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 September 30, 1996
----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ---------------------
Commission file number 0-8144
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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 & 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 October 31, 1996
----- -------------------------------
Common Stock, $2 Par Value 9,233,377 Shares
- -------------------------- ----------------
F.N.B. CORPORATION
FORM 10-Q
September 30, 1996
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet 2
Consolidated Income Statement 3
Consolidated Statement of Cash Flows 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 15
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Dollars in thousands
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(Unaudited) (Note)
------------- ------------
ASSETS
Cash and due from banks $ 66,246 $ 59,795
Interest bearing deposits with banks 1,893 2,603
Federal funds sold 9,508 22,335
Loans held for sale 6,594 10,154
Securities available for sale 179,356 223,479
Securities held to maturity (fair
value of $146,718 and $136,801) 148,594 136,969
Loans, net of unearned income of
$22,705 and $26,609 1,292,411 1,212,741
Allowance for loan losses (21,996) (21,550)
------------- ------------
NET LOANS 1,270,415 1,191,191
------------- ------------
Premises and equipment 24,912 22,504
Other assets 40,935 37,963
------------- ------------
$ 1,748,453 $ 1,706,993
============= ============
LIABILITIES
Deposits:
Non-interest bearing $ 159,441 $ 167,700
Interest bearing 1,286,658 1,274,409
------------ ------------
TOTAL DEPOSITS 1,446,099 1,442,109
Short-term borrowings 86,440 55,224
Other liabilities 30,885 25,988
Long-term debt 33,956 39,755
------------ ------------
TOTAL LIABILITIES 1,597,380 1,563,076
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock - $10 par value
Authorized - 20,000,000 shares
Outstanding - 398,368 and 451,638 shares
Aggregate liquidation value -
$9,959 and $11,291 3,984 4,516
Common stock - $2 par value
Authorized - 100,000,000 shares
Outstanding - 9,116,091 and 8,611,814 shares 18,339 17,268
Additional paid-in capital 68,127 58,631
Retained earnings 58,543 60,034
Net unrealized securities gains 3,362 3,932
Treasury stock - 53,606 and 22,340 shares at cost (1,282) (464)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 151,073 143,917
------------ ------------
$ 1,748,453 $ 1,706,993
============ ============
NOTE: The balance sheet at December 31, 1995 was derived from the audited
financial statements at that date.
See accompanying Notes to Consolidated Financial Statements
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
Dollars in thousands, except per share data
Unaudited
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
1996 1995 1996 1995
--------- --------- --------- ---------
INTEREST INCOME
Loans, including fees $ 29,682 $ 28,897 $ 88,123 $ 84,916
Securities:
Taxable 4,215 4,808 13,536 13,409
Tax exempt 420 357 1,220 1,102
Dividends 176 153 525 452
Other 178 357 825 1,162
--------- --------- --------- ---------
TOTAL INTEREST INCOME 34,671 34,572 104,229 101,041
--------- --------- --------- ---------
INTEREST EXPENSE
Deposits 12,978 13,350 39,197 38,360
Short-term borrowings 958 829 2,799 2,499
Long-term debt 609 809 1,996 2,331
--------- --------- --------- ---------
TOTAL INTEREST EXPENSE 14,545 14,988 43,992 43,190
--------- --------- --------- ---------
NET INTEREST INCOME 20,126 19,584 60,237 57,851
Provision for loan losses 1,390 1,366 4,196 4,300
--------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
18,736 18,218 56,041 53,551
--------- --------- --------- ---------
NON-INTEREST INCOME
Insurance commissions & fees 1,168 1,149 3,059 3,487
Service charges 1,753 1,624 4,979 5,037
Trust 384 260 1,150 1,015
Gain on sale of securities 205 62 771 423
Other 684 451 1,686 1,317
--------- --------- --------- ---------
TOTAL NON-INTEREST INCOME 4,194 3,546 11,645 11,279
--------- --------- --------- ---------
22,930 21,764 67,686 64,830
--------- --------- --------- ---------
NON-INTEREST EXPENSES
Salaries & employee benefits 7,520 7,373 23,031 22,185
Net occupancy 1,193 1,160 3,613 3,413
Amortization of intangibles 258 303 788 953
Equipment 837 732 2,582 2,653
Deposit insurance 308 253 923 2,121
SAIF recapitalization
assessment 2,965 2,965
Other 4,860 4,810 14,407 13,995
--------- --------- --------- ---------
TOTAL NON-INTEREST EXPENSES
17,941 14,631 48,309 45,320
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 4,989 7,133 19,377 19,510
Income taxes 1,486 2,277 5,931 6,325
--------- --------- --------- ---------
NET INCOME $ 3,503 $ 4,856 $ 13,446 $ 13,185
========= ========= ========= =========
NET INCOME PER COMMON SHARE:
Primary $ .36 $ .51 $ 1.40 $ 1.38
========= ========= ========= =========
Fully Diluted $ .35 $ .49 $ 1.34 $ 1.33
========= ========= ========= =========
CASH DIVIDENDS PER COMMON SHARE
$ .16 $ .10 $ .47 $ .23
========= ========= ========= =========
AVERAGE COMMON SHARES OUTSTANDING
9,106,760 9,022,910 9,064,297 9,024,039
========= ========= ========= =========
See accompanying Notes to Consolidated Financial Statements
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Dollars in thousands
Unaudited
Nine Months Ended September 30 1996 1995
---------- ---------
OPERATING ACTIVITIES
Net income $ 13,446 $ 13,185
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,252 3,544
Provision for loan losses 4,196 4,300
Deferred taxes (935) 215
Gain on securities available for sale (771) (423)
Gain on sale of loans (245) (94)
Proceeds from sale of loans 21,621 23,166
Loans originated for sale (17,816) (26,953)
Change in:
Interest receivable 1,252 (365)
Interest payable 627 1,740
Other, net 1,853 (7)
---------- ---------
Net cash flows from operating activities 26,480 18,308
---------- ---------
INVESTING ACTIVITIES
Net change in interest bearing deposits with banks 710 (360)
Net change in federal funds sold 12,827 (1,099)
Purchase of securities available for sale (54,374) (61,384)
Purchase of securities held to maturity (30,410) (35,082)
Proceeds from sale of securities available for sale 31,190 1,036
Proceeds from maturity of securities available for sale 67,064 35,754
Proceeds from maturity of securities held to maturity 18,736 58,628
Net change in loans (84,824) (10,662)
Increase in premises and equipment (4,635) (1,514)
---------- ---------
Net cash flows from investing activities (43,716) (14,683)
---------- ---------
FINANCING ACTIVITIES
Net change in non-interest bearing deposits (8,259) 3,975
Net change in interest bearing deposits 12,249 1,733
Net change in short-term borrowings 31,216 (14,287)
Increase in long-term debt 8,016 5,611
Decrease in long-term debt (13,815) (3,972)
Net acquisition of treasury stock (838) (92)
Cash dividends paid (4,882) (2,671)
---------- ---------
Net cash flows from financing activities 23,687 (9,703)
---------- ---------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 6,451 (6,078)
Cash and due from banks at beginning of period 59,795 60,451
---------- ---------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 66,246 $ 54,373
========== =========
See accompanying Notes to Consolidated Financial Statements
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the nine-month period ended September 30, 1996 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1996.
For further information, refer to the consolidated financial statements and
footnotes thereto incorporated by reference in the Corporation's annual
report on Form 10-K for the year ended December 31, 1995.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that effect the amounts reported in financial statements.
Actual results could differ from those estimates.
PER SHARE AMOUNTS
Per share amounts have been adjusted for the 5% common stock dividend in
the second quarter of 1996.
Primary earnings per common share is calculated by dividing net income,
adjusted for preferred stock dividends declared, by the sum of the weighted
average number of shares of common stock outstanding and the number of shares
of common stock which would be issued assuming the exercise of stock options
during each period.
Fully diluted earnings per common share is calculated by dividing net
income by the weighted average number of shares of common stock outstanding,
assuming the conversion of outstanding convertible preferred stock from the
beginning of the year or date of issuance and the exercise of stock options.
Cash dividends per common share are based on the actual cash dividends
declared adjusted for stock dividends. Book value per common share is based
on shares outstanding at each period end adjusted retroactively for stock
dividends.
CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information (in
thousands):
Nine months ended September 30 1996 1995
--------- --------
Cash paid for:
Interest $ 43,315 $ 41,449
Income taxes 5,879 6,319
Noncash Investing and Financing Activities:
Acquisition of real estate in settlement of loans
1,672 1,567
Loans granted in the sale of other real estate 319 281
Conversion of minority interest 540
MERGERS AND DISPOSITIONS
On February 2, 1996, the Corporation signed a definitive merger
agreement with Southwest Banks, Inc. (Southwest), a bank holding company
headquartered in Naples, Florida with assets of approximately $425 million.
The merger agreement calls for an exchange of .819 share of F.N.B.
Corporation common stock for each share of Southwest common stock after
giving effect to the 5% stock dividend announced on April 24, 1996. The
Corporation has reserved 3,276,700 shares to be issued in conjunction with
the merger. The planned merger has been approved by both the Federal Reserve
Bank of Cleveland and the Shareholders of Southwest Banks, Inc. The
transaction will be accounted for as a pooling of interests, and is expected
to close in early 1997, following the state of Florida's required statutory
waiting period.
On November 6, 1996, the Corporation signed a definitive agreement to
sell its interest in Bucktail Bank and Trust Company to Sun Bancorp, Inc.
The Corporation will receive Sun Bancorp, Inc. stock worth approximately
$17.5 million, which represents a 13.8 percent ownership interest in exchange
for 100 percent ownership in Bucktail Bank and Trust Company. At September
30, 1996 Bucktail Bank and Trust Company had total assets of $121 million.
EFFECT OF NEW ACCOUNTING STANDARDS
FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be disposed of," requires impairment losses to be
recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows associated with the
asset are not sufficient to recover the assets' carrying amount. The
impairment loss is measured by comparing the fair value of the asset to its
carrying amount. Adoption of this Statement did not have a material effect
on the Corporation's financial position or results of operations.
FAS No. 122, "Accounting for Mortgage Servicing Rights," an amendment of
FAS No. 65, allows enterprises engaging in mortgage banking activities to
recognize as separate assets rights to service mortgage loans originated for
sale. Additionally, the enterprise must periodically assess its capitalized
mortgage servicing rights for impairment based on the fair value of those
rights. Adoption of this Statement did not have a material effect on the
Corporation's financial position or results of operations, as the Corporation
does not significantly engage in the sale of mortgage loans.
FAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities," establishes new standards for determining
whether a transfer constitutes a sale and, if so, the determination of the
resulting gain or loss. These standards are based on the consistent
application of a financial-components approach that focuses on control.
Under this approach, an entity recognizes the financial and servicing assets
it controls and the liabilities it has incurred, derecognizes financial
assets when control has been surrendered, and derecognizes liabilities when
extinguished. Provisions of this statement are effective for certain
transactions entered into in 1997 and 1998. The Corporation does not
anticipate that adoption of this statement will have a material effect on the
Corporation's financial position or results of operations.
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation monitors its liquidity position on an ongoing basis to
assure that it is able to meet the need for funds at all times. Given the
monetary nature of its assets and liabilities and the significant source of
liquidity provided by its available for sale securities portfolio, the
Corporation 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 $25.0 million was unused at September 30, 1996. To further
meet its liquidity needs, the Corporation also has access to the Federal
Reserve System, the Federal Home Loan Bank and other uncommitted funding
sources.
Interest rate sensitivity measures the impact that future changes in
interest rates will have on net interest income. The cumulative gap reflects
a point-in-time net position of assets and liabilities repricing in specified
time periods. The gap is one measurement of risk inherent in a balance sheet
as it relates to changes in interest rates and their effect on net interest
income.
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 anticipated behavior and characteristics.
Based on the cumulative one year gap in this table and assuming no
restructuring or modifications to asset/liability composition, a rise in
interest rates would have a negative impact on net interest income.
Gap analyses alone do not accurately measure the magnitude of changes in
net interest income since changes in interest rates do not affect all
categories of assets and liabilities equally or simultaneously. Recognizing
that traditional gap analyses do not measure dynamically the exposure to
interest rate changes, management also relies on computer simulation modeling
to measure the effect of upward and downward interest rate changes on net
interest income.
Through the review of gap analyses and simulation modeling, management
continually monitors the Corporation's exposure to changing interest rates.
Management attempts to mitigate repricing mismatches through asset and
liability pricing and through matched maturity funding.
Following is the gap analysis as of September 30, 1996 (in thousands):
WITHIN 4-12 1-5 OVER
3 MONTHS MONTHS YEARS 5 YEARS TOTAL
--------- --------- --------- --------- ----------
INTEREST EARNING ASSETS
Interest bearing deposits
with banks $ 1,893 $ 1,893
Federal funds sold 9,508 9,508
Securities:
Available for sale 26,333 $ 68,303 $ 67,032 $ 17,688 179,356
Held to maturity 766 24,198 121,547 2,083 148,594
Loans, net of unearned 274,867 251,205 488,116 284,817 1,299,005
--------- --------- --------- --------- ----------
313,367 343,706 676,695 304,588 1,638,356
Other assets 110,097 110,097
--------- --------- --------- --------- ----------
$ 313,367 $ 343,706 $ 676,695 $ 414,685 $1,748,453
========= ========= ========= ========= ==========
INTEREST BEARING LIABILITIES
Deposits:
Interest checking $ 8,651 $ 25,953 $ 138,424 $ 173,028
Savings 32,835 98,505 256,546 387,886
Time deposits 177,314 259,433 285,757 $ 3,240 725,744
Short-term borrowings 45,117 21,356 19,967 86,440
Long-term debt 890 4,061 14,798 14,207 33,956
--------- --------- --------- --------- ----------
264,807 409,308 715,492 17,447 1,407,054
Other liabilities 190,326 190,326
Stockholders' equity 151,073 151,073
--------- --------- --------- --------- ----------
$ 264,807 $ 409,308 $ 715,492 $ 358,846 $1,748,453
========= ========= ========= ========= ==========
PERIOD GAP $ 48,560 $ (65,602)$ (38,797)$ 55,839
========= ========= ========= =========
CUMULATIVE GAP $ 48,560 $ (17,042)$ (55,839)
========= ========= =========
RATE SENSITIVE ASSETS/RATE
SENSITIVE LIABILITIES
(CUMULATIVE) 1.18 0.97 0.96 1.16
========= ========= ========= =========
CUMULATIVE GAP AS A PERCENT
OF TOTAL ASSETS 2.8% (1.0%) (3.2%)
========= ========= ==========
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, 1995, total stockholders' equity has increased
$7.7 million as a result of earnings retention. For the nine months ended
September 30, 1996, the return on average equity was 12.13%. Total cash
dividends declared represented 36.31% of net income. Book value per share
was $15.48 at September 30, 1996, compared to $14.67 at December 31, 1995.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
Non-performing assets include non-performing loans and other real estate
owned. Non-performing loans include non-accrual loans and restructured
loans. Non-accrual loans represent loans on which interest accruals have
been discontinued. Generally, it is the Corporation's policy to discontinue
interest accruals when principal or interest is due and has remained unpaid
for 90 days or more unless the loan is both well secured and in the process
of collection. When a loan is placed on non-accrual status, unpaid interest
credited to income in the current year is reversed and unpaid interest
accrued in prior years is charged against the allowance for loan losses.
Interest received on non-accrual loans is either applied against principal or
reported as interest income, according to management's judgement as to the
collectibility of principal. Loans which reach non-accrual status may not be
restored to accrual status until all delinquent principal and interest has
been paid, or the loan becomes both well secured and in the process of
collection. Restructured loans are loans in which the borrower has been
granted a concession on the interest rate or the original repayment terms due
to financial distress.
Following is a summary of non-performing assets (dollars in thousands):
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
Non-performing assets:
Non-accrual loans $ 5,097 $ 5,605
Restructured loans 2,123 3,075
------- --------
Total non-performing loans 7,220 8,680
Other real estate owned 3,541 2,742
------- --------
Total non-performing assets $10,761 $11,422
======= ========
Asset quality ratios:
Non-performing loans as percent of total loans .56% .71%
Non-performing assets as percent of total assets .62% .67%
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):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- ----------------
1996 1995 1996 1995
------- ------- ------- -------
Balance at beginning of period $22,102 $21,173 $21,550 $20,295
Charge-offs (1,819) (1,702) (4,873) (4,588)
Recoveries 323 215 1,123 1,045
------- ------- ------- -------
Net charge-offs (1,496) (1,487) (3,750) (3,543)
Provision for loan losses 1,390 1,366 4,196 4,300
------- ------- ------- -------
Balance at end of period $21,996 $21,052 $21,996 $21,052
======= ======= ======= =======
Allowance for loan losses to:
Total loans, net of unearned income 1.69% 1.75%
Non-performing loans 304.23% 238.93%
REGULATORY MATTERS
The Corporation and its subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Corporation's financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Corporation and its banking subsidiaries
must meet specific capital guidelines that involve quantitative measures of
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Corporation's and banking subsidiaries'
capital amounts and classifications are also subject to qualitative judgments
by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulators to ensure capital
adequacy require the Corporation and its banking subsidiaries to maintain
minimum amounts and ratios of total and tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of tier 1 capital to
average assets (as defined). Management believes, as of September 30, 1996,
that the Corporation meets all capital adequacy requirements to which it is
subject, as follows (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 $171,242 13.9% $ 98,794 8.0% $123,492 10.0%
(to risk-weighted assets)
Tier 1 Capital $145,683 11.8% $ 49,397 4.0% $ 74,095 6.0%
(to risk-weighted assets)
Tier 1 Capital $145,683 8.4% $ 69,374 4.0% $ 86,718 5.0%
(to average assets)
As of September 30, 1996, the Corporation and each of its banking
subsidiaries have been categorized as "well capitalized" under the regulatory
framework for prompt corrective action.
FINANCIAL INFORMATION SUMMARY
Net income for the first nine months of 1996 was $13.4 million compared
to $13.2 million for the first nine months of 1995. Primary earnings per
share for those periods were $1.40 and $1.38, respectively, and $1.34 and
$1.33 on a fully diluted basis. Highlights for the first nine months of 1996
include:
o A 12.13% return on average equity and a 1.04% return on
average assets.
o A net interest margin on a fully taxable equivalent basis of 5.02%.
o A $3.0 million one-time assessment to recapitalize the Savings
Association Insurance Fund as mandated by Congress.
FIRST NINE MONTHS OF 1996 AS COMPARED TO FIRST NINE MONTHS OF 1995:
The following table provides information regarding the average balances
and yields and rates on interest earning assets and interest bearing
liabilities (dollars in thousands):
Nine Months Ended September 30 1996 1995
------------------------- ------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- -------- ----- --------- -------- -----
ASSETS
Interest earning assets:
Interest bearing deposits
with banks $ 3,166 $ 125 5.26% $ 4,611 $ 213 6.17%
Federal funds sold 17,374 700 5.37 21,136 949 5.98
Securities:
U.S. Treasury and other
U.S. Government agencies
and corporations 303,451 13,534 5.96 321,237 13,408 5.58
States of the U.S. and
political subdivisions (1) 39,997 1,744 5.81 34,900 1,674 6.40
Other securities (1) 16,832 634 5.02 14,195 510 4.79
Loans (1) (2) 1,258,725 88,873 9.43 1,195,735 85,869 9.60
--------- -------- --------- --------
Total interest
earning assets 1,639,545 105,610 8.60 1,591,814 102,623 8.62
---------- -------- --------- --------
Cash and due from banks 53,924 53,042
Allowance for loan losses (22,038) (21,163)
Premises and equipment 23,868 22,998
Other assets 39,453 44,732
---------- ---------
$1,734,752 $1,691,423
========== ==========
LIABILITIES
Interest bearing liabilities:
Deposits:
Interest bearing demand $ 166,546 $ 1,825 1.46 $ 153,776 $ 2,011 1.75
Savings 396,549 7,304 2.46 425,510 7,961 2.50
Other time 733,774 30,068 5.47 694,440 28,388 5.48
Short-term borrowings 64,684 2,799 5.78 55,949 2,499 5.97
Long-term debt 35,183 1,996 7.56 39,594 2,331 7.85
---------- -------- ---------- --------
Total interest
bearing liabilities 1,396,736 43,992 4.21 1,369,269 43,190 4.22
---------- -------- ---------- --------
Non-interest bearing
demand deposits 157,815 159,687
Other liabilities 32,076 29,388
---------- ----------
1,586,627 1,558,344
---------- ----------
STOCKHOLDERS' EQUITY 148,125 133,079
---------- ----------
$1,734,752 $1,691,423
========== ==========
Excess of interest earning
assets over interest
bearing liabilities $ 242,809 $ 222,545
========== ==========
Net interest income $ 61,618 $ 59,433
======== ========
Net interest spread 4.39% 4.40%
===== =====
Net interest margin (3) 5.02% 4.99%
===== =====
(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 nine months of 1996, net interest income,
on a fully taxable equivalent basis, totaled $61.6 million, representing a
3.68% increase over the first nine months of 1995. Net interest income as a
percentage of average earning assets (commonly referred to as the margin)
rose to 5.02% at September 30, 1996 from 4.99% at September 30, 1995.
Net interest income can be analyzed in terms of the impact of changes in
the volume of interest earning assets and interest bearing liabilities and
changes in the interest rates. 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 nine months ending September 30, 1996 as
compared to the nine months ending September 30, 1995 (in thousands):
VOLUME RATE NET
------- ------- -------
INTEREST INCOME
Interest bearing deposits with banks $ (58) $ (30) $ (88)
Federal funds sold (156) (93) (249)
Securities:
U.S. Treasury and other U.S.
Government agencies and corporations (769) 895 126
States of the U.S. and political subdivisions 228 (158) 70
Other securities 100 24 124
Loans 4,454 (1,450) 3,004
------- ------- -------
3,799 (812) 2,987
------- ------- -------
INTEREST EXPENSE
Deposits:
Interest bearing demand 157 (343) (186)
Savings (533) (124) (657)
Other time 1,613 67 1,680
Short-term borrowings 348 (48) 300
Long-term debt (250) (85) (335)
------- ------- -------
1,335 (533) 802
------- ------- -------
NET CHANGE $ 2,464 $ (279) $ 2,185
======= ======= =======
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 $3.0
million or 2.91% for the first nine months of 1996, compared to the first
nine months of 1995. Interest income on loans increased 3.50% from $85.9
million for the first nine months of 1995 to $88.9 million for the first nine
months of 1996, as a result of greater demand in the commercial and consumer
loan portfolios. Average loans increased 5.40% over these same time periods.
Interest on U.S. Treasury and other U.S. Government agencies and corporations
increased slightly to $13.5 million for the first nine months of 1996 as
compared to the first nine months of 1995.
Total interest expense increased $802,000 or 1.86% for the nine months
ended September 30, 1996, compared to the nine months ended September 30,
1995. Interest expense on deposits increased 2.18% to $39.2 million over
these time periods, due to additional growth and a shift in the deposit mix
to time deposits.
The provision for loan losses totaled $4.2 million for the first nine
months of 1996, representing a decrease of 2.42% from the first nine months
of 1995. The reduction in the provision for loan losses is a direct result
of improving asset quality and management's analysis of the adequacy of the
allowance for loan losses which takes into consideration all factors relevant
to the collectibility of the existing portfolio.
Total non-interest income increased 3.24% during the first nine months
of 1996 compared to the same period of 1995. This increase was attributable
to increases in trust income and securities gains offset by a decrease in
insurance commissions and fees.
Total non-interest expenses increased 6.60% during the first nine months
of 1996, compared to the first nine months of 1995. Deposit insurance
accounted for the majority of this variance as a result of a $3.0 million
one-time assessment to recapitalize the Savings Association Insurance Fund
(SAIF), which was mandated by Congress and signed into law on September 30 of
this year. The legislation included a one-time charge to earnings for all
deposits insured by the SAIF, including those held by chartered commercial
banks as a result of previous acquisitions. The legislation also included
provisions that will result in a modest reduction in future annual deposit
insurance costs.
Income before taxes was $19.4 million for the first nine months of 1996,
representing a decrease of $133,000 or .68% over the same period of 1995.
Income taxes decreased $394,000 or 6.23% over the same periods primarily due
to the one-time assessment to recapitalize the SAIF.
Consolidated net income was $13.4 million for the first nine months of
1996, representing a $261,000 or 1.98% increase over the first nine months of
1995. The Corporation's return on average assets was 1.04% for both the
first nine months of 1996 and 1995, while the return on average equity was
12.13% and 13.25% for those same periods, respectively.
THIRD QUARTER OF 1996 AS COMPARED TO THIRD QUARTER OF 1995
During the third quarter of 1996, net interest income increased $542,000
or 2.77% over the third quarter of 1995. Total interest income remained
constant while total interest expenses decreased $443,000 or 2.96% over these
same periods. Interest expense on deposits accounted for the majority of
this decrease due to the change in the deposit mix.
The provision for loan losses remained constant at $1.4 million for the
third quarter of both 1995 and 1996.
Total non-interest income increased $648,000 or 18.27% during the third
quarter of 1996, compared to the same quarter of 1995, largely as a result of
increases in trust income and securities gains. Total non-interest expenses
increased $3.3 million or 22.62% from the third quarter in 1995 mainly due to
the increase of $3.0 million in deposit insurance as a result of the one-time
assessment to recapitalize the SAIF.
Income before taxes decreased to $5.0 million in the third quarter of
1996 from $7.1 million in the same period of 1995. Income tax expense
decreased to $1.5 million from $2.3 million over these same periods. Net
income totaled $3.5 million for the third quarter of 1996, compared to $4.9
million for the third quarter of 1995.
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
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1. Articles of Incorporation. The Articles of Incorporation of F.N.B.
Corporation or instruments corresponding thereto are currently in
effect. On September 13, 1996, the Articles were amended as
follows:
NOW, THEREFORE, BE IT RESOLVED, that the first paragraph of Article
5 of the Corporation's Articles of Incorporation be and hereby is
amended to read as follows:
"5, The aggregate number of shares which the Corporation
shall have authority to issue is One Hundred and Twenty
Million (120,000,000) shares of which Twenty Million
(20,000,000) shall be preferred stock, par value $10.00 per
share, issuable in one or more series, and One Hundred
Million (100,000,000) shares shall be common stock, par value
$2.00 per share"
10.5. Revised and Restated Amendment No. 2 to Employment Agreement
between F.N.B. Corporation and Peter Mortensen (filed herewith).
11. F.N.B. Corporation
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Dollars in thousands
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1996 1995 1996 1995
--------- ---------- -------- ----------
PRIMARY
Net Income $ 3,503 $ 4,856 $ 13,446 $ 13,185
Less: Preferred Stock
Dividends Declared (186) (212) (595) (638)
---------- ---------- ---------- ----------
Net Income Applicable
to Common Stock $ 3,317 $ 4,644 $ 12,851 $ 12,547
========== ========== ========== ==========
Average Common Shares
Outstanding 9,106,760 9,022,910 9,064,297 9,024,039
Net Effect of Dilutive Stock
Options - Based on the Treasury
Stock Method Using Average
Market Price 89,263 43,256 84,582 38,027
---------- ---------- ---------- ----------
9,196,023 9,066,166 9,148,879 9,062,066
========== ========== ========== ==========
Net Income per Common Share $.36 $.51 $1.40 $1.38
==== ==== ===== =====
FULLY DILUTED
Net Income Applicable
to Common Stock $ 3,503 $ 4,856 $ 13,446 $ 13,185
========== ========== ========== ==========
Average Common Shares
Outstanding 9,106,760 9,022,910 9,064,297 9,024,039
Series A Convertible
Preferred Stock 26,268 32,578 26,268 32,578
Series B Convertible
Preferred Stock 766,534 839,154 825,816 839,370
Net Effect of Dilutive Stock
Options - Based on the Treasury
Stock Method Using the Period-End
Market Price, If Higher than
Average Market Price 89,263 45,678 88,113 45,678
---------- ---------- ---------- ----------
9,988,825 9,940,320 10,004,494 9,941,665
========== ========== ========== ==========
Net Income per Common Share $.35 $.49 $1.34 $1.33
===== ==== ===== =====
27. Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
A report on Form 8-K, dated August 13, 1996, was filed by the
Corporation. The Form 8-K disclosed pro-forma financial
information for the period ended June 30, 1996, relating to the
definitive merger agreement between F.N.B. Corporation and
Southwest Banks, Inc. and consolidated financial information for
Southwest Banks, Inc.
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: November 13, 1996 /s/Peter Mortensen
---------------------------- ----------------------------------------
Peter Mortensen
Chairman and President
(Principal Executive Officer)
Dated: November 13, 1996 /s/John D. Waters
---------------------------- ----------------------------------------
John D. Waters
Vice President & Chief Financial Officer
(Principal Financial Officer)