UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
-----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________
Commission file number 0-8144
------
F.N.B. CORPORATION
------------------
(Exact name of registrant as specified in its charter)
Florida 25-1255406
---------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2150 Goodlette Road North, Naples, FL 34102
-------------------------------------------
(Address of principal executive offices) (Zip Code)
(239) 262-7600
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----
Indicate by check mark whether the registrant is an accelerated filer as defined
in Rule 12b-2 of the Exchange Act.
Yes X No
----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31,2003
--------------- -------------------------------
Common Stock, $0.01 Par Value 46,082,495 shares
F.N.B. CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 2003
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Independent Accountants' Review Report 13
Pro Forma Condensed Consolidated Financial Statements 14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosure of Market Risk 30
Item 4. Controls and Procedures 30
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 2. Changes in Securities 31
Item 3. Defaults Upon Senior Securities 31
Item 4. Submission of Matters to a Vote of Security Holders 31
Item 5. Other Information 31
Item 6. Exhibits and Reports on Form 8-K 32
Signatures 33
Exhibits 34
-1-
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except par values and share data
Unaudited
September 30, December 31,
2003 2002
------------- ------------
ASSETS
Cash and due from banks $ 234,904 $ 246,802
Interest bearing deposits with banks 1,622 3,778
Federal funds sold 7,109 8,981
Mortgage loans held for sale 25,071 24,177
Securities available for sale 1,694,393 1,026,191
Securities held to maturity (fair
value of $42,752 and $50,517) 41,318 48,992
Loans, net of unearned income of
$33,781 and $75,746 5,570,578 5,220,504
Allowance for loan losses (72,405) (68,406)
------- -------
NET LOANS 5,498,173 5,152,098
--------- ---------
Premises and equipment 205,469 163,709
Goodwill 201,879 88,425
Other assets 378,549 327,079
------- -------
TOTAL ASSETS $8,288,487 $7,090,232
========== ==========
LIABILITIES
Deposits:
Non-interest bearing $1,034,426 $ 924,090
Interest bearing 5,063,957 4,502,067
--------- ---------
TOTAL DEPOSITS 6,098,383 5,426,157
Other liabilities 95,688 99,052
Short-term borrowings 781,029 515,780
Long-term debt 591,600 450,647
Mandatorily redeemable capital securities
of subsidiary trusts 125,000 -
------- -------
TOTAL LIABILITIES 7,691,700 6,491,636
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock - $0.01 par value
Authorized - 20,000,000 shares
Issued - -0- and 118,025 shares
Aggregate liquidation value -
$0.00 and $2,951 - 1
Common stock - $0.01 par value
Authorized - 500,000,000 shares
Issued - 46,354,760 and 44,162,460 shares 464 442
Additional paid-in capital 585,541 516,186
Retained earnings 14,442 73,363
Accumulated other comprehensive income 7,534 17,335
Treasury stock - 272,265 and 300,425
shares at cost (11,194) (8,731)
------- ------
TOTAL STOCKHOLDERS' EQUITY 596,787 598,596
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,288,487 $7,090,232
========== ==========
Note: The Balance Sheet at December 31, 2002 has been derived from the audited
financial statements at that date. 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 Nine Months Ended
September 30, September 30,
------------------ ------------------
2003 2002 2003 2002
------- -------- ------- -------
INTEREST INCOME
Loans, including fees $ 87,790 $ 94,710 $268,573 $280,432
Securities:
Taxable 14,394 10,136 41,896 30,332
Nontaxable 1,626 2,026 5,284 6,051
Dividends 659 580 2,078 1,688
Other 16 144 155 1,397
-- --- --- -----
TOTAL INTEREST INCOME 104,485 107,596 317,986 319,900
------- ------- ------- -------
INTEREST EXPENSE
Deposits 23,043 27,803 71,794 88,094
Short-term borrowings 2,621 2,593 7,333 8,310
Long-term debt 5,454 5,196 16,987 14,791
Capital securities of subsidiary trust 1,390 - 2,910 -
----- ----- ----- ------
TOTAL INTEREST EXPENSE 32,508 35,592 99,024 111,195
------ ------ ------ -------
NET INTEREST INCOME 71,977 72,004 218,962 208,705
Provision for loan losses 5,237 4,835 16,827 13,528
----- ----- ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 66,740 67,169 202,135 195,177
------ ------ ------- -------
NON-INTEREST INCOME
Service charges 13,514 12,178 39,437 34,463
Insurance premiums, commissions and fees 9,285 7,949 26,732 25,869
Securities commissions and fees 1,990 1,736 6,074 5,422
Trust 2,530 2,323 7,597 7,062
Gain on sale of securities 740 1,001 2,307 1,641
Gain on sale of mortgage loans 1,218 1,334 7,516 3,702
Other 3,355 3,566 10,365 9,935
----- ----- ------ -----
TOTAL NON-INTEREST INCOME 32,632 30,087 100,028 88,094
------ ------ ------- ------
99,372 97,256 302,163 283,271
------ ------ ------- -------
NON-INTEREST EXPENSES
Salaries and employee benefits 47,552 34,181 122,460 100,334
Net occupancy 5,601 4,470 16,049 13,267
Equipment 6,395 5,662 18,082 15,680
Merger - - 1,014 41,855
Debt extinguishment penalty 20,737 - 20,737 -
Other 20,206 17,926 55,530 53,314
------ ------ ------ ------
TOTAL NON-INTEREST EXPENSES 100,491 62,239 233,872 224,450
------- ------ ------- -------
INCOME (LOSS) BEFORE INCOME TAXES (1,119) 35,017 68,291 58,821
Income taxes (1,603) 10,886 19,823 19,624
------ ------ ------ ------
NET INCOME $ 484 $ 24,131 $ 48,468 $ 39,197
======== ======== ======== ========
NET INCOME PER COMMON SHARE: *
Basic $.01 $ .52 $1.05 $ .85
==== ===== ===== =====
Diluted $.01 $ .51 $1.03 $ .83
==== ===== ===== =====
CASH DIVIDENDS PER COMMON SHARE * $.24 $ .21 $ .69 $ .60
==== ===== ===== =====
* Prior period per share amounts have been restated to reflect the 5 percent
stock dividend declared on April 28, 2003.
See accompanying Notes to Consolidated Financial Statements
-3-
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
Unaudited Nine Months Ended
September 30,
2003 2002
---- ----
OPERATING ACTIVITIES
Net income $ 48,468 $ 39,197
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 22,690 14,596
Provision for loan losses 16,827 13,528
Deferred taxes 1,270 (11,255)
Net gain on sale of securities (2,307) (1,641)
Net gain on sale of mortgage loans (7,516) (3,702)
Proceeds from sale of mortgage loans 448,036 237,569
Mortgage loans originated for sale (441,414) (240,564)
Net change in:
Interest receivable (723) 813
Interest payable 26 (2,976)
Other, net (23,539) (10,745)
------- -------
Net cash flows from operating
activities 61,818 34,820
------ ------
INVESTING ACTIVITIES
Net change in:
Interest bearing deposits with banks 2,156 (1,829)
Federal funds sold 3,119 115,458
Loans (194,575) (289,659)
Bank owned life insurance (16,438) (52,451)
Securities available for sale:
Purchases (1,124,580) (387,300)
Sales 348,717 213,366
Maturities 547,191 229,514
Securities held to maturity:
Purchases - (6,018)
Maturities 7,889 7,643
Increase in premises and equipment (15,904) (27,705)
Net cash paid for mergers and acquisitions (151,055) (50,761)
-------- -------
Net cash flows from investing activities (593,480) (249,742)
-------- --------
FINANCING ACTIVITIES
Net change in:
Non-interest bearing deposits, savings
and NOW 353,317 183,177
Time deposits (162,592) (135,178)
Short-term borrowings 258,061 75,657
Increase in long-term debt 364,167 137,633
Decrease in long-term debt (377,714) (13,949)
Increase in capital securities of subsidiary
trust 125,000 -
Net acquisition of treasury stock (8,656) (8,630)
Cash dividends paid (31,819) (27,832)
------- -------
Net cash flows from financing activities 519,764 210,878
------- -------
NET INCREASE (DECREASE) IN CASH
AND DUE FROM BANKS (11,898) (4,044)
Cash and due from banks at beginning of period 246,802 246,781
------- -------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 234,904 $ 242,737
========= =========
See accompanying Notes to Consolidated Financial Statements
-4-
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2003
BUSINESS
F.N.B. Corporation (the Corporation) is a diversified financial
services company headquartered in Naples, Florida. The Corporation owns and
operates regional community banks, an insurance agency, a consumer finance
company and First National Trust Company. It has full service banking offices
located in Florida, Pennsylvania and Ohio and consumer finance operations in
Pennsylvania, Ohio and Tennessee.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Corporation and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could materially differ from
those expressed or implied.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with current
year presentation. The reclassification had no impact on total assets,
liabilities, stockholders' equity, net income or cash flows.
COMMON STOCK DIVIDEND
On April 28, 2003, the Corporation declared a 5 percent common stock
dividend payable on May 31, 2003 to shareholders of record as of May 15, 2003.
As a result of the stock dividend, the Corporation issued 2,189,180 shares of
its common stock. The stock dividend increased additional paid in capital and
decreased retained earnings by $65.3 million. Prior period per share
amounts have been adjusted for common stock dividends, including the 5 percent
stock dividend declared on April 28, 2003.
MERGERS AND ACQUISITIONS
On March 31, 2003, the Corporation completed its business combination
with Charter Banking Corp. (Charter), a bank holding company headquartered in
Tampa, Florida, with assets of $795.6 million. In exchange for all of the
outstanding common stock of Charter, the Corporation paid $150.2 million. The
transaction, which was accounted for as a purchase, resulted in the recognition
of approximately $101.9 million in goodwill and $1.1 million in core deposit
intangibles. The transaction was funded primarily through the issuance of
$125.0 million of capital securities of a subsidiary trust and $25.2 million
from the Corporation's existing lines of credit with several major domestic
banks. Charter's banking subsidiary, Southern Exchange Bank, was merged into
the Corporation's existing subsidiary, First National Bank of Florida, on
October 14, 2003. The Corporation incurred and paid merger related costs of
$1.0 million in connection with its acquisition of Charter. These costs were
primarily related to employment expenses.
-5-
On July 1, 2003, the Corporation completed its business combination
with Lupfer-Frakes Insurance (Lupfer), an independent insurance agency located
in Central Florida. The Corporation paid cash in exchange for all of the
outstanding common stock of Lupfer. The transaction, which was accounted for
as a purchase, resulted in the recognition of approximately $7.7 million in
goodwill and $1.3 million in customer and renewal lists.
The Corporation regularly evaluates the potential acquisition of, and
holds discussions with, various acquisition candidates and as a general rule the
Corporation publicly announces such acquisitions only after a definitive
agreement has been reached.
CAPITAL SECURITIES OF SUBSIDIARY TRUST
During the first quarter of 2003, $125.0 million of Corporation-
obligated mandatorily redeemable capital securities (capital securities) of a
subsidiary trust holding solely junior subordinated debt securities of the
Corporation (debentures) were issued by F.N.B. Statutory Trust I (Statutory
Trust). The Corporation owns 100% of the common equity of the Statutory Trust.
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 the Statutory Trust are its sole
assets. Distributions on the capital securities issued by the Statutory Trust
are payable quarterly at a rate per annum equal to the interest rate being
earned on the debentures held by the Statutory Trust and 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 LIBOR plus 325 basis points. The rate in effect at September 30,
2003 was 4.39%. 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 held by the Statutory Trust qualify as Tier 1 capital
under Federal Reserve Board guidelines and are first redeemable, in whole or in
part, by the Corporation on or after March 31, 2008.
PREFERRED STOCK REDEMPTION
The Corporation completed the planned redemption of its Preferred
Series A and Preferred Series B stock during the second quarter of 2003. In
connection with the redemption, the Corporation issued shares of its common
stock out of treasury stock for the remaining outstanding preferred stock.
The Corporation issued 15,882 and 264,568 shares of its common stock for the
remaining 19,174 and 98,851 shares of Preferred Series A and Preferred Series B,
respectively.
NEW ACCOUNTING STANDARDS
Financial Accounting Standards Board (FASB) Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others," was issued in November 2002.
Interpretation 45 requires certain guarantees to be recorded at fair value and
applies to contracts or indemnification agreements that contingently require
the guarantor to make payments to the guaranteed party based on changes in an
underlying obligation that is related to an asset, liability, or an equity
security of the guaranteed party. The impact of the adoption of this new
accounting standard was not material to the financial condition or results of
operations of the Corporation.
-6-
Statement of Financial Accounting Standards (FAS) No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure," was issued in
December 2002. It provides alternative methods of accounting for stock-based
employee compensation. In addition, it amends disclosure requirements in both
annual and interim financial statements about the method of accounting for
stock-based compensation and the effect of the method used on reported results.
The Corporation continues to account for its stock-based compensation plans
under Opinion 25. Therefore, FAS 148 is not expected to have a material impact
on the Corporation's financial results.
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51," was issued in January 2003. Interpretation 46
addresses consolidation by business enterprises of variable interest entities
which have certain characteristics. Interpretation 46 applies immediately to
variable interest entities created after January 31, 2003. It applies in the
first fiscal year or interim period beginning after December 15, 2003, to
variable interest entities in which an enterprise holds a variable interest that
was acquired before February 1, 2003. The Corporation has limited partnership
investments in affordable housing projects, for which it provides funding as a
limited partner and receives tax credit for any losses incurred by the projects
based on its partnership share. The Corporation's interests in these entities
were acquired prior to February 1, 2003. At September 30, 2003, the Corporation
had recorded investments in other assets on its balance sheet of approximately
$1.7 million associated with these investments. The Corporation currently
adjusts the carrying value of these investments for any losses incurred by the
limited partnership through earnings. The Corporation is completing its
analysis to determine whether these entities should be consolidated.
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income, adjusted
for declared dividends on preferred stock, by the weighted average number of
shares of common stock outstanding.
Diluted earnings per common share is calculated by dividing net income
by the weighted average number of shares of common stock outstanding, assuming
conversion of outstanding convertible preferred stock from the beginning of the
year and the exercise of stock options and warrants. Such adjustments to net
income and the weighted average number of shares of common stock are made only
when such adjustments dilute earnings per share. The following tables set forth
the computation of basic and diluted earnings per share (dollars in thousands,
except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2003 2002 2003 2002
---- ---- ---- ----
Basic
Net income $ 484 $ 24,131 $ 48,468 $ 39,197
Less: Preferred stock
dividends declared - (60) (62) (191)
--- --- --- ----
Earnings applicable to
basic earnings per share $ 484 $ 24,071 $ 48,406 $ 39,006
========== ========= ========= =========
Average common shares
outstanding 46,091,404 45,993,644 46,065,527 46,056,385
========== ========== ========== ==========
Earnings per share $.01 $ .52 $ 1.05 $ .85
==== ===== ====== =====
-7-
Three Months Ended Nine months Ended
September 30, September 30,
------------- -------------
2003 2002 2003 2002
---- ---- ---- ----
Diluted
Earnings applicable to
diluted earnings per share $ 484 $ 24,131 $ 48,468 $ 39,197
========= ========== ======== ========
Average common shares
outstanding 46,091,404 45,993,644 46,065,527 46,056,385
Series A convertible
preferred stock - 17,073 637 17,073
Series B convertible
preferred stock - 313,998 84,616 337,124
Net effect of dilutive stock
options and stock warrants
based on the treasury stock
method 912,581 670,937 785,006 749,905
------- ------- ------- -------
47,003,985 46,995,652 46,935,786 47,160,487
========== ========== ========== ==========
Earnings per share $ .01 $ .51 $ 1.03 $ .83
========== ========== ========== ==========
STOCK-BASED COMPENSATION
In accordance with FAS 148, the following table shows pro-forma net
income and earnings per share assuming stock options had been expensed based on
the fair value of the options granted along with significant assumptions used
in the Black-Scholes option pricing model (dollars in thousands, except per
share data).
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2003 2002 2003 2002
---- ---- ---- ----
Net income (as reported) $ 484 $ 24,131 $ 48,468 $ 39,197
Compensation expense, net of tax (505) (511) (1,515) (1,524)
---- ---- ------ ------
Pro forma net income (loss) $ (21) $ 23,620 $ 46,953 $ 37,673
======== ======== ======== ========
Earnings per share:
Basic $ .01 $ .52 $ 1.05 $ .85
Basic pro forma .00 .51 1.02 .81
Diluted .01 .51 1.03 .83
Diluted pro forma .00 .50 1.00 .80
Assumptions
Risk-free interest rate 2.93% 3.92% 2.93% 3.92%
Dividend yield 2.95% 3.20% 2.95% 3.20%
Expected stock price volatility .21% .17% .21% .17%
Expected life (years) 5.00 5.00 5.00 5.00
Fair value of options granted $ 4.30 $ 4.56 $ 4.30 $ 4.56
-8-
CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information (in thousands):
Nine Months Ended
September 30,
-------------
2003 2002
---- ----
Cash paid for:
Interest $ 98,998 $114,171
Income taxes 18,728 15,290
Noncash Investing and Financing Activities:
Acquisition of real estate in settlement of loans 2,285 2,309
Loans granted in the sale of other real estate 47 631
COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, are as
follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2003 2002 2003 2002
---- ---- ---- ----
Net income $ 484 $ 24,131 $ 48,468 $ 39,197
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains (losses)
arising during the period (18,348) 5,777 (6,371) 10,739
Less: reclassification
adjustment for gains
included in net income (488) (991) (3,430) (2,231)
---- ---- ------ ------
Other comprehensive income (loss) (18,836) 4,786 (9,801) 8,508
------- ----- ------ -----
Comprehensive income (loss) $(18,352) $ 28,917 $ 38,667 $47,705
======== ======== ======== =======
BUSINESS SEGMENTS
The Corporation operates in four reportable segments: community banks,
trust company, insurance agencies and consumer finance. The Corporation's
community bank subsidiaries offer services traditionally offered by full-service
commercial banks, including commercial and individual demand and time deposit
accounts and commercial, mortgage and individual installment loans. In addition
to traditional banking products, the Corporation's community bank subsidiaries
offer various alternative products, including securities brokerage and
investment advisory services, mutual funds, insurance and annuities. The trust
company provides a broad range of personal and corporate fiduciary services
including the administration of decedent and trust estates. The Corporation's
insurance agencies are full-service insurance agencies offering all lines of
commercial and personal insurance through major carriers. The Corporation's
consumer finance subsidiary is primarily involved in making personal installment
loans to individuals with approximately 15 percent of its volume being derived
from the purchase of installment sales finance contracts from retail merchants.
This activity is funded through the sale of the Corporation's subordinated notes
at the finance company's branch offices as well as select financial service
centers in Florida. The following tables provide financial information for
these segments of the Corporation (in thousands). Other items shown in the
tables below represent the parent company, other non-bank subsidiaries and
eliminations, which are necessary for purposes of reconciling to the
consolidated amounts.
-9-
At or for the three months Community Banks Trust Insurance Finance All
ended September 30, 2003 Pennsylvania Florida Company Agencies Company Other Consolidated
------------------------ ------------ ------- ------- -------- ------- ----- ------------
Interest income $ 56,051 $ 41,773 $ 2 $ 49 $ 7,106 $ (496) $ 104,485
Interest expense 19,421 10,513 4 35 1,248 1,287 32,508
Provision for loan losses 2,798 952 - - 1,487 5,237
Non-interest income 11,373 6,178 4,627 7,965 444 2,045 32,632
Non-interest expense 54,148 23,933 4,117 7,349 3,181 7,763 100,491
Intangible amortization 491 252 1 117 - 23 884
Income tax expense (benefit) (3,977) 3,842 186 269 609 (2,532) (1,603)
Net income (loss) (4,966) 8,711 322 361 1,025 (4,969) 484
Total assets 4,402,331 3,681,670 5,726 42,799 147,845 8,116 8,288,487
Total loans 3,143,647 2,335,533 - - 137,149 (45,751) 5,570,578
Goodwill 21,832 156,788 - 21,450 1,809 - 201,879
Total deposits 3,369,272 2,736,152 - - - (7,041) 6,098,383
At or for the three months Community Banks Trust Insurance Finance All
ended September 30, 2002 Pennsylvania Florida Company Agencies Company Other Consolidated
------------------------ ------------ ------- ------- -------- ------- ----- ------------
Interest income $ 62,720 $ 38,511 $ - $ 75 $ 6,939 $ (649) $ 107,596
Interest expense 21,663 12,044 - 23 1,635 227 35,592
Provision for loan losses 2,177 1,404 - - 1,254 - 4,835
Non-interest income 11,191 5,905 4,210 6,549 405 1,827 30,087
Non-interest expense 28,578 18,706 3,844 5,576 3,082 2,453 62,239
Intangible amortization 596 225 1 78 31 22 953
Income tax expense (benefit) 6,452 4,173 138 425 490 (792) 10,886
Net income (loss) 15,041 8,089 228 600 883 (710) 24,131
Total assets 4,191,772 2,594,582 5,109 31,242 142,061 16,630 6,981,396
Total loans 3,161,017 1,939,288 - - 139,717 (38,882) 5,201,140
Goodwill 21,503 51,813 - 12,060 1,716 - 87,092
Total deposits 3,293,502 2,062,121 - - - (6,314) 5,349,309
-10-
At or for the nine months Community Banks Trust Insurance Finance All
ended September 30, 2003 Pennsylvania Florida Company Agencies Company Other Consolidated
------------------------ ------------ ------- ------- -------- ------- ----- ------------
Interest income $ 174,238 $ 123,762 $ 4 $ 184 $ 21,242 $ (1,444) $ 317,986
Interest expense 60,858 32,329 13 65 3,957 1,802 99,024
Provision for loan losses 8,054 4,512 - - 4,261 - 16,827
Non-interest income 36,288 20,047 13,989 22,816 1,354 5,534 100,028
Non-interest expense 110,623 66,829 12,732 19,349 9,466 14,873 233,872
Intangible amortization 1,475 729 4 279 - 66 2,553
Merger expense - - - - - 1,014 1,014
Income tax expense (benefit) 7,990 12,868 466 1,463 1,797 (4,761) 19,823
Net income (loss) 23,001 27,271 782 2,123 3,115 (7,824) 48,468
Total assets 4,402,331 3,681,670 5,726 42,799 147,845 8,116 8,288,487
Total loans 3,143,647 2,335,533 - - 137,149 (45,751) 5,570,578
Goodwill 21,832 156,788 - 21,450 1,809 - 201,879
Total deposits 3,369,272 2,736,152 - - - (7,041) 6,098,383
At or for the nine months Community Banks Trust Insurance Finance All
ended September 30, 2002 Pennsylvania Florida Company Agencies Company Other Consolidated
------------------------ ------------ ------- ------- -------- ------- ----- ------------
Interest income $ 187,997 $ 112,615 $ 2 $ 131 $ 20,748 $(1,593) $ 319,900
Interest expense 68,403 36,083 - 78 5,012 1,619 111,195
Provision for loan losses 5,581 4,015 - - 3,932 - 13,528
Non-interest income 31,003 17,099 12,769 21,908 1,306 4,009 88,094
Non-interest expense 101,380 58,991 12,265 16,841 9,471 25,502 224,450
Intangible amortization 1,802 607 4 151 93 65 2,722
Merger expense 18,222 4,028 680 - - 18,925 41,855
Income tax expense (benefit) 13,606 10,185 219 2,035 1,323 (7,744) 19,624
Net income (loss) 30,030 20,440 287 3,085 2,316 (16,961) 39,197
Total assets 4,191,772 2,594,582 5,109 31,242 142,061 16,630 6,981,396
Total loans 3,161,017 1,939,288 - - 139,717 (38,882) 5,201,140
Goodwill 21,503 51,813 - 12,060 1,716 - 87,092
Total deposits 3,293,502 2,062,121 - - - (6,314) 5,349,309
-11-
PROPOSED SPIN-OFF TRANSACTION
On July 10, 2003, the Corporation announced a plan to divide into two
separate public companies by spinning off its Florida operations to its
shareholders in a tax-free distribution. To effect the distribution, the
Corporation will transfer all of its Florida operations to a newly-formed
financial holding company subsidiary, First National Bankshares of Florida, Inc.
("Bankshares"). On the date of the distribution, each shareholder of the
Corporation as of the distribution record date will receive one share of
Bankshares common stock for each share of the Corporation's common stock owned
on the record date. Following the distribution, Bankshares will be a separate
public company, unaffiliated with the Corporation., and will own and operate
First National Bank of Florida, Roger Bouchard Insurance, Inc. and the Florida
operations of First National Trust Company.
The remaining segments of the Corporation will continue to operate as
F.N.B. Corporation with headquarters being relocated to Hermitage, Pennsylvania.
The Corporation will retain and operate First National Bank of Pennsylvania,
Regency Finance Company, Gelvin, Jackson & Starr Inc. (insurance agency), and
the Pennsylvania operations of First National Trust Company.
The Corporation incurred pre-tax restructuring charges of $11.6 million
during the third quarter of 2003 in connection with the reorganization. The
restructuring charges consisted of $9.3 million in early retirement and
involuntary separation costs associated with terminated employees, $2.1 million
in professional services and approximately $200,000 in other costs. The
Corporation expects to incur approximately $19.0 million of additional pre-tax
restructuring costs during the fourth quarter. In addition, the Corporation
incurred a prepayment penalty on refinancing its Federal Home Loan Bank debt of
approximately $20.7 million during the third quarter of 2003. The distribution,
which is subject to approval from banking regulators, final action by the
Corporation to set the record and distribution dates, and effectiveness of the
Form 10 Registration Statement filed by Bankshares with the Securities and
Exchange Commission, is expected to be consummated in January 2004.
-12-
Independent Accountants' Review Report
Shareholders and Board of Directors
F.N.B. Corporation
We have reviewed the accompanying consolidated balance sheet of F.N.B.
Corporation and subsidiaries (Company) as of September 30, 2003, the
consolidated statements of income for the three-month and nine-month periods
ended September 30, 2003 and 2002, and the consolidated statements of cash flows
for the nine-month periods ended September 30, 2003 and 2002. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States,
which will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements referred to above
for them to be in conformity with accounting principles generally accepted in
the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of F.N.B.
Corporation and subsidiaries as of December 31, 2002, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
year then ended (not presented herein) and in our report dated May 22, 2003, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 2002, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has
been derived.
/s/Ernst & Young LLP
Birmingham, Alabama
October 15, 2003
-13-
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The pro forma condensed consolidated financial statements of the
Corporation should be read in conjunction with the historical consolidated
financial statements and the notes thereto of the Corporation which are
contained in the Corporation's Annual Report on Form 10-K/A for the year ended
December 31, 2002 and Quarterly Reports on Form 10-Q for the periods ended
March 31, 2003, June 30, 2003, and September 30, 2003. The pro forma
consolidated income statements assume that the spin-off of First National
Bankshares of Florida, Inc., the Corporation's newly formed subsidiary to which
the Corporation will transfer its Florida operations, occurred on January 1,
2002, and the pro forma consolidated balance sheet assumes that the spin-off
occurred on September 30, 2003.
The pro forma condensed consolidated financial statements are presented
for informational purposes only and do not reflect the historical results of
operations or financial position of the Corporation or First National Bankshares
of Florida, Inc. The pro forma data also does not purport to project the
financial position or results of operations of the Corporation or First National
Bankshares of Florida, Inc. as of any future date or for any future period.
Earnings per share data is shown on a pro forma basis based upon an assumed
distribution of one share of First National Bankshares of Florida, Inc. common
stock for every one share of the Corporation's common stock outstanding.
The pro forma adjustments to the historical condensed consolidated
statements of income and consolidated balance sheet are set forth below.
-14-
Pro Forma Condensed Consolidated
Statement of Income
Year Ended December 31, 2002
(In thousands, except per share data)
UNAUDITED
First
National
F.N.B. Bankshares F.N.B.
Corporation of Florida, Inc. Corporation
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- ---------
Total interest income $426,784 $150,931 $ 1,693 (A) $277,546
Total interest expense 145,671 47,299 (404)(A) 97,968
------- ------ ---- ------
Net interest income 281,113 103,632 2,097 179,578
Provision for loan losses 19,094 5,470 13,624
------ ----- ----- ------
Net interest income after
provision for loan losses 262,019 98,162 2,097 165,954
Total non-interest income 120,873 54,728 66,145
Merger related expenses 42,365 413 41,952
Total other non-interest
expenses 247,079 104,028 143,051
------- ------- ----- -------
Income before income taxes 93,448 48,449 2,097 47,096
Income taxes 30,113 16,385 734 (F) 14,462
------ ------ --- ------
Net income $ 63,335 $32,064 $ 1,363 $32,634
======== ======= ======= =======
Earnings per share*:
Basic $ 1.37 $ 0.71
Diluted $ 1.35 $ 0.69
Average shares outstanding*:
Basic 46,010,997 46,010,997
Diluted 47,071,874 47,071,874
*Per share amounts and average shares outstanding have been restated to reflect
the 5 percent stock dividend declared on April 28, 2003.
-15-
Pro Forma Condensed Consolidated
Statement of Income
Nine Months Ended September 30, 2003
(In thousands, except per share data)
UNAUDITED
First
National
F.N.B. Bankshares F.N.B.
Corporation of Florida, Inc. Corporation
Historical (G) Historical (G) Adjustments Pro Forma (G)
-------------- -------------- ----------- -------------
Total interest income $317,986 $123,528 $ 1,255 (A) $195,713
Total interest expense 99,024 32,736 (314)(A) 65,974
------ ------ ---- ------
Net interest income 218,962 90,792 1,569 129,739
Provision for loan losses 16,827 4,512 12,315
------ ----- ----- ------
Net interest income after
provision for loan losses 202,135 86,280 1,569 117,424
Total non-interest income 100,028 47,668 52,360
Merger related expenses 1,014 1,014
Total other non-interest
expenses 232,858 91,789 141,069
------- ------ ----- -------
Income before income taxes 68,291 41,145 1,569 28,715
Income taxes 19,823 13,541 549 (F) 6,831
------ ------ --- -----
Net income $ 48,468 $ 27,604 $ 1,020 $ 21,884
======== ======== ======= ========
Earnings per share:
Basic $ 1.05 $ 0.47
Diluted $ 1.03 $ 0.47
Average shares outstanding:
Basic 46,065,527 46,065,527
Diluted 46,935,786 46,935,786
-16-
Pro Forma Condensed Consolidated
Balance Sheet
September 30, 2003
(In thousands, except per share data)
UNAUDITED
First
National
F.N.B. Bankshares F.N.B.
Corporation of Florida, Inc. Corporation
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- ---------
ASSETS
Cash and due from banks $234,904 $113,531 $73,000 (B)
(73,000)(C)
(15,762)(E) $105,611
Interest bearing deposits
with banks and other
short term investments 8,731 7,871 860
Mortgage loans held for sale 25,071 13,819 11,252
Securities available for
sale 1,694,393 807,643 33,000 (C) 919,750
Securities held to maturity 41,318 13,119 28,199
Loans, net of unearned
Income 5,570,578 2,335,533 16,500 (D) 3,251,545
Allowance for loan losses (72,405) (26,283) (46,122)
Goodwill 201,879 176,132 25,747
Other assets 584,018 268,987 (3,238)(E) 311,793
------- ------- ------ -------
Total assets $8,288,487 $3,710,352 $30,500 $4,608,635
========== ========== ======= ==========
LIABILITIES
Deposits
Non-interest bearing $1,034,426 $439,285 $595,141
Interest bearing 5,063,957 2,297,474 2,766,483
Short-term borrowings 781,029 300,724 (40,000)(C)
16,500 (D) 456,805
Long-term debt 591,600 194,096 397,504
Mandatorily redeemable
Capital securities of
subsidiary trusts 125,000 125,000
Other liabilities 95,688 36,039 (6,650)(E) 52,999
Total stockholders' equity 596,787 442,734 73,000 (B)
(12,350)(E) 214,703
------- ------- ------- -------
Total liabilities and
stockholders' equity $8,288,487 $3,710,352 $ 30,500 $4,608,635
========== ========== ========= ==========
-17-
Notes to unaudited pro forma condensed consolidated financial statements:
(A) To record intercompany interest income and interest expenses which were
previously eliminated in consolidation and to record interest income
and reduction in interest expenses through utilization of excess funds
received in connection with the spin-off.
(B) To record anticipated dividends of $25.0 million and $8.0 million from
First National Bank of Florida and Roger Bouchard Insurance, Inc.,
respectively, to the Corporation. To record $40.0 million of cash
proceeds from First National Bankshares of Florida, Inc. in connection
with the transfer of all of the Florida operations of the Corporation
to First National Bankshares of Florida, Inc.
(C) To record payoff of short-term borrowings with $40.0 million of
proceeds received from First National Bankshares of Florida, Inc. and
to record the purchase of $33.0 million of additional securities
available for sale.
(D) To record intercompany loans and borrowings which were previously
eliminated in consolidation.
(E) To record the balance sheet effect of $19.0 million of restructuring
charges related to the spin-off transaction expected to be incurred
during the fourth quarter of 2003. Such charges include employee
severance and benefits, professional fees, asset write-downs and
miscellaneous expenses. The after-tax effect of all of these items
was $12.4 million.
(F) To record tax effect of Item (A) above, at the federal statutory tax
rate of 35%.
(G) The historical results of operations for First National Bankshares of
Florida, Inc. and the pro forma results of operations for F.N.B.
Corporation for the nine months ended September 30, 2003, reflect pre-
tax expenses incurred in connection with the proposed spin-off of $1.9
million and $30.4 million, respectively, or $1.2 million and $20.0
million, respectively, on an after-tax basis. F.N.B. Corporation's
pro forma diluted earnings per share were reduced by $.43 as a
result of these expenses.
-18-
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FINANCIAL INFORMATION SUMMARY
Net income was $48.5 million for the first nine months of 2003 compared to
net income of $39.2 million for the first nine months of 2002. Diluted earnings
per share were $1.03 for the first nine months of 2003 compared to $.83 for the
nine months ended September 30, 2002. During the nine months ended September 30,
2003 and 2002, the Corporation incurred after-tax merger and restructuring
expenses of approximately $21.9 million and $30.2 million, or $.47 and $.64 per
diluted share, respectively. Net income for the three months ended September
30, 2003 was $484,000, or $.01 per diluted share, compared to $24.1 million,
or $.51 per diluted share, for the three months ended September 30, 2002. Net
income for the three months ended September 30, 2003 was reduced $21.2 million,
or $.45 per diluted share, as a result of restructuring expenses incurred in
connection with the proposed spin-off transaction. Results of operations for
2003 include Charter Banking Corp. (Charter), which the Corporation acquired on
March 31, 2003. Prior period per share amounts have been adjusted for the 5
percent stock dividend declared on April 28, 2003.
CRITICAL ACCOUNTING POLICIES
The Corporation's significant accounting policies are described in the
"Notes to Consolidated Financial Statements" under "Summary of Significant
Accounting Policies" in the Corporation's 2002 Annual Report on Form 10-K/A
filed with the Securities and Exchange Commission. The Corporation considers
its policies on the accounting for the allowance for loan losses, loans held for
sale and goodwill to be critical accounting policies. These policies require
the use of estimates, judgments and strategic or economic assumptions that may
prove inaccurate or be subject to variations and may significantly affect the
Corporation's reported results and financial position for the period or in
future periods. Changes in underlying factors, assumptions or estimates in
any of these areas could have a material impact on the Corporation's future
financial condition and results of operations.
-19-
FIRST NINE MONTHS OF 2003 AS COMPARED TO FIRST NINE MONTHS OF 2002:
The following table provides information regarding the average balances
and yields and rates on interest earning assets and interest bearing liabilities
(dollars in thousands):
2003 2002
---- ----
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Assets
Interest earning assets:
Interest bearing deposits
with banks $ 4,329 $ 20 .62% $ 5,869 $ 80 1.82%
Federal funds sold 15,517 135 1.16 98,509 1,317 1.78
Securities:
Taxable 1,344,690 41,330 4.11 741,533 31,721 5.72
Non-taxable (1) 214,166 10,666 6.66 194,123 9,526 6.56
Loans (1) (2) 5,435,517 269,512 6.63 5,005,771 281,677 7.52
--------- ------- --------- -------
Total interest
earning assets 7,014,219 321,663 6.13 6,045,805 324,321 7.17
--------- ------- --------- -------
Cash and due from banks 200,525 194,917
Allowance for loan losses (71,858) (68,142)
Premises and equipment 191,011 156,791
Other assets 509,606 392,404
------- -------
$7,843,503 $6,721,775
========== ==========
Liabilities
Interest bearing liabilities:
Deposits:
Interest bearing demand $1,215,067 $ 6,888 .76 $1,036,512 $ 6,843 .88
Savings 1,333,669 10,506 1.05 1,084,013 12,264 1.51
Other time 2,344,322 54,400 3.10 2,295,913 68,987 4.02
Short-term borrowings 603,543 7,333 1.62 402,810 8,310 2.76
Long-term debt 558,888 16,987 4.06 357,997 14,791 5.52
Capital securities of
subsidiary trust 86,269 2,910 4.51 - -
------ ----- ---- -----
Total interest
bearing liabilities 6,141,758 99,024 2.16 5,177,245 111,195 2.87
--------- ------ --------- -------
Non-interest bearing,
demand deposits 989,771 867,152
Other liabilities 102,205 104,609
------- -------
7,233,734 6,149,006
--------- ---------
Stockholders' equity 609,769 572,769
------- -------
$7,843,503 $6,721,775
========== ==========
Net interest earning assets $ 872,461 $ 868,560
========== ==========
Net interest income $222,639 $ 213,126
======== =========
Net interest spread 3.97% 4.30%
==== ====
Net interest margin (3) 4.24% 4.71%
==== ====
(1) The amounts are reflected on a fully taxable equivalent basis using the
federal statutory tax rate of 35% adjusted for certain federal tax
preferences.
(2) Average balance includes non-accrual loans. Loans consist of average
total loans less average unearned income. The amount of loan fees
included in interest income on loans is immaterial.
(3) Net interest margin is calculated by dividing the difference between
total interest earned and total interest paid by average interest
earning assets.
-20-
Net interest income, the Corporation's primary source of earnings, is
the amount by which interest and fees generated by interest earning assets,
primarily loans and securities, exceed interest expense on deposits and borrowed
funds. During the nine months ended September 30, 2003, net interest income, on
a fully taxable equivalent basis, totaled $222.6 million, as compared to $213.1
million for the nine months ended September 30, 2002. Net interest income
consisted of interest income of $321.7 million and interest expense of $99.0
million for the first nine months of 2003 compared to $324.3 million and $111.2
million for each, respectively, for the first nine months of 2002. The yield on
interest earning assets decreased by 104 basis points and the rate paid on
interest bearing liabilities decreased by 71 basis points. Net interest margin
declined from 4.71% at September 30, 2002 to 4.24% at September 30, 2003. The
decline in the margin can be attributed to the acquisition of Charter, which
reduced the Corporation's margin for the nine months ended September 30, 2003 by
11 basis points, and the acceleration of prepayments and repricing of interest
earning assets. Consistent with the industry, the Corporation expects it may
continue to deal with margin compression throughout the remainder of
2003. The impact of future rate changes on the Corporation's net interest
income is discussed further in the "Liquidity and Interest Rate
Sensitivity" section of this report.
The following table sets forth certain information regarding changes
in net interest income attributable to changes in the volumes and rates of
interest earning assets and interest bearing liabilities for the nine months
ended September 30, 2003 as compared to the nine months ended September 30, 2002
(in thousands):
Volume Rate Net
------ ---- ---
Interest Income
Interest bearing deposits with banks $ (17) $ (43) $ (60)
Federal funds sold (836) (346) (1,182)
Securities:
Taxable 14,694 (5,085) 9,609
Non-taxable 968 172 1,140
Loans 32,133 (44,298) (12,165)
------ ------- -------
46,942 (49,600) (2,658)
------ ------- ------
Interest Expense
Deposits:
Interest bearing demand 216 (171) 45
Savings 5,447 (7,205) (1,758)
Other time 1,480 (16,067) (14,587)
Short-term borrowings 5,709 (6,686) (977)
Long-term debt 4,135 (1,939) 2,196
Capital securities 2,910 - 2,910
----- ------ -----
19,897 (32,068) (12,171)
------ ------- -------
Net Change $27,045 $(17,532) $ 9,513
======= ======== =======
The amount of change not solely due to rate or volume changes was
allocated between the change due to rate and the change due to volume based on
the net size of the rate and volume changes.
Interest income on loans, on a fully taxable equivalent basis,
decreased 4.3% from $281.7 million for the nine months ended September 30, 2002
to $269.5 million for the nine months ended September 30, 2003. This decrease
was solely related to yield as the Corporation's average loans increased by
$429.7 million. The yield on loans decreased by 89 basis points from 7.52%
to 6.63% for the nine months ended September 30, 2003. The acquisition of
Charter resulted in an increase of interest income on loans and average loans
of $4.6 million and $111.4 million, respectively.
-21-
Interest expense on deposits decreased $12.2 million or 13.8% for the
nine months ended September 30, 2003, compared to the same period of 2002,
despite an increase in average interest bearing deposits of 10.8% over this
same period. Excluding Charter, the average balances in interest bearing demand
and savings deposits increased by $163.1 million and $190.5 million,
respectively, while the average balance in time deposits decreased by $155.6
million. The Corporation continued to successfully generate non-interest
bearing deposits as the average balance of such deposits, excluding Charter,
increased by $92.4 million or 10.7% from September 30, 2002 to September 30,
2003. The average balance in short-term borrowings increased by $200.7 million
as average repurchase agreements, federal funds purchased and short-term
subordinated notes increased $63.0 million, $64.3 million and $20.1 million,
respectively. Interest expense on long-term debt increased $2.2 million as
average long-term debt increased $200.9 million. In addition, the Corporation
incurred $2.9 million in expense on its capital securities of subsidiary trust
which were issued March 31, 2003.
The provision for loan losses charged to operations is determined based
upon management's analysis of the adequacy of the allowance for loan losses,
which takes into consideration both quantitative and qualitative factors
relevant to the collectibility of the existing portfolio. The provision for
loan losses was $16.8 million for the first nine months of 2003, as compared to
$13.5 million for the first nine months of 2002. The allowance for loan losses
as a percentage of total loans was 1.30% at September 30, 2003 and 1.31% at
December 31, 2002.
Non-interest income increased 13.5% to $100.0 million during the first
nine months of 2003 from $88.1 million during the first nine months of 2002.
The increase in non-interest income was primarily due to an increase in deposit
fees and service charges and gains on the sale of mortgage loans originated for
sale. Deposit fees and service charges increased 14.4% as compared to the same
period of 2002 due to deposit volume growth, fee increases, and the acquisition
of Charter. Service charges for the nine months ended September 30, 2003
include $2.2 million in fees from signature based transactions on debit cards.
A recent settlement between two major debit card issuers and retailers will
result in future reductions of these fees. Insurance and securities commissions
and fees increased 4.8% to $32.8 million as compared to $31.3 million during the
first nine months of 2002. The Corporation recorded $7.5 million in gains on
the sale of mortgage loans, a $3.8 million increase over the $3.7 million
recorded during the same period of 2002.
Total non-interest expenses increased $9.4 million from $224.5 million
during the first nine months of 2002 to $233.9 million during the first nine
months of 2003, a direct result of the Corporation recognizing pre-tax merger
and restructuring expenses of $41.9 million and $33.3 million during the same
periods. Salaries and employee benefits were $122.5 million for the nine months
ended September 30, 2003, a 22.1% increase as compared to the nine months ended
September 30, 2002. The increase is primarily due to $9.3 million in
involuntary separation and early retirement costs. In addition, salaries and
employee benefits increased as a result of annual employee salary increases,
commissions paid to mortgage loan originators, higher defined benefit retirement
and employee health care costs and the inclusion of Charter's results of
operations from the date of acquisition. Other non-interest expenses increased
$23.0 million to $76.3 million for the nine months ended September 30, 2003 as
compared to $53.3 million for the same period in 2002. The increase was
directly attributable to $2.1 million in professional costs associated with the
proposed spin-off transaction and a $20.7 million prepayment penalty incurred in
connection with the refinancing of FHLB debt.
The Corporation's income tax expense was $19.8 million for the first
nine months of 2003 compared to $19.6 million for the same period of 2002.
The effective tax rate of 29.0% for the nine months ended September 30, 2003
was lower than the 35.0% federal statutory tax rate due to non-taxable interest
and dividend income.
-22-
THIRD QUARTER OF 2003 AS COMPARED TO THIRD QUARTER OF 2002
During the third quarter of 2003, net interest income decreased $27,000
over the third quarter of 2002. Total interest income decreased $3.1 million,
or 2.9%. Total interest expense decreased $3.1 million, or 8.7% during the
third quarter of 2003 as compared to the third quarter of 2002. Interest
expense on deposits decreased $4.8 million, despite an increase in the average
balance of interest bearing deposits of $618.0 million. The acquisition of
Charter resulted in a $3.6 million increase to net interest income during the
third quarter of 2003 as compared to the same period in 2002. Interest income
and interest expense from Charter were $5.7 million and $2.1 million,
respectively.
The provision for loan losses totaled $5.2 million for the third
quarter of 2003, as compared to $4.8 million for the third quarter of 2002.
Non-interest income increased $2.5 million to $32.6 million during the
third quarter of 2003 compared to $30.1 for the same period of 2002, primarily
due to a $1.6 million increase in insurance and securities commissions and fees.
Deposit fees and service charges increased 11.0% to $13.5 million for the three
months ended September 30, 2003 from $12.2 million for the same period last year
primarily as a result of the acquisition of Charter. Service charges for the
third quarter of 2003 include $702,000 in fees from signature based transactions
on debit cards.
Non-interest expenses increased by $38.3 million, or 61.5%, during the
third quarter of 2003, compared to the third quarter of 2002. The increase is
primarily due to $32.3 million in restructuring charges incurred in connection
with the proposed spin-off transaction. Salaries and employee benefits
increased $13.4 million during the third quarter of 2003, as compared to the
third quarter of 2002, due to involuntary separation and early retirement costs
related to the proposed spin-off transaction, normal annual salary adjustments
and the purchase of Charter. Other non-interest expenses increased $23.0
million to $40.9 million during the third quarter of 2003 compared to $17.9
million for the same period of 2002. This increase is directly attributable to
professional costs associated with the proposed spin-off transaction and the
prepayment penalty incurred in connection with the FHLB refinancing.
The Corporation's income tax benefit was $1.6 million for the third
quarter of 2003 compared to an income tax expense of $10.9 million for the same
period of 2002.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation's 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 Corporate Asset/Liability
Committee (ALCO), which includes members of executive management, reviews
liquidity on a periodic basis and approves significant changes in strategies
which affect balance sheet or cash flow positions. 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 ALCO as the body responsible for meeting
this objective.
Liquidity sources from assets include payments from loans and
investments as well as the ability to securitize or sell loans and investment
securities. Liquidity sources from liabilities are generated primarily through
growth in core deposits, and to a lesser extent, the use of wholesale sources
which include federal funds purchased, repurchase agreements and public
deposits. In addition, the banking affiliates have the ability to borrow funds
from the Federal Home Loan Bank (FHLB) and the Federal Reserve Bank. FHLB
advances are a competitively priced and reliable source of funds. The
Corporation has significant FHLB borrowing capacity available for both general
and contingency funding purposes. As of September 30, 2003, outstanding
advances were $622.9 million or 7.5% of total assets, while FHLB availability
was $2.3 billion, or 27.8% of total assets.
-23-
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 totaling $98.0 million, of which $29.0 million was used
as of September 30, 2003. The Corporation also issues subordinated debt on a
regular basis and has access to the capital markets.
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.
The Corporation continued to successfully originate mortgage loans for
resale in the secondary market. Originations of mortgage loans totaled $441.4
million for the first nine months of 2003. Core deposits grew $551.8 million
during the first nine months of 2003 providing the primary source of financing
for the Corporation's lending and investing activities. Core deposits
acquired through the acquisition of Charter totaled $391.4 million. In addition
to funds from the growth in core deposits, the Corporation utilized long-term
FHLB advances to finance the purchase of certain investment securities.
The Corporation repurchases shares of its common stock for re-issuance
under various employee benefit plans and the Corporation's dividend reinvestment
plan. During the third quarter of 2003, the Corporation purchased treasury
shares totaling $13.3 million and received $9.9 million upon issuance. In
addition, the Corporation completed its plan to repurchase shares of its common
stock to be issued in connection with the redemption of its Series A and Series
B preferred stock during the second quarter of 2003. The Corporation used its
existing lines of credit with several major domestic banks to purchase treasury
shares totaling $8.1 million which were reissued for the redemption of the
preferred stock.
During the third quarter of 2003, the Corporation refinanced
approximately $220 million of its higher-cost, adjustable FHLB advances to
fixed-rate, fixed maturity advances at lower long-term rates. The advances
were scheduled to mature periodically through 2011 and had a weighted average
interest rate of 5.10% at June 30, 2003. These advances were replaced with
FHLB advances which will mature periodically through 2008 with a weighted
average interest rate of 3.62%. The refinancing, which resulted in a pre-tax
prepayment penalty of approximately $20.7 million, will generate approximately
$3.3 million in annual interest savings.
The financial performance of the Corporation is at risk from interest
rate fluctuations. This interest rate risk arises due to differences between
the amount of interest earning assets and interest bearing liabilities subject
to repricing over a period of time, the difference between the change in various
interest rates and the embedded options in certain financial instruments. The
Corporation utilizes an asset/liability model to support its balance sheet
strategies. The Corporation uses gap analysis, net interest income simulations
and the economic value of equity to measure its interest rate risk.
The gap analysis below measures the interest rate risk of the
Corporation by comparing 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 over a one-year period was .99 at September 30, 2003, as compared to
1.12 at September 30, 2002. A ratio of more than one indicates a higher level
of repricing assets over repricing liabilities over the next twelve months,
assuming the current interest rate environment.
-24-
Following is the gap analysis as of September 30, 2003 (in thousands):
Within 4-12 1-5 Over
3 Months Months Years 5 years Total
-------- ------ ----- ------- -----
Interest Earning Assets
Interest bearing deposits
with banks $ 1,519 $ 103 $ 1,622
Federal funds sold 7,109 7,109
Securities 92,660 288,594 $ 965,008 $ 389,449 1,735,711
Loans, net of unearned 1,838,844 1,085,728 2,191,579 479,498 5,595,649
--------- --------- --------- ------- ---------
1,940,132 1,374,425 3,156,587 868,947 7,340,091
Other assets 948,396 948,396
--------- --------- --------- --------- ---------
$1,940,132 $1,374,425 $3,156,587 $1,817,343 $8,288,487
========== ========== ========== ========== ==========
Interest Bearing Liabilities
Deposits:
Interest checking $ 406,696 $ 891,695 $1,298,391
Savings 583,414 824,731 1,408,145
Time deposits 529,058 $ 943,199 $ 881,658 3,506 2,357,421
Borrowings 809,022 71,164 341,155 276,288 1,497,629
------- ------ ------- ------- ---------
2,328,190 1,014,363 1,222,813 1,996,220 6,561,586
Other liabilities 1,130,114 1,130,114
Stockholders' equity 596,787 596,787
------- ------- ------- -------- ---------
$2,328,190 $1,014,363 $1,222,813 $3,723,121 $8,288,487
========== ========== ========== ========== ==========
Period Gap $(388,058) $ 360,062 $1,933,774 $(1,905,778)
========= ========= ========== ===========
Cumulative Gap $(388,058) $ (27,996) $1,905,778
========= ========= ==========
Cumulative Gap as a Percent
of Earnings Assets (5.29)% (.38)% 25.96%
===== ==== =====
Rate Sensitive Assets/Rate
Sensitive Liabilities
(Cumulative) .83 .99 1.42 1.12
=== === ==== ====
Net interest income simulations measure the exposure to short-term
earnings from changes in market rates of interest in a more rigorous and dynamic
fashion. The Corporation's current financial position is combined with
assumptions regarding future business to calculate net interest income under
varying hypothetical interest rate scenarios. The economic value of equity (EVE)
measures the Corporation's long-term earnings exposure from changes in market
rates of interest. EVE is defined as the present value of assets minus the
present value of liabilities at a point in time. A decrease in EVE due to a
specified rate change indicates a decline in the long-term earnings capacity of
the balance sheet assuming that the rate change remains in effect over the life
of the balance sheet. The following table presents an analysis of the potential
sensitivity of the Corporation's annual net interest income and EVE to sudden
and sustained changes in market rates:
-25-
September 30,
--------------
2003 2002
---- ----
Net interest income change (12 months):
- 100 basis points shock vs. stable rate (3.4)% (1.0) %
+ 200 basis points shock vs. stable rate ( .3)% 1.3 %
Economic value of equity:
- 100 basis points shock vs. stable rate (12.2)% (6.0)%
+ 200 basis points shock vs. stable rate (3.7) % .1 %
The preceding measures indicate that the balance sheet structure as of
September 30, 2003 is somewhat more susceptible to large and immediate rate
changes than as of twelve months ago. This is largely a function of higher
holdings of mortgage-related assets and, to a lesser extent, a higher level of
short-term borrowings. Mortgage-related assets tend to create a higher level of
interest rate risk because the assets refinance when rates fall and their
effective maturities lengthen when rates rise. The Corporation's concentration
of these assets increased due to lower demand for commercial loans (particularly
in our Northern markets) and due to the acquisition of Charter. The ALCO
considers this risk to be manageable and will be enhancing strategies to
reduce risk. As the economy recovers, the Corporation will increase its
holdings of commercial loans which tend to more closely match the structure of
the Corporation's liabilities. The level of short-term borrowings is planned
to be reduced by the use of longer term FHLB advances and retail strategies
which will promote longer term certificates of deposits and checking deposits
(which are less rate-sensitive). The Corporation is also implementing an
interest-rate swap program whereby certain fixed loans will be transformed to
floating rate. The risk of declining rates has also increased as rates are
nearly at a historical low point from which there is a limited ability to lower
certain deposit rates further. However, from this low point, management does
not view such a dramatic decrease in rates as a highly probably event.
The computation of the prospective effects of hypothetical interest
rate changes requires numerous assumptions regarding characteristics of new
business and the behavior of existing positions. These business assumptions
are based upon the Corporation's experience, business plans and published
industry experience. Key assumptions employed in the model include asset
prepayment speeds, the relative price sensitivity of certain assets and
liabilities and the expected life of non-maturity deposits. Because these
assumptions are inherently uncertain, actual results will differ from simulated
results. In addition, the preceding measures assumed no change in asset/
liability compositions. Thus, the measures do not reflect the actions the ALCO
may undertake in response to such changes in market rates of interest.
Changes in the interest rate environment can cause significant
fluctuations in the market value of mortgage loans originated for resale in the
secondary market. The Corporation utilizes forward loan commitments on mortgage
loans to offset the risk of decreases in the market values of the loans as a
result of increases in interest rates. At September 30, 2003, the Corporation
had $10.1 million in forward sales commitments.
-26-
LOANS
Following is a summary of loans (in thousands):
September 30, December 31,
2003 2002
-------------- -------------
Real estate:
Residential $2,099,016 $1,947,529
Commercial 1,691,349 1,465,903
Construction 337,149 287,560
Installment loans to individuals 787,945 910,868
Commercial, financial and agricultural 657,873 620,489
Lease financing 31,027 63,901
Unearned income (33,781) (75,746)
---------- ----------
$5,570,578 $5,220,504
========== ==========
The Corporation strives to minimize credit losses by utilizing credit
approval standards, diversifying its loan portfolio by industry and borrower
and conducting ongoing review and management of the loan portfolio. The
Corporation continued to experience strong loan growth as total loans, excluding
Charter, increased $180.3 million from December 31, 2002, to $5.6 billion
at September 30, 2003, despite a 51.4% or $32.9 million decline in lease
financing receivables. The balance of the lease financing receivables has been
declining since 2000, when the Corporation ceased originating automobile leases.
This decline was offset by a $426.5 million or 11.5% increase in residential,
commercial and construction loans secured by real estate and a 6.0%, or $37.4
million increase in commercial, financial and agricultural loans during 2003.
The Corporation's loan portfolio is well-diversified, with a
significant portion of the portfolio being made up of loans secured by real
estate. Residential, commercial and construction loans secured by real estate
accounted for 74.1% of the loan portfolio at September 30, 2003.
NON-PERFORMING ASSETS
Non-performing assets include non-performing loans and other real
estate owned. Non-performing loans include non-accrual loans and restructured
loans. Non-accrual loans represent loans on which interest accruals have been
discontinued. It is the Corporation's policy to discontinue interest accruals
when principal or interest is due and has remained unpaid for 90 days or
more unless the loan is both well secured and in the process of collection.
When a loan is placed on non-accrual status, all unpaid interest is reversed.
Payments on non-accrual loans are generally applied to either principal or
interest or both, depending on management's evaluation of collectibility. Non-
accrual loans may not be restored to accrual status until all delinquent
principal and interest has been paid or the loan becomes both well secured and
in the process of collection. Consumer installment loans are generally charged
off against the allowance for loan losses upon reaching 90 to 180 days past due,
depending on the installment loan type. Restructured loans are loans in which
the borrower has been granted a concession on the interest rate or the original
repayment terms due to financial distress.
Non-performing loans are closely monitored on an ongoing basis as part
of the Corporation's loan review and work-out process. The potential risk of
loss on these loans is evaluated by comparing the loan balance to the fair value
of any underlying collateral or the present value of projected future cash
flows. Losses are recognized where appropriate.
-27-
Following is a summary of non-performing assets (dollars in thousands):
September 30, December 31,
2003 2002
------------ ------------
Non-performing assets:
Non-accrual loans $27,924 $22,294
Restructured loans 5,779 5,915
----- -----
Total non-performing loans 33,703 28,209
Other real estate owned 4,633 4,729
----- -----
Total non-performing assets $38,336 $32,938
======= =======
Asset quality ratios:
Non-performing loans as percent of total loans .61% .54%
Non-performing assets as percent of total assets .46% .46%
ALLOWANCE FOR LOAN LOSSES
Management's analysis of the allowance for loan losses includes the
evaluation of the loan portfolio based upon the Corporation's internal loan
grading system, evaluation of portfolio industry concentrations and the
historical loss experience of the remaining balances of the various homogeneous
loan pools which comprise the loan portfolio. Specific factors used in the
internal loan grading system include the previous loan loss experience with the
customer, the status of past due interest and principal payments on the loan,
the collateral position and residual value of the loan, the quality of financial
information supplied by the borrower and the general financial condition of the
borrower. Management also assesses historical loss on the remaining portfolio
segments in conjunction with the current status of economic conditions, loan
loss trends, delinquency and non-accrual trends, credit administration,
portfolio growth, concentrations of credit risk and other factors, including
regulatory guidance in determining the adequacy of the allowance. This
determination inherently involves a higher degree of uncertainty, involves a
consideration of current risk factors that may not have yet manifested
themselves in the Corporation's historical loss factors used to determine the
adequacy of the allowance, and recognizes that knowledge of the portfolio may
be incomplete.
-28-
Following is a summary of changes in the allowance for loan losses and selected
ratios (dollars in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2003 2002 2003 2002
------- ------- ------- --------
Balance at beginning of period $72,076 $67,799 $68,406 $65,059
Addition from acquisition 2,506 1,389
Charge-offs (6,005) (5,410) (18,207) (15,677)
Recoveries 1,097 1,141 2,873 4,066
----- ----- ----- -----
Net charge-offs (4,908) (4,269) (15,334) (11,611)
Provision for loan losses 5,237 4,835 16,827 13,528
----- ----- ------ ------
Balance at end of period $72,405 $68,365 $72,405 $68,365
======= ======= ======= =======
Allowance for loan losses to:
Total loans, net of unearned income 1.30% 1.31%
Non-performing loans 214.83% 241.51%
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, provide stability
to current operations and promote public confidence. Capital management is a
continuous process. Stockholders' equity increased through earnings retention
by $16.6 million during the nine months ended September 30, 2003. The
Corporation has an existing registration statement for the Corporation's
subordinated notes which are issued through its finance company subsidiary,
Regency Finance Company (Regency). The net proceeds from the issuance of the
subordinated notes are used to finance Regency's lending and purchasing
activities. In addition, the Corporation has an effective $200.0 million shelf
registration with the Securities and Exchange Commission. The Corporation may,
from time to time, issue any combination of common stock, preferred stock, debt
securities or capital securities of a subsidiary trust in one or more offerings.
Prior to the proposed spin-off transaction, First National Bank of Florida
and Roger Bouchard Insurance, Inc. will pay dividends of $25 million and $8
million, respectively, to the Corporation. The dividend from First National
Bank of Florida will be primarily funded through a subordinated loan with one
of its correspondent banks. The subordinated loan is expected to have a
seven-year maturity and bear interest at a rate based on LIBOR plus 170 basis
points and will qualify for Tier 2 capital. In addition, First National
Bankshares of Florida, Inc. plans to issue up to $45.0 million of trust
preferred securities in a private offering. The trust preferred securities is
expected to bear interest at a rate equal to the three-month LIBOR plus 290
basis points and is expected to qualify as Tier 1 capital under FRB guidelines.
Both the Corporation and its banking affiliates are subject to various
regulatory capital requirements administered by the federal banking agencies.
Quantitative measures established by regulators to ensure capital adequacy
require the Corporation and its banking subsidiaries to maintain minimum
amounts and ratios of total and tier 1 capital (as defined in the regulations)
to risk-weighted assets (as defined) and of tier 1 capital to average assets
(as defined).
-29-
As of June 30, 2003, the Corporation and each of its banking
subsidiaries have been categorized as "well capitalized" under the regulatory
framework for prompt corrective action. Management believes, as of September
30, 2003, that the Corporation and each of its banking subsidiaries are all
"well capitalized". Following are capital ratios as of September 30, 2003
for the Corporation (dollars in thousands):
Well Capitalized Minimum Capital
Actual Requirements Requirements
-------------- ---------------- ---------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------- ------ ------- -----
Tier 1 Capital (Leverage) $491,015 6.2% $397,819 5.0% $318,255 4.0%
(to average assets)
Total Capital 575,020 10.1% 571,763 10.0% 457,410 8.0%
(to risk-weighted assets)
Tier 1 Capital 491,015 8.6% 343,058 6.0% 228,705 4.0%
(to risk-weighted assets)
Failure to meet minimum capital requirements can initiate certain
mandatory or discretionary actions by regulators that, if undertaken, could have
a direct material effect on the Corporation's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Corporation and its banking subsidiaries must meet specific capital
guidelines that involve quantitative measures of assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices.
The Corporation and its banking subsidiaries' capital amounts and
classifications are also subject to qualitative judgments by the regulators
regarding components, risk weightings and other factors.
IMPORTANT NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q 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
management's 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 Corporation's 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 it forward-
looking statements even if experience or future changes make it clear that any
projected results expressed or implied therein will not be realized.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK.
The information called for by this item is provided under the caption
"Liquidity and Interest Rate Sensitivity" under Item 2 - Management's Discussion
and Analysis of Financial Condition and Results of Operations.
ITEM 4. CONTROLS AND PROCEDURES.
An evaluation was performed during the quarter ended September 30, 2003
under the supervision and with the participation of the Corporation's
management, including the Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), of the effectiveness of the design and operation of the
Corporation's disclosure controls and procedures. Based on that evaluation,
the Corporation's management, including the CEO and CFO, concluded that the
Corporation's disclosure controls and procedures were effective as of
September 30, 2003. There have been no significant changes in the Corporation's
internal controls over financial reporting since the date of the evaluation.
-30-
PART II
Item 1. Legal Proceedings
The Corporation established a litigation reserve in 2001 by recording a pre-tax
charge of approximately $4.0 million to cover estimated legal expenses
associated with five cases filed against one of its subsidiary banks. The
plaintiffs alleged that a third-party independent administrator misappropriated
funds from their individual retirement accounts held by the subsidiary bank.
As of September 30, 2003, the Corporation has settled all of these asserted
claims at an aggregate cost to the Corporation of approximately $3.5 million.
The Corporation believes the remaining reserve will be sufficient for all costs
associated with the litigation, including legal costs, unasserted claims,
settlements and adverse judgments.
The Corporation and persons to whom the Corporation may have indemnification
obligations, in the normal course of business, are subject to various pending
and threatened lawsuits in which claims for monetary damages are asserted.
Management, after consultation with outside legal counsel, does not at the
present time anticipate the ultimate aggregate liability arising out of such
pending and threatened lawsuits will have a material adverse effect on the
Corporation's financial position. At the present time, management is not in a
position to determine whether any pending or threatened litigation will have a
material adverse effect on the Corporation's results of operations in any future
reporting period.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
The Secretary of the Corporation must receive written notice of any proposal
submitted by a shareholder of the Corporation for consideration at the Annual
Meeting of Shareholders on or prior to the date which is 120 days prior to the
date on which the Corporation first mailed its proxy materials for the prior
year's Annual Meeting of Shareholders. Accordingly, any shareholder proposal
must be submitted to the Corporation by November 19, 2003 to be considered at
the 2004 Annual Meeting of Shareholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
15 Letter Re: Unaudited Interim Financial Information
31 Certifications pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
32 Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K
The Corporation filed the following reports on Form 8-K during
the third quarter of 2003:
July 16, 2003 - The Corporation reported its issuance of a
press release announcing its financial results for
the quarter and six months ended June 30, 2003.
July 11, 2003 - The Corporation reported its issuance of a
press release on July 10, 2003, announcing that its Board of
Directors had approved a plan to divide the Corporation into
two separate public companies.
The Corporation has filed the following reports on Form 8-K
after September 30, 2003:
October 31, 2003 - The Corporation announced the filing of the
Form 10 Registration Statement with the Securities and
Exchange Commission by the subsidiary to be spun-off, First
National Bankshares of Florida, Inc.
October 31, 2003 - The Corporation received the requisite
consents from holders of its subordinated notes approving the
execution of the Second Supplemental Indenture to its
subordinated notes effective as of October 30, 2003. The
Second Supplemental Indenture amends the originally filed
Indenture to permit the Corporation to effect its planned
spin-off of its Florida operations without causing a default
under the Indenture.
October 15, 2003 - The Corporation reported its issuance of a
press release announcing its financial results for the quarter
ended and nine months ended September 30, 2003.
October 8, 2003 - The Corporation commenced the solicitation
of written consents from certain of the holders of its
subordinated notes to the execution of a Second Supplemental
Indenture.
-32-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
F.N.B. Corporation
----------------------------------
(Registrant)
Dated: November 14, 2003 /s/Gary L. Tice
- ------------------------ ----------------------------------
Gary L. Tice
President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 14, 2003 /s/Thomas E. Fahey
- ------------------------ ----------------------------------
Thomas E. Fahey
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
-33-