-----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, UyCh3o4uDw18TcLnqWweT/2rYaztYptVSf2GTlUTxKCchCM9wh8R6J0/3OK/iaoT ejBm/PCLCFu50qYG8I2YkQ== 0000950128-02-000312.txt : 20020415 0000950128-02-000312.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950128-02-000312 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FNB CORP/FL/ CENTRAL INDEX KEY: 0000037808 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 251255406 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-08144 FILM NUMBER: 02586406 BUSINESS ADDRESS: STREET 1: F.N.B. CENTER STREET 2: 2150 GOODLETTE ROAD NORTH CITY: NAPLES STATE: FL ZIP: 34102 BUSINESS PHONE: 941-262-7600 MAIL ADDRESS: STREET 1: F.N.B. CENTER STREET 2: 2150 GOODLETTE ROAD NORTH CITY: NAPLES STATE: FL ZIP: 34102 FORMER COMPANY: FORMER CONFORMED NAME: FNB CORP/PA DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CITIZENS BUDGET CO DATE OF NAME CHANGE: 19750909 10-K 1 j9337301e10-k.txt FORM 10-K 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, 2001 -------------------- 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) Florida 25-1255406 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2150 Goodlette Road North Naples, Florida 34102 - ---------------------------------------- ---------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 800-262-7600 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 $0.01 per share 7 1/2% Cumulative Convertible Preferred Stock, Series B, par value $0.01 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 28, 2002, 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 by the Nasdaq National Market for such date, was approximately $1,137,298,291. APPLICABLE ONLY TO CORPORATE REGISTRANTS: ---------------------------------------- As of February 28, 2002, the registrant had outstanding 41,659,237 shares of common stock having a par value of $0.01 per share. Continued DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K into which Document DOCUMENT is Incorporated -------- ---------------------- Annual Report to Stockholders for fiscal year ended December 31, 2001 I & II Definitive proxy statement for the 2002 Annual Meeting of Stockholders to be held on May 6, 2002 III FORM 10-K 2001 INDEX PART I PAGE Item 1. Business. I-2 Item 2. Properties. I-12 Item 3. Legal Proceedings. I-12 Item 4. Submission of Matters to a Vote of Security Holders. I-12 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. II-1 Item 6. Selected Financial Data. II-1 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. II-1 Item 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 PART I ITEM 1. BUSINESS F.N.B. Corporation (the Corporation) was formed in 1974 as a bank holding company. During 2000, the Corporation elected to become and remains a financial holding company under the Gramm-Leach-Bliley Act of 1999. The Corporation has three reportable business segments: community banking, insurance agencies and consumer finance. For additional information regarding these segments, refer to the Business Segments footnote in the Notes to Consolidated Financial Statements, which is incorporated by reference to the Corporation's 2001 Annual Report to Stockholders. As of December 31, 2001, the Corporation owned and operated three community banks and one consumer finance company in Pennsylvania, southwest Florida, northern and central Tennessee and eastern Ohio. The Corporation also operates two insurance agencies, one in Florida and one in Pennsylvania. 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 2001, the Corporation acquired OneSource Group, Inc., Ostrowsky & Associates, Inc. and James T. Blalock, all independent insurance agencies located in Florida. These insurance agencies were merged into an existing insurance agency, Roger Bouchard Insurance, Inc. Additionally, the Corporation affiliated with Citizens Community Bank of Florida (Citizens), located in Marco Island, Florida. Citizens was merged into an existing banking affiliate, First National Bank of Florida (FNBFL). On January 31, 2002, the Corporation completed an affiliation with Central Bank Shares, Inc. (Central), a bank holding company headquartered in Orlando, Florida, with assets of more than $251.4 million. The transaction was accounted for as a purchase. Central's banking affiliate, Bank of Central Florida, was merged into FNBFL. On January 18, 2002, the Corporation completed an affiliation with Promistar Financial Corporation (Promistar), a bank holding company headquartered in Johnstown, Pennsylvania, with assets of $2.4 billion. Under the terms of the merger agreement, each outstanding share of Promistar's common stock was converted into .926 shares of the Corporation's common stock. A total of 16,007,346 shares of the Corporation's common stock were issued. The transaction was accounted for as a pooling-of-interests. Promistar's banking affiliate, Promistar Bank, was merged into an existing subsidiary of the Corporation, First National Bank of Pennsylvania. The Corporation regularly evaluates the potential acquisition of, and holds discussions with, various acquisition candidates and as a general rule the Corporation publicly announces such acquisitions only after a definitive agreement has been reached. 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 local advisory boards of directors and by allowing local management certain autonomy in decision-making, enabling them to respond to customer requests more quickly and concentrate on transactions within their market areas. However, while the Corporation has sought to preserve some decision-making at a local level, 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. I-2 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. 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, 2001 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 Florida (Est. 1988) Naples, Florida................................ $2,181,035 $1,760,950 37 First National Bank of Pennsylvania (Est. 1864) Hermitage, Pennsylvania........................ 1,450,859 1,277,671 43 Metropolitan National Bank (Est. 1922) Youngstown, Ohio............................... 317,846 274,585 12 ---------- ---------- -- $3,949,740 $3,313,206 92 ========== ========== == CONSUMER FINANCE SUBSIDIARY: Regency Finance Company (Est. 1927) Hermitage, Pennsylvania........................ $ 147,747 48 ========== ==
The Corporation's insurance agencies, Roger Bouchard Insurance, Inc. (RBI) and Gelvin, Jackson & Starr, Inc. (GJS), have nine and five offices, respectively. The Corporation has five other subsidiaries, Penn-Ohio Life Insurance Company, Est. 1981 (Penn-Ohio), First National Corporation, Est. 1997 (FNC), Customer Service Center of F.N.B., L.L.C., Est. 1996 (Customer Service), F.N.B. Building Corporation, Est. 1987 (F.N.B. Building) and Mortgage Service Corporation (MSC). Penn-Ohio underwrites, as a reinsurer, credit life and accident and health insurance sold by the Corporation's subsidiaries. FNC holds equity securities and other assets for the holding company. Customer Service provides data processing and other services to the affiliates of the Corporation. F.N.B. Building owns real estate that is leased to certain affiliates. MSC no longer has any operations and is in the process of being dissolved. 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. I-3 In addition, First National Trust Company, a national trust company formed in January 1999, provides a broad range of personal and corporate fiduciary services, including the administration of decedent and trust estates. As of December 31, 2001, the market value of corporate-wide trust assets under management totaled approximately $1.0 billion. First National Trust Company was a subsidiary of First National Bank of Pennsylvania until January 18, 2002, on which date it became a subsidiary of the Corporation. OPERATIONS OF THE INSURANCE AGENCIES The Corporation's insurance agencies are full-service agencies 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 234 offices in southwest Florida, Pennsylvania, northern and central Tennessee and eastern Ohio. The Corporation's Florida subsidiaries operate in an area represented by high growth and high 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 most recent acquisition, Central Bank Shares, Inc., extends the Florida market across Interstate 4 through Orlando. The Corporation's Pennsylvania and Ohio subsidiaries operate in an area which has a 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 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. In providing wealth and asset management services, the Corporation's subsidiaries compete with many other financial services firms, brokerage firms, mutual fund complexes, investment management firms, trust and fiduciary service providers and insurance agencies. 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. I-4 The ability to access and use technology is an increasingly important competitive factor in the financial services industry. Technology is not only important with respect to delivery of financial services, but in processing information. Each of the Corporation's subsidiaries consistently must make technological investments to remain competitive. EMPLOYEES As of February 28, 2002, the Corporation and its subsidiaries had 2,586 full-time and 599 part-time employees. Management of the Corporation considers its relationship with its employees to be satisfactory. MERGERS, ACQUISITIONS AND DIVESTITURE See the Mergers, Acquisitions and Divestiture footnote in the Notes to Consolidated Financial Statements, which is incorporated by reference to the Corporation's 2001 Annual Report to Stockholders. REINCORPORATION During the 2001, the Corporation completed its reincorporation in the state of Florida. The Corporation now operates from Naples, Florida. In connection with the reincorporation, the Corporation reduced the par value of both its common and preferred stock to $0.01 per share. See the Reincorporation footnote in the Notes to Consolidated Financial Statements, which is incorporated by reference to the Corporation's 2001 Annual Report to Stockholders. CHARTER CONSOLIDATION During the first quarter of 2001, the Corporation completed its consolidation plan to reduce the number of Florida and Pennsylvania bank charters from seven to two. The Corporation's five Florida banks were merged under First National Bank of Florida and its two Pennsylvania banks were merged under First National Bank of Pennsylvania. See the Charter Consolidation footnote in the Notes to Consolidated Financial Statements, which is incorporated by reference to the Corporation's 2001 Annual Report to Stockholders. SUPERVISION AND REGULATION BANKING ACTIVITIES AND FINANCIAL HOLDING COMPANY REGULATION The Corporation and its subsidiary national banks (the Banks) operate in a highly regulated environment, and their business activities are governed by statute, regulation and administrative policies. The business activities of the Corporation and the Banks are closely supervised by a number of regulatory agencies, including the Federal Reserve Board (FRB), the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). The Corporation is regulated by the FRB under the federal Bank Holding Company Act of 1956, as amended, which requires every bank holding company to obtain the prior approval of the FRB before acquiring more than 5% of the voting shares of any bank or all or substantially all of the assets of any bank, and before merging or consolidating with another bank holding company. The Federal Reserve Board (pursuant to regulation and published policy statements) has maintained that a bank holding company must serve as a source of financial strength to its subsidiary banks. In adhering to the FRB policy, the Corporation may be required to provide financial support to a subsidiary I-5 bank at a time when, absent such FRB policy, the Corporation may not deem it advisable to provide such assistance. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, the Corporation or any other bank holding company may acquire a bank located in a state other than the state in which the company is located, subject to certain deposit percentage and other restrictions. The legislation also provides that, unless an individual state has elected to prohibit out-of-state banks from operating interstate branches within its territory, adequately capitalized and managed bank holding companies may consolidate their multistate bank operations into a single bank subsidiary and branch interstate through acquisitions. As national banks, the Banks are subject to the supervision of the OCC and, to a limited extent, the FDIC and the FRB. The Banks are also subject to state banking and usury laws restricting the amount of interest which may be charged in making loans or other extensions of credit. In addition, the Banks, as subsidiaries of the Corporation, are subject to restrictions under federal law when dealing with the Corporation and other affiliates. These restrictions apply to extensions of credit to an affiliate, investments in the securities of an affiliate and the purchase of assets from an affiliate. Loans and extensions of credit by national banks are subject to legal lending limitations. Under federal law, a national bank may grant unsecured loans and extensions of credit in an amount up to 15% of its unimpaired capital and surplus to any person if the loans and extensions of credit are not fully secured by collateral having a market value at least equal to their face amount. In addition, a national bank may grant loans and extensions of credit to such person up to an additional 10% of its unimpaired capital and surplus, provided that each loan or extension of credit is fully secured by readily marketable collateral having a market value, determined by reliable and continuously available price quotations, at least equal to the amount of funds outstanding. Loans and extensions of credit may exceed the general lending limit if they qualify under one of several exceptions. Such exceptions include certain loans or extensions of credit arising from the discount of commercial or business paper, the purchase of bankers' acceptances, loans secured by documents of title, loans secured by U.S. obligations and loans to or guaranteed by the federal government, and loans or extensions of credit which have the approval of the OCC and which are made to a financial institution or to any agent in charge of the business and property of a financial institution. Gramm-Leach-Bliley The Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act of 1999 (GLBA), enacted in 1999, enables bank holding companies to acquire insurance companies and securities firms and effectively repeals depression-era laws that prohibited the affiliation of banks and these other financial services entities under a single holding company. Bank holding companies, and other types of financial services entities, may elect to become financial holding companies under the new law allowing them to offer virtually any type of financial service, or services incident to financial services, including banking, securities underwriting, merchant banking and insurance (both underwriting and agency services). The Corporation has elected financial holding company status. The new financial services authorized by the GLBA also may be engaged in by a "financial subsidiary" of a national or state bank, with the exception of insurance or annuity underwriting, insurance company portfolio investments, real estate investment and development, and merchant banking, all of which must be conducted under the financial holding company. I-6 The GLBA establishes a system of functional regulation, under which the FRB regulates the banking activities of financial holding companies and other federal banking regulators regulate banks' financial subsidiaries. The Securities and Exchange Commission regulates securities activities of financial holding companies and state insurance regulators regulate their insurance activities. The GLBA also provides new protections against the transfer and use by financial institutions of consumers' non- public, personal information. The implementation of the GLBA increases competition in the financial services sector by allowing many different entities, including banks and bank holding companies, to affiliate and/or to merge with other financial services entities and cross-sell their financial products in order to better serve their current and prospective customers. Capital Adequacy Requirements Both the Corporation and the Banks are subject to regulatory capital requirements imposed by the FRB and the OCC. The FRB and the OCC have issued risk-based capital guidelines for bank holding companies and banks which make regulatory capital requirements more sensitive to differences in the risk profiles of various banking organizations. The capital adequacy guidelines issued by the FRB are applied to bank holding companies, on a consolidated basis, with the banks owned by the holding company, as well as to state member banks. The OCC's risk capital guidelines apply directly to any national bank regardless of whether it is a subsidiary of a bank holding company. Both agencies' requirements (which are substantially similar), provide that banking organizations must have capital equivalent to at least 8.0% of risk- weighted assets. The risk weights assigned to assets are based primarily on credit risks. Depending upon the risk level of a particular asset, it is assigned to a risk category. For example, securities with an unconditional guarantee by the United States government are assigned to the lowest risk category, while a risk weight of 50% is assigned to loans secured by owner-occupied one-to-four family residential mortgages, provided that certain conditions are met. The aggregate amount of assets assigned to each risk category is multiplied by the risk weight assigned to that category to determine the weighted values, which are then added together to determine total risk- weighted assets. The FRB and the OCC have also implemented minimum capital leverage ratios to be used in tandem with the risk-based guidelines in assessing the overall capital adequacy of banks and bank holding companies. Under these rules, banking institutions must maintain a ratio of at least 3.0% "Tier 1" capital to total weighted risk assets (net of goodwill, certain intangible assets, and certain deferred tax assets). Tier 1 capital includes common shareholders equity, noncumulative perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries. Both the risk-based capital guidelines and the leverage ratio are minimum requirements. They are applicable to all banking institutions unless the applicable regulating authority determines that different minimum capital ratios are appropriate for a particular institution based upon its circumstances. Institutions operating at or near these ratios are expected to have well-diversified risks, excellent control systems, high asset quality, high liquidity, good earnings, and in general must be considered strong banking organizations, rated composite 1 under the CAMELS rating system of banks or the BOPEC rating system of bank holding companies. The OCC requires that all but the most highly-rated banks and all banks with high levels of risk or I-7 experiencing or anticipating significant growth maintain ratios of at least 4.0% Tier 1 capital to total assets. The FRB also requires bank holding companies without a BOPEC-1 rating to maintain a ratio of at least 4.0% Tier 1 capital to total assets; furthermore, banking organizations with supervisory, financial, operational, or managerial weaknesses, as well as organizations that are anticipating or experiencing significant growth, are expected to maintain capital ratios well above the 3.0% and 4.0% minimum levels. The FDIC has also adopted a rule substantially similar to that issued by the FRB, that establishes a minimum leverage ratio of 3.0% and provides that FDIC-regulated banks with anything less than a CAMELS-1 rating must maintain a ratio of at least 4.0%. In addition, the FDIC rule specifies that a depository institution operating with less than the applicable minimum leverage capital requirement will be deemed to be operating in an unsafe and unsound manner unless the institution is in compliance with a plan, submitted to and approved by the FDIC, to increase the ratio to an appropriate level. Finally, the FDIC requires any insured depository institution with a leverage ratio of less than 2.0% to enter into and be in compliance with a written agreement between it and the FDIC (or the primary regulator, with the FDIC as a party to the agreement). Such an agreement should contemplate immediate efforts to acquire the capital required to increase the ratio to an appropriate level. Institutions that fail to enter into or maintain compliance with such an agreement will be subject to enforcement action by the FDIC. The OCC's guidelines provide that intangible assets are generally deducted from Tier 1 capital in calculating a bank's risk-based capital ratio. However, certain intangible assets which meet specified criteria ("qualifying intangibles") are retained as a part of Tier 1 capital. The OCC has modified the list of qualifying intangibles, currently including only purchased credit card relationships and mortgage and non- mortgage servicing assets, whether originated or purchased and excluding any interest- only strips receivable related thereto. The OCC has amended its guidelines to increase the limitation on such qualifying intangibles from 50% to 100% of Tier 1 capital, of which no more than 25% may consist of purchased credit card relationships and non- mortgage servicing assets. The risk-based capital guidelines of the OCC, the FRB and the FDIC explicitly include provisions regarding a bank's exposure to declines in the economic value of its capital due to changes in interest rates to ensure that the guidelines take adequate account of interest rate risk. Interest rate risk is the adverse effect that changes in market interest rates may have on a bank's financial condition and is inherent to the business of banking. The exposure of a bank's economic value generally represents the change in the present value of its assets, less the change in the value of its liabilities, plus the change in the value of its interest rate off-balance sheet contracts. Concurrently, the agencies issued a joint policy statement to bankers, effective June 26, 1996, to provide guidance on sound practices for managing interest rate risk. In the policy statement, the agencies emphasize the necessity of adequate oversight by a bank's Board of Directors and senior management and of a comprehensive risk management process. The policy statement also describes the critical factors affecting the agencies' evaluations of a bank's interest rate risk when making a determination of capital adequacy. The agencies' risk assessment approach used to evaluate a bank's capital adequacy for interest rate risk relies on a combination of quantitative and qualitative factors. Banks that are found to have high levels of exposure and/or weak management practices will be directed by the agencies to take corrective action. I-8 The OCC, the FRB and the FDIC have added a provision to the risk-based capital guidelines that supplements and modifies the usual risk-based capital calculations to ensure that institutions with significant exposure to market risk maintain adequate capital to support that exposure. Market risk is the potential loss to an institution resulting from changes in market prices. The modifications are intended to address two types of market risk: general market risk, which includes changes in general interest rates, equity prices, exchange rates, or commodity prices, and specific market risk, which includes particular risks faced by the individual institution, such as event and default risks. The provision defines a new category of capital, Tier 3, which includes certain types of subordinated debt. The provision automatically applies only to those institutions whose trading activity, on a worldwide consolidated basis, equals either (i) 10% or more of total assets or (ii) $1 billion or more, although the agencies may apply the provision's requirements to any institution for which application of the new standard is deemed necessary or appropriate for safe banking practices. For institutions to which the modifications apply, Tier 3 capital may not be included in the calculation rendering the 8.0% credit risk ratio; the sum of Tier 2 and Tier 3 capital may not exceed 100% of Tier 1 capital; and Tier 3 capital is used in both the numerator and denominator of the normal risk-based capital ratio calculation to account for the estimated maximum amount that the value of all positions in the institution's trading account, as well as all foreign exchange and commodity positions, could decline within certain parameters set forth in a model defined by the statute. Furthermore, covered institutions must "backtest," comparing the actual net trading profit or loss for each of its most recent 250 days against the corresponding measures generated by the statutory model. Once per quarter, the institution must identify the number of times the actual net trading loss exceeded the corresponding measure and must then apply a statutory multiplication factor based on that number for the next quarter's capital charge for market risk. Prompt Corrective Action The Federal Deposit Insurance Corporation Improvement Act of 1991 (the FDICIA), provided a number of reforms relating to the safety and soundness of the deposit insurance system, supervision of domestic and foreign depository institutions and improvement of accounting standards. One element of the FDICIA provides for the development of a regulatory monitoring system requiring prompt action on the part of banking regulators with regard to certain classes of undercapitalized institutions. The FDICIA created five "capital categories" ("well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized") which are defined in the FDICIA and are used to determine the severity of corrective action the appropriate regulator may take in the event an institution reaches a given level of undercapitalization. For example, an institution which becomes "undercapitalized" must submit a capital restoration plan to the appropriate regulator outlining the steps it will take to become adequately capitalized. Upon approving the plan, the regulator will monitor the institution's compliance. Before a capital restoration plan will be approved, any entity controlling a bank (i.e., a holding company) must guarantee compliance with the plan until the institution has been adequately capitalized for four consecutive calendar quarters. The liability of the holding company is limited to the lesser of five percent of the institution's total assets or the amount which is necessary to bring the institution into compliance with all capital standards. In addition, "undercapitalized" institutions will be restricted from paying management fees, dividends and other capital distributions, will be subject to certain asset growth restrictions and will be required to obtain prior approval from the appropriate regulator to open new branches or expand into new lines of business. I-9 As an institution's capital levels decline, the extent of action to be taken by the appropriate regulator increases, restricting the types of transactions in which the institution may engage and ultimately providing for the appointment of a receiver for certain institutions deemed to be critically undercapitalized. The OCC, the FRB and the FDIC have established regulations which, among other things, prescribe the capital thresholds for each of the five capital categories established by the Act. The following table reflects the capital thresholds:
Total Risk- Tier 1 Risk- Tier 1 Based Based Leverage Capital Ratio Capital Ratio Ratio Well capitalized(1) greater than greater than greater than or equal to 10% or equal to 6% or equal to 5% Adequately Capitalized(1) greater than greater than greater than or equal to 8% or equal to 4% or equal to 4%(2) Undercapitalized(4) less than 8% less than 4% less than 4%(3) Significantly Undercapitalized(4) less than 6% less than 3% less than 3% Critically Undercapitalized -- -- greater than or equal to 2%(5)
- --------------------------- (1) An institution must meet all three minimums. (2) greater than or equal to 3% for composite 1-rated institutions, subject to appropriate federal banking agency guidelines. (3) less than 3% for composite 1-rated institutions, subject to appropriate federal banking agency guidelines. (4) An institution falls into this category if it is below the specified capital level for any of the three capital measures. (5) Ratio of tangible equity to total assets. In addition, the FRB, the OCC and the FDIC have adopted regulations, pursuant to the FDICIA, defining operational and managerial standards relating to internal controls, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees and benefits. Both the capital standards and the safety and soundness standards which the FDICIA seeks to implement are designed to bolster and protect the deposit insurance fund. Reporting Requirements As national banks, the Banks are subject to examination and review by the OCC. These examinations are typically completed on-site at least every eighteen months and is subject to off-site review at call. The OCC, at will, can access quarterly reports of condition, as well as such additional reports as may be required by the national banking laws. As a financial holding company, the Corporation is required to file with the FRB an annual report of its operations at the end of each fiscal year and such additional information as the FRB may require pursuant to the Act. The FRB may also make examinations of the Corporation and each of its subsidiaries. I-10 The scope of regulation and permissible activities of the Corporation and the Banks are subject to change by future federal and state legislation. In addition, regulators sometimes require higher capital levels on a case-by-case basis based on such factors as the risk characteristics or management of a particular institution. The Corporation and the Banks are not aware of any attributes of their operating plan that would cause regulators to impose higher requirements. CONSUMER FINANCE SUBSIDIARY The Corporation's consumer finance subsidiary is subject to regulation under Pennsylvania, Tennessee, and Ohio 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 and the Ohio Division of Consumer Finance 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. 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. I-11 ITEM 2. PROPERTIES The Corporation operates an eight-story building in Naples, Florida, which serves as its executive and administrative offices and shares this facility with First National Bank of Florida. The Corporation also owns a six-story building in Hermitage, Pennsylvania which serves as its northern executive offices and shares this facility with First National Bank of Pennsylvania. The banking, consumer finance and insurance company offices are located in 5 counties in southwestern Florida, 23 counties in Pennsylvania, 17 counties in northern and central Tennessee and 6 counties in eastern Ohio. At December 31, 2001, the Corporation's subsidiaries owned 69 of the Corporation's 154 offices and leased the remaining 85 offices under operating leases expiring at various dates through the year 2087. For additional information regarding the lease commitments, see the Premises and Equipment footnote in the Notes to Consolidated Financial Statements, which is incorporated by reference to the Corporation's 2001 Annual Report to Stockholders. ITEM 3. LEGAL PROCEEDINGS During the first quarter of 2001, the Corporation established a legal reserve of approximately $4.0 million associated with individual retirement accounts at one of its banking subsidiaries. Various cases have been filed in the 20th Judicial Circuit and for Lee County, Florida, naming the subsidiary of the Corporation as a co-defendent. The plaintiffs allege that a third-party independent administrator misappropriated funds from their individual retirement accounts held with the banking subsidiary. As of March 25, 2002, the Corporation has settled all of these cases except one, at an aggregate cost to the Corporation of $2.6 million. The plaintiff in the remaining case is seeking a judgment from the Corporation in the principal amount of $150,000. The Corporation and persons to whom the Corporation may have indemnification obligations, in the normal course of business are subject to various pending and threatened lawsuits in which claims for monetary damages are asserted. Management, after consultation with outside legal counsel, does not at the present time anticipate that the ultimate liability, arising out of such pending and threatened lawsuits will have a material adverse effect on the Corporation's financial position. At the present time, management is not in a position to determine whether any pending or threatened litigation will have a material adverse effect on the Corporation's results of operation in any future reporting period. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A Special Meeting of the Shareholders of F.N.B. Corporation was held on October 18, 2001 to vote on the proposed merger with Promistar Financial Corporation and to amend the Articles of Incorporation to increase the authorized number of common shares. Proxies were solicited pursuant to Section 14(a) of the Securities and Exchange Act of 1934 and there was no solicitation in opposition to the Corporation's solicitation. The Agreement and Plan of merger with Promistar Financial Corporation was approved with 16,516,279 shares voted for and 402,732 shares voted against. The Amendment to the Articles of Incorporation to increase the authorized number of common shares was approved with 17,338,623 shares voted for and 3,386,345 shares voted against. I-12 PART II Information relating to Items 5, 6, 7 and 8 is provided in the Corporation's 2001 Annual Report to Stockholders under the captions and on the pages indicated below. The Annual Report is filed as an exhibit to this report and is incorporated herein by reference. PAGES IN 2001 ANNUAL REPORT CAPTION IN 2001 ANNUAL REPORT TO STOCKHOLDERS TO STOCKHOLDERS ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS 62 ITEM 6. SELECTED FINANCIAL DATA 49 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 51-61 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 54-56 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 22-48,50 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. II-1 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 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 May 6, 2002. Such information is incorporated herein by reference. 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 May 6, 2002. 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 May 6, 2002. 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 May 6, 2002. Such information is incorporated herein by reference. III-1 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 2001 Annual Report to Stockholders, are incorporated herein by reference: PAGES IN 2001 ANNUAL REPORT TO STOCKHOLDERS Consolidated Balance Sheets 22 Consolidated Income Statements 23 Consolidated Statements of Stockholders' Equity 24 Consolidated Statements of Cash Flows 25 Notes to Consolidated Financial Statements 26 - 48 Report of Independent Auditors 21 Quarterly Earnings Summary 50 (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-4 and is incorporated by reference. (B) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the fourth quarter of 2001. IV-1 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/Gary L. Tice ------------------------------------- Gary L. Tice, 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 and Director March 18, 2002 - --------------------------- Peter Mortensen /s/Gary L. Tice President, Chief Executive March 18, 2002 - --------------------------- Officer and Director Gary L. Tice (Principal Executive Officer) /s/Stephen J. Gurgovits Vice Chairman and Director March 21, 2002 - --------------------------- Stephen J. Gurgovits /s/John D. Waters Vice President and Chief March 18, 2002 - --------------------------- Financial Officer (Principal John D. Waters Financial and Accounting Officer) Director - --------------------------- G. Scott Baton Director - --------------------------- W. Richard Blackwood Director - --------------------------- Alan C. Bomstein /s/William B. Campbell Director March 18, 2002 - --------------------------- William B. Campbell /s/Charles T. Cricks Director March 18, 2002 - --------------------------- Charles T. Cricks IV-2 /s/Henry M. Ekker Director March 18, 2002 - --------------------------- Henry M. Ekker /s/James S. Lindsay Director March 18, 2002 - --------------------------- James S. Lindsay /s/Paul P. Lynch Director March 21, 2002 - --------------------------- Paul P. Lynch /s/Edward J. Mace Director March 18, 2002 - --------------------------- Edward J. Mace /s/Robert S. Moss Director March 21, 2002 - --------------------------- Robert S. Moss Director - --------------------------- William A. Quinn Director - --------------------------- Harry F. Radcliffe /s/William J. Strimbu Director March 18, 2002 - --------------------------- William J. Strimbu Director - --------------------------- Earl K. Wahl, Jr. /s/Archie O. Wallace Director March 18, 2002 - --------------------------- Archie O. Wallace /s/James T. Weller Director March 18, 2002 - --------------------------- James T. Weller Director - --------------------------- Eric J. Werner /s/R. Benjamin Wiley Director March 21, 2002 - --------------------------- R. Benjamin Wiley /s/Donna C. Winner Director March 21, 2002 - --------------------------- Donna C. Winner IV-3 INDEX TO EXHIBITS The following exhibits are filed or incorporated by reference as part of this report: 3.1. Articles of Incorporation of the Corporation as currently in effect. (incorporated by reference to Exhibit 4.1. of the Corporation's Form 8-K filed on June 1, 2001). 3.2. By-laws of the Corporation as currently in effect. (incorporated by reference to Exhibit 4.2. of the Corporation's Form 8-K filed on June 1, 2001). 4 The rights of holders of equity securities are defined in portions of the Articles of Incorporation and By-laws. The Articles of Incorporation are incorporated by reference to Exhibit 4.1. of the registrant's Form 8-K filed on June 1, 2001. The By-laws are incorporated by reference to Exhibit 4.2. of the registrant's Form 8-K filed on June 1, 2001. 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. 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). 10.5. 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). 10.6. 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). IV-4 10.7. 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). 10.8. 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). 10.9. 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). 10.10. F.N.B. Corporation Restricted Stock and Incentive Bonus Plan. (incorporated by reference to Exhibit 10.14. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.11. F.N.B. Corporation 1996 Stock Option Plan. (incorporated by reference to Exhibit 10.15. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.12. F.N.B. Corporation Director's Compensation Plan. (incorporated by reference to Exhibit 10.16. of the Corporation's Form 10-Q for the quarter ended March 31, 1996). 10.13. 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). 10.14. 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). 10.15. Employment Agreement between F.N.B. Corporation and Kevin C. Hale. (incorporated by reference to Exhibit 10.16. of the Corporation's Form 10-Q for the quarter ended June 30, 2000). 10.16. F.N.B. Corporation 2001 Incentive Plan. (incorporated by reference to Exhibit 10.1. of the Corporation's Form S-8 filed on June 14, 2001). 10.17. Termination of Continuation of Employment Agreement between F.N.B. Corporation and Peter Mortensen. (filed herewith). 10.18. Merger Agreement between F.N.B. Corporation and Promistar Financial Corporation. (incorporated by reference to Exhibit 2.1. of F.N.B. Corporation's Form 8-K filed on June 14, 2001). 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). IV-5 EX-10.17 3 j9337301ex10-17.txt TERMINATION OF CONTINUATION OF EMPLOYMENT AGREEMEN Exhibit 10.17 TERMINATION OF CONTINUATION OF EMPLOYMENT AGREEMENT THIS TERMINATION OF CONTINUATION OF EMPLOYMENT AGREEMENT (hereinafter "Agreement") is made between F.N.B. CORPORATION (hereinafter the "Company") and Peter Mortensen (hereinafter "Mortensen"). WHEREAS, the Company and Mortensen are parties to a Continuation of Employment Agreement entered into as of November 24, 1998 (hereinafter the "Employment Agreement"); and WHEREAS, the purpose of the Employment Agreement was to secure the services of Mortensen as an advisor and/or as an internal consultant subsequent to his retirement as the Company's full-time Chief Executive Officer; and WHEREAS, the Company and Mortensen wish to terminate the Employment Agreement and to settle finally and completely any and all matters between them and relating thereto; NOW, THEREFORE, in consideration of the mutual undertakings set forth below, this Agreement terminates the Employment Agreement and resolves, finally and completely, any and all matters between the Company and Mortensen arising from the Employment Agreement and to these ends the parties agree as follows: SECTION 1: RECITALS The foregoing recitals are incorporated by reference as if fully set forth herein. SECTION 2: TERMINATION OF EMPLOYMENT 2.01 On or after January 24, 2002, but in no event later than January 31, 2002, the Company shall pay $3,166,982 to a Rabbi Trust established for the benefit of Mortensen (Attachment I, the F.N.B. Deferred Compensation Trust F.B.O. Peter Mortensen (hereinafter the "Rabbi Trust")). The date upon which payment of this amount is made shall be referred to as the Effective Date. Upon payment of this amount to the Rabbi Trust, Mortensen's obligation to serve as an advisor and/or consultant shall terminate. Further, at the time of the Effective Date the Company and Mortensen hereby explicitly agree that the Employment Agreement, including the letter dated January 5, 2001 and addressing certain interpretational issues arising under the Employment Agreement shall be revoked and terminated. Mortensen's rights to distributions from the Rabbi Trust are set forth in Section 3, "Mortensen's Rights to Distributions from the Rabbi Trust" and in the Rabbi Trust. 2.02 Nothing herein shall preclude Mortensen from serving as the Chairman of the Board of Directors or as a director of the Company or any of its subsidiaries. In that regard, Mortensen shall be paid all usual and customary fees for his service. 2.03 The Company shall provide the following support to Mortensen until the end of the month following his 72nd birthday: (a) The Company will continue to provide to Mortensen benefits which include medical, dental and vision care to the extent that the Company makes those benefits available to its employees. Premium costs and reimbursements will be made in accordance with existing Company practices. (b) At the January, 2002 meeting of the Compensation Committee of the Board of Directors, the Company will grant to Mortensen an award of 156,800 stock options consistent with the previously established practices of the Compensation Committee. The award shall be granted in connection with services rendered during 2001 and to satisfy the contractual provisions under the Employment Agreement. The grant of the award and exercise of the stock option agreement shall occur prior to the Effective Date of this Agreement. It is agreed by the Company and Mortensen that the vesting, exercisability or term of the award is in no way contingent upon Mortensen providing any future services to the Company. The award will be governed by the standard provisions of the F.N.B. Corporation Stock Option Plan and the related F.N.B. Corporation Stock Option Agreement which will be executed between the Company and Mortensen. (c) The Company shall reimburse Mortensen for all reasonable and customary documented expenses incurred by Mortensen in the discharge of his duties as Chairman or as a director and not otherwise reimbursed by any other person or entity. Such reimbursement of customary expenses shall be pursuant to the Page -2- policies of the Company in effect at the time the expenses were incurred. (d) The Company shall continue to pay one-half of Mortensen's annual club dues in accordance with existing Company practice. (e) Mortensen shall be able to utilize Company aircraft in accordance with Company practices and policies. (f) The Company will continue to provide office space in Pennsylvania and Florida. If that office space should not be available as part of an executive floor or if staff growth or other factors make it significant for the operation of the Company, a mutually agreed upon office will be substituted. (g) The Company will provide Mortensen staff support in Pennsylvania and Florida and which support will be commensurate and reasonable for the conduct of Mortensen's duties as Chairman or as a director. SECTION 3: MORTENSEN'S RIGHTS TO DISTRIBUTIONS FROM THE RABBI TRUST 3.01 On the Effective Date, a deferred compensation liability account (hereinafter the "Deferred Compensation Liability") shall be established for Mortensen on the Company's books and shall be credited for the amount of $3,166,982 (hereinafter the "Initial Deferred Compensation Liability Amount"). 3.02 In accordance with Section 2.01 above, the Company shall pay an amount equal to the Initial Deferred Compensation Liability Amount to the Rabbi Trust to secure the Company's deferred compensation obligations to Mortensen under this Agreement. The funds paid to the Rabbi Trust will be invested by the trustee as the Company's management deems appropriate, giving due consideration to Mortensen's expressed desires regarding investment of the funds. Mortensen may express his investment desires to the Company, no more frequently than quarterly, through the submission of a written expression to the Company. While it is contemplated that the Company will instruct the trustee of the Rabbi Trust to invest the funds in accordance with Mortensen's express written desires, neither the Company nor the trustee will be bound to follow Mortensen's expressions. Page -3- 3.03 The Deferred Compensation Liability shall be satisfied as follows: (a) It is contemplated that there shall be four annual installment payments to Mortensen as scheduled in (b), (c), (d) and (e) immediately below. However, in no event will any annual payment exceed $800,000. If, due to this annual limitation, any funds remain in the Rabbi Trust subsequent to the distribution required by (e) below, then the fair market value of the funds/investments in the Rabbi Trust on the fourth annual anniversary date of the Effective Date will, subject to the $800,00 annual limitation, be paid to Mortensen, and such distributions shall continu on each succeeding annual anniversary of the Effective Date until such time as the funds/investments of the Rabbi Trust are totally exhausted. The investment and all other provisions of the Deferred Compensation Liability and of the Rabbi Trust shall continue until such time as all of the funds/investments of the Rabbi Trust have been distributed to Mortensen. (b) Within thirty days of the Effective Date, Mortensen shall be paid an amount from the Rabbi Trust equal to one-fourth of the then fair market value of the funds/investments in the Rabbi Trust. (c) On the first annual anniversary date of the Effective Date, Mortensen shall be paid an amount from the Rabbi Trust equal to on third of the then fair market value of the funds/investments in the Rabbi Trust. (d) On the second annual anniversary date of the Effective Date, Mortensen shall be paid an amount from the Rabbi Trust equal to one half of the then fair market value of the funds/investments in the Rabbi Trust. (e) On the third annual anniversary date o the Effective Date, Mortensen shall be paid an amount from the Rabbi Trust equal to the then fair market value of the funds/investments in the Rabbi Trust. 3.04 On each annual anniversary date of the Effective Date, the Deferred Compensation Liability shall be adjusted to the then fair market value of the funds/investments in the Rabbi Trust. The Company's Deferred Compensation Liability will be fully satisfied upon the making of the final payment from the Rabbi Trust. 3.05 Mortensen shall have the right to designate a beneficiary(ies) to receive all or any part of the payments attributable to the Deferred Compensation Liability which may remain unpaid at Mortensen's death. Such amount(s) shall be paid to said Page -4- beneficiary(ies) in such amounts and at such times as set forth in Section 3.03 above. Said beneficiary designations shall be effected, and may be changed from time to time, by Mortensen's giving written notice to the Company. 3.06 Mortensen and his beneficiary(ies), with respect to the Deferred Compensation Liability, have the status of general unsecured creditors of the Company. In the event that the Company is at any time considered insolvent under the provisions of Section 4 of the Rabbi Trust and, as a result of such insolvency, any funds/investments in the Rabbi Trust are distributed, in accordance with Section 4 of the Rabbi Trust, to any person or entity (including the Company) other than Mortensen or his beneficiary(ies), the Company's Deferred Compensation Liability to Mortensen will continue uninterrupted and will be measured as if the assets distributed from trust to those persons and/or entities other than Mortensen and his beneficiary(ies) had not occurred. 3.07 The terms of the Rabbi Trust will conform to the terms of the model deferred compensation grantor trust set forth in Revenue Procedure 92-64. It is the intention of the Company and Mortensen that the Company's Deferred Compensation Liability and the Rabbi Trust, a grantor trust, be unfunded arrangements for tax purposes and for purposes of Title I of ERISA. 3.08 Mortensen's rights to deferred compensation payments under this Agreement are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of Mortensen or of Mortensen's beneficiary(ies). SECTION 4: CONFIDENTIAL INFORMATION AND COMMUNICATIONS 4.01 From and after the date of this Agreement, Mortensen agrees to keep confidential and not use, or otherwise appropriate, for Mortensen's own benefit, or directly or indirectly divulge to any third party, "Confidential Information" of the Company or its affiliates. "Confidential Information" shall include, without limitation, financial data and marketing plans, strategies, customer information and employee information, whether in documentary or electronic form, whether past, present or prospective. The prohibitions against the use and disclosure of Confidential Information are in addition to all rights and remedies which are available to the Company under applicable Federal and State law to prevent the use or disclosure of trade secrets and other confidential information. The enforcement by the Page -5- Company of its rights and remedies under this Agreement shall not be a waiver of any other rights or remedies which Company may possess absent this Agreement. 4.02 From and after the date of this Agreement, Mortensen and the Company agree not to make any oral or written communication or comment to impugn or otherwise disparage the competency, integrity or qualifications of Mortensen or the Company, its affiliates, directors, officers and employees. SECTION 5: COOPERATION AGREEMENT Mortensen agrees to cooperate with the Company in resolving any matters now existing or arising hereafter which relate to the area of Mortensen's prior responsibility with the Company, including testifying, if necessary, with reasonable out-of-pocket expenses to be reimbursed by Company. SECTION 6: PARTIES IN INTEREST This Agreement shall be binding upon Mortensen, Mortensen's heirs, personal representatives and permitted assigns and upon the Company, its affiliates and their successors and assigns. This Agreement shall not be assignable, except the Company may assign it to any successor to the Company, or any of its affiliates, in its discretion. SECTION 7: ENFORCEMENT The parties acknowledge that the conditions of this Agreement are special, unique and extraordinary and that, in the event of a breach of the terms and conditions of this Agreement, the Company shall be entitled to institute proceedings to enforce the specific performance of this Agreement and to enjoin violations of its provisions. Page -6- SECTION 8: ARBITRATION PROVISION Mortensen and Company waive any right to a court (including jury) proceeding and instead agree to submit any dispute over the application interpretation, validity, or any other aspect of this Agreement to final and binding arbitration consistent with the application of the Federal Arbitration Act and the procedural rules of the American Arbitration Association ("AAA") before an arbitrator who is a member of the National Academy of Arbitrators ("NAA") out of an NA panel of eleven arbitrators to be supplied by the AAA. Only true neutrals will be eligible for consideration as arbitrators and under no circumstances will AAA furnish the names of individuals who represent employees, unions or companies. SECTION 9: SEVERABILITY If any court, arbitrator, or other authority determines that any term, condition, clause or provision of this Agreement is void or invalid at law, or for another reason, then only that term, condition, clause, or provision will be invalid, and the rest will remain in full force and effect. SECTION 10: GOVERNING LAW This Agreement is governed, construed and enforced under the internal laws of the State of Florida, except to the extent pre-empted by federal law. SECTION 11: INTEGRATION; MODIFICATION This Agreement contains the entire agreement between the parties and there are no other representations, understandings, warranties, covenants or agreements with respect to such relationship except as provided herein. This Agreement may not be amended or modified except in writing and signed by the parties hereto. Any notices required or permitted to be given hereunder shal be in writing and sent by certified mail to the last known address of the other. SECTION 12: COUNTERPARTS This Agreement may be executed in more than one counterpart, or in separate counterparts as the parties deem desirable, each of which, when fully executed, shall constitute an original. Page -7- SECTION 13: DRAFTSMANSHIP This Agreement has been drafted by the Company for the convenience of the parties and no presumption, inference or other interpretation shall be made in favor of or against any party hereto as a result of the identity of the draftsman hereof. IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have executed this Agreement as of the 20th day of December 31, 2001. ATTEST: F.N.B. CORPORATION /s/ William J. Rundorff, BY: /s/ Gary L. Tice ---------------------------- ---------------------------- Asst Sec. NAME: Gary L. Tice TITLE: President and CEO WITNESS: /s/William J. Rundorff /s/ Peter Mortensen ---------------------------- -------------------------------- Page -8- EX-13 4 j9337301ex13.txt 2001 ANNUAL REPORT Exhibit 13 Unveiling the New F.N.B. Brand. Our New Symbol of Trust, Commitment, Friendship, Service & Loyalty. [F.N.B. CORPORATION LOGO] 2001 ANNUAL REPORT CORPORATE PROFILE F.N.B. Corporation is a diversified financial services company headquartered in Naples, Florida. The company owns and operates traditional community banks, insurance agencies, a consumer finance company and First National Trust Company. It has full-service offices located in Florida, Pennsylvania, Ohio and Tennessee. The company's common stock is traded on the Nasdaq National Market under the symbol "FBAN." F.N.B. has been honored as a Dividend Achiever by Mergent FIS, formerly the Financial Information Services division of Moody's Investors Service. This annual recognition is based on the company's consistently outstanding record of increased dividend performance. The company has increased dividend payments for 29 consecutive years. OUR CORPORATE 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 individuals 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. OUR CORPORATE LOGO The spirit of F.N.B. Corporation is reflected in our new corporate logo. This metaphoric symbol of a handshake and the American flag represents our commitment to our customers, our employees and our shareholders. It also symbolizes the core values for which we stand: Trust, Commitment, Friendship, Service and Loyalty. This logo, which was adopted after extensive market research and peer group studies, will be rolled out at all F.N.B. locations as part of a strategic branding effort throughout the year. CONTENTS 1 Financial Highlights 2 Letter to Shareholders 6 Leadership Council 8 Our Commitment 14 Year in Review 16 Board of Directors 18 Corporate Officers 19 Affiliate Management 20 Principal Affiliates & Subsidiaries 21 Independent Auditors' Report 22 Financial Review ANNUAL MEETING The Annual Meeting of Shareholders will be held on May 6, 2002 at 4 p.m. at the Naples Beach Hotel, 851 Gulf Shore Blvd. N., Naples, FL 34102. F.N.B. CORPORATION AND SUBSIDIARIES [F.N.B. CORPORATION LOGO] FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share data)
- ---------------------------------------------------------------------------------------------------- 2001 2000 Percent Change FOR THE YEAR* Core operating earnings $ 51,756 $ 43,990 17.7% Return on average assets 1.27% 1.12% Return on average shareholders' equity 14.65% 13.71% Net income $ 44,572 $ 43,990 1.3 Return on average assets 1.09% 1.12% Return on average shareholders' equity 12.61% 13.71% - ---------------------------------------------------------------------------------------------------- PER COMMON SHARE* Core operating earnings Basic $ 2.01 $ 1.72 16.9% Diluted $ 1.95 $ 1.68 16.1 Net income Basic $ 1.73 $ 1.72 0.6 Diluted $ 1.68 $ 1.68 0.0 Cash dividends $ 0.75 $ 0.67 11.9 Book value at year end $ 14.22 $ 13.17 8.0 Market price at year end $ 26.35 $ 20.00 31.8 - ---------------------------------------------------------------------------------------------------- PERFORMANCE RATIOS Efficiency ratio 63.02% 64.47% Net interest margin 4.69% 4.58% - ---------------------------------------------------------------------------------------------------- AT YEAR END Assets $ 4,129,087 $ 4,055,921 1.8% Net loans $ 3,161,659 $ 3,056,460 3.4 Deposits $ 3,292,392 $ 3,247,950 1.4 Shareholders' equity $ 369,197 $ 339,640 8.7 Common shares outstanding 25,711,313 24,256,076 6.0 - ----------------------------------------------------------------------------------------------------
* Core operating earnings exclude consolidation charges of $2.1 million and merger related and other non-recurring costs of $5.1 million for the year ended December 31, 2001, both on an after tax basis. CORE OPERATING EARNINGS (Dollars in millions) 1997 33.9 1998 38.1 1999 41.8 2000 44.0 2001 51.8
CORE OPERATING EARNINGS PER SHARE (diluted)(in dollars) 1997 1.45 1998 1.46 1999 1.58 2000 1.68 2001 1.95
TOTAL ASSETS (Dollars in billions) 1997 3.1 1998 3.5 1999 3.8 2000 4.0 2001 4.1
F.N.B. Corporation 1 LETTER TO OUR SHAREHOLDERS It is a pleasure to report that in 2001 F.N.B. Corporation achieved outstanding financial results and made considerable progress in its strategic plan for long-term growth and diversification. Core operating earnings, which exclude non-recurring items, grew to a record $51.8 million, an increase of 18% over the previous year. Core operating earnings per diluted share were $1.95, representing an increase of 16% over the previous year. Non-interest income, in particular, increased 31% to $82.8 million, accounting for approximately a third of total revenues and on target with our long-term goal of achieving 40% of total revenue from fee-based sources. At the same time, we made significant progress in enhancing efficiency while reducing expenses. The efficiency ratio, a key performance measure, improved during the year to around 63%, which is well in line with industry peers. Meanwhile, core return on average shareholders' equity (ROE) and return on average assets (ROA) improved to 14.6% and 1.3%, respectively, for the year. Much of this improvement resulted directly from a charter consolidation plan that was completed in the first quarter of 2001. Under this initiative, F.N.B.'s community bank affiliates in each state were combined under statewide operating charters. The company's six Florida banks were consolidated under First National Bank of Florida and its two Pennsylvania banks were merged under First National Bank of Pennsylvania. The company's two banking affiliates in northeastern Ohio had previously been consolidated under a single charter, Metropolitan National Bank. Each affiliate office continued to do business under its own brand name, managed by a local President and Chief Executive Officer. While this move was transparent to the customer, significant savings were realized by eliminating operational redundancies, integrating common deposit and lending programs, and developing statewide marketing and branding strategies. The company also achieved major regulatory savings by reducing the total number of charters from 10 to three. It is also important to note that despite the sluggish economy and national tragedies, F.N.B. Corporation maintained superior asset quality during the year. Non-performing assets as a percent of total assets were just 0.54%, which is on par with historical levels. One of the true hallmarks of F.N.B. has been our strong credit culture and that will not change. In recognition of the company's consistently strong financial performance, strong cash flow from operations, and the quality of our balance sheet, the board of directors voted to [PHOTO OF GARY L. TICE] GARY L. TICE President & Chief Executive Officer F.N.B. Corporation 2 increase the company's dividend from the previous $0.72 per share to $0.80 per share on an annualized basis. One of the most notable achievements of the past year was the relocation of our corporate headquarters from Hermitage, Pennsylvania, to Naples, Florida. The move reflects the company's consistent expansion over the past five years in the faster growing Florida market. In fact, F.N.B. Corporation is now the largest bank holding company headquartered in the Sunshine State. The aggressive steps taken over the past year are indicative of the continued transformation of F.N.B. from a regional bank holding company into a diversified financial services corporation where all employees share a true passion for building loyal, profitable customer relationships. Our value propositions to our target market segments include traditional bank products; electronic banking; wealth management and investment services; insurance; and consumer finance. We are also expanding cross-selling activities by placing licensed insurance and investment professionals in most of our 172 banking offices in Florida, Pennsylvania and Ohio. These offices will function as full-service financial centers where customers will have access to a full range of exceptional products and services. In addition, we remain committed to providing a level of superior customer service at every location that will clearly differentiate us from our competitors. Through continued quality growth and strategic diversification, we are confident that we can build F.N.B. Corporation into an even more valuable company for long-term shareholders. As we proceed into the next year, the management of F.N.B. will be focused on achieving five key priorities: F.N.B. MERGER WITH PROMISTAR In January 2002, we completed the largest acquisition in our company's history. Headquartered in Johnstown, Pennsylvania, Promistar Financial Corporation is a bank holding company with more than $2.4 billion in total assets and 82 offices throughout southwestern Pennsylvania. All Promistar Bank offices are now operating under the First National Bank of Pennsylvania name. This merger will benefit our customers by giving them more than 100 convenient locations and will position First National Bank as the eighth largest bank in Pennsylvania and the largest community bank operating in the western half of the state. Even more important are the opportunities for increasing fee income through the sale of wealth management, trust, investment and insurance services. With the addition of Promistar, we will expand the potential customer base for First National Bank of Pennsylvania from approximately 800,000 to more than 2.2 million households. Clearly, the integration of Promistar into the F.N.B. family in a timely and efficient manner will contribute greatly to our success. [F.N.B. CORPORATION LOGO] - -------------------------------------------------------------------------------- The aggressive steps taken over the past year are indicative of the continued transformation of F.N.B. from a regional bank holding company into a diversified financial services corporation where all employees share a passion for building loyal, profitable customer relationships. - -------------------------------------------------------------------------------- F.N.B. Corporation 3 - -------------------------------------------------------------------------------- F.N.B. Corporation was recently honored by being listed in the 2002 edition of America's Finest Companies, an annual investment directory that recognizes those select few U.S. based companies that excel in consistent growth in dividends and earnings per share. - -------------------------------------------------------------------------------- UPGRADE THE ORGANIZATION To build a great company, you must be able to attract and retain great people. At F.N.B. Corporation, we go to extraordinary lengths to recruit and hire the very best person for each and every position. We measure and manage our corporate culture continuously and have one of the strongest and most positive corporate cultures in the financial services industry. In addition, we hold all of our leaders and managers accountable not just for the performance of their business units but also for continuous leadership development, the effective mentoring and coaching of their direct reports, and for leadership behaviors which honor our core values. Through our commitment to continuously upgrading our organization, and by reinforcing high-performance standards throughout our company, we will continue to make our superior workforce our greatest competitive advantage. SELECTIVE ACQUISITIONS We believe that each of the markets in which we operate offers opportunities for quality growth and continued high performance. However, it is clear that Florida presents the most dynamic potential for expanding our franchise. Robust population growth and per capita income growth, combined with extraordinary economic and cultural diversity, provide a multitude of highly attractive markets for expansion, particularly in the southern and central parts of the state. Since 1997, F.N.B. has acquired 11 community banks in Florida. Our latest acquisition, Central Bank Shares Inc., the holding company for the Bank of Central Florida, was completed in January 2002 and gives F.N.B. a foothold in the fast-growing Orlando market. This transaction alone adds more than $200 million in deposits and six full-service offices. As with our other recent acquisitions, we are committed to streamlining back room functions while boosting fee income from the effective sales of our insurance, investment and wealth management services. We will continue to capitalize on the tremendous growth opportunities in Florida and on our proven success in expanding the F.N.B. franchise through acquisitions by targeting selective companies that make sense strategically and financially and will contribute to long-term shareholder value. THE F.N.B. CORPORATION STORY Another key priority is expanding investor awareness of our company. In 2001, we increased our corporate communications efforts as reflected by our first quarterly earnings conference call and live webcast. Senior management also participated as presenters in a number of banking industry conferences in order to expand the knowledge of our company among analysts and brokers. Not surprisingly, investors are beginning to take notice. For example, F.N.B. Corporation was recently honored by being listed in the 2002 edition of America's Finest Companies, an annual investment directory that recognizes those select few U.S.-based companies that excel in consistent growth in dividends and earnings per share. Fewer than 2% of the nation's 19,000 publicly traded companies qualified for listing in the directory. We have an even better story to tell in 2002! We plan to continue to communicate "The F.N.B. Corporation Story" at every opportunity throughout the coming year with a special emphasis on the outstanding opportunities for quality growth and diversification in the years ahead. F.N.B. Corporation 4 [F.N.B. CORPORATION LOGO] BRANDING The stronger a company's brand, the less it has to compete on price, which is extremely important in today's highly competitive financial services industry. With this year's annual report, we are officially unveiling our new corporate logo. This metaphoric symbol of a hand shake and an American flag represents our commitment to building loyal relationships with our customers, employees, shareholders, and the individual communities we serve. It demonstrates what we, as a company, stand for: Trust, Commitment, Friendship, Service and Loyalty. The flag and its colors express our solidarity with the values of our nation. This exciting new identity was developed through months of market research in Florida, Pennsylvania and Ohio. As we build strong brand recognition and awareness throughout our expanding trade area, this logo will facilitate and support our marketing, sales, growth and diversification strategies. At F.N.B. Corporation, it is truly our passion to create one of America's great companies - one that creates superior value for our customers, employees and shareholders. In the following pages, you'll read testimonials from some of the people we have touched and how we have formed a bond that continues to earn their loyalty. We also will introduce you to the company's new Leadership Council. These are the top corporate managers who are directly responsible for guiding our corporation as we seek to achieve our goals for growth and diversification. F.N.B. clearly is not a one-man operation. It takes the time and dedication of all our "leaders" to make us the successful company we are today. I would like to acknowledge our directors for their invaluable guidance and wisdom over the past year. It is truly an honor to be associated with such a fine group of individuals. I would especially like to thank F.N.B. Chairman Peter Mortensen for the innovative and professional leadership he has provided our company. Pete retired last year as Chief Executive Officer after a very distinguished banking career of more than 40 years. He has been my mentor and has shared his banking knowledge with me, which I very much appreciate. It is my goal to carry forward the core values that Pete has instilled in this company. In closing, I would like to express my sincere gratitude and pride in the way that all F.N.B. employees have responded to the tragedies of September 11, 2001. The events of that day are something our nation had never experienced before and hopefully will never have to endure again. Despite the widespread uncertainty and fear generated by the terrorist attacks, our management and staff held firm, maintaining uninterrupted service for our customers and helping restore confidence. I am truly proud of the superior effort exerted by each and every one of them. /s/ Gary L. Tice GARY L. TICE President & Chief Executive Officer March 18, 2002 F.N.B. Corporation 5 THE LEADERSHIP COUNCIL [F.N.B. CORPORATION LOGO] At F.N.B. Corporation, we firmly believe that the foundation of any great company - and the source of any sustainable competitive advantage - is exceptional leadership at every level of the organization, beginning with the senior leadership team. Our Leadership Council consists of the most senior leaders of our organization. This group meets at least monthly to thoroughly review the implementation of all major strategic initiatives; to identify and prioritize all new opportunities to more fully honor our customer, employee and shareholder commitments; to proactively initiate whatever new strategies and action plans may be needed; and to ensure that each of these leaders, and everyone they lead, remains focused on our Strategic Vision and Plan. Each of these senior executives is held accountable for meeting or exceeding specific performance objectives and has been carefully selected based on experience, character, demonstrated leadership effectiveness, and the proven ability to achieve superior results. Above all else, each of these senior leaders shares an absolute passion for living our core values and making our strategic vision a reality because when you have a passion for something, nothing is unimportant. - -------------------------------------------------------------------------------- The Leadership Council: First Row, left to right, Kevin C. Hale, Executive Vice President & Chief Operating Officer; Stephen J. Gurgovits, Vice Chairman and President & Chief Executive Officer of First National Bank of Pennsylvania; Cass Bettinger, Executive Vice President & Chief Administrative Officer; Gary L. Tice, President & Chief Executive Officer. Second Row, left to right, William J. Rundorff, Executive Vice President & Chief Legal Officer; C.C. Coghill, Executive Vice President & Chief Credit Officer; John D. Waters, Vice President & Chief Financial Officer. Third Row, left to right, Michael H. Morris, President & Chief Executive Officer of First National Trust Company; Steven C. Powell, Executive Vice President & Chief Technology Officer; James L. Goehler, Chief Operating Officer of First National Bank of Florida; Garrett S. Richter, Executive Vice President and President & Chief Executive Officer of First National Bank of Florida. Fourth Row, left to right, Myron Harvey, Senior Vice President & Human Resources Director; Tim Bouchard, Chief Operating Officer of Roger Bouchard Insurance Inc.; Steven C. Ackmann, Senior Executive Vice President & Chief Operating Officer of First National Bank of Pennsylvania. - -------------------------------------------------------------------------------- F.N.B. Corporation 6 [PHOTO OF THE LEADERSHIP COUNCIL] F.N.B. Corporation 7 FOCUS ON CUSTOMER COMMITMENT Each and every employee of F.N.B. Corporation and its financial services subsidiaries shares a commitment - as a team - to build loyal, profitable customer relationships. To honor this commitment, we have identified in each of our markets the specific market segments that offer the greatest opportunities for building loyal and mutually profitable relationships. On a regular and consistent basis we gather constructive feedback from our customers to ensure that our value propositions contain the specific benefits that represent the most important attributes of value for each target segment. In addition, we continuously monitor the value propositions offered by our direct and indirect competitors to make sure that we never become complacent or satisfied. Our transition to a diversified financial services company, offering a full range of banking, insurance, investment, trust and wealth management services through electronic as well as traditional delivery channels, has been customer driven as well as shareholder driven. We now offer value propositions to each of our target markets that meet all of their financial needs. Because service quality is such an important attribute of value for each of our target segments, we also have an absolute passion throughout the company for consistently delivering a superior level of service that produces not just satisfaction, but loyalty. We have identified the specific personality profiles required for every position in our company, including all customer contact positions. We make sure we hire the right people. Then, we provide them with a comprehensive orientation program, and continuous training that covers every aspect of our service quality commitment, including our F.N.B. Service Quality Standards. Finally, through a variety of ways, we evaluate and monitor service quality throughout the company on an ongoing basis and go to great lengths to recognize and reward all our service quality champions. Directly related to our Customer Commitment is our Community Commitment, which encourages all officers and employees to take an active role in "contributing in a positive way to the economic and social well-being to the communities in which we live and work." Many of our most loyal and profitable customer relationships have come about as a result of our commitment to our communities. [F.N.B. CORPORATION LOGO] - -------------------------------------------------------------------------------- Robert R. Gilkey, Vice President of Pennsylvania Rail Car Company, has been doing business with F.N.B. affiliate First National Bank of Pennsylvania since the company began in 1983. Gilkey credits the bank's commitment to providing superior customer service and relationship banking for much of the company's recent success. The family-owned company manufactures a wide variety of rail car parts for customers in the United States, Canada and Mexico. - -------------------------------------------------------------------------------- F.N.B. Corporation 8 [PHOTO OF ROBERT R. GILKEY] F.N.B. Corporation 9 FOCUS ON EMPLOYEE COMMITMENT In the final analysis, the performance of any company is nothing more or less than the sum of the individual performances of all its people. Our stated Employee Commitment is "to foster a corporate culture throughout our company that attracts, develops and retains high-performance employees." While many companies give lip-service to those types of statements, at F.N.B. Corporation we take our Employee Commitment very seriously. In addition to providing competitive salary and benefit packages, we have a multitude of programs to assure that our workforce is a competitive advantage for our company. First, we profile every position in our company and set extremely high standards for recruiting and hiring. In addition, we use a variety of validated screening instruments, such as The Predictive Index, to make sure we put the right person in the right position. This, of course, benefits each of our employees as well as the organization itself. Research has documented that the single most powerful influence on the attitude, behavior and performance of talented employees is the effectiveness of their immediate team leader. Because of this we only place people in leadership positions who have the attributes necessary to become exceptional leaders. Based on 360-degree evaluations, along with career development planning, every leader prepares a professional development plan each year and is held accountable for continuously improving his or her leadership effectiveness. In addition, through the F.N.B. Center for Leadership Development, we provide an extensive leadership curriculum for all existing and prospective leaders. Finally, every 12-18 months we conduct a comprehensive corporate culture survey at each of our financial services subsidiaries. We ask our employees to let us know how we are doing in each of 20 components of corporate culture. The results are thoroughly reviewed; opportunities for improvement are prioritized; strategies and action plans are developed; and specific objectives are quantified, all within the framework of our strategic planning process. We believe that as a result of our Employee Commitment, we have a workforce that is second to none. Our people truly are our greatest competitive advantage. [F.N.B. CORPORATION LOGO] - -------------------------------------------------------------------------------- Candace Sizer began with F.N.B. affiliate First National Bank of Pennsylvania in 1977 as a personal banker trainee. Today, she is a Vice President and Manager of the largest branch located in Hermitage, Pennsylvania. F.N.B. is committed to cultivating its very best employees by equipping them with the educational tools and training necessary to be successful. - -------------------------------------------------------------------------------- F.N.B. Corporation 10 [PHOTO OF CANDACE SIZER] F.N.B. Corporation 11 FOCUS ON SHAREHOLDER COMMITMENT Our Shareholder Commitment, which is clearly articulated in our mission statement, is "to enhance shareholder value through superior profitability and quality growth." It is the responsibility of all officers and employees to honor this commitment each day through their shared focus on building loyal, profitable customer relationships and by proactively seeking opportunities to improve the financial performance of their business units. To this end, all new officers and employees complete an extensive orientation program which covers in great depth how their jobs relate to our Customer and Shareholder Commitments. As additional reinforcement, our mission, including our Shareholder Commitment, is the foundation for not only our strategic plan, but for every job description. Accountabilities for each job are linked directly to the Shareholder, Customer, Employee, and/or Community Commitments and are weighted based on the relative importance for that specific job. In this way, every position has clearly defined accountabilities directly related to the Shareholder Commitment. As an integral part of our companywide performance management system, all officers and employees, working directly with their team leaders, establish specific performance objectives based on their job description accountabilities and on the financial performance objectives in their business unit strategic plans. In addition, we use a variety of performance-based compensation models to link individual and team compensation directly to the achievement of specific financial objectives. In sum, all of our more than 2,800 financial services professionals are fully committed to the key quality growth and profitability enhancement strategies which support our Shareholder Commitment, and to which their job descriptions and compensation are directly related. [F.N.B. CORPORATION LOGO] - -------------------------------------------------------------------------------- Shari and Hiett Ward realize the value of an investment in F.N.B. Corporation. The retired couple from Sanibel Island, Florida, say they felt comfortable investing in the company because they are clients themselves and have firsthand knowledge of the quality services offered through F.N.B. They also were attracted by the company's consistent earnings performance and growth opportunities, especially in the Sunshine State. - -------------------------------------------------------------------------------- F.N.B. Corporation 12 [PHOTO OF SHARI AND HIETT WARD] F.N.B. Corporation 13 YEAR IN REVIEW [F.N.B. CORPORATION LOGO] Jan. 2 F.N.B. Corporation common stock opens trading in 2001 at $20.00 per share. Jan. 5 F.N.B. Corporation completes the acquisition of James T. Blalock, an independent insurance agency located in Venice, Florida. The agency becomes a division of F.N.B.'s existing affiliate Roger Bouchard Insurance Inc. Jan. 9 F.N.B. Corporation announces a charter consolidation plan for its community banking affiliates as part of an effort to improve long-term shareholder value. The integration project is completed during the first quarter of 2001. Jan. 17 F.N.B. Corporation reports record 2000 net income of $42.8 million, or $1.88 per diluted share, an increase of 9 percent over the prior year. Core operating earnings also were a record at $42.8 million, or $1.88 per share. Jan. 26 F.N.B. Corporation completes the acquisition of OneSource Group Inc., an independent insurance agency with offices in Jacksonville and Clearwater, Florida. The agency becomes a division of Roger Bouchard Insurance Inc. Feb. 1 F.N.B. Corporation completes the acquisition of Don Ostrowsky & Associates Inc., an independent insurance agency located in Cape Coral, Florida. The agency becomes a division of Roger Bouchard Insurance Inc. March 6 F.N.B. Corporation announces plans to relocate its corporate headquarters from Hermitage, Pennsylvania, to Naples, Florida. The reincorporation of F.N.B. in the state of Florida is formally completed effective June 1, 2001. April 6 F.N.B. Corporation announces that it has been selected for inclusion in the America's Fastest Growing Companies index by Individual Investor Group Inc., publisher of Individual Investor magazine. The index is a barometer of the nation's 500 fastest growing small-cap stocks ranging from $100 million to $2 billion. April 17 F.N.B. Corporation reports core operating earnings of $10.7 million, or $0.46 per diluted share, for the first quarter of 2001. The results represent an increase of 3 percent over the same period a year earlier. April 23 F.N.B. Corporation declares a 5 percent common stock dividend at its annual meeting in Naples, Florida. The move marks the 29th consecutive year in which the corporation has paid a stock dividend to its shareholders. April 30 F.N.B. Corporation announces the successful completion of its merger with Citizens Community Bancorp Inc., the parent of Citizens Community Bank of Florida. The transaction makes F.N.B. the third largest financial institution in the Naples/Collier County area based on total deposits. May 14 F.N.B. Corporation affiliate Roger Bouchard Insurance Inc. announces plans to establish a full-service insurance agency office in Naples, Florida. The start-up operation is directed by Division Manager Larry W. Adams. June 14 F.N.B. Corporation and Promistar Financial Corporation announce the signing of a definitive agreement in which Promistar will merge with and into F.N.B. Headquartered in Johnstown, Pennsylvania, Promistar is a bank holding company with $2.4 billion in total assets and 82 offices serving southwestern Pennsylvania. F.N.B. Corporation 14 July 12 F.N.B. Corporation announces that it has been included once again in the re-indexed Russell 3000 and Russell 2000 stock indexes. The annual reconstitution of both Russell indexes is effective as of July 1, 2001. July 17 F.N.B. Corporation reports core operating earnings of $13.2 million, or $0.50 per diluted share, for the second quarter of 2001. The results represent an increase of 23 percent over the same period a year earlier. Aug. 22 F.N.B. Corporation announces that its Board of Directors has raised the regular quarterly cash dividend on its common stock by $0.02 to $0.20 per share. It is 11 percent higher than last year's third quarter dividend. Sept. 5 F.N.B. Corporation is named a Dividend Achiever based on its outstanding record of increased dividend performance. The distinction is awarded by Mergent FIS, formerly known as Moody's Investors Service. Sept. 17 F.N.B. Corporation announces that it has initiated construction on a major expansion of its information technology center in Hermitage, Pennsylvania. The $4.5 million project will increase the size of the existing facility from 40,000 square feet to 76,000 square feet and will result in significant job additions. Sept. 25 F.N.B. Corporation President and Chief Executive Gary L. Tice participates as a presenter at the Sunbelt Community Bank Conference hosted by SunTrust Robinson Humphrey Capital Markets in Atlanta, Georgia. Oct. 16 F.N.B. Corporation reports core operating earnings of more than $13.6 million, or $0.51 per diluted share, for the third quarter of 2001. The results represent an increase of 20 percent over the same period a year ago. Oct. 18 F.N.B. Corporation shareholders overwhelmingly approve the merger with Promistar Financial Corporation. Management of both companies announce that the formal closing is scheduled for January 18, 2002. Nov. 7 F.N.B. Corporation President and Chief Executive Gary L. Tice participates as a presenter at the Mid-Atlantic 2001 Super-Community Bank Conference hosted by 12 presenting banks in Baltimore, Maryland. While speaking at the conference, Mr. Tice announces F.N.B.'s plans to acquire Central Bank Shares Inc., the parent of the Bank of Central Florida. Nov. 21 F.N.B. Corporation announces that it has been honored in the 2002 edition of America's Finest Companies by The Staton Institute Inc. America's Finest Companies is an annual investment directory that identifies U.S.-based companies with at least 10 consecutive years of higher dividends or earnings per share. Dec. 6 F.N.B. Corporation announces the appointment of Cass Bettinger as Executive Vice President and Chief Administrative Officer. Based in Naples, Florida, Bettinger is responsible for all strategic planning, marketing and human resource leadership. Dec. 31 F.N.B. Corporation common stock ends trading in 2001, closing at $26.35 per share. F.N.B. Corporation 15 BOARD OF DIRECTORS [F.N.B. CORPORATION LOGO] [PHOTO OF G. SCOTT BATON] G. SCOTT BATON Chairman Chestnut Ridge Foam Inc. [PHOTO OF W. RICHARD BLACKWOOD] W. RICHARD BLACKWOOD President Harry Blackwood Inc. [PHOTO OF ALAN C. BOMSTEIN] ALAN C. BOMSTEIN President & Chief Executive Officer Creative Contractors Inc. [PHOTO OF WILLIAM B. CAMPELL] WILLIAM B. CAMPELL Retired Business Executive [PHOTO OF CHARLES T. CRICKS] CHARLES T. CRICKS Principal Starboard Ventures [PHOTO OF HENRY M. EKKER] HENRY M. EKKER Attorney at Law, Partner Ekker, Kuster, McConnell & Epstein LLP [PHOTO OF STEPHEN J. GURGOVITS] STEPHEN J. GURGOVITS Vice Chairman F.N.B. Corporation President & Chief Executive Officer First National Bank of Pennsylvania [PHOTO OF JAMES S. LINDSAY] JAMES S. LINDSAY Licensed Real Estate Broker The Lindsay Company Managing Partner Dor-J's Partnership [PHOTO OF PAUL P. LYNCH] PAUL P. LYNCH Attorney at Law President & Chief Executive Officer Lynch Brothers Investments Inc. [PHOTO OF EDWARD J. MACE] EDWARD J. MACE Certified Public Accountant Chief Operating Officer Ribek Corporation [PHOTO OF PETER MORTENSEN] PETER MORTENSEN Chairman F.N.B. Corporation Chairman First National Bank of Pennsylvania F.N.B. Corporation 16 [PHOTO OF ROBERT S. MOSS] ROBERT S. MOSS Chairman Associated Contractors of Conneaut Lake Inc. [PHOTO OF WILLIAM A. QUINN] WILLIAM A. QUINN Retired Executive Vice President & Cashier First National Bank of Pennsylvania [PHOTO OF HARRY F. RADCLIFFE] HARRY F. RADCLIFFE President & Chief Executive Officer Fort Pitt Capital Management Corporation [PHOTO OF WILLIAM J. STRIMBU] WILLIAM J. STRIMBU President Nick Strimbu Inc. [PHOTO OF GARY L. TICE] GARY L. TICE President & Chief Executive Officer F.N.B. Corporation Chairman First National Bank of Florida [PHOTO OF EARL K. WAHL JR.] EARL K. WAHL JR. Principal Owner JED Corporation [PHOTO OF ARCHIE O. WALLACE] ARCHIE O. WALLACE Attorney at Law Partner of Rowley, Wallace, Keck, Karson & St. John [PHOTO OF JAMES T. WELLER] JAMES T. WELLER Chairman Liberty Steel Products Inc. [PHOTO OF ERIC J. WERNER] ERIC J. WERNER Vice President, General Counsel & Secretary Werner Co. [PHOTO OF R. BENJAMIN WILEY] R. BENJAMIN WILEY Chief Executive Officer Greater Erie Community Action Committee [PHOTO OF DONNA C. WINNER] DONNA C. WINNER Co-owner The Radisson, Tara-A-Country Inn, The Winner, Tiffany's F.N.B. Corporation 17 CORPORATE OFFICERS [F.N.B CORPORATION LOGO] [PHOTO OF GARY L. TICE] GARY L. TICE President & Chief Executive Officer [PHOTO OF STEPHEN J. GURGOVITS] STEPHEN J. GURGOVITS Vice Chairman [PHOTO OF KEVIN C. HALE] KEVIN C. HALE Chief Operating Officer [PHOTO OF CASS BETTINGER] CASS BETTINGER Chief Administrative Officer [PHOTO OF WILLIAM J. RUNDORFF] WILLIAM J. RUNDORFF Executive Vice President & Chief Legal Officer [PHOTO OF C.C. Coghill] C.C. COGHILL Executive Vice President & Chief Credit Officer [PHOTO OF STEVEN C. POWELL] STEVEN C. POWELL Executive Vice President & Chief Technology Officer [PHOTO OF GARRETT S. RICHTER] GARRETT S. RICHTER Executive Vice President [PHOTO OF JOHN D. WATERS] JOHN D. WATERS Vice President & Chief Financial Officer [PHOTO OF DAVID B. MOGLE] DAVID B. MOGLE Secretary & Treasurer F.N.B. Corporation 18 AFFILIATE SENIOR MANAGEMENT FIRST NATIONAL BANK OF PENNSYLVANIA Peter Mortensen Chairman Stephen J. Gurgovits President & Chief Executive Officer Steven C. Ackmann Chief Operating Officer Thomas B. Hebble Executive Vice President Robert A. Rimbey Executive Vice President Gale E. Wurster Executive Vice President FIRST NATIONAL BANK OF FLORIDA Gary L. Tice Chairman Garrett S. Richter President & Chief Executive Officer James L. Goehler Chief Operating Officer Robert C. George President & Chief Executive Officer Clearwater, Fl. Joseph D. Hudgins President & Chief Executive Officer Sarasota, Fl. David W. Gomer Chief Executive Officer Cape Coral, Fl. Robert J. Avery President Cape Coral, Fl. Mark L. Morris President & Chief Executive Officer Fort Myers, Fl. Darrell E. Ward President & Chief Executive Officer Marco Island, Fl. Don Rogers President & Chief Executive Officer Orlando, Fl. METROPOLITAN NATIONAL BANK Gary J. Roberts President & Chief Executive Officer FIRST NATIONAL TRUST COMPANY Michael H. Morris President & Chief Executive Officer FIRST NATIONAL INVESTMENT SERVICES COMPANY Jack Kuhn President F.N.B. INVESTMENT ADVISORS INC. Kim Craig President ROGER BOUCHARD INSURANCE INC. Ray Bouchard President Richard Bouchard Chief Executive Officer Tim Bouchard Chief Operating Officer GELVIN, JACKSON & STARR INC. Stephen F. Hunter President & Chief Executive Officer REGENCY FINANCE COMPANY Stephen J. Gurgovits Chairman Robert T. Rawl President & Chief Executive Officer CUSTOMER SERVICE CENTER OF F.N.B. LLC Steven C. Powell President & Chief Executive Officer Charlie Grau Chief Operating Officer F.N.B. AFFILIATE SERVICES Myron Harvey Senior Vice President & Human Resources Director Clay W. Cone Vice President-Corporate Affairs George D. Hagi Vice President-Risk Management Philip L. Nemni Corporate Budget & Information Director James G. Orie Vice President & Corporate Counsel Robert T. Reichert Vice President & Controller Bernie G. Sponseller Manager of Shareholder Services Christine E. Tvaroch General Auditor F.N.B. Corporation 19 PRINCIPAL AFFILIATES & SUBSIDIARIES COMMUNITY BANKING: FIRST NATIONAL BANK OF FLORIDA Naples, Florida FIRST NATIONAL BANK OF PENNSYLVANIA Hermitage, Pennsylvania METROPOLITAN NATIONAL BANK Youngstown, Ohio WEALTH MANAGEMENT: FIRST NATIONAL TRUST COMPANY Naples, Florida Hermitage, Pennsylvania FIRST NATIONAL INVESTMENT SERVICES COMPANY Naples, Florida Hermitage, Pennsylvania F.N.B. INVESTMENT ADVISORS INC. Johnstown, Pennsylvania INSURANCE: ROGER BOUCHARD INSURANCE INC. Clearwater, Florida GELVIN, JACKSON & STARR INC. Meadville, Pennsylvania CONSUMER FINANCE: REGENCY FINANCE COMPANY Hermitage, Pennsylvania CUSTOMER SERVICE: CUSTOMER SERVICE CENTER OF F.N.B. LLC Naples, Florida Hermitage, Pennsylvania [F.N.B CORPORATION LOGO] F.N.B. Corporation 20 INDEPENDENT AUDITORS' REPORT Stockholders and Board of Directors F.N.B. Corporation We have audited the accompanying consolidated balance sheets of F.N.B. Corporation and Subsidiaries (F.N.B. Corporation) as of December 31, 2001 and 2000, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. 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 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 provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of F.N.B. Corporation at December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Birmingham, Alabama February 5, 2002 F.N.B. Corporation 21 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Dollars in thousands, except par values
- ----------------------------------------------------------------------------------------------------------------- December 31 2001 2000 - ----------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 155,946 $ 147,530 Interest bearing deposits with banks 3,612 1,860 Federal funds sold 4,260 39,332 Mortgage loans held for sale 1,323 1,042 Securities available for sale 413,793 441,480 Securities held to maturity (fair value of $51,770 and $73,508) 51,368 73,522 Loans, net of unearned income of $44,383 and $62,271 3,202,504 3,096,833 Allowance for loan losses (40,845) (40,373) - ----------------------------------------------------------------------------------------------------------------- NET LOANS 3,161,659 3,056,460 - ----------------------------------------------------------------------------------------------------------------- Premises and equipment 121,729 113,936 Other assets 215,397 180,759 - ----------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $4,129,087 $4,055,921 - ----------------------------------------------------------------------------------------------------------------- LIABILITIES Deposits: Non-interest bearing $ 511,611 $ 478,167 Interest bearing 2,780,781 2,769,783 - ----------------------------------------------------------------------------------------------------------------- TOTAL DEPOSITS 3,292,392 3,247,950 - ----------------------------------------------------------------------------------------------------------------- Other liabilities 71,104 65,768 Short-term borrowings 293,381 285,865 Long-term debt 103,013 116,698 - ----------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 3,759,890 3,716,281 - ----------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Preferred stock - $0.01 and $10 par value Authorized - 20,000,000 shares Issued - 147,033 and 167,732 shares Aggregate liquidation value - $3,676 and $4,193 1 1,678 Common stock - $0.01 and $2 par value Authorized - 500,000,000 and 100,000,000 shares Issued - 25,774,491 and 24,489,817 shares 258 48,980 Additional paid-in capital 295,909 216,647 Retained earnings 67,727 75,127 Accumulated other comprehensive income 6,964 2,196 Treasury stock - 63,178 and 233,741 shares at cost (1,662) (4,988) - ----------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 369,197 339,640 - ----------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,129,087 $4,055,921 - -----------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements F.N.B. Corporation 22 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS Dollars in thousands, except per share data
- ------------------------------------------------------------------------------------------------- Year Ended December 31 2001 2000 1999 - ------------------------------------------------------------------------------------------------- INTEREST INCOME Loans, including fees $263,503 $269,746 $227,318 Securities: Taxable 25,803 26,816 28,557 Nontaxable 1,721 1,852 2,210 Dividends 1,536 1,811 1,482 Other 4,130 1,632 2,209 - ------------------------------------------------------------------------------------------------- TOTAL INTEREST INCOME 296,693 301,857 261,776 - ------------------------------------------------------------------------------------------------- INTEREST EXPENSE Deposits 106,608 115,090 93,076 Short-term borrowings 11,695 17,130 11,282 Long-term debt 7,364 8,143 4,928 - ------------------------------------------------------------------------------------------------- TOTAL INTEREST EXPENSE 125,667 140,363 109,286 - ------------------------------------------------------------------------------------------------- NET INTEREST INCOME 171,026 161,494 152,490 Provision for loan losses 12,915 11,922 9,677 - ------------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 158,111 149,572 142,813 - ------------------------------------------------------------------------------------------------- NON-INTEREST INCOME Insurance commissions and fees 34,693 24,982 17,058 Service charges 26,581 22,525 20,254 Trust 4,738 4,463 3,852 Gain on sale of securities 1,157 176 1,674 Gain on sale of loans 6,235 3,184 2,187 Other 9,395 8,068 8,557 - ------------------------------------------------------------------------------------------------- TOTAL NON-INTEREST INCOME 82,799 63,398 53,582 - ------------------------------------------------------------------------------------------------- 240,910 212,970 196,395 - ------------------------------------------------------------------------------------------------- NON-INTEREST EXPENSE Salaries and employee benefits 91,922 84,001 75,597 Net occupancy 11,254 10,105 9,516 Amortization of intangibles 2,509 2,128 1,998 Equipment 13,424 13,046 10,916 Merger related 3,789 1,824 Promotional 2,698 2,782 2,952 Insurance claims 8,011 5,304 4,162 Other 41,223 31,132 31,338 - ------------------------------------------------------------------------------------------------- TOTAL NON-INTEREST EXPENSE 174,830 148,498 138,303 - ------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 66,080 64,472 58,092 Income taxes 21,508 20,482 17,511 - ------------------------------------------------------------------------------------------------- NET INCOME $ 44,572 $ 43,990 $ 40,581 - ------------------------------------------------------------------------------------------------- EARNINGS PER COMMON SHARE Basic $ 1.73 $ 1.72 $ 1.59 - ------------------------------------------------------------------------------------------------- Diluted $ 1.68 $ 1.68 $ 1.54 - -------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements F.N.B. Corporation 23 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS 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, 1999 $2,380 $44,214 $176,151 $73,680 $6,356 $(3,084) Net income $ 40,581 40,581 Change in accumulated other comprehensive income (11,167) (11,167) -------- Comprehensive income $ 29,414 ======== Cash dividends declared: Preferred stock (411) Common stock $0.64 per share (16,518) Purchase of common stock (17,735) Issuance of common stock 129 425 (3,840) 17,707 Stock dividend 1,916 21,137 (23,053) Conversion of preferred stock (305) 139 166 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 2,075 46,398 197,879 70,439 (4,811) (3,112) Net income $ 43,990 43,990 Change in accumulated other comprehensive income 7,007 7,007 -------- Comprehensive income $ 50,997 ======== Cash dividends declared: Preferred stock (341) Common stock $0.67 per share (16,311) Purchase of common stock (17,671) Issuance of common stock 306 1,230 (3,233) 15,795 Stock dividend 2,085 17,332 (19,417) Conversion of preferred stock (397) 191 206 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 1,678 48,980 216,647 75,127 2,196 (4,988) Net income $ 44,572 44,572 Change in accumulated other comprehensive income 4,768 4,768 -------- Comprehensive income $ 49,340 ======== Cash dividends declared: Preferred stock (293) Common stock $0.75 per share (18,958) Purchase of common stock (12,052) Issuance of common stock 15 386 (4,259) 15,378 Stock dividend 2,437 26,025 (28,462) Change in par values of stock (1,635) (51,195) 52,830 Conversion of preferred stock (42) 21 21 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2001 $ 1 $ 258 $295,909 $67,727 $6,964 $(1,662) - -----------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements F.N.B. Corporation 24 F.N.B. Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Dollars in thousands
- -------------------------------------------------------------------------------------------------- Year Ended December 31 2001 2000 1999 - -------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 44,572 $ 43,990 $ 40,581 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 13,918 13,043 11,668 Provision for loan losses 12,915 11,922 9,677 Deferred taxes (6,931) (1,225) (9,099) Gain on sale of securities (1,157) (176) (1,674) Gain on sale of loans (6,235) (3,184) (2,187) Proceeds from sale of loans 22,290 23,961 45,858 Loans originated for sale (16,336) (14,009) (36,457) Net change in: Interest receivable 3,822 (3,385) 384 Interest payable (3,494) 3,746 796 Other, net (24,990) (17,476) 12,444 - -------------------------------------------------------------------------------------------------- Net cash flows from operating activities 38,374 57,207 71,991 - -------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Net change in: Interest bearing deposits with banks (1,752) 3,618 (1,286) Federal funds sold 35,072 (23,073) 47,527 Loans (118,134) (222,353) (425,244) Securities available for sale: Purchases (161,357) (104,567) (174,147) Sales 17,719 13,299 32,053 Maturities 179,842 76,191 167,106 Securities held to maturity: Purchases (20,259) (1,664) (9,021) Maturities 42,410 18,504 45,739 Increase in premises and equipment (19,311) (14,764) (19,769) Net cash paid for mergers, acquisitions and divestiture (2,678) (341) (3,941) - -------------------------------------------------------------------------------------------------- Net cash flows from investing activities (48,448) (255,150) (340,983) - -------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net change in: Non-interest bearing deposits, savings and NOW 72,811 107,898 59,426 Time deposits (28,369) 127,415 38,450 Short-term borrowings 7,516 (46,332) 181,216 Increase in long-term debt 7,630 49,391 70,560 Decrease in long-term debt (21,315) (51,076) (23,412) Net acquisition of treasury stock (532) (3,573) (3,314) Cash dividends paid (19,251) (16,652) (16,929) - -------------------------------------------------------------------------------------------------- Net cash flows from financing activities 18,490 167,071 305,997 - -------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,416 (30,872) 37,005 Cash and cash equivalents at beginning of year 147,530 178,402 141,397 - -------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $155,946 $147,530 $178,402 - --------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements F.N.B. Corporation 25 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS: F.N.B. Corporation (the Corporation) is a diversified financial services company headquartered in Naples, Florida. The Corporation owns and operates three regional community banks, two insurance agencies, a consumer finance company and First National Trust Company. It has full service offices located in Florida, Pennsylvania, Ohio and Tennessee. BASIS OF PRESENTATION: The consolidated financial statements include the accounts of the Corporation and its subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain reclassifications have been made to the prior years' financial statements to conform to the current year's presentation, including restatements for transactions accounted for as poolings-of-interests during 2001. (See the "Mergers, Acquisitions and Divestitures" section of this report). 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 residuals 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 and/or residuals are charged to the allowance when the loss actually occurs or when a determination is made that a loss is probable. Impaired loans are identified and measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, 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-homoge- F.N.B. Corporation 26 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS neous 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 five percent stock dividend declared on April 23, 2001. 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. Because the Corporation has not entered into any derivative transactions, the adoption of this statement did not have a material impact on the financial statements. FAS No. 141, "Business Combinations," requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. FAS No. 141 also specifies criteria that intangible assets acquired in purchase business combinations must meet to be recognized and reported apart from goodwill. FAS No. 142, "Goodwill and Other Intangible Assets," requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of the Statement. FAS No. 142 also requires that intangibles with definite useful lives be amortized over their respective estimated useful lives to the estimated residual values, and reviewed for impairment in accordance with FAS No.121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Corporation will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the non-amortization provisions of the Statement is expected to result in an increase in net income of $1.4 million, or $0.05 per share, per year. The Corporation is currently evaluating the impact of the remaining provisions of this Statement. F.N.B. Corporation 27 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MERGERS, ACQUISITIONS AND DIVESTITURES On April 30, 2001 the Corporation completed its affiliation with Citizens Community Bancorp, Inc. (Citizens), a bank holding company headquartered in Marco Island, Florida, with assets of $170.0 million. Under the terms of the merger agreement, each outstanding share of Citizens common stock was converted into .524 shares of the Corporation's common stock. A total of 1,775,224 shares of the Corporation's common stock were issued. The transaction was accounted for as a pooling-of-interests. Citizens' banking affiliate, Citizens Community Bank of Florida, was merged into an existing subsidiary of the Corporation, First National Bank of Florida (FNBFL). On January 31, 2001 and January 5, 2001, the Corporation completed its affiliations with Ostrowsky & Associates, Inc. (Ostrowsky) and James T. Blalock (Blalock), independent insurance agencies in Cape Coral and Venice, Florida, respectively. The transactions were accounted for as purchases. Both Ostrowsky and Blalock are operating as divisions of Roger Bouchard Insurance, Inc. (Bouchard), a wholly-owned subsidiary of the Corporation. On January 26, 2001, the Corporation completed its affiliation with OneSource Group, Inc. (OneSource), an independent insurance agency with offices in Clearwater and Jacksonville, Florida. The transaction was accounted for as a pooling-of-interests. OneSource is operating as a division of Bouchard. During 2000, the Corporation affiliated with Altamura, Marsh & Associates, Clearwater and Fort Myers, Florida and Connell & Herrig Insurance, Inc., Sarasota and Englewood, Florida. These affiliations were accounted for as purchases and these acquired agencies are operating as divisions of Bouchard. Also during 2000, Regency Finance Company (Regency), purchased eight consumer finance offices in Tennessee. The transaction was also accounted for as a purchase and resulted in the recognition of $1.2 million of goodwill. During 1999, the Corporation affiliated with Roger Bouchard Insurance, Inc., Clearwater, Florida and Guaranty Bank & Trust Company, Venice, Florida. These affiliations added assets and deposits of $157.2 million and $142.5 million, respectively, and were accounted for as poolings-of-interests. The Corporation also affiliated with Gelvin, Jackson & Starr, Inc., Meadville, Pennsylvania. This transaction was accounted for as a purchase. Also during 1999, Regency expanded its size and geographic scope through the purchase of 11 consumer finance offices in Tennessee and Kentucky. This transaction was also accounted for as a purchase. The Corporation regularly evaluates the potential acquisition of, and holds discussions with, various acquisition candidates and as a general rule the Corporation publicly announces such acquisitions only after a definitive merger agreement has been reached. SUBSEQUENT EVENTS (UNAUDITED) On January 31, 2002, the Corporation completed its affiliation with Central Bank Shares, Inc. (Central), a bank holding company headquartered in Orlando, Florida, with assets of more than $251.4 million. The transaction, which was accounted for as a purchase, resulted in the recognition of approximately $50.0 million of goodwill. Central's banking affiliate, Bank of Central Florida, was merged into FNBFL. On January 18, 2002, the Corporation completed its affiliation with Promistar Financial Corporation (Promistar), a bank holding company headquartered in Johnstown, Pennsylvania, with assets of $2.4 billion. Under the terms of the merger agreement, each outstanding share of Promistar's common stock was converted into .926 shares of the Corporation's common stock. A total of 16,007,346 shares of the Corporation's common stock were issued. The transaction was accounted for as a pooling-of-interests. Promistar's banking affiliate, Promistar Bank, was merged into an existing subsidiary of the Corporation, First National Bank of Pennsylvania (FNBPA). The Corporation anticipates incurring a charge of approximately $41.0 million relating to this transaction. Following is an unaudited summary of pro forma information, which represents a combination of the results of operations of the Corporation and Promistar (in thousands, except per share data):
2001 2000 1999 -------- -------- -------- Net interest income ........................ $250,090 $239,358 $233,171 Net income ................................. 53,247 61,627 61,169 Basic earnings per share ................... 1.29 1.51 1.49
REINCORPORATION On June 1, 2001, the Corporation reincorporated in the state of Florida. The Corporation now operates from corporate headquarters located in Naples, Florida. The Corporation was incorporated in 1974 in Hermitage, Pennsylvania, and at that time substantially all of the Corporation's business was being conducted in Pennsylvania. The Corporation expanded into Florida four F.N.B. Corporation 28 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS years ago. As a result of the dynamic growth experienced in that state and because of subsequent acquisitions, a significant portion of the Corporation's assets and shareholders now reside in Florida. In connection with the reincorporation, the Corporation reduced the par value of both its common stock and preferred stock to $0.01 per share. CHARTER CONSOLIDATION During the first quarter of 2001, the Corporation completed its charter consolidation plan which reduced the number of bank charters from eight to three. The Corporation's five Florida banks were merged under FNBFL and its two Pennsylvania banks were combined under FNBPA. The Corporation had previously consolidated its Ohio banks under a single charter, Metropolitan National Bank. In connection with these charter consolidations, the trust operations of FNBFL were consolidated into the Corporation's national trust company, First National Trust Company. The Corporation incurred pre-tax consolidation expense of $3.2 million arising from legal and accounting fees, consulting fees, data processing conversion charges, early retirement, involuntary separation and related benefit costs. Involuntary separation costs associated with 42 terminated employees totaled $1.4 million of the total consolidation expense. These separation costs have been reflected within the income statement caption salaries and employee benefits. The total amount of separation payments paid during 2001 was $1.0 million. The remaining separation costs will be paid in accordance with the contractual terms of the employment and compensation agreements of the terminated employees. All remaining significant payments are expected to be completed by the end of the first quarter of 2002. 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, 2001 COST GAINS LOSSES VALUE - --------------------------------------------------------------------------------------------------------- U.S. Treasury and other U.S. Government agencies and corporations $184,022 $ 5,365 $(125) $189,262 Mortgage-backed securities of U.S. Government agencies 195,166 2,692 (157) 197,701 States of the U.S. and political subdivisions 2,466 32 (44) 2,454 Other debt securities 1,250 1,250 - --------------------------------------------------------------------------------------------------------- TOTAL DEBT SECURITIES 382,904 8,089 (326) 390,667 Equity securities 20,226 3,139 (239) 23,126 - --------------------------------------------------------------------------------------------------------- $403,130 $11,228 $(565) $413,793 - ---------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 2000 COST GAINS LOSSES VALUE - --------------------------------------------------------------------------------------------------------- U.S. Treasury and other U.S. Government agencies and corporations $195,468 $1,835 $(335) $196,968 Mortgage-backed securities of U.S. Government agencies 212,462 947 (1,319) 212,090 States of the U.S. and political subdivisions 2,951 32 (111) 2,872 - --------------------------------------------------------------------------------------------------------- TOTAL DEBT SECURITIES 410,881 2,814 (1,765) 411,930 Equity securities 27,173 2,714 (337) 29,550 - --------------------------------------------------------------------------------------------------------- $438,054 $5,528 $(2,102) $441,480 - ---------------------------------------------------------------------------------------------------------
F.N.B. Corporation 29 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 1999 COST GAINS LOSSES VALUE - --------------------------------------------------------------------------------------------------------- U.S. Treasury and other U.S. Government agencies and corporations $210,443 $ 73 $ (6,384) $204,132 Mortgage-backed securities of U.S. Government agencies 185,780 279 (4,528) 181,531 States of the U.S. and political subdivisions 3,091 3 (289) 2,805 Other debt securities 358 45 403 - --------------------------------------------------------------------------------------------------------- TOTAL DEBT SECURITIES 399,672 400 (11,201) 388,871 Equity securities 22,711 3,601 (215) 26,097 - --------------------------------------------------------------------------------------------------------- $422,383 $4,001 $(11,416) $414,968 - ---------------------------------------------------------------------------------------------------------
Securities held to maturity:
- --------------------------------------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 2001 COST GAINS LOSSES VALUE - --------------------------------------------------------------------------------------------------------- U.S. Treasury and other U.S. Government agencies and corporations $ 3,214 $ 47 $ 3,261 Mortgage-backed securities of U.S. Government agencies 3,068 38 3,106 States of the U.S. and political subdivisions 43,493 541 $ (223) 43,811 Other debt securities 1,593 1 (2) 1,592 - --------------------------------------------------------------------------------------------------------- $ 51,368 $ 627 $ (225) $ 51,770 - ---------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 2000 COST GAINS LOSSES VALUE - --------------------------------------------------------------------------------------------------------- U.S. Treasury and other U.S. Government agencies and corporations $ 30,887 $ 12 $ (170) $ 30,729 Mortgage-backed securities of U.S. Government agencies 7,091 23 (18) 7,096 States of the U.S. and political subdivisions 35,442 221 (79) 35,584 Other debt securities 102 (3) 99 - --------------------------------------------------------------------------------------------------------- $ 73,522 $ 256 $ (270) $ 73,508 - ---------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 1999 COST GAINS LOSSES VALUE - --------------------------------------------------------------------------------------------------------- U.S. Treasury and other U.S. Government agencies and corporations $ 30,887 $ (1,161) $ 29,726 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 - --------------------------------------------------------------------------------------------------------- $ 90,359 $ 86 $ (1,978) $ 88,467 - ---------------------------------------------------------------------------------------------------------
F.N.B. Corporation 30 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2001 and 2000, securities with a carrying value of $199.8 million and $199.3 million, respectively, were pledged to secure public deposits, trust deposits and for other purposes as required by law. Securities with a carrying value of $218.9 million and $232.3 million at December 31, 2001 and 2000, respectively, were pledged as collateral for other borrowings. As of December 31, 2001, the Corporation had not entered into any derivative transactions. As of December 31, 2001, 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, 2001 Cost Value Cost Value - ------------------------------------------------------------------------------------- Due in one year or less $ 6,611 $ 6,677 $ 45,139 $ 46,220 Due from one to five years 22,063 22,501 129,089 133,213 Due from five to ten years 19,367 19,227 11,168 11,231 Due after ten years 259 259 2,342 2,302 - ------------------------------------------------------------------------------------- 48,300 48,664 187,738 192,966 Mortgage-backed securities of U.S. Government agencies 3,068 3,106 195,166 197,701 Equity securities 20,226 23,126 - ------------------------------------------------------------------------------------- $51,368 $51,770 $403,130 $413,793 - -------------------------------------------------------------------------------------
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 2001, 2000 and 1999 were $17.7 million, $13.3 million and $32.1 million, respectively. Gross gains and gross losses were realized on those sales as follows (in thousands):
- -------------------------------------------------------------------------------- Year Ended December 31 2001 2000 1999 - -------------------------------------------------------------------------------- Gross gains $1,165 $206 $1,734 Gross losses (8) (30) (60) - -------------------------------------------------------------------------------- $1,157 $176 $1,674 - --------------------------------------------------------------------------------
LOANS Following is a summary of loans (in thousands):
- -------------------------------------------------------------------------------- December 31 2001 2000 - -------------------------------------------------------------------------------- Real estate: Residential $1,219,502 $1,157,753 Commercial 984,973 849,276 Construction 206,269 204,267 Installment loans to individuals 284,233 341,755 Commercial, financial and agricultural 423,198 401,866 Lease financing 128,712 204,187 Unearned income (44,383) (62,271) - -------------------------------------------------------------------------------- $3,202,504 $3,096,833 - --------------------------------------------------------------------------------
F.N.B. Corporation 31 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 southwest Florida, western Pennsylvania, northern and central Tennessee and eastern Ohio. As of December 31, 2001, 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 2001. 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 aggregate amount of loans to any such persons who had loans in excess of $60,000 during the year (in thousands): Total loans at December 31, 2000 .................................... $ 51,049 New loans ........................................................... 26,630 Repayments .......................................................... (34,341) Other ............................................................... (4,288) --------- Total loans at December 31, 2001 .................................... $ 39,050 =========
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 2001 2000 - -------------------------------------------------------------------------------- Non-accrual loans $14,488 $10,397 Restructured loans 4,697 2,810 - -------------------------------------------------------------------------------- TOTAL NON-PERFORMING LOANS 19,185 13,207 Other real estate owned 3,137 4,786 - -------------------------------------------------------------------------------- TOTAL NON-PERFORMING ASSETS $22,322 $17,993 - --------------------------------------------------------------------------------
For the years ended December 31, 2001, 2000 and 1999, income recognized on non-accrual and restructured loans was $771,000, $545,000 and $503,000, respectively. Income that would have been recognized during 2001, 2000 and 1999 on such loans if they were in accordance with their original terms was $1.6 million, $1.6 million and $1.4 million, respectively. Loans past due 90 days or more were $4.8 million, $4.5 million and $4.9 million at December 31, 2001, 2000 and 1999, respectively. Following is a summary of information pertaining to loans considered to be impaired (in thousands):
- -------------------------------------------------------------------------------- At or For the Year Ended December 31 2001 2000 1999 - -------------------------------------------------------------------------------- Impaired loans with an allocated allowance $1,832 $ 969 $2,069 Impaired loans without an allocated allowance 1,023 1,027 1,762 - -------------------------------------------------------------------------------- TOTAL IMPAIRED LOANS $2,855 $1,996 $3,831 - -------------------------------------------------------------------------------- Allocated allowance on impaired loans 580 375 891 - -------------------------------------------------------------------------------- Portion of impaired loans on non-accrual 711 1,339 1,272 - -------------------------------------------------------------------------------- Average impaired loans 2,425 2,682 5,268 - -------------------------------------------------------------------------------- Income recognized on impaired loans 182 162 302 - --------------------------------------------------------------------------------
F.N.B. Corporation 32 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 2001 2000 1999 - -------------------------------------------------------------------------------- Balance at beginning of year $ 40,373 $ 37,197 $32,761 Addition from acquisitions 767 2,813 Charge-offs (14,686) (11,251) (9,626) Recoveries 2,243 1,738 1,572 - -------------------------------------------------------------------------------- NET CHARGE-OFFS (12,443) (9,513) (8,054) Provision for loan losses 12,915 11,922 9,677 - -------------------------------------------------------------------------------- Balance at end of year $ 40,845 $ 40,373 $37,197 - --------------------------------------------------------------------------------
PREMISES AND EQUIPMENT Following is a summary of premises and equipment (in thousands):
- -------------------------------------------------------------------------------- December 31 2001 2000 - -------------------------------------------------------------------------------- Land $ 22,516 $ 22,495 Premises 101,156 91,066 Equipment 80,386 71,923 - -------------------------------------------------------------------------------- 204,058 185,484 Accumulated depreciation (82,329) (71,548) - -------------------------------------------------------------------------------- $121,729 $113,936 - --------------------------------------------------------------------------------
Depreciation expense was $11.5 million for 2001, $11.2 million for 2000 and $9.9 million for 1999. The Corporation has operating leases extending to 2087 for certain land, office locations and equipment. Leases that expire are generally expected to be renewed or replaced by other leases. Rental expense was $4.4 million for 2001, $4.6 million for 2000 and $3.3 million for 1999. Total minimum rental commitments under such leases were $30.8 million at December 31, 2001. Following is a summary of future minimum lease payments for years following December 31, 2001 (in thousands): 2002 ............................ $ 2,647 2003 ............................ 2,234 2004 ............................ 1,574 2005 ............................ 1,217 2006 ............................ 878 Later years ..................... 22,224
F.N.B. Corporation 33 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEPOSITS Following is a summary of deposits (in thousands):
- -------------------------------------------------------------------------------- December 31 2001 2000 - -------------------------------------------------------------------------------- Non-interest bearing $ 511,611 $ 478,167 Savings and NOW 1,438,492 1,399,125 Certificates of deposit and other time deposits 1,342,289 1,370,658 - -------------------------------------------------------------------------------- $3,292,392 $3,247,950 - --------------------------------------------------------------------------------
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, 2001 (in thousands): 2002 ............................ $913,139 2003 ............................ 313,583 2004 ............................ 63,186 2005 ............................ 42,297 2006 ............................ 9,834 Later years ..................... 250
Time deposits of $100,000 or more were $389.2 million and $353.1 million at December 31, 2001 and 2000, respectively. Following is a summary of these time deposits by remaining maturity at December 31, 2001 (in thousands):
- -------------------------------------------------------------------------------- CERTIFICATES OTHER TIME OF DEPOSIT DEPOSITS TOTAL - -------------------------------------------------------------------------------- Three months or less $ 85,327 $ 2,456 $ 87,783 Three to six months 55,939 3,033 58,972 Six to twelve months 113,254 5,900 119,154 Over twelve months 109,046 14,228 123,274 - -------------------------------------------------------------------------------- $363,566 $25,617 $389,183 - --------------------------------------------------------------------------------
SHORT-TERM BORROWINGS Following is a summary of short-term borrowings (in thousands):
- -------------------------------------------------------------------------------- December 31 2001 2000 - -------------------------------------------------------------------------------- Securities sold under repurchase agreements $184,348 $146,996 Federal funds purchased 6,865 865 Federal Home Loan Bank advances 42,400 Other short-term borrowings 332 25,296 Subordinated notes 101,836 70,308 - -------------------------------------------------------------------------------- $293,381 $285,865 - --------------------------------------------------------------------------------
Credit facilities amounting to $88.0 million at December 31, 2001 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. No credit facilities were used at December 31, 2001. F.N.B. Corporation 34 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 2001 2000 -------- -------- Federal Home Loan Bank advances ....................... $ 65,743 $ 70,829 Other long-term debt .................................. 1,431 1,380 Subordinated notes .................................... 35,839 44,489 -------- -------- $103,013 $116,698 ======== ========
The Corporation has available credit with the Federal Home Loan Bank of $708.2 million, of which $65.7 million was used as of December 31, 2001. 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 2010. Interest rates paid on these advances range from 5.46% to 6.40% in both 2001 and 2000. 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 2011. At December 31, 2001, $25.8 million of long-term subordinated debt is redeemable by the holders 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 7.22% at December 31, 2001 and 7.45% at December 31, 2000. Scheduled annual maturities for all of the long-term debt for each of the five years following December 31, 2001 are as follows (in thousands): 2002 ............................. $18,629 2003 ............................. 9,456 2004 ............................. 1,840 2005 ............................. 31,593 2006 ............................. 3,062 Later years ...................... 38,433
COMMITMENTS, CREDIT RISK AND CONTINGENCIES 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 2001 2000 ---- ---- Commitments to extend credit ........................... $686,521 $594,867 Standby letters of credit .............................. 45,857 36,042
At December 31, 2001, 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. The Corporation established a litigation reserve by recording a pre-tax charge of approximately $4.0 million to cover estimated legal expenses associated with five cases filed against one of its subsidiary banks. The plaintiffs allege that a third-party independent administrator misappropriated funds from their individual retirement accounts held by the subsidiary bank. The Corporation decided to establish the reserve as a result of developments which occurred during 2001. The Corporation paid settlements and legal costs of $1.9 million during 2001. The Corporation believes the remaining reserve will be sufficient for all costs associated with the litigation, including settlements and adverse judgements. F.N.B. Corporation 35 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STOCKHOLDERS' EQUITY Series A - Cumulative Convertible Preferred Stock (Series A Preferred) was issued in 1985. Holders of Series A Preferred are entitled to 6.5 votes for each share held. The holders do not have cumulative voting 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. At December 31, 2001, 18,143 shares of common stock were reserved by the Corporation for the conversion of the remaining 19,174 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 $9.57 per share. The Corporation has the right to require the conversion of the balance of all outstanding shares at the conversion rate. During 2001, 20,679 shares of Series B Preferred were converted to 53,467 shares of common stock. At December 31, 2001, 335,847 shares of common stock were reserved by the Corporation for the conversion of the remaining 127,859 outstanding shares. COMPREHENSIVE INCOME The components of comprehensive income, net of related tax, are as follows (in thousands):
- --------------------------------------------------------------------------------------------------- Year Ended December 31 2001 2000 1999 - --------------------------------------------------------------------------------------------------- Net income $44,572 $43,990 $40,581 Other comprehensive income: Unrealized gains (losses) on securities: Arising during the period, net of tax expense (benefit) of $2,745, $3,872 and $(5,454) 5,098 7,161 (10,129) Less: reclassification adjustment for gains included in net income previously reflected as an unrealized gain or loss, net of tax benefit of $178, $99 and $559 (330) (184) (1,038) Minimum pension liability adjustment 30 - --------------------------------------------------------------------------------------------------- Other comprehensive income (loss) 4,768 7,007 (11,167) - --------------------------------------------------------------------------------------------------- Comprehensive income $49,340 $50,997 $29,414 - ---------------------------------------------------------------------------------------------------
STOCK INCENTIVE PLANS The Corporation has available up to 1,110,926 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. During 2001, the Corporation granted 5,824 shares of stock under these plans. The weighted average fair value of the restricted shares issued was $21.70. The Corporation has available up to 2,865,516 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. F.N.B. Corporation 36 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In accordance with FAS No. 123, the following table shows pro forma net income and earnings per share along with the significant assumptions used in the Black-Scholes option pricing model (dollars in thousands, except per share data):
- -------------------------------------------------------------------------------- Year Ended December 31 2001 2000 1999 - -------------------------------------------------------------------------------- Pro forma net income $42,511 $42,268 $39,185 Pro forma earnings per share: Basic $1.66 $1.66 $1.55 - -------------------------------------------------------------------------------- Diluted $1.61 $1.62 $1.50 - -------------------------------------------------------------------------------- Assumptions: Risk-free interest rate 5.25% 6.79% 4.72% Dividend yield 2.84% 3.37% 3.20% Expected stock price volitility .26% .26% .23% Expected life (years) 5.00 5.00 5.00 - --------------------------------------------------------------------------------
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 the Corporation's employee stock options. Activity in the Option Plan during the past three years was as follows:
- ---------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE PRICE 2001 PER SHARE 2000 1999 - ---------------------------------------------------------------------------------------------------------- Outstanding, beginning of year 2,163,398 $16.66 1,752,033 1,557,845 Granted during the year 663,301 21.38 587,097 466,592 Exercised during the year (253,547) 11.54 (105,069) (224,261) Forfeited during the year (129,039) 16.39 (70,663) (48,143) - ---------------------------------------------------------------------------------------------------------- Ending balance 2,444,113 19.34 2,163,398 1,752,033 - ----------------------------------------------------------------------------------------------------------
The following table summarizes information about the stock options outstanding at December 31, 2001:
- --------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------- $ 5.23 - $ 7.85 88,740 4.63 $ 6.43 88,740 $ 6.43 7.86 - 11.79 331,624 2.44 9.80 305,142 9.79 11.80 - 17.70 195,345 4.38 15.54 179,076 15.58 17.71 - 26.57 1,571,810 7.93 21.38 452,744 20.99 26.58 - 28.64 256,594 6.05 28.64 160,051 28.64 - --------------------------------------------------------------------------------------------------------------- 2,444,113 1,185,753 - ---------------------------------------------------------------------------------------------------------------
F.N.B. Corporation 37 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 $9.00 per share). Such warrants are exercisable and will expire on December 17, 2003. The Corporation has reserved 11,837 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 2001 2000 - -------------------------------------------------------------------------------- Benefit obligation at beginning of year $33,590 $27,976 Service cost 2,075 1,416 Interest cost 2,854 2,336 Plan amendments 2,585 254 Actuarial loss 1,907 2,573 Termination charge due to curtailment 94 Benefits paid (1,389) (965) - -------------------------------------------------------------------------------- Benefit obligation at end of year $41,716 $33,590 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- December 31 2001 2000 - -------------------------------------------------------------------------------- Fair value of plan assets at beginning of year $29,452 $29,510 Actual return on plan assets 263 (97) Company contribution 2,411 1,004 Benefits paid (1,389) (965) - -------------------------------------------------------------------------------- Fair value of plan assets at end of year $30,737 $29,452 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- December 31 2001 2000 - -------------------------------------------------------------------------------- Funded status of plan $(10,978) $ (4,137) Unrecognized actuarial loss (gain) 1,251 (2,766) Unrecognized prior service cost 3,677 1,641 Unrecognized net transition obligation 27 32 - -------------------------------------------------------------------------------- Accrued pension cost $ (6,023) $ (5,230) - --------------------------------------------------------------------------------
Included in the above reconciliation is the benefit obligation and fair value of plan assets for the Basic Retirement Plan which were $11.9 million and $0, respectively, as of December 31, 2001, and $8.0 million and $0, respectively, as of December 31, 2000. The amounts recognized in the Corporation's consolidated financial statements include the following (in thousands):
- -------------------------------------------------------------------------------- December 31 2001 2000 - -------------------------------------------------------------------------------- Prepaid pension cost $ 2,448 $ 1,177 Accrued pension cost (8,471) (6,407) Additional minimum liability (3,460) (1,592) Accumulated other comprehensive income 30 Intangible asset 3,460 1,562 - -------------------------------------------------------------------------------- Net amount recognized on balance sheet $(6,023) $(5,230) - --------------------------------------------------------------------------------
F.N.B. Corporation 38 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 2001 2000 1999 - -------------------------------------------------------------------------------- Service costs $ 2,075 $ 1,416 $ 1,604 Interest cost 2,854 2,336 2,097 Expected return on plan assets (2,351) (2,327) (2,234) Termination charge due to curtailment 94 Net amortization 533 32 319 - -------------------------------------------------------------------------------- Net pension expense $ 3,205 $ 1,457 $ 1,786 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Assumptions as of December 31 2001 2000 1999 - -------------------------------------------------------------------------------- Weighted average discount rate 7.3% 7.5% 7.8% 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, 2001, plan assets include 81,712 shares of the Corporation's common stock, having a market value of $2.2 million. Dividends received on these shares totaled $61,000 for 2001. 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 $1.6 million in 2001, $1.0 million in 2000 and $844,000 in 1999. 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 $1.4 million in 2001, $910,000 in 2000 and $1.0 million in 1999 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 2001 2000 - -------------------------------------------------------------------------------- Benefit obligation at beginning of year $1,021 $1,205 Service cost 96 85 Interest cost 74 78 Plan participants' contributions 2 2 Plan amendments 13 Actuarial gain (32) (246) Benefits paid (73) (108) Curtailment and settlement 18 (8) - -------------------------------------------------------------------------------- Benefit obligation at end of year $1,106 $1,021 - --------------------------------------------------------------------------------
F.N.B. Corporation 39 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------- December 31 2001 2000 - -------------------------------------------------------------------------------- Fair value of plan assets at beginning of year $ 0 $ 0 Company contribution 71 106 Plan participants' contributions 2 2 Benefits paid (73) (108) - -------------------------------------------------------------------------------- Fair value of plan assets at end of year $ 0 $ 0 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- December 31 2001 2000 - -------------------------------------------------------------------------------- Funded status of plan $(1,106) $(1,021) Unrecognized actuarial gain (276) (272) Unrecognized prior service cost 67 72 Unrecognized net transition obligation 368 418 - -------------------------------------------------------------------------------- Accrued postretirement benefit cost $ (947) $ (803) - --------------------------------------------------------------------------------
Net periodic postretirement benefit cost included the following components (in thousands):
- -------------------------------------------------------------------------------- Year Ended December 31 2001 2000 1999 - -------------------------------------------------------------------------------- Service cost $ 96 $ 85 $101 Interest cost 74 78 74 Curtailment and settlement 18 (8) Net amortization 27 33 38 - -------------------------------------------------------------------------------- Net periodic postretirement benefit cost $215 $188 $213 - --------------------------------------------------------------------------------
Discount rates of 7.3%, 7.5% and 7.8% for 2001, 2000 and 1999, 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. An 8.0% annual rate of increase in the per capita costs of covered health care benefits is assumed for 2002, gradually decreasing to 5.0% by the year 2005. A one percentage point change in the assumed health care cost trend rate would have had the following effects on 2001 service and interest cost and the accumulated postretirement benefit obligation at December 31, 2001 (in thousands):
- ------------------------------------------------------------------------------------------- 1% 1% Increase Decrease - ------------------------------------------------------------------------------------------- Effect on service and interest components of net periodic cost $ 20 $(17) Effect on accumulated postretirement benefit obligation 111 (96) - -------------------------------------------------------------------------------------------
F.N.B. Corporation 40 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 2001 2000 1999 - -------------------------------------------------------------------------------- Current income taxes: Federal taxes $13,979 $17,805 $25,604 State taxes 599 1,643 958 - -------------------------------------------------------------------------------- 14,578 19,448 26,562 Deferred income taxes: Federal taxes 6,501 1,705 (9,051) State taxes 429 (671) - -------------------------------------------------------------------------------- $21,508 $20,482 $17,511 - --------------------------------------------------------------------------------
The tax effects of temporary differences giving rise to deferred tax assets and liabilities are presented below (in thousands):
- ---------------------------------------------------------------------------------------- December 31 2001 2000 - ---------------------------------------------------------------------------------------- Deferred tax assets: Allowance for loan losses $ 14,296 $ 13,558 Deferred compensation 3,297 3,042 Deferred benefits 2,865 2,612 Other 864 636 - ---------------------------------------------------------------------------------------- TOTAL GROSS DEFERRED TAX ASSETS 21,322 19,848 - ---------------------------------------------------------------------------------------- Deferred tax liabilities: Depreciation (1,975) (1,728) Deferred gain on sale of subsidiary (3,555) (3,555) Unrealized (gains) losses on securities available for sale (3,750) (1,185) Leasing (14,971) (20,506) Other (1,283) (1,452) - ---------------------------------------------------------------------------------------- TOTAL GROSS DEFERRED TAX LIABILITIES (25,534) (28,426) - ---------------------------------------------------------------------------------------- NET DEFERRED TAX LIABILITIES $ (4,212) $ (8,578) - ----------------------------------------------------------------------------------------
Following is a reconciliation between tax expense using federal statutory tax and actual effective tax:
- -------------------------------------------------------------------------------- Year Ended December 31 2001 2000 1999 - -------------------------------------------------------------------------------- Federal statutory tax rate 35.0% 35.0% 35.0% Effect of nontaxable interest and dividend income (4.1) (4.1) (4.7) State taxes 1.0 1.0 1.1 Goodwill .3 .5 .5 Merger related costs .6 .3 Other items (.3) (.6) (2.1) - -------------------------------------------------------------------------------- Effective tax rate 32.5% 31.8% 30.1% - --------------------------------------------------------------------------------
Income tax expense related to gains on the sale of securities was $405,000, $62,000 and $586,000 for the years ended December 31, 2001, 2000 and 1999, respectively. F.N.B. Corporation 41 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 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ BASIC Net income $44,572 $43,990 $40,581 Less: Preferred stock dividends declared (293) (341) (411) - ------------------------------------------------------------------------------------------------------ Net income applicable to basic common shares $44,279 $43,649 $40,170 - ------------------------------------------------------------------------------------------------------ Average common shares outstanding 25,605,366 25,408,287 25,293,752 - ------------------------------------------------------------------------------------------------------ Earnings per share $1.73 $1.72 $1.59 - ------------------------------------------------------------------------------------------------------ DILUTED Net income applicable to diluted common shares $44,572 $43,990 $40,581 - ------------------------------------------------------------------------------------------------------ Average common shares outstanding 25,605,366 25,408,287 25,293,752 Convertible preferred stock 379,757 449,047 574,919 Net effect of dilutive stock options based on the treasury stock method using the average market price 601,013 405,330 539,634 - ------------------------------------------------------------------------------------------------------ Diluted average common shares outstanding 26,586,136 26,262,664 26,408,305 - ------------------------------------------------------------------------------------------------------ Earnings per share $1.68 $1.68 $1.54 - ------------------------------------------------------------------------------------------------------
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, 2001, that the Corporation and each of its banking subsidiaries meet all capital adequacy requirements to which they are subject. As of December 31, 2001, 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. 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. F.N.B. Corporation 42 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Following are the capital ratios as of December 31, 2001 for the Corporation and its significant subsidiaries, First National Bank of Florida and First National Bank of Pennsylvania (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 $376,189 11.8% $317,686 10.0% $254,149 8.0% First National Bank of Florida 173,173 10.1 171,176 10.0 136,940 8.0 First National Bank of Pennsylvania 115,932 10.6 109,579 10.0 87,663 8.0 TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS): F.N.B. Corporation $335,132 10.6% $190,612 6.0% $127,075 4.0% First National Bank of Florida 154,459 9.0 102,705 6.0 68,470 4.0 First National Bank of Pennsylvania 102,233 9.3 65,747 6.0 43,832 4.0 TIER 1 CAPITAL (TO AVERAGE ASSETS): F.N.B. Corporation $335,132 8.3% $202,662 5.0% $162,130 4.0% First National Bank of Florida 154,459 7.2 106,744 5.0 85,395 4.0 First National Bank of Pennsylvania 102,233 7.1 71,932 5.0 57,545 4.0 - ------------------------------------------------------------------------------------------------------------
The Corporation's banking subsidiaries were required to maintain aggregate cash reserves with the Federal Reserve Bank amounting to $48.7 million at December 31, 2001. 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, 2001, the subsidiaries had $64.0 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 $69.5 million at December 31, 2001. BUSINESS SEGMENTS The Corporation operates in three reportable segments: community banks, insurance agencies and consumer finance. The Corporation's community bank subsidiaries offer services traditionally offered by full-service commercial banks, including commercial and individual demand and time deposit accounts and commercial, mortgage and individual installment loans. In addition to traditional banking products, the Corporation's bank subsidiaries offer trust services as well as various alternative investment products, including mutual funds and annuities. The Corporation's insurance agencies are full-service insurance companies offering all lines of commercial and personal F.N.B. Corporation 43 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS insurance through major carriers. The Corporation's consumer finance subsidiary is involved in making personal installment loans to individuals and purchasing installment sales finance contracts from retail merchants. This activity is funded through the sale of the Corporation's subordinated notes at the finance company's branch offices. 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 FINANCE ALL At or for the Year Ended December 31, 2001 BANKS AGENCIES COMPANY OTHER CONSOLIDATED - ---------------------------------------------------------------------------------------------------------------------- Interest income $ 270,881 $ 196 $ 27,533 $ (1,917) $ 296,693 Interest expense 118,137 232 8,374 (1,076) 125,667 Provision for loan losses 8,215 4,700 12,915 Non-interest income 47,926 26,720 1,773 6,380 82,799 Non-interest expense 129,955 20,724 11,928 9,714 172,321 Intangible amortization 1,608 775 126 2,509 Income tax expense (credit) 19,865 2,192 1,524 (2,073) 21,508 Net income 41,027 2,993 2,654 (2,102) 44,572 Core operating income* 45,531 2,993 2,654 578 51,756 Total assets 3,949,672 29,761 147,747 1,907 4,129,087 - ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------- COMMUNITY INSURANCE FINANCE ALL At or for the Year Ended December 31, 2000 BANKS AGENCIES COMPANY OTHER CONSOLIDATED - ---------------------------------------------------------------------------------------------------------------------- Interest income $ 280,530 $ 164 $ 26,021 $ (4,858) $ 301,857 Interest expense 135,491 207 8,083 (3,418) 140,363 Provision for loan losses 7,787 4,165 (30) 11,922 Non-interest income 38,565 20,190 1,818 2,825 63,398 Non-interest expense 116,222 16,242 11,200 2,706 146,370 Intangible amortization 1,578 463 87 2,128 Income tax expense (credit) 18,635 1,214 1,585 (952) 20,482 Net income 39,382 2,228 2,719 (339) 43,990 Core operating income 39,382 2,228 2,719 (339) 43,990 Total assets 3,910,172 24,824 153,152 (32,227) 4,055,921 - ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------- COMMUNITY INSURANCE FINANCE ALL At or for the Year Ended December 31, 1999 BANKS AGENCIES COMPANY OTHER CONSOLIDATED - ---------------------------------------------------------------------------------------------------------------------- Interest income $ 246,293 $ 129 $ 17,966 $ (2,612) $ 261,776 Interest expense 105,971 179 4,586 (1,450) 109,286 Provision for loan losses 6,977 2,700 9,677 Non-interest income 33,053 14,040 1,240 5,249 53,582 Non-interest expense 111,023 11,762 8,208 5,312 136,305 Intangible amortization 1,891 64 43 1,998 Income tax expense (credit) 17,094 (359) 1,289 (513) 17,511 Net income 36,390 2,523 2,380 (712) 40,581 Core operating income* 36,818 2,523 2,380 128 41,849 Total assets 3,722,283 9,378 124,577 (24,936) 3,831,302 - ----------------------------------------------------------------------------------------------------------------------
* Core operating earnings exclude consolidation charges of $2.1 million and merger related and other non-recurring costs of $5.1 million in 2001 and merger related and other non-recurring costs of $1.3 million in 1999, 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 44 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CASH FLOW INFORMATION Following is a summary of supplemental cash flow information (in thousands):
- ------------------------------------------------------------------------------------------ Year Ended December 31 2001 2000 1999 - ------------------------------------------------------------------------------------------ Cash paid during year for: Interest $129,161 $136,540 $108,277 Income taxes 22,996 19,592 8,118 Non-cash investing and financing activities: Acquisition of real estate in settlement of loans $3,198 $2,022 $3,929 Loans granted in the sale of other real estate 3,178 465 176 - ------------------------------------------------------------------------------------------
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 2001 2000 - -------------------------------------------------------------------------------- ASSETS Cash $ 8 $ 270 Short-term investments 7,534 10,409 Securities available for sale 190 Loans receivable 4,800 Premises and equipment 3,043 1,078 Other assets 18,520 5,778 Investment in bank subsidiaries 296,628 295,569 Investment in non-bank subsidiaries 196,449 175,267 - -------------------------------------------------------------------------------- TOTAL ASSETS $522,182 $493,361 - -------------------------------------------------------------------------------- LIABILITIES Other liabilities $ 13,789 $ 11,600 Short-term borrowings 103,357 97,632 Long-term debt 35,839 44,489 - -------------------------------------------------------------------------------- TOTAL LIABILITIES 152,985 153,721 - -------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY 369,197 339,640 - -------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $522,182 $493,361 - --------------------------------------------------------------------------------
F.N.B. Corporation 45 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------- INCOME STATEMENT (in thousands) - ---------------------------------------------------------------------------------------- Year Ended December 31 2001 2000 1999 - ---------------------------------------------------------------------------------------- INCOME Dividend income from subsidiaries: Bank $45,630 $22,801 $22,875 Non-bank 3,191 2,570 1,565 - ---------------------------------------------------------------------------------------- 48,821 25,371 24,440 - ---------------------------------------------------------------------------------------- Interest income 574 511 667 Service fee income 9,898 9,575 8,663 Other income 1,200 661 774 - ---------------------------------------------------------------------------------------- TOTAL INCOME 60,493 36,118 34,544 - ---------------------------------------------------------------------------------------- EXPENSES Interest expense 8,883 8,847 5,846 Salaries and personnel expense 9,380 8,527 8,278 Service fees 872 598 319 Other expenses 7,850 2,984 4,984 - ---------------------------------------------------------------------------------------- TOTAL EXPENSES 26,985 20,956 19,427 - ---------------------------------------------------------------------------------------- INCOME BEFORE TAXES AND EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 33,508 15,162 15,117 Income tax benefit 5,729 3,828 3,070 - ---------------------------------------------------------------------------------------- 39,237 18,990 18,187 - ---------------------------------------------------------------------------------------- Equity in undistributed income of subsidiaries: Bank (4,603) 16,581 15,046 Non-bank 9,938 8,419 7,348 - ---------------------------------------------------------------------------------------- 5,335 25,000 22,394 - ---------------------------------------------------------------------------------------- NET INCOME $44,572 $43,990 $40,581 - ----------------------------------------------------------------------------------------
F.N.B. Corporation 46 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------ STATEMENT OF CASH FLOWS (in thousands) - ------------------------------------------------------------------------------------------ Year Ended December 31 2001 2000 1999 - ------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net income $ 44,572 $ 43,990 $ 40,581 Adjustments to reconcile net income to net cash flows from operating activities: Undistributed earnings of subsidiaries (5,335) (25,000) (22,394) Other, net (10,526) 4,894 2,410 - ------------------------------------------------------------------------------------------ Net cash flows from operating activities 28,711 23,884 20,597 - ------------------------------------------------------------------------------------------ INVESTING ACTIVITIES Net change in short-term investments 2,875 (5,283) 18,523 Securities available for sale: Purchases (190) Sales 190 Sale (purchase) of premises and equipment (1,965) 882 (883) Net decrease (increase) in loans receivable 4,800 951 (3,715) Advances from subsidiaries 1,621 Investment in subsidiaries (12,165) (32,964) (28,528) - ------------------------------------------------------------------------------------------ Net cash flows from investing activities (6,265) (36,414) (13,172) - ------------------------------------------------------------------------------------------ FINANCING ACTIVITIES Net increase in short-term borrowings 5,725 27,139 20,884 Decrease in long-term debt (15,390) (15,686) (17,736) Increase in long-term debt 6,740 19,236 10,489 Net acquisition of treasury stock (532) (3,573) (3,288) Cash dividends paid (19,251) (16,168) (16,520) - ------------------------------------------------------------------------------------------ Net cash flows from financing activities (22,708) 10,948 (6,171) - ------------------------------------------------------------------------------------------ NET (DECREASE) INCREASE IN CASH (262) (1,582) 1,254 Cash at beginning of year 270 1,852 598 - ------------------------------------------------------------------------------------------ CASH AT END OF YEAR $ 8 $ 270 $ 1,852 - ------------------------------------------------------------------------------------------ CASH PAID Interest $ 9,069 $ 8,022 $ 5,933 - ------------------------------------------------------------------------------------------
F.N.B. Corporation 47 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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 remaining maturities. The fair value of residential mortgage loans is estimated using market prices for similar portfolios. 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. 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):
- --------------------------------------------------------------------------------------------------- 2001 2000 - --------------------------------------------------------------------------------------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE - --------------------------------------------------------------------------------------------------- FINANCIAL ASSETS Cash and short-term investments $ 163,818 $ 163,818 $ 188,722 $ 188,722 Securities available for sale 413,793 413,793 441,480 441,480 Securities held to maturity 51,368 51,770 73,522 73,508 Net loans, including loans held for sale 3,162,982 3,199,975 3,057,502 3,089,339 FINANCIAL LIABILITIES Deposits $3,292,392 $3,314,767 $3,247,950 $3,257,849 Short-term borrowings 293,381 293,458 285,865 285,865 Long-term debt 103,013 107,543 116,698 120,879 - ---------------------------------------------------------------------------------------------------
F.N.B. Corporation 48 F.N.B. CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL DATA Dollars in thousands, except per share data
- -------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------- Total interest income $ 296,693 $ 301,857 $ 261,776 $ 250,217 $ 227,649 Total interest expense 125,667 140,363 109,286 110,236 97,936 Net interest income 171,026 161,494 152,490 139,981 129,713 Provision for loan losses 12,915 11,922 9,677 7,734 11,656 Total non-interest income 82,799 63,398 53,582 45,757 33,551 Total non-interest expenses 174,830 148,498 138,303 127,688 109,192 Net income before extraordinary items 44,572 43,990 40,581 33,740 29,338 Extraordinary items, net of tax 8,809 Net income 44,572 43,990 40,581 33,740 38,147 Core operating earnings * 51,756 43,990 41,849 38,083 33,903 - -------------------------------------------------------------------------------------------------------------------- AT YEAR-END Total assets $4,129,087 $4,055,921 $3,831,302 $3,492,025 $3,142,875 Net loans 3,161,659 3,056,460 2,847,451 2,435,509 2,171,154 Deposits 3,292,392 3,247,950 3,011,932 2,914,418 2,620,521 Long-term debt 103,013 116,698 118,383 71,079 73,434 Preferred stock 1 1,678 2,075 2,380 2,875 Total stockholders' equity 369,197 339,640 308,868 299,697 277,211 - -------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE Net income Basic $ 1.73 $ 1.72 $ 1.59 $ 1.35 $ 1.71 Diluted 1.68 1.68 1.54 1.29 1.63 Core operating earnings * Basic 2.01 1.72 1.64 1.52 1.52 Diluted 1.95 1.68 1.58 1.46 1.45 Cash dividends .75 .67 .64 .61 .52 Book value 14.22 13.17 12.55 12.19 11.88 - -------------------------------------------------------------------------------------------------------------------- RATIOS Return on average assets 1.09% 1.12% 1.13% 1.02% 1.32% Return on average assets, based on core operating earnings * 1.27 1.12 1.16 1.16 1.17 Return on average equity 12.61 13.71 13.34 11.67 15.01 Return on average equity, based on core operating earnings * 14.65 13.71 13.76 13.17 13.34 Dividend payout ratio 36.84 37.37 39.86 36.22 31.60 Average equity to average assets 8.65 8.15 8.46 8.77 8.76 - --------------------------------------------------------------------------------------------------------------------
* Core operating earnings exclude consolidation charges of $2.1 million and merger related and other non-recurring costs of $5.1 million in 2001, 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 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 49 F.N.B. CORPORATION AND SUBSIDIARIES QUARTERLY EARNINGS SUMMARY Dollars in thousands, except per share data
- -------------------------------------------------------------------------------- QUARTER ENDED 2001 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 - -------------------------------------------------------------------------------- Total interest income $77,240 $75,874 $72,911 $70,668 Total interest expense 36,614 33,293 29,793 25,967 Net interest income 40,626 42,581 43,118 44,701 Provision for loan losses 2,241 2,652 3,297 4,725 Total non-interest income 18,615 20,050 20,843 23,291 Total non-interest expenses 48,081 43,451 40,609 42,689 Net income 6,244 10,964 13,500 13,864 Core operating earnings * 11,042 13,195 13,617 13,902 PER COMMON SHARE Net income Basic $ .24 $ .43 $ .52 $ .54 Diluted .24 .41 .51 .52 Core operating earnings * Basic .43 .51 .53 .54 Diluted .42 .50 .51 .52 Cash dividends .17 .18 .20 .20 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- QUARTER ENDED 2000 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 - -------------------------------------------------------------------------------- Total interest income $71,404 $74,097 $77,676 $78,680 Total interest expense 31,181 33,314 37,352 38,516 Net interest income 40,223 40,783 40,324 40,164 Provision for loan losses 3,058 3,061 2,659 3,144 Total non-interest income 14,748 14,566 16,568 17,516 Total non-interest expenses 36,358 36,555 37,742 37,843 Net income 10,644 10,737 11,310 11,299 Core operating earnings 10,644 10,737 11,310 11,299 PER COMMON SHARE Net income Basic $ .42 $ .42 $ .44 $ .44 Diluted .41 .41 .43 .43 Core operating earnings Basic .42 .42 .44 .44 Diluted .41 .41 .43 .43 Cash dividends .16 .17 .17 .17 - --------------------------------------------------------------------------------
* Core operating earnings exclude consolidation charges of $2.1 million and merger related and other non-recurring charges of $2.7 million during the first quarter of 2001, merger related costs of $2.2 million during the second quarter of 2001, merger related costs of $117,000 during the third quarter of 2001 and merger related costs of $38,000 during the fourth quarter of 2001, all on an after-tax basis. F.N.B. Corporation 50 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CHARTER CONSOLIDATION During the first quarter of 2001, the Corporation completed its charter consolidation plan which reduced the number of bank charters from eight to three. The Corporation's five Florida banks were merged under First National Bank of Florida (FNBFL) and its two Pennsylvania banks were combined under First National Bank of Pennsylvania. The Corporation had previously consolidated its Ohio banks under a single charter, Metropolitan National Bank. In connection with these charter consolidations, the trust operations of FNBFL were consolidated into the Corporation's national trust company, First National Trust Company. The Corporation incurred pre-tax consolidation expense of $3.2 million arising from legal and accounting fees, consulting fees, data processing conversion charges, early retirement, involuntary separation and related benefit costs. Involuntary separation costs associated with 42 terminated employees totaled $1.4 million of the total consolidation expense. These separation costs have been reflected within the income statement caption salaries and employee benefits. The total amount of separation payments paid during 2001 was $1.0 million. The remaining separation costs will be paid in accordance with the contractual terms of the employment and compensation agreements of the terminated employees. All remaining separation payments are anticipated to be paid by March 31, 2002. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2001 Core operating earnings increased 17.7% to $51.8 million in 2001 from $44.0 million in 2000. Basic earnings per share were $2.01 and $1.72 for 2001 and 2000, while diluted earnings per share were $1.95 and $1.68, respectively, for those same periods. The results for 2001 include consolidation charges of $2.1 million and merger related and other non-recurring costs of $5.1 million, net of tax. Including these items, net income was $44.6 million in 2001. Net interest income, on a fully taxable equivalent basis, increased by 5.8% as net average interest earning assets increased by $117.0 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. Based on core operating earnings, the Corporation's return on average assets was 1.27% for 2001 and 1.12% for 2000, while the Corporation's return on average equity was 14.65% for 2001 and 13.71%for 2000. Including the non-recurring items in 2001, the Corporation had a return on average assets of 1.09% and a return on average equity of 12.61%. 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 $173.1 million in 2001 versus $163.7 million in 2000. Net interest income consisted of interest income of $298.8 million and interest expense of $125.7 million in 2001, compared to $304.0 million and $140.4 million for each, respectively, in 2000. The Corporation's net interest margin increased 11 basis points to 4.69% for 2001. DILUTED CORE OPERATING EARNINGS PER SHARE 1997 $1.45 1998 $1.46 1999 $1.58 2000 $1.68 2001 $1.95
F.N.B. Corporation 51 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, 2001 2000 - ----------------------------------------------------------------------------------------------------------------- AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE - ----------------------------------------------------------------------------------------------------------------- ASSETS Interest earning assets: Interest bearing deposits with banks $ 6,062 $ 178 2.94% $ 4,259 $ 290 6.81% Federal funds sold 89,123 3,952 4.43 21,071 1,342 6.37 Taxable investment securities (1) 444,049 27,030 6.09 447,582 28,324 6.33 Non-taxable investment securities (2) 46,225 2,941 6.36 49,625 3,104 6.25 Loans (2)(3) 3,107,140 264,712 8.52 3,053,024 270,955 8.87 ---------- ---------- ---------- ---------- TOTAL INTEREST EARNING ASSETS 3,692,599 298,813 8.09 3,575,561 304,015 8.50 ---------- ---------- ---------- ---------- Cash and due from banks 125,105 123,620 Allowance for loan losses (40,171) (39,769) Premises and equipment 115,195 113,222 Other assets 192,255 165,938 ---------- ---------- $4,084,983 $3,938,572 ========== ========== LIABILITIES Interest bearing liabilities: Deposits: Interest bearing demand $ 558,276 9,014 1.61 $ 519,112 12,714 2.45 Savings 835,391 19,727 2.36 812,960 24,504 3.01 Other time 1,385,173 77,867 5.62 1,350,906 77,873 5.76 Short-term borrowings 275,852 11,695 4.24 289,978 17,130 5.91 Long-term debt 108,951 7,364 6.76 125,287 8,143 6.50 ---------- ---------- ---------- ---------- TOTAL INTEREST BEARING LIABILITIES 3,163,643 125,667 3.97 3,098,243 140,364 4.53 ---------- ---------- ---------- ---------- Non-interest bearing demand deposits 493,468 452,759 Other liabilities 74,509 66,657 ---------- ---------- 3,731,620 3,617,659 ---------- ---------- STOCKHOLDERS' EQUITY 353,363 320,913 ---------- ---------- $4,084,983 $3,938,572 ========== ========== Excess of interest earning assets over interest bearing liabilities $ 528,956 $ 477,318 ========== ========== Net interest income $ 173,146 $ 163,651 ========== ========== Net interest spread 4.12% 3.97% ==== ==== Net interest margin (4) 4.69% 4.58% ==== ==== - -----------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Year Ended December 31, 1999 - -------------------------------------------------------------------------------- AVERAGE YIELD/ BALANCE INTEREST RATE - -------------------------------------------------------------------------------- ASSETS Interest earning assets: Interest bearing deposits with banks $ 8,268 $ 475 5.75% Federal funds sold 35,009 1,734 4.95 Taxable investment securities (1) 466,888 28,557 6.12 Non-taxable investment securities (2) 78,206 4,808 6.15 Loans (2)(3) 2,666,830 228,308 8.56 ---------- ---------- TOTAL INTEREST EARNING ASSETS 3,255,201 263,882 8.11 ---------- ---------- Cash and due from banks 119,619 Allowance for loan losses (34,999) Premises and equipment 105,380 Other assets 150,172 ---------- $3,595,373 ========== LIABILITIES Interest bearing liabilities: Deposits: Interest bearing demand $ 491,750 9,837 2.00 Savings 821,038 22,179 2.70 Other time 1,197,235 61,060 5.10 Short-term borrowings 237,919 11,282 4.74 Long-term debt 74,717 4,928 6.60 ---------- ---------- TOTAL INTEREST BEARING LIABILITIES 2,822,659 109,286 3.87 ---------- ---------- Non-interest bearing demand deposits 409,334 Other liabilities 59,151 ---------- 3,291,144 ---------- STOCKHOLDERS' EQUITY 304,229 ---------- $3,595,373 ========== Excess of interest earning assets over interest bearing liabilities $ 432,542 ========== Net interest income $ 154,596 ========== Net interest spread 4.23% ==== Net interest margin (4) 4.75% ==== - --------------------------------------------------------------------------------
(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 52 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION During 2001, the Federal Reserve Bank reduced its federal funds rate an unprecedented 11 times. This monetary policy significantly influenced the Corporation's asset and liability management. The yield on interest earning assets decreased by 41 basis points and the rate paid on interest bearing liabilities decreased by 56basis points. Although the current year margin has increased, there is a possibility that margin compression could arise, as further discussed within the "Liquidity and Interest Rate Sensitivity" section of this report. Interest income on loans, on a fully taxable equivalent basis, decreased 2.3% from $271.0 million in 2000 to $264.7 million in 2001. This decrease was despite favorable loan volumes as average loans increased by $54.1 million. Interest expense on deposits decreased $8.5 million or 7.4% in 2001 while average interest bearing deposits increased by $95.9 million. The average balance in interest bearing demand deposits, time deposits and savings deposits increased $39.2 million, $34.3 million and $22.4 million, respectively. The Corporation continued to successfully generate non-interest bearing deposits as such deposits increased by $40.7 million or 9.0% in 2001. Interest expense on short-term borrowings decreased $5.4 million. The Corporation took advantage of excess liquidity and paid down average short-term borrowings by $14.1 million and the interest rate paid decreased by 167 basis points in 2001. Interest expense on long-term debt decreased $779,000 in 2001 due to a $16.3 million decrease in average long-term debt. 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, 2001 2000 - ----------------------------------------------------------------------------------------------------------------------- VOLUME RATE NET VOLUME RATE NET - ----------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest bearing deposits with banks $ 327 $ (439) $ (112) $ (734) $ 532 $ (202) Federal funds sold 2,882 (272) 2,610 (1,403) 1,011 (392) Securities (442) (1,015) (1,457) (3,052) 1,132 (1,920) Loans 5,092 (11,335) (6,243) 34,115 8,532 42,647 - ----------------------------------------------------------------------------------------------------------------------- 7,859 (13,061) (5,202) 28,926 11,207 40,133 - ----------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Deposits: Interest bearing 1,044 (4,744) (3,700) 570 2,307 2,877 Savings 700 (5,477) (4,777) (218) 2,543 2,325 Other time 1,929 (1,935) (6) 8,372 8,441 16,813 Short-term borrowings (799) (4,636) (5,435) 2,748 3,100 5,848 Long-term debt (1,124) 345 (779) 3,289 (74) 3,215 - ----------------------------------------------------------------------------------------------------------------------- 1,750 (16,447) (14,697) 14,761 16,317 31,078 - ----------------------------------------------------------------------------------------------------------------------- NET CHANGE $ 6,109 $ 3,386 $ 9,495 $ 14,165 $ (5,110) $ 9,055 - -----------------------------------------------------------------------------------------------------------------------
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 8.3% to $12.9 million in 2001. This increase is consistent with the Corporation's continued strong loan growth. (See the "Non-Performing Loans and Allowance for Loan Losses" section of this report). F.N.B. Corporation 53 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION NON-INTEREST INCOME Total non-interest income increased 30.6% from $63.4 million in 2000 to $82.8 million in 2001. Exclusive of gains on sale of securities, non-interest income increased by 29.1%. This increase was primarily attributable to the Corporation's continued transformation to a diversified financial services company. The Corporation has dedicated significant resources to expanding traditional banking services and generating insurance commissions and fees, investment service charges and trust fees. Insurance commissions and fees, service charges and trust fees increased 27.0% from $52.0 million in 2000 to $66.0 million in 2001. These higher levels of fee income are attributable to growth in insurance, expanded banking services and the Corporation's continued focus on providing a wide array of wealth management services, such as annuities, mutual funds and trust services. This increase was accompanied by increases of $981,000 in gains on the sale of securities and $3.1 million in gains on the sale of loans. NON-INTEREST EXPENSE Total non-interest expense increased from $148.5 million in 2000 to $174.8 million in 2001. This increase was primarily attributable to non-recurring items totaling $11.0 million in 2001. During 2001, the Corporation recorded $4.0 million to cover estimated legal expenses associated with five cases filed against one of the Corporation's subsidiary banks. The plaintiffs allege that a third-party independent administrator misappropriated funds from their individual retirement accounts held by the subsidiary bank. Additionally, the Corporation recognized $3.8 million in 2001 in merger related costs. These expenses were primarily data processing termination and conversion costs and change in control provisions. The Corporation also recognized $3.2 million in one-time charges relating to its charter consolidation plan. Excluding these items, non-interest expense totaled $163.8 million for 2001, an increase of 10.3%over 2000. In addition to the non-recurring items, non-interest expenses increased due to insurance agency purchases during the second half of 2000 and first half of 2001. Excluding the impact of the insurance agency purchases, non-interest expense would have increased by $10.8 million or 7.3% on a year over year basis. INCOME TAXES The Corporation's income tax expense was $21.5 million for 2001 compared to $20.5 million for 2000. The 2001 effective tax rate of 32.5% 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's goal in liquidity management is to meet the cash flow requirements of depositors and borrowers as well as the operating cash needs of the Corporation, with cost-effective funding. Liquidity is centrally managed on a daily basis by treasury personnel. In addition, the Corporate Asset/Liability Committee (ALCO), which includes members of executive management, reviews liquidity on a periodic basis and approves significant changes in strategies which affect balance sheet or cash flow positions. The Board of Directors has established an Asset/Liability Policy in order to achieve and maintain earnings performance consistent with long-term goals while maintaining acceptable levels of interest rate risk, a "well-capitalized" balance sheet and adequate levels of liquidity. This policy designates the ALCO as the body responsible for meeting this objective. Liquidity sources from assets include payments from loans and investments as well as the ability to securitize or sell loans and investment securities. Liquidity sources from liabilities are generated primarily through growth in core deposits and, to a lesser extent, the use of wholesale sources which include federal funds purchased, repurchase agreements and public deposits. In addition, the banking affiliates have the ability to borrow from the Federal Home Loan Bank (FHLB). FHLB advances are a competitively priced and reliable source of funds. The Corporation has made limited use of FHLB advances and has a large reserve available for contingency funding purposes. As of December 31, 2001, outstanding advances were $65.7 million, or 1.6% of total assets while FHLB availability was $708.2 million, or 17.2%of total assets. The principal source of cash for the parent company is dividends from its subsidiaries. The parent also has approved lines of credit with several major domestic banks, which were unused as of December 31, 2001. The F.N.B. Corporation 54 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION Corporation also issues subordinated debt on a regular basis and has access to the Federal Reserve Bank as well as access to the capital markets. The ALCO regularly monitors various liquidity ratios and forecasts of cash position. Management believes the Corporation has sufficient liquidity available to meet its normal operating and contingency funding cash needs. Following is the gap analysis as of December 31, 2001 (dollars in thousands):
- -------------------------------------------------------------------------------------------------------------------- WITHIN 4-12 1-5 OVER 3 MONTHS MONTHS YEARS 5 YEARS TOTAL - -------------------------------------------------------------------------------------------------------------------- INTEREST EARNING ASSETS Interest bearing deposits with banks $ 3,435 $ 100 $ 77 $ 3,612 Federal funds sold 4,260 4,260 Securities 65,742 128,752 $ 206,081 64,586 465,161 Loans, net of unearned income 946,436 720,209 1,284,060 253,122 3,203,827 - -------------------------------------------------------------------------------------------------------------------- 1,019,873 849,061 1,490,141 317,785 3,676,860 Other assets 452,227 452,227 - -------------------------------------------------------------------------------------------------------------------- $1,019,873 $849,061 $1,490,141 $ 770,012 $4,129,087 - -------------------------------------------------------------------------------------------------------------------- INTEREST BEARING LIABILITIES Deposits: Interest checking $ 107,393 $ 476,429 $ 583,822 Savings 364,914 489,756 854,670 Time deposits 265,839 $651,906 $ 424,544 1,342,289 Borrowings 199,491 34,842 44,435 117,626 396,394 - -------------------------------------------------------------------------------------------------------------------- 937,637 686,748 468,979 1,083,811 3,177,175 Other liabilities 582,715 582,715 Stockholders' equity 369,197 369,197 - -------------------------------------------------------------------------------------------------------------------- $ 937,637 $686,748 $ 468,979 $ 2,035,723 $4,129,087 - -------------------------------------------------------------------------------------------------------------------- PERIOD GAP $ 82,236 $162,313 $1,021,162 $(1,265,711) - -------------------------------------------------------------------------------------------------------------------- CUMULATIVE GAP $ 82,236 $244,549 $1,265,711 - -------------------------------------------------------------------------------------------------------------------- CUMULATIVE GAP AS A PERCENT OF TOTAL ASSETS 1.99% 5.92% 30.65% - -------------------------------------------------------------------------------------------------------------------- RATE SENSITIVE ASSETS/ RATE SENSITIVE LIABILITIES (CUMULATIVE) 1.09 1.15 1.60 1.16 - --------------------------------------------------------------------------------------------------------------------
The financial performance of the Corporation is at risk from interest rate fluctuations. This interest rate risk arises due to differences between the amount of interest earning assets and interest bearing liabilities subject to repricing over a period of time, the difference between the change in various interest rates and the embedded options in certain financial instruments. The Corporation utilizes an asset/liability model to support its balance sheet strategies. The Corporation uses gap analysis, net interest income simulations and the economic value of equity to measure its interest rate risk. The above gap analysis measures the interest rate risk of the Corporation by comparing the difference between the amount of interest earning assets and interest bearing liabilities subject to repricing over a period of time. The cumulative one-year gap ratio was 1.15 at December 31, 2001 as compared to .90 at December 31, 2000. A ratio of more than one indicates a higher level of repricing assets over repricing liabilities over the next twelve months, assuming the current interest rate environment. 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. F.N.B. Corporation 55 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION 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 current balance sheet. The following table presents an analysis of the potential sensitivity of the Corporation's annual net interest income and EVE to sudden and sustained changes in market rates:
December 31 2001 2000 ---- ---- Net interest income change (12 months): - 100 basis points ................................... (1.6)% .6% + 200 basis points ................................... .6% (3.0)% Economic value of equity: - 100 basis points ................................... (.8)% (1.0)% + 200 basis points ................................... (5.7)% (2.0)%
The preceding measures assumed no change in asset/liability compositions. Thus, the measures do not reflect actions the ALCO may undertake in response to such changes in interest rates. The disclosed measures are within the limits set forth in the Corporation's Asset/Liability Policy. The computation of the prospective effects of hypothetical interest changes requires numerous assumptions regarding characteristics of new business and the behavior of existing positions. These business assumptions are based upon the Corporation's experience, business plans and published industry experience. Key assumptions employed in the model include asset prepayment speeds, the relative price sensitivity of certain assets and liabilities and the expected life of nonmaturity deposits. Because these assumptions are inherently uncertain, actual results will differ from simulated results. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 Net income increased 8.4% to $44.0 million in 2000 from $40.6 million in 1999. Basic earnings per share were $1.72 and $1.59 for 2000 and 1999, while diluted earnings per share were $1.68 and $1.54, respectively, for those same periods. The results for 1999 include merger related and other non-recurring costs of $1.3 million, net of tax. Excluding these items, core operating earnings were $41.8 million in 1999. The Corporation's return on average assets was 1.12%for 2000 and 1.13%for 1999, while the Corporation's return on average equity was 13.71% for 2000 and 13.34% for 1999. Excluding the non-recurring items in 1999, the Corporation had a return on average assets of 1.16% and a return on average equity of 13.76%. Net interest income, on a fully taxable equivalent basis, totaled $163.7 million in 2000. Net interest income consisted of interest income of $304.0 million and interest expense of $140.4 million in 2000, compared to $263.9 million and $109.3 million for each, respectively, in 1999. The Corporation's net interest margin was 4.58% for 2000. Interest income on loans, on a fully taxable equivalent basis, increased 18.7% from $228.3 million in 1999 to $271.0 million in 2000. This increase was the result of an increase in average loans of 14.5% as well as an increase in the average yield by 31 basis points. Interest expense on deposits increased $22.0 million or 23.7% in 2000 while average interest bearing deposits increased 6.9%. The average balance in time deposits and interest bearing demand deposits increased $153.7 million and $27.4 million, respectively, while the average balance in savings deposits decreased by $8.1 million. The average balance in non-interest bearing demand deposits increased by $43.4 million. Interest expense on short-term borrowings increased $5.8 million or 51.8% in 2000 due to a $52.1 million increase in average short-term borrowings. Interest expense on long-term debt increased $3.2 million or 65.2%in 2000 due to a $50.6 million increase in average long-term debt. The provision for loan losses was $11.9 million and represented an increase of 23.2% from 1999, a reflection of the Corporation's continued strong loan growth. Total non-interest income increased 18.3% from $53.6 million in 1999 to $63.4 million in 2000. Exclusive of gains on sale of securities, non-interest income increased by 21.8%. This increase was primarily attributable to the Corporation's transformation to a financial services company focusing resources dedicated to generating insurance commissions and fees, investment service charges and trust fees. Insurance commissions and fees, service charges and trust fees increased 26.3% from $41.2 million in 1999 to $52.0 million in 2000. These higher levels of fee income are attributable to growth in insurance, increases in deposits and the Corporation's continued expansion into annuity and mutual funds sales and trust services. F.N.B. Corporation 56 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION This increase was partially offset by a decrease of $1.5 million in gains on the sale of securities. Total non-interest expense increased from $138.3 million in 1999 to $148.5 million in 2000. The increase was primarily attributable to an increase of $8.4 million in salaries and employee benefits. This increase was mainly due to the Corporation's continued expansion into non-interest revenue lines of business along with normal annual salary adjustments and the continued escalation of certain benefit costs. The Corporation recognized $1.8 million in 1999 in merger related costs. These expenses were primarily data processing termination and conversion costs and change in control provisions. Also during 1999, the Corporation recorded a net insurance recovery of $883,000. Income tax expense was $20.5 million for 2000 compared to $17.5 million for 1999. The 2000 effective tax rate of 31.8% 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 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Real estate: Residential $1,219,502 $1,157,753 $1,084,353 $1,008,728 $ 956,977 Commercial 984,973 849,276 790,122 654,124 551,674 Construction 206,269 204,267 119,398 103,672 70,093 Installment loans to individuals 284,233 341,755 342,513 296,245 304,172 Commercial, financial and agricultural 423,198 401,866 355,729 304,075 280,319 Lease financing 128,712 204,187 254,252 132,266 59,852 Unearned income (44,383) (62,271) (61,719) (30,840) (20,580) - ------------------------------------------------------------------------------------------------------------------- $3,202,504 $3,096,833 $2,884,648 $2,468,270 $2,202,507 - -------------------------------------------------------------------------------------------------------------------
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 2001, 2000 and 1999, the Corporation sold $19.5 million, $23.5 million and $49.8 million, respectively, in fixed rate residential mortgages. 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 southwest Florida, western Pennsylvania, central Tennessee, and eastern Ohio. As of December 31, 2001, no concentrations of loans exceeding 10% of total loans existed which were not disclosed as a separate category of loans. During 2000, the Corporation curtailed offering lease financing. 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, 2001 ONE YEAR FIVE YEARS FIVE YEARS TOTAL - -------------------------------------------------------------------------------------------------- Commercial, financial and agricultural $192,298 $171,037 $59,863 $423,198 Real estate - construction 137,019 50,594 18,656 206,269 - -------------------------------------------------------------------------------------------------- Total $329,317 $221,631 $78,519 $629,467 - --------------------------------------------------------------------------------------------------
The total amount of loans due after one year includes $178.0 million with floating or adjustable rates of interest and $122.2 million with fixed rates of interest. F.N.B. Corporation 57 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 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------ Non-accrual loans $14,488 $10,397 $ 9,321 $12,250 $8,365 Restructured loans 4,697 2,810 3,560 1,770 1,345 $19,185 $13,207 $12,881 $14,020 $9,710 - ------------------------------------------------------------------------------------------------ Non-performing loans as a percentage of total loans .60% .43% .45% .57% .44% - ------------------------------------------------------------------------------------------------
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 2001 2000 1999 1998 1997 - ----------------------------------------------------------------------------------------------------- Gross interest income that would have been recorded if the loans had been current and in accordance with their original terms $1,635 $1,647 $1,445 $1,563 $1,068 Interest income recorded during the year 771 545 503 863 477 - -----------------------------------------------------------------------------------------------------
Following is a summary of loans 90 days or more past due, on which interest accruals continue (dollars in thousands):
- ------------------------------------------------------------------------------------------------ December 31 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------ Loans 90 days or more past due $4,768 $4,533 $4,863 $2,943 $3,220 Loans 90 days or more past due as a percentage of total loans .15% .15% .17% .12% .15% - ------------------------------------------------------------------------------------------------
ALLOWANCES FOR LOAN LOSSES Management considers the accounting policy for the allowance for loan losses to be a critical accounting policy. For a full description of this policy refer to the Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements. Management's analysis of the allocated portion of the allowance for loan losses includes the evaluation of the loan portfolio based upon the Corporation's internal loan grading system, evaluation of portfolio industry concentrations and the historical loss experience of the remaining balances of the various homogeneous loan pools which comprise the loan portfolio. Specific factors used in the internal loan grading system include the previous loan loss experience with the customer, the status of past due interest and principal payments on the loan, the collateral position and residual value of the loan, the quality of financial information supplied by the borrower and the general financial condition of the borrower. 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 58 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 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------ Balance at beginning of year $ 40,373 $ 37,197 $ 32,761 $ 31,353 $ 31,344 Addition from acquisitions 767 2,813 1,167 Reduction due to the sale of subsidiary and loans (3,828) Charge-offs: Real estate - mortgage (976) (592) (964) (322) (888) Installment loans to individuals (8,373) (6,933) (5,514) (5,900) (6,978) Lease financing (3,270) (1,867) (632) (300) (106) Commercial, financial and agricultural (2,067) (1,859) (2,516) (1,119) (2,309) - ------------------------------------------------------------------------------------------------------------------ (14,686) (11,251) (9,626) (7,641) (10,281) - ------------------------------------------------------------------------------------------------------------------ Recoveries: Real estate - mortgage 105 112 50 43 100 Installment loans to individuals 1,472 1,089 1,108 914 804 Lease financing 448 220 80 38 32 Commercial, financial and agricultural 218 317 334 320 359 - ------------------------------------------------------------------------------------------------------------------ 2,243 1,738 1,572 1,315 1,295 - ------------------------------------------------------------------------------------------------------------------ Net charge-offs (12,443) (9,513) (8,054) (6,326) (8,986) Provision for loan losses 12,915 11,922 9,677 7,734 11,656 - ------------------------------------------------------------------------------------------------------------------ Balance at end of year $ 40,845 $ 40,373 $ 37,197 $ 32,761 $ 31,353 - ------------------------------------------------------------------------------------------------------------------ Net charge-offs as a percent of average loans, net of unearned income .40% .31% .30% .27% .43% Allowance for loan losses as a percent of average loans, net of unearned income 1.31 1.32 1.39 1.40 1.50 Allowance for loan losses as a percent of non-performing loans 212.90 305.69 288.77 233.67 322.89 - ------------------------------------------------------------------------------------------------------------------
Following is a summary of 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 2001 LOANS 2000 LOANS 1999 LOANS 1998 LOANS 1997 LOANS - ------------------------------------------------------------------------------------------------------------------------------------ Commercial, financial and agricultural $ 7,173 13% $ 6,777 13% $ 7,190 12% $ 6,086 12% $ 5,734 13% Real estate - construction 316 6 437 7 475 5 271 4 284 3 Real estate - mortgage 10,411 69 11,316 65 9,289 64 6,900 67 6,399 68 Installment loans to individuals 8,822 9 8,016 11 7,826 12 7,591 12 5,283 14 Lease financing 5,319 3 1,093 4 847 7 812 5 359 2 Unallocated portion 8,804 12,734 11,570 11,101 13,294 - ------------------------------------------------------------------------------------------------------------------------------------ $40,845 100% $40,373 100% $37,197 100% $32,761 100% $31,353 100% - ------------------------------------------------------------------------------------------------------------------------------------
F.N.B. Corporation 59 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION Due to this methodology, 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. During 2001, the Corporation allocated approximately $4.2 million of the allowance to leases and lease residuals. The Corporation determined the need to provide a more refined allocation based upon recent reductions in lease residual values and loss experience in the lease 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 are recorded at fair market value. 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 2001, securities available for sale decreased by $27.7 million and securities held to maturity decreased by $22.2 million from December 31, 2000. The majority of this decrease was used to fund loan demand and increase the Corporation's investment in bank owned life insurance. The following table indicates the respective maturities and weighted average yields of securities as of December 31, 2001 (dollars in thousands):
- ----------------------------------------------------------------------------------------------------- WEIGHTED AMOUNT AVERAGE YIELD - ----------------------------------------------------------------------------------------------------- U.S. Treasury and other U.S. Government agencies and corporations: Maturing within one year $ 48,134 6.41% Maturing after one year within five years 133,995 5.84% Maturing after five years within ten years 10,347 5.12% States of the U.S. and political subdivisions: Maturing within one year 4,697 6.57% Maturing after one year within five years 20,864 6.36% Maturing after five years within ten years 19,334 6.07% Maturing after ten years 1,052 6.60% Other debt securities: Maturing after one year within five years 417 5.07% Maturing after five within ten years 917 5.93% Maturing after ten years 1,509 9.18% Mortgage-backed securities of U.S. Government agencies 200,769 5.88% Equity securities 23,126 6.99% - ----------------------------------------------------------------------------------------------------- TOTAL $465,161 6.01% - -----------------------------------------------------------------------------------------------------
The weighted average yields for tax exempt securities are computed on a tax equivalent basis. F.N.B. Corporation 60 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 1.4% to $3.3 billion in 2001. This increase was due to a $39.4 million or 2.8% increase in savings and interest checking accounts and a $33.4 million or 7.0% increase in non-interest bearing deposit accounts, partially offset by a decrease of $28.4 million or 2.1% in time 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 $7.5 million in 2001 to $293.4 million. The composition of short-term borrowings shifted during 2001 as increases in securities sold under repurchase agreements and subordinated notes of $37.4 million and $31.5 million, respectively, were offset by decreases in Federal Home Loan Bank advances and other short-term borrowings, of $42.4 million and $25.0 million, respectively. Repurchase agreements are the largest component of short-term borrowings. At December 31, 2001, repurchase agreements represented 62.8% of total short-term borrowings. Following is a summary of selected information on repurchase agreements (dollars in thousands):
- -------------------------------------------------------------------------------- December 31 2001 2000 1999 - -------------------------------------------------------------------------------- Balance at end of year $184,348 $146,996 $134,808 Maximum month-end balance 185,349 166,672 134,808 Average balance during the year 165,746 153,510 120,698 Weighted average interest rates: At end of year 1.17% 5.41% 4.16% During the year 3.07% 5.24% 4.17% - --------------------------------------------------------------------------------
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, 2000, stockholders' equity has increased $25.3 million as a result of earnings retention. Total cash dividends declared represented 37.2% of core operating income for 2001 compared to 37.9% for 2000. Book value per share was $14.22 at December 31, 2001, compared to $13.17 at December 31, 2000. RETURN ON AVERAGE EQUITY (BASED ON CORE OPERATING EARNINGS) 1997 13.3% 1998 13.2% 1999 13.8% 2000 13.7% 2001 14.7%
F.N.B. Corporation 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 23, 2001 and April 17, 2000. As of January 31, 2002, there were 12,356 holders of record of common stock.
Quarter Ended 2001 LOW HIGH DIVIDENDS --- ---- --------- March 31 $20.36 $22.86 $ .17 June 30 22.09 26.90 .18 September 30 23.16 28.20 .20 December 31 23.90 27.95 .20
Quarter Ended 2000 LOW HIGH DIVIDENDS --- ---- --------- March 31 $16.55 $21.49 $ .16 June 30 16.67 19.64 .17 September 30 18.33 21.67 .17 December 31 18.21 20.95 .17
CASH DIVIDENDS PAID PER COMMON SHARE 1997 $.52 1998 $.61 1999 $.64 2000 $.67 2001 $.75
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 62 CORPORATE HEADQUARTERS F.N.B. Corporate Center 2150 Goodlette Road N. Naples, FL 34102 (941)262-7600 ANNUAL MEETING The Annual Meeting of Shareholders will be held on May 6, 2002 at 4 p.m. at the Naples Beach Hotel, 851 Gulf Shore Blvd. N., Naples, FL 34102 INTERNET INFORMATION Information on F.N.B. Corporation's financial results, acquisitions, and its products and services is available on the Internet at www.fnbcorporation.com FORM 10-K AND 10-Q AVAILABILITY Copies of F.N.B. Corporation's Annual Report on Form 10-K and Quarterly Reports on 10-Q filed with the Securities & Exchange Commission will be furnished to any shareholder, free of charge, upon request. Forms also are available over the Internet at www.sec.gov/index.html. QUARTERLY REPORTS Quarterly earnings release dates for 2002 are January 15, April 16, July 16 and October 15. Results are released to the press and then posted on F.N.B. Corporation's Web site. Quarterly reports also are mailed to shareholders on request. Shareholders may request reports at any time. DIVIDEND PAYMENT DATES F.N.B. Corporation pays regular quarterly cash dividends in March, June, September and December. ANNUAL REPORT To order additional copies of the 2001 Annual Report, please contact the F.N.B. Corporation Corporate Affairs Department at 2150 Goodlette Road N., Third Floor, Naples, FL 34102. Telephone: (941)436-1676 Fax: (941)436-1677 COMMON STOCK INFORMATION AT DECEMBER 31, 2001 Shares issued 25,774,491 Shares outstanding 25,711,313 Treasury shares 63,178 Number of shareholders of record 6,958 Closing market price per share $26.35 Book value per share $14.22 Stock exchange NASDAQ Stock symbol FBAN
DIVIDEND REINVESTMENT PLAN F.N.B. Corporation offers a Dividend Reinvestment Plan that allows shareholders to reinvest their F.N.B. dividends in additional company common stock at the prevailing market price. A prospectus and an enrollment form may be obtained upon request to the F.N.B. Shareholder Services Department at (888)441-4362, or by writing to F.N.B. Shareholder Services, P.O. Box 11929, Naples, FL 34101-1929. 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. Telephone: (724)983-3440. NEWS MEDIA INQUIRIES Media representatives and others with inquiries may contact: Clay W. Cone, Vice President-Corporate Affairs, F.N.B. Corporation, 2150 Goodlette Road N., Naples, FL 34102. Telephone: (941)436-1676. PRINCIPAL SUBSIDIARIES First National Bank of Florida First National Bank of Pennsylvania Metropolitan National Bank First National Trust Company First National Investment Services Company F.N.B. Investment Advisors Inc. Roger Bouchard Insurance Inc. Gelvin, Jackson & Starr Inc. Regency Finance Company Customer Service Center of F.N.B. [F.N.B CORPORATION LOGO] F.N.B. Corporate Center 2150 Goodlette Road N. Naples, FL 34102 www.fnbcorporation.com EX-21 5 j9337301ex21.txt LIST OF SUBSIDIARIES LIST OF SUBSIDIARIES Exhibit 21 Following lists the significant subsidiaries of the registrant and the state or jurisdiction of incorporation of each: NAME INCORPORATED 1) First National Bank of Pennsylvania United States 2) Metropolitan National Bank United States 3) First National Bank of Florida United States 4) Regency Finance Company Pennsylvania 5) Roger Bouchard Insurance, Inc. Florida 6) Gelvin, Jackson & Starr, Inc. Pennsylvania Metropolitan National Bank also conducts business under the name First County Bank. First National Bank of Florida also conducts business under the names First National Bank of Naples, Cape Coral National Bank, First National Bank of Fort Myers, West Coast Guaranty Bank and Citizens Community Bank of Florida. Regency Finance Company also conducts business under the names F.N.B. Consumer Discount Company, Citizens Financial Services, Inc. and Finance and Mortgage Acceptance Corporation Roger Bouchard Insurance, Inc. also conducts business under the names Connell & Herrig Insurance, Altamura Marsh & Associates, James T. Blalock, OneSource Group, Inc. and Don Ostrowsky & Associates, Inc. Gelvin, Jackson & Starr, Inc. also conducts business under the name L.J. Kuder, Inc. EX-23.1 6 j9337301ex23-1.txt CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1. CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference of our report dated February 5, 2002, with respect to the consolidated financial statements of F.N.B. Corporation and subsidiaries included in this Annual Report (Form 10-K) for the year ended December 31, 2001 in the following Registration Statements and Prospectuses: 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 #333-38372). 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) Registration Statement on Form S-8 relating to stock options assumed in the acquisition of Mercantile Bank of Southwest Florida (File #333- 42333). 11) Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on Form S-4 (File #333-58727). 12) 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). 13) Post-Effective Amendment No. 1 to Form S-3 relating to the F.N.B. Corporation Dividend Reinvestment and Direct Stock Purchase Plan (File #333-38374). 14) Amendment No. 1 to Form S-3 relating to the registration of F.N.B. Corporation Subordinated Term Notes and Daily Notes (File #333-38370). 15) Registration Statement on Form S-8 relating to the F.N.B. Corporation Salary Savings Plan (File #333-40648). 16) Registration Statement on Form S-8 relating to the F.N.B. Corporation 1998 Directors Stock Option Plan (File #333-38376). 17) Registration Statement on Form S-8 relating to the F.N.B. Corporation 2001 Incentive Plan (File #333-63042). 18) Registration Statement on Form S-3 relating to the registration of F.N.B. Corporation and FNB Capital Trust I common stock, preferred stock, debt securities, warrants, and trust preferred securities (File #333-74866). 19) Registration Statement on Form S-8 relating to the F.N.B. Corporation 1996 Incentive Plan (File #333-83760). 20) Registration Statement on Form S-8 relating to stock option agreements granted under the Promistar Financial Corporation 1998 Equity Incentive Plan and assumed by F.N.B. Corporation (File #333-83756). /s/ERNST & YOUNG LLP Ernst & Young LLP Birmingham, Alabama March 21, 2002 -----END PRIVACY-ENHANCED MESSAGE-----