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, 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
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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 of Identification No.)
incorporation or organization)
One F.N.B. Boulevard, Hermitage, PA 16148
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(Address of principal executive offices) (Zip Code)
(724) 981-6000
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(Registrant's telephone number, including area code)
Not applicable
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(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, 2000
----- -----------------------------
Common Stock, $2 Par Value 21,890,590 Shares
- -------------------------- -----------------
<PAGE>
F.N.B. CORPORATION
FORM 10-Q
March 31, 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 8
Item 3. Quantitative and Qualitative Disclosure of Market Risk 16
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,
2000 1999
---------- ------------
ASSETS
Cash and due from banks $ 134,931 $ 171,183
Interest bearing deposits with banks 3,145 3,478
Federal funds sold 16,347 7,467
Mortgage loans held for sale 5,579 8,733
Securities available for sale 393,782 408,731
Securities held to maturity (fair
value of $72,235 and $75,905) 73,869 77,359
Loans, net of unearned income of
$53,383 and $61,976 2,907,382 2,803,774
Allowance for loan losses (37,749) (36,311)
---------- ----------
NET LOANS 2,869,633 2,767,463
---------- ----------
Premises and equipment 105,818 105,052
Other assets 159,221 156,718
---------- ----------
$3,762,325 $3,706,184
========== ==========
LIABILITIES
Deposits:
Non-interest bearing $ 465,484 $ 424,352
Interest bearing 2,578,808 2,485,082
---------- ----------
TOTAL DEPOSITS 3,044,292 2,909,434
Other liabilities 58,101 56,604
Short-term borrowings 274,812 332,197
Long-term debt 92,381 117,634
---------- ----------
TOTAL LIABILITIES 3,469,586 3,415,869
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock - $10 par value
Authorized - 20,000,000 shares
Issued - 189,086 and 207,459 shares
Aggregate liquidation value -
$4,727 and $5,186 1,891 2,075
Common stock - $2 par value
Authorized - 100,000,000 shares
Issued - 21,049,193 and 21,005,720 shares 42,098 42,011
Additional paid-in capital 182,931 182,834
Retained earnings 76,317 71,310
Accumulated other comprehensive income (6,115) (4,803)
Treasury stock - 194,371 and 121,132
shares at cost (4,383) (3,112)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 292,739 290,315
---------- ----------
$3,762,325 $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
MARCH 31,
------------------
2000 1999
------- -------
INTEREST INCOME
Loans, including fees $61,749 $52,508
Securities:
Taxable 6,357 7,074
Nontaxable 487 612
Dividends 391 407
Other 170 661
------- -------
TOTAL INTEREST INCOME 69,154 61,262
------- -------
INTEREST EXPENSE
Deposits 24,827 22,824
Short-term borrowings 3,693 1,724
Long-term debt 1,765 1,067
------- -------
TOTAL INTEREST EXPENSE 30,285 25,615
------- -------
NET INTEREST INCOME 38,869 35,647
Provision for loan losses 2,973 2,051
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 35,896 33,596
------- -------
NON-INTEREST INCOME
Insurance commissions and fees 3,932 2,827
Service charges 5,559 4,352
Trust 1,070 850
Gain on sale of securities 40 800
Gain on sale of loans 221 833
Other 1,888 1,603
------- -------
TOTAL NON-INTEREST INCOME 12,710 11,265
------- -------
48,606 44,861
------- -------
NON-INTEREST EXPENSES
Salaries and employee benefits 19,522 17,344
Net occupancy 2,287 2,233
Equipment 3,061 2,614
Merger related 1,333
Other 8,931 8,818
------- -------
TOTAL NON-INTEREST EXPENSES 33,801 32,342
------- -------
INCOME BEFORE INCOME TAXES 14,805 12,519
Income taxes 4,696 3,678
------- -------
NET INCOME $10,109 $ 8,841
======= =======
NET INCOME PER COMMON SHARE:*
Basic $.46 $.40
==== ====
Diluted $.45 $.39
==== ====
CASH DIVIDENDS PER COMMON SHARE* $.17 $.16
==== ====
*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
Three Months Ended March 31 2000 1999
-------- --------
OPERATING ACTIVITIES
Net income $ 10,109 $ 8,841
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,051 2,656
Provision for loan losses 2,973 2,051
Deferred taxes 2,063 4,680
Net gain on sale of securities (40) (800)
Net gain on sale of loans (221) (833)
Proceeds from sale of loans 11,882 22,327
Loans originated for sale (8,507) (14,880)
Net change in:
Interest receivable (328) (611)
Interest payable 1,174 1,942
Other, net (3,710) (1,777)
-------- --------
Net cash flows from operating activities 18,446 23,596
-------- --------
INVESTING ACTIVITIES
Net change in:
Interest bearing deposits with banks 333 1,443
Federal funds sold (8,880) 13,698
Loans (105,152) (87,281)
Securities available for sale:
Purchases (23,350) (47,425)
Sales 12,561 1,167
Maturities 23,884 55,310
Securities held to maturity:
Purchases (250) (1,021)
Maturities 3,739 13,186
Increase in premises and equipment (3,431) (5,029)
-------- --------
Net cash flows from investing activities (100,546) (55,952)
-------- --------
FINANCING ACTIVITIES
Net change in:
Non-interest bearing deposits, savings and NOW 54,643 13,969
Time deposits 80,215 (4,033)
Short-term borrowings (57,385) 25,944
Increase in long-term debt 5,733 1,324
Decrease in long-term debt (30,986) (18,265)
Net acquisition of treasury stock (2,528) (460)
Cash dividends paid (3,844) (3,378)
-------- --------
Net cash flows from financing activities 45,848 15,101
-------- --------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (36,252) (17,255)
Cash and due from banks at beginning of period 171,183 134,847
-------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD $134,931 $117,592
======== ========
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 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
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.
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.
<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,
2000 1999
BASIC
Net income $ 10,109 $ 8,841
Less: Preferred stock dividends declared (93) (108)
---------- ----------
Earnings applicable to basic earnings per share $ 10,016 $ 8,733
========== ==========
Average common shares outstanding 21,892,855 21,845,679
========== ==========
Earnings per share $.46 $.40
==== ====
Three Months Ended
March 31,
----------------------
2000 1999
---------- ----------
DILUTED
Earnings applicable to diluted earnings per share $ 10,109 $ 8,841
========== ==========
Average common shares outstanding 21,892,855 21,845,679
Series A convertible preferred stock 25,789 24,378
Series B convertible preferred stock 441,753 551,740
Net effect of dilutive stock options and stock
warrants based on the treasury stock method 356,764 501,777
---------- ----------
22,717,161 22,923,574
========== ==========
Earnings per share $.45 $.39
==== ====
COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, are as follows
(in thousands):
Three Months Ended
March 31,
-------------------
2000 1999
------- -------
Net income $10,109 $ 8,841
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding (losses) gains
arising during the period (1,287) (1,381)
Less: reclassification adjustment
for gains included in net income (25) (513)
------- -------
Other comprehensive income (1,312) (1,894)
------- -------
Comprehensive income $ 8,797 $ 6,947
======= =======
<PAGE>
CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information (in
thousands):
Three months ended March 31 2000 1999
-------- --------
Cash paid for:
Interest $ 29,111 $ 23,652
Noncash Investing and Financing Activities:
Acquisition of real estate in settlement of loans 185 2,733
Loans granted in the sale of other real estate 175 91
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 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.
At or for the three months Community Insurance All
ended March 31, 2000 Banks Agencies Other Consolidated
---------- ---------- ---------- ------------
Interest income $ 63,914 $ 13 $ 5,227 $ 69,154
Interest expense 29,136 19 1,130 30,285
Provision for loan losses 2,013 960 2,973
Non-interest income 8,452 3,284 974 12,710
Non-interest expense 28,248 2,135 2,967 33,350
Intangible amortization 440 11 451
Income tax expense 3,873 473 350 4,696
Net income 8,656 670 783 10,109
Core operating earnings 8,656 670 783 10,109
Total assets 3,696,335 8,129 57,861 3,762,325
At or for the three months Community Insurance All
ended March 31, 1999 Banks Agencies Other Consolidated
--------- ---------- --------- ------------
Interest income $ 56,981 $ 8 $ 4,273 $ 61,262
Interest expense 24,753 21 841 25,615
Provision for loan losses 1,406 645 2,051
Non-interest income 8,009 1,908 1,348 11,265
Non-interest expense 27,559 1,243 3,060 31,862
Intangible amortization 464 16 480
Income tax expense 3,373 305 3,678
Net income 7,435 652 754 8,841
Core operating earnings 8,254 652 754 9,660
Total assets 3,342,579 4,314 85,580 3,432,473
* Core operating earnings exclude merger related costs of $819,000, net of
tax, for the quarter ended March 31, 1999.
<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 quarter of 2000 increased to $10.1 million
from $8.8 million for the first quarter of 1999. Basic earnings per share
were $.46 and $.40 for the three months ended March 31, 2000 and 1999,
respectively, while diluted earnings per share were $.45 and $.39 for those
same periods. Core operating earnings consist of net income adjusted for
non-recurring items. Non-recurring costs incurred during the first quarter
of 1999 included $819,000 in merger related costs, net of tax. Excluding
these merger costs, net income was $9.7 million for the first quarter of
1999, resulting in diluted earnings per share of $.42. There were no non-
recurring items during the first quarter of 2000. Highlights for the first
quarter of 2000 include:
* A return on average assets of 1.10% and a return on average equity of
13.98%.
* An increase in non-interest income of $1.4 million, including a 31.54%
increase in fee income, which consists of service charges, insurance
commissions and trust income.
* A 15.86% increase in average outstanding loans.
* Continued strong asset quality.
<PAGE>
FIRST THREE MONTHS OF 2000 AS COMPARED TO FIRST THREE 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):
<TABLE>
<CAPTION>
Three Months Ended March 31 2000 1999
--------------------------- ----------------------------
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 $ 3,307 $ 49 5.93% $ 5,014 $ 59 4.71%
Federal funds sold 8,507 121 5.69 50,457 602 4.77
Securities:
Taxable 405,442 6,357 6.31 467,743 7,074 6.13
Non-taxable (1) 70,394 1,133 6.44 85,518 1,331 6.23
Loans (1) (2) 2,866,645 62,024 8.70 2,474,315 52,735 8.64
---------- -------- ---------- --------
Total interest
earning assets 3,354,295 69,684 8.35 3,083,047 61,801 8.13
---------- -------- ---------- --------
Cash and due from banks 123,382 107,938
Allowance for loan losses (37,102) (32,823)
Premises and equipment 105,978 96,646
Other assets 154,175 141,128
---------- ----------
$3,700,728 $3,395,936
========== ==========
LIABILITIES
Interest bearing liabilities:
Deposits:
Interest bearing demand $ 493,177 $ 2,540 2.07 $ 500,311 $ 2,014 1.63
Savings 768,338 5,436 2.85 761,177 5,569 2.97
Other time 1,269,136 16,851 5.34 1,185,173 15,241 5.22
Short-term borrowings 284,368 3,693 5.22 165,130 1,724 4.23
Long-term debt 110,925 1,765 6.36 61,329 1,067 6.96
Total interest
bearing liabilities 2,925,944 30,285 4.16 2,673,120 25,615 3.88
---------- -------- ---------- --------
Non-interest bearing
demand deposits 425,562 386,208
Other liabilities 58,368 52,839
---------- ----------
3,409,874 3,112,167
---------- ----------
STOCKHOLDERS' EQUITY 290,854 283,769
---------- ----------
$3,700,728 $3,395,936
========== ==========
Net interest earning assets $ 428,351 $ 409,927
========== ==========
Net interest income $ 39,399 $ 36,186
======== ========
Net interest spread 4.19% 4.25%
===== =====
Net interest margin (3) 4.72% 4.76%
===== =====
</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 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 quarter of 2000, net interest income, on a fully
taxable equivalent basis, totaled $39.4 million, representing a 8.88% increase
over the first quarter of 1999. Net interest income consisted of interest
income of $69.7 million and interest expense of $30.3 million for the first
quarter of 2000 compared to $61.8 million and $25.6 million for each,
respectively, for the first quarter of 1999. Net interest margin decreased
slightly from 4.76% at March 31, 1999 to 4.72% at March 31, 2000. The yield on
total interest earning assets increased by 22 basis points and the rate paid on
interest bearing liabilities increased by 28 basis points. With a higher
interest rate environment during the latter part of 1999 and into the first
quarter of 2000, the Corporation has experienced some margin compression. In
the event that interest rates continue to increase, 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 March 31,
2000 as compared to the quarter ending March 31, 1999 (in thousands):
Volume Rate Net
-------- ------- ---------
INTEREST INCOME
Interest bearing deposits with banks $ (42) $ 32 $ (10)
Federal funds sold (626) 145 (481)
Securities:
Taxable (920) 203 (717)
Non-taxable (245) 47 (198)
Loans 8,899 390 9,289
------- ------- -------
7,066 817 7,883
------- ------- -------
INTEREST EXPENSE
Deposits:
Interest bearing dema (29) 555 526
Savings 40 (173) (133)
Other time 1,216 394 1,610
Short-term borrowings 1,487 482 1,969
Long-term debt 781 (83) 698
------- ------- -------
3,495 1,175 4,670
------- ------- -------
NET CHANGE $ 3,571 $ (358) $ 3,213
======= ======= =======
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
17.61% from $52.7 million for the quarter ended March 31, 1999 to $62.0 million
for the quarter ended March 31, 2000. This increase was the result of an
increase in average loans of 15.86% and to a lesser degree an increase of 6
basis points in the average yield over the same period last year.
Interest expense on deposits increased $2.0 million or 8.78% for the
quarter ended March 31, 2000, compared to the quarter ended March 31, 1999,
average interest bearing deposits rose 3.43% over the same period. The
average balances in time deposits and savings deposits increased by $84.0
million and $7.2 million, respectively, while the average balance in interest
bearing demand deposits decreased by $7.1 million. The average balance in
non-interest bearing demand deposits increased by $39.4 million.
<PAGE>
Interest expense on short-term borrowings increased $2.0 million for these same
periods due to a $119.2 million increase in average short-term borrowings and a
99 basis point increase in the rate paid on these borrowings. Additionally,
interest expense on long-term debt increased $698,000 from March 31, 1999 due
to a 80.87% increase in average long-term debt, which was partially offset by a
decline in the rate paid of 60 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 45.0% to $3.0 million for the first three months of 2000, as compared
to $2.1 million for the first three months of 1999. The increase reflects the
Corporation's continued strong loan growth. At March 31, 2000 the allowance
for loan losses as a percentage of total loans was 1.30% compared to 1.31% at
March 31, 1999.
Non-interest income increased by 12.83% during the first three months of
2000 as compared to the first three months of 1999. Service charges, insurance
commissions and fees and trust income increased $2.5 million or 31.54% over the
first three months of 2000. These higher levels of fee income are attributable
to increases in deposits as well as the Corporation's continued expansion into
annuity and mutual fund sales and insurance. Gains on the sale of securities
decreased by $760,000 during the comparable quarterly periods.
Total non-interest expenses increased 4.51% during the first three months
of 2000, compared to the first three months of 1999. The increase was primarily
attributable to an increase of $2.2 million in salaries and employee benefits.
This increase was due to normal annual salary adjustments and continued
escalation of certain benefit costs. In addition, salaries and benefits have
increased as the Corporation supports the expansion into fee based services and
insurance. Included in non-interest expenses during the first three months of
1999 was $1.3 million in merger related costs. These expenses were primarily
data processing termination and conversion costs and change in control
provisions associated with various mergers.
The Corporation's income tax expense was $4.7 million for the first quarter
of 2000 compared to $3.7 million for the same period of 1999. The effective tax
rate of 31.72% for the first quarter of 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.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation monitors its liquidity position on an ongoing basis to
assure that it is able to meet the need for funds at all times. Given the
monetary nature of its assets and liabilities and the significant source of
liquidity provided by the available for sale securities portfolio, the
Corporation 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 $25.0 million was unused at March 31,
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.
<PAGE>
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 below 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 .90 at March 31, 2000, as compared to 1.09
at March 31, 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 March 31, 2000 is estimated to reduce net
interest income by 2.34% or $3.5 million over the next twelve month period.
Comparatively, a 100 basis point increase in interest rates as of March 31,
1999 was estimated to increase net interest income by .40% or $600,000 during
the twelve month period following March 31, 1999.
The economic value of equity (EVE) measures the Corporation's long-term
earnings exposure from changes in market rates of interest. EVE is defined as
the present value of assets minus the present value of liabilities at a point
in time. A decrease in EVE due to a specified interest rate change indicates
a decline in the long-term earnings capacity of the balance sheet assuming
that the interest rate change remains in effect over the life of the balance
sheet. A 100 basis point increase in interest rates is estimated to cause a
2.24% decline in EVE.
These 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 March 31, 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 in response to an increase in interest
rates such as the promotion of core non-maturity deposits or longer-term
certificates of deposit and the purchase of adjustable-rate investment
securities. Thus 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. For economic value
purposes, core non-maturity deposits were decayed over a period of five
to eight years and were discounted using short-term market interest rates to
reflect the economic value they add relative to more costly alternate sources
of funds.
<PAGE>
Following is the gap analysis as of March 31, 2000 (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 $ 2,956 $ 100 $ 89 $ 3,145
Federal funds sold 16,347 16,347
Securities:
Available for sale 43,714 99,872 233,035 $ 17,161 393,782
Held to maturity 6,540 10,022 29,101 28,206 73,869
Loans, net of unearned 691,084 594,362 1,374,059 253,456 2,912,961
--------- --------- ---------- ---------- ----------
760,641 704,356 1,636,284 298,823 3,400,104
Other assets 362,221 362,221
--------- --------- ---------- ---------- ----------
$ 760,641 $ 704,356 $1,636,284 $ 661,044 $3,762,325
========= ========= ========== ========== ==========
INTEREST BEARING LIABILITIES
Deposits:
Interest checking $ 155,891 $ 362,866 $ 518,757
Savings 258,246 512,118 770,364
Time deposits 279,308 $ 643,499 $ 365,896 984 1,289,687
Short-term borrowings 258,996 15,816 274,812
Long-term debt 10,474 11,323 61,939 8,645 92,381
--------- --------- ---------- ---------- ----------
962,915 670,638 427,835 884,613 2,946,001
Other liabilities 523,585 523,585
Stockholders' equity 292,739 292,739
--------- --------- ---------- ---------- ----------
$ 962,915 $ 670,638 $ 427,835 $1,700,937 $3,762,325
========= ========= ========== ========== ==========
PERIOD GAP $(202,274) $ 33,718 $1,208,449 $(1,039,893)
========= ========= ========== ===========
CUMULATIVE GAP $(202,274) $(168,556) $1,039,893
========= ========= ==========
CUMULATIVE GAP AS A PERCENT
OF TOTAL ASSETS (5.38)% (4.48)% 27.64%
====== ====== =====
RATE SENSITIVE ASSETS/RATE
SENSITIVE LIABILITIES
(CUMULATIVE) .79 .90 1.50 1.15
=== === ==== ====
</TABLE>
CAPITAL RESOURCES
The assessment of capital adequacy depends on a number of factors such as
asset quality, liquidity, earnings performance, changing competitive conditions
and economic forces. The Corporation seeks to maintain a strong capital base
to support its growth and expansion activities, to provide stability to current
operations and to promote public confidence.
Capital management is a continuous process. Since December 31, 1999,
stockholders' equity has increased $6.3 million as a result of earnings
retention. For the quarter ended March 31, 2000, the return on average equity
was 13.98% and the dividend payout ratio was 37.45%. Book value per common
share was $13.15 at March 31, 2000, compared to $12.75 at March 31, 1999.
<PAGE>
LOANS
Following is a summary of loans (dollars in thousands):
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
Real estate:
Residential $1,081,176 $1,059,432
Commercial 766,165 747,835
Construction 154,134 119,398
Installment loans to individuals 328,089 334,810
Commercial, financial and agricultural 377,355 350,023
Lease financing 253,846 254,252
Unearned income (53,383) (61,976)
---------- ----------
$2,907,382 $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.
Following is a summary of non-performing assets (dollars in thousands):
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
Non-performing assets:
Non-accrual loans $10,086 $ 9,321
Restructured loans 3,435 3,560
------- -------
Total non-performing loans 13,521 12,881
Other real estate owned 4,540 4,801
------- -------
Total non-performing assets $18,061 $17,682
======= =======
Asset quality ratios:
Non-performing loans as percent of total loans .47% .46%
Non-performing assets as percent of total assets .48% .48%
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>
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
March 31,
------------------
2000 1999
------- -------
Balance at beginning of period $36,311 $32,308
Charge-offs (1,958) (1,965)
Recoveries 423 315
------- -------
Net charge-offs (1,535) (1,650)
Provision for loan losses 2,973 2,051
------- -------
Balance at end of period $37,749 $32,709
======= =======
Allowance for loan losses to:
Total loans, net of unearned income 1.30% 1.31%
Non-performing loans 279.27% 300.91%
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).
As of December 31, 1999, 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 March 31,
2000, that the Corporation and each of its banking subsidiaries are all
"well capitalized". Following are capital ratios as of March 31, 2000 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 $322,430 11.3% $284,927 10.0% $227,942 8.0%
(to risk-weighted assets)
Tier 1 Capital 281,678 9.9% 170,956 6.0% 113,971 4.0%
(to risk-weighted assets)
Tier 1 Capital 281,678 7.6% 184,478 5.0% 147,582 4.0%
(to average assets)
</TABLE>
<PAGE>
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 March 31,
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: May 11, 2000 /s/Peter Mortensen
_______________________ ______________________________________
Peter Mortensen
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: May 11, 2000 /s/John D. Waters
_______________________ ______________________________________
John D. Waters
Vice President and Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 134,931
<INT-BEARING-DEPOSITS> 3,145
<FED-FUNDS-SOLD> 16,347
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 393,782
<INVESTMENTS-CARRYING> 73,869
<INVESTMENTS-MARKET> 72,325
<LOANS> 2,907,382
<ALLOWANCE> 37,749
<TOTAL-ASSETS> 3,762,325
<DEPOSITS> 3,044,292
<SHORT-TERM> 274,812
<LIABILITIES-OTHER> 58,101
<LONG-TERM> 92,381
0
1,891
<COMMON> 42,098
<OTHER-SE> 248,750
<TOTAL-LIABILITIES-AND-EQUITY> 2,762,325
<INTEREST-LOAN> 61,749
<INTEREST-INVEST> 7,235
<INTEREST-OTHER> 170
<INTEREST-TOTAL> 69,154
<INTEREST-DEPOSIT> 24,827
<INTEREST-EXPENSE> 30,285
<INTEREST-INCOME-NET> 38,869
<LOAN-LOSSES> 2,973
<SECURITIES-GAINS> 40
<EXPENSE-OTHER> 33,801
<INCOME-PRETAX> 14,805
<INCOME-PRE-EXTRAORDINARY> 10,109
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,109
<EPS-BASIC> .46
<EPS-DILUTED> .45
<YIELD-ACTUAL> 4.72
<LOANS-NON> 10,086
<LOANS-PAST> 5,170
<LOANS-TROUBLED> 3,435
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 36,311
<CHARGE-OFFS> 1,958
<RECOVERIES> 423
<ALLOWANCE-CLOSE> 37,749
<ALLOWANCE-DOMESTIC> 37,749
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
