-----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, Kq7Vpidee0XcpKX/wfEWA/ic2LBRfRb/6uFTlxBeTUAs5jgv57q9VYcLxPCegamv SUfNlS8Ie+I6ktN4GyMiJg== 0000037808-98-000042.txt : 19980814 0000037808-98-000042.hdr.sgml : 19980814 ACCESSION NUMBER: 0000037808-98-000042 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 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: SEC FILE NUMBER: 000-08144 FILM NUMBER: 98685610 BUSINESS ADDRESS: STREET 1: ONE FNB BLVD STREET 2: HERMITAGE SQUARE CITY: HERMITAGE STATE: PA ZIP: 16148 BUSINESS PHONE: 7249816000 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, 1998 ------------------------------------------------- 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) One F.N.B. Boulevard, Hermitage, PA 16148 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (724) 981-6000 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not applicable - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No --- ---- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 31, 1998 ----- ---------------------------- Common Stock, $2 Par Value 16,930,488 Shares - -------------------------- ----------------- F.N.B. CORPORATION FORM 10-Q June 30, 1998 INDEX PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheet 2 Consolidated Income Statement 3 Consolidated Statement of Cash Flows 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 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 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET Dollars in thousands, except par values JUNE 30, DECEMBER 31, 1998 1997 ------------- ------------ UNAUDITED ------------- ASSETS Cash and due from banks $ 102,595 $ 99,634 Interest bearing deposits with banks 6,065 4,081 Federal funds sold 27,826 30,564 Mortgage loans held for sale 11,220 6,536 Securities available for sale 448,765 443,711 Securities held to maturity (fair value of $108,693 and $133,716) 108,297 133,409 Loans, net of unearned income of $24,811 and $20,532 2,111,360 2,022,447 Allowance for loan losses (30,180) (29,066) ---------- ---------- NET LOANS 2,081,180 1,993,381 ---------- ---------- Premises and equipment 79,777 67,906 Other assets 77,020 71,308 ---------- ---------- $2,942,745 $2,850,530 ========== ========== LIABILITIES Deposits: Non-interest bearing $ 303,492 $ 281,759 Interest bearing 2,136,941 2,085,068 ---------- ---------- TOTAL DEPOSITS 2,440,433 2,366,827 Other liabilities 42,362 39,287 Short-term borrowings 135,018 123,752 Long-term debt 70,614 72,246 ---------- ---------- TOTAL LIABILITIES 2,688,427 2,602,112 ---------- ---------- STOCKHOLDERS' EQUITY Preferred stock - $10 par value Authorized - 20,000,000 shares Issued - 271,917 and 287,500 shares Aggregate liquidation value - $6,798 and $7,188 2,719 2,875 Common stock - $2 par value Authorized - 100,000,000 shares Issued - 16,983,152 and 16,187,938 shares 33,966 32,376 Additional paid-in capital 152,720 124,901 Retained earnings 61,705 86,632 Accumulated other comprehensive income 6,074 5,262 Treasury stock - 78,367 and 113,592 shares at cost (2,866) (3,628) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 254,318 248,418 ---------- ---------- $2,942,745 $2,850,530 ========== ========== 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, ---------------- ------------------ 1998 1997 1998 1997 ------- ------- -------- -------- INTEREST INCOME Loans, including fees $47,187 $43,958 $ 93,305 $ 86,788 Securities: Taxable 7,328 6,732 14,768 13,148 Nontaxable 515 606 1,079 1,208 Dividends 359 253 805 543 Other 1,152 758 2,126 1,690 ------- ------- -------- -------- TOTAL INTEREST INCOME 56,541 52,307 112,083 103,377 ------- ------- -------- -------- INTEREST EXPENSE Deposits 22,286 19,884 44,250 39,274 Short-term borrowings 1,470 1,483 2,998 2,942 Long-term debt 1,300 854 2,346 1,608 ------- ------- -------- -------- TOTAL INTEREST EXPENSE 25,056 22,221 49,594 43,824 ------- ------- -------- -------- NET INTEREST INCOME 31,485 30,086 62,489 59,553 Provision for loan losses 1,598 3,580 3,284 5,922 ------- ------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 29,887 26,506 59,205 53,631 ------- ------- -------- -------- NON-INTEREST INCOME Insurance commissions and fees 1,004 1,075 2,010 2,106 Service charges 3,710 3,081 7,300 6,240 Trust 335 417 694 856 Gain (loss) on sale of securities 407 (55) 945 439 Other 1,697 918 3,222 2,029 ------ ------- -------- -------- TOTAL NON-INTEREST INCOME 7,153 5,436 14,171 11,670 37,040 31,942 73,376 65,301 ------- ------- -------- -------- NON-INTEREST EXPENSES Salaries and employee benefits 13,777 13,065 27,526 25,410 Net occupancy 1,877 1,786 3,758 3,636 Equipment 1,978 1,839 3,830 3,495 Merger related 1,781 1,102 1,951 1,102 Other 6,567 9,243 13,896 15,901 ------- ------- -------- -------- TOTAL NON-INTEREST EXPENSES 25,980 27,035 50,961 49,544 ------- ------- -------- -------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 11,060 4,907 22,415 15,757 Income taxes 3,962 1,524 7,539 5,082 INCOME BEFORE EXTRAORDINARY ITEM 7,098 3,383 14,876 10,675 Gain on sale of subsidiary, net of tax 5,227 5,227 ------- ------- -------- -------- NET INCOME $ 7,098 $ 8,610 $ 14,876 $ 15,902 ======= ======= ======== ======== INCOME PER COMMON SHARE BEFORE EXTRAORDINARY ITEM: Basic $ .41 $ .20 $ .87 $ .64 ======= ======= ======== ======== Diluted $ .40 $ .20 $ .83 $ .62 ======= ======= ======== ======== NET INCOME PER COMMON SHARE: Basic $ .41 $ .52 $ .87 $ .97 ======= ======= ======== ======== Diluted $ .40 $ .50 $ .83 $ .92 ======= ======= ======== ======== CASH DIVIDENDS PER COMMON SHARE $ .18 $ .15 $ .35 $ .30 ======= ======= ======== ======== 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 1998 1997 --------- --------- OPERATING ACTIVITIES Net income $ 14,876 $ 15,902 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,991 4,128 Provision for loan losses 3,284 5,922 Deferred taxes (481) 1,707 Net gain on sale of securities (945) (439) Net gain on sale of loans (1,427) (947) Proceeds from sale of loans 66,626 16,522 Loans originated for sale (69,883) (13,633) Extraordinary gain on sale of subsidiary, net of tax (5,227) Net change in: Interest receivable (849) (1,884) Interest payable 930 (94) Other, net (2,739) (3,912) --------- --------- Net cash flows from operating activities 13,383 18,045 --------- --------- INVESTING ACTIVITIES Net change in: Interest bearing deposits with banks (1,984) (871) Federal funds sold 2,738 (8,779) Loans (91,640) (95,219) Securities available for sale: Purchases (120,958) (109,244) Sales 8,307 15,742 Maturities 109,962 100,784 Securities held to maturity: Purchases (4,208) (6,740) Maturities 29,364 18,734 Increase in premises and equipment (15,455) (8,447) Net cash paid for mergers, acquisitions and divestiture (5,976) Net cash flows from --------- --------- investing activities (83,874) (100,016) --------- --------- FINANCING ACTIVITIES Net change in: Non-interest bearing deposits, savings and NOW 25,642 67,148 Time deposits 47,964 (2,668) Short-term borrowings 11,266 18,136 Increase in long-term debt 5,413 16,073 Decrease in long-term debt (7,045) (25,312) Net acquisition of treasury stock (3,764) 58 Cash dividends paid (6,024) (4,639) --------- --------- Net cash flows from financing activities 73,452 68,796 --------- --------- NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 2,961 (13,175) Cash and due from banks at beginning of period 99,634 114,610 --------- --------- CASH AND DUE FROM BANKS AT END OF PERIOD $ 102,595 $ 101,435 ========= ========= See accompanying Notes to Consolidated Financial Statements F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements give retroactive effect to the mergers of West Coast Bank (West Coast) and Seminole Bank (Seminole) with and into F.N.B. Corporation (the Corporation). The mergers, which were consummated on January 20, 1998 and May 29, 1998, resulted in the Corporation issuing 585,263 and 855,454 shares of common stock, respectively. The 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 consolidated financial statements for the year ended December 31, 1997 and footnotes thereto included in the Corporation's Current Report on Form 8-K filed with the Securities and Exchange Commission on July 6, 1998. 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. Actual results could differ from those estimates. PER SHARE AMOUNTS Per share amounts have been adjusted for common stock dividends, including the 5% stock dividend declared on April 9, 1998 and paid on May 24, 1998. 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, 1998 ---------------------- --------------------- 1998 1997 1998 1997 ---------- ---------- ---------- --------- BASIC Income before extraordinary item $ 7,098 $ 3,383 $ 14,876 $ 10,675 Less: Preferred stock dividends declared (126) (154) (259) (314) ---------- ---------- ---------- ---------- Income before extraordinary item applicable to basic earnings per share 6,972 3,229 14,617 10,361 Extraordinary item, net of tax 5,227 5,227 ---------- ---------- ---------- ---------- Earnings applicable to basic earnings per share $ 6,972 $ 8,456 $ 14,617 $ 15,588 ========== ========== ========== ========== Average common shares outstanding 16,875,575 16,153,425 16,871,532 16,089,739 ========== ========== ========== ========== Income before extraordinary item $.41 $.20 $.87 $.64 Extraordinary item, net of tax .32 .32 ---- ---- ---- ---- Earnings per share $.41 $.52 $.87 $.97 ==== ==== ==== ==== DILUTED Income before extraordinary item $ 7,098 $ 3,383 $ 14,876 $ 10,675 Extraordinary item, net of tax 5,227 5,227 ---------- ---------- ---------- ---------- Earnings applicable to diluted earnings per share $ 7,098 $ 8,610 $ 14,876 $ 15,902 ========== ========== ========== ========== Average common shares outstanding 16,875,575 16,153,425 16,871,532 16,089,739 Series A convertible preferred stock 15,202 21,118 15,202 21,118 Series B convertible preferred stock 568,260 624,604 578,723 649,413 Net effect of dilutive stock options and stock warrants based on the treasury stock method 535,180 489,653 536,456 462,907 ---------- ---------- ---------- ---------- 17,994,217 17,288,800 18,001,913 17,223,177 ========== ========== ========== ========== Income before extraordinary item $.40 $.20 $.83 $.62 Extraordinary item, net of tax .30 .30 ---- ---- ----- ---- Earnings per share $.40 $.50 $.83 $.92 ==== ==== ==== ==== CASH FLOW INFORMATION Following is a summary of supplemental cash flow information (in thousands): Six months ended June 30 1998 1997 -------- -------- Cash paid for: Interest $48,664 $42,918 Taxes 6,685 4,718 Noncash Investing and Financing Activities: Acquisition of real estate in settlement of loans 723 960 Loans granted in the sale of other real estate 141 1,031 COMPREHENSIVE INCOME As of January 1, 1998, the Corporation adopted Financial Accounting Standards Board Statement (FAS) No. 130, "Reporting Comprehensive Income." FAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of FAS No. 130 had no impact on the Corporation's net income or stockholders' equity. FAS No. 130 requires unrealized gains or losses on the Corporation's available for sale securities, which prior to adoption were reported separately in stockholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of FAS No. 130. The components of comprehensive income, net of related tax, are as follows (in thousands): Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------- 1998 1997 1998 1997 -------- ------- -------- -------- Net income $7,098 $8,610 $14,876 $15,902 Other comprehensive income: Unrealized gains(losses) on securities: Unrealized holding gains (losses) arising during the period 520 1,930 1,393 130 Less: reclassification adjustment for gains included in net income (235) (581) (374) ------ ------- ------- ------- Other comprehensive income 285 1,930 812 (244) ------ ------- ------- ------- Comprehensive income $7,383 $10,540 $15,688 $15,658 ====== ======= ======= ======= MERGERS AND ACQUISITIONS On April 6, 1998, the Corporation signed a definitive merger agreement with Citizens Bank & Trust (Citizens), a community bank headquartered in Clearwater, Florida with assets of $116.0 million. The merger agreement calls for the exchange of the Corporation's common stock for each share of Citizens Holding Company, parent company of Citizens, common stock. The exchange ratio, which is based upon the average price of the Corporation's common stock prior to closing, ranges from 1.689 to 1.728 shares of the Corporation's common stock for each share of Citizens common stock. At June 30, 1998, Citizens had 580,800 shares of common stock outstanding and options covering 96,000 shares of common stock. Citizens will be merged into an existing subsidiary of the Corporation, First National Bank of Florida (FNB Florida), formerly Indian Rocks National Bank, in Largo, Florida. The transaction, which is expected to close during the third quarter of 1998 pending regulatory and shareholder approval, is expected to be accounted for as a pooling-of-interests On May 29, 1998, the Corporation completed its merger with Seminole, headquartered in Seminole, Florida with assets totaling $91.5 million. Under the terms of the agreement, each outstanding share of Seminole's common stock was converted into 1.530 shares of the Corporation's common stock. A total of 855,454 shares of the Corporation's common shares were issued. Results for prior years are restated to reflect this acquisition as a pooling-of-interests. Seminole will be merged into an existing subsidiary of the Corporation, FNB Florida before the end of the year. The following table sets forth separate company financial information for the quarter ended March 31, 1998 (in thousands): F.N.B. Corporation Seminole ----------- ---------- Net interest income $29,995 $1,009 Net income 7,470 328 On January 20, 1998, the Corporation completed its merger with West Coast, headquartered in Sarasota, Florida, with assets totaling $107.4 million. Under the terms of the agreement, each outstanding share of West Coast's common stock was converted into 1.0 share of the Corporation's common stock. A total of 585,263 shares of the Corporation's common stock were issued. Results for prior years are restated to reflect this acquisition as a pooling-of-interests. The following table sets forth separate company financial information for the year ended December 31, 1997 (in thousands): F.N.B. Corporation West Coast ----------- ---------- Net interest income $111,030 $4,013 Net income 33,123 879 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. 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 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 $31.0 million was unused at June 30, 1998. 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 uncommitted funding sources. The financial performance of the Corporation is subject to risk from interest rate fluctuations. This interest rate risk arises due to differences between the amount of interest-earning assets and the amount of interest-bearing liabilities subject to pricing over a specified period, the amount of change in individual interest rates and the embedded options in all financial instruments. The principal objective of the Corporation's asset/liability management activities is to maximize net interest income while maintaining acceptable levels of interest rate and liquidity risk and facilitating the funding needs of the Corporation. The Corporation's Asset/Liability Committee (ALCO) is responsible for achieving this objective. The Corporation uses an asset/liability model to quantify its balance sheet strategies and their associated risks. Net interest income simulation is the principal tool utilized for these purposes. Gap analysis is employed as a secondary diagnostic measurement. The Corporation attempts to mitigate interest rate risk through asset deployment, asset and liability pricing and matched maturity funding. A gradual 300 basis point decrease in interest rates is estimated to cause a decline in net interest income of .6% or $800,000 as compared to net interest income if interest rates were unchanged over the next twelve months. This low level of variation is within the Corporation's policy limits. This simulation analysis assumed that savings and checking interest rates have a low correlation to changes in market rates of interest and that certain asset prepayments changed as refinancing incentives evolved. Further, in the event of a change of such a magnitude in interest rates, the ALCO would likely take actions to further mitigate its exposure to the change. However, due to the greater uncertainty of other specific actions that would be taken, the analysis assumed no change in the Corporation's asset/liability composition. The gap analysis which follows is based on the amortization, maturity or repricing of the Corporation's interest-earning assets and interest-bearing liabilities. Non-maturity deposits have been allocated to represent their lower sensitivity to changes in market interest rates than other adjustable rate instruments. The cumulative gap represents the difference between these assets and liabilities over a specified time period. Based on the cumulative one year gap and assuming no change in asset/liability composition, a decrease in interest rates would be expected to result in slightly lower net interest income. The gap position is within the Corporation's policy limits. Following is the gap analysis as of June 30, 1998 (in thousands): Within 4-12 1-5 Over 3 Months Months Years 5 years Total --------- --------- ---------- ---------- ---------- INTEREST EARNING ASSETS Interest bearing deposits with banks $ 5,965 $ 100 $ 6,065 Federal funds sold 27,826 27,826 Loans held for sale 11,220 11,220 Securities: Available for sale 41,466 99,222 $ 233,492 $ 74,585 448,765 Held to maturity 23,825 30,421 45,117 8,934 108,297 Loans, net of unearned 626,403 565,031 807,217 112,709 2,111,360 --------- --------- ---------- ---------- ---------- 736,705 694,774 1,085,826 196,228 2,713,533 Other assets 229,212 229,212 --------- --------- ---------- ---------- ---------- $ 736,705 $ 694,774 $1,085,826 $ 425,440 $2,942,745 ========= ========= ========== ========== ========== INTEREST BEARING LIABILITIES Deposits: Interest checking $ 122,955 $ 339,109 $ 462,064 Savings 197,262 371,053 568,315 Time deposits 268,231 $ 558,703 $ 279,628 1,106,562 Short-term borrowings 134,866 138 14 135,018 Long-term debt 10,467 24,801 23,800 11,546 70,614 --------- --------- ---------- ---------- ---------- 733,781 583,642 303,428 721,722 2,342,573 Other liabilities 345,854 345,854 Stockholders' equity 254,318 254,318 --------- --------- ---------- ---------- ---------- $ 733,781 $ 583,642 $ 303,428 $1,321,894 $2,942,745 ========= ========= ========== ========== ========== PERIOD GAP $ 2,924 $ 111,132 $ 782,398 $ (896,454) ========= ========= ========== ========== CUMULATIVE GAP $ 2,924 $ 114,056 $ 896,454 ========= ========= ========== CUMULATIVE GAP AS A PERCENT OF TOTAL ASSETS .10% 3.88% 30.46% ========= ======== ========= RATE SENSITIVE ASSETS/RATE SENSITIVE LIABILITIES (CUMULATIVE) 1.00 1.09 1.55 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. Capital management is a continuous process. Since December 31, 1997, stockholders' equity has increased $8.9 million as a result of earnings retention. For the six months ended June 30, 1998, the return on average equity on a recurring net income basis was 13.19%. Recurring net income excludes merger related costs of $1.6 million, net of tax. Total cash dividends declared represented 36.60% of recurring net income. Book value per common share was $14.64 at June 30, 1998, compared to $14.32 at December 31, 1997. LOANS Following is a summary of loans (dollars in thousands): JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ Real estate: Residential $ 891,488 $ 896,606 Commercial 539,264 488,354 Construction 77,530 65,260 Installment loans to individuals 286,105 288,043 Commercial, financial and agricultural 252,334 244,864 Lease financing 89,450 59,852 Unearned income (24,811) (20,532) ---------- ---------- $2,111,360 $2,022,447 ========== ========== 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, 1998 1997 ---------- ------------ Non-performing assets: Non-accrual loans $ 9,486 $ 8,250 Restructured loans 1,763 1,345 ------- ------- Total non-performing loans 11,249 9,595 Other real estate owned 3,359 4,027 ------- ------- Total non-performing assets $14,608 $13,622 ======= ======= Asset quality ratios: Non-performing loans as percent of total loans .53% .47% Non-performing assets as percent of total assets .50% .48% Non-performing loans are closely monitored on an ongoing basis as part of the Corporation's loan review and work-out process. The potential risk of loss on these loans is evaluated by comparing the loan balance to the present value of projected future cash flows or the value of any underlying collateral. Losses are recognized 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, ------------------ ------------------ 1998 1997 1998 1997 ------- ------- ------- ------- Balance at beginning of period $29,704 $29,921 $29,066 $29,387 Reduction arising from the sale of a subsidiary (1,443) (1,443) Charge-offs (1,456) (2,817) (2,988) (4,885) Recoveries 334 489 818 749 ------- ------- ------- ------- Net charge-offs (1,122) (2,328) (2,170) (4,136) Provision for loan losses 1,598 3,580 3,284 5,922 ------- ------- ------- ------- Balance at end of period $30,180 $29,730 $30,180 $29,730 ======= ======= ======= ======= Allowance for loan losses to: Total loans, net of unearned income 1.43% 1.62% Non-performing loans 268.29% 304.74% The higher level of the provision for loan losses in 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 Bancorp, Inc. 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). Management believes, as of June 30, 1998, that the Corporation and each of its banking subsidiaries are all "well capitalized". As of March 31, 1998, the Corporation and each of its banking subsidiaries have been categorized as "well capitalized" under the regulatory framework for prompt corrective action. Following are capital ratios as of June 30, 1998 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 $275,146 13.5% $163,242 8.0% $204,052 10.0% (to risk- weighted assets) Tier 1 Capital 239,577 11.7% 81,621 4.0% 122,431 6.0% (to risk- weighted assets) Tier 1 Capital 239,577 8.2% 117,133 4.0% 146,416 5.0% (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. FINANCIAL INFORMATION SUMMARY Net income for the first six months of 1998 was $14.9 million compared to $15.9 million for the first six months of 1997. Basic earnings per share were $.87 and $.97 for the six months ended June 30, 1998 and 1997, respectively, while diluted earnings per share were $.83 and $.92 for those same periods. Several items of a non-recurring nature are included in these results, including $1.6 million of merger costs in 1998 and the $5.3 million gain on the sale of Bucktail Bank and Trust Company and $4.3 million of merger related and other non-recurring charges in 1997, all net of tax. Excluding these non-recurring items, net income was $16.5 million and $14.9 million for the first six months of 1998 and 1997, respectively, resulting in diluted earnings per share of $.91 and $.86 for the same periods. Highlights for the first six months of 1998 include: A return on average assets of 1.14% and a return on average equity of 13.19%, both based on recurring earnings. A 22.75% decrease in the provision for loan losses as compared to the first six months of 1997, after considering a $1.7 million provision taken in 1997 in order to consistently apply the Corporation's charge-off policy and methodology for determining the adequacy of the allowance for loan losses to West Coast Bancorp, Inc. A $33.3 million or 9.60% increase in net interest earning assets as compared to the first six months of 1997. FIRST SIX MONTHS OF 1998 AS COMPARED TO FIRST SIX MONTHS OF 1997: 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 1998 1997 --------------------------- ---------------------------- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ---------- --------- ------ ---------- ---------- ------ ASSETS Interest earning assets: Interest bearing deposits with banks $ 6,594 $ 183 5.55% $ 3,518 $ 108 6.14% Federal funds sold 70,932 1,943 5.48 61,687 1,582 5.13 Securities: Taxable 476,974 14,768 6.24 419,848 13,148 6.32 Non-taxable (1) 78,781 2,439 6.19 81,181 2,359 5.81 Loans (1) (2) 2,076,026 93,714 9.10 1,892,623 87,269 9.30 ---------- -------- ---------- -------- Total interest earning assets 2,709,307 113,047 8.41 2,458,857 104,466 8.57 ---------- -------- ---------- -------- Cash and due from banks 85,823 80,282 Allowance for loan losses (29,824) (30,850) Premises and equipment 73,955 52,959 Other assets 70,343 54,479 ---------- ---------- $2,909,604 $2,615,727 ========== ========== LIABILITIES Interest bearing liabilities: Deposits: Interest bearing demand $ 476,134 $ 5,451 2.31 $ 398,543 $ 4,055 2.05 Savings 563,550 8,858 3.17 541,792 8,158 3.04 Other time 1,098,998 29,941 5.49 1,003,058 27,061 5.44 Short-term borrowings 116,400 2,998 5.19 125,773 2,942 4.72 Long-term debt 74,679 2,346 6.28 43,399 1,608 7.41 ---------- -------- ---------- -------- Total interest bearing liabilities 2,329,761 49,594 4.29 2,112,565 43,824 4.18 ---------- -------- ---------- -------- Non-interest bearing demand deposits 289,000 250,498 Other liabilities 39,222 34,319 ---------- ---------- 2,657,983 2,397,382 ---------- ---------- STOCKHOLDERS' EQUITY 251,621 218,345 ---------- ---------- $2,909,604 $2,615,727 ========== ========== Net interest earning assets $ 379,546 $ 346,292 ========== ========== Net interest income $ 63,453 $ 60,642 ======== ======== Net interest spread 4.12% 4.39% ===== ===== Net interest margin (3) 4.72% 4.97% ===== ===== (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 1998, net interest income, on a fully taxable equivalent basis, totaled $63.5 million, representing a 4.64% increase over the first six months of 1997. Net interest income consisted of interest income of $113.0 million and interest expense of $49.6 million for the first six months of 1998 compared to $104.5 million and $43.8 million for each, respectively, for the first six months of 1997. Net interest margin fell to 4.72% at June 30, 1998 from 4.97% at June 30, 1997, as the yield on total interest earning assets declined by 16 basis points and the rate paid on interest bearing liabilities increased by 11 basis points. Strong competitive factors resulted in an 20 basis point decrease in the average yield on loans and a 10 basis point increase in rates paid on deposits. 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, 1998 as compared to the six months ending June 30, 1997 (in thousands): Volume Rate Net ------- ------- ------- INTEREST INCOME Interest bearing deposits with banks $ 84 $ (9) $ 75 Federal funds sold 248 113 361 Securities: Taxable 1,786 (166) 1,620 Non-taxable (66) 146 80 Loans 8,323 (1,878) 6,445 ------- ------- ------- 10,375 (1,794) 8,581 ------- ------- ------- INTEREST EXPENSE Deposits: Interest bearing demand 845 551 1,396 Savings 339 361 700 Other time 2,628 252 2,880 Short-term borrowings (154) 210 56 Long-term debt 936 (198) 738 ------- ------- ------- 4,594 1,176 5,770 ------- ------- ------- NET CHANGE $ 5,781 $(2,970) $ 2,811 ======= ======= ======= 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 7.39% from $87.3 million for the six months ended June 30, 1997 to $93.7 million for the six months ended June 30, 1998. This increase was the result of an increase in average loans of 9.69% over the same period last year. Interest expense on deposits increased $5.0 million or 12.67% for the six months ended June 30, 1998, compared to the six months ended June 30, 1997. This increase was the result of an increase in average deposits of 10.05% over the same six month period. The average balance in savings and time deposits increased $117.7 million as the average balance in interest bearing demand deposits increased by $77.6 million. Interest expense on long-term debt increased $738,000 or 45.90% for these same periods due to an increase in average long-term debt of 72.08%, which was partially offset by a decline in rate paid of 113 basis points. The provision for loan losses totaled $3.3 million for the first six months of 1998, as compared to $5.9 million for the first six months of 1997. In connection with the Corporation's 1997 acquisition of West Coast Bancorp, Inc. (WCBI), the Corporation recognized an additional provision for loan losses of approximately $1.7 million, during the second quarter of 1997 after applying the Corporation's allowance for loan loss policy and methodology for evaluating the adequacy of the allowance to WCBI. Non-interest income increased by 21.43% during the first six months of 1998 as compared to the first six months of 1997, primarily due to an increase of 16.99% in service charges and other fees and the recognition of $624,000 of income on the Corporation's equity investment. Total non-interest expenses increased 2.86% during the first six months of 1998, compared to the first six months of 1997. The increase was primarily attributable to an increase of $2.1 million in salaries and employee benefits. This increase was due to increases for incentive compensation as well as normal annual salary adjustments. Included in other non-interest expenses during the first six months of 1998 was $2.0 million for expenses related to the affiliations with West Coast and Seminole. Included in other non-interest expenses during the first six months of 1997 was $1.1 million for expenses related to the affiliations with West Coast Bancorp, Inc. These expenses were primarily legal and investment banking costs associated with the structuring and completion of the mergers. Income tax expense for the six months ended June 30, 1998 totaled $7.5 million, providing an effective tax rate of 33.63% compared to 32.25% for the six months ended June 30, 1997. SECOND QUARTER OF 1998 AS COMPARED TO SECOND QUARTER OF 1997: During the second quarter of 1998, net interest income increased $1.4 million or 4.65% over the second quarter of 1997. Total interest income increased $4.2 million or 8.09%, primarily the result of an increase in loan volume. Total interest expense increased $2.8 million or 12.76% during the second quarter of 1998, compared to the same period of 1997. Interest expense on deposits accounted for the majority of this increase, $2.4 million, due to an increase in average deposits. The provision for loan losses totaled $1.6 million for the second quarter of 1998, as compared to $3.6 million for the second quarter of 1997. In connection with the Corporation's 1997 acquisition of West Coast Bancorp, Inc. (WCBI), the Corporation recognized an additional $1.7 million provision for loan losses during the second quarter of 1997 after applying the Corporation's allowance for loan loss policy and methodology for evaluating the adequacy of the allowance to WCBI. Non-interest income increased 31.59% during the second quarter of 1998 compared to the same period of 1997. Total non-interest expenses decreased 3.90% during the second quarter of 1998, compared to the second quarter of 1997. This decrease in non-interest expenses was attributable to expenses in 1997 relating to the Corporation's wholly-owned subsidiary, Bucktail which was sold in June of 1997. During the second quarter of 1998, merger related expenses totaled $1.8 million as compared to $1.1 million in 1997. Income tax expense totaled $4.0 million during the quarter providing an effective tax rate of 35.82% compared to 31.06% in 1997. Net income totaled $7.1 million for the second quarter of 1998, compared to $8.6 million for the second quarter of 1997. Excluding the impact of the non-recurring items, net income totaled $8.5 million for the second quarter of 1998 and $7.6 million for the second quarter of 1997. YEAR 2000 The Year 2000 (Y2K) Issue is the result of computer programs being written using date fields consisting of only two digits rather than four. Computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures and temporary interruptions in the processing of transactions. The Y2K Issue is not only an internal issue but also affects third parties including customers, counterparties, service providers and vendors. Because the Y2K Issue poses an unprecedented and profound enterprise wide challenge for every organization, the Corporation formed a Y2K Committee. The Y2K Committee has developed a Year 2000 Enterprise Wide Project Plan (Y2K Plan). The Y2K Plan addresses both internal and external technology. In connection with the Y2K Plan, the Corporation has completed its inventory and assessment of all internal technologies, including both software and hardware. Each system was assigned a significance rating as to the degree of criticality. Formal detailed test plans for systems with significance ratings of a critical nature have been completed. Such systems include core processing and ancillary systems required to sustain operations. By the end of the millennium, each of the Corporation's banking subsidiaries will be processing on either of two core processing systems. The Corporation's northern banking affiliates will continue to process transactions on their existing core processing system. During the second quarter, the Corporation made the strategic decision to convert each of the Florida banking affiliates to a new core processing system over the next fifteen month period. The decision to convert was based in part on the number of different systems currently being utilized by the Florida banking affiliates and the expiration of the Corporation's primary Florida core processing contract. The Corporation has received a third party certification and written representations from both vendors that each system is Y2K compliant. The Corporation will be participating in test verifications of each core system during the fourth quarter of 1998. The Corporation is currently in the formative stage of developing a contingency plan which will utilize the two corporate wide core processing systems as contingencies for each other. The completion of the contingency plan will also occur during the fourth quarter of 1998. During July of 1998, the Corporation's consumer finance subsidiary, Regency Finance Company (Regency), selected a third party vendor to support all of its future core application requirements. These core applications will include loans, insurance and the Corporation's subordinated note program. Regency's decision to select a new system was based upon the system's ability to support new lending products as well as the operating efficiencies resulting from real-time centralized processing. The vendor has provided a written warranty to Regency that is Y2K compliant. The system will be tested for Y2K readiness during the fourth quarter of 1998 and installed during the first quarter of 1999. With respect to external technology, the Y2K Plan provides for the evaluation and assessment of all significant funds takers, including large borrowing customers and bond issuers, and funds providers, including contingency lines of credit and deposit accounts. All project plans for funds takers and providers have been substantially completed with continued monitoring to occur. An integral part of the Corporation's funds provider project plan includes a Customer Awareness Program. This program was developed to assure customer confidence and avert reputation and liquidity risk. The program was not only developed to educate the Corporation's customers, but also its employees in responding to customer inquiries. The Y2K Plan includes due diligence procedures as it relates to the fiduciary responsibilities of the Corporation's investment and trust department, including such activities as settlement transactions, remittance of bond payments and transactions related to mutual funds and other securities. In performing its fiduciary responsibilities, the Corporation is in the process of assessing the Y2K readiness of its safe keeping agents and broker/dealers. All assessments are to be completed by the end of the third quarter of 1998. Finally, the Y2K Plan addresses the Corporation's service providers, including significant suppliers and vendors. Currently, the Corporation is in the process of rating each service provider, assessing their ability to be Y2K ready and developing a contingency plan for those in question. While this process is in its early stages, there is a reluctance by the service providers to expressly certify to Y2K readiness. The Corporation's assessment of all significant service providers and the identification of contingency providers is to be completed by the end of the fourth quarter of 1998. The Corporation's current assessment of cost associated with the completion of its Y2K Plan is not considered by management to be material to the Corporation's future operations. The cost of completing the Corporation's Y2K Plan and the dates on which all procedures will be completed are based on management's best estimates. These estimates were derived utilizing various assumptions about future events, including continued availability of resources, external technology modification plans and other significant factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. 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 29, 1998. 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" "Withheld" ------------- ------------- Edward J. Mace 11,241,015 77,890 Peter Mortensen 11,220,332 98,572 Robert S. Moss 11,241,045 77,860 William A. Quinn 11,221,351 97,554 Gary L. Tice 11,238,105 80,800 ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 27. Financial Data Schedule (filed herewith) (b) Reports on Form 8-K A report on Form 8-K, dated April 3, 1998, was filed by the Corporation. The Form 8-K included Audited Supplemental Consolidated Financial Statements for the years ended December 31, 1997, 1996 and 1995 with Report of Independent Auditors and Management's Discussion and Analysis giving effect to the merger of the Corporation and West Coast Bank on a pooling-of-interests basis. A report on Form 8-K, dated July 6, 1998, was filed by the Corporation. The Form 8-K included Audited Supplemental Consolidated Financial Statements for the years ended December 31, 1997, 1996 and 1995 with Report of Independent Auditors and Management's Discussion and Analysis giving effect to the merger of the Corporation and Seminole Bank on a pooling-of-interests basis. 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, 1998 /S/ PETER MORTENSEN -------------------- ----------------------------------------- Peter Mortensen Chairman and Chief Executive Officer (Principal Executive Officer) Dated: AUGUST 13, 1998 /S/ JOHN D. WATERS -------------------- ----------------------------------------- John D. Waters Vice President and Chief Financial Officer (Principal Financial Officer) EX-27 2
9 1000 3-MOS DEC-31-1998 JUN-30-1998 102,595 6,065 27,826 0 448,765 108,297 108,693 2,111,360 30,180 2,945,745 2,440,433 135,018 42,362 70,614 33,966 0 2,719 217,633 2,942,745 47,187 8,202 1,152 56,541 22,286 25,056 31,485 1,598 407 25,980 11,060 11,060 0 0 7,098 .41 .40 4.72 9,486 2,591 1,763 0 29,704 1,456 334 30,180 30,180 0 0
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