<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1997
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
-------------------- --------------------
Commission file number 0-8144
F.N.B. CORPORATION
- - -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1255406
- - ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One F.N.B. Boulevard
Hermitage, Pennsylvania 16148
- - --------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 724-981-6000
------------
Securities registered pursuant to Section 12(b) of the Act: NONE
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $2 per share
7 1/2% Cumulative Convertible Preferred Stock, Series B,
par value $10 per share
- - --------------------------------------------------------------------------------
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The registrant estimates that as of February 28, 1998, the aggregate market
value of the voting stock held by non-affiliates of the registrant, computed by
reference to the last sale price as reported in the NASDAQ system for such date,
was approximately $567,545,955.
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
As of February 28, 1998, the registrant had outstanding 15,247,543 shares of
common stock having a par value of $2 per share.
Continued
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Part of Form 10-K into
DOCUMENT which Document is Incorporated
-------- ------------------------------
<S> <C>
Annual Report to Stockholders for fiscal year
ended December 31, 1997 I & II
Definitive proxy statement for the 1998 Annual
Meeting of Stockholders to be held on April 29, 1998 III
</TABLE>
<PAGE> 3
FORM 10-K
1997
INDEX
<TABLE>
<CAPTION>
PART I PAGE
<S> <C> <C>
Item 1. Business.
General I-2
Statistical Disclosure I-11
Item 2. Properties. I-12
Item 3. Legal Proceedings. I-12
Item 4. Submission of Matters to a Vote of Security Holders. I-12
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters. II-1
Item 6. Selected Financial Data. II-1
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. II-1
Item 7.A. Quantitative and Qualitative Disclosures About Market Risk. II-1
Item 8. Financial Statements and Supplementary Data. II-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. II-1
PART III
Item 10. Directors and Executive Officers of the Registrant. III-1
Item 11. Executive Compensation. III-1
Item 12. Security Ownership of Certain Beneficial Owners and Management. III-1
Item 13. Certain Relationships and Related Transactions. III-1
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. IV-1
Signatures IV-2
Index to Exhibits IV-5
</TABLE>
I-1
<PAGE> 4
PART I
ITEM 1. BUSINESS
GENERAL
F.N.B. Corporation (the Corporation) was formed in 1974 as the holding
company of its then sole subsidiary, First National Bank of Mercer County. As of
December 31, 1997, the Corporation owned and operated eight banks and one
consumer finance company in Pennsylvania, southwestern Florida, eastern Ohio and
western New York. During 1992, First National Bank of Mercer County completed an
acquisition of ten offices of the former The First National Bank of Pennsylvania
and three offices of Marine Bank. At the same time, First National Bank of
Mercer County changed its name to First National Bank of Pennsylvania (First
National). During 1997, the Corporation acquired Southwest Banks, Inc., a bank
holding company headquartered in Naples, Florida and West Coast Bancorp, Inc., a
bank holding company headquartered in Cape Coral, Florida. The Corporation
continued to establish a presence in the southwestern Florida market area by
acquiring additional banks in that area, including Indian Rocks National Bank on
October 17, 1997 and Mercantile Bank of Southwest Florida on November 20, 1997.
On January 20, 1998, the Corporation completed its merger with West Coast Bank
(West Coast), located in Sarasota, Florida. The merger was accounted for as a
pooling of interests. In addition, on February 2, 1998, the Corporation
announced the signing of a definitive merger agreement to acquire Seminole Bank
in Seminole, Florida. The merger will be accounted for as a pooling of interests
and is expected to close during the second quarter of 1998, pending regulatory
and shareholder approval.
The Corporation regularly evaluates the potential acquisition of, and holds
discussions with, various potential acquisition candidates and as a general rule
the Corporation publicly announces such acquisitions only after a definitive
agreement has been reached.
The Corporation, through its subsidiaries, provides a full range of
financial services, principally to consumers and small- to medium-size
businesses in its market areas. The Corporation's business strategy has been to
focus primarily on providing quality, community-based financial services adapted
to the needs of each of the markets it serves. The Corporation has emphasized
its community orientation by preserving the names and local boards of directors
of its subsidiaries, by allowing its subsidiaries certain autonomy in
decision-making and thus enabling them to respond to customer requests more
quickly, and by concentrating on transactions within its market areas. However,
while the Corporation has sought to preserve the identities and autonomy of its
subsidiaries, it has established centralized legal, loan review, accounting,
investment, audit and data processing functions. The centralization of these
processes has enabled the Corporation to maintain consistent quality of these
functions and to achieve certain economies of scale.
The Corporation's lending philosophy is to minimize credit losses by
following strict credit approval standards (which include independent analysis
of realizable collateral value), diversifying its loan portfolio by industry and
borrower and conducting ongoing review and management of the loan portfolio. The
Corporation is an active residential mortgage lender, and its commercial loans
are generally to established businesses within its market areas. The Corporation
does not have a significant amount of construction loans and has no highly
leveraged transaction loans.
I-2
<PAGE> 5
No material portion of the deposits of the Corporation's bank subsidiaries
has been obtained from a single or small group of customers, and the loss of any
customer's deposits or a small group of customers' deposits would not have a
material adverse effect on the business of the Corporation. The majority of the
deposits held by the Corporation's bank subsidiaries have been generated within
the respective subsidiary's market area.
Following is information as of December 31, 1997 for the Corporation's bank
and consumer finance subsidiaries, including West Coast (including the year
established and location of principal office for each). All subsidiaries are
wholly-owned by the Corporation (dollars in thousands).
<TABLE>
<CAPTION>
NUMBER
TOTAL TOTAL OF
BANK SUBSIDIARIES: ASSETS DEPOSITS OFFICES
------- --------- -------
<S> <C> <C> <C>
First National Bank of Pennsylvania (Est. 1864)
Hermitage, Pennsylvania........................ $1,098,275 $ 962,332 34
First National Bank of Naples (Est. 1988)
Naples, Florida................................ 584,692 459,068 9
Cape Coral National Bank (Est. 1994)
Cape Coral, Florida............................ 251,850 226,731 4
Metropolitan National Bank (Est. 1922)
Youngstown, Ohio............................... 241,896 218,744 8
Reeves Bank (Est. 1868)
Beaver Falls, Pennsylvania..................... 147,232 134,231 9
Indian Rocks National Bank (Est. 1986)
Largo, Florida................................. 99,896 86,221 3
First National Bank of Fort Myers (Est. 1989)
Fort Myers, Florida............................ 83,997 77,819 2
First County Bank, N.A. (Est. 1987)
Chardon, Ohio.................................. 50,125 45,856 2
---------- ---------- --
$2,557,963 $2,211,002 71
========== ========== ==
CONSUMER FINANCE SUBSIDIARY:
Regency Finance Company (Est. 1927)
Hermitage, Pennsylvania........................ $ 91,304 35
========== ==
CONSUMMATED MERGER:
West Coast Bank (Est. 1988)
Sarasota, Florida.............................. $ 107,386 $ 91,251 2
========== ========== ==
PENDING MERGER:
Seminole Bank (Est. 1985)
Seminole, Florida.............................. $ 93,650 $ 82,863 4
========== ========== ==
</TABLE>
The Corporation has five other subsidiaries, Penn-Ohio Life Insurance
Company, Est. 1981 (Penn-Ohio), F.N.B. Investment Corporation, Est. 1997 (F.N.B.
Investment) Customer Service Center of F.N.B., L.L.C., Est. 1996 (Customer
Service), Mortgage Service Corporation, Est. 1944 (Mortgage Service), and F.N.B.
Building Corporation, Est. 1987 (F.N.B. Building). Penn-Ohio underwrites, as a
reinsurer, credit life and accident and health insurance sold by the
Corporation's subsidiaries. F.N.B. Investment holds equity securities and other
assets for the holding company. Customer Service provides data processing and
other services to the affiliates of the Corporation. Mortgage Service services
mortgage loans for unaffiliated financial institutions and F.N.B. Building owns
real estate that is leased to certain affiliates.
I-3
<PAGE> 6
OPERATIONS OF THE BANK SUBSIDIARIES
The Corporation's bank subsidiaries offer services traditionally offered by
full-service commercial banks, including commercial and individual demand and
time deposit accounts, commercial, mortgage and individual installment loans,
credit card services through correspondent banks, night depository, automated
teller services, computer services, safe deposit boxes, money order services,
travelers checks, government savings bonds, food stamp sales and utility bill
payments.
In addition, First National operates a trust department which offers a
broad range of personal and corporate fiduciary services, including the
administration of decedent and trust estates. As of December 31, 1997, trust
assets under management at First National totaled $290.1 million.
OPERATIONS OF THE CONSUMER FINANCE SUBSIDIARY
The Corporation's consumer finance subsidiary is involved principally in
making personal installment loans to individuals and purchasing installment
sales finance contracts from retail merchants. Such activity is primarily funded
through the sale of the Corporation's subordinated notes at its branch offices.
REGULATION AND SUPERVISION
Bank holding companies, banks and consumer finance companies are
extensively regulated under both federal and state law. The following summary
information describes statutory or regulatory provisions, it is qualified by
reference to the particular statutory and regulatory provisions. Any change in
applicable law or regulation may have a material effect on the business and
prospects of the Corporation and its subsidiaries.
The regulation and examination of the Company and its subsidiaries are
designed primarily for the protection of depositors and not the Corporation or
its stockholders.
BANK HOLDING COMPANIES
The Corporation is registered as a bank holding company under the Bank
Holding Company Act of 1956 (BHCA) and, as such, is subject to regulation by the
Federal Reserve Board (FRB). As a bank holding company, the Corporation is
required to file with the FRB an annual report and such additional information
as the FRB may require pursuant to the BHCA. The FRB may also make examinations
of the Corporation.
The BHCA requires the prior approval of the FRB in any case where a bank
holding company proposes to acquire direct or indirect ownership or control of
more than 5% of the voting shares of any bank (unless it owns a majority of such
bank's voting shares) or otherwise to control a bank or to merge or consolidate
with any other bank holding company. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 authorizes the FRB to permit a bank holding
company that meets all applicable capital requirements to acquire control, or
substantially all of the assets, of a bank located in another state that is not
the bank holding company's home state, regardless of whether the other state
prohibits such transaction.
I-4
<PAGE> 7
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring more than 5% of the voting shares of any company that is not a
bank and from engaging in any business other than banking or managing or
controlling banks. Under the BHCA, the FRB is authorized to approve the
ownership of shares by a bank holding company in any company, the activities of
which the Federal Reserve has determined to be so closely related to banking or
to managing or controlling banks as to be a proper incident thereto. The FRB has
by regulation determined that certain activities are closely related to banking
within the meaning of the BHCA. These activities, which are listed in Regulation
Y of the FRB regulations, include: operating a mortgage company, finance
company, credit card company or factoring company; performing certain data
processing operations; providing investment and finance advice; and acting as an
insurance agent for certain types of credit-related insurance.
Activities which the FRB has approved by order in connection with specific
applications by bank holding companies include the operation of a credit card
bank or other non-bank banks, certain expanded student loan servicing
activities, the buying and selling of gold and silver bullion and silver coin
for the account of customers and for itself, the provision of certain financial
office services, the printing and sale of checks and similar documents,
underwriting and dealing in commercial paper, certain municipal revenue bonds
and one to four family mortgage backed securities, subject to certain
conditions, and underwriting and dealing in corporate debt or equity securities,
subject to certain conditions. Bank holding companies also are permitted to
acquire savings associations subject to the applicable requirements of the BHCA.
In approving acquisitions by bank holding companies of banks and companies
engaged in banking-related activities, the FRB considers a number of factors,
including the expected benefits to the public, such as greater convenience,
increased competition or gains in efficiency, as weighed against the risks of
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices. The FRB
is also empowered to differentiate between new activities and activities
commenced through acquisition of a going concern.
Bank holding companies and their subsidiary banks are also subject to the
provisions of the Community Reinvestment Act of 1977 (CRA). Under the terms of
the CRA, the FRB (or other appropriate bank regulatory agency) is required, in
connection with its examination of a financial institution, to assess the
financial institution's record in meeting the credit needs of the communities
served by the financial institution, including low and moderate-income
neighborhoods. Further, such assessment is also required of any financial
institution which has applied to (i) obtain a federally-regulated financial
institution charter; (ii) obtain deposit insurance coverage for a newly
chartered institution; (iii) establish a new branch office that will accept
deposits; (iv) relocate an office; or (v) merge or consolidate with, or acquire
the assets or assume the liabilities of, a federally-regulated financial
institution. In the case of a bank holding company applying for approval to
acquire a bank, savings and loan, or other bank holding company, the FRB will
assess the record of each subsidiary of the applicant bank holding company, and
such records may be the basis for denying the application or imposing conditions
in connection with approval of the application.
BANKS
The Corporation's bank subsidiaries are supervised and regularly examined
by the Office of the Comptroller of Currency (OCC), the Federal Deposit
Insurance Corporation (FDIC), the FRB, the Pennsylvania Department of Banking
and the Florida Department of Banking and Finance. The various laws and
regulations administered by the regulatory agencies affect corporate practices,
such as payment of dividends, incurring debt and acquisition of financial
institutions and other companies, and affect business practices, such as payment
of interest on deposits, the charging of interest on loans, types of business
conducted and location of offices.
I-5
<PAGE> 8
CONSUMER FINANCE SUBSIDIARY
The Corporation's consumer finance subsidiary is subject to regulation
under Pennsylvania, Ohio and New York state laws which require, among other
things, that it maintain licenses for consumer finance operations in effect for
each of its offices. Representatives of the Pennsylvania Department of Banking,
the Ohio Division of Consumer Finance and the State of New York Banking
Department periodically visit the offices of the consumer finance subsidiary and
conduct extensive examinations in order to determine compliance with such laws
and regulations. Such examinations include a review of loans and the collateral
thereof, as well as a check of the procedures employed for making and collecting
loans. Additionally, the consumer finance subsidiary is subject to certain
federal laws which require that certain information relating to credit terms be
disclosed to customers and afford customers in certain instances the right to
rescind transactions.
LIFE INSURANCE SUBSIDIARY
Penn-Ohio is subject to examination on a triennial basis by the Arizona
Department of Insurance. Representatives of the Department of Insurance will
periodically determine whether Penn-Ohio has maintained required reserves,
established adequate deposits under a reinsurance agreement and complied with
reporting requirements under Arizona statutes.
GOVERNMENTAL POLICIES
The operations of the Corporation and its subsidiaries are affected not
only by general economic conditions, but also by the policies of various
regulatory authorities. In particular, the FRB regulates money and credit and
interest rates in order to influence general economic conditions. These policies
have a significant influence on overall growth and distribution of loans,
investments and deposits and affect interest rates charged on loans or paid for
time and savings deposits. FRB monetary policies have had a significant effect
on the operating results of all financial institutions in the past and may
continue to do so in the future.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT (FDICIA)
FDICIA was designed to bolster the deposit insurance fund, tighten bank
regulation and trim the scope of federal deposit insurance as summarized below.
FDIC Funding - FDICIA bolstered the bank deposit insurance fund with $70.0
billion in borrowing authority and increased to $30.0 billion from $5.0 billion
the amount the FDIC can borrow from the U.S. Treasury to cover the costs of
potential bank failures.
Bank Regulation - Under FDICIA, regulatory supervision is linked to bank
capital. Regulators have set five capital levels at which insured depository
institutions will be "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." FDICIA established a framework for supervisory actions
regarding insured institutions and their holding companies that are not well or
adequately capitalized.
FDICIA requires increased supervision for banks not rated in one of the two
highest categories under the "CAMELS" composite bank rating system. The FDIC is
authorized to charge banks for regular and special examinations. Further, FDICIA
mandates certain limits on real estate lending by banks and tightens bank
auditing requirements.
I-6
<PAGE> 9
The federal bank regulatory agencies are required by FDICIA to adopt
uniform capital and accounting rules. The accounting rules require supplemental
disclosure in reports to the banking agencies of all assets and liabilities,
including contingent assets and liabilities and, to the extent feasible, of the
estimated fair market valuation of assets and liabilities.
As mandated by Section 132 of FDICIA, the federal bank regulatory agencies
issued regulations which prescribe minimum safety and soundness standards with
respect to internal control, internal audit, loan documentation, credit
underwriting, interest rate exposure, asset growth and quality, earnings,
compensation arrangements and stock valuation. Institutions failing to meet
these safety and soundness standards will be required to submit corrective plans
and will be subject to sanctions for failure to submit or comply with a plan.
The Community Development and Regulatory Improvement Act of 1994 amended
section 132 of FDICIA to permit the regulatory agencies to implement the safety
and soundness standards relative to asset quality, earnings and stock valuation
by regulation or guidelines. The agencies will now be permitted to decide
whether or not to compel institutions that fail to meet these standards to
submit a compliance plan. Finally, depository institution holding companies are
no longer covered under Section 132 of FDICIA.
FDICIA also provided for certain consumer and low and moderate income
lending and deposit programs.
Deposit Insurance - The legislation also reduced the scope of federal
deposit insurance. The FDIC's ability to reimburse uninsured deposits (those
over $100,000 and foreign deposits) was sharply limited beginning January 1995.
The FRB's ability to finance banks with extended loans from its discount window
was restricted, beginning December 1993. In addition, only the best capitalized
banks will be able to offer insured broker deposits or to insure accounts
established under employee pension plans.
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
The parent company is a legal entity separate and distinct from its
subsidiaries. Most of the parent company's revenues result from dividends paid
to the parent company by the subsidiaries. The right of the parent company, and
consequently the right of creditors and stockholders of the Corporation, to
participate in any distribution of the assets or earnings of any subsidiary
through the payment of such dividends or otherwise is necessarily subject to the
prior claims of creditors of the subsidiary, except to the extent that claims of
the parent company in its capacity as a creditor may be recognized. Moreover,
there are various legal and regulatory limitations applicable to the payment of
dividends by the subsidiaries as well as by the Corporation to its stockholders.
Under federal law, the subsidiaries may not, subject to certain limited
exceptions, make loans or extensions of credit to, or investments in the
securities of, the Corporation or take securities of the Corporation as
collateral for loans to any borrower. The subsidiaries are also subject to
collateral security requirements for any loans or extensions of credit permitted
by such exceptions.
I-7
<PAGE> 10
The subsidiaries are subject to various statutory and regulatory
restrictions on their ability to pay dividends to the parent company. Under
applicable federal and state statutes and regulations, the dividends that may be
paid to the parent company by its subsidiaries without prior regulatory approval
are subject to limitations. In the case of national banks, all subsidiaries
except Reeves and West Coast Bank, prior approval of the OCC is required if the
total of all dividends declared in any calendar year will exceed net profits (as
defined and interpreted by the OCC) for that year combined with retained net
profits (as defined) for the two preceding calendar years. As a Pennsylvania
state-chartered institution, Reeves may pay dividends only if they are solvent
and would not be rendered insolvent by the dividend payments, and only from
unrestricted and unreserved earned surplus and, under certain circumstances,
capital surplus. Reeves must also maintain a leverage ratio of 6.00% after
paying dividends. As a Florida state-chartered institution, West Coast Bank may
also pay dividends without prior regulatory approval, subject to the dividends
for the calendar year not exceeding net profits for that year combined with
retained profits for the preceding two calendar years.
In addition, the OCC, in the case of the Corporation's national banks, and
the FDIC, in the case of Reeves and the FRB in the case of West Coast Bank, have
authority to prohibit banks from engaging in unsafe and unsound banking
practices. The payment of a dividend by a bank could, depending on the financial
condition of such bank and other factors, be considered an unsafe and unsound
banking practice. The OCC has indicated its view that it generally would be an
unsafe and unsound practice to pay dividends except out of current operating
earnings. The ability of the subsidiaries to pay dividends is, and is expected
to continue to be, influenced by regulatory policies and capital guidelines.
(See also "Stockholders' Equity" footnote in the Notes to Consolidated Financial
Statements, which is incorporated by reference to the Corporation's Annual
Report to Stockholders).
CAPITAL REQUIREMENTS
The FRB has adopted risk-based capital guidelines applicable to bank
holding companies. The primary indicators relied on by the FRB and other bank
regulators in measuring strength of capital position are the core capital, total
risk-based capital and leverage ratios.
Core capital consists of common and qualifying preferred stockholders'
equity less non-qualifying intangibles. Total capital consists of core capital,
qualifying subordinated debt and a portion of the allowance for loan losses.
Risk-based capital ratios are calculated with reference to risk-weighted assets
which consist of both on-and off- balance sheet risks. The regulatory minimums
are 4.00% for the core capital ratio and 8.00% for the total risk-based capital
ratio. The Corporation's core capital and total risk-based capital to
risk-weighted assets ratios as of December 31, 1997 were 12.10% and 13.91%,
respectively. (See also "Regulatory Matters" footnote in the Notes to
Consolidated Financial Statements, which is incorporated by reference to the
Corporation's Annual Report to Stockholders).
In addition, the FRB has established minimum leverage ratio (core capital
to quarterly average assets less non-qualifying intangibles) guidelines for bank
holding companies. These guidelines provide for a minimum ratio of 4.00% for
bank holding companies that meet certain specified criteria, including that they
have the highest regulatory rating. All other bank holding companies are
required to maintain a leverage ratio of 4.00% plus an additional cushion of at
least 100 to 200 basis points. The Corporation's leverage ratio as of December
31, 1997 was 8.50%. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets.
I-8
<PAGE> 11
Each bank subsidiary is subject to similar capital requirements adopted by
its primary regulator.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
However, management is unable to predict whether higher capital ratios would be
imposed and, if so, at what levels and on what schedule.
Under FRB policy, a bank holding company is required to serve as a source
of financial and managerial strength to its subsidiary banks and may not conduct
its operations in an unsafe or unsound manner. In addition, it is the FRB's
policy that, in serving as a source of strength to its subsidiary banks, a bank
holding company should stand ready to use available resources to provide
adequate capital funds to its subsidiary banks during periods of financial
stress or adversity, in circumstances where it might not do so absent such
policy, and should maintain the financial flexibility and capital-raising
capacity to obtain additional resources for assisting its subsidiary banks. The
failure of a bank holding company to serve as a source of strength to its
subsidiary banks would generally be considered by the FRB to be an unsafe and
unsound banking practice, a violation of FRB regulations, or both.
FDIC INSURANCE ASSESSMENTS
The Corporation's banking subsidiaries are subject to FDIC deposit
insurance assessments for the Bank Insurance Fund (BIF) and Savings Association
Insurance Fund (SAIF). Financial Institutions Reform, Recovery and Enforcement
Act (FIRREA) authorized the FDIC to set the annual premium for banks and savings
associations as high as determined to be necessary to assure stability of the
insurance funds. FDIC deposit insurance premium rates have been determined
through a risk-based assessment which takes into consideration the capital
rating (i.e. "undercapitalized", "adequately capitalized" or "well capitalized")
assigned to the institution by the federal regulators. Each of the banking
affiliates' most recent capital rating assignment has been that of "well
capitalized."
FIRREA
As a result of the enactment of the FIRREA on August 9, 1989, a depository
institution insured by the FDIC can be held liable for any loss incurred, or
reasonably expected to be incurred, by the FDIC after August 9, 1989 in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
FDIC-insured depository institution in danger of default. "Default" is defined
generally as the appointment of a conservator or receiver and "in danger of
default" is defined generally as the existence of certain conditions indicating
that a "default" is likely to occur in the absence of regulatory assistance.
Liability of any subsidiary under this "cross-guarantee" provision could have a
material adverse effect on the financial condition of any assessed subsidiary
and the Corporation.
OMNIBUS CONSOLIDATED APPROPRIATIONS ACT, FOR FISCAL YEAR 1997 (OMNIBUS ACT)
The Omnibus Act requires commercial banks to make contributions to the SAIF
and amended the Bank Holding Company Act to simplify certain nonbank application
procedures for "well capitalized" banking organizations. Additionally, the
Omnibus Act amended certain banking laws governing the operations of insured
depository institutions to provide relief to commercial banks with respect to
lender liability, environmental liability, loans to executive officers, officer
and director interlocks and composition of bank audit committees.
I-9
<PAGE> 12
MARKET AREA AND COMPETITION
The Corporation, through its subsidiaries, operated 106 offices in 34
counties in Pennsylvania, southwestern Florida, eastern Ohio and western New
York at December 31, 1997. The economies of the primary market areas in which
the Corporation's Pennsylvania and Ohio subsidiaries operate have evolved during
the past decade from ones dominated by heavy industry to ones which have a more
diversified mix of light manufacturing, service and distribution industries.
This area is served by Interstate Routes 90, 76, 79 and 80, and is located at
the approximate midpoint between New York City and Chicago. The area is also
close to the Great Lakes shipping port of Erie and the Greater Pittsburgh
International Airport. The Corporation's Florida subsidiaries operate in a four
county area represented by high growth and median family income levels. The
industries served in this market include a diversified mix of tourism,
construction, services, light manufacturing, distribution and agriculture. The
market extends north to Tampa and south through Naples and is served by
Interstate 75 and U.S. Highway 41.
The Corporation's subsidiaries compete with a large number of other
financial institutions, such as commercial banks, savings banks, savings and
loan associations, insurance companies, mortgage banking companies, consumer
finance companies, credit unions and commercial finance and leasing companies,
many of which have greater resources than the Corporation, for deposits, loans
and service business. Money market mutual funds, brokerage houses and similar
institutions currently provide many of the financial services offered by the
Corporation's subsidiaries.
In the consumer finance subsidiary's market areas, the active competitors
include banks, credit unions and national, regional and local consumer finance
companies, some of which have substantially greater resources than that of the
consumer finance subsidiary. The ready availability of consumer credit through
charge accounts and credit cards constitutes additional competition. The
principal methods of competition include the rates of interest charged for
loans, the rates of interest paid to obtain funds and the availability of
customer services.
With reciprocal interstate banking, the Corporation also faces the prospect
of additional competitors entering its markets as well as additional competition
in its efforts to acquire other subsidiaries and branches throughout
Pennsylvania, Florida, Ohio and in other neighboring states. (See "Regulation
and Supervision.")
EMPLOYEES
As of February 28, 1998, the Corporation and its subsidiaries, including
West Coast, had 1,124 full-time and 259 part-time employees. Management of the
Corporation considers its relationship with its employees to be satisfactory.
MERGERS, ACQUISITIONS AND DIVESTITURE
See "Mergers, Acquisitions and Divestiture" footnote in the Notes to
Consolidated Financial Statements, which is incorporated by reference to the
Corporation's Annual Report to Stockholders.
I-10
<PAGE> 13
STATISTICAL DISCLOSURE
Statistical disclosure information regarding the Corporation is included in
the Management's Discussion and Analysis, which is incorporated by reference to
the Corporation's Annual Report to Stockholders (see Part II, Item 7 below). The
following information is contained therein:
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential
II. Investment Portfolio
III. Loan Portfolio
IV. Summary of Loan Loss Experience
V. Deposits
VI. Return on Equity and Assets
VII. Short-Term Borrowings
I-11
<PAGE> 14
ITEM 2. PROPERTIES
The Corporation opened a new six-story building in Hermitage, Pennsylvania
to serve as its corporate headquarters and share with its lead banking
affiliate, First National. The operations of the Corporation and First National
are currently conducted at the new headquarters building and the Hermitage
Square office location in Hermitage, Pennsylvania.
The banking and consumer finance subsidiaries' branch offices are located
in 24 counties in Pennsylvania, 6 counties in eastern Ohio, 3 counties in
southwestern Florida and 1 county in western New York. At December 31, 1997, the
Corporation's subsidiaries owned 52 of the Corporation's 106 branch locations
and leased the remaining 54 branch locations under operating leases expiring at
various dates through the year 2010. For additional information regarding the
lease commitments see the Premises and Equipment footnote in the Annual
Report to Shareholders.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Corporation or
any of its subsidiaries is a party, or of which any of their property is the
subject, except ordinary routine proceedings which are incidental to the
ordinary conduct of business. In the opinion of management, pending legal
proceedings will not have a material adverse effect on the consolidated
financial position of the Corporation and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of 1997.
I-12
<PAGE> 15
PART II
Information relating to Items 5, 6, 7 and 8 is provided in the
Corporation's 1997 Annual Report to Stockholders under the captions and on the
pages indicated below, and is incorporated herein by reference:
<TABLE>
<CAPTION>
PAGES IN 1997
ANNUAL REPORT
CAPTION IN 1997 ANNUAL REPORT TO STOCKHOLDERS TO STOCKHOLDERS
<S> <C> <C>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 40
ITEM 6. SELECTED FINANCIAL DATA 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 28
ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 31-33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 1-25,27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
</TABLE>
II-1
<PAGE> 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to directors of the Corporation is provided in the
Corporation's definitive proxy statement filed with the Securities and Exchange
Commission in connection with its annual meeting of stockholders to be held
April 29, 1998. Such information is incorporated herein by reference.
Information relating to executive officers of the Corporation is provided in
Part I.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to this item is provided in the Corporation's
definitive proxy statement filed with the Securities and Exchange Commission in
connection with its annual meeting of stockholders to be held April 29, 1998.
Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to this item is provided in the Corporation's
definitive proxy statement filed with the Securities and Exchange Commission in
connection with its annual meeting of stockholders to be held April 29, 1998.
Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to this item is provided in the Corporation's
definitive proxy statement filed with the Securities and Exchange Commission in
connection with its annual meeting of stockholders to be held April 29, 1998.
Such information is incorporated herein by reference.
III-1
<PAGE> 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The following consolidated financial statements of F.N.B. Corporation
and subsidiaries and report of independent auditors, included in the
Corporation's 1997 Annual Report to Stockholders, are incorporated
herein by reference:
<TABLE>
<CAPTION>
PAGES IN 1997
ANNUAL REPORT
TO STOCKHOLDERS
<S> <C>
Consolidated Balance Sheet 1
Consolidated Income Statement 2
Consolidated Statement of Stockholders' Equity 3
Consolidated Statement of Cash Flows 4
Notes to Consolidated Financial Statements 5 - 25
Report of Independent Auditors 25
Quarterly Earnings Summary 27
</TABLE>
(A) 2. FINANCIAL STATEMENT SCHEDULES
All Schedules are omitted because they are not applicable.
(A) 3. EXHIBITS
The exhibits filed or incorporated by reference as a part of this
report are listed in the Index to Exhibits which appears at page IV-5
and are incorporated by reference.
(B) REPORTS ON FORM 8-K
A Report on Form 8-K, dated February 13, 1998, was filed by the
Corporation. The Form 8-K included Audited Supplemental Consolidated
Financial Statements for the years ended December 31, 1996, 1995 and
1994 with Report of Independent Auditors and Management's Discussion
and Analysis giving effect to the merger of the Corporation and West
Coast Bank on a pooling-of-interests basis.
IV-1
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ PETER MORTENSEN
-----------------------------------
Peter Mortensen, Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ PETER MORTENSEN
- - ---------------------------------- Chairman, Chief Executive February 24, 1998
Peter Mortensen Officer and Director
(Principal Executive Officer)
/s/ STEPHEN J. GURGOVITS
- - ---------------------------------- Vice Chairman and Director February 24, 1998
Stephen J. Gurgovits
/s/ GARY L. TICE
- - ---------------------------------- President, Chief Operating February 24, 1998
Gary L. Tice Officer and Director
/s/ WILLIAM J. RUNDORFF
- - ---------------------------------- Executive Vice President February 24, 1998
William J. Rundorff
/s/ JOHN D. WATERS
- - ---------------------------------- Vice President and Chief February 24, 1998
John D. Waters Financial Officer (Principal
Financial and Accounting
Officer)
- - ---------------------------------- Director
W. Richard Blackwood
/s/ WILLIAM B. CAMPBELL
- - ---------------------------------- Director February 24, 1998
William B. Campbell
/s/ CHARLES T. CRICKS
- - ---------------------------------- Director February 24, 1998
Charles T. Cricks
/s/ HENRY M. EKKER
- - ---------------------------------- Director February 24, 1998
Henry M. Ekker
</TABLE>
IV-2
<PAGE> 19
- - ---------------------------------- Director
Thomas C. Elliott
/s/ THOMAS W. HODGE
- - ---------------------------------- Director February 24, 1998
Thomas W. Hodge
- - ---------------------------------- Director
James S. Lindsay
/s/ PAUL P. LYNCH
- - ---------------------------------- Director February 24, 1998
Paul P. Lynch
- - ---------------------------------- Director
Edward J. Mace
- - ---------------------------------- Director
Robert S. Moss
- - ---------------------------------- Director
Richard C. Myers
- - ---------------------------------- Director
John R. Perkins
- - ---------------------------------- Director
William A. Quinn
- - ---------------------------------- Director
George A. Seeds
/s/ WILLIAM J. STRIMBU
- - ---------------------------------- Director February 24, 1998
William J. Strimbu
/s/ ARCHIE O. WALLACE
- - ---------------------------------- Director February 24, 1998
Archie O. Wallace
- - ---------------------------------- Director
Joseph M. Walton
/s/ JAMES T. WELLER
- - ---------------------------------- Director February 24, 1998
James T. Weller
IV-3
<PAGE> 20
/s/ ERIC J. WERNER
- - ---------------------------------- Director February 24, 1998
Eric J. Werner
/s/ R. BENJAMIN WILEY
- - ---------------------------------- Director February 24, 1998
R. Benjamin Wiley
/s/ DONNA C. WINNER
- - ---------------------------------- Director February 24, 1998
Donna C. Winner
IV-4
<PAGE> 21
INDEX TO EXHIBITS
The following exhibits are filed or incorporated by reference as part of this
report:
<TABLE>
<CAPTION>
<S> <C>
3.1. Restated Articles of Incorporation of the Corporation as currently
in effect and any amendments thereto. (incorporated by reference to
Exhibit 3.1. of the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
3.2. By-laws of the Corporation as currently in effect. (incorporated by
reference to Exhibit 4 of the Corporation's Form 10-Q for the
quarter ended June 30, 1994).
4 The rights of holders of equity securities are defined in portions
of the Restated Articles of Incorporation and By-laws. The Restated
Articles of Incorporation are incorporated by reference to Exhibit
3.1. of the registrant's Form 10-K for the year ended December 31,
1996. The By-laws are incorporated by reference to Exhibit 4 of the
registrant's Form 10-Q for the quarter ended June 30, 1994. A
designation statement defining the rights of F.N.B. Corporation
Series A - Cumulative Convertible Preferred Stock is incorporated by
reference to Form S-14, Registration Statement of F.N.B.
Corporation, File No. 2-96404. A designation statement defining the
rights of F.N.B. Corporation Series B - Cumulative Convertible
Preferred Stock is incorporated by reference to Exhibit 4 of the
registrant's Form 10-Q for the quarter ended June 30, 1992. The
Corporation agrees to furnish to the Commission upon request copies
of all instruments not filed herewith defining the rights of holders
of long-term debt of the Corporation and its subsidiaries.
10.1. Form of agreement regarding deferred payment of directors' fees by
First National Bank of Pennsylvania. (incorporated by reference to
Exhibit 10.1. of the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993).
10.2. Form of agreement regarding deferred payment of directors' fees by F.N.B.
Corporation. (incorporated by reference to Exhibit 10.2. of the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993).
10.3. Form of Deferred Compensation Agreement by and between First
National Bank of Pennsylvania and four of its executive officers.
(incorporated by reference to Exhibit 10.3. of the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993).
10.4. Revised and Restated Amendment No. 2 to Employment Agreement between F.N.B.
Corporation and Peter Mortensen. (incorporated by reference to Exhibit 10.5.
of the Corporation's Form 10-Q for the quarter ended September 30, 1996).
10.5. Employment Agreement between F.N.B. Corporation and Stephen J. Gurgovits.
(incorporated by reference to exhibit 10.6 of the Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1990).
10.6. Employment Agreement between F.N.B. Corporation and William J. Rundorff.
(incorporated by reference to exhibit 10.9 of the Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991). Amendment No. 2 to
Employment Agreement. (incorporated by reference to Exhibit 10.8. of the
Corporation's Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
</TABLE>
IV-5
<PAGE> 22
<TABLE>
<CAPTION>
<S> <C>
10.7. Basic Retirement Plan (formerly the Supplemental Executive
Retirement Plan) of F.N.B. Corporation effective January 1, 1992.
(incorporated by reference to Exhibit 10.9. of the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993).
10.8. F.N.B. Corporation 1990 Stock Option Plan as amended effective February 2,
1996. (incorporated by reference to Exhibit 10.10. of the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995).
10.9. F.N.B. Corporation Restricted Stock Bonus Plan dated January 1, 1994.
(incorporated by reference to Exhibit 10.11. of the Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.10. Employment Agreement between F.N.B. Corporation and John D. Waters.
(incorporated by reference to Exhibit 10.13. of the Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
10.11. F.N.B. Corporation Restricted Stock and Incentive Bonus Plan. (incorporated by
reference to Exhibit 10.13. of the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
10.12. F.N.B. Corporation 1996 Stock Option Plan. (incorporated by reference to
Exhibit 10.13. of the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
10.13. F.N.B. Corporation Director's Compensation Plan. (incorporated by reference to
Exhibit 10.13. of the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
13 Annual Report to Stockholders. (filed herewith).
21 Subsidiaries of the Registrant. (filed herewith).
23.1 Consent of Ernst & Young LLP, Independent Auditors. (filed herewith).
23.2 Consent of Hill, Barth & King, Independent Auditors. (filed herewith).
23.3 Consent of Coopers & Lybrand, Independent Auditors. (filed herewith).
27 Financial Data Schedule. (filed herewith).
99.1 Report of Independent Auditors, Hill, Barth & King, Inc. for the 1996
and 1995 audits of Southwest Banks, Inc. (filed herewith).
99.2 Report of Independent Auditors, Coopers & Lybrand L.L.P., for the
1996 and 1995 audits of West Coast Bancorp, Inc. (Filed herewith).
</TABLE>
IV-6
<PAGE> 1
EXHIBIT 13
[COVER]
[LOGO] F.N.B.
CORPORATION
...........................................................
1997 ANNUAL REPORT
F.N.B. CORPORATION IS A GROWTH COMPANY. IN 1997 ITS STOCK PRICE
APPRECIATED 70 PERCENT--RECURRING EARNINGS INCREASED 22 PERCENT--
TOTAL ASSETS GREW TO $2.8 BILLION.
<PAGE> 2
F.N.B. CORPORATION AND SUBSIDIARIES
HIGHLIGHTS OF 1997
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
1997 1996 Percent Change
---- ---- --------------
<S> <C> <C> <C>
FOR THE YEAR*
Net Income $33,123 $19,879 +67%
Return on Average Assets 1.34% .86% +56
Return on Average Equity 15.79% 10.19% +55
Recurring Net Income $28,879 $23,746 +22
Return on Average Assets 1.17% 1.03% +14
Return on Average Equity 13.76% 12.17% +13
PER COMMON SHARE*
Earnings
Basic $2.30 $1.36 +69
Diluted 2.18 1.32 +65
Recurring Earnings
Basic $2.00 $1.63 +23
Diluted 1.90 1.58 +20
Book Value $15.27 $13.70 +11
AT YEAR END
Assets $2,649,494 $2,418,407 +10
Net Loans 1,858,214 1,700,332 + 9
Deposits 2,192,713 2,013,888 + 9
</TABLE>
STOCK APPRECIATION
(Price per Share)
[GRAPH]
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
12.65 13.17 19.56 22.26 37.94
TOTAL ASSETS
(Dollars in billions)
[GRAPH]
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
2.0 2.1 2.2 2.4 2.6
* RECURRING NET INCOME EXCLUDES EXTRAORDINARY GAINS ON THE SALE OF A SUBSIDIARY
AND BRANCHES OF $8.8 MILLION AND MERGER-RELATED AND OTHER NON-RECURRING COSTS
OF $4.6 MILLION IN 1997 AND A ONE-TIME ASSESSMENT OF $1.8 MILLION LEGISLATED
BY CONGRESS TO RECAPITALIZE THE SAVINGS ASSOCIATION INSURANCE FUND AND
MERGER-RELATED COSTS OF $2.1 MILLION IN 1996, ALL ON AN AFTER-TAX BASIS.
CONTENTS
1 CONSOLIDATED FINANCIAL HIGHLIGHTS
2 CHAIRMAN'S LETTER
4 MILESTONES
5 MARKET AREAS
6 AFFILIATE PROFILES
16 OFFICERS AND DIRECTORS
20 SHAREHOLDER INFORMATION
F.N.B. CORPORATION 1
<PAGE> 3
F.N.B. CORPORATION AND AFFILIATES
To Our Shareholders and Friends
By any measure, 1997 was the most-successful year in the 133-year history of
F.N.B. Corporation. The year began full of promise and ended full of
achievement. Extraordinary growth, record earnings and unequaled stock price
performance were attained--all while continuing a tradition of delivering the
highest level of personal banking service to customers.
THE 1997 RESULTS ARE IMPRESSIVE:
* 70% INCREASE IN STOCK PRICE
* 15.8% RETURN ON EQUITY
* $2.30 PER SHARE EARNINGS
* 108 OFFICES IN FOUR STATES
* $33.1 MILLION NET INCOME
* 1,300 DEDICATED ASSOCIATES
F.N.B. is a growth company. In addition to posting record numbers in 1997, the
Corporation expanded its markets, made a sizable investment in its banking
facilities and put the right people in the right places to lead the company into
the 21st century and beyond. The bottom line on December 31, 1997 (including the
affiliation with West Coast Bank): Total assets increased 65 percent to $2.8
billion.
THE CHANGING MARKETS
On January 1, 1997 the Corporation was parent to five banking affiliates and a
consumer finance company in Pennsylvania, Ohio and New York with total assets of
$1.7 billion. By year's end, the company had expanded into southwest Florida,
strategically adding five new affiliates in some of the fastest-growing,
most-affluent markets in America. In Pennsylvania, the company streamlined
operations by exchanging ownership of one institution, Bucktail Bank & Trust
Company, for a profitable position in a larger company, Sun Bancorp, Inc. of
Selinsgrove. And in Ohio, Metropolitan National Bank consolidated its market by
selling three offices.
The new Florida banking partners are: First National Bank of Naples; Cape Coral
National Bank; First National Bank of Fort Myers; Indian Rocks National Bank;
and West Coast Bank, a community bank in Sarasota. And, on February 2, the
Corporation announced an agreement to affiliate with Seminole Bank in Pinellas
County north of St. Petersburg. Plans call for combining Seminole with Indian
Rocks National Bank near the end of the second quarter. Upon the completion of
this transaction, F.N.B. will offer banking and consumer finance services
through 112 offices in four states.
[PHOTO]
PETER MORTENSEN
Chairman & Chief Executive Officer
BUILDING FOR THE FUTURE
On October 29, 1997, First National Bank of Pennsylvania dedicated an impressive
new $7.5 million headquarters building in Hermitage, Pennsylvania. The
state-of-the-art, six-story, 45,000-square-foot office facility stands
prominently in the heart of Hermitage, Pennsylvania. The building also houses
the executive and administrative support offices of F.N.B. Corporation.
In an era when many companies are consolidating and reducing their involvement
in the communities where they do business, this ultramodern structure renews the
Bank's commitment to hometown, customers and employees. All those interested in
F.N.B. CORPORATION 2
<PAGE> 4
observing the extent of that commitment are encouraged to visit and tour the
facility and shake hands with the Personal Bankers. They'll be glad to greet
you.
Physical improvements during 1997 were not limited to the new headquarters. In
Erie County, where First National Bank of Pennsylvania is aggressively capturing
a greater share of a vital and competitive market, the Bank opened a new
regional headquarters building and added two new branch offices. Other northern
affiliates, Reeves Bank, Metropolitan National Bank, First County Bank, N.A. and
Regency Finance Company added or extensively renovated existing offices. In
Florida, where First National Bank of Naples dedicated a modern new branch and
administrative offices at Pelican Bay, other affiliates were busy upgrading and
improving facilities.
POSITIONING THE PEOPLE
In order for a company that places as much emphasis on personal customer service
as we do to succeed, it must recruit and retain skilled and dedicated personnel
to move the Corporation forward. From the front-line teller to the back-room
bookkeeper, from the seasoned branch manager to the young management trainee,
our talented team of Personal Bankers strives not only to satisfy the needs of
the individual customer, but to exceed them--each and every day.
While hundreds of associates made meaningful contributions to the
most-successful year ever--and their diligent efforts are applauded--the Board
of Directors has tapped two of the very best to help chart the Corporation's
future course. At its meeting on January 19, 1998, F.N.B. Directors elected
Stephen J. Gurgovits to serve as Vice Chairman of the Board and Gary L. Tice to
be President and Chief Operating Officer. Continuing to work closely with Steve,
Gary and me as valuable members of the corporate Administrative Committee are
Executive Vice President William J. Rundorff and Vice President and Chief
Financial Officer John D. Waters.
Before closing, a few words about the content of the 1997 Annual Report. The
book is designed to be reader-friendly. The first section is devoted to brief
articles about each of the affiliates, focusing on the personality and
performance of the top executives. Those more interested in numerical results
will find the 1997 Financial Review conveniently located in a pocket inside the
back cover. Please take time to read both sections. They're interesting and
informative.
In closing, the other Directors join me in recognizing Dr. George Lowe upon his
retirement from the F.N.B. Board. Thanks to the efforts of many, including Dr.
Lowe, last year was a great year. We genuinely believe this year also holds much
promise. On behalf of all of us at F.N.B., we thank you for your continued
interest and support.
Sincerely,
/s/ PETER MORTENSEN
--------------------------
PETER MORTENSEN
Chairman & Chief Executive Officer
March 2, 1998
[PHOTO]
Left to Right: GARY L. TICE, President and Chief Operating Officer; JOHN D.
WATERS, Vice President and Chief Financial Officer; WILLIAM J. RUNDORFF,
Executive Vice President; and STEPHEN J. GURGOVITS, Vice Chairman of the Board.
F.N.B. CORPORATION 3
<PAGE> 5
AFFILIATE MILESTONES
FIRST NATIONAL BANK OF PENNSYLVANIA
* Dedicated new $7.5 million headquarters building
* Surpassed $1.1 billion in assets
* Opened three new offices in Erie County
FIRST NATIONAL BANK OF NAPLES
* Grew to nearly $600 million in assets
* Affiliated with Mercantile Bank of Southwest Florida
* Opened new office at Pelican Bay
CAPE CORAL NATIONAL BANK
* Surpassed $250 million in assets
* Affiliated with First National Bank of Southwest Florida
METROPOLITAN NATIONAL BANK
* Completed transition to a full-service commercial bank
* Opened a new office in Howland, Ohio
REEVES BANK
* Received Beaver Area Heritage Foundation award for new headquarters office
restoration
* Relocated Northern Lights office to improved facility
WEST COAST BANK
* Offers on-line Internet banking service
* Exceeded $100 million in assets
INDIAN ROCKS NATIONAL BANK
* Became an affiliate of F.N.B. Corporation
* Total assets reached $100 million
FIRST NATIONAL BANK OF FORT MYERS
* Grew to more than $80 million in assets
FIRST COUNTY BANK, N.A.
* Announced plans to open new office in Mentor, Ohio
REGENCY FINANCE COMPANY
* Total assets exceeded $90 million
CUSTOMER SERVICE CENTER
* Processed nearly 44 million transactions
[PHOTO]
FIRST NATIONAL BANK OF PENNSYLVANIA HEADQUARTERS IN HERMITAGE, PA, DEDICATED
OCTOBER 29, 1997.
F.N.B. CORPORATION 4
<PAGE> 6
F.N.B. CORPORATION AND AFFILIATES
MARKET AREAS
[MAPS]
[SYMBOL]
THE PROGRESS SYMBOL
F.N.B. Corporation is recognized by a geometric form we call the Progress
Symbol. Rendered here in two-dimensional form, it appears on the logo of some of
our affiliate companies and can be seen in the form of a three-dimensional,
dynamic metal sculpture located on the grounds of our corporate headquarters at
One F.N.B. Boulevard in Hermitage, Pennsylvania. Its form captures the essence
of upward mobility, expansion, growth, and most importantly --progress--to which
F.N.B. Corporation continuously aspires.
THE CORPORATION'S MISSION
F.N.B. Corporation is a growth company. We are an affiliation of successful
community banks that seeks to provide high quality banking services to
individual and business customers in a manner that is consistent with our
philosophy of personal banking and our commitment to maximizing shareholder
value. To achieve this commitment we will attract and retain a professional
staff that is dedicated to exceptional customer satisfaction and superior
financial performance.
F.N.B. CORPORATION 5
<PAGE> 7
FIRST NATIONAL BANK OF PENNSYLVANIA
A VISIT FROM TOMORROW'S CUSTOMERS
FIRST NATIONAL BANK OF PENNSYLVANIA IS A COMMUNITY BANK SERVING CUSTOMERS
THROUGH 34 OFFICES IN SEVEN COUNTIES OF WESTERN PENNSYLVANIA AND EASTERN OHIO.
ASSETS: $1.1 BILLION. DEPOSITS: $962 MILLION.
While it's true that most customers have come to think of First National Bank of
Pennsylvania as Home of the Personal Bankers, what they may not realize is where
that special feeling originates.
It starts at the top with Steve Gurgovits. As President and Chief Executive
Officer of F.N.B. Corporation's lead bank, Steve has all the right ingredients
to manage a $1.1 billion institution. Spend 15 minutes with him and you'll find
he's bright, articulate, wise, can balance his own checkbook and works hard at a
job he loves.
But in today's competitive banking environment, it takes something extra to be a
success. After 36 years at the Bank, Steve has a knack of recognizing an
opportunity that may not immediately impact the Bank's earnings statement, and
speaks volumes about his ability to lead a team of dedicated Personal Bankers.
Last year when the Bank's new headquarters building was under construction in
Hermitage, Mrs. Mild's second grade class at nearby Artman Elementary School
took an interest in the project. Each week Mrs. Mild would discuss the emerging
structure's progress with her pupils. And, when the building was completed in
October, she wrote Steve and asked if she and her class could come for a visit.
Steve said sure. So, on a cold day in November, he took time out from running
the bank to host the teacher and her 26 students in the sixth-floor boardroom.
Fielding questions for 30 minutes from a room full of seven-year-olds, Steve's
natural ability to inform and entertain brought smiles all around.
After taking his visitors on a tour of the building, Mrs. Mild's pupils
presented Steve with a multicolored banner they had colored, proclaiming
"Welcome to Our Community."
Ask some bankers about their most-rewarding times and they may tell you about
the million-dollar loan or the municipal bond deal. Ask Steve Gurgovits, and
he'll recall the day Mrs. Mild's class came for a visit.
[PHOTO}
STEVE GURGOVITS, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF FIRST NATIONAL BANK OF
PENNSYLVANIA, VISITS WITH MRS. MILD AND HER SECOND-GRADE CLASS FROM ARTMAN
ELEMENTARY SCHOOL.
F.N.B. CORPORATION 6
<PAGE> 8
REEVES BANK
GIVING PARENTS AND CHILDREN A HELPING HAND
REEVES BANK IS A COMMUNITY BANK SERVING CUSTOMERS THROUGH NINE OFFICES IN THREE
COUNTIES OF WESTERN PENNSYLVANIA. ASSETS: $147 MILLION. DEPOSITS: $134 MILLION.
You wouldn't expect it from a bank president, but Bob Rimbey is a high-five kind
of guy--especially when it comes to helping protect children from abduction.
At Reeves Bank, fatherly Bob and his friendly staff often take time out from
their active financial workday to record the fingerprints of area children. The
purpose of this free community service is to give parents the peace of mind
knowing that if ever their children are missing, local authorities will have
proof of their child's identity.
When 18-month-old Nathan Teams and his mother arrived at a Reeves branch office
to have his fingerprints taken, Bob welcomed the chance to guide Nathan through
the process. During a talkative five-minute finger-to-ink-to-paper routine, the
banker and the boy became fast friends. When Nathan left the bank, there were
high-fives all around.
Since the Bank's founding in 1868, customers have come to expect this kind of
value-added service from the caring folks at Reeves Bank. Their slogan, Real
People Banking, says a lot about how Bob and his associates not only conduct
business, but conduct their everyday lives.
What does Real People Banking mean? It means customers are friends. Neighbors
are important. Flexibility and responsiveness are still a part of the deal.
Nathan, give me five!
[PHOTO]
BOB RIMBEY, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF REEVES BANK, HELPS
18-MONTH-OLD NATHAN TEAMS HAVE HIS FINGERPRINTS TAKEN AT A COMMUNITY BANK
OFFICE.
F.N.B. CORPORATION 7
<PAGE> 9
FIRST NATIONAL BANK OF NAPLES
THE GOLDEN RULE OF CUSTOMER SERVICE
FIRST NATIONAL BANK OF NAPLES IS A COMMUNITY BANK SERVING CUSTOMERS THROUGH NINE
OFFICES IN COLLIER COUNTY, FLORIDA. ASSETS: $585 MILLION. DEPOSITS: $459
MILLION.
One thing Garrett Richter likes more than talking about customer service is
actually serving the customer.
This quality-service-driven President and Chief Executive Officer of First
National Bank of Naples, Florida conducts business in one of the
fastest-growing, most-affluent markets in the nation using his own special
Golden Rule of Banking: Treat the customer the way you would like to be
treated--and use your imagination.
To prove his point, he isn't shy about inviting new customers or welcoming
existing ones into his Bank. The sign outside the Goodlette Road office boasts,
"HOME OF FIRST-CLASS SERVICE."
Upon entering the lobby of any First National Bank of Naples office, the first
thing you see is a plateful of cookies and a pitcherful of punch. Special
occasion? No, just the Bank's way of making their guests feel at home. After
enjoying a little light refreshment, visitors are assisted by friendly employees
who go out of their way to make sure each individual banking experience is an
exceptional one. Customers are greeted by name. It adds up to a truly
first-class experience.
Twice a month, visitors may notice even broader smiles on employee faces. Why?
Because every payday each Bank employee receives a paycheck, a firm handshake
and a personal "thank you for doing a great job," from the Bank President.
It all goes back to his Golden Rule. Garrett believes in treating his employees
the way he wants them to treat their customers.
By the way, the next time you are in Naples, Garrett invites you to stop for
some cookies and punch.
[PHOTO]
GARRETT RICHTER, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF FIRST NATIONAL BANK OF
NAPLES, PRESENTS PERSONAL BANKER LUPITA ZILLINGER WITH HER PAYCHECK AND SAYS
"THANK YOU FOR DOING A GREAT JOB."
F.N.B. CORPORATION 8
<PAGE> 10
CAPE CORAL NATIONAL BANK
SUPPLYING CAPITAL FOR ECONOMIC GROWTH
CAPE CORAL NATIONAL BANK IS A COMMUNITY BANK SERVING CUSTOMERS THROUGH FOUR
OFFICES IN CAPE CORAL, FLORIDA. ASSETS: $252 MILLION. DEPOSITS: $227 MILLION.
When Dave Gomer arrived in tropical Cape Coral, the town's population stood at
1,500, not including pelicans. There was one traffic light, and it always seemed
to be yellow, indicating a cautious, go-slow attitude concerning future growth.
Today, 33 years later, nothing stands still in bustling Cape Coral, including
the pelicans. At night, the traffic lights on Del Prado Boulevard are all green,
signaling economic vitality, an exploding population and exciting growth
potential.
As for Dave Gomer, now President and Chief Executive Officer of Cape Coral
National Bank, he's on the move, too. He's on his way to Palmetto Pines Country
Club to represent the Bank at a groundbreaking ceremony for a new $2.5 million
clubhouse. You see, the club is one of Dave's best customers.
He recalls financing the club's original building project back in 1969, when he
was a young commercial lender. And while the club's membership has grown along
with Cape Coral and all of southwest Florida, community banker Dave Gomer
remains the same reliable, friendly banker his customers can count on.
He takes great pride in having played an important part in the economic growth
of Florida's 14th largest city, helping to provide the capital needed to create
new businesses, generate stable good-paying jobs and encourage civic
improvement.
Cape Coral's population is expected to top 100,000 by the year 2000. If there's
a ceremony marking the occasion, Dave Gomer may be too busy to attend.
[PHOTO]
DAVE GOMER (CENTER), PRESIDENT AND CHIEF EXECUTIVE OFFICER OF CAPE CORAL
NATIONAL BANK, LOOKS OVER NEW CLUBHOUSE PLANS WITH CAPE CORAL MAYOR ROGER BUTLER
AND PALMETTO PINES BUILDING COMMITTEE CHAIRMAN BOB CAVANAUGH.
F.N.B. CORPORATION 9
<PAGE> 11
WEST COAST BANK
PRESIDENT HAS MILES TO GO BEFORE HE SLEEPS
WEST COAST BANK IS A COMMUNITY BANK SERVING CUSTOMERS AT TWO LOCATIONS IN
SARASOTA, FLORIDA. ASSETS: $107 MILLION. DEPOSITS: $91 MILLION.
Jody Hudgins is always on the run. During the work week, on-the-run is what this
energetic, personable community bank President is all about. More often than
not, he spends 14-hour days meeting with current and future customers,
participating in civic activities, coaching young associates, making loans,
attracting deposits, surfing the Net, skipping a meal.
After hours and on weekends, he's still running. Only now he's in training for
his next foot race. During 1997, Jody found enough time to grow his Bank by more
than 35 percent--and to run in and finish five national marathons, after putting
in more than 3,000 miles of roadwork in preparation.
As President and Chief Executive Officer of West Coast Bank in Sarasota,
Florida, Jody knows the value of staying more than one step ahead of the
competition. His always-on-the-run style of personally providing customers with
the highest quality of hands-on banking service resulted in West Coast being
selected to provide the financing for the brand new Surgery Center of Sarasota.
The state-of-the-art, out-patient complex consisting of operating suites and
recovery rooms is filled with the latest in high-tech, sophisticated equipment
and staffed by a team of experienced talented physicians. Surgery at the Center
will mean fewer hours, even days of hospitalization for cost-conscious community
residents in need of convenient professional medical care.
The secret to Jody's success with the Bank and on the road: He simply out runs
the big city competition.
[PHOTO]
JODY HUDGINS, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF WEST COAST BANK, MEETS
WITH MARY ROGERS, ADMINISTRATOR, IN A SURGERY CENTER OF SARASOTA OPERATING
SUITE.
F.N.B. CORPORATION 10
<PAGE> 12
INDIAN ROCKS NATIONAL BANK
YOUNG SAVERS GROW INTO CUSTOMERS
INDIAN ROCKS NATIONAL BANK IS A COMMUNITY BANK SERVING CUSTOMERS AT THREE
LOCATIONS IN PINELLAS COUNTY, FLORIDA. ASSETS: $100 MILLION. DEPOSITS: $86
MILLION.
[PHOTO]
ROBBIE GEORGE, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF INDIAN ROCKS NATIONAL
BANK, TEACHES PUPILS THE VALUE OF REGULAR SAVINGS.
Ask Robbie George what he likes most about being President and Chief Executive
Officer of Indian Rocks National Bank and he'll tell you: helping people.
For example, he'll smile and mention making mortgage loans to first-time home
buyers, seeing small regular savings-account deposits grow into college tuition
payments, watching a mom-and-pop business customer prosper and promoting a
promising young commercial lender to bank officer status.
As an involved community banker, Robbie has more than one success story to
illustrate each of those mutually satisfying events. But, if you really want to
see his face light up, ask him about the children who attend school across the
street from his office in Largo, Florida.
He'll tell you how several years ago Indian Rocks National Bank established a
program to award pupils at three local schools for outstanding academic
achievement. Twice a year, at the end of each semester, Robbie visits each
school to present silver dollars to Honor Roll students and two-dollar bills to
Principal List pupils. Afterward, the Bank sets up a special teller station in a
corner of the library where pupils can learn the value of saving their
well-earned scholastic dollars.
And now, from time to time when those early savers appear in the bank lobby as
appreciative, grown-up Indian Rocks National Bank customers--well, you should
see the smile on Robbie's face.
F.N.B. CORPORATION 11
<PAGE> 13
FIRST NATIONAL BANK OF FORT MYERS
WHERE LEADERSHIP COUNTS
FIRST NATIONAL BANK OF FORT MYERS IS A COMMUNITY BANK SERVING CUSTOMERS AT TWO
LOCATIONS IN FORT MYERS, FLORIDA. ASSETS: $84 MILLION. DEPOSITS: $78 MILLION.
Look up the word, "leadership," in the dictionary and you'll find, "The capacity
to be a leader; the ability to lead," as definitions. Look up Mark Morris at
First National Bank of Fort Myers--and you'll find a leader.
The Bank's new President and Chief Executive Officer has proven he has what it
takes to lead all his life. A Fort Myers native, he's captained a
super-competitive scholastic swimming team, been a high-achieving big city
banker and chaired several successful charitable drives.
But what about leadership when it comes to running a relatively small, yet
rapidly growing community bank in one of the nation's best business climates?
Mark believes it takes extraordinary people skills, like being an exceptionally
good listener, taking personal ownership of service problems and always honoring
your commitments.
One of the Bank's best commercial customers is Rolsafe, a world-class
manufacturer of customized protective awnings, screens and shutters. Just as
area residents reduce their risk of storm damage by installing Rolsafe products,
Mark reduces the Bank's risk in making loans by personally getting to know his
customers. He's toured the Rolsafe plant in Fort Myers. He's sat down and
listened to the owners. He knows their banking needs.
Mark's style of leadership: Know your customers; communicate with them
regularly; over perform on promises.
[PHOTO]
MARK MORRIS, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF FIRST NATIONAL BANK OF
FORT MYERS, VISITS WITH SALES MANAGER CLARK JENSEN AT THE ROLSAFE MANUFACTURING
FACILITY.
F.N.B. CORPORATION 12
<PAGE> 14
METROPOLITAN NATIONAL BANK
NEW NAME, NEW LEADER, NEW PLAN
METROPOLITAN NATIONAL BANK IS A COMMUNITY BANK SERVING CUSTOMERS THROUGH EIGHT
OFFICES IN TWO COUNTIES OF EASTERN OHIO. ASSETS: $242 MILLION. DEPOSITS: $219
MILLION.
When can-do Gary Roberts arrived in Youngstown, Ohio, in September, he came
armed with a three-word strategic plan: Serve more customers.
Since then, the super-confident new President and Chief Executive Officer has
been busy re-energizing Metropolitan National Bank, lending his out-going style
of hands-on leadership to several community development initiatives and
personally meeting with many of the Bank's customers.
A self-described "growth-oriented guy," Gary sincerely believes that by
providing the services that customers need to prosper, the Bank ultimately
shares in their success. Partner with your customers and they'll grow the Bank
for you.
One of Gary's favorite partners is Donna McGrath, President of Youngstown-based
Wee Care Day Care. Donna has her eyes firmly focused on growing her small chain
of profitable learning centers into a national franchise. Gary knows
Metropolitan National Bank has all the financial and personal resources
necessary to help her accomplish that goal.
Asked by a reporter how he would like to be known, Gary quickly responded, "As a
man who is fair, equitable and trustworthy, and who has a legitimate passion for
my wife, my family and for my company--you'd better put it in that order--and
that he worked to help his community."
Gary Roberts--a community banker with a plan.
[PHOTO]
GARY ROBERTS, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF METROPOLITAN NATIONAL
BANK, WORKS WITH DONNA MCGRATH, PRESIDENT OF WEE CARE DAY CARE ON DEVELOPING A
BUSINESS PLAN FOR HER GROWING CHAIN OF LEARNING CENTERS.
F.N.B. CORPORATION 13
<PAGE> 15
FIRST COUNTY BANK, N.A.
A SMALL COMMUNITY BANK WORTH GROWING
FIRST COUNTY BANK, N.A. IS A COMMUNITY BANK SERVING CUSTOMERS FROM TWO LOCATIONS
IN NORTHEAST OHIO. ASSETS: $50 MILLION. DEPOSITS: $46 MILLION.
A successful community bank is grown, not made. It attracts customers through
delivering personalized service, not by offering the lowest lending rates. When
business is transacted, the handshake comes before the signature. Satisfied
customers are members of the bank's sales team. Small business accounts become
corporate clients. The bank grows.
If ever there was a community bank positioned for growth, then it's First County
Bank, N.A. in Chardon, Ohio. Nestled in the rural countryside about 40 miles
east of Cleveland, First County is poised to grow and prosper as emerging
entrepreneurs and new suburban businesses discover a Bank big enough to meet
their needs yet small enough to share their financial concerns.
Greg Pike, President and Chief Executive Officer of First County Bank, N.A., is
a former big city banker who is right at home in Chardon. One of his customers
which is growing along with the Bank is the Corinne Dolan Alzheimer Center at
Heather Hill. Recognized a world leader in Alzheimer care, the Center is the
premier facility designed specifically to meet the needs of those affected by
the disease.
Greg takes great pride in knowing his personal banking relationship with Heather
Hill President Robert Harr contributes to the ultimate well-being of so many
special people. Greg understands the unique mission of the Center. Robert knows
he can count on Greg and First County to exceed his service expectations--and
those of his residents.
At First County Bank, N.A., Greg Pike and his staff believe in doing
relationships, not just doing business. Just ask Robert Harr.
[PHOTO]
GREG PIKE (RIGHT), PRESIDENT AND CHIEF EXECUTIVE OFFICER OF FIRST COUNTY BANK,
N.A. CONFERS WITH PRESIDENT ROBERT HARR INSIDE THE CORINNE DOLAN ALZHEIMER
CENTER AT HEATHER HILL.
F.N.B. CORPORATION 14
<PAGE> 16
REGENCY FINANCE COMPANY
WHERE CUSTOMERS KNOW WHAT TO EXPECT
Since 1974, when Regency Finance Company was formed, President and Chief
Executive Officer Tom Tuggle has seen many changes in the consumer lending
business. Home equity loans have replaced traditional second mortgages, many
borrowers now use credit cards to purchase big ticket items and more and more
transactions are executed electronically.
The one constant in this era of change? The typical, "I'd rather not deal with a
bank," customer. He's borrowing from Regency Finance Company for the same reason
Mom or Dad did two decades ago: He expects and receives a hassle-free, timely
response from a local community lender he knows and trusts.
At any of the 35 Regency offices in three states, a loan request received by 9
a.m. is approved by noon and the customer receives a check by 3 p.m. The key to
this efficient approval process is that the office manager has retained lending
authority.
How is Tom able to ensure such consistent performance throughout his office
network? He believes there are six keys to managing this company: Hire and train
the right people; develop a sales culture; keep the business simple; motivate
your associates; focus on the customer; learn from your mistakes.
CUSTOMER SERVICE CENTER
DELIVERING FOR THE AFFILIATES
The name says it all. Just as F.N.B. affiliate customers have come to expect the
highest level of personal customer service, affiliate employees know they can
count on the Customer Service Center to exceed their operational expectations.
From account reconcilement to data processing, from mail delivery to computer
programing, the Customer Service Center provides the efficient behind-the-scenes
support necessary to allow the front-line bankers to focus on serving their
customers.
With more than 190 dedicated employees at two locations in Pennsylvania and
Florida, the Customer Service Center works round-the-clock to earn its
reputation as a valuable resource to its customers--the 10 affiliates of F.N.B.
Corporation.
F.N.B. CORPORATION 15
<PAGE> 17
F.N.B. CORPORATION AND AFFILIATES
F.N.B. CORPORATION
OFFICERS
PETER MORTENSEN
Chairman & Chief Executive Officer
STEPHEN J. GURGOVITS
Vice Chairman
GARY L. TICE
President & Chief Operating Officer
WILLIAM J. RUNDORFF
Executive Vice President
JOHN D. WATERS
Vice President & Chief Financial Officer
DAVID B. MOGLE
Secretary & Treasurer
DIRECTORS
W. RICHARD BLACKWOOD
President,
Harry Blackwood, Inc.
WILLIAM B. CAMPBELL
Retired Business Executive
CHARLES T. CRICKS
Executive Vice President & Chief
Operating Officer,
Health Care Solutions, Inc.
HENRY M. EKKER
Attorney at Law,
Partner of Ekker, Kuster & McConnell
THOMAS C. ELLIOTT
President & Treasurer,
Elliott Brothers Steel Co.
STEPHEN J. GURGOVITS
Vice Chairman,
F.N.B. Corporation;
President & Chief Executive Officer,
First National Bank of Pennsylvania
THOMAS W. HODGE
Retired Business Executive
JAMES S. LINDSAY
Licensed Real Estate Broker,
The Lindsay Company;
Managing Partner,
Dor-J's Partnership
PAUL P. LYNCH
Attorney at Law,
President & Chief Executive Officer,
Lynch Brothers Investments, Inc.
EDWARD J. MACE
Edward J. Mace,
Certified Public Accountant;
Chief Operating Officer,
Ribek Corporation
PETER MORTENSEN
Chairman & Chief Executive Officer,
F.N.B. Corporation;
Chairman,
First National Bank of Pennsylvania
ROBERT S. MOSS
Chairman,
Associated Contractors of
Conneaut Lake, Inc.
RICHARD C. MYERS
Retired Business Executive
JOHN R. PERKINS
Chairman Emeritus of the Board &
Director, Metropolitan National Bank
WILLIAM A. QUINN
Retired Executive Vice President &
Cashier,
First National Bank of Pennsylvania
GEORGE A. SEEDS
Retired Business Executive
WILLIAM J. STRIMBU
President,
Nick Strimbu, Inc.
GARY L. TICE
President & Chief Operating Officer,
F.N.B. Corporation;
Chairman,
First National Bank of Naples
ARCHIE O. WALLACE
Attorney at Law,
Partner of Rowley, Wallace, Keck,
Karson & St. John
JOSEPH M. WALTON
Chairman & Chief Executive Officer,
Jamestown Paint Co.
JAMES T. WELLER
Chairman,
Liberty Steel Products, Inc.
ERIC J. WERNER
Chief Administrative Officer, General
Counsel & Secretary,
Werner Co.
R. BENJAMIN WILEY
Chief Executive Officer,
Greater Erie Community Action
Committee
DONNA C. WINNER
Co-owner,
The Radisson, Tara--A Country Inn,
The Winner, Tiffany's
DIRECTORS EMERITUS
CHARLES C. HAMILTON
GEORGE E. LOWE, D.D.S.
GENERAL COUNSEL
COHEN & GRIGSBY, P.C.
2900 CNG TOWER
625 LIBERTY AVENUE
PITTSBURGH, PA
F.N.B. CORPORATION 16
<PAGE> 18
F.N.B. CORPORATION AND AFFILIATES
FIRST NATIONAL
BANK OF PENNSYLVANIA
DIRECTORS
WILLIAM B. CAMPBELL
CHARLES T. CRICKS
HENRY M. EKKER
STEPHEN J. GURGOVITS
President & Chief Executive Officer
THOMAS W. HODGE
KENNETH R. JAMES
JAMES E. KNARR, DMD
PAUL P. LYNCH
PETER MORTENSEN
Chairman
ROBERT S. MOSS
WILLIAM A. QUINN
WILLIAM J. STRIMBU
ARCHIE O. WALLACE
JOSEPH M. WALTON
JAMES T. WELLER
ERIC J. WERNER
R. BENJAMIN WILEY
DONNA C. WINNER
FIRST NATIONAL
BANK OF NAPLES
DIRECTORS
WILLIAM B. CAMPBELL
C.C. COGHILL
RICHARD L. JAEGER
JAMES S. LINDSAY
EDWARD J. MACE
DONALD W. MAJOR
PETER MORTENSEN
RICHARD C. MYERS
ARLENE M. NICHOLS
JOSEPH R. PELLETIER
ANITA M. PITTMAN
DR. JAMES R. REHAK
GARRETT S. RICHTER
President & Chief Executive Officer
DAVID H. SCHAEFFER
GARY L. TICE
Chairman
MICHAEL E. WATKINS
LARRY A. WYNN
CAPE CORAL
NATIONAL BANK
DIRECTORS
ROBERT C. ADAMSKI
ROBERT J. AVERY
ANDREW A. BARNETTE
RICHARD D. BARTON, SR.
JO ELLEN BEAUVOIS
C.C. COGHILL
JAMES L. COTTRELL
Chairman
DAVID W. GOMER
President & Chief Executive Officer
DR. JOSEPH HOWARD
ROBERT E. MCCORMACK
PAUL W. SANBORN
H. FRANK SIMONDS
GARY L. TICE
F.N.B. CORPORATION 17
<PAGE> 19
F.N.B. CORPORATION AND AFFILIATES
METROPOLITAN
NATIONAL BANK
DIRECTORS
RYERSON W. DALTON
SUZANNE FLEMING
C. CLARK HAMMITT
JAMES R. HARPSTER
LAWRENCE J. HESELOV
PETER MORTENSEN
JOHN M. NEWMAN, ATTORNEY
JOHN R. PERKINS
GARY J. ROBERTS
President & Chief Executive Officer
WILLIAM J. RUNDORFF
SAMUEL K. SOLLENBERGER
Chairman
DIRECTORS EMERITUS
DAVID R. JONES
GEORGE A. SEEDS
REEVES BANK
DIRECTORS
W. RICHARD BLACKWOOD
JOAN H. KLEIN
JOHN J. KNOBLOCH
HAROLD C. KORNMAN
RALPH LINARELLI, SR.
ROBERT A. RIMBEY
President & Chief Executive Officer
JOHN W. ROSE
ALLEN F. SOBOL
DONALD W. ZAHN
WEST COAST BANK
DIRECTORS
ROBERT P. BROWN
ROBERT A. DAVIDSON
PAT F. FERLISE
JOSEPH D. HUDGINS
President & Chief Executive Officer
JAMES H. LANIER, D.V.M.
THOMAS E. MITCHELL
JOHN W. REEDER, M.D.
H. MONROE WARRINGTON
INDIAN ROCKS
NATIONAL BANK
DIRECTORS
HAROLD M. WARD, D.O.
Chairman
CHARLES R. ROBERTS
ROBERT C. GEORGE
President & Chief Executive Officer
WILLIAM S. JONASSEN
DUKE L. MITCHELL
CLOYD A. PETRO
J. ERIC TAYLOR, JR., D.O.
GARY L. TICE
ROBERT T. TONG
O. LEE WASSON
DIRECTOR EMERITUS
ERNST A. UPMEYER
FIRST NATIONAL BANK
OF FORT MYERS
DIRECTORS
J. KEITH ARNOLD
C. C. COGHILL
THOMAS R. CRONIN
Chairman
MICHAEL P. GEML
JEFFREY C. LEDWARD
JAMES B. MCMENAMY
MARK L. MORRIS
President & Chief Executive Officer
GARY L. TICE
STEPHEN R. ZELLNER, M.D.
F.N.B. CORPORATION 18
<PAGE> 20
F.N.B. CORPORATION AND AFFILIATES
FIRST COUNTY BANK, N.A.
DIRECTORS
JOHN A. BOND
DAVID J. EARDLEY
HOWARD E. ERNST
D. JAMES HENDLEY
DAVID B. MOGLE
GREGORY S. PIKE
President & Chief Executive Officer
TERENCE C. PROFUGHI
WILLIAM G. RIMES
JOHN W. ROSE
WILLIAM J. SKIDMORE
DIRECTOR EMERITUS
ANDERSON A. ALLYN, SR.
REGENCY
FINANCE COMPANY
DIRECTORS
STEPHEN J. GURGOVITS
RAYMOND J. HEATH
RUSSELL B. KLASEN
VICTOR C. LEAP
PETER MORTENSEN
Chairman
JOHN M. NEWMAN
ROBERT T. RAWL
GARY SOBOTAK
DOUGLAS J. SOLOCK
THOMAS M. TUGGLE
President & Chief Executive Officer
CUSTOMER SERVICE CENTER
DIRECTORS
STEPHEN J. GURGOVITS
ROBERT C. GEORGE
DAVID W. GOMER
MARK L. MORRIS
GREGORY S. PIKE
GARRETT S. RICHTER
ROBERT A. RIMBEY
GARY J. ROBERTS
GARY L. TICE
Chairman
THOMAS M. TUGGLE
DAVID A. TULLIS
President & Chief Executive Officer
F.N.B. AFFILIATE SERVICES
OFFICERS
GEORGE D. HAGI
Vice President--Regulatory Relations
JAMES G. ORIE
Vice President--Corporate Counsel
ROBERT T. REICHERT
Vice President--Controller
ROBERT M. WALLACE
Vice President--Personnel
LINDA R. WILEY
Vice President--Risk Management
JAMES R. FARMER
Auditor
EDWARD H. SEHON
Manager of Public Affairs
BERNICE SPONSELLER
Manager of Shareholder Services
F.N.B. CORPORATION 19
<PAGE> 21
SHAREHOLDER INFORMATION
EXECUTIVE OFFICES
F.N.B. Corporation
One F.N.B. Boulevard
Hermitage, PA 16148
Phone: (724) 981-6000
SHAREHOLDER SERVICES AND STOCK TRANSFER AGENT
F.N.B. Shareholder Services
P.O. Box 11929
Naples, FL 34101-1929
Phone: (888) 441-4362
VOLUNTARY DIVIDEND REINVESTMENT
AND DIRECT STOCK PURCHASE PLAN
Shareholders as well as non-shareholders may participate in the Dividend
Reinvestment and Direct Stock Purchase Plan. The Plan provides that additional
shares of common stock may be purchased with reinvested dividends and voluntary
cash payments without broker fees. A prospectus and an enrollment card may be
obtained upon request to Shareholder Services.
FORM 10-K AND 10-Q AVAILABILITY
Copies of the Corporation's Annual Report on Form 10-K and Quarterly Reports on
Form 10-Q filed with the Securities and Exchange Commission will be furnished to
any shareholder, free of charge, upon request to Shareholder Services.
INSTITUTIONAL INVESTMENT AND ANALYST INQUIRIES
Institutional investors, analysts or individuals desiring financial information
or reports may contact: John D. Waters, Vice President and Chief Financial
Officer, F.N.B. Corporation, One F.N.B. Boulevard, Hermitage, PA 16148. Phone:
(724) 983-3440.
NEWS MEDIA INQUIRIES
Media representatives and others seeking public information may contact: Edward
H. Sehon, Manager of Public Affairs, One F.N.B. Boulevard, Hermitage, PA 16148.
Phone: (724) 983-4841.
ANNUAL MEETING
The annual meeting of shareholders will be held at 4:00 p.m. on Wednesday, April
29, 1998 at the F.N.B. Data and Accounting Center, Corner of East State Street
and South Keel Ridge Road, Hermitage, PA 16148.
F.N.B. CORPORATION 20
<PAGE> 22
[COVER]
[LOGO] F.N.B.
CORPORATION
...........................................................
One F.N.B. Boulevard
Hermitage, PA 16148
<PAGE> 23
[LOGO] F.N.B.
CORPORATION
...........................................................
1997 FINANCIAL REVIEW
[LOGO]
TABLE OF CONTENTS
1 Consolidated Balance Sheet
2 Consolidated Income Statement
3 Consolidated Statement of Stockholders' Equity
4 Consolidated Statement of Cash Flows
5 Notes to Consolidated Financial Statements
25 Report of Independent Auditors
26 Slected Financial Data
27 Quarterly Earnings Summary
28 Management's Discussion
40 Market for Common Stock and Related
Shareholder Matters
<PAGE> 24
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Dollars in thousands, except par values
<TABLE>
<CAPTION>
December 31 1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 87,869 $ 107,476
Interest bearing deposits with banks 2,653 1,334
Federal funds sold 8,350 6,425
Mortgage loans held for sale 4,217 9,610
Securities available for sale 432,327 322,068
Securities held to maturity (fair value of
$123,164 and $173,677) 122,938 174,551
Loans, net of unearned income of $20,344 and $23,763 1,885,482 1,728,132
Allowance for loan losses (27,268) (27,800)
---------- ----------
NET LOANS 1,858,214 1,700,332
---------- ----------
Premises and equipment 63,343 46,714
Other assets 69,583 49,897
---------- ----------
TOTAL ASSETS $2,649,494 $2,418,407
========== ==========
LIABILITIES
Deposits:
Non-interest bearing $ 256,542 $ 231,264
Interest bearing 1,936,171 1,782,624
---------- ----------
TOTAL DEPOSITS 2,192,713 2,013,888
---------- ----------
Other liabilities 36,795 34,825
Short-term borrowings 122,104 112,230
Long-term debt 67,246 58,179
---------- ----------
TOTAL LIABILITIES 2,418,858 2,219,122
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock - $10 par value
Authorized - 20,000,000 shares
Issued - 287,500 and 352,531 shares
Aggregate liquidation value - $7,188 and $8,813 2,875 3,525
Common stock - $2 par value
Authorized - 100,000,000 shares
Issued - 14,748,425 and 13,305,369 shares 29,497 26,611
Additional paid-in capital 119,241 101,445
Retained earnings 77,421 66,625
Net unrealized securities gains 5,230 2,566
Treasury stock - 113,592 and 62,723 shares at cost (3,628) (1,487)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 230,636 199,285
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,649,494 $2,418,407
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F.N.B. CORPORATION 1
<PAGE> 25
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $163,802 $154,962 $144,518
Securities:
Taxable 25,134 22,994 22,496
Non-taxable 2,228 2,261 1,939
Dividends 1,109 1,097 928
Other 3,235 2,269 2,631
-------- -------- --------
TOTAL INTEREST INCOME 195,508 183,583 172,512
-------- -------- --------
INTEREST EXPENSE
Deposits 74,684 69,447 66,128
Short-term borrowings 6,160 3,785 5,368
Long-term debt 3,634 4,384 3,258
TOTAL INTEREST EXPENSE 84,478 77,616 74,754
-------- -------- --------
NET INTEREST INCOME 111,030 105,967 97,758
Provision for loan losses 10,585 9,791 6,930
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 100,445 96,176 90,828
-------- -------- --------
NON-INTEREST INCOME
Insurance commissions and fees 3,983 4,116 4,284
Service charges 11,918 11,335 10,601
Trust 1,465 1,461 1,390
Gain on sale of securities 1,246 825 493
Gain on sale of loans 1,410 691 516
Other 3,091 1,979 1,931
-------- -------- --------
TOTAL NON-INTEREST INCOME 23,113 20,407 19,215
-------- -------- --------
123,558 116,583 110,043
-------- -------- --------
NON-INTEREST EXPENSES
Salaries and employee benefits 46,387 41,516 38,086
Net occupancy 6,863 6,775 6,660
Amortization of intangibles 1,584 1,047 1,246
Equipment 6,596 6,212 5,572
Deposit insurance 833 970 3,092
Recapitalization of Savings Association Insurance Fund 2,752
Promotional 2,217 2,568 3,197
Insurance claims paid 1,867 1,707 1,738
Other 21,861 23,264 19,073
-------- -------- --------
TOTAL NON-INTEREST EXPENSES 88,208 86,811 78,664
-------- -------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS 35,350 29,772 31,379
Income taxes 11,036 9,893 10,300
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS 24,314 19,879 21,079
Gain on sale of subsidiary and branches, net of tax of $4,743 8,809
-------- -------- --------
Net Income $ 33,123 $ 19,879 $ 21,079
======== ======== ========
Earnings Per Common Share
BASIC $ 2.30 $ 1.36 $ 1.45
======== ======== ========
DILUTED $ 2.18 $ 1.32 $ 1.41
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F.N.B. CORPORATION 2
<PAGE> 26
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
Net Employee
Additional Unrealized Stock
Preferred Common Paid-In Retained Securities Ownership Treasury
Stock Stock Capital Earnings Gains(Losses) Plan Stock
--------- ------- ---------- -------- -------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $4,563 $24,338 $ 84,164 $ 55,016 $ (535) $(141) $ (309)
Net income 21,079
Cash dividends declared:
Preferred stock (849)
Common stock $.33 per share (F.N.B.) and
$.20 per share (WCBI) (3,489)
Purchase of common stock (1,447)
Issuance of common stock 53 344 1,292
Stock dividend 930 7,132 (8,067)
Conversion of preferred stock (47) 85 502
Obligation under ESOP plan (248)
Change in net unrealized
securities gains (losses) 3,780
------ ------- -------- -------- ------- ----- -------
Balance at December 31, 1995 4,516 25,406 92,142 63,690 3,245 (389) (464)
Net income 19,879
Cash dividends declared:
Preferred stock (766)
Common stock $.60 per share (F.N.B.) and
$.23 per share (WCBI) (6,123)
Purchase of common stock (3,421)
Issuance (retirement) of common stock (54) (484) 2,398
Stock dividend 860 9,195 (10,055)
Conversion of preferred stock (991) 399 592
Obligation under ESOP plan 389
Change in net unrealized
securities gains (losses) (679)
------ ------- -------- -------- ------- ----- -------
Balance at December 31, 1996 3,525 26,611 101,445 66,625 2,566 0 (1,487)
Net income 33,123
Cash dividends declared:
Preferred stock (588)
Common stock $.63 per share (F.N.B.) and
$.12 per share (WCBI) (8,990)
Purchase of common stock (7,688)
Issuance of common stock 28 98 (520) 5,547
Issuance of common stock
for acquisition 1,260 2,240 4,177
Stock dividend 1,332 15,074 (16,406)
Conversion of preferred stock (650) 266 384
Change in net unrealized
securities gains (losses) 2,664
------ ------- -------- -------- ------- ----- -------
Balance at December 31, 1997 $2,875 $29,497 $119,241 $ 77,421 $5,230 $ 0 $(3,628)
====== ======= ======== ======== ====== ===== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F.N.B. CORPORATION 3
<PAGE> 27
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Dollars in thousands
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 33,123 $ 19,879 $ 21,079
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 6,875 6,022 6,374
Provision for loan losses 10,585 9,791 6,930
Provision for valuation allowance on other real
estate owned 540 664 100
Deferred taxes (1,321) (1,754) (700)
Gain on securities available for sale (1,246) (825) (493)
Gain on sale of loans (1,410) (691) (516)
Extraordinary gain on sale of subsidiary and
branches, net of tax (8,809)
Proceeds from sale of loans 96,543 53,359 54,385
Loans originated for sale (90,181) (46,258) (58,872)
Net change in:
Interest receivable (2,411) 1,355 (1,690)
Interest payable 1,577 642 1,866
Other, net 3,410 6,208 5,591
--------- --------- ---------
Net cash flows from operating activities 47,275 48,392 34,054
--------- --------- ---------
INVESTING ACTIVITIES
Net change in:
Interest bearing deposits with banks (1,341) 2,519 (833)
Federal funds sold 8,175 50,599 (39,608)
Loans (162,173) (189,703) (97,630)
Securities available for sale:
Purchases (254,454) (183,824) (129,320)
Sales 36,125 39,208 7,555
Maturities 143,079 105,848 86,961
Securities held to maturity:
Purchases (7,120) (41,862) (45,264)
Maturities 55,858 41,678 76,474
Increase in premises and equipment (18,451) (11,453) (7,054)
Net cash paid for mergers, acquisitions and divestiture (50,362)
--------- --------- ---------
Net cash flows from investing activities (250,664) (186,990) (148,719)
--------- --------- ---------
FINANCING ACTIVITIES
Net change in:
Non-interest bearing deposits, savings and NOW 104,502 96,447 534
Time deposits 83,387 21,296 146,893
Short-term borrowings (1,142) 38,729 (13,437)
Increase in long-term debt 39,010 32,899 9,274
Decrease in long-term debt (29,862) (25,504) (15,104)
Net acquisition of treasury stock (2,535) (1,560) 242
Cash dividends paid (9,578) (6,889) (4,343)
--------- --------- ---------
Net cash flows from financing activities 183,782 155,418 124,059
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (19,607) 16,820 9,394
Cash and Cash Equivalents At Beginning Of Year 107,476 90,656 81,262
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 87,869 $ 107,476 $ 90,656
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F.N.B. CORPORATION 4
<PAGE> 28
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS:
F.N.B. Corporation (F.N.B. or the Corporation) is a bank holding company
headquartered in Hermitage, Pennsylvania. As of January 31, 1998, it operated 9
banks through 73 offices and a consumer finance company through 35 offices in
Pennsylvania, Florida, Ohio and New York.
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. Certain reclassifications have been made to the prior
years' financial statements to conform to the current year's presentation.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
SECURITIES:
Debt securities are classified as held to maturity when management has the
positive intent and ability to hold securities to maturity. Securities held to
maturity are carried at amortized cost.
Debt securities not classified as held to maturity and marketable equity
securities are classified as available for sale. Securities available for sale
are carried at fair value with net unrealized securities gains (losses) reported
separately as a component of stockholders' equity, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net securities
gains (losses). The adjusted cost of specific securities sold is used to compute
gains or losses on sales.
Presently, the Corporation has no intention of establishing a trading
securities classification.
MORTGAGE LOANS HELD FOR SALE:
Mortgage loans held for sale are recorded at the lower of aggregate cost or
market value. Gain or loss on the sale of loans is included in non-interest
income.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES:
Loans are reported at their outstanding principal balance adjusted for any
charge-offs and any deferred fees or costs on originated loans.
Interest income on loans is accrued on the principal amount outstanding. It is
the Corporation's policy to discontinue interest accruals when principal or
interest is due and has remained unpaid for 90 days or more unless the loan is
both well secured and in the process of collection. When a loan is placed on
non-accrual status, unpaid interest credited to income in the current year is
reversed, and unpaid interest accrued in prior years is charged against the
allowance for loan losses. While on non-accrual, contractual interest payments
are applied against principal until the loan is restored to accrual status.
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. Loan origination fees and related costs
are deferred and recognized over the life of the loans as an adjustment of
yield.
The allowance for loan losses is based on management's evaluation of potential
losses in the loan portfolio, which includes an assessment of past experience,
current and estimated future economic conditions, known and inherent risks in
the loan portfolio, the estimated value of underlying collateral and industry
standards. Additions are made to the allowance through periodic provisions
charged to income and recovery of principal on loans previously charged off.
Losses of principal are charged to the allowance when the loss actually occurs
or when a determination is made that a loss is probable.
Impaired loans are identified and measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate, or
at the loan's observable market price or at the fair value of the collateral if
the loan is collateral dependent. If the recorded investment in the loan exceeds
the measure of fair value, a valuation allowance is established as a component
of the allowance for loan losses. Impaired loans consist of non-homogeneous
loans, which based on the evaluation of current information and events,
management has determined that it is probable that the Corporation will not be
able to collect
F.N.B. CORPORATION 5
<PAGE> 29
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
all amounts due according to the contractual terms of the loan agreement. The
Corporation evaluates all commercial and commercial real estate loans which have
been classified for regulatory reporting purposes, including non-accrual and
restructured loans, in determining impaired loans.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed generally on the straight-line method.
OTHER REAL ESTATE OWNED:
Assets acquired in settlement of indebtedness are included in other assets at
the lower of fair value minus estimated costs to sell or at the carrying amount
of the indebtedness. Subsequent write-downs and net direct operating expenses
attributable to such assets are included in other expenses.
AMORTIZATION OF INTANGIBLES:
Goodwill is being amortized over 15 years on the straight-line method and
core deposit intangibles are being amortized on accelerated methods over
various lives ranging from 10-17 years. The Corporation periodically evaluates
its goodwill and core deposit intangibles for impairment.
INCOME TAXES:
Income taxes are computed utilizing the liability method. Under this method
deferred taxes are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
PER SHARE AMOUNTS:
Earnings and cash dividends per share have been adjusted for common stock
dividends.
In 1997, the Financial Accounting Standards Board issued Statement No. 128
(FAS No. 128), "Earnings per Share." FAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. All earnings per share amounts have been restated to conform to the FAS
No. 128 requirements.
Basic earnings per common share is calculated by dividing net income, adjusted
for preferred stock dividends declared, by the sum of the weighted average
number of shares of common stock outstanding.
Diluted earnings per common share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding, assuming
conversion of outstanding convertible preferred stock from the beginning of the
year or date of issuance and the exercise of stock options and warrants. Such
adjustments to net income and the weighted average number of shares of common
stock outstanding are made only when such adjustments dilute earnings per common
share.
CASH EQUIVALENTS:
The Corporation considers cash and due from banks as cash and cash
equivalents.
NEW ACCOUNTING STANDARDS:
FAS No. 130, "Reporting Comprehensive Income," establishes new standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. Comprehensive income is defined as the
change in equity during a period from transactions and other events and
circumstances from non shareholder sources, such as changes in net unrealized
securities gains. It includes all changes in equity during a period except those
resulting from investments by shareholders and distributions to shareholders.
This statement is effective for the Corporation's fiscal year ending December
31, 1998. Application of this statement will not impact amounts previously
reported for net income or affect the comparability of previously issued
financial statements.
FAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the reporting of financial information
from operating segments in annual and interim financial statements. It requires
that financial information be reported on the same basis that it is reported
internally for evaluating segment performance and deciding how to allocate
resources to segments. Because this statement addresses how supplemental
financial information is disclosed in annual and interim reports, the adoption
will have no material impact on the financial statements. This statement is
effective for the Corporation's fiscal year ending December 31, 1998.
MERGERS, ACQUISITIONS AND DIVESTITURES
On February 2, 1998, the Corporation signed a definitive merger agreement
with Seminole Bank (Seminole), a
F.N.B. CORPORATION 6
<PAGE> 30
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
community bank headquartered in Seminole, Florida with assets of $93.7 million.
The agreement calls for an exchange of 1.457 shares of the Corporation's common
stock for each share of Seminole common stock. The Corporation anticipates
issuing approximately 814,500 shares of its common stock. Seminole will be
merged into the Corporation's existing subsidiary, Indian Rocks National Bank
(Indian Rocks), in Largo, Florida. The transaction, which is expected to close
during the second quarter of 1998 pending regulatory and shareholder approval,
will be accounted for as a pooling-of-interests.
On January 20, 1998, the Corporation completed its affiliation with West Coast
Bank, headquartered in Sarasota, Florida. Under the terms of the merger
agreement, each outstanding share of West Coast Bank's common stock was
converted into 1.0 share of the Corporation's common stock. A total of 585,263
shares of the Corporation's common stock were issued. At December 31, 1997, West
Coast Bank had total assets and deposits of $107.4 million and $91.3 million,
respectively. The transaction was accounted for as a pooling-of-interests.
Following is an unaudited summary of pro forma information, which represents a
combination of the results of operations of the Corporation and West Coast Bank
(in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net interest income $114,749 $109,757 $101,487
Net income 34,002 20,997 22,122
Earnings per share (Basic) 2.27 1.38 1.47
</TABLE>
On November 21, 1997, the Corporation completed the sale of three Belmont
County, Ohio branches of its subsidiary, Metropolitan National Bank, to Citizens
Bancshares, Inc., a bank holding company headquartered in Salineville, Ohio. The
sale resulted in the Corporation recognizing a $3.6 million after-tax
extraordinary gain.
On November 20, 1997, the Corporation purchased all of the assets and
liabilities of Mercantile Bank of Southwest Florida (Mercantile), a bank located
in Naples, Florida. The Corporation paid $17.72 per share for each of the
766,681 outstanding shares of Mercantile's common stock. Mercantile was merged
into another affiliate of the Corporation, First National Bank of Naples,
headquartered in Naples, Florida. The transaction was accounted for as a
purchase. As a result of the purchase, the Corporation acquired assets of $121.7
million, including goodwill of $7.1 million and core deposit intangibles
amounting to $595,000, and assumed liabilities of $108.2 million. Unaudited pro
forma results of operations for the Corporation as if Mercantile was acquired on
January 1, 1995 are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net interest income $113,748 $108,681 $100,036
Net income 32,005 19,746 20,794
Earnings per share (Basic) 2.23 1.35 1.43
</TABLE>
On October 17, 1997, the Corporation completed its affiliation with Indian
Rocks, a community bank headquartered in Largo, Florida, with assets of $80.9
million. Under the terms of the merger agreement, each outstanding share of
Indian Rocks' common stock was converted into 1.8 shares of the Corporation's
common stock with cash being paid in lieu of fractional shares. A total of
630,000 shares of the Corporation's common stock were issued. The merger has
been accounted for as a pooling-of-interests, except that financial statements
were not restated due to immateriality. Indian Rocks' results of operations
since October 17, 1997 are included in the Corporation's consolidated results.
On June 30, 1997, the Corporation completed the sale of its subsidiary,
Bucktail Bank and Trust Company (Bucktail), to Sun Bancorp, Inc. (Sun), a bank
holding company headquartered in Selinsgrove, Pennsylvania. Under the sales
agreement, Sun issued 565,384 shares of its common stock, having an estimated
value of $17.6 million, in exchange for 100% ownership of Bucktail. At
consummation, Bucktail had assets of $124.6 million and liabilities of $115.3
million. The sale resulted in the Corporation recognizing a $5.2 million
after-tax extraordinary gain. The Corporation has reflected its original
ownership interest as well as subsequent purchases of Sun common stock as an
equity investment included in other assets. At December 31, 1997, the
Corporation's investment in Sun is accounted for using the equity method and had
a market value totaling $33.3 million and a carrying value totaling $20.2
million. The Corporation recognized equity earnings from Sun totaling $621,000
for the year ended December 31, 1997.
On April 18, 1997, the Corporation completed its affiliation with West Coast
Bancorp, Inc. (WCBI), a bank holding company headquartered in Cape Coral,
Florida, with assets totaling approximately $181.0 million. Under the terms of
F.N.B. CORPORATION 7
<PAGE> 31
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the merger agreement, each outstanding share of West Coast's common stock was
converted into .794 share of the Corporation's common stock with cash being paid
in lieu of fractional shares. A total of 1,197,128 shares of the Corporation's
common stock were issued. Results for prior years are restated to reflect this
acquisition as a pooling-of-interests. The following table sets forth separate
company financial information for the period immediately prior to the merger (in
thousands):
<TABLE>
<CAPTION>
Quarter Ended March 31, 1997 F.N.B. WCBI
------ ----
<S> <C> <C>
Net Interest Income................. $25,800 $1,779
Net Income.......................... 6,653 135
</TABLE>
On January 21, 1997, the Corporation completed its affiliation with Southwest
Banks, Inc. (Southwest), a bank holding company headquartered in Naples,
Florida, with assets totaling $528.8 million. Under the terms of the merger
agreement, each outstanding share of Southwest's common stock was converted into
.819 share of the Corporation's common stock with cash being paid in lieu of
fractional shares. A total of 2,851,907 shares of the Corporation's common stock
were issued. Results for prior years are restated to reflect this acquisition as
a pooling-of-interests. The following table sets forth separate company
financial information for the period immediately prior to the merger (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31, 1996 F.N.B. Southwest
------ ---------
<S> <C> <C>
Net Interest Income................. $80,744 $17,953
Net Income.......................... 18,433 805
</TABLE>
SECURITIES
The amortized cost of securities and their approximate fair values are as
follows (in thousands):
Securities available for sale:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1997 COST GAINS LOSSES VALUE
- - ----------------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S. Government
agencies and corporations $284,807 $ 877 $ (244) $285,440
Mortgage-backed securities of
U.S. Government agencies 117,196 473 (146) 117,523
Other debt securities 5,031 107 5,138
-------- ------ ------- --------
TOTAL DEBT SECURITIES 407,034 1,457 (390) 408,101
Equity securities 17,238 7,002 (14) 24,226
-------- ------ ------- --------
$424,272 $8,459 $ (404) $432,327
======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1996 COST GAINS LOSSES VALUE
- - ----------------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S. Government
agencies and corporations $261,235 $ 403 $ (806) $260,832
Mortgage-backed securities of
U.S. Government agencies 40,642 620 (173) 41,089
Other debt securities 2,000 (16) 1,984
-------- ------ ------- --------
TOTAL DEBT SECURITIES 303,877 1,023 (995) 303,905
Equity securities 14,235 3,942 (14) 18,163
-------- ------ ------- --------
$318,112 $4,965 $(1,009) $322,068
======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1995 COST GAINS LOSSES VALUE
- - ----------------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S. Government
agencies and corporations $241,667 $1,748 $ (137) $243,278
Mortgage-backed securities of
U.S. Government agencies 22,505 184 (87) 22,602
Other debt securities 2,000 (5) 1,995
-------- ------ ------- --------
TOTAL DEBT SECURITIES 266,172 1,932 (229) 267,875
Equity securities 12,347 3,304 15,651
-------- ------ ------- --------
$278,519 $5,236 $ (229) $283,526
======== ====== ======= ========
</TABLE>
F.N.B. CORPORATION 8
<PAGE> 32
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities held to maturity:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1997 COST GAINS LOSSES VALUE
- - ----------------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S. Government
agencies and corporations $ 16,312 $ 63 $ (17) $ 16,358
States of the U.S. and political
subdivisions 50,238 362 (40) 50,560
Mortgage-backed securities of
U.S. Government agencies 56,356 81 (219) 56,218
Other debt securities 32 (4) 28
-------- ---- ------- --------
$122,938 $506 $ (280) $123,164
======== ==== ======= ========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1996 COST GAINS LOSSES VALUE
- - ----------------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S. Government
agencies and corporations $ 15,388 $ 57 $ (22) $ 15,423
States of the U.S. and political
subdivisions 55,569 147 (438) 55,278
Mortgage-backed securities of
U.S. Government agencies 103,551 98 (712) 102,937
Other debt securities 43 (4) 39
-------- ---- ------- --------
$174,551 $302 $(1,176) $173,677
======== ==== ======= ========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1995 COST GAINS LOSSES VALUE
- - ----------------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S. Government
agencies and corporations $ 22,367 $170 $ (37) $ 22,500
States of the U.S. and political
subdivisions 47,505 197 (288) 47,414
Mortgage-backed securities of
U.S. Government agencies 104,555 447 (421) 104,581
Other debt securities 56 (5) 51
-------- ---- ------- --------
$174,483 $814 $ (751) $174,546
======== ==== ======= ========
</TABLE>
In December of 1995, the Corporation transferred $97.5 million of debt
securities from the held to maturity category to the available for sale category
in accordance with the implementation guidance issued on FAS No. 115. At the
time of transfer, the market value of the securities totaled $97.8 million, and
the unrealized gain, net of taxes, of $118,000 was recorded as an increase to
stockholders' equity.
At December 31, 1997 and 1996, respectively, securities with a carrying value
of $148.0 million and $135.9 million were pledged to secure public deposits,
trust deposits and for other purposes as required by law. Securities with a
carrying value of $134.5 million and $63.9 million at December 31, 1997 and
1996, respectively, were pledged as collateral for other borrowings.
As of December 31, 1997, the Corporation had not entered into any off-balance
sheet derivative transactions.
F.N.B. CORPORATION 9
<PAGE> 33
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1997, the amortized cost and fair value of securities, by
contractual maturities, were as follows (in thousands):
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
AMORTIZED FAIR AMORTIZED FAIR
December 31, 1997 COST VALUE COST VALUE
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ 13,619 $ 13,621 $ 76,963 $ 77,003
Due from one to five years 44,434 44,584 182,802 183,334
Due from five to ten years 7,896 8,093 27,152 27,251
Due after ten years 633 648 2,921 2,990
-------- -------- -------- --------
66,582 66,946 289,838 290,578
Mortgage-backed securities of
U.S. Government agencies 56,356 56,218 117,196 117,523
Equity securities 17,238 24,226
-------- -------- -------- --------
$122,938 $123,164 $424,272 $432,327
======== ======== ======== ========
</TABLE>
Maturities may differ from contractual terms because borrowers may have the
right to call or prepay obligations with or without penalties. Periodic payments
are received on mortgage-backed securities based on the payment patterns of the
underlying collateral.
Proceeds from sales of securities available for sale during 1997, 1996 and
1995 were $36.1 million, $39.2 million and $7.6 million, respectively. Gross
gains and gross losses were realized on those sales as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross gains $1,358 $880 $530
Gross losses 112 55 37
------ ---- ----
$1,246 $825 $493
====== ==== ====
</TABLE>
LOANS
Following is a summary of loans (in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996
---- ----
<S> <C> <C>
Real estate:
Residential $ 820,782 $ 682,600
Commercial 455,358 421,057
Construction 58,548 41,661
Installment loans to individuals 281,558 395,628
Commercial, financial and agricultural 229,728 189,411
Lease financing 59,852 21,538
Unearned income (20,344) (23,763)
---------- ----------
$1,885,482 $1,728,132
========== ==========
</TABLE>
The loan portfolio consists principally of loans to small- and medium-sized
businesses within the Corporation's primary market area of western Pennsylvania,
southwest Florida and eastern Ohio.
As of December 31, 1997, no concentrations of loans exceeding 10% of total
loans existed which were not disclosed as a separate category of loans.
F.N.B. CORPORATION 10
<PAGE> 34
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain directors and executive officers of the Corporation and its
significant subsidiaries, as well as associates of such persons, were loan
customers during 1997. Such loans were made in the ordinary course of business
under normal credit terms and do not represent more than a normal risk of
collection. Following is a summary of the amount of loans in which the aggregate
of the loans to any such persons exceeded $60,000 during the year (in
thousands):
<TABLE>
<S> <C>
Total loans at December 31, 1996................. $30,940
New loans........................................ 40,232
Repayments....................................... (41,255)
Other............................................ 2,641
-------
Total loans at December 31, 1997................. $32,558
=======
</TABLE>
Other represents the net change in loan balances resulting from changes in
related parties during the year.
NON-PERFORMING ASSETS
Following is a summary of non-performing assets (in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996
- - ----------- ---- ----
<S> <C> <C>
Non-accrual loans $ 8,040 $ 9,571
Restructured loans 1,314 2,146
------- -------
TOTAL NON-PERFORMING LOANS 9,354 11,717
Other real estate owned 4,027 7,039
------- -------
TOTAL NON-PERFORMING ASSETS $13,381 $18,756
======= =======
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, income recognized on
non-accrual and restructured loans was $466,000, $763,000 and $685,000,
respectively. Income that would have been recognized during 1997, 1996 and 1995
on such loans if they were in accordance with their original terms was $1.0
million, $1.4 million and $1.3 million, respectively. Loans past due 90 days or
more were $3.2 million, $3.0 million and $3.9 million at December 31, 1997, 1996
and 1995, respectively.
Following is a summary of information pertaining to loans considered to be
impaired (in thousands):
<TABLE>
<CAPTION>
At or For the Year Ended December 31 1997 1996
- - ------------------------------------ ---- ----
<S> <C> <C>
Impaired loans with an allocated allowance $ 889 $ 4,494
Impaired loans without an allocated allowance 5,298
------ -------
TOTAL IMPAIRED LOANS 889 9,792
====== =======
Allocated allowance on impaired loans 436 1,451
====== =======
Portion of impaired loans on non-accrual 860 4,751
====== =======
Average impaired loans 5,341 12,437
====== =======
Income recognized on impaired loans 71 735
====== =======
</TABLE>
F.N.B. CORPORATION 11
<PAGE> 35
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLOWANCE FOR LOAN LOSSES
Following is an analysis of changes in the allowance for loan losses (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- - ---------------------- ---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $27,800 $24,250 $22,268
Reduction due to the sale of a subsidiary and loans (3,828)
Addition due to acquisitions 1,167
Charge-offs (9,665) (7,760) (6,831)
Recoveries 1,209 1,519 1,883
------- ------- -------
NET CHARGE-OFFS (8,456) (6,241) (4,948)
Provision for loan losses 10,585 9,791 6,930
------- ------- -------
Balance at end of year $27,268 $27,800 $24,250
======= ======= =======
</TABLE>
PREMISES AND EQUIPMENT
Following is a summary of premises and equipment (in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996
- - ----------- ---- ----
<S> <C> <C>
Land $ 11,236 $ 8,977
Premises 56,601 43,346
Equipment 36,642 31,038
--------- ---------
104,479 83,361
Accumulated depreciation (41,136) (36,647)
--------- ---------
$ 63,343 $ 46,714
========= =========
</TABLE>
Depreciation expense was $5.6 million for 1997, $5.3 million for 1996 and $4.5
million for 1995.
The Corporation has operating leases extending to 2044 for certain land,
office locations and equipment. Leases that expire are generally expected to be
renewed or replaced by other leases. Rental expense was $3.5 million for 1997,
$2.6 million for 1996 and $2.7 million for 1995. Total minimum rental
commitments under such leases were $26.2 million at December 31, 1997. Following
is a summary of future minimum lease payments for years following December 31,
1997 (in thousands):
<TABLE>
<S> <C>
1998 $ 1,918
1999 1,345
2000 996
2001 906
2002 824
Later years 20,177
</TABLE>
F.N.B. CORPORATION 12
<PAGE> 36
F.N.B. CORPORATION AND SUSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEPOSITS
Following is a summary of deposits (in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996
- - ----------- ---------- ----------
<S> <C> <C>
Non-interest bearing $ 256,542 $ 231,264
Savings and NOW 942,975 851,156
Certificates of deposit and
other time deposits 993,196 931,468
---------- ----------
$2,192,713 $2,013,888
========== ==========
</TABLE>
Following is a summary of the scheduled maturities of certificates of deposits
and other time deposits for each of the five years following December 31, 1997
(in thousands):
<TABLE>
<S> <C>
1998.................................... $647,460
1999.................................... 222,609
2000.................................... 75,161
2001.................................... 29,029
2002.................................... 18,621
Later years............................. 316
</TABLE>
Time deposits of $100,000 or more were $192.0 million and $173.8 million at
December 31, 1997 and 1996, respectively. Following is a summary of these time
deposits by remaining maturity at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
CERTIFICATES OTHER TIME
December 31, 1997 OF DEPOSIT DEPOSITS TOTAL
- - ----------------- ------------ ---------- ---------
<S> <C> <C> <C>
Three months or less $ 60,226 $ 4,410 $ 64,636
Three to six months 29,543 3,167 32,710
Six to twelve months 33,409 3,489 36,898
Over twelve months 39,953 17,791 57,744
-------- -------- --------
$163,131 $28,857 $191,988
======== ======== ========
</TABLE>
SHORT-TERM BORROWINGS
Following is a summary of short-term borrowings (in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996
- - ----------- -------- --------
<S> <C> <C>
Securities sold under repurchase
agreements $ 54,054 $ 35,471
Federal funds purchased 16,862 20,052
Other short-term borrowings 4,257 1,506
Subordinated notes 46,931 55,201
-------- --------
$122,104 $112,230
======== ========
</TABLE>
Credit facilities amounting to $35.0 million at December 31, 1997 were
maintained with various banks with rates which are at or below prime rate. The
facilities and their terms are periodically reviewed by the banks and are
generally subject to withdrawal at their discretion. The amount of these credit
facilities which were unused amounted to $32.0 million at December 31, 1997.
F.N.B. CORPORATION 13
<PAGE> 37
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, certain subsidiaries have lines of credit with the Federal Home
Loan Bank, which if used would require collateralization. These lines totaled
$120.8 million, of which no amounts were used as of December 31, 1997.
LONG-TERM DEBT
Following is a summary of long-term debt (in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996
---- ----
<S> <C> <C>
Real estate mortgages payable $ 147
Federal Home Loan Bank advances $23,386 24,042
Subordinated notes 43,860 33,990
------- -------
$67,246 $58,179
======= =======
</TABLE>
The Federal Home Loan Bank advances are secured by residential real estate
loans and Federal Home Loan Bank Stock and are scheduled to mature in various
amounts annually from 1998 through 2001. Interest rates paid on these advances
range from 5.85% to 6.32% in 1997 and 5.10% to 5.38% in 1996.
Subordinated notes are unsecured and subordinated to other indebtedness of the
Corporation. The subordinated notes are scheduled to mature in various amounts
annually from 1998 through the year 2007. At December 31, 1997, $33.8 million of
long-term subordinated debt is redeemable prior to maturity at a discount equal
to three months of interest. The Corporation has the right to require the holder
to give 30 days prior written notice. The weighted average interest rate on
long-term subordinated debt was 7.58% at December 31, 1997 and 7.69% at December
31, 1996.
Scheduled annual maturities for long-term debt for each of the five years
following December 31, 1997 are as follows (in thousands):
<TABLE>
<C> <C>
1998............................... $22,239
1999............................... 19,487
2000............................... 2,727
2001............................... 6,159
2002............................... 12,185
Later years........................ 4,449
</TABLE>
COMMITMENTS AND CREDIT RISK
The Corporation has commitments to extend credit and standby letters of credit
which involve certain elements of credit risk in excess of the amount stated in
the consolidated balance sheet. The Corporation's exposure to credit loss in the
event of non-performance by the customer is represented by the contractual
amount of those instruments. Consistent credit policies are used by the
Corporation for both on- and off-balance sheet items.
Following is a summary of off-balance sheet credit risk information (in
thousands):
<TABLE>
<CAPTION>
December 31 1997 1996
---- ----
<S> <C> <C>
Commitments to extend credit ....... $336,529 $278,310
Standby letters of credit .......... 17,364 14,059
</TABLE>
At December 31, 1997, funding of approximately 80% of the commitments to
extend credit is 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. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Based on management's 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 which 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.
STOCKHOLDERS' EQUITY
Series A - Cumulative Convertible Preferred Stock (Series A Preferred) was
issued in 1985 for the purpose of acquiring Reeves Bank. Holders of Series A
Preferred have voting rights equivalent to 5.4 shares of common stock for each
share of Series A Preferred held. The holders do not have cumulative voting
rights in the
F.N.B. CORPORATION 14
<PAGE> 38
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
election of directors. Dividends are cumulative from the date of issue and are
payable at $.42 per share each quarter. Series A Preferred is convertible at the
option of the holder into shares of the Corporation's common stock having an
equivalent market value of $25.00 at time of conversion. The Corporation has the
right to require the conversion of the balance of all outstanding shares at the
conversion rate. During 1997, 2,270 shares of Series A Preferred were converted
to 1,903 shares of common stock. At December 31, 1997, 15,182 shares of common
stock were reserved by the Corporation for the conversion of the remaining
21,318 outstanding shares.
Series B - Cumulative Convertible Preferred Stock (Series B Preferred) was
issued during 1992 for the purpose of raising capital for the Erie acquisition.
Holders of Series B Preferred have no voting rights. Dividends are cumulative
from the date of issue and are payable at $.46875 per share each quarter. Series
B Preferred has a stated value of $25.00 per share and is convertible at the
option of the holder at any time into shares of the Corporation's common stock
at a price of $11.64 per share. The Corporation has the right to require the
redemption of the balance of all outstanding shares at the conversion rate.
During 1997, 62,761 shares of Series B Preferred were converted to 131,197
shares of common stock. At December 31, 1997, 571,641 shares of common stock
were reserved by the Corporation for the conversion of the remaining 266,182
outstanding shares.
STOCK INCENTIVE PLANS
The Corporation has available up to 913,962 shares of common stock to be
issued under the restricted stock and incentive bonus and restricted stock bonus
plans to key employees of the Corporation. All shares of stock awarded under
these plans vest in equal installments over a five year period on each
anniversary of the date of grant. At December 31, 1997, 3,630 shares out of a
total of 52,133 shares were vested under these plans. The weighted average grant
date fair value of the restricted shares issued through December 31, 1997 was
$22.63.
The Corporation has available up to 2,070,908 shares of common stock to be
issued under both incentive and non-qualified stock option plans to key
employees of the Corporation. Options vest in equal installments over periods
ranging from three to ten years. The options are granted at a price equal to the
fair market value at the date of the grant and are exercisable over various
years ranging from five to ten years from the date of the grant. Because the
exercise price of the Corporation's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share using the
Black-Scholes option pricing model is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- - ---------------------- ---- ---- ----
<S> <C> <C> <C>
Pro forma net income before
extraordinary items $23,975 $19,682 $21,006
Extraordinary items, net of tax 8,809
------- ------- -------
Pro forma net income $32,784 $19,682 $21,006
======= ======= =======
Pro forma earnings per share:
Basic:
Before extraordinary items $ 1.66 $ 1.35 $ 1.45
Extraordinary items, net of tax .62
------- ------- -------
Net income $ 2.28 $ 1.35 $ 1.45
======= ======= =======
Diluted:
Before extraordinary items $ 1.58 $ 1.31 $ 1.41
Extraordinary items, net of tax .58
------- ------- -------
Net income $ 2.16 $ 1.31 $ 1.41
======= ======= =======
</TABLE>
F.N.B. CORPORATION 15
<PAGE> 39
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period of five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferrable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Corporation's employee stock options have characteristics
significantly different from those of traded options, and changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. The following
input assumptions were utilized:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate............ 6.53% 5.63% 7.65%
Dividend yield..................... 1.66% 3.00% 3.00%
Volatility factor of the expected
market price of the
Corporation's common stock ...... .22% .19% .19%
Weighted average expected life
of the options (years) .......... 5.00 5.00 5.00
</TABLE>
Activity in the Option Plan during the past three years was as follows:
<TABLE>
<CAPTION>
Weighted
Average Price
1997 per Share 1996 1995
---- --------- ---- ----
<S> <C> <C> <C> <C>
Outstanding, beginning of year 863,691 $12.96 699,929 593,756
Granted during the year 147,971 23.24 177,447 126,026
Exercised during the year (51,619) 9.20 (7,085) (4,320)
Forfeited during the year (48,658) 16.73 (6,600) (15,533)
------- ------- -------
Ending balance 911,385 13.92 863,691 699,929
======= ======= =======
</TABLE>
At December 31, 1997, options for 411,021 of common stock were exercisable at
prices ranging from $6.56 to $22.62 per share. The weighted average remaining
contractual life of outstanding options was 6 years at December 31, 1997.
The Corporation has granted warrants to purchase one share of common stock (at
an exercise price of $6.55 or $10.91 per share). Such warrants are exercisable
and will expire on June 19, 2001 or December 17, 2003. The Corporation has
reserved 145,577 shares of common stock for issuance in connection with these
warrants.
RETIREMENT PLANS
Certain of the Corporation's subsidiaries have defined benefit retirement
plans covering substantially all of their employees. The expense associated with
these plans was $1.6 million in 1997, $1.6 million in 1996 and $1.3 million in
1995.
The defined benefit plans provide benefits based on years of credited service
and compensation (as defined), subject to ERISA limitations. Contributions to
the tax-qualified plans are made in amounts not less than the minimum-required
contribution under ERISA nor more than the maximum-deductible contribution under
the Internal Revenue Code.
F.N.B. CORPORATION 16
<PAGE> 40
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is the estimated funded status (in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996
- - ----------- --------------------------------- -------------------------------
PLANS WHOSE PLAN WHOSE PLANS WHOSE PLAN WHOSE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 16,232 $ 2,910 $ 13,841 $ 2,770
======== ======= ======== =======
Accumulated benefit obligation $ 16,672 $ 4,112 $ 14,150 $ 3,635
======== ======= ======== =======
Projected benefit obligation for services
rendered to date $(20,625) $(4,776) $(17,472) $(4,160)
Plan assets at fair value, primarily U.S. Government
securities and common stocks 25,229 20,238
-------- ------- -------- -------
Plan assets in excess of or (less than) projected
benefit obligation 4,604 (4,776) 2,766 (4,160)
Unrecognized net gain (3,274) (50) (1,832) (63)
Unrecognized net obligation 47 52
Unrecognized prior service cost 129 1,642 146 1,911
-------- ------- -------- -------
Prepaid (accrued) pension costs $ 1,506 $(3,184) $ 1,132 $(2,312)
======== ======= ======== =======
</TABLE>
The pension expense for the defined benefit plans included the following
components (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- - ---------------------- --- ---- ----
<S> <C> <C> <C>
Service costs - benefits earned during the period $ 1,196 $ 1,244 $ 854
Interest cost on projected benefit obligation 1,726 1,525 1,375
Actual return on plan assets (4,614) (2,026) (3,014)
Net amortization 3,304 894 2,115
------- ------- -------
Net pension expense $ 1,612 $ 1,637 $ 1,330
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Assumptions as of December 31 1997 1996 1995
- - ----------------------------- ---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate 7.0% 7.5% 7.0%
Rates of increase in compensation levels 4.0% 4.0% 4.0%
Expected long-term rate of return on assets 8.0% 8.0% 8.0%
</TABLE>
At December 31, 1997 and 1996, respectively, plan assets include $1.6 million
and $965,000 of the Corporation's common stock. At December 31, 1996, plan
assets also include $193,000 of the Corporation's subordinated debt.
Certain subsidiaries of the Corporation participate in a qualified 401(k)
defined contribution plan for the full-time employees of such subsidiaries. A
percentage of employees' contributions, up to 6 percent, to the plan are matched
by the Corporation. The Corporation's contribution expense amounted to $412,000
in 1997, $404,000 in 1996 and $380,000 in 1995.
The remaining subsidiaries of the Corporation participate in a Salary Savings
ESOP Plan, under which eligible employees may contribute a percentage of their
salary. The Corporation matches 50 percent of an eligible employee's
contribution on the first 6 percent that the employee defers, and may make a
discretionary contribution payable either in cash or the Corporation's common
F.N.B. CORPORATION 17
<PAGE> 41
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
stock based upon the Corporation's profitability. Employees are generally
eligible to participate upon completing one year of service and having attained
age 21. Employer contributions become 20 percent vested when an employee has
completed two years of service, and vest at a rate of 20 percent per year
thereafter. The Corporation recognized expense of $468,000 in 1997, $384,000 in
1996 and $298,000 in 1995 related to the Salary Savings ESOP Plan.
POSTRETIREMENT PLANS
In addition to the Corporation's retirement plans, the Corporation has various
unfunded postretirement plans which provide medical benefits and life insurance
benefits to its retirees. The postretirement health care plans vary, the most
stringent of which are contributory and contain other cost-sharing features such
as deductibles and co-insurance. The life insurance plans are noncontributory.
The amounts recognized in the Corporation's consolidated financial statements
are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996
- - ---------------------- ---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Current retirees $ 77 $ 79
Fully eligible actives 28 49
Other actives 674 688
----- -----
Total accumulated postretirement
benefit obligation 779 816
Unrecognized net transition obligation (563) (612)
Unrecognized net gain 311 233
Unrecognized prior service cost (7) (7)
----- -----
Accrued postretirement benefit liability $ 20 $ 430
===== =====
</TABLE>
Net periodic postretirement benefit cost included the following components
(in thousands):
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- - ---------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost $ 60 $ 66 $ 60
Interest cost 56 54 68
Amortization of transition obligation 25 30 38
---- ---- ----
Net periodic postretirement benefit cost $141 $150 $166
==== ==== ====
</TABLE>
A 6.0% annual rate of increase in the per capita costs of covered health care
benefits is assumed for 1998, gradually decreasing to 5.25% by the year 2001.
Increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1997 by $73,000 and increase the aggregate of the service and
interest cost component of net periodic postretirement benefit cost for 1997 by
$14,000. A discount rate of 7.0% was used to determine the accumulated
postretirement benefit obligation.
RECAPITALIZATION OF SAVINGS ASSOCIATION INSURANCE FUND
On September 30, 1996, the Deposit Insurance Funds Act of 1996 was signed into
law and included a provision to recapitalize the Savings Association Insurance
Fund (SAIF). The legislation required a one-time assessment on all deposits
insured by the SAIF, including those held by chartered commercial banks as a
result of previous acquisitions. The one-time assessment paid by the Corporation
totaled $2.8 million, or $.19 per share. The legislation also included
provisions that resulted in a reduction in annual deposit insurance costs.
F.N.B. CORPORATION 18
<PAGE> 42
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
Income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- - ---------------------- ---- ---- ----
<S> <C> <C> <C>
Current income taxes:
Federal taxes $12,202 $11,339 $10,572
State taxes 155 308 428
------- ------- -------
12,357 11,647 11,000
Deferred income taxes:
Federal taxes (1,321) (1,754) (700)
------- ------- -------
$11,036 $ 9,893 $10,300
======= ======= =======
</TABLE>
The tax effects of temporary differences giving rise to deferred tax assets and
liabilities are presented below (in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996
- - ----------- ---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 9,544 $ 8,609
Deferred compensation 1,522 936
Deferred benefits 913 634
Loan fees 685 247
Other 467 1,061
-------- --------
TOTAL GROSS DEFERRED TAX ASSETS 13,131 11,487
-------- --------
Deferred tax liabilities:
Depreciation (89) (752)
Unrealized gains on securities available for sale (2,825) (1,390)
Leasing (4,997) (1,915)
Other (1,265) (719)
-------- --------
TOTAL GROSS DEFERRED TAX LIABILITIES (9,176) (4,776)
-------- --------
Net Deferred Tax Assets $ 3,955 $ 6,711
======== ========
</TABLE>
Following is a reconciliation between tax expense using federal statutory tax
and actual effective tax:
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- - ---------------------- ---- ---- ----
<S> <C> <C> <C>
Federal statutory tax 35.0% 35.0% 35.0%
Effect of nontaxable interest and
dividend income (3.9) (4.5) (4.3)
State taxes .3 .6 .8
Goodwill .3 .3 .4
Merger related costs .6 2.4
Other items (1.1) (.6) .9
---- ---- ----
Actual effective taxes 31.2% 33.2% 32.8%
==== ==== ====
</TABLE>
F.N.B. CORPORATION 19
<PAGE> 43
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted earnings
per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- - ---------------------- ---- ---- ----
<S> <C> <C> <C>
BASIC
Income before extraordinary items $24,314 $19,879 $21,079
Less: Preferred stock dividends declared (588) (766) (849)
------- ------- -------
Income before extraordinary items
applicable to common stock 23,726 19,113 20,230
Extraordinary items, net of tax 8,809
------- ------- -------
Earnings applicable to common stock $32,535 $19,113 $20,230
======= ======= =======
Average common shares outstanding 14,119,669 14,058,559 13,941,360
========== ========== ==========
Income before extraordinary items $ 1.68 $ 1.36 $ 1.45
Extraordinary items, net of tax .62
------- ------- -------
Earnings per share $ 2.30 $ 1.36 $ 1.45
======= ======= =======
DILUTED
Income before extraordinary items $24,314 $19,879 $21,079
Extraordinary items, net of tax 8,809
------- ------- -------
Earnings applicable to common stock $33,123 $19,879 $21,079
======= ======= =======
Average common shares outstanding 14,119,669 14,058,559 13,941,360
Series A convertible preferred stock 15,182 27,178 32,705
Series B convertible preferred stock 615,947 831,978 923,897
Net effect of dilutive stock options and warrants
based on the treasury stock method
using the average market price 413,732 89,642 42,338
---------- ---------- ----------
15,164,530 15,007,357 14,940,300
========== ========== ==========
Income before extraordinary items $ 1.60 $ 1.32 $ 1.41
Extraordinary items, net of tax .58
------- ------- -------
Earnings per share $ 2.18 $ 1.32 $ 1.41
======= ======= =======
</TABLE>
F.N.B. CORPORATION 20
<PAGE> 44
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- - ---------------------- ---- ---- ----
<S> <C> <C> <C>
Cash paid during year for:
Interest $82,540 $ 76,974 $72,888
Income taxes 9,371 9,601 10,706
Non-cash Investing and Financing Activities:
Acquisition of real estate in settlement of loans $ 3,063 $ 6,319 $ 3,187
Loans granted in the sale of other real estate 1,332 319 321
Transfers and reclassifications of investment
securities to securities available for sale 97,483
</TABLE>
REGULATORY MATTERS
Quantitative measures established by regulators to ensure capital adequacy
require the Corporation and its banking subsidiaries to maintain minimum amounts
and ratios of total and tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of tier 1 capital to average assets (as
defined). Management believes, as of December 31, 1997, that the Corporation and
each of its banking subsidiaries meet all capital adequacy requirements to which
they are subject.
As of September 30, 1997, the Corporation and each of its banking subsidiaries
have been categorized by the various regulators as "well capitalized" under the
regulatory framework for prompt corrective action.
Following are the capital ratios as of December 31, 1997 for the Corporation
and its significant subsidiaries, First National Bank of Pennsylvania and First
National Bank of Naples (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ---------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
F.N.B. CORPORATION:
Total Capital $248,831 13.9% $143,518 8.0% $179,398 10.0%
(to risk-weighted assets)
Tier 1 Capital 216,330 12.1 71,759 4.0 107,639 6.0
(to risk-weighted assets)
Tier 1 Capital 216,330 8.5 102,133 4.0 127,667 5.0
(to average assets)
FIRST NATIONAL BANK OF PENNSYLVANIA:
Total Capital $ 88,384 11.5% $ 61,709 8.0% $ 77,136 10.0%
(to risk-weighted assets)
Tier 1 Capital 78,714 10.2 30,854 4.0 46,282 6.0
(to risk-weighted assets)
Tier 1 Capital 78,714 7.1 44,089 4.0 55,111 5.0
(to average assets)
FIRST NATIONAL BANK OF NAPLES:
Total Capital $ 46,770 11.7% $ 31,886 8.0% $ 39,858 10.0%
(to risk-weighted assets)
Tier 1 Capital 42,208 10.6 15,943 4.0 23,915 6.0
(to risk-weighted assets)
Tier 1 Capital 42,208 8.3 20,372 4.0 25,465 5.0
(to average assets)
</TABLE>
F.N.B. CORPORATION 21
<PAGE> 45
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Corporation and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation and its banking subsidiaries must meet specific capital
guidelines that involve quantitative measures of assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Corporation's and banking subsidiaries' capital amounts and classifications are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
The Corporation's banking subsidiaries were required to maintain aggregate
reserves amounting to $11.0 million at December 31, 1997 to satisfy federal
regulatory requirements. The Corporation also maintains deposits for various
services such as check clearing.
Certain limitations exist under applicable law and regulations by regulatory
agencies regarding dividend payments to a parent by its bank subsidiaries. As of
December 31, 1997, the subsidiaries had $32.2 million of retained earnings
available for distribution as dividends without prior regulatory approval.
Under current Federal Reserve regulations, the Corporation's banking
subsidiaries are limited in the amount they may lend to non-bank affiliates,
including the Corporation. Such loans must be secured by specified collateral.
In addition, any such loans to a single non-bank affiliate may not exceed 10% of
any banking subsidiary's capital and surplus and the aggregate of loans to all
such affiliates may not exceed 20%. The maximum amount that may be borrowed by
the parent company under these provisions approximated $37.6 million at December
31, 1997.
PARENT COMPANY FINANCIAL STATEMENTS
Below is condensed financial information of F.N.B. Corporation (parent company
only). In this information, the parent's investments in subsidiaries are stated
at cost plus equity in undistributed earnings of subsidiaries since acquisition.
This information should be read in conjunction with the consolidated financial
statements.
<TABLE>
<CAPTION>
BALANCE SHEET (in thousands):
December 31 1997 1996
- - ----------- ---- ----
<S> <C> <C>
ASSETS
Cash $ 6 $ 19
Short-term investments 2,095 4,457
Advances to subsidiaries 12,122 81,099
Other assets 5,414 5,162
Securities available for sale 7,191
Investment in bank subsidiaries 200,405 180,048
Investment in non-bank subsidiaries 110,940 14,715
-------- --------
TOTAL ASSETS $330,982 $292,691
======== ========
LIABILITIES
Other liabilities $ 6,555 $ 4,215
Short-term borrowings 49,931 55,201
Long-term debt 43,860 33,990
-------- --------
TOTAL LIABILITIES 100,346 93,406
-------- --------
STOCKHOLDERS' EQUITY 230,636 199,285
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $330,982 $292,691
======== ========
</TABLE>
F.N.B. CORPORATION 22
<PAGE> 46
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subordinated notes, included within short-term borrowings and long-term debt,
are unsecured and subordinated to other indebtedness of the Corporation. At
December 31, 1997, $80.7 million principal amount of such notes was redeemable
prior to maturity by the holder at a discount equal to one month of interest on
short-term notes or three months of interest on long-term notes. The Corporation
has the right to require the holder to give 30 days prior written notice. The
weighted average interest rate was 6.33% at December 31, 1997 and 6.25% at
December 31, 1996. The subordinated notes are scheduled to mature in various
amounts annually from 1998 through the year 2007.
Following is a summary of the combined aggregate scheduled annual maturities
of subordinated notes for each year following December 31, 1997 (in thousands):
<TABLE>
<S> <C>
1998..................... $56,100
1999..................... 14,171
2000..................... 2,727
2001..................... 1,159
2002..................... 12,185
Later years.............. 4,449
</TABLE>
<TABLE>
<CAPTION>
INCOME STATEMENT (in thousands)
Year Ended December 31 1997 1996 1995
- - ---------------------- ---- ---- ----
<S> <C> <C> <C>
INCOME
Dividend income from subsidiaries:
Bank $31,373 $11,778 $ 8,942
Non-bank 4,660 2,501 3,706
------- ------- -------
36,033 14,279 12,648
------- ------- -------
Gain on sale of securities 1,296 850 512
Interest income 5,423 5,394 4,924
Other income 716 254 206
------- ------- -------
TOTAL INCOME 43,468 20,777 18,290
------- ------- -------
EXPENSES
Interest expense 6,280 5,920 5,972
Service fees 970 617 609
Other expenses 3,248 2,076 1,297
------- ------- -------
TOTAL EXPENSES 10,498 8,613 7,878
------- ------- -------
INCOME BEFORE TAXES AND
EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES 32,970 12,164 10,412
Income tax benefit 1,156 618 700
------- ------- -------
34,126 12,782 11,112
------- ------- -------
Equity in undistributed income of subsidiaries:
Bank (4,112) 6,064 8,968
Non-bank (2,118) 1,033 999
------- ------- -------
(6,230) 7,097 9,967
------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM 27,896 19,879 21,079
Gain on sale of subsidiary, net of tax 5,227
------- ------- -------
NET INCOME $33,123 $19,879 $21,079
======= ======= =======
</TABLE>
F.N.B. CORPORATION 23
<PAGE> 47
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS (in thousands)
Year Ended December 31 1997 1996 1995
- - ---------------------- ---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 33,123 $ 19,879 $ 21,079
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of securities (1,296) (850) (512)
Undistributed earnings of subsidiaries 6,230 (7,097) (9,967)
Extraordinary gain on sale of subsidiary (5,227)
Other, net (383) (2,030) (882)
-------- -------- --------
Net cash flows from operating activities 32,447 9,902 9,718
-------- -------- --------
INVESTING ACTIVITIES
Purchase of securities (1,704) (235) (383)
Proceeds from sale of securities 1,828 1,244 922
Advances to subsidiaries (2,735) (4,250) (6,107)
Cash paid upon acquisition of subsidiaries (13,586)
Investment in subsidiaries (11,700) 356 737
-------- -------- --------
Net cash flows from investing activities (27,897) (2,885) (4,831)
-------- -------- --------
FINANCING ACTIVITIES
Net increase in due to non-bank subsidiary 2,950
Net decrease in short-term borrowings (5,270) 4,839 (1,723)
Decrease in long-term debt (6,680) (12,303) (5,334)
Increase in long-term debt 16,550 8,899 6,274
Net acquisition of treasury stock (2,535) (1,560) 242
Cash dividends paid (9,578) (6,889) (4,343)
-------- -------- --------
Net cash flows from financing activities (4,563) (7,014) (4,884)
-------- -------- --------
NET (DECREASE) INCREASE IN CASH (13) 3 3
Cash at beginning of year 19 16 13
-------- -------- --------
CASH AT END OF YEAR $ 6 $ 19 $ 16
======== ======== ========
CASH PAID
Interest $ 6,181 $ 6,251 $ 5,009
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each financial instrument:
CASH AND DUE FROM BANKS:
For these short-term instruments, the carrying amount is a reasonable estimate
of fair value.
SECURITIES:
For both securities available for sale and securities held to maturity, fair
value equals quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.
LOANS:
The fair value of fixed rate loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. The fair
value of adjustable rate loans approximate the carrying amount.
DEPOSITS:
The fair value of demand deposits, savings accounts and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity deposits is estimated by discounting future cash flows using
rates currently offered for deposits of similar remaining maturities.
F.N.B. CORPORATION 24
<PAGE> 48
F.N.B. CORPORATION AND SUBSIDIARIES
REPORT OF INDEPENDENT AUDITORS
SHORT-TERM BORROWINGS:
The carrying amounts for short-term borrowings approximate fair value for
amounts that mature in 90 days or less. The fair value of subordinated notes is
estimated by discounting future cash flows using rates currently offered.
LONG-TERM DEBT:
The fair value of long-term debt is estimated by discounting future cash flows
based on the market prices for the same or similar issues or on the current
rates offered to the Corporation for debt of the same remaining maturities.
The estimated fair values of the Corporation's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and short-term investments $ 98,872 $ 98,872 $ 115,235 $ 115,235
Securities available for sale 432,327 432,327 322,068 322,068
Securities held to maturity 122,938 123,164 174,551 173,677
Net loans, including loans held for sale 1,862,431 1,873,059 1,709,942 1,736,612
FINANCIAL LIABILITIES
Deposits $2,192,713 $2,197,775 $2,013,888 $2,020,398
Short-term borrowings 122,104 122,104 112,230 112,230
Long-term debt 67,246 68,837 58,179 58,901
</TABLE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
F.N.B. Corporation
We have audited the accompanying consolidated balance sheet of F.N.B.
Corporation and subsidiaries (F.N.B. Corporation) as of December 31, 1997 and
1996, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1997. These consolidated financial statements are the responsibility of F.N.B.
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the 1996
and 1995 financial statements of Southwest Banks, Inc. and subsidiaries or West
Coast Bancorp, Inc. and subsidiary which statements reflect total assets
constituting approximately 29% in 1996 and net income constituting approximately
7% and 14% for 1996 and 1995, respectively, of the related consolidated
financial statement totals. Those statements were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar as it relates
to data included for Southwest Banks, Inc. and subsidiaries and West Coast
Bancorp, Inc. and subsidiary, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and, for 1996 and 1995, the reports of other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of F.N.B.
Corporation at December 31, 1997 and 1996, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
February 19, 1998
F.N.B. CORPORATION 25
<PAGE> 49
F.N.B. CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
F.N.B. CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA (Dollars in thousands, except per share data)
The mergers between F.N.B. Corporation and Southwest Banks, Inc. and West
Coast Bancorp, Inc. were completed on January 21, 1997 and April 18, 1997,
respectively, and accounted for as poolings-of-interests. Accordingly, all
financial information has been restated as if the companies were combined for
all periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1997 1996 1995 1994 1993
- - ---------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total interest income $ 195,508 $ 183,583 $ 172,512 $ 149,275 $ 144,251
Total interest expense 84,478 77,616 74,754 59,895 62,858
Net interest income 111,030 105,967 97,758 89,380 81,393
Provision for loan losses 10,585 9,791 6,930 9,177 9,863
Total non-interest income 23,113 20,407 19,215 17,108 18,488
Total non-interest expenses 88,208 86,811 78,664 74,571 72,216
Net income before extraordinary items 24,314 19,879 21,079 15,190 12,219
Extraordinary items, net of tax 8,809
Net income 33,123 19,879 21,079 15,190 12,219
Recurring net income * 28,879 23,746 21,079 15,190 12,219
AT YEAR-END
Total assets $2,649,494 $2,418,407 $2,238,525 $2,087,816 $1,982,920
Net loans 1,858,214 1,700,332 1,525,940 1,437,809 1,209,018
Deposits 2,192,713 2,013,888 1,896,145 1,748,718 1,714,527
Long-term debt 67,246 58,179 50,784 56,614 32,528
Preferred stock 2,875 3,525 4,516 4,563 4,582
Total stockholders' equity 230,636 199,285 188,146 167,096 142,277
PER COMMON SHARE
Earnings
Basic $ 2.30 $ 1.36 $ 1.45 $ 1.06 $ .93
Diluted 2.18 1.32 1.41 1.05 .93
Recurring earnings *
Basic 2.00 1.63 1.45 1.06 .93
Diluted 1.90 1.58 1.41 1.05 .93
Cash dividends .63 .60 .33 .24 .23
Book value 15.27 13.70 12.65 11.42 10.45
RATIOS
Return on average assets 1.34% .86% .98% .75% .63%
Return on average assets,
based on recurring net income * 1.17 1.03 .98 .75 .63
Return on average equity 15.79 10.19 11.85 9.53 9.00
Return on average equity,
based on recurring net income * 13.76 12.17 11.85 9.53 9.00
Dividend payout ratio 27.63 32.04 17.25 17.88 20.27
Average equity to average assets 8.51 8.47 8.23 7.83 7.00
</TABLE>
* Recurring net income excludes extraordinary gains on the sale of a
subsidiary and branches of $8.8 million and merger related and other
non-recurring costs of $4.6 million in 1997 and a one-time assessment of
$1.8 million legislated by Congress to recapitalize the Savings Association
Insurance Fund and merger related costs of $2.1 million in 1996, all on an
after-tax basis. Such presentation is provided in order to eliminate all
items deemed by management to be of a non-recurring nature.
F.N.B. CORPORATION 26
<PAGE> 50
F.N.B. CORPORATION AND SUBSIDIARIES
QUARTERLY EARNINGS SUMMARY
F.N.B. CORPORATION AND SUBSIDIARIES
QUARTERLY EARNINGS SUMMARY (Dollars in thousands, except per share data)
The mergers between F.N.B. Corporation and Southwest Banks, Inc. and West
Coast Bancorp, Inc. were completed on January 21, 1997 and April 18, 1997,
respectively, and accounted for as poolings-of-interests. Accordingly, the
unaudited quarterly financial data has been restated as if the companies were
combined for all periods presented.
<TABLE>
<CAPTION>
QUARTER ENDED 1997 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
- - ------------------ ------- ------- -------- -------
<S> <C> <C> <C> <C>
Total interest income $47,942 $49,099 $48,108 $50,359
Total interest expense 20,363 20,929 20,906 22,280
Net interest income 27,579 28,170 27,202 28,079
Provision for loan losses 2,228 3,530 2,382 2,445
Total non-interest income 5,863 5,142 6,053 6,055
Total non-interest expenses 21,188 25,730 19,375 21,915
Net income before extraordinary items 6,788 2,857 7,961 6,708
Extraordinary items, net of tax 5,227 3,582
Net income 6,788 8,084 7,961 10,290
Recurring net income * 6,788 7,119 7,961 7,011
PER COMMON SHARE
Earnings
Basic $ .47 $ .57 $ .56 $ .70
Diluted .45 .54 .53 .66
Recurring earnings *
Basic .47 .49 .56 .48
Diluted .45 .47 .53 .45
Cash dividends .15 .16 .16 .16
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED 1996 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
- - ------------------ ------- ------- -------- -------
<S> <C> <C> <C> <C>
Total interest income $45,146 $45,474 $45,789 $47,174
Total interest expense 19,299 18,973 19,298 20,046
Net interest income 25,847 26,501 26,491 27,128
Provision for loan losses 1,727 1,940 1,850 4,274
Total non-interest income 5,128 5,001 5,430 4,848
Total non-interest expenses 20,436 20,503 23,313 22,559
Net income 6,076 6,158 4,675 2,970
Recurring net income ** 6,076 6,158 6,602 4,910
PER COMMON SHARE
Earnings
Basic $ .42 $ .42 $ .32 $ .20
Diluted .41 .41 .31 .19
Recurring earnings **
Basic .42 .42 .46 .33
Diluted .41 .41 .44 .32
Cash dividends .15 .15 .15 .15
</TABLE>
* Non-recurring items include merger related costs and other non-recurring
costs of approximately $4.2 million recognized during the second quarter
and merger related costs of approximately $357,000 recognized during the
fourth quarter, each on an after-tax basis.
** Non-recurring items include a one-time third quarter assessment of $1.8
million legislated by Congress to recapitalize the Savings Association
Insurance Fund and merger related costs of approximately $2.1 million
recognized during the fourth quarter, each on an after-tax basis.
F.N.B. CORPORATION 27
<PAGE> 51
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This financial review summarizes the combined financial condition and results
of operations giving retroactive effect to the mergers of Southwest Banks,
Inc.(Southwest) and West Coast Bancorp, Inc. (WCBI) with and into F.N.B.
Corporation (the Corporation) and is intended to be read in conjunction with the
Consolidated Financial Statements and accompanying Notes to those statements.
The merger of the Corporation and Southwest was consummated on January 21, 1997
and has been accounted for on a pooling-of-interests basis. The Corporation
issued 2,851,907 shares of common stock in exchange for all of the outstanding
common stock of Southwest. The merger of the Corporation and WCBI was
consummated on April 18, 1997 and has been accounted for on a
pooling-of-interests basis. The Corporation issued 1,197,128 shares of common
stock in exchange for all of the outstanding common stock of WCBI. This
financial review is presented as if the mergers had been consummated for all
periods presented.
RESULTS OF OPERATIONS
Net income increased 66.6% to $33.1 million in 1997 from $19.9 million in
1996. Basic earnings per share were $2.30 and $1.36 for 1997 and 1996, while
diluted earnings per share were $2.18 and $1.32, respectively, for those same
periods. The results for 1997 include $8.8 million in gains relating to the sale
of a subsidiary and branches and merger related and other non-recurring costs of
$4.6 million, both net of tax. The results for 1996 include a special one-time
assessment to recapitalize the Savings Association Insurance Fund (SAIF) of $1.8
million and merger related costs of $2.1 million, both net of tax. Excluding
these items, net income would have been $28.9 million in 1997 versus $23.7
million in 1996 and basic and diluted earnings per share would have been $2.00
and $1.90 in 1997 and $1.63 and $1.58 in 1996, respectively. Net interest income
increased by 4.8% as net average interest earning assets increased by $20.3
million. These factors are further detailed in the discussion which follows.
Common comparative ratios for results of operations include the return on
average assets and the return on average equity. The Corporation's return on
average assets was 1.34% for 1997 compared to .86% for 1996, while the
Corporation's return on average equity was 15.79% for 1997 compared to 10.19%
for 1996. Excluding the extraordinary and non-recurring items, the Corporation
had a return on average assets of 1.17% and 1.03% for 1997 and 1996,
respectively and a return on average equity of 13.76% and 12.17% for those same
periods.
RECURRING NET INCOME
(Dollars in millions)
[graph]
1993 1994 1995 1996 1997
----- ------ ----- ----- -----
$12.2 $15.2 $21.1 $23.7 $28.9
F.N.B. CORPORATION 28
<PAGE> 52
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
NET INTEREST INCOME
The following table provides information regarding the average balances and
yields and rates on interest earning assets and interest bearing liabilities
(dollars in thousands):
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- - ---------------------- --------------------------- --------------------------- ---------------------------
AVERAGE YIELD/ Average Yield/ Average Yield/
BALANCE INTEREST RATE Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Interest bearing deposits with banks $ 2,355 $ 140 5.94% $ 5,379 $ 294 5.47% $ 4,971 $ 313 6.30%
Federal funds sold 58,637 3,095 5.28 37,795 1,975 5.23 39,901 2,318 5.81
Taxable investment securities (1) 403,634 25,134 6.23 387,955 22,994 5.93 397,699 22,496 5.66
Non-taxable investment securities (2) 75,329 4,379 5.81 68,068 4,198 6.17 57,806 3,711 6.42
Loans (2)(3) 1,770,280 164,763 9.31 1,651,321 156,265 9.46 1,519,084 145,920 9.61
---------- -------- ---------- -------- ---------- --------
TOTAL INTEREST EARNING ASSETS 2,310,235 197,511 8.55 2,150,518 185,726 8.64 2,019,461 174,758 8.65
---------- -------- ---------- -------- ---------- --------
Cash and due from banks 73,120 80,133 75,574
Allowance for loan losses (28,236) (25,239) (23,523)
Premises and equipment 52,433 43,380 39,364
Other assets 57,511 55,388 49,093
---------- ---------- ----------
$2,465,063 $2,304,180 $2,159,969
========== ========== ==========
LIABILITIES
Interest bearing liabilities:
Deposits:
Interest bearing demand $ 302,941 7,347 2.43 $ 324,525 6,149 1.89 $ 280,613 6,762 2.41
Savings 545,903 14,471 2.65 475,136 13,273 2.79 468,128 11,965 2.56
Other time 963,618 52,866 5.49 915,514 50,025 5.46 857,124 47,401 5.53
Short-term borrowings 129,457 6,160 4.76 86,514 3,785 4.38 94,049 5,368 5.71
Long-term debt 49,131 3,634 7.40 49,977 4,384 8.77 39,856 3,258 8.17
---------- -------- ---------- -------- ---------- --------
TOTAL INTEREST BEARING LIABILITIES 1,991,050 84,478 4.24 1,851,666 77,616 4.19 1,739,770 74,754 4.30
-------- -------- --------
Non-interest bearing demand deposits 230,091 216,497 210,070
Other liabilities 34,103 40,908 32,259
---------- ---------- ----------
2,255,244 2,109,071 1,982,099
---------- ---------- ----------
STOCKHOLDERS' EQUITY 209,819 195,109 177,870
---------- ---------- ----------
$2,465,063 $2,304,180 $2,159,969
========== ========== ==========
Excess of interest earning assets
over interest bearing liabilities $ 319,185 $ 298,852 $ 279,691
========== ========== ==========
Net interest income $113,033 $108,110 $100,004
======== ======== ========
Net interest spread 4.31% 4.45% 4.35%
==== ==== ====
Net interest margin (4) 4.89% 5.03% 4.95%
==== ==== ====
</TABLE>
(1) The average balances and yields earned on securities are based on
historical cost.
(2) The amounts are reflected on a fully taxable equivalent basis using the
federal statutory tax rate of 35%, adjusted for certain federal tax
preferences.
(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.
(4) Net interest margin is calculated by dividing the difference between total
interest earned and total interest paid by total interest earning assets.
F.N.B. CORPORATION 29
<PAGE> 53
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
Net interest income, the Corporation's primary source of earnings, is the
amount by which interest and fees generated by earning assets, primarily loans
and securities, exceed interest expense on deposits and borrowed funds. Net
interest income, on a fully taxable equivalent basis, totaled $113.0 million in
1997 versus $108.1 million in 1996. Net interest income consisted of interest
income of $197.5 million and interest expense of $84.5 million in 1997, compared
to $185.7 million and $77.6 million for each, respectively, in 1996. Net
interest income as a percentage of average earning assets (commonly referred to
as the margin) fell to 4.89% in 1997 compared to 5.03% in 1996.
Interest income on loans increased 5.4% from $156.3 million in 1996 to $164.8
million in 1997. This increase was the result of loan growth. Average loans
increased 7.2% from 1996.
Interest expense on deposits increased to $74.7 million in 1997. This increase
was attributable to increases in savings and other time deposits.
The Corporation monitors interest rate sensitivity by measuring the impact
that future changes in interest rates will have on net interest income. Through
its asset/liability management and pricing policies, management has strived to
optimize net interest income while reducing the effects of changes in interest
rates. (See "Liquidity and Interest Rate Sensitivity" discussion).
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 periods
indicated (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996
- - ----------------------- VOLUME RATE NET VOLUME RATE NET
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest bearing deposits with banks $ (182) $ 28 $ (154) $ 33 $ (52) $ (19)
Federal funds sold 1,101 19 1,120 (119) (224) (343)
Securities 1,350 971 2,321 30 955 985
Loans 10,896 (2,398) 8,498 12,606 (2,261) 10,345
------- ------- ------- -------- ------- --------
13,165 (1,380) 11,785 12,550 (1,582) 10,968
------- ------- ------- -------- ------- --------
INTEREST EXPENSE
Deposits:
Interest bearing (363) 1,561 1,198 1,617 (2,230) (613)
Savings 1,807 (609) 1,198 186 1,122 1,308
Other time 2,572 269 2,841 3,223 (599) 2,624
Short-term borrowings 2,022 353 2,375 (405) (1,178) (1,583)
Long-term debt (73) (677) (750) 873 253 1,126
------- ------- ------- -------- ------- --------
5,965 897 6,862 5,494 (2,632) 2,862
------- ------- ------- -------- ------- --------
NET CHANGE $ 7,200 $(2,277) $ 4,923 $ 7,056 $ 1,050 $ 8,106
======= ======= ======= ======= ======= ========
</TABLE>
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.
PROVISION FOR LOAN LOSSES
The provision for loan losses charged to operations is a result of
management's analysis of the adequacy of the allowance for loan losses which
takes into consideration factors, including qualitative factors, relevant to the
collectibility of the existing portfolio. The provision for loan losses
increased 8.1% to $10.6 million in 1997. In connection with the Corporation's
acquisition of WCBI, the Corporation recognized an additional provision for loan
losses of $1.7 million after applying the Corporation's allowance for loan loss
policy and methodology for evaluating the adequacy of the allowance to WCBI (See
"Non-Performing Loans and Allowance for Loan Losses" discussion).
F.N.B. CORPORATION 30
<PAGE> 54
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
NON-INTEREST INCOME
Total non-interest income increased 13.3% from $20.4 million in 1996 to $23.1
million in 1997. This increase was attributable to increases in service charges
and gains on the sale of securities, as well as income from the Corporation's
equity investment in Sun.
Service charges increased 5.1% from $11.3 million in 1996 to $11.9 million in
1997. Revenue was recognized as a result of increases in the level of deposits.
Net gains on the sale of securities increased 51.0% due to a higher level of
equity security sales in 1997.
The Corporation recognized $621,000 in income from its equity investment in
Sun since June 30, 1997.
NON-INTEREST EXPENSES
Total non-interest expenses increased from $86.8 million in 1996 to $88.2
million in 1997. The increase was primarily attributable to an increase of $4.9
million in salaries and employee benefits and an increase in merger-related
expenses from $2.1 million in 1996 to $2.3 million in 1997. Additionally, the
1996 total reflects a one-time assessment of $2.8 million to recapitalize the
SAIF.
Salaries and personnel expense increased 11.7% in 1997. This increase was due
to increases for incentive compensation, as well as normal annual salary
adjustments. The Corporation's incentive compensation plans allow for additional
compensation to be paid to employees based on the Corporation achieving various
financial and productivity goals.
On September 30, 1996, the President of the United States signed into law the
Deposit Insurance Funds Act of 1996 to recapitalize the SAIF. The legislation
included a one-time assessment on all deposits insured by the SAIF, including
those held by chartered commercial banks as a result of previous acquisitions.
The Corporation was required to pay a one-time assessment of $2.8 million.
Included in other non-interest expenses were $2.3 million in 1997 and $2.1
million in 1996 for expenses related to the affiliations with Southwest, WCBI
and Indian Rocks National Bank. These expenses were primarily legal and
investment banking costs associated with the structuring and completion of these
mergers.
INCOME TAXES
The Corporation recognized income tax expense of $11.0 million for 1997
compared to $9.9 million for 1996. The 1997 effective tax rate of 31% was lower
than the 35% federal statutory tax rate due to the tax benefits resulting from
tax-exempt instruments and excludable dividend income. Additional information
relating to income taxes is furnished in the Notes to Consolidated Financial
Statements.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation monitors its liquidity position on an ongoing basis to assure
that it is able to meet the need for funds at all times. Given the monetary
nature of its assets and liabilities and the significant source of liquidity
provided by its securities portfolio, the Corporation generally has sufficient
sources of funds available as needed to meet its routine, operational cash
needs. Excluding mortgage-backed securities, debt securities due to mature
within one year, which will provide a source of short-term liquidity, amounted
to $90.6 million or 25.4% of the securities portfolio.
Additionally, the Corporation has external sources of funds available should
it desire to use them. These include approved lines of credit with several major
domestic banks, of which $32.0 million was unused at the end of 1997. To further
meet its liquidity needs, the Corporation also has access to the Federal Home
Loan Bank and the Federal Reserve Bank, as well as other uncommitted funding
sources.
The financial performance of the Corporation is subject to risk from interest
rate fluctuations. This interest rate risk arises due to differences between the
amount of interest-earning assets and the amount of interest-bearing liabilities
subject to pricing over a specified period, the amount of change in individual
interest rates and the embedded options in all financial instruments. The
F.N.B. CORPORATION 31
<PAGE> 55
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
principal objective of the Corporation's asset/liability management activities
is to maximize net interest income while maintaining acceptable levels of
interest rate and liquidity risk and facilitating the funding needs of the
Corporation. The Corporation's Asset/Liability Committee (ALCO) is responsible
for achieving this objective. The Corporation uses an asset/liability model to
quantify its balance sheet strategies and their associated risks. Net interest
income simulation is the principal tool utilized for these purposes. Gap
analysis is employed as a secondary diagnostic measurement. The Corporation
attempts to mitigate interest rate risk through asset disposition, asset and
liability pricing and matched maturity funding.
A gradual 300 basis point decrease in interest rates is estimated to cause a
decline in net interest income of .9% or $1.1 million for 1998 as compared to
net interest income if interest rates were unchanged during 1998. This low level
of variation is within the Corporation's policy limits. This simulation analysis
assumed that savings and checking interest rates had a low correlation to
changes in market rates of interest and that certain asset prepayments changed
as refinancing incentives evolved. Further, in the event of a change of such a
magnitude in interest rates, the ALCO would likely take actions to further
mitigate its exposure to the change. However, due to the greater uncertainty of
other specific actions that would be taken, the analysis assumed no change in
the Corporation's asset/liability composition.
Following is the gap analysis as of December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
WITHIN 4-12 1-5 OVER
3 MONTHS MONTHS YEARS 5 YEARS TOTAL
-------- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Interest bearing deposits with banks $ 2,553 $ 100 $ 2,653
Federal funds sold 8,350 8,350
Securities:
Available for sale 40,686 36,991 $ 228,963 $ 125,687 432,327
Held to maturity 3,690 22,048 87,489 9,711 122,938
Loans, net of unearned income 525,358 479,361 723,975 161,005 1,889,699
-------- -------- ---------- ---------- ----------
580,637 538,500 1,040,427 296,403 2,455,967
Other assets 193,527 193,527
-------- -------- ---------- ---------- ----------
$580,637 $538,500 $1,040,427 $ 489,930 $2,649,494
======== ======== ========== ========== ==========
INTEREST BEARING LIABILITIES
Deposits:
Interest checking $ 90,723 $ 239,386 $ 330,109
Savings 204,472 408,394 612,866
Time deposits 214,269 $433,191 $ 345,420 316 993,196
Short-term borrowings 79,444 9,784 528 32,348 122,104
Long-term debt 12,479 9,760 40,558 4,449 67,246
-------- -------- ---------- ---------- ----------
601,387 452,735 386,506 684,893 2,125,521
Other liabilities 293,337 293,337
Stockholders' equity 230,636 230,636
-------- -------- ---------- ---------- ----------
$601,387 $452,735 $ 386,506 $1,208,866 $2,649,494
======== ======== ========== ========== ==========
PERIOD GAP $(20,750) $ 85,765 $ 653,921 $ (718,936)
======== ======== ========== ==========
CUMULATIVE GAP $(20,750) $ 65,015 $ 718,936
======== ======== ==========
CUMULATIVE GAP AS A PERCENT
OF TOTAL ASSETS (.78)% 2.45% 27.13%
======== ======== ==========
CUMULATIVE RATE SENSITIVE ASSETS/
CUMULATIVE RATE SENSITIVE
LIABILITIES .97 1.06 1.50 1.16
======== ======== ========== =========
</TABLE>
F.N.B. CORPORATION 32
<PAGE> 56
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
The preceding gap analysis is based on the amortization, maturity or repricing
of the Corporation's interest-earning assets and interest-bearing liabilities.
Non-maturity deposits have been allocated to represent their lower sensitivity
to changes in market interest rates than other adjustable rate instruments. The
cumulative gap represents the difference between these assets and liabilities
over a specified time period. Based on the cumulative one year gap and assuming
no change in asset/liability composition, a decrease in interest rates would be
expected to result in slightly lower net interest income. This gap position is
within the Corporation's policy limits.
FINANCIAL CONDITION
LOAN PORTFOLIO
Following is a summary of loans (in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real estate:
Residential $ 820,782 $ 682,600 $ 610,880 $ 551,285 $ 486,233
Commercial 455,358 421,057 380,571 316,992 254,154
Construction 58,548 41,661 36,264 50,383 29,913
Installment loans to individuals 281,558 395,628 383,457 371,442 279,769
Commercial, financial and agricultural 229,728 189,411 161,239 192,652 199,638
Lease financing 59,852 21,538 5,037
Unearned income (20,344) (23,763) (27,258) (22,677) (22,694)
---------- ---------- ---------- ---------- ----------
$1,885,482 $1,728,132 $1,550,190 $1,460,077 $1,227,013
========== ========== ========== ========== ==========
</TABLE>
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 ratio of loans to deposits at the end of 1997 was 86.0%, up slightly from
a ratio of 85.8% at the end of 1996. The increase in the ratio was a result of
loan growth of 9.1%.
During 1997 and 1996, the Corporation sold $23.9 million and $38.5 million,
respectively, in fixed rate residential mortgages to the Federal National
Mortgage Association (FNMA). These sales allowed the Corporation to avoid the
potential interest rate risk of those fixed rate loans in a rising rate
environment. Additionally, it created liquidity for the Corporation to continue
to offer credit availability to the markets it serves. All of the mortgages were
sold with the servicing retained by the Corporation.
In 1997, total installment loans to individuals and lease financing decreased
to $341.4 million. The Corporation significantly reduced its exposure to
non-prime motor vehicle loans by selling approximately $20.7 million of such
loans to a third party. The sale resulted in the Corporation recognizing an
after-tax loss of $249,000, after reducing the allowance for loan losses by $2.4
million.
The loan portfolio consists principally of loans to small- and medium-sized
businesses within the Corporation's primary market area of western Pennsylvania,
southwest Florida and eastern Ohio.
As of December 31, 1997, no concentrations of loans exceeding 10% of total
loans existed which were not disclosed as a separate category of loans.
F.N.B. CORPORATION 33
<PAGE> 57
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
Following is a summary of the maturity distribution of certain loan categories
based on remaining scheduled repayments of principal (in thousands):
<TABLE>
<CAPTION>
WITHIN ONE TO AFTER
December 31, 1997 ONE YEAR FIVE YEARS FIVE YEARS TOTAL
- - ----------------- -------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $116,481 $103,099 $10,148 $229,728
Real estate - construction 17,931 34,817 5,800 58,548
-------- -------- ------- --------
Total $134,412 $137,916 $15,948 $288,276
======== ======== ======= ========
</TABLE>
The total amount of loans due after one year includes $75.5 million with
floating or adjustable rates of interest and $78.4 million with fixed rates of
interest.
NON-PERFORMING LOANS
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.
Following is a summary of non-performing loans (dollars in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996 1995 1994 1993
- - ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-accrual loans $8,040 $ 9,571 $ 9,506 $11,244 $11,055
Restructured loans 1,314 2,146 3,075 3,157 3,236
------ ------- ------- ------- -------
$9,354 $11,717 $12,581 $14,401 $14,291
------ ------- ------- ------- -------
Non-performing loans as a
percentage of total loans .50% .68% .81% .99% 1.16%
====== ======= ======= ======= =======
</TABLE>
Following is a table showing the amounts of contractual interest income and
actual interest income recorded on non-accrual and restructured loans (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995 1994 1993
- - ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross interest income that would have
been recorded if the loans
had been current and in
accordance with their original terms $1,026 $1,414 $1,298 $1,791 $1,827
Interest income recorded
during the year 466 763 685 676 708
</TABLE>
Following is a summary of loans 90 days or more past due, on which interest
accruals continue (dollars in thousands):
<TABLE>
<CAPTION>
December 31 1997 1996 1995 1994 1993
- - ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans 90 days or more past due $3,218 $2,936 $3,872 $2,753 $3,512
Loans 90 days or more past due as a
percentage of total loans .17% .17% .25% .19% .29%
</TABLE>
F.N.B. CORPORATION 34
<PAGE> 58
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
ALLOWANCE FOR LOAN LOSSES
Management's analysis of the allowance for loan losses includes the evaluation
of the loan portfolio based on internally generated loan review reports and the
historical loss experience of the remaining balances of the various homogeneous
loan pools which comprise the loan portfolio. Specific factors which are
evaluated include the previous loan loss experience with the customer, the
status of past due interest and principal payments on the loan, the collateral
position of the loan, the quality of financial information supplied by the
borrower and the general financial condition of the borrower. Historical loss
experience on the remaining portfolio segments is considered in conjunction with
the current status of economic conditions, loan loss trends, delinquency and
non-accrual trends, credit administration and concentrations of credit risk.
Following is a summary of changes in the allowance for loan losses (dollars
in thousands):
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $27,800 $24,250 $22,268 $17,995 $16,288
Reduction due to the sale of a subsidiary and loans (3,828) (893)
Addition due to acquisitions 1,167
Charge-offs:
Real estate - mortgage (822) (421) (604) (1,454) (591)
Installment loans to individuals (6,928) (5,939) (5,407) (3,817) (3,975)
Commercial, financial and agricultural (1,915) (1,400) (820) (1,484) (4,090)
------- ------- ------- ------- ------
(9,665) (7,760) (6,831) (6,755) (8,656)
------- ------- ------- ------- ------
Recoveries:
Real estate - mortgage 86 128 189 98 173
Installment loans to individuals 808 1,047 1,124 964 781
Commercial, financial and agricultural 315 344 570 789 439
------- ------- ------- ------- -------
1,209 1,519 1,883 1,851 1,393
------- ------- ------- ------- -------
Net charge-offs (8,456) (6,241) (4,948) (4,904) (7,263)
Provision for loan losses 10,585 9,791 6,930 9,177 9,863
------- ------- ------- ------- -------
Balance at end of year $27,268 $27,800 $24,250 $22,268 $17,995
======= ======= ======= ======= =======
Net charge-offs as a percentage of
average loans, net of unearned income .48% .38% .33% .35% .57%
Allowance for loan losses as a percentage of
total loans, net of unearned income 1.45 1.61 1.56 1.53 1.47
Allowance for loan losses as a
percentage of non-performing loans 291.51 237.26 192.75 154.63 125.92
</TABLE>
The increase in the level of charge-offs and the provision for loan losses in
1997 and 1996 resulted primarily from the consistent application of the
Corporation's charge-off policy and methodology for determining the adequacy of
the allowance for loan losses to WCBI and Southwest.
F.N.B. CORPORATION 35
<PAGE> 59
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
The Corporation has allocated the allowance according to the amount deemed to
be reasonably necessary to provide for the possibility of losses being incurred
within each of the categories of loans shown in the table below. The allocation
of the allowance should not be interpreted as an indication that loan losses in
future years will occur in the same proportions or that the allocation indicates
future loan loss trends. Furthermore, the portion allocated to each loan
category is not the sole amount available for future losses within such
categories since the total allowance is a general allowance applicable to the
entire portfolio.
Following shows the allocation of the allowance for loan losses (in
thousands):
<TABLE>
<CAPTION>
% of % of % of % of % of
LOANS Loans Loans Loans Loans
IN EACH in each in each in each in each
CATEGORY Category Category Category Category
TO TOTAL to total to total to total to total
Year Ended December 31 1997 LOANS 1996 Loans 1995 Loans 1994 Loans 1993 Loans
- - ---------------------- ------- ------- ------- -------- ------- --------- ------ --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 4,844 36% $ 6,682 35% $5,860 35% $ 7,946 35% $ 6,967 37%
Real estate - construction 192 3 105 2 75 2 186 3 489 2
Real estate - mortgage 4,026 44 3,121 40 3,284 40 3,554 38 2,849 40
Installment loans to
individuals 5,231 17 7,367 23 6,383 23 5,047 24 4,541 21
Unallocated portion 12,975 -- 10,525 -- 8,648 -- 5,535 -- 3,149 --
------- ---- ------- --- ------- --- ------- --- ------- ---
$27,268 100% $27,800 100% $24,250 100% $22,268 100% $17,995 100%
======= ==== ======= === ======= === ======= === ======= ===
</TABLE>
ALLOWANCE FOR LOAN LOSSES
(Dollars in millions)
[Graph]
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
$18.0 $22.3 $24.3 $27.8 $27.3
INVESTMENT ACTIVITY
Investment activities serve to enhance overall yield on earning assets while
supporting interest rate sensitivity and liquidity positions. Securities
purchased with the intent and ability to retain until maturity are categorized
as securities held to maturity and carried at amortized cost. All other
securities are categorized as securities available for sale and must be marked
to market.
The relatively short average maturity of all securities provides a source of
liquidity to the Corporation and reduces the overall market risk of the
portfolio.
During 1997, securities available for sale increased 34.2% while securities
held to maturity decreased 29.6% from December 31, 1996.
F.N.B. CORPORATION 36
<PAGE> 60
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
The following table indicates the respective maturities and weighted average
yields of securities as of December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
WEIGHTED
AMOUNT AVERAGE YIELD
------ -------------
<S> <C> <C>
Obligations of U.S. Treasury and
other U.S. Government agencies:
Maturing within one year $ 85,359 5.75%
Maturing after one year within five years 189,315 6.25%
Maturing after five years within ten years 27,078 6.73%
State & political subdivisions:
Maturing within one year 5,261 5.11%
Maturing after one year within five years 37,442 6.29%
Maturing after five years within ten years 6,912 6.56%
Maturing after ten years 623 6.57%
Other securities:
Maturing within one year 2 5.40%
Maturing after one year within five years 1,011 5.92%
Maturing after five years within ten years 1,157 6.62%
Maturing after ten years 3,000 6.68%
Mortgage-backed securities 173,879 6.31%
No stated maturity 24,226 4.59%
-------- ----
TOTAL $555,265 6.14%
======== ====
</TABLE>
The weighted average yields for tax exempt securities are computed on a tax
equivalent basis.
DEPOSITS AND SHORT-TERM BORROWINGS
As a commercial bank holding company, the Corporation's primary source of
funds is its deposits. Those deposits are provided by businesses and individuals
located within the markets served by the Corporation's subsidiaries.
Total deposits increased 8.9% to $2.2 billion in 1997. The majority of this
increase was due to a 10.8% increase in savings and NOW accounts. Additionally,
time deposits increased 6.6% to $993.2 million.
Short-term borrowings, made up of repurchase agreements, federal funds
purchased, notes payable and subordinated notes increased 8.8% in 1997 to $122.1
million. The primary reason for this increase was an increase in securities sold
under repurchase agreements. Securities sold under repurchase agreements
increased $18.6 million in 1997.
F.N.B. CORPORATION 37
<PAGE> 61
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
CAPITAL RESOURCES
The assessment of capital adequacy depends on a number of factors such as
asset quality, liquidity, earnings performance, changing competitive conditions
and economic forces. The Corporation seeks to maintain a strong capital base to
support its growth and expansion activities, to provide stability to current
operations and to promote public confidence.
Capital management is a continuous process. Since December 31, 1996,
stockholders' equity has increased $23.5 million as a result of earnings
retention. Total cash dividends declared represented 28.9% of net income for
1997 compared to 34.7% for 1996. Book value per share was $15.27 at December 31,
1997 compared to $13.70 at December 31, 1996.
[Graph]
BOOK VALUE PER SHARE
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
$10.45 $11.42 $12.65 $13.70 $15.27
[Graph]
TOTAL STOCKHOLDERS' EQUITY
(Dollars in millions)
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
$142 $167 $188 $199 $231
1996 VERSUS 1995
The Corporation's net income decreased 5.7% from $21.1 million in 1995 to
$19.9 million in 1996. Basic earnings per share were $1.36 and $1.45 for 1996
and 1995, while diluted earnings per share were $1.32 and $1.41, respectively,
for those same periods. The 1996 results include a special one-time assessment
to recapitalize the SAIF of $2.8 million and merger related costs of $2.1
million. Excluding these items, net income would have been $23.7 million, a
12.7% increase over 1995, and basic and diluted earnings per share would have
been $1.63 and $1.58, respectively. The Corporation's return on average assets
was .86% for 1996 compared to .98% for 1995, while the Corporation's return on
average equity was 10.19% for 1996 compared to 11.85% for 1995. Excluding the
SAIF assessment and merger related costs, the Corporation had a return on
average assets of 1.03% and a return on average equity of 12.17%.
Net interest income, on a fully taxable equivalent basis, increased from
$100.0 million in 1995 to $108.1 million in 1996, an increase of 8.1%. Net
margin rose to 5.03% from 4.95% in 1995. Average loans increased 8.7% from 1995,
contributing to the improvement in net interest income.
The provision for loan losses was $9.8 million and represented an increase of
41.3% from 1995, when a provision of $6.9 million was charged to operations.
This increase resulted from applying a consistent allowance for loan loss policy
and methodology for evaluating the adequacy of the allowance across all
affiliates.
Total non-interest income increased 6.2% from $19.2 million in 1995 to $20.4
million in 1996. This increase was attributable to increases in service charges
and gains on the sale of securities. Service charges increased 6.9% from $10.6
million in 1995 to $11.3 million in 1996. Revenue was recognized as a result of
increases in the level of deposits. Net gains on the sale of securities
increased by $332,000 due to a higher level of equity security sales in 1996.
Total non-interest expenses increased from $78.7 million in 1995 to $86.8
million in 1996. Salaries and employee benefits increased 9.0% in 1996. This
increase was due to expansion in the Corporation's retail network and increases
for incentive compensation, as well as normal annual salary adjustments. As a
result of legislation passed in 1996, the Corporation was required to pay a
one-time assessment of $2.8 million to recapitalize the SAIF. Other
F.N.B. CORPORATION 38
<PAGE> 62
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
non-interest expenses increased $4.2 million in 1996. Included in this total was
$2.1 million of expenses related to the affiliations with Southwest and West
Coast. These expenses were primarily legal and investment banking costs
associated with the structuring and completion of both mergers.
Income tax expense was $9.9 million for 1996 compared to $10.3 million for
1995. The 1996 effective tax rate of 33% was below the 35% statutory tax rate
due to the tax benefits resulting from tax-exempt instruments and excludable
dividend income.
YEAR 2000
The much publicized Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define an applicable year. Any of
the Corporation's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions or engage in similar normal business activities. In addition, the
Year 2000 Issue increases transaction risk with third parties including
customers, service providers and vendors.
During 1997, the Corporation established the Customer Service Center of
F.N.B., L.L.C. (Customer Service), a subsidiary of the Corporation comprised of
two data processing service centers. These facilities support each of the
Corporation's bank and non-bank subsidiaries. As part of its primary functions,
Customer Service has been commissioned to identify and select a single mainframe
and data processing system. Conversion is anticipated to occur in 1999 and will
coincide with the expiration of the Corporation's current primary data
processing contracts. A mandatory requirement of selection will be that the
mainframe and data processing system selected is Year 2000 compliant.
In the event that the Corporation does not convert to a single corporate wide
mainframe and data processing system in 1999, the Corporation has developed a
Year 2000 Bank Strategy and Project Plan (Year 2000 Plan). An integral part of
the Year 2000 Plan is the review and testing of all core data systems and
technology, including hardware, software, applications, mainframes, PC/desktop
applications, system interdependencies and networks. It is anticipated that such
testing will be completed by December 31, 1998. Based on a recent assessment,
the Corporation anticipates expending approximately $220,000 for systems
testing, re-programming and other upgrades in order to remediate its current
systems. However, if such modifications and conversions are not made, or are not
completed in a timely manner, the Year 2000 Issue may have a material impact on
the operations of the Corporation.
The Corporation has initiated communications with significant bank customers,
vendors and others with material relationships in an attempt to evaluate the
extent of their exposure to the Year 2000 Issue. As part of this evaluation, the
Corporation is actively pursuing the receipt of Year 2000 certifications from
these parties. The Corporation could possibly be affected to the extent other
entities not affiliated with the Corporation are unsuccessful in addressing the
Year 2000 Issue.
The costs of completing the Corporation's Year 2000 Plan and the date on which
the Corporation believes it will complete all modifications are based on
management's best estimates. These estimates were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third party modification plans and other significant factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Such material
differences may involve a myriad of factors, including but not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant programming codes and other similar uncertainties.
F.N.B. CORPORATION 39
<PAGE> 63
F.N.B. CORPORATION AND SUBSIDIARIES
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
INFORMATION AS TO STOCK PRICES AND DIVIDENDS
The Corporation's common stock trades on The Nasdaq National Stock Market
under the symbol "FBAN." The accompanying table shows the range of the high and
low bid prices per share of the common stock as reported by Nasdaq. Also
included in the table are dividends per share paid on the outstanding common
stock.
Stock prices and dividend figures have been adjusted to reflect the 5% stock
dividends on April 23, 1997 and April 24, 1996. As of January 31, 1998, there
were 6,260 holders of record of common stock, including former West Coast Bank
shareholders.
Quarter Ended 1997 LOW HIGH DIVIDENDS
--- ---- ---------
March 31 21-7/8 26 $ .15
June 30 21-3/4 32-1/2 .16
September 30 29 32-1/8 .16
December 31 31-1/4 38-7/8 .16
Quarter Ended 1996 LOW HIGH DIVIDENDS
--- ---- ---------
March 31 18-1/8 21-1/2 $ .15
June 30 20-5/8 23-3/4 .15
September 30 22-1/8 24 .15
December 31 21-5/8 23 .15
CASH DIVIDENDS PAID PER COMMON SHARE
[GRAPH]
1ST QTR.
1993 1994 1995 1996 1997 1998
ANNUALIZED
---- ---- ---- ---- ---- ----
$0.23 $0.24 $0.33 $0.60 $0.63 $0.72
The Corporation has historically paid cash dividends on a quarterly basis at
the discretion of the Board of Directors. The Board has increased the regular
common cash dividends for the first quarter of 1998 to $.18 per share. The
payment and amount of future dividends on the common stock will be determined by
the Board of Directors and will depend on, among other things, earnings,
financial condition and cash requirements of the Corporation at the time such
payment is considered and on the ability of the Corporation to receive dividends
from its subsidiaries, the amount of which is subject to regulatory limitations.
F.N.B. CORPORATION 40
<PAGE> 64
[COVER]
[LOGO] F.N.B.
CORPORATION
...........................................................
One F.N.B. Boulevard
Hermitage, PA 16148
<PAGE> 1
LIST OF SUBSIDIARIES EXHIBIT 21
Following lists the significant subsidiaries of the registrant
together with their wholly-owned subsidiaries and the state or jurisdiction of
incorporation of each:
<TABLE>
NAME INCORPORATED
---- ------------
<S> <C> <C>
1) First National Bank of Pennsylvania United States
2) Reeves Bank Pennsylvania
3) First County Bank, N.A. United States
4) Metropolitan National Bank United States
5) First National Bank of Naples United States
6) Cape Coral National Bank United States
7) First National Bank of Fort Myers United States
8) Indian Rocks National Bank United States
9) Regency Finance Company Pennsylvania
</TABLE>
Regency Finance Company conducts business under six names. Business is
conducted at the fifteen offices in Butler, Clearfield, Crawford, Elk, Erie,
Fayette, Lawrence, McKean, Mercer, Somerset and Warren counties in Pennsylvania
under the name of F.N.B. Consumer Discount Company. Business is conducted in
Chataqua county in New York under the names of Citizens Financial Services of
New York, Inc. and Citizens Equity Corporation of New York. Business is
conducted in the seven offices in Columbiana, Mahoning, Lake, Summit and
Trumbull counties in Ohio under the names of Citizens Budget Company and
Citizens Financial Services, Inc. Business is conducted in the thirteen offices
in Centre, Columbia, Hanover, Lackawanna, Lehigh, Monroe, Montour, Northampton,
Snyder, and Union counties in Pennsylvania under the name of Regency Finance
Company.
The other subsidiaries conduct business under the names as shown above.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Regarding:
1) Registration Statement on Form S-8 relating to the F.N.B. Corporation
Voluntary Dividend Reinvestment and Stock Purchase Plan (File
#333-00943).
2) Registration Statement on Form S-8 relating to F.N.B. Corporation 1990
Stock Option Plan (File #33-78114).
3) Registration Statement on Form S-8 relating to F.N.B. Corporation
Restricted Stock Bonus Plan (File #33-78134).
4) Registration Statement on Form S-8 relating to F.N.B. Corporation 1996
Stock Option Plan (File #333-03489).
5) Registration Statement on Form S-8 relating to F.N.B. Corporation
Restricted Stock and Incentive Bonus Plan (File #333-03493).
6) Registration Statement on Form S-8 relating to F.N.B. Corporation
Directors Compensation Plan (File #333-03495).
7) Registration Statement on Form S-8 relating to F.N.B. Corporation
401(k) Plan (File #333-03503).
8) Post-Effective Amendment No.1 on Form S-8 to Registration Statement on
Form S-4 (File #333-01997).
9) Post-Effective Amendment No.1 on Form S-8 to Registration Statement on
Form S-4 (File #333-22909).
10) Registration Statement on Form S-3 relating to the F.N.B. Corporation
Subordinated Notes and Daily Cash Accounts (File #333-31909).
11) Registration Statement on Form S-3 relating to the Voluntary
Dividend Reinvestment and Stock Purchase Plan (File #333-35637).
12) Registration Statement on Form S-8 relating to stock options assumed
in the acquisition of Mercantile Bank of Southwest Florida (File
#333-42333).
We consent to the incorporation by reference in the above listed
Registration Statements of our report dated February 19, 1998, with respect to
the consolidated financial statements of F.N.B. Corporation and subsidiaries
incorporated by reference in this Annual Report (Form 10-K) for the year ended
December 31, 1997.
/s/ ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 13, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF HILL, BARTH & KING, INC., INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statements
of F.N.B. Corporation on Forms S-3 (Registration Nos. 333-31909 and 333-35637)
and Forms S-8 (Registration Nos. 333-00943, 33-78114, 33-78134, 333-03489,
333-03493, 333-03495, 333-03503, 333-01997, 333-22909 and 333-42333) and to the
use in this Annual Report of F.N.B. Corporation on Form 10-K of our report dated
January 22, 1997 relating to the consolidated financial statements of Southwest
Banks, Inc. which have been incorporated into the Audited Consolidated Financial
Statements for the years ended December 31, 1996 and 1995 appearing elsewhere in
this Annual Report.
/s/ Hill, Barth & King, Inc.
Certified Public Accountants
Naples, Florida
March 13, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of F.N.B. Corporation on Forms S-3 (Registration Nos.
333-31909 and 333-35637) and Forms S-8 (Registration Nos. 333-00943,
33-78114, 33-78134, 333-03489, 333-03493, 333-03495, 333-03503,
333-01997, 333-22909 and 333-42333) of our report dated January 24,
1997 on our audits of the consolidated financial statements of West
Coast Bancorp, Inc. for the years ended December 31, 1996 and 1995,
which report is included as an exhibit to F.N.B. Corporation's Annual
Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Tampa, Florida
March 13, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 87,869
<INT-BEARING-DEPOSITS> 2,653
<FED-FUNDS-SOLD> 8,350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 432,327
<INVESTMENTS-CARRYING> 122,938
<INVESTMENTS-MARKET> 123,164
<LOANS> 1,885,482
<ALLOWANCE> 27,268
<TOTAL-ASSETS> 2,649,494
<DEPOSITS> 2,192,713
<SHORT-TERM> 122,104
<LIABILITIES-OTHER> 36,795
<LONG-TERM> 67,246
0
2,875
<COMMON> 29,497
<OTHER-SE> 198,264
<TOTAL-LIABILITIES-AND-EQUITY> 2,649,494
<INTEREST-LOAN> 163,802
<INTEREST-INVEST> 28,471
<INTEREST-OTHER> 3,235
<INTEREST-TOTAL> 195,508
<INTEREST-DEPOSIT> 74,684
<INTEREST-EXPENSE> 84,478
<INTEREST-INCOME-NET> 111,030
<LOAN-LOSSES> 10,585
<SECURITIES-GAINS> 1,246
<EXPENSE-OTHER> 88,208
<INCOME-PRETAX> 35,350
<INCOME-PRE-EXTRAORDINARY> 24,314
<EXTRAORDINARY> 8,809
<CHANGES> 0
<NET-INCOME> 33,123
<EPS-PRIMARY> 2.30
<EPS-DILUTED> 2.18
<YIELD-ACTUAL> 8.55
<LOANS-NON> 8,040
<LOANS-PAST> 3,218
<LOANS-TROUBLED> 1,314
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 27,800
<CHARGE-OFFS> 9,665
<RECOVERIES> 1,209
<ALLOWANCE-CLOSE> 27,268
<ALLOWANCE-DOMESTIC> 27,268
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
January 22, 1997
Board of Directors and Stockholders
of Southwest Banks, Inc.
Naples, Florida
We have audited the accompanying consolidated balance sheets of Southwest Banks,
Inc. and its subsidiaries, First National Bank of Naples and Cape Coral National
Bank (collectively, the Company), as of December 31, 1996 and 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Southwest Banks, Inc. and its subsidiaries as of December 31, 1996 and 1995 and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
/s/ HILL, BARTH & KING, INC.
NAPLES, FLORIDA
<PAGE> 1
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
West Coast Bancorp, Inc. and Subsidiary
Cape Coral, Florida
We have audited the accompanying consolidated balance sheets of West Coast
Bancorp, Inc. and Subsidiary at December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of West Coast
Bancorp, Inc. and Subsidiary at December 31, 1996 and 1995, and the consolidated
statements of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
FORT MYERS, FLORIDA
January 24, 1997
