-----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, K8igtC5SM90RiKVVaCxngvq3Or9OaDRDtoXrag4HaoTh22rFWqBlY5UOExeaRP2+ zGmEHCN63dOSmoypXB9how== 0000037808-97-000047.txt : 19970815 0000037808-97-000047.hdr.sgml : 19970815 ACCESSION NUMBER: 0000037808-97-000047 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97659791 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, 1997 --------------------------------------------- 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 incorporation or organization) Identification No.) 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, 1997 ----- ---------------------------- Common Stock, $2 Par Value 14,081,550 Shares - -------------------------- ----------------- F.N.B. CORPORATION FORM 10-Q June 30, 1997 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 7 PART II - OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 18 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET Dollars in thousands, except par values JUNE 30, DECEMBER 31, 1997 1996 ------------- ------------ UNAUDITED ------------- ASSETS Cash and due from banks $ 94,404 $ 107,476 Interest bearing deposits with banks 1,417 1,334 Federal funds sold 8,750 6,425 Loans held for sale 7,078 9,610 Securities available for sale 310,301 322,068 Securities held to maturity (fair value of $150,047 and $173,677) 150,689 174,551 Loans, net of unearned income of $22,838 and $23,763 1,710,043 1,728,132 Allowance for loan losses (28,075) (27,800) ------------- ------------ NET LOANS 1,681,968 1,700,332 ------------- ------------ Premises and equipment 50,886 46,714 Other assets 66,852 49,897 ------------- ------------ $ 2,372,345 $ 2,418,407 ============= ============ LIABILITIES Deposits: Non-interest bearing $ 218,471 $ 231,264 Interest bearing 1,729,909 1,782,624 ------------- ------------- TOTAL DEPOSITS 1,948,380 2,013,888 Other liabilities 35,531 34,825 Short-term borrowings 130,305 112,230 Long-term debt 48,859 58,179 ------------- ------------ TOTAL LIABILITIES 2,163,075 2,219,122 ------------- ------------ STOCKHOLDERS' EQUITY Preferred stock - $10 par value Authorized - 20,000,000 shares Outstanding - 306,055 and 352,531 shares Aggregate liquidation value - $7,653 and $8,813 3,061 3,525 Common stock - $2 par value Authorized - 100,000,000 shares Outstanding - 14,081,550 and 13,305,369 shares 28,163 26,611 Additional paid-in capital 116,760 101,445 Retained earnings 60,349 66,625 Net unrealized securities gains 2,299 2,566 Treasury stock - 56,343 and 62,723 shares at cost (1,362) (1,487) ------------- ------------ TOTAL STOCKHOLDERS' EQUITY 209,270 199,285 ------------- ------------ $ 2,372,345 $ 2,418,407 ============= ============ See accompanying Notes to Consolidated Financial Statements 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, ---------------------- --------------------- 1997 1996 1997 1996 ---------- ---------- ---------- --------- INTEREST INCOME Loans, including fees $ 41,264 $ 38,109 $ 81,459 $ 75,724 Securities: Taxable 6,408 6,200 12,502 12,197 Tax exempt 587 584 1,171 1,108 Dividends 256 183 543 349 Other 584 398 1,366 1,242 ---------- ---------- ---------- --------- TOTAL INTEREST INCOME 49,099 45,474 97,041 90,620 ---------- ---------- ---------- --------- INTEREST EXPENSE Deposits 18,624 17,020 36,815 34,353 Short-term borrowings 1,451 1,308 2,869 2,532 Long-term debt 854 645 1,608 1,387 ---------- ---------- ---------- --------- TOTAL INTEREST EXPENSE 20,929 18,973 41,292 38,272 ---------- ---------- ---------- --------- NET INTEREST INCOME 28,170 26,501 55,749 52,348 Provision for loan losses 3,530 1,940 5,758 3,667 ---------- ---------- ---------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 24,640 24,561 49,991 48,681 ---------- ---------- ---------- --------- NON-INTEREST INCOME Insurance commissions and fees 1,075 970 2,106 1,891 Service charges 2,842 2,739 5,754 5,389 Trust 417 382 856 766 Gain (loss)on sale of securities (54) 295 439 583 Gain on sale of subsidiary 8,042 8,042 Other 1,236 615 2,224 1,500 ---------- ---------- ---------- --------- TOTAL NON-INTEREST INCOME 13,558 5,001 19,421 10,129 ---------- ---------- ---------- --------- 38,198 29,562 69,412 58,810 ---------- ---------- ---------- --------- NON-INTEREST EXPENSES Salaries and employee benefits 12,410 10,433 24,038 20,840 Net occupancy 2,098 1,711 3,865 3,364 Equipment 1,705 1,540 3,260 3,024 Other 9,891 6,819 16,129 13,711 ---------- ---------- ---------- --------- TOTAL NON-INTEREST EXPENSES 26,104 20,503 47,292 40,939 ---------- ---------- ---------- --------- INCOME BEFORE INCOME TAXES 12,094 9,059 22,120 17,871 Income taxes 4,010 2,901 7,248 5,637 ---------- ---------- ---------- --------- NET INCOME $ 8,084 $ 6,158 $ 14,872 $ 12,234 ========== ========== ========== ========= NET INCOME PER COMMON SHARE: Primary $ .55 $ .42 $ 1.02 $ .84 ========== ========== ========== ========= Fully Diluted $ .54 $ .41 $ .99 $ .82 ========== ========== ========== ========= CASH DIVIDENDS PER COMMON SHARE $ .16 $ .15 $ .31 $ .30 ========== ========== ========== ========= AVERAGE COMMON SHARES OUTSTANDING 13,990,500 13,798,818 13,962,772 13,794,184 ========== ========== ========== ========== See accompanying Notes to Consolidated Financial Statements F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Dollars in thousands Unaudited Six Months Ended June 30 1997 1996 ---------- ---------- OPERATING ACTIVITIES Net income $ 14,872 $ 12,234 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,895 2,662 Provision for loan losses 5,758 3,667 Deferred taxes 1,722 514 Net (gain)on sale of securities (439) (583) Net (gain) loss on sale of loans (778) (355) Net gain on sale of subsidiary (8,042) Proceeds from sale of loans 6,395 16,838 Loans originated for sale (3,526) (9,185) Net change in (net of effects of sale of subsidiary): Interest receivable (1,859) (836) Interest payable (116) (322) Other, net (357) (979) ---------- ---------- Net cash flows from operating activities 17,525 23,655 ---------- ---------- INVESTING ACTIVITIES Net change in (net of effects of sale of subsidiary): Interest bearing deposits with banks (105) 681 Federal funds sold (2,325) 33,282 Loans (87,103) (97,484) Securities available for sale: Purchases (108,744) (73,635) Sales 15,417 21,376 Maturities 100,784 60,726 Securities held to maturity: Purchases (6,325) (36,537) Maturities 18,734 21,400 Increase in premises and equipment (8,254) (5,051) Net cash paid for divestitures (5,976) ---------- ---------- Net cash flows from investing activities (83,897) (75,242) ---------- ---------- FINANCING ACTIVITIES Net change in (net of effects of sale of subsidiary): Non-interest bearing deposits 839 (4,645) Interest bearing deposits 47,135 36,805 Short-term borrowings 19,185 46,863 Increase in long-term debt 16,073 6,309 Decrease in long-term debt (25,312) (23,177) Net acquisition of treasury stock 19 (583) Cash dividends paid (4,639) (3,423) ---------- ---------- Net cash flows from financing activities 53,300 58,149 ---------- ---------- NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (13,072) 6,562 Cash and due from banks at beginning of period 107,476 90,656 ---------- ---------- CASH AND DUE FROM BANKS AT END OF PERIOD $ 94,404 $ 97,218 ========== ========== See accompanying Notes to Consolidated Financial Statements F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1997 BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements give retroactive effect to the mergers of Southwest Banks, Inc. (Southwest) and West Coast Bancorp, Inc. (West Coast) with and into F.N.B. Corporation (the Corporation). The mergers which were consummated on January 21, 1997 and April 18, 1997, resulted in the Corporation issuing 2,851,907 and 1,197,128 shares of common stock, respectively. These transactions have been accounted for as poolings-of-interests, and such financial statements are presented as if the mergers had been consummated for all the periods presented. The financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the supplemental consolidated financial statements for the year ended December 31, 1996 and footnotes thereto included in the Corporation's Current Report on Form 8-K filed with the Securities and Exchange Commission on July 22, 1997. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that effect the amounts reported in the financial statements. Actual results could differ from those estimates. PER SHARE AMOUNTS Per share amounts are adjusted for the common stock dividends, including the 5% stock dividend issued on May 31, 1997. 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 vested 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 vested stock options. In February 1997, the Financial Accounting Standards Board issued Statement No. 128 (FAS No. 128), "Earnings per Share," which is required to be adopted on December 31, 1997. At that time, the Corporation will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating earnings per share, the dilutive effect of stock options will be excluded. The impact of FAS No. 128 on the calculations of primary and fully diluted earnings per share is immaterial for the three month and six month periods ended June 30, 1997 and 1996. NEW ACCOUNTING STANDARDS FAS No. 130, "Reporting Comprehensive Income," establishes new standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non shareholder sources, such as changes in net unrealized securities gains. It includes all changes in equity during a period except those resulting from investments by shareholders and distributions to shareholders. This statement is effective for the Corporation's fiscal year ending December 31, 1998. CASH FLOW INFORMATION Following is a summary of supplemental cash flow information (in thousands): Six months ended June 30 1997 1996 -------- -------- Cash paid for: Interest $ 41,234 $ 38,641 Income taxes 4,718 5,598 Noncash Investing and Financing Activities: Acquisition of real estate in settlement of loans 960 409 Loans granted in the sale of other real estate 1,031 139 MERGERS AND DIVESTITURE The Corporation completed its merger with Southwest, a multi-bank holding company headquartered in Naples, Florida, effective January 21, 1997. Under the terms of the merger agreement, each outstanding share of Southwest's common stock was converted into .819 share of the Corporation's common stock with cash being paid in lieu of fractional shares. A total of 2,851,907 shares of the Corporation's common stock were issued. The Corporation completed its merger with West Coast, a bank holding company headquartered in Cape Coral, Florida, effective April 18, 1997. Under the terms of the merger agreement, each outstanding share of West Coast's common stock was converted into .794 share of the Corporation's common stock with cash being paid in lieu of fractional shares. A total of 1,197,128 shares of the Corporation's common stock were issued. Results for 1996 are restated to reflect this acquisition as a pooling-of-interests. Operating results of the Corporation, Southwest and West Coast for the six months ended June 30, 1996, prior to restatement are (in thousands): F.N.B. Corporation Southwest West Coast Combined ----------- --------- ---------- -------- Net interest income $ 40,111 $ 8,587 $ 3,650 $ 52,348 Net income 9,943 1,701 590 12,234 The Corporation completed the sale of its subsidiary, Bucktail Bank and Trust Company (Bucktail), to Sun Bancorp, Inc. (Sun), a bank holding company headquartered in Selinsgrove, Pennsylvania. Under the sales agreement, Sun issued 565,384 shares of Sun's common stock, having a value of $17.6 million, in exchange for 100% ownership of Bucktail. At consummation, Bucktail had assets of $124.9 million and liabilities of $115.3 million. The sale resulted in the Corporation recognizing an $8.0 million pre-tax gain. The Corporation has reflected its ownership interest in Sun as an equity investment included in other assets. On May 12, 1997, the Corporation signed a definitive merger agreement with Indian Rocks State Bank (Indian Rocks), a community bank headquartered in Largo, Florida with assets of approximately $78 million. The merger agreement calls for an exchange of 2 shares of the Corporation's common stock for each share of Indian Rocks common stock. The exchange ratio is subject to possible adjustment. The transaction will be accounted for as a pooling-of-interests and is expected to close during the fourth quarter of 1997, subject to approval by certain regulatory authorities and Indians Rocks' shareholders. On July 29, 1997, the Corporation signed a definitive merger agreement with Mercantile Bank of Southwest Florida (Mercantile), a $108 million bank located in Naples, Florida. Under the terms of the agreement, the Corporation will pay $17.72 per share for each of the 847,006 outstanding shares of Mercantile's common stock. Upon receiving both regulatory and shareholder approval, Mercantile will be merged into the Corporation's existing affiliate, First National Bank of Naples. The transaction will be accounted for as a purchase and is expected to close during the fourth quarter of 1997. 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 available for sale securities portfolio, the Corporation has sufficient sources of funds available to meet its cash needs. Additionally, the Corporation has external sources of funds available should it desire to use them. These include approved lines of credit with several major domestic banks, of which $25.0 million was unused at June 30, 1997. To further meet its liquidity needs, the Corporation also has access to the Federal Home Loan Bank and the Federal Reserve System, as well as other funding sources. Through the review of the gap analysis and net interest income 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 matched maturity funding. Interest rate sensitivity estimates the impact that future changes in interest rates will have on net interest income. The gap is one measurement of risk inherent in the balance sheet as it relates to changes in interest rates and their effect on net interest income. The gap analysis which follows is based on the amortizations, maturities and repricing of assets and liabilities. Non-maturity deposit balances have been allocated to various repricing intervals to estimate their characteristics. The cumulative gap reflects the net position of assets and liabilities repricing in specified time periods. The cumulative one year gap is slightly negative, thus assuming no restructuring or modifications to asset/liability composition, a change in interest rates would result in minimal fluctuations in net interest income, over a one year period. Attaining minimal fluctuations in net interest income is highly dependent on maintaining the current asset/liability composition, which is significantly influenced by competitive factors. Following is the gap analysis as of June 30, 1997 (in thousands): WITHIN 4-12 1-5 OVER 3 MONTHS MONTHS YEARS 5 YEARS TOTAL ---------- --------- ---------- --------- ---------- INTEREST EARNING ASSETS Interest bearing deposits with banks $ 1,317 $ 100 $ 1,417 Federal funds sold 8,750 8,750 Loans held for sale 7,078 7,078 Securities: Available for sale 16,748 36,833 $ 199,080 $ 76,364 329,025 Held to maturity 21,117 45,170 78,536 5,866 150,689 Loans, net of unearned 430,787 392,566 651,795 234,895 1,710,043 ---------- --------- --------- ---------- ---------- 485,797 474,669 929,411 317,125 2,207,002 Other assets 165,343 165,343 ---------- --------- --------- ---------- ---------- $ 485,797 $ 474,669 $ 929,411 $ 482,468 $2,372,345 ========== ========= ========= ========== ========== INTEREST BEARING LIABILITIES Deposits: Interest checking $ 95,621 $ 197,996 $ 293,617 Savings 174,980 338,044 513,024 Time deposits 188,167 $ 392,948 $ 337,939 4,214 923,268 Short-term borrowings 60,651 39,743 29,911 130,305 Long-term debt 1,231 8,447 24,848 14,333 48,859 ---------- --------- --------- ---------- --------- 520,650 441,138 362,787 584,498 1,909,073 Other liabilities 254,002 254,002 Stockholders' equity 209,270 209,270 ---------- --------- --------- ---------- --------- $ 520,650 $ 441,138 $ 362,787 $1,047,770 $2,372,345 ========== ========= ========= ========== ========== PERIOD GAP $ (34,853) $ 33,531 $ 566,624 $ (565,302) ========== ========= ========= ========== CUMULATIVE GAP $ (34,853) $ (1,322)$ 565,302 ========== ========= ========= CUMULATIVE GAP AS A PERCENT OF TOTAL ASSETS (1.5%) (0.1%) 23.8% ===== ===== ===== RATE SENSITIVE ASSETS/RATE SENSITIVE LIABILITIES (CUMULATIVE) 0.93 1.00 1.43 1.16 ==== ==== ==== ==== 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. The capital management function is a continuous process. Central to this process is internal equity generation accomplished by earnings retention. Since December 31, 1996, stockholders' equity has increased $10.2 million as a result of earnings retention. For the six months ended June 30, 1997, the return on average equity was 14.84%. Total cash dividends declared represented 31.19% of net income. Book value per share was $14.38 at June 30, 1997, compared to $13.70 at December 31, 1996. LOANS Following is a summary of loans (dollars in thousands): JUNE 30, DECEMBER 31, 1997 1996 ----------- ----------- Real estate: Residential $ 725,984 $ 682,600 Commercial 387,170 421,057 Construction 48,210 41,661 Installment loans to individuals 337,450 395,628 Commercial, financial and agricultural 197,568 189,411 Lease financing 36,499 21,538 Unearned income (22,838) (23,763) ----------- ----------- $1,710,043 $1,728,132 =========== =========== 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, 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. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest has been paid, or the loan becomes both well secured and in the process of collection. Consumer installment loans are generally charged off against the allowance for loan losses upon reaching 90 to 180 days past due, depending on the installment loan type. Restructured loans are loans in which the borrower has been granted a concession on the interest rate or the original repayment terms due to financial distress. Following is a summary of non-performing assets (dollars in thousands): JUNE 30, DECEMBER 31, 1997 1996 ------------ ------------ Non-performing assets: Non-accrual loans $ 7,806 $ 9,571 Restructured loans 1,896 2,146 ------- ------- Total non-performing loans 9,702 11,717 Other real estate owned 4,331 7,039 ------- ------- Total non-performing assets $14,033 $18,756 ======= ======= Asset quality ratios: Non-performing loans as percent of total loans .57% .68% Non-performing assets as percent of total assets .59% .78% 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. ALLOWANCE FOR LOAN LOSSES Management's analysis of the allowance for loan losses includes the evaluation of the loan portfolio based on internally generated loan review reports and the historical loss experience of the remaining balances of the various homogeneous loan pools which comprise the loan portfolio. Specific factors which are evaluated include the previous loan loss experience with the customer, the status of past due interest and principal payments on the loan, the collateral position of the loan, the quality of financial information supplied by the borrower and the general financial condition of the borrower. Historical loss experience on the remaining portfolio segments is considered in conjunction with current status of economic conditions, loan loss trends, delinquency and non-accrual trends, credit administration and concentrations of credit risk. Following is a summary of changes in the allowance for loan losses and selected ratios (dollars in thousands): THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 1997 1996 1997 1996 -------- -------- -------- -------- Balance at beginning of period $ 28,320 $ 24,520 $ 27,800 $ 24,250 Transfers arising from the sale of a subsidiary (1,443) (1,443) Charge-offs (2,813) (1,587) (4,764) (3,472) Recoveries 481 470 724 898 -------- -------- -------- -------- Net charge-offs (2,332) (1,117) (4,040) (2,574) Provision for loan losses 3,530 1,940 5,758 3,667 -------- -------- -------- -------- Balance at end of period $ 28,075 $ 25,343 $ 28,075 $ 25,343 ======== ======== ======== ======== Allowance for loan losses to: Total loans, net of unearned income 1.64% 1.54% Non-performing loans 289.37% 212.32% The increase in the level of charge-offs and the provision for loan losses during the quarter ended June 30, 1997 resulted from the consistent application of the Corporation's charge-off-policy and methodology for determining the adequacy of the allowance for loan losses to West Coast. REGULATORY MATTERS The Corporation and its banking subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional 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. Quantitative measures established by regulators to ensure capital adequacy require the Corporation and its banking subsidiaries to maintain minimum amounts and ratios of total and tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of tier 1 capital to average assets (as defined). Management believes, as of June 30, 1997, that the Corporation and each of its banking subsidiaries meet all capital adequacy requirements to which they are subject. Following are capital ratios as of June 30, 1997 for the Corporation (dollars in thousands): To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions -------------- ----------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------- ------- --------- ------- --------- ------- Total Capital $236,133 14.2% $132,874 8.0% $166,093 10.0% (to risk-weighted assets) Tier 1 Capital 205,264 12.4% 66,437 4.0% 99,656 6.0% (to risk-weighted assets) Tier 1 Capital 205,264 8.4% 98,317 4.0% 122,896 5.0% (to average assets) As of March 31, 1997, the Corporation and each of its banking subsidiaries have been categorized as "well capitalized" under the regulatory framework for prompt corrective action. FINANCIAL INFORMATION SUMMARY Net income for the first six months of 1997 was $14.9 million compared to $12.2 million for the first six months of 1996. Primary earnings per share for those periods were $1.02 and $.84, respectively, and $.99 and $.82 on a fully diluted basis. Highlights for the first six months of 1997 include: o An $8.0 million pre-tax gain on the sale of Bucktail. o Recognition of $2.1 million in merger related costs and a $1.7 million additional provision for loan losses associated with the Corporation's acquisition of West Coast. o Recognition of $2.6 million in severance payments and certain other non-recurring charges. o Return on average equity and return on average assets of 14.84% and 1.22%, respectively. Excluding the above items, return on average equity was 13.88% and return on average assets was 1.14%. o Net interest margin on a fully taxable equivalent basis of 4.98%. FIRST SIX MONTHS OF 1997 AS COMPARED TO FIRST SIX MONTHS OF 1996: 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 1997 1996 ------------------------------ ----------------------------- AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE ---------- ----------- ------- ---------- ---------- ------- ASSETS Interest earning assets: Interest bearing deposits with banks $ 2,475 $ 77 6.22% $ 3,082 $ 99 6.42% Federal funds sold 50,600 1,289 5.09 38,162 1,143 5.99 Securities: U.S. Treasury and other U.S. Government agencies and corporations 398,550 12,502 6.33 399,799 12,197 6.14 States of the U.S. and political subdivisions (1) 56,516 1,638 5.80 52,961 1,546 5.84 Other securities (1) 23,107 684 5.92 18,362 387 4.22 Loans (1) (2) 1,770,699 81,940 9.33 1,601,736 76,293 9.58 ---------- ---------- -------- ---------- ---------- -------- Total interest earning assets 2,301,947 98,130 8.59 2,114,102 91,665 8.72 ---------- ---------- -------- ---------- ---------- -------- Cash and due from banks 74,601 85,392 Allowance for loan losses (29,236) (24,806) Premises and equipment 48,202 42,167 Other assets 52,956 51,468 ---------- ---------- $2,448,470 $2,268,323 ========== ========== LIABILITIES Interest bearing liabilities: Deposits: Interest bearing demand $ 302,113 $ 3,631 2.42 $ 304,558 $ 2,950 1.95 Savings 562,222 7,413 2.66 480,618 6,561 2.75 Other time 953,853 25,771 5.45 911,244 24,842 5.48 Short-term borrowings 122,944 2,869 4.71 87,991 2,532 5.79 Long-term debt 43,079 1,608 7.47 37,033 1,387 7.49 ---------- ---------- -------- ---------- --------- --------- Total interest bearing liabilities 1,984,211 41,292 4.20 1,821,444 38,272 4.22 ---------- ---------- -------- ---------- --------- --------- Non-interest bearing demand deposits 229,181 216,862 Other liabilities 33,002 39,054 ---------- ---------- 2,246,394 2,077,360 ---------- ---------- STOCKHOLDERS' EQUITY 202,076 190,964 ---------- ---------- $2,448,470 $2,268,324 ========== ========== Excess of interest earning assets over interest bearing liabilities $ 317,736 $ 292,658 ========== ========== Net interest income $ 56,838 $ 53,393 ========== ========== Net interest spread 4.39% 4.50% ====== ====== Net interest margin (3) 4.98% 5.08% ====== ======
(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. 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 1997, net interest income, on a fully taxable equivalent basis, totaled $56.8 million, representing a 6.45% increase over the first six months of 1996. Net interest income consisted of interest income of $98.1 million and interest expense of $41.3 million for the first six months of 1997 compared to $91.7 million and $38.3 million for each, respectively, for the first six months of 1996. Net interest margin fell to 4.98% at June 30, 1997 from 5.08% at June 30, 1996, as the yield on total interest earning assets declined by 13 basis points as compared to only a 2 basis point reduction in cost of funds. 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 six months ending June 30, 1997 as compared to the six months ending June 30, 1996 (in thousands): VOLUME RATE NET ------- ------- ------- INTEREST INCOME Interest bearing deposits with banks $ (19) $ (3) $ (22) Federal funds sold 271 (125) 146 Securities: U.S. Treasury and other U.S. Government agencies and corporations (34) 339 305 States of the U.S. and political subdivisions 102 (10) 92 Other securities 116 181 297 Loans 7,503 (1,856) 5,647 ------- ------- ------- 7,939 (1,474) 6,465 ------- ------- ------- INTEREST EXPENSE Deposits: Interest bearing demand (23) 704 681 Savings 1,056 (204) 852 Other time 1,052 (123) 929 Short-term borrowings 635 (298) 337 Long-term debt 227 (6) 221 ------- ------- ------- 2,947 73 3,020 ------- ------- ------- NET CHANGE $4,992 $(1,547) $3,445 ======= ======= ======= 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. Interest income on loans, on a fully taxable equivalent basis, increased 7.40% from $76.3 million for the six months ended June 30, 1996 to $81.9 million for the six months ended June 30, 1997. This increase was the result of an increase in average loans of 10.55% over this same period last year. Interest expense on deposits increased $2.5 million or 7.17% for the six months ended June 30, 1997, compared to the six months ended June 30, 1996. This increase was the result of an increase in average deposits of 7.18% over this same six month period. Interest expense on short-term borrowings increased $337,000 or 13.31% for these same periods due to an increase in average short-term borrowings of 39.72%. The provision for loan losses totaled $5.7 million for the first six months of 1997, as compared to $3.7 million for the first six months of 1996. In connection with the Corporation's acquisition of West Coast, the Corporation recognized an additional provision for loan losses of $1.7 million, in excess of the Corporation's normal provision. This additional provision was required after applying the Corporation's allowance for loan loss policy and methodology for evaluating the adequacy of the allowance to West Coast. Excluding the $8.0 million gain on the sale of Bucktail, non-interest income increased by 12.34% during the first six months of 1997 as compared to the first six months of 1996. Total non-interest expenses increased 4.04% during the first six months of 1997, compared to the first six months of 1996, after excluding various non-recurring items, including $2.1 million in merger-related costs and $2.6 million in severance payments and other miscellaneous charges. The majority of the increase in non-interest expenses resulted from an increase in occupancy and personnel costs due to the opening of new branch offices at two of the Corporation's affiliates. Income tax expense for the six months ended June 30, 1997 totaled $7.3 million, providing an effective tax rate of 32.77% compared to 31.55% for the six months ended June 30, 1996. The higher effective tax rate reflects the lower level of tax exempt instruments held by the Corporation during the first six months of 1997 compared to the same period in 1996 and the nondeductibility of certain merger related costs. Consolidated net income was $14.9 million for the first six months of 1997, representing a $2.6 million or 21.57% increase over the first six months of 1996. The Corporation's return on average assets was 1.22% and 1.08% for the six months ended June 30, 1997 and 1996, while the return on average equity was 14.84% and 12.88% for those same periods, respectively. Recurring net income for the six months ended June 30, 1997 totaled $13.9 million, resulting in returns on average assets and equity of 1.14% and 13.88%, respectively. SECOND QUARTER OF 1997 AS COMPARED TO SECOND QUARTER OF 1996: During the second quarter of 1997, net interest income increased $1.7 million or 6.30% over the second quarter of 1996. Total interest income increased $3.6 million or 7.97% over these periods, primarily the result of an increase in loan volume. Total interest expense increased $2.0 million or 10.31% during the second quarter of 1997, compared to the same period of 1996. Interest expense on deposits accounted for the majority of this increase, $1.6 million, due to an increase in average deposits. The provision for loan losses totaled $3.5 million for the second quarter of 1997, as compared to $1.9 million for the second quarter of 1996. This increase resulted from applying the Corporation's allowance for loan loss policy and methodology for evaluating the adequacy of the allowance to the recently acquired affiliate, West Coast. Excluding the gain of $8.0 million recognized on the sale of Bucktail, non-interest income increased 10.28% during the second quarter of 1997 compared to the same period of 1996. Total non-interest expenses increased 4.61% during the second quarter of 1997, compared to the second quarter of 1996, after excluding various non-recurring items, including $2.1 million in merger-related costs and $2.6 million in severance payments and other miscellaneous charges. The increase in recurring non-interest expenses was attributable to increases in personnel and occupancy costs associated with the opening of new branch offices at two of the Corporation's affiliates. Income tax expense totaled $4.0 million during the quarter providing an effective tax rate of 33.15% compared to 32.03% in 1996. Net income totaled $8.1 million for the second quarter of 1997, compared to $6.2 million for the second quarter of 1996. Excluding the impact of the non-recurring items, net income totaled $7.1 million. 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 23, 1997. Proxies 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" ------------- ------------ Charles T. Cricks 9,148,923 59,161 Henry M. Ekker 9,144,579 63,505 Thomas W. Hodge 9,145,160 62,924 James S. Lindsay 9,150,038 58,046 Paul P. Lynch 9,130,016 78,068 ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 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, ---------------------- ---------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- PRIMARY Net Income $ 8,084 $ 6,157 $ 14,872 $ 12,233 Less: Preferred Stock Dividends Declared (154) (199) (315) (410) ---------- ---------- ---------- ---------- Net Income Applicable to Common Stock $ 7,930 $ 5,958 $ 14,557 $ 11,823 ========== ========== ========== ========== Average Common Shares Outstanding 13,990,500 13,798,818 13,962,772 13,794,184 Net Effect of Dilutive Stock Options and Stock Warrants - Based on the Treasury Stock Method Using Average Market Price 376,414 305,789 372,913 301,013 ---------- ---------- ---------- ---------- 14,366,914 14,104,607 14,335,685 14,095,197 ========== ========== ========== ========== Net Income per Common Share $.55 $.42 $1.02 $.84 ==== ==== ===== ==== FULLY DILUTED Net Income Applicable to Common Stock $ 8,084 $ 6,157 $ 14,872 $ 12,233 ========== ========== ========== ========== Average Common Shares Outstanding 13,990,500 13,798,818 13,962,772 13,794,184 Series A Convertible Preferred Stock 21,118 28,422 21,118 28,422 Series B Convertible Preferred Stock 624,604 881,141 649,413 898,859 Net Effect of Dilutive Stock Options and Stock Warrants - Based on the Treasury Stock Method Using the Period-End Market Price, If Higher than Average Market Price 431,042 308,692 431,028 279,517 ---------- ---------- ---------- ---------- 15,067,264 15,017,073 15,064,331 15,000,982 ========== ========== ========== ========== Net Income per Common Share $.54 $.41 $.99 $.82 ==== ==== ==== ====
27. Financial Data Schedule (filed herewith) (b) Reports on Form 8-K A report on Form 8-K, dated April 21, 1997, was filed by the Corporation. The Form 8-K disclosed information relating to the consummation of the merger with West Coast Bancorp, Inc. A report on Form 8-K, dated July 22 1997, was filed by the Corporation. The Form 8-K included Audited Supplemental Consolidated Financial Statements for the years ended December 31, 1996, 1995 and 1994 with Report of Independent Auditors and Management's Discussion and Analysis 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 13, 1997 /S/PETER MORTENSEN ------------------------------ -------------------------------------- Peter Mortensen Chairman and President (Principal Executive Officer) Dated: AUGUST 13, 1997 /S/JOHN D. WATERS ------------------------------ -------------------------------------- John D. Waters Vice President and Chief Financial Officer (Principal Financial Officer) EX-27 2
9 1,000 3-MOS DEC-31-1997 JUN-30-1997 94,404 1,417 8,750 0 310,301 150,689 150,047 1,710,043 28,075 2,372,345 1,948,380 130,305 35,531 48,859 0 3,061 28,163 178,046 2,372,345 41,264 7,251 584 49,099 18,624 20,929 28,170 3,530 (54) 26,104 12,094 12,094 0 0 8,084 .55 .54 8.59 7,806 2,861 1,896 0 28,320 2,813 481 28,075 28,075 0 0
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