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 September 30, 2000
------------------------------------------------
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. Employee 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 October 31, 2000
----- -------------------------------
Common Stock, $2 Par Value 22,047,458 Shares
-------------------------- -----------------
<PAGE>
F.N.B. CORPORATION
FORM 10-Q
September 30, 2000
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 9
Item 3. Quantitative and Qualitative Disclosure of Market Risk 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Dollars in thousands, except par values
Unaudited
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
ASSETS
Cash and due from banks $ 121,168 $ 171,183
Interest bearing deposits with banks 3,476 3,478
Federal funds sold 25,674 7,467
Mortgage loans held for sale 26,242 8,733
Securities available for sale 412,283 408,731
Securities held to maturity (fair
value of $64,434 and $75,905) 65,255 77,359
Loans, net of unearned income of $67,856
and $61,976 2,961,729 2,803,774
Allowance for loan losses (39,259) (36,311)
---------- ----------
NET LOANS 2,922,470 2,767,463
---------- ----------
Premises and equipment 107,783 105,052
Other assets 173,994 156,718
---------- ----------
$3,858,345 $3,706,184
========== ==========
LIABILITIES
Deposits:
Non-interest bearing $ 430,425 $ 424,352
Interest bearing 2,617,297 2,485,082
---------- ----------
TOTAL DEPOSITS 3,047,722 2,909,434
Other liabilities 67,287 56,604
Short-term borrowings 307,653 332,197
Long-term debt 122,001 117,634
---------- ----------
TOTAL LIABILITIES 3,544,663 3,415,869
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock - $10 par value
Authorized - 20,000,000 shares
Issued - 172,802 and 207,459 shares
Aggregate liquidation value - $4,320 and $5,186 1,728 2,075
Common stock - $2 par value
Authorized - 100,000,000 shares
Issued - 22,478,436 and 21,005,720 shares 44,957 42,011
Additional paid-in capital 206,098 182,834
Retained earnings 68,680 71,310
Accumulated other comprehensive income (2,266) (4,803)
Treasury stock - 258,162 and 121,132 shares at cost (5,515) (3,112)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 313,682 290,315
---------- ----------
$3,858,345 $3,706,184
========== ==========
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
INTEREST INCOME
Loans, including fees $ 66,855 $ 56,156 $192,827 $162,737
Securities:
Taxable 6,444 6,980 19,086 21,083
Nontaxable 466 491 1,434 1,700
Dividends 493 381 1,325 1,130
Other 444 177 741 1,219
-------- -------- -------- --------
TOTAL INTEREST INCOME 74,702 64,185 215,413 187,869
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 29,056 21,995 80,153 67,156
Short-term borrowings 4,531 3,526 12,291 7,561
Long-term debt 2,335 1,143 6,004 3,110
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 35,922 26,664 98,448 77,827
-------- -------- -------- --------
NET INTEREST INCOME 38,780 37,521 116,965 110,042
Provision for loan losses 2,439 2,105 8,313 6,696
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 36,341 35,416 108,652 103,346
-------- -------- -------- --------
NON-INTEREST INCOME
Insurance commissions and fees 5,058 2,679 13,407 8,057
Service charges 5,568 5,221 16,261 14,706
Trust 1,162 975 3,309 2,736
Gain on sale of securities 64 380 142 1,286
Gain on sale of loans 757 473 1,345 1,908
Gain on sale of a branch 603 603
Other 2,047 1,953 5,514 5,684
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME 14,656 12,284 39,978 34,980
-------- -------- -------- --------
50,997 47,700 148,630 138,326
-------- -------- -------- --------
NON-INTEREST EXPENSES
Salaries and employee benefits 19,248 17,713 57,372 52,315
Net occupancy 2,389 2,185 6,914 6,633
Equipment 3,143 2,787 9,281 8,064
Merger related 1,333
Other 10,216 9,992 28,924 28,421
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSES 34,996 32,677 102,491 96,766
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 16,001 15,023 46,139 41,560
Income taxes 5,067 4,678 14,677 12,578
-------- -------- -------- --------
NET INCOME $ 10,934 $ 10,345 $ 31,462 $ 28,982
======== ======== ======== ========
NET INCOME PER COMMON SHARE:*
Basic $.49 $.47 $1.42 $1.31
==== ==== ===== =====
Diluted $.48 $.45 $1.38 $1.27
==== ==== ===== =====
CASH DIVIDENDS PER COMMON SHARE* $.18 $.17 $ .53 $ .50
==== ==== ===== =====
* Restated to reflect a 5 percent stock dividend declared on April 17, 2000.
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Dollars in thousands
Unaudited
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
2000 1999
--------- ---------
OPERATING ACTIVITIES
Net income $ 31,462 $ 28,982
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,414 7,919
Provision for loan losses 8,313 6,696
Deferred taxes (1,684) 7,565
Net gain on sale of securities (142) (1,286)
Net gain on sale of loans (1,345) (1,908)
Proceeds from sale of loans 17,801 45,858
Loans originated for sale (33,965) (35,667)
Net change in:
Interest receivable (2,671) (358)
Interest payable 4,802 (151)
Other, net (9,025) (7,894)
--------- ---------
Net cash flows from operating activities 22,960 49,756
--------- ---------
INVESTING ACTIVITIES
Net change in:
Interest bearing deposits with banks 2 (1,097)
Federal funds sold (18,207) 41,459
Loans (164,166) (262,851)
Securities available for sale:
Purchases (68,727) (148,722)
Sales 12,977 17,258
Maturities 56,374 140,644
Securities held to maturity:
Purchases (1,664) (1,012)
Maturities 13,770 33,992
Increase in premises and equipment (10,813) (15,256)
--------- ---------
Net cash flows from investing activities (180,454) (195,585)
--------- ---------
FINANCING ACTIVITIES
Net change in:
Non-interest bearing deposits, savings and NOW 9,963 (20,191)
Time deposits 128,325 (18,793)
Short-term borrowings (24,544) 190,141
Increase in long-term debt 40,467 2,453
Decrease in long-term debt (36,100) (22,234)
Net acquisition of treasury stock 1,322 (3,996)
Cash dividends paid (11,954) (11,830)
--------- ---------
Net cash flows from financing activities 107,479 115,550
--------- ---------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (50,015) (30,279)
Cash and due from banks at beginning of period 171,183 134,847
--------- ---------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 121,168 $ 104,568
========= =========
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
BASIS OF PRESENTATION
The accompanying unaudited consolidated 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, 1999 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. The
Corporation cautions that any forward looking statements contained in this
report, in a report incorporated by reference to this report or made by
management of the Corporation, involve risks and uncertainties and are subject
to change based upon various factors. Actual results could differ materially
from those expressed or implied.
MERGERS AND ACQUISITIONS
On August 15, 2000 the Corporation completed its affiliation with Altamura,
Marsh and Associates, based in Clearwater and Fort Myers, Florida. The
transaction was accounted for as a purchase. Altamura, Marsh and Associates
is operating as a division of Roger Bouchard Insurance, Inc., a wholly-owned
subsidiary of the Corporation. On July 31, 2000, the Corporation's wholly-owned
consumer finance subsidiary, Regency Finance Company, completed its acquisition
of eight offices in Tennessee having gross loans of $42.0 million. The
transaction, which was accounted for as a purchase, resulted in the
recognition of $1.2 million of goodwill.
The Corporation regularly evaluates the potential acquisition of, and holds
discussions with, various acquisition candidates and as a general rule the
Corporation publicly announces such acquisitions only after a definitive
agreement has been reached.
NEW ACCOUNTING STANDARD
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 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
is not anticipated to have a material impact on the financial statements.
<PAGE>
PER SHARE AMOUNTS
Per share amounts have been adjusted for common stock dividends, including
the 5 percent stock dividend declared on April 17, 2000.
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.
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 Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
BASIC
Net income $ 10,934 $ 10,345 $ 31,462 $ 28,982
Less: Preferred stock
dividends declared (83) (102) (180) (263)
---------- ---------- ---------- ----------
Earnings applicable to
basic earnings per share $ 10,851 $ 10,243 $ 31,282 $ 28,719
========== ========== ========== ==========
Average common shares
outstanding 22,189,281 21,839,130 22,000,511 21,838,704
========== ========== ========== ==========
Earnings per share $.49 $.47 $1.42 $1.32
==== ==== ===== =====
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
DILUTED
Earnings applicable to diluted
earnings per share $ 10,934 $ 10,345 $ 31,462 $ 28,982
========== ========== ========== ==========
Average common shares
outstanding 22,189,281 21,839,130 22,000,511 21,838,704
Series A convertible
preferred stock 22,924 20,230 22,924 20,230
Series B convertible
preferred stock 392,449 521,402 415,406 535,635
Net effect of dilutive
stock options and
stock warrants based
on the treasury stock
method 345,616 489,737 358,591 467,007
---------- ---------- ---------- ----------
22,950,270 22,870,499 22,797,432 22,861,576
========== ========== ========== ==========
Earnings per share $.48 $.45 $1.38 $1.27
==== ==== ===== =====
<PAGE>
CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information (in
thousands):
Nine Months Ended
September 30
-------------------
2000 1999
------- -------
Cash paid for:
Interest $93,646 $77,978
Taxes 6,994 6,328
Noncash Investing and Financing Activities:
Acquisition of real estate in settlement of loans 1,311 3,455
Loans granted in the sale of other real estate 465 91
COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, are as follows
(in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net income $ 10,934 $ 10,345 $ 31,462 $ 28,982
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding (losses)
gains arising during the
period 3,202 (564) 2,684 (7,017)
Less: reclassification
adjustment for gains
included in net income (38) (270) (147) (832)
-------- -------- -------- --------
Other comprehensive income 3,164 (834) 2,537 (7,849)
-------- -------- -------- --------
Comprehensive income $ 14,098 $ 9,511 $ 33,999 $ 21,133
======== ======== ======== ========
BUSINESS SEGMENTS
The Corporation operates in two reportable segments: community banks and
insurance agencies. The Corporation's community bank 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 bank subsidiaries offer trust services as
well as various alternative products, including securities brokerage and
investment advisory services, mutual funds, insurance and annuities. The
Corporation's insurance agencies are full-service insurance companies offering
all lines of commercial and personal insurance through major carriers. The
following tables provide financial information for these segments 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.
<PAGE>
At or for the three months Community Insurance All
ended September 30, 2000 Banks Agencies Other Consolidated
---------- ---------- --------- ------------
Interest income $ 69,254 $ 27 $ 5,421 $ 74,702
Interest expense 34,459 53 1,410 35,922
Provision for loan losses 1,349 1,090 2,439
Non-interest income 9,445 3,797 1,414 14,656
Non-interest expense 27,308 3,256 3,875 34,439
Intangible amortization 443 83 31 557
Income tax expense (credit) 4,876 227 (36) 5,067
Net income 10,264 205 465 10,934
Core operating earnings 10,264 205 465 10,934
Total assets 3,732,712 17,810 107,823 3,858,345
At or for the three months Community Insurance All
ended September 30, 1999 Banks Agencies Other Consolidated
---------- ---------- --------- ------------
Interest income $ 60,788 $ 14 $ 3,383 $ 64,185
Interest expense 25,960 21 683 26,664
Provision for loan losses 1,460 645 2,105
Non-interest income 8,531 1,942 1,811 12,284
Non-interest expense 26,885 1,476 3,821 32,182
Intangible amortization 454 29 12 495
Income tax expense (credit) 4,736 (58) 4,678
Net income 9,824 430 91 10,345
Core operating earnings 9,432 430 458 10,320
Total assets 3,457,956 6,582 79,501 3,544,039
At or for the nine months Community Insurance All
ended September 30, 2000 Banks Agencies Other Consolidated
---------- ---------- --------- ------------
Interest income $ 200,280 $ 60 $ 15,073 $ 215,413
Interest expense 95,122 99 3,227 98,448
Provision for loan losses 5,303 3,010 8,313
Non-interest income 26,955 9,961 3,062 39,978
Non-interest expense 83,514 7,594 9,902 101,010
Intangible amortization 1,328 100 53 1,481
Income tax expense 13,362 917 398 14,677
Net income 28,606 1,311 1,545 31,462
Core operating earnings 28,606 1,311 1,545 31,462
Total assets 3,732,712 17,810 107,823 3,858,345
At or for the nine months Community Insurance All
ended September 30, 1999 Banks Agencies Other Consolidated
---------- ---------- --------- ------------
Interest income $ 177,222 $ 37 $ 10,610 $ 187,869
Interest expense 75,575 63 2,189 77,827
Provision for loan losses 4,761 1,935 6,696
Non-interest income 24,536 5,548 4,896 34,980
Non-interest expense 81,099 4,069 10,159 95,327
Intangible amortization 1,377 29 33 1,439
Income tax expense 12,330 248 12,578
Net income 26,616 1,424 942 28,982
Core operating earnings 27,043 1,424 1,309 29,776
Total assets 3,457,956 6,582 79,501 3,544,039
* Core operating earnings exclude gain on the sale of a branch of $392,000 and
non-recurring costs of $367,000 for the three months ended September 30, 1999
and merger related costs of $819,000, gain on the sale of a branch of $392,000
and other non-recurring costs of $367,000 for the nine months ended September
30, 1999, all on an after-tax basis.
<PAGE>
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FINANCIAL INFORMATION SUMMARY
Net income for the first nine months of 2000 increased to $31.5 million
from $29.0 million for the first nine months of 1999. Basic earnings per share
were $1.42 and $1.31 for the nine months ended September 30, 2000 and 1999,
respectively, while diluted earnings per share were $1.38 and $1.27 for those
same periods. Core operating earnings consist of net income adjusted for non-
recurring items. Non-recurring items incurred during the first nine months of
1999 included merger related costs of $819,000, gain on the sale of a branch of
$392,000 and non-recurring costs of $367,000, all net of tax. Excluding these
merger costs, net income was $29.8 million for the first nine months of 1999,
resulting in diluted earnings per share of $1.30. There were no non-recurring
items during the first nine months of 2000. Highlights for the first nine
months of 2000 include:
* A return on average assets of 1.1% and a return on average equity of
14.1%.
* An increase in non-interest income of $5.0 million, including a 29.3%
or $7.5 million increase in fee income, which consists of service
charges, insurance commissions and trust income.
* A 14.9% increase in average outstanding loans.
* Continued strong asset quality.
<PAGE>
FIRST NINE MONTHS OF 2000 AS COMPARED TO FIRST NINE MONTHS OF 1999:
The following table provides information regarding the average balances and
yields and rates on interest earning assets and interest bearing liabilities
(dollars in thousands):
Nine Months Ended
September 30 2000 1999
------------------------ --------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- -------- ------ ---------- -------- ------
ASSETS
Interest earning assets:
Interest bearing deposits
with banks $ 3,270 $ 153 6.24% $ 4,738 $ 175 4.92%
Federal funds sold 12,458 588 6.29 28,693 1,044 4.85
Securities:
Taxable 404,784 19,086 6.30 459,233 21,083 6.14
Non-taxable (1) 68,791 3,495 6.77 80,585 3,696 6.12
Loans (1) (2) 2,937,102 193,713 8.81 2,555,662 163,455 8.55
---------- -------- ---------- --------
Total interest
earning assets 3,426,405 217,035 8.46 3,128,911 189,453 8.09
---------- -------- ---------- --------
Cash and due from banks 119,501 108,159
Allowance for loan losses (38,404) (33,712)
Premises and equipment 107,168 99,483
Other assets 159,727 146,621
---------- ----------
$3,774,397 $3,449,462
LIABILITIES
Interest bearing liabilities:
Deposits:
Interest bearing
demand $ 491,952 $ 7,995 2.17 $ 466,226 $ 6,738 1.93
Savings 772,883 17,317 2.99 803,352 16,142 2.69
Other time 1,301,750 54,841 5.63 1,163,872 44,276 5.09
Short-term borrowings 287,607 12,291 5.71 221,583 7,561 4.56
Long-term debt 122,309 6,004 6.55 60,899 3,110 6.81
---------- -------- ---------- --------
Total interest
bearing liabilities 2,976,501 98,448 4.42 2,715,932 77,827 3.83
---------- -------- ---------- --------
Non-interest bearing
demand deposits 437,712 395,050
Other liabilities 62,172 53,023
---------- ----------
3,476,385 3,164,005
---------- ----------
STOCKHOLDERS' EQUITY 298,012 285,457
---------- ----------
$3,774,397 $3,449,462
========== ==========
Net interest
earning assets $ 449,904 $ 412,979
========== ==========
Net interest income $118,587 $111,626
======== ========
Net interest spread 4.04% 4.26%
===== =====
Net interest margin (3) 4.62% 4.77%
===== =====
(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 average 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 nine months of 2000, net interest income, on a fully
taxable equivalent basis, totaled $118.6 million, representing a 6.2% increase
over the first nine months of 1999. Net interest income consisted of interest
income of $217.0 million and interest expense of $98.4 million for the first
nine months of 2000 compared to $189.5 million and $77.8 million for each,
respectively, for the first nine months of 1999. Net interest margin decreased
from 4.77% at September 30, 1999 to 4.62% at September 30, 2000. The yield on
total interest earning assets increased by 37 basis points and the rate paid on
interest bearing liabilities increased by 59 basis points. Although the
Corporation has experienced some margin compression since September 30, 1999,
net interest income has risen as earning assets have increased by 9.5%. There
is a possibility that the compression could continue as further discussed within
the "Liquidity and Interest Rate Sensitivity" section of this report.
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 quarter ending September
30, 2000 as compared to the quarter ending September 30, 1999 (in thousands):
Volume Rate Net
------- ------- -------
INTEREST INCOME
Interest bearing deposits with banks $ (164) $ 142 $ (22)
Federal funds sold (959) 503 (456)
Securities:
Taxable (2,560) 563 (1,997)
Non-taxable (733) 532 (201)
Loans 25,137 5,121 30,258
------- ------- -------
20,721 6,861 27,582
------- ------- -------
INTEREST EXPENSE
Deposits:
Interest bearing demand 386 871 1,257
Savings (606) 1,781 1,175
Other time 5,574 4,991 10,565
Short-term borrowings 2,562 2,168 4,730
Long-term debt 3,008 (114) 2,894
------- ------- -------
10,924 9,697 20,621
------- ------- -------
NET CHANGE $ 9,797 $(2,836) $ 6,961
======= ======= =======
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
18.5% from $163.5 million for the nine months ended September 30, 1999 to $193.7
million for the nine months ended September 30, 2000. This increase was the
result of an increase in average loans of 14.9% and to a lesser degree an
increase of 26 basis points in the average yield over the same period last year.
Interest expense on deposits increased $13.0 million or 19.4% for the nine
months ended September 30, 2000, compared to the same period of 1999, as average
interest bearing deposits rose 5.5% over this period. The average balances in
time deposits and interest bearing demand deposits increased by $137.9 million
and $25.7 million, respectively, while the average balance in savings deposits
decreased by $30.5 million. The average balance in non-interest bearing demand
deposits increased by $42.7 million. Interest expense on short-term borrowings
<PAGE>
increased $4.7 million for these same periods due to a $66.0 million increase
in average short-term borrowings and a 115 basis point increase in the rate paid
on these borrowings. Additionally, interest expense on long-term debt increased
$2.9 million from September 30, 1999 due to a $61.4 million increase in average
long-term debt, which was partially offset by a decline in the rate paid of 26
basis points.
The provision for loan losses charged to operations is a direct result of
management's analysis of the adequacy of the allowance for loan losses which
takes into consideration factors, including qualitative factors, relevant to the
collectibility of the existing portfolio. The provision for loan losses
increased 24.1% to $8.3 million for the first nine months of 2000, as compared
to $6.7 million for the first nine months of 1999. The increase reflects the
Corporation's continued strong loan growth. The allowance for loan losses as
a percentage of total loans was 1.33% at September 30, 2000 and 1999.
Non-interest income increased 14.3% from $35.0 million during the first
nine months of 1999 to $40.0 million during the first nine months of 2000.
Insurance commissions and fees, service charges and trust income increased $7.5
million or 29.3% over the first nine months of 1999. These higher levels of fee
income are attributable to growth in insurance, increases in deposits and the
Corporation's continued expansion into annuity and mutual fund sales and trust
services. This increase was offset by decreases of $1.1 million in gains on the
sale of securities and $563,000 in gains on the sale of loans during the
comparable nine month periods. Additionally, the Corporation recognized a
$603,000 gain on the sale of a branch during the nine months ended September 30,
1999.
Total non-interest expenses increased 5.9% from $96.8 million during the
first nine months of 1999 to $102.5 million during the first nine months of
2000. The increase was primarily attributable to an increase of $5.1 million
in salaries and employee benefits. This increase was due to both normal annual
salary adjustments and business expansion, as further discussed within the
"Mergers and Acquisitions" section of this report. In addition, salaries and
benefits have increased as the Corporation supports the expansion into fee based
services and insurance. Additionally, net occupancy and equipment has increased
$1.5 million during this same period, resulting from several purchase
transactions that the Corporation completed after September 30, 1999. Included
in non-interest expenses during the first nine months of 1999 was $1.3 million
in merger related costs. These expenses were primarily data processing
termination, conversion costs and change in control provisions associated with
various mergers.
The Corporation's income tax expense was $14.7 million for the first nine
months of 2000 compared to $12.6 million for the same period of 1999. The
effective tax rate of 31.8% for the nine months ended September 30, 2000 was
lower than the 35.0% federal statutory tax rate due to the tax benefits
resulting from tax-exempt instruments and excludable dividend income.
THIRD QUARTER OF 2000 AS COMPARED TO THIRD QUARTER OF 1999
During the third quarter of 2000, net interest income increased $1.3
million or 3.4% over the third quarter of 1999. Total interest income increased
$10.5 million or 16.4%, primarily the result of an increase in loan volume and
to a lesser extent an increase in the yield on average earning assets from 8.09%
to 8.46%. Total interest expense increased $9.3 million or 34.7% during the
third quarter of 2000, compared to the third quarter of 1999, due to increases
in the average balances of deposits and borrowings .
The provision for loan losses totaled $2.4 million for the third quarter
of 2000, as compared to $2.1 million for the third quarter of 1999.
<PAGE>
Non-interest income increased 19.3% during the third quarter of 2000
compared to the same period of 1999, primarily due to a $2.9 million or 32.8%
increase in fee based income and insurance. Total non-interest expenses
increased 7.1% during the third quarter of 2000, compared to the third quarter
of 1999, mainly due to an increase of $1.5 million in salaries and employee
benefits, associated with business acquisitions and additional support needed
for the Corporation's expansion into fee based services and insurance.
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 source of liquidity
provided by the available for sale securities portfolio, the Corporation has
sufficient sources of funds available as needed to meet its routine, operational
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 $33.0 million was unused at September 30,
2000. 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
funding sources.
The financial performance of the Corporation is at risk from interest rate
fluctuations. This interest rate risk arises due to differences between the
amount of interest-earning assets and interest-bearing liabilities subject to
repricing over a period of time, the difference between the change in various
interest rates and the embedded options in certain financial instruments. The
Board of Directors has established an Asset/Liability Policy in order to achieve
and maintain earnings performance consistent with long-term goals while
maintaining acceptable levels of interest rate risk, a "well-capitalized"
balance sheet and adequate levels of liquidity. This policy designates the
Asset/Liability Committee (ALCO) as the body responsible for meeting this
objective. The Corporation utilizes an asset/liability model to support its
balance sheet strategies. The Corporation uses gap analysis, net interest
income simulations and the economic value of equity to measure its interest rate
risk.
The gap analysis which follows measures the interest rate risk of the
Corporation by comparing the difference between the amount of interest-earning
assets and interest-bearing liabilities subject to repricing over a period of
time. The cumulative one-year gap ratio was .86 at September 30, 2000, as
compared to .96 at September 30, 1999. A ratio of less than one indicates an
excess of repricing liabilities over repricing assets. Based on the cumulative
one-year gap and assuming no change in asset/liability composition, an increase
in interest rates is expected to result in a reduction in net interest income
over the next twelve months.
Net interest income simulations measure the exposure to short-term earnings
from changes in market rates of interest in a more rigorous and explicit
fashion. The Corporation's current financial position is combined with
assumptions regarding future business to calculate net interest income under
varying hypothetical interest rate scenarios. An immediate 100 basis point
increase in interest rates as of September 30, 2000 is estimated to reduce net
interest income by 1.7% or $2.6 million over the next twelve month period.
Comparatively, a 100 basis point increase in interest rates as of September 30,
1999 was estimated to have a minimal impact on net interest income during the
twelve month period following September 30, 1999.
<PAGE>
Following is the gap analysis as of September 30, 2000 (in thousands):
Within 4-12 1-5 Over
3 Months Months Years 5 years Total
-------- --------- ---------- --------- -----------
INTEREST EARNING ASSETS
Interest bearing
deposits with banks $ 3,386 $ 90 $ 3,476
Federal funds sold 25,674 25,674
Securities:
Available for sale 30,775 $ 70,431 273,980 $ 37,097 412,283
Held to maturity 3,042 6,730 26,055 29,428 65,255
Loans, net of unearned 731,842 583,631 1,419,554 252,944 2,987,971
-------- --------- ---------- ---------- ----------
794,719 660,792 1,719,679 319,469 3,494,659
Other assets 363,686 363,686
-------- --------- ---------- ---------- ----------
$794,719 $ 660,792 $1,719,679 $ 683,155 $3,858,345
======== ========= ========== ========== ==========
INTEREST BEARING LIABILITIES
Deposits:
Interest checking $198,151 $ 274,779 $ 472,930
Savings 184,578 621,992 806,570
Time deposits 270,231 $ 656,299 $ 411,267 1,337,797
Short-term borrowings 247,512 60,141 307,653
Long-term debt 63,082 16,431 39,640 2,848 122,001
-------- --------- ---------- ---------- ----------
963,554 732,871 450,907 899,619 3,046,951
Other liabilities 497,712 497,712
Stockholders' equity 313,682 313,682
-------- --------- ---------- ---------- ----------
$963,554 $ 732,871 $ 450,907 $1,711,013 $3,858,345
======== ========= ========== ========== ==========
PERIOD GAP $(168,835) $ (72,079) $1,268,772 $(1,027,858)
========= ========= ========== ===========
CUMULATIVE GAP $(168,835) $(240,914) $1,027,858
========= ========= ==========
CUMULATIVE GAP AS A PERCENT
OF TOTAL ASSETS (4.38)% (6.24)% 26.64%
======= ======= ======
RATE SENSITIVE ASSETS/RATE
SENSITIVE LIABILITIES
(CUMULATIVE) .82 .86 1.48 1.15
=== === ==== ====
The preceding measures indicate that the Corporation's earnings are
susceptible to an increase in interest rates. In general, the increased
susceptibility to rising interest rates can be attributed to a greater
proportion of rate-sensitive liabilities on the balance sheet at September 30,
2000. However, the disclosed measures are within the limits set forth in the
Corporation's Asset/Liability Policy. Furthermore, the computations do not
contemplate any actions the ALCO could undertake to mitigate an increase in
interest rates. The measurements assumed no change in asset/liability
composition.
The computation of the prospective effects of hypothetical interest rate
changes are based on numerous assumptions including asset/liability prepayments
and the relative price sensitivity of certain assets and liabilities. The
analysis assumed that certain core non-maturity deposit rates had a low
correlation to changes in market rates of interest.
<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 adequacy is further
discussed in the "Regulatory Matters" section of this report.
Capital management is a continuous process. Since December 31, 1999,
stockholders' equity has increased $19.5 million as a result of earnings
retention. For the nine months ended September 30, 2000, the return on average
equity was 14.1% and the dividend payout ratio was 37.5%. Book value per common
share was $13.92 at September 30, 2000, compared to $12.90 at September 30,
1999.
LOANS
Following is a summary of loans (dollars in thousands):
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
Real estate:
Residential $1,102,549 $1,059,432
Commercial 796,980 747,835
Construction 182,360 119,398
Installment loans to individuals 341,380 334,810
Commercial, financial and agricultural 383,849 350,023
Lease financing 222,467 254,252
Unearned income (67,856) (61,976)
---------- ----------
$2,961,729 $2,803,774
========== ==========
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.
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.
<PAGE>
Following is a summary of non-performing assets (dollars in thousands):
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
Non-performing assets:
Non-accrual loans $ 8,296 $ 9,321
Restructured loans 2,805 3,560
------- -------
Total non-performing loans 11,101 12,881
Other real estate owned 4,553 4,801
------- -------
Total non-performing assets $15,654 $17,682
======= =======
Asset quality ratios:
Non-performing loans as percent of total loans .37% .46%
Non-performing assets as percent of total assets .41% .48%
ALLOWANCE FOR LOAN LOSSES
Management's analysis of the allowance for loan losses includes the
evaluation of the loan portfolio based on internally generated loan review
reports and the historical loss experience of the remaining balances of the
various homogeneous loan pools which comprise the loan portfolio. Specific
factors which are evaluated include the previous loan loss experience with the
customer, the status of past due interest and principal payments on the loan,
the collateral position of the loan, the quality of financial information
supplied by the borrower and the general financial condition of the borrower.
Historical loss experience on the remaining portfolio segments is considered in
conjunction with the current status of economic conditions, loan loss trends,
delinquency and non-accrual trends, credit administration and concentrations of
credit risk.
Following is a summary of changes in the allowance for loan losses and
selected ratios (dollars in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
Balance at beginning of period $ 38,618 $ 34,429 $ 36,311 $ 32,308
Addition arising from purchase
transaction 767 767
Charge-offs (3,036) (2,868) (7,465) (6,133)
Recoveries 471 325 1,333 1,120
-------- -------- -------- --------
Net charge-offs (2,565) (2,543) (6,132) (5,013)
Provision for loan losses 2,439 2,105 8,313 6,696
-------- -------- -------- --------
Balance at end of period $ 39,259 $ 33,991 $ 39,259 $ 33,991
======== ======== ======== ========
Allowance for loan losses to:
Total loans, net of unearned income 1.33% 1.34%
Non-performing loans 353.65% 273.03%
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).
<PAGE>
As of June 30, 2000, the Corporation and each of its banking subsidiaries
have been categorized as "well capitalized" under the regulatory framework for
prompt corrective action. Management believes, as of September 30, 2000, that
the Corporation and each of its banking subsidiaries are all "well capitalized".
Following are capital ratios as of September 30, 2000 for the Corporation
(dollars in thousands):
Well Capitalized Minimum Capital
Actual Requirements Requirements
---------------- ---------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
Total Capital $329,403 11.2% $293,121 10.0% $234,497 8.0%
(to risk-weighted
assets)
Tier 1 Capital 289,621 9.9% 175,873 6.0% 117,248 4.0%
(to risk-weighted
assets)
Tier 1 Capital 289,621 7.6% 191,148 5.0% 152,919 4.0%
(to average assets)
The Corporation and its banking subsidiaries are subject to various
regulatory capital requirements administered by federal and state banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory, and discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Corporation's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Corporation and its banking subsidiaries must meet specific capital
guidelines that involve quantitative measures of assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices.
The Corporation's and banking subsidiaries' capital amounts and classifications
are also subject to qualitative judgments by the regulators about components,
risk weightings and other factors.
YEAR 2000 DISCLOSURE
The Corporation successfully managed the transition into the Year 2000, and
management has a high level of confidence that the core business processes will
continue to provide uninterrupted service into the twenty-first century. Should
the worldwide experience continue, management does not expect any disruptions
to services provided or delivered. Management will continue to monitor all
business processes, including interaction with the Corporation's customers,
vendors and other third parties, throughout 2000 to address any issues and
ensure all processes continue to function properly.
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.
<PAGE>
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
The Secretary of the Corporation must receive written notice of any
proposal submitted by a shareholder of the Corporation for consideration
at the Annual Meeting of Shareholders 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 13, 2000 to be considered at the 2001 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
No reports on Form 8-K were filed during the quarter ended September 30,
2000.
<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: November 14, 2000 /s/Peter Mortensen
_________________________ __________________________________________
Peter Mortensen
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: November 14, 2000 /s/John D. Waters
_________________________ __________________________________________
John D. Waters
Vice President and Chief Financial Officer
(Principal Financial Officer)
