-----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, Ks3a6e62GDWKd3KZykBen4xoJ3SavuTtLsTWlDXxZgLOR+3p1NWCDrd1D3nxwqYE czg9TsYs1npoOfXQRnc99g== 0000950128-00-000520.txt : 20000315 0000950128-00-000520.hdr.sgml : 20000315 ACCESSION NUMBER: 0000950128-00-000520 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FNB CORP/PA CENTRAL INDEX KEY: 0000037808 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [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: 568814 BUSINESS ADDRESS: STREET 1: ONE FNB BLVD STREET 2: HERMITAGE SQUARE CITY: HERMITAGE STATE: PA ZIP: 16148 BUSINESS PHONE: 7249816000 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 FNB CORPORATION 10-K 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, 1999 ------------------------- 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 pre- ceding 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 29, 2000, 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 $445,473,947. APPLICABLE ONLY TO CORPORATE REGISTRANTS: ---------------------------------------- As of February 29, 2000, the registrant had outstanding 20,817,673 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, 1999 I & II Definitive proxy statement for the 2000 Annual Meeting of Stockholders to be held on April 17, 2000 III 3 FORM 10-K 1999 INDEX
PART I PAGE Item 1. Business. General I-2 Statistical Disclosure I-8 Item 2. Properties. I-8 Item 3. Legal Proceedings. I-9 Item 4. Submission of Matters to a Vote of Security Holders. I-9 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 7A. 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-4
I-1 4 PART I ITEM 1. BUSINESS GENERAL F.N.B. Corporation (the Corporation) was formed in 1974 as a bank holding company. The Corporation has two reportable business segments: community banking and insurance agencies. Refer to "Business Segments" on pages 22-23 of the Annual Report to Shareholders for the year ended December 31, 1999, which is incorporated herein by reference. As of December 31, 1999, the Corporation owned and operated nine community banks and one consumer finance company in Pennsylvania, southwestern Florida, northern and central Tennessee, eastern Ohio, southwestern Kentucky and western New York. The Corporation also owns two insurance agencies in northwestern Pennsylvania and southwestern Florida. In recent years, the Corporation has expanded its market presence in southwest Florida through affiliations with community banks located primarily between Naples and Clearwater, Florida. During 1999, the Corporation acquired Guaranty Bank & Trust Company, headquartered in Venice, Florida, which was merged into an existing affiliate to form West Coast Guaranty Bank, N.A. The Corporation also acquired its two insurance agencies: Gelvin, Jackson & Starr, Inc, located in northwestern Pennsylvania, and Roger Bouchard Insurance, Inc., located in Clearwater, Florida. The Corporation's consumer finance subsidiary expanded its size and geographic scope during 1999 through the purchase of 11 consumer finance offices in Tennessee and Kentucky. On February 23, 2000, the Corporation completed its affiliation with L.J. Kuder, Inc., an independent insurance agency located in Greenville, Pennsylvania. 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, loan operations 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, 1999 for the Corporation's community bank and consumer finance subsidiaries (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 COMMUNITY BANK SUBSIDIARIES: ASSETS DEPOSITS OFFICES ------- --------- ------- First National Bank of Pennsylvania (Est. 1864) Hermitage, Pennsylvania................................... $1,326,954 $1,108,847 35 First National Bank of Naples (Est. 1988) Naples, Florida........................................... 763,509 551,655 8 Cape Coral National Bank (Est. 1994) Cape Coral, Florida....................................... 342,991 303,044 5 First National Bank of Florida (Est. 1997) Clearwater, Florida....................................... 337,860 258,758 11 West Coast Guaranty Bank, N.A. (Est. 1999) Sarasota, Florida......................................... 269,641 209,751 7 Metropolitan National Bank (Est. 1922) Youngstown, Ohio.......................................... 250,015 213,858 8 Reeves Bank (Est. 1868) Beaver Falls, Pennsylvania................................ 160,088 145,819 8 First National Bank of Fort Myers (Est. 1989) Fort Myers, Florida....................................... 92,341 82,684 2 First County Bank, N.A. (Est. 1987) Chardon, Ohio............................................. 62,652 56,954 3 ---------- ---------- -- $3,606,051 $2,931,370 87 ========== ========== == CONSUMER FINANCE SUBSIDIARY: Regency Finance Company (Est. 1927) Hermitage, Pennsylvania........................ .......... $ 88,154 44 ========== ==
The Corporation's insurance agencies, Gelvin, Jackson & Starr, Inc. (GJS) and Roger Bouchard Insurance, Inc. (RBI), have five offices and one office, respectively. GJS is a wholly owned subsidiary of First National Bank of Pennsylvania and RBI is a wholly owned subsidiary of First National Bank of Florida. 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 and commercial, mortgage and individual installment loans. In addition to traditional banking products, the Corporation's bank subsidiaries offer various alternative investment products, including mutual funds and annuities. In addition, First National Trust Company, a subsidiary of First National Bank of Pennsylvania, is a national trust company formed in January 1999, which provides a broad range of personal and corporate fiduciary services, including the administration of decedent and trust estates. The Corporation's banking affiliates, First National Bank of Florida and West Coast Guaranty Bank, N.A., also operate full-service trust departments. As of December 31, 1999, the market value of corporate-wide trust assets under management totaled $648.3 million. OPERATIONS OF THE INSURANCE AGENCIES The Corporation's insurance agencies are full-service insurance companies offering all lines of commercial and personal insurance through major carriers. OPERATIONS OF THE CONSUMER FINANCE SUBSIDIARY The Corporation's consumer finance subsidiary, Regency Finance Company (Regency), 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 Regency's branch offices. MARKET AREA AND COMPETITION The Corporation, through its subsidiaries, currently operates 139 offices in Pennsylvania, southwestern Florida, northern and central Tennessee, eastern Ohio, southwestern Kentucky and western New York. 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, credit life 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, insurance agencies, brokerage houses and similar institutions currently provide many of the financial services offered by the Corporation's subsidiaries. I-4 7 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 29, 2000, the Corporation and its subsidiaries had 1,514 full-time and 407 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. 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-5 8 In approving acquisitions by bank holding companies of banks, 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. The Gramm Leach-Bliley Act of 1999 (the Act) was enacted on November 12, 1999. The Act permits the creation of new financial services holding companies that can offer a full range of financial and banking products and services. The Act eliminates legal barriers which previously prevented affiliations among banks and bank holding companies with securities firms, insurance companies and other financial services companies. The Corporation is qualified under the Act as a "Financial Holding Company" and can expand into a wide variety of products and services that are financial in nature, provided that its depository institution subsidiaries are well managed, well capitalized and have received a "Satisfactory" rating on their last Community Reinvestment Act Examinations. The Act preserves the role of the Federal Reserve Board as the umbrella supervisor for holding companies while at the same time incorporating a system of functional regulation designed to assure that various financial activities will be overseen by the appropriate state or federal regulator with the corresponding regulatory experience and expertise. Banking related activities will be supervised by the banking regulators, securities activities will be regulated by the Securities and Exchange Commission and state regulators, and insurance activities by the state insurance regulators. BANKS The Corporation's bank subsidiaries are supervised and regularly examined (including off-site monitoring) by the Office of the Comptroller of Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the FRB, and the Pennsylvania Department of Banking. The various laws and regulations administered by these regulatory agencies affect corporate practices, such as payment of dividends, incurring debt, acquisition of financial institutions and other companies, and affect business practices and operations, such as payment of interest on deposits, the charging of interest on loans, types of business conducted and location of offices. I-6 9 The Act permits the establishment of financial subsidiaries that may engage in a full array of financial services. The Act creates a mechanism for coordination between the Federal Reserve Board and the Secretary of Treasury regarding the approval of new financial activities that may be engaged in by financial subsidiaries. Also, the Act repeals the blanket exemption that banks had from the definition of "broker" and "dealer" under the Securities Exchange Act and replaces it with a set of limited exemptions that allow the continuation of some traditional banking related transactions performed by banks. Further, the bank exclusion under the Securities Exchange Act from the definition of "investment advisor" was also eliminated under the Act. The Act identifies the following as permissible financial activities for holding companies (and financial subsidiaries of banks) and permits the Federal Reserve Board in consultation with the Secretary of the Treasury to expand such permitted financial activities if it is determined that the activity is financial in nature or incidental thereto or otherwise complimentary to a permitted financial activity and does not pose safety and soundness risks: (i) lending, investing or safeguarding money or securities; (ii) underwriting insurance or annuities or acting as an insurance or annuity principal, agent or broker; (iii) providing financial or investment advice; (iv) issuing or selling interest in pools of assets (e.g. securitizations) that a bank may hold; (v) underwriting, dealing in or making markets in securities; (vi) engaging in activities that the Federal Reserve Board has determined to be closely related to banking; (vii) engage in activities permitted for bank holding companies operating outside of the United States; (viii) merchant banking; or (ix) insurance portfolio investing. CONSUMER FINANCE SUBSIDIARY The Corporation's consumer finance subsidiary is subject to regulation under Pennsylvania, Tennessee, Ohio, Kentucky 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 Tennessee Department of Financial Institutions, the Ohio Division of Consumer Finance, the Commonwealth of Kentucky Department of Financial Institutions 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. INSURANCE AGENCIES The Corporation's insurance agencies are subject to licensing requirements and extensive regulation under the laws of the United States and its various states. These laws and regulations are primarily for the benefit of clients. In all jurisdictions, the applicable laws and regulations are subject to amendment or interpretation by regulatory authorities. Generally, such authorities are vested with relatively broad discretion to grant, renew and revoke licenses and approvals, and to implement regulations. Licenses may be denied or revoked for various reasons, including the violation of such regulations, conviction of crimes and the like. Possible sanctions which may be imposed for violation of regulations include the suspension of individual employees, limitations on engaging in a particular business for a specified period of time, revocation of licenses, censures and fines. I-7 10 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. 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 ITEM 2. PROPERTIES The Corporation operates a six-story building in Hermitage, Pennsylvania which serves as its northern executive offices and shares this facility with its lead banking affiliate, First National Bank of Pennsylvania. The Corporation also owns an eight-story building in Naples, Florida, which serves as its Florida executive and administrative offices and shares this facility with First National Bank of Naples. I-8 11 The banking and consumer finance subsidiaries' branch offices are located in 23 counties in Pennsylvania, 4 counties in southwestern Florida, 10 counties in northern and central Tennessee, 6 counties in eastern Ohio, 1 county in southwestern Kentucky and 1 county in western New York. At December 31, 1999, the Corporation's subsidiaries owned 59 of the Corporation's 137 offices and leased the remaining 78 offices under operating leases expiring at various dates through the year 2020. For additional information regarding the lease commitments, see the Premises and Equipment footnote in the Annual Report to Shareholders. ITEM 3. LEGAL PROCEEDINGS The Corporation and persons to whom the Corporation may have indemnification obligations, in the normal course of business are subject to various pending and threatened lawsuits in which claims for monetary damages are asserted. Management, after consultation with legal counsel, does not at the present time anticipate the ultimate aggregate liability, if any arising out of such lawsuits will have a material adverse effect on the Corporation's financial position. At the present time, management is not in a position to determine whether any pending or threatened litigation will have a material adverse effect on the Corporation's results of operation in any future reporting period. 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 1999. I-9 12 PART II Information relating to Items 5, 6, 7 and 8 is provided in the Corporation's 1999 Annual Report to Stockholders under the captions and on the pages indicated below, and is incorporated herein by reference:
PAGES IN 1999 ANNUAL REPORT CAPTION IN 1999 ANNUAL REPORT TO STOCKHOLDERS TO STOCKHOLDERS ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 42 ITEM 6. SELECTED FINANCIAL DATA 28 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 30-41 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 33-35 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 1-27,29 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
II-1 13 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to this item, except for Kevin C. Hale, 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 17, 2000. Such information is incorporated herein by reference. Kevin C. Hale is Executive Vice President - Chief Operating Officer, Florida Division of F.N.B. Corporation. Previously, he was Senior Executive Vice President, Sun Trust Bank of South Florida (1999-2000) and President and Chief Operating Officer of Sun Trust Bank of Southwest Florida (1994-1999). 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 17, 2000. 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 17, 2000. 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 17, 2000. Such information is incorporated herein by reference. III-1 14 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 1999 Annual Report to Stockholders, are incorporated herein by reference: PAGES IN 1999 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 - 27 Report of Independent Auditors 27 Quarterly Earnings Summary 29 (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 No reports on Form 8-K were filed during the fourth quarter of 1999. IV-1 15 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 March 13, 2000 - ---------------------------------- Officer and Director Peter Mortensen (Principal Executive Officer) /s/ Stephen J. Gurgovits Vice Chairman and Director March 13, 2000 - ---------------------------------- Stephen J. Gurgovits /s/ Gary L. Tice President, Chief Operating March 13, 2000 - ---------------------------------- Officer and Director Gary L. Tice /s/ William J. Rundorff Executive Vice President March 13, 2000 - ---------------------------------- William J. Rundorff /s/ John D. Waters Vice President and Chief March 13, 2000 - ---------------------------------- Financial Officer (Principal John D. Waters Financial and Accounting Officer) Director - ---------------------------------- W. Richard Blackwood Director - ---------------------------------- Alan C. Bomstein /s/ William B. Campbell Director March 13, 2000 - ---------------------------------- William B. Campbell /s/ Charles T. Cricks Director March 13, 2000 - ---------------------------------- Charles T. Cricks
IV-2 16 /s/ Henry M. Ekker Director March 13, 2000 - ---------------------------------- Henry M. Ekker Director - ---------------------------------- James S. Lindsay /s/ Paul P. Lynch Director March 13, 2000 - ---------------------------------- Paul P. Lynch Director - ---------------------------------- Edward J. Mace /s/ Robert S. Moss Director March 13, 2000 - ---------------------------------- Robert S. Moss Director - ---------------------------------- Richard C. Myers Director - ---------------------------------- William A. Quinn Director - ---------------------------------- George A. Seeds /s/ William J. Strimbu Director March 13, 2000 - ---------------------------------- William J. Strimbu /s/ Archie O. Wallace Director March 13, 2000 - ---------------------------------- Archie O. Wallace /s/ James T. Weller Director March 13, 2000 - ---------------------------------- James T. Weller /s/ Eric J. Werner Director March 13, 2000 - ---------------------------------- Eric J. Werner /s/ R. Benjamin Wiley Director March 13, 2000 - ---------------------------------- R. Benjamin Wiley /s/ Donna C. Winner Director March 13, 2000 - ---------------------------------- Donna C. Winner
IV-3 17 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). Continuation of Employment Agreement. (incorporated by reference to Exhibit 10.4. of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998). 10.5. Employment Agreement between F.N.B. Corporation and Stephen J. Gurgovits. (incorporated by reference to Exhibit 10.5. of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998). IV-4 18 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). 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). 10.14. F.N.B. Corporation 1998 Director's Stock Option Plan. (incorporated by reference to Exhibit 10.14. of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998). 10.15. Employment Agreement between F.N.B. Corporation and Gary L. Tice. (incorporated by reference to Exhibit 10.1. of the Corporation's Form 10-Q for the quarter ended June 30, 1999). 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 Hacker, Johnson, Cohen & Grieb PA, Independent Auditors. (filed herewith). 23.3 Consent of Bobbitt, Pittenger & Company, Independent Auditors. (filed herewith). 27 Financial Data Schedule. (filed herewith). IV-5 19 99.1 Report of Independent Auditors, Hacker, Johnson, Cohen & Grieb PA for the 1997 Audits of Seminole Bank. (filed herewith). 99.2 Report of Independent Auditors, Hacker, Johnson, Cohen & Grieb PA for the 1997 Audit of Citizens Holding Corporation and Subsidiaries. (filed herewith). 99.3 Report of Independent Auditors, Bobbitt, Pittenger & Company for the 1998 and 1997 Audits of Guaranty Bank & Trust Company. (filed herewith). IV-6 EX-13 2 EXHIBIT 13 ANNUAL REPORT 1 EXHIBIT 13 [COVER] [LOGO] F.N.B. CORPORATION ........................................................................ 1999 ANNUAL REPORT o NET INCOME INCREASED 19% TO $39 MILLION o TOTAL ASSETS GREW TO $3.7 BILLION o F.N.B. CORPORATION IS A GROWTH COMPANY o NOW IN BANKING, SECURITIES, INSURANCE AND TRUST 2 F.N.B. CORPORATION AND SUBSIDIARIES HIGHLIGHTS OF 1999 Dollars in thousands, except per share data
1999 1998 Change ---- ---- ------ FOR THE YEAR* Core Operating Earnings $40,563 $37,364 +9% Return on Average Assets 1.16% 1.16% n.c. Return on Average Equity 14.18% 13.50% +5% Net Income $39,295 $33,021 +19% Return on Average Assets 1.13% 1.02% +11% Return on Average Equity 13.74% 11.93% +15% PER COMMON SHARE* Core Operating Earnings Basic $1.93 $1.78 +8% Diluted 1.86 1.70 +9% Earnings Basic $1.87 $1.57 +19% Diluted 1.80 1.51 +19% Book Value $13.65 $13.30 +3% AT YEAR END Assets $3,706,184 $3,406,677 +9% Net Loans 2,767,463 2,390,576 +16% Deposits 2,909,434 2,850,428 +2%
TOTAL ASSETS (Dollars in billions) [GRAPH] 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- 2.6 2.8 3.1 3.4 3.7 CORE OPERATING EARNINGS (Dollars in millions) [GRAPH] 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- 25.8 27.5 33.8 37.4 40.6 * CORE OPERATING EARNINGS EXCLUDES MERGER RELATED AND OTHER NON-RECURRING COSTS OF $1.3 MILLION IN 1999 AND MERGER RELATED AND OTHER NON-RECURRING COSTS OF $4.3 MILLION IN 1998, ALL ON AN AFTER-TAX BASIS. CONTENTS 1 CONSOLIDATED FINANCIAL HIGHLIGHTS 2 CHAIRMAN'S LETTER 4 AFFILIATE PROFILES 5 MARKET AREAS 6 FINANCIAL SERVICES 9 NOTEWORTHY EVENTS 12 BOARD LEADERSHIP 13 OFFICERS AND DIRECTORS 16 SHAREHOLDER INFORMATION F.N.B. CORPORATION 1 3 F.N.B. CORPORATION AND AFFILIATES To Our Shareholders and Friends Good news travels fast. In this cyberspace age of seemingly instantaneous digital information access, most of you are aware by now that the Corporation had its strongest year ever in 1999. A growth company, F.N.B. proudly concluded the 20th century with a record of significant accomplishment--the envy of many peer companies. The 1999 numbers offer a snapshot of success. * 19% INCREASE IN NET INCOME TO $39 MILLION * 19% INCREASE IN NET INCOME PER SHARE TO $1.80 * 5% ANNUAL STOCK DIVIDEND AND $0.71 CASH DIVIDEND * 14.18% RETURN ON EQUITY * 9% INCREASE IN TOTAL ASSETS TO $3.7 BILLION * 1.16% RETURN ON ASSETS * 137 OFFICES IN SIX STATES Now let's take a closer look at the big picture. During 1999 F.N.B. Corporation took several steps to position itself for continued profitable growth well into the new century. The company brought another key Florida bank into the fold, strategically entered the insurance field in Pennsylvania and Florida, opened a national trust company, expanded its consumer finance company and introduced a Dividend Reinvestment and Direct Stock Purchase Plan for shareholders and potential investors. All of these strategic initiatives are expected to have a lasting and positive impact on the Corporation's primary goal of increasing its rate of earnings growth. (Additional details regarding these NOTEWORTHY EVENTS may be found on Pages 9-11 of this Report.) [PHOTO] PETER MORTENSEN Chairman of the Board Long-term investors will judge F.N.B. by its ability to manage and react to change. With the dynamic moves in 1999, the Corporation is transforming itself from a multi-bank holding company into a diversified financial services company. Going forward, management is committed to building a company that never loses sight of its No. 1 obligation--the creation of value for shareholders. However, on Wall Street many 1999 bull market investors chose to overlook this solid growth company. F.N.B. has consistently posted record earnings, prudently managed its capital, maintained its superior asset quality and continuously rewarded shareholders with generous cash and stock dividends. Looking ahead, the key to future success at F.N.B. lies in its past performance and present practice. Affiliates always will strive to differentiate themselves from their competitors by providing unequaled professional and personal service, while offering a broad range of quality financial services specifically developed and designed to exceed customer expectations. F.N.B. CORPORATION 2 4 Traditional community banking will continue to drive F.N.B. profits. However, the marketing of additional financial products and services--securities, insurance and trust--to new and existing customers will become a significant contributor to future revenue generation. The bottom line to investors: A sustainable increase in the rate of earnings growth. Before closing, a few words about the 1999 Annual Report. While its green-and-gold appearance has not changed much from last year, the evolutionary story of F.N.B. Corporation continues to unfold. The first of two articles focuses on financial modernization and the transition from a traditional multi-bank holding company to a diversified and growing financial services Corporation. The second highlights noteworthy events of 1999, offering overviews on the new and exciting affiliations consummated during the year. Following these articles is an essay on Board Leadership, including photographs of your 21 elected Directors. Two long-time Directors, Thomas W. Hodge and Joseph M. Walton, were recognized at the Annual Meeting of Shareholders in April upon their retirement from the Board. All of us at F.N.B. express our sincere appreciation for their dedicated years of service. In closing, on behalf of our Directors, management team and employees, thank you for your continued investment in and support of F.N.B. Corporation. Our collective future holds great promise. Sincerely, /s/ PETER MORTENSEN ------------------------------- PETER MORTENSEN Chairman of the Board March 2, 2000 "F.N.B. has consistently posted record earnings, prudently managed its capital, maintained its superior asset quality and continuously rewarded shareholders with generous cash and stock dividends." [PHOTO] THE F.N.B. ADMINISTRATIVE COMMITTEE (FROM LEFT) GARY L. TICE, PRESIDENT AND CHIEF OPERATING OFFICER; WILLIAM J. RUNDORFF, EXECUTIVE VICE PRESIDENT; PETER MORTENSEN, CHAIRMAN OF THE BOARD; JOHN D. WATERS, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER; AND STEPHEN J. GURGOVITS, VICE CHAIRMAN OF THE BOARD. F.N.B. CORPORATION 3 5 AFFILIATE PROFILES BANKING FIRST NATIONAL BANK OF PENNSYLVANIA * Total assets of $1.3 billion * 35 offices in seven counties of north western Pennsylvania FIRST NATIONAL BANK OF NAPLES * Total assets of $764 million * Nine offices in Collier and Lee counties, Florida CORAL CAPE NATIONAL BANK * Total assets of $343 illion * Five offices in Lee County, Florida FIRST NATIONAL BANK OF FLORIDA * Total assets of $337 million * 11 offices in the Clearwater area WEST COAST GUARANTY BANK * Total assets of $270 million * Seven offices in Sarasota County, Florida METROPOLITAN NATIONAL BANK * Total assets of $250 million * Eight offices in eastern Ohio REEVES BANK * Total assets of $160 million * Eight offices in western Pennsylvania FIRST NATIONAL BANK OF FORT MYERS * Total assets of $92 million * Two offices in Lee County, Florida FIRST COUNTY BANK * Total assets of $63 million * Three offices in northeastern Ohio INSURANCE * Roger Bouchard Insurance Inc. (Clearwater, Florida) * Gelvin, Jackson & Starr, Inc. (Meadville, Pennsylvania) * L. J. Kuder, Inc. (Greenville, Pennsylvania) * Penn-Ohio Life Insurance Company (Hermitage, Pennsylvania) TRUST * First National Trust Company (Hermitage and Erie, Pennsylvania; Naples, Florida) * First National Bank of Florida (Clearwater, Florida) * West Coast Guaranty Bank (Sarasota, Florida) CONSUMER FINANCE * Regency Finance Company (Pennsylvania, Ohio, New York, Tennessee and Kentucky) F.N.B. CORPORATION 4 6 F.N.B. CORPORATION AND AFFILIATES MARKET AREAS [MAPS] THE CORPORATION'S MISSION F.N.B. Corporation is a growth company. We are an affiliation of successful community banks and financial services companies seeking to provide high quality financial 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 Financial Services MODERNIZATION ACT PAVES THE WAY FOR ONE-STOP SHOPPING FOR BANKING, SECURITIES, INSURANCE, TRUST SERVICES In November the U.S. Congress passed and the President signed into law the most wide-sweeping banking reform legislation in more than 60 years. Under terms of The Financial Modernization Act of 1999, bank holding companies, including F.N.B. Corporation, were given broad new powers to affiliate with any other financial services companies (including insurance companies or securities firms). F.N.B. Corporation took several strategic steps during 1999 to position its community banking affiliates to take advantage of Financial Modernization. It affiliated with another successful Florida bank, purchased high-performing insurance agencies in Pennsylvania and Florida, formed First National Trust Company, expanded its consumer lending company into Tennessee and Kentucky and began offering investment services and internet banking to customers. (For additional information, see Noteworthy Events on Pages 9-11.) F.N.B. envisions the day when customers will be able to one-stop shop at local financial services centers for an increasing array of products. Customers visiting a center in the 21st century will be able to make a deposit, secure a loan, purchase or sell common stock, buy homeowner's insurance, revise a trust agreement and sit down with their personal financial planner. Community Banking There is no doubt that technology will have an ever-increasing impact on the way banks and their customers conduct business. During the year, several F.N.B. affiliate banks began hosting informational sites on the world wide web. Customers will soon be able to access account data securely, pay bills, apply for loans and transfer funds--all via the internet using a personal computer. For example, Metropolitan National Bank in Youngstown, Ohio, keeps more than 1,100 subscribing customers up to date on Bank marketing activities through weekly internet bulletins. The service is interactive, so customers can respond to the latest product offerings or comment on their relationship with the Bank. Going forward, the more some things change, the more F.N.B. affiliate banks will remain the same. On the internet, at the branch, over the phone and through the mail, providing customers with the highest level of personal service is what distinguishes F.N.B. community banks with its loyal customers. [PHOTO] MARKETING OFFICER IRENE HUCUL AND SENIOR VICE PRESIDENT LLOYD LAMM USE THE INTERNET TO COMMUNICATE WITH 1,100 METROPOLITAN NATIONAL BANK CUSTOMERS. F.N.B. CORPORATION 6 8 [PHOTO] SENIOR VICE PRESIDENT DARRELL WARD (RIGHT) DISCUSSES INVESTMENT OPPORTUNITIES WITH FIRST NATIONAL BANK OF NAPLES CUSTOMERS MICHELE AND GREGORY WARDEBERG. INVESTMENT SECURITIES Formation of First National Trust Company is only one way in which F.N.B. Corporation is working to meet the investment management needs of traditional community banking customers while adding valuable non-interest income to the Corporation's bottom line. During the year several affiliate banks began offering mutual funds and annuities to customers through banking offices. Once again, F.N.B. was responding to customers who expressed a desire to conveniently conduct their investment activities within the safe and secure environment of the bank, yet receive the same high level of personal service they were accustomed to as banking customers. Teaming with investment product experts, F.N.B. affiliate banks now offer a wide range of investment services to personal, small business and commercial customers. INSURANCE SERVICES Anticipating the coming age of financial modernization, F.N.B. seized the initiative during 1999 by acquiring three highly regarded and profitable insurance agencies, two in northwestern Pennsylvania and one on the west coast of Florida (additional information on these transactions is available on Pages 9-11). Initially, the company's nine affiliate banks and the three insurance agencies plan to cross-market services to each other's customers. In the future, personal or business customers will be able to receive all their financial services at one convenient location or from their home or office via the internet. Both banking and insurance customers will be offered a full menu of quality products and services from a staff of knowledgeable, professional personal bankers. F.N.B. CORPORATION 7 9 FIRST NATIONAL TRUST COMPANY Responding to the ever-increasing asset management needs of banking customers, early in 1999 F.N.B. Corporation formally introduced First National Trust Company with offices in Naples, Florida and Hermitage and Erie, Pennsylvania. The new Company's goal is to provide superior personalized service to a growing group of customers within the communities served by F.N.B. banking affiliates. Utilizing a dedicated staff of experienced trust professionals, the Trust Company offers customers a full menu of services, including investment counseling, trust and investment management, estate planning and administration and employee benefits, including 401(k) and IRA rollover services. As working members of the baby-boomer generation continue to accumulate wealth on their way to more leisurely retirement years, First National Trust Company will respond to their growing asset management needs--both now and during their retirement years. F.N.B. has put together a seasoned management team of banking executives sharing more than 150 years of trust experience to ensure that their special clients receive the very finest in personal customer service. [PHOTO] FROM LEFT, ROBERT BUGBEE, COLIN APPLETON AND JAMES GOEHLER COMPRISE THE EXECUTIVE MANAGEMENT TEAM AT FIRST NATIONAL TRUST COMPANY. CONSUMER FINANCE Regency Finance Company is recognized nationally as a premier lender in the consumer finance field. With $125 million in gross assets managed through 44 offices in five states, Regency is F.N.B.'s top-performing affiliate with an annual return on assets of 2.6 percent and a return on equity of 28 percent. The success of Regency is due in part to the small-town environment in which most offices are located. Regency lenders provide credit services to meet the various needs of those customers. Regency strives to have a positive, performance-oriented culture in each office, using behind-the-scenes technology to control costs and enhance value for its customers. The expansion of Regency into Tennessee and Kentucky positions it for future growth in a highly profitable segment of the personal finance business. F.N.B. CORPORATION 8 10 NOTEWORTHY EVENTS AFFILIATION OF COMMUNITY BANKS GROWING INTO A DIVERSIFIED FINANCIAL SERVICES COMPANY BOUCHARD AGENCY AFFILIATION MARKS ENTRY INTO FLORIDA INSURANCE MARKET IN DECEMBER F.N.B. completed its affiliation with Roger Bouchard Insurance Inc., one of the largest independent insurance agencies in Florida. Headquartered in Clearwater, Florida, the Bouchard agency has 60 full-time employees serving the personal insurance needs of 3,500 customers in major market areas on the west coast of Florida. Gross revenues for 1999 topped $7 million. In three short years, F.N.B. has established community banking affiliate offices in Clearwater, Sarasota, Venice, Fort Myers, Cape Coral and Naples serving more than 80,000 customers. Using that base, Bouchard is expected to play a major role in continuing F.N.B.'s highly successful Florida growth strategy. "Roger Bouchard Insurance is one of the top-performing independent agencies in the country," commented John Wepler, Vice President and a Principal with Marsh-Berry, a nationally recognized Cleveland-based management consulting firm specializing in insurance. "With the addition of F.N.B.'s sizeable capital base, Bouchard will become a more powerful player in the Florida insurance arena." F.N.B. banking and Bouchard insurance customers are all expected to benefit through the opportunity to purchase complementary financial services from either entity. One stop shopping for banking and insurance products from companies that place an emphasis on providing the highest level of personal customer service--it makes sense. CHAIRMAN MORTENSEN RECOGNIZED FOR 40 YEARS OF SERVICE TO F.N.B. IN APRIL at the Annual Meeting of Shareholders, Chairman Peter Mortensen was presented with an engraved resolution and plaque in recognition of his 40 consecutive years of uninterrupted service to First National Bank of Pennsylvania and F.N.B. Corporation. In part, the resolution read, "That the Corporation expresses the genuine gratitude and extraordinary esteem held by its directors, officers and employees for Mr. Mortensen's wisdom, vision and diligence on behalf of all those associated with F.N.B. Corporation, its affiliate banks and subsidiary companies, and for his significant contributions to business, industry and the community." [PHOTO] AN ENGRAVED RESOLUTION RECOGNIZES PETER MORTENSEN FOR HIS 40 CONSECUTIVE YEARS OF SERVICE TO THE CORPORATION. F.N.B. CORPORATION 9 11 WEST COAST BANK AND GUARANTY BANK COMBINE FORCES IN SARASOTA AREA IN JANUARY West Coast Guaranty Bank was formed by the merger of Guaranty Bank & Trust Company of Venice, Florida and F.N.B.'s existing Sarasota affiliate, West Coast Bank. The combined institution now has seven convenient banking locations in Sarasota County. "As a result of the merger, West Coast Guaranty Bank now provides an expanded menu of banking services to customers throughout Sarasota County, from the city of Sarasota in the north to Venice in the south," according to Joseph D. Hudgins, President and Chief Executive Officer. "And, original West Coast Bank customers are benefitting from the addition of trust services." By the end of 1999, the Bank's total assets had topped the $270 million mark, a solid first year. INSURANCE AGENCY PURCHASE SPURS NORTHERN EXPANSION IN AUGUST Gelvin, Jackson & Starr, Inc., one of the oldest and largest independent insurance agencies in northwestern Pennsylvania, became a wholly owned subsidiary of First National Bank of Pennsylvania, thus adding insurance to F.N.B.'s expanding menu of products and services. The agency operates six offices in western Pennsylvania, providing all lines of commercial and personal insurance coverage through 24 carriers. Customers of both companies benefit from the affiliation. F.N.B. banking customers can now purchase automobile, life, health, business and homeowners insurance, while Gelvin Jackson & Starr policy holders are being welcomed to the Home of the Personal Bankers. [PHOTO] GELVIN JACKSON & STARR PRESIDENT AND CHIEF EXECUTIVE OFFICER STEVE HUNTER (SECOND FROM LEFT), IS JOINED BY THREE KEY INSURANCE MANAGERS, BRENDA SHARTLE (LEFT), COLM MCWILLIAMS AND STACEY JANES. In February 2000, F.N.B. purchased L.J. Kuder, Inc., an independent insurance agency in Greenville, Pennsylvania. Kuder, which was founded in 1933, handles all lines of commercial and personal insurance. It will operate as a subsidiary of Gelvin, Jackson & Starr. F.N.B. CORPORATION 10 12 27 CONSECUTIVE YEARS OF DIVIDENDS EARNS F.N.B. NATIONAL RECOGNITION F.N.B.'s history of increasing dividend payments to shareholders each year over the past 27 consecutive years is distinctively noteworthy, according to Moody's, one of the nation's most-respected financial research companies. In September the Corporation was designated a Moody's Dividend Achiever based on its outstanding record of providing shareholders with increased dividends. Of the more than 10,000 U.S.-based companies tracked in Moody's data base, only 334 had increased dividends for at least ten consecutive years. In a listing of those 334 companies, F.N.B. ranked 41st in dividend performance. During 1999, F.N.B. paid cash dividends of $0.71 per share in addition to its traditional five percent stock dividend. REGENCY FINANCE COMPANY EXPANDS INTO TENNESSEE AND KENTUCKY IN NOVEMBER Regency Finance Company expanded its size and geographic scope through the acquisition of 11 offices and $50 million in gross loans in Tennessee and Kentucky. Regency, which was founded in 1927, has been associated with F.N.B. since 1975 and had grown to nearly $100 million in loans with 33 offices in Pennsylvania, Ohio and New York. With the addition of the Tennessee and Kentucky locations, Regency now has more than $150 million in total loans through 44 offices in five states. The strength of Regency is the ability to successfully meet the credit needs of customers in small- and medium-sized towns. Regency provides direct traditional consumer lending services, including home equity, installment and debt consolidation loans to consumers. Direct Stock Purchase Plan Offered To F.N.B. Investors IN APRIL F.N.B. introduced the Dividend Reinvestment and Direct Stock Purchase Plan. Under terms of this convenient and economical Plan, shares of F.N.B. common stock are available for direct purchase from the Corporation. Buying shares directly from F.N.B. means investors pay no brokerage fees on the transaction. More than 60 percent of all F.N.B. shareholders participate in the Plan and enjoy the ability to reinvest all or a portion of their cash dividends in additional shares of F.N.B. common stock. The Plan also offers safekeeping and features a regular quarterly statement summarizing all year-to-date activity in the account. [PHOTO] F.N.B. SHAREHOLDER SERVICES MANAGER BERNIE SPONSELLER (CENTER) WORKS CLOSELY WITH ASSISTANTS BECKY KORELSTEIN (LEFT) AND LIZ MCCREA. F.N.B. CORPORATION 11 13 BOARD LEADERSHIP At F.N.B. Corporation, members of the Board of Directors actively contribute to the success of the company by drawing on their individual management experience to participate in the corporate decision-making process. It's called Board Leadership. Much of the Board's work is carried out by its committees including Audit, Community Development, Compensation, Executive and Nominating which meet on a regular basis. The average F.N.B. Director has experience running their own business or a public, private or civic corporation, is 56 years old and has been a member of the Board for 11 years. Each and every Director has a sizeable personal stake in the Corporation's successful financial performance. The average Director owns 64,136 shares of F.N.B. common stock. So, the next time you think of F.N.B.'s Board of Directors, think of them as 21 shareholders elected by 6,743 other shareholders to represent actively the best interests of all shareholders. [LOGO] [PHOTO] DIRECTORS (STANDING, FROM LEFT) WILLIAM B. CAMPBELL, W. RICHARD BLACKWOOD, JAMES S. LINDSAY AND ALAN C. BOMSTEIN; (SEATED) HENRY M. EKKER, STEPHEN J. GURGOVITS AND CHARLES T. CRICKS. [PHOTO] DIRECTORS (STANDING, FROM LEFT) PAUL P. LYNCH, EDWARD J. MACE, GEORGE A. SEEDS AND RICHARD C. MYERS; (SEATED) WILLIAM A. QUINN, PETER MORTENSEN AND ROBERT S. MOSS. [PHOTO] DIRECTORS (STANDING, FROM LEFT) ARCHIE O. WALLACE, ERIC J. WERNER, WILLIAM J. STRIMBU AND JAMES T. WELLER; (SEATED) DONNA C. WINNER, GARY L. TICE AND R. BENJAMIN WILEY. F.N.B. CORPORATION 12 14 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. ALAN C. BOMSTEIN President & Chief Executive Officer Creative Contractors, Inc. WILLIAM B. CAMPBELL Retired Business Executive CHARLES T. CRICKS Principal, Starboard Ventures HENRY M. EKKER Attorney at Law, Partner of Ekker, Kuster & McConnell STEPHEN J. GURGOVITS Vice Chairman, F.N.B. Corporation; President & Chief Executive Officer, First National Bank of Pennsylvania 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 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 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 THOMAS C. ELLIOTT CHARLES C. HAMILTON THOMAS W. HODGE GEORGE E. LOWE, D.D.S. JOSEPH M. WALTON GENERAL COUNSEL COHEN & GRIGSBY, P.C. 2900 CNG TOWER 625 LIBERTY AVENUE PITTSBURGH, PA F.N.B. CORPORATION 13 15 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 KENNETH R. JAMES JAMES E. KNARR, D.M.D. PAUL P. LYNCH PETER MORTENSEN Chairman ROBERT S. MOSS GARY P. SCHNEIDER WILLIAM J. STRIMBU ARCHIE O. WALLACE JOSEPH P. WALTON JAMES T. WELLER ERIC J. WERNER R. BENJAMIN WILEY DONNA C. WINNER METROPOLITAN NATIONAL BANK DIRECTORS DELORES E. CRAWFORD RYERSON W. DALTON SUZANNE FLEMING C. CLARK HAMMITT JAMES R. HARPSTER LAWRENCE J. HESELOV JAMES E. LEONELLI, M.D. CARTER LEWIS PETER MORTENSEN JOHN M. NEWMAN JOHN R. PERKINS GARY J. ROBERTS President & Chief Executive Officer WILLIAM J. RUNDORFF DIRECTORS EMERITUS DAVID R. JONES GEORGE A. SEEDS 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 REEVES BANK DIRECTORS W. RICHARD BLACKWOOD JOAN H. KLEIN RALPH LINARELLI, SR. ROBERT A. RIMBEY President & Chief Executive Officer ALLEN F. SOBOL EDWARD S. YOUNG DONALD W. ZAHN DIRECTORS EMERITUS JOHN J. KNOBLOCH HAROLD C. KORNMAN CAPE CORAL NATIONAL BANK DIRECTORS ROBERT J. AVERY President ANDREW A. BARNETTE RICHARD D. BARTON, SR. JO ELLEN BEAUVOIS C.C. COGHILL JAMES L. COTTRELL DAVID W. GOMER Chairman & Chief Executive Officer DR. JOSEPH HOWARD PAUL W. SANBORN H. FRANK SIMONDS GARY L. TICE FIRST NATIONAL BANK OF FLORIDA DIRECTORS ROBERT J. BANKS ALAN C. BOMSTEIN ROGER O. BOUCHARD JAMES M. CANTONIS C. DAVID CARLEY, JR. DANIEL A. ENGELHARDT ROBERT C. GEORGE Chairman JAMES L. GOEHLER WILLIAM E. HALE, M.D. ROBERT L. HURD DUKE L. MITCHELL CLOYD A. PETRO F. WALLACE POPE, JR., ESQ. DAVID P. STONE President & Chief Executive Officer J. ERIC TAYLOR, JR., D.O. GARY L. TICE ROBERT T. TONG O. LEE WASSON HAROLD M. WARD, D.O. F.N.B. CORPORATION 14 16 F.N.B. CORPORATION AND AFFILIATES FIRST NATIONAL BANK OF FORT MYERS DIRECTORS J. KEITH ARNOLD C.C. COGHILL THOMAS R. CRONIN Chairman BENJAMIN C. FEW, III JAMES L. GOEHLER THOMAS B. HART RANDALL P. HENDERSON, JR. JEFFERY C. LEDWARD MARVIN L. METHENY JAMES B. MCMENAMY MARK L. MORRIS President & Chief Executive Officer STEPHEN R. ZELLNER, M.D. WEST COAST GUARANTY BANK DIRECTORS JAMES M. BRANDT, D.V.M. ROBERT P. BROWN ROBERT A. DAVIDSON PAT F. FERLISE JAMES L. GOEHLER WARREN S. HENDERSON JOSEPH D. HUDGINS President & Chief Executive Officer JAMES H. LANIER THOMAS E. MITCHELL JOHN W. REEDER EDWIN D. TAYLOR H. MONROE WARRINGTON FIRST COUNTY BANK DIRECTORS LLOYD A. LAMM VITO A. MACHI GREGORY S. PIKE President & Chief Executive Officer GARY J. ROBERTS WILLIAM J. RUNDORFF REGENCY FINANCE COMPANY DIRECTORS ALAN F. BENNETT STEPHEN J. GURGOVITS Chairman RAYMOND J. HEATH VICTOR C. LEAP JOHN M. NEWMAN ROBERT T. RAWL President & Chief Executive Officer GARY SOBOTKA DOUGLAS J. SOLOCK THOMAS M. TUGGLE F.N.B. AFFILIATE SERVICES OFFICERS C.C. COGHILL Senior Vice President JAMES L. GOEHLER Senior Vice President GEORGE D. HAGI Vice President-Risk Management JAMES G. ORIE Vice President & Corporate Counsel ROBERT T. REICHERT Vice President & Controller EDWARD H. SEHON Manager of Public Affairs BERNIE G. SPONSELLER Manager of Shareholder Services CHRISTINE E. TVAROCH General Auditor F.N.B. CORPORATION 15 17 SHAREHOLDER INFORMATION EXECUTIVE OFFICES F.N.B. Corporation One F.N.B. Boulevard Hermitage, PA 16148 2150 Goodlette Road North Naples, FL 34102 SHAREHOLDER RELATIONS AND STOCK TRANSFER AGENT F.N.B. Shareholder Services P.O. Box 11929 Naples, FL 34101-1929 Phone: (888) 441-4362 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, F.N.B. Corporation, 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 Monday, April 17, 2000 at the Naples Beach Hotel, 851 Gulf Shore Boulevard North, Naples, FL 34102. F.N.B. CORPORATION 16 18 [COVER] [LOGO] F.N.B. CORPORATION .................................................. One F.N.B. Boulevard Hermitage, PA 16148 2150 Goodlete Road North Naples, FL 34102 19 [LOGO] F.N.B. CORPORATION .......................................................... 1999 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 27 Report of Independent Auditors 28 Selected Financial Data 29 Quarterly Earnings Summary 30 Management's Discussion 42 Market for Common Stock and Related Shareholder Matters 20 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET Dollars in thousands, except par values
December 31 1999 1998 - ----------- ---- ---- ASSETS Cash and due from banks $ 171,183 $ 134,847 Interest bearing deposits with banks 3,478 4,192 Federal funds sold 7,467 44,706 Mortgage loans held for sale 8,733 15,947 Securities available for sale 408,731 455,435 Securities held to maturity (fair value of $75,905 and $119,522) 77,359 118,575 Loans, net of unearned income of $61,976 and $31,014 2,803,774 2,422,884 Allowance for loan losses (36,311) (32,308) ---------- ---------- NET LOANS 2,767,463 2,390,576 ---------- ---------- Premises and equipment 105,052 95,263 Other assets 156,718 147,136 ---------- ---------- TOTAL ASSETS $3,706,184 $3,406,677 ========== ========== LIABILITIES Deposits: Non-interest bearing $ 424,352 $ 400,658 Interest bearing 2,485,082 2,449,770 ---------- ---------- TOTAL DEPOSITS 2,909,434 2,850,428 ---------- ---------- Other liabilities 56,604 52,746 Short-term borrowings 332,197 150,981 Long-term debt 117,634 70,384 ---------- ---------- TOTAL LIABILITIES 3,415,869 3,124,539 ---------- ---------- STOCKHOLDERS' EQUITY Preferred stock - $10 par value Authorized - 20,000,000 shares Issued - 207,459 and 237,985 shares Aggregate liquidation value - $5,186 and $5,950 2,075 2,380 Common stock - $2 par value Authorized - 100,000,000 shares Issued - 21,005,720 and 19,913,288 shares 42,011 39,827 Additional paid-in capital 182,834 161,232 Retained earnings 71,310 75,427 Accumulated other comprehensive (loss) income (4,803) 6,356 Treasury stock - 121,132 and 109,285 shares at cost (3,112) (3,084) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 290,315 282,138 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $3,706,184 $3,406,677 ========== ==========
See accompanying Notes to Consolidated Financial Statements F.N.B. CORPORATION 1 21 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT Dollars in thousands, except per share data
Year Ended December 31 1999 1998 1997 - ---------------------- ---- ---- ---- INTEREST INCOME Loans, including fees $222,043 $205,071 $187,225 Securities: Taxable 27,655 32,458 29,210 Nontaxable 2,210 2,482 2,442 Dividends 1,482 1,682 1,252 Other 1,526 4,334 4,997 -------- -------- -------- TOTAL INTEREST INCOME 254,916 246,027 225,126 -------- -------- -------- INTEREST EXPENSE Deposits 90,326 96,657 86,466 Short-term borrowings 11,282 6,813 6,415 Long-term debt 4,859 4,682 3,847 -------- -------- -------- TOTAL INTEREST EXPENSE 106,467 108,152 96,728 -------- -------- -------- NET INTEREST INCOME 148,449 137,875 128,398 Provision for loan losses 9,240 7,572 11,503 -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 139,209 130,303 116,895 -------- -------- -------- NON-INTEREST INCOME Insurance commissions and fees 10,589 9,935 9,724 Service charges 20,254 16,581 13,658 Trust 3,852 2,792 2,707 Gain on sale of securities 1,674 1,385 1,287 Gain on sale of loans 2,187 3,316 1,730 Other 8,372 5,296 4,172 -------- -------- -------- TOTAL NON-INTEREST INCOME 46,928 39,305 33,278 -------- -------- -------- 186,137 169,608 150,173 -------- -------- -------- NON-INTEREST EXPENSE Salaries and employee benefits 70,246 62,740 56,088 Net occupancy 9,000 8,487 8,084 Amortization of intangibles 1,934 1,321 1,584 Equipment 10,840 9,133 8,255 Merger related 1,824 5,541 2,385 Promotional 2,818 2,561 2,793 Insurance claims paid 4,162 3,964 3,579 Other 28,855 26,422 25,164 -------- -------- -------- TOTAL NON-INTEREST EXPENSE 129,679 120,169 107,932 -------- -------- -------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS 56,458 49,439 42,241 Income taxes 17,163 16,418 13,013 -------- -------- -------- INCOME BEFORE EXTRAORDINARY ITEMS 39,295 33,021 29,228 Gain on sale of subsidiary and branches, net of tax of $4,743 8,809 -------- -------- -------- NET INCOME $ 39,295 $ 33,021 $ 38,037 ======== ======== ======== EARNINGS PER COMMON SHARE BEFORE EXTRAORDINARY ITEMS Basic $ 1.87 $ 1.57 $ 1.43 ======== ======== ======== Diluted $ 1.80 $ 1.51 $ 1.37 ======== ======== ======== EARNINGS PER COMMON SHARE Basic $ 1.87 $ 1.57 $ 1.87 ======== ======== ======== Diluted $ 1.80 $ 1.51 $ 1.78 ======== ======== ========
See accompanying Notes to Consolidated Financial Statements F.N.B. CORPORATION 2 22 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Dollars in thousands, except per share data
Accumulated Other Compre- Additional Compre- hensive Preferred Common Paid-In Retained hensive Treasury Income Stock Stock Capital Earnings Income Stock ------ ----- ----- ------- -------- ------ ----- Balance at January 1, 1997 $3,525 $35,149 $115,449 $ 79,792 $ 2,598 $(1,487) Net income $ 38,037 38,037 Change in accumulated other comprehensive income 2,785 2,785 -------- Comprehensive income $ 40,822 Cash dividends declared: ======== Preferred stock (588) Common stock $.56 per share (10,526) Purchase of common stock (7,688) Issuance of common stock 91 228 (496) 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 ------ ------- -------- -------- ------- ------- Balance at December 31, 1997 2,875 38,098 133,375 93,990 5,383 (3,628) Net income $ 33,021 33,021 Change in accumulated other comprehensive income 973 973 -------- Comprehensive income $ 33,994 ======== Cash dividends declared: Preferred stock (492) Common stock $.67 per share (13,615) Purchase of common stock (16,989) Issuance (retirement) of common stock (17) (329) (8,040) 17,533 Stock dividend 1,528 27,909 (29,437) Conversion of preferred stock (495) 218 277 ------ ------- -------- -------- ------- -------- Balance at December 31, 1998 2,380 39,827 161,232 75,427 6,356 (3,084) Net income $ 39,295 39,295 Change in accumulated other comprehensive income (11,159) (11,159) -------- Comprehensive income $ 28,136 ======== Cash dividends declared: Preferred stock (411) Common stock $.71 per share (16,108) Purchase of common stock (17,709) Issuance (retirement) of common stock 129 299 (3,840) 17,681 Stock dividend 1,916 21,137 (23,053) Conversion of preferred stock (305) 139 166 ------ ------- -------- -------- -------- -------- Balance at December 31, 1999 $2,075 $42,011 $182,834 $ 71,310 $ (4,803) $ (3,112) ====== ======= ======== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements F.N.B. CORPORATION 3 23 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Dollars in thousands
Year Ended December 31 1999 1998 1997 - ---------------------- ---- ---- ---- OPERATING ACTIVITIES Net income $ 39,295 $ 33,021 $ 38,037 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,312 9,173 8,410 Provision for loan losses 9,240 7,572 11,503 Provision for valuation allowance on other real estate owned 540 Deferred taxes (9,051) (4,220) (1,247) Gain on sale of securities (1,674) (1,385) (1,287) Gain on sale of loans (2,187) (3,316) (1,730) Extraordinary gains on sales of subsidiary and branches, net of tax (8,809) Proceeds from sale of loans 45,858 89,484 115,998 Loans originated for sale (36,457) (95,579) (110,382) Net change in: Interest receivable 384 82 (2,693) Interest payable 796 684 1,783 Other, net 12,850 (55,909) 4,492 --------- --------- --------- Net cash flows from operating activities 70,366 (20,393) 54,615 --------- --------- --------- INVESTING ACTIVITIES Net change in: Interest bearing deposits with banks 714 1,389 (2,311) Federal funds sold 37,239 1,307 (3,294) Loans (389,843) (253,960) (210,262) Securities available for sale: Purchases (167,851) (218,465) (273,869) Sales 32,053 16,630 45,059 Maturities 166,946 219,863 148,684 Securities held to maturity: Purchases (1,021) (36,960) (16,028) Maturities 42,240 72,722 67,158 Increase in premises and equipment (18,078) (25,161) (19,544) Net cash (paid) received for mergers, acquisitions and divestiture (3,941) 48,625 (50,362) --------- --------- --------- Net cash flows from investing activities (301,542) (174,010) (314,769) --------- --------- --------- FINANCING ACTIVITIES Net change in: Non-interest bearing deposits, savings and NOW 34,525 203,372 133,890 Time deposits 24,481 14,789 114,449 Short-term borrowings 181,216 23,795 (1,802) Increase in long-term debt 70,489 16,543 43,929 Decrease in long-term debt (23,239) (19,592) (29,862) Net acquisition of treasury stock (3,440) (7,842) (2,319) Cash dividends paid (16,520) (14,107) (11,114) --------- --------- --------- Net cash flows from financing activities 267,512 216,958 247,171 --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 36,336 22,555 (12,983) Cash and cash equivalents at beginning of year 134,847 112,292 125,275 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 171,183 $ 134,847 $ 112,292 ========= ========= =========
See accompanying Notes to Consolidated Financial Statements F.N.B. CORPORATION 4 24 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS: The Corporation is a bank holding company headquartered in Hermitage, Pennsylvania with administrative offices in Naples, Florida. It operates 9 community banks with 88 offices and a consumer finance company with 44 offices in Pennsylvania, Florida, Tennessee, Ohio, Kentucky and New York. In addition, it operates two insurance agencies with 7 offices in Pennsylvania and Florida. 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 accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could 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), net of income taxes, reported separately as a component of other comprehensive income. 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 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, all unpaid interest is reversed. 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 economic conditions, known and inherent risks in the loan portfolio, the estimated value of underlying collateral and changes in the composition of the loan portfolio. 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. F.N.B. CORPORATION 5 25 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Impaired loans are identified and measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, 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 the Corporation will not be able to collect 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 over the asset's estimated useful life. Useful lives are dependent upon the nature and condition of the asset and range from 5 to 40 years. 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 using the straight-line method over periods not exceeding 20 years. Core deposit intangibles are being amortized using accelerated methods over various lives ranging from 7-17 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, including the 5 percent stock dividend declared on April 26, 1999. 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: Financial Accounting Standards Statement (FAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," requires all derivatives to be recorded on the balance sheet at fair value and establishes standard accounting methodologies for hedging activities. The standard will result in the recognition of offsetting changes in value or cash flows of both the hedge and the hedged item in earnings in the same period. The statement is effective for the Corporation's fiscal year ending December 31, 2001. Because the Corporation has not entered into any derivative transactions, the adoption of this statement will have no impact on the financial statements. F.N.B. CORPORATION 6 26 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MERGERS, ACQUISITIONS AND DIVESTITURES On December 7, 1999, First National Bank of Florida completed its affiliation with Roger Bouchard Insurance, Inc. (RBI), headquartered in Clearwater, Florida, with assets of $4.4 million. The transaction was accounted for as a pooling-of-interests. On October 26, 1999, Regency Finance Company (Regency) expanded its size and geographic scope through the purchase of 11 consumer finance offices in northern and central Tennessee and southwestern Kentucky. Regency purchased these offices and $33.0 million in net loans from Finance and Mortgage Acceptance Corporation, a subsidiary of Farmers & Merchants Bank of Clarksville, Tennessee. The transaction was accounted for as a purchase and did not result in any goodwill. On August 20, 1999, First National Bank of Pennsylvania (FNBPA) acquired all of the issued and outstanding stock of Gelvin, Jackson & Starr, Inc., a northwestern Pennsylvania independent insurance agency. The transaction was accounted for as a purchase. On January 13, 1999, the Corporation completed its affiliation with Guaranty Bank & Trust Company (Guaranty), a community bank headquartered in Venice, Florida with assets of $152.8 million. Under the terms of the merger agreement, each outstanding share of Guaranty's common stock was converted into 1.536 shares of the Corporation's common stock. A total of 1,250,994 shares of the Corporation's common stock were issued. The transaction was accounted for as a pooling-of-interests. On February 12, 1999, Guaranty was merged into an existing subsidiary of the Corporation, West Coast Bank, to form West Coast Guaranty Bank, N.A. The following table sets forth separate company financial information for the year ended December 31, 1998. The F.N.B. Corporation results exclude the effects of any mergers which occurred subsequent to December 31, 1998 (in thousands): NET INTEREST NET Year Ended December 31, 1998 INCOME INCOME ------ ------ F.N.B. ........................ $132,600 $31,872 RBI............................ (39) 823 Guaranty....................... 5,314 326 During 1998, the Corporation affiliated with West Coast Bank, Sarasota, Florida, Seminole Bank, Seminole Florida and Citizens Bank and Trust Company, Clearwater, Florida. These affiliations added assets and deposits of $334.6 million and $285.7 million, respectively, and were accounted for as poolings-of-interests. Also during 1998, FNBPA purchased three Lawrence County branches, which added $48.7 million in deposits. As a result of the transaction, FNBPA recorded $5.1 million and $1.8 million in goodwill and core deposit intangibles, respectively. During 1997, the Corporation affiliated with First National Bank of Naples, Naples, Florida, Cape Coral National Bank, Cape Coral, Florida, First National Bank of Southwest Florida, Cape Coral, Florida and Indian Rocks State Bank, Largo, Florida. These affiliations added assets and deposits of $790.7 million and $658.2 million, respectively, and were accounted for as poolings-of-interests. The Corporation also acquired Mercantile Bank of Southwest Florida (Mercantile), located in Naples, Florida. Mercantile was merged into First National Bank of Naples and added assets and deposits of $121.7 million and $108.2 million, respectively. The Corporation paid $13.6 million and accounted for the acquisition as a purchase. F.N.B. CORPORATION 7 27 F.N.B. Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During 1997, the Corporation disposed of its subsidiary, Bucktail Bank and Trust Company, in exchange for 565,384 shares of Sun Bancorp, Inc. (Sun), a bank holding company headquartered in Selinsgrove, Pennsylvania. At December 31, 1999, the Corporation's investment in Sun is accounted for using the equity method and had a market value totaling $20.1 million and a carrying value totaling $21.5 million. The Corporation recognized equity earnings from Sun totaling $1.4 million, $1.3 million and $621,000, respectively, for the three years ended December 31, 1999. At December 31, 1999, Sun had total assets of $710.9 million and recognized net income of $8.8 million for the year then ended. The Corporation also sold three branches of its subsidiary Metropolitan National Bank in 1997. These sales resulted in the Corporation recognizing $8.8 million in after-tax extraordinary gains. 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 merger agreement has been reached. SECURITIES The amortized cost and fair value of securities are as follows (in thousands): Securities available for sale:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 1999 COST GAINS LOSSES VALUE - ----------------- --------- ---------- ---------- ----- U.S. Treasury and other U.S. Government agencies and corporations $208,693 $ 73 $ (6,377) $ 202,389 Mortgage-backed securities of U.S. Government agencies 181,685 275 (4,518) 177,442 States of the U.S. and political subdivisions 3,091 3 (289) 2,805 Other debt securities 358 45 403 -------- ------ -------- --------- TOTAL DEBT SECURITIES 393,827 396 (11,184) 383,039 Equity securities 22,306 3,601 (215) 25,692 -------- ------ -------- --------- $416,133 $3,997 $(11,399) $ 408,731 ======== ====== ======== =========
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 1998 COST GAINS LOSSES VALUE - ----------------- --------- ---------- ---------- ----- U.S. Treasury and other U.S. Government agencies and corporations $256,740 $ 2,004 $ (168) $258,576 Mortgage-backed securities of U.S. Government agencies 163,351 1,218 (99) 164,470 States of the U.S. and political subdivisions 3,202 38 (101) 3,139 Other debt securities 1,305 48 1,353 -------- ------- ------ -------- TOTAL DEBT SECURITIES 424,598 3,308 (368) 427,538 Equity securities 21,053 6,949 (105) 27,897 -------- ------- ------ -------- $445,651 $10,257 $ (473) $455,435 ======== ======= ====== ========
F.N.B. CORPORATION 8 28 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 1997 COST GAINS LOSSES VALUE ----------------- --------- ---------- ---------- ----- U.S. Treasury and other U.S. Government agencies and corporations $314,752 $1,058 $ (260) $315,550 Mortgage-backed securities of U.S. Government agencies 121,311 501 (147) 121,665 States of the U.S. and political subdivisions 1,486 51 1,537 Other debt securities 5,320 117 5,437 -------- ------ ------- -------- TOTAL DEBT SECURITIES 442,869 1,727 (407) 444,189 Equity securities 19,240 7,002 (14) 26,228 -------- ------ ------- -------- $462,109 $8,729 $ (421) $470,417 ======== ====== ======= ========
Securities held to maturity:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 1999 COST GAINS LOSSES VALUE ----------------- --------- ---------- ---------- ----- U.S. Treasury and other U.S. Government agencies and corporations $ 17,887 $ (723) $ 17,164 Mortgage-backed securities of U.S. Government agencies 15,147 $ 10 (157) 15,000 States of the U.S. and political subdivisions 44,037 76 (656) 43,457 Other debt securities 288 (4) 284 -------- ------ ------- -------- $ 77,359 $ 86 $(1,540) $ 75,905 ======== ====== ======= ========
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 1998 COST GAINS LOSSES VALUE ----------------- --------- ---------- ---------- ----- U.S. Treasury and other U.S. Government agencies and corporations $ 29,882 $ 117 $ (43) $ 29,956 Mortgage-backed securities of U.S. Government agencies 33,909 118 (28) 33,999 States of the U.S. and political subdivisions 54,237 795 (18) 55,014 Other debt securities 547 9 (3) 553 -------- ------ ------- -------- $118,575 $1,039 $ (92) $119,522 ======== ====== ======= ========
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 1997 COST GAINS LOSSES VALUE ----------------- --------- ---------- ---------- ----- U.S. Treasury and other U.S. Government agencies and corporations $ 34,339 $ 149 $ (48) $ 34,440 Mortgage-backed securities of U.S. Government agencies 64,371 122 (231) 64,262 States of the U.S. and political subdivisions 54,678 430 (41) 55,067 Other debt securities 853 6 (4) 855 -------- ------ ------- -------- $154,241 $ 707 $ (324) $154,624 ======== ====== ======= ========
F.N.B. CORPORATION 9 29 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 1999 and 1998, respectively, securities with a carrying value of $157.3 million and $138.2 million were pledged to secure public deposits, trust deposits and for other purposes as required by law. Securities with a carrying value of $213.3 million and $156.6 million at December 31, 1999 and 1998, respectively, were pledged as collateral for other borrowings. As of December 31, 1999, the Corporation had not entered into any off-balance sheet derivative transactions. As of December 31, 1999, 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, 1999 COST VALUE COST VALUE - ----------------- --------- ----- --------- ----- Due in one year or less $ 9,945 $ 9,954 $ 43,399 $ 43,357 Due from one to five years 37,523 36,732 129,018 125,032 Due from five to ten years 12,811 12,380 36,849 34,609 Due after ten years 1,933 1,839 2,876 2,599 ------- ------- -------- -------- 62,212 60,905 212,142 205,597 Mortgage-backed securities of U.S. Government agencies 15,147 15,000 181,685 177,442 Equity securities 22,306 25,692 ------- ------- -------- -------- $77,359 $75,905 $416,133 $408,731 ======= ======= ======== ========
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 1999, 1998 and 1997 were $32.1 million, $16.6 million and $45.1 million, respectively. Gross gains and gross losses were realized on those sales as follows (in thousands):
Year Ended December 31 1999 1998 1997 - ---------------------- ---- ---- ---- Gross gains $1,734 $1,405 $1,400 Gross losses (60) (20) (113) ------ ------ ------ $1,674 $1,385 $1,287 ====== ====== ======
LOANS Following is a summary of loans (in thousands):
December 31 1999 1998 - ----------- ---- ---- Real estate: Residential $1,059,432 $ 994,157 Commercial 747,835 632,304 Construction 119,398 103,672 Installment loans to individuals 334,810 292,418 Commercial, financial and agricultural 350,023 299,081 Lease financing 254,252 132,266 Unearned income (61,976) (31,014) ---------- ---------- $2,803,774 $2,422,884 ========== ==========
F.N.B. Corporation 10 30 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The loan portfolio consists principally of loans to individuals and small- and medium-sized businesses within the Corporation's primary market area of western Pennsylvania, southwestern Florida, northern and central Tennessee, eastern Ohio, southwestern Kentucky and western New York. As of December 31, 1999, no concentrations of loans exceeding 10% of total loans existed which were not disclosed as a separate category of loans. Certain directors and executive officers of the Corporation and its significant subsidiaries, as well as associates of such persons, were loan customers during 1999. 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, 1998...... $ 37,283 New loans ............................ 28,900 Repayments ........................... (26,340) Other ................................ 14,791 -------- Total loans at December 31, 1999...... $ 54,634 ======== 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 1999 1998 - ----------- ---- ---- Non-accrual loans $ 9,321 $12,250 Restructured loans 3,560 1,770 ------- ------- TOTAL NON-PERFORMING LOANS 12,881 14,020 Other real estate owned 4,801 1,370 ------- ------- TOTAL NON-PERFORMING ASSETS $17,682 $15,390 ======= =======
For the years ended December 31, 1999, 1998 and 1997, income recognized on non-accrual and restructured loans was $503,000, $863,000 and $477,000, respectively. Income that would have been recognized during 1999, 1998 and 1997 on such loans if they were in accordance with their original terms was $1.4 million, $1.6 million and $1.1 million, respectively. Loans past due 90 days or more were $5.0 million, $2.9 million and $3.2 million at December 31, 1999, 1998 and 1997, respectively. Following is a summary of information pertaining to loans considered to be impaired (in thousands):
At or For the Year Ended December 31 1999 1998 1997 - ------------------------------------ ---- ---- ---- Impaired loans with an allocated allowance $2,069 $3,366 $1,341 Impaired loans without an allocated allowance 1,762 4,998 ------ ------ ------ TOTAL IMPAIRED LOANS $3,831 $8,364 $1,341 ====== ====== ====== Allocated allowance on impaired loans 891 1,099 496 ====== ====== ====== Portion of impaired loans on non-accrual 1,272 5,413 975 ====== ====== ====== Average impaired loans 5,268 4,945 5,887 ====== ====== ====== Income recognized on impaired loans 302 492 99 ====== ====== ======
F.N.B. CORPORATION 11 31 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 1999 1998 1997 - ---------------------- ---- ---- ---- Balance at beginning of year $32,308 $31,055 $ 31,199 Reduction due to the sale of a subsidiary and loans (3,828) Addition due to acquisitions 2,813 1,167 Charge-offs (9,622) (7,634) (10,281) Recoveries 1,572 1,315 1,295 ------- ------- -------- NET CHARGE-OFFS (8,050) (6,319) (8,986) Provision for loan losses 9,240 7,572 11,503 ------- ------- -------- Balance at end of year $36,311 $32,308 $ 31,055 ======= ======= ========
PREMISES AND EQUIPMENT Following is a summary of premises and equipment (in thousands):
December 31 1999 1998 - ----------- ---- ---- Land $ 19,660 $ 18,537 Premises 83,487 77,802 Equipment 62,024 52,236 -------- -------- 165,171 148,575 Accumulated depreciation (60,119) (53,312) -------- -------- $105,052 $ 95,263 ======== ========
Depreciation expense was $9.5 million for 1999, $8.2 million for 1998 and $7.0 million for 1997. 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 $2.9 million for 1999, $3.6 million for 1998 and $4.0 million for 1997. Total minimum rental commitments under such leases were $28.0 million at December 31, 1999. Following is a summary of future minimum lease payments for years following December 31, 1999 (in thousands): 2000............................... $ 1,837 2001............................... 1,493 2002............................... 1,371 2003............................... 1,178 2004............................... 938 Later years........................ 21,143 F.N.B. CORPORATION 12 32 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEPOSITS Following is a summary of deposits (in thousands):
December 31 1999 1998 - ----------- ---- ---- Non-interest bearing $ 424,352 $ 400,658 Savings and NOW 1,275,610 1,264,779 Certificates of deposit and other time deposits 1,209,472 1,184,991 ---------- ---------- $2,909,434 $2,850,428 ========== ==========
Following is a summary of the scheduled maturities of certificates of deposit and other time deposits for each of the five years following December 31, 1999 (in thousands): 2000.................................. $865,411 2001.................................. 254,032 2002.................................. 37,497 2003.................................. 24,510 2004.................................. 27,099 Later years........................... 923 Time deposits of $100,000 or more were $263.7 million and $249.9 million at December 31, 1999 and 1998, respectively. Following is a summary of these time deposits by remaining maturity at December 31, 1999 (in thousands):
CERTIFICATES OTHER TIME OF DEPOSIT DEPOSITS TOTAL ------------ ---------- ----- Three months or less $ 75,785 $ 8,461 $ 84,246 Three to six months 44,225 3,980 48,205 Six to twelve months 71,076 2,160 73,236 Over twelve months 47,589 10,386 57,975 -------- ------- -------- $238,675 $24,987 $263,662 ======== ======= ========
SHORT-TERM BORROWINGS Following is a summary of short-term borrowings (in thousands):
December 31 1999 1998 - ----------- ---- ---- Securities sold under repurchase agreements $134,808 $ 99,590 Federal funds purchased 49,691 561 Federal Home Loan Bank advances 77,000 Other short-term borrowings 19,205 1,221 Subordinated notes 51,493 49,609 -------- -------- $332,197 $150,981 ======== ========
Credit facilities amounting to $50.0 million at December 31, 1999 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. Credit facilities amounting to $31.0 million were unused at December 31, 1999. F.N.B. CORPORATION 13 33 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LONG-TERM DEBT Following is a summary of long-term debt (in thousands): December 31 1999 1998 ---- ---- Federal Home Loan Bank advances........ $ 75,911 $21,305 Other long-term debt................... 783 6,892 Subordinated notes..................... 40,940 42,187 -------- ------- $117,634 $70,384 ======== ======= The Corporation has available credit with the Federal Home Loan Bank of $774.1 million, of which $152.9 million was used as of December 31, 1999. These advances are secured by residential real estate loans and Federal Home Loan Bank Stock and are scheduled to mature in various amounts periodically through the year 2008. Interest rates paid on these advances range from 5.45% to 6.32% in 1999 and 5.10% to 6.20% in 1998. Subordinated notes are unsecured and subordinated to other indebtedness of the Corporation. The subordinated notes are scheduled to mature in various amounts periodically through the year 2009. At December 31, 1999, $30.9 million of long-term subordinated debt is redeemable prior to maturity at a discount equal to three months of interest. The Corporation may require the holder to give 30 days prior written notice. No sinking fund is required and none has been established to retire the debt. The weighted average interest rate on long-term subordinated debt was 7.31% at December 31, 1999 and 6.66% at December 31, 1998. Scheduled annual maturities for all of the long-term debt for each of the five years following December 31, 1999 are as follows (in thousands): 2000..................... $ 8,962 2001..................... 16,795 2002..................... 49,006 2003..................... 1,455 2004..................... 30,811 Later years.............. 10,605 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 1999 1998 - ----------- ---- ---- Commitments to extend credit......... $529,901 $426,699 Standby letters of credit............ 33,258 21,417 At December 31, 1999, funding of approximately 85% 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. Holders of Series A Preferred are entitled to 5.9 votes for each share held. The holders do not have cumulative voting F.N.B. CORPORATION 14 34 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS rights in the 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 a 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 1999, 870 shares of Series A Preferred were converted to 871 shares of common stock. At December 31, 1999, 20,462 shares of common stock were reserved by the Corporation for the conversion of the remaining 19,848 outstanding shares. Series B - Cumulative Convertible Preferred Stock (Series B Preferred) was issued in 1992. 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 into shares of the Corporation's common stock at a price of $10.56 per share. The Corporation has the right to require the conversion of the balance of all outstanding shares at the conversion rate. During 1999, 29,656 shares of Series B Preferred were converted to 68,893 shares of common stock. At December 31, 1999, 444,203 shares of common stock were reserved by the Corporation for the conversion of the remaining 187,611 outstanding shares. COMPREHENSIVE INCOME The components of comprehensive income, net of related tax, are as follows (in thousands):
Year Ended December 31 1999 1998 1997 - ---------------------- ---- ---- ---- Net income $ 39,295 $33,021 $38,037 Other comprehensive income: Unrealized (losses) gains on securities: Arising during the period, net of tax (benefit) expense of $(5,449), $960 and $1,800 (10,121) 1,783 3,342 Less: reclassification adjustment for gains included in net income, net of tax benefit of $559, $436 and $300 (1,038) (810) (557) -------- ------- ------- Other comprehensive (loss) income (11,159) 973 2,785 -------- ------- ------- Comprehensive income $ 28,136 $33,994 $40,822 ======== ======= =======
STOCK INCENTIVE PLANS The Corporation has available up to 1,007,643 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, 1999, 13,021 shares out of a total of 59,212 shares were vested under these plans. The weighted average grant date fair value of the restricted shares issued through December 31, 1999 was $26.47. The Corporation has available up to 2,599,108 shares of common stock to be issued under both incentive and non-qualified stock option plans to key employees of the Corporation. The 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 within 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. In accordance with FAS No. 123, pro forma information regarding net income and earnings per share using the Black-Scholes option pricing model is as follows (in thousands, except per share data): F.N.B. CORPORATION 15 35 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31 1999 1998 1997 - ---------------------- ---- ---- ---- Pro forma net income before extraordinary items $38,376 $32,383 $28,868 Extraordinary items, net of tax 8,809 ------- ------- ------- Pro forma net income $38,376 $32,383 $37,677 ======= ======= ======= Pro forma earnings per share: Basic: Before extraordinary items $ 1.74 $ 1.45 $ 1.32 Extraordinary items, net of tax .41 ------- ------- ------- Net income $ 1.74 $ 1.45 $ 1.73 ======= ======= ======= Diluted: Before extraordinary items $ 1.76 $ 1.48 $ 1.35 Extraordinary items, net of tax .41 ------- ------- ------- Net income $ 1.76 $ 1.48 $ 1.76 ======= ======= =======
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: 1999 1998 1997 ---- ---- ---- Risk-free interest rate . . . . . . . . . 4.72% 5.54% 6.53% Dividend yield. . . . . . . . . . . . . . 3.20% 2.52% 1.66% Expected stock price volatility . . . . . .23% .23% .22% 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 1999 PER SHARE 1998 1997 ---- --------- ---- ---- Outstanding, beginning of year 1,365,620 $15.21 1,390,417 1,321,012 Granted during the year 384,586 23.31 295,314 210,446 Exercised during the year (207,636) 7.38 (294,165) (87,924) Forfeited during the year (24,996) 20.15 (25,946) (53,117) --------- --------- --------- Ending balance 1,517,574 18.63 1,365,620 1,390,417 ========= ========= =========
The following table summarizes information about the stock options outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------- ------------------- RANGE OF WEIGHTED AVERAGE WEIGHTED WEIGHTED EXERCISE OPTIONS REMAINING AVERAGE OPTIONS AVERAGE PRICES OUTSTANDING CONTRACTUAL YEARS EXERCISE PRICE EXERCISABLE EXERCISE PRICE ------ ----------- ----------------- -------------- ----------- -------------- $ 5.76 -$ 8.64 222,088 3.88 $ 7.05 216,897 $ 7.05 8.65 - 12.98 357,902 4.33 10.90 270,284 10.92 12.99 - 19.49 174,544 6.00 17.08 114,777 17.14 19.50 - 29.25 524,293 8.58 23.42 69,778 20.94 29.26 - 31.58 238,747 8.05 31.58 54,392 31.58 --------- ------- 1,517,574 726,128 ========= =======
F.N.B. CORPORATION 16 36 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Corporation has granted warrants to purchase common stock (at an exercise price of $5.93 or $9.91 per share). Such warrants are exercisable and will expire on June 19, 2001 or December 17, 2003. The Corporation has reserved 160,499 shares of common stock for issuance in connection with these warrants. RETIREMENT AND OTHER POSTRETIREMENT BENEFIT PLANS RETIREMENT PLANS Following are reconciliations of the change in benefit obligation, change in plan assets and funded status (in thousands):
December 31 1999 1998 - ----------- ---- ---- Benefit obligation at beginning of year $30,893 $25,400 Service cost 1,604 1,310 Interest cost 2,097 1,839 Plan amendments 549 Actuarial (gain) loss (5,357) 2,522 Benefits paid (1,261) (727) ------- ------- Benefit obligation at end of year $27,976 $30,893 ======= ======= December 31 1999 1998 - ----------- ---- ---- Fair value of plan assets at beginning of year $28,340 $25,228 Actual return on plan assets 2,382 3,808 Company contribution 49 31 Benefits paid (1,261) (727) ------- ------- Fair value of plan assets at end of year $29,510 $28,340 ======= ======= December 31 1999 1998 - ----------- ---- ---- Funded status of plan $ 1,534 $(2,553) Unrecognized actuarial gain (8,063) (2,573) Unrecognized prior service cost 1,715 2,043 Unrecognized net transition obligation 37 42 ------- ------- Accrued pension cost $(4,777) $(3,041) ======= =======
Included in the above reconciliation is the benefit obligation and fair value of plan assets for the Basic Retirement Plan which were $6.0 million and $0, respectively, as of December 31, 1999, and $5.5 million and $0, respectively, as of December 31, 1998. The amounts recognized in the Corporation's consolidated financial statements include the following (in thousands): December 31 1999 1998 - ----------- ---- ---- Prepaid pension cost $ 433 $ 1,016 Accrued pension cost (5,210) (4,057) Additional minimum liability (809) (1,475) Intangible asset 809 1,475 ------- ------- Net amount recognized on balance sheet $(4,777) $(3,041) ======= ======= F.N.B. CORPORATION 17 37 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The pension expense for the defined benefit plans included the following components (in thousands):
Year Ended December 31 1999 1998 1997 - ---------------------- ---- ---- ---- Service costs $ 1,604 $ 1,310 $ 1,265 Interest cost 2,097 1,839 1,726 Expected return on plan assets (2,234) (1,989) (1,603) Net amortization 319 233 293 Curtailment gain (69) ------- ------- ------- Net pension expense $ 1,786 $ 1,393 $ 1,612 ======= ======= ======= Assumptions as of December 31 1999 1998 1997 - ----------------------------- ---- ---- ---- Weighted average discount rate 7.8% 6.5% 7.0% Rates of increase in compensation levels 4.0% 4.0% 4.0% Expected long-term rate of return on plan assets 8.0% 8.0% 8.0%
At December 31, 1999, plan assets include 74,116 shares of the Corporation's common stock, having a market value of $1.6 million. Dividends received on these shares totaled $53,000 for 1999. Certain subsidiaries of the Corporation participate in a qualified 401(k) defined contribution plan for the full-time employees of the subsidiary. A percentage of employees' contributions to the plan are matched by the Corporation. The Corporation's contribution expense amounted to $844,000 in 1999, $734,000 in 1998 and $663,000 in 1997. Certain 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 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 $1.0 million in 1999, $705,000 in 1998 and $468,000 in 1997 related to the Salary Savings ESOP Plan. OTHER POSTRETIREMENT BENEFIT PLANS Following are reconciliations of the change in benefit obligation, change in plan assets and funded status (in thousands):
December 31 1999 1998 - ----------- ---- ---- Benefit obligation at beginning of year $ 965 $779 Service cost 101 77 Interest cost 74 65 Plan participants' contributions 4 3 Plan amendments 60 Actuarial loss 112 126 Benefits paid (111) (85) ------ ---- Benefit obligation at end of year $1,205 $965 ====== ====
F.N.B. CORPORATION 18 38 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31 1999 1998 - ----------- ---- ---- Fair value of plan assets at beginning of year $ 0 $ 0 Company contribution 107 81 Plan participants' contributions 4 4 Benefits paid (111) (85) ------- ----- Fair value of plan assets at end of year $ 0 $ 0 ======= ===== December 31 1999 1998 - ----------- ---- ---- Funded status of plan $(1,205) $(965) Unrecognized actuarial gain (60) (177) Unrecognized prior service cost 63 5 Unrecognized net transition obligation 481 522 ------- ------ Accrued postretirement benefit cost $ (721) $(615) ======= ======
Net periodic postretirement benefit cost included the following components (in thousands):
Year Ended December 31 1999 1998 1997 - ---------------------- ---- ---- ---- Service cost $101 $ 77 $ 60 Interest cost 74 65 56 Net amortization 38 34 25 ---- ---- ---- Net periodic postretirement benefit cost $213 $176 $141 ==== ==== ====
Discount rates of 7.8%, 6.5% and 7.0% for 1999, 1998 and 1997, respectively, were used to determine the accumulated postretirement benefit obligation. The assumed health care cost trend rate has a significant effect on the amounts reported. A 7.5% annual rate of increase in the per capita costs of covered health care benefits is assumed for 2000, gradually decreasing to 5.3% by the year 2003. A one percentage point change in the assumed health care cost trend rate would have had the following effects on 1999 service and interest cost and the accumulated postretirement benefit obligation at December 31, 1999 (in thousands):
1% 1% INCREASE DECREASE -------- -------- Effect on service and interest components of net periodic cost $ 22 $ (19) Effect on accumulated postretirement benefit obligation 130 (112)
F.N.B. CORPORATION 19 39 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 1999 1998 1997 - ---------------------- ---- ---- ---- Current income taxes: Federal taxes $25,269 $19,723 $13,850 State taxes 945 915 410 ------- ------- ------- 26,214 20,638 14,260 Deferred income taxes: Federal taxes (9,051) (4,220) (1,247) ------- ------- ------- $17,163 $16,418 $13,013 ======= ======= =======
The tax effects of temporary differences giving rise to deferred tax assets and liabilities are presented below (in thousands):
December 31 1999 1998 - ----------- ---- ---- Deferred tax assets: Allowance for loan losses $ 12,709 $ 11,242 Deferred compensation 2,927 2,011 Deferred benefits 2,346 1,414 Loan fees Other 1,012 924 -------- -------- TOTAL GROSS DEFERRED TAX ASSETS 18,994 15,591 -------- -------- Deferred tax liabilities: Depreciation (577) (230) Deferred gain on sale of subsidiary (3,555) (3,555) Unrealized losses (gains) on securities available for sale 2,607 (3,403) Leasing (20,945) (9,732) Other (2,344) (1,450) -------- -------- TOTAL GROSS DEFERRED TAX LIABILITIES (24,814) (18,370) -------- -------- NET DEFERRED TAX LIABILITIES $ (5,820) $ (2,779) ======== ========
Following is a reconciliation between tax expense using federal statutory tax and actual effective tax:
Year Ended December 31 1999 1998 1997 - ---------------------- ---- ---- ---- Federal statutory tax rate 35.0% 35.0% 35.0% Effect of nontaxable interest and dividend income (4.7) (3.2) (3.5) State taxes 1.1 1.2 .6 Goodwill .5 .5 .3 Merger related costs .3 1.1 .6 Other items (1.8) (1.4) (2.2) ---- ---- ---- Effective tax rate 30.4% 33.2% 30.8% ==== ==== ====
Income tax expense related to gains on the sale of securities was $586,000, $485,000 and $450,000 for the years ended December 31, 1999, 1998 and 1997, respectively. F.N.B. CORPORATION 20 40 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 1999 1998 1997 - ---------------------- ---- ---- ---- BASIC Income before extraordinary items $ 39,295 $ 33,021 $ 29,228 Less: Preferred stock dividends declared (411) (492) (588) ----------- ----------- ----------- Income before extraordinary items applicable to basic common shares 38,884 32,529 28,640 Extraordinary items, net of tax 8,809 ----------- ----------- ----------- Net income applicable to basic common shares $ 38,884 $ 32,529 $ 37,449 =========== =========== =========== Average common shares outstanding 20,813,386 20,691,157 20,064,562 =========== =========== =========== Income before extraordinary items $ 1.87 $ 1.57 $ 1.43 Extraordinary items, net of tax .44 ----------- ----------- ----------- Earnings per share $ 1.87 $ 1.57 $ 1.87 =========== =========== =========== DILUTED Income before extraordinary items $ 39,295 $ 33,021 $ 29,228 Extraordinary items, net of tax 8,809 ----------- ----------- ----------- Net income applicable to diluted common shares $ 39,295 $ 33,021 $ 38,037 =========== =========== =========== Average common shares outstanding 20,813,386 20,691,157 20,064,562 Convertible preferred stock 521,469 595,875 695,819 Net effect of dilutive stock options based on the treasury stock method using the average market price 440,499 639,233 640,856 ----------- ----------- ----------- Diluted average common shares outstanding 21,775,354 21,926,265 21,401,237 =========== =========== =========== Income before extraordinary items $ 1.80 $ 1.51 $ 1.37 Extraordinary items, net of tax .41 ----------- ----------- ----------- Earnings per share $ 1.80 $ 1.51 $ 1.78 =========== =========== ===========
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, 1999, that the Corporation and each of its banking subsidiaries meet all capital adequacy requirements to which they are subject. As of December 31, 1999, 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. F.N.B. CORPORATION 21 41 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Following are the capital ratios as of December 31, 1999 for the Corporation and its significant subsidiaries, First National Bank of Pennsylvania and First National Bank of Naples (dollars in thousands):
WELL CAPITALIZED MINIMUM CAPITAL ACTUAL REQUIREMENTS REQUIREMENTS -------------------- ----------------------- --------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------ ----- ------ ----- ------ ----- TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS): F.N.B. Corporation $318,116 11.5% $275,695 10.0% $220,556 8.0% First National Bank of Pennsylvania 99,578 10.8 92,467 10.0 73,974 8.0 First National Bank of Naples 60,208 10.4 58,120 10.0 46,496 8.0 TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS): F.N.B. Corporation $278,107 10.1% $165,417 6.0% $110,278 4.0% First National Bank of Pennsylvania 88,005 9.5 55,480 6.0 36,987 4.0 First National Bank of Naples 55,289 9.5 34,872 6.0 23,248 4.0 TIER 1 CAPITAL (TO AVERAGE ASSETS): F.N.B. Corporation $278,107 7.7 $180,092 5.0 $144,073 4.0 First National Bank of Pennsylvania 88,005 6.9 63,965 5.0 51,172 4.0 First National Bank of Naples 55,289 7.4 37,400 5.0 29,920 4.0
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 cash reserves with the Federal Reserve Bank amounting to $37.0 million at December 31, 1999. 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 subsidiaries. As of December 31, 1999, the subsidiaries had $49.4 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 $35.3 million at December 31, 1999. BUSINESS SEGMENTS The Corporation operates in two reportable segments: community banks and insurance agencies. The Corporation's community bank subsidiaries offer services traditionally offered by full-service commercial banks, including commercial and individual demand and time deposit accounts and commercial, mortgage and individual installment loans. In addition to traditional banking products, the Corporation's bank subsidiaries offer various alternative investment products, including mutual funds F.N.B. CORPORATION 22 42 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and annuities. The Corporation's insurance agencies are full-service insurance companies offering all lines of commercial and personal insurance through major carriers. The following tables provide financial information for these segments of the Corporation (in thousands). Other items shown in the table below represent the parent company, other non-bank subsidiaries and eliminations, which are necessary for purposes of reconciling to the consolidated amounts.
COMMUNITY INSURANCE ALL At or for the Year Ended December 31, 1999 BANKS AGENCIES OTHER CONSOLIDATED - ------------------------------------------ --------- --------- ----- ------------ Interest income $ 239,501 $ 61 $15,354 $ 254,916 Interest expense 103,221 110 3,136 106,467 Non-interest income 32,461 7,978 6,489 46,928 Non-interest expense 107,789 6,436 13,520 127,745 Intangible amortization 1,891 43 1,934 Income tax expense (credit) 16,746 (359) 776 17,163 Core operating income* 36,202 1,852 2,509 40,563 Non-recurring items, net of tax* (428) (840) (1,268) Net income 35,774 1,852 1,669 39,295 Total assets 3,600,090 6,453 99,641 3,706,184
COMMUNITY INSURANCE ALL At or for the Year Ended December 31, 1998 BANKS AGENCIES OTHER CONSOLIDATED - ------------------------------------------ --------- --------- ----- ------------ Interest income $ 228,780 $ 53 $17,194 $ 246,027 Interest expense 104,414 92 3,646 108,152 Non-interest income 28,366 5,895 5,044 39,305 Non-interest expense 97,770 5,033 16,045 118,848 Intangible amortization 1,277 44 1,321 Income tax expense (credit) 16,607 (189) 16,418 Core operating income* 35,298 823 1,243 37,364 Non-recurring items, net of tax* (3,225) (1,118) (4,343) Net income 32,073 823 125 33,021 Total assets 3,319,678 3,751 83,248 3,406,677
COMMUNITY INSURANCE ALL At or for the Year Ended December 31, 1999 BANKS AGENCIES OTHER CONSOLIDATED - ------------------------------------------ --------- --------- ----- ------------ Interest income $ 206,638 $ 67 $18,421 $ 225,126 Interest expense 92,213 101 4,414 96,728 Non-interest income 31,446 5,799 (3,967) 33,278 Non-interest expense 90,141 4,611 11,596 106,348 Intangible amortization 1,474 110 1,584 Income tax expense (credit) 15,293 (2,280) 13,013 Core operating income* 31,047 1,154 1,592 33,793 Non-recurring items, net of tax* 737 3,507 4,244 Net income 31,784 1,154 5,099 38,037 Total assets 3,006,101 4,610 87,746 3,098,457
* Core operating earnings exclude merger related and other non-recurring costs of $1.3 million in 1999, merger related and other non-recurring costs $4.3 million in 1998 and 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, 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 23 43 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 1999 1998 1997 - ---------------------- ---- ---- ---- Cash paid during year for: Interest $105,671 $107,292 $94,471 Income taxes 7,773 9,642 11,620 Non-cash investing and financing activities: Acquisition of real estate in settlement of loans $ 3,929 $ 3,037 $ 3,336 Loans granted in the sale of other real estate 176 2,396 1,557
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 1999 1998 - ----------- ---- ---- ASSETS Cash $ 740 $ 467 Short-term investments 3,827 14,945 Advances to subsidiaries 1,621 Premises and equipment 1,192 Other assets 14,468 10,248 Investment in bank subsidiaries 262,019 245,262 Investment in non-bank subsidiaries 135,070 114,943 -------- -------- TOTAL ASSETS $417,316 $387,486 ======== ======== LIABILITIES Other liabilities $ 15,568 $ 7,552 Short-term borrowings 70,493 49,609 Long-term debt 40,940 48,187 -------- -------- TOTAL LIABILITIES 127,001 105,348 -------- -------- STOCKHOLDERS' EQUITY 290,315 282,138 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $417,316 $387,486 ======== ========
F.N.B. CORPORATION 24 44 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME STATEMENT (in thousands) Year Ended December 31 1999 1998 1997 - ---------------------- ---- ---- ---- INCOME Dividend income from subsidiaries: Bank $22,875 $29,401 $31,373 Non-bank 1,565 2,148 4,660 ------- ------- ------- 24,440 31,549 36,033 ------- ------- ------- Gain on sale of securities 1,296 Interest income 667 452 5,423 Income from equity investment 621 Service fee income 8,663 7,776 Other income 21 98 95 ------- ------- ------- TOTAL INCOME 33,791 39,875 43,468 ------- ------- ------- EXPENSES Interest expense 5,846 6,136 6,280 Salaries and personnel expense 8,278 8,264 Service fees 319 985 970 Other expenses 4,730 4,090 3,248 ------- ------- ------- TOTAL EXPENSES 19,173 19,475 10,498 ------- ------- ------- INCOME BEFORE TAXES AND EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 14,618 20,400 32,970 Income tax benefit 3,248 3,880 1,156 ------- ------- ------- 17,866 24,280 34,126 ------- ------- ------- Equity in undistributed income of subsidiaries: Bank 14,752 3,337 802 Non-bank 6,677 5,404 (2,118) ------- ------- ------- 21,429 8,741 (1,316) ------- ------- ------- INCOME BEFORE EXTRAORDINARY ITEM 39,295 33,021 32,810 ------- ------- ------- Gain on sale of subsidiary, net of tax 5,227 NET INCOME $39,295 $33,021 $38,037 ======= ======= =======
F.N.B. CORPORATION 25 45 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS (in thousands) - -------------------------------------- Year Ended December 31 1999 1998 1997 - ---------------------- ---- ---- ---- OPERATING ACTIVITIES Net income $ 39,295 $ 33,021 $ 38,037 Adjustments to reconcile net income to net cash flows from operating activities: Gain on sale of securities (1,296) Undistributed earnings of subsidiaries (21,429) (8,741) 1,316 Extraordinary gain on sale of subsidiaries (5,227) Other, net 13,715 (3,386) (2,745) -------- -------- -------- Net cash flows from operating activities 31,581 20,894 30,085 -------- -------- -------- INVESTING ACTIVITIES Net change in short-term investments (12,493) 2,362 Purchase of securities (1,704) Proceeds from sale of securities 1,828 Advances from (to) subsidiaries 1,621 1,501 (2,735) Cash paid upon acquisition of subsidiaries (13,586) Investment in subsidiaries (26,607) 6,845 (11,700) -------- -------- -------- Net cash flows from investing activities (24,986) (4,147) (25,535) -------- -------- -------- FINANCING ACTIVITIES Net increase in due to non-bank subsidiary 2,950 Net increase (decrease) in short-term borrowings 20,884 (322) (5,270) Decrease in long-term debt (17,736) (6,510) (6,680) Increase in long-term debt 10,489 10,837 16,550 Net acquisition of treasury stock (3,439) (7,572) (2,535) Cash dividends paid (16,520) (12,719) (9,578) -------- -------- -------- Net cash flows from financing activities (6,322) (16,286) (4,563) -------- -------- -------- NET INCREASE (DECREASE) IN CASH 273 461 (13) Cash at beginning of year 467 6 19 -------- -------- -------- CASH AT END OF YEAR $ 740 $ 467 $ 6 ======== ======== ======== CASH PAID Interest $ 5,933 $ 6,049 $ 6,181 ======== ======== ========
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 26 46 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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):
1999 1998 ------------------------------ ---------------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ----- -------- ----- FINANCIAL ASSETS Cash and short-term investments $ 182,128 $ 182,128 $ 183,745 $ 183,745 Securities available for sale 408,731 408,731 455,435 455,435 Securities held to maturity 77,359 75,905 118,575 119,522 Net loans, including loans held for sale 2,776,196 2,765,002 2,406,523 2,449,270 FINANCIAL LIABILITIES Deposits $2,909,434 $2,907,673 $2,850,428 $2,860,374 Short-term borrowings 332,197 332,197 150,981 150,981 Long-term debt 117,634 117,368 70,384 72,340
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, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of management of F.N.B. Corporation. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Guaranty Bank and Trust Company, which statements reflect total assets and net income constituting approximately 4% and 1% for 1998 of the related consolidated financial statement totals. We did not audit the financial statements of Seminole Bank, Citizens Holding Corporation and subsidiaries or Guaranty Bank and Trust Company, which statements reflect net income constituting approximately 8% for 1997 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 Seminole Bank, Citizens Holding Corporation and subsidiaries and Guaranty Bank and Trust Company, is based solely on the reports of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and 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, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Pittsburgh, Pennsylvania January 31, 2000 F.N.B. CORPORATION 27 47 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 Guaranty Bank & Trust Company and Roger Bouchard Insurance, Inc. were completed on January 13, 1999 and December 7, 1999, 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.
1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- YEAR ENDED DECEMBER 31 Total interest income $ 254,916 $ 246,027 $ 225,126 $ 209,761 $ 197,337 Total interest expense 106,467 108,152 96,728 88,063 84,419 Net interest income 148,449 137,875 128,398 121,698 112,918 Provision for loan losses 9,240 7,572 11,503 10,063 7,416 Total non-interest income 46,928 39,305 33,278 28,626 27,080 Total non-interest expenses 129,679 120,169 107,932 105,727 94,215 Net income before extraordinary items 39,295 33,021 29,228 23,327 25,795 Extraordinary items, net of tax 8,809 Net income 39,295 33,021 38,037 23,327 25,795 Core operating earnings * 40,563 37,364 33,793 27,470 25,795 AT YEAR-END Total assets $3,706,184 $3,406,677 $3,098,453 $2,796,926 $2,584,367 Net loans 2,767,463 2,390,576 2,144,734 1,939,818 1,738,316 Deposits 2,909,434 2,850,428 2,583,586 2,344,312 2,200,288 Long-term debt 117,634 70,384 73,434 59,448 52,109 Preferred stock 2,075 2,380 2,875 3,525 4,516 Total stockholders' equity 290,315 282,138 270,440 235,025 220,978 PER COMMON SHARE Core operating earnings * Basic $ 1.93 $ 1.78 $ 1.65 $ 1.34 $ 1.22 Diluted 1.86 1.70 1.58 1.29 1.22 Net income Basic 1.87 1.57 1.87 1.13 1.22 Diluted 1.80 1.51 1.78 1.10 1.22 Cash dividends .71 .67 .56 .55 .30 Book value 13.65 13.28 12.65 11.22 10.67 RATIOS Return on average assets, based on core operating earnings * 1.16% 1.16% 1.18% 1.03% 1.03% Return on average assets 1.13 1.02 1.32 .88 1.03 Return on average equity, based on core operating earnings * 14.18 13.50 13.64 11.97 12.34 Return on average equity 13.74 11.93 15.36 10.16 12.34 Dividend payout ratio 41.43 41.85 28.11 29.26 15.67 Average equity to average assets 8.19 8.57 8.62 8.62 8.35
* Core operating earnings exclude merger related and other non-recurring costs of $1.3 million in 1999, merger related and other non-recurring costs of $4.3 million in 1998, 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 $2.1 million legislated by Congress to recapitalize the Savings Association Insurance Fund and merger related and other non-recurring 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 28 48 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 Guaranty Bank & Trust Company and Roger Bouchard Insurance, Inc. were completed on January 13, 1999 and December 7, 1999, 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 1999 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 - ------------------ ------- ------- -------- ------- Total interest income $61,262 $62,422 $64,185 $67,047 Total interest expense 25,615 25,548 26,664 28,640 Net interest income 35,647 36,874 37,521 38,407 Provision for loan losses 2,051 2,540 2,105 2,544 Total non-interest income 11,265 11,431 12,284 11,948 Total non-interest expenses 32,342 31,747 32,677 32,913 Net income 8,841 9,796 10,345 10,313 Core operating earnings * 9,660 9,796 10,320 10,787 PER COMMON SHARE Core operating earnings * Basic $ .46 $ .47 $ .50 $ .50 Diluted .44 .45 .47 .50 Net income Basic .42 .47 .49 .49 Diluted .41 .45 .47 .47 Cash dividends .17 .18 .18 .18
QUARTER ENDED 1998 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 - ------------------ ------- ------- -------- ------- Total interest income $59,976 $61,289 $62,207 $62,555 Total interest expense 26,289 27,006 27,657 27,200 Net interest income 33,687 34,283 34,550 35,355 Provision for loan losses 1,761 1,615 1,977 2,219 Total non-interest income 9,265 9,397 9,816 10,827 Total non-interest expenses 28,786 29,753 30,144 31,486 Net income 8,579 8,025 8,299 8,118 Core operating earnings ** 8,749 9,438 9,780 9,397 PER COMMON SHARE Core operating earnings ** Basic $ .42 $ .45 $ .47 $ .44 Diluted .40 .43 .44 .43 Net income Basic .41 .38 .39 .39 Diluted .39 .37 .38 .37 Cash dividends .16 .17 .17 .17
* Core operating earnings exclude merger related costs of $819,000 recognized during the first quarter of 1999, gain on the sale of a branch of $392,000 and non-recurring costs of $367,000 recognized during the third quarter of 1999 and merger related costs of $474,000 recognized during the fourth quarter of 1999, all on an after-tax basis. ** Core operating earnings exclude merger related costs and other non-recurring costs of approximately $170,000, $1.4 million, $1.5 million and $1.3 million recognized during the first through fourth quarters of 1998, respectively, all on an after-tax basis. F.N.B. CORPORATION 29 49 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 Guaranty Bank & Trust Company (Guaranty) and Roger Bouchard Insurance, Inc. (RBI) 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 Guaranty was consummated on January 13, 1999 and resulted in the Corporation issuing 1,250,994 shares of common stock. The merger with the Corporation and RBI was consummated on December 7, 1999. The mergers have been accounted for as poolings-of-interests. This financial review is presented as if the mergers had been consummated for all periods presented. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 Core operating earnings increased 8.6% to $40.6 million in 1999 from $37.4 million in 1998. Basic core operating earnings per share were $1.93 and $1.78 for 1999 and 1998, while diluted core operating earnings per share were $1.86 and $1.70, respectively, for those same periods. The results for 1999 exclude merger related and other non-recurring costs of $1.3 million while the results for 1998 exclude merger related and other non-recurring costs of $4.3 million, both net of tax. Including these items, net income was $39.3 million in 1999 versus $33.0 million in 1998, resulting in diluted earnings per share of $1.80 and $1.51, for those same periods. Net interest income, on a fully taxable equivalent basis, increased by 7.6% as net average interest earning assets increased by $174.9 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 1.16% for both 1999 and 1998, while the Corporation's return on average equity was 14.18% for 1999 and 13.50% for 1998, each calculated on a core operating earnings basis. Including the non-recurring items, the Corporation had a return on average assets of 1.13% and 1.02% for 1999 and 1998, respectively, and a return on average equity of 13.74% and 11.93% for those same periods. DILUTED CORE OPERATING EARNINGS PER SHARE 1995 1996 1997 1998 1999 - ---- ---- ---- ---- ---- $1.22 $1.29 $1.58 $1.70 $1.86 NET INTEREST INCOME 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 $150.6 million in 1999 versus $139.9 million in 1998. Net interest income consisted of interest income of $257.0 million and interest expense of $106.5 million in 1999, compared to $248.1 million and $108.2 million for each, respectively, in 1998. Net interest margin increased to 4.76% in 1999 compared to 4.68% in 1998. F.N.B. CORPORATION 30 50 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION 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, 1999 1998 1997 ------------------------- -------------------------- -------------------------- AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE ------- -------- ------ ------- -------- ------ ------- -------- ------ ASSETS Interest earning assets: Interest bearing deposits with banks $ 5,077 $ 307 6.05% $ 3,765 $ 181 4.81% $ 4,312 $ 255 5.91% Federal funds sold 24,653 1,219 4.94 76,247 4,153 5.45 89,061 4,742 5.32 Taxable investment securities (1) 451,367 27,655 6.13 525,905 32,458 6.17 469,520 29,210 6.22 Non-taxable investment securities (2) 78,206 4,808 6.15 87,312 5,362 6.14 80,597 4,823 5.98 Loans (2)(3) 2,603,347 223,033 8.57 2,294,506 205,933 8.98 2,035,521 188,187 9.25 ---------- -------- ---------- -------- ---------- ------- TOTAL INTEREST EARNING ASSETS 3,162,650 257,022 8.13 2,987,735 248,087 8.30 2,679,011 227,217 8.48 ---------- -------- ---------- -------- ---------- ------- Cash and due from banks 114,865 99,758 90,194 Allowance for loan losses (34,330) (32,193) (31,809) Premises and equipment 100,797 88,443 67,886 Other assets 148,000 86,627 67,900 ---------- ---------- ---------- $3,491,982 $3,230,370 $2,873,182 ========== ========== ========== LIABILITIES Interest bearing liabilities: Deposits: Interest bearing demand $ 469,429 9,185 1.96 $ 490,169 10,034 2.05 $ 388,861 9,327 2.40 Savings 798,718 21,528 2.70 658,351 21,113 3.21 615,244 16,887 2.74 Other time 1,169,679 59,613 5.10 1,201,560 65,510 5.45 1,100,901 60,252 5.47 Short-term borrowings 237,919 11,282 4.74 134,789 6,813 5.05 135,089 6,415 4.75 Long-term debt 73,968 4,859 6.57 74,451 4,682 6.29 52,374 3,847 7.35 ---------- -------- ---------- -------- ---------- ------- TOTAL INTEREST BEARING LIABILITIES 2,749,713 106,467 3.87 2,559,320 108,152 4.23 2,292,469 96,728 4.22 ---------- -------- ---------- -------- ---------- ------- Non-interest bearing demand deposits 400,047 346,479 293,174 Other liabilities 56,158 47,716 39,854 ---------- ---------- ---------- 3,205,918 2,953,515 2,625,497 ---------- ---------- ---------- STOCKHOLDERS' EQUITY 286,064 276,855 247,685 ---------- ---------- ---------- $3,491,982 $3,230,370 $2,873,182 ========== ========== ========== Excess of interest earning assets over interest bearing liabilities $ 412,937 $ 428,415 $ 386,542 ========== ========== ========== Net interest income $150,555 $139,935 $130,489 ======== ======== ======== Net interest spread 4.26% 4.07% 4.26% ==== ==== ==== Net interest margin (4) 4.76% 4.68% 4.87% ==== ==== ====
(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 31 51 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION The yield on total interest earning assets declined by 17 basis points and the yield on interest bearing liabilities decreased by 36 basis points. With a higher interest rate environment during the latter part of 1999, the Corporation has experienced some margin compression. In the event that the interest rates continue to increase, there is a possibility that the compression could continue, as further discussed within the "Liquidity and Interest Rate Sensitivity" section of this report. Interest income on loans, on a fully taxable equivalent basis, increased 8.3% from $205.9 million in 1998 to $223.0 million in 1999. This increase was the result of an increase in average loans of 13.5% as the average yield declined by 41 basis points. Although interest expense on deposits decreased $6.3 million or 6.5% in 1999, average deposits increased 3.7%. The average balance in savings deposits increased $140.4 million, while the average balance in interest bearing demand deposits and time deposits decreased by $20.7 and $31.9, respectively. The average balance in non-interest bearing demand deposits increased by $53.6 million. Interest expense on short-term borrowings increased $4.5 million or 65.6% in 1999 due to a $103.1 million increase in average short-term borrowings, which was partially offset by a decline in the rate paid of 31 basis points. 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, 1999 1998 ----------------------------------- ----------------------------------- VOLUME RATE NET VOLUME RATE NET ------ ---- --- ------ ---- --- INTEREST INCOME Interest bearing deposits with banks $ 72 $ 54 $ 126 $ (30) $ (44) $ (74) Federal funds sold (2,578) (356) (2,934) (709) 120 (589) Securities (5,156) (201) (5,357) 3,889 (102) 3,787 Loans 25,878 (8,778) 17,100 23,029 (5,283) 17,746 -------- -------- -------- -------- -------- -------- 18,216 (9,281) 8,935 26,179 (5,309) 20,870 -------- -------- -------- -------- -------- -------- INTEREST EXPENSE Deposits: Interest bearing (417) (432) (849) 1,606 (899) 707 Savings 1,629 (1,214) 415 1,226 3,000 4,226 Other time (1,724) (4,173) (5,897) 5,477 (219) 5,258 Short-term borrowings 4,859 (390) 4,469 (15) 413 398 Long-term debt (30) 207 177 1,269 (434) 835 -------- -------- -------- -------- -------- -------- 4,317 (6,002) (1,685) 9,563 1,861 11,424 -------- -------- -------- -------- -------- -------- NET CHANGE $ 13,899 $ (3,279) $ 10,620 $ 16,616 $ (7,170) $ 9,446 ======== ======== ======== ======== ======== ========
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 direct 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 22.0% to $9.2 million in 1999. This increase reflects the Corporation's continued strong loan growth. (See "Non-Performing Loans and Allowance for Loan Losses" section of this report). F.N.B. CORPORATION 32 52 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION NON-INTEREST INCOME Total non-interest income increased 19.4% from $39.3 million in 1998 to $46.9 million in 1999. This increase was attributable to increases in service charges, income from bank owned life insurance, trust fees and other non-interest income. Service charges and trust fees increased 24.4% from $19.4 million in 1998 to $24.1 million in 1999. Revenue was recognized as a result of increases in the level of deposits. In addition, the Corporation's December of 1998 investment in bank owned life insurance provided $3.1 million of other income. Also during 1999, the Corporation recognized $1.4 million in income from its equity investment in Sun Bancorp, Inc. compared to $1.3 million in 1998. Lastly, the Corporation recognized a gain of $603,000 resulting from the sale of a branch. NON-INTEREST EXPENSE Total non-interest expense increased from $120.2 million in 1998 to $129.7 million in 1999. The increase was primarily attributable to an increase of $7.5 million in salaries and employee benefits. This increase was due to normal annual salary adjustments and continued escalation of certain benefit costs. In addition, salaries and benefits have increased as the Corporation supports the expansion into fee based services and insurance. The Corporation recognized $1.8 million in 1999 and $5.5 million in 1998 in merger related costs. The 1999 expenses were primarily data processing termination and conversion costs and change in control provisions while the 1998 expenses were principally legal and investment banking costs associated with the completion of various mergers. During 1999, the Corporation recorded a net insurance recovery of $883,000. INCOME TAXES The Corporation's income tax expense was $17.2 million for 1999 compared to $16.4 million for 1998. The 1999 effective tax rate of 30.4% was lower than the 35.0% 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 the available for sale 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 $53.3 million or 11.0% 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 $31.0 million was unused at the end of 1999. 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 at risk from interest rate fluctuations. This interest rate risk arises due to differences between the amount of interest-earning assets and interest-bearing liabilities subject to pricing over a period of time, the difference between the change in various interest rates and the embedded options in certain financial instruments. The Board of Directors has established an Asset/Liability Policy in order to achieve and maintain earnings performance consistent with long-term goals while maintaining acceptable levels of interest rate risk, a "well-capitalized" balance sheet and adequate levels of liquidity. This policy designates the Asset/Liability Committee (ALCO) as the body responsible for meeting this objective. The Corporation utilizes an asset/liability model to support its balance sheet strategies. The Corporation uses gap analysis, net interest income simulations and the economic value of equity to measure its interest rate risk. The gap analysis below measures the interest rate risk of the Corporation by comparing the difference between the F.N.B. CORPORATION 33 53 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION amount of interest-earning assets and interest-bearing liabilities subject to repricing over a period of time. The cumulative one-year gap ratio was .85 at December 31, 1999 as compared to .97 at December 31, 1998. A ratio of less than one indicates an excess of repricing liabilities over repricing assets. Based on the cumulative one-year gap and assuming no change in asset/liability composition, an increase in interest rates is expected to result in a reduction in net interest income over the next twelve months. Net interest income simulations measure the exposure to short-term earnings from changes in market rates of interest in a more rigorous and explicit fashion. The Corporation's current financial position is combined with assumptions regarding future business to calculate net interest income under varying hypothetical rate scenarios. An immediate 300 basis point increase in rates is estimated to reduce net interest income by 8.2% or $12.2 million in 2000. Comparatively, a 300 basis point increase in rates was estimated to decrease net interest income by 2.2% or $3.0 million in 1999. The economic value of equity (EVE) measures the Corporation's long-term earnings exposure from changes in market rates of interest. EVE is defined as the present value of assets minus the present value of liabilities at a point in time. A decrease in EVE due to a specified rate change indicates a decline in the long-term earnings capacity of the balance sheet assuming that the rate change remains in effect over the life of the balance sheet. A 300 basis point increase in rates is estimated to cause a 7.8% decline in EVE. Following is the gap analysis as of December 31, 1999 (dollars in thousands):
WITHIN 4-12 1-5 OVER 3 MONTHS MONTHS YEARS 5 YEARS TOTAL -------- ------ ----- ------- ----- INTEREST EARNING ASSETS Interest bearing deposits with banks $ 3,289 $ 100 $ 89 $ 3,478 Federal funds sold 7,467 7,467 Securities: Available for sale 45,374 103,663 241,882 $ 17,812 408,731 Held to maturity 6,849 10,495 30,476 29,539 77,359 Loans, net of unearned income 667,252 573,865 1,326,674 244,716 2,812,507 ---------- --------- ---------- ---------- ---------- 730,231 688,123 1,599,121 292,067 3,309,542 Other assets 396,642 396,642 ---------- --------- ---------- ---------- ---------- $ 730,231 $ 688,123 $1,599,121 $ 688,709 $3,706,184 ========== ========= ========== ========== ========== INTEREST BEARING LIABILITIES Deposits: Interest checking $ 153,149 $ 356,482 $ 509,631 Savings 256,776 509,203 765,979 Time deposits 261,936 $ 603,475 $ 343,138 923 1,209,472 Short-term borrowings 313,078 19,119 332,197 Long-term debt 31,865 37,097 38,067 10,605 117,634 ---------- --------- ---------- ---------- ---------- 1,016,804 659,691 381,205 877,213 2,934,913 Other liabilities 480,956 480,956 Stockholders' equity 290,315 290,315 ---------- --------- ---------- ---------- ---------- $1,016,804 $ 659,691 $ 381,205 $1,648,484 $3,706,184 ========== ========= ========== ========== ========== PERIOD GAP $ (286,573) $ 28,432 $1,217,916 $ (959,775) ========== ========= ========== ========== CUMULATIVE GAP $ (286,573) $(258,141) $ 959,775 ========== ========= ========== CUMULATIVE GAP AS A PERCENT OF TOTAL ASSETS (7.73)% (6.97)% 25.90% ========== ========= ========== RATE SENSITIVE ASSETS/ RATE SENSITIVE LIABILITIES (CUMULATIVE) .72 .85 1.47 1.13 ========== ========= ========== ==========
F.N.B. CORPORATION 34 54 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION The preceding measures indicate that the Corporation's earnings are susceptible to an increase in interest rates. In general, the increased susceptibility to rising rates can be attributed to a greater proportion of rate-sensitive liabilities on the balance sheet at December 31, 1999. However, the disclosed measures are within the limits set forth in the Corporation's Asset/Liability Policy. Furthermore, the computations do not contemplate any actions the ALCO could undertake in response to an increase in interest rates such as the promotion of core non-maturity deposits or longer-term certificates of deposit and the purchase of adjustable-rate investment securities. Thus, the measurements assumed no change in asset/liability composition. The computation of the prospective effects of hypothetical interest changes are based on numerous assumptions including asset/liability prepayments and the relative price sensitivity of certain assets and liabilities. The analysis assumed that certain core non-maturity deposit rates had a low correlation to changes in market rates of interest. For economic value purposes, core non-maturity deposits were decayed over a period of five to eight years and were discounted using short-term market rates to reflect the economic value they add relative to more costly alternate sources of funds. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 The Corporation's core operating earnings increased 10.6% to $37.4 million in 1998 from $33.8 million in 1997. Basic core operating earnings per share were $1.78 and $1.65 for 1998 and 1997, while diluted core operating earnings per share were $1.70 and $1.58, respectively, for those same periods. The results for 1998 exclude merger related and other non-recurring costs of $4.3 million, net of tax, while the results for 1997 exclude $8.8 million in gains relating to the sales of a subsidiary and branches and merger related and other non-recurring costs of $4.6 million, both net of tax. Including these items, net income was $33.0 million in 1998 versus $38.0 million in 1997. Based upon core operating earnings, the Corporation's return on average assets was 1.16% for 1998 compared to 1.18% for 1997, while the Corporation's return on average equity was 13.50% for 1998 compared to 13.64% for 1997. Net interest income, on a fully taxable equivalent basis, increased from $130.5 million in 1997 to $139.9 million in 1998. Net interest income consisted of interest income of $248.1 million and interest expense of $108.2 million in 1998, compared to $227.2 million and $96.7 million for each, respectively, in 1997. Net margin fell to 4.68% from 4.87% in 1997. Interest income on loans, on a fully taxable equivalent basis, increased 9.4% from $188.2 million in 1997 to $205.9 million in 1998. This increase is the result of loan growth. Average loans increased 12.7% from 1997. Interest expense on deposits increased 11.8% to $96.7 million in 1998. This increase was attributable to an increase in average interest-bearing deposits of 11.6% over the same period. The average balance in interest-bearing demand and time deposits increased by $101.3 million and $100.7 million, respectively. The average balance in non-interest bearing demand deposits increased by $53.3 million over this same period. The provision for loan losses was $7.6 million and represented a decrease of 34.2% from 1997. This decrease reflects the Corporation's continued strong asset quality as well as an increase in the provision during 1997 resulting from applying the Corporation's allowance for loan loss policy and methodology for evaluating the adequacy of the allowance for loan losses to acquired affiliates. Total non-interest income increased 18.1% from $33.3 million in 1997 to $39.3 million in 1998. This increase was attributable to increases in service charges and gains on the sale of loans, primarily residential mortgages. Service charges and trust fees increased 18.4% from $16.4 million in 1997 to $19.4 million in 1998 as a result of increases in the level of deposits and growth in trust assets under management. Net gains on the sale of loans increased 91.7% as the Corporation took advantage of the strong market for mortgage refinancings. Other non-interest income included $1.3 million in income from the Corporation's equity investment in Sun Bancorp, Inc. as compared to $621,000 during 1997. Total non-interest expense increased from $107.9 million in 1997 to $120.2 million in 1998. The increase was attributable to a full year of operating expenses associated with acquisitions during 1997. The Corporation recognized $5.5 million in 1998 and $2.4 million in 1997 in F.N.B. CORPORATION 35 55 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION merger related costs. The expenses were primarily legal and investment banking costs associated with the completion of various mergers. Income tax expense was $16.4 million for 1998 compared to $13.0 million for 1997. The 1998 effective tax rate of 33.2% was below the 35% statutory tax rate due to the tax benefits resulting from tax-exempt instruments and excludable dividend income. FINANCIAL CONDITION LENDING ACTIVITY Following is a summary of loans (in thousands):
December 31 1999 1998 1997 1996 1995 - ----------- ---- ---- ---- ---- ---- Real estate: Residential $1,059,432 $ 994,157 $ 949,716 $ 788,874 $ 700,726 Commercial 747,835 632,304 542,251 493,990 447,638 Construction 119,398 103,672 70,093 48,070 40,635 Installment loans to individuals 334,810 292,418 301,911 417,300 404,261 Commercial, financial and agricultural 350,023 299,081 272,609 225,447 196,516 Lease financing 254,252 132,266 59,852 21,538 5,037 Unearned income (61,976) (31,014) (20,643) (24,202) (28,726) ---------- ---------- ---------- ---------- ---------- $2,803,774 $2,422,884 $2,175,789 $1,971,017 $1,766,087 ========== ========== ========== ========== ==========
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. During 1999, 1998 and 1997, the Corporation sold $49.8 million, $50.8 million and $23.9 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. The loan portfolio consists principally of loans to individuals and small- and medium-sized businesses within the Corporation's primary market area of western Pennsylvania, southwestern Florida, northern and central Tennessee, eastern Ohio, southwestern Kentucky and western New York. As of December 31, 1999, no concentrations of loans exceeding 10% of total loans existed which were not disclosed as a separate category of loans. 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, 1999 ONE YEAR FIVE YEARS FIVE YEARS TOTAL - ----------------- -------- ---------- ---------- -------- Commercial, financial and agricultural $162,251 $157,897 $29,875 $350,023 Real estate - construction 66,695 41,807 10,896 119,398 -------- -------- ------- -------- Total $228,946 $199,704 $40,771 $469,421 ======== ======== ======= ========
The total amount of loans due after one year includes $96.8 million with floating or adjustable rates of interest and $143.7 million with fixed rates of interest. F.N.B. CORPORATION 36 56 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION 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 1999 1998 1997 1996 1995 - ----------- ---- ---- ---- ---- ---- Non-accrual loans $ 9,321 $12,250 $8,365 $10,363 $10,066 Restructured loans 3,560 1,770 1,345 2,709 3,629 ------- ------- ------ ------- ------- $12,881 $14,020 $9,710 $13,072 $13,695 ======= ======= ====== ======= ======= Non-performing loans as a percentage of total loans .46% .58% .45% .66% .78%
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 1999 1998 1997 1996 1995 - ---------------------- ---- ---- ---- ---- ---- Gross interest income that would have been recorded if the loans had been current and in accordance with their original terms $1,445 $1,563 $1,068 $1,473 $1,343 Interest income recorded during the year 503 863 477 798 694
Following is a summary of loans 90 days or more past due, on which interest accruals continue (dollars in thousands):
December 31 1999 1998 1997 1996 1995 - ----------- ---- ---- ---- ---- ---- Loans 90 days or more past due $4,863 $2,943 $3,220 $3,092 $4,090 Loans 90 days or more past due as a percentage of total loans .17% .12% .15% .16% .23%
ALLOWANCE FOR LOAN LOSSES Management's analysis of the allocated portion 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. The unallocated portion of the allowance is determined based on management's assessment of historical loss on the remaining portfolio segments in conjunction with the current status of economic conditions, loan loss trends, delinquency and non-accrual trends, credit administration, portfolio growth, concentrations of credit risk and other factors, including regulatory guidance. This determination inherently involves a higher degree of uncertainty and considers current risk factors that may not have yet manifested themselves in the Corporation's historical loss factors used to determine the allocated component of the allowance, and it recognizes that knowledge of the portfolio may be incomplete. F.N.B. CORPORATION 37 57 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION Following is a summary of changes in the allowance for loan losses (dollars in thousands):
Year Ended December 31 1999 1998 1997 1996 1995 - ---------------------- ---- ---- ---- ---- ---- Balance at beginning of year $32,308 $31,055 $ 31,199 $27,771 $25,551 Reduction due to the sale of a subsidiary and loans (3,828) Addition due to acquisitions 2,813 1,167 Charge-offs: Real estate - mortgage (964) (322) (888) (482) (736) Installment loans to individuals (5,509) (5,893) (6,978) (6,190) (5,537) Lease financing (632) (300) (106) (12) Commercial, financial and agricultural (2,517) (1,119) (2,309) (1,621) (1,273) ------- ------- -------- ------- ------- (9,622) (7,634) (10,281) (8,305) (7,546) ------- ------- -------- ------- ------- Recoveries: Real estate - mortgage 50 43 100 136 279 Installment loans to individuals 1,108 914 804 1,057 1,198 Lease financing 80 38 32 6 Commercial, financial and agricultural 334 320 359 471 873 ------- ------- -------- ------- ------- 1,572 1,315 1,295 1,670 2,350 ------- ------- -------- ------- ------- Net charge-offs (8,050) (6,319) (8,986) (6,635) (5,196) Provision for loan losses 9,240 7,572 11,503 10,063 7,416 ------- ------- -------- ------- ------- Balance at end of year $36,311 $32,308 $ 31,055 $31,199 $27,771 ======= ======= ======== ======= ======= Net charge-offs as a percent of average loans, net of unearned income .31% .28% .44% .35% .30% Allowance for loan losses as a percent of total loans, net of unearned income 1.30 1.33 1.43 1.58 1.57 Allowance for loan losses as a percent of non-performing loans 281.90 230.44 319.82 238.67 202.78
The increase in the level of charge-offs and the provision for loan losses in 1997 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 acquired affiliates. Following shows the allocation of the allowance for loan losses (dollars 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 1999 LOANS 1998 LOANS 1997 LOANS 1996 LOANS 1995 LOANS - ---------------------- ---- -------- ---- -------- ---- -------- ---- -------- ---- -------- Commercial, financial and agricultural $ 6,969 39% $ 6,018 38% $ 5,617 37% $ 7,725 37% $ 7,040 36% Real estate - construction 475 4 271 4 284 3 132 2 88 2 Real estate - mortgage 8,662 38 6,534 41 6,263 44 4,749 40 4,261 40 Installment loans to individuals 8,635 19 8,384 17 5,597 16 7,771 21 6,781 22 Unallocated portion 11,570 11,101 13,294 10,822 9,601 ------- --- ------- --- ------- --- ------- --- ------- --- $36,311 100% $32,308 100% $31,055 100% $31,199 100% $27,771 100% ======= === ======= === ======= === ======= === ======= ===
F.N.B. CORPORATION 38 58 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 above. Management's allocation considers amounts necessary for concentrations and changes in portfolio mix and volume. 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. 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 1999, securities available for sale decreased 10.3%, and securities held to maturity decreased 34.8%, from December 31, 1998. The majority of this decrease was used to fund loan growth. The following table indicates the respective maturities and weighted average yields of securities as of December 31, 1999 (dollars in thousands):
WEIGHTED AMOUNT AVERAGE YIELD ------ ------------- U.S. Treasury and other U.S. Government agencies and corporations: Maturing within one year $ 42,953 5.84% Maturing after one year within five years 141,919 5.92% Maturing after five years within ten years 35,404 6.05% States of the U.S. and political subdivisions: Maturing within one year 9,761 5.98% Maturing after one year within five years 20,543 6.41% Maturing after five years within ten years 12,016 6.39% Maturing after ten years 4,522 6.90% Other debt securities: Maturing within one year 588 6.56% Maturing after one year within five years 93 6.49% Maturing after ten years 10 2.80% Mortgage-backed securities of U.S. Government agencies 192,589 6.25% Equity securities 25,692 6.85% -------- ---- TOTAL $486,090 6.15% ======== ====
The weighted average yields for tax exempt securities are computed on a tax equivalent basis. F.N.B. CORPORATION 39 59 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION 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 2.1% to $2.9 billion in 1999. This increase was due to a $24.5 million or 2.1% increase in time deposits and a $23.7 million or 5.9% increase in non-interest bearing deposits. Short-term borrowings, made up of repurchase agreements, federal funds purchased, Federal Home Loan Bank advances, subordinated notes and other short-term borrowings, increased by $181.2 million in 1999 to $332.2 million. The primary reasons for the higher level of borrowings were increases in federal funds purchased and Federal Home Loan Bank advances of $49.1 million and $77.0 million, respectively, used to support loan growth. Repurchase agreements are the largest component of short-term borrowings. At December 31, 1999, repurchase agreements represented 40.6% of total short-term borrowings. Following is a summary of selected information on repurchase agreements (dollars in thousands):
December 31 1999 1998 1997 ----------- ---- ---- ---- Balance at end of year $134,808 $99,590 $59,136 Maximum month-end balance 134,808 99,590 59,136 Average balance during the year 120,698 79,593 43,823 Weighted average interest rates: At end of year 4.16% 4.24% 4.33% During the year 4.17% 4.27% 4.22%
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, 1998, stockholders' equity has increased $22.8 million as a result of earnings retention. Total cash dividends declared represented 42.0% of net income for 1999 compared to 42.7% for 1998. Book value per share was $13.65 at December 31, 1999, compared to $13.28 at December 31, 1998. RETURN ON AVERAGE EQUITY (based on core operating earnings) 1995 1996 1997 1998 1999 - ---- ---- ---- ---- ---- 12.3% 12.0% 13.6% 13.5% 14.2% F.N.B. CORPORATION 40 60 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION YEAR 2000 DISCLOSURE During 1999, management completed the process of preparing for the Year 2000 date change. This process involved identifying and remediating problems in computer systems, software and other operating equipment, working with third parties to address their Year 2000 issues and developing contingency plans to address potential risks in the event of Year 2000 failures. To date, the Corporation has successfully managed the transition. As a result of the Corporation's efforts, management has a high level of confidence that the core business processes will continue to provide uninterrupted service into the twenty-first century. Should the worldwide experience continue, management does not expect any disruptions to services provided or delivered. Management will continue to monitor all business processes, including interaction with the Corporation's customers, vendors and other third parties, throughout 2000 to address any issues and ensure all processes continue to function properly. F.N.B. CORPORATION 41 61 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 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 declared on April 26, 1999 and April 9, 1998. As of January 31, 2000, there were 6,764 holders of record of common stock. Quarter Ended 1999 LOW HIGH DIVIDENDS ---------------------------- March 31.................... $21 $27 3/4 $.17 June 30..................... 23 27 1/4 .18 September 30................ 24 1/8 27 1/8 .18 December 31................. 22 28 .18 Quarter Ended 1998 LOW HIGH DIVIDENDS --- ---- --------- March 31.................... $28 3/4 $35 3/8 $.15 June 30..................... 30 1/4 37 3/8 .15 September 30................ 25 3/4 33 5/8 .15 December 31................. 22 7/8 27 3/4 .15 CASH DIVIDENDS PAID PER COMMON SHARE 1995 1996 1997 1998 1999 - ---- ---- ---- ---- ---- $.30 $.55 $.56 $.67 $.71 The Corporation has paid cash dividends every quarter since it was incorporated in 1974. 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 42 62 [LOGO] F.N.B. CORPORATION ........................................................ ONE F.N.B. BOULEVARD HERMITAGE, PA 16148 2150 GOODLETTE ROAD NORTH NAPLES, FL 34102 EX-21 3 SUBSIDIARIES OF THE REGISTRANT 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) First National Bank of Florida United States 9) West Coast Guaranty Bank, N.A. United States 10) 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 Chautauqua 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 six offices in Columbiana, Mahoning, Lake, Summit and Trumbull counties in Ohio under the name Citizens Financial Services, Inc. Business is conducted in the eleven offices in Centre, Columbia, Hanover, Lackawanna, Lehigh, Monroe, Snyder, and Union counties in Pennsylvania under the name of Regency Finance Company. Business is conducted in eleven offices in Kentucky and Tennessee under the name of Finance and Mortgage Acceptance Corporation in the county of Christian in Kentucky and the counties of Dickson, Dyer, Franklin, Henry, Humphreys, Marshall, Montgomery, Robertson, Rutherford and Warren counties in Tennessee. The other subsidiaries conduct business under the names as shown above. EX-23.1 4 CONSENT OF ERNST & YOUNG, LLP 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Regarding: 1) Registration Statement on Form S-8 relating to F.N.B. Corporation 1990 Stock Option Plan (File #33-78114). 2) Registration Statement on Form S-8 relating to F.N.B. Corporation Restricted Stock Bonus Plan (File #33-78134). 3) Registration Statement on Form S-8 relating to F.N.B. Corporation 1996 Stock Option Plan (File #333-03489). 4) Registration Statement on Form S-8 relating to F.N.B. Corporation Restricted Stock and Incentive Bonus Plan (File #333-03493). 5) Registration Statement on Form S-8 relating to F.N.B. Corporation Directors Compensation Plan (File #333-03495). 6) Registration Statement on Form S-8 relating to F.N.B. Corporation 401(k) Plan (File #333-03503). 7) Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on Form S-4 (File #333-01997). 8) Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on Form S-4 (File #333-22909). 9) Registration Statement on Form S-3 relating to the F.N.B. Corporation Subordinated Notes and Daily Cash Accounts (File #333-74737). 10) Post-Effective Amendment No. 1 to Form S-3 relating to the F.N.B. Corporation Dividend Reinvestment and Direct Stock Purchase Plan (File #333-46581). 11) Registration Statement on Form S-8 relating to stock options assumed in the acquisition of Mercantile Bank of Southwest Florida (File #333-42333). 12) Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on Form S-4 (File #333-58727). 13) Registration Statement on Form S-3 relating to stock warrants assumed in the acquisitions of Southwest Banks, Inc. and West Coast Bancorp, Inc. (File #333-31124). We consent to the incorporation by reference in the above listed Registration Statements of our report dated January 31, 2000, 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, 1999. /s/ ERNST & YOUNG LLP Pittsburgh, Pennsylvania March 13, 2000 EX-23.2 5 CONSENT OF HACKER, JOHNSON, COHEN & GRIEB, PA 1 EXHIBIT 23.2 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. 333-74737, 333-46581 and 333-31124) and Forms S-8 (Registration Nos. 33-78114, 33-78134, 333-03489, 333-03493, 333-03495, 333-03503, 333-01997, 333-22909, 333-42333 and 333-58727) and to the use in this Annual Report of F.N.B. Corporation on Form 10-K of our report dated January 9, 1998 and on our audits of the financial statements of Seminole Bank at December 31, 1997 and for the year ended December 31, 1997 and of our report dated January 9, 1998 except for Note 18, as to which the date is April 6, 1998 on our audits of the financial statements of Citizens Holding Corporation and subsidiaries at December 31, 1997 and for the year ended December 31, 1997 which reports are included as exhibits in F.N.B. Corporation's Annual Report on Form 10-K. /s/ HACKER, JOHNSON, COHEN & GRIEB PA Tampa, Florida March 14, 2000 EX-23.3 6 CONSENT OF BOBBITT, PITTENGER & COMPANY, P.A. 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. 333-74737, 333-46581 and 333-31124) and Forms S-8 (Registration Nos. 33-78114, 33-78134, 333-03489, 333-03493, 333-03495, 333-03503, 333-01997, 333-22909, 333-42333 and 333-58727) of our report dated April 23, 1999 on our audits of the financial statements of Guaranty Bank & Trust Company for the years ended December 31, 1998 and 1997, which report is included as an exhibit in F.N.B. Corporation's Annual Report on Form 10-K. BOBBITT, PITTENGER & COMPANY, P.A. Sarasota, Florida March 10, 2000 EX-27 7 FINANCIAL DATA SCHEDULE
9 3-MOS DEC-31-1999 OCT-01-1999 DEC-31-1999 171,183 3,478 7,467 0 408,731 77,359 75,905 2,803,774 36,311 3,706,184 2,909,434 332,197 56,604 117,634 0 2,075 42,011 246,229 3,706,184 59,307 7,471 269 67,047 23,170 28,640 38,407 2,544 388 32,913 14,898 10,313 0 0 10,343 0.49 0.47 4.76 9,321 4,863 3,560 0 33,991 3,489 452 36,311 36,311 0 0
EX-99.1 8 EXHIBIT 99.1 1 EXHIBIT 99.1 INDEPENDENT AUDITORS' REPORT To the Board of Directors Seminole Bank Seminole, Florida: We have audited the balance sheets of Seminole Bank (the "Bank") at December 31, 1997 and 1996, and the related statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997. These financial statements are the responsibility of the Bank'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 financial position of the Bank at December 31, 1997 and 1996, and the results of its operations and cash flows for the each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/HACKER, JOHNSON, COHEN & GRIEB PA Tampa, Florida January 9, 1998 EX-99.2 9 EXHIBIT 99.2 1 EXHIBIT 99.2 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Citizens Holding Corporation Clearwater, Florida: We have audited the accompanying consolidated balance sheets of Citizens Holding Corporation and Subsidiaries (the "Company") at December 31, 1997 and 1996, and the related statements of earnings, comprehensive income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997. 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 financial position of the Company at December 31, 1997 and 1996, and the results of its operations and cash flows for the each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ HACKER, JOHNSON, COHEN & GRIEB PA Tampa, Florida January 9, 1998, except for Note 18, as to which the date is April 6, 1998 EX-99.3 10 EXHIBIT 99.3 1 EXHIBIT 99.3 April 23, 1999 Board of Directors Guaranty Bank & Trust Company Venice, Florida REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS We have audited the accompanying statements of financial condition of Guaranty Bank & Trust Company as of December 31, 1998 and 1997, and the related statements of income, comprehensive income, changes in shareholders' equity and cash flows for the years ended December 31, 1998, 1997 and 1996. These financial statements are the responsibility of the Bank'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 financial position of Guaranty Bank & Trust Company as of December 31, 1998 and 1997 and the results of its operations and cash flows for the years ended December 31, 1998, 1997 and 1996 in conformity with generally accepted accounting principles. BOBBITT, PITTENGER & COMPANY, P.A. Sarasota, Florida -----END PRIVACY-ENHANCED MESSAGE-----