-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GrIxSUW3Ni8L9VePSMlufijwojQWqyGKNYE/rIuKfZhz9KNzCGTWj8lpTvrWxJ5W BjCmyUB74pzaYSHy9HFTIw== 0000037808-96-000025.txt : 19960814 0000037808-96-000025.hdr.sgml : 19960814 ACCESSION NUMBER: 0000037808-96-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FNB CORP/PA CENTRAL INDEX KEY: 0000037808 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 251255406 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-08144 FILM NUMBER: 96610721 BUSINESS ADDRESS: STREET 1: HERMITAGE SQUARE CITY: HERMITAGE STATE: PA ZIP: 16148 BUSINESS PHONE: 4129816000 MAIL ADDRESS: STREET 1: HERMITAGE SQUARE CITY: HERMITAGE STATE: PA ZIP: 16148 FORMER COMPANY: FORMER CONFORMED NAME: CITIZENS BUDGET CO DATE OF NAME CHANGE: 19750909 10-Q 1 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, 1996 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _______________________ Commission file number 0-8144 F.N.B. CORPORATION - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 25-1255406 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Hermitage Square, Hermitage, PA 16148 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (412) 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, 1996 ----- ---------------------------- Common Stock, $2 Par Value 9,169,695 Shares - -------------------------- ---------------- F.N.B. CORPORATION FORM 10-Q June 30, 1996 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 6 PART II - OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Defaults Upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 17 -1- F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET Dollars in thousands JUNE 30, DECEMBER 31, 1996 1995 ------------ ------------ (Unaudited) (Note) ------------ ------------ ASSETS Cash and due from banks $ 67,877 $ 59,795 Interest bearing deposits with banks 1,556 2,603 Federal funds sold 11,917 22,335 Securities available for sale 202,538 223,479 Securities held to maturity (fair value of $151,201 and $136,801) 155,239 136,969 Loans held for sale 7,273 10,154 Loans, net of unearned income of $23,660 and $26,609 1,271,432 1,212,741 Allowance for loan losses (22,102) (21,550) ------------ ------------ NET LOANS 1,256,603 1,201,345 ------------ ------------ Premises and equipment 24,294 22,504 Other assets 39,501 37,963 ------------ ------------ $ 1,759,525 $ 1,706,993 ============ ============ LIABILITIES Deposits: Non-interest bearing $ 159,442 $ 167,700 Interest bearing 1,297,693 1,274,409 ------------ ------------ TOTAL DEPOSITS 1,457,135 1,442,109 Short-term borrowings 92,801 55,224 Other liabilities 27,703 25,988 Long-term debt 32,916 39,755 ------------ ------------ TOTAL LIABILITIES 1,610,555 1,563,076 ------------ ------------ STOCKHOLDERS' EQUITY Preferred stock - $10 par value Authorized - 20,000,000 shares Outstanding - 426,313 and 451,638 shares Aggregate liquidation value - $10,658 and $11,291 4,263 4,516 Common stock - $2 par value Authorized - 20,000,000 shares Outstanding - 9,067,869 and 8,611,814 shares 18,225 17,268 Additional paid-in capital 67,955 58,631 Retained earnings 56,683 60,034 Net unrealized securities gains 2,906 3,932 Treasury stock - 44,674 and 22,340 shares at cost (1,062) (464) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 148,970 143,917 ------------ ------------ $ 1,759,525 $ 1,706,993 ============ ============ NOTE: The balance sheet at December 31, 1995 was derived from the audited financial statements at that date. See accompanying Notes to Consolidated Financial Statements -2- 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, --------------------- --------------------- 1996 1995 1996 1995 --------- --------- --------- --------- INTEREST INCOME Loans, including fees $ 29,357 $ 28,383 $ 58,441 $ 56,019 Securities: Taxable 4,687 4,369 9,321 8,601 Tax exempt 427 439 800 745 Dividends 183 74 349 299 Other 194 569 647 805 --------- --------- --------- --------- TOTAL INTEREST INCOME 34,848 33,834 69,558 66,469 --------- --------- --------- --------- INTEREST EXPENSE Deposits 12,970 13,113 26,219 25,010 Short-term borrowings 979 821 1,841 1,670 Long-term debt 645 741 1,387 1,522 --------- --------- --------- --------- TOTAL INTEREST EXPENSE 14,594 14,675 29,447 28,202 --------- --------- --------- --------- NET INTEREST INCOME 20,254 19,159 40,111 38,267 Provision for loan losses 1,438 1,393 2,806 2,934 --------- --------- --------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 18,816 17,766 37,305 35,333 --------- --------- --------- --------- NON-INTEREST INCOME Insurance commissions and fees 970 1,601 1,891 2,338 Service charges 1,631 1,682 3,226 3,413 Trust 382 349 766 755 Gain on sale of securities 278 194 566 361 Other 514 498 1,002 866 --------- --------- --------- --------- TOTAL NON-INTEREST INCOME 3,775 4,324 7,451 7,733 --------- --------- --------- --------- 22,591 22,090 44,756 43,066 --------- --------- --------- --------- NON-INTEREST EXPENSES Salaries and employee benefits 7,747 7,348 15,511 14,812 Net occupancy 1,223 1,089 2,420 2,253 Amortization of intangibles 260 322 530 650 Equipment 895 976 1,745 1,921 Deposit insurance 306 934 615 1,868 Other 4,748 4,904 9,547 9,185 --------- --------- --------- --------- TOTAL NON-INTEREST EXPENSES 15,179 15,573 30,368 30,689 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 7,412 6,517 14,388 12,377 Income taxes 2,336 2,172 4,445 4,048 --------- --------- --------- --------- NET INCOME $ 5,076 $ 4,345 $ 9,943 $ 8,329 ========= ========= ========= ========= NET INCOME PER COMMON SHARE: Primary $ .53 $ .46 $ 1.04 $ .87 ========= ========= ========= ========= Fully Diluted $ .51 $ .44 $ .99 $ .84 ========= ========= ========= ========= CASH DIVIDENDS PER COMMON SHARE $ .16 $ .07 $ .31 $ .13 ========= ========= ========= ========= AVERAGE COMMON SHARES OUTSTANDING 9,047,103 9,021,249 9,042,690 9,024,612 ========= ========= ========= ========= See accompanying Notes to Consolidated Financial Statements -3- F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Dollars in thousands Unaudited Six Months Ended June 30 1996 1995 --------- --------- OPERATING ACTIVITIES Net income $ 9,943 $ 8,329 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,205 2,394 Provision for loan losses 2,806 2,934 Deferred taxes 514 100 Gain on securities available for sale (566) (357) (Gain) loss on sale of loans (144) (30) Proceeds from sale of loans 12,210 16,180 Loans originated for sale (9,185) (14,610) Change in: Interest receivable (654) 49 Interest payable (133) 1 Other, net 472 (731) --------- --------- Net cash flows from operating activities 17,468 14,259 --------- --------- INVESTING ACTIVITIES Net change in interest bearing deposits with banks 1,047 (6,788) Net change in federal funds sold 10,418 (3,554) Purchase of securities available for sale (49,331) (42,349) Purchase of securities held to maturity (30,410) (22,619) Proceeds from sale of securities available for sale 20,359 1,296 Proceeds from maturity of securities available for sale 48,796 26,500 Proceeds from maturity of securities held to maturity 12,107 34,265 Net change in loans (60,980) (6,350) Increase in premises and equipment (3,292) (1,541) --------- --------- Net cash flows from investing activities (51,286) (21,140) --------- --------- FINANCING ACTIVITIES Net change in non-interest bearing deposits (8,258) 6,523 Net change in interest bearing deposits 23,284 19,937 Net change in short-term borrowings 37,577 (14,344) Increase in long-term debt 6,309 3,719 Decrease in long-term debt (13,148) (3,462) Proceeds from sale of stock 1,158 695 Purchase of treasury stock (1,784) (913) Cash dividends paid (3,238) (1,599) --------- --------- Net cash flows from financing activities 41,900 10,556 --------- --------- NET INCREASE IN CASH AND DUE FROM BANKS 8,082 3,675 Cash and due from banks at beginning of period 59,795 60,451 --------- --------- CASH AND DUE FROM BANKS AT END OF PERIOD $ 67,877 $ 64,126 ========= ========= See accompanying Notes to Consolidated Financial Statements -4- F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) June 30, 1996 BASIS OF PRESENTATION The accompanying unaudited condensed 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. Operating results for the six-month period ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Corporation's annual report on Form 10-K for the year ended December 31, 1995. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the amounts reported in financial statements. Actual results could differ from those estimates. PER SHARE AMOUNTS Per share amounts have been adjusted for the 5% common stock dividend in the second quarter of 1996. Primary earnings per common share is calculated by dividing net income, adjusted for preferred stock dividends declared, by the sum of the weighted average number of shares of common stock outstanding and the number of shares of common stock which would be issued assuming the exercise of stock options during each period. Fully diluted earnings per common share is calculated by dividing net income by the weighted average number of shares of common stock outstanding, assuming the conversion of outstanding convertible preferred stock from the beginning of the year or date of issuance and the exercise of stock options. Cash dividends per common share are based on the actual cash dividends declared adjusted for stock dividends. Book value per common share is based on shares outstanding at each period end adjusted retroactively for stock dividends. CASH FLOW INFORMATION Following is a summary of supplemental cash flow information (in thousands): Six months ended June 30 1996 1995 ------- ------- Cash paid for: Interest $29,579 $29,950 Income taxes 4,252 3,090 Noncash Investing and Financing Activities: Acquisition of real estate in settlement of loans 409 984 Loans granted in the sale of other real estate 139 133 Conversion of minority interest 540 MERGERS AND ACQUISITIONS On February 2, 1996, the Corporation signed a definitive merger agreement with Southwest Banks, Inc. (Southwest), a bank holding company headquartered in Naples, Florida with assets of approximately $400 million. The merger agreement calls for an exchange of .819 share of F.N.B. Corporation common stock for each share of Southwest -5- common stock after giving effect to the 5% stock dividend announced on April 24, 1996. The Corporation has reserved 3,276,700 shares to be issued in conjunction with the merger. In connection with the merger agreement, Southwest granted the Corporation an option to purchase, under certain circumstances, up to 727,163 shares of Southwest common stock at a price of $15.00 per share. The exchange ratio, number of shares under option and the price of the option are all subject to possible adjustment. The planned merger has recently been approved by both the Federal Reserve Bank of Cleveland and the Shareholders of Southwest Banks, Inc. The transaction will be accounted for as a pooling of interests, and is expected to close in early 1997, following Florida's statutory waiting period. EFFECT OF NEW ACCOUNTING STANDARDS The following Statements of Financial Accounting Standards (FAS) became effective for the Corporation in 1996. FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of," requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present. The undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Adoption of this Statement did not have a material effect on the Corporation's financial position or results of operations. FAS No. 122, "Accounting for Mortgage Servicing Rights," an amendment of FAS No. 65, allows enterprises engaging in mortgage banking activities to recognize as separate assets rights to service mortgage loans originated for sale. Additionally, the enterprise must periodically assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights. Adoption of this Statement did not have a material effect on the Corporation's financial position or results of operations, as the Corporation does not significantly engage in the sale of mortgage loans. PART I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Interest Rate Sensitivity The Corporation monitors its liquidity position on an ongoing basis to assure that it is able to meet the need for funds at all times. Given the monetary nature of its assets and liabilities and the significant source of liquidity provided by its securities portfolio, the Corporation generally has sufficient sources of funds available as needed to meet its routine, operational cash needs. In addition to normal liquidity provided from operations, 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 $24.0 million was unused at June 30, 1996. To further meet its liquidity needs, the Corporation also has access to the Federal Reserve System, the Federal Home Loan Bank and other uncommitted funding sources. Interest rate sensitivity measures the impact that future changes in interest rates will have on net interest income. The cumulative gap reflects a point-in-time net position of assets and liabilities repricing in specified time periods. The gap is one measurement of risk inherent in a balance sheet as it relates to changes in interest rates and their effect on net interest income. -6- The gap analysis which follows is based on a combination of asset and liability amortizations, maturities and repricing opportunities. Non-maturity deposit balances have been allocated to various repricing intervals to more accurately depict their true behavior and characteristics. This allocation was done in accordance with FDIC guidance. Based on the cumulative one year gap in this table and assuming no restructuring or modifications to asset/liability composition, a rise in interest rates would have a negative impact on net interest income. Gap analyses alone do not accurately measure the magnitude of changes in net interest income since changes in interest rates do not affect all categories of assets and liabilities equally or simultaneously. Recognizing that traditional gap analyses do not measure dynamically the exposure to interest rate changes, the Corporation also relies on computer simulation modeling to measure the effect of upward and downward interest rate changes on net interest income. Simulation is currently in use at all of the Corporation's banking affiliates. Through the review of gap analyses and simulation modeling, management continually monitors the Corporation's exposure to changing interest rates. Management attempts to mitigate repricing mismatches through asset and liability pricing and through matched maturity funding. Following is the gap analysis as of June 30, 1996 (in thousands): Within 4-12 1-5 Over 3 Months Months Years 5 years Total --------- --------- --------- --------- ---------- Interest Earning Assets Interest bearing deposits with banks $ 1,456 $ 100 $ 1,556 Federal funds sold 11,917 11,917 Securities: Available for sale 18,288 91,347 $ 75,431 $ 17,472 202,538 Held to maturity 449 5,479 145,849 3,462 155,239 Loans, net of unearned 290,958 241,862 504,794 241,091 1,278,705 --------- --------- --------- --------- ---------- 323,068 338,788 726,074 262,025 1,649,955 Other assets 109,570 109,570 --------- --------- --------- --------- ---------- $ 323,068 $ 338,788 $ 726,074 $ 371,595 $1,759,525 ========= ========= ========= ========= ========== Interest Bearing Liabilities Deposits: Interest checking $ 8,649 $ 26,935 $ 137,378 $ 172,962 Savings 33,978 100,945 264,406 399,329 Time deposits 178,023 272,302 271,116 $ 3,961 725,402 Short-term borrowings 52,237 20,618 19,946 92,801 Long-term debt 812 3,738 14,528 13,838 32,916 --------- --------- --------- --------- ---------- 273,699 424,538 707,374 17,799 1,423,410 Other liabilities 187,145 187,145 Stockholders' equity 148,970 148,970 --------- --------- --------- --------- ---------- $ 273,699 $ 424,538 $ 707,374 $ 353,914 $1,759,525 ========= ========= ========= ========= ========== Period Gap $ 49,369 $ (85,750) $ 18,700 $ 244,226 ========= ========= ========= ========= Cumulative Gap $ 49,369 $ (36,781) $ (17,681) ========= ========= ========= Rate Sensitive Assets/Rate Sensitive Liabilities (Cumulative) 1.18 0.95 0.99 1.16 ========= ========= ========= ========= Cumulative Gap as a Percent of Total Assets 2.8% (2.1%) (1.0%) ========= ========= ========= Capital Resources The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance and changing competitive conditions and economic forces. The Corporation maintains a strong capital base to support its growth and expansion activities, to provide stability to current operations and to promote public confidence. -7- The capital management function is a continuous process. Central to this process is internal equity generation accomplished mainly by earnings retention. Since December 31, 1995, total stockholders' equity has increased $6.1 million as a result of earnings retention. For the six months ended June 30, 1996, the return on average equity was 13.63%. Total cash dividends declared represented 32.57% of net income. Book value per share was $15.25 at June 30, 1996, compared to $14.67 at December 31, 1995. The Corporation's capital position continues to exceed regulatory minimums. The primary indicators relied on by the Federal Reserve Board and other regulators in measuring strength of capital position are the Core Capital, Total Risk-Based Capital and Leverage ratios. Following is a table summarizing these ratios and the related regulatory minimums as of June 30, 1996 and December 31, 1995: JUNE 30, DECEMBER 31, REGULATORY 1996 1995 MINIMUMS ---------- ------------ ---------- Capital Ratios: Core Capital 11.78% 11.74% 4.00% Total Risk-Based Capital 13.86 13.86 8.00 Leverage 8.29 8.16 5.00 Core Capital consists of common and qualifying preferred stockholders' equity less non-qualifying intangibles and Total Risk-Based Capital consists of Core Capital, qualifying subordinated debt and a portion of the allowance for loan losses. Both are calculated with reference to risk-weighted assets consisting of on- and off- balance sheet financial instruments. The Leverage ratio consists of Core Capital divided by quarterly average assets less non- qualifying intangibles. NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES 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. Generally, 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, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on non-accrual loans is either applied against principal or reported as interest income, according to management's judgement as to the collectibility of principal. Loans which reach non-accrual status may not be restored to accrual status until all delinquent principal and interest has been paid, or the loan becomes both secured and in the process of collection. 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): JUNE 30, DECEMBER 31, 1996 1995 ----------- ----------- Non-performing assets: Non-accrual loans $ 7,252 $ 5,605 Restructured loans 1,586 3,075 ------- ------- Total non-performing loans 8,838 8,680 Other real estate owned 2,643 2,742 ------- ------- Total non-performing assets $11,481 $11,422 ======= ======= Asset quality ratios: Non-performing loans as percent of total loans .69% .71% Non-performing assets as percent of total assets .65% .67% -8- Non-performing loans are closely monitored on an ongoing basis as part of the Corporation's loan review process. The potential risk of loss on these loans is evaluated by comparing the loan balance to the present value of projected future cash flows or the value of any underlying collateral, recognizing losses where appropriate. Management's analysis of the allowance for loan losses includes the evaluation of the loan portfolio based on internally generated loan review reports and the historical loss experience of the remaining balances of the various homogeneous loan pools which comprise the loan portfolio. Specific factors which are evaluated include the previous loan loss experience with the customer, the status of past due interest and principal payments on the loan, the collateral position of the loan, the quality of financial information supplied by the borrower and the general financial condition of the borrower. Historical loss experience on the remaining portfolio segments is considered in conjunction with current status of economic conditions, loan loss trends, delinquency and non-accrual trends, credit administration, concentrations of credit and off-balance sheet risk. Following is a summary of changes in the allowance for loan losses and selected ratios (dollars in thousands): At or for the At or for the Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 1996 1995 1996 1995 ------- ------- ------- ------- Balance at beginning of period $21,696 $20,922 $21,550 $20,295 Charge-offs (1,462) (1,544) (3,054) (2,886) Recoveries 430 402 800 830 ------- ------- ------- ------- Net charge-offs (1,032) (1,142) (2,254) (2,056) Provision for loan losses 1,438 1,393 2,806 2,934 ------- ------- ------- ------- Balance at end of period $22,102 $21,173 $22,102 $21,173 ======= ======= ======= ======= Net charge-offs as percent of average loans, net of unearned (annualized) .36% .35% Allowance for loan losses to: Total loans, net of unearned income 1.73% 1.77% Non-performing loans 250.08% 221.96% FINANCIAL INFORMATION SUMMARY Net income for the first six months of 1996 was $9.9 million compared to $8.3 million for the first six months of 1995. Primary earnings per share for those periods were $1.04 and $.87, respectively, and $.99 and $.84 on a fully diluted basis. Highlights for the first six months of 1996 include: * A 13.63% return on average equity and a 1.15% return on average assets. * A net interest margin on a fully taxable equivalent basis of 5.04%. * The provision for loan losses for the first six months of 1996 at $2.8 million was 4.36% lower than the provision recorded for the first six months of 1995. -9- First Six Months of 1996 as Compared to First Six Months of 1995: 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 March 31 1996 1995 ----------------------------------------------------- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ---------- -------- ------ ---------- -------- ------ Assets Interest earning assets: Interest bearing deposits with banks $ 2,999 $ 99 6.62% $ 4,646 $ 141 6.09% Federal funds sold 18,095 548 6.06 22,014 664 6.03 Securities: U.S. Treasury and other U.S. Government agencies and corporations 314,310 9,321 5.96 314,647 8,601 5.51 States of the U.S. and political subdivisions (1) 39,195 1,144 5.84 35,135 1,121 6.38 Other securities (1) 16,513 387 4.71 14,064 337 4.81 Loans (1) (2) 1,245,022 58,948 9.52 1,196,115 56,670 9.55 ---------- -------- ---------- -------- Total interest earning assets 1,636,134 70,447 8.66 1,586,621 67,534 8.58 ---------- -------- ---------- -------- Cash and due from banks 54,697 52,900 Allowance for loan losses (21,869) (21,047) Premises and equipment 23,507 23,009 Other assets 39,895 45,319 ---------- ---------- $1,732,364 $1,686,802 ========== ========== Liabilities Interest bearing liabilities: Deposits: Interest bearing demand $ 163,038 $ 1,222 1.51 $ 154,542 $ 1,364 1.78 Savings 396,775 4,892 2.48 433,760 5,404 2.51 Other time 736,088 20,105 5.49 685,271 18,242 5.37 Short-term borrowings 60,632 1,841 6.25 55,978 1,670 6.01 Long-term debt 36,023 1,387 7.70 39,524 1,522 7.70 ---------- -------- ---------- -------- Total interest bearing liabilities 1,392,556 29,447 4.25 1,369,075 28,202 4.15 ---------- -------- ---------- -------- Non-interest bearing demand deposits 158,304 158,228 Other liabilities 34,767 28,601 ---------- ---------- 1,585,627 1,555,904 ========== ========== Stockholders' equity 146,737 130,898 ---------- ---------- $1,732,364 $1,686,802 ========== ========== Excess of interest earning assets over interest bearing liabilities $ 243,578 $ 217,546 ========== ========== Net interest income $ 41,000 $ 39,332 ======== ======== Net interest spread 4.41% 4.43% ===== ===== Net interest margin (3) 5.04% 5.00% ===== ===== (1) The amounts are reflected on a fully taxable equivalent basis using the federal statutory tax rate of 35% adjusted for certain federal tax preferences. (2) Average balance includes non-accrual loans. Loans consist of average total loans less average unearned income. The amount of loan fees included in interest income on loans is immaterial. (3) Net interest margin is calculated by dividing the difference between total interest earned and total interest paid by total interest earning assets. -10- 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 1996, net interest income, on a fully taxable equivalent basis, totaled $41.0 million, representing a 4.24% increase over the first six months of 1995. Net interest income as a percentage of average earning assets (commonly referred to as the margin) rose to 5.04% at June 30, 1996 from 5.00% at June 30, 1995. Net interest income can be analyzed in terms of the impact of changing volumes of interest earning assets and interest bearing liabilities. The following table sets forth certain information regarding changes in net interest income attributable to changes in the volumes of interest earning assets and interest bearing liabilities and changes in the rates for the six months ending June 30, 1996 as compared to the six months ending June 30, 1995 (in thousands): Volume Rate Net ------- ------- ------- Interest Income Interest bearing deposits with banks $ (107) $ 65 $ (42) Federal funds sold (238) 122 (116) Securities: U.S. Treasury and other U.S. Government agencies and corporations (19) 739 720 States of the U.S. and political subdivisions 247 (224) 23 Other securities 115 (65) 50 Loans 4,659 (2,381) 2,278 ------- ------- ------- 4,657 (1,744) 2,913 ------- ------- ------- Interest Expense Deposits: Interest bearing demand 145 (287) (142) Savings (918) 406 (512) Other time 2,776 (913) 1,863 Short-term borrowings 362 (191) 171 Long-term debt (269) 134 (135) ------- ------- ------- 2,096 (851) 1,245 ------- ------- ------- Net Change $ 2,561 $ (893) $ 1,668 ======= ======= ======= 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 relative size of the rate and volume changes. Total interest income on a fully taxable equivalent basis increased $2.9 million or 5.06% for the first six months of 1996, compared to the first six months of 1995. Interest income on loans increased 4.02% from $56.7 million for the first six months of 1995 to $58.9 million for the first six months of 1996, a result of greater loan demand. Average loans increased 4.09% over these same time periods. Interest on U.S. Treasury and other U.S. Government agencies and corporations increased 8.37% to $9.3 million for the first six months of 1996 as compared to the first six months of 1995 as a result of higher yielding securities being purchased by the Corporation. Total interest expense increased $1.2 million or 4.41% for the six months ended June 30, 1996, compared to the six months ended June 30, 1995. Interest expense on deposits increased 4.83% to $26.2 million over these time periods, due to an increase of 10.21% in interest expense on time deposits. This was primarily the result of increased market rates of interest and the continuing shift in the deposit mix from transaction and savings accounts into higher paying time deposit accounts. The provision for loan losses totaled $2.8 million for the first six months of 1996, representing a decrease of 4.36% from the first six months of 1995. The reduction in the provision for loan losses is a direct result of improving asset quality and management's analysis of the adequacy of the allowance for loan losses which takes into consideration all factors relevant to the collectibility of the existing portfolio. -11- Total non-interest income decreased 3.65% during the first six months of 1996 compared to the same period of 1995. This decrease was attributable to decreases in insurance commissions and fees and service charges offset by an increase in securities gains. Total non-interest expenses decreased 1.05% during the first six months of 1996, compared to the first six months of 1995. Deposit insurance accounted for the majority of this variance by decreasing 67.08% for the first six months of 1996, as compared to the first six months of 1995. This was the result of the Federal Deposit Insurance Corporation (FDIC) lowering the insurance premium for banks, now that the Bank Insurance Fund has been funded to the required level. This decrease was offset by an increase in salaries and employee benefits. Income before taxes was $14.4 million for the first six months of 1996, representing an increase of $2.0 million or 16.25% over the same period of 1995. Income taxes increased $397,000 or 9.81% over the same periods due to more taxable income being generated by the Corporation. Consolidated net income was $9.9 million for the first six months of 1996, representing a $1.6 million or 19.38% increase over the first six months of 1995. The Corporation's return on average assets was 1.15% and 1.00% for the first six months of 1996 and 1995, respectively, while the return on average equity was 13.63% and 12.83% for those same periods. Second Quarter of 1996 as Compared to Second Quarter of 1995 During the second quarter of 1996, net interest income increased $1.1 million or 5.72% over the second quarter of 1995. Total interest income increased $1.0 million or 3.00% over these same periods, primarily the result of an increase of 3.43% in interest income on loans, including fees. This increase was a result of greater loan demand. Total interest expense decreased slightly during the second quarter of 1996, compared to the same period of 1995. Interest expense on deposits accounted for the majority of this decrease due to the increased interest rate environment and the change in the deposit mix from savings accounts to higher paying certificate accounts. The provision for loan losses remained constant at $1.4 million for the second quarter of both 1995 and 1996. Total non-interest income decreased $549,000 or 12.70% during the second quarter of 1996, compared to the second quarter of 1995, largely as a result of decreases in insurance commissions and fees. Total non-interest expenses decreased slightly to $15.2 million from $15.6 million for the second quarter of 1996 and 1995, respectively. Deposit insurance decreased $628,000 or 67.24% from the second quarter in 1995 due to the lower insurance premiums being charged by the FDIC. Income before taxes increased to $7.4 million in the second quarter of 1996 from $6.5 million in the same period of 1995. Income tax expense increased to $2.3 million from $2.2 million over these same periods. Net income totaled $5.1 million for the second quarter of 1996, compared to $4.3 million for the second quarter of 1995. -12- PART II Item 1. Legal Proceedings No material pending legal proceedings exist to which the Corporation or any of its subsidiaries is a party, or of which any of their property is the subject, except ordinary routine proceedings which are incidental to the ordinary conduct of business. In the opinion of management, pending legal proceedings will not have a material adverse effect on the consolidated financial position of the Corporation and its subsidiaries. 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 24, 1996. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities 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" "Withheld" ------------ ---------- Stephen J. Gurgovits 6,471,685 79,312 W. Richard Blackwood 6,477,336 73,661 William B. Campbell 6,477,885 73,112 John R. Perkins 6,464,438 86,559 George A. Seeds 6,467,843 83,154 Donna C. Winner 6,442,578 108,419 Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 3.1. Articles of Incorporation as currently in effect and any amendments thereto (Incorporated by reference to Exhibit 3.1. of the Corporation's Form 10-K for the year ended December 31, 1992). 3.2. By-laws of the Corporation as currently in effect (Incorporated by reference to Exhibit 4 of the Corporation's Form 10-Q for the quarter ended June 30, 1994). -13- 4 The rights of holders of equity securities are defined in portions of the Articles of Incorporation and By-laws. The Articles of Incorporation are incorporated by reference to Exhibit 3.1. of the registrant's Form 10-K for the year ended December 31, 1992. The By-laws are incorporated by reference to Exhibit 4 of the registrant's Form 10-Q for the quarter ended June 30, 1994. A designation statement defining the rights of F.N.B. Corporation Series A - Cumulative Convertible Preferred Stock is incorporated by reference to Form S-14, Registration Statement of F.N.B. Corporation, File No. 2-96404. A designation statement defining the rights of F.N.B. Corporation Series B - Cumulative Convertible Preferred Stock is incorporated by reference to Exhibit 4 of the registrant's Form 10-Q for the quarter ended June 30, 1992. The Corporation agrees to furnish to the Commission upon request copies of all instruments not filed herewith defining the rights of holders of long-term debt of the Corporation and its subsidiaries. 10.1. Form of agreement regarding deferred payment of directors' fees by First National Bank of Pennsylvania (Incorporated by reference to Exhibit 10.1. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.2. Form of agreement regarding deferred payment of directors' fees by F.N.B. Corporation (Incorporated by reference to Exhibit 10.2. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.3. Form of Deferred Compensation Agreement by and between First National Bank of Pennsylvania and four of its executive officers (Incorporated by reference to Exhibit 10.3. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.4. Employment Agreement between The Metropolitan Savings Bank of Youngstown and Samuel K. Sollenberger (Incorporated by reference to Exhibit 10.4. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.5. Employment Agreement between F.N.B. Corporation and Peter Mortensen (Incorporated by reference to Exhibit 10.5. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). Amendment No. 2 to Employment Agreement (Incorporated by reference to exhibit 10.5. of the Corporation's Form 10-Q for the quarter ended June 30, 1995). Rescinding of Amendment No. 2 to Employment Agreement (Incorporated by reference to Exhibit 10.5. of the Corporation's Form 10-Q for the quarter ended September 30, 1995). 10.6. Employment Agreement between F.N.B. Corporation and Stephen J. Gurgovits (Incorporated by reference to Exhibit 10.6. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.7. Employment Agreement between F.N.B. Corporation and Samuel K. Sollenberger (Incorporated by reference to Exhibit 10.7. of the Corporation's Form 10-Q for the quarter ended March 31, 1994). 10.8. Employment Agreement between F.N.B. Corporation and William J. Rundorff (Incorporated by reference to Exhibit 10.8. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1991). Amendment No. 2 to Employment Agreement (Incorporated by reference to Exhibit 10.8. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). -14- 10.9. Basic Retirement Plan (formerly the Supplemental Executive Retirement Plan) of F.N.B. Corporation effective January 1, 1992 (Incorporated by reference to Exhibit 10.9. of the Corporation's Annual Report on From 10-K for the fiscal year ended December 31, 1993). 10.10. F.N.B. Corporation 1990 Stock Option Plan, as amended effective February 2, 1996. (Incorporated by reference to Exhibit 10.10. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.11. F.N.B. Corporation Restricted Stock Bonus Plan dated January 1, 1994 (Incorporated by reference to Exhibit 10.11. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.12. Employment Agreement between F.N.B. Corporation and John W. Rose (Incorporated by reference to Exhibit 10.12. of the Corporation's Form 10-Q for the quarter ended September 30, 1995). Amendment No. 1 to Employment Agreement (Incorporated by reference to Exhibit 10.12. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.13. Employment Agreement between F.N.B. Corporation and John D. Waters (Incorporated by reference to Exhibit 10.13. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.14. F.N.B. Corporation Restricted Stock and Incentive Bonus Plan (Incorporated by reference to Exhibit 10.14. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.15. F.N.B. Corporation 1996 Stock Option Plan (Incorporated by reference to Exhibit 10.15. of the Corporation's Annual Report in Form 10-K for the fiscal year ended December 31, 1995). 10.16. F.N.B. Corporation Director's Compensation Plan (Incorporated by reference to Exhibit 10.16. of the Corporation's From 10-Q for the quarter ended March 31, 1996). -15- 11 F.N.B. Corporation Statement re Computation of Per Share Earnings Dollars in thousands Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 1996 1995 1996 1995 ---------- --------- ---------- --------- Primary Net Income $ 5,076 $ 4,345 $ 9,943 $ 8,329 Less: Preferred Stock Dividends Declared (199) (213) (410) (425) ---------- --------- ---------- --------- Net Income Applicable to Common Stock $ 4,877 $ 4,132 $ 9,533 $ 7,904 ========== ========= ========== ========= Average Common Shares Outstanding 9,047,103 9,021,249 9,042,690 9,024,612 Net Effect of Dilutive Stock Options - Based on the Treasury Stock Method Using Average Market Price 85,651 37,935 81,947 34,862 ---------- --------- ---------- --------- 9,132,754 9,059,184 9,124,637 9,059,474 ========== ========= ========== ========= Net Income per Common Share $.53 $.46 $1.04 $.87 ==== ==== ===== ==== Fully Diluted Net Income Applicable to Common Stock $ 5,076 $ 4,345 $ 9,943 $ 8,329 ========== ========= ========== ========= Average Common Shares Outstanding 9,047,103 9,021,249 9,042,690 9,024,612 Series A Convertible Preferred Stock 27,069 35,036 27,069 35,036 Series B Convertible Preferred Stock 839,182 839,415 856,056 839,479 Net Effect of Dilutive Stock Options - Based on the Treasury Stock Method Using the Period-End Market Price, If Higher than Average Market Price 88,113 40,485 88,113 40,485 ---------- --------- ---------- --------- 10,001,467 9,936,185 10,013,928 9,939,612 ========== ========= ========== ========= Net Income per Common Share $.51 $.44 $.99 $.84 ==== ==== ==== ==== 27. Financial Data Schedule (filed herewith) (b) Reports on Form 8-K A report on Form 8-K, dated May 15, 1996, was filed by the Corporation. The Form 8-K disclosed pro-forma financial information for the period ended March 31, 1996, relating to the definitive merger agreement between F.N.B. Corporation and Southwest Banks, Inc. A report on Form 8-K, dated June 28, 1996, was filed by the Corporation. The Form 8-K disclosed information contained in the 1995 Annual Report to Shareholders of Southwest Banks, Inc. -16- 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: 7/26/96 /s/ Peter Mortensen _________________________ _____________________________________ Peter Mortensen Chairman and President (Principal Executive Officer) Dated: 7/26/96 /s/ John D. Waters _________________________ _____________________________________ John D. Waters Vice President and Chief Financial Officer (Principal Financial Officer) -17- EX-27 2
9 1,000 3-MOS DEC-31-1996 JUN-30-1996 67877 1556 11917 0 202538 155239 151201 1278705 22102 1759525 1457135 92801 27703 32916 0 4263 18225 126482 1759525 29357 5297 194 34848 12970 14594 20254 1438 278 15179 7412 7412 0 0 5076 .53 .51 8.66 7252 3681 1586 0 21696 1462 430 22102 22102 0 0
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