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 2, 1999
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)
INFORMATION TO BE INCLUDED IN THE REPORT
<PAGE>
ITEM 5. OTHER EVENTS
On January 13, 1999, F.N.B. Corporation (the Corporation) completed its
acquisition of Guaranty Bank & Trust. Accordingly, the Corporation's
Consolidated Financial Statements and Related Management's Discussion and
Analysis of Financial Condition and Results of Operations have been provided
giving retroactive effect to this merger using the pooling of interests
method of accounting. The Corporation is hereby filing with the Securities
and Exchange Commission a copy of the Audited Consolidated Financial
Statements for the years ended December 31, 1998, 1997 and 1996 and
Management's Discussion and Analysis.
<PAGE>
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 23.5 Consent of Bobbitt, Pittenger & Company, P.A.
Exhibit 27.1 Financial Data Schedule for the years ended
December 31, 1998, 1997 and 1996
Exhibit 27.2 Financial Data Schedule for the quarterly periods
in the year ended December 31, 1998
Exhibit 27.3 Financial Data Schedule for the quarterly periods
in the year ended December 31, 1997
Exhibit 99.1 Consolidated Financial Statements for the years
ended December 31, 1998, 1997 and 1996 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 Audit of Southwest Banks, Inc.
Exhibit 99.3 Report of Independent Auditors Coopers & Lybrand
L.L.P. for the 1996 Audit of West Coast Bancorp, Inc.
Exhibit 99.4 Report of Independent Auditors Hacker, Johnson,
Cohen & Grieb PA for the 1997 and 1996 Audits of Seminole
Bank
Exhibit 99.5 Report of Independent Auditors Hacker, Johnson,
Cohen & Grieb PA for the 1997 and 1996 Audits of Citizens
Holding Corporation and Subsidiary
Exhibit 99.6 Report of Independent Auditors Bobbitt, Pittenger
& company, P.A. for the 1998, 1997 and 1996 Audits of
Guaranty Bank & Trust Company
<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 2, 1999
<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
23.5 Consent of Bobbitt, Pittenger & Company, P.A.
27.1 Financial Data Schedule for the years ended December 31, 1998, 1997
and 1996
27.2 Financial Data Schedule for the quarterly periods in the year
ended December 31, 1998
27.3 Financial Data Schedule for the quarterly periods in the year
ended December 31, 1997
99.1 Consolidated Financial Statements for the years ended December 31,
1998, 1997 and 1996 with Report of Independent Auditors and
Management's Discussion and Analysis
99.2 Report of Independent Auditors Hill, Barth & King, Inc. for the 1996
Audit of Southwest Banks, Inc.
99.3 Report of Independent Auditors Coopers & Lybrand L.L.P. for the
1996 Audit of West Coast Bancorp, Inc.
99.4 Report of Independent Auditors Hacker, Johnson, Cohen & Grieb PA
for the 1997 and 1996 Audits of Seminole Bank
99.5 Report of Independent Auditors Hacker, Johnson, Cohen & Grieb PA
for the 1997 and 1996 Audits of Citizens Holding Corporation and
Subsidiary
99.6 Report of Independent Auditors Bobbitt, Pittenger & Company, P.A.
for the 1998, 1997 and 1996 Audits of Guaranty Bank & Trust Company
<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 30, 1999, with respect to the
consolidated financial statements of F.N.B. Corporation and subsidiaries as
of December 31, 1998 and 1997 and for each of the three years in the period
ended December 31, 1998 included in this Current Report on Form 8-K.
/s/ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
June 30, 1999
<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 audit of the consolidated financial
statements of Southwest Banks, Inc. which have been incorporated into the
Consolidated Financial Statements for the year ended December 31, 1996,
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, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC 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
June 30, 1999
Tampa, Florida
<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 and of our report dated January 9, 1998
except for Note 18, as to which the date is April 6, 1998 on our audits of
the financial statements of Citizens Holding Corporation and Subsidiaries at
December 31, 1997 and 1996 and for each of the years in the three-year period
ended December 31, 1997 which reports are included as exhibits in F.N.B.
Corporation's Current Report on Form 8-K.
/s/HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
June 30, 1999
<PAGE>
EXHIBIT 23.5
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 April 23, 1999 on our audits of the financial statements of Guaranty
Bank & Trust Company for the years ended December 31, 1998, 1997 and 1996,
which report is included as an exhibit in F.N.B. Corporation's Current
Report on Form 8-K.
/s/BOBBITT, PITTENGER & COMPANY, P.A.
Sarasota, Florida
June 30, 1999
<PAGE>
EXHIBIT 99.1
Consolidated Financial Statements
and Management's Discussion and Analysis
F.N.B. Corporation and Subsidiaries
Years ended December 31, 1998, 1997 and 1996
with Report of Independent Auditors
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND MANAGEMENT'S DISCUSSION AND ANALYSIS
Years ended December 31, 1998, 1997 and 1996
CONTENTS
Report of Independent Auditors........................................... 1
Consolidated Financial Statements
Consolidated Balance Sheet..................................... 2
Consolidated Income Statement.................................. 3
Consolidated Statement of Stockholders' Equity................. 4
Consolidated Statement of Cash Flows........................... 5
Notes to Consolidated Financial Statements..................... 6
Selected Financial Data................................................. 31
Quarterly Earnings Summary.............................................. 32
Management's Discussion and Analysis of Financial Conditions and
Results of Operations............................................... 33
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
F.N.B. Corporation
We have audited the consolidated balance sheets of F.N.B. Corporation and
subsidiaries (F.N.B. Corporation) as of December 31, 1998 and 1997 and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998.
The consolidated financial statements give retroactive effect to the merger
of F.N.B. Corporation and Guaranty Bank & Trust Company on January 13, 1999,
which has been accounted for using the pooling of interests method as
described in the notes to the consolidated financial statements. These
consolidated financial statements are the responsibility of management of
F.N.B. Corporation. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit
the financial statements of Guaranty Bank & Trust Company, which statements
reflect total assets constituting approximately 4% for 1998 and net income
constituting approximately 1% for 1998 of the related consolidated financial
statement totals. We did not audit the financial statements of Southwest
Banks, Inc. and subsidiaries, West Coast Bancorp, Inc. and subsidiary,
Seminole Bank, Citizens Holding Corporation and subsidiaries or Guaranty Bank
& Trust Company, which statements reflect total assets constituting
approximately 11% for 1997 and net income constituting approximately 8% and
12% for 1997 and 1996, respectively, of the related 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, Seminole Bank, Citizens Holding
Corporation and subsidiaries and Guaranty Bank & Trust Company is based
solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the
reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of F.N.B. Corporation
at December 31, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998, after giving retroactive effect to the merger of
Guaranty Bank & Trust Company, as described in the notes to the consolidated
financial statements, in conformity with generally accepted accounting
principles.
/s/ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
June 30, 1999
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Dollars in thousands, except par values
December 31 1998 1997
---------- ----------
ASSETS
Cash and due from banks...................... $ 134,847 $ 112,292
Interest bearing deposits with banks......... 4,192 5,581
Federal funds sold........................... 44,706 46,013
Mortgage loans held for sale................. 15,947 6,536
Securities available for sale................ 455,082 470,118
Securities held to maturity (fair value of
$119,522 and $154,624)..................... 118,575 154,241
Loans, net of unearned income of $31,014
and $20,643................................ 2,422,884 2,175,789
Allowance for loan losses.................... (32,308) (31,055)
---------- ----------
NET LOANS.................................. 2,390,576 2,144,734
Premises and equipment....................... 93,584 76,984
Other assets................................. 146,031 78,299
---------- ----------
$3,403,540 $3,094,798
========== ==========
LIABILITIES
Deposits:
Non-interest bearing....................... $ 401,272 $ 329,347
Interest bearing........................... 2,449,770 2,255,194
---------- ----------
TOTAL DEPOSITS........................... 2,851,042 2,584,541
Other liabilities............................ 50,252 41,578
Short-term borrowings........................ 150,981 127,186
Long-term debt............................... 69,492 72,246
----------- ----------
TOTAL LIABILITIES........................ 3,121,767 2,825,551
STOCKHOLDERS' EQUITY
Preferred stock - $10 par value
Authorized - 20,000,000 shares
Issued - 237,985 and 287,500 shares
Aggregate liquidation value -
$5,950 and $7,188.......................... 2,380 2,875
Common Stock - $2 par value
Authorized - 100,000,000 shares
Issued - 19,264,231 and 18,399,920 shares.. 38,529 36,800
Additional paid-in capital................... 161,232 133,375
Retained earnings............................ 76,408 94,452
Accumulated other comprehensive income....... 6,308 5,373
Treasury stock - 109,285 and 113,592
shares at cost............................. (3,084) (3,628)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY............... 281,773 269,247
---------- ----------
$3,403,540 $3,094,798
========== ==========
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
Dollars in thousands, except per share data
Year Ended December 31 1998 1997 1996
-------- -------- --------
INTEREST INCOME
Loans, including fees....................... $205,071 $187,225 $175,409
Securities:
Taxable................................... 32,458 29,210 26,925
Nontaxable................................ 2,482 2,442 2,448
Dividends................................. 1,629 1,185 1,113
Other....................................... 4,334 4,997 3,828
-------- -------- --------
TOTAL INTEREST INCOME................... 245,974 225,059 209,723
INTEREST EXPENSE
Deposits.................................... 96,657 86,466 79,541
Short-term borrowings....................... 6,813 6,415 4,030
Long-term debt.............................. 4,590 3,746 4,384
-------- -------- --------
TOTAL INTEREST EXPENSE.................. 108,060 96,627 87,955
NET INTEREST INCOME..................... 137,914 128,432 121,768
Provision for loan losses................... 7,572 11,503 10,063
-------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES............. 130,342 116,929 111,705
NON-INTEREST INCOME
Insurance commissions and fees.............. 4,067 3,983 4,116
Service charges............................. 16,581 13,658 12,873
Trust....................................... 2,792 2,707 2,478
Gain on sale of securities.................. 1,384 1,287 790
Gain on sale of loans....................... 3,316 1,730 961
Other....................................... 5,270 4,114 2,680
-------- -------- --------
TOTAL NON-INTEREST INCOME............... 33,410 27,479 23,898
-------- -------- --------
163,752 144,408 135,603
NON-INTEREST EXPENSES
Salaries and employee benefits.............. 60,256 54,171 49,654
Net occupancy............................... 8,569 8,168 7,896
Amortization of intangibles................. 1,321 1,584 1,047
Equipment................................... 8,962 8,020 7,327
Deposit insurance........................... 1,037 887 1,130
Recapitalization of Savings
Association Insurance Fund................ 3,176
Merger related.............................. 5,541 2,385 2,081
Promotional................................. 2,499 2,730 3,032
Insurance claims paid....................... 2,275 1,867 1,707
Other....................................... 24,676 23,509 25,068
-------- -------- --------
TOTAL NON-INTEREST EXPENSES............. 115,136 103,321 102,118
-------- -------- --------
INCOME BEFORE INCOME TAXES.............. 48,616 41,087 33,485
Income taxes................................ 16,418 13,013 11,207
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS....... 32,198 28,074 22,278
Gain on sale of subsidiary and branches,
net of tax of $4,743...................... 8,809
-------- -------- --------
NET INCOME.............................. $ 32,198 $ 36,883 $ 22,278
======== ======== ========
EARNINGS PER COMMON SHARE
BEFORE EXTRAORDINARY ITEMS
Basic................................... $1.58 $1.42 $1.11
===== ===== =====
Diluted................................. $1.51 $1.35 $1.08
===== ===== =====
EARNINGS PER COMMON SHARE
Basic................................... $1.58 $1.87 $1.11
===== ===== =====
Diluted................................. $1.51 $1.78 $1.08
===== ===== =====
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Dollars in thousands, except per share data
<TABLE>
<CAPTION> ACCUMULATED
OTHER EMPLOYEE
COMPRE- ADDITIONAL COMPRE- STOCK
HENSIVE PREFERRED COMMON PAID-IN RETAINED HENSIVE OWNERSHIP TREASURY
INCOME STOCK STOCK CAPITAL EARNINGS INCOME PLAN STOCK
------- ------- ------- -------- -------- ------ ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996........... $4,516 $32,480 $105,584 $ 75,293 $3,394 $(389) $ (464)
Net income........................... $22,278 22,278
Change in accumulated other
comprehensive income............... (796) (796)
------- ------
Comprehensive income................. $21,482
=======
Cash dividends declared:
Preferred stock.................... (766)
Common stock $.60 per share........ (6,160)
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
------ ------- -------- -------- ------ ----- --------
BALANCE AT DECEMBER 31, 1996......... 3,525 33,851 115,449 79,918 2,598 0 (1,487)
Net income........................... $36,883 36,883
Change in accumulated other
comprehensive income............... 2,775 2,775
-------
Comprehensive income................. $39,658
=======
Cash dividends declared:
Preferred stock.................... (588)
Common stock $.63 per share........ (9,036)
Purchase of common stock............. (7,688)
Issuance of common stock............. 91 228 (496) 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
------ ------- -------- -------- ------ ----- ---------
BALANCE AT DECEMBER 31, 1997......... 2,875 36,800 133,375 94,452 5,373 0 (3,628)
Net income........................... $32,198 32,198
Change in accumulated other
comprehensive income............... 935 935
-------
Comprehensive income................. $33,133
=======
Cash dividends declared:
Preferred stock.................... (492)
Common stock $.71 per share........ (12,273)
Purchase of common stock............. (16,989)
Issuance (retirement) of
common stock....................... (17) (329) (8,040) 17,533
Stock dividend....................... 1,528 27,909 (29,437)
Conversion of preferred stock........ (495) 218 277
------ ------- -------- -------- ------ ----- -------
BALANCE AT DECEMBER 31, 1998......... $2,380 $38,529 $161,232 $ 76,408 $6,308 $ 0 $(3,084)
====== ======= ======== ======== ====== ===== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Dollars in thousands
Year Ended December 31 1998 1997 1996
--------- --------- ---------
OPERATING ACTIVITIES
Net income........................... $ 32,198 $ 36,883 $ 22,278
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization.... 9,073 8,329 7,200
Provision for loan losses........ 7,572 11,503 10,063
Provision for valuation allowance
on other real estate owned...... 540 664
Deferred taxes................... (4,220) (1,247) (2,193)
Gain on securities available for
sale............................ (1,384) (1,287) (790)
Gain on sale of loans............ (3,316) (1,730) (961)
Extraordinary gains on sales of
subsidiary and branches, net of
tax............................. (8,809)
Proceeds from sale of loans...... 89,484 115,998 72,459
Loans originated for sale........ (95,579) (110,382) (64,694)
Net change in:
Interest receivable............ 82 (2,693) 1,248
Interest payable............... 684 1,783 432
Other, net....................... (56,624) 4,148 5,128
--------- --------- ---------
Net cash flows from
operating activities....... (22,030) 53,036 50,834
INVESTING ACTIVITIES
Net change in:
Interest bearing deposits with
banks............................. 1,389 (2,311) 3,097
Federal funds sold................. 1,307 (3,294) 49,705
Loans.............................. (253,960) (210,262) (216,347)
Securities available for sale:
Purchases.......................... (218,145) (273,522) (200,816)
Sales.............................. 16,334 44,753 45,468
Maturities......................... 219,863 148,684 114,147
Securities held to maturity:
Purchases.......................... (36,960) (16,028) (55,822)
Maturities......................... 72,722 67,158 55,185
Increase in premises and equipment... (24,844) (19,511) (14,000)
Net cash received (paid) for mergers,
acquisitions and divestiture....... 48,625 (50,362)
--------- --------- ---------
Net cash flows from
investing activities....... (173,669) (314,695) (219,383)
FINANCING ACTIVITIES
Net change in:
Non-interest bearing deposits,
savings and NOW................... 203,031 133,824 111,727
Time deposits...................... 14,789 114,449 32,829
Short-term borrowings.............. 23,795 (1,802) 40,711
Increase in long-term debt........... 16,838 44,010 32,899
Decrease in long-term debt........... (19,592) (29,862) (25,504)
Net acquisition of treasury stock.... (7,842) (2,319) (1,504)
Cash dividends paid.................. (12,765) (9,624) (6,926)
--------- --------- ---------
Net cash flows from
financing activities....... 218,254 248,676 184,232
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............... 22,555 (12,983) 15,683
Cash and cash equivalents at
beginning of year.................. 112,292 125,275 109,592
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF YEAR........................ $ 134,847 $ 112,292 $ 125,275
========= ========= =========
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS:
The Corporation is a bank holding company headquartered in Hermitage,
Pennsylvania with administrative offices in Naples, Florida. It operates 9
community banks through 88 offices and a consumer finance company through 34
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 other comprehensive income.
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.
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.
<PAGE>
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, all unpaid interest is reversed.
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 future economic conditions, known and inherent risks
in the loan portfolio, the estimated value of underlying collateral and
changes in the composition of the loan portfolio. 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.
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.
<PAGE>
INCOME TAXES:
Income taxes are computed utilizing the liability method. Under this
method deferred taxes are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
PER SHARE AMOUNTS:
Earnings and cash dividends per share have been adjusted for common stock
dividends, including the 5 percent stock dividend declared on April 26, 1999.
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:
Financial Accounting Standards Statement (FAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," requires all derivatives to
be recorded on the balance sheet at fair value and establishes standard
accounting methodologies for hedging activities. The standard will result in
the recognition of offsetting changes in value or cash flows of both the
hedge and the hedged item in earnings in the same period. The statement is
effective for the Corporation's fiscal year ending December 31, 2001.
Because the Corporation has not entered into any derivative transactions, the
adoption of this statement will have no impact on the financial statements.
FAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Entity,"
amends FAS No. 65 allowing mortgage backed securities or other retained
interests arising from the securitization of mortgage loans to be classified
based on the mortgage banking entities ability and intent to sell or hold
those securities. Previously these securities had to be held within a
trading account. This statement is effective for the Corporation's fiscal
year ending December 31, 1999.
American Institute of Certified Public Accountants Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," requires capitalization of certain costs incurred
during an internal use software development project. The SOP is effective
for the Corporation's fiscal year ending December 31, 1999. Application of
this SOP is not expected to have a material effect on the Corporation's
financial position or results of operations.
<PAGE>
MERGERS, ACQUISITIONS AND DIVESTITURES
On January 13, 1999, the Corporation completed its affiliation with
Guaranty Bank & Trust (Guaranty), a community bank headquartered in Venice,
Florida with assets of $152.8 million. Under the terms of the merger
agreement, each outstanding share of Guaranty's common stock was converted
into 1.536 shares of the Corporation's common stock. A total of 1,250,994
shares of the Corporation's common stock were issued. The transaction was
accounted for as a pooling-of-interests. On February 12, 1999, Guaranty was
merged into an existing subsidiary of the Corporation, West Coast Bank, to
form West Coast Guaranty Bank, N.A. Following is an unaudited summary of
pro forma information, which represents a combination of the results of
operations of the Corporation and Guaranty (in thousands, except per share
data):
Year Ended December 31, 1998 F.N.B. GUARANTY
-------- --------
Net interest income......................... $132,600 $5,313
Net income.................................. 31,872 326
On October 24, 1998, First National Bank of Pennsylvania (FNBPA) purchased
three Lawrence County branches. This purchase added $48.7 million in
deposits. As a result of the transaction, FNBPA recognized $5.1 million and
$1.8 million in goodwill and core deposit intangibles, respectively.
On August 31, 1998, the Corporation completed its affiliation with Citizens
Holding Corporation, headquartered in Clearwater, Florida, with assets
totaling $135.0 million. Under the terms of the merger agreement, each
outstanding share of Citizens' common stock was converted into 1.743 shares
of the Corporation's common stock. A total of 1,012,325 shares of the
Corporation's common stock were issued. Citizens' principal asset, Citizens
Bank and Trust, was merged into an existing subsidiary of the Corporation,
First National Bank of Florida (FNB Florida), formerly Indian Rocks National
Bank, in Clearwater, Florida. Results for prior years are restated to
reflect this acquisition as a pooling-of-interests.
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,
FNB Florida, in Clearwater, Florida. Results for prior years are restated to
reflect this acquisition 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 year ended December 31, 1997. The F.N.B. Corporation results exclude the
effects of any mergers which occurred subsequent to December 31, 1997 (in
thousands):
Year Ended December 31, 1997 F.N.B. CITIZENS SEMINOLE WEST COAST
-------- -------- -------- ----------
Net interest income............ $111,030 $4,800 $3,771 $4,013
Net income..................... 33,123 1,052 1,146 879
<PAGE>
During 1997, the Corporation affiliated with First National Bank of Naples,
Naples, Florida, Cape Coral National Bank, Cape Coral, Florida, West Coast
Bancorp, Inc. (WCBI), Cape Coral, Florida and First National Bank of Florida,
Clearwater, Florida. These affiliations added assets and deposits of $790.7
million and $658.2 million, respectively, and were accounted for as poolings-
of-interests. The Corporation also acquired Mercantile Bank of Southwest
Florida (Mercantile), located in Naples, Florida. Mercantile was merged into
First National Bank of Naples and added assets and deposits of $121.7 million
and $108.2 million, respectively. The Corporation paid $13.6 million and
accounted for the acquisition under the purchase method.
During 1997, the Corporation disposed of its subsidiary, Bucktail Bank and
Trust Company (Bucktail), in exchange for 565,384 shares of Sun Bancorp, Inc.
(Sun), a bank holding company headquartered in Selinsgrove, Pennsylvania. At
December 31, 1998, the Corporation's investment in Sun is accounted for using
the equity method and had a market value totaling $27.6 million and a
carrying value totaling $21.0 million. The Corporation recognized equity
earnings from Sun totaling $1.3 million for the year ended December 31, 1998.
At December 31, 1998, Sun had total assets of $623.6 million and recognized
net income of $8.7 million for the year then ended. The Corporation also
sold three branches of its subsidiary Metropolitan National Bank in 1997.
These sales resulted in the Corporation recognizing $8.8 million in after-tax
extraordinary gains.
The Corporation regularly evaluates the potential acquisition of, and holds
discussions with, various potential acquisition candidates and as a general
rule the Corporation publicly announces such acquisitions only after a
definitive merger agreement has been reached.
SECURITIES
The amortized cost and fair value of securities are as follows (in
thousands):
Securities available for sale:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1998 COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
U.S. Treasury and other U.S.
Government agencies and
corporations............... $256,740 $ 2,004 $ (168) $258,576
Mortgage-backed securities of
U.S. Government agencies... 163,351 1,218 (99) 164,470
States of the U.S. and
political subdivisions..... 3,202 38 (101) 3,139
Other debt securities........ 1,000 1,000
-------- ------- ------- --------
TOTAL DEBT SECURITIES.... 424,293 3,260 (368) 427,185
Equity securities............ 21,053 6,949 (105) 27,897
-------- ------- ------- --------
$445,346 $10,209 $ (473) $455,082
======== ======= ======= ========
<PAGE>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1997 COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
U.S. Treasury and other
U.S. Government agencies
and corporations........... $314,752 $ 1,058 $ (260) $315,550
Mortgage-backed securities of
U.S. Government agencies... 121,311 501 (147) 121,665
States of the U.S. and
political subdivisions..... 1,486 51 1,537
Other debt securities........ 5,031 107 5,138
-------- ------ ------- --------
TOTAL DEBT SECURITIES.... 442,580 1,717 (407) 443,890
Equity securities............ 19,240 7,002 (14) 26,228
-------- ------ ------- --------
$461,820 $8,719 $ (421) $470,118
======== ====== ======= ========
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1996 COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
U.S. Treasury and other
U.S. Government agencies
and corporations........... $288,414 $ 522 $ (855) $288,081
Mortgage-backed securities of
U.S. Government agencies... 45,170 644 (176) 45,638
Other debt securities........ 2,000 (16) 1,984
-------- ------ ------- --------
TOTAL DEBT SECURITIES.... 335,584 1,166 (1,047) 335,703
Equity securities............ 15,642 3,942 (14) 19,570
-------- ------ ------- --------
$351,226 $5,108 $(1,061) $355,273
======== ====== ======= ========
Securities held to maturity:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1998 COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
U.S. Treasury and other
U.S. Government agencies
and corporations........... $ 29,882 $ 117 $ (43) $ 29,956
Mortgage-backed securities of
U.S. Government agencies... 33,909 118 (28) 33,999
States of the U.S. and
political subdivisions..... 54,237 795 (18) 55,014
Other debt securities........ 547 9 (3) 553
-------- ------ ------- ---------
$118,575 $1,039 $ (92) $119,522
======== ====== ======= ========
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1997 COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
U.S. Treasury and other
U.S. Government agencies
and corporations........... $ 34,339 $ 149 $ (48) $ 34,440
Mortgage-backed securities of
U.S. Government agencies... 64,371 122 (231) 64,262
States of the U.S. and
political subdivisions..... 54,678 430 (41) 55,067
Other debt securities........ 853 6 (4) 855
-------- ------ ------- --------
$154,241 $ 707 $ (324) $154,624
======== ====== ======= ========
<PAGE>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1996 COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
U.S. Treasury and other
U.S. Government agencies
and corporations........... $ 35,784 $ 106 $ (133) $ 35,757
Mortgage-backed securities of
U.S. Government agencies... 113,275 142 (785) 112,632
States of the U.S. and
political subdivisions..... 59,514 205 (443) 59,276
Other debt securities........ 1,188 5 (5) 1,188
-------- ------ ------- --------
$209,761 $ 458 $(1,366) $208,853
======== ====== ======= ========
At December 31, 1998 and 1997, respectively, securities with a carrying
value of $138.2 million and $157.4 million were pledged to secure public
deposits, trust deposits and for other purposes as required by law.
Securities with a carrying value of $156.6 million and $137.1 million at
December 31, 1998 and 1997, respectively, were pledged as collateral for
other borrowings.
As of December 31, 1998, the Corporation had not entered into any off-
balance sheet derivative transactions.
As of December 31, 1998, 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, 1998 COST VALUE COST VALUE
-------- -------- -------- -------
Due in one year or less....... $ 14,232 $ 14,294 $ 41,094 $ 41,283
Due from one to five years.... 48,486 48,900 165,790 167,296
Due from five to ten years.... 20,012 20,333 51,072 51,214
Due after ten years........... 1,936 1,996 2,986 2,922
-------- -------- -------- --------
84,666 85,523 260,942 262,715
Mortgage-backed securities of
U.S. Government Agencies.... 33,909 33,999 163,351 164,470
Equity securities............ 21,053 27,897
-------- -------- -------- --------
$118,575 $119,522 $445,346 $455,082
======== ======== ======== ========
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 1998, 1997 and
1996 were $14.3 million, $44.8 million and $45.5 million, respectively.
Gross gains and gross losses were realized on those sales as follows (in
thousands):
1998 1997 1996
------ ------ ------
Gross gains.......................... $1,404 $1,400 $ 887
Gross losses......................... (20) (113) (97)
------ ------ ------
$1,384 $1,287 $ 790
====== ====== ======
<PAGE>
LOANS
Following is a summary of loans (in thousands):
December 31 1998 1997
---------- ----------
Real estate:
Residential....................... $ 994,157 $ 949,716
Commercial........................ 632,304 542,251
Construction...................... 103,672 70,093
Installment loans to individuals... 292,418 301,911
Commercial, financial and
agricultural..................... 299,081 272,609
Lease financing.................... 132,266 59,852
Unearned income.................... (31,014) (20,643)
---------- ----------
$2,422,884 $2,175,789
========== ==========
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, 1998, 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 1998. 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, 1997...... $ 32,558
New loans............................. 28,601
Repayments............................ (24,246)
Other................................. 370
--------
Total loans at December 31, 1998...... $ 37,283
========
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 1998 1997
-------- --------
Non-accrual loans........................ $ 12,250 $ 8,365
Restructured loans....................... 1,770 1,345
-------- --------
TOTAL NON-PERFORMING LOANS............. 14,020 9,710
Other real estate owned.................. 1,370 4,207
-------- --------
TOTAL NON-PERFORMING ASSETS............ $ 15,390 $ 13,917
======== ========
<PAGE>
For the years ended December 31, 1998, 1997 and 1996, income recognized on
non-accrual and restructured loans was $863,000, $477,000 and $798,000,
respectively. Income that would have been recognized during 1998, 1997 and
1996 on such loans if they were in accordance with their original terms was
$1.6 million, $1.1 million and $1.5 million, respectively. Loans past due 90
days or more were $2.9 million, $3.2 million and $3.1 million at December 31,
1998, 1997 and 1996, respectively.
Following is a summary of information pertaining to loans considered to be
impaired (in thousands):
At of For the Year Ended December 31 1998 1997 1996
------- ------- -------
Impaired loans with an allocated allowance..... $ 3,366 $ 1,341 $ 5,063
Impaired loans without an allocated allowance.. 4,998 5,605
------- ------- -------
Total impaired loans........................ $ 8,364 $ 1,341 $10,668
======= ======= =======
Allocated allowance on impaired loans.......... 1,099 496 1,529
======= ======= =======
Portion of impaired loans on non-accrual....... 5,413 975 5,125
======= ======= =======
Average impaired loans......................... 4,945 5,887 13,389
======= ======= =======
Income recognized on impaired loans............ 492 99 822
======= ======= =======
ALLOWANCE FOR LOAN LOSSES
Following is an analysis of changes in the allowance for loan losses (in
thousands):
Year Ended December 31 1998 1997 1996
------- ------- -------
Balance at beginning of year............... $31,055 $31,199 $27,771
Reduction due to the sale of a subsidiary
and loans................................. (3,828)
Addition due to acquisitions............... 1,167
Charge-offs................................ (7,634) (10,281) (8,305)
Recoveries................................. 1,315 1,295 1,670
------- ------- -------
NET CHARGE-OFFS........................ (6,319) (8,986) (6,635)
Provision for loan losses.................. 7,572 11,503 10,063
------- ------- -------
Balance at end of year..................... $32,308 $31,055 $31,199
======= ======= =======
PREMISES AND EQUIPMENT
Following is a summary of premises and equipment (in thousands):
December 31 1998 1997
-------- --------
Land................................ $ 18,537 $ 15,283
Premises............................ 76,059 64,949
Equipment........................... 51,287 44,004
-------- --------
145,883 124,236
Accumulated depreciation............ (52,299) (47,252)
-------- --------
$ 93,584 $ 76,984
======== ========
Depreciation expense was $8.1 million for 1998, $7.0 million for 1997 and
$6.4 million for 1996.
<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
1998, $4.0 million for 1997 and $3.0 million for 1996. Total minimum rental
commitments under such leases were $28.2 million at December 31, 1998.
Following is a summary of future minimum lease payments for years following
December 31, 1998 (in thousands):
1999.............................. $ 1,925
2000.............................. 1,609
2001.............................. 1,277
2002.............................. 1,172
2003.............................. 987
Later years....................... 21,208
DEPOSITS
Following is a summary of deposits (in thousands):
December 31 1998 1997
---------- ----------
Non-interest bearing................ $ 401,272 $ 329,347
Savings and NOW..................... 1,264,779 1,107,763
Certificates of deposit and
other time deposits............... 1,184,991 1,147,431
---------- ----------
$2,851,042 $2,584,541
========== ==========
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, 1998 (in thousands):
1999.............................. $915,732
2000.............................. 171,371
2001.............................. 49,932
2002.............................. 22,083
2003.............................. 24,479
Later years....................... 1,394
Time deposits of $100,000 or more were $249.9 million and $232.1 million at
December 31, 1998 and 1997, respectively. Following is a summary of these
time deposits by remaining maturity at December 31, 1998 (in thousands):
CERTIFICATES OTHER TIME
OF DEPOSIT DEPOSITS TOTAL
------------ ---------- --------
Three months or less............. $ 83,458 $ 5,229 $ 88,687
Three to six months.............. 60,050 1,321 61,371
Six to twelve months............. 54,885 3,779 58,664
Over twelve months............... 23,205 17,949 41,154
-------- ------- --------
$221,598 $28,278 $249,876
======== ======= ========
<PAGE>
SHORT-TERM BORROWINGS
Following is a summary of short-term borrowings (in thousands):
December 31 1998 1997
-------- --------
Securities sold under repurchase agreements... $ 99,590 $ 59,136
Federal funds purchased....................... 561 16,862
Other short-term borrowings................... 1,221 4,257
Subordinated notes............................ 49,609 46,931
-------- --------
$150,981 $127,186
======== ========
Credit facilities amounting to $45.0 million at December 31, 1998 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. These credit facilities
were unused at December 31, 1998.
LONG-TERM DEBT
Following is a summary of long-term debt (in thousands):
December 31 1998 1997
-------- --------
Federal Home Loan Bank advances............... $ 21,305 $ 28,386
Other long-term debt.......................... 6,000
Subordinated notes............................ 42,187 43,860
-------- --------
$ 69,492 $ 72,246
======== ========
Certain subsidiaries have lines of credit available with the Federal Home
Loan Bank. These lines totaled $406.5 million, of which $21.3 million was
used as of December 31, 1998. These advances are secured by residential real
estate loans and Federal Home Loan Bank Stock and are scheduled to mature in
various amounts periodically through the year 2008. Interest rates paid on
these advances range from 5.10% to 6.20% in 1998 and 5.66% to 6.32% in 1997.
Subordinated notes are unsecured and subordinated to other indebtedness of
the Corporation. The subordinated notes are scheduled to mature in various
amounts periodically through the year 2008. At December 31, 1998, $32.1
million of long-term subordinated debt is redeemable prior to maturity at a
discount equal to three months of interest. The Corporation 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 6.66% at December 31, 1998 and 7.58%
at December 31, 1997.
Scheduled annual maturities for all of the long-term debt for each of the
five years following December 31, 1998 are as follows (in thousands):
1999.............................. $21,136
2000.............................. 5,013
2001.............................. 8,276
2002.............................. 17,178
2003.............................. 7,380
Later years....................... 10,509
<PAGE>
COMMITMENTS AND CREDIT RISK
The Corporation has commitments to extend credit and standby letters of
credit which involve certain elements of credit risk in excess of the amount
stated in the consolidated balance sheet. The Corporation's exposure to
credit loss in the event of non-performance by the customer is represented by
the contractual amount of those instruments. Consistent credit policies are
used by the Corporation for both on- and off-balance sheet items.
Following is a summary of off-balance sheet credit risk information (in
thousands):
December 31 1998 1997
-------- --------
Commitments to extend credit................ $426,699 $379,765
Standby letters of credit................... 21,417 21,345
At December 31, 1998, funding of approximately 75% of the commitments to
extend credit is dependent on the financial condition of the customer. The
Corporation has the ability to withdraw such commitments at its discretion.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. Based on management's
credit evaluation of the customer, collateral may be deemed necessary.
Collateral requirements vary and may include accounts receivable, inventory,
property, plant and equipment and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the
Corporation which may require payment at a future date. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers.
STOCKHOLDERS' EQUITY
Series A - Cumulative Convertible Preferred Stock (Series A Preferred) was
issued in 1985. 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 1998, 600 shares of Series
A Preferred were converted to 410 shares of common stock. At December 31,
1998, 18,732 shares of common stock were reserved by the Corporation for the
conversion of the remaining 20,718 outstanding shares.
Series B - Cumulative Convertible Preferred Stock (Series B Preferred) was
issued in 1992. 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 1998, 48,915 shares of
Series B Preferred were converted to 108,770 shares of common stock. At
December 31, 1998, 489,923 shares of common stock were reserved by the
Corporation for the conversion of the remaining 217,267 outstanding shares.
<PAGE>
COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, are as follows
(in thousands):
Year Ended December 31 1998 1997 1996
------- ------- -------
Net income................................... $32,198 $36,883 $22,278
Other comprehensive income:
Unrealized gains on securities:
Arising during the period, net of tax
expense (benefit) of $924, $1,788
and $(86)................................. 1,745 3,332 (228)
Less: reclassification adjustment for
gains included in net income, net of
tax benefit of $436, $300 and $306........ (810) (557) (568)
------- ------- -------
Other comprehensive income................... 935 2,775 (796)
------- ------- -------
Comprehensive income......................... $33,133 $39,658 $21,482
======= ======= =======
STOCK INCENTIVE PLANS
The Corporation has available up to 1,007,643 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, 1998, 15,577 shares out of
a total of 72,096 shares were vested under these plans. The weighted average
grant date fair value of the restricted shares issued through December 31,
1998 was $25.29.
The Corporation has available up to 2,599,108 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 1998 1997 1996
------- ------- -------
Pro forma net income before
extraordinary items................. $31,544 $27,699 $22,080
Extraordinary items, net of tax....... 8,809
------- ------- -------
Pro forma net income.................. $31,544 $36,508 $22,080
======= ======= =======
Pro forma earnings per share:
Basic:
Before extraordinary items........ $1.55 $1.40 $1.10
Extraordinary items, net of tax... .45
----- ----- -----
Net income........................ $1.55 $1.85 $1.10
===== ===== =====
Diluted:
Before extraordinary items........ $1.48 $1.33 $1.07
Extraordinary items, net of tax... .42
----- ----- -----
Net income........................ $1.48 $1.75 $1.07
===== ===== =====
<PAGE>
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.
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:
1998 1997 1996
---- ---- ----
Risk-free interest rate..................... 5.54% 6.53% 5.63%
Dividend yield.............................. 2.52% 1.66% 3.00%
Volatility factor of the expected market
price of the Corporation's common stock... .23% .22% .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
1998 SHARE 1997 1996
--------- --------- --------- ---------
Outstanding, beginning
of year.................... 1,390,417 $11.27 1,321,012 1,123,936
Granted during the year..... 295,314 28.36 210,446 216,937
Exercised during the year... (294,165) 9.46 (87,924) (12,931)
Forfeited during the year... (25,946) 19.13 (53,117) (6,930)
--------- --------- ---------
Ending balance................ 1,365,620 15.21 1,390,417 1,321,012
========= ========= =========
The following table summarizes information about the stock options
outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------- ---------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- -------- ----------- --------
$ 5.44 - $ 8.16 409,411 7.03 $ 6.65 396,281 $ 6.63
8.17 - 12.26 337,311 5.26 10.72 220,304 10.78
12.27 - 18.40 232,003 6.80 16.31 114,453 16.29
18.41 - 27.62 144,440 8.11 20.71 48,048 21.12
27.63 - 31.57 242,455 9.05 31.57 7,771 31.57
--------- -------
1,365,620 786,857
========= =======
The Corporation has granted warrants to purchase common stock (at an
exercise price of $5.94 or $9.90 per share). Such warrants are exercisable
and will expire on June 19, 2001 or December 17, 2003. The Corporation has
reserved 160,499 shares of common stock for issuance in connection with these
warrants.
<PAGE>
RETIREMENT AND OTHER POSTRETIREMENT BENEFIT PLANS
Retirement Plans
Following are reconciliations of the change in benefit obligation, change
in plan assets and funded status (in thousands):
December 31 1998 1997
------- -------
Benefit obligation at beginning of year........ $25,400 $21,632
Service cost................................. 1,310 1,265
Interest cost................................ 1,839 1,726
Plan amendments.............................. 549 23
Actuarial loss............................... 2,522 1,561
Curtailments................................. (69)
Benefits paid................................ (727) (738)
------- -------
Benefit obligation at end of year.............. $30,893 $25,400
======= =======
December 31 1998 1997
------- -------
Fair value of plan assets at beginning of year.. $25,228 $20,238
Actual return on plan assets.................. 3,808 4,614
Company contribution.......................... 31 1,114
Benefits paid................................. (727) (738)
------- -------
Fair value of plan assets at end of year........ $28,340 $25,228
======= =======
December 31 1998 1997
------- -------
Funded status of plan.......................... $(2,553) $ (172)
Unrecognized actuarial gain.................... (2,573) (3,324)
Unrecognized prior service cost................ 2,043 1,771
Unrecognized net transition obligation......... 42 47
------- -------
Accrued pension cost........................... $(3,041) $(1,678)
======= =======
Included in the above reconciliation is the benefit obligation and fair
value of plan assets for the Basic Retirement Plan which were $5.5 million
and $0, respectively, as of December 31, 1998, and $4.1 million and $0,
respectively, as of December 31, 1997.
The amounts recognized in the Corporation's consolidated financial
statements include the following (in thousands):
December 31 1998 1997
------- -------
Prepaid pension cost........................... $ 1,016 $ 1,506
Accrued pension cost........................... (4,057) (3,184)
Additional minimum liability................... (1,475) (928)
Intangible asset............................... 1,475 928
------- -------
Net amount recognized on balance sheet......... $(3,041) $(1,678)
======= =======
<PAGE>
The pension expense for the defined benefit plans included the following
components (in thousands):
Year Ended December 31 1998 1997 1996
------- ------- -------
Service costs............................. $ 1,310 $ 1,265 $ 1,244
Interest cost............................. 1,839 1,726 1,525
Expected return on plan assets............ (1,989) (1,603) (1,423)
Net amortization.......................... 233 293 291
Curtailment gain.......................... (69)
------- ------- -------
Net pension expense....................... $ 1,393 $ 1,612 $ 1,637
======= ======= =======
Assumptions as of December 31 1998 1997 1996
---- ---- ----
Weighted average discount rate............. 6.5% 7.0% 7.5%
Rates of increase in compensation levels... 4.0% 4.0% 4.0%
Expected long-term rate of return on assets 8.0% 8.0% 8.0%
At December 31, 1998, plan assets include 60,528 shares of the
Corporation's common stock, having a market value of $1.7 million. Dividends
received on these shares totaled $36,000 for 1998.
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 $667,000 in
1998, $606,000 in 1997 and $565,000 in 1996.
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 $705,000 in 1998,
$468,000 in 1997 and $384,000 in 1996 related to the Salary Savings ESOP
Plan.
Postretirement Plans
Following are reconciliations of the change in benefit obligation, change
in plan assets and funded status (in thousands):
December 31 1998 1997
---- ----
Benefit obligation at beginning of year................... $779 $816
Service cost............................................ 77 60
Interest cost........................................... 65 56
Plan participants' contributions........................ 3 4
Actuarial loss (gain)................................... 126 (103)
Benefits paid........................................... (85) (54)
---- ----
Benefit obligation at end of year......................... $965 $779
==== ====
<PAGE>
December 31 1998 1997
----- -----
Fair value of plan assets at beginning of year............ $ 0 $ 0
Company contribution.................................... 81 50
Plan participants' contributions........................ 4 4
Benefits paid........................................... (85) (54)
----- -----
Fair value of plan assets at end of year.................. $ 0 $ 0
===== =====
December 31 1998 1997
----- -----
Funded status of plan.................................... $(965) $(779)
Unrecognized actuarial gain.............................. (177) (310)
Unrecognized prior service cost.......................... 5 6
Unrecognized net transition obligation................... 522 563
----- -----
Accrued pension cost..................................... $(615) $(520)
===== =====
Net periodic postretirement benefit cost included the following components
(in thousands):
Year Ended December 31 1998 1997 1996
---- ---- ----
Service cost.................................. $ 77 $ 60 $ 66
Interest cost................................. 65 56 54
Net amortization.............................. 34 25 30
---- ---- ----
Net periodic postretirement benefit cost...... $176 $141 $150
==== ==== ====
Discount rates of 6.5%, 7.0% and 7.5% for 1998, 1997 and 1996,
respectively, were used to determine the accumulated postretirement benefit
obligation.
The assumed health care cost trend rate has a significant effect on the
amounts reported. A 5.50% annual rate of increase in the per capita costs of
covered health care benefits is assumed for 1999, gradually decreasing to
4.25% by the year 2001. A one percentage point change in the assumed health
care cost trend rate would have had the following effects on 1998 service and
interest cost and the accumulated postretirement benefit obligation at
December 31, 1998:
1% 1%
INCREASE DECREASE
-------- --------
Effect on service and interest components
of net periodic cost............................. $ 17,814 $(15,780)
Effect on accumulated postretirement
benefit obligation............................... 98,172 (88,639)
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 by chartered commercial
banks as a result of previous acquisitions. The one-time assessment paid by
the Corporation totaled $3.2 million, or $.16 per share. The legislation
also included provisions that resulted in a reduction in annual deposit
insurance costs.
<PAGE>
INCOME TAXES
Income tax expense consists of the following (in thousands):
Year Ended December 31 1998 1997 1996
-------- -------- --------
Current income taxes:
Federal taxes.......................... $ 19,723 $ 13,850 $ 12,899
State taxes............................ 915 410 501
-------- -------- --------
20,638 14,260 13,400
Deferred income taxes:
Federal taxes.......................... (4,220) (1,247) (2,193)
-------- -------- --------
$ 16,418 $ 13,013 $ 11,207
======== ======== ========
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are presented below (in thousands):
December 31 1998 1997
-------- --------
Deferred tax assets:
Allowance for loan losses................. $ 11,242 $ 10,604
Deferred compensation..................... 2,011 2,103
Deferred benefits......................... 1,414 913
Loan fees................................. 661
Other..................................... 924 846
-------- --------
TOTAL GROSS DEFERRED TAX ASSETS......... 15,591 15,127
-------- --------
Deferred tax liabilities:
Depreciation.............................. (230) (218)
Deferred gain on sale of subsidiary....... (3,555) (3,555)
Unrealized gains on securities
available for sale...................... (3,403) (2,911)
Leasing................................... (9,732) (4,997)
Other..................................... (1,450) (1,513)
-------- --------
TOTAL GROSS DEFERRED TAX LIABILITIES.... (18,370) (13,194)
-------- --------
NET DEFERRED TAX (LIABILITIES) ASSETS... $ (2,779) $ 1,933
======== ========
Following is a reconciliation between tax expense using federal statutory
tax and actual effective tax:
Year Ended December 31 1998 1997 1996
---- ---- ----
Federal statutory tax........................ 35.0% 35.0% 35.0%
Effect of nontaxable interest and
dividend income............................ (3.2) (3.6) (4.2)
State taxes.................................. 1.2 .6 .6
Goodwill..................................... .5 .3 .3
Merger related costs......................... 1.1 .6 2.2
Other items.................................. (.8) (1.2) (.4)
---- ---- ----
Actual effective taxes....................... 33.8% 31.7% 33.5%
==== ==== ====
Income tax expense related to gains on the sale of securities was $484,000,
$450,000 and $277,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
<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 1998 1997 1996
---------- ---------- ----------
BASIC
Income before extraordinary items... $ 32,198 $ 28,074 $ 22,278
Less: Preferred stock dividends
declared................... (492) (588) (766)
Income before extraordinary items
applicable to common stock........ 31,706 27,486 21,512
Extraordinary items, net of tax..... 8,809
-------- -------- --------
Net income applicable to basic
earnings per share................ $ 31,706 $ 36,295 $ 21,512
======== ======== ========
Average common shares outstanding... 20,042,100 19,415,505 19,327,118
========== ========== ==========
Income before extraordinary items... $1.58 $1.42 $1.11
Extraordinary items, net of tax..... .45
----- ----- -----
Earnings per share.................. $1.58 $1.87 $1.11
===== ===== =====
DILUTED
Income before extraordinary items... $32,198 $28,074 $22,278
Extraordinary items, net of tax..... 8,809
------- ------- -------
Net income applicable to diluted
earnings per share................ $32,198 $36,883 $22,278
======= ======= =======
Average common shares outstanding... 20,042,100 19,415,505 19,327,118
Convertible preferred stock......... 595,875 695,819 994,581
Net effect of dilutive stock options
based on the treasury stock method
using the average market price.... 639,233 640,856 276,796
---------- ---------- ----------
21,277,208 20,752,180 20,598,495
========== ========== ==========
Income before extraordinary items... $1.51 $1.35 $1.08
Extraordinary items, net of tax..... .43
----- ----- -----
Earnings per share.................. $1.51 $1.78 $1.08
===== ===== =====
CASH FLOW INFORMATION
Following is a summary of cash flow information (in thousands):
Year Ended December 31 1998 1997 1996
-------- -------- --------
Cash paid during year for:
Interest................................ $107,292 $ 94,471 $ 87,252
Income taxes............................ 9,642 11,620 11,984
Non-cash Investing and Financing Activities:
Acquisition of real estate in
settlement of loans................. $ 3,037 $ 3,336 $ 6,720
Loans granted in the sale of
other real estate................... 2,396 1,557 407
<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, 1998,
that the Corporation and each of its banking subsidiaries meet all capital
adequacy requirements to which they are subject.
As of December 31, 1998, 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, 1998 for the
Corporation and its significant subsidiaries, First National Bank of
Pennsylvania, First National Bank of Naples and First National Bank of
Florida (dollars in thousands):
<TABLE>
<CAPTION>
MINIMUM CAPITAL WELL CAPITALIZED
ACTUAL REQUIREMENTS REQUIREMENTS
---------------- --------------- ---------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ------ -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS):
F.N.B. Corporation...................... $303,402 12.7% $191,305 8.0% $239,132 10.0%
First National Bank of Pennsylvania..... 89,833 10.2 70,171 8.0 87,714 10.0
First National Bank of Naples........... 49,233 10.2 38,783 8.0 48,479 10.0
First National Bank of Florida.......... 26,533 12.1 17,534 8.0 21,918 10.0
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS):
F.N.B. Corporation...................... $260,399 10.9% $ 95,653 4.0% $143,479 6.0%
First National Bank of Pennsylvania..... 78,852 9.0 35,086 4.0 52,629 6.0
First National Bank of Naples........... 44,816 9.2 19,391 4.0 29,087 6.0
First National Bank of Florida.......... 23,793 10.9 8,767 4.0 13,151 6.0
TIER 1 CAPITAL (TO AVERAGE ASSETS):
F.N.B. Corporation...................... $260,399 7.9% $132,592 4.0% $165,740 5.0%
First National Bank of Pennsylvania..... 78,852 6.6 47,721 4.0 59,651 5.0
First National Bank of Naples........... 44,816 7.0 25,660 4.0 32,075 5.0
First National Bank of Florida.......... 23,793 7.3 13,060 4.0 16,325 5.0
</TABLE>
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
cash reserves with the Federal Reserve Bank amounting to $16.0 million at
December 31, 1998. The Corporation also maintains deposits for various
services such as check clearing.
<PAGE>
Certain limitations exist under applicable law and regulations by
regulatory agencies regarding dividend payments to a parent by its
subsidiaries. As of December 31, 1998, the subsidiaries had $37.2 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 $43.6 million at December 31, 1998.
BUSINESS SEGMENTS
The Corporation operates in one reportable segment: community banking. The
Corporation's community banking subsidiaries offer services traditionally
offered by full-service commercial banks, including commercial and individual
demand and time deposit accounts and commercial, mortgage and individual
installment loans. In addition to traditional banking products, the
Corporation's banking subsidiaries offer various alternative investment
products, including mutual funds and annuities. The following tables provide
financial information for this segment of the Corporation (in thousands).
Other items shown in the table below represent the parent company, other non-
bank subsidiaries and eliminations, which are necessary for purposes of
reconciling to the consolidated amounts.
COMMUNITY ALL
BANKING OTHER CONSOLIDATED
---------- -------- ------------
At or for the Year Ended December 31, 1998
Interest income....................... $ 228,780 $ 17,194 $ 245,974
Interest expense...................... 104,414 3,646 108,060
Non-interest income................... 28,366 5,044 33,410
Non-interest expense.................. 99,047 16,089 115,136
Intangible amortization............... 1,277 44 1,321
Income tax expense (credit)........... 16,607 (189) 16,418
Core operating earnings*.............. 35,298 1,243 36,541
Non-recurring items, net of tax*...... (3,225) (1,118) (4,343)
Net income............................ 32,073 125 32,198
Total assets.......................... 3,319,678 83,862 3,403,540
At or for the Year Ended December 31, 1997
Interest income....................... $ 206,638 $ 18,421 $ 225,059
Interest expense...................... 92,213 4,414 96,627
Non-interest income................... 31,446 (3,967) 27,479
Non-interest expense.................. 91,615 11,706 103,321
Intangible amortization............... 1,474 110 1,584
Income tax expense (credit)........... 15,293 (2,280) 13,013
Core operating earnings*.............. 31,047 1,592 32,639
Non-recurring items, net of tax*...... 737 3,507 4,244
Net income............................ 31,784 5,099 36,883
Total assets.......................... 3,006,101 88,697 3,094,798
<PAGE>
At or for the Year Ended December 31, 1996
Interest income....................... $ 191,770 $ 17,953 $ 209,723
Interest expense...................... 83,168 4,787 87,955
Non-interest income................... 20,513 3,385 23,898
Non-interest expense.................. 90,725 11,393 102,118
Intangible amortization............... 997 50 1,047
Income tax expense (credit)........... 10,044 1,163 11,207
Core operating earnings*.............. 24,060 2,361 26,421
Non-recurring items, net of tax*...... (2,224) (1,919) (4,143)
Net income............................ 21,836 442 22,278
Total assets.......................... 2,626,575 167,064 2,793,639
* Core operating earnings exclude merger related and other non-recurring
costs of $4.3 million in 1998, 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 $2.0
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.
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
consolidated financial statements.
BALANCE SHEET (IN THOUSANDS):
December 31 1998 1997
-------- --------
ASSETS
Cash..................................... $ 467 $ 6
Short-term investments................... 14,945 2,095
Advances to subsidiaries................. 1,621 12,122
Other assets............................. 10,248 5,414
Investment in bank subsidiaries.......... 244,897 239,016
Investment in non-bank subsidiaries...... 114,943 110,940
-------- --------
$387,121 $369,593
======== ========
LIABILITIES
Other liabilities........................ $ 7,552 $ 6,555
Short-term borrowings.................... 49,609 49,931
Long-term debt........................... 48,187 43,860
-------- --------
TOTAL LIABILITIES...................... 105,348 100,346
-------- --------
STOCKHOLDERS' EQUITY..................... 281,773 269,247
-------- --------
TOTAL.................................. $387,121 $369,593
======== ========
<PAGE>
INCOME STATEMENT (IN THOUSANDS)
Year Ended December 31 1998 1997 1996
-------- -------- --------
INCOME
Dividend income from subsidiaries:
Bank................................... $ 29,401 $ 31,373 $ 11,778
Non-bank............................... 2,148 4,660 2,501
-------- -------- --------
31,549 36,033 14,279
Gain on sale of securities............... 1,296 850
Interest income.......................... 452 5,423 5,394
Income from equity investment............ 621
Service fee income....................... 7,776
Other income............................. 98 95 254
-------- -------- --------
TOTAL INCOME........................... 39,875 43,468 20,777
EXPENSES
Interest expense......................... 6,136 6,280 5,920
Salaries and personnel expense........... 8,264
Service fees............................. 985 970 617
Other expenses........................... 4,090 3,248 2,076
-------- -------- --------
TOTAL EXPENSES......................... 19,475 10,498 8,613
-------- -------- --------
INCOME BEFORE TAXES AND EQUITY IN
UNDISTRIBUTED INCOME OF SUBSIDIARIES... 20,400 32,970 12,164
Income tax benefit....................... 3,880 1,156 618
-------- -------- --------
24,280 34,126 12,782
-------- -------- --------
Equity in undistributed income
of subsidiaries:
Bank................................. 2,514 (352) 8,463
Non-bank............................. 5,404 (2,118) 1,033
-------- -------- --------
7,918 (2,470) 9,496
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM......... 32,198 31,656 22,278
Gain on sale of subsidiary, net of tax... 5,227
-------- -------- --------
NET INCOME............................... $ 32,198 $ 36,883 $ 22,278
======== ======== ========
<PAGE>
STATEMENT OF CASH FLOWS (IN THOUSANDS)
Year Ended December 31 1998 1997 1996
-------- -------- --------
OPERATING ACTIVITIES
Net income................................ $ 32,198 $ 36,883 $ 22,278
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gain on sale of securities.............. (1,296) (850)
Undistributed earnings of subsidiaries.. (7,918) 2,470 (9,496)
Extraordinary gain on sale of
subsidiaries.......................... (5,227)
Other, net.............................. (3,386) (2,745) (501)
-------- -------- --------
Net cash flows from
operating activities................ 20,894 30,085 11,431
INVESTING ACTIVITIES
Net change in short-term investments...... (12,493) 2,362 (1,529)
Purchase of securities.................... (1,704) (235)
Proceeds from sale of securities.......... 1,828 1,244
Advances from (to) subsidiaries........... 1,501 (2,735) (4,250)
Cash paid upon acquisition of subsidiaries (13,586)
Investment in subsidiaries................ 6,845 (11,700) 356
-------- -------- --------
Net cash flows from
investing activities................ (4,147) (25,535) (4,414)
FINANCING ACTIVITIES
Net increase in due to non-bank subsidiary 2,950
Net decrease in short-term borrowings..... (322) (5,270) 4,839
Decrease in long-term debt................ (6,510) (6,680) (12,303)
Increase in long-term debt................ 10,837 16,550 8,899
Net acquisition of treasury stock......... (7,572) (2,535) (1,560)
Cash dividends paid....................... (12,719) (9,578) (6,889)
-------- -------- --------
Net cash flows from
financing activities............... (16,286) (4,563) (7,014)
-------- -------- --------
NET INCREASE IN CASH...................... 461 (13) 3
Cash at beginning of year................. 6 19 16
-------- -------- --------
CASH AT END OF YEAR....................... $ 467 $ 6 $ 19
======== ======== ========
CASH PAID
Interest.................................. $ 6,049 $ 6,181 $ 6,251
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.
<PAGE>
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.
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):
1998 1997
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
FINANCIAL ASSETS
Cash and short-term
investments.................. $ 183,745 $ 183,745 $ 163,886 $ 163,886
Securities available for sale.. 455,082 455,082 470,118 470,118
Securities held to maturity.... 118,575 119,522 154,241 154,624
Net loans, including loans
held for sale................ 2,406,523 2,449,270 2,151,270 2,163,632
FINANCIAL LIABILITIES
Deposits....................... $2,851,042 $2,860,988 $2,584,541 $2,589,714
Short-term borrowings.......... 150,981 150,981 127,186 127,186
Long-term debt................. 69,492 71,448 72,246 73,837
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The merger between F.N.B. Corporation and Guaranty Bank & Trust Company was
completed on January 13, 1999 and accounted for as a pooling-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 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total interest income...... $ 245,974 $ 225,059 $ 209,723 $ 197,318 $ 169,155
Total interest expense..... 108,060 96,627 87,955 84,303 66,593
Net interest income........ 137,914 128,432 121,768 113,015 102,562
Provision for loan losses.. 7,572 11,503 10,063 7,416 9,826
Total non-interest income.. 33,410 27,479 23,898 22,530 20,261
Total non-interest expenses 115,136 103,321 102,118 90,503 85,401
Net income before
extraordinary items...... 32,198 28,074 22,278 25,054 18,578
Extraordinary items,
net of tax............... 8,809
Net income................. 32,198 36,883 22,278 25,054 18,578
Core operating earnings*... 36,541 32,639 26,421 25,054 18,578
AT YEAR-END
Total assets............... $3,403,540 $3,094,798 $2,793,639 $2,580,860 $2,395,132
Net loans.................. 2,390,576 2,144,734 1,939,819 1,739,413 1,642,486
Deposits................... 2,851,042 2,584,541 2,345,333 2,200,777 2,024,356
Long-term debt............. 69,492 72,246 58,179 50,784 56,614
Preferred stock............ 2,380 2,875 3,525 4,516 4,563
Total stockholders' equity. 281,773 269,247 233,853 220,414 192,176
PER COMMON SHARE
Earnings
Basic.................... $ 1.58 $ 1.87 $ 1.11 $ 1.27 $ .93
Diluted.................. 1.51 1.78 1.08 1.23 .93
Core operating earnings *
Basic.................... 1.80 1.65 1.33 1.27 .93
Diluted.................. 1.72 1.57 1.28 1.23 .93
Cash dividends............. .67 .56 .55 .30 .22
Book value................. 13.71 13.00 12.21 11.00 9.70
RATIOS
Return on average assets... 1.00% 1.29% .84% 1.00% .80%
Return on average assets,
based on core operating
earnings *............... 1.13 1.14 .99 1.00 .80
Return on average equity... 11.66 14.96 9.75 12.01 10.14
Return on average equity,
based on core operating
earnings *............... 13.24 13.24 11.56 12.01 10.14
Dividend payout ratio...... 38.71 24.90 28.63 14.57 14.46
Average equity to
average assets........... 8.56 8.59 8.59 8.34 7.93
</TABLE>
* Core operating earnings excludes merger related and other non-recurring
costs of $4.3 million in 1998, extraordinary gains on the sale of a
subsidiary and branches of $8.8 million and merger related and other non-
recurring costs of $4.7 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
QUARTERLY EARNINGS SUMMARY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The merger between F.N.B. Corporation and Guaranty Bank & Trust Company was
completed on January 13, 1999 and accounted for as a pooling-of-interests.
Accordingly, the unaudited quarterly financial data has been restated as if
the companies were combined for all periods presented.
QUARTER ENDED 1998 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- -------
Total interest income........... $59,962 $61,275 $62,193 $62,544
Total interest expense.......... 26,266 26,983 27,634 27,177
Net interest income............. 33,696 34,292 34,559 35,367
Provision for loan losses....... 1,761 1,615 1,977 2,219
Total non-interest income....... 7,791 7,924 8,342 9,353
Total non-interest expenses..... 27,612 28,580 28,970 29,974
Net income...................... 8,288 7,734 8,008 8,168
Core operating earnings *....... 8,458 9,147 9,489 9,447
PER COMMON SHARE
Earnings
Basic......................... $.41 $.38 $.39 $.40
Diluted....................... .39 .36 .38 .38
Core operating earnings *
Basic......................... .42 .45 .47 .46
Diluted....................... .40 .43 .45 .44
Cash dividends.................. .16 .17 .17 .17
QUARTER ENDED 1997 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- -------
Total interest income........... $54,855 $56,328 $55,642 $58,234
Total interest expense.......... 23,152 23,866 23,979 25,630
Net interest income............. 31,703 32,462 31,663 32,604
Provision for loan losses....... 2,423 3,673 2,505 2,902
Total non-interest income....... 6,883 6,050 7,055 7,491
Total non-interest expenses..... 24,759 29,350 23,069 26,143
Net income before
extraordinary items........... 7,655 3,770 9,011 7,638
Extraordinary items, net of tax. 5,227 3,582
Net income...................... 7,655 8,997 9,011 11,220
Core operating earnings **...... 7,655 8,032 9,011 7,941
PER COMMON SHARE
Earnings
Basic......................... $.39 $.46 $.46 $.56
Diluted....................... .37 .44 .44 .53
Core operating earnings **
Basic......................... .39 .41 .46 .39
Diluted....................... .37 .39 .44 .37
Cash dividends.................. .14 .14 .14 .14
* Core operating earnings excludes merger related costs and other non-
recurring costs of approximately $170,000, $1.4 million, $1.5 million and
$1.4 million recognized during the first through fourth quarters of 1998,
respectively, all on an after-tax basis.
** Core operating earnings items excludes merger related costs and other non-
recurring costs of approximately $1.0 million recognized during the second
quarter and merger related costs and other non-recurring items of
approximately $3.3 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 Guaranty
Bank & Trust Company (Guaranty) with and into F.N.B. Corporation (the
Corporation), and is intended to be read in conjunction with the Consolidated
Financial Statements and accompanying Notes to those statements. The merger
of the Corporation and Guaranty was consummated on January 13, 1999 and
resulted in the Corporation issuing 1,250,994 shares of common stock. The
merger has been accounted for on a pooling-of-interests basis. This
financial review is presented as if the merger had been consummated for all
periods presented.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
Core operating earnings increased 12.0% to $36.5 million in 1998 from $32.6
million in 1997. On a core operating earnings basis, basic earnings per
share was $1.83 and $1.65 for 1998 and 1997, while diluted earnings per share
were $1.73 and $1.57, respectively, for those same periods. The results for
1998 include merger related and other non-recurring costs of $4.3 million,
net of tax. 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. Including these items, net
income was $32.2 million in 1998 versus $36.9 million in 1997, resulting in
diluted earnings per share of $1.51 and $1.78. Net interest income, on a
fully taxable equivalent basis, increased by 7.2% as net average interest
earning assets increased by $41.6 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 1.13% for 1998 compared to 1.14% for 1997, while the
Corporation's return on average equity was 13.24% for both 1998 and 1997,
each calculated on a core operating earnings basis. Including the
extraordinary and non-recurring items, the Corporation had a return on
average assets of 1.00% and 1.29% for 1998 and 1997, respectively, and a
return on average equity of 11.66% and 14.96% 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, 1998 1997 1996
--------------------------- --------------------------- ---------------------------
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.............. $ 3,765 $ 181 4.81% $ 4,312 $ 255 5.91% $ 7,549 $ 414 5.48%
Federal funds sold........ 76,247 4,153 5.45 89,061 4,742 5.32 65,732 3,414 5.19
Taxable investment
securities (1).......... 525,905 32,458 6.17 469,520 29,210 6.22 451,482 26,925 5.96
Non-taxable investment
securities.............. 86,986 5,309 6.10 80,336 4,756 5.92 72,586 4,472 6.16
Loans (2)(3).............. 2,294,506 205,933 8.98 2,035,521 188,187 9.25 1,875,670 176,713 9.42
---------- -------- ---------- -------- ---------- --------
Total interest
earning assets.......... 2,987,409 248,034 8.30 2,678,750 227,150 8.48 2,473,019 211,938 8.57
---------- -------- ---------- -------- ---------- --------
Cash and due from banks... 99,758 90,194 95,440
Allowance for loan losses. (32,193) (31,809) (28,746)
Premises and equipment.... 86,899 66,451 56,714
Other assets.............. 85,101 66,124 63,790
---------- ---------- ----------
$3,226,974 $2,869,710 $2,660,217
========== ========== ==========
LIABILITIES
Interest bearing liabilities:
Deposits:
Interest bearing demand. $ 490,169 10,034 2.05 $ 388,861 9,327 2.40 $ 378,150 7,285 1.93
Savings................. 658,351 21,113 3.21 615,244 16,887 2.74 564,331 16,102 2.85
Other time.............. 1,201,560 65,510 5.45 1,100,901 60,252 5.47 1,029,475 56,154 5.45
Short-term borrowings..... 134,789 6,813 5.05 135,089 6,415 4.75 92,444 4,030 4.36
Long-term debt............ 73,411 4,590 6.25 51,145 3,746 7.32 49,977 4,384 8.77
---------- -------- ---------- -------- ---------- --------
Total interest bearing
liabilities............. 2,558,280 108,060 4.22 2,291,240 96,627 4.22 2,114,377 87,955 4.16
-------- -------- --------
Non-interest bearing
demand deposits......... 347,264 294,162 273,536
Other liabilities......... 45,354 37,806 43,680
---------- ---------- ----------
2,950,898 2,623,208 2,431,593
---------- ---------- ----------
STOCKHOLDERS' EQUITY...... 276,076 246,502 228,624
---------- ---------- ----------
$3,226,974 $2,869,710 $2,660,217
========== ========== ==========
Excess of interest
earning assets over
interest bearing
liabilities............. $ 429,129 $ 387,510 $ 358,642
========== ========== ==========
Net interest income....... $139,974 $130,523 $123,983
======== ======== ========
Net interest spread....... 4.08% 4.26% 4.41%
==== ==== ====
Net interest margin (4)... 4.69% 4.87% 5.01%
==== ==== ====
</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 $140.0
million in 1998 versus $130.5 million in 1997. Net interest income consisted
of interest income of $248.0 million and interest expense of $108.1 million
in 1998, compared to $227.1 million and $96.6 million for each, respectively,
in 1997. Net interest income as a percentage of average earning assets
(commonly referred to as the margin) fell to 4.68% in 1998 compared to 4.87%
in 1997.
Interest income on loans, on a fully taxable equivalent basis, increased
9.4% from $188.2 million in 1997 to $205.9 million in 1998. This increase
was the result of an increase in average loans of 12.7% as the average yield
declined by 27 basis points.
Interest expense on deposits increased 11.8% to $96.7 million in 1998.
This increase was attributable to an increase in average deposits of 11.6%
over the same period. The average balance in interest bearing demand and
time deposits increased by $101.3 and $100.7 million, respectively. The
average balance in non-interest bearing demand deposits increased by $53.1
million.
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, 1998 1997
---------------------------- ----------------------------
VOLUME RATE NET VOLUME RATE NET
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest bearing deposits
with banks............... $ (30) $ (44) $ (74) $ (195) $ 36 $ (159)
Federal funds sold......... (709) 120 (589) 1,240 88 1,328
Securities................. 3,885 (84) 3,801 1,539 1,030 2,569
Loans...................... 23,029 (5,283) 17,746 14,556 (3,082) 11,474
------- ------- ------- ------- ------- -------
26,175 (5,291) 20,884 17,140 (1,928) 15,212
------- ------- ------- ------- ------- -------
INTEREST EXPENSE
Deposits:
Interest bearing......... 1,606 (899) 707 213 1,829 2,042
Savings.................. 1,226 3,000 4,226 1,372 (587) 785
Other time............... 5,477 (219) 5,258 3,892 206 4,098
Short-term borrowings...... (15) 413 398 1,998 387 2,385
Long-term debt............. 1,271 (427) 844 105 (743) (638)
------- ------- ------- ------- ------- -------
9,565 1,868 11,433 7,580 1,092 8,672
------- ------- ------- ------- ------- -------
NET CHANGE............... $16,610 $(7,159) $ 9,451 $ 9,560 $(3,020) $ 6,540
======= ======= ======= ======= ======= =======
</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
decreased 34.2% to $7.6 million in 1998. This decrease reflects the
Corporation's continued strong asset quality as well as an increase in the
provision for loan losses of $1.7 million related to an acquisition. This
additional provision resulted from applying the Corporation's allowance for
loan loss policy and methodology for evaluating the adequacy of the allowance
to West Coast Bancorp, Inc., which was merged into the Corporation in April
of 1997. (See "Non-Performing Loans and Allowance for Loan Losses" and
"Mergers, Acquisitions and Divestitures" discussions).
NON-INTEREST INCOME
Total non-interest income increased 21.6% from $27.5 million in 1997 to
$33.4 million in 1998. This increase was attributable to increases in
service charges and gains on the sale of loans, primarily residential
mortgages.
Service charges increased 22.1% from $13.7 million in 1997 to $16.7 million
in 1998. Revenue was recognized as a result of increases in the level of
deposits.
Net gains on the sale of loans increased 91.7% as the Corporation took
advantage of the strong market for mortgage refinancings.
During 1998, the Corporation recognized $1.3 million in income from its
equity investment in Sun Bancorp, Inc., a bank holding company headquartered
in Selinsgrove, Pennsylvania, as compared to $621,000 in 1997.
NON-INTEREST EXPENSES
Total non-interest expense increased from $103.3 million in 1997 to $115.2
million in 1998. The increase was attributable to a full year of operating
expenses associated with former Mercantile Bank of Southwest Florida and
Indian Rocks National Bank. Operating costs for these acquisitions were not
recorded until after the closing of each transaction during the fourth
quarter of 1997.
The Corporation recognized $5.5 million in 1998 and $2.4 million in 1997 in
merger related costs. The expenses were primarily legal and investment
banking costs associated with the completion of mergers.
INCOME TAXES
The Corporation's income tax expense was $16.3 million for 1998 compared to
$13.0 million for 1997. The 1998 effective tax rate of 33.7% 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
Consolidated Financial Statements.
<PAGE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation monitors its liquidity position on an ongoing basis to
assure that it is able to meet the need for funds at all times. Given the
monetary nature of its assets and liabilities and the significant source of
liquidity provided by the available for sale 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 $55.5 million or 9.7% 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 $45.0 million was unused at the end of
1998. To further meet its liquidity needs, the Corporation also has access
to the Federal Home Loan Bank and the Federal Reserve Bank, as well as other
uncommitted funding sources.
The financial performance of the Corporation is subject to risk from
interest rate fluctuations. This interest rate risk arises due to
differences between the amount of interest-earning assets and the amount of
interest-bearing liabilities subject to pricing over a specified period, the
amount of change in individual interest rates and the embedded options in
certain 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 .80% or $1.1 million for 1999 as compared
to net interest income if interest rates were unchanged during 1999.
Comparatively, a gradual 300 basis point decrease in interest rates would have
decreased net interest income by .90% or $1.1 million in 1998. These low
level of variation are within the Corporation's policy limits. This simulation
analyses assumed that savings and checking interest rates had a low
correlation to changes in market rates of interest and that certain asset
prepayments changed as refinancing incentives evolved. Further, in the event
of a change of such a magnitude in interest rates, the ALCO would likely take
actions to further mitigate its exposure to the change. However, due to the
greater uncertainty of other specific actions that would be taken, the
analysis assumed no change in the Corporation's asset/liability composition.
<PAGE>
Following is the gap analysis as of December 31, 1998 (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................. $ 3,592 $ 600 $ 4,192
Federal funds sold........... 44,706 44,706
Securities:
Available for sale......... 10,596 30,824 $ 235,832 $ 177,830 455,082
Held to maturity........... 5,812 19,061 65,803 27,899 118,575
Loans, net of unearned income 676,883 636,879 1,022,868 102,201 2,438,831
--------- -------- ---------- ---------- ----------
741,589 687,364 1,324,503 307,930 3,061,386
Other assets................ 342,154 342,154
--------- -------- ---------- ---------- ----------
$ 741,589 $687,364 $1,324,503 $ 650,084 $3,403,540
========= ======== ========== ========== ==========
INTEREST BEARING LIABILITIES
Deposits:
Interest checking.......... $ 152,689 $ 20,401 $ 370,839 $ 543,929
Savings.................... 255,728 5,548 $ 5,548 454,026 720,850
Time deposits.............. 310,833 604,900 267,864 1,394 1,184,991
Short-term borrowings........ 142,861 8,030 90 150,981
Long-term debt............... 14,664 6,472 37,847 10,509 69,492
--------- --------- ---------- ---------- ----------
876,775 645,351 311,259 836,858 2,670,243
Other liabilities............ 451,524 451,524
Stockholders' equity......... 281,773 281,773
--------- --------- ---------- ---------- ----------
$ 876,775 $ 645,351 $ 311,259 $1,570,155 $3,403,540
========= ========= ========== ========== ==========
PERIOD GAP................... $(135,186) $ 42,013 $1,013,244 $ (920,071)
========= ========= ========== ==========
CUMULATIVE GAP............... $(135,186) $ (93,173) $ 920,071
========= ========= ==========
CUMULATIVE GAP AS A PERCENT
OF TOTAL ASSETS............ (3.97)% (2.74)% 27.03%
===== ===== =====
RATE SENSITIVE ASSETS/
RATE SENSITIVE LIABILITIES
(CUMULATIVE)............... .85 .94 1.50 1.15
==== ==== ==== ====
</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 a slight reduction
in net interest income. This gap position is within the Corporation's policy
limits.
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
The Corporation's core operating earnings increased 23.5% to $32.6 million
in 1997 from $26.4 million in 1996. Basic core operating earnings per share
were $1.65 and $1.33 for 1997 and 1996, while diluted core operating earnings
per share were $1.57 and $1.28, respectively, for those same periods. These
results for 1997 exclude $8.8 million in gains relating to the sales of a
subsidiary and branches and merger related and other non-recurring costs of
$4.7 million, both net of tax. The results for 1996 exclude 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.
Including these items, net income was $36.9 million in 1997 versus $22.3
million in 1996. Based upon core operating earnings, the Corporation's
return on average assets was 1.14% for 1997 compared to .99% for 1996, while
the Corporation's return on average equity was 13.24% for 1997 compared to
11.56% for 1996.
Net interest income, on a fully taxable equivalent basis, increased from
$124.0 million in 1996 to $130.5 million in 1997. Net interest income
consisted of interest income of $227.1 million and interest expense of $96.6
million in 1997, compared to $211.9 million and $88.0 million for each,
respectively, in 1996. Net margin fell to 4.87% from 5.01% in 1996.
Interest income on loans, on a fully taxable equivalent basis, increased 6.5%
from $176.7 million in 1996 to $188.2 million in 1997. This increase is the
result of loan growth. Average loans increased 8.5% from 1996. Interest
expense on deposits increased 8.7% to $86.5 million in 1997. This increase
was attributable to a $71.4 million increase in average other time deposits
as well as a 47 basis point increase in the rate paid on interest bearing
demand deposits.
The provision for loan losses was $11.5 million and represented an increase
of 14.3% from 1996. This increase resulted from applying the Corporation's
allowance for loan loss policy and methodology for evaluating the adequacy of
the adequacy of the allowance to acquired affiliates.
Total non-interest income increased 15.0% from $23.9 million in 1996 to
$27.5 million in 1997. This increase was attributable to increases in
service charges and gains on the sale of securities, as well as income from
the Corporation's equity investment. Service charges increased 6.1% from
$12.9 million in 1996 to $13.7 million in 1997, as a result of increases in
the level of deposits. Net gains on the sale of securities increased by
62.9% due to a higher level of equity security sales in 1997. Other non-
interest income included $621,000 in income from the Corporation's equity
investment during 1997.
Total non-interest expense increased from $102.1 million in 1996 to $103.3
million in 1997. The increase was primarily attributable to an increase of
$4.5 million in salaries and employee benefits and an increase in merger-
related expenses from $2.1 million in 1996 to $2.4 million in 1997.
Additionally, the 1996 total reflected a one-time assessment of $3.2 million
to recapitalize the SAIF.
Salaries and personnel expense increased 9.1% 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.
<PAGE>
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.
Income tax expense was $13.0 million for 1997 compared to $11.2 million for
1996. The 1997 effective tax rate of 31.7% was below the 35% statutory tax
rate due to the tax benefits resulting from tax-exempt instruments and
excludable dividend income.
FINANCIAL CONDITION
LENDING ACTIVITY
Following is a summary of loans (dollars in thousands):
<TABLE>
<CAPTION>
December 31 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Real estate:
Residential......... $ 994,157 $ 949,716 $ 788,874 $ 700,726 $ 640,667
Commercial.......... 632,304 542,251 493,990 447,638 361,237
Construction........ 103,672 70,093 48,070 40,635 56,278
Installment loans
to individuals...... 292,418 301,911 417,300 404,261 390,485
Commercial, financial
and agricultural.... 299,081 272,609 225,447 196,516 242,477
Lease financing....... 132,266 59,852 21,538 5,037
Unearned income....... (31,014) (20,643) (24,202) (28,726) (23,938)
---------- ---------- ---------- ---------- ----------
$2,422,884 $2,175,789 $1,971,017 $1,766,086 $1,667,206
========== ========== ========== ========== ==========
</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 was 85.0% at December 31, 1998 and 84.2% at
December 31, 1997.
During 1998 and 1997 the Corporation sold $50.8 million and $23.9 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.
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, 1998, 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, 1998
Commercial, financial
and agricultural............. $171,279 $103,417 $ 24,385 $299,081
Real Estate - construction..... 63,383 28,455 11,834 103,672
-------- -------- -------- --------
Total........................ $234,662 $131,872 $ 36,219 $402,753
======== ======== ======== ========
The total amount of loans due after one year includes $51.2 million with
floating or adjustable rates of interest and $116.9 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 1998 1997 1996 1995 1994
------- ------- ------- ------- -------
Non-accrual loans................ $12,250 $ 8,365 $10,363 $10,066 $11,756
Restructured loans............... 1,770 1,345 2,709 3,629 3,707
------- ------- ------- ------- -------
$14,020 $ 9,710 $13,072 $13,695 $15,463
======= ======= ======= ======= =======
Non-performing loans as a
percentage of total loans...... .58% .45% .66% .78% .93%
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 1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Gross interest income that
would have been recorded
if the loans had been
current and in accordance
with their original terms....... $1,563 $1,068 $1,473 $1,343 $1,864
Interest income recorded
during the year................. 863 477 798 694 720
Following is a summary of loans 90 days or more past due, on which interest
accruals continue (dollars in thousands):
December 31 1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Loans 90 days or more past due.... $2,943 $3,220 $3,092 $4,090 $2,753
Loans 90 days or more past due as
a percentage of total loans..... .12% .15% .16% .23% .17%
<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,
portfolio growth and concentrations of credit risk.
Following is a summary of changes in the allowance for loan losses (dollars
in thousands):
Year Ended December 31 1998 1997 1996 1995 1994
------- ------- ------- ------- -------
Balance at beginning of year..... $31,055 $31,199 $27,771 $25,551 $20,910
Reduction due to the sale of a
subsidiary and loans.......... (3,828)
Addition due to acquisitions..... 1,167
Charge-offs:
Real estate - mortgage.......... (322) (888) (482) (736) (1,456)
Installment loans to individuals (5,893) (6,978) (6,190) (5,537) (3,986)
Lease financing................. (300) (106) (12)
Commercial, financial and
agricultural.................. (1,119) (2,309) (1,621) (1,273) (1,805)
------- ------- ------- ------- -------
(7,634) (10,281) (8,305) (7,546) (7,247)
------- ------- ------- ------- -------
Recoveries:
Real estate - mortgage.......... 43 100 136 279 98
Installment loans to individuals 914 804 1,057 1,198 976
Lease financing................. 38 32 6
Commercial, financial and
agricultural................. 320 359 471 873 988
------- ------- ------- ------- -------
1,315 1,295 1,670 2,350 2,062
------- ------- ------- ------- -------
Net charge-offs.................. (6,319) (8,986) (6,635) (5,196) (5,185)
Provision for loan losses........ 7,572 11,503 10,063 7,416 9,826
------- ------- ------- ------- -------
Balance at end of year........... $32,308 $31,055 $31,199 $27,771 $25,551
======= ======= ======= ======= =======
Net charge-offs as a percent of
average loans, net of unearned
income......................... .28% .44% .35% .30% .33%
Allowance for loan losses as a
percent of total loans, net
of unearned income............. 1.33 1.43 1.58 1.57 1.53
Allowance for loan losses as a
percent of non-performing loans 230.44 319.82 238.67 202.78 165.24
The increase in the level of charge-offs and the provision for loan losses
in 1997 resulted primarily from the consistent application of the
Corporation's charge-off policy and methodology for determining the adequacy
of the allowance for loan losses to 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 1998 LOANS 1997 LOANS 1996 LOANS 1995 LOANS 1994 LOANS
------- -------- ------- -------- ------- -------- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural............ $ 6,018 38% $ 5,617 37% $ 7,725 37% $ 7,040 36% $ 9,117 36%
Real estate - construction. 271 4 284 3 132 2 88 2 216 3
Real estate - mortgage..... 6,534 41 6,263 44 4,749 40 4,261 40 4,648 38
Installment loans to
individuals............. 8,384 17 5,597 16 7,771 21 6,781 22 5,313 23
Unallocated portion........ 11,101 13,294 10,822 9,601 6,257
------- --- ------- --- ------- --- ------- --- ------- ---
$32,308 100% $31,055 100% $31,199 100% $27,771 100% $25,551 100%
======= === ======= === ======= === ======= === ======= ===
</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 1998, securities available for sale decreased 3.2% and securities
held to maturity decreased 23.1% from December 31, 1997. The majority of
this decrease was utilized to finance the purchase of $60.2 million of bank
owned life insurance, which is included in other assets. Bank owned life
insurance provides a mechanism to finance the cost of employee benefit plans
through the use of higher yielding tax-exempt investments. The structure of
the Corporation's investment in bank owned life insurance although providing
a higher yield than the securities utilized to fund the purchase does not
expose the Corporation to a higher level of risk.
<PAGE>
The following table indicates the respective maturities and weighted-
average yields of securities as of December 31, 1998 (in thousands):
Weighted
Amount Average Yield
--------- -------------
Obligations of U.S. Treasury and
Other U.S. Government agencies:
Maturing within one year...................... $ 44,779 5.87%
Maturing after one year within five years..... 188,677 6.05%
Maturing after five years within ten years.... 55,002 6.27%
State & political subdivisions:
Maturing within one year...................... 9,480 5.77%
Maturing after one year within five years..... 26,824 6.27%
Maturing after five years within ten years.... 16,224 6.17%
Maturing after ten years...................... 4,848 6.51%
Other securities:
Maturing within one year...................... 1,256 6.11%
Maturing after one year within five years..... 281 6.54%
Maturing after ten years...................... 10 2.80%
Mortgage-backed securities......................... 198,379 6.18%
No stated maturity................................. 27,897 7.05%
---------
TOTAL.................................. $ 573,657 6.16%
========= ====
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 10.3% to $2.9 billion in 1998. The majority of
this increase was due to a $157.0 million or 14.2% increase in savings and
NOW accounts. Additionally, non-interest deposits increased by $71.9 million
or 21.8%.
Short-term borrowings, made up of repurchase agreements, federal funds
purchased, notes payable and subordinated notes increased 18.7% in 1998 to
$151.0 million. The primary reasons for this increase was an increase in
securities sold under repurchase agreements. Securities sold under repurchase
agreements increased $40.5 million in 1998.
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.
<PAGE>
Capital management is a continuous process. Since December 31, 1997,
stockholders' equity has increased $19.4 million as a result of earnings
retention. Total cash dividends declared represented 39.6% of net income for
1998 compared to 26.1% for 1997. Book value per share was $13.71 at December
31, 1998, compared to $13.00 at December 31, 1997.
YEAR 2000 READINESS
The Year 2000 (Y2K) Issue is the result of computer programs being written
using year fields consisting of only two digits rather than four. Computer
programs that have time-sensitive software may recognize "00" as the year
1900 rather than year 2000. If such programs were in use and not corrected,
it could result in system failures and temporary interruptions in the
processing of transactions. The Corporation's core processing systems were
written with four digit year fields. The Y2K Issue is not only an internal
issue but also affects third parties including customers, counter parties,
service providers and vendors.
Because the Y2K Issue poses an unprecedented and profound enterprise wide
challenge for every organization, the Corporation formed a Y2K Committee.
The Y2K Committee has developed a Year 2000 Enterprise Wide Project Plan (Y2K
Plan). The Y2K Plan addresses both internal and external technology.
In accordance with the Y2K Plan, the Corporation has completed its
inventory and assessment of all internal technologies, including both
software and hardware. Each system was assigned a significance rating as to
the degree of criticality. Formal detailed test plans for systems with
significance ratings of a critical nature have been completed. Such systems
include core processing and ancillary systems required to sustain operations.
By the end of 1999, each of the Corporation's banking subsidiaries will be
processing on either of two core processing systems. The Corporation's
northern banking affiliates will continue to process transactions on their
existing core processing system. During the second quarter of 1998, the
Corporation made the strategic decision to convert each of the Florida
banking affiliates to a new core processing system. All Florida banking
affiliates will be converted by May 31, 1999. The decision to convert was
based in part on the number of different systems currently being utilized by
the Florida banking affiliates and the expiration of the Corporation's
primary Florida core processing contract.
The Corporation has received written representation from both vendors that
each system is Y2K compliant as well as third party certification of the
vendors compliance methodology. The Corporation participated in test
verifications of each core system during the fourth quarter of 1998. The
Corporation also developed a contingency plan which utilizes the two
corporate wide core processing systems as contingencies for each other.
During July of 1998, the Corporation's consumer finance subsidiary, Regency
Finance Company (Regency), selected a third party vendor to support all of
its future core application requirements. These core applications will
include loans, insurance and the Corporation's subordinated note program.
Regency's decision to select a new system was based upon the system's ability
to support new lending products as well as the operating efficiencies
resulting from real-time centralized processing. The vendor has provided a
written warranty to Regency that it is Y2K compliant. The system was tested
for Y2K readiness during the fourth quarter of 1998 and installation was
completed on February 28, 1999.
<PAGE>
With respect to external technology, the Y2K Plan provides for the
evaluation and assessment of all significant funds takers, including large
borrowing customers and bond issuers, and funds providers, including
contingency lines of credit and deposit accounts. All project plans for
funds takers and providers have been substantially completed with continued
monitoring to occur. An integral part of the Corporation's funds provider
project plan includes a Customer Awareness Program. This program was
developed to assure customer confidence and mitigate reputation and liquidity
risk. The program was not only developed to educate the Corporation's
customers, but also its employees in responding to customer inquiries.
The Y2K Plan includes due diligence procedures as it relates to the
fiduciary responsibilities of the Corporation's investment and trust
department, including such activities as settlement transactions, remittance
of bond payments and transactions related to mutual funds and other
securities. In performing its fiduciary responsibilities, the Corporation
assessed the Y2K readiness of its safekeeping agents and broker/dealers.
The Corporation has rated each service provider, assessed their ability to
be Y2K ready and is developing a contingency plan for those in question.
The Corporation's current assessment of cost associated with the completion
of its Y2K Plan is not considered by management to be material to the
Corporation's future operations. Through December 31, 1998, the Corporation
has expended $126,000 on its Y2K Plan and anticipates additional costs of
approximately $50,000 to be incurred in 1999. The cost of completing the
Corporation's Y2K Plan and the dates on which all procedures will be
completed are based on management's best estimates. These estimates were
derived utilizing various assumptions about future events, including the
continued availability of resources, external technology modification plans
and other significant factors. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from
those anticipated.
The Corporation believes that modifications to existing systems, conversion
to new systems and vendor compliance upgrades will be resolved on a timely
basis and related costs will not have a material impact on its results of
operations or financial condition.
<PAGE>
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
January 22, 1997
Board of Directors and Stockholders
of Southwest Banks, Inc.
Naples, Florida
We have audited the accompanying consolidated balance sheets of Southwest
Banks, Inc. and its subsidiaries, First National Bank of Naples and Cape
Coral National Bank (collectively, the Company), as of December 31, 1996 and
1995 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Southwest Banks, Inc. and its subsidiaries as of December 31, 1996 and
1995 and the consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles.
HILL, BARTH & KING, INC.
NAPLES, FLORIDA
<PAGE>
EXHIBIT 99.3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
West Coast Bancorp, Inc. and Subsidiary
Cape Coral, Florida
We have audited the accompanying consolidated balance sheets of West Coast
Bancorp, Inc. and Subsidiary at December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of West Coast
Bancorp, Inc. and Subsidiary at December 31, 1996 and 1995, and the
consolidated statements of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
FORT MYERS, FLORIDA
January 24, 1997
<PAGE>
EXHIBIT 99.4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
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.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
January 9, 1998
<PAGE>
EXHIBIT 99.5
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Citizens Holding Corporation
Clearwater, Florida:
We have audited the accompanying consolidated balance sheets of Citizens
Holding Corporation and Subsidiaries (the "Company") at December 31, 1997 and
1996, and the related consolidated statements of earnings, comprehensive
income, 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company 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.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
January 9, 1998, except for Note 18, as to which
the date is April 6, 1998
<PAGE>
EXHIBIT 99.6
April 23, 1999
Board of Directors
Guaranty Bank & Trust Company
Venice, Florida
REPORT OT INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the accompanying statements of financial condition of
Guaranty Bank & Trust Company as of December 31, 1998 and 1997, and the
related statements of income, comprehensive income, changes in
shareholders' equity and cash flows for the years ended December 31, 1998,
1997 and 1996. 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 Guaranty Bank & Trust
Company as of December 31, 1998 and 1997 and the results of its operations
and cash flows for the years ended December 31, 1998, 1997 and 1996 in
conformity with generally accepted accounting principles.
BOBBITT, PITTENGER & COMPANY, P.A.
Sarasota, Florida
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 134,847 112,292 125,276
<INT-BEARING-DEPOSITS> 4,192 5,581 1,792
<FED-FUNDS-SOLD> 44,706 46,013 32,619
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 455,082 470,118 355,273
<INVESTMENTS-CARRYING> 118,575 154,241 209,761
<INVESTMENTS-MARKET> 119,522 154,624 208,853
<LOANS> 2,422,884 2,175,789 1,971,018
<ALLOWANCE> 32,308 31,055 31,199
<TOTAL-ASSETS> 3,403,540 3,094,798 2,793,639
<DEPOSITS> 2,851,042 2,584,541 2,345,333
<SHORT-TERM> 150,981 127,186 117,972
<LIABILITIES-OTHER> 50,252 41,578 38,297
<LONG-TERM> 69,492 72,246 58,179
0 0 0
2,380 2,875 3,525
<COMMON> 38,529 36,800 33,850
<OTHER-SE> 240,864 229,572 196,478
<TOTAL-LIABILITIES-AND-EQUITY> 2,403,540 3,094,798 2,793,639
<INTEREST-LOAN> 205,071 187,225 175,409
<INTEREST-INVEST> 36,569 32,837 30,486
<INTEREST-OTHER> 4,334 4,997 3,828
<INTEREST-TOTAL> 245,974 225,059 209,723
<INTEREST-DEPOSIT> 96,657 86,466 79,541
<INTEREST-EXPENSE> 108,060 96,627 87,955
<INTEREST-INCOME-NET> 137,914 128,432 121,768
<LOAN-LOSSES> 7,572 11,503 10,063
<SECURITIES-GAINS> 1,384 1,287 790
<EXPENSE-OTHER> 115,136 103,321 102,118
<INCOME-PRETAX> 48,616 41,087 33,485
<INCOME-PRE-EXTRAORDINARY> 32,198 28,074 22,278
<EXTRAORDINARY> 0 8,809 0
<CHANGES> 0 0 0
<NET-INCOME> 32,198 36,883 22,278
<EPS-BASIC> 1.58 1.87 1.11
<EPS-DILUTED> 1.52 1.78 1.08
<YIELD-ACTUAL> 4.68 4.87 5.01
<LOANS-NON> 12,250 8,365 10,363
<LOANS-PAST> 2,943 3,220 3,092
<LOANS-TROUBLED> 1,770 1,345 2,709
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 31,055 31,199 27,771
<CHARGE-OFFS> 7,634 10,281 8,305
<RECOVERIES> 1,315 1,295 1,670
<ALLOWANCE-CLOSE> 32,308 31,055 31,199
<ALLOWANCE-DOMESTIC> 32,308 31,055 31,199
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
<TABLE> <S> <C>
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<S> <C> <C> <C> <C>
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-END> MAR-31-1998 JUN-30-1998 SEP-30-1998 DEC-31-1998
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<INVESTMENTS-CARRYING> 140,103 134,109 127,586 118,575
<INVESTMENTS-MARKET> 140,599 134,607 129,081 119,522
<LOANS> 2,223,807 2,278,713 2,354,238 2,422,884
<ALLOWANCE> 31,741 32,202 32,676 32,308
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0 0 0 0
2,749 2,719 2,568 2,380
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<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
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<INVESTMENTS-MARKET> 203,459 184,714 162,946 154,624
<LOANS> 2,007,787 1,973,358 2,016,830 2,175,789
<ALLOWANCE> 31,789 31,573 29,245 31,055
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<LONG-TERM> 45,740 48,863 61,135 72,246
0 0 0 0
3,233 3,061 2,900 2,875
<COMMON> 34,009 35,427 35,519 36,800
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<ALLOWANCE-DOMESTIC> 31,788 33,017 33,194 31,055
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<ALLOWANCE-UNALLOCATED> 0 0 0 0
</TABLE>
