-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HqvIiODWrD90L5C99hwcqmuocLBEKMe/YYluSiGvX/QwTPqxP2FsCCTYThHIDH9m BSupYo6orp5780bgywO4/w== 0000950128-98-000636.txt : 19980707 0000950128-98-000636.hdr.sgml : 19980707 ACCESSION NUMBER: 0000950128-98-000636 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980318 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FNB CORP/PA CENTRAL INDEX KEY: 0000037808 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 251255406 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-08144 FILM NUMBER: 98567983 BUSINESS ADDRESS: STREET 1: HERMITAGE SQUARE CITY: HERMITAGE STATE: PA ZIP: 16148 BUSINESS PHONE: 4129816000 MAIL ADDRESS: STREET 1: HERMITAGE SQUARE CITY: HERMITAGE STATE: PA ZIP: 16148 FORMER COMPANY: FORMER CONFORMED NAME: CITIZENS BUDGET CO DATE OF NAME CHANGE: 19750909 10-K 1 F.N.B. CORPORATION 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 2 DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K into DOCUMENT which Document is Incorporated -------- ------------------------------ 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
3 FORM 10-K 1997 INDEX
PART I PAGE 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
I-1 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 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).
NUMBER TOTAL TOTAL OF BANK SUBSIDIARIES: ASSETS DEPOSITS OFFICES ------- --------- ------- 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 ========== ========== ==
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 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 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 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 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 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 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 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 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 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 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:
PAGES IN 1997 ANNUAL REPORT CAPTION IN 1997 ANNUAL REPORT TO STOCKHOLDERS TO STOCKHOLDERS 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
II-1 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 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:
PAGES IN 1997 ANNUAL REPORT TO STOCKHOLDERS 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
(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 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. /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
IV-2 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 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 21 INDEX TO EXHIBITS The following exhibits are filed or incorporated by reference as part of this report:
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).
IV-5 22
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).
IV-6 EX-13 2 F.N.B. CORPORATION 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. 2 F.N.B. CORPORATION AND SUBSIDIARIES HIGHLIGHTS OF 1997 Dollars in thousands, except per share data
1997 1996 Percent Change ---- ---- -------------- 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
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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 22 [COVER] [LOGO] F.N.B. CORPORATION ........................................................... One F.N.B. Boulevard Hermitage, PA 16148 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 24 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET Dollars in thousands, except par values
December 31 1997 1996 ---------- ---------- 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 ========== ==========
See accompanying Notes to Consolidated Financial Statements F.N.B. CORPORATION 1 25 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT Dollars in thousands, except per share data
Year Ended December 31 1997 1996 1995 -------- -------- -------- 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 ======== ======== ========
See accompanying Notes to Consolidated Financial Statements F.N.B. CORPORATION 2 26 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Dollars in thousands, except per share data
Net Employee Additional Unrealized Stock Preferred Common Paid-In Retained Securities Ownership Treasury Stock Stock Capital Earnings Gains(Losses) Plan Stock --------- ------- ---------- -------- -------------- --------- -------- 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) ====== ======= ======== ======== ====== ===== =======
See accompanying Notes to Consolidated Financial Statements F.N.B. CORPORATION 3 27 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Dollars in thousands
Year Ended December 31 1997 1996 1995 --------- --------- --------- 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 ========= ========= =========
See accompanying Notes to Consolidated Financial Statements F.N.B. CORPORATION 4 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 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 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):
Year Ended December 31 1997 1996 1995 ---- ---- ---- 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
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):
Year Ended December 31 1997 1996 1995 ---- ---- ---- 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
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 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):
Quarter Ended March 31, 1997 F.N.B. WCBI ------ ---- Net Interest Income................. $25,800 $1,779 Net Income.......................... 6,653 135
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):
Year Ended December 31, 1996 F.N.B. Southwest ------ --------- Net Interest Income................. $80,744 $17,953 Net Income.......................... 18,433 805
SECURITIES The amortized cost of securities and their approximate fair values are as follows (in thousands): Securities available for sale:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 1997 COST GAINS LOSSES VALUE - - ----------------- ---- ----- ------ ----- 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 ======== ====== ======= ========
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 1996 COST GAINS LOSSES VALUE - - ----------------- ---- ----- ------ ----- 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 ======== ====== ======= ========
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 1995 COST GAINS LOSSES VALUE - - ----------------- ---- ----- ------ ----- 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 ======== ====== ======= ========
F.N.B. CORPORATION 8 32 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Securities held to maturity:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 1997 COST GAINS LOSSES VALUE - - ----------------- ---- ----- ------ ----- 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 ======== ==== ======= ========
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 1996 COST GAINS LOSSES VALUE - - ----------------- ---- ----- ------ ----- 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 ======== ==== ======= ========
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 1995 COST GAINS LOSSES VALUE - - ----------------- ---- ----- ------ ----- 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 ======== ==== ======= ========
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 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):
HELD TO MATURITY AVAILABLE FOR SALE AMORTIZED FAIR AMORTIZED FAIR December 31, 1997 COST VALUE COST VALUE ---- ----- ---- ----- 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 ======== ======== ======== ========
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):
1997 1996 1995 ---- ---- ---- Gross gains $1,358 $880 $530 Gross losses 112 55 37 ------ ---- ---- $1,246 $825 $493 ====== ==== ====
LOANS Following is a summary of loans (in thousands):
December 31 1997 1996 ---- ---- 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 ========== ==========
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 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): 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 =======
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):
December 31 1997 1996 - - ----------- ---- ---- 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 ======= =======
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):
At or For the Year Ended December 31 1997 1996 - - ------------------------------------ ---- ---- 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 ====== =======
F.N.B. CORPORATION 11 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):
Year Ended December 31 1997 1996 1995 - - ---------------------- ---- ---- ---- 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 ======= ======= =======
PREMISES AND EQUIPMENT Following is a summary of premises and equipment (in thousands):
December 31 1997 1996 - - ----------- ---- ---- 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 ========= =========
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): 1998 $ 1,918 1999 1,345 2000 996 2001 906 2002 824 Later years 20,177
F.N.B. CORPORATION 12 36 F.N.B. CORPORATION AND SUSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEPOSITS Following is a summary of deposits (in thousands):
December 31 1997 1996 - - ----------- ---------- ---------- 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 ========== ==========
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): 1998.................................... $647,460 1999.................................... 222,609 2000.................................... 75,161 2001.................................... 29,029 2002.................................... 18,621 Later years............................. 316
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):
CERTIFICATES OTHER TIME December 31, 1997 OF DEPOSIT DEPOSITS TOTAL - - ----------------- ------------ ---------- --------- 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 ======== ======== ========
SHORT-TERM BORROWINGS Following is a summary of short-term borrowings (in thousands):
December 31 1997 1996 - - ----------- -------- -------- 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 ======== ========
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 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):
December 31 1997 1996 ---- ---- Real estate mortgages payable $ 147 Federal Home Loan Bank advances $23,386 24,042 Subordinated notes 43,860 33,990 ------- ------- $67,246 $58,179 ======= =======
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): 1998............................... $22,239 1999............................... 19,487 2000............................... 2,727 2001............................... 6,159 2002............................... 12,185 Later years........................ 4,449
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):
December 31 1997 1996 ---- ---- Commitments to extend credit ....... $336,529 $278,310 Standby letters of credit .......... 17,364 14,059
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 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):
Year Ended December 31 1997 1996 1995 - - ---------------------- ---- ---- ---- 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 ======= ======= =======
F.N.B. CORPORATION 15 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:
1997 1996 1995 ---- ---- ---- 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
Activity in the Option Plan during the past three years was as follows:
Weighted Average Price 1997 per Share 1996 1995 ---- --------- ---- ---- 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 ======= ======= =======
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 40 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Following is the estimated funded status (in thousands):
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 -------- ------------- -------- ------------- 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) ======== ======= ======== =======
The pension expense for the defined benefit plans included the following components (in thousands):
Year Ended December 31 1997 1996 1995 - - ---------------------- --- ---- ---- 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 ======= ======= =======
Assumptions as of December 31 1997 1996 1995 - - ----------------------------- ---- ---- ---- 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%
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 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):
Year Ended December 31 1997 1996 - - ---------------------- ---- ---- 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 ===== =====
Net periodic postretirement benefit cost included the following components (in thousands):
Year Ended December 31 1997 1996 1995 - - ---------------------- ---- ---- ---- 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 ==== ==== ====
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 42 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INCOME TAXES Income tax expense consists of the following (in thousands):
Year Ended December 31 1997 1996 1995 - - ---------------------- ---- ---- ---- 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 ======= ======= =======
The tax effects of temporary differences giving rise to deferred tax assets and liabilities are presented below (in thousands):
December 31 1997 1996 - - ----------- ---- ---- 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 ======== ========
Following is a reconciliation between tax expense using federal statutory tax and actual effective tax:
Year Ended December 31 1997 1996 1995 - - ---------------------- ---- ---- ---- 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% ==== ==== ====
F.N.B. CORPORATION 19 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):
Year Ended December 31 1997 1996 1995 - - ---------------------- ---- ---- ---- 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 ======= ======= =======
F.N.B. CORPORATION 20 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):
Year Ended December 31 1997 1996 1995 - - ---------------------- ---- ---- ---- 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
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):
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ----------------------- ---------------------- ---------------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- 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)
F.N.B. CORPORATION 21 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.
BALANCE SHEET (in thousands): December 31 1997 1996 - - ----------- ---- ---- 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 ======== ========
F.N.B. CORPORATION 22 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): 1998..................... $56,100 1999..................... 14,171 2000..................... 2,727 2001..................... 1,159 2002..................... 12,185 Later years.............. 4,449
INCOME STATEMENT (in thousands) Year Ended December 31 1997 1996 1995 - - ---------------------- ---- ---- ---- 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 ======= ======= =======
F.N.B. CORPORATION 23 47 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS (in thousands) Year Ended December 31 1997 1996 1995 - - ---------------------- ---- ---- ---- 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
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 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):
1997 1996 ------------------------------- ----------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- 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
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 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.
YEAR ENDED DECEMBER 31 1997 1996 1995 1994 1993 - - ---------------------- ---------- ---------- ---------- ---------- ---------- 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
* 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 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.
QUARTER ENDED 1997 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 - - ------------------ ------- ------- -------- ------- 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
QUARTER ENDED 1996 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 - - ------------------ ------- ------- -------- ------- 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
* 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 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 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):
Year Ended December 31 1997 1996 1995 - - ---------------------- --------------------------- --------------------------- --------------------------- AVERAGE YIELD/ Average Yield/ Average Yield/ BALANCE INTEREST RATE Balance Interest Rate Balance Interest Rate ------- -------- ---- ------- -------- ---- ------- -------- ---- 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% ==== ==== ====
(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 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):
Year Ended December 31 1997 1996 - - ----------------------- VOLUME RATE NET VOLUME RATE NET ------ ---- --- ------ ---- --- 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 ======= ======= ======= ======= ======= ========
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 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 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):
WITHIN 4-12 1-5 OVER 3 MONTHS MONTHS YEARS 5 YEARS TOTAL -------- ------ ----- ------- ----- 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 ======== ======== ========== =========
F.N.B. CORPORATION 32 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):
December 31 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- 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 ========== ========== ========== ========== ==========
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 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):
WITHIN ONE TO AFTER December 31, 1997 ONE YEAR FIVE YEARS FIVE YEARS TOTAL - - ----------------- -------- ---------- ---------- ----- 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 ======== ======== ======= ========
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):
December 31 1997 1996 1995 1994 1993 - - ----------- ---- ---- ---- ---- ---- 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% ====== ======= ======= ======= =======
Following is a table showing the amounts of contractual interest income and actual interest income recorded on non-accrual and restructured loans (in thousands):
Year Ended December 31 1997 1996 1995 1994 1993 - - ---------------------- ---- ---- ---- ---- ---- 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
Following is a summary of loans 90 days or more past due, on which interest accruals continue (dollars in thousands):
December 31 1997 1996 1995 1994 1993 - - ----------- ---- ---- ---- ---- ---- 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%
F.N.B. CORPORATION 34 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):
Year Ended December 31 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- 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
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 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):
% 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 - - ---------------------- ------- ------- ------- -------- ------- --------- ------ --------- ------- -------- 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% ======= ==== ======= === ======= === ======= === ======= ===
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 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):
WEIGHTED AMOUNT AVERAGE YIELD ------ ------------- 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% ======== ====
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 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 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 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 64 [COVER] [LOGO] F.N.B. CORPORATION ........................................................... One F.N.B. Boulevard Hermitage, PA 16148 EX-21 3 F.N.B. CORPORATION 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: NAME INCORPORATED ---- ------------ 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
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. EX-23.1 4 F.N.B. CORPORATION 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 EX-23.2 5 F.N.B. CORPORATION 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 EX-23.3 6 F.N.B. CORPORATION 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 EX-27 7 F.N.B. CORPORATION
9 12-MOS DEC-31-1997 DEC-31-1997 87,869 2,653 8,350 0 432,327 122,938 123,164 1,885,482 27,268 2,649,494 2,192,713 122,104 36,795 67,246 0 2,875 29,497 198,264 2,649,494 163,802 28,471 3,235 195,508 74,684 84,478 111,030 10,585 1,246 88,208 35,350 24,314 8,809 0 33,123 2.30 2.18 8.55 8,040 3,218 1,314 0 27,800 9,665 1,209 27,268 27,268 0 0
EX-99.1 8 F.N.B. CORPORATION 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 EX-99.2 9 F.N.B. CORPORATION 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 -----END PRIVACY-ENHANCED MESSAGE-----