F.N.B. Corp. 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2006
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o |
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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 001-31940
F.N.B. CORPORATION
(Exact name of registrant as specified in its charter)
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Florida
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25-1255406 |
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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One F.N.B. Boulevard, Hermitage, PA
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16148 |
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(Address of principal executive offices)
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(Zip Code) |
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Registrants telephone number, including area code:
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724-981-6000 |
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|
(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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
þ
Accelerated Filer o Non-accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class
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Outstanding at April 30, 2006 |
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Common Stock, $0.01 Par Value
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57,505,613 Shares |
F.N.B. CORPORATION
FORM 10-Q
March 31, 2006
INDEX
1
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except par value
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(Unaudited) |
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
118,510 |
|
|
$ |
131,604 |
|
Interest bearing deposits with banks |
|
|
515 |
|
|
|
627 |
|
Federal funds sold |
|
|
5,000 |
|
|
|
|
|
Securities available for sale |
|
|
279,360 |
|
|
|
279,219 |
|
Securities held to maturity (fair value of $835,165 and $867,122) |
|
|
852,577 |
|
|
|
881,139 |
|
Mortgage loans held for sale |
|
|
3,847 |
|
|
|
4,740 |
|
Loans, net of unearned income of $26,689 and $27,595 |
|
|
3,826,964 |
|
|
|
3,749,047 |
|
Allowance for loan losses |
|
|
(50,178 |
) |
|
|
(50,707 |
) |
|
|
|
|
|
|
|
Net Loans |
|
|
3,776,786 |
|
|
|
3,698,340 |
|
Premises and equipment, net |
|
|
85,570 |
|
|
|
87,013 |
|
Goodwill |
|
|
196,354 |
|
|
|
196,354 |
|
Bank owned life insurance |
|
|
123,673 |
|
|
|
122,666 |
|
Other assets |
|
|
189,221 |
|
|
|
188,624 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
5,631,413 |
|
|
$ |
5,590,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
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|
Non-interest bearing demand |
|
$ |
651,964 |
|
|
$ |
688,391 |
|
Savings and NOW |
|
|
1,800,500 |
|
|
|
1,675,395 |
|
Certificates and other time deposits |
|
|
1,637,474 |
|
|
|
1,648,157 |
|
|
|
|
|
|
|
|
Total Deposits |
|
|
4,089,938 |
|
|
|
4,011,943 |
|
Other liabilities |
|
|
59,123 |
|
|
|
59,634 |
|
Short-term borrowings |
|
|
338,844 |
|
|
|
378,978 |
|
Long-term debt |
|
|
662,244 |
|
|
|
662,569 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
5,150,149 |
|
|
|
5,113,124 |
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
Common stock $0.01 par value |
|
|
|
|
|
|
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|
Authorized 500,000,000 shares
|
|
|
|
|
|
|
|
|
Issued 57,554,489 and 57,513,586 shares |
|
|
573 |
|
|
|
575 |
|
Additional paid-in capital |
|
|
450,947 |
|
|
|
454,546 |
|
Retained earnings |
|
|
26,389 |
|
|
|
24,376 |
|
Accumulated other comprehensive income |
|
|
4,061 |
|
|
|
3,597 |
|
Deferred stock compensation |
|
|
|
|
|
|
(4,154 |
) |
Treasury stock 40,140 and 94,545 shares at cost |
|
|
(706 |
) |
|
|
(1,738 |
) |
|
|
|
|
|
|
|
Total Stockholders Equity |
|
|
481,264 |
|
|
|
477,202 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
5,631,413 |
|
|
$ |
5,590,326 |
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
2
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Dollars in thousands, except per share data
Unaudited
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
Interest Income |
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
64,020 |
|
|
$ |
56,065 |
|
Securities: |
|
|
|
|
|
|
|
|
Taxable |
|
|
12,251 |
|
|
|
11,923 |
|
Nontaxable |
|
|
1,112 |
|
|
|
877 |
|
Dividends |
|
|
172 |
|
|
|
197 |
|
Other |
|
|
66 |
|
|
|
11 |
|
|
|
|
|
|
|
|
Total Interest Income |
|
|
77,621 |
|
|
|
69,073 |
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
Deposits |
|
|
20,979 |
|
|
|
14,312 |
|
Short-term borrowings |
|
|
3,597 |
|
|
|
2,817 |
|
Long-term debt |
|
|
7,226 |
|
|
|
6,361 |
|
|
|
|
|
|
|
|
Total Interest Expense |
|
|
31,802 |
|
|
|
23,490 |
|
|
|
|
|
|
|
|
Net Interest Income |
|
|
45,819 |
|
|
|
45,583 |
|
Provision for loan losses |
|
|
2,958 |
|
|
|
2,331 |
|
|
|
|
|
|
|
|
Net Interest Income After Provision for Loan Losses |
|
|
42,861 |
|
|
|
43,252 |
|
|
|
|
|
|
|
|
|
|
Non-Interest Income |
|
|
|
|
|
|
|
|
Service charges |
|
|
10,170 |
|
|
|
9,054 |
|
Insurance commissions and fees |
|
|
4,100 |
|
|
|
3,769 |
|
Securities commissions and fees |
|
|
947 |
|
|
|
1,404 |
|
Trust |
|
|
1,844 |
|
|
|
1,905 |
|
Gain on sale of securities |
|
|
547 |
|
|
|
607 |
|
Gain on sale of mortgage loans |
|
|
298 |
|
|
|
314 |
|
Bank owned life insurance |
|
|
777 |
|
|
|
863 |
|
Other |
|
|
1,426 |
|
|
|
827 |
|
|
|
|
|
|
|
|
Total Non-Interest Income |
|
|
20,109 |
|
|
|
18,743 |
|
|
|
|
|
|
|
|
|
|
Non-Interest Expense |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
21,318 |
|
|
|
21,183 |
|
Net occupancy |
|
|
3,366 |
|
|
|
3,135 |
|
Equipment |
|
|
3,312 |
|
|
|
3,382 |
|
Amortization of intangibles |
|
|
931 |
|
|
|
860 |
|
Other |
|
|
11,324 |
|
|
|
11,778 |
|
|
|
|
|
|
|
|
Total Non-Interest Expense |
|
|
40,251 |
|
|
|
40,338 |
|
|
|
|
|
|
|
|
Income Before Income Taxes |
|
|
22,719 |
|
|
|
21,657 |
|
Income taxes |
|
|
6,917 |
|
|
|
6,747 |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
15,802 |
|
|
$ |
14,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per Common Share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
.28 |
|
|
$ |
.28 |
|
Diluted |
|
$ |
.27 |
|
|
$ |
.28 |
|
|
|
|
|
|
|
|
|
|
Cash Dividends per Common Share |
|
$ |
.235 |
|
|
$ |
.23 |
|
See accompanying Notes to Consolidated Financial Statements
3
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Dollars in thousands
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumu- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
lated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compre- |
|
|
Deferred |
|
|
|
|
|
|
|
|
|
Compre- |
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
hensive |
|
|
Stock |
|
|
|
|
|
|
|
|
|
hensive |
|
|
Common |
|
|
Paid-In |
|
|
Retained |
|
|
(Deficit) |
|
|
Compen- |
|
|
Treasury |
|
|
|
|
|
|
Income |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Income |
|
|
sation |
|
|
Stock |
|
|
Total |
|
Balance at January 1, 2006 |
|
|
|
|
|
$ |
575 |
|
|
$ |
454,546 |
|
|
$ |
24,376 |
|
|
$ |
3,597 |
|
|
$ |
(4,154 |
) |
|
$ |
(1,738 |
) |
|
$ |
477,202 |
|
Net income |
|
$ |
15,802 |
|
|
|
|
|
|
|
|
|
|
|
15,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,802 |
|
Change in other
comprehensive Income |
|
|
464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
464 |
|
|
|
|
|
|
|
|
|
|
|
464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
16,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock $0.235/share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,503 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,503 |
) |
Purchase of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,013 |
) |
|
|
(1,013 |
) |
Issuance of common stock |
|
|
|
|
|
|
1 |
|
|
|
57 |
|
|
|
(286 |
) |
|
|
|
|
|
|
|
|
|
|
2,045 |
|
|
|
1,817 |
|
Restricted stock compensation |
|
|
|
|
|
|
|
|
|
|
246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
246 |
|
Tax benefit of stock-based
Compensation |
|
|
|
|
|
|
|
|
|
|
249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
249 |
|
Reclassification arising
from the adoption of FAS
123R |
|
|
|
|
|
|
(3 |
) |
|
|
(4,151 |
) |
|
|
|
|
|
|
|
|
|
|
4,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2006 |
|
|
|
|
|
$ |
573 |
|
|
$ |
450,947 |
|
|
$ |
26,389 |
|
|
$ |
4,061 |
|
|
|
|
|
|
$ |
(706 |
) |
|
$ |
481,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005 |
|
|
|
|
|
$ |
502 |
|
|
$ |
300,555 |
|
|
$ |
22,847 |
|
|
$ |
4,965 |
|
|
$ |
(1,428 |
) |
|
$ |
(3,339 |
) |
|
$ |
324,102 |
|
Net income |
|
$ |
14,910 |
|
|
|
|
|
|
|
|
|
|
|
14,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,910 |
|
Change in other
comprehensive income (loss) |
|
|
(7,272 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,272 |
) |
|
|
|
|
|
|
|
|
|
|
(7,272 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
7,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock $0.23/share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,943 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,943 |
) |
Purchase of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,789 |
) |
|
|
(3,789 |
) |
Issuance of common stock |
|
|
|
|
|
|
62 |
|
|
|
134,190 |
|
|
|
(494 |
) |
|
|
|
|
|
|
|
|
|
|
5,383 |
|
|
|
139,141 |
|
Change in stock-based
Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,473 |
) |
|
|
|
|
|
|
(1,473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2005 |
|
|
|
|
|
$ |
564 |
|
|
$ |
434,745 |
|
|
$ |
24,320 |
|
|
$ |
(2,307 |
) |
|
$ |
(2,901 |
) |
|
$ |
(1,745 |
) |
|
$ |
452,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
4
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
Unaudited
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,802 |
|
|
$ |
14,910 |
|
Adjustments to reconcile net income to net cash flows from
operating activities: |
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion |
|
|
3,452 |
|
|
|
3,033 |
|
Provision for loan losses |
|
|
2,958 |
|
|
|
2,331 |
|
Deferred taxes |
|
|
36 |
|
|
|
1,448 |
|
Gain on sale of securities |
|
|
(547 |
) |
|
|
(607 |
) |
Gain on sale of loans |
|
|
(298 |
) |
|
|
(314 |
) |
Proceeds from sale of loans |
|
|
19,682 |
|
|
|
20,766 |
|
Loans originated for sale |
|
|
(18,491 |
) |
|
|
(16,720 |
) |
Net change in: |
|
|
|
|
|
|
|
|
Interest receivable |
|
|
(1,628 |
) |
|
|
1,465 |
|
Interest payable |
|
|
(332 |
) |
|
|
(7,284 |
) |
Other, net |
|
|
5,619 |
|
|
|
(10,949 |
) |
|
|
|
|
|
|
|
Net cash flows provided by operating activities |
|
|
26,253 |
|
|
|
8,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Interest bearing deposits with banks |
|
|
112 |
|
|
|
2,584 |
|
Federal funds sold |
|
|
(5,000 |
) |
|
|
|
|
Loans |
|
|
(82,516 |
) |
|
|
9,057 |
|
Bank owned life insurance |
|
|
(1,007 |
) |
|
|
528 |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
Purchases |
|
|
(3,500 |
) |
|
|
(102,563 |
) |
Sales |
|
|
2,381 |
|
|
|
86,903 |
|
Maturities |
|
|
1,724 |
|
|
|
41,508 |
|
Securities held to maturity: |
|
|
|
|
|
|
|
|
Purchases |
|
|
|
|
|
|
(58,219 |
) |
Maturities |
|
|
28,225 |
|
|
|
27,330 |
|
Increase in premises and equipment |
|
|
(944 |
) |
|
|
(942 |
) |
Net cash received for mergers and acquisitions |
|
|
|
|
|
|
8,799 |
|
|
|
|
|
|
|
|
Net cash flows (used in) provided by investing activities |
|
|
(60,525 |
) |
|
|
14,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Non-interest bearing deposits, savings and NOW accounts |
|
|
88,678 |
|
|
|
(61,418 |
) |
Time deposits |
|
|
(10,683 |
) |
|
|
246 |
|
Short-term borrowings |
|
|
(40,134 |
) |
|
|
56,862 |
|
Increase in long-term debt |
|
|
6,611 |
|
|
|
3,018 |
|
Decrease in long-term debt |
|
|
(6,936 |
) |
|
|
(7,606 |
) |
Purchase of common stock |
|
|
(4,921 |
) |
|
|
(3,789 |
) |
Issuance of common stock |
|
|
1,817 |
|
|
|
9,494 |
|
Tax benefit of stock-based compensation |
|
|
249 |
|
|
|
|
|
Cash dividends paid |
|
|
(13,503 |
) |
|
|
(12,943 |
) |
|
|
|
|
|
|
|
Net cash flows provided by (used in) financing activities |
|
|
21,178 |
|
|
|
(16,136 |
) |
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Due from Banks |
|
|
(13,094 |
) |
|
|
6,928 |
|
Cash and due from banks at beginning of period |
|
|
131,604 |
|
|
|
100,839 |
|
|
|
|
|
|
|
|
Cash and Due from Banks at End of Period |
|
$ |
118,510 |
|
|
$ |
107,767 |
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
5
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2006
BUSINESS
F.N.B. Corporation (the Corporation) is a diversified financial services company headquartered
in Hermitage, Pennsylvania. Its primary businesses include commercial and retail banking, consumer
finance, asset management and insurance. The Corporation operates its retail and commercial
banking business through a full service branch network in Pennsylvania and Ohio and four loan
production offices in Florida, and conducts selected consumer finance business in Pennsylvania,
Ohio and Tennessee.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of the Corporation and
its subsidiaries. The Corporation owns and operates First National Bank of Pennsylvania (FNBPA),
First National Trust Company, First National Investment Services Company, LLC, F.N.B. Investment
Advisors, Inc., First National Insurance Agency, LLC (FNIA), Regency Finance Company and F.N.B.
Capital Corporation, LLC.
The accompanying consolidated financial statements include all adjustments, consisting only of
normal recurring accruals that are necessary, in the opinion of management, to fairly reflect the
Corporations financial position and results of operations. All significant intercompany balances
and transactions have been eliminated. Certain prior period amounts have been reclassified to
conform to the current period presentation.
The Corporations consolidated financial statements include subsidiaries in which the
Corporation has a controlling financial interest. Investments in companies in which the
Corporation controls operating and financing decisions (principally defined as owning a voting or
economic interest greater than 50%) are consolidated. Variable interest entities are consolidated
if the Corporation is exposed to the majority of the variable interest entitys expected losses
and/or residual returns (i.e., the Corporation is considered to be the primary beneficiary).
USE OF ESTIMATES
The accounting and reporting policies of the Corporation conform with U.S. generally accepted
accounting principles (GAAP). The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could materially differ
from those estimates.
MERGERS AND ACQUISITIONS
On November 1, 2005, the Corporation acquired the assets of Penn Group Insurance, Inc. (Penn
Group), a full-service insurance agency based in Pittsburgh, Pennsylvania. Penn Group, an
established life and employee benefits agency, became a part of the Corporations existing
insurance agency, FNIA.
On October 7, 2005, the Corporation completed its acquisition of North East Bancorp, Inc.
(North East) (Pink Sheets: NEBI), a bank holding company headquartered in North East, Pennsylvania
with $68.0 million in assets, $49.4 million in loans and $61.2 million in deposits. The
acquisition was accounted for as a purchase. Consideration paid by the Corporation totaled $15.4
million comprised of 862,611 shares of the Corporations common stock and $169,800 in exchange for
145,168 shares of North East common stock. North Easts banking subsidiary, The National Bank of
North East, was merged into FNBPA.
On February 18, 2005, the Corporation completed its acquisition of NSD Bancorp, Inc. (NSD)
(Nasdaq: NSDB), a bank holding company headquartered in Pittsburgh, Pennsylvania with $503.0
million in assets, $308.9 million in loans and $378.8 million in deposits. The acquisition, which
was accounted for as a purchase, was a stock transaction valued at approximately $127.5 million.
The Corporation issued 5,944,343 shares of its common stock in exchange for 3,302,485 shares of NSD
common stock. NSDs banking subsidiary, NorthSide Bank, was merged into FNBPA.
6
The assets and liabilities of these acquired entities were recorded on the balance sheet at
their estimated fair values as of their respective acquisition dates. The consolidated financial
statements include the results of operations of these entities from their respective dates of
acquisition.
Pending Acquisition
In December 2005, the Corporation announced the signing of a definitive merger agreement to
acquire The Legacy Bank (Legacy), a commercial bank and trust company with $370.5 million in assets
at March 31, 2006 based in Harrisburg, Pennsylvania. Thirty percent of Legacy shares will be
exchanged for cash at $18.40 per share while the remaining seventy percent will be exchanged for
F.N.B. Corporation common stock on a one-for-one basis. The transaction is expected to be
completed in the second quarter of 2006, pending regulatory and stockholder approval.
STOCK-BASED COMPENSATION
On January 1, 2006, the Corporation adopted Financial Accounting Standards Board Statement
(FAS) 123R, Share-Based Payment, which requires the measurement and recognition of compensation
expense, based on estimated fair values, for all share-based awards, including stock options and
restricted stock, made to employees and directors.
The Corporation adopted FAS 123R using the modified prospective transition method. The
consolidated financial statements as of and for the first quarter of 2006 reflect the impact of FAS
123R. In accordance with the modified prospective transition method, the consolidated financial
statements for prior periods have not been restated to reflect, and do not include, the impact of
FAS 123R. Share-based compensation expense recognized under FAS 123R related to restricted stock
awards was $0.3 million for the three months ended March 31, 2006.
Prior to the adoption of FAS 123R, the Corporation accounted for share-based awards to
employees and directors using the intrinsic value method in accordance with Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, as allowed under FAS 123,
Accounting for Stock-Based Compensation. Share-based compensation expense of $0.3 million for the
three months ended March 31, 2005 was related to restricted stock awards that the Corporation had
been recognizing in its consolidated statement of income in accordance with the provisions set
forth above. Because the exercise price of the Corporations stock options granted to employees
and directors equaled the fair market value of the underlying stock at the grant date, under the
intrinsic value method, no share-based compensation expense was recognized in the Corporations
consolidated statement of income.
FAS 123R requires companies to estimate the fair value of share-based awards on the date of
grant. The value of the portion of the award that is ultimately expected to vest is recognized as
expense in the Corporations consolidated statement of income over the requisite service periods.
Because share-based compensation expense is based on awards that are ultimately expected to vest,
share-based compensation expense has been reduced to account for estimated forfeitures. FAS 123R
requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. For periods prior to 2006, the
Corporation accounted for forfeitures as they occurred in the consolidated financial statements
under APB Opinion No. 25 and in the pro forma information under FAS 123. The cumulative effect of
the accounting change associated with the adoption of FAS 123R was a reduction in compensation
expense of less than $0.1 million.
FAS 123R also requires that awards be expensed over the shorter of the requisite service
period or the period through the date that the employee first becomes eligible to retire. Prior to
the adoption of FAS 123R, the Corporation recorded compensation expense for retirement-eligible
employees ratably over the vesting period. The impact of applying the provisions of FAS 123R
related to retirement-eligible employees would have increased compensation expense by approximately
$1.1 million for the year ended December 31, 2005.
As of March 31, 2006, there was $3.9 million of unrecognized compensation cost related to
unvested restricted stock awards granted including $1.6 million that is subject to accelerated
vesting under the plans immediate vesting upon retirement provision for awards granted prior to
the adoption of FAS 123R. This unrecognized compensation expense is expected to be recognized over
a weighted-average period of 2.5 years.
FAS 123R amends FAS 95, Statement of Cash Flows, and requires tax benefits related to
stock-based compensation deductions be presented in the statement of cash flows as a financing
activity.
7
In November 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based
Payment Awards. FSP 123(R)-3 provides an elective alternative transition method for calculating
the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to the
adoption of FAS 123R. Companies may take up to one year from the effective date of FSP 123(R)-3 to
evaluate the available transition alternatives and make a one-time election as to which method to
adopt. The Corporation is currently in the process of evaluating the alternative methods.
The following table shows proceeds from stock options exercised, related tax benefits realized
from restricted stock vesting and stock option exercises and the intrinsic value of the stock
options exercised (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2006 |
|
2005 |
Proceeds from stock options exercised |
|
$ |
532 |
|
|
$ |
2,383 |
|
Tax benefit recognized from stock option exercises |
|
|
236 |
|
|
|
|
|
Tax benefit recognized from restricted stock vesting |
|
|
13 |
|
|
|
|
|
Intrinsic value of stock options exercised |
|
|
672 |
|
|
|
1,820 |
|
Fair value of restricted stock vested |
|
|
180 |
|
|
|
209 |
|
Restricted Stock
The Corporation issued 90,921 restricted shares of common stock with a weighted average grant
date fair value of $1.8 million for the quarter ended March 31, 2005 to key employees of the
Corporation under its 2001 Incentive Plan. The Corporation did not issue any restricted shares for
the quarter ended March 31, 2006. The Corporation has available up to 2,444,916 shares to issue
under its 2001 Incentive Plan.
Under this program, half of the shares awarded to management are earned if the Corporation
meets or exceeds certain financial performance results when compared to peers. The service-based
portion of the shares are expensed ratably over the three year restricted period while
performance-related shares are expensed ratably from the date that the likelihood of meeting the
performance measure is probable through the end of the four year restricted period. The
Corporation also issues discretionary service-based awards to employees that vest twenty percent
each year over five years. All of these awards are subject to accelerated vesting if there is a
change of control as defined in the plan. The unvested shares of restricted stock are eligible to
receive cash dividends which are used to purchase additional shares of stock. The additional
shares of stock are subject to forfeiture if the service period is not completed or the performance
criteria are not met.
The unamortized expense relating to all restricted stock awards, totaling $2.9 million at
March 31, 2005 and $4.2 million at December 31, 2005 were reflected as deferred stock compensation
in the stockholders equity section of the Corporations balance sheet. Upon the adoption of FAS
123R in January 2006, unamortized compensation expense was reclassified to additional paid-in
capital.
8
The following table summarizes information about restricted stock activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2006 |
|
2005 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
|
Grant |
|
|
|
|
|
Grant |
|
|
Shares |
|
Price |
|
Shares |
|
Price |
Unvested shares outstanding at beginning of
period |
|
|
296,457 |
|
|
$ |
18.52 |
|
|
|
117,667 |
|
|
$ |
17.86 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
90,921 |
|
|
|
19.50 |
|
Vested |
|
|
(10,499 |
) |
|
|
15.24 |
|
|
|
(10,933 |
) |
|
|
12.42 |
|
Forfeited |
|
|
(389 |
) |
|
|
19.39 |
|
|
|
(2,849 |
) |
|
|
18.05 |
|
Dividend reinvestment |
|
|
4,018 |
|
|
|
16.72 |
|
|
|
2,322 |
|
|
|
19.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares outstanding at end of period |
|
|
289,587 |
|
|
|
18.62 |
|
|
|
197,128 |
|
|
|
18.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2006, there were 161,231 unvested service-based shares outstanding with
unrecognized compensation expense of $1.9 million, an intrinsic value of $2.8 million and a
weighted average remaining life of 2.5 years. As of March 31, 2006, there were also 128,356
unvested performance-based shares outstanding with unrecognized compensation expense of $2.0
million, an intrinsic value of $2.2 million and a weighted average remaining life of 2.9 years.
Stock Options
The Corporation also has available up to 7,432,890 shares to issue under its non-qualified
stock option plans to key employees and directors of the Corporation. Options have been granted at
a price equal to the fair market value at the date of the grant and are primarily exercisable
within ten years from the date of the grant. Because the exercise price of the Corporations stock
options equaled the market price of the underlying stock on the date of grant, no compensation
expense was recognized in 2005 in accordance with APB Opinion 25. In the fourth quarter of 2005,
the Corporation accelerated the vesting of approximately 186,000 shares of remaining unvested stock
options in order to reduce future compensation expense. No shares were issued under these plans
during the first quarter of 2006 or 2005. The Corporation issues shares of treasury stock or
authorized but unissued shares to satisfy stock option exercises. Shares issued upon the exercise
of stock options were 60,827 and 230,700 for the three months ended March 31, 2006 and 2005.
The following table summarizes information about stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2006 |
|
2005 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
Shares |
|
Price |
|
Shares |
|
Price |
Options outstanding at beginning of period |
|
|
1,622,864 |
|
|
$ |
11.54 |
|
|
|
2,108,333 |
|
|
$ |
11.35 |
|
Granted/assumed |
|
|
|
|
|
|
|
|
|
|
149,009 |
|
|
|
10.84 |
|
Exercised |
|
|
(79,278 |
) |
|
|
9.24 |
|
|
|
(286,509 |
) |
|
|
10.54 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
(2,494 |
) |
|
|
12.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of period |
|
|
1,543,586 |
|
|
|
11.66 |
|
|
|
1,968,339 |
|
|
|
11.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period |
|
|
1,543,586 |
|
|
|
|
|
|
|
1,759,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
The following table summarizes information about stock options outstanding at March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
Options |
|
Average |
|
Weighted |
|
|
Outstanding |
|
Remaining |
|
Average |
|
|
and |
|
Contractual |
|
Exercise |
Range of Exercise Prices |
|
Exercisable |
|
Years |
|
Price |
$2.68 - $4.02 |
|
|
25,168 |
|
|
|
6.96 |
|
|
$ |
2.68 |
|
4.03 - 6.05 |
|
|
|
|
|
|
|
|
|
|
|
|
6.06 - 9.09 |
|
|
46,786 |
|
|
|
3.64 |
|
|
|
8.94 |
|
9.10 - 13.65 |
|
|
1,098,149 |
|
|
|
4.44 |
|
|
|
11.26 |
|
13.66 - 15.43 |
|
|
373,483 |
|
|
|
4.67 |
|
|
|
13.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,543,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of outstanding and exercisable stock options at March 31, 2006 was $7.9
million.
Pro Forma Stock-Based Payments Prior to the Adoption of FAS 123R
Prior to the adoption of FAS 123R, the Corporation provided disclosures required under FAS
123. Stock-based compensation expense recognized under FAS 123R has not been reflected in the
statement of income for the three months ended March 31, 2005 for employee stock option awards as
the options were granted with an exercise price equal to the market value of common stock on the
grant date. The following table shows pro forma net income and earnings per share assuming the
stock-based compensation expense had been recognized in the statement of income (dollars in
thousands, except per share data):
|
|
|
|
|
Three Months Ended March 31 |
|
2005 |
|
Net income |
|
$ |
14,910 |
|
Stock-based employee compensation cost included in net income, net of tax |
|
|
334 |
|
Stock-based employee compensation cost determined if the fair value
method
had been applied to all awards, net of tax |
|
|
(510 |
) |
|
|
|
|
Pro forma net income |
|
$ |
14,734 |
|
|
|
|
|
|
|
|
|
|
Basic Earnings per Common Share: |
|
|
|
|
As reported |
|
$ |
.28 |
|
|
|
|
|
Pro forma |
|
$ |
.28 |
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Common Share: |
|
|
|
|
As reported |
|
$ |
.28 |
|
|
|
|
|
Pro forma |
|
$ |
.27 |
|
|
|
|
|
The fair value of stock options outstanding was determined at the grant date using a
Black-Scholes option pricing model and the following weighted average assumptions:
|
|
|
|
|
Risk-free interest rate |
|
|
4.31 |
% |
Dividend yield |
|
|
2.89 |
% |
Expected stock price volatility |
|
|
.21 |
% |
Expected life (years) |
|
|
5.00 |
|
Fair value of options granted |
|
$ |
4.57 |
|
The option valuation model requires the input of highly subjective assumptions including the
expected stock price volatility. Changes in theses subjective input assumptions can materially
affect the fair value estimate.
10
NEW ACCOUNTING STANDARDS
Accounting Changes and Error Corrections
In May 2005, the FASB issued FAS 154, Accounting Charges and Error Corrections, which changes
the accounting for and reporting of a change in accounting principle. This statement applies to
all voluntary changes in accounting principle and changes required by an accounting pronouncement
in the unusual instance that the pronouncement does not include specific transition provisions.
This statement required retrospective application to prior period consolidated financial statements
of changes in accounting principle, unless it is impractical to determine either the
period-specific or cumulative effects of the change. FAS 154 is effective for accounting changes
made in fiscal years beginning after December 15, 2005. The adoption of the standard did not have
a material effect on the financial condition, results of operations or liquidity of the
Corporation.
Accounting for Servicing of Financial Assets
In March 2006, the FASB issued FAS 156, Accounting for Servicing of Financial Assets an
amendment of FASB Statement No. 140 (FAS 140). FAS 140 established, among other things, the
accounting for all separately recognized servicing assets and servicing liabilities. FAS 156
amends FAS 140 to require that all separately recognized servicing assets and servicing liabilities
be initially measured at fair value, if practicable. FAS 156 also permits, but does not require,
the subsequent measurement of separately recognized servicing assets and servicing liabilities at
fair value. Under FAS 156, an entity can elect subsequent fair value measurement to account for
its separately recognized servicing assets and servicing liabilities. Adoption of FAS 156 is
required as of the beginning of the first fiscal year beginning after September 15, 2006. Upon
adoption, the Corporation will apply the requirements for recognition and initial measurement of
servicing assets and servicing liabilities prospectively to all transactions. The Corporation will
adopt FAS 156 for the year beginning January 1, 2007 and currently has not determined if it will
adopt FAS 156 using the fair value election.
Accounting for Uncertain Tax Positions
In July 2005, the FASB released an Exposure Draft of a proposed interpretation, Accounting for
Uncertain Tax Positions an Interpretation of FAS 109. The Exposure Draft contains proposed
language related to the recognition and measurement of uncertain tax positions. Any initial
de-recognition amounts will be reported as a cumulative effect of an accounting principle. In
October 2005, the effective date of the Exposure Draft was delayed and in January 2006, the FASB
staff concluded that it will be effective for the first annual period beginning after December 15,
2006. A final interpretation is expected to be issued during the second quarter of 2006. The
Corporation will evaluate the potential impact on the consolidated financial statements upon
issuance of the final standard.
Accounting for Defined Benefit Pension and Other Postretirement Plans
In March 2006, the FASB released an Exposure Draft of a proposed interpretation, Employers
Accounting for Defined Benefit Pension and Other Post Retirement Plans, an amendment of FAS 87,
88, 106 and 132R. The Exposure Draft contains a proposed provision to recognize in the balance
sheet the overfunded or underfunded status of pension and postretirement plans, which is measured
as the difference between the fair value of plan assets and the benefit obligation. The Exposure
Draft also proposes recognizing actuarial gains and losses and prior service costs as a component
of accumulated other comprehensive income, net of tax within equity with costs and credits that
arise in each period included in comprehensive income. Under existing pension and postretirement
accounting standards, actuarial gains and losses and prior service cost and credit amounts are not
recognized in the balance sheet.
A final interpretation is expected to be issued during the second quarter of 2006, and the
standard is expected to be effective for fiscal years ending after December 15, 2006.
Retrospective application would be required. The Corporation has not yet completed its evaluation
of the potential impact of the Exposure Draft on its consolidated financial statements, however the
recognition of its unamortized actuarial losses and prior service costs in accumulated other
comprehensive income within equity would result in a significant reduction to stockholders equity.
11
SECURITIES
Following is a summary of the fair value of securities available for sale (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
U.S. Treasury and other U.S. government agencies and corporations |
|
$ |
189,682 |
|
|
$ |
190,301 |
|
Mortgage-backed securities of U.S. government agencies |
|
|
31,022 |
|
|
|
32,496 |
|
States of the U.S. and political subdivisions |
|
|
5,124 |
|
|
|
5,385 |
|
Corporate debt securities |
|
|
40,134 |
|
|
|
36,741 |
|
|
|
|
|
|
|
|
Total debt securities |
|
|
265,962 |
|
|
|
264,923 |
|
Equity securities |
|
|
13,398 |
|
|
|
14,296 |
|
|
|
|
|
|
|
|
|
|
$ |
279,360 |
|
|
$ |
279,219 |
|
|
|
|
|
|
|
|
Following is a summary of the amortized cost of securities held to maturity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
U.S. Treasury and other U.S. government agencies and corporations |
|
$ |
105,408 |
|
|
$ |
105,355 |
|
Mortgage-backed securities of U.S. government agencies |
|
|
606,515 |
|
|
|
631,160 |
|
States of the U.S. and political subdivisions |
|
|
121,092 |
|
|
|
124,649 |
|
Corporate and other debt securities |
|
|
19,562 |
|
|
|
19,975 |
|
|
|
|
|
|
|
|
|
|
$ |
852,577 |
|
|
$ |
881,139 |
|
|
|
|
|
|
|
|
The Corporation sold $2.4 million of securities at a gain of $0.5 million for the three months
ended March 31, 2006. None of the security sales were at a loss.
Securities are periodically reviewed for other-than-temporary impairment based upon a number
of factors, including but not limited to, length of time and extent to which the market value has
been less than cost, financial condition of the underlying issuer, ability of the issuer to meet
contractual obligations, likelihood of the securitys ability to recover any decline in its market
value and managements intent and ability to retain the security for a period of time sufficient to
allow for recovery in market value or maturity. Among the factors that are considered in
determining intent and ability is a review of the Corporations capital adequacy, interest rate
risk position and liquidity. The assessment of a securitys ability to recover any decline in
market value, the ability of the issuer to meet contractual obligations and managements intent and
ability requires considerable judgment. A decline in value that is considered to be
other-than-temporary is recorded as a loss within non-interest income in the statement of income.
Following are summaries of the age of unrealized losses and the associated fair value (in
thousands):
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
|
Greater than 12 Months |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
March 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other
U.S. government agencies
and corporations |
|
$ |
189,682 |
|
|
$ |
(630 |
) |
|
|
|
|
|
|
|
|
|
$ |
189,682 |
|
|
$ |
(630 |
) |
Mortgage-backed
securities of U.S.
government agencies |
|
|
22,852 |
|
|
|
(479 |
) |
|
$ |
7,657 |
|
|
$ |
(205 |
) |
|
|
30,509 |
|
|
|
(684 |
) |
States of the U.S. and
political Subdivisions |
|
|
3,944 |
|
|
|
(44 |
) |
|
|
712 |
|
|
|
(5 |
) |
|
|
4,656 |
|
|
|
(49 |
) |
Corporate debt securities |
|
|
12,949 |
|
|
|
(121 |
) |
|
|
|
|
|
|
|
|
|
|
12,949 |
|
|
|
(121 |
) |
Equity securities |
|
|
342 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
342 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
229,769 |
|
|
$ |
(1,292 |
) |
|
$ |
8,369 |
|
|
$ |
(210 |
) |
|
$ |
238,138 |
|
|
$ |
(1,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
|
Greater than 12 Months |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other
U.S. government agencies
and corporations |
|
$ |
153,201 |
|
|
$ |
(112 |
) |
|
|
|
|
|
|
|
|
|
$ |
153,201 |
|
|
$ |
(112 |
) |
Mortgage-backed
securities of U.S.
government agencies |
|
|
26,269 |
|
|
|
(413 |
) |
|
$ |
5,735 |
|
|
$ |
(132 |
) |
|
|
32,004 |
|
|
|
(545 |
) |
States of the U.S. and
political subdivisions |
|
|
4,649 |
|
|
|
(59 |
) |
|
|
|
|
|
|
|
|
|
|
4,649 |
|
|
|
(59 |
) |
Corporate debt securities |
|
|
17,053 |
|
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
|
17,053 |
|
|
|
(58 |
) |
Equity securities |
|
|
372 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
372 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
201,544 |
|
|
$ |
(663 |
) |
|
$ |
5,735 |
|
|
$ |
(132 |
) |
|
$ |
207,279 |
|
|
$ |
(795 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
|
Greater than 12 Months |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
March 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other U.S.
government
agencies and corporations |
|
$ |
102,756 |
|
|
$ |
(439 |
) |
|
$ |
1,661 |
|
|
$ |
(43 |
) |
|
$ |
104,417 |
|
|
$ |
(482 |
) |
Mortgage-backed securities of U.S.
government agencies |
|
|
203,456 |
|
|
|
(2,913 |
) |
|
|
359,236 |
|
|
|
(11,965 |
) |
|
|
562,692 |
|
|
|
(14,878 |
) |
States of the U.S. and political
subdivisions |
|
|
46,971 |
|
|
|
(653 |
) |
|
|
56,036 |
|
|
|
(1,171 |
) |
|
|
103,007 |
|
|
|
(1,824 |
) |
Corporate debt securities |
|
|
11,930 |
|
|
|
(286 |
) |
|
|
4,711 |
|
|
|
(90 |
) |
|
|
16,641 |
|
|
|
(376 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
365,113 |
|
|
$ |
(4,291 |
) |
|
$ |
421,644 |
|
|
$ |
(13,269 |
) |
|
$ |
786,757 |
|
|
$ |
(17,560 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
|
Greater than 12 Months |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other U.S.
government
agencies and corporations |
|
$ |
72,707 |
|
|
$ |
(24 |
) |
|
$ |
1,666 |
|
|
$ |
(40 |
) |
|
$ |
74,373 |
|
|
$ |
(64 |
) |
Mortgage-backed securities of U.S.
government agencies |
|
|
441,423 |
|
|
|
(9,194 |
) |
|
|
86,834 |
|
|
|
(2,892 |
) |
|
|
528,257 |
|
|
|
(12,086 |
) |
States of the U.S. and political
subdivisions |
|
|
82,489 |
|
|
|
(1,411 |
) |
|
|
20,726 |
|
|
|
(602 |
) |
|
|
103,215 |
|
|
|
(2,013 |
) |
Corporate debt securities |
|
|
13,563 |
|
|
|
(270 |
) |
|
|
3,508 |
|
|
|
(88 |
) |
|
|
17,071 |
|
|
|
(358 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
610,182 |
|
|
$ |
(10,899 |
) |
|
$ |
112,734 |
|
|
$ |
(3,622 |
) |
|
$ |
722,916 |
|
|
$ |
(14,521 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2006, securities with unrealized losses for less than 12 months include
21 investments in U.S. government agency securities, 32 investments in mortgage-backed securities
of U.S. government agencies, 68 investments in states of the U.S. and political subdivision
securities, 13 investments in other debt securities and 2 investments in equity securities. As of
March 31, 2006, securities with unrealized losses of greater than 12 months include 4 investments
in U.S. government agency securities, 62 investments in mortgage-backed securities of U.S.
government agencies, 87 investments in states of the U.S. and political subdivision securities and
5 investments in other debt securities. The Corporation has concluded that it has both the intent
and ability to hold these securities for the period of time necessary to recover the amortized cost
or until maturity.
13
BORROWINGS
Following is a summary of short-term borrowings (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Securities sold under repurchase agreements |
|
$ |
193,618 |
|
|
$ |
182,517 |
|
Federal funds purchased |
|
|
|
|
|
|
30,000 |
|
Federal Home Loan Bank advances |
|
|
25,000 |
|
|
|
40,000 |
|
Subordinated notes |
|
|
119,980 |
|
|
|
125,673 |
|
Other short-term borrowings |
|
|
246 |
|
|
|
788 |
|
|
|
|
|
|
|
|
|
|
$ |
338,844 |
|
|
$ |
378,978 |
|
|
|
|
|
|
|
|
Following is a summary of long-term debt (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Federal Home Loan Bank advances |
|
$ |
494,888 |
|
|
$ |
499,963 |
|
Debentures due to Statutory Trust |
|
|
128,866 |
|
|
|
128,866 |
|
Subordinated notes |
|
|
38,184 |
|
|
|
33,437 |
|
Other long-term debt |
|
|
306 |
|
|
|
303 |
|
|
|
|
|
|
|
|
|
|
$ |
662,244 |
|
|
$ |
662,569 |
|
|
|
|
|
|
|
|
The Corporations banking affiliate has available credit with the Federal Home Loan Bank
(FHLB) of $1.8 billion, of which $519.9 million was used as of March 31, 2006. These advances are
secured by loans collateralized by 1-4 family mortgages and the security portfolio and are
scheduled to mature in various amounts periodically through the year 2012. Effective interest
rates on these advances range from 2.10% to 5.75% for the three months ended March 31, 2006 and
2005.
F.N.B. Statutory Trust I (Statutory Trust), an unconsolidated subsidiary trust, issued $125.0
million of Corporation-obligated mandatorily redeemable capital securities (capital securities) to
fund the acquisition of a bank that was later spun-off with the Corporations Florida operations.
The proceeds from the sale of the capital securities were invested in junior subordinated debt
securities of the Corporation (debentures). The Statutory Trust was formed for the sole purpose of
issuing the capital securities and investing the proceeds from the sale of such capital securities
in the debentures. The debentures held by Statutory Trust are its sole assets. Distributions on
the debentures issued by Statutory Trust are recorded as interest expense by the Corporation. The
capital securities are subject to mandatory redemption, in whole or in part, upon repayment of the
debentures. The capital securities bear interest at a floating rate per annum equal to the
three-month London Inter-Bank Offered Rate (LIBOR) plus 325 basis points. The interest rate in
effect at March 31, 2006 was 7.78%. The Corporation has entered into agreements which, taken
collectively, fully and unconditionally guarantee the capital securities subject to the terms of
each of the guarantees. The debentures qualify as Tier 1 capital under the Board of Governors of
the Federal Reserve System (Federal Reserve Board) guidelines and are first redeemable, in whole or
in part, by the Corporation on or after March 31, 2008 and mature on March 31, 2033.
INTEREST RATE SWAP
In February 2005, the Corporation entered into an interest rate swap with a notional amount of
$125.0 million, whereby it will pay a fixed rate of interest and receive a variable rate based on
LIBOR. The effective date of the swap was January 3, 2006 and the maturity date of the swap is
March 31, 2008. The interest rate swap is a designated cash flow hedge designed to convert the
variable interest rate to a fixed rate on $125.0 million of debentures. The swap is considered to
be highly effective and assessment of the hedging relationship is evaluated under the critical
terms match method. At March 31, 2006, the swap had a fair value of $2.3 million which has been
recorded in other assets, and other comprehensive income, net of tax. The Corporation accounts for
the swap in accordance with FAS 133, Accounting for Derivative Instruments and Hedging Activities.
14
COMMITMENTS, CREDIT RISK AND CONTINGENCIES
The Corporation has commitments to extend credit and standby letters of credit that
involve certain elements of credit risk in excess of the amount stated in the consolidated balance
sheet. The Corporations exposure to credit loss in the event of non-performance by the customer
is represented by the contractual amount of those instruments. The credit risk associated with
loan commitments and standby letters of credit is essentially the same as that involved in
extending loans to customers and is subject to normal credit policies. Since many of these
commitments expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash flow requirements.
Following is a summary of off-balance sheet credit risk information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2006 |
|
2005 |
Commitments to extend credit |
|
$ |
810,536 |
|
|
$ |
729,892 |
|
Standby letters of credit |
|
|
72,263 |
|
|
|
61,659 |
|
At March 31, 2006, funding of approximately 75% of the commitments to extend credit was
dependent on the financial condition of the customer. The Corporation has the ability to withdraw
such commitments at its discretion. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Based on managements credit evaluation of
the customer, collateral may be deemed necessary. Collateral requirements vary and may include
accounts receivable, inventory, property, plant and equipment and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by the Corporation that may
require payment at a future date. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers. The obligations are not
recorded in the Corporations consolidated financial statements. The Corporations exposure to
credit loss in the event the customer does not satisfy the terms of the agreement equals the
notional amount of the obligation less the value of any collateral.
The Corporation and its subsidiaries are involved in a number of legal proceedings arising
from the conduct of their business activities. These actions include claims brought against the
Corporation and its subsidiaries where the Corporation acted as a depository bank, lender,
underwriter, fiduciary, financial advisor, broker or engaged in other business activities.
Although the ultimate outcome cannot be predicted with certainty, the Corporation believes that it
has valid defenses for all asserted claims. Reserves are established for legal claims when losses
associated with the claims are judged to be probable and the loss can be reasonably estimated.
Based on information currently available, advice of counsel, available insurance coverage and
established reserves, the Corporation believes that the eventual outcome of all claims against the
Corporation and its subsidiaries will not, individually or in the aggregate, have a material
adverse effect on the Corporations consolidated financial position or results of operations.
However, in the event of unexpected future developments, it is possible that the ultimate
resolution of these matters, if unfavorable, may be material to the Corporations results of
operations for a particular period.
EARNINGS PER SHARE
Basic earnings per common share is calculated by dividing net income by the weighted average
number of shares of common stock outstanding net of unvested shares of restricted stock.
Diluted earnings per common share is calculated by dividing net income by the weighted average
number of shares of common stock outstanding, adjusted for the dilutive effect of potential common
shares issuable for stock options and restricted shares based on the treasury stock method using
the average market price. Such adjustments to the weighted average number of shares of common
stock outstanding are made only when such adjustments dilute earnings per common share.
15
The following table sets forth the computation of basic and diluted earnings per share
(dollars in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
15,802 |
|
|
$ |
14,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic) |
|
|
57,177,923 |
|
|
|
53,041,581 |
|
Net effect of dilutive stock options and restricted stock based
on the treasury stock method using the average market price |
|
|
409,555 |
|
|
|
767,151 |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (diluted) |
|
|
57,587,478 |
|
|
|
53,808,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
.28 |
|
|
$ |
.28 |
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
.27 |
|
|
$ |
.28 |
|
|
|
|
|
|
|
|
RETIREMENT AND OTHER POSTRETIREMENT BENEFIT PLANS
The Corporation sponsors the F.N.B. Corporation Retirement Income Plan (RIP), a qualified
noncontributory defined benefit pension plan covering substantially all salaried employees. The
RIP covers employees who satisfy minimum age and length of service requirements. Benefits of the
RIP are generally based on years of service and the employees compensation for five consecutive
years during their last ten years of employment. The RIPs funding policy is to make annual
contributions to the RIP each year equal to the maximum tax deductible amount. The Corporation
made a contribution of $3.0 million to the RIP in the first quarter of 2006.
The Corporation also sponsors two supplemental non-qualified retirement plans. The ERISA
Excess Retirement Plan provides retirement benefits equal to the difference, if any, between the
maximum benefit allowable under the Internal Revenue Code and the amount that would be provided
under the RIP, if no limits were applied. The Basic Retirement Plan (BRP) is applicable to certain
officers who are designated by the Board of Directors. Officers participating in the BRP receive a
benefit based on a target benefit percentage based on years of service at retirement and designated
tier as determined by the Board of Directors. When a participant retires, the basic benefit under
the BRP is a monthly benefit equal to the target benefit percentage times the participants highest
average monthly cash compensation during five consecutive calendar years within the last ten
calendar years of employment. This monthly benefit is reduced by the monthly benefit the
participant receives from Social Security and the qualified RIP.
The net periodic benefit cost for the defined benefit plans includes the following components
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
Service cost |
|
$ |
1,215 |
|
|
$ |
1,241 |
|
Interest cost |
|
|
1,779 |
|
|
|
1,643 |
|
Expected return on plan assets |
|
|
(2,007 |
) |
|
|
(1,832 |
) |
Net amortization |
|
|
384 |
|
|
|
305 |
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
1,371 |
|
|
$ |
1,357 |
|
|
|
|
|
|
|
|
The Corporation sponsors a pre-Medicare eligible postretirement medical insurance plan for
retirees between the ages of 62 and 65 of certain affiliates. The Corporation has no plan assets
attributable to this plan and funds the benefits as claims arise. Benefit costs related to this
plan are recognized in the periods in which employees provide service for such benefits. The
Corporation reserves the right to terminate the plan or make plan changes at any time.
16
The net periodic postretirement benefit cost includes the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
Service cost |
|
$ |
94 |
|
|
$ |
106 |
|
Interest cost |
|
|
85 |
|
|
|
78 |
|
Net amortization |
|
|
16 |
|
|
|
17 |
|
|
|
|
|
|
|
|
Net periodic postretirement benefit cost |
|
$ |
195 |
|
|
$ |
201 |
|
|
|
|
|
|
|
|
The Corporation also sponsors a qualified 401(k) defined contribution plan under which
eligible employees may contribute a percentage of their salary. The Corporation matches 50 percent
of an eligible employees contribution on the first 6 percent that the employee defers. Employees
are generally eligible to participate upon completing 90 days of service and having attained age
21. Employer contributions become 20 percent vested when an employee has completed one year of
service, and vest at a rate of 20 percent per year thereafter. The Corporations contribution
expense was $0.4 million for the three months ended March 31, 2006 and 2005.
CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information (in thousands):
|
|
|
|
|
|
|
|
|
Three Months Ended March 31 |
|
2006 |
|
|
2005 |
|
Interest paid on deposits and other borrowings |
|
$ |
32,134 |
|
|
$ |
26,195 |
|
Income taxes paid |
|
|
|
|
|
|
4,043 |
|
Transfers of loans to other real estate owned |
|
|
1,204 |
|
|
|
1,113 |
|
Transfers of other real estate owned to loans |
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of business acquisition: |
|
|
|
|
|
|
|
|
Fair value of tangible assets acquired |
|
|
|
|
|
$ |
478,466 |
|
Fair value of core deposit intangible acquired |
|
|
|
|
|
|
8,888 |
|
Fair value of liabilities assumed |
|
|
|
|
|
|
(473,872 |
) |
Stock issued for the purchase of acquired companys common stock |
|
|
|
|
|
|
(127,516 |
) |
Cash received in the acquisition |
|
|
|
|
|
|
8,799 |
|
|
|
|
|
|
|
|
Goodwill recognized |
|
|
|
|
|
$ |
(105,235 |
) |
|
|
|
|
|
|
|
COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
15,802 |
|
|
$ |
14,910 |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
Unrealized (losses) gains on securities: |
|
|
|
|
|
|
|
|
Arising during the period |
|
|
288 |
|
|
|
(7,505 |
) |
Less: reclassification adjustment for
gains included in net income |
|
|
(356 |
) |
|
|
(395 |
) |
Unrealized gains on swap |
|
|
532 |
|
|
|
628 |
|
Minimum benefit plan liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income |
|
|
464 |
|
|
|
(7,272 |
) |
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
16,266 |
|
|
$ |
7,638 |
|
|
|
|
|
|
|
|
17
The accumulated balances related to each component of other comprehensive income (deficit) are
as follows (in thousands):
|
|
|
|
|
|
|
|
|
March 31 |
|
2006 |
|
|
2005 |
|
Unrealized (losses) gains on securities |
|
$ |
3,428 |
|
|
$ |
(1,960 |
) |
Unrealized gains on swap |
|
|
1,504 |
|
|
|
628 |
|
Minimum pension liability adjustment |
|
|
(871 |
) |
|
|
(975 |
) |
|
|
|
|
|
|
|
Accumulated other comprehensive (deficit) income |
|
$ |
4,061 |
|
|
$ |
(2,307 |
) |
|
|
|
|
|
|
|
BUSINESS SEGMENTS
The Corporation operates in four reportable segments: Community Banking, Wealth Management,
Insurance and Consumer Finance.
|
|
|
The Community Banking segment offers services traditionally offered by full-service
commercial banks, including commercial and individual demand, savings and time deposit
accounts and commercial, mortgage and individual installment loans. |
|
|
|
|
The Wealth Management segment provides a broad range of personal and corporate fiduciary
services including the administration of decedent and trust estates. In addition, it
offers various alternative products, including securities brokerage and investment advisory
services, mutual funds and annuities. |
|
|
|
|
The Insurance segment includes a full-service insurance agency offering all lines of
commercial and personal insurance through major carriers. The Insurance segment also
includes a reinsurer. |
|
|
|
|
The Consumer Finance segment is primarily involved in making installment loans to
individuals. The Consumer Finance segment activity is funded through the sale of the
Corporations subordinated notes at the finance companys branch offices. |
|
|
|
|
The other segment includes the Corporation, other non-bank subsidiaries and
eliminations, which are necessary for purposes of reconciling to the consolidated amounts. |
The following tables provide financial information for these segments of the Corporation (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community |
|
Wealth |
|
|
|
|
|
Consumer |
|
|
|
|
|
|
Banking |
|
Management |
|
Insurance |
|
Finance |
|
Other |
|
Consolidated |
At or for the Three Months
Ended March 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
70,582 |
|
|
$ |
30 |
|
|
$ |
133 |
|
|
$ |
7,563 |
|
|
$ |
(687 |
) |
|
$ |
77,621 |
|
Interest expense |
|
|
28,528 |
|
|
|
2 |
|
|
|
|
|
|
|
1,869 |
|
|
|
1,403 |
|
|
|
31,802 |
|
Provision for loan losses |
|
|
1,390 |
|
|
|
|
|
|
|
|
|
|
|
1,568 |
|
|
|
|
|
|
|
2,958 |
|
Non-interest income |
|
|
13,400 |
|
|
|
3,023 |
|
|
|
3,660 |
|
|
|
557 |
|
|
|
(531 |
) |
|
|
20,109 |
|
Non-interest expense |
|
|
30,894 |
|
|
|
2,360 |
|
|
|
2,563 |
|
|
|
3,672 |
|
|
|
(169 |
) |
|
|
39,320 |
|
Intangible amortization |
|
|
820 |
|
|
|
|
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
931 |
|
Income tax expense (benefit) |
|
|
6,864 |
|
|
|
247 |
|
|
|
399 |
|
|
|
358 |
|
|
|
(951 |
) |
|
|
6,917 |
|
Net income (loss) |
|
|
15,486 |
|
|
|
444 |
|
|
|
720 |
|
|
|
653 |
|
|
|
(1,501 |
) |
|
|
15,802 |
|
Total assets |
|
|
5,465,215 |
|
|
|
6,212 |
|
|
|
27,976 |
|
|
|
146,365 |
|
|
|
(14,355 |
) |
|
|
5,631,413 |
|
Total intangibles |
|
|
205,367 |
|
|
|
|
|
|
|
11,644 |
|
|
|
1,809 |
|
|
|
|
|
|
|
218,820 |
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community |
|
Wealth |
|
|
|
Consumer |
|
|
|
|
|
|
Banking |
|
Management |
|
Insurance |
|
Finance |
|
Other |
|
Consolidated |
At or for the Three Months
Ended March 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
61,553 |
|
|
$ |
19 |
|
|
$ |
98 |
|
|
$ |
7,733 |
|
|
$ |
(330 |
) |
|
$ |
69,073 |
|
Interest expense |
|
|
20,390 |
|
|
|
2 |
|
|
|
|
|
|
|
1,436 |
|
|
|
1,662 |
|
|
|
23,490 |
|
Provision for loan losses |
|
|
709 |
|
|
|
|
|
|
|
|
|
|
|
1,622 |
|
|
|
|
|
|
|
2,331 |
|
Non-interest income |
|
|
12,179 |
|
|
|
3,523 |
|
|
|
3,369 |
|
|
|
501 |
|
|
|
(829 |
) |
|
|
18,743 |
|
Non-interest expense |
|
|
30,797 |
|
|
|
2,394 |
|
|
|
2,710 |
|
|
|
3,713 |
|
|
|
(136 |
) |
|
|
39,478 |
|
Intangible amortization |
|
|
749 |
|
|
|
|
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
860 |
|
Income tax expense (benefit) |
|
|
6,471 |
|
|
|
421 |
|
|
|
271 |
|
|
|
517 |
|
|
|
(933 |
) |
|
|
6,747 |
|
Net income (loss) |
|
|
14,616 |
|
|
|
725 |
|
|
|
375 |
|
|
|
946 |
|
|
|
(1,752 |
) |
|
|
14,910 |
|
Total assets |
|
|
5,408,006 |
|
|
|
7,355 |
|
|
|
29,496 |
|
|
|
147,242 |
|
|
|
17,287 |
|
|
|
5,609,386 |
|
Total intangibles |
|
|
202,628 |
|
|
|
|
|
|
|
11,900 |
|
|
|
1,809 |
|
|
|
|
|
|
|
216,337 |
|
19
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
F.N.B. Corporation
We have
reviewed the condensed consolidated balance sheet of F.N.B. Corporation and subsidiaries (F.N.B.
Corporation) as of March 31, 2006, and the related condensed consolidated statements of income for
the three-month periods ended March 31, 2006 and 2005, and the consolidated statements of
stockholders equity, and cash flows for the three-month periods ended March 31, 2006 and 2005.
These financial statements are the responsibility of F.N.B. Corporations management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight
Board (United States). A review of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the
condensed consolidated financial statements referred to above for them to be in conformity with
U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of F.N.B. Corporation as of
December 31, 2005, and the related consolidated statements of income, stockholders equity, and
cash flows for the year then ended (not presented herein) and in our report dated March 8, 2006, we
expressed an unqualified opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet as of December 31,
2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
May 8, 2006
20
PART I.
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS |
Managements discussion and analysis represents an overview of the results of operations and
financial condition of the Corporation. This discussion and analysis should be read in conjunction
with the consolidated financial statements and notes thereto.
IMPORTANT NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report are forward-looking within the meaning of the
Private Securities Litigation Reform Act of 1995, which statements generally can be identified by
the use of forward-looking terminology, such as may, will, expect, estimate, anticipate,
believe, target, plan, project or continue or the negatives thereof or other variations
thereon or similar terminology, and are made on the basis of managements plans and current
analyses of the Corporation, its business and the industry as a whole. These forward-looking
statements are subject to risks and uncertainties, including, but not limited to, economic
conditions, competition, interest rate sensitivity and exposure to regulatory and legislative
changes. The above factors in some cases have affected, and in the future could affect, the
Corporations financial performance and could cause actual results to differ materially from those
expressed or implied in such forward-looking statements. The Corporation does not undertake to
publicly update or revise its forward-looking statements even if experience or future changes make
it clear that any projected results expressed or implied therein will not be realized.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are described in the Managements Discussion and Analysis of
Financial Condition and Results of Operations section of the Corporations 2005 Annual Report on
Form 10-K under the heading Application of Critical Accounting Policies. There have been no
significant changes in the application of accounting policies since December 31, 2005.
OVERVIEW
The Corporation is a diversified financial services company headquartered in Hermitage,
Pennsylvania. Its primary businesses include commercial and retail banking, consumer finance,
asset management and insurance. The Corporation operates its retail and commercial banking
business through a full service branch network in Pennsylvania and Ohio and four loan production
offices in Florida, and conducts selected consumer finance business in Pennsylvania, Ohio and
Tennessee.
The Corporation owns and operates First National Bank of Pennsylvania (FNBPA), First National
Trust Company, First National Investment Services Company, LLC, F.N.B. Investment Advisors, Inc.,
First National Insurance Agency, LLC (FNIA), Regency Finance Company and F.N.B. Capital
Corporation, LLC.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005
Net income for the three months ended March 31, 2006 was $15.8 million or $.27 per diluted
share, compared to net income for the same period of 2005 of $14.9 million or $.28 per diluted
share. The increase in net income was primarily the result of the Corporations acquisitions of
NSD and North East in 2005. The Corporations return on average equity was 13.33%, return on
tangible equity was 25.45% and return on average assets was 1.14% for the three months ended March
31, 2006, compared to 15.76%, 26.89% and 1.15% for the same period in 2005, respectively.
21
The following table provides information regarding the average balances and yields and rates
on interest earning assets and interest bearing liabilities (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31 |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits with banks |
|
$ |
1,571 |
|
|
$ |
16 |
|
|
|
4.24 |
% |
|
$ |
1,484 |
|
|
|
11 |
|
|
|
3.01 |
% |
Federal funds sold |
|
|
4,729 |
|
|
|
50 |
|
|
|
4.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable investment securities (1) |
|
|
1,006,249 |
|
|
|
12,279 |
|
|
|
4.86 |
|
|
|
1,081,293 |
|
|
|
11,965 |
|
|
|
4.43 |
|
Non-taxable investment securities (2) |
|
|
141,706 |
|
|
|
1,830 |
|
|
|
5.17 |
|
|
|
121,800 |
|
|
|
1,514 |
|
|
|
4.97 |
|
Loans (2) (3) |
|
|
3,789,368 |
|
|
|
64,408 |
|
|
|
6.88 |
|
|
|
3,504,247 |
|
|
|
56,363 |
|
|
|
6.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets (2) |
|
|
4,943,623 |
|
|
|
78,583 |
|
|
|
6.42 |
|
|
|
4,708,824 |
|
|
|
69,853 |
|
|
|
5.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
114,143 |
|
|
|
|
|
|
|
|
|
|
|
105,284 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(51,464 |
) |
|
|
|
|
|
|
|
|
|
|
(52,655 |
) |
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
86,606 |
|
|
|
|
|
|
|
|
|
|
|
80,367 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
506,264 |
|
|
|
|
|
|
|
|
|
|
|
417,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,599,172 |
|
|
|
|
|
|
|
|
|
|
$ |
5,259,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand |
|
$ |
1,091,164 |
|
|
|
4,961 |
|
|
|
1.84 |
|
|
$ |
956,491 |
|
|
|
2,172 |
|
|
|
0.92 |
|
Savings |
|
|
647,051 |
|
|
|
1,907 |
|
|
|
1.20 |
|
|
|
677,369 |
|
|
|
1,296 |
|
|
|
0.78 |
|
Certificates and other time |
|
|
1,645,730 |
|
|
|
14,111 |
|
|
|
3.48 |
|
|
|
1,451,460 |
|
|
|
10,844 |
|
|
|
3.03 |
|
Repurchase agreements |
|
|
194,700 |
|
|
|
1,772 |
|
|
|
3.64 |
|
|
|
174,379 |
|
|
|
774 |
|
|
|
1.78 |
|
Other short-term borrowings |
|
|
175,225 |
|
|
|
1,825 |
|
|
|
4.17 |
|
|
|
246,771 |
|
|
|
2,043 |
|
|
|
3.31 |
|
Long-term debt |
|
|
662,927 |
|
|
|
7,226 |
|
|
|
4.42 |
|
|
|
662,583 |
|
|
|
6,361 |
|
|
|
3.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
4,416,797 |
|
|
|
31,802 |
|
|
|
2.92 |
|
|
|
4,169,053 |
|
|
|
23,490 |
|
|
|
2.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing demand |
|
|
638,232 |
|
|
|
|
|
|
|
|
|
|
|
628,236 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
63,472 |
|
|
|
|
|
|
|
|
|
|
|
78,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,118,501 |
|
|
|
|
|
|
|
|
|
|
|
4,876,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
480,671 |
|
|
|
|
|
|
|
|
|
|
|
383,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,599,172 |
|
|
|
|
|
|
|
|
|
|
$ |
5,259,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess of interest earning assets over
interest bearing liabilities |
|
$ |
526,826 |
|
|
|
|
|
|
|
|
|
|
$ |
539,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully tax-equivalent net interest income |
|
|
|
|
|
|
46,781 |
|
|
|
|
|
|
|
|
|
|
|
46,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
3.51 |
% |
|
|
|
|
|
|
|
|
|
|
3.71 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (2) |
|
|
|
|
|
|
|
|
|
|
3.82 |
% |
|
|
|
|
|
|
|
|
|
|
3.97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-equivalent adjustment |
|
|
|
|
|
|
962 |
|
|
|
|
|
|
|
|
|
|
|
780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
45,819 |
|
|
|
|
|
|
|
|
|
|
$ |
45,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The average balances and yields earned on securities are based on historical cost. |
|
(2) |
|
The interest income amounts are reflected on a fully taxable equivalent (FTE) basis which
adjusts for the tax benefit of income on certain tax-exempt loans and investments using the
federal statutory tax rate of 35% for each period presented. The yield on earning assets and
the net interest margin are presented on an FTE and annualized basis. The Corporation
believes this measure to be the preferred industry measurement of net interest income and
provides relevant comparison between taxable and non-taxable amounts. |
|
(3) |
|
Average balances include 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. |
22
Net Interest Income
Net interest income, which is the Corporations major source of revenue, is the difference
between interest income from earning assets (loans, securities and federal funds sold) and interest
expense paid on liabilities (deposits and short- and long-term borrowings). For the three months
ended March 31, 2006, net interest income, which comprised 69.5% of net revenue as compared to
70.9% for the same period in 2005, was affected by the general level of interest rates, changes in
interest rates, the steepness of the yield curve and the changes in the amount and mix of earning
assets and interest bearing liabilities.
Net interest income, on a fully taxable equivalent basis, was $46.8 million for the quarter
ended March 31, 2006 and $46.4 million for the quarter ended March 31, 2005. The average earning
assets increased $234.8 million or 5.0% and average interest bearing liabilities increased $247.7
million or 5.9% from the same period in 2005 primarily due to the acquisitions of NSD and North
East. However, the Corporations net interest margin decreased by 15 basis points from 2005 to
3.82% for 2006 and was impacted by a flattening of the yield curve throughout 2005 which remained
flat in the first quarter of 2006. As such, the Corporation experienced less opportunity to earn
higher rates on earning assets compared to the need to increase rates on its deposits and
repurchase agreements, driven by market rates and competitive prices. More details on changes in
tax equivalent net interest income attributed to changes in earning assets, interest bearing
liabilities yields and cost of funds can be found in the preceding table.
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 three months ended March 31, 2006 compared to the three months
ended March 31, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume |
|
|
Rate |
|
|
Net |
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits with banks |
|
$ |
1 |
|
|
$ |
4 |
|
|
$ |
5 |
|
Federal funds sold |
|
|
50 |
|
|
|
|
|
|
|
50 |
|
Securities |
|
|
(873 |
) |
|
|
1,503 |
|
|
|
630 |
|
Loans |
|
|
4,475 |
|
|
|
3,570 |
|
|
|
8,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,653 |
|
|
|
5,077 |
|
|
|
8,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand |
|
|
344 |
|
|
|
2,445 |
|
|
|
2,789 |
|
Savings |
|
|
65 |
|
|
|
546 |
|
|
|
611 |
|
Certificates and other time |
|
|
1,582 |
|
|
|
1,685 |
|
|
|
3,267 |
|
Repurchase agreements |
|
|
100 |
|
|
|
898 |
|
|
|
998 |
|
Other short-term borrowings |
|
|
(654 |
) |
|
|
436 |
|
|
|
(218 |
) |
Long-term debt |
|
|
5 |
|
|
|
860 |
|
|
|
865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,442 |
|
|
|
6,870 |
|
|
|
8,312 |
|
|
|
|
|
|
|
|
|
|
|
Net Change |
|
$ |
2,211 |
|
|
$ |
(1,793 |
) |
|
$ |
418 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
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. |
|
(2) |
|
Interest income amounts are reflected on a FTE basis which adjusts for the
tax benefit of income on certain tax-exempt loans and investments using the federal
statutory tax rate of 35% for each period presented. The Corporation believes this
measure to be the preferred industry measurement of net interest income and provides
relevant comparison between taxable and non-taxable amounts. |
Interest income, on a fully taxable equivalent basis, of $78.6 million for the three
months ended March 31, 2006 increased by $8.7 million or 12.5% from the same period of 2005. This
increase was partially caused by an improvement in yield on earning assets of 43 basis points to
6.42% for the first quarter of 2006. In addition, average earning assets of $4.9 billion for the
first quarter of 2006 grew $234.8 million or 5.0% from the same period of 2005 driven by an
increase of $285.1 million in average loans, partially offset by a decrease of $55.1 million in
investment securities. The increase in average loans was primarily the result of the Corporations
acquisitions in 2005 while the decrease in average investment securities was a result of a balance
sheet restructuring the Corporation completed during the fourth quarter of 2005.
23
Interest expense of $31.8 million for the three months ended March 31, 2006 increased by $8.3
million or 35.4% from the same period of 2005. This variance was primarily attributable to an
increase of 64 basis points in the Corporations cost of funds to 2.92% during the first quarter of
2006. Additionally, average interest bearing liabilities increased $247.7 million or 5.9% to
average $4.4 billion for the first quarter of 2006. This growth was primarily attributable to a
combined increase of $124.7 million or 6.9% in the core deposit categories of interest bearing
demand deposit, savings and customer repurchase agreements, and an increase in time deposits of
$194.3 million or 13.4%. The increases were the result of the Corporations acquisitions of NSD
and North East in 2005 as well as success of the introduction of a suite of new deposit products
that has attracted additional customers. These increases were partially offset by a decrease in
average short-term borrowings of $71.5 million or 29.0%, resulting from decreases in federal funds
purchased and subordinated notes.
Provision for Loan Losses
The provision for loan losses is determined based on managements estimates of the appropriate
level of allowance for loan losses needed to absorb probable losses in the loan portfolio, after
giving consideration to charge-offs and recoveries for the period.
The provision for loan losses of $3.0 million for the three months ended March 31, 2006
increased $0.6 million or 26.9% from the same period of 2005 as a result of loan growth. Improving
trends in the consumer loan portfolio, particularly the indirect installment portfolio, continued
to produce lower levels of expected losses. More specifically, for the first quarter of 2006 net
charge-offs totaled $3.5 million or .37% (annualized) as a percentage of average loans compared to
$3.7 million or .43% (annualized) as a percentage of average loans for the same period of 2005.
The ratio of non-performing loans to total loans was .81% at March 31, 2006 compared to .88% at
March 31, 2005 and the ratio of non-performing assets to total assets was .66% and .69% for these
same periods, respectively. For additional information, refer to the Allowance and Provision for
Loan Losses section of this financial review.
Non-Interest Income
Total non-interest income of $20.1 million for the three months ended March 31, 2006 increased
$1.4 million or 7.3% from the same period of 2005. This increase resulted from increases in
service charges, insurance commissions and fees and other non-interest income.
Service charges on loans and deposits of $10.2 million for the first quarter of 2006 increased
$1.1 million or 12.3% from the same period of 2005 as the Corporations customer base expanded as a
result of the acquisitions in 2005.
Insurance commissions and fees of $4.1 million for the first quarter of 2006 increased $0.3
million or 8.8% from the same period of 2005 due to an increase in contingent fees, which are
primarily recognized during the first quarter of each year.
Securities commissions of $0.9 million for the first quarter of 2006 decreased by $0.5 million
or 32.5% from the same period of 2005. The decrease is due to the decline in sales of annuity
products as customers have been selecting higher yielding alternatives as interest rates increased.
Trust fees of $1.8 million for the first quarter of 2006 decreased $0.1 million or 3.0% from
the same period of 2005. Trust fees in the first quarter of 2005 were benefited by an adjustment
of $0.1 million resulting from a system conversion.
Other income of $1.4 million for the first quarter of 2006 increased $0.6 million or 72.4%
from the same period of 2005. This increase was attributable to income relating to recoveries on
impaired loans acquired in 2005 of $0.3 million during the first quarter of 2006. Also, income
from non-marketable equity securities increased by $0.2 million from the same period of 2005.
24
Non-Interest Expense
Total non-interest expense was $40.3 million for both the three months ended March 31, 2006
and 2005. A small increase in salaries and employee benefit costs in the first quarter of 2006
was offset by lower equipment and other non-interest expenses compared to the same period in the
prior year.
Salaries and employee benefits of $21.3 million for the first quarter of 2006 increased $0.1
million or 0.6% from the same period of 2005. The additional costs associated with the employees
retained from the acquisitions in 2005 and normal compensation increases in the first quarter of
2006 were offset by lower salary and benefit costs related to staff reductions in the fourth
quarter of 2005 as compared to the same period in 2005.
Combined net occupancy and equipment expense of $6.7 million for the first quarter of 2006
increased $0.2 million or 2.5% from the same period of 2005. The increase was primarily due to
additional costs associated with the acquisitions in 2005.
Amortization of intangibles expense of $0.9 million for the first quarter of 2006 increased
8.3% from the same period in the prior year due to the amortization of additional core deposit and
customer list intangibles as a result of acquisitions in 2005.
Other non-interest expenses of $11.3 million for the first quarter of 2006 decreased $0.5
million or 3.9% from the same period of 2005 primarily due to a decline in merger expenses. Other
non-interest expense included merger expenses of $0.1 million related to the forthcoming Legacy
acquisition for the first quarter of 2006 and $0.5 million related to the NSD acquisition in the
first quarter of 2005.
Income Taxes
The Corporations income tax expense of $6.9 million for the three months ended March 31, 2006
increased by $0.2 million from the same period in 2005 due to higher pre-tax income. The effective
tax rate was 30.4% for the three months ended March 31, 2006 and 31.2% for the same period in the
prior year. The effective tax rate decline was due to an increase in tax exempt instruments, an
increase in tax credits from participation in new qualifying investments, and lower state taxes.
Both years tax rates remain lower than the 35% federal statutory tax rate due to the tax credits
and tax benefits resulting from tax exempt instruments and excludable dividend income.
LIQUIDITY
The Corporations goal in liquidity management is to meet the cash flow requirements of
depositors and borrowers as well as the operating cash needs of the Corporation with cost-effective
funding. The Board of Directors has established an Asset/Liability Policy in order to achieve and
maintain earnings performance consistent with long-term goals while maintaining acceptable levels
of interest rate risk, a well-capitalized balance sheet and adequate levels of liquidity. This
policy designates the Corporate Asset/Liability Committee (ALCO) as the body responsible for
meeting these objectives. The ALCO, which includes members of executive management, reviews
liquidity on a periodic basis and approves significant changes in strategies that affect balance
sheet or cash flow positions. Liquidity is centrally managed on a daily basis by the Corporations
Treasury Department.
Liquidity sources from assets include payments from loans and investments as well as the
ability to securitize or sell loans and investment securities. The Corporation continues to
originate mortgage loans, most of which are sold in the secondary market. Proceeds from the sale
of mortgage loans totaled $19.7 million for the three months ended March 31, 2006 compared to $20.8
million for the three months ended March 31, 2005.
Liquidity sources from liabilities are generated primarily through deposits. As of March 31,
2006 and December 31, 2005, deposits comprised 79.4% and 78.5% of total liabilities, respectively.
To a lesser extent, the Corporation also makes use of wholesale sources that include federal funds
purchased, repurchase agreements and public funds. In addition, the Corporation has the ability to
borrow funds from the FHLB, Federal Reserve Bank and the capital markets. FHLB advances are a
competitively priced and reliable source of funds. As of March 31, 2006, total availability from
these sources was $1.8 billion, or 31.7% of total assets while outstanding advances were $519.9
million, or 9.2% of total assets. As of December 31, 2005, outstanding FHLB advances were $540.0
million, or 9.7% of total assets, while the total availability from these sources was $1.9 billion,
or 34.9% of total assets.
25
The principal source of cash for the parent company is dividends from its subsidiaries. The
parent also has approved lines of credit with several major domestic banks, which were unused as of
March 31, 2006. In addition, the Corporation issues subordinated debt on a regular basis.
The Corporation has repurchased shares of its common stock for re-issuance under various
employee benefit plans and the Corporations dividend reinvestment plan since 1991. During the
three months ended March 31, 2006, the Corporation purchased 60,800 treasury shares totaling $1.0
million and received $2.0 million upon re-issuance of 115,205 shares. For the same period of 2005,
the Corporation purchased 193,300 treasury shares totaling $3.8 million and received $5.4 million
as a result of re-issuance of 257,723 shares.
The ALCO regularly monitors various liquidity ratios and forecasts of cash position.
Management believes the Corporation has sufficient liquidity available to meet its normal operating
and contingency funding cash needs.
MARKET RISK
Market risk refers to potential losses arising from changes in interest rates, foreign
exchange rates, equity prices and commodity prices. The Corporation is primarily exposed to
interest rate risk which results from its role as a financial intermediary. To succeed in this
capacity, the Corporation offers an extensive variety of financial products to meet the diverse
needs of its customers. These products sometimes create risk for the Corporation when product
groups do not compliment one another, for example depositors may want short-term deposits while
borrowers desire long-term loans.
Changes in market interest rates may result in changes in the fair value of the Corporations
financial instruments, cash flows and net interest income. The ALCO is responsible for market risk
management: devising policy guidelines, risk measures and limits, and managing the amount of
interest rate risk and its effect on net interest income and capital. The Corporations Treasury
Department measures interest rate risk and manages interest rate risk on a daily basis.
Interest rate risk is comprised of repricing risk, basis risk, yield curve risk and options
risk. Repricing risk arises from differences in the cash flow or repricing between asset and
liability portfolios. Basis risk arises when asset and liability portfolios are related to
different market rate indices, which do not always change by the same amount. Yield curve risk
arises when asset and liability portfolios are related to different maturities on a given yield
curve; when the yield curve changes shape, the risk position is altered. Options risk arises from
embedded options within asset and liability products as certain borrowers have the option to
prepay their loans when rates fall while certain depositors can redeem their certificates early
when rates rise.
The Corporation uses a sophisticated asset/liability model to measure its interest rate risk.
Interest rate risk measures utilized by the Corporation include earnings simulation, economic value
of equity (EVE) and gap analysis.
Gap analysis and EVE are static measures that do not incorporate assumptions regarding future
business. Gap analysis, while a helpful diagnostic tool, displays cash flows for only a single
rate environment. EVEs long-term horizon helps identify changes in optionality and longer-term
positions. However, EVEs liquidation perspective does not translate into the earnings-based
measures that are the focus of managing and valuing a going concern. Net interest income
simulations explicitly measure the exposure to earnings from changes in market rates of interest.
The Corporations current financial position is combined with assumptions regarding future business
to calculate net interest income under various hypothetical rate scenarios. The ALCO reviews
earnings simulations over multiple years under various interest rate scenarios. Reviewing these
various measures provides the Corporation with a reasonably comprehensive view of its interest rate
profile.
The following gap analysis compares the difference between the amount of interest earning
assets and interest bearing liabilities subject to repricing over a period of time. The ratio of
rate sensitive assets to rate sensitive liabilities repricing within a one year period was 1.05 and
1.02 at March 31, 2006 and 2005, respectively. A ratio of more than one indicates a higher level
of repricing assets over repricing liabilities over the next twelve months.
26
Following is the gap analysis as of March 31, 2006 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within |
|
|
2-3 |
|
|
4-6 |
|
|
7-12 |
|
|
Total |
|
|
|
1 Month |
|
|
Months |
|
|
Months |
|
|
Months |
|
|
1 Year |
|
Interest Earning Assets (IEA) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
932,575 |
|
|
$ |
173,607 |
|
|
$ |
241,608 |
|
|
$ |
400,807 |
|
|
$ |
1,748,597 |
|
Investments |
|
|
12,943 |
|
|
|
45,333 |
|
|
|
25,713 |
|
|
|
243,886 |
|
|
|
327,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
945,518 |
|
|
|
218,940 |
|
|
|
267,321 |
|
|
|
644,693 |
|
|
|
2,076,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Liabilities
(IBL) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-maturity deposits |
|
|
598,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
598,763 |
|
Time deposits |
|
|
116,717 |
|
|
|
224,110 |
|
|
|
237,930 |
|
|
|
449,029 |
|
|
|
1,027,786 |
|
Borrowings |
|
|
187,824 |
|
|
|
56,200 |
|
|
|
45,717 |
|
|
|
64,685 |
|
|
|
354,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
903,304 |
|
|
|
280,310 |
|
|
|
283,647 |
|
|
|
513,714 |
|
|
|
1,980,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Gap |
|
$ |
42,214 |
|
|
$ |
(61,370 |
) |
|
$ |
(16,326 |
) |
|
$ |
130,979 |
|
|
$ |
95,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Gap |
|
$ |
42,214 |
|
|
$ |
(19,156 |
) |
|
$ |
(35,482 |
) |
|
$ |
95,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IEA/IBL (Cumulative) |
|
|
1.05 |
|
|
|
0.98 |
|
|
|
0.98 |
|
|
|
1.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Gap to IEA |
|
|
0.85 |
% |
|
|
(0.39 |
)% |
|
|
(0.71 |
)% |
|
|
1.92 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allocation of non-maturity deposits to the one-month maturity bucket is based on the
estimated sensitivity of each product to changes in market rates. For example, if a products rate
is estimated to increase by 50% as much as the market rates, then 50% of the account balance was
placed in this bucket. The current allocation is representative of the estimated sensitivities for
a +/- 100 basis point change in market rates.
The following table presents an analysis of the potential sensitivity of the Corporations
annual net interest income and EVE to sudden and parallel changes (shocks) in market rates versus
if rates remained unchanged:
|
|
|
|
|
|
|
|
|
March 31 |
|
2006 |
|
2005 |
Net interest income change (12 months): |
|
|
|
|
|
|
|
|
+ 100 basis points |
|
|
.8 |
% |
|
|
0 |
% |
- 100 basis points |
|
|
(.8 |
)% |
|
|
(1.9 |
)% |
|
|
|
|
|
|
|
|
|
Economic value of equity: |
|
|
|
|
|
|
|
|
+ 100 basis points |
|
|
(2.3 |
)% |
|
|
(3.4 |
)% |
- 100 basis points |
|
|
(.2 |
)% |
|
|
(3.3 |
)% |
The preceding measures are within policy limits. The overall level of interest rate risk has
improved and is considered to be relatively low and stable.
The ALCO is responsible for the identification and management of interest rate risk exposure.
As such, the ALCO continuously evaluates strategies to manage its exposure to interest rate
fluctuations. Since 2004, short-term interest rates have risen significantly while long-term
interest rates have increased only slightly. This flattening of the yield curve has made
short-term deposits and long-term loans more attractive to customers: a situation that created
additional interest rate risk for the Corporation. In order to keep the risk measures in an
acceptable position, the ALCO crafted several strategies to mitigate its risk position. During
February 2005, the Corporation entered into a forward starting interest rate swap with a notional
amount of $125.0 million. Under the agreement, the Corporation will pay a fixed rate of interest
and receive a variable rate based on LIBOR. The effective date of the swap was January 3, 2006 and
the maturity date is March 31, 2008. During the fourth quarter of 2005, the Corporation
repositioned its investment portfolio in order to reduce its interest rate risk. The transaction
lowered the level of mortgage-related assets held by the Corporation which reduced the repricing
risk and options risk of the Corporation. The transaction also reduced the average duration of the
portfolio. The Corporation also locked-in funding by utilizing long-term wholesale FHLB advances.
In addition, the Corporation regularly sells fixed-rate, residential mortgages to the secondary
mortgage loan market in order to manage its holdings of long-term, fixed-rate loans.
27
The Corporation recognizes that asset/liability models are based on methodologies that may
have inherent shortcomings. Furthermore, asset/liability models require certain assumptions be
made, such as prepayment rates on earning assets and pricing impact on non-maturity deposits, which
may differ from actual experience. These business assumptions are based upon the Corporations
experience, business plans and published industry experience. While management believes such
assumptions to be reasonable, there can be no assurance that modeled results will approximate
actual results.
DEPOSITS AND REPURCHASE AGREEMENTS
Following is a summary of deposits and repurchase agreements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Non-interest bearing |
|
$ |
651,964 |
|
|
$ |
688,391 |
|
Savings and NOW |
|
|
1,800,500 |
|
|
|
1,675,395 |
|
Certificates of deposit and other time deposits |
|
|
1,637,474 |
|
|
|
1,648,157 |
|
|
|
|
|
|
|
|
Total deposits |
|
|
4,089,938 |
|
|
|
4,011,943 |
|
Securities sold under repurchase agreements |
|
|
193,618 |
|
|
|
182,517 |
|
|
|
|
|
|
|
|
Total deposits and repurchase agreements |
|
$ |
4,283,556 |
|
|
$ |
4,194,460 |
|
|
|
|
|
|
|
|
Total deposits and repurchase agreements increased by $89.1 million or 2.1% to $4.3 billion at
March 31, 2006 compared to December 31, 2005, primarily as a result of growth in interest bearing
deposits due to more competitive rates paid and growth in customer repurchase agreements.
LOANS
The loan portfolio consists principally of loans to individuals and small- and medium-sized
businesses within the Corporations primary market area of western and central Pennsylvania and
northeastern Ohio. The Corporation, through its banking affiliate, also operates four loan
production offices in Florida. In addition, the portfolio contains consumer finance loans to
individuals in Pennsylvania, Ohio and Tennessee.
Following is a summary of loans, net of unearned income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Commercial |
|
$ |
1,708,307 |
|
|
$ |
1,613,960 |
|
Direct installment |
|
|
909,340 |
|
|
|
890,288 |
|
Consumer lines of credit |
|
|
253,916 |
|
|
|
262,969 |
|
Residential mortgages |
|
|
477,781 |
|
|
|
485,542 |
|
Indirect installment |
|
|
475,626 |
|
|
|
493,740 |
|
Other |
|
|
1,994 |
|
|
|
2,548 |
|
|
|
|
|
|
|
|
|
|
$ |
3,826,964 |
|
|
$ |
3,749,047 |
|
|
|
|
|
|
|
|
The above loan totals include unearned income of $26.7 million and $27.6 million at March 31,
2006 and December 31, 2005, respectively.
Total loans increased by $77.9 million or 2.1% to $3.8 billion at March 31, 2006 primarily due
to the growth in commercial loans in the Florida and Pittsburgh markets.
28
NON-PERFORMING ASSETS
Non-performing loans include non-accrual loans and restructured loans. Non-accrual loans
represent loans on which interest accruals have been discontinued. 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.
The Corporation discontinues interest accruals when principal or interest is due and has
remained unpaid for 90 to 180 days or more depending on the loan type. When a loan is placed on
non-accrual status, all unpaid interest is reversed. Non-accrual loans may not be restored to
accrual status until all delinquent principal and interest has been paid.
Non-performing loans are closely monitored on an ongoing basis as part of the Corporations
loan review and work-out process. The potential risk of loss on these loans is evaluated by
comparing the loan balance to the fair value of any underlying collateral or the present value of
projected future cash flows. Losses are recognized where appropriate.
Following is a summary of non-performing assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Non-accrual loans |
|
$ |
25,918 |
|
|
$ |
28,100 |
|
Restructured loans |
|
|
5,031 |
|
|
|
5,032 |
|
|
|
|
|
|
|
|
Total non-performing loans |
|
|
30,949 |
|
|
|
33,132 |
|
Other real estate owned |
|
|
6,280 |
|
|
|
6,337 |
|
|
|
|
|
|
|
|
Total non-performing assets |
|
$ |
37,229 |
|
|
$ |
39,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset quality ratios: |
|
|
|
|
|
|
|
|
Non-performing loans as a percent of total loans |
|
|
.81 |
% |
|
|
.88 |
% |
Non-performing assets as a percent of total assets |
|
|
.66 |
% |
|
|
.71 |
% |
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents managements estimate of probable loan losses
inherent in the loan portfolio at a specific point in time. This estimate includes losses
associated with specifically identified loans, as well as estimated probable credit losses inherent
in the remainder of the loan portfolio. Additions are made to the allowance through both periodic
provisions charged to income and recoveries of losses previously incurred. Reductions to the
allowance occur as loans are charged off. Management evaluates the adequacy of the allowance at
least quarterly, and in doing so relies on various factors including, but not limited to,
assessment of historical loss experience, delinquency and non-accrual trends, portfolio growth,
underlying collateral coverage and current economic conditions. This evaluation is subjective and
requires material estimates that may change over time.
The components of the allowance for loan losses represent estimates based upon FAS 5,
Accounting for Contingencies, and FAS 114, Accounting by Creditors for Impairment of a Loan. FAS 5
applies to homogeneous loan pools such as consumer installment, residential mortgages and consumer
lines of credit, as well as commercial loans that are not individually evaluated for impairment
under FAS 114. FAS 114 is applied to commercial loans that are considered impaired.
Under FAS 114, a loan is impaired when, based upon current information and events, it is
probable that the loan will not be repaid according to its contractual terms, including both
principal and interest. Management performs individual assessments of impaired loans to determine
the existence of loss exposure and, where applicable, the extent of loss exposure based upon the
present value of expected future cash flows available to pay the loan, or based upon the estimated
realizable collateral where a loan is collateral dependent. Commercial loans excluded from FAS 114
individual impairment analysis are collectively evaluated by management to estimate reserves for
loan losses inherent in those loans in accordance with FAS 5.
29
In estimating loan loss contingencies, management applies historical loan loss rates and also
considers how the loss rates may be impacted by changes in current economic conditions, delinquency
and non-performing loan trends, changes in loan underwriting guidelines and credit policies, as
well as the results of internal loan reviews. Homogeneous loan pools are evaluated using similar
criteria that are based upon historical loss rates of various loan types. Historical loss rates
are adjusted to incorporate changes in existing conditions that may impact, both positively or
negatively, the degree to which these loss histories may vary. This determination inherently
involves a high degree of uncertainty and considers current risk factors that may not have occurred
in the Corporations historical loan loss experience.
Following is a summary of changes in the allowance for loan losses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
Balance at beginning of period |
|
$ |
50,707 |
|
|
$ |
50,467 |
|
Addition from acquisitions |
|
|
|
|
|
|
3,622 |
|
Charge-offs |
|
|
(4,309 |
) |
|
|
(4,496 |
) |
Recoveries |
|
|
822 |
|
|
|
774 |
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
(3,487 |
) |
|
|
(3,722 |
) |
Provision for loan losses |
|
|
2,958 |
|
|
|
2,331 |
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
50,178 |
|
|
$ |
52,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to: |
|
|
|
|
|
|
|
|
Total loans, net of unearned income |
|
|
1.31 |
% |
|
|
1.43 |
% |
Non-performing loans |
|
|
162.13 |
% |
|
|
161.98 |
% |
The allowance for loan losses decreased $2.5 million or 4.8% from March 31, 2005 to March 31,
2006. The decrease in the allowance for loan losses is partially attributed to improving trends in
the consumer loan portfolio, particularly the indirect installment portfolio, which has produced
lower levels of expected losses. Also, a charge-off of a $1.5 million loan that was previously
fully reserved was recorded in the second quarter of 2005.
The provision for loan losses of $3.0 million for the three months ended March 31, 2006
increased $0.6 million or 26.9% from the same period of 2005 as a result of organic and acquired
loan growth of $141 million from March 31, 2005 to March 31, 2006.
Charge-offs reflect the realization of losses in the portfolio that were estimated previously
through provisions for credit losses. Loans charged off in the first quarter of 2006 decreased
$0.2 million from the same period in the prior year to $3.5 million. Net charge-offs (annualized)
as a percent of average loans decreased to .37% for the first quarter of 2006 compared to .43% for
the same period of 2005 reflecting the improved performance in the consumer portfolio.
Management considers numerous factors when estimating reserves for loan losses, including
historical charge-off rates and subsequent recoveries. Consideration is given to the impact of
changes in qualitative factors that influence the Corporations credit quality, such as the local
and regional economies that the Corporation serves. Assessment of relevant economic factors
indicates that the Corporations primary markets tend to lag the national economy, with local
economies in the Corporations market areas also improving, but at a more measured rate than the
national trends. Regional economic factors influencing managements estimate of reserves include
uncertainty of the labor markets in the regions the Corporation serves and a contracting labor
force due, in part, to productivity growth and industry consolidations, which influence the level
of reserves. Commercial and commercial real estate loans are influenced by economic conditions
within certain sectors of the economy, such as health care, manufacturing, automotive and the
commercial office and commercial retail sub markets that are pressured by supply imbalances within
certain market areas of the Corporation. Pressures on the Corporations healthcare customers
include skilled labor shortages, rising liability costs and the risk to Medicaid payments as states
balance tight budgets. In 2005, interest rates and energy costs increased, trends that have
continued in 2006. Rising rates directly affect borrowers tied to floating rate loans as
increasing debt service requirements pressure customers that now face higher loan payments. The
Corporation also considers how rising interest rates and energy costs influence consumer loan
customers who now carry historically high debt loads. Consumer credit risk and loss exposures are
evaluated using loss histories of the FAS 5 pools and roll rate analysis to estimate credit quality
migration and expected losses within the homogeneous loan pools.
30
CAPITAL RESOURCES AND REGULATORY MATTERS
The assessment of capital adequacy depends on a number of factors such as asset quality,
liquidity, earnings performance, changing competitive conditions and economic forces. The
Corporation seeks to maintain a strong capital base to support its growth and expansion activities,
to provide stability to current operations and to promote public confidence.
The Corporation has an effective $200.0 million shelf registration statement with the
Securities and Exchange Commission. The Corporation may, from time to time, issue any combination
of common stock, preferred stock, debt securities or trust preferred securities in one or more
offerings up to a total dollar amount of $200.0 million.
The Corporation and FNBPA are subject to various regulatory capital requirements administered
by the federal banking agencies. Quantitative measures established by regulators to ensure capital
adequacy requires the Corporation and FNBPA 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 leverage
ratio (as defined). 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 Corporations financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Corporation and FNBPA
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
Corporations and FNBPAs capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
As of March 31, 2006, Management believes that the Corporation and FNBPA meet all capital
adequacy requirements to which either of them are subject and therefore satisfy the requirements to
be considered well-capitalized under the regulatory framework.
Following are the capital ratios as of March 31, 2006 for the Corporation and FNBPA (dollars
in thousands):
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Well-Capitalized |
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Minimum Capital |
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Actual |
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Requirements |
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Requirements |
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Amount |
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Ratio |
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Amount |
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Ratio |
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Amount |
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Ratio |
Total Capital (to risk-weighted assets): |
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F.N.B. Corporation |
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$ |
443,634 |
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11.4 |
% |
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$ |
389,216 |
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10.0 |
% |
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$ |
311,373 |
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8.0 |
% |
FNBPA |
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413,078 |
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10.9 |
% |
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379,036 |
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10.0 |
% |
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303,229 |
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8.0 |
% |
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Tier 1 Capital (to risk-weighted assets): |
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F.N.B. Corporation |
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384,006 |
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9.9 |
% |
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233,530 |
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6.0 |
% |
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155,686 |
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4.0 |
% |
FNBPA |
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369,057 |
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9.7 |
% |
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227,422 |
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6.0 |
% |
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151,614 |
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4.0 |
% |
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Leverage Ratio: |
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F.N.B. Corporation |
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384,006 |
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7.1 |
% |
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268,975 |
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5.0 |
% |
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215,180 |
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4.0 |
% |
FNBPA |
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369,057 |
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7.1 |
% |
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261,533 |
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5.0 |
% |
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209,226 |
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4.0 |
% |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is provided under the caption Market Risk in Item 2 -
Managements Discussion and Analysis of Financial Condition and Results of Operations. There were
no material changes in the information provided under Item 7A, Quantitative and Qualitative
Disclosures About Market Risk included in the Corporations 2005 Annual Report on Form 10-K.
31
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Corporations Chief Executive Officer
(CEO) and Chief Financial Officer (CFO) have concluded that the Corporations disclosure controls
and procedures (as defined in Rules 13a 15(e) and 15d 15(e) under the Securities Exchange Act
of 1934, as amended), based on their evaluation of these controls and procedures as of the end of
the period covered by this Report, were effective as of such date at the reasonable assurance level
as discussed below to ensure that information required to be disclosed by the Corporation in the
reports it files under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the Securities
and Exchange Commission and that such information is accumulated and communicated to the
Corporations management, including its principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.
LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS. The Corporations management, including the CEO
and CFO, does not expect that the Corporations disclosure controls and internal controls will
prevent all errors and all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within the Corporation
have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.
In addition, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people or by management override of the controls.
CHANGES IN INTERNAL CONTROLS. The CEO and CFO have evaluated the changes to the Corporations
internal controls over financial reporting that occurred during the Corporations fiscal quarter
ended March 31, 2006, as required by paragraph (d) of Rules 13a 15 and 15d 15 under the
Securities Exchange Act of 1934, as amended, and have concluded that there were no such changes
that materially affected, or are reasonably likely to materially affect, the Corporations internal
controls over financial reporting.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are involved in a number of legal proceedings arising
from the conduct of their business activities. These actions include claims brought against the
Corporation and its subsidiaries where the Corporation acted as a depository bank, lender,
underwriter, fiduciary, financial advisor, broker or other business activities. Although the
ultimate outcome cannot be predicted with certainty, the Corporation believes that it has valid
defenses for all asserted claims. Reserves are established for legal claims when losses associated
with the claims are judged to be probable and the loss can be reasonably estimated.
Based on information currently available, advice of counsel and available insurance coverage,
the Corporation believes that the eventual outcome of all claims against the Corporation and its
subsidiaries will not, individually or in the aggregate, have a material adverse effect on the
Corporations consolidated financial position or results of operations. However, in the event of
unexpected future developments, it is possible that the ultimate resolution of these matters, if
unfavorable, may be material to the Corporations results of operations for a particular period.
ITEM 1A. RISK FACTORS
The Corporations risk factors as described in its 2005 Annual Report on Form 10-K filed with
the Securities and Exchange Commission remain current.
32
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information about purchases of equity securities by the
Corporation:
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Issuer Purchases of Equity Securities (1) |
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Total Number of |
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Maximum |
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Shares Purchased |
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Number of Shares |
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Total |
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Average |
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as Part of |
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that May Yet Be |
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Number of |
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Price |
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Publicly |
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Purchased Under |
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Shares |
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Paid per |
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Announced Plans |
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the Plans or |
Period |
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Purchased |
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Share |
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or Programs |
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Programs |
January 1 - 31, 2006 |
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N/A |
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N/A |
February 1 - 28, 2006 |
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24,000 |
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$ |
16.58 |
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N/A |
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N/A |
March 1 - 31, 2006 |
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36,800 |
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16.66 |
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N/A |
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N/A |
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(1) |
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All shares were purchased in open-market transactions under SEC Rule 10b-18, and were not
purchased as part of a publicly announced purchase plan or program. The Corporation has
funded the shares required for employee benefit plans and the Corporations dividend
reinvestment plan through open-market transactions or purchases directed from the Corporation.
This practice may be discontinued at the Corporations discretion. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS
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3.2.
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By-laws of the Corporation as currently in effect. (filed herewith) |
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11
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Computation of Per Share Earnings * |
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15
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Letter Re: Unaudited Interim Financial Information. (filed herewith). |
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31.1.
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Certification of Chief Executive Officer Sarbanes-Oxley Act Section 302. (filed herewith). |
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31.2.
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Certification of Chief Financial Officer Sarbanes-Oxley Act Section 302. (filed herewith). |
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32.1.
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Certification of Chief Executive Officer Sarbanes-Oxley Act Section 906. (filed herewith). |
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32.2.
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Certification of Chief Financial Officer Sarbanes-Oxley Act Section 906. (filed herewith). |
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* |
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Data is provided under the heading Earnings Per Share in Item 1, Part I in this report. |
33
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.
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F.N.B. Corporation |
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(Registrant) |
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Dated:
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May 10, 2006
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/s/ Stephen J. Gurgovits |
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Stephen J. Gurgovits |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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Dated:
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May 10, 2006
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/s/ Brian F. Lilly |
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Brian F. Lilly |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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34