UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------- -------------------------
Commission file number 0-8144
------
F.N.B. CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1255406
- ---------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One F.N.B. Boulevard, Hermitage, PA 16148
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(724) 981-6000
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1998
----- ----------------------------
Common Stock, $2 Par Value 16,930,488 Shares
- -------------------------- -----------------
<PAGE>
F.N.B. CORPORATION
FORM 10-Q
June 30, 1998
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet 2
Consolidated Income Statement 3
Consolidated Statement of Cash Flows 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Dollars in thousands, except par values
JUNE 30, DECEMBER 31,
1998 1997
------------- ------------
UNAUDITED
-------------
ASSETS
Cash and due from banks $ 102,595 $ 99,634
Interest bearing deposits with banks 6,065 4,081
Federal funds sold 27,826 30,564
Mortgage loans held for sale 11,220 6,536
Securities available for sale 448,765 443,711
Securities held to maturity (fair
value of $108,693 and $133,716) 108,297 133,409
Loans, net of unearned income of
$24,811 and $20,532 2,111,360 2,022,447
Allowance for loan losses (30,180) (29,066)
---------- ----------
NET LOANS 2,081,180 1,993,381
---------- ----------
Premises and equipment 79,777 67,906
Other assets 77,020 71,308
---------- ----------
$2,942,745 $2,850,530
========== ==========
LIABILITIES
Deposits:
Non-interest bearing $ 303,492 $ 281,759
Interest bearing 2,136,941 2,085,068
---------- ----------
TOTAL DEPOSITS 2,440,433 2,366,827
Other liabilities 42,362 39,287
Short-term borrowings 135,018 123,752
Long-term debt 70,614 72,246
---------- ----------
TOTAL LIABILITIES 2,688,427 2,602,112
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock - $10 par value
Authorized - 20,000,000 shares
Issued - 271,917 and 287,500 shares
Aggregate liquidation value -
$6,798 and $7,188 2,719 2,875
Common stock - $2 par value
Authorized - 100,000,000 shares
Issued - 16,983,152 and 16,187,938 shares 33,966 32,376
Additional paid-in capital 152,720 124,901
Retained earnings 61,705 86,632
Accumulated other comprehensive income 6,074 5,262
Treasury stock - 78,367 and 113,592 shares at cost (2,866) (3,628)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 254,318 248,418
---------- ----------
$2,942,745 $2,850,530
========== ==========
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
Dollars in thousands, except per share data
Unaudited
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------- ------------------
1998 1997 1998 1997
------- ------- -------- --------
INTEREST INCOME
Loans, including fees $47,187 $43,958 $ 93,305 $ 86,788
Securities:
Taxable 7,328 6,732 14,768 13,148
Nontaxable 515 606 1,079 1,208
Dividends 359 253 805 543
Other 1,152 758 2,126 1,690
------- ------- -------- --------
TOTAL INTEREST INCOME 56,541 52,307 112,083 103,377
------- ------- -------- --------
INTEREST EXPENSE
Deposits 22,286 19,884 44,250 39,274
Short-term borrowings 1,470 1,483 2,998 2,942
Long-term debt 1,300 854 2,346 1,608
------- ------- -------- --------
TOTAL INTEREST EXPENSE 25,056 22,221 49,594 43,824
------- ------- -------- --------
NET INTEREST INCOME 31,485 30,086 62,489 59,553
Provision for loan losses 1,598 3,580 3,284 5,922
------- ------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 29,887 26,506 59,205 53,631
------- ------- -------- --------
NON-INTEREST INCOME
Insurance commissions and fees 1,004 1,075 2,010 2,106
Service charges 3,710 3,081 7,300 6,240
Trust 335 417 694 856
Gain (loss) on sale of securities 407 (55) 945 439
Other 1,697 918 3,222 2,029
------ ------- -------- --------
TOTAL NON-INTEREST INCOME 7,153 5,436 14,171 11,670
37,040 31,942 73,376 65,301
------- ------- -------- --------
NON-INTEREST EXPENSES
Salaries and employee benefits 13,777 13,065 27,526 25,410
Net occupancy 1,877 1,786 3,758 3,636
Equipment 1,978 1,839 3,830 3,495
Merger related 1,781 1,102 1,951 1,102
Other 6,567 9,243 13,896 15,901
------- ------- -------- --------
TOTAL NON-INTEREST EXPENSES 25,980 27,035 50,961 49,544
------- ------- -------- --------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 11,060 4,907 22,415 15,757
Income taxes 3,962 1,524 7,539 5,082
INCOME BEFORE EXTRAORDINARY ITEM 7,098 3,383 14,876 10,675
Gain on sale of subsidiary, net of tax 5,227 5,227
------- ------- -------- --------
NET INCOME $ 7,098 $ 8,610 $ 14,876 $ 15,902
======= ======= ======== ========
INCOME PER COMMON SHARE BEFORE
EXTRAORDINARY ITEM:
Basic $ .41 $ .20 $ .87 $ .64
======= ======= ======== ========
Diluted $ .40 $ .20 $ .83 $ .62
======= ======= ======== ========
NET INCOME PER COMMON SHARE:
Basic $ .41 $ .52 $ .87 $ .97
======= ======= ======== ========
Diluted $ .40 $ .50 $ .83 $ .92
======= ======= ======== ========
CASH DIVIDENDS PER COMMON SHARE $ .18 $ .15 $ .35 $ .30
======= ======= ======== ========
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Dollars in thousands
Unaudited
Six Months Ended June 30 1998 1997
--------- ---------
OPERATING ACTIVITIES
Net income $ 14,876 $ 15,902
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,991 4,128
Provision for loan losses 3,284 5,922
Deferred taxes (481) 1,707
Net gain on sale of securities (945) (439)
Net gain on sale of loans (1,427) (947)
Proceeds from sale of loans 66,626 16,522
Loans originated for sale (69,883) (13,633)
Extraordinary gain on sale of subsidiary,
net of tax (5,227)
Net change in:
Interest receivable (849) (1,884)
Interest payable 930 (94)
Other, net (2,739) (3,912)
--------- ---------
Net cash flows from operating activities 13,383 18,045
--------- ---------
INVESTING ACTIVITIES
Net change in:
Interest bearing deposits with banks (1,984) (871)
Federal funds sold 2,738 (8,779)
Loans (91,640) (95,219)
Securities available for sale:
Purchases (120,958) (109,244)
Sales 8,307 15,742
Maturities 109,962 100,784
Securities held to maturity:
Purchases (4,208) (6,740)
Maturities 29,364 18,734
Increase in premises and equipment (15,455) (8,447)
Net cash paid for mergers, acquisitions
and divestiture (5,976)
Net cash flows from --------- ---------
investing activities (83,874) (100,016)
--------- ---------
FINANCING ACTIVITIES
Net change in:
Non-interest bearing deposits,
savings and NOW 25,642 67,148
Time deposits 47,964 (2,668)
Short-term borrowings 11,266 18,136
Increase in long-term debt 5,413 16,073
Decrease in long-term debt (7,045) (25,312)
Net acquisition of treasury stock (3,764) 58
Cash dividends paid (6,024) (4,639)
--------- ---------
Net cash flows from financing activities 73,452 68,796
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND DUE FROM BANKS 2,961 (13,175)
Cash and due from banks at beginning of period 99,634 114,610
--------- ---------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 102,595 $ 101,435
========= =========
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements give
retroactive effect to the mergers of West Coast Bank (West Coast) and Seminole
Bank (Seminole) with and into F.N.B. Corporation (the Corporation). The
mergers, which were consummated on January 20, 1998 and May 29, 1998, resulted
in the Corporation issuing 585,263 and 855,454 shares of common stock,
respectively. The transactions have been accounted for as poolings-of-
interests, and such financial statements are presented as if the mergers had
been consummated for all the periods presented. The financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements for the year ended December 31, 1997 and footnotes thereto included
in the Corporation's Current Report on Form 8-K filed with the Securities and
Exchange Commission on July 6, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results could differ from those estimates.
PER SHARE AMOUNTS
Per share amounts have been adjusted for common stock dividends,
including the 5% stock dividend declared on April 9, 1998 and paid on May 24,
1998.
Basic earnings per 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 are made only when such adjustments dilute earnings per share.
<PAGE>
EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
Three Months Ended Six Months Ended
June 30, June 30, 1998
---------------------- ---------------------
1998 1997 1998 1997
---------- ---------- ---------- ---------
BASIC
Income before extraordinary item $ 7,098 $ 3,383 $ 14,876 $ 10,675
Less: Preferred stock
dividends declared (126) (154) (259) (314)
---------- ---------- ---------- ----------
Income before extraordinary item
applicable to basic earnings
per share 6,972 3,229 14,617 10,361
Extraordinary item, net of tax 5,227 5,227
---------- ---------- ---------- ----------
Earnings applicable to basic
earnings per share $ 6,972 $ 8,456 $ 14,617 $ 15,588
========== ========== ========== ==========
Average common
shares outstanding 16,875,575 16,153,425 16,871,532 16,089,739
========== ========== ========== ==========
Income before extraordinary item $.41 $.20 $.87 $.64
Extraordinary item, net of tax .32 .32
---- ---- ---- ----
Earnings per share $.41 $.52 $.87 $.97
==== ==== ==== ====
DILUTED
Income before extraordinary
item $ 7,098 $ 3,383 $ 14,876 $ 10,675
Extraordinary item, net of tax 5,227 5,227
---------- ---------- ---------- ----------
Earnings applicable to
diluted earnings per share $ 7,098 $ 8,610 $ 14,876 $ 15,902
========== ========== ========== ==========
Average common shares
outstanding 16,875,575 16,153,425 16,871,532 16,089,739
Series A convertible
preferred stock 15,202 21,118 15,202 21,118
Series B convertible
preferred stock 568,260 624,604 578,723 649,413
Net effect of dilutive
stock options and stock
warrants based on the
treasury stock method 535,180 489,653 536,456 462,907
---------- ---------- ---------- ----------
17,994,217 17,288,800 18,001,913 17,223,177
========== ========== ========== ==========
Income before extraordinary item $.40 $.20 $.83 $.62
Extraordinary item, net of tax .30 .30
---- ---- ----- ----
Earnings per share $.40 $.50 $.83 $.92
==== ==== ==== ====
CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information (in thousands):
Six months ended June 30 1998 1997
-------- --------
Cash paid for:
Interest $48,664 $42,918
Taxes 6,685 4,718
Noncash Investing and Financing Activities:
Acquisition of real estate in
settlement of loans 723 960
Loans granted in the sale of
other real estate 141 1,031
<PAGE>
COMPREHENSIVE INCOME
As of January 1, 1998, the Corporation adopted Financial Accounting
Standards Board Statement (FAS) No. 130, "Reporting Comprehensive Income." FAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of FAS No. 130 had no impact on
the Corporation's net income or stockholders' equity. FAS No. 130 requires
unrealized gains or losses on the Corporation's available for sale securities,
which prior to adoption were reported separately in stockholders' equity, to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of FAS No. 130.
The components of comprehensive income, net of related tax, are as
follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
1998 1997 1998 1997
-------- ------- -------- --------
Net income $7,098 $8,610 $14,876 $15,902
Other comprehensive income:
Unrealized gains(losses)
on securities:
Unrealized holding gains
(losses) arising during
the period 520 1,930 1,393 130
Less: reclassification
adjustment for gains
included in net income (235) (581) (374)
------ ------- ------- -------
Other comprehensive income 285 1,930 812 (244)
------ ------- ------- -------
Comprehensive income $7,383 $10,540 $15,688 $15,658
====== ======= ======= =======
MERGERS AND ACQUISITIONS
On April 6, 1998, the Corporation signed a definitive merger agreement
with Citizens Bank & Trust (Citizens), a community bank headquartered in
Clearwater, Florida with assets of $116.0 million. The merger agreement calls
for the exchange of the Corporation's common stock for each share of Citizens
Holding Company, parent company of Citizens, common stock. The exchange ratio,
which is based upon the average price of the Corporation's common stock prior to
closing, ranges from 1.689 to 1.728 shares of the Corporation's common stock for
each share of Citizens common stock. At June 30, 1998, Citizens had 580,800
shares of common stock outstanding and options covering 96,000 shares of common
stock. Citizens will be merged into an existing subsidiary of the Corporation,
First National Bank of Florida (FNB Florida), formerly Indian Rocks National
Bank, in Largo, Florida. The transaction, which is expected to close during the
third quarter of 1998 pending regulatory and shareholder approval, is expected
to be accounted for as a pooling-of-interests
On May 29, 1998, the Corporation completed its merger with Seminole,
headquartered in Seminole, Florida with assets totaling $91.5 million. Under
the terms of the agreement, each outstanding share of Seminole's common stock
was converted into 1.530 shares of the Corporation's common stock. A total of
855,454 shares of the Corporation's common shares were issued. Results for
prior years are restated to reflect this acquisition as a pooling-of-interests.
Seminole will be merged into an existing subsidiary of the Corporation, FNB
Florida before the end of the year. The following table sets forth separate
company financial information for the quarter ended March 31, 1998 (in
thousands):
F.N.B.
Corporation Seminole
----------- ----------
Net interest income $29,995 $1,009
Net income 7,470 328
<PAGE>
On January 20, 1998, the Corporation completed its merger with West
Coast, headquartered in Sarasota, Florida, with assets totaling $107.4 million.
Under the terms of the agreement, each outstanding share of West Coast's common
stock was converted into 1.0 share of the Corporation's common stock. A total
of 585,263 shares of the Corporation's common stock were issued. Results for
prior years are restated to reflect this acquisition as a pooling-of-interests.
The following table sets forth separate company financial information for the
year ended December 31, 1997 (in thousands):
F.N.B.
Corporation West Coast
----------- ----------
Net interest income $111,030 $4,013
Net income 33,123 879
The Corporation regularly evaluates the potential acquisition of, and
holds discussions with, various potential acquisition candidates and as a
general rule the Corporation publicly announces such acquisitions only after a
definitive agreement has been reached.
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation monitors its liquidity position on an ongoing basis to
assure that it is able to meet the need for funds at all times. Given the
monetary nature of its assets and liabilities and the significant source of
liquidity provided by its securities portfolio, the Corporation has sufficient
sources of funds available to meet its cash needs.
Additionally, the Corporation has external sources of funds available
should it desire to use them. These include approved lines of credit with
several major domestic banks, of which $31.0 million was unused at June 30,
1998. 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.
The financial performance of the Corporation is subject to risk from
interest rate fluctuations. This interest rate risk arises due to differences
between the amount of interest-earning assets and the amount of interest-bearing
liabilities subject to pricing over a specified period, the amount of change in
individual interest rates and the embedded options in all financial instruments.
The principal objective of the Corporation's asset/liability management
activities is to maximize net interest income while maintaining acceptable
levels of interest rate and liquidity risk and facilitating the funding needs of
the Corporation. The Corporation's Asset/Liability Committee (ALCO) is
responsible for achieving this objective. The Corporation uses an
asset/liability model to quantify its balance sheet strategies and their
associated risks. Net interest income simulation is the principal tool utilized
for these purposes. Gap analysis is employed as a secondary diagnostic
measurement. The Corporation attempts to mitigate interest rate risk through
asset deployment, asset and liability pricing and matched maturity funding.
<PAGE>
A gradual 300 basis point decrease in interest rates is estimated to
cause a decline in net interest income of .6% or $800,000 as compared to net
interest income if interest rates were unchanged over the next twelve months.
This low level of variation is within the Corporation's policy limits. This
simulation analysis assumed that savings and checking interest rates have a low
correlation to changes in market rates of interest and that certain asset
prepayments changed as refinancing incentives evolved. Further, in the event of
a change of such a magnitude in interest rates, the ALCO would likely take
actions to further mitigate its exposure to the change. However, due to the
greater uncertainty of other specific actions that would be taken, the analysis
assumed no change in the Corporation's asset/liability composition.
The gap analysis which follows is based on the amortization, maturity or
repricing of the Corporation's interest-earning assets and interest-bearing
liabilities. Non-maturity deposits have been allocated to represent their lower
sensitivity to changes in market interest rates than other adjustable rate
instruments. The cumulative gap represents the difference between these assets
and liabilities over a specified time period. Based on the cumulative one year
gap and assuming no change in asset/liability composition, a decrease in
interest rates would be expected to result in slightly lower net interest
income. The gap position is within the Corporation's policy limits.
Following is the gap analysis as of June 30, 1998 (in thousands):
Within 4-12 1-5 Over
3 Months Months Years 5 years Total
--------- --------- ---------- ---------- ----------
INTEREST EARNING ASSETS
Interest bearing
deposits with
banks $ 5,965 $ 100 $ 6,065
Federal funds sold 27,826 27,826
Loans held for sale 11,220 11,220
Securities:
Available for sale 41,466 99,222 $ 233,492 $ 74,585 448,765
Held to maturity 23,825 30,421 45,117 8,934 108,297
Loans, net of unearned 626,403 565,031 807,217 112,709 2,111,360
--------- --------- ---------- ---------- ----------
736,705 694,774 1,085,826 196,228 2,713,533
Other assets 229,212 229,212
--------- --------- ---------- ---------- ----------
$ 736,705 $ 694,774 $1,085,826 $ 425,440 $2,942,745
========= ========= ========== ========== ==========
INTEREST BEARING LIABILITIES
Deposits:
Interest checking $ 122,955 $ 339,109 $ 462,064
Savings 197,262 371,053 568,315
Time deposits 268,231 $ 558,703 $ 279,628 1,106,562
Short-term borrowings 134,866 138 14 135,018
Long-term debt 10,467 24,801 23,800 11,546 70,614
--------- --------- ---------- ---------- ----------
733,781 583,642 303,428 721,722 2,342,573
Other liabilities 345,854 345,854
Stockholders' equity 254,318 254,318
--------- --------- ---------- ---------- ----------
$ 733,781 $ 583,642 $ 303,428 $1,321,894 $2,942,745
========= ========= ========== ========== ==========
PERIOD GAP $ 2,924 $ 111,132 $ 782,398 $ (896,454)
========= ========= ========== ==========
CUMULATIVE GAP $ 2,924 $ 114,056 $ 896,454
========= ========= ==========
CUMULATIVE GAP AS A PERCENT
OF TOTAL ASSETS .10% 3.88% 30.46%
========= ======== =========
RATE SENSITIVE ASSETS/RATE
SENSITIVE LIABILITIES
(CUMULATIVE) 1.00 1.09 1.55 1.16
======== ======== ========= =========
<PAGE>
CAPITAL RESOURCES
The assessment of capital adequacy depends on a number of factors such as
asset quality, liquidity, earnings performance, changing competitive conditions
and economic forces. The Corporation seeks to maintain a strong capital base to
support its growth and expansion activities, to provide stability to current
operations and to promote public confidence.
Capital management is a continuous process. Since December 31, 1997,
stockholders' equity has increased $8.9 million as a result of earnings
retention. For the six months ended June 30, 1998, the return on average equity
on a recurring net income basis was 13.19%. Recurring net income excludes
merger related costs of $1.6 million, net of tax. Total cash dividends declared
represented 36.60% of recurring net income. Book value per common share was
$14.64 at June 30, 1998, compared to $14.32 at December 31, 1997.
LOANS
Following is a summary of loans (dollars in thousands):
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
Real estate:
Residential $ 891,488 $ 896,606
Commercial 539,264 488,354
Construction 77,530 65,260
Installment loans to individuals 286,105 288,043
Commercial, financial and agricultural 252,334 244,864
Lease financing 89,450 59,852
Unearned income (24,811) (20,532)
---------- ----------
$2,111,360 $2,022,447
========== ==========
NON-PERFORMING ASSETS
Non-performing assets include non-performing loans and other real estate
owned. Non-performing loans include non-accrual loans and restructured loans.
Non-accrual loans represent loans on which interest accruals have been
discontinued. It is the Corporation's policy to discontinue interest accruals
when principal or interest is due and has remained unpaid for 90 days or more
unless the loan is both well secured and in the process of collection. When a
loan is placed on non-accrual status, unpaid interest credited to income in the
current year is reversed and unpaid interest accrued in prior years is charged
against the allowance for loan losses. Non-accrual loans may not be restored to
accrual status until all delinquent principal and interest has been paid, or the
loan becomes both well secured and in the process of collection. Consumer
installment loans are generally charged off against the allowance for loan
losses upon reaching 90 to 180 days past due, depending on the installment loan
type. Restructured loans are loans in which the borrower has been granted a
concession on the interest rate or the original repayment terms due to financial
distress.
<PAGE>
Following is a summary of non-performing assets (dollars in thousands):
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
Non-performing assets:
Non-accrual loans $ 9,486 $ 8,250
Restructured loans 1,763 1,345
------- -------
Total non-performing loans 11,249 9,595
Other real estate owned 3,359 4,027
------- -------
Total non-performing assets $14,608 $13,622
======= =======
Asset quality ratios:
Non-performing loans as
percent of total loans .53% .47%
Non-performing assets as
percent of total assets .50% .48%
Non-performing loans are closely monitored on an ongoing basis as part of
the Corporation's loan review and work-out process. The potential risk of loss
on these loans is evaluated by comparing the loan balance to the present value
of projected future cash flows or the value of any underlying collateral.
Losses are recognized where appropriate.
ALLOWANCE FOR LOAN LOSSES
Management's analysis of the allowance for loan losses includes the
evaluation of the loan portfolio based on internally generated loan review
reports and the historical loss experience of the remaining balances of the
various homogeneous loan pools which comprise the loan portfolio. Specific
factors which are evaluated include the previous loan loss experience with the
customer, the status of past due interest and principal payments on the loan,
the collateral position of the loan, the quality of financial information
supplied by the borrower and the general financial condition of the borrower.
Historical loss experience on the remaining portfolio segments is considered in
conjunction with current status of economic conditions, loan loss trends,
delinquency and non-accrual trends, credit administration and concentrations of
credit risk.
Following is a summary of changes in the allowance for loan losses and
selected ratios (dollars in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
Balance at beginning of period $29,704 $29,921 $29,066 $29,387
Reduction arising from the sale
of a subsidiary (1,443) (1,443)
Charge-offs (1,456) (2,817) (2,988) (4,885)
Recoveries 334 489 818 749
------- ------- ------- -------
Net charge-offs (1,122) (2,328) (2,170) (4,136)
Provision for loan losses 1,598 3,580 3,284 5,922
------- ------- ------- -------
Balance at end of period $30,180 $29,730 $30,180 $29,730
======= ======= ======= =======
Allowance for loan losses to:
Total loans, net of unearned income 1.43% 1.62%
Non-performing loans 268.29% 304.74%
The higher level of the provision for loan losses in 1997 resulted from
the consistent application of the Corporation's charge-off policy and
methodology for determining the adequacy of the allowance for loan losses to
West Coast Bancorp, Inc.
<PAGE>
REGULATORY MATTERS
Quantitative measures established by regulators to ensure capital
adequacy require the Corporation and its banking subsidiaries to maintain
minimum amounts and ratios of total and tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of tier 1 capital to
average assets (as defined). Management believes, as of June 30, 1998, that the
Corporation and each of its banking subsidiaries are all "well capitalized".
As of March 31, 1998, the Corporation and each of its banking
subsidiaries have been categorized as "well capitalized" under the regulatory
framework for prompt corrective action. Following are capital ratios as of June
30, 1998 for the Corporation (dollars in thousands):
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------- --------- ------- --------- -------
Total Capital $275,146 13.5% $163,242 8.0% $204,052 10.0%
(to risk-
weighted assets)
Tier 1 Capital 239,577 11.7% 81,621 4.0% 122,431 6.0%
(to risk-
weighted assets)
Tier 1 Capital 239,577 8.2% 117,133 4.0% 146,416 5.0%
(to average assets)
The Corporation and its banking subsidiaries are subject to various
regulatory capital requirements administered by federal and state banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory, and discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Corporation's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Corporation and its banking subsidiaries must meet specific capital
guidelines that involve quantitative measures of assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices.
The Corporation's and banking subsidiaries' capital amounts and classifications
are also subject to qualitative judgments by the regulators about components,
risk weightings and other factors.
FINANCIAL INFORMATION SUMMARY
Net income for the first six months of 1998 was $14.9 million compared to
$15.9 million for the first six months of 1997. Basic earnings per share were
$.87 and $.97 for the six months ended June 30, 1998 and 1997, respectively,
while diluted earnings per share were $.83 and $.92 for those same periods.
Several items of a non-recurring nature are included in these results, including
$1.6 million of merger costs in 1998 and the $5.3 million gain on the sale of
Bucktail Bank and Trust Company and $4.3 million of merger related and other
non-recurring charges in 1997, all net of tax. Excluding these non-recurring
items, net income was $16.5 million and $14.9 million for the first six months
of 1998 and 1997, respectively, resulting in diluted earnings per share of $.91
and $.86 for the same periods. Highlights for the first six months of 1998
include:
A return on average assets of 1.14% and a return on average equity of
13.19%, both based on recurring earnings.
A 22.75% decrease in the provision for loan losses as compared to the
first six months of 1997, after considering a $1.7 million provision taken
in 1997 in order to consistently apply the Corporation's charge-off policy
and methodology for determining the adequacy of the allowance for loan
losses to West Coast Bancorp, Inc.
A $33.3 million or 9.60% increase in net interest earning assets as
compared to the first six months of 1997.
<PAGE>
FIRST SIX MONTHS OF 1998 AS COMPARED TO FIRST SIX MONTHS OF 1997:
The following table provides information regarding the average balances
and yields and rates on interest earning assets and interest bearing liabilities
(dollars in thousands):
Six Months Ended June 30 1998 1997
--------------------------- ----------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- --------- ------ ---------- ---------- ------
ASSETS
Interest earning assets:
Interest bearing
deposits
with banks $ 6,594 $ 183 5.55% $ 3,518 $ 108 6.14%
Federal funds sold 70,932 1,943 5.48 61,687 1,582 5.13
Securities:
Taxable 476,974 14,768 6.24 419,848 13,148 6.32
Non-taxable (1) 78,781 2,439 6.19 81,181 2,359 5.81
Loans (1) (2) 2,076,026 93,714 9.10 1,892,623 87,269 9.30
---------- -------- ---------- --------
Total interest
earning assets 2,709,307 113,047 8.41 2,458,857 104,466 8.57
---------- -------- ---------- --------
Cash and due from banks 85,823 80,282
Allowance for loan losses (29,824) (30,850)
Premises and equipment 73,955 52,959
Other assets 70,343 54,479
---------- ----------
$2,909,604 $2,615,727
========== ==========
LIABILITIES
Interest bearing
liabilities:
Deposits:
Interest bearing
demand $ 476,134 $ 5,451 2.31 $ 398,543 $ 4,055 2.05
Savings 563,550 8,858 3.17 541,792 8,158 3.04
Other time 1,098,998 29,941 5.49 1,003,058 27,061 5.44
Short-term borrowings 116,400 2,998 5.19 125,773 2,942 4.72
Long-term debt 74,679 2,346 6.28 43,399 1,608 7.41
---------- -------- ---------- --------
Total interest
bearing liabilities 2,329,761 49,594 4.29 2,112,565 43,824 4.18
---------- -------- ---------- --------
Non-interest bearing
demand deposits 289,000 250,498
Other liabilities 39,222 34,319
---------- ----------
2,657,983 2,397,382
---------- ----------
STOCKHOLDERS' EQUITY 251,621 218,345
---------- ----------
$2,909,604 $2,615,727
========== ==========
Net interest
earning assets $ 379,546 $ 346,292
========== ==========
Net interest income $ 63,453 $ 60,642
======== ========
Net interest spread 4.12% 4.39%
===== =====
Net interest margin (3) 4.72% 4.97%
===== =====
(1) The amounts are reflected on a fully taxable equivalent basis using the
federal statutory tax rate of 35% adjusted for certain federal tax
preferences.
(2) Average balance includes non-accrual loans. Loans consist of average
total loans less average unearned income. The amount of loan fees
included in interest income on loans is immaterial.
(3) Net interest margin is calculated by dividing the difference between
total interest earned and total interest paid by total interest earning
assets.
<PAGE>
Net interest income, the Corporation's primary source of earnings, is the
amount by which interest and fees generated by interest earning assets,
primarily loans and securities, exceed interest expense on deposits and borrowed
funds. During the first six months of 1998, net interest income, on a fully
taxable equivalent basis, totaled $63.5 million, representing a 4.64% increase
over the first six months of 1997. Net interest income consisted of interest
income of $113.0 million and interest expense of $49.6 million for the first six
months of 1998 compared to $104.5 million and $43.8 million for each,
respectively, for the first six months of 1997. Net interest margin fell to
4.72% at June 30, 1998 from 4.97% at June 30, 1997, as the yield on total
interest earning assets declined by 16 basis points and the rate paid on
interest bearing liabilities increased by 11 basis points. Strong competitive
factors resulted in an 20 basis point decrease in the average yield on loans and
a 10 basis point increase in rates paid on deposits.
The following table sets forth certain information regarding changes in
net interest income attributable to changes in the volumes and rates of interest
earning assets and interest bearing liabilities for the six months ending June
30, 1998 as compared to the six months ending June 30, 1997 (in thousands):
Volume Rate Net
------- ------- -------
INTEREST INCOME
Interest bearing deposits with banks $ 84 $ (9) $ 75
Federal funds sold 248 113 361
Securities:
Taxable 1,786 (166) 1,620
Non-taxable (66) 146 80
Loans 8,323 (1,878) 6,445
------- ------- -------
10,375 (1,794) 8,581
------- ------- -------
INTEREST EXPENSE
Deposits:
Interest bearing demand 845 551 1,396
Savings 339 361 700
Other time 2,628 252 2,880
Short-term borrowings (154) 210 56
Long-term debt 936 (198) 738
------- ------- -------
4,594 1,176 5,770
------- ------- -------
NET CHANGE $ 5,781 $(2,970) $ 2,811
======= ======= =======
The amount of change not solely due to rate or volume changes was
allocated between the change due to rate and the change due to volume based on
the net size of the rate and volume changes.
Interest income on loans, on a fully taxable equivalent basis, increased
7.39% from $87.3 million for the six months ended June 30, 1997 to $93.7 million
for the six months ended June 30, 1998. This increase was the result of an
increase in average loans of 9.69% over the same period last year.
Interest expense on deposits increased $5.0 million or 12.67% for the six
months ended June 30, 1998, compared to the six months ended June 30, 1997.
This increase was the result of an increase in average deposits of 10.05% over
the same six month period. The average balance in savings and time deposits
increased $117.7 million as the average balance in interest bearing demand
deposits increased by $77.6 million. Interest expense on long-term debt
increased $738,000 or 45.90% for these same periods due to an increase in
average long-term debt of 72.08%, which was partially offset by a decline in
rate paid of 113 basis points.
<PAGE>
The provision for loan losses totaled $3.3 million for the first six
months of 1998, as compared to $5.9 million for the first six months of 1997.
In connection with the Corporation's 1997 acquisition of West Coast Bancorp,
Inc. (WCBI), the Corporation recognized an additional provision for loan losses
of approximately $1.7 million, during the second quarter of 1997 after applying
the Corporation's allowance for loan loss policy and methodology for evaluating
the adequacy of the allowance to WCBI.
Non-interest income increased by 21.43% during the first six months of
1998 as compared to the first six months of 1997, primarily due to an increase
of 16.99% in service charges and other fees and the recognition of $624,000 of
income on the Corporation's equity investment.
Total non-interest expenses increased 2.86% during the first six months
of 1998, compared to the first six months of 1997. The increase was primarily
attributable to an increase of $2.1 million in salaries and employee benefits.
This increase was due to increases for incentive compensation as well as normal
annual salary adjustments. Included in other non-interest expenses during the
first six months of 1998 was $2.0 million for expenses related to the
affiliations with West Coast and Seminole. Included in other non-interest
expenses during the first six months of 1997 was $1.1 million for expenses
related to the affiliations with West Coast Bancorp, Inc. These expenses were
primarily legal and investment banking costs associated with the structuring and
completion of the mergers.
Income tax expense for the six months ended June 30, 1998 totaled $7.5
million, providing an effective tax rate of 33.63% compared to 32.25% for the
six months ended June 30, 1997.
SECOND QUARTER OF 1998 AS COMPARED TO SECOND QUARTER OF 1997:
During the second quarter of 1998, net interest income increased $1.4
million or 4.65% over the second quarter of 1997. Total interest income
increased $4.2 million or 8.09%, primarily the result of an increase in loan
volume. Total interest expense increased $2.8 million or 12.76% during the
second quarter of 1998, compared to the same period of 1997. Interest expense
on deposits accounted for the majority of this increase, $2.4 million, due to an
increase in average deposits.
The provision for loan losses totaled $1.6 million for the second quarter
of 1998, as compared to $3.6 million for the second quarter of 1997. In
connection with the Corporation's 1997 acquisition of West Coast Bancorp, Inc.
(WCBI), the Corporation recognized an additional $1.7 million provision for loan
losses during the second quarter of 1997 after applying the Corporation's
allowance for loan loss policy and methodology for evaluating the adequacy of
the allowance to WCBI.
Non-interest income increased 31.59% during the second quarter of 1998
compared to the same period of 1997. Total non-interest expenses decreased
3.90% during the second quarter of 1998, compared to the second quarter of 1997.
This decrease in non-interest expenses was attributable to expenses in 1997
relating to the Corporation's wholly-owned subsidiary, Bucktail which was sold
in June of 1997. During the second quarter of 1998, merger related expenses
totaled $1.8 million as compared to $1.1 million in 1997.
Income tax expense totaled $4.0 million during the quarter providing an
effective tax rate of 35.82% compared to 31.06% in 1997. Net income totaled
$7.1 million for the second quarter of 1998, compared to $8.6 million for the
second quarter of 1997. Excluding the impact of the non-recurring items, net
income totaled $8.5 million for the second quarter of 1998 and $7.6 million for
the second quarter of 1997.
<PAGE>
YEAR 2000
The Year 2000 (Y2K) Issue is the result of computer programs being
written using date fields consisting of only two digits rather than four.
Computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failures and temporary interruptions in the processing of transactions. The
Y2K Issue is not only an internal issue but also affects third parties
including customers, counterparties, service providers and vendors.
Because the Y2K Issue poses an unprecedented and profound enterprise
wide challenge for every organization, the Corporation formed a Y2K Committee.
The Y2K Committee has developed a Year 2000 Enterprise Wide Project Plan (Y2K
Plan). The Y2K Plan addresses both internal and external technology.
In connection with the Y2K Plan, the Corporation has completed its
inventory and assessment of all internal technologies, including both software
and hardware. Each system was assigned a significance rating as to the degree
of criticality. Formal detailed test plans for systems with significance
ratings of a critical nature have been completed. Such systems include core
processing and ancillary systems required to sustain operations.
By the end of the millennium, each of the Corporation's banking
subsidiaries will be processing on either of two core processing systems. The
Corporation's northern banking affiliates will continue to process
transactions on their existing core processing system. During the second
quarter, the Corporation made the strategic decision to convert each of the
Florida banking affiliates to a new core processing system over the next fifteen
month period. The decision to convert was based in part on the number of
different systems currently being utilized by the Florida banking affiliates
and the expiration of the Corporation's primary Florida core processing
contract. The Corporation has received a third party certification and
written representations from both vendors that each system is Y2K compliant.
The Corporation will be participating in test verifications of each core
system during the fourth quarter of 1998. The Corporation is currently in the
formative stage of developing a contingency plan which will utilize the two
corporate wide core processing systems as contingencies for each other. The
completion of the contingency plan will also occur during the fourth quarter
of 1998.
During July of 1998, the Corporation's consumer finance subsidiary,
Regency Finance Company (Regency), selected a third party vendor to support all
of its future core application requirements. These core applications will
include loans, insurance and the Corporation's subordinated note program.
Regency's decision to select a new system was based upon the system's ability
to support new lending products as well as the operating efficiencies resulting
from real-time centralized processing. The vendor has provided a written
warranty to Regency that is Y2K compliant. The system will be tested for Y2K
readiness during the fourth quarter of 1998 and installed during the first
quarter of 1999.
With respect to external technology, the Y2K Plan provides for the
evaluation and assessment of all significant funds takers, including large
borrowing customers and bond issuers, and funds providers, including
contingency lines of credit and deposit accounts. All project plans for funds
takers and providers have been substantially completed with continued
monitoring to occur. An integral part of the Corporation's funds provider
project plan includes a Customer Awareness Program. This program was
developed to assure customer confidence and avert reputation and liquidity
risk. The program was not only developed to educate the Corporation's
customers, but also its employees in responding to customer inquiries.
<PAGE>
The Y2K Plan includes due diligence procedures as it relates to the
fiduciary responsibilities of the Corporation's investment and trust department,
including such activities as settlement transactions, remittance of bond
payments and transactions related to mutual funds and other securities. In
performing its fiduciary responsibilities, the Corporation is in the process of
assessing the Y2K readiness of its safe keeping agents and broker/dealers. All
assessments are to be completed by the end of the third quarter of 1998.
Finally, the Y2K Plan addresses the Corporation's service providers,
including significant suppliers and vendors. Currently, the Corporation is in
the process of rating each service provider, assessing their ability to be Y2K
ready and developing a contingency plan for those in question. While this
process is in its early stages, there is a reluctance by the service providers
to expressly certify to Y2K readiness. The Corporation's assessment of all
significant service providers and the identification of contingency providers
is to be completed by the end of the fourth quarter of 1998.
The Corporation's current assessment of cost associated with the
completion of its Y2K Plan is not considered by management to be material to
the Corporation's future operations. The cost of completing the Corporation's
Y2K Plan and the dates on which all procedures will be completed are based on
management's best estimates. These estimates were derived utilizing various
assumptions about future events, including continued availability of resources,
external technology modification plans and other significant factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated.
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
No material pending legal proceedings exist to which the Corporation or
any of its subsidiaries is a party, or of which any of their property is the
subject, except ordinary routine proceedings which are incidental to the
ordinary conduct of business. In the opinion of management, pending legal
proceedings will not have a material adverse effect on the consolidated
financial position of the Corporation and its subsidiaries.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of F.N.B. Corporation was held
on April 29, 1998. Proxies were solicited pursuant to Section 14(a) of
the Securities and Exchange Act of 1934 and there was no solicitation in
opposition to the Corporation's solicitations.
All of the Corporation's nominees for directors as listed in the
proxy statement were elected with the following vote:
Shares Voted Shares
"For" "Withheld"
------------- -------------
Edward J. Mace 11,241,015 77,890
Peter Mortensen 11,220,332 98,572
Robert S. Moss 11,241,045 77,860
William A. Quinn 11,221,351 97,554
Gary L. Tice 11,238,105 80,800
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27. Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
A report on Form 8-K, dated April 3, 1998, was filed by
the Corporation. The Form 8-K included Audited Supplemental
Consolidated Financial Statements for the years ended
December 31, 1997, 1996 and 1995 with Report of Independent
Auditors and Management's Discussion and Analysis giving effect
to the merger of the Corporation and West Coast Bank on a
pooling-of-interests basis.
A report on Form 8-K, dated July 6, 1998, was filed by
the Corporation. The Form 8-K included Audited Supplemental
Consolidated Financial Statements for the years ended
December 31, 1997, 1996 and 1995 with Report of Independent
Auditors and Management's Discussion and Analysis giving effect
to the merger of the Corporation and Seminole Bank on a
pooling-of-interests basis.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
F.N.B. Corporation
-----------------------------------------
(Registrant)
Dated: AUGUST 13, 1998 /S/ PETER MORTENSEN
-------------------- -----------------------------------------
Peter Mortensen
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: AUGUST 13, 1998 /S/ JOHN D. WATERS
-------------------- -----------------------------------------
John D. Waters
Vice President and Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 102,595
<INT-BEARING-DEPOSITS> 6,065
<FED-FUNDS-SOLD> 27,826
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 448,765
<INVESTMENTS-CARRYING> 108,297
<INVESTMENTS-MARKET> 108,693
<LOANS> 2,111,360
<ALLOWANCE> 30,180
<TOTAL-ASSETS> 2,945,745
<DEPOSITS> 2,440,433
<SHORT-TERM> 135,018
<LIABILITIES-OTHER> 42,362
<LONG-TERM> 70,614
<COMMON> 33,966
0
2,719
<OTHER-SE> 217,633
<TOTAL-LIABILITIES-AND-EQUITY> 2,942,745
<INTEREST-LOAN> 47,187
<INTEREST-INVEST> 8,202
<INTEREST-OTHER> 1,152
<INTEREST-TOTAL> 56,541
<INTEREST-DEPOSIT> 22,286
<INTEREST-EXPENSE> 25,056
<INTEREST-INCOME-NET> 31,485
<LOAN-LOSSES> 1,598
<SECURITIES-GAINS> 407
<EXPENSE-OTHER> 25,980
<INCOME-PRETAX> 11,060
<INCOME-PRE-EXTRAORDINARY> 11,060
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,098
<EPS-PRIMARY> .41
<EPS-DILUTED> .40
<YIELD-ACTUAL> 4.72
<LOANS-NON> 9,486
<LOANS-PAST> 2,591
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