SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Date of Report: July 6, 1998
F.N.B. CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 0-8144 25-1255406
- ----------------------- ----------- ---------------
(State of Incorporation) (Commission (IRS Employer
File Number) Identification No.)
One F.N.B. Blvd., Hermitage, Pennsylvania 16148
----------------------------------------- -------
(Address of principal executive offices) (Zip code)
(724) 981-6000
----------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
On May 29, 1998, F.N.B. Corporation (the Corporation)
completed its acquisition of Seminole Bank. Accordingly,
the Corporation's Supplemental Consolidated Financial
Statements and Related Management's Discussion and
Analysis of Financial Condition and Results of Operations
have been provided giving retroactive effect to this
merger using the pooling of interests method of accounting.
Such supplemental consolidated financial statements will
become the historical consolidated financial statements
when the Corporation reports second quarter 1998 results.
The Corporation is hereby filing with the Securities and
Exchange Commission a copy of the Audited Supplemental
Consolidated Financial Statements for the years ended
December 31, 1997, 1996 and 1995 and Management's
Discussion and Analysis.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(C). Exhibits (all filed herewith)
Exhibit 23.1 Consent of Ernst & Young LLP
Exhibit 23.2 Consent of Hill, Barth & King, Inc.
Exhibit 23.3 Consent of PricewaterhouseCoopers LLP
Exhibit 23.4 Consent of Hacker, Johnson, Cohen & Grieb PA
Exhibit 27.1 Financial Data Schedule for the years
ended December 31, 1997, 1996 and 1995
Exhibit 27.2 Financial Data Schedule for the quarterly
periods in the year ended December 31, 1997
Exhibit 27.3 Financial Data Schedule for the quarterly
periods in the year ended December 31, 1996
Exhibit 99.1 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
Exhibit 99.2 Report of Independent Auditors Hill,
Barth & King, Inc. for the 1996 and
1995 Audits of Southwest Banks, Inc.
Exhibit 99.3 Report of Independent Auditors
Coopers & Lybrand L.L.P. for the 1996
and 1995 Audits of West Coast Bancorp, Inc.
Exhibit 99.4 Report of Independent Auditors Hacker,
Johnson, Cohen & Grieb PA for the 1997,
1996 and 1995 Audits of Seminole Bank
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
F.N.B. CORPORATION
(Registrant)
By: /s/JOHN D. WATERS
--------------------------
Name: John D. Waters
Title: Vice President and
Chief Financial Officer
Dated: July 6, 1998
<PAGE>
EXHIBIT INDEX
23.1 Consent of Ernst & Young LLP
23.2 Consent of Hill, Barth & King, Inc.
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Hacker, Johnson, Cohen & Grieb PA
27.1 Financial Data Schedule for the years ended December 31,
1997, 1996 and 1995
27.2 Financial Data Schedule for the quarterly periods in the
year ended December 31, 1997
27.3 Financial Data Schedule for the quarterly periods in the
year ended December 31, 1996
99.1 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
99.2 Report of Independent Auditors Hill, Barth & King, Inc.
for the 1996 and 1995 Audits of Southwest Banks, Inc.
99.3 Report of Independent Auditors Coopers & Lybrand L.L.P.
for the 1996 and 1995 Audits of West Coast Bancorp, Inc.
99.4 Report of Independent Auditors Hacker, Johnson, Cohen &
Grieb PA for the 1997, 1996 and 1995 Audits of Seminole Bank
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Regarding:
1) Registration Statement on Form S-8 relating to F.N.B.
Corporation 1990 Stock Option Plan (File #33-78114).
2) Registration Statement on Form S-8 relating to F.N.B.
Corporation Restricted Stock Bonus Plan (File #33-78134).
3) Registration Statement on Form S-8 relating to F.N.B.
Corporation 1996 Stock Option Plan (File #333-03489).
4) Registration Statement on Form S-8 relating to F.N.B.
Corporation Restricted Stock and Incentive Bonus Plan (File
#333-03493).
5) Registration Statement on Form S-8 relating to F.N.B.
Corporation Directors Compensation Plan (File #333-03495).
6) Registration Statement on Form S-8 relating to F.N.B.
Corporation 401(k) Plan (File #333-03503).
7) Post-Effective Amendment No.1 on Form S-8 to Registration
Statement on Form S-4 (File #333-01997).
8) Post-Effective Amendment No.1 on Form S-8 to Registration
Statement on Form S-4 (File #333-22909).
9) Registration Statement on Form S-3 relating to the F.N.B.
Corporation Subordinated Notes and Daily Cash Accounts (File
#333-31909).
10) Registration Statement on Form S-3 relating to the Voluntary
Dividend Reinvestment and Direct Stock Purchase Plan (File
#333-46581).
11) Registration Statement on Form S-8 relating to stock options
assumed in the acquisition of Mercantile Bank of Southwest
Florida (File #333-42333).
We consent to the incorporation by reference in the above listed
Registration Statements of our report dated June 11, 1998, with
respect to the supplemental consolidated financial statements of
F.N.B. Corporation and subsidiaries as of December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997
included in this Current Report on Form 8-K.
/s/ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
July 2, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF HILL, BARTH & KING, INC., INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration
statements of F.N.B. Corporation on Forms S-3 (Registration Nos. 333-
31909 and 333-46581) and Forms S-8 (Registration Nos. 33-78114, 33-78134,
333-03489, 333-03493, 333-03495, 333-03503, 333-01997, 333-22909 and
333-42333) and to the use in this Current Report of F.N.B. Corporation
on Form 8-K of our report dated January 22, 1997, on our audits of the
consolidated financial statements of Southwest Banks, Inc. which have
been incorporated into the Supplemental Consolidated Financial Statements
for the years ended December 31, 1996 and 1995, which report is included
as an exhibit in F.N.B. Corporation's Current Report on Form 8-K.
/s/Hill, Barth & King, Inc.
Certified Public Accountants
Naples, Florida
July 2, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of F.N.B. Corporation on Forms S-3 (Registration Nos. 333-
31909 and 333-46581) and Forms S-8 (Registration Nos. 33-78114, 33-78134,
333-03489, 333-03493, 333-03495, 333-03503, 333-01997, 333-22909 and
333-42333) of our report dated January 24, 1997 on our audits of the
consolidated financial statements of West Coast Bancorp, Inc. for the
years ended December 31, 1996 and 1995, which report is included as an
exhibit in F.N.B. Corporation's Current Report on Form 8-K.
/s/PRICEWATERHOUSECOOPERS LLP
Tampa, Florida
July 2, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of F.N.B. Corporation on Forms S-3 (Registration Nos. 333-
31909 and 333-46581) and Forms S-8 (Registration Nos. 33-78114, 33-78134,
333-03489, 333-03493, 333-03495, 333-03503, 333-01997, 333-22909 and
333-42333) of our report dated January 9, 1998 on our audits of the
financial statements of Seminole Bank at December 31, 1997 and 1996
and for each of the years in the three-year period ended December 31, 1997,
which report is included as an exhibit in F.N.B. Corporation's Current
Report on Form 8-K.
/s/HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
July 2, 1998
<PAGE>
EXHIBIT 99.1
Supplemental Consolidated Financial Statements
and Management's Discussion and Analysis
F.N.B. Corporation and Subsidiaries
Years ended December 31, 1997, 1996 and 1995
with Report of Independent Auditors
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
AND MANAGEMENT'S DISCUSSION AND ANALYSIS
Years ended December 31, 1997, 1996 and 1995
CONTENTS
Report of Independent Auditors..................................... 1
Supplemental Consolidated Financial Statements
Supplemental Consolidated Balance Sheet................ 2
Supplemental Consolidated Income Statement............. 3
Supplemental Consolidated Statement of
Stockholders' Equity.................................. 4
Supplemental Consolidated Statement of Cash Flows...... 5
Notes to Supplemental Consolidated Financial
Statements........................................... 6
Supplemental Selected Financial Data.............................. 30
Supplemental Quarterly Earnings Summary........................... 31
Management's Discussion and Analysis of Financial Conditions and
Results of Operations......................................... 32
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
F.N.B. Corporation
We have audited the supplemental consolidated balance sheets of F.N.B.
Corporation and subsidiaries (F.N.B. Corporation) as of December 31,
1997 and 1996 and the related supplemental consolidated statements of
income, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1997. The supplemental consolidated
financial statements give retroactive effect to the merger of F.N.B.
Corporation and Seminole Bank on May 29, 1998, which has been accounted
for using the pooling of interests method as described in the notes to
the supplemental consolidated financial statements. These supplemental
consolidated financial statements are the responsibility of management
of F.N.B. Corporation. Our responsibility is to express an opinion on
these supplemental consolidated financial statements based on our audits.
We did not audit the financial statements of Seminole Bank, which
statements reflect total assets constituting approximately 3% for 1997
and net income constituting approximately 3% for 1997, of the related
supplemental consolidated financial statement totals. We did not audit
the financial statements of Southwest Banks, Inc. and subsidiaries,
West Coast Bancorp, Inc. and subsidiary or Seminole Bank, which statements
reflect total assets constituting approximately 30% for 1996 and net
income constituting approximately 9% and 16% for 1996 and 1995,
respectively, of the related supplemental consolidated financial
statements totals. Those statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to
data included for Southwest Banks, Inc. and subsidiaries, West Coast
Bancorp, Inc. and subsidiary and Seminole Bank, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors,
the supplemental consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of F.N.B. Corporation at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, after giving
retroactive effect to the merger of Seminole Bank, as described in the
notes to the supplemental consolidated financial statements, in conformity
with generally accepted accounting principles.
/s/ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
June 11, 1998
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
Dollars in thousands, except par values
December 31 1997 1996
---------- ----------
ASSETS
Cash and due from banks.......................$ 99,634 $ 114,610
Interest bearing deposits with banks.......... 4,081 1,792
Federal funds sold............................ 30,564 13,542
Mortgage loans held for sale.................. 6,536 10,863
Securities available for sale................. 443,711 334,208
Securities held to maturity (fair value of
$133,716 and $184,343)...................... 133,409 185,222
Loans, net of unearned
income of $20,532 and $24,096............... 2,022,447 1,845,536
Allowance for loan losses..................... (29,066) (29,387)
---------- ----------
NET LOANS................................... 1,993,381 1,816,149
Premises and equipment........................ 67,906 51,440
Other assets ................................. 71,308 51,652
---------- ----------
$2,850,530 $2,579,478
========== ==========
LIABILITIES
Deposits:
Non-interest bearing....................... $ 281,759 $ 251,288
Interest bearing........................... 2,085,068 1,902,553
---------- ----------
TOTAL DEPOSITS............................. 2,366,827 2,153,841
Other liabilities............................ 39,287 36,374
Short-term borrowings........................ 123,752 116,126
Long-term debt............................... 72,246 58,179
---------- ----------
TOTAL LIABILITIES ....................... 2,602,112 2,364,520
STOCKHOLDERS' EQUITY
Preferred stock - $10 par value
Authorized - 20,000,000 shares
Issued - 287,500 and 352,531 shares
Aggregate liquidation
value - $7,188 and $8,813................ 2,875 3,525
Common Stock - $2 par value
Authorized - 100,000,000 shares
Issued - 16,187,938 and 14,735,322 shares.. 32,376 29,471
Additional paid-in capital................... 124,901 107,072
Retained earnings............................ 86,632 73,788
Net unrealized securities gains.............. 5,262 2,589
Treasury stock - 113,592 and 62,723
shares at cost............................. (3,628) (1,487)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY............... 248,418 214,958
---------- ----------
$2,850,530 $2,579,478
========== ==========
See accompanying Notes to Supplemental Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED INCOME STATEMENT
Dollars in thousands, except per share data
Year Ended December 31 1997 1996 1995
-------- -------- --------
INTEREST INCOME
Loans, including fees................ $174,999 $164,829 $154,146
Securities:
Taxable............................ 26,391 24,308 23,653
Nontaxable......................... 2,302 2,323 2,000
Dividends.......................... 1,137 1,097 928
Other................................ 3,999 3,093 3,211
-------- -------- --------
TOTAL INTEREST INCOME............ 208,828 195,650 183,938
INTEREST EXPENSE
Deposits............................. 79,993 74,289 70,852
Short-term borrowings................ 6,275 3,915 5,457
Long-term debt....................... 3,746 4,384 3,269
------- ------- -------
TOTAL INTEREST EXPENSE........... 90,014 82,588 79,578
NET INTEREST INCOME.............. 118,814 113,062 104,360
Provision for loan losses............ 11,003 9,941 7,281
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES........ 107,811 103,121 97,079
NON-INTEREST INCOME
Insurance commissions and fees....... 3,983 4,116 4,284
Service charges...................... 12,799 12,076 11,317
Trust................................ 1,465 1,461 1,390
Gain on sale of securities........... 1,252 788 482
Gain on sale of loans................ 1,730 961 670
Other................................ 3,369 2,289 2,263
-------- -------- --------
TOTAL NON-INTEREST INCOME........ 24,598 21,691 20,406
-------- -------- --------
132,409 124,812 117,485
NON-INTEREST EXPENSES
Salaries and employee benefits....... 49,278 44,185 40,375
Net occupancy........................ 7,216 7,099 7,004
Amortization of intangibles.......... 1,584 1,047 1,246
Equipment............................ 7,091 6,607 5,935
Deposit insurance.................... 865 1,126 3,310
Recapitalization of Savings
Association Insurance Fund......... 3,176
Promotional.......................... 2,334 2,679 3,270
Insurance claims paid................ 1,867 1,707 1,738
Other................................ 23,592 24,900 20,522
-------- -------- --------
TOTAL NON-INTEREST EXPENSES...... 93,827 92,526 83,400
-------- -------- --------
INCOME BEFORE INCOME TAXES....... 38,582 32,286 34,085
Income taxes 12,243 10,798 11,272
INCOME BEFORE EXTRAORDINARY ITEMS 26,339 21,488 22,813
Gain on sale of subsidiary and branches,
net of tax of $4,743................. 8,809
-------- -------- --------
NET INCOME......................... $ 35,148 $ 21,488 $ 22,813
======== ======== ========
Earnings Per Common Share
BASIC $2.12 $1.28 $1.36
===== ===== =====
DILUTED $2.01 $1.24 $1.32
===== ===== =====
See accompanying Notes to Supplemental Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
NET EMPLOYEE
ADDITIONAL UNREALIZED STOCK
PREFERRED COMMON PAID-IN RETAINED SECURITIES OWNERSHIP TREASURY
STOCK STOCK CAPITAL EARNINGS GAINS(LOSSES) PLAN STOCK
--------- --------- --------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1,
1995 $4,563 $26,869 $ 88,702 $60,132 $ (849) $(141) $ (309)
Net income 22,813
Cash
dividends
declared:
Preferred
stock (849)
Common stock
$.33 per
share
(F.N.B.)
and $.20
per share (WCBI) (3,489)
Purchase of
common stock (1,447)
Issuance of
common stock 75 389 1,292
Stock dividend 1,071 7,614 (8,691)
Conversion of
preferred
stock (47) 85 502
Obligation
under
ESOP plan (248)
Change in
net
unrealized
securities
gains
(losses) 4,080
--------- --------- --------- --------- ----------- --------- ----------
BALANCE
AT
DECEMBER
31, 1995 4,516 28,100 97,207 69,916 3,231 (389) (464)
Net income 21,488
Cash
dividends
declared:
Preferred
stock (766)
Common
stock $.60
per share
(F.N.B.) and
$.23 per
share (WCBI) (6,123)
Purchase
of common
stock (3,421)
Issuance
(retirement)
of common
stock (44) (438) 2,398
Stock
dividend 1,016 9,711 (10,727)
Conversion
of
preferred
stock (991) 399 592
Obligation
under
ESOP
plan 389
Change in
net
unrealized
securities
gains
(losses) (642)
---------- --------- -------- --------- ---------- -------- ---------
BALANCE
AT
DECEMBER
31, 1996 3,525 29,471 107,072 73,788 2,589 0 (1,487)
Net
income 35,148
Cash
dividends
declared:
Preferred
stock (588)
Common
stock $.63
per share
(F.N.B.) and
$.12 per
share (WCBI) (8,990)
Purchase
of common
stock (7,688)
Issuance of
common
stock 47 131 (497) 5,547
Issuance
of common
stock
for
acquisition 1,260 2,240 4,177
Stock
dividend 1,332 15,074 (16,406)
Conversion
of
preferred
stock (650) 266 384
Change in
net
unrealized
securities
gains
(losses) 2,673
---------- -------- --------- --------- ---------- -------- ---------
BALANCE
AT
DECEMBER
31, 1997 $2,875 $32,376 $124,901 $86,632 $5,262 $ 0 $(3,628)
========== ======== ========= ========= ========== ======== =========
</TABLE>
See accompanying Notes to Supplemental Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
Dollars in thousands
Year Ended December 31 1997 1996 1995
--------- --------- ---------
OPERATING ACTIVITIES
Net income............................ $ 35,148 $ 21,488 $ 22,813
Adjustments to
reconcile net income to net
cash provided by operating
activities:
Depreciation and amortization..... 7,373 6,466 6,768
Provision for loan losses......... 11,003 9,941 7,281
Provision for valuation
allowance on other real
estate owned..................... 540 664 100
Deferred taxes.................... (1,383) (1,827) (708)
Gain on securities
available for sale............... (1,252) (788) (482)
Gain on sale of loans............. (1,730) (961) (670)
Extraordinary gains on
sales of subsidiary and
branches, net of tax............. (8,809)
Proceeds from sale of loans....... 115,998 72,459 65,312
Loans originated for sale......... (110,382) (64,694) (65,407)
Net change in:
Interest receivable............. (2,530) 1,310 (1,793)
Interest payable................ 1,774 617 1,985
Other, net........................ 4,760 6,535 5,257
--------- --------- ---------
Net cash flows from
operating activities......... 50,510 51,210 40,456
INVESTING ACTIVITIES
Net change in:
Interest bearing deposits with banks (2,311) 3,097 (524)
Federal funds sold.................. (6,922) 57,326 (50,286)
Loans............................... (181,940) (199,048) (112,400)
Securities available for sale:
Purchases........................... (258,447) (193,542) (131,985)
Sales............................... 39,692 43,167 10,045
Maturities.......................... 143,850 111,742 91,474
Securities held to maturity:
Purchases........................... (9,101) (47,272) (49,615)
Maturities.......................... 58,023 45,748 78,762
Increase in premises and equipment.... (18,738) (12,445) (7,474)
Net cash paid for mergers,
acquisitions and divestiture......... (50,362)
--------- --------- ---------
Net cash flows from
investing activities........... (286,256) (191,227) (172,003)
FINANCING ACTIVITIES
Net change in:
Non-interest bearing deposits,
savings and NOW.................... 118,800 97,971 8,811
Time deposits....................... 103,250 16,810 158,988
Short-term borrowings............... (3,390) 40,409 (14,065)
Increase in long-term debt............ 44,010 32,899 9,274
Decrease in long-term debt............ (29,862) (25,504) (15,104)
Net acquisition of treasury stock..... (2,460) (1,504) 309
Cash dividends paid................... (9,578) (6,889) (4,343)
--------- --------- ---------
Net cash flows from
financing activities............ 220,770 154,192 143,870
--------- --------- ---------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS............. (14,976) 14,175 12,323
Cash and cash equivalents
at beginning of year................. 114,610 100,435 88,112
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 99,634 $ 114,610 $ 100,435
========= ========= =========
See accompanying Notes to Supplemental Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The supplemental consolidated financial statements give retroactive effect
to the merger of Seminole Bank (Seminole) with and into F.N.B. Corporation
(F.N.B. or the Corporation). The merger, which was consummated on May 29,
1998, resulted in the Corporation issuing a total of 855,450 shares of
common stock. The transaction has been accounted for on a
pooling-of-interests basis, and the financial statements are presented as
if the merger had been consummated for all the periods presented. As
required by generally accepted accounting principles, the supplemental
consolidated financial statements will become the historical consolidated
financial statements upon issuance of the Corporation's consolidated
financial statements for the quarter ended June 30, 1998.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS:
The Corporation is a bank holding company headquartered in Hermitage,
Pennsylvania. As of May 31, 1998, it operated 9 banks through 76 offices
and a consumer finance company through 35 offices in Pennsylvania, Florida,
Ohio and New York.
BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the
Corporation and its subsidiaries. All significant intercompany balances
and transactions have been eliminated. Certain reclassifications have been
made to the prior years' financial statements to conform to the current
year's presentation.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
SECURITIES:
Debt securities are classified as held to maturity when management has
the positive intent and ability to hold securities to maturity. Securities
held to maturity are carried at amortized cost.
Debt securities not classified as held to maturity and marketable equity
securities are classified as available for sale. Securities available for
sale are carried at fair value with net unrealized securities gains (losses)
reported separately as a component of stockholders' equity, net of tax.
Amortization of premiums and accretion of discounts are recorded as
interest income from securities. Realized gains and losses are recorded
as net securities gains (losses). The adjusted cost of specific securities
sold is used to compute gains or losses on sales.
Presently, the Corporation has no intention of establishing a trading
securities classification.
<PAGE>
MORTGAGE LOANS HELD FOR SALE:
Mortgage loans held for sale are recorded at the lower of aggregate cost or
market value. Gain or loss on the sale of loans is included in non-interest
income.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES:
Loans are reported at their outstanding principal adjusted for any
charge-offs and any deferred fees or costs on originated loans.
Interest income on loans is accrued on the principal amount outstanding.
It is the Corporation's policy to discontinue interest accruals when
principal or interest is due and has remained unpaid for 90 days or more
unless the loan is both well secured and in the process of collection.
When a loan is placed on non-accrual status, unpaid interest credited to
income in the current year is reversed, and unpaid interest accrued in
prior years is charged against the allowance for loan losses. While on
non-accrual, contractual interest payments are applied against principal
until the loan is restored to accrual status. Non-accrual loans may not
be restored to accrual status until all delinquent principal and interest
has been paid, or the loan becomes both well secured and in the process
of collection. Consumer installment loans are generally charged off
against the allowance for loan losses upon reaching 90 to 180 days past
due, depending on the installment loan type. Loan origination fees and
related costs are deferred and recognized over the life of the loans as
an adjustment of yield.
The allowance for loan losses is based on management's evaluation of
potential losses in the loan portfolio, which includes an assessment of
past experience, current and estimated future economic conditions, known
and inherent risks in the loan portfolio, the estimated value of
underlying collateral and industry standards. Additions are made to the
allowance through periodic provisions charged to income and recovery of
principal on loans previously charged off. Losses of principal are
charged to the allowance when the loss actually occurs or when a
determination is made that a loss is probable.
Impaired loans are identified and measured based on the present value
of expected future cash flows discounted at the loan's effective interest
rate, or at the loan's observable market price or at the fair value of the
collateral if the loan is collateral dependent. If the recorded investment
in the loan exceeds the measure of fair value, a valuation allowance is
established as a component of the allowance for loan losses. Impaired
loans consist of non-homogeneous loans, which based on the evaluation of
current information and events, management has determined that it is
probable that the Corporation will not be able to collect all amounts
due according to the contractual terms of the loan agreement. The
Corporation evaluates all commercial and commercial real estate loans
which have been classified for regulatory reporting purposes, including
non-accrual and restructured loans, in determining impaired loans.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed generally on the straight-line method.
OTHER REAL ESTATE OWNED:
Assets acquired in settlement of indebtedness are included in other assets
at the lower of fair value minus estimated costs to sell or at the carrying
amount of the indebtedness. Subsequent write-downs and net direct operating
expenses attributable to such assets are included in other expenses.
<PAGE>
AMORTIZATION OF INTANGIBLES:
Goodwill is being amortized over 15 years on the straight-line method and
core deposit intangibles are being amortized on accelerated methods over
various lives ranging from 7-17 years. The Corporation periodically
evaluates its goodwill and core deposit intangibles for impairment.
INCOME TAXES:
Income taxes are computed utilizing the liability method. Under this
method deferred taxes are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
PER SHARE AMOUNTS:
Earnings and cash dividends per share have been adjusted for common
stock dividends.
In 1997, the Financial Accounting Standards Board issued Statement No.
128 (FAS No. 128), "Earnings per Share." FAS No. 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted
earnings per share. All earnings per share amounts have been restated to
conform to the FAS No. 128 requirements.
Basic earnings per common share is calculated by dividing net income,
adjusted for preferred stock dividends declared, by the sum of the weighted
average number of shares of common stock outstanding.
Diluted earnings per common share is calculated by dividing net income
by the weighted average number of shares of common stock outstanding,
assuming conversion of outstanding convertible preferred stock from the
beginning of the year or date of issuance and the exercise of stock
options and warrants. Such adjustments to net income and the weighted
average number of shares of common stock outstanding are made only when
such adjustments dilute earnings per common share.
CASH EQUIVALENTS:
The Corporation considers cash and due from banks as cash and cash
equivalents.
NEW ACCOUNTING STANDARDS:
FAS No. 130, "Reporting Comprehensive Income," establishes new standards
for reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non shareholder sources, such as changes in
net unrealized securities gains. It includes all changes in equity during
a period except those resulting from investments by shareholders and
distributions to shareholders. This statement is effective for the
Corporation's fiscal year ending December 31, 1998. Application of this
statement will not impact amounts previously reported for net income or
affect the comparability of previously issued financial statements.
<PAGE>
FAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the reporting of financial
information from operating segments in annual and interim financial
statements. It requires that financial information be reported on the
basis that it is reported internally for evaluating segment performance
and deciding how to allocate resources to segments. Because this
statement addresses how supplemental financial information is disclosed
in annual and interim reports, the adoption will have no material impact
on the financial statements. This statement is effective for the
Corporation's fiscal year ending December 31, 1998.
MERGERS, ACQUISITIONS AND DIVESTITURES
On May 29, 1998, the Corporation completed its affiliation with Seminole
Bank, headquartered in Seminole, Florida, with assets totaling $92.2 million.
Under the terms of the merger agreement, each outstanding share of
Seminole's common stock was converted into 1.530 shares of the Corporation's
common stock. A total of 855,450 shares of the Corporation's common stock
were issued. Seminole was merged into an existing subsidiary of the
Corporation, First National Bank of Florida (FNB Florida), formerly Indian
Rocks National Bank, in Largo, Florida. 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 period immediately
prior to the merger (in thousands):
YEAR ENDED DECEMBER 31, 1997 F.N.B. SEMINOLE
--------- --------
Net interest income..................... $111,030 $3,771
Net income.............................. 33,123 653
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, FNB 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 January 20, 1998, the Corporation completed its affiliation with West
Coast Bank (West Coast), headquartered in Sarasota, Florida, with assets
totaling $107.4 million. Under the terms of the merger 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 have
been restated to reflect this acquisition as a pooling-of-interests.
The following table sets forth separate company financial information
for the period immediately prior to the merger (in thousands):
YEAR ENDED DECEMBER 31, 1997 F.N.B. WEST COAST
--------- ----------
Net interest income...................... $111,030 $4,013
Net income............................... 33,123 879
On November 21, 1997, the Corporation completed the sale of three
Belmont County, Ohio branches of its subsidiary, Metropolitan National
Bank, to Citizens Bancshares, Inc., a bank holding company headquartered
in Salineville, Ohio. The sale resulted in the Corporation recognizing
a $3.6 million after-tax extraordinary gain.
<PAGE>
On November 20, 1997, the Corporation purchased all of the assets and
liabilities of Mercantile Bank of Southwest Florida (Mercantile), a bank
located in Naples, Florida. The Corporation paid $17.72 per share for
each of the 766,681 outstanding shares of Mercantile's common stock.
Mercantile was merged into another affiliate of the Corporation, First
National Bank of Naples, headquartered in Naples, Florida. The
transaction was accounted for as a purchase. As a result of the purchase,
the Corporation acquired assets of $121.7 million, including goodwill
to $7.1 million and core deposit intangibles amounting to $595,000, and
assumed liabilities of $108.2 million. Unaudited pro forma results of
operations for the Corporation as if Mercantile was acquired on January 1,
1995 are as follows (in thousands, except per share data):
YEAR ENDED DECEMBER 31 1997 1996 1995
-------- -------- --------
Net interest income....................... $121,532 $115,776 $106,638
Net income................................ 34,030 21,355 22,528
Net income per common share (Basic)....... 2.05 1.27 1.36
On October 17, 1997, the Corporation completed its affiliation with FNB
Florida, a community bank headquartered in Largo, Florida with assets of
$80.9 million. Under the terms of the merger agreement, each outstanding
share of FNB Florida's common stock was converted into 1.8 shares of the
Corporation's common stock with cash being paid in lieu of fractional
shares. A total of 630,000 shares of the Corporation's common stock were
issued. The merger has been accounted for as a pooling-of-interests,
except that financial statements were not restated due to immateriality.
FNB Florida's results of operations since October 17, 1997 are included in
the Corporation's consolidated assets.
On June 30, 1997, the Corporation completed the sale of its subsidiary,
Bucktail Bank and Trust Company (Bucktail), to Sun Bancorp, Inc. (Sun), a
bank holding company headquartered in Selinsgrove, Pennsylvania. Under the
sales agreement, Sun issued 565,384 shares of Sun's common stock, having an
estimated value of $17.6 million, in exchange for 100% ownership of Bucktail.
At consummation, Bucktail had assets of $124.6 million and liabilities of
$115.3 million. The sale resulted in the Corporation recognizing a $5.2
million after-tax extraordinary gain. The Corporation has reflected its
original ownership interest as well as subsequent purchases of Sun common
stock as an equity investment included in other assets. At December 31,
1997, the Corporation's investment in Sun is accounted for using the
equity method and had a market value totaling $33.3 million and a carrying
value totaling $20.2 million. The Corporation recognized equity earnings
from Sun totaling $621,000 for the year ended December 31, 1997.
On April 18, 1997, the Corporation completed its affiliation with West
Coast Bancorp, Inc. (WCBI), a bank holding company headquartered in Cape
Coral, Florida, with assets totaling approximately $181.0 million. Under
the terms of the merger agreement, each outstanding share of WCBI's common
stock was converted into .794 share of the Corporation's common stock with
cash being paid in lieu of fractional shares. A total of 1,197,128 shares
of the Corporation's common stock were issued. Results for prior years are
restated to reflect this acquisition as a pooling-of-interests. The
following table sets forth separate company financial information for the
period immediately prior to the merger (in thousands):
QUARTER ENDED MARCH 31, 1997 F.N.B. WCBI
--------- --------
Net interest income................... $25,800 $1,779
Net income............................ 6,653 135
<PAGE>
On January 21, 1997, the Corporation completed its affiliation with
Southwest Banks, Inc. (Southwest), a bank holding company headquartered in
Naples, Florida, with assets totaling $528.8 million. Under the terms of
the merger agreement, each outstanding share of Southwest's common stock
was converted into .819 share of the Corporation's common stock with cash
being paid in lieu of fractional shares. A total of 2,851,907 shares of
the Corporation's common stock were issued. Results for prior years are
restated to reflect this acquisition as a pooling-of-interests. The
following table sets forth separate company financial information for the
period immediately prior to the merger (in thousands):
YEAR ENDED DECEMBER 31, 1996 F.N.B. SOUTHWEST
-------- ---------
Net interest income.................... $80,744 $17,953
Net income............................. 18,433 805
SECURITIES
The amortized cost of securities and their approximate fair values are as
follows (in thousands):
Securities available for sale:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1997 COST GAINS LOSSES VALUE
--------- --------- ---------- ---------
U.S. Treasury and other
U.S. Government
agencies and corporations.... $ 294,561 $ 925 $ (251) $ 295,235
Mortgage-backed securities of
U.S. Government agencies..... 117,723 485 (146) 118,062
Other debt securities......... 5,031 107 5,138
--------- --------- --------- ---------
TOTAL DEBT SECURITIES..... 417,315 1,517 (397) 418,435
Equity securities............. 18,288 7,002 (14) 25,276
--------- --------- --------- ---------
$ 435,603 $ 8,519 $ (411) $ 443,711
========= ========= ========= =========
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1996 COST GAINS LOSSES VALUE
--------- --------- --------- ----------
U.S. Treasury and other
U.S. Government
agencies and corporations.... $ 268,743 $ 437 $ (814) $ 268,366
Mortgage-backed securities of
U.S. Government agencies..... 44,334 632 (176) 44,790
Other debt securities......... 2,000 (16) 1,984
-------- --------- --------- ----------
TOTAL DEBT SECURITIES..... 315,077 1,069 (1,006) 315,140
Equity securities............. 15,140 3,942 (14) 19,068
--------- --------- --------- ---------
$ 330,217 $ 5,011 $ (1,020) $ 334,208
========= ========= ========= =========
<PAGE>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1995 COST GAINS LOSSES VALUE
--------- --------- --------- ---------
U.S. Treasury and other
U.S. Government
agencies and corporations.... $ 248,161 $ 1,775 $ (144) $ 249,792
Mortgage-backed securities of
U.S. Government agencies..... 26,679 184 (130) 26,733
Other debt securities......... 2,000 (5) 1,995
--------- -------- --------- ---------
TOTAL DEBT SECURITIES..... 276,840 1,959 (279) 278,520
--------- --------- --------- ---------
Equity securities............. 14,005 3,304 17,309
--------- --------- --------- ---------
$ 290,845 $ 5,263 $ (279) $ 295,829
========= ========= ========= =========
Securities held to maturity:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1997 COST GAINS LOSSES VALUE
--------- --------- --------- --------
U.S. Treasury and other
U.S. Government
agencies and corporations.... $ 20,501 $ 88 $ (17) $ 20,572
States of the U.S.
and political
subdivisions................. 51,713 391 (41) 52,063
Mortgage-backed securities of
U.S. Government agencies..... 60,342 106 (222) 60,226
Other debt securities......... 853 6 (4) 855
--------- --------- --------- ---------
$ 133,409 $ 591 $ (284) $ 133,716
========= ========= ========= =========
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1996 COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
U.S. Treasury and other
U.S. Government
agencies and corporations.... $ 19,568 $ 71 $ (26) $19,613
States of the U.S. and
political subdivisions....... 56,819 160 (443) 56,536
Mortgage-backed securities of
U.S. Government agencies..... 107,647 108 (749) 107,006
Other debt securities......... 1,188 5 (5 ) 1,188
--------- --------- ---------- ---------
$ 185,222 $ 344 $ (1,223) $ 184,343
========= ========= ========= =========
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1995 COST GAINS LOSSES VALUE
--------- ---------- --------- ---------
U.S. Treasury and other
U.S. Government
agencies and corporations.... $ 27,277 $ 213 $ (40) $ 27,450
States of the U.S. and
political subdivisions....... 48,806 223 (291) 48,738
Mortgage-backed securities of
U.S. Government agencies..... 106,438 460 (424) 106,474
Other debt securities......... 1,316 6 (6) 1,316
--------- --------- --------- ---------
$ 183,837 $ 902 $ (761) $ 183,978
========= ========= ========= =========
<PAGE>
In December of 1995, the Corporation transferred $97.5 million of debt
securities from the held to maturity category to the available for sale
category in accordance with the implementation guidance issued on FAS No.
115. At the time of transfer, the market value of the securities totaled
$97.8 million, and the unrealized gain, net of taxes, of $118,000 was
recorded as an increase to stockholders' equity.
At December 31, 1997 and 1996, respectively, securities with a carrying
value of $149.0 million and $137.0 million were pledged to secure public
deposits, trust deposits and for other purposes as required by law.
Securities with a carrying value of $136.5 million and $68.8 million at
December 31, 1997 and 1996, respectively, were pledged as collateral for
other borrowings.
As of December 31, 1997, the Corporation had not entered into any off-
balance sheet derivative transactions.
As of December 31, 1997, the amortized cost and fair value of securities,
by contractual maturities, were as follows (in thousands):
HELD TO MATURITY AVAILABLE FOR SALE
-------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR
December 31, 1997 COST VALUE COST VALUE
--------- --------- --------- ---------
Due in one year or less....... $ 15,578 $ 15,587 $ 79,956 $ 79,997
Due from one to five years.... 46,886 47,056 189,563 190,136
Due from five to ten years.... 9,770 9,987 27,152 27,251
Due after ten years........... 833 860 2,921 2,990
--------- --------- --------- ---------
73,067 73,490 299,592 300,374
Mortgage-backed securities of
U.S. Government Agencies..... 60,342 60,226 117,711 118,038
Equity securities............. 18,300 25,299
--------- --------- --------- ---------
$ 133,409 $ 133,716 $ 435,603 $ 443,711
========= ========= ========= =========
Maturities may differ from contractual terms because borrowers may have the
right to call or prepay obligations with or without penalties. Periodic
payments are received on mortgage-backed securities based on the payment
patterns of the underlying collateral.
Proceeds from sales of securities available for sale during 1997, 1996
and 1995 were $39.7 million, $43.2 million and $10.0 million, respectively.
Gross gains and gross losses were realized on those sales as follows (in
thousands):
1997 1996 1995
------ ------ ------
Gross gains.................... $1,365 $ 885 $ 535
Gross losses................... 113 97 53
------ ------ ------
$1,252 $ 788 $ 482
====== ====== ======
<PAGE>
LOANS
Following is a summary of loans (in thousands):
December 31 1997 1996
---------- ----------
Real estate:
Residential............................. $ 896,606 $ 747,522
Commercial.............................. 488,354 451,590
Construction............................ 65,260 44,440
Installment loans to individuals......... 288,043 402,394
Commercial, financial and agricultural... 244,864 202,148
Lease financing.......................... 59,852 21,538
Unearned income.......................... (20,532) (24,096)
---------- ----------
$2,022,447 $1,845,536
========== ==========
The loan portfolio consists principally of loans to small- and medium-
sized businesses within the Corporation's primary market area of western
Pennsylvania, southwest Florida and eastern Ohio.
As of December 31, 1997, no concentrations of loans exceeding 10% of total
loans existed which were not disclosed as a separate category of loans.
Certain directors and executive officers of the Corporation and its
significant subsidiaries, as well as associates of such persons, were loan
customers during 1997. Such loans were made in the ordinary course of
business under normal credit terms and do not represent more than a normal
risk of collection. Following is a summary of the amount of loans in which
the aggregate of the loans to any such persons exceeded $60,000 during the
year (in thousands):
Total loans at December 31, 1996 $ 30,940
New loans....................... 40,232
Repayments...................... (41,255)
Other........................... 2,641
---------
Total loans at December 31, 1997 $ 32,558
=========
Other represents the net change in loan balances resulting from changes
in related parties during the year.
NON-PERFORMING ASSETS
Following is a summary of non-performing assets (in thousands):
December 31 1997 1996
------- -------
Non-accrual loans......................... $ 8,250 $ 9,972
Restructured loans........................ 1,345 2,709
------- -------
TOTAL NON-PERFORMING LOANS.............. 9,595 12,681
Other real estate owned................... 4,027 7,282
------- -------
TOTAL NON-PERFORMING ASSETS............. $13,622 $19,963
======= =======
<PAGE>
For the years ended December 31, 1997, 1996 and 1995, income recognized
on non-accrual and restructured loans was $477,000, $792,000 and $685,000,
respectively. Income that would have been recognized during 1997, 1996 and
1995 on such loans if they were in accordance with their original terms was
$1.0 million, $1.4 million and $1.3 million, respectively. Loans past due
90 days or more were $3.2 million, $3.0 million and $3.9 million at
December 31, 1997, 1996 and 1995, respectively.
Following is a summary of information pertaining to loans considered to
be impaired under FAS 114 (in thousands):
At of For the Year Ended December 31 1997 1996
------- -------
Impaired loans with an allocated allowance.... $ 1,226 $ 5,063
Impaired loans without an allocated allowance. 5,298
------- -------
Total impaired loans....................... $ 1,226 $10,361
======= =======
Allocated allowance on impaired loans......... 442 1,529
======= =======
Portion of impaired loans on non-accrual...... 860 4,818
======= =======
Average impaired loans........................ 5,674 13,121
======= =======
Income recognized on impaired loans........... 95 802
======= =======
ALLOWANCE FOR LOAN LOSSES
Following is an analysis of changes in the allowance for loan losses (in
thousands):
Year Ended December 31 1997 1996 1995
-------- -------- --------
Balance at beginning of year......... $ 29,387 $ 25,650 $ 23,700
Reduction due to the sale
of a subsidiary and loans........... (3,828)
Addition due to acquisitions......... 1,167
Charge-offs.......................... (9,915) (7,825) (7,283)
Recoveries........................... 1,252 1,621 1,952
-------- -------- --------
NET CHARGE-OFFS.................. (8,663) (6,204) (5,331)
Provision for loan losses............ 11,003 9,941 7,281
-------- -------- --------
Balance at end of year............... $ 29,066 $ 29,387 $ 25,650
======== ======== ========
PREMISES AND EQUIPMENT
Following is a summary of premises and equipment (in thousands):
December 31 1997 1996
-------- --------
Land.................................. $ 13,033 $ 10,774
Premises.............................. 59,058 45,794
Equipment............................. 39,526 33,644
-------- --------
111,617 90,212
Accumulated depreciation.............. (43,711) (38,772)
-------- --------
$ 67,906 $ 51,440
======== ========
Depreciation expense was $6.1 million for 1997, $5.7 million for 1996 and
$4.9 million for 1995.
<PAGE>
The Corporation has operating leases extending to 2044 for certain land,
office locations and equipment. Leases that expire are generally expected
to be renewed or replaced by other leases. Rental expense was $3.6 million
for 1997, $2.7 million for 1996 and $2.7 million for 1995. Total minimum
rental commitments under such leases were $26.2 million at December 31,
1997. Following is a summary of future minimum lease payments for years
following December 31, 1997 (in thousands):
1998 . . . . . . . . . . . . . . . $ 1,937
1999 . . . . . . . . . . . . . . . 1,354
2000 . . . . . . . . . . . . . . . 996
2001 . . . . . . . . . . . . . . . 906
2002 . . . . . . . . . . . . . . . 824
Later years. . . . . . . . . . . . 20,177
DEPOSITS
Following is a summary of deposits (in thousands):
December 31 1997 1996
---------- ----------
Non-interest bearing................... $ 281,759 $ 251,288
Savings and NOW........................ 1,026,435 925,511
Certificates of deposit and
other time deposits.................. 1,058,633 977,042
---------- ----------
$2,366,827 $2,153,841
========== ==========
Following is a summary of the scheduled maturities of certificates of
deposits and other time deposits for each of the five years following
December 31, 1997 (in thousands):
1998 . . . . . . . . . . . . . . . $701,374
1999 . . . . . . . . . . . . . . . 230,669
2000 . . . . . . . . . . . . . . . 77,592
2001 . . . . . . . . . . . . . . . 29,593
2002 . . . . . . . . . . . . . . . 19,089
Later years. . . . . . . . . . . . 316
Time deposits of $100,000 or more were $206.6 million and $182.0 million
at December 31, 1997 and 1996, respectively. Following is a summary of these
time deposits by remaining maturity at December 31, 1997 (in thousands):
CERTIFICATES OTHER TIME
December 31, 1997 OF DEPOSIT DEPOSITS TOTAL
------------ ---------- -----------
Three months or less.......... $ 65,425 $ 4,410 $ 69,835
Three to six months........... 32,411 3,167 35,578
Six to twelve months.......... 38,650 3,489 42,139
Over twelve months............ 41,271 17,791 59,062
-------- ------- --------
$177,757 $28,857 $206,614
======== ======= ========
<PAGE>
SHORT-TERM BORROWINGS
Following is a summary of short-term borrowings (in thousands):
December 31 1997 1996
-------- --------
Securities sold under repurchase agreements.... $ 55,702 $ 38,367
Federal funds purchased........................ 16,862 21,052
Other short-term borrowings.................... 4,257 1,506
Subordinated notes............................. 46,931 55,201
-------- --------
$123,752 $116,126
======== ========
Credit facilities amounting to $35.0 million at December 31, 1997 were
maintained with various banks with rates which are at or below prime rate.
The facilities and their terms are periodically reviewed by the banks and
are generally subject to withdrawal at their discretion. The amount of
these credit facilities which were unused amounted to $32.0 million at
December 31, 1997.
In addition, certain subsidiaries have lines of credit with the Federal
Home Loan Bank, which if used would require collateralization. These lines
totaled $120.8 million, of which no amounts were used as of December 31, 1997.
LONG-TERM DEBT
Following is a summary of long-term debt (in thousands):
December 31 1997 1996
-------- --------
Real estate mortgages payable................. $ 147
Federal Home Loan Bank advances............... $ 28,386 24,042
Subordinated notes............................ 43,860 33,990
-------- --------
$ 72,246 $ 58,179
======== ========
The Federal Home Loan Bank advances are secured by residential real
estate loans and Federal Home Loan Bank Stock and are scheduled to mature
in various amounts annually from 1998 through 2002. Interest rates paid on
these advances range from 5.66% to 6.32% in 1997 and 5.10% to 5.38% in 1996.
Subordinated notes are unsecured and subordinated to other indebtedness
of the Corporation. The subordinated notes are scheduled to mature in
various amounts annually from 1998 through the year 2007. At December 31,
1997, $33.8 million of long-term subordinated debt is redeemable prior to
maturity at a discount equal to three months of interest. The issuer may
require the holder to give 30 days prior written notice. No sinking fund
is required and none has been established to retire the debt. The weighted
average interest rate on long-term subordinated debt was 7.58% at December
31, 1997 and 7.69% at December 31, 1996.
<PAGE>
Scheduled annual maturities for all of the long-term debt for each of the
five years following December 31, 1997 are as follows (in thousands):
1998............................ $22,239
1999............................ 19,487
2000............................ 2,727
2001............................ 6,159
2002............................ 17,185
Later years..................... 4,449
COMMITMENTS AND CREDIT RISK
The Corporation has commitments to extend credit and standby letters of
credit which involve certain elements of credit risk in excess of the
amount stated in the consolidated balance sheet. The Corporation's exposure
to credit loss in the event of non-performance by the customer is represented
by the contractual amount of those instruments. Consistent credit policies
are used by the Corporation for both on- and off-balance sheet items.
Following is a summary of off-balance sheet credit risk information (in
thousands):
December 31 1997 1996
-------- --------
Commitments to extend credit................ $355,761 $293,234
Standby letters of credit................... 19,755 16,116
At December 31, 1997, funding of approximately 80% of the commitments to
extend credit is dependent on the financial condition of the customer. The
Corporation has the ability to withdraw such commitments at its discretion.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. Based on
management's credit evaluation of the customer, collateral may be deemed
necessary. Collateral requirements vary and may include accounts
receivable, inventory, property, plant and equipment and income-producing
commercial properties.
Standby letters of credit are conditional commitments issued by the
Corporation which may require payment at a future date. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers.
STOCKHOLDERS' EQUITY
Series A - Cumulative Convertible Preferred Stock (Series A Preferred)
was issued in 1985 for the purpose of acquiring Reeves Bank. Holders of
Series A Preferred are entitled to 5.7 votes for each share held. The
holders do not have cumulative voting rights in the election of directors.
Dividends are cumulative from the date of issue and are payable at $.42 per
share each quarter. Series A Preferred is convertible at the option of the
holder into shares of the Corporation's common stock having a market value
of $25.00 at time of conversion. The Corporation has the right to require
the conversion of the balance of all outstanding shares at the conversion
rate. During 1997, 2,270 shares of Series A Preferred were converted to
1,903 shares of common stock. At December 31, 1997, 15,182 shares of
common stock were reserved by the Corporation for the conversion of the
remaining 21,318 outstanding shares.
<PAGE>
Series B - Cumulative Convertible Preferred Stock (Series B Preferred)
was issued during 1992 for the purpose of raising capital for the Erie
acquisition. Holders of Series B Preferred have no voting rights.
Dividends are cumulative from the date of issue and are payable at $.46875
per share each quarter. Series B Preferred has a stated value of $25.00
per share and is convertible at the option of the holder at any time into
shares of the Corporation's common stock at a price of $11.08 per share.
The Corporation has the right to require the redemption of the balance of
all outstanding shares at the conversion rate. During 1997, 62,761 shares
of Series B Preferred were converted to 131,197 shares of common stock. At
December 31, 1997, 571,641 shares of common stock were reserved by the
Corporation for the conversion of the remaining 266,182 outstanding shares.
STOCK INCENTIVE PLANS
The Corporation has available up to 959,660 shares of common stock to be
issued under the restricted stock and incentive bonus and restricted stock
bonus plans to key employees of the Corporation. All shares of stock
awarded under these plans vest in equal installments over a five year
period on each anniversary of the date of grant. At December 31, 1997,
3,811 shares out of a total of 54,740 shares were vested under these plans.
The weighted average grant date fair value of the restricted shares issued
through December 31, 1997 was $21.55.
The Corporation has available up to 2,192,813 shares of common stock to
be issued under both incentive and non-qualified stock option plans to key
employees of the Corporation. The options vest in equal installments over
periods ranging from three to ten years. The options are granted at a
price equal to the fair market value at the date of the grant and are
exercisable within ten years from the date of the grant. Because the
exercise price of the Corporation's stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma information regarding net income and earnings per share using
the Black-Scholes option pricing model is as follows (in thousands, except
per share data):
Year Ended December 31 1997 1996 1995
------- ------- -------
Pro forma net income before extraordinary
items..................................... $26,008 $21,290 $22,743
Extraordinary items, net of tax............. 8,809
------- ------- -------
Pro forma net income........................ $34,817 $21,290 $22,743
======= ======= =======
Pro forma earnings per share:
Basic:
Before extraordinary items.............. $1.56 $1.27 $1.36
Extraordinary items, net of tax......... .54
----- ----- -----
Net income.............................. $2.10 $1.27 $1.36
===== ===== =====
Diluted:
Before extraordinary items.............. $1.49 $1.23 $1.32
Extraordinary items, net of tax......... .50
----- ----- -----
Net income.............................. $1.99 $1.23 $1.32
===== ===== =====
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period of five
years.
<PAGE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferrable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Corporation's employee stock
options have characteristics significantly different from those of traded
options, and changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models
do not necessarily provide a reliable single measure of the fair value of
its employee stock options. The following input assumptions were utilized:
1997 1996 1995
-------- -------- --------
Risk-free interest rate...................... 6.53% 5.63% 7.65%
Dividend yield............................... 1.66% 3.00% 3.00%
Volatility factor of the expected market
price of the Corporation's common stock.... .22% .19% .19%
Weighted average expected life of the
options (years)............................ 5.00 5.00 5.00
Activity in the Option Plan during the past three years was as follows:
WEIGHTED
AVERAGE
PRICE PER
1997 SHARE 1996 1995
--------- ------ -------- -------
Outstanding, beginning of year... 993,819 $12.25 806,127 700,074
Granted during the year........ 147,971 23.24 206,607 136,826
Exercised during the year...... (61,179) 8.99 (12,315) (15,240)
Forfeited during the year...... (48,658) 16.73 (6,600) (15,533)
--------- ------- -------
Ending balance................... 1,031,953 13.17 993,819 806,127
========= ======= =======
At December 31, 1997, options for 538,890 of common stock were exercisable
at prices ranging from $5.71 to $21.54 per share. The weighted average
remaining contractual life of outstanding options was 6 years at December 31,
1997.
The Corporation has granted warrants to purchase one share of common
stock (at an exercise price of $6.24 or $10.39 per share). Such warrants
are exercisable and will expire on June 19, 2001 or December 17, 2003. The
Corporation has reserved 152,856 shares of common stock for issuance in
connection with these warrants.
RETIREMENT PLANS
Certain of the Corporation's subsidiaries have defined benefit retirement
plans covering substantially all of their employees. The expense
associated with these plans was $1.6 million in 1997, $1.6 million in 1996
and $1.3 million in 1995.
The defined benefit plans provide benefits based on years of credited
service and compensation (as defined), subject to ERISA limitations.
Contributions to the tax-qualified plans are made in amounts not less than
the minimum-required contribution under ERISA nor more than the maximum-
deductible contribution under the Internal Revenue Code.
<PAGE>
Following is the estimated funded status (in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996
------------------------------ ----------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation...... $ 16,232 $ 2,910 $ 13,841 $ 2,770
======== ======== ======== =======
Accumulated benefit
obligation..................... $ 16,672 $ 4,112 $ 14,150 $ 3,635
======== ======== ======== =======
Projected benefit obligation
for services rendered
to date....................... $(20,625) $ (4,776) $(17,472) $(4,160)
Plan assets at fair value,
primarily U.S. Government
securities and common stocks.... 25,229 20,238
-------- -------- -------- -------
Plan assets in excess of
or (less than) projected
benefit obligation.............. 4,604 (4,776) 2,766 (4,160)
Unrecognized net (gain) loss..... (3,274) (50) (1,832) (63)
Unrecognized net obligation...... 47 52
Unrecognized prior service cost.. 129 1,642 146 1,911
-------- -------- -------- -------
Prepaid (accrued) pension costs.. $ 1,506 $ (3,184) $ 1,132 $(2,312)
======== ======== ======== =======
</TABLE>
The pension expense for the defined benefit plans included the following
components (in thousands):
Year Ended December 31 1997 1996 1995
------- ------- ------
Service costs - benefits earned during the period.. $ 1,196 $ 1,244 $ 854
Interest cost on projected benefit obligation...... 1,726 1,525 1,375
Actual return on plan assets....................... (4,614) (2,026) (3,014)
Net amortization................................... 3,304 894 2,115
------- ------- ------
Net pension expense $ 1,612 $ 1,637 $1,330
======= ======= ======
Assumptions as of December 31 1997 1996 1995
------- ------- ------
Weighted average discount rate................. 7.0% 7.5% 7.0%
Rates of increase in compensation levels....... 4.0% 4.0% 4.0%
Expected long-term rate of return on assets.... 8.0% 8.0% 8.0%
At December 31, 1997 and 1996, respectively, plan assets include $1.6
million and $965,000 the Corporation's common stock. At December 31, 1996,
plan assets also include $193,000 of the Corporation's subordinated debt.
Certain subsidiaries of the Corporation participate in a qualified 401(k)
defined contribution plan for the full-time employees of the subsidiary. A
percentage of employees' contributions to the plan are matched by the
Corporation. The Corporation's contribution expense amounted to $496,000
in 1997, $473,000 in 1996 and $444,000 in 1995.
<PAGE>
Certain subsidiaries of the Corporation participate in a Salary Savings
ESOP Plan, under which eligible employees may contribute a percentage of
their salary. The Corporation matches 50 percent of an eligible employee's
contribution on the first 6 percent that the employee defers, and may make
a discretionary contribution payable either in cash or the Corporation's
common stock based upon the Corporation's profitability. Employees are
generally eligible to participate upon completing one year of service and
having attained age 21. Employer contributions become 20 percent vested
when an employee has completed two years of service, and vest at a rate of
20 percent per year thereafter. The Corporation recognized expense of
$468,000 in 1997, $384,000 in 1996 and $298,000 in 1995 related to the
Salary Savings ESOP Plan.
POSTRETIREMENT PLANS
In addition to the Corporation's retirement plans, the Corporation has
various unfunded postretirement plans which provide medical benefits and
life insurance benefits to its retirees. The postretirement health care
plans vary, the most stringent of which are contributory and contain other
cost-sharing features such as deductibles and co-insurance. The life
insurance plans are noncontributory.
The amounts recognized in the Corporation's consolidated financial
statements are as follows (in thousands):
Year Ended December 31 1997 1996
-------- -------
Accumulated postretirement benefit obligation:
Current retirees................................... $ 77 $ 79
Fully eligible actives............................. 28 49
Other actives...................................... 674 688
------- -------
Total Accumulated Postretirement
Benefit Obligation................................. 779 816
Unrecognized net transition obligation............... (563) (612)
Unrecognized net gain................................ 311 233
Unrecognized prior service cost...................... (7) (7)
------- -------
Accrued postretirement benefit liability............. $ 520 $ 430
======= =======
Net periodic postretirement benefit cost included the following
components (in thousands):
Year Ended December 31 1997 1996 1995
------- ------- -------
Service cost.................................. $ 60 $ 66 $ 60
Interest cost................................. 56 54 68
Amortization of transition obligation......... 25 30 38
------- ------- -------
Net periodic postretirement benefit cost...... $ 141 $ 150 $ 166
======= ======= =======
A 6.0% annual rate of increase in the per capita costs of covered health
care benefits is assumed for 1998, gradually decreasing to 5.25% by the
year 2001. Increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1997 by $73,000 and increase the
aggregate of the service and interest cost component of net periodic
postretirement benefit cost for 1997 by $14,000. A discount rate of 7.0%
was used to determine the accumulated postretirement benefit obligation.
<PAGE>
RECAPITALIZATION OF SAVINGS ASSOCIATION INSURANCE FUND
On September 30, 1996, the Deposit Insurance Funds Act of 1996 was signed
into law and included a provision to recapitalize the Savings Association
Insurance Fund (SAIF). The legislation required a one-time assessment on
all deposits insured by the SAIF, including those held be chartered
commercial banks as a result of previous acquisitions. The one-time
assessment paid by the Corporation totaled $3.2 million, or $.19 per share.
The legislation also included provisions that resulted in a reduction in
annual deposit insurance costs.
INCOME TAXES
Income tax expense consists of the following (in thousands):
Year Ended December 31 1997 1996 1995
------- ------- -------
Current income taxes:
Federal taxes............................ $13,310 $12,218 $11,403
State taxes.............................. 316 409 550
------- ------- -------
13,626 12,627 11,953
Deferred income taxes:
Federal taxes............................ (1,383) (1,829) (681)
------- ------- -------
$12,243 $10,798 $11,272
======= ======= =======
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are presented below (in thousands):
December 31 1997 1996
------- -------
Deferred tax assets:
Allowance for loan losses.................. $10,080 $ 9,063
Deferred compensation...................... 1,522 936
Deferred benefits.......................... 913 634
Loan fees.................................. 716 247
Other...................................... 471 1,112
------- -------
TOTAL GROSS DEFERRED TAX ASSETS.......... 13,702 11,992
------- -------
Deferred tax liabilities:
Depreciation............................... (124) (772)
Unrealized gains on securities
available for sale........................ (2,845) (2,126)
Leasing.................................... (4,997) (1,915)
Other...................................... (1,347) (812)
------- -------
TOTAL GROSS DEFERRED TAX LIABILITIES..... (9,313) (5,625)
------- -------
NET DEFERRED TAX ASSETS.................. $ 4,389 $ 6,367
======= =======
Following is a reconciliation between tax expense using federal statutory
tax and actual effective tax:
Year Ended December 31 1997 1996 1995
------ ------ ------
Federal statutory tax............................. 35.0% 35.0% 35.0%
Effect of nontaxable interest and
dividend income................................. (3.6) (4.2) (4.0)
State taxes....................................... .5 .6 1.0
Goodwill.......................................... .3 .3 .4
Merger related costs.............................. .6 2.2
Other items....................................... (1.1) (.5) .6
------ ------ ------
Actual effective taxes............................ 31.7% 33.4% 33.0%
====== ====== ======
<PAGE>
EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
Year Ended December 31 1997 1996 1995
------- ------- -------
BASIC
Income before extraordinary items..... $26,339 $21,488 $22,813
Less: Preferred stock
dividends declared................... (588) (766) (849)
------- ------- -------
Income before extraordinary items
applicable to common stock.......... 25,751 20,722 21,964
Extraordinary items, net of tax....... 8,809
------- ------- -------
Net income applicable to basic earnings
per share........................... $34,560 $20,722 $21,964
======= ======= =======
Average common shares outstanding..... 16,288,051 16,217,355 16,090,943
========== ========== ==========
Income before extraordinary items..... $1.58 $1.28 $1.36
Extraordinary items, net of tax....... .54
----- ----- -----
Earnings per share.................... $2.12 $1.28 $1.36
===== ===== =====
DILUTED
Income before extraordinary items..... $26,339 $21,488 $22,813
Extraordinary items, net of tax....... 8,809
------- ------- -------
Net income applicable to diluted
earnings per share................... $35,148 $21,488 $22,813
======= ======= =======
Average common shares outstanding..... 16,288,051 16,217,355 16,090,943
Convertible preferred stock........... 662,685 947,220 1,054,654
Net effect of dilutive stock options
based on the treasury stock method
using the average market price....... 523,027 173,375 93,746
---------- ---------- ----------
17,473,763 17,337,950 17,239,343
========== ========== ==========
Income before extraordinary items...... $1.51 $1.24 $1.32
Extraordinary items, net of tax........ .50
----- ----- -----
Earnings per share..................... $2.01 $1.24 $1.32
===== ===== =====
CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information (in
thousands):
Year Ended December 31 1997 1996 1995
------- ------- -------
Cash paid during year for:
Interest........................... $87,880 $81,970 $77,593
Income taxes....................... 10,585 10,549 11,716
Non-cash Investing and
Financing Activities:
Acquisition of real estate in
settlement of loans............ $3,063 $6,635 $ 3,407
Loans granted in the sale
of other real estate............ 1,332 319 321
Transfers and reclassifications
of investment securities to
securities available for sale... 97,483
<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 December 31, 1997,
that the Corporation and each of its banking subsidiaries meet all capital
adequacy requirements to which they are subject.
As of September 30, 1997, the Corporation and each of its banking
subsidiaries have been categorized by the various regulators as "well
capitalized" under the regulatory framework for prompt corrective action.
Following are the capital ratios as of December 31, 1997 for the
Corporation and its significant subsidiaries, First National Bank of
Pennsylvania and First National Bank of Naples (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>
F.N.B. CORPORATION:
Total Capital............... $268,180 14.0% $153,701 8.0% $192,126 10.0%
(to risk-weighted assets)
Tier 1 Capital.............. 234,086 12.2 76,850 4.0 115,275 6.0
(to risk-weighted assets)
Tier 1 Capital.............. 234,086 8.5 109,856 4.0 137,320 5.0
(to average assets)
FIRST NATIONAL BANK OF
PENNSYLVANIA:
Total Capital............... $ 88,384 11.5% $ 61,709 8.0% $ 77,136 10.0%
(to risk-weighted assets)
Tier 1 Capital.............. 78,714 10.2 30,854 4.0 46,282 6.0
(to risk-weighted assets)
Tier 1 Capital.............. 78,714 7.1 44,089 4.0 55,111 5.0
(to average assets)
FIRST NATIONAL BANK OF NAPLES:
Total Capital............... $ 46,770 11.7% $ 31,886 8.0% $ 39,858 10.0%
(to risk-weighted assets)
Tier 1 Capital.............. 42,208 10.6 15,943 4.0 23,915 6.0
(to risk-weighted assets)
Tier 1 Capital.............. 42,208 8.3 20,372 4.0 25,465 5.0
(to average assets)
</TABLE>
<PAGE>
The Corporation and its banking subsidiaries are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory,
and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Corporation's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Corporation and its banking
subsidiaries must meet specific capital guidelines that involve quantitative
measures of assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The Corporation's and
banking subsidiaries' capital amounts and classifications are also subject
to qualitative judgments by the regulators about components, risk weightings
and other factors.
The Corporation's banking subsidiaries were required to maintain
aggregate reserves amounting to $12.6 million at December 31, 1997 to
satisfy federal regulatory requirements. The Corporation also maintains
deposits for various services such as check clearing.
Certain limitations exist under applicable law and regulations by
regulatory agencies regarding dividend payments to a parent by its
subsidiaries. As of December 31, 1997, the subsidiaries had $37.6 million
of retained earnings available for distribution as dividends without prior
regulatory approval.
Under current Federal Reserve regulations, the Corporation's banking
subsidiaries are limited in the amount they may lend to non-bank
affiliates, including the Corporation. Such loans must be secured by
specified collateral. In addition, any such loans to a single non-bank
affiliate may not exceed 10% of any banking subsidiary's capital and
surplus and the aggregate of loans to all such affiliates may not exceed
20%. The maximum amount that may be borrowed by the parent company under
these provisions approximated $41.5 million at December 31, 1997.
PARENT COMPANY FINANCIAL STATEMENTS
Below is condensed financial information of F.N.B. Corporation (parent
company only). In this information, the parent's investments in
subsidiaries are stated at cost plus equity in undistributed earnings of
subsidiaries since acquisition. This information should be read in
conjunction with the supplemental consolidated financial statements.
BALANCE SHEET (IN THOUSANDS):
December 31 1997 1996
-------- --------
ASSETS
Cash........................................... $ 6 $ 19
Short-term investments......................... 2,095 4,457
Advances to subsidiaries....................... 12,122 81,099
Other assets................................... 5,414 5,162
Securities available for sale.................. 7,191
Investment in bank subsidiaries................ 218,187 195,721
Investment in non-bank subsidiaries ........... 110,940 14,715
-------- --------
$348,764 $308,364
======== ========
LIABILITIES
Other liabilities.............................. $ 6,555 $ 4,215
Short-term borrowings.......................... 49,931 55,201
Long-term debt................................. 43,860 33,990
-------- --------
TOTAL LIABILITIES............................ 100,346 93,406
-------- --------
STOCKHOLDERS' EQUITY........................... 248,418 214,958
-------- --------
TOTAL........................................ $348,764 $308,364
======== ========
<PAGE>
Subordinated notes, included within short-term borrowings and long-term
debt are unsecured and subordinated to other indebtedness of the Corporation.
At December 31, 1997, $80.7 million principal amount of such notes was
redeemable prior to maturity by the holder at a discount equal to one month
of interest on short-term notes or three months of interest on long-term
notes. The Corporation has the right to require the holder to give 30 days
prior written notice. The weighted average interest rate was 6.33% at
December 31, 1997 and 6.25% at December 31, 1996. The subordinated notes
are scheduled to mature in various amounts annually from 1998 through the
year 2007.
Following is a summary of the combined aggregate scheduled annual
maturities of subordinated notes for each year following December 31, 1997
(in thousands):
1998..................... $56,100
1999..................... 14,171
2000..................... 2,727
2001..................... 1,159
2002..................... 12,185
Later years.............. 4,449
INCOME STATEMENT (IN THOUSANDS)
Year Ended December 31 1997 1996 1995
------- ------- -------
INCOME
Dividend income from subsidiaries:
Bank...................................... $31,373 $11,778 $ 8,942
Non-bank.................................. 4,660 2,501 3,706
------- ------- -------
36,033 14,279 12,648
Gain on sale of securities.................. 1,296 850 512
Interest income............................. 5,423 5,394 4,924
Income from equity investment............... 621
Other income................................ 95 254 206
------- ------- -------
TOTAL INCOME.............................. 43,468 20,777 18,290
------- ------- -------
EXPENSES
Interest expense............................ 6,280 5,920 5,972
Service fees................................ 970 617 609
Other expenses.............................. 3,248 2,076 1,297
------- ------- -------
TOTAL EXPENSES............................ 10,498 8,613 7,878
------- ------- -------
INCOME BEFORE TAXES AND
EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES........................... 32,970 12,164 10,412
Income tax benefit.......................... 1,156 618 700
------- ------- -------
34,126 12,782 11,112
------- ------- -------
Equity in undistributed income
of subsidiaries:
Bank.................................... (2,087) 7,673 10,702
Non-bank................................ (2,118) 1,033 999
------- ------- -------
(4,205) 8,706 11,701
------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM............ 29,921 21,488 22,813
Gain on sale of subsidiary, net of tax...... 5,227
------- ------- -------
NET INCOME.................................. $35,148 $21,488 $22,813
======= ======= =======
<PAGE>
STATEMENT OF CASH FLOWS (IN THOUSANDS)
Year Ended December 31 1997 1996 1995
-------- -------- --------
OPERATING ACTIVITIES
Net income................................. $ 35,148 $ 21,488 $ 22,813
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of securities............. (1,296) (850) (512)
Undistributed earnings of
subsidiaries.......................... 4,205 (8,706) (11,701)
Extraordinary gain on sale
of subsidiaries....................... (5,227)
Other, net............................. (383) (2,030) (882)
------- -------- -------
Net cash flows from operating
activities.......................... 32,447 9,902 9,718
INVESTING ACTIVITIES
Purchase of securities..................... (1,704) (235) (383)
Proceeds from sale of securities........... 1,828 1,244 922
Advances from (to) subsidiaries............ (2,735) (4,250) (6,107)
Cash paid upon acquisition of
subsidiaries............................. (13,586)
Investment in subsidiaries................. (11,700) 356 737
-------- -------- -------
Net cash flows from
investing activities.................. (27,897) (2,885) (4,831)
FINANCING ACTIVITIES
Net increase in due to
non-bank subsidiary....................... 2,950
Net decrease in short-term borrowings...... (5,270) 4,839 (1,723)
Decrease in long-term debt................. (6,680) (12,303) (5,334)
Increase in long-term debt................. 16,550 8,899 6,274
Net acquisition of treasury stock.......... (2,535) (1,560) 242
Cash dividends paid........................ (9,578) (6,889) (4,343)
-------- -------- -------
Net cash flows from financing
activities............................ (4,563) (7,014) (4,884)
-------- -------- -------
NET INCREASE IN CASH....................... (13) 3 3
Cash at beginning of year.................. 19 16 13
-------- -------- -------
CASH AT END OF YEAR........................$ 6 $ 19 $ 16
======== ======== =======
CASH PAID
Interest.................................. $ 6,181 $ 6,251 $ 5,009
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each financial instrument:
Cash and Due from Banks:
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Securities:
For both securities available for sale and securities held to maturity,
fair value equals quoted market price, if available. If a quoted market
price is not available, fair value is estimated using quoted market prices
for similar securities.
Loans:
The fair value of fixed rate loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
The fair value of adjustable rate loans approximate the carrying amount.
<PAGE>
Deposits:
The fair value of demand deposits, savings accounts and certain money
market deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity deposits is estimated by discounting future
cash flows using rates currently offered for deposits of similar remaining
maturities.
Short-Term Borrowings:
The carrying amounts for short-term borrowings approximate fair value for
amounts that mature in 90 days or less. The fair value of subordinated notes
is estimated by discounting future cash flows using rates currently offered.
Long-Term Debt:
The fair value of long-term debt is estimated by discounting future cash
flows based on the market prices for the same or similar issues or on the
current rates offered to the Corporation for debt of the same remaining
maturities.
The estimated fair values of the Corporation's financial instruments are
as follows (in thousands):
1997 1996
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
FINANCIAL ASSETS
Cash and short-term investments $ 134,279 $ 134,279 $ 129,944 $ 129,944
Securities available for sale.. 443,711 443,711 334,208 334,208
Securities held to maturity.... 133,409 133,716 185,222 184,343
Net loans, including loans
held for sale................. 1,999,917 2,010,545 1,827,012 1,853,191
FINANCIAL LIABILITIES
Deposits....................... $2,366,827 $2,371,889 $2,153,841 $2,160,322
Short-term borrowings.......... 123,752 123,752 116,126 116,126
Long-term debt................. 72,246 73,837 58,179 58,901
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
The mergers between F.N.B. Corporation and Southwest Banks, Inc., West
Coast Bancorp, Inc., West Coast Bank and Seminole Bank were completed on
January 21, 1997, April 18, 1997, January 20, 1998 and May 29, 1998,
respectively, and accounted for as poolings-of-interests. Accordingly, all
financial information has been restated as if the companies were combined
for all periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total interest income...... $ 208,828 $ 195,650 $ 183,938 $ 158,690 $ 152,644
Total interest expense..... 90,014 82,588 79,578 63,485 66,331
Net interest income........ 118,814 113,062 104,360 95,205 86,313
Provision for loan losses.. 11,003 9,941 7,281 9,319 10,092
Total non-interest income.. 24,598 21,691 20,406 18,434 20,140
Total non-interest expenses 93,827 92,526 83,400 79,149 74,967
Net income before
extraordinary items....... 26,339 21,488 22,813 16,726 13,757
Extraordinary items, net of
tax....................... 8,809
Net income................. 35,148 21,488 22,813 16,726 13,757
Recurring net income *..... 30,904 25,631 22,813 16,726 13,757
AT YEAR-END
Total assets............... $2,850,530 $2,579,478 $2,398,195 $2,225,548 $2,117,321
Net loans.................. 1,993,381 1,816,149 1,632,878 1,536,382 1,299,270
Deposits................... 2,366,827 2,153,841 2,039,060 1,871,261 1,834,029
Long-term debt............. 72,246 58,179 50,784 56,614 32,528
Preferred stock............ 2,875 3,525 4,516 4,563 4,582
Total stockholders' equity. 248,418 214,958 202,117 178,833 152,948
PER COMMON SHARE
Earnings
Basic.................... $ 2.12 $ 1.28 $ 1.36 $ 1.01 $ .90
Diluted.................. 2.01 1.24 1.32 1.00 .89
Recurring earnings *
Basic.................... 1.86 1.53 1.36 1.01 .90
Diluted.................. 1.77 1.48 1.32 1.00 .89
Cash dividends............. .60 .57 .31 .23 .22
Book value................. 14.32 13.42 11.99 10.58 9.77
RATIOS
Return on average assets... 1.33% .87% .99% .77% .67%
Return on average assets,
based on recurring net
income *.................. 1.17 1.04 .99 .77 .67
Return on average equity... 15.51 10.23 11.95 9.80 9.40
Return on average equity,
based on recurring net
income *.................. 13.63 12.20 11.95 9.80 9.40
Dividend payout ratio...... 26.01 29.55 15.86 16.15 19.04
Average equity to
average assets............ 8.58 8.52 8.27 7.88 7.12
</TABLE>
* Recurring net income excludes extraordinary gains on the sale of a subsidiary
and branches of $8.8 million and merger related and other non-recurring costs
of $4.6 million in 1997 and a one-time assessment of $2.1 million legislated
by Congress to recapitalize the Savings Association Insurance Fund and merger
related and other non-recurring costs of $2.1 million in 1996, all on an
after-tax basis. Such presentation is provided in order to eliminate all
items deemed by management to be of a non-recurring nature.
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL QUARTERLY EARNINGS SUMMARY (DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
The mergers between F.N.B. Corporation and Southwest Banks, Inc., West
Coast Bancorp, Inc., West Coast Bank and Seminole Bank were completed on
January 21, 1997, April 18, 1997, January 20, 1998 and May 29, 1998,
respectively, and accounted for as poolings-of-interests. Accordingly, the
unaudited quarterly financial data has been restated as if the companies
were combined for all periods presented.
<TABLE>
<CAPTION>
QUARTER ENDED 1997 MAR. 31 JUNE 30 SEPT 30 DEC. 31
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total interest income.......... $51,070 $52,307 $51,500 $53,951
Total interest expense......... 21,603 22,221 22,297 23,893
Net interest income............ 29,467 30,086 29,203 30,058
Provision for loan losses...... 2,342 3,580 2,464 2,617
Total non-interest income...... 6,234 5,436 6,405 6,523
Total non-interest expenses.... 22,509 27,035 20,726 23,557
Net income before
extraordinary items........... 7,292 3,383 8,534 7,130
Extraordinary items,
net of tax.................... 5,227 3,582
Net income..................... 7,292 8,610 8,534 10,712
Recurring net income *......... 7,292 7,645 8,534 7,433
PER COMMON SHARE
Earnings
Basic........................ $.45 $.52 $.52 $.63
Diluted...................... .42 .50 .49 .60
Recurring earnings *
Basic........................ .45 .46 .52 .43
Diluted...................... .42 .44 .49 .42
Cash dividends................. .15 .15 .15 .15
<CAPTION>
QUARTER ENDED 1996 MAR. 31 JUNE 30 SEPT 30 DEC. 31
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total interest income......... $48,150 $48,507 $48,821 $50,172
Total interest expense........ 20,586 20,206 20,546 21,250
Net interest income........... 27,564 28,301 28,275 28,922
Provision for loan losses..... 1,765 1,992 1,903 4,281
Total non-interest income..... 5,447 5,332 5,729 5,183
Total non-interest expenses... 21,711 21,800 25,069 23,946
Net income.................... 6,520 6,655 4,857 3,456
Recurring net income **....... 6,520 6,655 7,060 5,396
PER COMMON SHARE
Earnings
Basic....................... $.39 $.40 $.29 $.20
Diluted..................... .38 .39 .28 .19
Recurring earnings **
Basic....................... .39 .40 .42 .32
Diluted..................... .38 .39 .41 .30
Cash dividends................ .14 .14 .14 .15
</TABLE>
* Non-recurring items include merger related costs and other non-recurring
costs of approximately $4.2 million recognized during the second quarter
and merger related costs of approximately $357,000 recognized during the
fourth quarter, each on an after-tax basis.
** Non-recurring items include a one-time third quarter assessment of $2.1
million legislated by Congress to recapitalize the Savings Association
Insurance Fund and merger related costs of approximately $2.1 million
recognized during the fourth quarter, each on an after-tax basis.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This financial review summarizes the combined financial condition and
results of operations giving retroactive effect to the merger of Seminole
Bank (Seminole) with and into F.N.B. Corporation (the Corporation), and is
intended to be read in conjunction with the Supplemental Consolidated
Financial Statements and accompanying Notes to those statements. The
merger of the Corporation and Seminole was consummated on May 29, 1998, and
has been accounted for on a pooling-of-interests basis. The Corporation
issued 855,450 shares of common stock in exchange for all of the
outstanding common stock of Seminole. This financial review is presented
as if the merger had been consummated for all periods presented.
RESULTS OF OPERATIONS
Net income increased 63.6% to $35.1 million in 1997 from $21.5 million in
1996. Basic earnings per share was $2.12 and $1.28 for 1997 and 1996,
while diluted earnings per share were $2.01 and $1.24, respectively, for
those same periods. The results for 1997 include $8.8 million in gains
relating to the sales of a subsidiary and branches and merger related and
other non-recurring costs of $4.6 million, both net of tax. The results
for 1996 include a special one-time assessment to recapitalize the Savings
Association Insurance Fund (SAIF) of $2.1 million and merger related costs
of $2.1 million, both net of tax. Excluding these items, net income would
have been $30.9 million in 1997 versus $25.6 million in 1996 and basic and
diluted earnings per share would have been $1.86 and $1.77 in 1997 and
$1.53 and $1.48 in 1996, respectively. Net interest income increased by
5.1% as net average interest earning assets increased by $26.7 million.
These factors are further detailed in the discussion which follows.
Common comparative ratios for results of operations include the return on
average assets and the return on average equity. The Corporation's return
on average assets was 1.33% for 1997 compared to .87% for 1996, while the
Corporation's return on average equity was 15.51% for 1997 compared to
10.23% for 1996. Excluding the extraordinary and non-recurring items, the
Corporation had a return on average assets of 1.17% and 1.04% for 1997 and
1996, respectively, and a return on average equity of 13.63% and 12.20% for
those same periods.
<PAGE>
NET INTEREST INCOME
The following table provides information regarding the average balances
and yields and rates on interest earning assets and interest bearing
liabilities (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
-------------------------- -------------------------- -------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Interest bearing
deposits with banks... $ 3,994 $ 236 5.91% $ 6,967 $ 381 5.47% $ 5,462 $ 340 6.22%
Federal funds sold..... 71,027 3,763 5.30 52,460 2,712 5.17 49,478 2,871 5.80
Taxable investment
securities (1)........ 424,855 26,391 6.21 410,683 24,307 5.92 417,166 23,653 5.67
Non-taxable investment
securities............ 76,877 4,509 5.87 69,505 4,283 6.16 59,086 3,794 6.42
Loans (2)(3)........... 1,898,382 175,960 9.27 1,759,717 166,132 9.44 1,625,289 155,548 9.57
---------- -------- ---------- -------- ---------- --------
Total interest
earning assets....... 2,475,135 210,859 8.52 2,299,332 197,815 8.60 2,156,481 186,206 8.63
---------- -------- ---------- -------- ---------- --------
Cash and due from
banks................. 79,823 86,025 80,934
Allowance for loan
losses................ (29,969) (26,784) (24,904)
Premises and equipment. 57,137 47,960 43,339
Other assets........... 59,362 58,540 52,667
---------- ---------- ----------
$2,641,488 $2,465,073 $2,308,517
========== ========== ==========
LIABILITIES
Interest bearing liabilities:
Deposits:
Interest bearing
demand.............. $ 359,253 8,791 2.45 $ 353,005 6,819 1.93 $ 305,203 7,317 2.40
Savings.............. 567,080 15,453 2.73 523,262 14,983 2.86 509,050 13,450 2.64
Other time........... 1,017,011 55,749 5.48 961,641 52,487 5.46 906,447 50,085 5.53
Short-term borrowings.. 131,975 6,275 4.75 89,458 3,915 4.38 96,116 5,468 5.69
Long-term debt......... 51,145 3,746 7.32 49,977 4,384 8.77 39,856 3,258 8.17
---------- -------- ---------- -------- ---------- --------
Total interest bearing
liabilities........... 2,126,464 90,014 4.23 1,977,343 82,588 4.18 1,856,672 79,578 4.29
---------- -------- ---------- -------- ---------- --------
Non-interest bearing
demand deposits....... 252,129 235,386 226,513
Other liabilities...... 36,229 42,328 34,382
---------- --------- ----------
2,414,822 2,255,057 2,117,567
---------- ---------- ----------
STOCKHOLDERS' EQUITY... 226,666 210,016 190,950
---------- ---------- ----------
$2,641,488 $2,465,073 $2,308,517
========== ========== ==========
Excess of interest
earning assets over
interest bearing
liabilities........... $ 348,671 $ 321,989 $ 299,809
========== ========== ==========
Net interest income.... $120,845 $115,227 $106,628
Net interest spread.... 4.29% 4.42% 4.34%
===== ===== =====
Net interest margin (4) 4.88% 5.01% 4.94%
===== ===== =====
</TABLE>
(1) The average balances and yields earned on securities are based on
historical cost.
(2) The amounts are reflected on a fully taxable equivalent basis using the
federal statutory tax rate of 35%, adjusted for certain federal tax
preferences.
(3) Average balances include non-accrual loans. Loans consist of average
total loans less average unearned income. The amount of loan fees
included in interest income on loans is immaterial.
(4) Net interest margin is calculated by dividing the difference between
total interest earned and total interest paid by total interest
earning assets.
<PAGE>
Net interest income, the Corporation's primary source of earnings, is the
amount by which interest and fees generated by earning assets, primarily
loans and securities, exceed interest expense on deposits and borrowed
funds. Net interest income, on a fully taxable equivalent basis, totaled
$120.8 million in 1997 versus $115.2 million in 1996. Net interest income
consisted of interest income of $210.9 million and interest expense of
$90.0 million in 1997, compared to $197.8 million and $82.6 million for
each, respectively, in 1996. Net interest income as a percentage of
average earning assets (commonly referred to as the margin) fell to 4.88%
in 1997 compared to 5.01% in 1996.
Interest income on loans increased 6.2% from $164.8 million in 1996 to
$175.0 million in 1997. This increase is the result loan growth. Average
loans increased 7.9% from 1996.
Interest expense on deposits increased to $80.0 million in 1997. This
increase was attributable to increases in savings and other time deposits.
The Corporation monitors interest rate sensitivity by measuring the
impact that future changes in interest rates will have on net interest
income. Through its asset/liability management and pricing policies,
management has strived to optimize net interest income while reducing the
effects of changes in interest rates. (See "Liquidity and Interest Rate
Sensitivity" discussion).
The following table sets forth certain information regarding changes in
net interest income attributable to changes in the volumes of interest
earning assets and interest bearing liabilities and changes in the rates
for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996
--------------------------- ----------------------------
VOLUME RATE NET VOLUME RATE NET
------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest bearing deposits
with banks............. $ (179) $ 34 $ (145) $ 73 $ (32) $ 41
Federal funds sold....... 981 70 1,051 198 (357) (159)
Securities............... 1,268 1,042 2,310 279 864 1,143
Loans.................... 12,739 (2,911) 9,828 12,664 (2,080) 10,584
------- ------- ------- ------- -------- -------
14,809 (1,765) 13,044 13,214 (1,605) 11,609
------- ------- ------- ------- -------- -------
INTEREST EXPENSE
Deposits:
Interest bearing....... 122 1,850 1,972 1,989 (2,487) (498)
Savings................ 1,028 (558) 470 385 1,148 1,533
Other time............. 3,067 195 3,262 3,032 (630) 2,402
Short-term borrowings.... 2,004 356 2,360 (359) (1,194) (1,553)
Long-term debt........... 105 (743) (638) 873 253 1,126
------- ------- ------- ------- -------- -------
6,326 1,100 7,426 5,920 (2,910) 3,010
------- ------- ------- ------- -------- -------
NET CHANGE............... $ 8,483 $(2,865) $ 5,618 $ 7,294 $ 1,305 $ 8,599
======= ======= ======= ======= ======== =======
</TABLE>
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.
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses charged to operations is a direct result of
management's analysis of the adequacy of the allowance for loan losses
which takes into consideration factors, including qualitative factors,
relevant to the collectibility of the existing portfolio. The provision
for loan losses increased 10.7% to $11.0 million in 1997. This increase
resulted from applying a consistent allowance for loan loss policy and
methodology for evaluating the adequacy of the allowance to all affiliates
in 1997. (See "Non-Performing Loans and Allowance for Loan Losses" and
"Mergers, Acquisitions and Divestitures" discussions).
NON-INTEREST INCOME
Total non-interest income increased 13.4% from $21.7 million in 1996 to
$24.6 million in 1997. This increase was attributable to increases in
service charges and gains on the sale securities, as well as income from
the Corporation's equity investment.
Service charges increased 6.0% from $12.1 million in 1996 to $12.8
million in 1997. Revenue was recognized as a result of increases in the
level of deposits.
Net gains on the sale of securities increased 58.9% due to a higher level
of equity security sales in 1997.
The Corporation recognized $621,000 in income from its equity investment
since June 30, 1997.
NON-INTEREST EXPENSES
Total non-interest expense increased from $92.5 million in 1996 to $93.8
million in 1997. The increase is primarily attributable to an increase of
$5.1 million in salaries and employee benefits and an increase in merger-
related expenses from $2.1 million in 1996 to $2.3 million in 1997.
Additionally, the 1996 total reflects a one-time assessment of $3.2 million
to recapitalize the SAIF.
Salaries and personnel expense increased 11.5% in 1997. This increase
was due to increases for incentive compensation, as well as normal annual
salary adjustments. The Corporation's incentive compensation plans allow
for additional compensation to be paid to employees based on the
Corporation achieving various financial and productivity goals.
On September 30, 1996, the President of the United States signed into law
the Deposit Insurance Funds Act of 1996 to recapitalize the SAIF. The
legislation included a one-time assessment on all deposits insured by the
SAIF, including those held by chartered commercial banks as a result of
previous acquisitions. The Corporation was required to pay a one-time
assessment of $3.2 million.
Other non-interest expenses decreased $1.3 million to $23.6 million.
Included in other non-interest expenses were $2.3 million in 1997 and $2.1
million in 1996 for expenses related to the affiliations with Southwest,
WCBI and FNB Florida. The expenses were primarily legal and investment
banking costs associated with the structuring and completion of mergers.
<PAGE>
INCOME TAXES
The Corporation recognized income tax expense of $12.2 million for 1997
compared to $10.8 million for 1996. The 1997 effective tax rate of 31.7%
was lower than the 35.0% federal statutory tax rate due to the tax benefits
resulting from tax-exempt instruments and excludable dividend income.
Additional information relating to income taxes is furnished in the Notes
to Supplemental Financial Statements.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation monitors its liquidity position on an ongoing basis to
assure that it is able to meet the need for funds at all times. Given the
monetary nature of its assets and liabilities and the significant source of
liquidity provided by its securities portfolio, the Corporation generally
has sufficient sources of funds available as needed to meet its routine,
operational cash needs. Excluding mortgage-backed securities, debt
securities due to mature within one year, which will provide a source of
short-term liquidity, amounted to $96.0 million or 24.1% of the securities
portfolio.
Additionally, the Corporation has external sources of funds available
should it desire to use them. These include approved lines of credit with
several major domestic banks, of which $32.0 million was unused at the end
of 1997. 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 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 .9% or $1.1 million for 1998 as
compared to net interest income if interest rates were unchanged during
1998. This low level of variation is within the Corporation's policy
limits. This simulation analysis assumed that savings and checking interest
rates had a low correlation to changes in market rates of interest and that
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.
<PAGE>
Following is the gap analysis as of December 31, 1997 (dollars 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.. $ 3,981 $ 100 $ 4,081
Federal funds sold..... 30,564 30,564
Securities:
Available for sale... 42,187 38,484 $ 236,303 $ 126,737 443,711
Held to maturity..... 3,690 25,383 91,405 12,931 133,409
Loans, net of
unearned income...... 559,843 526,642 764,735 177,763 2,028,983
640,265 590,609 1,092,443 317,431 2,640,748
Other assets........... 209,782 209,782
--------- --------- ---------- ---------- -----------
$ 640,265 $ 590,609 $1,092,443 $ 527,213 $ 2,850,530
========= ========= ========== ========== ===========
INTEREST BEARING LIABILITIES
Deposits:
Interest checking.... $ 100,225 $ 262,566 $ 362,791
Savings.............. 235,426 428,218 663,644
Time deposits........ 229,000 $ 472,371 $ 356,946 316 1,058,633
Short-term borrowings.. 81,092 9,784 528 32,348 123,752
Long-term debt......... 12,729 10,510 44,558 4,449 72,246
--------- --------- ---------- ---------- -----------
658,472 492,665 402,032 727,897 2,281,066
Other liabilities...... 321,046 321,046
Stockholders' equity... 248,418 248,418
--------- --------- ---------- ---------- -----------
$ 658,472 $ 492,665 $ 402,032 $1,297,361 $ 2,850,530
========= ========= ========== ========== ===========
PERIOD GAP............. $ (18,207) $ 97,944 $ 690,411 $ (770,148)
========= ========= ========== ==========
CUMULATIVE GAP......... $ (18,207) $ 79,737 $ 770,148
========= ========= ==========
CUMULATIVE GAP AS
A PERCENT OF
TOTAL ASSETS......... (.64)% 2.80% 27.02%
========= ========= ==========
RATE SENSITIVE ASSETS/
RATE SENSITIVE
LIABILITIES
(CUMULATIVE)......... .97 1.07 1.50 1.16
========= ========= ========== ==========
</TABLE>
The preceding gap analysis is based on the amortization, maturity or
repricing of the Corporation's interest-bearing assets and interest-bearing
liabilities. Non-maturity deposits have been allocated to represent their
lower sensitivity to changes in market interest rates than other variable-
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. This gap position is within the
Corporation's policy limits.
<PAGE>
FINANCIAL CONDITION
LOAN PORTFOLIO
Following is a summary of loans (dollars in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Real estate:
Residential . . . . . . $ 896,606 $ 747,522 $ 668,303 $ 608,489 $ 535,459
Commercial. . . . . . . 488,354 451,590 410,234 325,958 262,158
Construction. . . . . . 65,260 44,440 38,366 51,514 31,716
Installment loans to
individuals. . . . . . 288,043 402,394 389,519 375,992 283,380
Commercial, financial
and agricultural . . . 244,864 202,148 174,698 220,561 226,238
Lease financing. . . . . 59,852 21,538 5,037
Unearned income. . . . . (20,532) (24,096) (27,628) (23,106) (23,194)
---------- ---------- ---------- ---------- ----------
$2,022,447 $1,845,536 $1,658,529 $1,559,408 $1,315,757
========== ========== ========== ========== ==========
</TABLE>
The Corporation strives to minimize credit losses by utilizing credit
approval standards, diversifying its loan portfolio by industry and borrower
conducting ongoing review and management of the loan portfolio.
The ratio of loans to deposits at the end of 1997 was 85.4%, down slightly
from a ratio of 85.7% at the end of 1996.
During 1997 and 1996 the Corporation sold $23.9 million and $38.5 million,
respectively, in fixed rate residential mortgages to the Federal National
Mortgage Association (FNMA). These sales allowed the Corporation to avoid
the potential interest rate risk of those fixed rate loans in a rising rate
environment. Additionally, it created liquidity for the Corporation to
continue to offer credit availability to the markets it serves. All of the
mortgages were sold with the servicing retained by the Corporation.
In 1997, total installment loans to individuals and lease financing
decreased to $347.9 million. The Corporation significantly reduced its
exposure to non-prime motor vehicle loans by selling approximately $20.7
million of such loans to a third party. The sale resulted in the
Corporation recognizing an after-tax loss of $249,000, after reducing the
allowance for loan losses by $2.4 million.
The commercial loan portfolio consists principally of loans to small- and
medium-sized businesses within the Corporation's primary market area of
western Pennsylvania, eastern Ohio and southwest Florida.
As of December 31, 1997, no concentrations of loans exceeding 10% of total
loans existed which were not disclosed as a separate category of loans.
<PAGE>
Following is a summary of the maturity distribution of certain loan
categories based on remaining scheduled repayments of principal (in thousands):
WITHIN ONE TO AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- --------
DECEMBER 31, 1997
Commercial, financial
and agricultural............ $126,479 $105,871 $ 12,514 $244,864
Real estate - construction... 23,261 36,007 5,992 65,260
-------- -------- -------- --------
Total...................... $149,740 $141,878 $ 18,506 $310,124
======== ======== ======== ========
The total amount of loans due after one year includes $80.0 million with
floating or adjustable rates of interest and $80.4 million with fixed rates
of interest.
NON-PERFORMING LOANS
Non-performing loans include non-accrual loans and restructured loans.
Non-accrual loans represent loans on which interest accruals have been
discontinued. Restructured loans are loans in which the borrower has been
granted a concession on the interest rate or the original repayment terms
due to financial distress.
Following is a summary of non-performing loans (dollars in thousands):
December 31 1997 1996 1995 1994 1993
Non-accrual loans . . . . . $ 8,250 $ 9,972 $ 9,764 $11,367 $11,141
Restructured loans. . . . . 1,345 2,709 3,629 3,707 3,790
------- ------- ------- ------- -------
$ 9,595 $12,681 $13,393 $15,074 $14,931
======= ======= ======= ======= =======
Non-performing loans as a
percentage of total loans .47% .69% .81% .97% 1.13%
Following is a table showing the amounts of contractual interest income and
actual interest income recorded on non-accrual and restructured loans (in
thousands):
Year Ended December 31 1997 1996 1995 1994 1993
------- ------ ------- ------ -------
Gross interest income that
would have been recorded
if the loans had been
current and in accordance
with their original terms. . $1,041 $1,446 $1,302 $1,791 $1,827
Interest income recorded
during the year. . . . . . . 477 792 685 696 708
Following is a summary of loans 90 days or more past due, on which interest
accruals continue (dollars in thousands):
December 31 1997 1996 1995 1994 1993
------- ------- ------- ------- -------
Loans 90 days or more
past due . . . . . . . . . $3,218 $3,048 $3,872 $2,753 $3,739
Loans 90 days or more past
due as a percentage of
total loans. . . . . . . . .16% .17% .23% .18% .28%
<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 the current status of economic
conditions, loan loss trends, delinquency and non-accrual trends, credit
administration and concentrations of credit risk.
Following is a summary of changes in the allowance for loan losses
(dollars in thousands):
Year Ended December 31 1997 1996 1995 1994 1993
------- ------- ------- ------- -------
Balance at beginning of year. . . $29,387 $25,650 $23,700 $19,241 $17,324
Reduction due to the sale of a
subsidiary and loans . . . . . (3,828) (893)
Addition due to acquisitions. . . 1,167
Charge-offs:
Real estate - mortgage. . . . . (864) (423) (620) (1,456) (591)
Installment loans to individuals (6,943) (5,959) (5,437) (3,834) (3,996)
Commercial, financial and
agricultural. . . . . . . . . (2,108) (1,451) (1,226) (1,564) (4,159)
------- ------- ------- ------- -------
(9,915) (7,833) (7,283) (6,854) (8,746)
------- ------- ------- ------- -------
Recoveries:
Real estate - mortgage. . . . . 86 135 189 98 173
Installment loans to individuals 811 1,052 1,125 968 790
Commercial, financial and
agricultural. . . . .. . . . 355 442 638 928 501
------- ------- ------- ------- -------
1,252 1,629 1,952 1,994 1,464
------- ------- ------- ------- -------
Net charge-offs. . . . . . . . . (8,663) (6,204) (5,331) (4,860) (7,282)
Provision for loan losses. . . . 11,003 9,941 7,281 9,319 10,092
------- ------- ------- ------- -------
Balance at end of year . . . . . $29,066 $29,387 $25,650 $23,700 $19,241
======= ======= ======= ======= =======
Net charge-offs as a percent of
average loans, net of unearned
income . . . . . . . . . . . . .46% .35% .33% .33% .54%
Allowance for loan losses as a
percent of total loans, net
of unearned income . . . . . . 1.44 1.59 1.55 1.52 1.46
Allowance for loan losses as a
percent of non-performing loans 302.93 231.74 191.52 157.22 128.87
The increase in the level of charge-offs and the provision for loan losses
in 1997 and 1996 resulted primarily from the consistent application of the
Corporation's charge-off policy and methodology for determining the adequacy
of the allowance for loan losses to acquired affiliates.
<PAGE>
The Corporation has allocated the allowance according to the amount deemed
to be reasonably necessary to provide for the possibility of losses being
incurred within each of the categories of loans shown in the table below.
The allocation of the allowance should not be interpreted as an indication
that loan losses in future years will occur in the same proportions or that
the allocation indicates future loan loss trends. Furthermore, the portion
allocated to each loan category is not the sole amount available for future
losses within such categories since the total allowance is a general
allowance applicable to the entire portfolio.
Following shows the allocation of the allowance for loan losses (in
thousands):
<TABLE>
<CAPTION>
% OF % OF % OF % OF % OF
LOANS LOANS LOANS LOANS LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
Year Ended December 31, 1997 LOANS 1996 LOANS 1995 LOANS 1994 LOANS 1993 LOANS
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural............ $ 5,027 36% $ 7,183 35% $ 6,485 35% $ 8,582 35% $ 7,528 37%
Real estate-construction..... 264 3 121 2 88 2 216 3 520 2
Real estate-mortgage......... 5,487 44 4,005 41 3,538 40 3,842 39 3,111 41
Installment loans to
individuals................. 5,313 17 7,468 22 6,500 23 5,085 23 4,556 20
Unallocated portion.......... 12,975 10,610 9,039 5,975 3,526
------- --- ------- ---- ------- --- ------- --- ------- ---
$29,066 100% $29,387 100% $25,650 100% $23,700 100% $19,241 100%
======= ======= ======= ======= =======
</TABLE>
INVESTMENT ACTIVITY
Investment activities serve to enhance overall yield on earning assets while
supporting interest rate sensitivity and liquidity positions. Securities
purchased with the intent and ability to retain until maturity are categorized
as securities held to maturity and carried at amortized cost. All other
securities are categorized as securities available for sale and must be
marked to market.
The relatively short average maturity of all securities provides a source
of liquidity to the Corporation and reduces the overall market risk of the
portfolio.
During 1997, securities available for sale increased 32.8% while securities
held to maturity decreased 28.0% from December 31, 1996.
<PAGE>
The following table indicates the respective maturities and weighted-
average yields of securities as of December 31, 1997 (in thousands):
Weighted
Average
Amount Yield
--------- ---------
Obligations of U.S. Treasury and
Other U.S. Government agencies:
Maturing within one year. . . . . . . . . . . . .$ 89,852 5.76%
Maturing after one year within five years . . . . 197,306 6.25%
Maturing after five years within ten years. . . . 28,578 6.74%
State & political subdivisions:
Maturing within one year. . . . . . . . . . . . . 5,726 5.04%
Maturing after one year within five years . . . . 37,887 6.28%
Maturing after five years within ten years. . . . 7,277 6.48%
Maturing after ten years. . . . . . . . . . . . . 823 6.31%
Other securities:
Maturing within one year. . . . . . . . . . . . . 462 6.55%
Maturing after one year within five years . . . . 1,461 6.10%
Maturing after five years within ten years. . . . 1,157 6.62%
Maturing after ten years. . . . . . . . . . . . . 3,000 6.68%
Mortgage-backed securities . . . . . . . . . . . . . . 178,403 6.32%
No stated maturity . . . . . . . . . . . . . . . . . . 25,188 4.62%
--------- ------
TOTAL. . . . . . . . . . . . . . . . . . . .$ 577,120 6.14%
========= ======
The weighted average yields for tax exempt securities are computed on a
tax equivalent basis.
DEPOSITS AND SHORT-TERM BORROWINGS
As a commercial bank holding company, the Corporation's primary source of
funds is its deposits. Those deposits are provided by businesses and
individuals located within the markets served by the Corporation's
subsidiaries.
Total deposits increased 9.9% to $2.4 billion in 1997. The majority of
this increase was due to a 10.9% increase in savings and NOW accounts.
Additionally, time deposits increased 8.4% to $1.1 billion.
Short-term borrowings, made up of repurchase agreements, federal funds
purchased, notes payable and subordinated notes increased 6.6% in 1997 to
$123.8 million. The primary reasons for this increase was an increase in
securities sold under repurchase agreements. Securities sold under
repurchase agreements increased $17.3 million in 1997.
<PAGE>
CAPITAL RESOURCES
The assessment of capital adequacy depends on a number of factors such as
asset quality, liquidity, earnings performance, changing competitive
conditions and economic forces. The Corporation seeks to maintain a strong
capital base to support its growth and expansion activities, to provide
stability to current operations and to promote public confidence.
Capital management is a continuous process. Since December 31, 1996,
stockholders' equity has increased $25.6 million as a result of earnings
retention. Total cash dividends declared represented 27.3% of net income
for 1997 compared to 32.1% for 1996. Book value per share was $14.32 at
December 31, 1997, compared to $13.42 at December 31, 1996.
1996 VERSUS 1995
The Corporation's net income decreased 5.8% from $22.8 million in 1995 to
$21.5 million in 1996. Basic earnings per share were $1.28 and $1.36 for
1996 and 1995, while diluted earnings per share were $1.24 and $1.32,
respectively, for those same periods. The results for 1996 include a
special one-time assessment to recapitalize the SAIF of $3.2 million and
merger related costs of $2.1 million. Excluding these items, net income
would have been $25.6 million, an 12.4% increase over 1995, and basic and
diluted earnings per share would have been $1.53 and $1.48, respectively.
The Corporation's return on average assets was .87% for 1996 compared to
.99% for 1995, while the Corporation's return on average equity was 10.23%
for 1996 compared to 11.95% for 1995. Excluding the SAIF assessment and
merger related costs, the Corporation had a return on average assets of
1.04% and a return on average equity of 12.20%.
Net interest income, on a fully taxable equivalent basis, increased from
$106.6 million in 1995 to $115.2 million in 1996. Net margin rose to 5.01%
from 4.94% in 1995. Average loans increased 8.3% from 1995, contributing
to the improvement in net interest income.
The provision for loan losses was $9.9 million and represented an
increase of 36.5% from 1995, when a provision of $7.3 was charged to
operations. This increase resulted from applying a consistent allowance
for loan loss policy and methodology for evaluating the adequacy of the
adequacy of the allowance across all affiliates.
Total non-interest income increased 6.3% from $20.4 million in 1995 to
$21.7 million in 1996. This increase was attributable to increases in
service charges and gains on the sale of securities. Service charges
increased 6.7% from $11.3 million in 1995 to $12.1 million in 1996.
Revenue was recognized as a result of increases in the level of deposits.
Net gains on the sale of securities increased by $306,000 due to a higher
level of equity security sales in 1996.
Total non-interest expense increased from $83.4 million in 1995 to $92.5
million in 1996. Salaries and employee benefits increased 9.4% in 1996.
This increase was due to expansion in the Corporation's retail network and
increases for incentive compensation, as well as normal annual salary
adjustments. As a result of legislation passed in 1996, the Corporation
was required to pay a one-time assessment of $3.2 million to recapitalize
the SAIF. Other non-interest expenses increased $4.4 million in 1996.
Included in this total was $2.1 million of merger-related expenses.
Income tax expense was $10.8 million for 1996 compared to $11.3 million
for 1995. The 1996 effective tax rate of 33% was below the 35% statutory
tax rate due to the tax benefits resulting from tax-exempt instruments and
excludable dividend income.
<PAGE>
YEAR 2000
The much publicized Year 2000 Issue is the result of computer programs
being written using two digits rather than four to define an applicable
year. Any of the Corporation's 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 a system failure or miscalculations
causing disruptions of operations, including, among other things, a
temporary inability to process transactions or engage in similar normal
business activities. In addition, the Year 2000 Issue increases
transaction risk with third parties including customers, service providers
and vendors.
During 1997, the Corporation established the Customer Service Center of
F.N.B., L.L.C. (Customer Service), a subsidiary of the Corporation
comprised of two data processing service centers. These facilities support
each of the Corporation's bank and non-bank subsidiaries. As part of its
primary functions, Customer Service has been commissioned to identify and
select a single mainframe and data processing system. Conversion is
anticipated to occur in 1999 and will coincide with the expiration of the
Corporation's current primary data processing contracts. A mandatory
requirement of selection will be that the mainframe and data processing
system selected is Year 2000 compliant.
In the event that the Corporation does not convert to a single corporate
wide mainframe and data processing system in 1999, the Corporation has
developed a Year 2000 Bank Strategy and Project Plan (Year 2000 Plan). An
integral part of the Year 2000 Plan is the review and testing of all core
data systems and technology, including hardware, software, applications,
mainframes, PC/desktop applications, system interdependencies and networks.
It is anticipated that such testing will be completed by December 31, 1998.
Based on a recent assessment, the Corporation anticipates expending
approximately $220,000 for systems testing, reprogramming and other
upgrades in order to remediate its current systems. However, if such
modifications and conversions are not made, or are not completed in a
timely manner, the Year 2000 Issue may have a material impact on the
operations of the Corporation.
The Corporation has initiated communications with significant bank
customers, vendors and others with material relationships in an attempt to
evaluate the extent of their exposure to the Year 2000 Issue. As part of
this evaluation, the Corporation is actively pursuing the receipt of Year
2000 certifications from these parties. The Corporation could possibly be
affected to the extent other entities not affiliated with the Corporation
are unsuccessful in addressing the Year 2000 Issue.
The costs of completing the Corporation's Year 2000 Plan and the date on
which the Corporation believes it will complete all modifications are based
on management's best estimates. These estimates were derived utilizing
numerous assumptions of future events, including the continued availability
of certain resources, third party 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.
Such material differences may involve a myriad of factors, including but
not limited to, the availability and cost of personnel trained in this
area, the ability to locate and correct all relevant programming codes and
other similar uncertainties.
<PAGE>
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
January 22, 1997
Board of Directors and Stockholders
of Southwest Banks, Inc.
Naples, Florida
We have audited the accompanying consolidated balance sheets of Southwest
Banks, Inc. and its subsidiaries, First National Bank of Naples and Cape
Coral National Bank (collectively, the Company), as of December 31, 1996
and 1995 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Southwest Banks, Inc. and its subsidiaries as of December 31,
1996 and 1995 and the consolidated results of their operations and their
consolidated cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting
principles.
/s/HILL, BARTH & KING, INC.
NAPLES, FLORIDA
<PAGE>
EXHIBIT 99.3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
West Coast Bancorp, Inc. and Subsidiary
Cape Coral, Florida
We have audited the accompanying consolidated balance sheets of West Coast
Bancorp, Inc. and Subsidiary at December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of West Coast
Bancorp, Inc. and Subsidiary at December 31, 1996 and 1995, and the
consolidated statements of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting
principles.
/s/COOPERS & LYBRAND L.L.P.
FORT MYERS, FLORIDA
January 24, 1997
<PAGE>
EXHIBIT 99.4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Seminole Bank
Seminole, Florida:
We have audited the balance sheets of Seminole Bank (the "Bank") at
December 31, 1997 and 1996, and the related statements of earnings,
stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997. These financial statements
are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Bank at December
31, 1997 and 1996, and the results of its operations and cash flows for
each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
January 9, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 99,634 114,610 100,435
<INT-BEARING-DEPOSITS> 4,081 1,792 4,889
<FED-FUNDS-SOLD> 30,564 13,542 70,868
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 443,711 334,208 294,672
<INVESTMENTS-CARRYING> 133,409 185,222 183,837
<INVESTMENTS-MARKET> 133,716 184,343 183,978
<LOANS> 2,022,447 1,845,536 1,658,528
<ALLOWANCE> 29,066 29,387 25,650
<TOTAL-ASSETS> 2,850,530 2,579,478 2,398,195
<DEPOSITS> 2,366,827 2,153,841 2,039,060
<SHORT-TERM> 123,752 116,126 75,716
<LIABILITIES-OTHER> 39,287 36,374 30,518
<LONG-TERM> 72,246 58,179 50,784
<COMMON> 32,376 29,471 28,100
0 0 0
2,875 3,525 4,516
<OTHER-SE> 213,167 181,962 169,501
<TOTAL-LIABILITIES-AND-EQUITY> 2,850,530 2,579,478 2,398,195
<INTEREST-LOAN> 174,999 164,829 154,146
<INTEREST-INVEST> 29,830 27,728 26,581
<INTEREST-OTHER> 3,999 3,093 3,211
<INTEREST-TOTAL> 208,828 195,650 183,938
<INTEREST-DEPOSIT> 79,993 74,289 70,852
<INTEREST-EXPENSE> 90,014 82,588 79,578
<INTEREST-INCOME-NET> 118,814 113,062 104,360
<LOAN-LOSSES> 11,003 9,941 7,281
<SECURITIES-GAINS> 1,252 788 482
<EXPENSE-OTHER> 93,827 92,526 83,400
<INCOME-PRETAX> 38,582 32,286 34,085
<INCOME-PRE-EXTRAORDINARY> 26,339 21,488 22,813
<EXTRAORDINARY> 8,809 0 0
<CHANGES> 0 0 0
<NET-INCOME> 35,148 21,488 22,813
<EPS-PRIMARY> 2.12 1.28 1.36
<EPS-DILUTED> 2.01 1.24 1.32
<YIELD-ACTUAL> 4.88 5.01 4.94
<LOANS-NON> 8,250 9,972 9,567
<LOANS-PAST> 3,218 3,048 3,872
<LOANS-TROUBLED> 1,345 2,709 3,629
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 29,387 25,650 23,700
<CHARGE-OFFS> 9,915 7,833 7,283
<RECOVERIES> 1,252 1,629 1,952
<ALLOWANCE-CLOSE> 29,066 29,387 25,650
<ALLOWANCE-DOMESTIC> 29,066 29,387 25,650
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1997
<CASH> 92,199 101,435 86,532 99,634
<INT-BEARING-DEPOSITS> 4,397 2,896 4,526 4,081
<FED-FUNDS-SOLD> 54,452 22,320 59,217 30,564
<TRADING-ASSETS> 0 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 326,520 322,166 349,041 443,711
<INVESTMENTS-CARRYING> 181,506 161,775 141,446 133,409
<INVESTMENTS-MARKET> 179,998 161,173 141,589 133,716
<LOANS> 1,876,753 1,836,244 1,872,154 2,022,447
<ALLOWANCE> 29,921 29,730 27,452 29,066
<TOTAL-ASSETS> 2,618,182 2,549,182 2,612,585 2,850,530
<DEPOSITS> 2,204,707 2,105,040 2,149,772 2,366,827
<SHORT-TERM> 119,716 133,152 134,793 123,752
<LIABILITIES-OTHER> 29,929 36,096 34,724 39,287
<LONG-TERM> 45,735 48,859 61,131 72,246
<COMMON> 29,614 31,032 31,095 32,376
0 0 0 0
3,233 3,061 2,900 2,875
<OTHER-SE> 185,248 191,942 198,170 213,167
<TOTAL-LIABILITIES-AND-EQUITY> 2,618,182 2,549,182 2,612,585 2,850,530
<INTEREST-LOAN> 42,830 43,958 43,261 44,950
<INTEREST-INVEST> 7,308 7,591 7,360 7,571
<INTEREST-OTHER> 932 758 879 1,430
<INTEREST-TOTAL> 51,070 52,307 51,500 53,951
<INTEREST-DEPOSIT> 19,390 19,884 19,736 20,983
<INTEREST-EXPENSE> 21,603 22,221 22,297 23,893
<INTEREST-INCOME-NET> 29,467 30,086 29,203 30,058
<LOAN-LOSSES> 2,342 3,580 2,464 2,617
<SECURITIES-GAINS> 494 (55) 426 387
<EXPENSE-OTHER> 22,509 27,035 20,726 23,557
<INCOME-PRETAX> 10,850 4,907 12,418 10,407
<INCOME-PRE-EXTRAORDINARY> 7,292 3,383 8,534 7,130
<EXTRAORDINARY> 0 5,227 0 3,582
<CHANGES> 0 0 0 0
<NET-INCOME> 7,292 8,610 8,534 10,712
<EPS-PRIMARY> .45 .52 .52 .63
<EPS-DILUTED> .42 .50 .49 .60
<YIELD-ACTUAL> 4.99 4.93 5.03 4.70
<LOANS-NON> 9,855 7,827 7,311 8,250
<LOANS-PAST> 3,311 2,861 3,829 3,218
<LOANS-TROUBLED> 2,629 1,929 1,874 1,345
<LOANS-PROBLEM> 0 0 0 0
<ALLOWANCE-OPEN> 29,387 29,921 29,730 27,452
<CHARGE-OFFS> 2,069 2,816 2,522 2,508
<RECOVERIES> 260 489 287 216
<ALLOWANCE-CLOSE> 29,921 29,730 27,452 29,066
<ALLOWANCE-DOMESTIC> 29,921 29,730 27,452 29,066
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 101,053 103,919 104,408 114,610
<INT-BEARING-DEPOSITS> 8,212 5,106 3,263 1,792
<FED-FUNDS-SOLD> 53,312 38,409 26,024 13,542
<TRADING-ASSETS> 0 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 302,427 283,078 260,436 334,208
<INVESTMENTS-CARRYING> 204,017 203,092 194,749 185,222
<INVESTMENTS-MARKET> 202,749 198,810 192,617 184,343
<LOANS> 1,688,360 1,752,341 1,812,691 1,845,536
<ALLOWANCE> 25,930 26,762 26,917 29,387
<TOTAL-ASSETS> 2,443,183 2,467,976 2,484,241 2,579,478
<DEPOSITS> 2,077,477 2,069,412 2,057,015 2,153,841
<SHORT-TERM> 84,444 125,354 145,744 116,126
<LIABILITIES-OTHER> 33,903 30,845 35,350 36,374
<LONG-TERM> 41,565 339,160 33,956 58,179
<COMMON> 27,987 29,163 29,279 29,471
0 0 0 0
4,516 4,263 3,984 3,525
<OTHER-SE> 173,291 175,023 178,913 181,962
<TOTAL-LIABILITIES-AND-EQUITY> 2,443,183 2,467,976 2,484,241 2,579,478
<INTEREST-LOAN> 40,068 40,540 41,496 42,725
<INTEREST-INVEST> 7,005 7,315 6,778 6,630
<INTEREST-OTHER> 1,077 652 547 817
<INTEREST-TOTAL> 48,150 48,507 48,821 50,172
<INTEREST-DEPOSIT> 18,598 18,227 18,418 19,046
<INTEREST-EXPENSE> 20,586 20,206 20,546 21,250
<INTEREST-INCOME-NET> 27,564 28,301 28,275 28,922
<LOAN-LOSSES> 1,765 1,992 1,903 4,281
<SECURITIES-GAINS> 250 295 205 38
<EXPENSE-OTHER> 21,711 21,800 25,069 23,946
<INCOME-PRETAX> 9,535 9,871 7,307 5,573
<INCOME-PRE-EXTRAORDINARY> 6,520 6,655 4,857 3,456
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 6,520 6,655 4,857 3,456
<EPS-PRIMARY> .39 .40 .29 .20
<EPS-DILUTED> .38 .39 .28 .19
<YIELD-ACTUAL> 5.02 4.96 4.87 4.75
<LOANS-NON> 10,253 12,051 9,338 9,972
<LOANS-PAST> 4,536 4,383 3,730 3,048
<LOANS-TROUBLED> 2,324 2,158 2,690 2,709
<LOANS-PROBLEM> 0 0 0 0
<ALLOWANCE-OPEN> 25,650 25,976 26,834 26,997
<CHARGE-OFFS> 1,893 1,613 2,108 2,219
<RECOVERIES> 454 478 368 328
<ALLOWANCE-CLOSE> 25,976 26,834 26,997 29,387
<ALLOWANCE-DOMESTIC> 25,976 26,834 26,997 29,387
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0 0
</TABLE>
