UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________________ to ___________________
Commission file number 0-8144
------
F.N.B. CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1255406
- ------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One F.N.B. Boulevard, Hermitage, PA 16148
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(724) 981-6000
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1999
----- -----------------------------
Common Stock, $2 Par Value 19,150,475 Shares
- -------------------------- -----------------
<PAGE>
F.N.B. CORPORATION
FORM 10-Q
March 31, 1999
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet 2
Consolidated Income Statement 3
Consolidated Statement of Cash Flows 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure of
Market Risk 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Dollars in thousands, except par values
Unaudited
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
ASSETS
Cash and due from banks $ 117,592 $ 134,848
Interest bearing deposits with banks 2,745 4,192
Federal funds sold 31,008 44,706
Mortgage loans held for sale 9,333 15,947
Securities available for sale 443,918 455,082
Securities held to maturity (fair
value of $107,011 and $119,252) 106,410 118,575
Loans, net of unearned income of
$33,689 and $31,014 2,505,915 2,422,883
Allowance for loan losses (32,709) (32,308)
---------- ----------
NET LOANS 2,473,206 2,390,575
---------- ----------
Premises and equipment 96,346 93,584
Other assets 148,965 146,979
---------- ----------
$3,429,523 $3,404,488
========== ==========
LIABILITIES
Deposits:
Non-interest bearing $ 397,114 $ 401,272
Interest bearing 2,464,614 2,449,770
---------- ----------
TOTAL DEPOSITS 2,861,728 2,851,042
Other liabilities 54,230 51,195
Short-term borrowings 176,925 150,981
Long-term debt 52,579 69,492
---------- ----------
TOTAL LIABILITIES 3,145,462 3,122,710
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock - $10 par value
Authorized - 20,000,000 shares
Issued - 228,326 and 237,985 shares
Aggregate liquidation value -
$5,708 and $5,950 2,283 2,380
Common stock - $2 par value
Authorized - 100,000,000 shares
Issued - 19,347,175 and 19,264,231 shares 38,694 38,529
Additional paid-in capital 161,500 161,231
Retained earnings 79,291 76,414
Accumulated other comprehensive income 4,425 6,308
Treasury stock - 78,706 and 109,285 shares at cost (2,132) (3,084)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 284,061 281,778
---------- ----------
$3,429,523 $3,404,488
========== ==========
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
Dollars in thousands, except per share data
Unaudited
Three Months Ended March 31 1999 1998
------- -------
INTEREST INCOME
Loans, including fees $52,508 $49,556
Securities:
Taxable 7,074 8,100
Nontaxable 612 605
Dividends 399 462
Other 661 1,239
------- -------
TOTAL INTEREST INCOME 61,254 59,962
------- -------
INTEREST EXPENSE
Deposits 22,824 23,654
Short-term borrowings 1,724 1,460
Long-term debt 1,046 1,152
------- -------
TOTAL INTEREST EXPENSE 25,594 26,266
------- -------
NET INTEREST INCOME 35,660 33,696
Provision for loan losses 2,051 1,761
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 33,609 31,935
------- -------
NON-INTEREST INCOME
Insurance commissions and fees 920 1,006
Service charges 4,352 3,893
Trust 850 691
Gain on sale of securities 800 547
Gain on sale of loans 833 669
Other 1,603 985
------- -------
TOTAL NON-INTEREST INCOME 9,358 7,791
------- -------
42,967 39,726
------- -------
NON-INTEREST EXPENSES
Salaries and employee benefits 16,814 15,055
Net occupancy 2,238 2,166
Equipment 2,572 2,051
Merger related 1,333 170
Other 8,142 8,170
------- -------
TOTAL NON-INTEREST EXPENSES 31,099 27,612
------- -------
INCOME BEFORE INCOME TAXES 11,868 12,114
Income taxes 3,678 3,826
------- -------
NET INCOME $ 8,190 $ 8,288
======= =======
NET INCOME PER COMMON SHARE:
Basic $ .40 $ .41
======= =======
Diluted $ .39 $ .39
======= =======
CASH DIVIDENDS PER COMMON SHARE $ .17 $ .16
======= =======
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Dollars in thousands
Unaudited
Three Months Ended March 31 1999 1998
-------- --------
OPERATING ACTIVITIES
Net income $ 8,190 $ 8,288
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,630 2,098
Provision for loan losses 2,051 1,761
Deferred taxes 4,684 170
Net gain on sale of securities (800) (538)
Net gain on sale of loans (833) (613)
Proceeds from sale of loans 22,327 35,014
Loans originated for sale (14,880) (36,993)
Net change in:
Interest receivable (611) (291)
Interest payable 1,942 1,538
Other, net (1,776) (5,466)
-------- --------
Net cash flows from operating activities 22,924 4,968
-------- --------
INVESTING ACTIVITIES
Net change in:
Interest bearing deposits with banks 1,447 (2,743)
Federal funds sold 13,698 (68,694)
Loans (87,282) (49,310)
Securities available for sale:
Purchases (47,425) (75,056)
Sales 1,167 7,083
Maturities 55,310 77,469
Securities held to maturity:
Purchases (1,021)
Maturities 13,186 13,625
Increase in premises and equipment (4,953) (12,614)
-------- --------
Net cash flows from investing activities (55,873) (110,240)
-------- --------
FINANCING ACTIVITIES
Net change in:
Non-interest bearing deposits, savings and NOW 14,719 59,579
Time deposits (4,033) 57,342
Short-term borrowings 25,944 (6,991)
Increase in long-term debt 1,324 1,414
Decrease in long-term debt (18,237) (862)
Net acquisition of treasury stock (460) (3,840)
Cash dividends paid (3,564) (2,862)
-------- --------
Net cash flows from financing activities 15,693 103,780
-------- --------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (17,256) (1,492)
Cash and due from banks at beginning of period 134,848 112,292
-------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD $117,592 $110,800
======== ========
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1999
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements give
retroactive effect to the merger of Guaranty Bank & Trust (Guaranty) with and
into F.N.B. Corporation (the Corporation). The merger, which was consummated
on January 12, 1999, resulted in the Corporation issuing 1,250,994 shares of
common stock. The transaction has been accounted for as a pooling-of-interests,
and such financial statements are presented as if the merger had been
consummated for all the periods presented. The financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. For further information, refer to the
consolidated financial statements for the year ended December 31, 1998 and
footnotes thereto included in the Corporation's Annual Report on Form 10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the amounts reported in the financial statements.
Actual results could differ from those estimates.
PER SHARE AMOUNTS
Per share amounts have been adjusted for common stock dividends, including
the 5 percent stock dividend declared on April 26, 1999.
Basic earnings per share is calculated by dividing net income, adjusted for
preferred stock dividends declared, by the sum of the weighted average number
of shares of common stock outstanding.
Diluted earnings per common share is calculated by dividing net income by
the weighted average number of shares of common stock outstanding, assuming
conversion of outstanding convertible preferred stock from the beginning of
the year or date of issuance and the exercise of stock options and warrants.
Such adjustments to net income and the weighted average number of shares of
common stock are made only when such adjustments dilute earnings per share.
<PAGE>
EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
Three months ended March 31 1999 1998
---------- ----------
Basic
Net income $ 8,190 $ 8,288
Less: Preferred stock dividends declared (108) (134)
Earnings applicable to basic earnings ---------- ----------
per share $ 8,082 $ 8,154
========== ==========
Average common shares outstanding 20,156,352 19,992,046
========== ==========
Earnings per share $.40 $.41
==== ====
Diluted
Earnings applicable to diluted
earnings per share $ 8,190 $ 8,288
========== ==========
Average common shares outstanding 20,156,352 19,992,046
Series A convertible preferred stock 23,217 15,590
Series B convertible preferred stock 525,467 618,768
Net effect of dilutive stock options and stock
warrants based on the treasury stock method 477,883 596,983
---------- ----------
21,182,919 21,223,387
========== ==========
Earnings per share $.39 $.39
==== ====
CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information (in
thousands):
Three months ended March 31 1999 1998
-------- --------
Cash paid for:
Interest $ 23,652 $ 23,003
Noncash Investing and Financing Activities:
Acquisition of real estate in settlement
of loans 2,733 321
Loans granted in the sale of other real estate 91 141
COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, are as follows
(in thousands):
Three months ended March 31 1999 1998
-------- --------
Net income $ 8,190 $ 8,288
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding (losses) gains
arising during the period (1,370) 869
Less: reclassification adjustment
for gains included in net income (513) (346)
-------- --------
Other comprehensive income (1,883) 523
-------- --------
Comprehensive income $ 6,307 $ 8,811
======== ========
<PAGE>
MERGERS AND ACQUISITIONS
On January 12, 1999, the Corporation completed its affiliation with
Guaranty Bank & Trust (Guaranty), headquartered in Venice, Florida with assets
of $154.6 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. 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. Results for prior years are restated to reflect this
acquisition as a pooling-of-interests. The following table sets forth
separate company financial information for the year ended December 31, 1998
(in thousands):
F.N.B.
Corporation Guaranty
----------- --------
Net interest income $132,600 $5,314
Net income 31,872 326
The Corporation regularly evaluates the potential acquisition of, and holds
discussions with, various potential acquisition candidates and as a general
rule the Corporation publicly announces such acquisitions only after a
definitive agreement has been reached.
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 community 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 tables below represent the parent
company, other non-bank subsidiaries and eliminations, which are necessary
for purposes of reconciling to the consolidated amounts.
At or for the three months Community All
ended March 31, 1999 Banking Other Consolidated
---------- ---------- ------------
Interest income $ 56,981 $ 4,273 $ 61,254
Interest expense 24,753 841 25,594
Provision for loan losses 1,406 645 2,051
Non-interest income 8,009 1,349 9,358
Non-interest expense 27,559 3,060 30,619
Intangible amortization 464 16 480
Income tax expense 3,373 305 3,678
Net income 7,435 755 8,190
Core operating earnings * 8,254 755 9,009
Total assets 3,342,579 86,944 3,429,523
<PAGE>
At or for the three months Community All
ended March 31, 1998 Banking Other Consoldiated
---------- ---------- ------------
Interest income $ 55,798 $ 4,164 $ 59,962
Interest expense 25,403 863 26,266
Provision for loan losses 1,119 642 1,761
Non-interest income 6,074 1,717 7,791
Non-interest expense 23,152 4,156 27,308
Intangible amortization 293 11 304
Income tax expense 3,721 105 3,826
Net income 8,184 104 8,288
Core operating earnings * 8,184 274 8,458
Total assets 3,142,158 62,493 3,204,651
* Core operating earnings excludes merger related costs of $819,000, net of
tax, for the quarter ended March 31, 1999 and $170,000, net of tax, for the
quarter ended March 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation monitors its liquidity position on an ongoing basis to
assure that it is able to meet the need for funds at all times. Given the
monetary nature of its assets and liabilities and the significant source of
liquidity provided by its securities portfolio, the Corporation has sufficient
sources of funds available to meet its cash needs.
Additionally, the Corporation has external sources of funds available
should it desire to use them. These include approved lines of credit with
several major domestic banks, of which $45.0 million was unused at March 31,
1999. To further meet its liquidity needs, the Corporation also has access
to the Federal Home Loan Bank and the Federal Reserve Bank, as well as other
uncommitted funding sources.
The financial performance of the Corporation is subject to risk from
interest rate fluctuations. This interest rate risk arises due to differences
between the amount of interest-earning assets and the amount of interest-bearing
liabilities subject to pricing over a specified period, the amount of change in
individual interest rates and the embedded options in all financial instruments.
The principal objective of the Corporation's asset/liability management
activities is to maximize net interest income while maintaining acceptable
levels of interest rate and liquidity risk and facilitating the funding needs
of the Corporation. The Corporation's Asset/Liability Committee (ALCO) is
responsible for achieving this objective. The Corporation uses an
asset/liability model to quantify the effects of its balance sheet strategies
and their associated risks. Net interest income simulation is the principal
tool utilized for these purposes. Gap analysis is employed as a secondary
diagnostic measurement. The Corporation attempts to mitigate interest rate
risk through asset deployment, asset and liability pricing and matched maturity
funding.
<PAGE>
A gradual 300 basis point decrease in interest rates is estimated to cause
a decline in net interest income of 1.7% or $2.4 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 to actual
1998 interest rates would have decreased net interest income by 0.9% or $1.1
million in 1998. These low levels of variation are within the Corporation's
policy limits. The simulation analyses assumed that savings and checking
interest rates have a low correlation to changes in market rates of interest
and that certain asset prepayments changed as refinancing incentives evolved.
Further, in the event of a change of such a magnitude in interest rates, the
ALCO would likely take actions to further mitigate its exposure to the change.
However, due to the greater uncertainty of other specific actions that would
be taken, the analysis assumed no change in the Corporation's asset/liability
composition.
The gap analysis which follows is based on the amortization, maturity or
repricing of the Corporation's interest-earning assets and interest-bearing
liabilities. Non-maturity deposits have been allocated to represent their
lower sensitivity to changes in market interest rates than other adjustable
rate instruments. The cumulative gap represents the difference between these
assets and liabilities over a specified time period. Based on the cumulative
one year gap and assuming no change in asset/liability composition, a
decrease in interest rates would be expected to result in slightly lower net
interest income. The gap position is within the Corporation's policy limits.
Following is the gap analysis as of March 31, 1999 (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 $ 2,745 $ 2,745
Federal funds sold 31,008 31,008
Mortgage loans held for sale 9,333 9,333
Securities:
Available for sale 45,590 $140,776 $ 205,422 $ 52,130 443,918
Held to maturity 16,124 27,572 43,301 19,413 106,410
Loans, net of unearned 712,211 633,031 1,028,847 131,826 2,505,915
-------- -------- ---------- ---------- ----------
817,011 801,379 1,277,570 203,369 3,099,329
Other assets 330,194 330,194
-------- -------- ---------- ---------- ----------
$817,011 $801,379 $1,277,570 $ 533,563 $3,429,523
======== ======== ========== ========== ==========
Interest Bearing Liabilities
Deposits:
Interest checking $128,245 $ 376,236 $ 504,481
Savings 279,777 499,398 779,175
Time deposits 319,038 $567,328 $ 294,592 1,180,958
Short-term borrowings 176,925 176,925
Long-term debt 8,117 11,704 24,829 7,929 52,579
-------- -------- ---------- ---------- ----------
912,102 579,032 319,421 883,563 2,694,118
Other liabilities 451,344 451,344
Stockholders' equity 284,061 284,061
-------- -------- ---------- ---------- ----------
$912,102 $579,032 $ 319,421 $1,618,968 $3,429,523
======== ======== ========== ========== ==========
Period Gap $(95,091) $222,347 $ 958,149 $(1,085,405)
======== ======== ========== ===========
Cumulative Gap $(95,091) $127,256 $1,085,405
======== ======== ==========
Cumulative Gap as a Percent
of Total Assets (2.77)% 3.71% 31.64%
======== ======== ==========
Rate Sensitive Assets/Rate
Sensitive Liabilities
(Cumulative) .90 1.09 1.60 1.15
======== ======== ========== ==========
</TABLE>
<PAGE>
CAPITAL RESOURCES
The assessment of capital adequacy depends on a number of factors such as
asset quality, liquidity, earnings performance, changing competitive conditions
and economic forces. The Corporation seeks to maintain a strong capital base
to support its growth and expansion activities, to provide stability to current
operations and to promote public confidence.
Capital management is a continuous process. Since December 31, 1998,
stockholders' equity has increased $4.8 million as a result of earnings
retention. For the three months ended March 31, 1999, the return on average
equity, based on core operating earnings, was 12.92%. Core operating earnings
exclude merger related costs of $819,000, net of tax. Total cash dividends
declared represented 43.52% of earnings. Book value per common share was
$13.79 at March 31, 1999, compared to $13.68 at December 31, 1998.
LOANS
Following is a summary of loans (dollars in thousands):
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
Real estate:
Residential $ 994,695 $ 994,156
Commercial 653,471 632,304
Construction 103,291 103,672
Installment loans to individuals 292,140 292,418
Commercial, financial and agricultural 342,154 299,081
Lease financing 153,853 132,266
Unearned income (33,689) (31,014)
---------- ----------
$2,505,915 $2,422,883
========== ==========
NON-PERFORMING ASSETS
Non-performing assets include non-performing loans and other real estate
owned. Non-performing loans include non-accrual loans and restructured loans.
Non-accrual loans represent loans on which interest accruals have been
discontinued. It is the Corporation's policy to discontinue interest accruals
when principal or interest is due and has remained unpaid for 90 days or more
unless the loan is both well secured and in the process of collection. When a
loan is placed on non-accrual status, all unpaid interest is reversed.
Non-accrual loans may not be restored to accrual status until all delinquent
principal and interest has been paid, or the loan becomes both well secured
and in the process of collection. Consumer installment loans are generally
charged off against the allowance for loan losses upon reaching 90 to 180 days
past due, depending on the installment loan type. Restructured loans are
loans in which the borrower has been granted a concession on the interest rate
or the original repayment terms due to financial distress.
<PAGE>
Following is a summary of non-performing assets (dollars in thousands):
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
Non-performing assets:
Non-accrual loans $ 9,080 $12,250
Restructured loans 1,790 1,770
------- -------
Total non-performing loans 10,870 14,020
Other real estate owned 3,820 1,370
------- -------
Total non-performing assets $14,690 $15,390
======= =======
Asset quality ratios:
Non-performing loans as percent of total loans 0.43% 0.58%
Non-performing assets as percent of total assets 0.43% 0.45%
Non-performing loans are closely monitored on an ongoing basis as part
of the Corporation's loan review and work-out process. The potential risk of
loss on these loans is evaluated by comparing the loan balance to the fair
value of any underlying collateral or the present value of projected future
cash flows. Losses are recognized where appropriate.
ALLOWANCE FOR LOAN LOSSES
Management's analysis of the allowance for loan losses includes the
evaluation of the loan portfolio based on internally generated loan review
reports and the historical loss experience of the remaining balances of the
various homogeneous loan pools which comprise the loan portfolio. Specific
factors which are evaluated include the previous loan loss experience with the
customer, the status of past due interest and principal payments on the loan,
the collateral position of the loan, the quality of financial information
supplied by the borrower and the general financial condition of the borrower.
Historical loss experience on the remaining portfolio segments is considered
in conjunction with current status of economic conditions, loan loss trends,
delinquency and non-accrual trends, credit administration and concentrations
of credit risk.
Following is a summary of changes in the allowance for loan losses and
selected ratios (dollars in thousands):
Three months ended March 31 1999 1998
------- -------
Balance at beginning of period $32,308 $30,931
Charge-offs (1,965) (1,566)
Recoveries 315 491
------- -------
Net charge-offs (1,650) (1,075)
Provision for loan losses 2,051 1,761
------- -------
Balance at end of period $32,709 $31,617
======= =======
Allowance for loan losses to:
Total loans, net of unearned income 1.31% 1.42%
Non-performing loans 300.91% 311.53%
<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 March 31, 1999, that the Corporation
and each of its banking subsidiaries are all "well capitalized".
As of December 31, 1998, the Corporation and each of its banking
subsidiaries have been categorized as "well capitalized" under the regulatory
framework for prompt corrective action. Following are capital ratios as of
March 31, 1999 for the Corporation (dollars in thousands):
<TABLE>
<CAPTION>
Well Capitalized Minimum Capital
Actual Requirements Requirements
--------------- --------------- ---------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital $308,351 12.5% $247,548 10.0% $198,037 8.0%
(to risk-weighted assets)
Tier 1 Capital 264,886 10.7% 148,528 6.0% 99,018 4.0%
(to risk-weighted assets)
Tier 1 Capital 264,886 7.9% 168,622 5.0% 134,898 4.0%
(to average assets)
</TABLE>
The Corporation and its banking subsidiaries are subject to various
regulatory capital requirements administered by federal and state banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory, and discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Corporation's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Corporation and its banking subsidiaries must meet
specific capital guidelines that involve quantitative measures of assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Corporation's and banking subsidiaries' capital
amounts and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
FINANCIAL INFORMATION SUMMARY
Core operating income for the first three months of 1999 was $9.0 million
compared to $8.5 million for the first three months of 1998. Core operating
income consists of net income adjusted for merger related costs. Basic earnings
per share were $.44 and $.42 for the three months ended March 31, 1999 and 1998,
respectively, while diluted earnings per share were $.43 and $.40, respectively.
These results were adjusted for a 5 percent stock dividend declared on April 26,
1999. Non-recurring merger related costs of $819,000 and $170,000, net of tax,
were incurred during the first three months of 1999 and 1998. Including these
non-recurring items, net income was $8.2 million and $8.3 million for the
first three months of 1999 and 1998, respectively, resulting in diluted
earnings per share of $.39 for both periods. Highlights for the first three
months of 1999 include:
* A return on average assets of 1.08% and a return on average equity of
12.92%, both based on core operating earnings.
* A strong net interest margin of 4.76%.
* An increase in non-interest income of $1.6 million, including a 13.5%
increase in fee based income.
* Completion of the Corporation's affiliation with Guaranty Bank and Trust
and corresponding merger of Guaranty Bank and Trust with an existing
subsidiary of the Corporation, West Coast Bank, to form West Coast
Guaranty Bank, N.A.
<PAGE>
FIRST THREE MONTHS OF 1999 AS COMPARED TO FIRST THREE MONTHS OF 1998:
The following table provides information regarding the average balances
and yields and rates on interest earning assets and interest bearing liabilities
(dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31 1999 1998
------------------------------ ------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
----------- -------- ------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets:
Interest bearing deposits
with banks $ 5,010 $ 59 4.71% $ 7,621 $ 110 5.77%
Federal funds sold 50,457 602 4.77 83,925 1,129 5.38
Securities:
Taxable 467,743 7,074 6.13 523,586 8,100 6.27
Non-taxable (1) 85,173 1,323 6.21 82,466 1,379 6.69
Loans (1) (2) 2,474,315 52,735 8.65 2,205,552 49,762 9.15
---------- ------- ---------- -------
Total interest
earning assets 3,082,698 61,793 8.13 2,903,150 60,480 8.44
---------- ------- ---------- -------
Cash and due from banks 107,938 97,531
Allowance for loan losses (32,823) (31,402)
Premises and equipment 94,911 77,904
Other assets 140,090 74,727
---------- ----------
$3,392,814 $3,121,910
========== ==========
Liabilities
Interest bearing
liabilities:
Deposits:
Interest bearing demand $ 500,311 $ 2,014 1.63 $ 407,613 $ 2,664 2.65
Savings 761,177 5,569 2.97 705,196 4,997 2.87
Other time 1,185,173 15,241 5.22 1,179,767 15,993 5.50
Short-term borrowings 165,130 1,724 4.23 115,824 1,460 5.11
Long-term debt 60,454 1,046 6.92 72,491 1,152 6.36
---------- ------- ---------- -------
Total interest
bearing liabilities 2,672,245 25,594 3.88 2,480,891 26,266 4.29
---------- ------- ---------- -------
Non-interest bearing
demand deposits 387,105 328,193
Other liabilities 50,625 40,045
---------- ----------
3,109,975 2,849,129
---------- ----------
Stockholders' equity 282,839 272,781
---------- ----------
$3,392,814 $3,121,910
========== ==========
Net interest earning
assets $ 410,453 $ 422,259
========== ==========
Net interest income $36,199 $34,214
======= =======
Net interest spread 4.25% 4.15%
==== ====
Net interest margin (3) 4.76% 4.78%
==== ====
</TABLE>
(1) The amounts are reflected on a fully taxable equivalent basis using the
federal statutory tax rate of 35% adjusted for certain federal tax
preferences.
(2) Average balance includes non-accrual loans. Loans consist of average
total loans less average unearned income. The amount of loan fees
included in interest income on loans is immaterial.
(3) Net interest margin is calculated by dividing the difference between
total interest earned and total interest paid by total interest earning
assets.
<PAGE>
Net interest income, the Corporation's primary source of earnings, is the
amount by which interest and fees generated by interest earning assets,
primarily loans and securities, exceed interest expense on deposits and
borrowed funds. During the first three months of 1999, net interest income,
on a fully taxable equivalent basis, totaled $36.2 million, representing a
5.80% increase over the first three months of 1998. Net interest income
consisted of interest income of $61.8 million and interest expense of $25.6
million for the first three months of 1999 compared to $60.5 million and $26.3
million for each, respectively, for the first three months of 1998. Net
interest margin remained fairly constant at 4.76% at March 31, 1999 compared
with 4.78% at March 31, 1998. On a quarter to quarter basis, the yield on
total interest earning assets declined by 31 basis points and the rate paid
on interest bearing liabilities decreased by 41 basis points. Strong
competitive factors and recent moves by the Federal Reserve Board to reduce
interest rates subsequent to March 31, 1998, resulted in a 50 basis point
decrease in the average yield on loans.
The following table sets forth certain information regarding changes in
net interest income attributable to changes in the volumes and rates of
interest earning assets and interest bearing liabilities for the three months
ending March 31, 1999 as compared to the three months ending March 31, 1998
(in thousands):
Volume Rate Net
------ ------- -------
Interest Income
Interest bearing deposits with banks $ (33) $ (18) $ (51)
Federal funds sold (410) (117) (527)
Securities:
Taxable (848) (178) (1,026)
Non-taxable 47 (103) (56)
Loans 5,390 (2,417) 2,973
------ ------- -------
4,146 (2,833) 1,313
Interest Expense
Deposits:
Interest bearing demand 939 (1,589) (650)
Savings 398 174 572
Other time 74 (826) (752)
Short-term borrowings 443 (179) 264
Long-term debt (226) 120 (106)
------ ------- -------
1,628 (2,300) (672)
------ ------- -------
Net Change $2,518 $ (533) $ 1,985
====== ======= =======
The amount of change not solely due to rate or volume changes was
allocated between the change due to rate and the change due to volume based
on the net size of the rate and volume changes.
Interest income on loans, on a fully taxable equivalent basis, increased
5.97% from $49.8 million for the three months ended March 31, 1998 to $52.7
million for the three months ended March 31, 1999. This increase was the
result of an increase in average loans of 12.19% as the average yield declined
by 50 basis points over the same period last year.
Interest expense on deposits decreased $830,000 or 3.51% for the three
months ended March 31, 1999, compared to the three months ended March 31, 1998,
although average deposits increased 6.72% over the same three month period.
The average balance in interest bearing demand and savings deposits increased
by $92.7 million and $56.0 million, respectively. The average balance in
non-interest bearing demand deposits increased by $58.9 million. Interest
expense on short-term borrowings increased $264,000 or 18.08% for these same
periods due to a $49.3 million increase in average short-term borrowings,
which was partially offset by a decline in the rate paid of 88 basis points.
<PAGE>
The provision for loan losses totaled $2.1 million for the first three
months of 1999, as compared to $1.8 million for the first three months of
1998. The increase in the provision is the result of higher loan volume.
Non-interest income increased by 20.11% during the first three months of
1999 as compared to the first three months of 1998. Service charges and trust
fees increased $618,000 over the first quarter of 1998. In addition, the
Corporation's investment in bank owned life insurance provided $752,000 in
income for the three months ended March 31, 1999.
Total non-interest expenses increased 12.63% during the first three
months of 1999, compared to the first three months of 1998. The increase was
primarily attributable to an increase of $1.8 million in salaries and employee
benefits. This increase was due to increases in incentive compensation as
well as normal annual salary adjustments. Included in non-interest expenses
during the first three months of 1999 was $1.3 million in merger related
expenses, as compared to $170,000 in the same period during 1998. These
expenses were primarily data processing termination and conversion costs and
change in control provisions associated with the structuring and completion
of mergers.
Income tax expense for the three months ended March 31, 1999 totaled
$3.7 million, providing an effective tax rate of 30.99% compared to 31.58%
for the three months ended March 31, 1998. The decrease in the effective
tax rate reflects the higher level of tax-free income in 1999 over 1998.
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 developed a Year 2000 Enterprise Wide Project Plan (Y2K Plan),
which 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 tests 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 being utilized by the Florida banking
affiliates and the expiration of the Corporation's primary Florida core
processing contract.
<PAGE>
The Corporation has received written representation from both vendors
that each system in 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.
The management of the Corporation has developed the Corporate Business
Resumption Contingency Plan (BRC Plan) which identifies the level of customer
service management desires in the event of a system failure. The BRC Plan is
the model for all financial affiliates use in the development of their specific
BRC Plan. The BRC Plan has also identified resources and tools to be used for
implementation along with a method of plan validation, testing, trigger dates
for implementation and training of the personnel who will be exercising the
plan.
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
included 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.
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 functions,
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'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 March 31, 1999, the Corporation
has expended $126,000 on its Y2K Plan and anticipates additional costs of
approximately $50,000 to be incurred during 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>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK.
The information called for by this item is provided under the caption
"Liquidity and Interest Rate Sensitivity" under Item 2 - Management's
Discussion and Analysis of Financial Condition and Results of Operations.
PART II
Item 1. Legal Proceedings
The Corporation and persons to whom the Corporation may have
indemnification obligations in the normal course of business are
subject to various pending and threatened lawsuits in which claims
for monetary damages are asserted. Management, after consultation
with legal counsel, does not at the present time anticipate the
ultimate aggregate liability, if any arising out of such lawsuits
will have a material adverse effect on the Corporation's financial
position. At the present time, management is not in a position to
determine whether any pending or threatened litigation will have a
material adverse effect on the Corporation's results of operation in
any future reporting period.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
On January 25, 1999, the Corporation adopted an amendment to its By-laws
providing that no proposal submitted by a shareholder of the Corporation
for consideration at the Annual Meeting of Shareholders will be
considered at any such meeting unless the Secretary of the Corporation
has received written notice of the matter proposed to be presented from
the shareholder on or prior to the date which is 120 days prior to the
date on which the Corporation first mailed its proxy materials for the
prior year's Annual Meeting of Shareholders. Accordingly, any shareholder
proposal must be submitted to the Corporation by November 26, 1999 to be
considered at the 2000 Annual Meeting of Shareholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27. Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
F.N.B. Corporation
------------------------------------------
(Registrant)
Dated: May 13, 1999 /s/Peter Mortensen
________________________ __________________________________________
Peter Mortensen
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: May 13, 1999 /s/John D. Waters
________________________ __________________________________________
John D. Waters
Vice President and Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 117,592
<INT-BEARING-DEPOSITS> 2,745
<FED-FUNDS-SOLD> 31,008
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 443,918
<INVESTMENTS-CARRYING> 106,410
<INVESTMENTS-MARKET> 107,011
<LOANS> 2,505,915
<ALLOWANCE> 32,709
<TOTAL-ASSETS> 3,429,523
<DEPOSITS> 2,861,728
<SHORT-TERM> 176,925
<LIABILITIES-OTHER> 54,230
<LONG-TERM> 52,579
0
2,283
<COMMON> 38,694
<OTHER-SE> 243,084
<TOTAL-LIABILITIES-AND-EQUITY> 3,429,523
<INTEREST-LOAN> 52,508
<INTEREST-INVEST> 8,085
<INTEREST-OTHER> 661
<INTEREST-TOTAL> 61,254
<INTEREST-DEPOSIT> 22,824
<INTEREST-EXPENSE> 25,594
<INTEREST-INCOME-NET> 35,660
<LOAN-LOSSES> 2,051
<SECURITIES-GAINS> 800
<EXPENSE-OTHER> 31,099
<INCOME-PRETAX> 11,868
<INCOME-PRE-EXTRAORDINARY> 11,868
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,190
<EPS-PRIMARY> .40
<EPS-DILUTED> .39
<YIELD-ACTUAL> 4.76
<LOANS-NON> 9,080
<LOANS-PAST> 2,649
<LOANS-TROUBLED> 1,790
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 32,308
<CHARGE-OFFS> 1,965
<RECOVERIES> 315
<ALLOWANCE-CLOSE> 32,709
<ALLOWANCE-DOMESTIC> 32,709
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
