forma information be determined using the fair value
method as if the Corporation had accounted for its employee stock options
granted subsequent to December 31, 1994. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for 1996 and 1995: risk-free interest
rates of 5.63% and 7.65%, respectively; dividend yield of 3.00%; volatility
factor of the expected market price of the Corporation's common stock of .19%;
and a weighted average expected life of the option of 7.5 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferrable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Corporation's employee stock options have characteristics
significantly different from those of traded options, and changes in the
subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period of five years. Because
FAS No. 123 is applicable only to options granted subsequent to December 31,
1994, its pro forma effect will not be fully reflected until 1997.
Following is the pro forma information (in thousands, except per share data):
Year Ended December 31 1996 1995
-------- --------
Pro forma net income........................ $ 20,824 $ 22,054
======== ========
Pro forma net income per common share:
Basic..................................... $1.37 $1.46
===== =====
Diluted................................... $1.33 $1.42
===== =====
<PAGE>
At December 31, 1996, options for 440,901 of common stock were exercisable at
prices ranging from $6.00 to $17.15 per share.
Activity in the Option Plan during the past three years was as follows:
1996 1995 1994
------- ------- -------
Outstanding, beginning of year...... 801,567 695,514 570,178
Granted during the year........... 188,247 136,826 145,529
Exercised during the year
(at prices ranging
from $6.00 to $17.15 per share).. (12,315) (15,240) (3,753)
Forfeited during the year......... (6,600) (15,533) (16,440)
------- ------- -------
Ending balance...................... 970,899 801,567 695,514
======= ======= =======
The Corporation has granted warrants to purchase one share of common stock (at
an exercise price of $6.57 or $10.57 per share). Such warrants are exercisable
and will expire on June 19, 2001 or December 17, 2003. The Corporation has
reserved 209,865 shares of common stock for issuance in connection with these
warrants.
RETIREMENT PLANS
Certain of the Corporation's subsidiaries have defined benefit retirement
plans covering substantially all of their employees. The expense associated
with these plans was $2.0 million in 1996, $1.7 million in 1995 and $1.6 million
in 1994.
The defined benefit plans provide benefits based on years of credited service
and compensation (as defined), subject to ERISA limitations. Contributions to
the tax-qualified plans are made in amounts not less than the minimum-required
contribution under ERISA nor more than the maximum-deductible contribution under
the Internal Revenue Code.
Following is the estimated funded status (in thousands):
December 31 1996 1995
----------------------------- ----------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
Actuarial present
value of:
Vested benefit
obligation $ 13,841 $ 2,770 $ 13,406 $ 2,439
======== ========= ======== =======
Accumulated benefit
obligation $ 14,150 $ 3,635 $ 13,625 $ 3,169
======== ========= ======== =======
Projected benefit
obligation for
services rendered
to date $(17,472) $ (4,160) $(17,114) $(3,720)
Plan assets at fair
value, primarily U.S.
Government securities
and common stocks 20,238 17,881
------- -------- -------- -------
Plan assets in excess
of or (less than)
projected benefit
obligation 2,766 (4,160) 767 (3,720)
Unrecognized net
(gain) loss (1,832) (63) 21 (33)
Unrecognized net
obligation 52 58
Unrecognized prior
service cost 146 1,911 162 2,185
-------- ------- -------- --------
Prepaid (accrued)
pension costs $ 1,132 $(2,312) $ 1,008 $ (1,568)
======== ======= ======== ========
<PAGE>
The pension expense for the defined benefit plans included the following
components (in thousands):
Year Ended December 31 1996 1995 1994
------- ------- ------
Service costs - benefits
earned during the period........... $ 1,244 $ 854 $1,072
Interest cost on projected
benefit obligation................. 1,525 1,375 1,237
Actual return on plan assets........ (2,026) (3,014) 330
Net amortization.................... 894 2,115 (1,293)
------- ------- ------
Net pension expense................. $ 1,637 $ 1,330 $1,346
======= ======= ======
Assumptions as of December 31 1996 1995 1994
------- ------- ------
Weighted average discount rate............. 7.5% 7.0% 8.5%
Rates of increase in compensation levels... 4.0% 4.0% 4.0%
Expected long-term rate of return on assets 8.0% 8.0% 8.0%
At December 31, 1996 and 1995, respectively, plan assets include $965,000 and
$745,000 of the Corporation's common stock and $184,000 and $193,000 of the
Corporation's subordinated debt.
Certain subsidiaries of the Corporation participate in a qualified 401(k)
defined contribution plan for the full-time employees of the subsidiary. A
percentage of employees' contributions to the plan are matched by the
Corporation. The Corporation's contribution expense amounted to $448,000 in
1996, $422,000 in 1995 and $327,000 in 1994.
The remaining subsidiaries of the Corporation participate in a Salary Savings
ESOP Plan, under which eligible employees may contribute a percentage of their
salary. The Corporation matches 50 percent of an eligible employee's
contribution on the first 6 percent that the employee defers, and may make a
discretionary contribution payable either in cash or the Corporation's common
stock based upon the Corporation's profitability and approval of the Board of
Directors. Employees are generally eligible to participate upon completing one
year of service and having attained age 21. Employer contributions become 20
percent vested when an employee has completed two years of service, and vest at
a rate of 20 percent per year thereafter. The Corporation recognized expense of
$384,000 in 1996, $298,000 in 1995 and $189,000 in 1994 related to the Salary
Savings ESOP Plan.
POSTRETIREMENT PLANS
In addition to the Corporation's retirement plans, the Corporation has various
unfunded postretirement plans which provide medical benefits and life insurance
benefits to its retirees. The postretirement health care plans vary, the most
stringent of which are contributory and contain other cost-sharing features such
as deductibles and co-insurance. The life insurance plans are noncontributory.
<PAGE>
The amounts recognized in the Corporation's consolidated financial statements
are as follows (in thousands):
Year Ended December 31 1996 1995
--------- --------
Accumulated postretirement
benefit obligation:
Current retirees.......................... $ 79 $ 186
Fully eligible actives.................... 49 50
Other actives............................. 688 594
------- -------
Total Accumulated Postretirement
Benefit Obligation........................ 816 830
Unrecognized net transition obligation...... (612) (760)
Unrecognized net gain....................... 233 255
Unrecognized prior service cost............. (7) (9)
------- -------
Accrued postretirement benefit liability.... $ 430 $ 316
======= =======
Net periodic postretirement benefit cost included the following components (in
thousands):
Year Ended December 31 1996 1995 1994
------- ------- -------
Service cost.............................. $ 66 $ 60 $ 75
Interest cost............................. 54 68 73
Amortization of transition obligation..... 30 38 49
------- ------- -------
Net periodic postretirement benefit cost.. $ 150 $ 166 $ 197
======= ======= =======
A 6.50 % annual rate of increase in the per capita costs of covered health
care benefits is assumed for 1997, gradually decreasing to 5.25 % by the year
2001. Increasing the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1996 by $77,000 and increase the aggregate of
the service and interest cost component of net periodic postretirement benefit
cost for 1996 by $14,000. A discount rate of 7.50 % was used to determine the
accumulated postretirement benefit obligation.
RECAPITALIZATION OF SAVINGS ASSOCIATION INSURANCE FUND
On September 30, 1996, the Deposit Insurance Funds Act of 1996 was signed into
law and included a provision to recapitalize the Savings Association Insurance
Fund (SAIF). The legislation required a one-time assessment on all deposits
insured by the SAIF, including those held be chartered commercial banks as a
result of previous acquisitions. The one-time assessment paid by the
Corporation totaled $2.8 million, or $.18 per share. The legislation also
included provisions that will result in a reduction in future annual deposit
insurance costs.
INCOME TAXES
Income tax expense consists of the following (in thousands):
Year Ended December 31 1996 1995 1994
------- ------- -------
Current income taxes:
Federal taxes..................... $11,946 $11,058 $ 9,327
State taxes....................... 388 489 365
------- ------- -------
12,334 11,547 9,692
Deferred income taxes:
Federal taxes..................... (1,679) (665) (1,617)
State taxes....................... (106) (12) (15)
------- ------- -------
$10,549 $10,870 $ 8,060
======= ======= =======
<PAGE>
The tax effects of temporary differences that give rise to deferred tax assets
liabilities are presented below (in thousands):
December 31 1996 1995
-------- --------
Deferred tax assets:
Allowance for loan losses.......... $ 8,842 $ 7,731
Deferred compensation.............. 936 860
Deferred benefits.................. 634 386
Loan fees.......................... 247 236
Other.............................. 1,112 639
-------- --------
TOTAL GROSS DEFERRED TAX ASSETS.. 11,771 9,852
======== ========
Deferred tax liabilities:
Depreciation....................... (785) (941)
Dealer reserve participation....... (957)
Unrealized gains on securities
available for sale............... (2,118) (2,103)
Leasing............................ (1,915) (285)
Other.............................. (719) (1,100)
------- --------
TOTAL GROSS DEFERRED TAX LIABILITIES (5,537) (5,386)
------- --------
NET DEFERRED TAX ASSETS.......... $ 6,234 $ 4,466
======= ========
Following is a reconciliation between tax expense using federal statutory tax
and actual effective tax:
Year Ended December 31 1996 1995 1994
----- ----- -----
Federal statutory tax.......................... 35.0% 35.0% 35.0%
Effect of nontaxable interest and
dividend income.............................. (4.2) (4.1) (5.6)
State taxes.................................... .6 .9 1.0
Goodwill....................................... .3 .4 .6
Merger related costs........................... 2.3
Other items.................................... (.6) .7 2.4
----- ----- -----
Actual effective taxes......................... 33.4% 32.9% 33.4%
===== ===== =====
Included in loan income is interest on tax-free loans of $2.1 million, $2.4
million and $2.5 million for 1996, 1995 and 1994, respectively. The related
income tax expense on securities gains amounting to $289,000, $173,000 and
$456,000 for 1996, 1995 and 1994, respectively, is included in income taxes.
EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted earnings
per share (dollars in thousands, except per share data):
Year Ended December 31 1996 1995 1994
---------- ---------- ----------
Basic
Net Income.................................. $20,997 $22,122 $16,095
Less: Preferred Stock Dividends Declared... 766 849 853
------- ------- -------
Net Income Applicable to Common Stock....... $20,231 $21,273 $15,242
======= ======= =======
Average Common Shares Outstanding........... 14,630,386 14,509,993 14,088,494
========== ========== ==========
Net Income per Common Share................. $1.38 $1.47 $1.08
===== ===== =====
Diluted
Net Income Applicable to Common Stock....... $20,997 $22,122 $16,095
======= ======= =======
Average Common Shares Outstanding........... 14,630,386 14,509,993 14,088,494
Convertible Preferred Stock................. 902,114 1,004,432 971,416
Net Effect of Dilutive Stock Options
Based on the Treasury Stock Method
Using the Average Market Price............ 155,821 89,282 80,746
---------- ---------- ----------
15,688,321 15,603,707 15,140,656
========== ========== ==========
Net Income per Common Share................. $1.34 $1.42 $1.06
===== ===== =====
<PAGE>
CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information (in thousands):
Year Ended December 31 1996 1995 1994
-------- -------- --------
Cash paid during year for:
Interest............................ $ 79,435 $ 75,144 $ 60,084
Income taxes........................ 10,135 11,393 8,826
Non-cash Investing and
Financing Activities:
Acquisition of real estate in
settlement of loans............. $ 6,460 $ 3,304 $ 3,829
Loans granted in the sale
of other real estate.............. 319 321 1,267
Transfers and reclassifications
of investment securities to
securities available for sale..... 97,483 25,717
Loans reclassified from
held for sale..................... 119,858
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.
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 December 31, 1996, that the Corporation
and each of its banking subsidiaries meet all capital adequacy requirements to
which they are subject.
<PAGE>
Capital ratios as of December 31, 1996 for the Corporation and its significant
subsidiary, First National Bank of Pennsylvania, are as follows (dollars in
thousands):
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- --------- ----- --------- -----
F.N.B. CORPORATION:
Total Capital........ $234,433 13.0% $144,184 8.0% $180,230 10.0%
(to risk-weighted
assets)
Tier 1 Capital....... 202,652 11.2 72,092 4.0 108,138 6.0
(to risk-weighted
assets)
Tier 1 Capital....... 202,652 8.2 99,388 4.0 124,235 5.0
(to average assets)
FIRST NATIONAL BANK OF
PENNSYLVANIA:
Total Capital........ $ 88,259 12.0% $ 58,668 8.0% $ 73,335 10.0%
(to risk-weighted
assets)
Tier 1 Capital....... 79,059 10.8 29,334 4.0 44,001 6.0
(to risk-weighted
assets)
Tier 1 Capital....... 79,059 7.8 50,904 4.0 50,904 5.0
(to average assets)
As of December 31, 1996, the Corporation and each of its banking subsidiaries
have been categorized by the various regulators as "well capitalized" under the
regulatory framework for prompt corrective action.
The Corporation's banking subsidiaries were required to maintain aggregate
reserves amounting to $20.5 million at December 31, 1996 to satisfy federal
regulatory requirements. The Corporation also maintains deposits for various
services such as check clearing.
Certain limitations exist under applicable law and regulations by regulatory
agencies regarding dividend payments to a parent by its subsidiaries. As of
December 31, 1996, the subsidiaries had $28.4 million of retained earnings
available for distribution as dividends without prior regulatory approval.
Under current Federal Reserve regulations, the Corporation's banking
subsidiaries are limited in the amount they may lend to non-bank affiliates,
including the Corporation. Such loans must be secured by specified collateral.
In addition, any such loans to a single non-bank affiliate may not exceed 10% of
any banking subsidiary's capital and surplus and the aggregate of loans to all
such affiliates may not exceed 20%. The maximum amount that may be borrowed by
the parent company under these provisions approximated $37.7 million at December
31, 1996.
<PAGE>
PARENT COMPANY FINANCIAL STATEMENTS
Below is condensed financial information of F.N.B. Corporation (parent company
only). In this information, the parent's investments in subsidiaries are stated
at cost plus equity in undistributed earnings of subsidiaries since acquisition.
This information should be read in conjunction with the supplemental
consolidated financial statements.
BALANCE SHEET (IN THOUSANDS):
December 31 1996 1995
-------- ---------
ASSETS
Cash................................... $ 19 $ 16
Short-term investments................. 4,457 2,928
Advances to subsidiaries............... 81,099 76,849
Receivables............................ 5,162 4,761
Securities available for sale.......... 7,191 6,720
Investment in bank subsidiaries........ 187,957 174,553
Investment in non-bank subsidiaries.... 14,715 20,869
-------- --------
$300,600 $286,696
======== ========
LIABILITIES
Other liabilities...................... $ 4,215 $ 4,092
Short-term borrowings.................. 55,201 50,362
Long-term debt......................... 33,990 37,394
-------- --------
TOTAL LIABILITIES.................... 93,406 91,848
-------- --------
STOCKHOLDERS' EQUITY................... 207,194 194,848
-------- --------
TOTAL................................ $300,600 $286,696
======== ========
INCOME STATEMENT (IN THOUSANDS)
Year Ended December 31 1996 1995 1994
------- ------- -------
INCOME
Dividend income from subsidiaries:
Bank............................ $11,778 $ 8,942 $ 6,849
Non-bank........................ 2,501 3,706 3,596
------- ------- -------
14,279 12,648 10,445
Gain on sale of securities........ 850 512 1,287
Interest income................... 5,394 4,924 4,062
Other income...................... 254 206 190
------- ------- -------
TOTAL INCOME.................... 20,777 18,290 15,984
------- ------- -------
EXPENSES
Interest expense.................. 5,920 5,972 5,465
Service fees...................... 617 609 559
Other expenses.................... 2,076 1,297 1,239
------- ------- -------
TOTAL EXPENSES.................. 8,613 7,878 7,263
------- ------- -------
INCOME BEFORE TAXES AND
EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES................. 12,164 10,412 8,721
Income tax credit................. 618 700 430
------- ------- -------
12,782 11,112 9,151
------- ------- -------
Equity in undistributed income
of subsidiaries:
Bank......................... 7,182 10,011 6,776
Non-bank..................... 1,033 999 168
------- ------- -------
8,215 11,010 6,944
------- ------- -------
NET INCOME....................... $20,997 $22,122 $16,095
======= ======= =======
<PAGE>
STATEMENT OF CASH FLOWS (IN THOUSANDS)
Year Ended December 31 1996 1995 1994
-------- -------- --------
OPERATING ACTIVITIES
Net income........................... $ 20,997 $ 22,122 $ 16,095
Adjustments to reconcile net
income to net cash provided
by operating activities:
Gain on sale of securities....... (850) (512) (1,287)
Undistributed earnings of
subsidiaries................... (8,215) (11,010) (6,944)
Other, net....................... (2,030) (882) (1,417)
------- ------- -------
Net cash flows from
operating activities........... 9,902 9,718 6,447
INVESTING ACTIVITIES
Purchase of securities............... (235) (383) (400)
Proceeds from sale of securities..... 1,244 922 2,346
Advances from (to) subsidiaries...... (4,250) (6,107) (4,779)
Investment in subsidiaries........... 356 737 (16,278)
------- ------- --------
Net cash flows from
investing activities............ (2,885) (4,831) (19,111)
FINANCING ACTIVITIES
Net decrease in due to non-bank
subsidiary............................ (4,295)
Net decrease in short-term borrowings.. 4,839 (1,723) (1,210)
Decrease in long-term debt............. (12,303) (5,334) (7,400)
Increase in long-term debt............. 8,899 6,274 15,275
Purchase of common stock............... (3,421) (1,447) (1,143)
Sale of common stock................... 1,861 1,689 14,867
Cash dividends paid.................... (6,889) (4,343) (3,419)
-------- -------- --------
Net cash flows from financing
activities......................... (7,014) (4,884) 12,675
-------- -------- --------
NET INCREASE IN CASH................... 3 3 11
Cash at beginning of year.............. 16 13 2
-------- -------- --------
CASH AT END OF YEAR.................... $ 19 $ 16 $ 13
======== ======== ========
CASH PAID
Interest............................... $ 6,251 $ 5,009 $ 4,433
Income taxes........................... 39
Subordinated notes, included within short-term borrowings and long-term debt,
are unsecured and subordinated to other indebtedness of the Corporation. At
December 31, 1996, $79.1 million principal amount of such notes was redeemable
prior to maturity by the holder at a discount equal to one month of interest on
short-term notes or three months of interest on long-term notes. The issuer may
require the holder to give 30 days prior written notice. No sinking fund has
been established to retire the notes. The weighted average interest rate was
6.25% at December 31, 1996 and 6.63% at December 31, 1995. The subordinated
notes are scheduled to mature in various amounts annually from 1997 through the
year 2006.
Following is a summary of the combined aggregate scheduled annual maturities
for each year following December 31, 1996 (in thousands):
1997................... $64,387
1998................... 4,583
1999................... 3,018
2000................... 1,917
2001................... 948
Later years............ 14,338
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Due from Banks:
For these short-term instruments, the carrying amount is a reasonable estimate
of fair value.
Securities:
For both securities available for sale and securities held to maturity, fair
value equals quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.
Loans:
The fair value of fixed rate loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. The fair
value of adjustable rate loans approximate the carrying amount, as these loans
reprice periodically at current market rates.
Deposits:
The fair value of demand deposits, savings accounts and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity deposits is estimated by discounting future cash flows using
rates currently offered for deposits of similar remaining maturities. The fair
value estimates do not include the benefits that result from low-cost funding
provided by the deposit liabilities compared to the cost of alternate sources of
funds.
Short-Term Borrowings:
The carrying amounts for short-term borrowings approximate fair value for
amounts that mature in 90 days or less. The fair value of subordinated notes is
estimated by discounting future cash flows using rates currently offered.
Long-Term Debt:
The fair value of long-term debt is estimated by discounting future cash flows
based on the market prices for the same or similar issues or on the current
rates offered to the Corporation for debt of the same remaining maturities.
The estimated fair values of the Corporation's financial instruments are as
follows (in thousands):
1996 1995
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
FINANCIAL ASSETS
Cash and short-term
investments............ $ 124,386 $ 124,386 $ 167,231 $ 167,231
Securities available
for sale............... 327,259 327,259 289,157 289,157
Securities held to
maturity............... 174,551 173,677 174,483 174,546
Net loans............... 1,776,015 1,802,194 1,583,378 1,606,038
FINANCIAL LIABILITIES
Deposits................ $2,085,852 $2,092,333 $1,970,189 $1,975,897
Short-term borrowings... 112,230 112,230 73,501 73,501
Long-term debt.......... 58,179 58,901 50,784 50,504
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
YEAR ENDED
DECEMBER 31 * 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
Total interest
income............ $ 189,803 $ 178,614 $ 153,983 $ 147,959 $ 145,832
Total interest
expense........... 80,046 77,127 61,444 64,325 71,692
Net interest income 109,757 101,487 92,539 83,634 74,140
Provision for loan
losses........... 9,876 7,235 9,241 9,986 16,075
Total non-interest
income............ 21,026 19,884 17,774 19,252 15,764
Total non-interest
expenses.......... 89,361 81,144 76,887 72,823 61,264
Net income......... 20,997 22,122 16,095 12,905 8,914
Net income,
excluding non-
recurring items... 24,864
AT YEAR-END
Total assets...... $2,502,580 $2,321,779 $2,153,380 $2,042,383 $1,988,566
Deposits.......... 2,085,852 1,970,196 1,805,849 1,765,599 1,735,611
Net loans......... 1,765,927 1,582,815 1,486,701 1,250,036 1,187,261
Long-term debt.... 58,179 50,784 56,614 32,528 33,198
Preferred stock... 3,525 4,516 4,563 4,582 4,605
Total stockholders'
equity........... 207,193 194,848 172,418 146,989 129,894
PER COMMON SHARE *
Net income
Basic............... $ 1.38 $ 1.47 $ 1.08 $ .94 $ .70
Diluted............. 1.34 1.42 1.06 .93 .70
Net income, excluding
non-recurring items..
Basic............... 1.63
Diluted............. 1.58
Cash dividends (FNB).. .60 .33 .24 .23 .21
Cash dividends (WCBI). .23 .20 .17 .08
Book value............ 13.70 12.80 11.29 10.44 9.63
RATIOS *
Return on average
assets............... .88% .99% .77% .65% .51%
Return on average
assets, excluding
non-recurring items.. 1.04
Return on average
equity............... 10.37 12.02 9.79 9.16 7.25
Return on average
equity, excluding
non-recurring items.. 12.28
Dividends payout
ratio................ 30.27 16.40 16.82 20.39 24.09
Average equity to
average assets....... 8.49 8.24 7.83 7.10 7.03
* Non-recurring items include a one-time assessment of $1.8 million legislated
by Congress to recapitalize the Savings Association Insurance Fund and merger
related costs of approximately $2.1 million, each on an after-tax basis.
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL QUARTERLY EARNINGS SUMMARY (Dollars in thousands, except per share
data)
QUARTER ENDED 1996 * MAR. 31 JUNE 30 SEPT. 30 DEC. 31
--------- --------- --------- ---------
Total interest income............. $46,709 $47,028 $47,323 $48,743
Total interest expense............ 19,954 19,563 19,900 20,629
Net interest income............... 26,755 27,465 27,423 28,114
Provision for loan losses......... 1,757 1,985 1,860 4,274
Total non-interest income......... 5,278 5,161 5,596 4,991
Total non-interest expenses....... 21,083 21,142 23,939 23,197
Net income........................ 6,313 6,453 4,958 3,273
Net income, excluding
non-recurring items ............. 6,885 5,213
PER COMMON SHARE *
Net income
Basic........................... $.43 $.44 $.33 $.18
Diluted......................... .41 .41 .32 .20
Net income, excluding
non-recurring items
Basic........................... .46 .30
Diluted......................... .44 .32
Cash dividends (FNB).............. .15 .15 .15 .15
Cash dividends (WCBI)............. .05 .06 .06 .06
QUARTER ENDED 1995 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
--------- --------- --------- ---------
Total interest income............. $42,053 $44,382 $46,098 $46,081
Total interest expense............ 17,620 19,361 20,229 19,917
Net interest income............... 24,433 25,021 25,869 26,164
Provision for loan losses......... 1,794 1,737 1,798 1,906
Total non-interest income......... 4,393 5,369 4,791 5,331
Total non-interest expenses....... 20,012 20,782 19,960 20,389
Net income........................ 4,752 5,213 5,980 6,177
PER COMMON SHARE
Net income
Basic........................... $.32 $.35 $.40 $.40
Diluted......................... .31 .34 .38 .39
Cash dividends (FNB).............. .06 .06 .09 .12
Cash dividends (WCBI)............. .05 .05 .05 .05
* Non-recurring items include a one-time third quarter assessment of $1.8
million legislated by Congress to recapitalize the Savings Association
Insurance Fund and merger related costs of approximately $2.1 million
recognized during the fourth quarter, each on an after-tax basis.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This financial review summarizes the combined financial condition and results
of operations giving retroactive effect to the merger of West Coast Bank (West
Coast) with and into F.N.B. Corporation (the Corporation), and is intended to be
read in conjunction with the Supplemental Consolidated Financial Statements and
accompanying Notes to those statements. The merger of the Corporation and West
Coast was consummated on January 20, 1998, and has been accounted for on a
pooling-of-interests basis. The Corporation issued 584,063 shares of common
stock in exchange for all of the outstanding common stock of West Coast. This
financial review is presented as if the merger had been consummated for all
periods presented.
RESULTS OF OPERATIONS
Net income decreased 5.1% from $22.1 million in 1995 to $21.0 million in 1996.
Basic earnings per share was $1.38 and $1.47 for 1996 and 1995, while diluted
earnings per share was $1.34 and $1.42, respectively, for those same periods.
The results for 1996 include a special one-time assessment to recapitalize the
Savings Association Insurance Fund (SAIF) of $2.8 million and merger related
costs of $2.1 million. Excluding these items, net income would have been $24.9
million, a 12.4% increase over 1995, and basic and diluted earnings per share
would have been $1.63 and $1.58, respectively. Net interest income increased
by 8.1% as net average interest earning assets increased by $21.2 million.
These factors are further detailed in the discussion which follows.
Common comparative ratios for results of operations include the return on
average assets and the return on average equity. The Corporation's return on
average assets was .88% for 1996 compared to .99% for 1995, while the
Corporation's return on average equity was 10.37% for 1996 compared to 12.02%
for 1995. Excluding the SAIF assessment and merger related costs, the
Corporation's return on average assets of 1.04% and a return on average equity
of 12.28% for 1996.
<PAGE>
NET INTEREST INCOME
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>
<CAPTION>
Year Ended
December 31, 1996 1995 1994
------------------------- ------------------------- ------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE YIELD AVERAGE YIELD AVERAGE YIELD
BALANCE INTEREST /RATE BALANCE INTEREST /RATE BALANCE INTEREST /RATE
---------- -------- ----- ---------- -------- ----- --------- -------- ------
<S>
ASSETS
Interest earning
assets:
Interest bearing
deposits with
banks.......... $ 5,379 $ 294 5.47% $ 4,971 $ 313 6.30% $ 6,796 $ 245 3.61%
Federal funds
sold........... 47,214 2,472 5.24 44,260 2,572 5.81 31,759 1,254 3.95
Taxable
investment
securities (1). 393,662 23,363 5.93 404,604 22,993 5.68 427,650 22,151 5.18
Non-taxable
investment
securities..... 68,068 4,198 6.17 57,806 3,710 6.42 57,104 3,524 6.17
Loans (2)(3).... 1,709,595 161,618 9.45 1,573,892 151,271 9.61 1,437,566 129,180 8.99
--------- -------- ---------- -------- ---------- --------
Total interest
earning assets 2,223,918 191,945 8.63 2,085,533 180,859 8.67 1,960,875 156,354 7.97
--------- -------- ---------- -------- ---------- --------
Cash and due
from banks..... 83,733 78,290 73,172
Allowance for
loan losses.... (26,022) (24,202) (21,766)
Premises and
equipment...... 45,932 41,851 36,449
Other assets.... 57,722 52,046 51,780
---------- ---------- ----------
$2,385,283 $2,233,518 $2,100,510
========== ========== ==========
LIABILITIES
Interest bearing
Liabilities:
Deposits:
Interest
bearing demand $ 332,787 6,295 1.89 $ 288,273 6,905 2.40 $ 264,595 5,808 2.20
Savings....... 508,433 14,556 2.86 495,634 13,046 2.63 572,784 14,384 2.51
Other time.... 931,811 50,897 5.46 875,623 48,461 5.53 740,669 34,267 4.63
Short-term
borrowings.... 89,458 3,915 4.38 95,941 5,457 5.69 86,462 4,116 4.76
Long-term debt.. 49,977 4,384 8.77 39,856 3,258 8.17 33,000 2,869 8.69
---------- ------ --------- ------ --------- ------
Total
interest
bearing
liabilities 1,912,466 80,046 4.19 1,795,327 77,127 4.30 1,697,510 61,444 3.62
------- ------- -------
Non-interest
bearing demand
deposits 229,16 221,530 207,700
Other liabilities 41,218 32,580 30,387
---------- ---------- ----------
2,182,848 2,049,437 1,935,597
---------- ---------- ----------
MINORITY INTEREST 528
STOCKHOLDERS'
EQUITY.......... 202,435 184,081 164,385
---------- ---------- ----------
$2,385,283 $2,233,518 $2,100,510
========== ========== ==========
Excess of
interest earning
assets over
interest bearing
liabilities.... $ 311,452 $ 290,206 $ 263,365
========= ========== ==========
Net interest
income......... $111,900 $103,732 $ 94,910
======== ======== ========
Net interest
spread......... 4.44% 4.37% 4.35%
==== ==== ====
Net interest
margin (4)..... 5.03% 4.97% 4.84%
==== ==== ====
</TABLE>
(1) The average balances and yields earned on securities are based on
historical cost.
(2) The amounts are reflected on a fully taxable equivalent basis using the
federal statutory tax rate of 35%, adjusted for certain federal tax preferences.
(3) Average outstanding loans include 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.
(4) 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 earning assets, primarily loans
and securities, exceed interest expense on deposits and borrowed funds. Net
interest income, on a fully taxable equivalent basis, totaled $111.9 million in
1996 versus $103.7 million in 1995. Net interest income consisted of interest
income of $191.9 million and interest expense of $80.0 million in 1996, compared
to $180.9 million and $77.1 million for each, respectively, in 1995. Net
interest income as a percentage of average earning assets (commonly referred to
as the margin) rose to 5.03% in 1996 compared to 4.97% in 1995.
Interest income on loans increased 6.8% from $151.3 million in 1995 to $161.6
million in 1996. This increase is the result loan growth. Average loans
increased 8.6% from 1995.
Interest expense on deposits increased slightly to $71.7 million in 1996.
This increase was attributable to increases in all deposit categories with the
largest percentage increases occurring within interest bearing demand and other
time deposits.
The Corporation monitors interest rate sensitivity by measuring the impact
that future changes in interest rates will have on net interest income.
Through its asset/liability management and pricing policies, management has
strived to optimize net interest income while reducing the effects of changes
in interest rates. (See "Liquidity and Interest Rate Sensitivity" discussion).
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 periods
indicated (in thousands):
Year Ended
December 31, 1996 1995
------------------------- --------------------------
VOLUME RATE NET VOLUME RATE NET
------- ------- ------- ------- ------- --------
INTEREST INCOME
Interest bearing
deposits with
banks............ $ 33 $ (52) $ (19) $ (38)$ 106 $ 68
Federal funds
sold............. 213 (313) (100) 600 718 1,318
Securities......... 33 825 858 (1,019) 2,047 1,028
Loans.............. 12,823 (2,476) 10,347 12,790 9,301 22,091
------- ------- ------- ------- ------- --------
13,102 (2,016) 11,086 12,333 12,172 24,505
------- ------- ------- ------- -------- -------
INTEREST EXPENSE
Deposits:
Interest bearing... 1,622 (2,232) (610) 544 553 1,097
Savings............ 344 1,166 1,510 (2,074) 736 (1,338)
Other time......... 3,033 (598) 2,435 6,867 7,327 14,194
Short-term borrowings (350) (1,192) (1,542) 482 859 1,341
Long-term debt....... 873 253 1,126 546 (157) 389
------- ------- ------- ------- -------- -------
5,522 (2,603) 2,919 6,365 9,318 15,683
------- ------- ------- ------- -------- -------
NET CHANGE........... $ 7,580 $ 587 $ 8,167 $ 5,968 $ 2,854 $ 8,822
======= ======= ======= ======= ======== =======
The amount of change not solely due to rate or volume changes was allocated
between the change due to volume and the change due to rate based on the net
size of the volume and rate changes.
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses charged to operations is a direct result of
management's analysis of the adequacy of the allowance for loan losses which
takes into consideration factors, including qualitative factors, relevant to
the collectibility of the existing portfolio. The provision for loan losses
increased 36.5% to $9.9 million in 1996. This increase resulted from applying
a consistent allowance for loan loss policy and methodology for evaluating the
adequacy of the allowance across all affiliates, including 1996 acquisitions.
(See "Non-Performing Loans and Allowance for Loan Losses" discussion).
NON-INTEREST INCOME
Total non-interest income increased 5.7% from $19.9 million in 1995 to $21.0
million in 1996. This increase was attributable to increases in service charges
and gains on the sale of securities and loans.
Service charges increased 6.4% from $11.0 million in 1995 to $11.7 million in
1996. This increase was primarily a result of increases in the level of
deposits.
Net gains on the sale of securities increased 59.6% due to a higher level of
equity security sales in 1996.
NON-INTEREST EXPENSES
Total non-interest expense increased from $81.1 million in 1995 to $89.4
million in 1996. The increase is primarily attributable to a one-time
assessment of $2.8 million to recapitalize the SAIF and merger-related
expenses of $2.1 million. In addition, salaries and employee benefits
increased by $3.5 million.
Salaries and personnel expense increased 9.0% in 1996. This increase was due
to expansion in the Corporation's retail network and increases for incentive
compensation, as well as normal annual salary adjustments. The Corporation's
incentive compensation plans allow for additional compensation to be paid to
employees based on the Corporation achieving various financial and productivity
goals.
On September 30, 1996, the President of the United States signed into law the
Deposit Insurance Funds Act of 1996 to recapitalize the SAIF. The legislation
included a one-time assessment on all deposits insured by the SAIF, including
those held by chartered commercial banks as a result of previous acquisitions.
The Corporation was required to pay a one-time assessment of $2.8 million. The
legislation also included provisions that will result in a reduction in future
annual deposit insurance.
Other non-interest expenses increased $3.6 million to $19.7 million in 1996.
Included in this total was $2.1 million of merger related expenses.
INCOME TAXES
The Corporation recognized income tax expense of $10.5 million for 1996
compared to $10.9 million for 1995. The 1996 effective tax rate of 33% was
lower than the 35% federal statutory tax rate due to the tax benefits
resulting from tax-exempt instruments and excludable dividend income.
Additional information relating to income taxes is furnished in the Notes to
Supplemental Consolidated Financial Statements.
<PAGE>
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. Securities due to mature within one year, which will provide a source of
short-term liquidity, amounted to $134.6 million or 26.8% of the investment
portfolio.
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 $27.0 million was unused at the end of 1996. To
further meet its liquidity needs, the Corporation also has access to the
Federal Home Loan Bank and the Federal Reserve Bank, as well as other
uncommitted funding sources.
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 matched maturity funding.
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.
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 estimate
their true behavior and characteristics. The cumulative gap reflects the net
position of assets and liabilities repricing in specified time periods.
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 result in a minimal reduction in net interest income.
<PAGE>
Following is the gap analysis as of December 31, 1996 (dollars in thousands):
WITHIN 4-12 1-5 OVER
3 MONTHS MONTHS YEARS 5 YEARS TOTAL
--------- --------- --------- --------- ----------
INTEREST EARNING ASSETS
Interest bearing
deposits with
banks............... $ 1,234 $ 100 $ 1,334
Federal funds sold.... 11,510 11,510
Securities............ 45,457 89,093 $ 322,549 $ 44,711 501,810
Loans, net of
unearned income...... 452,110 396,346 665,854 290,354 1,804,664
--------- --------- --------- --------- ----------
510,311 485,539 988,403 335,065 2,319,318
Other assets.......... 183,262 183,262
--------- --------- --------- --------- ----------
$ 510,311 $ 485,539 $ 988,403 $ 518,327 $2,502,580
========= ========= ========= ========= ==========
INTEREST BEARING LIABILITIES
Deposits:
Interest checking... $ 18,403 $ 45,820 $ 233,330 $ 3,894 $ 301,447
Savings............. 92,785 135,384 359,947 1,521 589,637
Time deposits....... 224,291 411,835 312,652 1,146 949,924
Short-term borrowings. 75,891 16,767 23,468 116,126
Long-term debt........ 7,727 25,528 10,559 14,365 58,179
--------- --------- --------- --------- ----------
419,097 635,334 939,956 20,926 2,015,313
Other liabilities 280,074 280,074
Stockholders' equity.. 207,193 207,193
--------- --------- --------- --------- ----------
$ 419,097 $ 635,334 $ 939,956 $ 508,193 $2,502,580
========= ========= ========= ========= ==========
PERIOD GAP............ $ 91,214 $(149,795) $ 48,447 $ 10,134
========= ========= ========= =========
CUMULATIVE GAP........ $ 91,214 $ (58,581) $ (10,134)
========= ========= =========
RATE SENSITIVE ASSETS/
RATE SENSITIVE
LIABILITIES
(CUMULATIVE)......... 1.22 .94 .99 1.15
========= ========= ========= =========
CUMULATIVE GAP AS
A PERCENT OF TOTAL
ASSETS............... 3.6% (2.3)% (0.9)%
========= ========== =========
<PAGE>
FINANCIAL CONDITION
LOAN PORTFOLIO
Following is a summary of loans (dollars in thousands):
December 31 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
Real estate:
Residential..... $ 716,672 $ 634,335 $ 572,332 $ 498,554 $ 409,884
Commercial...... 441,767 401,030 316,992 254,154 297,094
Construction.... 44,296 37,043 50,715 30,288 29,149
Installment loans
to individuals.. 397,600 385,506 372,394 280,514 268,193
Commercial,
financial and
agricultural.... 196,549 172,208 219,424 225,215 220,807
Lease financing.. 21,538 5,037
Unearned income.. (23,846) (27,377) (22,812) (22,821) (22,419)
---------- ---------- ---------- ---------- ----------
$1,794,576 $1,607,782 $1,509,045 $1,265,904 $1,202,708
========== ========== ========== ========== ==========
The Corporation strives to minimize credit losses by utilizing credit approval
standards, diversifying its loan portfolio by industry and borrower conducting
ongoing review and management of the loan portfolio.
The ratio of loans to deposits at the end of 1996 was 86.0%, up from a ratio
of 81.6% at the end of 1995. The increase in the ratio was a result of loan
growth of 11.6%, exceeding a 5.9% increase in deposits.
During 1996 and 1995 the Corporation sold $44.9 million and $55.3 million,
respectively, in fixed rate residential mortgages to the Federal National
Mortgage Association (FNMA). These sales allowed the Corporation to avoid the
potential interest rate risk of those fixed rate loans in a rising rate
environment. Additionally, it created liquidity for the Corporation to continue
to offer credit availability to the markets it serves. All of the mortgages
were sold with the servicing retained by the Corporation.
In 1996, total installment loans to individuals and lease financing increased
7.3% to $419.1 million. The installment loan portfolio was comprised of $269.3
million in direct loans, $128.3 million in indirect loans and $31.7 million in
sub-prime motor vehicle loans. The overall growth reflects a continuation of
strong demand for indirect automobile loans and leases.
The commercial loan portfolio consists principally of loans to small- and
medium-sized businesses within the Corporation's primary market area of western
Pennsylvania, southwest Florida and eastern Ohio. The Corporation generally
avoids making significant loans to any single borrower in order to minimize
credit risk.
As of December 31, 1996, 1995 and 1994, no concentrations of loans exceeding
10% of total loans existed which were not disclosed as a separate category of
loans.
<PAGE>
Following is a summary of the maturity distribution of certain loan categories
based on remaining scheduled repayments of principal (in thousands):
WITHIN ONE TO AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -------
DECEMBER 31, 1996
Commercial, financial
and agricultural................. $104,745 $76,520 $15,284 $196,549
Real Estate - construction......... 29,610 12,656 2,030 44,296
-------- ------- ------- --------
Total loans (excluding Real
estate - mortgage, Installment
loans to individuals and Lease
financing)....................... $134,355 $89,176 $17,314 $240,845
======== ======= ======= ========
The total amount of loans due after one year includes $36.9 million with
floating or adjustable rates of interest and $69.9 million had fixed rates of
interest.
NON-PERFORMING LOANS
Non-performing loans include non-accrual loans and restructured loans. Non-
accrual loans represent loans on which interest accruals have been discontinued.
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 loans (dollars in thousands):
December 31 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Non-accrual loans........ $ 9,644 $ 9,567 $11,244 $11,055 $10,531
Restructured loans....... 2,146 3,075 3,157 3,236 1,388
------- ------- ------- ------- -------
$11,790 $12,642 $14,401 $14,291 $11,919
======= ======= ======= ======= =======
Non-performing loans as a
percentage of total loans .66% .79% .95% 1.16% .99%
Following is a table showing the amounts of contractual interest income and
actual interest income recorded on non-accrual and restructured loans (in
thousands):
Year Ended December 31 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Gross interest income that
would have been recorded
if the loans had been
current and in accordance
with their original terms.. $1,414 $1,298 $1,791 $1,827 $1,705
Interest income included
in income on the loans..... 763 685 676 708 998
<PAGE>
Following is a summary of loans 90 days or more past due, on which interest
accruals continue (dollars in thousands):
December 31 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Loans 90 days or more
past due................... $3,003 $3,872 $2,753 $3,659 $4,437
Loans 90 days or more past
due as a percentage of
total loans................ .17% .25% .19% .29% .39%
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 the 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 (dollars in
thousands):
Year Ended December 31 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Balance at beginning of year... $24,967 $23,018 $18,622 $16,802 $13,813
Addition arising in purchase
transactions................ 376
Loss reserves transferred on
loans sold.................. (893) (685)
Charge-offs:
Real estate - mortgage........ (421) (604) (1,454) (591) (2,214)
Installment loans to
individuals.................. (5,939) (5,407) (3,821) (3,980) (4,088)
Commercial, financial and
agricultural................ (1,451) (1,226) (1,564) (4,159) (7,774)
------- ------- ------- ------- -------
(7,811) (7,237) (6,839) (8,730) (14,076)
------- ------- ------- ------- -------
Recoveries:
Real estate - mortgage......... 128 189 98 173 287
Installment loans to
individuals.................. 1,047 1,124 968 783 716
Commercial, financial and
agricultural................ 442 638 928 501 296
------- ------- ------- ------- -------
1,617 1,951 1,994 1,457 1,299
------- ------- ------- ------- -------
Net charge-offs................. (6,194) (5,286) (4,845) (7,273) (12,777)
Provision for loan losses....... 9,876 7,235 9,241 9,986 16,075
------- ------- ------- ------- -------
Balance at end of year.......... $28,649 $24,967 $23,018 $18,622 $16,802
======= ======= ======= ======= =======
Net charge-offs as a percent of
average loans, net of unearned
income........................ .36% .34% .34% .56% 1.10%
Allowance for loan losses as a
percent of total loans, net
of unearned income............ 1.60 1.55 1.53 1.47 1.40
Allowance for loan losses
as a percent of
non-performing loans.......... 242.99 197.49 159.84 130.31 140.97
<PAGE>
Consistent with the growth in installment loans to individuals, the
Corporation has experienced an increase in charge-offs. Installment loans to
individuals are generally charged off no later than a predetermined number of
days past due on a contractual basis or earlier in the event of bankruptcy.
During 1996, charge-offs increased to $5.9 million from $5.4 million in 1995,
resulting in a $1.0 increase in the allocation of the allowance for loan losses
to installment loans, as the allowance for loan losses represented 1.73% of
total installment loans at December 31, 1996, as compared to 1.57% at
December 31, 1995.
The Corporation has allocated the allowance according to the amount deemed to
be reasonably necessary to provide for the possibility of losses being incurred
within each of the categories of loans shown in the table below. The allocation
of the allowance should not be interpreted as an indication that loan losses in
future years will occur in the same proportions or that the allocation indicates
future loan loss trends. Furthermore, the portion allocated to each loan
category is not the sole amount available for future losses within such
categories since the total allowance is a general allowance applicable to the
entire portfolio.
Following shows the allocation of the allowance for loan losses (in
thousands):
<TABLE>
<CAPTION>
% OF % OF % OF % OF % OF
LOANS LOANS LOANS LOANS LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
Year Ended
December 31 1996 LOANS 1995 LOANS 1994 LOANS 1993 LOANS 1992 LOANS
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
financial and
agricultural..... $ 7,116 35% $ 6,239 35% $ 8,321 35% $ 7,281 37% $ 6,497 42%
Real estate -
construction.... 121 2 88 2 216 3 520 2 495 2
Real estate -
mortgage........ 3,395 40 3,506 39 3,817 38 3,068 40 2,877 34
Installment
loans to
individuals...... 7,407 23 6,414 24 5,067 24 4,552 21 4,317 22
Unallocated
portion......... 10,610 8,720 5,597 3,201 2,616
------- --- ------- --- ------- --- ------- --- ------- ---
$28,649 100% $24,967 100% $23,018 100% $18,622 100% $16,802 100%
======= ======= ======= ======= =======
</TABLE>
INVESTMENT ACTIVITY
Investment activities serve to enhance overall yield on earning assets while
supporting interest rate sensitivity and liquidity positions. Securities
purchased with the intent and ability to retain until maturity are categorized
as securities held to maturity and carried at amortized cost. All other
securities are categorized as securities available for sale and must be marked
to market.
Under the guidelines of FAS No. 115, institutions that sell securities out of
the securities held to maturity portfolio risk being forced to mark to market
the remaining securities in the portfolio since they have not demonstrated their
intent to hold these securities to maturity. In 1995, the Financial Accounting
Standards Board (FASB) approved an amnesty period during which institutions had
the opportunity to redesignate securities under FAS 115. The Corporation took
advantage of this opportunity to reclass $97.5 million of securities held to
maturity to securities available for sale. This movement allows the Corporation
greater flexibility in managing its portfolio to take advantage of market
conditions and provided an opportunity to better manage interest rate risk.
The relatively short average maturity of all securities provides a source of
liquidity to the Corporation and reduces the overall market risk of the
portfolio.
<PAGE>
During 1996, securities available for sale increased 13.2% while securities
held to maturity remained consistent with December 31, 1995.
The following table indicates the respective maturities and weighted-average
yields of investment securities as of December 31, 1996 (in thousands):
Weighted
Amount Average Yield
------ -------------
Obligations of U.S. Treasury and
Other U.S. Government agencies:
Maturing within one year....................... $ 127,019 6.01%
Maturing after one year within five years...... 130,621 5.92%
Maturing after five years within ten years..... 19,363 7.01%
Maturing after ten years...................... 707 2.10%
State & political subdivisions:
Maturing within one year....................... 4,796 4.73%
Maturing after one year within five years...... 40,945 5.65%
Maturing after five years within ten years..... 9,391 5.13%
Maturing after ten years....................... 437 4.86%
Other securities:
Maturing within one year....................... 1,004 5.76%
Maturing after one year within five years...... 1,003 6.04%
Maturing after five years within ten years..... 5 5.50%
Maturing after ten years....................... 15 3.71%
Mortgage-backed securities........................ 148,341 6.04%
No stated maturity................................ 18,163 6.13%
--------- ------
TOTAL..................................... $ 501,810 5.97%
========= ======
The weighted average yields for tax exempt securities are computed on a tax
equivalent basis.
DEPOSITS AND SHORT-TERM BORROWINGS
As a commercial bank holding company, the Corporation's primary source of
funds is its deposits. Those deposits are provided by businesses and
individuals located within the markets served by the Corporation's subsidiaries.
Total deposits increased 5.9% to $2.1 billion in 1996. The majority of this
increase was due to a 11.5% increase in savings and NOW accounts. Additionally,
time deposits increased 2.3% to $949.9 million.
Short-term borrowings, made up of repurchase agreements, federal funds
purchased, notes payable and subordinated notes increased 53.4% in 1996 to
$116.1 million. The primary reason for this increase was a higher level of
federal funds purchased in 1996 and an increase of $14.9 million in securities
sold under repurchase agreements.
<PAGE>
Subordinated notes are the largest component of short-term borrowings. At
December 31, 1996, subordinated notes represented 47.5% of total short-term
borrowings. Following is a summary of selected financial information on short-
term subordinated notes (dollars in thousands):
December 31 1996 1995 1994
-------- -------- --------
Balance at end of year........................ $ 55,201 $ 47,362 $ 48,085
Maximum month end balance..................... 57,073 47,675 56,126
Average balance during the year............... 54,252 45,912 52,830
Weighted average interest rates:
At end of year.............................. 5.35% 5.69% 5.21%
During the year............................. 5.57 5.54 5.06
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 an ongoing process. Central to this
process is internal equity generation accomplished by earnings retention.
During 1996, retained earnings increased $14.1 million as a result of earnings
retention versus $17.7 million in 1995. Total cash dividends declared
represented 32.8% of net income for 1996 compared to 19.6% for 1995. Book
value per share was $13.70 at December 31, 1996, compared to $12.80 at
December 31, 1995.
<PAGE>
1995 VERSUS 1994
The Corporation's net income was $22.1 million for 1995 versus $16.1 million
for 1994. Basic earnings per share were $1.47 and $1.08 for 1995 and 1994,
while diluted earnings were $1.42 and $1.06, respectively, for those same
periods. The key factors attributing to the increase in earnings were
improving credit quality, which allowed for lower loan loss provisions, and
an increase in higher yielding assets. The Corporation's asset quality
improved steadily from 1994 to 1995, as indicated by several key credit ratios.
At December 31, 1995, non-performing assets decreased to .75% of total assets
compared to .90% at December 31, 1994. The allowance for loan losses increased
to 1.55% of total loans compared to 1.52% a year earlier. The ratio of net
charge-offs to average loans outstanding remained constant at .34% in 1995
and 1994. Increases in both the return on average equity from 9.79% in 1994 to
12.06% in 1995 and the return on average assets from .77% in 1994 to .99% in
1995 reflect the improved performance of the Corporation.
Net interest income, on a fully taxable equivalent basis, increased from $94.9
million in 1994 to $103.7 million in 1995, an increase of 9.3%. Net margin rose
to 4.97% from 4.84% in 1994. Average loans increased 9.5% from 1994,
contributing to the improvement in net interest income.
The provision for loan losses was $7.2 million and represented a decrease of
21.7% from 1994, when a provision of $9.2 million was charged to operations.
The decrease in the provision was a direct result of improvement in asset
quality.
Non-interest income increased 12.1% from $17.7 million in 1994 to $19.9
million in 1995. This increase was attributable to increases in service
charges and gains on sale of loans, offset by a decrease in gains on the sale
of securities. Service charges increased 23.8% from $8.9 million in 1994 to
$11.0 million in 1995. Revenue was recognized as a result of an increase in
total deposits. Net gain on the sale of loans increased $418,000 in 1995.
Net gain on the sale of securities decreased $732,000 due to fewer security
sales during 1995.
Total non-interest expenses increased from $76.9 million in 1994 to $81.1
million in 1995. Salaries and personnel expense increased 10.4% in 1995,
primarily due to an increase in employment levels in Florida resulting from the
opening of three new branch offices. Deposit insurance decreased $1.4 million
in 1995. This was the result of the FDIC lowering the insurance premiums for
banks, since the Bank Insurance Fund had been funded to the required level.
Conversely, the SAIF was still under-funded and those premiums were not reduced.
Income tax expense increased 34.9% to $10.9 million for 1995 as a result of
the Corporation generating more taxable income. The 1995 effective tax rate of
33% was below the 35% statutory tax rate due to the tax benefits resulting from
income on tax-exempt instruments and excludable dividend income.
<PAGE>
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
January 22, 1997
Board of Directors and Stockholders
of Southwest Banks, Inc.
Naples, Florida
We have audited the accompanying consolidated balance sheets of Southwest Banks,
Inc. and its subsidiaries, First National Bank of Naples and Cape Coral National
Bank (collectively, the Company), as of December 31, 1996 and 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Southwest Banks, Inc. and its subsidiaries as of December 31, 1996 and 1995
and the consolidated results of their operations and their consolidated cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
HILL, BARTH & KING, INC.
NAPLES, FLORIDA
<PAGE>
EXHIBIT 99.3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
West Coast Bancorp, Inc. and Subsidiary
Cape Coral, Florida
We have audited the accompanying consolidated balance sheets of West Coast
Bancorp, Inc. and Subsidiary at December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of West Coast
Bancorp, Inc. and Subsidiary at December 31, 1996 and 1995, and the
onsolidated statements of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
FORT MYERS, FLORIDA
January 24, 1997
<PAGE>
EXHIBIT 99.4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
West Coast Bancorp, Inc. and Subsidiary
Cape Coral, Florida
We have audited the accompanying consolidated balance sheets of West Coast
Bancorp, Inc. and Subsidiary at December 31, 1995 and 1994, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of West Coast
Bancorp, Inc. and Subsidiary at December 31, 1995 and 1994, and the
consolidated statements of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting
by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures," as
of January 1, 1995.
COOPERS & LYBRAND L.L.P.
FORT MYERS, FLORIDA
January 19, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 111,542
<INT-BEARING-DEPOSITS> 1,334
<FED-FUNDS-SOLD> 11,510
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 327,259
<INVESTMENTS-CARRYING> 174,551
<INVESTMENTS-MARKET> 173,677
<LOANS> 1,794,576
<ALLOWANCE> 28,649
<TOTAL-ASSETS> 2,502,580
<DEPOSITS> 2,085,852
<SHORT-TERM> 116,126
<LIABILITIES-OTHER> 35,229
<LONG-TERM> 58,179
<COMMON> 27,760
0
3,525
<OTHER-SE> 175,909
<TOTAL-LIABILITIES-AND-EQUITY> 2,502,580
<INTEREST-LOAN> 160,315
<INTEREST-INVEST> 26,722
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<INTEREST-DEPOSIT> 71,747
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<INTEREST-INCOME-NET> 109,757
<LOAN-LOSSES> 9,876
<SECURITIES-GAINS> 787
<EXPENSE-OTHER> 89,361
<INCOME-PRETAX> 31,546
<INCOME-PRE-EXTRAORDINARY> 31,546
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,997
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.34
<YIELD-ACTUAL> 8.63
<LOANS-NON> 9,644
<LOANS-PAST> 3,003
<LOANS-TROUBLED> 2,146
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<ALLOWANCE-OPEN> 24,967
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