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 June 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
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(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
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(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 July 31, 2000
------------------------------ ----------------------------
Common Stock, $2 Par Value 22,120,135 Shares
-------------------------- -----------------
<PAGE>
F.N.B. CORPORATION
FORM 10-Q
June 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
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
ASSETS
Cash and due from banks $ 137,675 $ 171,183
Interest bearing deposits with banks 3,275 3,478
Federal funds sold 12,553 7,467
Mortgage loans held for sale 4,274 8,733
Securities available for sale 397,102 408,731
Securities held to maturity (fair
value of $70,347 and $75,905) 71,821 77,359
Loans, net of unearned income of
$58,570 and $61,976 2,982,874 2,803,774
Allowance for loan losses (38,618) (36,311)
---------- ----------
NET LOANS 2,944,256 2,767,463
---------- ----------
Premises and equipment 107,885 105,052
Other assets 165,435 156,718
---------- ----------
$3,844,276 $3,706,184
========== ==========
LIABILITIES
Deposits:
Non-interest bearing $ 456,870 $ 424,352
Interest bearing 2,584,317 2,485,082
---------- ----------
TOTAL DEPOSITS 3,041,187 2,909,434
Other liabilities 59,817 56,604
Short-term borrowings 315,152 332,197
Long-term debt 124,868 117,634
---------- ----------
TOTAL LIABILITIES 3,541,024 3,415,869
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock - $10 par value
Authorized - 20,000,000 shares
Issued - 182,617 and 207,459 shares
Aggregate liquidation value - $4,565 and $5,186 1,826 2,075
Common stock - $2 par value
Authorized - 100,000,000 shares
Issued - 22,327,118 and 21,005,720 shares 44,654 42,011
Additional paid-in capital 203,808 182,834
Retained earnings 62,251 71,310
Accumulated other comprehensive income (5,430) (4,803)
Treasury stock - 183,168 and 121,132 shares at cost (3,857) (3,112)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 303,252 290,315
---------- ----------
$3,844,276 $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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2000 1999 2000 1999
------- ------- -------- --------
INTEREST INCOME
Loans, including fees $64,223 $54,073 $125,972 $106,581
Securities:
Taxable 6,285 7,029 12,642 14,103
Nontaxable 481 597 968 1,209
Dividends 441 342 832 749
Other 127 381 297 1,042
------- ------- -------- --------
TOTAL INTEREST INCOME 71,557 62,422 140,711 123,684
------- ------- -------- --------
INTEREST EXPENSE
Deposits 26,270 22,337 51,097 45,161
Short-term borrowings 4,067 2,311 7,760 4,035
Long-term debt 1,904 900 3,669 1,967
------- ------- -------- --------
TOTAL INTEREST EXPENSE 32,241 25,548 62,526 51,163
------- ------- -------- --------
NET INTEREST INCOME 39,316 36,874 78,185 72,521
Provision for loan losses 2,901 2,540 5,874 4,591
------- ------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 36,415 34,334 72,311 67,930
------- ------- -------- --------
NON-INTEREST INCOME
Insurance commissions and fees 4,045 2,551 8,349 5,378
Service charges 5,506 5,133 10,693 9,485
Trust 1,077 911 2,147 1,761
Gain on sale of securities 38 106 78 906
Gain on sale of loans 367 602 588 1,435
Other 1,579 2,128 3,467 3,731
------- ------- -------- --------
TOTAL NON-INTEREST INCOME 12,612 11,431 25,322 22,696
------- ------- -------- --------
49,027 45,765 97,633 90,626
------- ------- -------- --------
NON-INTEREST EXPENSES
Salaries and employee benefits 18,602 17,258 38,124 34,602
Net occupancy 2,238 2,215 4,525 4,448
Equipment 3,077 2,663 6,138 5,277
Merger related 1,333
Other 9,777 9,611 18,708 18,429
------- ------- -------- --------
TOTAL NON-INTEREST EXPENSES 33,694 31,747 67,495 64,089
------- ------- -------- --------
INCOME BEFORE INCOME TAXES 15,333 14,018 30,138 26,537
Income taxes 4,914 4,222 9,610 7,900
------- ------- -------- --------
NET INCOME $10,419 $ 9,796 $ 20,528 $ 18,637
======= ======= ======== ========
NET INCOME PER COMMON SHARE:*
Basic $.47 $.44 $.93 $.84
==== ==== ==== ====
Diluted $.46 $.43 $.91 $.82
==== ==== ==== ====
CASH DIVIDENDS PER COMMON SHARE* $.18 $.17 $.35 $.33
==== ==== ==== ====
* 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
SIX MONTHS ENDED JUNE 30,
--------------------------
2000 1999
---------- ----------
OPERATING ACTIVITIES
Net income $ 20,528 $ 18,637
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,193 5,381
Provision for loan losses 5,874 4,591
Deferred taxes 2,537 4,254
Net gain on sale of securities (78) (906)
Net gain on sale of loans (588) (1,435)
Proceeds from sale of loans 14,547 39,180
Loans originated for sale (9,500) (31,088)
Net change in:
Interest receivable (1,006) (152)
Interest payable 1,199 (1,117)
Other, net (8,292) (427)
---------- ----------
Net cash flows from operating activities 31,414 36,918
---------- ----------
INVESTING ACTIVITIES
Net change in:
Interest bearing deposits with banks 203 (336)
Federal funds sold (5,086) 38,105
Loans (183,184) (149,541)
Securities available for sale:
Purchases (42,637) (122,031)
Sales 12,820 16,818
Maturities 40,638 100,699
Securities held to maturity:
Purchases (1,664) (1,021)
Maturities 7,202 25,428
Increase in premises and equipment (8,193) (8,236)
---------- ----------
Net cash flows from investing activities (179,901) (100,115)
---------- ----------
FINANCING ACTIVITIES
Net change in:
Non-interest bearing deposits, savings and NOW 29,872 4,927
Time deposits 101,881 (45,434)
Short-term borrowings (17,045) 121,547
Increase in long-term debt 40,593 2,030
Decrease in long-term debt (33,359) (21,282)
Net acquisition of treasury stock 896 (2,205)
Cash dividends paid (7,859) (7,557)
---------- ----------
Net cash flows from financing activities 114,979 52,026
---------- ----------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (33,508) (11,171)
Cash and due from banks at beginning of period 171,183 134,847
---------- ----------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 137,675 $ 123,676
========== ==========
See accompanying Notes to Consolidated Financial Statements
<PAGE>
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 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 June 9, 2000 the Corporation completed its affiliation with Connell &
Herrig Insurance. The transaction, which was accounted for as a purchase, has
been structured so that Connell & Herrig will operate as a division of the
Corporation's wholly-owned subsidiary, Roger Bouchard Insurance, Inc. On July
19, 2000 the Corporation announced its plans to purchase the Clearwater and Fort
Myers, Florida based insurance agency of Altamura, Marsh and Associates. This
transaction, which is scheduled to close during the third quarter of 2000, will
also be accounted for as a purchase and Altamura, Marsh and Associates will
operate as a division of Roger Bouchard Insurance, Inc. 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
$43.4 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 potential 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 standard will result in the
recognition of offsetting changes in value or cash flows of both the hedge and
the hedged item in earnings in the same period. The statement is effective for
the Corporation's fiscal year ending December 31, 2001. Because the Corporation
has not entered into any derivative transactions, the adoption of this statement
will have no impact on the financial statements.
<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 Six Months Ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
BASIC
Net income $ 10,419 $ 9,796 $ 20,528 $ 18,637
Less: Preferred stock
dividends declared (87) (105) (180) (212)
---------- ---------- ---------- ----------
Earnings applicable to
basic earnings per share $ 10,332 $ 9,691 $ 20,348 $ 18,425
========== ========== ========== ==========
Average common
shares outstanding 21,917,171 21,831,374 21,905,088 21,838,488
========== ========== ========== ==========
Earnings per share $.47 $.44 $.93 $.84
==== ==== ==== ====
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
DILUTED
Earnings applicable to diluted
earnings per share $ 10,419 $ 9,796 $ 20,528 $ 18,637
========== ========== ========== ==========
Average common
shares outstanding 21,917,171 21,831,374 21,905,088 21,838,488
Series A convertible
preferred stock 25,522 20,636 25,522 20,636
Series B convertible
preferred stock 412,269 534,096 427,011 542,870
Net effect of dilutive stock
options and stock warrants
based on the treasury stock
method 332,662 485,936 362,479 484,731
---------- ---------- ---------- ----------
22,687,624 22,872,042 22,720,100 22,886,725
========== ========== ========== ==========
Earnings per share $.46 $.43 $.91 $.82
==== ==== ==== ====
<PAGE>
CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information (in
thousands):
Six months ended
June 30,
---------------------
2000 1999
-------- --------
Cash paid for:
Interest $ 61,327 $ 52,280
Taxes 3,441 2,457
Noncash Investing and Financing Activities:
Acquisition of real estate in settlement of loans 769 3,287
Loans granted in the sale of other real estate 252 91
COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, are as follows (in
thousands):
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net income $ 10,419 $ 9,796 $ 20,528 $ 18,637
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding (losses)
gains arising during the
period 702 (5,004) (556) (6,373)
Less: reclassification
adjustment for gains
included in net income (17) (117) (71) (642)
-------- -------- -------- --------
Other comprehensive income 685 (5,121) (627) (7,015)
-------- -------- -------- --------
Comprehensive income $ 11,104 $ 4,675 $ 19,901 $ 11,622
======== ======== ======== ========
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.
<PAGE>
At or for the three months Community Insurance All
ended June 30, 2000 Banks Agencies Other Consolidated
---------- ---------- --------- ------------
Interest income $ 67,112 $ 20 $ 4,425 $ 71,557
Interest expense 31,527 27 687 32,241
Provision for loan losses 1,941 960 2,901
Non-interest income 9,058 2,880 674 12,612
Non-interest expense 27,958 2,203 3,060 33,221
Intangible amortization 445 17 11 473
Income tax expense 4,613 217 84 4,914
Net income 9,686 437 296 10,419
Core operating earnings 9,686 437 296 10,419
Total assets 3,720,026 12,351 111,899 3,844,276
At or for the three months Community Insurance All
ended June 30, 1999 Banks Agencies Other Consolidated
---------- --------- ------- ------------
Interest income $ 59,453 $ 15 $ 2,954 $ 62,422
Interest expense 24,862 21 665 25,548
Provision for loan losses 1,895 645 2,540
Non-interest income 7,996 1,698 1,737 11,431
Non-interest expense 26,655 1,350 3,278 31,283
Intangible amortization 459 5 464
Income tax expense 4,221 1 4,222
Net income 9,357 342 97 9,796
Core operating earnings 9,357 342 97 9,796
Total assets 3,380,214 4,215 84,561 3,468,990
At or for the six months Community Insurance All
ended June 30, 2000 Banks Agencies Other Consolidated
---------- ---------- --------- ------------
Interest income $ 131,026 $ 33 $ 9,652 $ 140,711
Interest expense 60,663 46 1,817 62,526
Provision for loan losses 3,954 1,920 5,874
Non-interest income 17,510 6,164 1,648 25,322
Non-interest expense 56,206 4,338 6,027 66,571
Intangible amortization 885 17 22 924
Income tax expense 8,486 690 434 9,610
Net income 18,342 1,107 1,079 20,528
Core operating earnings 18,342 1,107 1,079 20,528
Total assets 3,720,026 12,351 111,899 3,844,276
At or for the six months Community Insurance All
ended June 30, 1999 Banks Agencies Other Consolidated
---------- ----------- --------- ------------
Interest income $ 116,434 $ 23 $ 7,227 $ 123,684
Interest expense 49,615 42 1,506 51,163
Provision for loan losses 3,301 1,290 4,591
Non-interest income 16,005 3,606 3,085 22,696
Non-interest expense 54,214 2,593 6,338 63,145
Intangible amortization 923 21 944
Income tax expense 7,594 306 7,900
Net income 16,792 994 851 18,637
Core operating earnings 17,611 994 851 19,456
Total assets 3,380,214 4,215 84,561 3,468,990
* Core operating earnings exclude merger related costs of $819,000, net of
tax, for the six months ended June 30, 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 six months of 2000 increased to $20.5 million from
$18.6 million for the first six months of 1999. Basic earnings per share were
$.93 and $.84 for the six months ended June 30, 2000 and 1999, respectively,
while diluted earnings per share were $.91 and $.82 for those same periods.
Core operating earnings consist of net income adjusted for non-recurring items.
Non-recurring costs incurred during the first six months of 1999 included
$819,000 in merger related costs, net of tax. Excluding these merger costs, net
income was $19.5 million for the first six months of 1999, resulting in diluted
earnings per share of $.85. There were no non-recurring items during the first
six months of 2000. Highlights for the first six 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 $2.6 million, including a 27.5% or
$4.6 million increase in fee income, which consists of service charges,
insurance commissions and trust income.
* A 15.8% increase in average outstanding loans.
* Continued strong asset quality.
<PAGE>
FIRST SIX MONTHS OF 2000 AS COMPARED TO FIRST SIX 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):
Six Months Ended June 30 2000 1999
--------------------------- ---------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- -------- ------ ---------- -------- ------
ASSETS
Interest earning assets:
Interest bearing
deposits with banks $ 3,223 $ 94 5.83% $ 4,723 $ 114 4.83%
Federal funds sold 6,929 203 5.86 39,004 928 4.76
Securities:
Taxable 401,793 12,642 6.33 463,393 14,103 6.14
Non-taxable (1) 70,369 2,303 6.55 83,530 2,551 6.11
Loans (1) (2) 2,910,454 126,521 8.74 2,514,469 107,041 8.58
---------- -------- ---------- --------
Total interest
earning assets 3,392,768 141,763 8.40 3,105,119 124,737 8.10
---------- -------- ---------- --------
Cash and due from banks 121,200 108,951
Allowance for loan losses (37,839) (33,170)
Premises and equipment 106,742 97,743
Other assets 156,270 146,178
---------- ----------
$3,739,141 $3,424,821
========== ==========
LIABILITIES
Interest bearing liabilities:
Deposits:
Interest bearing
demand $ 499,737 $ 5,218 2.10 $ 467,178 $ 4,149 1.79
Savings 765,851 11,027 2.90 804,435 11,049 2.77
Other time 1,284,489 34,852 5.46 1,175,161 29,963 5.14
Short-term borrowings 285,322 7,760 5.47 187,582 4,035 4.34
Long-term debt 113,215 3,669 6.48 56,718 1,967 6.94
---------- -------- ---------- --------
Total interest
bearing liabilities 2,948,614 62,526 4.26 2,691,074 51,163 3.83
---------- -------- ---------- --------
Non-interest bearing
demand deposits 436,743 394,974
Other liabilities 60,541 53,361
---------- ----------
3,445,898 3,139,409
---------- ----------
STOCKHOLDERS' EQUITY 293,243 285,412
---------- ----------
$3,739,141 $3,424,821
========== ==========
Net interest
earning assets $ 444,154 $ 414,045
========== ==========
Net interest income $ 79,237 $ 73,574
======== ========
Net interest spread 4.14% 4.27%
===== =====
Net interest margin (3) 4.70% 4.78%
===== =====
(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 six months of 2000, net interest income, on a fully
taxable equivalent basis, totaled $79.2 million, representing a 7.7% increase
over the first six months of 1999. Net interest income consisted of interest
income of $141.8 million and interest expense of $62.5 million for the first six
months of 2000 compared to $124.7 million and $51.2 million for each,
respectively, for the first six months of 1999. Net interest margin decreased
from 4.78% at June 30, 1999 to 4.70% at June 30, 2000. The yield on total
interest earning assets increased by 30 basis points and the rate paid on
interest bearing liabilities increased by 43 basis points. With a higher
interest rate environment during the latter part of 1999 and into the first six
months of 2000, the Corporation has experienced some margin compression.
Although the Corporation has experienced some margin compression, net interest
income has risen as earning assets have increased by 9.3%. 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 June 30,
2000 as compared to the quarter ending June 30, 1999 (in thousands):
Volume Rate Net
------- ------- -------
INTEREST INCOME
Interest bearing deposits with banks $ (57) $ 37 $ (20)
Federal funds sold (1,010) 284 (726)
Securities:
Taxable (1,904) 443 (1,461)
Non-taxable (457) 209 (248)
Loans 17,418 2,063 19,481
------- ------- -------
13,990 3,036 17,026
------- ------- -------
INTEREST EXPENSE
Deposits:
Interest bearing demand 307 762 1,069
Savings (1,022) 1,000 (22)
Other time 2,929 1,960 4,889
Short-term borrowings 2,484 1,241 3,725
Long-term debt 1,826 (124) 1,702
------- ------- -------
6,524 4,839 11,363
------- ------- -------
NET CHANGE $ 7,466 $(1,803) $ 5,663
======= ======= =======
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
18.2% from $107.0 million for the six months ended June 30, 1999 to $126.5
million for the six months ended June 30, 2000. This increase was the result
of an increase in average loans of 15.8% and to a lesser degree an increase of
16 basis points in the average yield over the same period last year.
Interest expense on deposits increased $5.9 million or 13.1% for the six
months ended June 30, 2000, compared to the six months ended June 30, 1999, as
average interest bearing deposits rose 4.2% over this period. The average
balances in time deposits and interest bearing demand deposits increased by
$109.3 million and $32.6 million, respectively, while the average balance in
savings deposits decreased by $38.6 million.
<PAGE>
The average balance in non-interest bearing demand deposits increased by
$41.8 million. Interest expense on short-term borrowings increased $3.7 million
for these same periods due to a $97.7 million increase in average short-term
borrowings and a 113 basis point increase in the rate paid on these borrowings.
Additionally, interest expense on long-term debt increased $1.7 million from
June 30, 1999 due to a $56.6 million increase in average long-term debt, which
was partially offset by a decline in the rate paid of 46 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 28.0% to $5.9 million for the first six months of 2000, as compared
to $4.6 million for the first six 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 1.3% at June 30, 2000 and 1999.
Non-interest income increased 11.6% from $22.7 million during the first
six months of 1999 to $25.3 million during the first six months of 2000.
Service charges, insurance commissions and fees and trust income increased $4.6
million or 27.5% over the first six months of 1999. 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. This
increase was offset by decreases of $828,000 in gains on the sale of securities
and $847,000 in gains on the sale of loans during the comparable six month
periods.
Total non-interest expenses increased 5.3% from $64.1 million during the
first six months of 1999 to $67.5 million during the first six months of 2000.
The increase was primarily attributable to an increase of $3.5 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. Additionally, net occupancy and
equipment has increased $938,000 during this same period, resulting from several
purchase transactions that the Corporation completed after June 30, 1999.
Included in non-interest expenses during the first six 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 $9.6 million for the first six
months of 2000 compared to $7.9 million for the same period of 1999. The
effective tax rate of 31.9% for the six months ended June 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.
SECOND QUARTER OF 2000 AS COMPARED TO SECOND QUARTER OF 1999
During the second quarter of 2000, net interest income increased $2.4
million or 6.6% over the second quarter of 1999. Total interest income
increased $9.1 million or 14.6%, primarily the result of an increase in loan
volume. Total interest expense increased $6.7 million or 26.2% during the
second quarter of 2000, compared to the second quarter of 1999, due to increases
in the average balances of deposits and borrowings .
The provision for loan losses totaled $2.9 million for the second quarter
of 2000, as compared to $2.5 million for the second quarter of 1999.
<PAGE>
Non-interest income increased 10.3% during the second quarter of 2000
compared to the same period of 1999, primarily due to a $2.0 million increase in
fee based income and insurance. Total non-interest expenses increased 6.1%
during the second quarter of 2000, compared to the second quarter of 1999,
mainly due to an increase of $1.3 million in salaries and employee benefits,
associated with annual merit increases 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 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 $30.0 million was unused at June 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 .87 at June 30, 2000, as compared
to 1.05 at June 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 June 30, 2000 is estimated to reduce net
interest income by 2.1% or $3.2 million over the next twelve month period.
Comparatively, a 100 basis point increase in interest rates as of June 30, 1999
was estimated to have a minimal impact on net interest income during the
twelve month period following June 30, 1999.
<PAGE>
Following is the gap analysis as of June 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 $ 3,086 $ 100 $ 89 $ 3,275
Federal funds sold 12,553 12,553
Securities:
Available for sale 32,380 71,566 259,378 $ 33,778 397,102
Held to maturity 4,482 7,574 28,932 30,833 71,821
Loans, net of unearned 741,165 597,686 1,396,875 251,422 2,987,148
---------- ---------- ---------- ---------- ----------
793,666 676,926 1,685,274 316,033 3,471,899
Other assets 372,377 372,377
---------- ---------- ---------- ---------- ----------
$ 793,666 $ 676,926 $1,685,274 $ 688,410 $3,844,276
========== ========== ========== ========== ==========
INTEREST BEARING LIABILITIES
Deposits:
Interest checking $ 115,788 $ 386,133 $ 501,921
Savings 266,028 505,015 771,043
Time deposits 313,567 $ 606,804 $ 390,982 1,311,353
Short-term borrowings 301,668 10,038 1,187 2,259 315,152
Long-term debt 73,717 10,633 20,993 19,525 124,868
---------- ---------- ---------- ---------- ----------
1,070,768 627,475 413,162 912,932 3,024,337
Other liabilities 516,687 516,687
Stockholders' equity 303,252 303,252
---------- ---------- ---------- ---------- ----------
$1,070,768 $ 627,475 $ 413,162 $1,732,871 $3,844,276
========== ========== ========== ========== ==========
PERIOD GAP $ (277,102) $ 49,451 $1,272,112 $(1,044,461)
========== ========== ========== ===========
CUMULATIVE GAP $ (277,102) $ (227,651) $1,044,461
========== ========== ==========
CUMULATIVE GAP AS A
PERCENT OF
TOTAL ASSETS (7.21)% (5.92)% 27.16%
====== ====== =====
RATE SENSITIVE ASSETS/RATE
SENSITIVE LIABILITIES
(CUMULATIVE) .74 .87 1.49 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 June 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.
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 $12.7 million as a result of earnings
retention. For the six months ended June 30, 2000, the return on average equity
was 14.1% and the dividend payout ratio was 37.7%. Book value per common
share was $13.49 at June 30, 2000, compared to $12.79 at June 30, 1999.
LOANS
Following is a summary of loans (dollars in thousands):
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
Real estate:
Residential $1,125,190 $1,059,432
Commercial 789,361 747,835
Construction 168,246 119,398
Installment loans to individuals 332,630 334,810
Commercial, financial and agricultural 385,070 350,023
Lease financing 240,947 254,252
Unearned income (58,570) (61,976)
---------- ----------
$2,982,874 $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
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):
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
Non-performing assets:
Non-accrual loans $ 7,898 $ 9,321
Restructured loans 2,993 3,560
Total non-performing loans 10,891 12,881
Other real estate owned 5,871 4,801
-------- --------
Total non-performing assets $ 16,762 $ 17,682
======== ========
Asset quality ratios:
Non-performing loans as percent of total loans .37% .46%
Non-performing assets as percent of total assets .44% .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 Six Months Ended
June 30, June 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
Balance at beginning of period $ 37,749 $ 32,709 $ 36,311 $ 32,308
Charge-offs (2,471) (1,300) (4,429) (3,265)
Recoveries 439 480 862 795
-------- -------- -------- --------
Net charge-offs (2,032) (820) (3,567) (2,470)
Provision for loan losses 2,901 2,540 5,874 4,591
-------- -------- -------- --------
Balance at end of period $ 38,618 $ 34,429 $ 38,618 $ 34,429
======== ======== ======== ========
Allowance for loan losses to:
Total loans, net of unearned income 1.29% 1.34%
Non-performing loans 354.59% 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 March 31, 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 June 30, 2000, that the
Corporation and each of its banking subsidiaries are all "well capitalized".
Following are capital ratios as of June 30, 2000 for the Corporation (dollars in
thousands):
Well Capitalized Minimum Capital
Actual Requirements Requirements
---------------- ---------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
Total Capital $327,146 11.3% $290,544 10.0% $232,435 8.0%
(to risk-weighted
assets)
Tier 1 Capital 287,743 9.9% 174,327 6.0% 116,218 4.0%
(to risk-weighted
assets)
Tier 1 Capital 287,743 7.7% 188,150 5.0% 150,520 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
The Annual Meeting of Shareholders of F.N.B. Corporation was held on April
17, 2000. Proxies were solicited pursuant to Section 14(a) of the Securities
and Exchange Act of 1934 and there was no solicitation in opposition to the
Corporation's solicitations.
All of the Corporation's nominees for directors as listed in the proxy
statement were elected with the following vote:
Shares Voted Shares
"For" "Withhold"
------------ ----------
W. Richard Blackwood 15,674,884 245,727
William B. Campbell 15,674,104 246,507
Stephen J. Gurgovits 15,689,098 231,513
Donna C. Winner 15,555,870 364,741
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:
10.16. Employment Agreement between F.N.B. Corporation and Kevin C.
Hale (filed herewith)
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: August 11, 2000 /s/Peter Mortensen
___________________________ __________________________________________
Peter Mortensen
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: August 11, 2000 /s/John D. Waters
__________________________ __________________________________________
John D. Waters
Vice President and Chief Financial Officer
(Principal Financial Officer)
