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, 1995 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _______________________ Commission file number 0-8144 F.N.B. CORPORATION - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 25-1255406 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Hermitage Square, Hermitage, PA 16148 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (412) 981-6000 - ------------------------------------------------------------------------------ (Registrant's telephone number, including area code) Not applicable - ------------------------------------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 31, 1995 ----- ----------------------------- Common Stock, $2 Par Value 8,587,881 Shares - -------------------------- ---------------- F.N.B. CORPORATION FORM 10-Q June 30, 1995 INDEX PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheet 2 Consolidated Income Statement 3 Consolidated Statement of Cash Flows 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II - OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Defaults Upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 18 -1- F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET Dollars in thousands JUNE 30, DECEMBER 31, 1995 1994 ------------ ------------ (Unaudited) (Note) ------------ ------------ ASSETS Cash and due from banks $ 64,126 $ 60,451 Interest bearing deposits with banks 9,558 2,770 Federal funds sold 7,570 4,016 Securities available for sale 137,997 120,061 Investment securities (fair value of $244,109 and $246,834) 245,983 257,956 Loans available for sale 4,364 5,904 Loans, net of unearned income of $23,781 and $22,022 1,192,685 1,188,399 ------------ ------------ Allowance for loan losses (21,173) (20,295) ------------ ------------ NET LOANS 1,175,876 1,174,008 ------------ ------------ Premises and equipment 23,144 22,982 Other assets 41,929 44,275 ------------ ------------ $ 1,706,183 $ 1,686,519 ============ ============ LIABILITIES Deposits: Non-interest bearing $ 170,089 $ 163,566 Interest bearing 1,281,776 1,261,839 ------------ ------------ TOTAL DEPOSITS 1,451,865 1,425,405 Short-term borrowings 55,021 69,365 Other liabilities 24,936 26,142 Long-term debt 39,274 39,017 ------------ ------------ TOTAL LIABILITIES 1,571,096 1,559,929 ------------ ------------ MINORITY INTEREST 540 ------------ STOCKHOLDERS' EQUITY Preferred stock - $10 par value Authorized - 20,000,000 shares Outstanding - 455,938 and 456,288 shares Aggregate liquidation value - $11,398 and $11,407 4,559 4,563 Common stock - $2 par value Authorized - 20,000,000 shares Outstanding - 8,595,974 and 8,163,014 shares 17,252 16,364 Additional paid-in capital 58,522 51,686 Retained earnings 52,681 53,121 Net unrealized securities gains 2,610 625 Treasury stock - 30,019 and 18,974 shares at cost (537) (309) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 135,087 126,050 ------------ ------------ $ 1,706,183 $ 1,686,519 ============ ============ NOTE: The balance sheet at December 31, 1994 was derived from the audited financial statements at that date. See accompanying Notes to Consolidated Financial Statements -2- F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT Dollars in thousands, except per share data Unaudited THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 1995 1994 1995 1994 --------- --------- --------- --------- INTEREST INCOME Loans, including fees $ 28,383 $ 25,269 $ 56,019 $ 50,255 Securities: Taxable 4,369 4,828 8,601 9,623 Tax exempt 439 392 745 789 Dividends 74 137 299 286 Other 569 262 805 502 --------- --------- --------- --------- TOTAL INTEREST INCOME 33,834 30,888 66,469 61,455 --------- --------- --------- --------- INTEREST EXPENSE Deposits 13,113 10,790 25,010 21,718 Short-term borrowings 821 706 1,670 1,551 Long-term debt 741 758 1,522 1,382 --------- --------- --------- --------- TOTAL INTEREST EXPENSE 14,675 12,254 28,202 24,651 --------- --------- --------- --------- NET INTEREST INCOME 19,159 18,634 38,267 36,804 Provision for loan losses 1,393 2,145 2,934 4,831 --------- --------- --------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 17,766 16,489 35,333 31,973 --------- --------- --------- --------- NON-INTEREST INCOME Insurance commissions and fees 1,601 1,185 2,338 2,176 Service charges 1,682 1,258 3,413 3,075 Trust 349 410 755 799 Gain on sale of securities 194 352 361 776 Other 498 438 866 459 --------- --------- --------- --------- TOTAL NON-INTEREST INCOME 4,324 3,643 7,733 7,285 --------- --------- --------- --------- 22,090 20,132 43,066 39,258 --------- --------- --------- --------- NON-INTEREST EXPENSES Salaries and employee benefits 7,348 7,031 14,812 14,125 Net occupancy 1,089 1,112 2,253 2,285 Amortization of intangibles 322 372 650 748 Equipment 976 1,025 1,921 2,017 Deposit insurance 934 935 1,868 1,874 Other 4,904 4,797 9,185 9,072 --------- --------- --------- --------- TOTAL NON-INTEREST EXPENSES 15,573 15,272 30,689 30,121 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 6,517 4,860 12,377 9,137 Income taxes 2,172 1,573 4,048 2,917 --------- --------- --------- --------- NET INCOME $ 4,345 $ 3,287 $ 8,329 $ 6,220 ========= ========= ========= ========= NET INCOME PER COMMON SHARE: Primary $ .48 $ .36 $ .92 $ .67 ========= ========= ========= ========= Fully Diluted $ .46 $ .35 $ .88 $ .66 ========= ========= ========= ========= CASH DIVIDENDS PER COMMON SHARE $ .07 $ .07 $ .14 $ .13 ========= ========= ========= ========= AVERAGE COMMON SHARES OUTSTANDING 8,591,666 8,575,911 8,594,869 8,573,993 ========= ========= ========= ========= See accompanying Notes to Consolidated Financial Statements -3- F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Dollars in thousands Unaudited Six Months Ended June 30 1995 1994 ---------- ---------- OPERATING ACTIVITIES Net income $ 8,329 $ 6,220 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,394 3,239 Provision for loan losses 2,934 4,831 Deferred taxes 100 (1,610) Gain on securities available for sale (357) (776) (Gain) loss on loan sales (30) 360 Proceeds from sale of loans 16,180 36,130 Loans originated for sale (14,610) (28,639) Change in: Interest receivable 49 151 Interest payable 1 1,182 Other, net (731) 1,469 --------- --------- Net cash flows from operating activities 14,259 22,557 --------- --------- INVESTING ACTIVITIES Net change in interest bearing deposits with banks (6,788) (3,541) Net change in federal funds sold (3,554) 463 Purchase of securities available for sale (42,349) (59,175) Purchase of investment securities (22,619) (17,599) Proceeds from sale of securities available for sale 1,296 9,546 Proceeds from maturity of securities available for sale 26,500 49,661 Proceeds from maturity of investment securities 34,265 37,837 Net change in loans (6,350) (22,930) Increase in premises and equipment (1,541) (818) --------- --------- Net cash flows from investing activities (21,140) (6,556) --------- --------- FINANCING ACTIVITIES Net change in non-interest bearing deposits 6,523 (4,395) Net change in interest bearing deposits 19,937 (9,129) Net change in short-term borrowings (14,344) (1,649) Increase in long-term debt 3,719 1,362 Decrease in long-term debt (3,462) (1,341) Proceeds from sale of stock 695 496 Purchase of treasury stock (913) (398) Cash dividends paid (1,599) (1,543) --------- --------- Net cash flows from financing activities 10,556 (16,597) --------- --------- NET (INCREASE) DECREASE IN CASH AND DUE FROM BANKS 3,675 (596) Cash and due from banks at beginning of period 60,451 59,978 --------- --------- CASH AND DUE FROM BANKS AT END OF PERIOD $ 64,126 $ 59,382 ========= ========= See accompanying Notes to Consolidated Financial Statements -4- F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) June 30, 1995 BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 1995 are not necessarily indicative of the results that may be expected for the year ended December 31, 1995. For further information, refer to the consolidated financial statements and footnotes thereto included in the Corporation's annual report on Form 10-K for the year ended December 31, 1994. PER SHARE AMOUNTS Per share amounts are adjusted for common stock dividends. Primary earnings per common share is calculated by dividing net income, adjusted for preferred stock dividends declared, by the sum of the weighted average number of shares of common stock outstanding and the number of shares of common stock which would be issued assuming the exercise of stock options during each period. Fully diluted earnings per common share is calculated by dividing net income, adjusted for minority interest, by the weighted average number of shares of common stock outstanding, assuming the conversion of outstanding convertible preferred stock from the beginning of the year or date of issuance and the exercise of stock options. Cash dividends per common share are based on the actual cash dividends declared adjusted for stock dividends. Book value per common share is based on shares outstanding at each period end adjusted retroactively for stock dividends. LOANS On January 1, 1995, the Corporation adopted Statement of Financial Accounting Standards (FAS) No. 114, "Accounting by Creditors for Impairment of a Loan," which requires that impaired loans be identified and measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. FAS No. 114 had no material effect on the Corporation's financial position or results of operations. CASH FLOW INFORMATION Following is a summary of supplemental cash flow information (in thousands): Six months ended June 30 1995 1994 ------- -------- Cash paid for: Interest $29,950 $ 23,439 Income taxes 3,090 4,689 Noncash Investing and Financing Activities: Acquisition of real estate in settlement of loans 984 740 Loans granted in the sale of other real estate 133 596 Loans reclassified from available for sale 119,858 Conversion of minority interest 540 -5- 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 investment portfolio, the Corporation generally has sufficient sources of funds available as needed to meet its routine, operational cash needs. In addition to normal liquidity provided from operations, the Corporation has external sources of funds available should it desire to use them. These include approved lines of credit with several major domestic banks, of which $21.0 million was unused at June 30, 1995. To further meet its liquidity needs, the Corporation also has access to the Federal Reserve System, the Federal Home Loan Bank and other uncommitted funding sources. Interest rate sensitivity measures the impact that future changes in interest rates will have on net interest income. The cumulative gap reflects a point-in-time net position of assets and liabilities repricing in specified time periods. The gap is one measurement of risk inherent in a balance sheet as it relates to changes in interest rates and their effect on net interest income. The gap analysis which follows is based on a combination of asset and liability amortizations, maturities and repricing opportunities. Non-maturity deposit balances have been allocated to various repricing intervals to more accurately depict their true behavior and characteristics. This allocation was done in accordance with Section 305 of the Federal Deposit Insurance Corporation Improvement Act. Based on the cumulative one year gap in this table and assuming no restructuring or modifications to asset/liability composition, a rise in interest rates would have a negative impact on net interest income. Gap alone does not accurately measure the magnitude of changes in net interest income since changes in interest rates do not affect all categories of assets and liabilities equally or simultaneously. Recognizing that traditional gap analyses do not measure dynamically the exposure to interest rate changes, the Corporation also relies on computer simulation modeling to measure the effect of upward and downward interest rate changes on net interest income. Simulation has been in use at the Corporation's lead bank (representing 53% of consolidated assets) and is currently being implemented at its other subsidiaries. Through the review of gap analyses and simulation modeling, management continually monitors the Corporation's exposure to changing interest rates. -6- Following is the gap analysis as of June 30, 1995 (in thousands): Within 4-12 1-5 Over 3 Months Months Years 5 years Total --------- --------- --------- --------- ---------- Interest Earning Assets Interest bearing deposits with banks $ 9,458 $ 100 $ 9,558 Federal funds sold 7,570 7,570 Securities: Available for sale 9,622 42,073 $ 72,148 $ 14,154 137,997 Held for investment 19,999 29,908 182,898 13,178 245,983 Loans, net of unearned 259,598 200,573 414,884 321,994 1,197,049 --------- --------- --------- --------- ---------- 306,247 272,654 669,930 349,326 1,598,157 Other assets 108,026 108,026 --------- --------- --------- --------- ---------- $ 306,247 $ 272,654 $ 669,930 $ 457,352 $1,706,183 ========= ========= ========= ========= ========== Interest Bearing Liabilities Deposits: Interest checking $ 7,674 $ 23,021 $ 122,777 $ 153,472 Savings 41,714 125,143 250,284 417,141 Time deposits 144,249 263,777 301,645 $ 1,492 711,163 Short-term borrowings 21,831 17,042 16,148 55,021 Long-term debt 318 18,753 7,485 12,718 39,274 --------- --------- --------- --------- ---------- 215,786 447,736 698,339 14,210 1,376,071 Other liabilities 195,025 195,025 Stockholders' equity 135,087 135,087 --------- --------- --------- --------- ---------- $ 215,786 $ 447,736 $ 698,339 $ 344,322 $1,706,183 ========= ========= ========= ========= ========== Period Gap $ 90,461 $(175,082) $ (28,409) $ 113,030 ========= ========= ========= ========= Cumulative Gap $ 90,461 $ (84,621) $(113,030) ========= ========= ========= Rate Sensitive Assets/Rate Sensitive Liabilities (Cumulative) 1.42 0.87 0.92 1.16 ========= ========= ========= ========= Cumulative Gap as a Percent of Total Assets 5.3% (5.0%) (6.6%) ========= ========= ========= Capital Resources The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance and changing competitive conditions and economic forces. The Corporation maintains a strong capital base to support its growth and expansion activities, to provide stability to current operations and to promote public confidence. The capital management function is a continuous process. Central to this process is internal equity generation accomplished mainly by earnings retention. Since December 31, 1994, total retained earnings has increased $7.1 million as a result of earnings retention. For the six months ended June 30, 1995, the return on average equity was 12.83%. Total cash dividends declared represented 19.21% of net income. Book value per share was $14.39 at June 30, 1995, compared to $13.38 at December 31, 1994. During the first quarter of 1995, the minority interest of First County Bank, a subsidiary of the Corporation, was exchanged for the Corporation's common stock. As a result of this exchange, the Corporation now owns 100% of First County Bank. -7- The Corporation's capital position continues to exceed regulatory minimums. The primary indicators relied on by the Federal Reserve Board and other bank and thrift regulators in measuring strength of capital position are the Core Capital, Total Risk-Based Capital and Leverage ratios. Following is a table summarizing these ratios and the related regulatory minimums as of June 30, 1995 and December 31, 1994, respectively (in thousands): JUNE 30, DECEMBER 31, REGULATORY 1995 1994 MINIMUMS ------------ ------------ ---------- Capital Ratios: Core Capital 11.23% 10.58% 4.00% Total Risk-Based Capital 13.36 12.71 8.00 Leverage 7.68 7.25 5.00 Core Capital consists of common and qualifying preferred stockholders' equity less non-qualifying intangibles and Total Risk-Based Capital consists of Core Capital, qualifying subordinated debt and a portion of the allowance for loan losses both calculated with reference to risk-weighted assets consisting of both on- and off- balance sheet risks. The Leverage ratio consists of Core Capital divided by quarterly average assets less non-qualifying intangibles. Under Federal Reserve Board policy, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the Federal Reserve Board's policy that, in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity, in circumstances where it might not do so absent such policy, and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. The failure of a bank holding company to serve as a source of strength to its subsidiary banks would generally be considered by the Federal Reserve Board to be an unsafe and unsound banking practice, a violation of Federal Reserve Board regulations, or both. NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES Non-performing assets include non-performing loans and other real estate owned. Non-performing loans include non-accrual loans, loans 90 days or more past due, and restructured loans. Non-accrual loans represent loans on which interest accruals have been discontinued. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on non-accrual loans is either applied against principal or reported as interest income, according to management's judgment as to the collectibility of principal. Loans which reach non-accrual status may not be restored to accrual status until all delinquent principal and interest has been paid, or the loan becomes both secured and in the process of collection. Restructured loans are loans with respect to which a borrower has been granted a concession on the interest rate or the original repayment terms because of financial difficulties. Following is a summary of non-performing assets (in thousands): JUNE 30, DECEMBER 31, 1995 1994 ------------ ------------ Non-performing assets: Non-accrual loans $ 6,418 $ 9,512 Loans past due 90 days or more 2,708 2,621 Restructured loans 3,121 3,157 ------- ------- Total non-performing loans 12,247 15,290 Other real estate owned 3,173 3,675 ------- ------- Total non-performing assets $15,420 $18,965 ======= ======= Asset quality ratios: Non-performing loans as percent of total loans 1.01% 1.28% Non-performing assets as percent of total assets .90% 1.12% -8- Non-accrual loans totaled $6.4 million at June 30, 1995, representing a decrease of $3.1 million from $9.5 million at December 31, 1994. The ratio of non-accrual loans to total loans decreased from .80% at December 31, 1994 to .54% at June 30, 1995. The decrease was the result of management's continued focus on improved asset quality. Non-performing loans are closely monitored on an ongoing basis as part of the Corporation's loan review process. The potential risk of loss on these loans is evaluated by comparing the loan balance to the present value of projected future cash flows or the value of any underlying collateral, recognizing losses where appropriate. Management's analysis of the allowance for loan losses includes the evaluation of the loan portfolio based on internally generated loan review reports and the historical loss experience of the remaining balances of the various homogeneous loan pools which comprise the loan portfolio. Specific factors which are evaluated include the previous loan loss experience with the customer, the status of past due interest and principal payments on the loan, the collateral position of the loan, the quality of financial information supplied by the borrower and the general financial condition of the borrower. Historical loss experience on the remaining portfolio segments is considered in conjunction with current status of economic conditions, loan loss trends, delinquency and non-accrual trends, credit administration, concentrations of credit and off-balance sheet risk. Following is a summary of changes in the allowance for loan losses and selected ratios (dollars in thousands): At or for the At or for the Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 1995 1994 1995 1994 ------- ------- ------- ------- Balance at beginning of period $20,922 $18,719 $20,295 $16,440 Charge-offs (1,544) (1,995) (2,886) (2,928) Recoveries 402 283 830 809 ------- ------- ------- ------- Net charge-offs (1,142) (1,712) (2,056) (2,119) Provision for loan losses 1,393 2,145 2,934 4,831 ------- ------- ------- ------- Balance at end of period $21,173 $19,152 $21,173 $19,152 ======= ======= ======= ======= Net charge-offs as percent of average loans, net of unearned (annualized) .34% .37% Allowance for loan losses to: Total loans, net of unearned income 1.77% 1.69% Non-performing assets 137.31% 101.35% The allowance for loan losses totaled $21.2 million at June 30, 1995, representing an increase of $2.0 million or 10.55% compared to June 30, 1994. The ratio of allowance for loan losses to total loans has increased from 1.69% at June 30, 1994 to 1.77% at June 30, 1995. The ratio of allowance for loan losses to non-performing assets increased to 137.31% at June 30, 1995, compared to 101.35% at June 30, 1994. The ratio of net charge-offs to average loans, net of unearned income, outstanding (annualized) decreased from .37% at June 30, 1994 to .34% at June 30, 1995. FINANCIAL INFORMATION SUMMARY Net income for the first six months of 1995 was $8.3 million compared to $6.2 million for the first six months of 1994. Primary earnings per share for those periods were $.92 and $.67, respectively, and $.88 and $.66 on a fully diluted basis. Highlights for the first six months of 1995 include: * A 12.83% return on average equity and a 1.00% return on average assets. * A net interest margin on a fully taxable equivalent basis of 5.00%. * The provision for loan losses for the first six months of 1995 at $2.9 million was 39.27% lower than the provision recorded for the first six months of 1994. -9- First Six Months of 1995 as Compared to First Six Months of 1994: 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 1995 1994 ------------------------------ ------------------------------ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ---------- ---------- ------ ---------- ---------- ------ Assets Interest earning assets: Interest bearing deposits with banks $ 4,646 $ 141 6.09% $ 7,028 $ 105 2.99% Federal funds sold 22,014 663 6.03 22,434 398 3.55 Securities: U.S. Treasury and other U.S. Government agencies and corporations 314,647 8,600 5.51 372,907 9,622 5.20 States of the U.S. and political subdivisions (1) 35,135 1,121 6.38 36,342 1,191 6.55 Other securities (1) 14,064 338 4.81 13,529 365 5.40 Loans (1) (2) 1,196,115 56,671 9.55 1,135,263 50,900 9.04 ---------- -------- ---------- -------- Total interest earning assets 1,586,621 67,534 8.58 1,587,503 62,581 7.95 Cash and due from banks 52,900 53,625 Allowance for loan losses (21,047) (18,478) Premises and equipment 23,009 23,719 Other assets 45,319 46,231 ---------- ---------- $1,686,802 $1,692,600 ========== ========== Liabilities Interest bearing liabilities: Deposits: Interest bearing demand $ 154,542 $ 1,364 1.78 $ 169,610 $ 1,601 1.90 Savings 433,760 5,404 2.51 508,950 6,329 2.51 Other time 685,271 18,242 5.37 612,233 13,788 4.54 Short-term borrowings 55,978 1,670 6.01 65,320 1,551 4.78 Long-term debt 39,524 1,522 7.70 31,411 1,382 8.80 ---------- -------- ---------- -------- Total interest bearing liabilities 1,369,075 28,202 4.15 1,387,524 24,651 3.58 ---------- -------- ---------- -------- Non-interest bearing demand deposits 158,228 158,235 Other liabilities 28,601 26,825 ---------- ---------- 1,555,904 1,572,584 ---------- ---------- Minority Interest 522 ---------- Stockholders' Equity Preferred stock 4,562 4,578 Common stock 16,557 15,692 Additional paid-in capital 53,130 47,292 Retained earnings 55,566 50,339 Net unrealized securities gains 1,492 1,776 Treasury stock (409) (183) ---------- ---------- Total stockholders' equity 130,898 119,494 ---------- ---------- $1,686,802 $1,692,600 ========== ========== Excess of interest earning assets over interest bearing liabilities $ 217,546 $ 199,979 ========== ========== Net interest income $ 39,332 $ 37,930 ======== ======== Net interest spread 4.43% 4.37% ====== ====== Net interest margin (3) 5.00% 4.81% ====== ====== <FN> (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 outstanding includes non-accrual loans. Loans consist of average total loans less average unearned income. The amount of loan fees included in interest income on loans is immaterial. (3) Net interest margin is calculated by dividing the difference between total interest earned and total interest paid by total interest earning assets. -10- Net interest income, the Corporation's primary source of earnings, is the amount by which interest and fees generated by interest earning assets, primarily loans and securities, exceed interest expense on deposits and borrowed funds. During the first six months of 1995, net interest income, on a fully taxable equivalent basis, totaled $39.3 million, representing a 3.70% increase over the first six months of 1994. Net interest income as a percentage of average earning assets (commonly referred to as the margin) rose to 5.00% at June 30, 1995 from 4.81% at June 30, 1994. Net interest income can be analyzed in terms of the impact of changing volumes of interest earning assets and interest bearing liabilities. The following table sets forth certain information regarding changes in net interest income attributable to changes in the volumes of interest earning assets and interest bearing liabilities and changes in the rates for the six months ending June 30, 1995 as compared to the six months ending June 30, 1994 (in thousands): Volume Rate Net -------- -------- -------- Interest Income Interest bearing deposits with banks $ (168) $ 204 $ 36 Federal funds sold 142 123 265 Securities: U.S. Treasury and other U.S. Government agencies and corporations (3,162) 2,140 (1,022) States of the U.S. and political subdivisions (78) 8 (70) Other securities 28 (55) (27) Loans 5,654 117 5,771 ------- ------- ------- 2,416 2,537 4,953 ------- ------- ------- Interest Expense Deposits: Interest bearing demand (276) 39 (237) Savings (1,889) 964 (925) Other time 3,556 898 4,454 Short-term borrowings (555) 674 119 Long-term debt 654 (514) 140 ------- ------- ------- 1,490 2,061 3,551 ------- ------- ------- Net Change $ 926 $ 476 $ 1,402 ======= ======= ======= The amount of change not solely due to rate or volume changes was allocated between the change due to rate and the change due to volume based on the relative size of the rate and volume changes. Total interest income on a fully taxable equivalent basis increased $5.0 million or 7.91% for the first six months of 1995, compared to the first six months of 1994. Interest income on taxable securities decreased by $1.0 million or 10.62% over these same periods primarily as a result of maturities of taxable securities being used to fund loan demand. The greater loan demand resulted in an increase of $5.8 million in interest income on loans, including fees, on a fully taxable equivalent basis. Total interest expense increased $3.6 million or 14.41% for the six months ended June 30, 1995, compared to the six months ended June 30, 1994. Interest expense on deposits accounted for the majority of this increase, $3.3 million, as a result of the increasing interest rate environment and the change in the deposit mix from savings accounts to higher paying certificate accounts. On August 8, 1995, the FDIC voted to lower the deposit insurance premiums for banks, now that the Bank Insurance Fund (BIF) has been funded to the required level. The deposit premiums for well capitalized banks have been reduced from $.23 to $.04 per $100 of deposits. On the other hand, the Savings Association Insurance Fund is still under reserved. As a result, there will be no reduction in the insurance premiums for savings and loans. This recent action will have a beneficial effect on the Corporation since more than half of our deposits are in the BIF. -11- The provision for loan losses totaled $2.9 million for the first six months of 1995, representing a decrease of $1.9 million or 39.27% from the first six months of 1994, a direct result of the improvement in asset quality at the Corporation. The provision for loan losses charged to operations is a direct result of management's analysis of the adequacy of the allowance for loan losses which takes into consideration all factors relevant to the collectibility of the existing portfolio. Total non-interest income increased slightly during the first six months of 1995, compared to the same period of 1994 due to an increase in service charges. Total non-interest expenses increased $568,000 or 1.89% during the first six months of 1995, compared to the first six months of 1994. Salaries and employee benefits accounted for the majority of this increase. Income before taxes was $12.4 million for the first six months of 1995, representing an increase of $3.2 million or 35.46% over the same period of 1994. Income taxes increased $1.1 million or 38.77% over the same periods due to more taxable income being generated by the Corporation. Consolidated net income was $8.3 million for the first six months of 1995, representing a $2.1 million or 33.91% increase over the first six months of 1994. The Corporation's return on average assets was 1.00% and .74% for the first six months of 1995 and 1994, respectively, while the return on average equity was 12.83% and 10.66% for those same periods. Second Quarter of 1995 as Compared to Second Quarter of 1994 During the second quarter of 1995, net interest income increased $525,000 or 2.82% over the second quarter of 1994. Total interest income increased $2.9 million or 9.54% over these same periods, primarily the result of an increase of $3.1 million in loans, including fees. This increase is the result of greater loan demand. Total interest expense increased $2.4 million or 19.76% during the second quarter of 1995, compared to the same period of 1994. Interest expense on deposits accounted for the majority of this increase, $2.3 million, as a result of the increasing interest rate environment and the change in the deposit mix from savings accounts to higher paying certificate accounts. The provision for loan losses totaled $1.4 million for the second quarter of 1995, compared to $2.1 million for the second quarter of 1994. This is a result of the continuing improvement in asset quality at the Corporation. Total non-interest income increased $681,000 or 18.69% during the second quarter of 1995, compared to the second quarter of 1994, largely as a result of increases in premiums and commissions at the Corporation's insurance subsidiary. Total non-interest expenses increased slightly to $15.6 million from $15.3 million for the second quarter of 1995 and 1994, respectively. Expense levels in 1995 were affected by increases in the cost of certain employee benefits. Income before taxes increased to $6.5 million in the second quarter of 1995 from $4.9 million in the same period of 1994. Income tax expense increased to $2.2 million from $1.6 million over these same periods. Net income totaled $4.3 million for the second quarter of 1995, compared to $3.3 million for the second quarter of 1994. -12- PART II Item 1. Legal Proceedings No material pending legal proceedings exist to which the Corporation or any of its subsidiaries is a party, or of which any of their property is the subject, except ordinary routine proceedings which are incidental to the ordinary conduct of business. In the opinion of management, pending legal proceedings will not have a material adverse effect on the consolidated financial position of the Corporation and its subsidiaries. Item 2. Changes in Securities Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of F.N.B. Corporation was held on April 26, 1995. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1994 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" ------------ ---------- William J. Strimbu 5,925,947 46,602 Archie O. Wallace 5,915,805 51,144 Joseph M. Walton 5,900,807 75,842 James T. Weller 5,927,236 45,313 Eric J. Werner 5,904,690 68,419 Item 5. Other Information On July 28, 1995, the Corporation filed a Registration Statement on Form S-3 to register an additional $125,000,000 in securities. This filing is currently under review. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 3.1. Articles of Incorporation as currently in effect and any amendments thereto. (Incorporated by reference to Exhibit 3.1. of the Corporation's Form 10-K for the year ended December 31, 1992). 3.2. By-laws of the Corporation as currently in effect (incorporated by reference to Exhibit 4 of the Corporation's Form 10-Q for the quarter ended June 30, 1994). -13- 4 The rights of holders of equity securities are defined in portions of the Articles of Incorporation and By-laws. The Articles of Incorporation are incorporated by reference to Exhibit 3.1. of the registrant's Form 10-K for the year ended December 31, 1992. The By-laws are incorporated by reference to Exhibit 4 of the registrant's Form 10-Q for the quarter ended June 30, 1994. A designation statement defining the rights of F.N.B. Corporation Series A - Cumulative Convertible Preferred Stock is incorporated by reference to Form S-14, Registration Statement of F.N.B. Corporation, File No. 2-96404. A designation statement defining the rights of F.N.B. Corporation Series B - Cumulative Convertible Preferred Stock is incorporated by reference to Exhibit 4 of the registrant's Form 10-Q for the quarter ended June 30, 1992. The Corporation agrees to furnish to the Commission upon request copies of all instruments not filed herewith defining the rights of holders of long-term debt of the Corporation and its subsidiaries. 10.1. Form of agreement regarding deferred payment of directors' fees by First National Bank of Pennsylvania. (Incorporated by reference to Exhibit 10.1. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.2. Form of agreement regarding deferred payment of directors' fees by F.N.B. Corporation. (Incorporated by reference to Exhibit 10.2. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.3. Form of Deferred Compensation Agreement by and between First National Bank of Pennsylvania and four of its executive officers. (Incorporated by reference to Exhibit 10.3. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.4. Employment Agreement between The Metropolitan Savings Bank of Youngstown and Samuel K. Sollenberger. (Incorporated by reference to Exhibit 10.4. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.5. Employment Agreement between F.N.B. Corporation and Peter Mortensen. (Incorporated by reference to Exhibit 10.5. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). Amendment No. 2 to Employment Agreement (filed herewith). 10.6. Employment Agreement between F.N.B. Corporation and Stephen J. Gurgovits. (Incorporated by reference to Exhibit 10.6. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.7. Employment Agreement between F.N.B. Corporation and Samuel K. Sollenberger. (incorporated by reference to Exhibit 10.7. of the Corporation's Form 10-Q for the quarter ended March 31, 1994). 10.8. Employment Agreement between F.N.B. Corporation and William J. Rundorff. (Incorporated by reference to Exhibit 10.8. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1991). 10.9. Supplemental Executive Retirement Plan of F.N.B. Corporation effective January 1, 1992. (Incorporated by reference to Exhibit 10.9. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.10. F.N.B. Corporation 1990 Stock Option Plan. (Incorporated by reference to Exhibit 10.10. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.11. F.N.B. Corporation Restricted Stock Bonus Plan dated January 1, 1994. (Incorporated by reference to Exhibit 10.11. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). -14- Exhibit 10.5. AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT ENTERED INTO on and as of June 26, 1995 by and between PETER MORTENSEN (the "Executive") and F.N.B. CORPORATION (the "Company"). WHEREAS, the Executive and the Company are parties to an Employment Agreement dated as of January 1, 1990, as amended by an Amendment thereto dated June 2, 1994 (the "Employment Agreement"), and WHEREAS, the Executive and the Company have agreed to enter into a Consulting Agreement, in substantially the form attached hereto, pursuant to which (inter alia), upon cessation of the Executive's full-time employment under the Employment Agreement, the Executive shall be entitled to a fixed amount of compensation per annum for a period of seven years and shall be required to make himself available to serve the Company and its subsidiaries, as an independent consultant, with respect to various aspects of their business and affairs (as described therein); and WHEREAS, the Executive and the Company have agreed, in connection with the establishment of the said Consulting Agreement, and in consideration therefor, (i) to eliminate from the Employment Agreement the Executive's entitlement to severance compensation upon occurrence of the events described in Section 11 thereof, (ii) to amend and supplement the provisions of Section 1(b) thereof, and (iii) to eliminate Section 20 thereof in its entirety; and WHEREAS, the parties desire to reaffirm all the other terms and provisions of the Employment Agreement, NOW, THEREFORE, intending to be legally bound, the Executive and the Company covenant and agree that: 1. Section 1(b) of the Employment Agreement is hereby amended and supplemented as follows: 1st. From the last sentence, the words", except by operation of Section 20 hereof" are hereby deleted. 2nd. At the end thereof is hereby added a new sentence, to read in its entirety: "Notwithstanding the foregoing, the Executive shall have the right, exercisable by six months' written notice to the Company, to fix the expiration of the term as of any date on or after March 31, 1996, and thereby initiate the term of the Consulting Agreement dated as of June 26, 1995 between the Executive and the Company. 2. Section 11 of the Employment Agreement is hereby deleted in its entirety. 3. Section 20 of the Employment Agreement is hereby deleted in its entirety. -15- 4. The parties hereby reaffirm all the other terms and provisions of the Employment Agreement, which shall remain in full force and effect as amended hereby. 5. In consideration of the foregoing, the parties shall, concurrently herewith, enter into the Consulting Agreement in substantially the form attached hereto. WITNESS the due execution and delivery hereof as of the date first above written. WITNESS: EXECUTIVE William J. Rundorff Peter Mortensen - ------------------------------------ ---------------------------------- William J. Rundorff Peter Mortensen ATTEST: F.N.B. CORPORATION William J. Rundorff By James T. Weller - ------------------------------------ ------------------------------- William J. Rundorff, Asst. Secretary Chairman of the Compensation Committee of the Board of Directors -16- 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, -------------------- -------------------- 1995 1994 1995 1994 --------- --------- --------- --------- Primary Net Income $ 4,345 $ 3,287 $ 8,329 $ 6,220 Less: Preferred Stock Dividends Declared (213) (213) (425) (427) --------- --------- --------- --------- Net Income Applicable to Common Stock $ 4,132 $ 3,074 $ 7,904 $ 5,793 ========= ========= ========= ========= Average Common Shares Outstanding 8,591,666 8,575,910 8,594,869 8,573,992 Net Effect of Dilutive Stock Options - Based on the Treasury Stock Method Using Average Market Price 37,935 14,807 34,862 14,260 --------- --------- --------- --------- 8,629,601 8,590,717 8,629,731 8,588,252 ========= ========= ========= ========= Net Income per Common Share $.48 $.36 $.92 $.67 ==== ==== ==== ==== Fully Diluted Net Income $ 4,345 $ 3,287 $ 8,329 $ 6,220 Plus: Minority Interest 13 25 --------- --------- --------- --------- Net Income Applicable to Common Stock $ 4,345 $ 3,300 $ 8,329 $ 6,245 ========= ========= ========= ========= Average Common Shares Outstanding 8,591,666 8,575,910 8,594,869 8,573,992 Series A Convertible Preferred Stock 35,036 43,219 35,036 43,219 Series B Convertible Preferred Stock 839,415 801,420 839,479 801,420 Minority Interest Convertible Preferred Stock 31,332 31,332 Net Effect of Dilutive Stock Options - Based on the Treasury Stock Method Using the Year-End Market Price, If Higher than Average Market Price 40,485 16,481 40,485 16,481 --------- --------- --------- --------- 9,506,602 9,468,362 9,509,869 9,466,444 ========= ========= ========= ========= Net Income per Common Share $.46 $.35 $.88 $.66 ==== ==== ==== ==== (b) Reports on Form 8-K No reports on Form 8-K were filed for the three months ended June 30, 1995. -17- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. F.N.B. Corporation ------------------------------------------ (Registrant) Dated: August 11, 1995 Peter Mortensen ---------------------------- ------------------------------------------ Peter Mortensen Chairman and President (Principal Executive Officer) Dated: August 11, 1995 John D. Waters ---------------------------- ------------------------------------------ John D. Waters Vice President and Chief Financial Officer (Principal Financial Officer) -18-