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 March 31, 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
incorporation or organization) Identification No.)
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 April 30, 1998
----- ------------------------------
Common Stock, $2 Par Value 16,014,152 Shares
- -------------------------- -----------------
<PAGE>
F.N.B. CORPORATION
FORM 10-Q
March 31, 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 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Dollars in thousands, except par values
MARCH 31, DECEMBER 31,
1998 1997
------------- ------------
UNAUDITED
-------------
ASSETS
Cash and due from banks $ 90,968 $ 93,186
Interest bearing deposits with banks 1,859 3,244
Federal funds sold 75,331 17,249
Mortgage loans held for sale 9,128 6,163
Securities available for sale 425,314 437,115
Securities held to maturity (fair
value of $112,393 and $123,164) 112,058 122,938
Loans, net of unearned income of
$21,802 and $20,425 2,012,042 1,968,925
Allowance for loan losses (28,926) (28,296)
---------- ----------
NET LOANS 1,983,116 1,940,629
---------- ----------
Premises and equipment 76,707 65,818
Other assets 71,125 70,538
---------- ----------
$2,845,606 $2,756,880
========== ==========
LIABILITIES
Deposits:
Non-interest bearing $ 292,945 $ 272,974
Interest bearing 2,087,797 2,010,990
---------- ----------
TOTAL DEPOSITS 2,380,742 2,283,964
Other liabilities 35,237 37,423
Short-term borrowings 115,491 123,752
Long-term debt 72,798 72,246
---------- ----------
TOTAL LIABILITIES 2,604,268 2,517,385
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock - $10 par value
Authorized - 20,000,000 shares
Issued - 274,947 and 287,500 shares
Aggregate liquidation value -
$6,874 and $7,188 2,749 2,875
Common stock - $2 par value
Authorized - 100,000,000 shares
Issued - 15,360,351 and 15,332,488 shares 30,721 30,665
Additional paid-in capital 121,294 121,296
Retained earnings 86,085 83,051
Accumulated other comprehensive income 5,763 5,236
Treasury stock - 142,332 and 113,592 shares at cost (5,274) (3,628)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 241,338 239,495
---------- ----------
$2,845,606 $2,756,880
========== ==========
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
MARCH 31,
------------------
1998 1997
------- -------
INTEREST INCOME
Loans, including fees $44,858 $41,644
Securities:
Taxable 7,228 6,162
Nontaxable 531 584
Dividends 438 290
Other 751 873
------- -------
TOTAL INTEREST INCOME 53,806 49,553
------- -------
INTEREST EXPENSE
Deposits 21,237 18,817
Short-term borrowings 1,422 1,459
Long-term debt 1,152 754
------- -------
TOTAL INTEREST EXPENSE 23,811 21,030
------- -------
NET INTEREST INCOME 29,995 28,523
Provision for loan losses 1,679 2,273
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 28,316 26,250
------ ------
NON-INTEREST INCOME
Insurance commissions and fees 1,006 1,031
Service charges 3,452 3,049
Trust 359 439
Gain on sale of securities 538 493
Other 1,475 1,018
------- -------
TOTAL NON-INTEREST INCOME 6,830 6,030
------- -------
35,146 32,280
------- -------
NON-INTEREST EXPENSES
Salaries and employee benefits 13,402 11,962
Net occupancy 1,829 1,802
Equipment 1,797 1,609
Other 7,281 6,462
------- -------
TOTAL NON-INTEREST EXPENSES 24,309 21,835
------- -------
INCOME BEFORE INCOME TAXES 10,837 10,445
Income taxes 3,387 3,395
------- -------
NET INCOME $ 7,450 $ 7,050
======= =======
EARNINGS PER COMMON SHARE:
Basic $ .46 $ .45
======= =======
Diluted $ .43 $ .43
======= =======
CASH DIVIDENDS PER COMMON SHARE $ .17 $ .15
======= =======
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Dollars in thousands
Unaudited
Three Months Ended March 31 1998 1997
--------- ---------
OPERATING ACTIVITIES
Net income $ 7,450 $ 7,050
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,818 1,621
Provision for loan losses 1,679 2,273
Deferred taxes 199 (560)
Net gain on sale of securities (538) (493)
Net gain on sale of loans (613) (504)
Proceeds from sale of loans 35,014 8,788
Loans originated for sale (37,366) (3,963)
Net change in:
Interest receivable (292) (1,905)
Interest payable 1,535 512
Other, net (4,665) (3,777)
--------- ---------
Net cash flows from operating activities 4,221 9,042
--------- ---------
INVESTING ACTIVITIES
Net change in:
Interest bearing deposits with banks 1,385 (1,760)
Federal funds sold (58,082) (38,339)
Loans (44,333) (24,025)
Securities available for sale:
Purchases (70,671) (88,910)
Sales 7,083 14,388
Maturities 76,877 74,221
Securities held to maturity:
Purchases (6,324)
Maturities 10,917 14,837
Increase in premises and equipment (12,550) (2,910)
--------- ---------
Net cash flows from investing activities (89,374) (58,822)
--------- ---------
FINANCING ACTIVITIES
Net change in:
Non-interest bearing deposits, savings and NOW 48,187 32,236
Time deposits 48,591 16,221
Short-term borrowings (8,261) (28,172)
Increase in long-term debt 1,414 11,671
Decrease in long-term debt (862) (1,024)
Net acquisition of treasury stock (3,272) 188
Cash dividends paid (2,862) (2,167)
Net cash flows from financing activities 82,935 28,953
--------- ---------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (2,218) (20,827)
Cash and due from banks at beginning of period 93,186 111,541
--------- ---------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 90,968 $ 90,714
========= =========
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
BASIS OF PRESENTATION
The accompanying unaudited 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, which was consummated on January 20,
1998, resulted in the Corporation issuing 585,263 shares of common stock. The
transaction has been accounted for as a pooling-of-interests, and such financial
statements are presented as if the merger 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 April 3, 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 are adjusted for common stock dividends, including the 5%
stock dividend declared on April 9, 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
March 31,
-----------------------
1998 1997
---------- ----------
BASIC
Net income $ 7,450 $ 7,050
Less: Preferred stock dividends declared (134) (160)
---------- ----------
Earnings applicable to basic earnings per share $ 7,316 $ 6,890
========== ==========
Average common shares outstanding 16,012,010 15,169,895
========== ==========
Earnings per share $.46 $.45
==== ====
DILUTED
Earnings applicable to diluted earnings per share $ 7,450 $ 7,050
========== ==========
Average common shares outstanding 16,012,010 15,169,895
Series A convertible preferred stock 14,848 25,703
Series B convertible preferred stock 589,303 708,224
Net effect of dilutive stock options
and stock warrants based on the
treasury stock method 623,155 446,296
---------- ----------
17,239,316 16,350,118
========== ==========
Earnings per share $.43 $.43
==== ====
CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information (in thousands):
Three months ended March 31 1998 1997
-------- --------
Cash paid for:
Interest $22,276 $20,518
Noncash Investing and Financing Activities:
Acquisition of real estate in settlement of loans 321 64
Loans granted in the sale of other real estate 141 821
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.
<PAGE>
The components of comprehensive income, net of related tax, are as follows
(in thousands):
Three Months Ended
March 31,
------------------
1997 1998
-------- --------
Net income $7,450 $ 7,050
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period 873 (1,778)
Less: reclassification adjustment
for gains included in net income (346) (374)
-------- --------
Other comprehensive income 527 (2,152)
-------- --------
Comprehensive income $7,977 $ 4,898
======== ========
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 an
exchange of 1.515 shares of the Corporation's common stock for each share of
Citizens Holding Company, parent company of Citizens, common stock. The
Corporation anticipates issuing approximately 1,025,344 shares of its 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 February 2, 1998, the Corporation signed a definitive merger agreement
with Seminole Bank (Seminole), a community bank headquartered in Seminole,
Florida with assets of $93.7 million. The merger agreement calls for an
exchange of 1.530 shares of the Corporation's common stock for each share of
Seminole common stock. The Corporation anticipates issuing approximately
855,308 shares of its common stock. Seminole will be merged into an existing
subsidiary of the Corporation, FNB Florida. The transaction, which is expected
to close during the second quarter of 1998 pending regulatory and shareholder
approval, is expected to be accounted for as a pooling-of-interests.
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.
<PAGE>
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 $32.0 million was unused at March 31, 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.
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.
<PAGE>
Following is the gap analysis as of March 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Within 4-12 1-5 Over
3 Months Months Years 5 years Total
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Interest bearing deposits
with banks $ 1,759 $ 100 $ 1,859
Federal funds sold 75,331 75,331
Loans held for sale 9,128 9,128
Securities:
Available for sale 38,278 89,316 $ 221,163 $ 76,557 425,314
Held to maturity 20,170 32,497 52,668 6,723 112,058
Loans, net of unearned 597,223 525,504 768,045 121,270 2,012,042
--------- --------- ---------- ---------- ----------
741,889 647,417 1,041,876 204,550 2,635,732
Other assets 209,874 209,874
--------- --------- ---------- ---------- ----------
$ 741,889 $ 647,417 $1,041,876 $ 414,424 $2,845,606
========= ========= ========== ========== ==========
INTEREST BEARING LIABILITIES
Deposits:
Interest checking $ 103,004 $ 264,866 $ 367,870
Savings 220,304 427,649 647,953
Time deposits 214,395 $ 535,987 $ 321,592 1,071,974
Short-term borrowings 115,029 462 115,491
Long-term debt 10,920 25,479 26,935 9,464 72,798
--------- --------- ---------- ---------- ----------
663,652 561,466 348,527 702,441 2,276,086
Other liabilities 328,182 328,182
Stockholders' equity 241,338 241,338
--------- --------- ---------- ---------- ----------
$ 663,652 $ 561,466 $ 348,527 $1,271,961 $2,845,606
========= ========= ========== ========== ==========
PERIOD GAP $ 78,237 $ 85,951 $ 693,349 $ (857,537)
========= ========= ========== ==========
CUMULATIVE GAP $ 78,237 $ 164,188 $ 857,537
========= ========= ==========
CUMULATIVE GAP
AS A PERCENT
OF TOTAL ASSETS 2.75% 5.77% 30.14%
========= ========= ==========
RATE SENSITIVE ASSETS/RATE
SENSITIVE LIABILITIES
(CUMULATIVE) 1.12 1.13 1.54 1.16
========= ========= ========== ==========
</TABLE>
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 $4.6 million as a result of earnings
retention. For the three months ended March 31, 1998, the return on average
equity on a recurring income basis was 12.78%. Total cash dividends declared
represented 38.42% of net income. Book value per common share was $14.67 at
March 31, 1998, compared to $14.54 at December 31, 1997.
<PAGE>
LOANS
Following is a summary of loans (dollars in thousands):
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
Real estate:
Residential $ 859,130 $ 867,611
Commercial 507,369 476,295
Construction 72,299 64,511
Installment loans to individuals 278,886 282,678
Commercial, financial and agricultural 246,801 238,403
Lease financing 69,359 59,852
Unearned income (21,802) (20,425)
---------- ----------
$2,012,042 $1,968,925
========== ==========
NON-PERFORMING ASSETS
Non-performing assets include non-performing loans and other real estate
owned. Non-performing loans include non-accrual loans and restructured loans.
Non-accrual loans represent loans on which interest accruals have been
discontinued. It is the Corporation's policy to discontinue interest accruals
when principal or interest is due and has remained unpaid for 90 days or more
unless the loan is both well secured and in the process of collection. When a
loan is placed on non-accrual status, unpaid interest credited to income in the
current year is reversed and unpaid interest accrued in prior years is charged
against the allowance for loan losses. Non-accrual loans may not be restored
to accrual status until all delinquent principal and interest has been
paid, or the loan becomes both well secured and in the process of collection.
Consumer installment loans are generally charged off against the allowance for
loan losses upon reaching 90 to 180 days past due, depending on the installment
loan type. Restructured loans are loans in which the borrower has been granted
a concession on the interest rate or the original repayment terms due to
financial distress.
Following is a summary of non-performing assets (dollars in thousands):
MARCH 31, DECEMBER 31,
1998 1997
---------- ------------
Non-performing assets:
Non-accrual loans $ 8,068 $ 8,103
Restructured loans 1,504 1,314
------- -------
Total non-performing loans 9,572 9,417
Other real estate owned 3,397 4,027
------- -------
Total non-performing assets $12,969 $13,444
======= =======
Asset quality ratios:
Non-performing loans as percent of total loans .48% .49%
Non-performing assets as percent of total assets .46% .49%
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.
<PAGE>
ALLOWANCE FOR LOAN LOSSES
Management's analysis of the allowance for loan losses includes the
evaluation of the loan portfolio based on internally generated loan review
reports and the historical loss experience of the remaining balances of the
various homogeneous loan pools which comprise the loan portfolio. Specific
factors which are evaluated include the previous loan loss experience with
the customer, the status of past due interest and principal payments on the
loan, the collateral position of the loan, the quality of financial
information supplied by the borrower and the general financial condition of
the borrower. Historical loss experience on the remaining portfolio segments
is considered in conjunction with current status of economic conditions, loan
loss trends, delinquency and non-accrual trends, credit administration and
concentrations of credit risk.
Following is a summary of changes in the allowance for loan losses and
selected ratios (dollars in thousands):
Three Months Ended
March 31,
--------------------
1998 1997
-------- ---------
Balance at beginning of period $28,296 $28,649
Charge-offs (1,533) (2,041)
Recoveries 484 260
------- -------
Net charge-offs (1,049) (1,781)
Provision for loan losses 1,679 2,273
------- -------
Balance at end of period $28,926 $29,141
======= =======
Allowance for loan losses to:
Total loans, net of unearned income 1.44% 1.48%
Non-performing loans 302.19% 309.45%
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.
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 March 31, 1998, that the Corporation and
each of its banking subsidiaries are all "well capitalized".
<PAGE>
As of December 31, 1997, the Corporation and each of its banking subsidiaries
have been categorized as "well capitalized" under the regulatory framework for
prompt corrective action. Following are capital ratios as of March 31, 1998 for
the Corporation (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Total Capital $260,880 13.5% $154,108 8.0% $192,636 10.0%
(to risk-weighted assets)
Tier 1 Capital 226,725 11.8% 77,054 4.0% 115,581 6.0%
(to risk-weighted assets)
Tier 1 Capital 226,725 8.2% 110,776 4.0% 138,470 5.0%
(to average assets)
</TABLE>
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 three months of 1998 was $7.5 million compared to
$7.1 million for the first three months of 1997. Basic earnings per share
were $.46 and $.45 for the three months ended March 31, 1998 and 1997,
respectively, while diluted earnings per share were $.43 for both of those
periods. Highlights for the first three months of 1998 include:
* Net income of $7.6 million, excluding merger related costs of
$170,000, for the first three months of 1998, providing a return
on average assets of 1.11% and a return on average equity of 12.78%.
* A 35.4% decrease in the provision for loan losses as compared to
the first three months of 1997.
* A $31.2 million or 9.4% increase in net interest earning assets as
compared to the first three months of 1997.
<PAGE>
FIRST THREE MONTHS OF 1998 AS COMPARED TO FIRST THREE 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):
<TABLE>
<CAPTION>
Three Months Ended March 31 1998 1997
------------------------------- ----------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- -------- ------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Interest bearing deposits
with banks $ 2,121 $ 32 6.03% $ 1,864 $ 40 8.58%
Federal funds sold 53,187 719 5.41 64,381 833 5.18
Securities:
Taxable 466,782 7,228 6.28 402,435 6,162 6.21
Non-taxable (1) 76,170 1,270 6.67 79,159 1,128 5.70
Loans (1) (2) 1,997,933 45,064 9.15 1,821,919 41,922 9.33
---------- -------- ---------- --------
Total interest
earning assets 2,596,193 54,313 8.48 2,369,758 50,085 8.57
---------- -------- ---------- --------
Cash and due from banks 81,847 78,676
Allowance for loan losses (28,683) (29,289)
Premises and equipment 66,825 50,261
Other assets 67,670 54,167
---------- ----------
$2,783,852 $2,523,573
========== ==========
LIABILITIES
Interest bearing
liabilities:
Deposits:
Interest bearing
demand $ 350,749 $ 2,419 2.80 $ 318,091 $ 1,679 2.14
Savings 641,888 4,472 2.83 588,212 4,200 2.90
Other time 1,055,465 14,346 5.51 965,588 12,938 5.43
Short-term borrowings 112,442 1,422 5.13 126,104 1,459 4.69
Long-term debt 72,491 1,152 6.36 39,802 754 7.58
---------- -------- ---------- --------
Total interest
bearing liabilities 2,233,035 23,811 4.32 2,037,797 21,030 4.18
---------- -------- ---------- --------
Non-interest bearing
demand deposits 272,129 239,835
Other liabilities 36,939 35,131
---------- ----------
2,542,103 2,312,763
---------- ----------
STOCKHOLDERS' EQUITY 241,749 210,810
---------- ----------
$2,783,852 $2,523,573
========== ==========
Net interest earning
assets $ 363,158 $ 331,961
========== ==========
Net interest income $ 30,502 $ 29,055
======== ========
Net interest spread 4.16% 4.39%
====== ======
Net interest margin (3) 4.76% 4.97%
====== ======
</TABLE>
(1) The amounts are reflected on a fully taxable equivalent basis using the
federal statutory tax rate of 35% adjusted for certain federal tax
preferences.
(2) Average balance includes non-accrual loans. Loans consist of average
total loans less average unearned income. The amount of loan fees
included in interest income on loans is immaterial.
(3) Net interest margin is calculated by dividing the difference between
total interest earned and total interest paid by total interest earning
assets.
<PAGE>
Net interest income, the Corporation's primary source of earnings, is the
amount by which interest and fees generated by interest earning assets,
primarily loans and securities, exceed interest expense on deposits and borrowed
funds. During the first three months of 1998, net interest income, on a fully
taxable equivalent basis, totaled $30.5 million, representing a 4.98% increase
over the first three months of 1997. Net interest income consisted of interest
income of $54.3 million and interest expense of $23.8 million for the first
three months of 1998 compared to $50.1 million and $21.0 million for each,
respectively, for the first three months of 1997. Net interest margin fell
to 4.76% at March 31, 1998 from 4.97% at March 31, 1997, as the yield on total
interest earning assets declined by 9 basis points and the rate paid on interest
bearing liabilities increased by 14 basis points. Strong competitive factors
resulted in an 18 basis point decrease in the average yield on loans and a 12
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 three months ending
March 31, 1998 as compared to the three months ending March 31, 1997 (in
thousands):
Volume Rate Net
------- ------- -------
INTEREST INCOME
Interest bearing deposits with banks $ 7 $ (15) $ (8)
Federal funds sold (153) 39 (114)
Securities:
Taxable 996 70 1,066
Non-taxable (40) 182 142
Loans 3,926 (784) 3,142
------- ------- -------
4,736 (508) 4,228
------- ------- -------
INTEREST EXPENSE
Deposits:
Interest bearing demand 185 555 740
Savings 370 (98) 272
Other time 1,216 192 1,408
Short-term borrowings (276) 239 (37)
Long-term debt 495 (97) 398
1,990 791 2,781
------- ------- -------
NET CHANGE $ 2,746 $(1,299) $ 1,447
======= ======= =======
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
7.49% from $41.9 million for the three months ended March 31, 1997 to $45.1
million for the three months ended March 31, 1998. This increase was the
result of an increase in average loans of 9.66% over this same period last year.
Interest expense on deposits increased $2.4 million or 12.86% for the three
months ended March 31, 1998, compared to the three months ended March 31, 1997.
This increase was the result of an increase in average deposits of 9.41% over
this same three month period. The average balance in savings and time deposits
increased $143.6 million as the average balance in interest bearing demand
deposits increased by $32.7 million. Interest expense on long-term debt
increased $244,000 or 32.36% for these same periods due to an increase in
average long-term debt of 55.53%, which was partially offset by a decline in
rate paid of 113 basis points.
<PAGE>
The provision for loan losses totaled $1.7 million for the first three months
of 1998, as compared to $2.3 million for the first three 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
during the first 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 13.27% during the first three months of
1998 as compared to the first three months of 1997, primarily due to an increase
of 13.22% in service charges and other fees.
Total non-interest expenses increased 11.33% during the first three months
of 1998, compared to the first three months of 1997. The increase was primarily
attributable to an increase of $1.4 million in salaries and employee benefits as
well as other miscellaneous operating costs. Salaries and personnel expense
increased 12.04% during the first three months of 1998 as compared to the first
three months of 1997. 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 three months of 1998 was $170,000 for
expenses related to the affiliation with West Coast. These expenses were
primarily legal and investment banking costs associated with the structuring
and completion of the merger.
Income tax expense for the three months ended March 31, 1998 totaled $3.4
million, providing an effective tax rate of 31.25% compared to 32.50% for the
three months ended March 31, 1997.
YEAR 2000
During the quarter, the Corporation continued to implement its Year 2000 Bank
Strategy and Project Plan as more fully described in the Corporation's 1997
Annual Report. The Corporation currently believes that modifications to
existing systems, conversion to new systems and vendor compliance upgrades will
be resolved on a timely basis and related costs will not have a material impact
on its results of operations or financial condition.
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
No material pending legal proceedings exist to which the Corporation or
any of its subsidiaries is a party, or of which any of their property is the
subject, except ordinary routine proceedings which are incidental to the
ordinary conduct of business. In the opinion of management, pending legal
proceedings will not have a material adverse effect on the consolidated
financial position of the Corporation and its subsidiaries.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27. Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
A report on Form 8-K, dated February 13, 1998, was filed by
the Corporation. The Form 8-K included Audited Supplemental
Consolidated Financial Statements for the years ended
December 31, 1996, 1995 and 1994 with Report of Independent
Auditors and Management's Discussion and Analysis 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 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.
<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: MAY 14, 1998 /s/PETER MORTENSEN
------------------------ ------------------------------------------
Peter Mortensen
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: MAY 14, 1998 /s/JOHN D. WATERS
------------------------ ------------------------------------------
John D. Waters
Vice President and Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 90,968
<INT-BEARING-DEPOSITS> 1,859
<FED-FUNDS-SOLD> 75,331
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 425,314
<INVESTMENTS-CARRYING> 112,058
<INVESTMENTS-MARKET> 112,393
<LOANS> 2,012,042
<ALLOWANCE> 28,926
<TOTAL-ASSETS> 2,845,606
<DEPOSITS> 2,380,742
<SHORT-TERM> 115,491
<LIABILITIES-OTHER> 35,237
<LONG-TERM> 72,798
<COMMON> 30,721
0
2,749
<OTHER-SE> 207,868
<TOTAL-LIABILITIES-AND-EQUITY> 2,845,606
<INTEREST-LOAN> 44,858
<INTEREST-INVEST> 8,197
<INTEREST-OTHER> 751
<INTEREST-TOTAL> 53,806
<INTEREST-DEPOSIT> 21,237
<INTEREST-EXPENSE> 23,811
<INTEREST-INCOME-NET> 29,995
<LOAN-LOSSES> 1,679
<SECURITIES-GAINS> 538
<EXPENSE-OTHER> 24,309
<INCOME-PRETAX> 10,837
<INCOME-PRE-EXTRAORDINARY> 10,837
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,450
<EPS-PRIMARY> .46
<EPS-DILUTED> .43
<YIELD-ACTUAL> 4.76
<LOANS-NON> 8,068
<LOANS-PAST> 2,239
<LOANS-TROUBLED> 1,504
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 28,296
<CHARGE-OFFS> 1,533
<RECOVERIES> 484
<ALLOWANCE-CLOSE> 28,926
<ALLOWANCE-DOMESTIC> 28,926
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
