-----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, D9iKb7LCD6n7ji32b5nm9UtvQuG0FOrzHR4abzLsT86H9HkOlvLD9tSrijBZiFwo WzraIJDDqvU6M9IDMwQS2w== 0000950128-96-000220.txt : 19960319 0000950128-96-000220.hdr.sgml : 19960319 ACCESSION NUMBER: 0000950128-96-000220 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960318 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FNB CORP/PA CENTRAL INDEX KEY: 0000037808 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 251255406 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-08144 FILM NUMBER: 96535752 BUSINESS ADDRESS: STREET 1: HERMITAGE SQUARE CITY: HERMITAGE STATE: PA ZIP: 16148 BUSINESS PHONE: 4129816000 MAIL ADDRESS: STREET 1: HERMITAGE SQUARE CITY: HERMITAGE STATE: PA ZIP: 16148 FORMER COMPANY: FORMER CONFORMED NAME: CITIZENS BUDGET CO DATE OF NAME CHANGE: 19750909 10-K 1 FNB CORPORATION 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from ________________________ to ____________________________ Commission file number 0-8144 F.N.B. CORPORATION - ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 25-1255406 - ------------------------------------ ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Hermitage Square Hermitage, Pennsylvania 16148 - -------------------------------------- ---------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 412-981-6000 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $2 per share 7 1/2% Cumulative Convertible Preferred Stock, Series B, par value $10 per share - ----------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pre- ceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The registrant estimates that as of January 31, 1996, the aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the last sale price as reported in the NASDAQ system for such date, was approximately $182,346,650. APPLICABLE ONLY TO CORPORATE REGISTRANTS: As of January 31, 1996, the registrant had outstanding 8,602,400 shares of common stock having a par value of $2 per share. Continued 2 DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K into DOCUMENT which Document is Incorporated -------- ------------------------------ Annual Report to Stockholders for fiscal year ended December 31, 1995 I & II Definitive proxy statement for the 1996 Annual Meeting of Stockholders to be held on April 24, 1996 III 3 FORM 10-K 1995 INDEX
PART I PAGE Item 1. Business General I-2 Statistical Disclosure I-10 Item 2. Properties I-11 Item 3. Legal Proceedings I-12 Item 4. Submission of Matters to a Vote of Security Holders I-12 Executive Officers of the Registrant I-13 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 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-6
I-1 4 PART I ITEM 1. BUSINESS GENERAL F.N.B. Corporation (the Corporation) was formed in 1974 as the holding company of its then sole subsidiary, First National Bank of Mercer County. Since its formation, the Corporation has acquired and currently operates four other banks, one savings and loan and one consumer finance company in Pennsylvania, eastern Ohio and western New York. During 1992, First National Bank of Mercer County completed an acquisition of the fixed assets, certain loans, deposits and related accruals of ten branches of the former The First National Bank of Pennsylvania and three branch offices of Marine Bank. At the same time, First National Bank of Mercer County changed its name to First National Bank of Pennsylvania (First National). The Corporation, through its subsidiaries, provides a full range of financial services, principally to consumers and small- to medium-size businesses in its market areas. The Corporation's business strategy has been to focus primarily on providing quality, community-based financial services adapted to the needs of each of the markets it serves. The Corporation has emphasized its community orientation by preserving the names and local boards of directors of its subsidiaries, by allowing its subsidiaries autonomy in decision-making and thus enabling them to respond to customer requests more quickly, and by concentrating on transactions within its market areas. However, while the Corporation has sought to preserve the identities and autonomy of its subsidiaries, it has established centralized credit analysis, loan review, investment, audit and data processing functions. The centralization of these processes has enabled the Corporation to maintain consistent quality of these functions and to achieve certain economies of scale. The Corporation's lending philosophy is to minimize credit losses by following uniform credit approval standards (which include independent analysis of realizable collateral value), diversifying its loan portfolio, maintaining a relatively modest average loan size 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 local businesses. The Corporation does not have a significant amount of construction loans and has no highly leveraged transaction loans or loans to foreign countries. No material portion of the deposits of the Corporation's bank or savings and loan 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. Information as of December 31, 1995 for the Corporation's bank, savings and loan and consumer finance subsidiaries (including the year established and location of principal office for each) is set forth below. All subsidiaries are wholly-owned by the Corporation. In January 1995, the holders of a minority interest in First County Bank exchanged their First County stock for shares of the Corporation's common stock. I-2 5
NUMBER OF TOTAL ASSETS BRANCH BANK SUBSIDIARIES: (IN THOUSANDS) OFFICES -------------- -------- First National Bank of Pennsylvania (Est. 1864) Hermitage, Pennsylvania.................................. $ 906,123 29 The Metropolitan Savings Bank of Ohio (Est. 1922) Youngstown, Ohio......................................... 339,076 11 Reeves Bank (Est. 1868) Beaver Falls, Pennsylvania............................... 132,829 9 Bucktail Bank and Trust Company (Est. 1928) Emporium, Pennsylvania................................... 114,200 7 First County Bank (Est. 1987) Chardon, Ohio............................................ 43,837 2 ---------- -- $1,536,065 58 ========== == SAVINGS AND LOAN SUBSIDIARY: Dollar Savings Association (Est. 1898) New Castle, Pennsylvania................................. $ 85,874 2 ========== == CONSUMER FINANCE SUBSIDIARY: Regency Finance Company (Est. 1927) Hermitage, Pennsylvania.................................. $ 100,060 33 ========== ==
The Corporation has three other subsidiaries, Penn-Ohio Life Insurance Company, Est. 1981 (Penn-Ohio), Mortgage Service Corporation, Est. 1944 (Mortgage Service), and F.N.B. Building Corporation, Est. 1987 (F.N.B. Building). Penn-Ohio underwrites, as a reinsurer, credit life and accident and health insurance sold by the Corporation's subsidiaries. These activities are incidental to the Corporation's banking business. Mortgage Service services mortgage loans for unaffiliated financial institutions and F.N.B. Building owns real estate that is leased to certain affiliates. OPERATIONS OF THE BANK SUBSIDIARIES The Corporation's bank subsidiaries offer services traditionally offered by full-service commercial banks, including commercial and individual demand and time deposit accounts, commercial, mortgage and individual installment loans, credit card services through correspondent banks, night depository, automated teller services, computer services, safe deposit boxes, money order services, travelers checks, government savings bonds, food stamp sales and utility bill payments. In addition, First National and Bucktail Bank and Trust Company (Bucktail) operate trust departments which offer a broad range of personal and corporate fiduciary services, including the administration of decedent and trust estates. As of December 31, 1995, trust assets under management at First National and Bucktail totaled $266.4 million. OPERATIONS OF THE SAVINGS AND LOAN SUBSIDIARY The Corporation's savings and loan subsidiary provides lending and depositor services typically offered by savings and loan associations, emphasizing residential mortgage lending while maintaining an increasing level of activity as a commercial lender. In December 1995, First National and Dollar Savings Association agreed to merge, with First National being the survivor. The relevant applications with federal and state regulatory authorities are pending and the merger transaction is expected to be completed during the second quarter of 1996. OPERATIONS OF THE CONSUMER FINANCE SUBSIDIARY The Corporation's consumer finance subsidiary is involved principally in making personal installment loans to individuals and purchasing installment sales finance contracts from retail merchants and automobile dealerships. Such activity is funded by advances from the Corporation which are available from the sale of the Corporation's subordinated notes. I-3 6 REGULATION AND SUPERVISION Bank holding companies, banks, savings and loan holding companies, savings and loan associations and consumer finance companies are extensively regulated under both federal and state law. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in applicable law or regulation may have a material effect on the business and prospects of the Corporation and its subsidiaries. The regulation and examination of the Company and its subsidiaries are designed primarily for the protection of depositors and not the Corporation or its stockholders. BANK HOLDING COMPANIES The Corporation is registered as a bank holding company under the Bank Holding Company Act of 1956 (BHCA) and, as such, is subject to regulation by the Federal Reserve Board. As a bank holding company, the Corporation is required to file with the Federal Reserve Board an annual report and such additional information as the Federal Reserve Board may require pursuant to the BHCA. The Federal Reserve Board may also make examinations of the Corporation. The BHCA requires the prior approval of the Federal Reserve Board in any case where a bank holding company proposes to acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank (unless it owns a majority of such bank's voting shares) or otherwise to control a bank or to merge or consolidate with any other bank holding company. Effective September 29, 1995, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 authorizes the Federal Reserve Board to permit a bank holding company that meets all applicable capital requirements to acquire control, or substantially all of the assets, of a bank located in another state that is not the bank holding company's home state, regardless of whether the other state prohibits such transaction. The BHCA also prohibits a bank holding company, with certain exceptions, from acquiring more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than banking or managing or controlling banks. Under the BHCA, the Federal Reserve Board is authorized to approve the ownership of shares by a bank holding company in any company the activities of which the Federal Reserve has determined to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto. The Federal Reserve Board has by regulation determined that certain activities are closely related to banking within the meaning of the BHCA. These activities, which are listed in Regulation Y of the Federal Reserve Board, include: operating a mortgage company, finance company, credit card company or factoring company; performing certain data processing operations; providing investment and finance advice; and acting as an insurance agent for certain types of credit-related insurance. Activities which the Federal Reserve Board has approved by order in connection with specific applications by bank holding companies include the operation of a credit card bank or other non-bank banks, certain expanded student loan servicing activities, the buying and selling of gold and silver bullion and silver coin for the account of customers and for itself, the provision of certain financial office services, the printing and sale of checks and similar documents, underwriting and dealing in commercial paper, certain municipal revenue bonds and one to four family mortgage backed securities, subject to certain conditions, and underwriting and dealing in corporate debt or equity securities, subject to certain conditions. Bank holding companies also are permitted to acquire savings associations subject to the applicable requirements of the BHCA. In approving acquisitions by bank holding companies of banks and companies engaged in banking-related activities, the Federal Reserve Board considers a number of factors, including the expected benefits to the public, such as greater convenience, increased competition or gains in efficiency, as weighed against the risks of possible adverse I-4 7 effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The Federal Reserve Board is also empowered to differentiate between new activities and activities commenced through acquisition of a going concern. Bank holding companies and their subsidiary banks and savings and loans are also subject to the provisions of the Community Reinvestment Act of 1977 (CRA). Under the terms of the CRA, the Federal Reserve Board (or other appropriate bank regulatory agency) is required, in connection with its examination of a financial institution, to assess the financial institution's record in meeting the credit needs of the communities served by the financial institution, including low and moderate-income neighborhoods. Further, such assessment is also required of any financial institution which has applied to (i) obtain a federally-regulated financial institution charter; (ii) obtain deposit insurance coverage for a newly chartered institution; (iii) establish a new branch office that will accept deposits; (iv) relocate an office; or (v) merge or consolidate with, or acquire the assets or assume the liabilities of, a federally-regulated financial institution. In the case of a bank holding company applying for approval to acquire a bank, savings and loan, or other bank holding company, the Federal Reserve Board will assess the record of each subsidiary of the applicant bank holding company, and such records may be the basis for denying the application or imposing conditions in connection with approval of the application. SAVINGS AND LOAN HOLDING COMPANIES The Corporation is also registered as a savings and loan holding company under the Home Owner's Loan Act (HOLA). Savings and loan holding companies are subject to regulation by the Office of Thrift Supervision (OTS). The HOLA requires the prior approval of the OTS in any case where a savings and loan holding company or an officer, director or 25% stockholder of a savings and loan holding company proposes to (i) acquire control of any other savings association or savings and loan holding company or any company controlling the assets thereof or (ii) acquire or retain more than 5% of the voting shares of a savings association or holding company thereof which is not a subsidiary of the acquiror. BANKS The Corporation's bank subsidiaries are supervised and regularly examined by the Office of the Comptroller of Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Pennsylvania Department of Banking and the Ohio Division of Financial Institutions, which consists of the Ohio Division of Banks and the Ohio Division of Savings Banks. The various laws and regulations administered by the regulatory agencies affect corporate practices, such as payment of dividends, incurring debt and acquisition of financial institutions and other companies, and affect business practices, such as payment of interest on deposits, the charging of interest on loans, types of business conducted and location of offices. SAVINGS AND LOAN ASSOCIATION The Corporation's savings and loan association subsidiary is supervised and regularly examined by the OTS and the Pennsylvania Department of Banking. The various laws and regulations administered by the regulatory agencies affect corporate practices, such as payment of dividends, incurring debt and acquisition of financial institutions and other companies, and affect business practices, such as payment of interest on deposits, the charging of interest on loans, types of business conducted, types of investment and location of offices. CONSUMER FINANCE SUBSIDIARY The Corporation's consumer finance subsidiary is subject to regulation under Pennsylvania, Ohio and New York state laws which require, among other things, that it maintain licenses for consumer finance operations in effect for each of its offices. Representatives of the Pennsylvania Department of Banking, the Ohio Division of Consumer Finance and the State of New York Banking Department periodically visit the offices of the consumer finance subsidiary and conduct extensive examinations in order to determine I-5 8 compliance with such laws and regulations. Such examinations include a review of loans, the collateral therefor and the adequacy of reserves as well as a check of the procedures employed for making and collecting loans. Additionally, the consumer finance subsidiary is subject to certain federal laws which require that certain information relating to credit terms be disclosed to customers and afford customers in certain instances the right to rescind transactions. LIFE INSURANCE SUBSIDIARY Penn-Ohio is subject to examination on a triennial basis by the Arizona Department of Insurance. Representatives of the Department of Insurance will periodically determine whether Penn-Ohio has maintained required reserves, established adequate deposits under a reinsurance agreement and complied with reporting requirements under Arizona statutes. FDIC INSURANCE ASSESSMENTS The Corporation's bank and savings and loan subsidiaries are subject to FDIC deposit insurance assessments for the Bank Insurance Fund (BIF) and Savings Association Insurance Fund (SAIF). FIRREA authorized the FDIC to set the annual premium for banks and savings associations as high as determined to be necessary to assure stability of the insurance funds. FDIC deposit insurance premium rates have been determined through a risk-based assessment which takes into consideration the capital rating (i.e. "undercapitalized", "adequately capitalized" or "well capitalized") assigned to the institution and the supervisory subgroup ("healthy", "supervisory concern" or "substantial supervisory concern") to which the institution is assigned by the federal regulators. During 1995, the FDIC voted to lower the deposit insurance premiums for banks, now that the BIF has been funded to the required level. Conversely, based on Financial Institutions Reform, Recovery and Enforcement Act of 1989 requirements, the SAIF is still under-funded and therefore, deposit premiums have not been reduced. As a result, it is argued that thrifts are at a competitive disadvantage. Congress is currently considering legislation to impose a one-time deposit premium charge to recapitalize the SAIF. The amount of this premium is uncertain, however, indications have been in a range of $.80 to $.90 per $100 of deposits. At December 31, 1995, the Corporation had approximately $454.9 million in SAIF deposits. 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 Federal Reserve Board 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. Federal Reserve Board monetary policies have had a significant effect on the operating results of commercial banks and savings and loans in the past and are expected to continue to do so in the future. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT (FDICIA) FDICIA was designed to bolster the deposit insurance fund, tighten bank regulation and trim the scope of federal deposit insurance as summarized below. FDIC FUNDING - FDICIA bolstered the bank deposit insurance fund with $70.0 billion in borrowing authority and increased to $30.0 billion from $5.0 billion the amount the FDIC can borrow from the U.S. Treasury to cover the costs of bank failures. The loans, plus interest, would be repaid by premiums that banks pay on domestic deposits over the next 15 years. I-6 9 BANK REGULATION - Under FDICIA, regulatory supervision is linked to bank capital. Regulators have set five capital levels at which insured depository institutions will be "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," or "critically undercapitalized." FDICIA established a framework for supervisory actions regarding insured institutions and their holding companies that are not well or adequately capitalized. FDICIA provides for increased supervision for banks not rated in one of the two highest categories under the "CAMEL" composite bank rating system. The FDIC is authorized to charge banks for regular and special examinations. The federal bank regulatory agencies are required by FDICIA to adopt uniform capital and accounting rules. The accounting rules require supplemental disclosure in reports to the banking agencies of all assets and liabilities, including contingent assets and liabilities and, to the extent feasible, of the estimated fair market valuation of assets and liabilities. As mandated by Section 132 of FDICIA, in December of 1993, the federal bank regulatory agencies published proposed regulations which prescribe minimum safety and soundness standards with respect to internal control, internal audit, loan documentation, credit underwriting, interest rate exposure, asset growth and quality, earnings, compensation arrangements and stock valuation. Institutions failing to meet these safety and soundness standards will be required to submit corrective plans and will be subject to sanctions for failure to submit or comply with a plan. The Community Development and Regulatory Improvement Act of 1994 amended section 132 of FDICIA to permit the regulatory agencies to implement the safety and soundness standards relative to asset quality, earnings and stock valuation by regulation or guidelines. The agencies will now be permitted to decide whether or not to compel institutions that fail to meet these standards to submit a compliance plan. Finally, depository institution holding companies are no longer covered under Section 132 of FDICIA. FDICIA also provided for certain consumer and low and moderate income lending and deposit programs. The legislation also required regulators to perform annual on-site bank examinations, placed limits on real estate lending by banks and tightened auditing requirements. DEPOSIT INSURANCE - The legislation also reduced the scope of federal deposit insurance. The FDIC's ability to reimburse uninsured deposits (those over $100,000 and foreign deposits) was sharply limited beginning January 1995. The Federal Reserve Board's ability to finance banks with extended loans from its discount window was restricted, beginning December 1993. In addition, only the best capitalized banks will be able to offer insured broker deposits or to insure accounts established under employee pension plans. LIMITS ON DIVIDENDS AND OTHER PAYMENTS The parent company is a legal entity separate and distinct from its subsidiaries. Most of the parent company's revenues result from dividends paid to the parent company by the subsidiaries. The right of the parent company, and consequently the right of creditors and stockholders of the Corporation, to participate in any distribution of the assets or earnings of any subsidiary through the payment of such dividends or otherwise is necessarily subject to the prior claims of creditors of the subsidiary, except to the extent that claims of the parent company in its capacity as a creditor may be recognized. Moreover, there are various legal limitations applicable to the payment of dividends by the subsidiaries as well as by the Corporation to its stockholders. Under federal law, the subsidiaries may not, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, the Corporation or take securities of the Corporation as collateral for loans to any borrower. The subsidiaries are also subject to collateral security requirements for any loans or extensions of credit permitted by such exceptions. I-7 10 The subsidiaries are subject to various statutory and regulatory restrictions on their ability to pay dividends to the parent company. Under applicable federal and state statutes and regulations, the dividends that may be paid to the parent company by its bank and savings and loan subsidiaries without prior regulatory approval are subject to limitations. In the case of First National, a national bank, prior approval of the OCC is required if the total of all dividends declared in any calendar year will exceed net profits (as defined and interpreted by the OCC) for that year combined with retained net profits (as defined) for the two preceding calendar years. As Pennsylvania state-chartered institutions, Bucktail and Reeves may pay dividends only if they are solvent and would not be rendered insolvent by the dividend payments, and only from unrestricted and unreserved earned surplus and, under certain circumstances, capital surplus. Each must also maintain a leverage ratio of 6.00% after paying dividends. First County and Metropolitan, both Ohio state-chartered institutions, may not pay dividends without approval of the superintendent of banks if the total of all dividends declared in any year will exceed net profits (as defined by statute) for that year combined with retained net profits (as defined) for the two preceding years. In addition, after payment of any dividend, First County's surplus must be at least 20 percent of its capital. As a tier 1 association, Dollar is authorized to make capital distributions during a calendar year up to the higher of 100% of its net income during the year plus the amount that would reduce by one-half its surplus capital ratio at the beginning of the calendar year or 75% of its net income over the most recent four-quarter period upon delivering to the OTS a 30-day notice. All banking and savings and loan subsidiaries are subject to the capital requirements described below. Dividends may not be paid by these subsidiaries if the payment of the dividend would cause the subsidiary to fall below these minimum capital requirements. In addition, the OCC, in the case of First National, the FDIC, in the case of the Corporation's other bank subsidiaries, and the OTS, in the case of the Corporation's savings and loan subsidiary, have authority to prohibit banks and savings and loans from engaging in unsafe and unsound banking practices. The payment of a dividend by a bank or savings and loan could, depending on the financial condition of such bank or savings and loan and other factors, be considered an unsafe and unsound banking practice. The OCC and the OTS have indicated their view that it generally would be an unsafe and unsound practice to pay dividends except out of current operating earnings. The ability of the subsidiaries to pay dividends is, and is expected to continue to be, influenced by regulatory policies and capital guidelines. (See also "Stockholders' Equity" footnote in the Notes to Consolidated Financial Statements, which is incorporated by reference to the Corporation's Annual Report to Stockholders). CAPITAL REQUIREMENTS The Federal Reserve Board has adopted risk-based capital guidelines applicable to bank holding companies. The primary indicators relied on by the Federal Reserve Board and other bank and thrift regulators in measuring strength of capital position are the Core Capital, Total Risk-Based Capital and Leverage ratios. Core Capital consists of common and qualifying preferred stockholders' equity less non-qualifying intangibles. Total Capital consists of Core Capital, qualifying subordinated debt and a portion of the allowance for loan losses. Risk-based capital ratios are calculated with reference to risk-weighted assets which consist of both on- and off- balance sheet risks. The regulatory minimums are 4.00% for the Core Capital Ratio and 8.00% for the Total Risk-Based Capital Ratio. The Corporation's Core Capital and Total Risk-Based Capital to risk-weighted assets ratios as of December 31, 1995 were 11.74% and 13.86%, respectively. In addition, the Federal Reserve Board has established minimum Leverage ratio (Core Capital to quarterly average assets less non-qualifying intangibles) guidelines for bank holding companies. These guidelines provide for a minimum ratio of 3.00% for bank holding companies that meet certain specified criteria, including that they have the highest regulatory rating. All other bank holding companies are required to maintain a leverage ratio of 3.00% plus an additional cushion of at least 100 to 200 basis points. The Corporation's Leverage ratio as of December 31, 1995 was 8.16%. The guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. I-8 11 Each bank and savings and loan subsidiary is subject to similar capital requirements adopted by its primary federal regulator. Bank regulators continue to indicate their desire to raise capital requirements applicable to banking organizations beyond their current levels. However, management is unable to predict whether higher capital ratios would be imposed and, if so, at what levels and on what schedule. Under Federal Reserve Board policy, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the Federal Reserve Board's policy that, in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity, in circumstances where it might not do so absent such policy, and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. The failure of a bank holding company to serve as a source of strength to its subsidiary banks would generally be considered by the Federal Reserve Board to be an unsafe and unsound banking practice, a violation of Federal Reserve Board regulations, or both. FIRREA As a result of the enactment of the FIRREA on August 9, 1989, a depository institution insured by the FDIC can be held liable for any loss incurred, or reasonably expected to be incurred, by the FDIC after August 9, 1989 in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. "Default" is defined generally as the appointment of a conservator or receiver and "in danger of default" is defined generally as the existence of certain conditions indicating that a "default" is likely to occur in the absence of regulatory assistance. Liability of any subsidiary under this "cross-guarantee" provision could have a material adverse effect on the financial condition of any assessed subsidiary and the Corporation. MARKET AREA AND COMPETITION The Corporation, through its subsidiaries, operates 93 offices in 33 counties in Pennsylvania, eastern Ohio and western New York. The economies of the primary market area in which the Corporation and its subsidiaries operate, western Pennsylvania and eastern Ohio, have evolved during the past decade from ones dominated by heavy industry to ones which have a more diversified mix of light manufacturing, service and distribution industries. This area is served by Interstate Routes 90, 76, 79 and 80, and is located at the approximate midpoint between New York City and Chicago. The area is also close to the Great Lakes shipping port of Erie and the Greater Pittsburgh International Airport. The Corporation's subsidiaries compete with a large number of other financial institutions, such as commercial banks, savings and loans, insurance companies, consumer finance companies, credit unions and commercial finance and leasing companies, many of which have greater resources than the Corporation, for deposits, loans and service business. Money market mutual funds, brokerage houses and similar institutions currently provide many of the financial services offered by the Corporation's subsidiaries. In the consumer finance subsidiary's market areas, the active competitors include banks, credit unions and national, regional and local consumer finance companies, some of which have substantially greater resources than that of the consumer finance subsidiary. The ready availability of consumer credit through charge accounts and credit cards constitutes additional competition. The principal methods of competition include the rates of interest charged for loans, the rates of interest paid to obtain funds and the availability of customer services. I-9 12 With reciprocal interstate banking, the Corporation also faces the prospect of additional competitors entering its markets as well as additional competition in its efforts to acquire other subsidiaries and branches throughout Pennsylvania and in neighboring states. (See "Regulation and Supervision.") EMPLOYEES As of January 31, 1996, the Corporation and its subsidiaries had 792 full-time and 229 part-time employees. Management of the Corporation considers its relationship with its employees to be satisfactory. MERGERS AND ACQUISITIONS See "Mergers and Acquisitions" footnote in the Notes to Consolidated Financial Statements, which is incorporated by reference to the Corporation's Annual Report to Stockholders. STATISTICAL DISCLOSURE Statistical disclosure information regarding the Corporation is included in the Management's Discussion and Analysis, which is incorporated by reference to the Corporation's Annual Report to Stockholders (see Part II, Item 7 below). The following information is contained therein: I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential II. Investment Portfolio III. Loan Portfolio IV. Summary of Loan Loss Experience V. Deposits VI. Return on Equity and Assets VII. Short-Term Borrowings I-10 13 ITEM 2. PROPERTIES F.N.B. CORPORATION The Corporation owns no real property. Its operations are conducted at Hermitage Square, Hermitage, Pennsylvania, which property is owned by First National. FIRST NATIONAL First National's main office (as described in its charter) is located at 166 Main Street, Greenville, Pennsylvania. Its administrative offices and a branch office are located at Hermitage Square, Hermitage, Pennsylvania. First National also has 27 other branch offices in western Pennsylvania, including offices in Erie (6), Cochranton, Conneaut Lake, Conneautville, Corry, Farrell, Franklin, Girard, Grove City (2), Greenville, Hermitage, Jamestown, Meadville, Sharon (2), Sharpsville, Sheakleyville, Slippery Rock, Spartansburg, Transfer, and West Middlesex. Nine of these branch locations are leased under operating leases expiring at various dates through 2010. Generally, these leases provide for renewal options. Eight of the remaining locations are owned by F.N.B. Building and leased to First National. First National also owns two other facilities located in Hermitage, Pennsylvania, one of which is used for equipment storage and the other of which is used as a regional data processing facility for First National and most of its affiliates. First National owns two parcels of land adjacent to its data processing facility. In addition, First National has announced plans to build three new offices. One will house First National employees as well as become headquarters for the Corporation in Hermitage, the second is for a building in downtown Erie to serve as a regional headquarters and the third is a branch office on Peach Street in Erie. BUCKTAIL Bucktail's main office is located at 2 East Fourth Street, Emporium, Pennsylvania. Its administrative offices are located in the Executive Plaza building in Williamsport, Pennsylvania which also houses its Williamsport branch office. Bucktail has five other branch locations in western and central Pennsylvania, including offices in Williamsport (2), Johnsonburg, Hughesville and Montoursville. Three of Bucktail's offices are leased under operating leases expiring at various dates through 2009, with additional renewal options. The remaining offices, including its main office in Emporium, are owned by Bucktail. REEVES The main office of Reeves is located at 1217 Seventh Avenue, Beaver Falls, Pennsylvania. Reeves has eight other branch offices in western Pennsylvania, including offices in Beaver Falls (2), Beaver, Baden (2), Koppel, Coraopolis and New Brighton. Four of these branch offices (including one office owned by F.N.B. Building) are leased under operating leases expiring at various dates through 2000; two of these leased offices are subject to month-to-month leases with new lease proposals under review. FIRST COUNTY First County's main office is located at 540 Water Street, Chardon, Ohio. First County also has a branch office located in Chester Township, Ohio. The main office is owned by First County, while the Chesterland branch office is occupied under an operating lease expiring in 1999. METROPOLITAN Metropolitan's main office and headquarters are located at One Federal Plaza West, Youngstown, Ohio, in the central business district and banking center of Youngstown. Metropolitan has ten other branch offices in eastern Ohio, including offices in Austintown, Barnesville, Boardman (2), Brookfield, Campbell, Hubbard, Liberty, Martins Ferry and St. Clairsville. All but one of Metropolitan's facilities (including its main office) are owned by Metropolitan, with the remaining office leased under an operating lease (from F.N.B. Building). Metropolitan also leases the land on which the elevators at its main office are located under a lease expiring in 2016. I-11 14 DOLLAR Dollar's main office is located at 32 North Mill Street, New Castle, Pennsylvania. Dollar has one other branch office located in New Castle, Pennsylvania. The main office is leased under an operating lease expiring in 2000, while the New Castle branch is owned by Dollar. REGENCY The executive office of Regency is located at Hermitage Square, Hermitage, Pennsylvania. Regency conducts its consumer loan operations at 33 offices located in Pennsylvania, eastern Ohio and western New York, including Pennsylvania locations in Allentown, Bethlehem, Bloomsburg, Bradford, Butler, Corry, Danville, DuBois, Erie, Eynon, Greenville, Grove City, Hanover, Lewisburg, Meadville, New Castle, Scranton, Selinsgrove, Somerset, St. Marys, State College, Stroudsburg, Titusville, Uniontown, Warren, West Pittston and Wilkes-Barre; Ohio locations in Youngstown (3), Salem, and Warren; and one location in Jamestown, New York. The Titusville office is owned by Regency, while all other offices are leased by Regency under operating leases expiring at various dates through 2005. Generally, these leases provide for renewal options. Regency conducts its consumer loan operations in Pennsylvania and Ohio under the names F.N.B. Consumer Discount Company, Citizens Budget Company, Regency Consumer Discount Company and Reliance Consumer Discount Company. In New York, consumer loan operations are conducted by Citizens Financial Services of New York, Inc. and Citizens Equity Corporation of New York, both wholly- owned subsidiaries of Regency. In Ohio, loan operations are conducted by Citizens Financial Services, Inc., a wholly-owned subsidiary of Regency. PENN-OHIO Penn-Ohio's operations are conducted at Hermitage Square, Hermitage, Pennsylvania. Penn-Ohio also rents office space at 4700 East Thomas Road, Suite 204, Phoenix, Arizona, which is Penn-Ohio's corporate address. MORTGAGE SERVICE The executive office of Mortgage Service is located at Hermitage Square, Hermitage, Pennsylvania, which is also the administrative office of First National. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Corporation or any of its subsidiaries is a party, or of which any of their property is the subject, except ordinary routine proceedings which are incidental to the ordinary conduct of business. In the opinion of management, pending legal proceedings will not have a material adverse effect on the consolidated financial position of the Corporation and its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of 1995. I-12 15 EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages and positions of the executive officers of the Corporation, as of February 15, 1996, are as follows:
NAME AGE POSITION HELD Peter Mortensen 60 Chairman, President and Director Stephen J. Gurgovits 52 Executive Vice President and Director John W. Rose 46 Executive Vice President William J. Rundorff 47 Executive Vice President Samuel K. Sollenberger 58 Vice President and Director John D. Waters 49 Vice President and Chief Financial Officer
Officers are elected annually by the Board of Directors immediately following the annual meeting of stockholders. The term of office for all of the above executive officers is for the period ending with the next annual meeting. PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS Mr. Peter Mortensen is Chairman of the Corporation (1987 to the present), President of the Corporation (1974 to the present) and Chairman of the Board of First National (1987 to the present). Since 1959, Mr. Mortensen has held various other executive positions with First National including President (1972 to 1988) and Chief Executive Officer (1979 to 1988). Mr. Stephen J. Gurgovits is Executive Vice President of the Corporation (1995 to the present), Senior Vice President of the Corporation (1986 to 1995) and President and Chief Executive Officer of First National (1988 to the present). Mr. Gurgovits has served in various positions with First National since 1961 and with the Corporation since 1974 including Executive Vice President and Senior Loan Officer of First National (1979 to 1988). Mr. John W. Rose is Executive Vice President of the Corporation (1995 to the present). He previously served as President of McAllen Capital Partners, Inc. (1992 to 1995) and President of Livingston Financial Group (1988 to 1992). Mr. William J. Rundorff is Executive Vice President of the Corporation (1995 to the present), Vice President of the Corporation (1991 to 1995) and Vice President of First National (1991 to the present). He previously served as Senior Vice President, Counsel and Secretary of United Banks of Colorado, Inc. (1986 to 1991). Mr. Samuel K. Sollenberger is Vice President of the Corporation (1989 to the present), Chairman of Metropolitan (1996 to the present), President of Metropolitan (1989 to 1996) and Chief Executive Officer of Metropolitan (1990 to the present). Mr. John D. Waters is Vice President and Chief Financial Officer of the Corporation (1994 to the present) and Senior Vice President and Chief Financial Officer of First National (1994 to the present). He previously served as Executive Vice President and Chief Financial Officer of WSFS Financial Corporation (1988 to 1993). I-13 16 PART II Information relating to Items 5, 6, 7 and 8 is provided in the Corporation's 1995 Annual Report to Stockholders under the captions and on the pages indicated below, and is incorporated herein by reference:
PAGES IN 1995 ANNUAL REPORT CAPTION IN 1995 ANNUAL REPORT TO STOCKHOLDERS TO STOCKHOLDERS ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 51 ITEM 6. SELECTED FINANCIAL DATA 37 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 38 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 14 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None
II-1 17 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to directors of the Corporation is provided in the Corporation's definitive proxy statement filed with the Securities and Exchange Commission in connection with its annual meeting of stockholders to be held April 24, 1996. Such information is incorporated herein by reference. Information relating to executive officers of the Corporation is provided in Part I. ITEM 11. EXECUTIVE COMPENSATION Information relating to this item is provided in the Corporation's definitive proxy statement filed with the Securities and Exchange Commission in connection with its annual meeting of stockholders to be held April 24, 1996. Such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information relating to this item is provided in the Corporation's definitive proxy statement filed with the Securities and Exchange Commission in connection with its annual meeting of stockholders to be held April 24, 1996. Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information relating to this item is provided in the Corporation's definitive proxy statement filed with the Securities and Exchange Commission in connection with its annual meeting of stockholders to be held April 24, 1996. Such information is incorporated herein by reference. III-1 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS The following consolidated financial statements and report of independent auditors of F.N.B. Corporation and subsidiaries, included in the Corporation's 1995 Annual Report to Stockholders, are incorporated herein by reference to Item 8:
PAGES IN 1995 ANNUAL REPORT TO STOCKHOLDERS Consolidated Balance Sheet 14 Consolidated Income Statement 15 Consolidated Statement of Stockholders' Equity 16 Consolidated Statement of Cash Flows 17 Notes to Consolidated Financial Statements 18 Report of Independent Auditors 36 Quarterly Earnings Summary 37 Included in Part IV of this report: PAGE Report of Independent Auditors, S.R. Snodgrass, A.C., for the 1993 audit of Reeves Bank IV-4 Report of Independent Auditors, S.R. Snodgrass, A.C., for the 1993 audit of Dollar Savings Association and Subsidiary IV-5
(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-6 and are incorporated by reference. (B) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the three months ended December 31, 1995. IV-1 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. F.N.B. CORPORATION By /s/ PETER MORTENSEN ------------------------------------ Peter Mortensen, Chairman and President 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, President and February 27, 1996 - --------------------------- Director (Principal Executive Officer) Peter Mortensen /s/ STEPHEN J. GURGOVITS Executive Vice President and February 27, 1996 - --------------------------- Director Stephen J. Gurgovits /s/ SAMUEL K. SOLLENBERGER Vice President and Director March 4, 1996 - --------------------------- Samuel K. Sollenberger /s/ JOHN D. WATERS Vice President and Chief Financial February 27, 1996 - --------------------------- Officer (Principal Accounting Officer) John D. Waters - --------------------------- Director W. Richard Blackwood /s/ WILLIAM B. CAMPBELL Director February 27, 1996 - --------------------------- William B. Campbell /s/ CHARLES T. CRICKS Director February 27, 1996 - --------------------------- Charles T. Cricks /s/ HENRY M. EKKER Director February 27, 1996 - --------------------------- Henry M. Ekker Director - --------------------------- Thomas C. Elliott
IV-2 20 /s/ THOMAS W. HODGE Director February 27, 1996 - --------------------------- Thomas W. Hodge /s/ GEORGE E. LOWE Director February 27, 1996 - --------------------------- George E. Lowe Director - --------------------------- Paul P. Lynch Director - --------------------------- James B. Miller Director - --------------------------- Robert S. Moss Director - --------------------------- John R. Perkins /s/ WILLIAM A. QUINN Director February 27, 1996 - --------------------------- William A. Quinn Director - --------------------------- George A. Seeds /s/ WILLIAM J. STRIMBU Director February 27, 1996 - --------------------------- William J. Strimbu /s/ ARCHIE O. WALLACE Director February 27, 1996 - --------------------------- Archie O. Wallace /s/ JOSEPH M. WALTON Director February 27, 1996 - --------------------------- Joseph M. Walton /s/ JAMES T. WELLER Director February 27, 1996 - --------------------------- James T. Weller Director - --------------------------- Eric J. Werner /s/ DONNA C. WINNER Director February 27, 1996 - --------------------------- Donna C. Winner
IV-3 21 LOGO INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholder Reeves Bank We have audited the balance sheet of Reeves Bank as of December 31, 1993 and the related statements of income, changes in stockholder's equity and cash flows for the year then ended. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Reeves Bank as of December 31, 1993, and the results of its operations, and its cash flows for the year then ended in conformity with generally accepted accounting principles. S. R. SNODGRASS, A. C. Wexford, PA January 14, 1994 IV-4 22 LOGO INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholder Dollar Savings Association and Subsidiary We have audited the consolidated balance sheet of Dollar Savings Association and Subsidiary as of December 31, 1993 and the related consolidated statements of income, changes in stockholder's equity and cash flows for the year then ended. These financial statements are the responsibility for the Association's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dollar Savings Association and Subsidiary as of December 31, 1993, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. As discussed in the notes to the consolidated financial statements, in 1993 the Association adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". S. R. SNODGRASS, A. C. Wexford, PA January 14, 1994 IV-5 23 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 and any amendments thereto. (incorporated by reference to Exhibit 3.1. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1992). 3.2. By-laws of the Corporation as currently in effect. (incorporated by reference to Exhibit 4 of the Corporation's Form 10- Q for the quarter ended June 30, 1994). 4 The rights of holders of equity securities are defined in portions of the Articles of Incorporation and By-laws. The Articles of Incorporation are incorporated by reference to Exhibit 3.1. of the registrant's Form 10-K for the year ended December 31, 1992. The By-laws are incorporated by reference to Exhibit 4 of the registrant's Form 10-Q for the quarter ended June 30, 1994. A designation statement defining the rights of F.N.B. Corporation Series A - Cumulative Convertible Preferred Stock is incorporated by reference to Form S-14, Registration Statement of F.N.B. Corporation, File No. 2- 96404. A designation statement defining the rights of F.N.B. Corporation Series B - Cumulative Convertible Preferred Stock is incorporated by reference to Exhibit 4 of the registrant's Form 10-Q for the quarter ended June 30, 1992. The Corporation agrees to furnish to the Commission upon request copies of all instruments not filed herewith defining the rights of holders of long-term debt of the Corporation and its subsidiaries. 10.1. Form of agreement regarding deferred payment of directors' fees by First National Bank of Pennsylvania. (incorporated by reference to Exhibit 10.1. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.2. Form of agreement regarding deferred payment of directors' fees by F.N.B. Corporation. (incorporated by reference to Exhibit 10.2. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.3. Form of Deferred Compensation Agreement by and between First National Bank of Pennsylvania and four of its executive officers. (incorporated by reference to Exhibit 10.3. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.4. Employment Agreement between The Metropolitan Savings Bank of Youngstown and Samuel K. Sollenberger. (incorporated by reference to Exhibit 10.4. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.5. Employment Agreement between F.N.B. Corporation and Peter Mortensen. (incorporated by reference to exhibit 10.6 of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). Amendment No. 2 to Employment Agreement (incorporated by reference to Exhibit 10.5. of the Corporation's Form 10-Q for the quarter ended June 30, 1995). Rescinding of Amendment No. 2 to Employment Agreement (incorporated by reference to Exhibit 10.5. of the Corporation's Form 10-Q for the quarter ended September 30, 1995). 10.6. Employment Agreement between F.N.B. Corporation and Stephen J. Gurgovits. (incorporated by reference to exhibit 10.6 of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.7. Employment Agreement between F.N.B. Corporation and Samuel K. Sollenberger. (incorporated by reference to exhibit 10.7 of the Corporation's Form 10-Q for the quarter ended March 31, 1994). IV-6 24 10.8. 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. (filed herewith). 10.9. Basic Retirement Plan (formerly the Supplemental Executive Retirement Plan) of F.N.B. Corporation effective January 1, 1992. (incorporated by reference to Exhibit 10.9. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.10. F.N.B. Corporation 1990 Stock Option Plan as amended effective February 2, 1996. (filed herewith). 10.11. 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). 10.12. Employment Agreement between F.N.B. Corporation and John W. Rose (incorporated by reference to Exhibit 10.12. of the Corporation's Form 10-Q for the quarter ended September 30, 1995). Amendment No. 1 to Employment Agreement. (filed herewith). 10.13. Employment Agreement between F.N.B. Corporation and John D. Waters. (filed herewith). 10.14. F.N.B. Corporation Restricted Stock and Incentive Bonus Plan. (filed herewith). 10.15. F.N.B. Corporation 1996 Stock Option Plan. (filed herewith). 11 Statement re computation of per share earnings. (filed herewith). 13 Annual Report to Stockholders. (filed herewith). 21 Subsidiaries of the Registrant. (filed herewith). 23 Consent of Ernst & Young LLP, Independent Auditors. (filed herewith). 27 Financial Data Schedule. (filed herewith). IV-7 EX-10.8 2 FNB CORPORATION 10-K 1 Exhibit 10.8 AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT Entered into on and as of December 22, 1995 by and between WILLIAM J. RUNDORFF (the "Executive"), and F.N.B. CORPORATION (the "Company"). WHEREAS, the Executive and the Company are parties to an Employment Agreement dated as of July 19, 1991 (the "Agreement"); and WHEREAS, the Board of Directors of the Company desires to amend the Agreement in order to assure the Executive's continuing services under circumstances in which there is a possible, threatened or actual change of control of the Company and to diminish the distraction of the Executive by virtue of personal risks and uncertainties inevitably caused by such circumstances; WHEREAS, the Executive and the Company desire to reaffirm all the other terms and provisions of the Agreement; NOW, THEREFORE, intending to be legally bound, the Executive and the Company covenant and agree that: 1. The following section entitled "Merger or Consolidation" is hereby added to the Agreement to read in its entirety as follows: Section 10A. MERGER OR CONSOLIDATION. In the event of the merger or consolidation of the Company with another corporation, and as a result of such merger or consolidation, the shareholders of the Company as of the day preceding such transaction will own less than 51% of the outstanding voting securities of the surviving corporation, or in the event that there is (in a single transaction or series of related transactions) a sale or exchange of 80% or more of the Common Stock of the Company for securities of another entity in which shareholders of the Company will own less than 51% of such entity's outstanding voting securities, or in the event of the sale by the Company of a substantial portion of its assets to an unrelated third party, the Executive shall have the right, at his sole option, to terminate his employment under this Agreement upon 30 days' advance written notice, provided such written notice shall have been delivered to the Company during the period beginning upon public announcement of the subject transaction and ending not more than 60 days after the effective date of such transaction. The Executive shall thereupon be entitled to receive from the Company a cash bonus (the "Cash Bonus") whose "present value" (as defined in paragraph (4) of subsection (d) of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")) on the closing date of such transaction is equal to two hundred percent (200%) of the Executive's "base amount" (as defined in paragraph (3) of subsection (b) of said subsection (b) of said Section 280G). (Said present value of the Cash Bonus is 2 hereinafter referred to as the "Initial Present Value".) The Cash Bonus shall be paid as follows: an amount equal to one-third (1/3) of the Initial Present Value shall be paid on the effective date of the termination of his employment hereunder; an additional amount whose present value on the said closing date under Section 280G(d)(4) was one-third of the Initial Present Value shall be paid on the last day of the sixth month following such effective date; and a final amount whose present value on the said closing date under Section 280G(d)(4) was equal to one-third of the Initial Present Value shall be paid on the last day of the twelfth month following such effective date. If the Executive does not elect to terminate this Agreement as aforesaid, then this Agreement shall remain in effect and be assigned and transferred to the Company's successor in interest as an asset of the Company, and the Company shall cause such assignee to assume the Company's obligations hereunder; and in such event the Executive hereby confirms his agreement to continue to perform his duties and obligations according to the terms and conditions hereof for such assignee or transferee of this Agreement. It is understood and agreed, however, that the scope of the Executive's services under Section 2 of this Agreement shall be appropriately modified, at the election of such successor, to cover the segment of such successor's enterprise represented by the Company's assets and operations at the time of such aforementioned transaction. 2. The parties hereby reaffirm all other terms and provisions of the Agreement, which shall remain in full force and effect as amended hereby. WITNESS the due execution and delivery hereof as of the date first above written. WITNESS: EXECUTIVE /s/ DAVID B. MOGLE /s/ WILLIAM J. RUNDORFF - ----------------------- ---------------------------- William J. Rundorff ATTEST: F.N.B. CORPORATION By /s/ DAVID B. MOGLE By /s/ JAMES T. WELLER - ----------------------- ---------------------------- Secretary Chairman of the Compensation Committee of the Board of Directors -2- EX-10.10 3 FNB CORPORATION 10-K 1 Exhibit 10.10. F.N.B. CORPORATION 1990 STOCK OPTION PLAN ADOPTED JANUARY 30, 1990 AS AMENDED EFFECTIVE FEBRUARY 2, 1996 2 F.N.B. CORPORATION 1990 STOCK OPTION PLAN The purposes of the 1990 Stock Option Plan (the "Plan") are to encourage eligible employees of F.N.B. Corporation (the "Corporation") and its Subsidiaries, including directors and officers of the Corporation who are employees, to increase their efforts to make the Corporation and each Subsidiary more successful, to provide an additional inducement for such employees to remain with the Corporation or a Subsidiary, to reward such employees by providing an opportunity to acquire the Common Stock, par value $2.00 per share, of the Corporation (the "Common Stock") on favorable terms and to provide a means through which the Corporation may attract able persons to enter the employment of the Corporation or one of its Subsidiaries. For purposes of the Plan, the term "Subsidiary" means any corporation in an unbroken chain of corporations beginning with the Corporation if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing more than fifty percent (50%) of the total combined voting power of all classes of stock in one of the other corporations in the chain. SECTION 1 Administration The Plan shall be administered by a Committee (the "Committee") appointed by the Board of Directors of the Corporation (the "Board") and consisting of not less than two members of the Board, none of whom has received during the one year period prior to service on the Committee, or during such service, securities of the Corporation pursuant to the Plan or any other plan of the Corporation or any of its affiliates (as "affiliates" is defined in regulations of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (except as permitted by subsection (c)(i)(A)-(D) of Rule 16b-3 promulgated by the Commission under the Exchange Act) or any successor rule. The Committee shall interpret the Plan and prescribe such rules, regulations and procedures in connection with the operation of the Plan as it shall deem to be necessary and advisable for the administration of the Plan consistent with the purposes of the Plan. The Committee shall keep records of action taken at its meetings. A majority of the Committee shall constitute a quorum at any meeting and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the Committee, shall be the acts of the Committee. 3 SECTION 2 Eligibility Those employees of the Corporation or any Subsidiary who share the responsibility for the management, growth or protection of the business of the Corporation or any Subsidiary shall be eligible to receive stock options (with or without stock appreciation rights) as described herein. Subject to the provisions of the Plan, the Committee shall have full and final authority, in its discretion, to grant stock options (with or without stock appreciation rights) as described herein and to determine the employees to whom stock options (with or without stock appreciation rights) shall be granted and the number of shares to be covered by each stock option. In determining the eligibility of any employee, as well as in determining the number of shares covered by each stock option, the Committee shall consider the position and the responsibilities of the employee being considered, the nature and value to the Corporation or a Subsidiary of his or her services, his or her present and/or potential contribution to the success of the Corporation or a Subsidiary and such other factors as the Committee may deem relevant. SECTION 3 Shares Available under the Plan The aggregate number of shares of the Common Stock which may be issued or delivered and as to which stock options may be granted under the Plan is 320,000 shares. All such shares are subject to adjustment and substitution as set forth in Section 6. If any stock option granted under the Plan is cancelled by mutual consent or terminates or expires for any reason without having been exercised in full, the number of shares subject to such stock option shall again be available for purposes of the Plan, except that to the extent that stock appreciation rights granted in conjunction with a stock option under the Plan are exercised and the related stock option surrendered, the number of shares available for purposes of the Plan shall be reduced by the number of shares, if any, of Common Stock issued or delivered upon exercise of such stock appreciation rights. The shares which may be issued or delivered under the Plan may be either authorized but unissued shares or repurchased shares or partly each, as shall be determined from time to time by the Board. - -2- 4 SECTION 4 Grant of Stock Options, Stock Appreciation Rights, and Limited Stock Appreciation Rights The Committee shall have authority, in its discretion, to grant "incentive stock options" pursuant to Section 422A of the Internal Revenue Code of 1986 (the "Code"), to grant "non-statutory stock options" (stock options which do not qualify under such Section 422A of the Code) or to grant both types of stock options (but not in tandem). The Committee also shall have the authority, in its discretion, to grant stock appreciation rights in conjunction with incentive stock options or non-statutory stock options with the effect provided in Section 5(D). Stock appreciation rights granted in conjunction with an incentive stock option may only be granted at the time such incentive stock option is granted. Stock appreciation rights granted in conjunction with a non-statutory stock option may be granted either at the time such stock option is granted or at any time thereafter during the term of such stock option. The Committee shall also have the authority, in its discretion, to grant limited stock appreciation rights in accordance with the provisions of, and subject to the terms and conditions set forth in, Section 8. No employee shall be granted a stock option or stock options under the Plan (disregarding cancelled, terminated or expired stock options) for an aggregate number of shares in excess of ten percent (10%) of the total number of shares which may be issued or delivered under the Plan. For the purposes of this limitation, any adjustment or substitution made pursuant to Section 6 with respect to shares which have not been issued or delivered under the Plan upon the exercise of stock options shall also be made with respect to shares already issued or delivered under the Plan upon the exercise of stock options and with respect to shares which would have been issued or delivered under the Plan but for the exercise of stock appreciation rights in lieu of the exercise of stock options prior to such adjustment or substitution. The aggregate fair market value, determined as set forth in Section 5(H), on the date of grant of the shares for which an employee may be granted incentive stock options in any calendar year under all plans of the corporation then employing such employee, any parent or subsidiary corporations of such corporation and any predecessor corporation of any such corporation shall not exceed $100,000 plus any unused limit carryover under Section 422A(c)(4) of the Code which may be carried over to such calendar year. SECTION 5 Terms and Conditions of Stock Options and Stock Appreciation Rights Stock options and stock appreciation rights granted under the Plan shall be subject to the following terms and conditions: (A) The purchase price at which each stock option may be exercised (the "option price") shall be such price as the Committee, in its discretion, shall determine but shall not be less than one hundred percent (100%) of the fair market value per share of Common Stock covered by the stock option on the date of grant, except that in the case of an incentive stock option granted to an employee who, immediately prior to such grant, owns stock possessing - -3- 5 more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation or any Subsidiary (a "Ten Percent Employee"), the option price shall not be less than 110% of such fair market value on the date of grant. For purposes of this Section 5(A), the fair market value of the Common Stock shall be determined as provided in Section 5(H). Also, for purposes of this Section 5(A), an individual (i) shall be considered as owning not only shares of the Common Stock owned individually, but also all shares that are at the time owned, directly or indirectly, by or for the spouse, ancestors, lineal descendants and brothers and sisters (whether by the whole or half blood) of such individual and (ii) shall be considered as owning proportionately any shares owned, directly or indirectly, by or for any corporation, partnership, estate or trust in which such individual shall be a stockholder, partner or beneficiary. (B) The option price shall be payable in full in any one or more of the following ways: (i) in cash; and/or (ii) in shares of the Common Stock (which are owned by the optionee free and clear of all liens and other encumbrances and which are not subject to the restrictions set forth in Section 7) having a fair market value on the date of exercise of the stock option, determined as provided in Section 5(H), equal to the option price for the shares being purchased. If the option price is paid in whole or in part in shares of Common Stock, any portion of the option price representing a fraction of a share shall be paid in cash. The date of exercise of a stock option shall be determined under procedures established by the Committee, and the option price shall be payable at such time or times as the Committee, in its discretion, shall determine. No shares shall be issued or delivered upon exercise of a stock option until full payment of the option price has been made. When full payment of the option price has been made and subject to the restrictions set forth in Section 7, the optionee shall be considered for all purposes to be the owner of the shares with respect to which payment has been made. Payment of the option price with shares shall not increase the number of shares of Common Stock which may be issued or delivered under the Plan as provided in Section 3. (C) Subject to Section 9 hereof, no stock option shall be exercisable during the first six months of its term, except that this limitation on exercise shall not apply (i) if the optionee dies during such six-month period or (ii) if the optionee becomes disabled within the meaning of Section 422A(c)(9) of the Code (a "Disabled Optionee"), and his or her employment is voluntarily terminated with the consent of the Corporation or a Subsidiary during such six-month period. No incentive stock option shall be exercisable after the expiration of ten years (five years in the case of a Ten Percent Employee) from the date of grant. No non- statutory stock option shall be exercisable after the expiration of ten years and six months from the date of grant. Subject to this Section 5(C) and Sections 5(F), 5(G) and 5(H), stock options may be exercised at such times, in such amounts and subject to such restrictions as shall be determined, in its discretion, by the Committee. (D) Stock appreciation rights shall be exercisable to the extent that the related stock option is exercisable and only by the same person or persons who are entitled to exercise the related stock option. Stock appreciation rights shall entitle the optionee to - -4- 6 surrender the related stock option, or any portion thereof, and to receive from the Corporation in exchange therefor that number of shares of Common Stock having an aggregate fair market value of one share of Common Stock on such date of exercise over the option price per share times the number of shares covered by the stock option, or portion thereof, which is surrendered. Stock appreciation rights granted in conjunction with an incentive stock option shall not be exercisable unless the then fair market value of Common Stock exceeds the option price of the shares subject to the incentive stock option. Cash shall be paid in lieu of any fractional shares. The Committee shall have the authority, in its discretion, to determine that the obligation of the Corporation shall be paid in cash or part in cash and part in shares, except that the Corporation shall not pay to any person who is subject to the provisions of Section 16 of the Exchange Act at the time of exercise of stock appreciation rights any portion of the obligation of the Corporation in cash (except cash in lieu of a fractional share) unless such stock appreciation rights are exercised during the period beginning on the third and ending on the twelfth business day following the date of release for publication of the quarterly or annual summary statements of sales and earnings of the Corporation. The date of exercise of stock appreciation rights shall be determined under procedures established by the Committee, and payment under this Section 5(D) shall be made by the Corporation as soon as practicable after the date of exercise. To the extent that a stock option as to which stock appreciation rights have been granted in conjunction therewith is exercised, the stock appreciation rights shall be cancelled. For the purposes of this Section 5(D), the fair market value of Common Stock shall be determined as provided in Section 5(H). (E) No stock option or stock appreciation rights shall be transferable by an optionee other than by will, or if an optionee dies intestate, by the laws of descent and distribution of the state of domicile of the optionee at the time of death, and all stock options and stock appreciation rights shall be exercisable during the lifetime of an optionee only by the optionee. (F) Unless otherwise determined by the Committee and set forth in the stock option agreement referred to in Section 5(G) or an amendment thereto: (i) If the employment of an optionee who is not a Disabled Optionee is voluntarily terminated with the written consent of the Corporation or a Subsidiary or an optionee retires under any retirement plan of the Corporation or a Subsidiary, any then outstanding incentive stock option held by such an optionee shall be exercisable (to the extent exercisable on the date of termination of employment) by such an optionee at any time prior to the expiration date of such incentive stock option or within three months after the date of termination of employment, whichever is the shorter period; (ii) If the employment of an optionee who is not a Disabled Optionee is voluntarily terminated with the written consent of the Corporation or a Subsidiary, any then outstanding non-statutory stock option held by such an optionee shall be exercisable (to the extent exercisable on the date of termination of employment) by such an optionee at any time prior to the expiration date of such non-statutory stock option or within one year after the date of termination of employment, whichever is the shorter period; - -5- 7 (iii) If an optionee retires under any retirement plan of the Corporation or a Subsidiary, any then outstanding non-statutory stock option held by such an optionee shall be exercisable (whether or not exercisable on the date of termination of employment) by such an optionee at any time prior to the expiration date of such non-statutory stock option; (iv) If the employment of an optionee who is a Disabled optionee is voluntarily terminated with the written consent of the Corporation or a Subsidiary, any then outstanding stock option held by such optionee shall be exercisable in full (whether or not so exercisable on the date of termination of employment) by the optionee at any time prior to the expiration date of such stock option or within one year after the date of termination of employment, whichever is the shorter period; and (v) Following the death of an optionee during employment, any outstanding stock option held by the optionee at the time of death shall be exercisable in full (whether or not so exercisable on the date of the death of the optionee) by the person or persons entitled to do so under the will of the optionee, or, if the optionee shall fail to make testamentary disposition of the stock option or shall die intestate, by the legal representative of the optionee, at any time prior to the expiration date of such stock option or within one year after the date of death, whichever is the shorter period. Following the death of an optionee after termination of employment during a period when a stock option is exercisable as provided in clauses (i), (ii), (iii) and (iv) above, any outstanding stock option held by the optionee at the time of death shall be exercisable by such person or persons entitled to do so under the Will of the optionee or by such legal representative to the extent the stock option was exercisable by the optionee at the time of death at any time prior to the expiration date of such stock option or within one year after the date of death, whichever is the shorter period. (vi) If the employment of an optionee terminates for any reason other than voluntary termination with the consent of the Corporation or a Subsidiary, retirement under any retirement plan of the Corporation or a Subsidiary or death, the rights of such optionee under any then outstanding stock option shall terminate at the time of such termination of employment. In addition, if an optionee engages in the operation or management of a business, whether as owner, partner, officer, director, employee or otherwise and whether during or after termination of employment, which is in competition with the Corporation or any of its Subsidiaries, the Committee may in its discretion immediately terminate all stock options held by the optionee. Whether termination of employment is a voluntary termination with the written consent of the Corporation or a Subsidiary, whether an optionee is a Disabled Optionee and whether an optionee has engaged in the operation or management of a business which is in competition with the Corporation or any of its Subsidiaries shall be determined in each case by the Committee and any such determination by the Committee shall be final and binding. (G) All stock options and stock appreciation rights shall be confirmed by a stock option agreement, or an amendment thereto, which shall be executed by the Chief Executive Officer, the President (if other than the Chief Executive officer) or any Vice President on behalf of the Corporation and by the employee to whom such stock options and stock appreciation rights are granted. - -6- 8 (H) Fair market value of the Common Stock, (i) so long as the Common Stock trades in the Over-the-Counter Market, shall be as set forth in such reliable publication as the Committee, in its discretion, may choose to rely upon, by taking the average of the "bid" and "ask" prices per share of the Common Stock as quoted in such reliable publication on the nearest date before the date as of which fair market value is to be determined [on which there are sales], or (ii) in the event the Common Stock ceases to trade in the Over-the-Counter Market and is traded on another exchange, shall be as set forth in such reliable publication as the Committee, in its discretion, may choose to rely upon, by taking the average of the highest and lowest price per share of the Common Stock as quoted in such reliable publication on the nearest date before the date as of which fair market value is to be determined on which there are sales. (I) The obligation of the Corporation to issue or deliver shares of the Common Stock under the Plan shall be subject to (i) the effectiveness of a registration statement under the Securities Act of 1933, as amended, with respect to such shares, if deemed necessary or appropriate by counsel for the Corporation, (ii) the condition that the shares shall have been listed (or authorized for listing upon official notice of issuance) upon each stock exchange on which such shares may then be listed and (iii) all other applicable laws, regulations, rules and orders which may then be in effect. Subject to the foregoing provisions of this Section 5 and the other provisions of the Plan, any stock option or stock appreciation rights granted under the Plan shall be subject to such other terms and conditions as the Committee shall deem advisable. - -7- 9 SECTION 6 Adjustment and Substitution of Shares If a dividend or other distribution shall be declared upon the Common Stock payable in shares of Common Stock, the number of shares of Common Stock then subject to any outstanding stock option and the number of shares which may be issued or delivered under the Plan but are not then subject to an outstanding stock option shall be adjusted by adding thereto the number of shares which would have been distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend or distribution. If the outstanding shares of Common Stock shall be changed into or exchangeable for a different number or kind of shares of stock or other securities of the Corporation or another corporation, whether through reorganization, reclassification, recapitalization, stock split-up, combination of shares, merger or consolidation, then there shall be substituted for each share of Common Stock subject to any then outstanding stock option and for each share of Common Stock which may be issued or delivered under the Plan but is not then subject to an outstanding stock option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchangeable. In the case of any adjustment or substitution as provided for in this Section 6, the aggregate option price for all shares subject to each then outstanding stock option prior to such adjustment or substitution shall be the aggregate option price for all shares of stock or other securities (including any fraction) to which such shares shall have been adjusted or which shall have been substituted for such shares. Any new option price per share shall be carried to at least three decimal places with the last decimal place rounded upwards to the nearest whole number. No adjustment or substitution provided for in this Section 6 shall require the Corporation to issue or sell a fraction of a share or other security. Accordingly, all fractional shares or other securities which result from any such adjustment or substitution shall be eliminated and not carried forward to any subsequent adjustment or substitution. If any such adjustment or substitution provided for in this Section 6 requires the approval of stockholders in order to enable the Corporation to grant incentive stock options, then no such adjustment or substitution shall be made without prior stockholder approval. Notwithstanding the foregoing, in the case of incentive stock options, if the effect of any such adjustment or substitution would be to cause the stock option to fail to continue to qualify as an incentive stock option or to cause a modification, extension or renewal of such stock option within the meaning of Section 425 of the Code, the Committee may elect that such adjustment or substitution not be made but rather shall use reasonable efforts to effect such other adjustment of each then outstanding stock option as the Committee in its sole discretion shall deem equitable and which will not result in any disqualification, modification, extension or renewal (within the meaning of Section 425 of the Code) of such incentive stock option. - -8- 10 SECTION 7 Restrictions on Transfer of Certain Shares Shares of Common Stock acquired under exercise of an (a) option pursuant to Section 5(B)(ii) by a person then subject to the provisions of Section 16 of the Exchange Act shall not be sold or otherwise transferred prior to (i) the expiration of six months after the date of acquisition of shares upon exercise of such option or (ii) the death of the optionee, whichever may first occur or (b) incentive stock option shall not be sold or otherwise transferred until after the expiration of any holding periods required by Section 422A of the Code, as may be amended from time to time. The Corporation is authorized to (i) retain the certificate(s) representing such shares or place such certificates in the custody of its transfer agent, (ii) place a restrictive legend on such shares, and/or (iii) issue a stop transfer order to the transfer agent with respect to such shares in order to enforce the transfer restrictions of this Section. SECTION 8 Limited Stock Appreciation Rights Limited stock appreciation rights may be granted in connection with all or part of (i) an incentive stock option granted under this Plan at the time of the grant of such stock option or (ii) a non-statutory option, at the time such option is granted or at any time thereafter during the term of the such option. Limited stock appreciation rights shall entitle the holder of an option in connection with which such limited stock appreciation rights are granted, upon exercise of the limited stock appreciation rights, to surrender the stock option, or any applicable portion thereof, and any related stock appreciation rights, to the extent unexercised, and to receive an amount of cash determined pursuant to this Section 8. Such option, and any related stock appreciation rights, shall, to the extent so surrendered, thereupon cease to be exercisable. Limited stock appreciation rights shall be subject to the following terms and conditions and to such other terms and conditions not inconsistent with the Plan as shall from time to time be approved by the Committee. (A) Limited stock appreciation rights shall be exercisable, subject to Section 8(B), during any one or more of the following periods: (i) for a period of 60 days beginning on the date on which shares of Common Stock are first purchased pursuant to a tender offer or exchange offer (other than such an offer by the Corporation), whether or not such offer is approved or opposed by the Corporation and regardless of the number of shares of Common Stock purchased pursuant to such offer; (ii) for a period of 60 days beginning on the date the Corporation acquires knowledge that any person or group deemed a person under Section 13(d)(3) of the Exchange Act (other than any director of the Corporation on November 1, 1989, any - -9- 11 Affiliate or Associate of any such director (with such terms having the respective meanings set forth in Rule 12b-2 under the Exchange Act as in effect on November 1, 1989), any member of the family of any such director, any trust (including the trustees thereof) established by or for the benefit of any such persons, or any charitable foundation, whether a trust or a corporation (including the trustees and directors thereof) established by or for the benefit of any such persons), in a transaction or series of transactions shall become the beneficial owner, directly or indirectly (with beneficial ownership determined as provided in Rule 13d-3, or any successor rule, under the Exchange Act), of securities of the Corporation entitling the person or group to 10% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate class vote) to which all shareholders of the Corporation would be entitled if the election of Directors were an election held on such date; (iii) for a period of 60 days beginning on the date of filing under the Exchange Act of a Statement on Schedule 13D, or any amendment thereto, by any person or group deemed a person under Section 13(d)(3) of the Exchange Act, disclosing an intention or possible intention to acquire or change control of the Corporation; (iv) for a period of 60 days beginning on the date, during any period of two consecutive years, when individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the shareholders of the Corporation, of each new Director was approved by a vote of at least two-thirds of the Directors then still in office who were Directors at the beginning of such period; and (v) for a period of 60 days beginning on the date of approval by the shareholders of the Corporation of an agreement (a "reorganization agreement") providing for (a) the merger or consolidation of the Corporation with another corporation where the shareholders of the Corporation, immediately prior to the merger or consolidation, do not beneficially own, immediately after the merger or consolidation, shares of the corporation issuing cash or securities in the merger or consolidation entitling such shareholders to 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate class vote) to which all shareholders of such corporation would be entitled in the election of Directors or where the members of the Board of Directors of the Corporation, immediately prior to the merger or consolidation, do not, immediately after the merger or consolidation, constitute a majority of the Board of Directors of the corporation issuing cash or securities in the merger or consolidation or (b) the sale or other disposition of all or substantially all the assets of the Corporation. (B) Subject to Section 9 hereof, limited stock appreciation rights shall in no event be exercisable unless and until the holder of the limited stock appreciation rights shall have completed at least six months of continuous service with the Corporation or a Subsidiary, or both, immediately following the date upon which the limited stock appreciation rights shall have been granted. - -10- 12 (C) Upon exercise of limited stock appreciation rights, the holder thereof shall be entitled to receive an amount of cash in respect of each share of Common Stock subject to the related option equal to the excess of the fair market value of such share over the option price of such related option, and for this purpose fair market value shall mean the highest last sale price of the Common Stock on the Over-the-Counter Market during the period beginning on the 90th day prior to the date on which the limited stock appreciation rights are exercised and ending on such date, except that (a) in the event of a tender offer or exchange offer for Common Stock, fair market value shall mean the greater of such last sale price or the highest price paid for Common Stock pursuant to any tender offer or exchange offer in effect at any time beginning on the 90th day prior to the date on which the limited stock appreciation rights are exercised and ending on such date, (b) in the event of the acquisition by any person or group of beneficial ownership of securities of the Corporation entitling the person or group to 10% or more of all votes to which all shareholders of the Corporation would be entitled in the election of Directors or in the event of the filing of a Statement on Schedule 13D, or any amendment thereto, disclosing an intention or possible intention by any person or group to acquire control of the Corporation, fair market value shall mean the greater of such last sale price or the highest price per share paid for Common Stock shown on the Statement on Schedule 13D, or any amendment thereto, filed by the person or group becoming a 10% beneficial owner or disclosing an intention or possible intention to acquire control of the Corporation and (c) in the event of approval by shareholders of the Corporation of a reorganization agreement, fair market value shall mean the greater of such last sale price or the fixed or formula price specified in the reorganization agreement if such price is determinable as of the date of exercise of the limited stock appreciation rights. Any securities or property which are part or all of the consideration paid for Common Stock in a tender offer or exchange offer or under an approved reorganization agreement shall be valued at the higher of (a) the valuation placed on such securities or property by the person making the tender offer or exchange offer or by the corporation other than the Corporation issuing securities or property in the merger or consolidation or to whom the Corporation is selling or otherwise disposing of all or substantially all the assets of the Corporation and (b) the valuation placed on such securities or property by the Committee. (D) To the extent that limited stock appreciation rights shall be exercised, the option in connection with which such limited stock appreciation rights shall have been granted shall be deemed to have been exercised and any related stock appreciation rights shall be cancelled. To the extent that the option in connection with which limited stock appreciation rights shall have been granted or any related stock appreciation rights shall be exercised, the limited stock appreciation rights granted in connection with such option shall be cancelled. - -11- 13 SECTION 9 Acceleration of the Exercise Date of Stock Options and Related Stock Appreciation Rights Notwithstanding any other provision of this Plan, all stock options, stock appreciation rights and limited stock appreciation rights shall become exercisable upon the occurrence of any of the events specified in Section 8(A) whether or not such options are then exercisable under the provisions of the applicable agreements relating thereto, except that if stock appreciation rights have been granted along with limited stock appreciation rights to the same option holder with respect to the same option, in no event may the stock appreciation rights be exercised for cash during any of the 60-day periods provided for in Section 8. SECTION 10 Effect of the Plan on the Rights of Employees and Employer Neither the adoption of the Plan nor any action of the Board or the Committee pursuant to the Plan shall be deemed to give any employee any right to be granted a stock option (with or without stock appreciation rights) under the Plan and nothing in the Plan, in any stock option or stock appreciation rights granted under the Plan or in any stock option agreement shall confer any right to any employee to continue in the employment of the Corporation or any Subsidiary or interfere in any way with the rights of the Corporation or any Subsidiary to terminate the employment of any employee at any time. SECTION 11 Amendment The right to alter and amend the Plan at any time and from time to time and the right to revoke or terminate the Plan are hereby specifically reserved to the Board; provided always that no such revocation or termination shall terminate any outstanding stock option or stock appreciation rights theretofore granted under the Plan; and provided further that no such alteration or amendment of the Plan shall, without prior stockholder approval (a) increase the total number of shares which may be issued or delivered under the Plan, (b) increase the total number of shares which may be covered by any stock option or stock options granted to any one optionee, (c) make any changes in the class of eligible employees or (d) extend the period set forth in the Plan during which stock options (with or without stock appreciation rights) may be granted. No alteration, amendment, revocation or termination of the Plan shall, without the written consent of the holder of a stock option or stock appreciation rights theretofore granted under the Plan, adversely affect the rights of such holder with respect to such stock option or stock appreciation rights. - -12- 14 SECTION 12 Effective Date and Duration of Plan The effective date and date of adoption of the Plan shall be January 30, 1990 (the "Effective Date"), the date of adoption of the Plan by the Board, provided that such adoption of the Plan by the Board is approved by the affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock at a meeting of such holders duly called, convened and held within one year of the Effective Date. No stock option or stock appreciation rights granted under the Plan prior to such shareholder approval may be exercised until after such approval. No stock option or stock appreciation rights may be granted under the Plan subsequent to the date which is ten (10) years following the effective date of the Plan. - -13- EX-10.12 4 FNB CORPORATION 10-K 1 Exhibit 10.12. AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT Entered into on and as of December 22 , 1995 by and between JOHN W. ROSE (the "Executive"), and F.N.B. CORPORATION (the "Company"). WHEREAS, the Executive and the Company are parties to an Employment Agreement dated as of July 27, 1995 (the "Agreement"); and WHEREAS, the Board of Directors of the Company desires to amend the Agreement in order to assure the Executive's continuing services under circumstances in which there is a possible, threatened or actual change of control of the Company and to diminish the distraction of the Executive by virtue of personal risks and uncertainties inevitably caused by such circumstances; WHEREAS, the Executive and the Company desire to reaffirm all the other terms and provisions of the Agreement; NOW, THEREFORE, intending to be legally bound, the Executive and the Company covenant and agree that: 1. The following section entitled "Merger or Consolidation" is hereby added to the Agreement to read in its entirety as follows: Section 10A. MERGER OR CONSOLIDATION. In the event of the merger or consolidation of the Company with another corporation, and as a result of such merger or consolidation, the shareholders of the Company as of the day preceding such transaction will own less than 51% of the outstanding voting securities of the surviving corporation, or in the event that there is (in a single transaction or series of related transactions) a sale or exchange of 80% or more of the Common Stock of the Company for securities of another entity in which shareholders of the Company will own less than 51% of such entity's outstanding voting securities, or in the event of the sale by the Company of a substantial portion of its assets to an unrelated third party, the Executive shall have the right, at his sole option, to terminate his employment under this Agreement upon 30 days' advance written notice, provided such written notice shall have been delivered to the Company during the period beginning upon public announcement of the subject transaction and ending not more than 60 days after the effective date of such transaction. The Executive shall thereupon be entitled to receive from the Company a cash bonus (the "Cash Bonus") whose "present value" (as defined in paragraph (4) of subsection (d) of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")) on the closing date of such transaction is equal to two hundred percent (200%) of the Executive's "base amount" (as defined in paragraph (3) of subsection (b) of said subsection (b) of said Section 280G). (Said present value of the Cash Bonus is 2 hereinafter referred to as the "Initial Present Value".) The Cash Bonus shall be paid as follows: an amount equal to one-third (1/3) of the Initial Present Value shall be paid on the effective date of the termination of his employment hereunder; an additional amount whose present value on the said closing date under Section 280G(d)(4) was one-third of the Initial Present Value shall be paid on the last day of the sixth month following such effective date; and a final amount whose present value on the said closing date under Section 280G(d)(4) was equal to one-third of the Initial Present Value shall be paid on the last day of the twelfth month following such effective date. If the Executive does not elect to terminate this Agreement as aforesaid, then this Agreement shall remain in effect and be assigned and transferred to the Company's successor in interest as an asset of the Company, and the Company shall cause such assignee to assume the Company's obligations hereunder; and in such event the Executive hereby confirms his agreement to continue to perform his duties and obligations according to the terms and conditions hereof for such assignee or transferee of this Agreement. It is understood and agreed, however, that the scope of the Executive's services under Section 2 of this Agreement shall be appropriately modified, at the election of such successor, to cover the segment of such successor's enterprise represented by the Company's assets and operations at the time of such aforementioned transaction. 2. The parties hereby reaffirm all other terms and provisions of the Agreement, which shall remain in full force and effect as amended hereby. WITNESS the due execution and delivery hereof as of the date first above written. WITNESS: EXECUTIVE /s/ DAVID B. MOGLE /s/ JOHN W. ROSE - --------------------- ---------------------------- John W. Rose ATTEST: F.N.B. CORPORATION By /s/ DAVID B. MOGLE By /s/ JAMES T. WELLER --------------------- ---------------------------- Secretary Chairman of the Compensation Committee of the Board of Directors -2- EX-10.13 5 FNB CORPORATION 10-K 1 Exhibit 10.13. EMPLOYMENT AGREEMENT THIS AGREEMENT, entered into as of this 31st day of January, 1996, by and between JOHN D. WATERS, an individual residing in Hermitage, Pennsylvania (the "Executive"), and F.N.B. CORPORATION, a Pennsylvania bank holding company (the "Company"), WITNESSETH THAT: WHEREAS, the Executive has been elected as Chief Financial Officer of the Company; WHEREAS, the Company desires to assure itself of the continued benefit of the Executive's services and experience and the Executive desires to continue in the employ of the Company upon the terms and conditions herein set forth; NOW, THEREFORE, in consideration of the premises and covenants herein contained, and intending to be legally bound, the parties hereto agree as follows: Section 1. TERM OF EMPLOYMENT. (a) The term of employment of the Executive under this Agreement shall be, initially, the three year period commencing on January 1, 1996 and ending on December 31, 1998. Said term shall be subject to automatic extension by operation of the provisions of Section 1(b) hereof to a date not later than December 31, 2008 (beyond which the term of employment shall not be extended pursuant to Section 1(b) hereof). (b) At December 31, 1996 and December 31 of each succeeding calendar year to and including December 31, 2005, the term of employment of the Executive under this Agreement shall be automatically extended to December 31 of the third calendar year thereafter unless either party, acting under this Section 1(b), shall have elected to fix the expiration date of the Executive's term of employment hereunder. Each of the parties shall have the right, exercisable by written notice to the other, to terminate the automatic renewal and thereby fix the expiration of the term of employment under this Section 1, provided such notice shall have been delivered no earlier than October 1 nor later than December 31 in any calendar year (commencing in 1996). Notice of termination of automatic renewal having been given as aforesaid, the term of employment of the Executive under this Section 1 shall continue until December 31 of the third calendar year after the year in which such notice is so given. Said term shall not continue after December 31, 2008 whether or not such notice shall have been given in the year 2005 as aforesaid. (c) Notwithstanding the provisions of Sections 1(a) and (b), the term of employment of the Executive under this Agreement shall be subject to immediate early termination: 2 (i) at the election of the Company, by dismissal of the Executive from his employment pursuant to resolution of the Board of Directors of the Company, or failure or refusal of the Board of Directors to re-elect the Executive to the position of Chief Financial Officer or other office of the Company; or (ii) at the election of the Company, upon determination of disability of the Executive pursuant to Section 4 hereof; or (iii) upon death of the Executive; provided, however, that (1) in the event of termination pursuant to paragraph (i) above without "proper cause" (as defined in Section 5 of this Agreement), the Company shall thereafter be and remain obligated to pay to the Executive (or his estate) the compensation and benefits described in Section 3(a), (b)(i) (to the extent of group life and health insurance coverages), and (c) hereof until expiration of the term of employment established by Section 1(a) as the same may theretofore have been extended pursuant to Section 1(b) hereof; (2) in the event of termination pursuant to paragraph (i) above for proper cause, the Company shall thereupon be relieved of its obligations to pay any compensation and benefits under Section 3 hereof (except for accrued and unpaid items); (3) in the event of termination pursuant to paragraph (ii) above, the provisions of Section 4 hereof shall apply; and (4) in the event of termination pursuant to paragraph (iii) above, the Company shall be obligated to pay the Executive's estate or designated beneficiary the compensation specified in Section 3(a) hereof until expiration of the term of employment established by Section 1(a) as the same may theretofore have been extended pursuant to Section 1(b) hereof or, if earlier, the end of the twelfth calendar month following his death. Section 2. SERVICES TO BE RENDERED. The Company hereby agrees to employ the Executive as Vice President and Chief Financial Officer of the Company to serve at its headquarters office located in the Hermitage, Pennsylvania area, subject to the terms, conditions and provisions of this Agreement. The Executive hereby accepts such employment and agrees to serve without additional compensation, if elected, in any other senior executive position of the Company reasonably requested of him and as an officer and/or director of any subsidiary of the Company in accordance with Section 10 hereof. The Executive shall devote his full-time best efforts to such employment and shall apply substantially that degree of skill and diligence in rendering services to the Company and its subsidiaries under this Agreement as would be applied by a person of ordinary prudence and comparable experience under similar circumstances. In connection therewith, the Executive shall report to and be subject to the direction of the Board of Directors, the Chairman of the Board and the President of the Company. Notwithstanding the foregoing, the Executive may devote a reasonable amount of his time to his personal investments and business affairs (including service as a director of unaffiliated companies) and to civic and charitable activities; provided, however, the Executive shall not accept any position as a director of any unaffiliated for-profit business organization without advance approval of the Company's Chairman of the Board or President (which approval shall not be unreasonably withheld). -2- 3 Section 3. COMPENSATION. In consideration for services rendered to the Company under this Agreement (but excluding any directors' fees payable to the Executive), the Company shall pay and provide to the Executive the following compensation and benefits. (a) SALARY. The Company shall pay the Executive a minimum base salary at the rate of $130,000 per year during the term hereof, to be paid in accordance with the Company's normal payroll practice, with such minimum base salary to be adjusted from time to time to reflect (i) such merit increases as the Board of Directors of the Company may determine are appropriate and (ii) annual cost of living increases commensurate with those given key executive officers of The First National Bank of Pennsylvania ("First National"). (b) FRINGE BENEFITS. The Executive shall be entitled to (i) vacations, retirement benefits and other fringe benefits, including but not limited to group life and health insurance coverages, pursuant to the compensation policies and practices of First National from time to time prevailing (now and in the future) with respect to persons who are key executive officers of First National, (ii) the use of office space comparable to that which he presently occupies, and (iii) participation in any and all benefits provided for under the January 1, 1986 Deferred Compensation Plan of First National pursuant to the terms thereof, so long as said Plan shall remain in effect. (c) SUPPLEMENTAL RETIREMENT BENEFITS. The Executive shall also be entitled to such supplemental retirement benefits, if any, as may be provided by any plan or plans now or hereafter established by the Company for senior executive officers of the Company and First National. Section 4. DISABILITY. The term of employment of the Executive under this Agreement may be terminated at the election of the Company upon a determination by the Board of Directors of the Company, made in its sole discretion, that the Executive will be unable, by reason of physical or mental incapacity, to perform the reasonably expected duties assigned to him pursuant to this Agreement for a period longer than six consecutive months or more than nine months in any consecutive twelve-month period. In the exercise of its discretion, the Board of Directors shall give due consideration to, among such other factors as it deems appropriate to the best interests of the Company, the opinion of the Executive's personal physician or physicians and the opinion of any physician or physicians selected by the Board of Directors for these purposes. The Executive shall submit to examination by any physician or physicians so selected by the Board of Directors, and shall otherwise cooperate with the Board of Directors in making the determination contemplated hereunder (such cooperation to include, without limitation, consenting to the release of information by any such physician(s) to the Board of Directors). In the event of such termination, the Company shall thereupon be relieved of its obligations to pay compensation and benefits under Section 3 hereof (except for accrued and unpaid items) but shall be obligated to pay or provide to the Executive until the earlier of March 31, 2008 or his death the following: -3- 4 (a) For the period of twelve full calendar months next following the date (the "Disability Date") at which the Executive was unable, by reason of physical or mental incapacity, to perform and did not perform a substantial portion of his essential duties hereunder (such date to be determined by the Board of Directors in its sole discretion), a monthly disability income benefit in an amount equal to 100% of the base salary (per month) in effect under Section 3(a) hereof on the Disability Date; and thereafter a monthly disability income benefit in an amount equal to 60% of the average monthly base salary paid to the Executive under Section 3(a) hereof during the twelve full calendar months next preceding the Disability Date. The Company shall be entitled to credit, against its obligation to pay such disability benefits, (i) the amounts received from time to time by the Executive pursuant to any disability income insurance policy maintained by the Company, (ii) the amounts received from time to time by the Executive as retirement benefits pursuant to Section 3(b) and (c) hereof, and (iii) the amounts received from time to time by the Executive as remuneration from any other employment. (b) Health insurance coverage comparable to the coverage provided from time to time for key executive officers of First National, unless and until the Executive shall have accepted other employment in which health insurance coverage is available to him at the cost of his new employer. Section 5. TERMINATION FOR PROPER CAUSE. The occurrence of any of the following events or circumstances shall constitute "proper cause" for termination, at the election of the Board of Directors of the Company, of the term of employment of the Executive under this Agreement, to wit: (a) the Executive shall voluntarily resign as a director, officer or employee of the Company or any significant subsidiary without approval of the Board of Directors of the Company for reasons other than a breach of this Agreement in any material respect by the Company which has not been cured within 30 calendar days after the Company's receipt of written notice of such breach from the Executive; (b) the perpetration of defalcations by the Executive involving the Company or any of its affiliates, as established by certified public accountants employed by the Company, or willful, reckless or grossly negligent conduct of the Executive entailing a substantial violation of any material provision of the laws, rules, regulations or orders of any governmental agency applicable to the Company or its subsidiaries; (c) the repeated and deliberate failure by the Executive, after advance written notice to him, to comply with reasonable policies or directives of the Board of Directors; or (d) the Executive shall breach this Agreement in any other material respect and fail to cure such breach within 30 calendar days after the Executive receives written notice of such breach from the Company. -4- 5 Section 6. NON-COMPETITION. The Executive agrees that during the term of his employment hereunder and for the Restricted Period (hereinafter defined) after his employment hereunder terminates or is terminated, he will not in any way, directly or indirectly, manage, operate, control, accept employment or a consulting position with or otherwise advise or assist or be connected with, or own or have any other interest in, or right with respect to the revenues, receipts, profits or losses of (other than through ownership of not more than 4.9% of the outstanding shares of a corporation's stock which is listed on a national securities exchange or in the NASDAQ system) any Competitive Enterprise (hereinafter defined). For purposes of this Section 6: (a) "Restricted Period" means the greater of (i) the period of two years next following the termination of the Executive's employment for proper cause (which may include, without limitation, his resignation or any other event specified in Section 5 hereof), or (ii) the period of time during which the Executive is receiving payments from the Company pursuant to Section 1(c) or 4 hereof (as the case may be); (b) "Competitive Enterprise" means any person, firm or corporation that directly or indirectly (i) is engaged in lending and depositor services of the kinds generally offered by the Company or in commercial banking or in any other activity which is competitive with the Company or any of the Company's present or future subsidiaries and (ii) conducts such business or other activities described in clause (i) above in any county in which any of the Company's present or future subsidiaries then operates or in any county (within or without the Commonwealth of Pennsylvania) contiguous thereto. The foregoing to the contrary notwithstanding, the provisions of this Section 6 shall not prohibit the Executive, during the Restricted Period, from rendering services to a Competitive Enterprise if such services are rendered during his physical presence at a place of business located within the Counties of Allegheny or Dauphin, Pennsylvania or Cuyahoga, Ohio. Without limitation of the Company's rights and remedies under this Agreement or as otherwise provided by law or in equity, it is understood and agreed between the parties that the right of the Executive to receive and retain any payments otherwise due to him under this Agreement shall be suspended and canceled if and for so long as he shall be in violation of the foregoing covenant not to compete. If and when the Executive shall have cured such violation and shall have tendered to the Company any and all economic benefits directly or indirectly received or receivable by him arising therefrom, such right shall be automatically reinstated but only for the remainder of the period during which such payments are due him. If the employment of the Executive hereunder shall have been terminated without proper cause pursuant to paragraph (i) of Section 1(c) hereof or because of disability pursuant to paragraph (ii) of Section 1(c) hereof, and if the Executive shall have duly complied with and observed the covenants of this Section 6, the Executive may, at his election, be discharged from the covenants of this Section 6 at any time during the Restricted Period by filing with the Company a duly executed statement (in form and content reasonably satisfactory to the Board of Directors of the Company) releasing the Company (and, if applicable, its insurance carriers) from any and all obligations it (or they) may have (under Sections 1(c), 3 and 4 or otherwise) by reason of such termination (except for accrued and unpaid items). -5- 6 Section 7. CONFIDENTIALITY. For purposes of this Agreement, "proprietary information" shall mean any information relating to the business of the Company or its subsidiaries that has not previously been publicly released by duly authorized representatives of the Company and shall include (but shall not be limited to) Company information encompassed in all marketing and business plans, financial information, costs, pricing information, and all methods, concepts, or ideas in or reasonably related to the business of the Company or its subsidiaries and not in the public domain. The Executive agrees to regard and preserve as confidential all proprietary information that has been or may be developed or obtained by the Executive in the course of his employment with the Company and its subsidiaries, whether he has such information in his memory or in writing or other physical form. The Executive shall not, without written authorization from the Company to do so, use for his benefit or purposes, nor disclose to others, either during the term of his employment hereunder or thereafter, except as required by the conditions of his employment hereunder, any proprietary information connected with the business or development of the Company or its subsidiaries. This prohibition shall not apply after the proprietary information has been voluntarily disclosed to the public, independently developed and disclosed by others, or otherwise enters the public domain through lawful means. Section 8. REMOVAL OF DOCUMENTS OR OBJECTS. The Executive agrees not to remove from the premises of the Company, except as an employee of the Company in pursuit of the business of the Company or any of its subsidiaries or affiliates, or except as specifically permitted in writing by the Company, any document or object containing or reflecting any proprietary information. The Executive recognizes that all such documents and objects, whether developed by him or by someone else, are the exclusive property of the Company. Section 9. INJUNCTIVE RELIEF. It is understood and agreed by and between the parties hereto that the services to be rendered by the Executive hereunder are of a special, unique, extraordinary and intellectual character, which gives them a peculiar value, the loss of which may not be reasonably or adequately compensated in damages, and additionally that a breach by the Executive of the covenants set out in Sections 6, 7 and 8 of this Agreement will cause the Company great and irreparable injury and damage. The Executive hereby expressly agrees that the Company shall be entitled to the remedies of injunction, specific performance and other equitable relief to prevent a breach of Sections 6, 7 and 8 of this Agreement by the Executive. This provision shall not, however, be construed as a waiver of any of the remedies which the Company may have for damages or otherwise. -6- 7 Section 10. SUBSIDIARIES. It is understood and agreed by the parties hereto that, at the election and direction of the Company's Board of Directors and without modification of the terms and provisions hereof, the Executive shall also serve as an executive officer of any one or more subsidiaries of the Company and, when and as so determined by the Board and any such subsidiary, the rights, duties and obligations of the Company expressed and implied in this Agreement shall inure to the benefit of and bind any subsidiary with the same force and effect as would obtain if the subsidiary were a party hereto jointly and severally with the Company. Section 11. MERGER OR CONSOLIDATION. In the event of the merger or consolidation of the Company with another corporation, and as a result of such merger or consolidation, the shareholders of the Company as of the day preceding such transaction will own less than 51% of the outstanding voting securities of the surviving corporation, or in the event that there is (in a single transaction or series of related transactions) a sale or exchange of 80% or more of the Common Stock of the Company for securities of another entity in which shareholders of the Company will own less than 51% of such entity's outstanding voting securities, or in the event of the sale by the Company of a substantial portion of its assets to an unrelated third party, the Executive shall have the right, at his sole option, to terminate his employment under this Agreement upon 30 days' advance written notice, provided such written notice shall have been delivered to the Company during the period beginning upon public announcement of the subject transaction and ending not more than 60 days after the effective date of such transaction. The Executive shall thereupon be entitled to receive from the Company a cash bonus (the "Cash Bonus") whose "present value" (as defined in paragraph (4) of subsection (d) of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")) on the closing date of such transaction is equal to two hundred percent (200%) of the Executive's "base amount" (as defined in paragraph (3) of subsection (b) of said subsection (b) of said Section 280G). (Said present value of the Cash Bonus is hereinafter referred to as the "Initial Present Value".) The Cash Bonus shall be paid as follows: an amount equal to one-third (1/3) of the Initial Present Value shall be paid on the effective date of the termination of his employment hereunder; an additional amount whose present value on the said closing date under Section 280G(d)(4) was one-third of the Initial Present Value shall be paid on the last day of the sixth month following such effective date; and a final amount whose present value on the said closing date under Section 280G(d)(4) was equal to one-third of the Initial Present Value shall be paid on the last day of the twelfth month following such effective date. If the Executive does not elect to terminate this Agreement as aforesaid, then this Agreement shall remain in effect and be assigned and transferred to the Company's successor in interest as an asset of the Company, and the Company shall cause such assignee to assume the Company's obligations hereunder; and in such event the Executive hereby confirms his agreement to continue to perform his duties and obligations according to the terms and conditions hereof for such assignee or transferee of this Agreement. It is understood and agreed, however, that the scope of the Executive's services under Section 2 of this Agreement shall be appropriately modified, at the election of such successor, to cover the segment of such successor's enterprise represented by the Company's assets and operations at the time of such aforementioned transaction. -7- 8 Section 12. SUCCESSORS, ASSIGNS, ETC. This Agreement shall be binding upon, and shall inure to the benefit of, the Executive and the Company and their respective permitted successors, assigns, heirs, legal representatives and beneficiaries. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect; provided, however, that nothing in this Section 12 shall preclude the assumption of such rights by executors, administrators or other legal representatives of the Executive or his estate and their assigning any rights hereunder to the person or persons entitled thereto. Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation which assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation, merger or transfer of assets and assumption, the term, "Company," as used herein shall mean such other corporation and this Agreement shall continue in full force and effect. Section 13. NOTICES. All notices and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, and addressed as follows: (a) To the Company: F.N.B. Corporation Hermitage Square Hermitage, Pennsylvania Attention: Secretary (b) To the Employee: Mr. John D. Waters 1130 Rodeo Place Hermitage, PA 16148 or to such other place as either party shall have specified by notice in writing to the other. A copy of any notice or other communication given under this Agreement shall also be sent to the Treasurer of the Company addressed to such officer at the then principal office of the Company. Section 14. GOVERNMENTAL REGULATION. Nothing contained in this Agreement shall be interpreted, construed or applied to require -8- 9 the commission of any act contrary to law and whenever there is any conflict between any provision of this Agreement and any statute, law ordinance, order or regulation, the latter shall prevail; but in such event any such provision of this Agreement shall be curtailed and limited only to the extent necessary to bring it within applicable legal requirements. Section 15. ARBITRATION. Any dispute or controversy as to the validity, interpretation, construction, application or enforcement of, or otherwise arising under or in connection with this Agreement, shall be submitted at the request of either party hereto for resolution and settlement through arbitration in Pittsburgh, Pennsylvania in accordance with the rules then prevailing of the American Arbitration Association. Any award rendered therein shall be final and binding on each of the parties hereto and their heirs, executors, administrators, successors and assigns, and judgment may be entered thereon in any court having jurisdiction. The foregoing provisions of this Section 15 shall not be deemed to limit the rights and remedies reserved to the Company under and pursuant to Section 9 hereof. Section 16. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. Section 17. DIVISIBILITY. Should a court or arbitrator declare any provision hereof to be invalid, such declaration shall not affect the validity of the Agreement as a whole or any part thereof, other than the specific portion declared to be invalid. Section 18. HEADINGS. The headings to the Sections and paragraphs hereof are placed herein for convenience of reference only and in case of any conflict the text of this Agreement, rather than the headings, shall control. Section 19. ENTIRE AGREEMENT; AMENDMENT. This Agreement sets forth the entire understanding of the parties in respect of the subject matter contained herein and supersedes all prior agreements, arrangements and understandings relating to the subject matter and may only be amended by a written agreement signed by both parties hereto or their duly authorized representatives. -9- 10 IN WITNESS WHEREOF, on the 31st day of January, 1996 the parties hereto have executed this Agreement to be effective as of the date first above written. WITNESS: EXECUTIVE /s/ JOANNE C. KNAPP /s/ JOHN D. WATERS - ----------------------- ---------------------------- John D. Waters ATTEST: F.N.B. CORPORATION /s/ JAMES G. ORIE By: /s/ WILLIAM J. RUNDORFF - ----------------------- ------------------------- Title: Executive Vice President -10- EX-10.14 6 FNB CORPORATION 10-K 1 EXHIBIT 10.14 F.N.B. CORPORATION RESTRICTED STOCK AND INCENTIVE BONUS PLAN ARTICLE I ESTABLISHMENT AND PLAN OBJECTIVES 1.1 ESTABLISHMENT OF PLAN; Effective Date. F.N.B. Corporation (the "Corporation") hereby establishes an incentive plan for key employees, as described herein, which shall be known as the F.N.B. Corporation Restricted Stock and Incentive Bonus Plan (hereinafter referred to as the "Plan"). The Plan is effective as of January 1, 1996. 1.2 PLAN OBJECTIVES. The Plan is intended to further the attainment of the Corporation's long-term profit and growth objectives by (i) offering an incentive to key employees and key executives of the Corporation and its subsidiaries who influence the long-term profitability of the Corporation, (ii) to provide key employees and executives with an additional inducement to remain in the service of the Corporation and with an increased incentive to work for its long-range success, (iii) to encourage stock ownership by such key employees and executives by providing them with an ownership interest in the Corporation and (iv) to facilitate the recruiting of executive personnel in the future. ARTICLE II DEFINITIONS 2.1 DEFINITIONS. As used herein, the following terms shall have the following meanings: (a) "Board" shall mean the Board of Directors of the Corporation. (b) "Change of Control" shall have the meaning set forth in the F.N.B. Corporation Basic Retirement Plan. (c) "Committee" shall mean the Compensation Committee of the Board of Directors of the Corporation. (d) "Corporation" shall mean F.N.B. Corporation, its successors and assigns. (e) "DRP" shall mean the Corporation's Voluntary Dividend Reinvestment and Stock Purchase Plan, as amended from time to time. (f) "Eligible Employee" shall have the meaning set forth in Section 5.1 below. (g) "Incentive Award Period" shall have the meaning set forth in Section 5.2 below. (h) "Incentive Bonus Participant" shall mean an Eligible Employee designated by the Committee as eligible to receive an award under the incentive bonus provisions of Article V of the Plan in respect of any Incentive Award Period. (i) "Participant" shall mean an Incentive Bonus Participant or a Restricted Stock Participant. 2 (j) "Plan" shall mean the F.N.B. Corporation Restricted Stock and Incentive Bonus Plan in its entirety, including any amendments, rules and regulations adopted pursuant hereto. (k) "Restricted Period" shall have the meaning set forth in Section 4.3 below. (l) "Restricted Stock Participant" shall mean an employee who has been granted Stock under the provisions of Article IV of the Plan (relating to grants of restricted stock). (m) "Stock" shall mean the Corporation's common stock, par value $2.00 per share. (n) "Vesting Period" shall have the meaning set forth in Section 4.3 below. Other terms shall have the respective meanings given them in succeeding sections of the Plan. ARTICLE III ADMINISTRATION OF THE PLAN 3.1 ADMINISTRATION. The Committee shall be responsible for the administration of the Plan. The Committee, by majority thereof, is authorized to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to the Plan, provide for conditions and assurances deemed necessary or advisable to protect the interests of the Corporation, including without limitation all rules and regulations necessary or advisable to enable shares of Stock granted under the Plan to be held and administered under the DRP, and to make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan. Determinations, interpretations, or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final, binding and conclusive for all purposes and upon all persons whomsoever. Within the provisions of the Plan, the Committee shall have the sole, final and conclusive authority to determine: (a) The employees to whom awards shall be made under Article IV and/or Article V below; (b) The amount of any award of cash or Stock to be made to each such employee; and (c) The terms and conditions of each restricted stock agreement ("Restricted Stock Agreement") between the Corporation and any employee who has received an award of restricted Stock under Article IV or Article V below. In making such determinations, the Committee shall consider the position and responsibilities of the eligible employees, the value of their services to the Corporation and its subsidiaries, and such other factors as the Committee deems pertinent. The Committee's determinations under the Plan need not be uniform and may be made by it selectively among persons who are eligible to receive awards under the Plan. 3.2 EMPLOYMENT OF AGENTS. In administering the Plan, the Committee may employ accountants and counsel (who may be the independent auditors and outside counsel for the Corporation) and other persons to assist or render advice to it, all at the expense of the Corporation. 2 3 3.3 ELIGIBILITY TO SERVE ON COMMITTEE. None of the members of the Committee shall be a person who shall have been granted during the one year prior to becoming a member of the Committee, or shall be granted during service on the Committee, Stock or other securities pursuant to the Plan or any other plan of the Corporation or any of its subsidiaries except to the extent permitted by subsection (c)(2)(i) of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or any successor thereto. ARTICLE IV GRANTS OF RESTRICTED STOCK 4.1 ELIGIBILITY. Any person employed by the Corporation or any of its subsidiaries on a full time, salaried basis shall be eligible to become a Restricted Stock Participant and shall be eligible to receive grants of restricted Stock pursuant to this Article IV. 4.2 GRANTS OF COMMON STOCK. Each restricted stock grant under this Article IV shall be evidenced by a Restricted Stock Agreement, which shall be subject to the following terms and conditions and to such other terms and conditions as the Committee may deem appropriate in each case: (a) Unless applicable law provides otherwise, the employee receiving a restricted stock grant shall be responsible for compliance with all securities, tax or other legal requirements with respect to such employee's receipt, holding or disposition of the shares. (b) The vesting and forfeiture restrictions contained in Section 4.3 below. (c) The shares of Stock granted under this Article IV shall be enrolled in the Restricted Stock Participant's name in the DRP. Such shares shall remain in the DRP throughout the Restricted Period. On the date on which the transfer restrictions on any shares of Stock lapse, the Corporation shall notify the DRP Administrator as to the name of the Restricted Stock Participant and the number of shares of Stock as to which the restrictions have lapsed. The Restricted Stock Participant shall be entitled to exercise all rights to the unrestricted shares of Stock, including the right to withdraw such shares from the DRP, in accordance with the terms of the DRP. 4.3 VESTING AND FORFEITURE RESTRICTIONS. All shares of Stock granted under this Article IV shall vest and become freely transferable by the Restricted Stock Participant over a period of not less than one and not more than five years commencing on the date of grant, as determined by the Committee at the time of the grant (the "Vesting Period"), and shall be subject to forfeiture as set forth below until vested (the period of time during which any shares of Stock are subject to a risk of forfeiture is referred to as the "Restricted Period"). Unless otherwise determined by the Committee, shares of Stock shall vest in equal installments during the Vesting Period on each anniversary of the date of grant until all shares awarded pursuant to such grant have vested or have been forfeited. The Committee, in its sole discretion, may impose such other restrictions on Stock granted pursuant to this Article IV as it may deem advisable, including, without limitation, restrictions under applicable federal laws, under the requirements of any stock exchange upon which such shares or shares of the same class are then listed, and under any blue sky or other securities laws applicable to such shares. The Committee may condition the grant of any stock, or the termination of the restrictions, upon receipt of an 3 4 appropriate investment representation from the Restricted Stock Participant. The Corporation may, in its discretion, postpone the granting of any stock until completion of registration or other qualification of the shares under any state or federal law, rule, or regulation or the receipt of any consent or approval of any governmental body, or any other agreement or consent as the Committee may consider appropriate. The Corporation may further require any Restricted Stock Participant or other person receiving shares of Stock under this Article IV to make such representations and furnish such information as it may consider appropriate in compliance with applicable law. 4.4 VOTING AND DIVIDEND RIGHTS. Restricted Stock Participants shall have full voting rights on the shares of Stock granted under this Article IV, including the shares which have not yet vested, unless and until such shares are forfeited to the Corporation. Restricted Stock Participants awarded shares of Stock under this Article IV shall have full cash and stock dividend rights with respect to such shares of Stock subject to the other provisions of this Section 4.4. All such dividends or other distributions shall be credited to the Restricted Stock Participant's account in the DRP and, in the case of cash dividends, used to purchase shares of Stock pursuant to the DRP. All shares credited to the Restricted Stock Participant as a result of such cash or stock dividends shall be subject to the same restrictions on transferability and the same risk of forfeiture as the shares of Restricted Stock that are the basis for the dividend. 4.5 TERMINATION OF EMPLOYMENT. (a) All restrictions placed upon shares of Stock granted hereunder or under a Restricted Stock Agreement shall lapse immediately and such shares shall automatically vest upon (i) termination of the Restricted Stock Participant's employment with the Corporation (or the subsidiary of the Corporation by which the Restricted Stock Participant is employed) if, and only if, such termination is by reason of the Restricted Stock Participant's death, disability covered by a disability plan of the Corporation then in effect or retirement with the consent of the Corporation or (ii) the occurrence of a Change in Control of the Corporation. In addition, the Committee may allow restrictions on the Stock to lapse prior to the date specified in a Restricted Stock Agreement if, in the judgment of the Committee, such allowance is necessary to avoid undue hardship or unfairness to the Restricted Stock Participant. (b) Upon the effective date of a termination for any reason not specified in Section 4.5(a) above, all shares (together with all dividends and/or shares of Stock purchased under the DRP on account of such shares) then subject to a risk of forfeiture under Section 4.3 above immediately shall be forfeited and returned to the Corporation by the plan administrator under the DRP without consideration or further action being required of the Corporation. For purposes of this Section 4.5 and Section 4.3, the effective date of a Restricted Stock Participant's termination shall be the date upon which such Restricted Stock Participant ceases to perform services as an employee of the Corporation or any of its subsidiaries, without regard to accrued vacation, severance or other benefits or the characterization thereof on the payroll records of the Corporation or any of its subsidiaries. 4.6 ASSIGNMENT OR TRANSFER. No shares of Stock granted under this Article IV or any rights or interests therein shall be assignable or transferable during the Restricted Period by a Restricted Stock Participant except by will or the laws of descent and distribution. Each Restricted Stock Participant who is granted Stock pursuant to this Article IV may, from time to time, name any beneficiary or beneficiaries to whom any benefit under this Article IV is to be paid in case of his or her death before he or she receives any 4 5 or all of such benefit. Each designation will revoke all prior designations by the same Restricted Stock Participant, shall be in a form prescribed by the Committee and will be effective only when filed by the Restricted Stock Participant in writing with the Committee during his or her lifetime. In the absence of any such designation, benefits remaining unpaid at the Restricted Stock Participant's death shall be paid to his or her estate, subject to the terms of this Article IV and the Plan. ARTICLE V GRANTS OF INCENTIVE BONUSES 5.1 ELIGIBILITY. Any Eligible Employee shall be eligible to be an Incentive Bonus Participant and receive incentive bonus awards pursuant to this Article V. As used in this Article V, the term "Eligible Employee" shall mean any executive officer of the Corporation or of a subsidiary of the Corporation who is a member of a select group of management employees and who, in the opinion of the Committee, is in a position to have a direct and significant impact on achieving the Corporation's profit and growth objectives. 5.2 AWARD PERIODS. The duration of each "Incentive Award Period" shall be one year corresponding to the Corporation's fiscal year. 5.3 PARTICIPATION AND PERFORMANCE ACHIEVEMENT TARGETS. No later than the end of the first calendar quarter of each Incentive Award Period, the Committee in its discretion shall select Eligible Employees to be Incentive Bonus Participants and shall determine the performance achievement targets for each Incentive Bonus Participant and the amount of awards the Incentive Bonus Participant may earn upon achieving such targets in respect of each Incentive Award Period based on the Committee's analysis of various factors it deems appropriate, including similar incentive plans of comparable companies and the relative contribution of each Incentive Bonus Participant to the overall performance of the Corporation and its subsidiaries. 5.4 PAYMENTS OF ANNUAL BONUSES. (a) Payout of annual bonuses under this Article V shall be made within 45 days after the receipt by the Corporation of the report of its independent auditors on the Company's financial statements in respect of the Incentive Award Period in respect of which the Incentive Award has been earned, as the Committee in its discretion shall determine. (b) Payout of annual bonuses under this Article V shall be made in cash or in Stock or partly in each as the Committee in its discretion shall determine. If any portion is paid in authorized but unissued shares, or treasury shares, of Stock, the Stock shall be valued at the average of the last quoted "bid" and "ask" prices of the Stock on the over-the-counter market on the business day next preceding the date of payment (or, in the event the Common Stock ceases to trade in the over-the-counter market and is traded on another exchange or on the Nasdaq National Market, by such other reasonable method or formula as may be determined by the Committee in its discretion). Payout of all or part of an annual bonus under this Article V to any Incentive Bonus Participant may also be made in Stock by the purchase thereof by the Corporation in the open market on a date reasonably close to the date of payment. Payouts of awards under this Article V may also be made pursuant to deferred compensation arrangements, as the Committee may determine in its discretion. 5 6 (c) The Corporation shall not be liable for interest upon any award made under this Article V. Prior to the time shares of Stock are delivered to an Incentive Bonus Participant by the Corporation pursuant to a payout of an annual bonus under this Article V, the Incentive Bonus Participant shall not be entitled to have any shares registered or recorded in his or her name, nor shall such Incentive Bonus Participant have the rights of a shareholder of the Corporation in respect of such shares. (d) The Committee shall have the right, in its discretion, to modify the amount of any award earned by any Incentive Bonus Participant under this Article V in respect of any Incentive Award Period if the Committee in its sole discretion determines that it is reasonable to do so (i) as a result of extraordinary transactions to which the Corporation or any of its subsidiaries was subject or material accounting changes or adjustments applicable to the Corporation in respect of that Incentive Award Period or (ii) on the basis of such other quantitative factors as the Committee deems appropriate. (e) Any shares of Stock of the Corporation issued to an Incentive Bonus Participant under this Article V shall, at the time of issuance to such Incentive Bonus Participant, be enrolled in the Incentive Bonus Participant's name in the DRP. The Incentive Bonus Participant shall be entitled to exercise all rights to such shares, including the right to withdraw such shares from the DRP, in accordance with the terms of the DRP (except as otherwise provided in the Plan). 5.5 LIMITATIONS AND REDUCTIONS OF PAYMENTS. (a) Any shares of Stock of the Corporation awarded to an Incentive Bonus Participant under this Article V must be held by the Incentive Bonus Participant for a minimum of six months prior to any disposition thereof. In addition, the Committee in its discretion may require that any such shares of Stock be restricted and not "vest" for a period of up to five years and be subject to such other restrictions as are identical to those provided in Article IV with respect to grants of Restricted Stock to Restricted Stock Participants (including the requirement that the Incentive Bonus Participant enter into a Restricted Stock Agreement with the Corporation), with the terms and conditions of such restrictions and "vesting", and related forfeiture provisions, to be determined by the Committee in its discretion, provided, that the provisions of Section 4.5 above shall apply to any restricted Stock awarded under this Article V, including without limitation those providing that any restrictions on such shares of Stock shall lapse immediately and all such shares shall automatically vest upon the occurrence of a Change of Control of the Corporation. (b) The Committee in its sole discretion may impose such other restrictions on any shares of Stock paid pursuant to this Article V as it may deem advisable including, without limitation, restrictions under applicable federal laws, under the requirements of any stock exchange upon which such share or shares of the same class are then listed, and under any blue sky or other securities laws applicable to such shares. The Committee may condition the payment of any Stock under this Article V, or the delivery of share certificates evidencing such Stock, upon receipt of an appropriate investment representation from the Incentive Bonus Participant. The Corporation, in its discretion, may postpone the issuance and delivery of shares of Stock pursuant to this Article V until completion of registration or other qualification of the shares under any state or federal law, rule, or regulation as the Corporation may consider appropriate. The Corporation may further require any Incentive Bonus Participant or other person receiving Stock under this Article V to make such representations and furnish such information as it my consider appropriate in connection with the issuance of the shares of Stock in compliance with applicable law. (c) Each payout of an annual bonus under this Article V that is to be made in cash shall be from the general funds of the Corporation. No special or separate fund shall be established or other segregation 6 7 of assets made to assure payout of any annual bonuses. No Incentive Bonus Participant or other person shall have under any circumstances any interest whatever in any particular property or assets of the Corporation as a result of the operation of this Article V. 5.6 TERMINATION OF EMPLOYMENT. (a) Except as herein otherwise provided, the payout of an annual bonus under this Article V to an Incentive Bonus Participant is subject to the Incentive Bonus Participant continuing in the employ of the Corporation or a subsidiary thereof, as the case may be, through the date the payout is made as set forth in Section 5.4(a). In the event an Incentive Bonus Participant's employment terminates prior to the date the payout is made as set forth in Section 5.4(a) for reasons other than voluntary termination of employment or termination of employment by the Corporation for cause, the Committee shall have sole discretion to determine whether and to what extent an annual bonus under this Article V will be paid out to the Incentive Bonus Participant or to his or her beneficiary; provided, however, that if such termination occurs following a Change of Control and the Incentive Bonus Participant would otherwise be entitled to payment of an annual bonus under this Article V in respect of the preceding Award Period, then such annual bonus shall be paid to such Incentive Bonus Participant unless the Incentive Bonus Participant's employment was terminated for cause (as defined in paragraph (b) below) or the Incentive Bonus Participant voluntarily terminated his employment other than for good reason (as defined in paragraph (c) below). (b) As used herein "cause" shall mean the willful and continued failure by the Incentive Bonus Participant substantially to perform his duties with the Corporation or any subsidiary or the willful engaging by the Incentive Bonus Participant in misconduct which is demonstrably and materially injurious to the Corporation or any of its subsidiaries. (c) As used herein, the term "good reason" shall mean any of (i) the assignment to the Incentive Bonus Participant by the Corporation or any subsidiary of duties, or to a position, constituting a material diminution in the Incentive Bonus Participant's position or duties compared with his position or duties with the Corporation or any subsidiary immediately prior to a Change of Control of the Corporation, or any removal of the Incentive Bonus Participant from or any failure to reelect the employee to any such position, except in connection with the termination of his employment by reason of his death, disability or retirement, for cause, or by the employee other than for good reason, (ii) a reduction by the Corporation or any subsidiary in the Incentive Bonus Participant's base salary as in effect on the date of the Change of Control, (iii) any material diminution in the benefits provided to the employee by the Corporation following a Change of Control or (iv) the Incentive Bonus Participant's relocation by the Corporation or any subsidiary to any place other than the location at which the Incentive Bonus Participant performed the Incentive Bonus Participant's duties prior to a Change of Control of the Corporation. ARTICLE VI CAPITAL ADJUSTMENTS If there should occur any change in the outstanding shares of common stock of the Corporation by reason of a stock dividend, stock split, recapitalization, merger, consolidation, combination, or exchange of shares or other similar corporate change, the aggregate number of shares of Stock issuable under the Plan shall be appropriately adjusted by the Committee, whose determination shall be conclusive, to prevent dilution or enlargement of the Participant's potential Stock interests in relation to other holders of the Stock. In such event, the Committee may also make such appropriate adjustment in the number and type of shares subject to Stock grants then outstanding under the Plan. 7 8 ARTICLE VII MISCELLANEOUS PROVISIONS 7.1 NUMBER OF SHARES. (a) The total number of shares of Stock of the Corporation that may be granted to all Restricted Stock Participants under Article IV in respect of any calendar year may not exceed one percent (1%) of the highest number of the Corporation's issued and outstanding Stock in such calendar year calculated on a fully diluted basis, subject to adjustment as provided in Section 6 above. (b) The total number of shares of Stock of the Corporation that may be granted to all Incentive Bonus Participants under Article V in respect of any Incentive Award Period may not exceed one percent (1%) of the highest number of the Corporation's issued and outstanding Stock in such Award Period calculated on a fully diluted basis, subject to adjustment as provided in Section 6 above. (c) The shares of Stock awarded under the Plan shall be either authorized but unissued shares or shares that have been reacquired by the Corporation. Shares that are awarded but forfeited under the Plan shall again be available for grant under the Plan. 7.2 FUTURE EMPLOYMENT. The selection of an eligible employee as a Participant shall not constitute a contract of employment between the Participant and the Corporation or otherwise entitle the Participant to remain in the employ of the Corporation or any of its subsidiaries. 7.3 AMENDMENT AND TERMINATION. The Board of Directors of the Corporation reserves the right to amend or supplement the Plan or terminate the Plan at any time; provided, however, that the Board shall not modify any provision in any manner adversely affecting any grant or award previously made under the Plan without the consent of the Participant. 7.4 WITHHOLDING. The Corporation shall have the right to deduct from all payments under the Plan any federal, state, or local taxes required by law to be withheld with respect to such payments. The Participant or other person receiving payment of shares of Stock under the Plan may be required to pay to the Corporation the amount of any such taxes that the Corporation is required to withhold with respect to such Stock. 7.5 FEDERAL INCOME TAX ELECTIONS. The Participant or other person receiving a payment of Stock hereunder shall report to the Corporation in writing the time and manner in which such Participant or other person elects to recognize income from or by virtue of such award for federal income tax purposes, promptly after the making of such election. 7.6 INDEMNIFICATION. Each person who is or shall have been a member of the Committee or the Board shall be indemnified and held harmless by the Corporation from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with any claim, action, suit, or proceeding to which he or she may be a party by reason of any action taken or failure to act under the Plan. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Corporation's Articles of Incorporation or Bylaws, as a 8 9 matter of law, by contract, or otherwise, or any power that the Corporation may have to indemnify them or hold them harmless. 7.7 GOVERNING LAW. The Plan, and all other documents delivered hereunder, shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania, to the extent that such laws are not preempted by the laws of the United States of America. 7.8 EXPENSES. The expenses of administering the Plan shall be borne by the Corporation. 9 EX-10.15 7 FNB CORPORATION 10-K 1 EXHIBIT 10.15 F.N.B. CORPORATION 1996 STOCK OPTION PLAN The purposes of the 1996 Stock Option Plan (the "Plan") are to encourage eligible employees of F.N.B. Corporation (the "Corporation") and its Subsidiaries, including directors and officers of the Corporation who are employees, to increase their efforts to make the Corporation and each Subsidiary more successful, to provide an additional inducement for such employees to remain with the Corporation or a Subsidiary, to reward such employees by providing an opportunity to acquire the Common Stock, par value $2.00 per share, of the Corporation (the "Common Stock") on favorable terms and to provide a means through which the Corporation may attract able persons to enter the employment of the Corporation or one of its Subsidiaries. For purposes of the Plan, the term "Subsidiary" means any corporation in an unbroken chain of corporations beginning with the Corporation if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing more than fifty percent (50%) of the total combined voting power of all classes of stock in one of the other corporations in the chain. SECTION 1 Administration The Plan shall be administered by a Committee (the "Committee") appointed by the Board of Directors of the Corporation (the "Board") and consisting of not less than two members of the Board, none of whom has received during the one year period prior to service on the Committee, or during such service, securities of the Corporation pursuant to the Plan or any other plan of the Corporation or any of its affiliates (as "affiliates" is defined in regulations of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (except as permitted by subsection (c)(2)(i)(A)-(D) of Rule 16b-3 promulgated by the Commission under the Exchange Act or any successor rule). The Committee shall interpret the Plan and prescribe such rules, regulations and procedures in connection with the operation of the Plan as it shall deem to be necessary and advisable for the administration of the Plan consistent with the purposes of the Plan. The Committee shall keep records of action taken at its meetings. A majority of the Committee shall constitute a quorum at any meeting and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the Committee, shall be the acts of the Committee. SECTION 2 Eligibility Those employees of the Corporation or any Subsidiary who share the responsibility for the management, growth or protection of the business of the Corporation or any Subsidiary shall be eligible to receive stock options (with or without stock appreciation rights) as described herein. Subject to the provisions of the Plan, the Committee shall have full and final authority, in its discretion, to grant stock options (with or without stock appreciation rights) as described herein and to 2 determine the employees to whom stock options (with or without stock appreciation rights) shall be granted and the number of shares to be covered by each stock option. In determining the eligibility of any employee, as well as in determining the number of shares covered by each stock option, the Committee shall consider the position and the responsibilities of the employee being considered, the nature and value to the Corporation or a Subsidiary of his or her services, his or her present and/or potential contribution to the success of the Corporation or a Subsidiary and such other factors as the Committee may deem relevant. SECTION 3 Shares Available under the Plan The aggregate number of shares of the Common Stock which may be issued or delivered and as to which stock options may be granted under the Plan is such number of shares as is equal to 10% of the total issued and outstanding shares of Common Stock at any time on a fully-diluted basis. All such shares are subject to adjustment and substitution as set forth in Section 6. If any stock option granted under the Plan is canceled by mutual consent or terminates or expires for any reason without having been exercised in full, the number of shares subject to such stock option shall again be available for purposes of the Plan, except that to the extent that stock appreciation rights granted in conjunction with a stock option under the Plan are exercised and the related stock option surrendered, the number of shares available for purposes of the Plan shall be reduced by the number of shares, if any, of Common Stock issued or delivered upon exercise of such stock appreciation rights. The shares which may be issued or delivered under the Plan may be either authorized but unissued shares or repurchased shares or partly each. SECTION 4 Grant of Stock Options, Stock Appreciation Rights, and Limited Stock Appreciation Rights The Committee shall have authority, in its discretion, to grant "incentive stock options" pursuant to Section 422 of the Internal Revenue Code of 1986 (the "Code"), to grant "non-statutory stock options" (stock options which do not qualify under Section 422 of the Code) or to grant both types of stock options (but not in tandem). The Committee also shall have the authority, in its discretion, to grant stock appreciation rights in conjunction with incentive stock options or non-statutory stock options with the effect provided in Section 5(D). Stock appreciation rights granted in conjunction with an incentive stock option may only be granted at the time such incentive stock option is granted. Stock appreciation rights granted in conjunction with a non-statutory stock option may be granted either at the time such stock option is granted or at any time thereafter during the term of such stock option. The Committee shall also have the authority, in its discretion, to grant limited stock appreciation rights in accordance with the provisions of, and subject to the terms and conditions set forth in, Section 8. No employee shall be granted a stock option or stock options under the Plan (disregarding cancelled, terminated or expired stock options) for an aggregate number of shares in excess of ten percent (10%) of the total number of shares which may be issued or delivered under the Plan. For the purposes of 2 3 this limitation, any adjustment or substitution made pursuant to Section 6 with respect to shares which have not been issued or delivered under the Plan upon the exercise of stock options shall also be made with respect to shares already issued or delivered under the Plan upon the exercise of stock options and with respect to shares which would have been issued or delivered under the Plan but for the exercise of stock appreciation rights in lieu of the exercise of stock options prior to such adjustment or substitution. SECTION 5 Terms and Conditions of Stock Options and Stock Appreciation Rights Stock options and stock appreciation rights granted under the Plan shall be subject to the following terms and conditions: (A) The purchase price at which each stock option may be exercised (the "option price") shall be such price as the Committee, in its discretion, shall determine but shall not be less than one hundred percent (100%) of the fair market value per share of Common Stock covered by the stock option on the date of grant, except that in the case of an incentive stock option granted to an employee who, immediately prior to such grant, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation or any Subsidiary (a "Ten Percent Employee"), the option price shall not be less than 110% of such fair market value on the date of grant. For purposes of this Section 5(A), the fair market value of the Common Stock shall be determined as provided in Section 5(H). Also, for purposes of this Section 5(A), an individual (i) shall be considered as owning not only shares of the Common Stock owned individually, but also all shares that are at the time owned, directly or indirectly, by or for the spouse, ancestors, lineal descendants and brothers and sisters (whether by the whole or half blood) of such individual and (ii) shall be considered as owning proportionately any shares owned, directly or indirectly, by or for any corporation, partnership, estate or trust in which such individual shall be a stockholder, partner or beneficiary. (B) The option price shall be payable in full in any one or more of the following ways: (i) in cash; and/or (ii) in shares of Common Stock (which are owned by the optionee free and clear of all liens and other encumbrances and which are not subject to the restrictions set forth in Section 7) having a fair market value on the date of exercise of the stock option, determined as provided in Section 5(H), equal to the option price for the shares being purchased. If the option price is paid in whole or in part in shares of Common Stock, any portion of the option price representing a fraction of a share shall be paid in cash. The date of exercise of a stock option shall be determined under procedures established by the Committee, and the option price shall be payable at such time or times as the Committee, in its discretion, shall determine. No shares shall be issued or delivered upon exercise of a stock option until full payment of the option price has been made. When full payment of the option price has been made and subject to the restrictions set forth in Section 7, the optionee shall be considered for all purposes to be the owner of the shares with respect to which payment has been made. Payment of the option price with shares shall not increase the number of shares of Common Stock which may be issued or delivered under the Plan as provided in Section 3. 3 4 (C) Subject to Section 9 hereof, no stock option shall be exercisable during the first six months of its term, except that this limitation on exercise shall not apply (i) if the optionee dies during such six-month period or (ii) if the optionee becomes disabled within the meaning of Section 422(c)(6) of the Code (a "Disabled Optionee"), or if his or her employment is voluntarily terminated with the consent of the Corporation or a Subsidiary during such six-month period. No incentive stock option shall be exercisable after the expiration of ten years (five years in the case of a Ten Percent Employee) from the date of grant. No non-statutory stock option shall be exercisable after the expiration of ten years and six months from the date of grant. Subject to this Section 5(C) and Sections 5(F), 5(G) and 5(H), stock options may be exercised at such times, in such amounts and subject to such restrictions as shall be determined, in its discretion, by the Committee. (D) Stock appreciation rights shall be exercisable to the extent that the related stock option is exercisable and only by the same person or persons who are entitled to exercise the related stock option. Stock appreciation rights shall entitle the optionee to surrender the related stock option, or any portion thereof, and to receive from the Corporation in exchange therefor that number of shares of Common Stock having an aggregate fair market value equal to the excess of the fair market value of one share of Common Stock on such date of exercise over the option price per share, multiplied by the number of shares covered by the stock option, or portion thereof, which is surrendered. Cash shall be paid in lieu of any fractional shares. The Committee shall have the authority, in its discretion, to determine that the obligation of the Corporation shall be paid in cash or part in cash and part in shares, except that the Corporation shall not pay to any person who is subject to the provisions of Section 16 of the Exchange Act at the time of exercise of stock appreciation rights any portion of the obligation of the Corporation in cash (except cash in lieu of a fractional share) unless such stock appreciation rights are exercised during the period beginning on the third and ending on the twelfth business day following the date of release for publication of the quarterly or annual summary statements of sales and earnings of the Corporation. The date of exercise of stock appreciation rights shall be determined under procedures established by the Committee, and payment under this Section 5(D) shall be made by the Corporation as soon as practicable after the date of exercise. To the extent that a stock option as to which stock appreciation rights have been granted in conjunction therewith is exercised, the stock appreciation rights shall be canceled. For the purposes of this Section 5(D), the fair market value of Common Stock shall be determined as provided in Section 5(H). (E) No stock option or stock appreciation rights shall be transferable by an optionee other than by will, or if an optionee dies intestate, by the laws of descent and distribution of the state of domicile of the optionee at the time of death, and all stock options and stock appreciation rights shall be exercisable during the lifetime of an optionee only by the optionee. (F) Unless otherwise determined by the Committee and set forth in the stock option agreement referred to in Section 5(G) or an amendment thereto: (i) If the employment of an optionee who is not a Disabled Optionee is voluntarily terminated with the written consent of the Corporation or a Subsidiary or an optionee retires under any retirement plan of the Corporation or a Subsidiary, any then outstanding incentive stock option held by such an optionee shall be exercisable (to the 4 5 extent exercisable on the date of termination of employment) by such an optionee at any time prior to the expiration date of such incentive stock option or within three months after the date of termination of employment, whichever is the shorter period; (ii) If the employment of an optionee who is not a Disabled Optionee is voluntarily terminated with the written consent of the Corporation or a Subsidiary, any then outstanding non-statutory stock option held by such an optionee shall be exercisable (to the extent exercisable on the date of termination of employment) by such an optionee at any time prior to the expiration date of such non-statutory stock option or within one year after the date of termination of employment, whichever is the shorter period; (iii) If an optionee retires under any retirement plan of the Corporation or a Subsidiary, any then outstanding non-statutory stock option held by such an optionee shall be exercisable (whether or not exercisable on the date of termination of employment) by such an optionee at any time prior to the expiration date of such non-statutory stock option; (iv) If the employment of an optionee who is a Disabled Optionee is voluntarily terminated with the written consent of the Corporation or a Subsidiary, any then outstanding stock option held by such optionee shall be exercisable in full (whether or not so exercisable on the date of termination of employment) by the optionee at any time prior to the expiration date of such stock option or within one year after the date of termination of employment, whichever is the shorter period; and (v) Following the death of an optionee during employment, any outstanding stock option held by the optionee at the time of death shall be exercisable in full (whether or not so exercisable on the date of the death of the optionee) by such optionee's estate or by the person or persons entitled to do so under the will of the optionee, or, if the optionee shall fail to make testamentary disposition of the stock option or shall die intestate, by the legal representative of the optionee, at any time prior to the expiration date of such stock option or within one year after the date of death, whichever is the shorter period. Following the death of an optionee after termination of employment but during a period when a stock option is exercisable as provided in clauses (i), (ii), (iii) and (iv) above, any outstanding stock option held by the optionee at the time of death shall be exercisable by such optionee's estate or by such person or persons entitled to do so under the Will of the optionee or by such legal representative to the extent the stock option was exercisable by the optionee at the time of death at any time prior to the expiration date of such stock option or within one year after the date of death, whichever is the shorter period. (vi) If the employment of an optionee terminates for any reason other than voluntary termination with the consent of the Corporation or a Subsidiary, retirement under any retirement plan of the Corporation or a Subsidiary, voluntary termination while a Disabled Optionee with the consent of the Corporation or death, the rights of such optionee under any then outstanding stock option shall terminate at the time of such termination of employment. In addition, if an optionee engages in the operation or management of a business, whether as owner, partner, officer, director, employee or otherwise and whether during or after termination of employment, which is in competition with the Corporation or any of its Subsidiaries, the Committee may in its discretion immediately terminate all stock options held by the optionee. 5 6 Whether termination of employment is a voluntary termination with the written consent of the Corporation or a Subsidiary, whether an optionee is a Disabled Optionee and whether an optionee has engaged in the operation or management of a business which is in competition with the Corporation or any of its Subsidiaries shall be determined in each case by the Committee and any such determination by the Committee shall be final and binding. (G) All stock options and stock appreciation rights shall be confirmed by a stock option agreement, or an amendment thereto, which shall be executed by the Chief Executive Officer, the President (if other than the Chief Executive officer) or any Vice President on behalf of the Corporation and by the employee to whom such stock options and stock appreciation rights are granted. (H) Fair market value of the Common Stock, (i) so long as the Common Stock trades in the over-the-counter market, shall be as set forth in such reliable publication as the Committee, in its discretion, may choose to rely upon, by taking the average of the "bid" and "ask" prices per share of the Common Stock as quoted in such reliable publication on the trading date immediately preceding the date as of which fair market value is to be determined, or (ii) in the event the Common Stock ceases to trade in the over-the-counter market and is traded on another exchange, shall be as set forth in such reliable publication as the Committee, in its discretion, may choose to rely upon, by taking the average of the highest and lowest price per share of the Common Stock as quoted in such reliable publication on the nearest date before the date as of which fair market value is to be determined or by such other reasonable method or formula as may be determined by the Committee in its discretion. (I) The obligation of the Corporation to issue or deliver shares of Common Stock under the Plan shall be subject to (i) the effectiveness of a registration statement under the Securities Act of 1933, as amended, with respect to such shares, if deemed necessary or appropriate by counsel for the Corporation, (ii) the condition that the shares shall have been listed (or authorized for listing upon official notice of issuance) upon each stock exchange on which such shares may then be listed and (iii) all other applicable laws, regulations, rules and orders which may then be in effect. Subject to the foregoing provisions of this Section 5 and the other provisions of the Plan, any stock option or stock appreciation rights granted under the Plan shall be subject to such other terms and conditions as the Committee shall deem advisable. SECTION 6 Adjustment and Substitution of Shares If a dividend or other distribution shall be declared upon the Common Stock payable in 6 7 shares of Common Stock, the number of shares of Common Stock then subject to any outstanding stock option and the number of shares which may be issued or delivered under the Plan but are not then subject to an outstanding stock option shall be adjusted by adding thereto the number of shares which would have been distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend or distribution. If the outstanding shares of Common Stock shall be changed into or exchangeable for a different number or kind of shares of stock or other securities of the Corporation or another corporation, whether through reorganization, reclassification, recapitalization, stock split-up, combination of shares, merger or consolidation, then there shall be substituted for each share of Common Stock subject to any then outstanding stock option and for each share of Common Stock which may be issued or delivered under the Plan but is not then subject to an outstanding stock option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchangeable. In the case of any adjustment or substitution as provided for in this Section 6, the aggregate option price for all shares subject to each then outstanding stock option prior to such adjustment or substitution shall be the aggregate option price for all shares of stock or other securities (including any fraction) to which such shares shall have been adjusted or which shall have been substituted for such shares. Any new option price per share shall be carried to at least three decimal places with the last decimal place rounded upwards to the nearest whole number. No adjustment or substitution provided for in this Section 6 shall require the Corporation to issue or sell a fraction of a share or other security. Accordingly, all fractional shares or other securities which result from any such adjustment or substitution shall be eliminated and not carried forward to any subsequent adjustment or substitution. If any such adjustment or substitution provided for in this Section 6 requires the approval of stockholders in order to enable the Corporation to grant incentive stock options, then no such adjustment or substitution shall be made without prior stockholder approval. Notwithstanding the foregoing, in the case of incentive stock options, if the effect of any such adjustment or substitution would be to cause the stock option to fail to continue to qualify as an incentive stock option or to cause a modification, extension or renewal of such stock option within the meaning of Section 424 of the Code, the Committee may elect that such adjustment or substitution not be made but rather shall use reasonable efforts to effect such other adjustment of each then outstanding stock option as the Committee in its sole discretion shall deem equitable and which will not result in any disqualification, modification, extension or renewal (within the meaning of Section 424 of the Code) of such incentive stock option. SECTION 7 Restrictions on Transfer of Certain Shares Shares of Common Stock acquired under exercise of an (a) option pursuant to Section 5(B)(ii) by a person then subject to the provisions of Section 16 of the Exchange Act shall not be sold or otherwise transferred prior to (i) the expiration of six months after the date of acquisition of shares upon exercise of such option or (ii) the death of the optionee, whichever may first occur or (b) incentive stock 7 8 option shall not be sold or otherwise transferred until after the expiration of any holding period required by Section 422 of the Code, as may be amended from time to time. The Corporation is authorized to (i) retain the certificate(s) representing such shares or place such certificates in the custody of its transfer agent, (ii) place a restrictive legend on such shares, and/or (iii) issue a stop transfer order to the transfer agent with respect to such shares in order to enforce the transfer restrictions of this Section. SECTION 8 Limited Stock Appreciation Rights Limited stock appreciation rights may be granted in connection with all or part of (i) an incentive stock option granted under the Plan at the time of the grant of such stock option or (ii) a non-statutory option, at the time such option is granted or at any time thereafter during the term of the such option. Limited stock appreciation rights shall entitle the holder of an option in connection with which such limited stock appreciation rights are granted, upon exercise of the limited stock appreciation rights, to surrender the stock option, or any applicable portion thereof, and any related stock appreciation rights, to the extent unexercised, and to receive an amount of cash determined pursuant to this Section 8. Such option, and any related stock appreciation rights, shall, to the extent so surrendered, thereupon cease to be exercisable. Limited stock appreciation rights shall be subject to the following terms and conditions and to such other terms and conditions not inconsistent with the Plan as shall from time to time be approved by the Committee. (A) Limited stock appreciation rights shall be exercisable, subject to Section 8(B), during any one or more of the following periods: (i) for a period of 60 days beginning on the date on which shares of Common Stock are first purchased pursuant to a tender offer or exchange offer (other than such an offer by the Corporation), whether or not such offer is approved or opposed by the Corporation and regardless of the number of shares of Common Stock purchased pursuant to such offer; (ii) for a period of 60 days beginning on the date the Corporation acquires knowledge that any person or group deemed a person under Section 13(d)(3) of the Exchange Act (other than any director of the Corporation on November 1, 1989, any Affiliate or Associate of any such director (with such terms having the respective meanings set forth in Rule 12b-2 under the Exchange Act as in effect on November 1, 1989), any member of the family of any such director, any trust (including the trustees thereof) established by or for the benefit of any such persons, or any charitable foundation, whether a trust or a corporation (including the trustees and directors thereof) established by or for the benefit of any such persons), in a transaction or series of transactions shall become the beneficial owner, directly or indirectly (with beneficial ownership determined as provided in Rule 13d-3, or any successor rule, under the Exchange Act), of securities of the Corporation entitling the person or group to 10% or more of all votes (without consideration 8 9 of the rights of any class of stock to elect directors by a separate class vote) to which all shareholders of the Corporation would be entitled if the election of Directors were an election held on such date; (iii) for a period of 60 days beginning on the date of filing under the Exchange Act of a Statement on Schedule 13D, or any amendment thereto, by any person or group deemed a person under Section 13(d)(3) of the Exchange Act, disclosing an intention or possible intention to acquire or change control of the Corporation; (iv) for a period of 60 days beginning on the date, during any period of two consecutive years, when individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the shareholders of the Corporation, of each new Director was approved by a vote of at least two- thirds of the Directors then still in office who were Directors at the beginning of such period; and (v) for a period of 60 days beginning on the date of approval by the shareholders of the Corporation of an agreement (a "reorganization agreement") providing for (a) the merger or consolidation of the Corporation with another corporation where the shareholders of the Corporation, immediately prior to the merger or consolidation, do not or will not beneficially own, immediately after the merger or consolidation, shares of the corporation issuing cash or securities in the merger or consolidation entitling such shareholders to 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate class vote) to which all shareholders of such corporation would be entitled in the election of Directors or where the members of the Board of Directors of the Corporation, immediately prior to the merger or consolidation, do not or will not, immediately after the merger or consolidation, constitute a majority of the Board of Directors of the corporation issuing cash or securities in the merger or consolidation or (b) the sale or other disposition of all or substantially all the assets of the Corporation. (B) Subject to Section 9 hereof, limited stock appreciation rights shall in no event be exercisable unless and until the holder of the limited stock appreciation rights shall have completed at least six months of continuous service with the Corporation or a Subsidiary, or both, immediately following the date upon which the limited stock appreciation rights shall have been granted. (C) Upon exercise of limited stock appreciation rights, the holder thereof shall be entitled to receive an amount of cash in respect of each share of Common Stock subject to the related option equal to the excess of the fair market value of such share over the option price of such related option, and for this purpose fair market value shall mean the highest last sale price of the Common Stock on the over-the-counter market during the period beginning on the 90th day prior to the date on which the limited stock appreciation rights are exercised and ending on such date, except that (a) in the event of a tender offer or exchange offer for Common Stock, fair market value shall mean the greater of such last sale price or the highest price paid for Common Stock pursuant to any tender offer or exchange offer in effect at any time beginning on the 90th day prior to the date on which the limited stock appreciation rights are exercised and ending on such date, (b) in the event of the acquisition by any person or group of beneficial ownership of securities of the Corporation entitling 9 10 the person or group to 10% or more of all votes to which all shareholders of the Corporation would be entitled in the election of Directors or in the event of the filing of a Statement on Schedule 13D, or any amendment thereto, disclosing an intention or possible intention by any person or group to acquire control of the Corporation, fair market value shall mean the greater of such last sale price or the highest price per share paid for Common Stock shown on the Statement on Schedule 13D, or any amendment thereto, filed by the person or group becoming a 10% beneficial owner or disclosing an intention or possible intention to acquire control of the Corporation and (c) in the event of approval by shareholders of the Corporation of a reorganization agreement, fair market value shall mean the greater of such last sale price or the fixed or formula price specified in the reorganization agreement if such price is determinable as of the date of exercise of the limited stock appreciation rights. Any securities or property which are part or all of the consideration paid for Common Stock in a tender offer or exchange offer or under an approved reorganization agreement shall be valued at the higher of (a) the valuation placed on such securities or property by the person making the tender offer or exchange offer or by the corporation other than the Corporation issuing securities or property in the merger or consolidation or to whom the Corporation is selling or otherwise disposing of all or substantially all the assets of the Corporation and (b) the valuation placed on such securities or property by the Committee. (D) To the extent that limited stock appreciation rights shall be exercised, the option in connection with which such limited stock appreciation rights shall have been granted shall be deemed to have been exercised and any related stock appreciation rights shall be canceled. To the extent that the option in connection with which limited stock appreciation rights shall have been granted or any related stock appreciation rights shall be exercised, the limited stock appreciation rights granted in connection with such option shall be canceled. SECTION 9 Acceleration of the Exercise Date of Stock Options and Related Stock Appreciation Rights Notwithstanding any other provision of this Plan, all stock options and stock appreciation rights shall become exercisable upon the occurrence of any of the events specified in Section 8(A) whether or not such options are then exercisable under the provisions of the applicable agreements relating thereto, except that if stock appreciation rights have been granted along with limited stock appreciation rights to the same option holder with respect to the same option, in no event may the stock appreciation rights be exercised for cash during any of the 60-day periods provided for in Section 8. 10 11 SECTION 10 Effect of the Plan on the Rights of Employees and Employer Neither the adoption of the Plan nor any action of the Board or the Committee pursuant to the Plan shall be deemed to give any employee any right to be granted a stock option (with or without stock appreciation rights) under the Plan and nothing in the Plan, in any stock option or stock appreciation rights granted under the Plan or in any stock option agreement shall confer any right to any employee to continue in the employment of the Corporation or any Subsidiary or interfere in any way with the rights of the Corporation or any Subsidiary to terminate the employment of any employee at any time. SECTION 11 Amendment The right to alter and amend the Plan at any time and from time to time and the right to revoke or terminate the Plan are hereby specifically reserved to the Board; provided always that no such revocation or termination shall terminate any outstanding stock option or stock appreciation rights theretofore granted under the Plan; and provided further that no such alteration or amendment of the Plan shall, without prior stockholder approval (a) increase the total number of shares which may be issued or delivered under the Plan, (b) increase the total number of shares which may be covered by any stock option or stock options granted to any one optionee, (c) make any changes in the class of eligible employees or (d) extend the period set forth in the Plan during which stock options (with or without stock appreciation rights) may be granted. No alteration, amendment, revocation or termination of the Plan shall, without the written consent of the holder of a stock option or stock appreciation rights theretofore granted under the Plan, adversely affect the rights of such holder with respect to such stock option or stock appreciation rights. SECTION 12 Effective Date and Duration of Plan The effective date and date of adoption of the Plan shall be February 2, 1996 (the "Effective Date"), the date of adoption of the Plan by the Board, provided that such adoption of the Plan by the Board is approved by the affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock at a meeting of such holders duly called, convened and held within one year of the Effective Date. No stock option or stock appreciation rights granted under the Plan prior to such shareholder approval may be exercised until after such approval. No stock option or stock appreciation rights may be granted under the Plan subsequent to February 2, 2006. 11 EX-11 8 FNB CORPORATION 10-K 1 EXHIBIT 11 F.N.B. CORPORATION STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Dollars in thousands YEAR ENDED DECEMBER 31, 1995 1994 1993 --------- --------- --------- PRIMARY Net Income $ 18,083 $ 13,545 $ 10,472 Less: Preferred Stock Dividends Declared (849) (853) (857) --------- --------- --------- Net Income Applicable to Common Stock $ 17,234 $ 12,692 $ 9,615 ========= ========= ========= Average Common Shares Outstanding 8,595,697 8,568,885 8,572,434 Net Effect of Dilutive Stock Options - Based on the Treasury Stock Method Using Average Market Price 40,321 16,054 12,083 --------- --------- --------- 8,636,018 8,584,939 8,584,517 ========= ========= ========= Net Income per Common Share $2.00 $1.48 $1.12 ===== ===== ===== FULLY DILUTED Net Income $ 18,083 $ 13,545 $ 10,472 Plus: Minority Interest 64 49 --------- --------- --------- Net Income Applicable to Common Stock $ 18,083 $ 13,609 $ 10,521 ========= ========= ========= Average Common Shares Outstanding 8,595,697 8,568,885 8,572,434 Series A Convertible Preferred Stock 31,148 41,704 44,271 Series B Convertible Preferred Stock 838,002 801,319 801,420 Minority Interest Convertible Preferred Stock 33,620 30,054 Net Effect of Dilutive Stock Options - Based on the Treasury Stock Method Using the Year-End Market Price, If Higher than Average Market Price 47,865 16,054 14,709 --------- --------- --------- 9,512,712 9,461,582 9,462,888 ========= ========= ========= Net Income per Common Share $1.90 $1.44 $1.11 ===== ===== =====
EX-13 9 FNB CORPORATION 10-K 1 EXHIBIT 13 1995 FINANCIAL REVIEW [LOGO] 14 Consolidated Balance Sheet 15 Consolidated Income Statement 16 Consolidated Statement of Stockholders' Equity 17 Consolidated Statement of Cash Flows 18 Notes to Consolidated Financial Statements 36 Report of Independent Auditors 37 Selected and Quarterly Financial Data 38 Management's Discussion 51 Stock Prices and Dividends 52 Shareholder Services
F.N.B. CORPORATION 13 2 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
Dollars in thousands, except per share data December 31 1995 1994 - ------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 59,795 $ 60,451 Interest bearing deposits with banks 2,603 2,770 Federal funds sold 22,335 4,016 Securities available for sale 223,479 120,061 Securities held to maturity (fair value of $136,801 and $246,834) 136,969 257,956 Loans available for sale 10,154 5,904 Loans, net of unearned income of $26,609 and $22,022 1,212,741 1,188,399 Allowance for loan losses (21,550) (20,295) - ------------------------------------------------------------------------------------------------- NET LOANS 1,201,345 1,174,008 - ------------------------------------------------------------------------------------------------- Premises and equipment 22,504 22,982 Other assets 37,963 44,275 - ------------------------------------------------------------------------------------------------- $1,706,993 $1,686,519 ================================================================================================= LIABILITIES Deposits: Non-interest bearing $ 167,700 $ 163,566 Interest bearing 1,274,409 1,261,839 - ------------------------------------------------------------------------------------------------- TOTAL DEPOSITS 1,442,109 1,425,405 Short-term borrowings 55,224 69,365 Other liabilities 25,988 26,142 Long-term debt 39,755 39,017 - ------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 1,563,076 1,559,929 - ------------------------------------------------------------------------------------------------- MINORITY INTEREST 540 - ------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Preferred stock - $10 par value Authorized - 20,000,000 shares Outstanding - 451,638 and 456,288 shares Aggregate liquidation value - $11,291 and $11,407 4,516 4,563 Common stock - $2 par value Authorized - 20,000,000 shares Outstanding - 8,611,814 and 8,163,014 shares 17,268 16,364 Additional paid-in capital 58,631 51,686 Retained earnings 60,034 53,121 Net unrealized securities gains 3,932 625 Treasury stock - 22,340 and 18,974 shares at cost (464) (309) - ------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 143,917 126,050 - ------------------------------------------------------------------------------------------------- $1,706,993 $1,686,519 ================================================================================================= See accompanying Notes to Consolidated Financial Statements
14 F.N.B. CORPORATION 3 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT
Dollars in thousands, except per share data Year Ended December 31 1995 1994 1993 - --------------------------------------------------------------------------------------------------- INTEREST INCOME Loans, including fees $ 113,768 $ 103,210 $ 99,514 Securities: Taxable 18,150 18,592 23,663 Tax exempt 1,452 1,546 839 Dividends 612 559 572 Other 1,374 972 924 - --------------------------------------------------------------------------------------------------- TOTAL INTEREST INCOME 135,356 124,879 125,512 - --------------------------------------------------------------------------------------------------- INTEREST EXPENSE Deposits 51,589 44,251 49,550 Short-term borrowings 3,209 3,108 3,011 Long-term debt 3,258 2,869 2,778 - --------------------------------------------------------------------------------------------------- TOTAL INTEREST EXPENSE 58,056 50,228 55,339 - --------------------------------------------------------------------------------------------------- NET INTEREST INCOME 77,300 74,651 70,173 Provision for loan losses 5,652 8,450 9,498 - --------------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 71,648 66,201 60,675 - --------------------------------------------------------------------------------------------------- NON-INTEREST INCOME Insurance commissions and fees 4,284 4,195 4,328 Service charges 7,144 6,457 6,266 Trust 1,390 1,504 1,365 Gain on sale of securities 514 1,281 514 Gain (loss) on sale of loans 272 (331) 1,851 Other 1,404 1,276 1,701 - --------------------------------------------------------------------------------------------------- TOTAL NON-INTEREST INCOME 15,008 14,382 16,025 - --------------------------------------------------------------------------------------------------- 86,656 80,583 76,700 - --------------------------------------------------------------------------------------------------- NON-INTEREST EXPENSES Salaries and employee benefits 29,108 27,688 27,860 Net occupancy 4,920 4,536 4,265 Amortization of intangibles 1,238 1,687 2,020 Equipment 3,338 3,838 3,889 Deposit insurance 2,527 3,719 3,575 Promotional 2,305 2,054 1,864 Insurance claims paid 1,738 1,820 1,802 Other 14,776 14,949 16,454 - --------------------------------------------------------------------------------------------------- TOTAL NON-INTEREST EXPENSES 59,950 60,291 61,729 - --------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 26,706 20,292 14,971 Income taxes 8,623 6,747 4,499 - --------------------------------------------------------------------------------------------------- NET INCOME $ 18,083 $ 13,545 $ 10,472 =================================================================================================== NET INCOME PER COMMON SHARE PRIMARY $ 2.00 $ 1.48 $ 1.12 =================================================================================================== FULLY DILUTED $ 1.90 $ 1.44 $ 1.11 =================================================================================================== AVERAGE COMMON SHARES OUTSTANDING 8,595,697 8,568,885 8,572,434 =================================================================================================== See accompanying Notes to Consolidated Financial Statements
F.N.B. CORPORATION 15 4 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Dollars in thousands, except per share data NET ADDITIONAL UNREALIZED PREFERRED COMMON PAID-IN RETAINED SECURITIES TREASURY STOCK STOCK CAPITAL EARNINGS GAINS STOCK - ---------------------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 1, 1993 $4,605 $14,823 $41,483 $46,808 $ (40) Net income 10,472 Cash dividends declared: Preferred stock (857) Common stock - $.25 per share (2,150) Purchase of common stock (92,539 shares) (1,286) Issuance of common stock (81,213 shares) 106 1,099 5% stock dividend (370,795 shares) 741 4,912 (5,653) Conversion of preferred stock (2,350 preferred shares; 6,044 common shares) (23) 12 40 - ---------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1993 4,582 15,576 46,541 48,620 (227) Cumulative effect of adoption of FAS No. 115 $ 2,335 Net income 13,545 Cash dividends declared: Preferred stock (853) Common stock - $.26 per share (2,257) Purchase of common stock (70,690 shares) (1,143) Issuance of common stock (66,717 shares) (37) 3 1,061 5% stock dividend (389,309 shares) 779 5,158 (5,937) Conversion of preferred stock (1,900 preferred shares; 4,324 common shares) (19) 9 24 Change in net unrealized securities gains (1,710) - ---------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1994 4,563 16,364 51,686 53,121 625 (309) Net income 18,083 Cash dividends declared: Preferred stock (849) Common stock - $.37 per share (3,151) Purchase of common stock (78,851 shares) (1,447) Issuance of common stock (75,424 shares) 92 1,292 5% stock dividend (409,694 shares) 819 6,351 (7,170) Conversion of preferred stock (4,650 preferred shares; 42,472 common shares) (47) 85 502 Change in net unrealized securities gains 3,307 - ---------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 $4,516 $17,268 $58,631 $60,034 $ 3,932 $ (464) ============================================================================================================================ See accompanying Notes to Consolidated Financial Statements
16 F.N.B. CORPORATION 5 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
Dollars in thousands Year Ended December 31 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 18,083 $ 13,545 $ 10,472 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,704 6,184 7,688 Provision for loan losses 5,652 8,450 9,498 Deferred taxes (493) (1,325) (1,632) Gain on securities available for sale (514) (1,281) (514) (Gain) loss on sale of loans (272) 331 (1,851) Proceeds from sale of loans 21,085 47,020 81,492 Loans originated for sale (25,063) (79,823) (56,851) Change in: Interest receivable (397) (470) 1,877 Interest payable 686 1,152 (1,242) Other, net 3,343 7,663 954 - ---------------------------------------------------------------------------------------------------------- Net cash flows from operating activities 26,814 1,446 49,891 - ---------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Net change in interest bearing deposits with banks 167 3,322 4,288 Net change in federal funds sold (18,319) 19,643 (2,360) Purchase of securities available for sale (66,031) (77,945) (19,918) Purchase of securities held to maturity (38,617) (27,344) (104,574) Proceeds from sale of securities available for sale 2,726 12,404 40,170 Proceeds from maturity of securities available for sale 57,650 81,159 53,531 Proceeds from maturity of securities held to maturity 66,786 61,065 95,760 Net change in loans (28,816) (46,148) (94,337) Increase in premises and equipment (2,254) (2,167) (2,388) - ---------------------------------------------------------------------------------------------------------- Net cash flows from investing activities (26,708) 23,989 (29,828) - ---------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net change in non-interest bearing deposits 4,134 677 9,715 Net change in interest bearing deposits 12,570 (34,011) (30,923) Net change in short-term borrowings (14,141) 3,864 (3,137) Increase in long-term debt 8,274 18,812 42,713 Decrease in long-term debt (7,536) (11,092) (32,754) Proceeds from sale of stock 1,384 1,041 1,234 Purchase of treasury stock (1,447) (1,143) (1,286) Cash dividends paid (4,000) (3,110) (3,007) - ---------------------------------------------------------------------------------------------------------- Net cash flows from financing activities (762) (24,962) (17,445) - ---------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (656) 473 2,618 Cash and due from banks at beginning of year 60,451 59,978 57,360 - ---------------------------------------------------------------------------------------------------------- CASH AND DUE FROM BANKS AT END OF YEAR $ 59,795 $ 60,451 $ 59,978 ========================================================================================================== See accompanying Notes to Consolidated Financial Statements
F.N.B. CORPORATION 17 6 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 bank holding company headquartered in Hermitage, Pennsylvania. It operates six banks through 60 offices and a consumer finance company through 33 offices in Pennsylvania, eastern Ohio and southwestern New York. BASIS OF PRESENTATION: The consolidated financial statements include the accounts of the Corporation and its subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain reclassifications have been made to the prior years' financial statements to conform them to the current year's presentation. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. SECURITIES: Debt securities are classified as held to maturity when management has the positive intent and ability to hold securities to maturity. Securities held to maturity are carried at amortized cost. Debt securities not classified as held to maturity and marketable equity securities are classified as available for sale. Securities available for sale are carried at fair value with net unrealized securities gains (losses) reported separately through stockholders' equity, net of tax. Amortization of premiums and accretion of discounts are recorded as interest Income from securities. Realized gains and losses are recorded as net securities gains (losses). The adjusted cost of specific securities sold is used to compute gains or losses on sales. Presently, the Corporation has no intention of establishing a trading securities classification. LOANS AVAILABLE FOR SALE: Loans available for sale are recorded at the lower of aggregate cost or market value. Premium or discount recorded at the time of the sale is amortized over the estimated lives of the loans using the level yield method. In May of 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (FAS) No. 122, "Accounting for Mortgage Servicing Rights," an amendment of FAS No. 65. This Statement, which is required to be adopted by the first quarter of 1996, allows enterprises engaging in mortgage banking activities to recognize as separate assets rights to service mortgage loans originated for sale. Additionally, the Corporation must periodically assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights. The impact of this Statement is not anticipated to have a material impact on the Corporation's results of operations or financial position. LOANS AND RELATED FEES AND COSTS: Interest income on loans is accrued on the principal amount outstanding. Generally, 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. Loans which reach non-accrual status may not be restored to accrual status until all delinquent principal and interest have been paid, or the loan becomes both well secured and in the process of collection. Loan origination fees and related costs are deferred and recognized over the lives of the loans as an adjustment of yield. On January 1, 1995, the Corporation adopted FAS No. 114, "Accounting by Creditors for impairment of a Loan," as amended by FAS No. 118 "Accounting by Creditors for Impairment of a 18 F.N.B. CORPORATION 7 Loan - Income Recognition and Disclosures." These standards require that impaired loans be identified and measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price or at the fair value of the collateral if the loan is collateral dependent. If the recorded investment in the loan exceeds the measure of fair value, a valuation allowance is established as a component of the allowance for loan losses. Impaired loans consist of non-homogeneous loans, which based on the evaluation of current information and events, management has determined that it is probable that the Corporation will not be able to collect all amounts due on these loans according to the contractual terms of the loan agreements. The Corporation evaluates all commercial and commercial real estate loans which have been classified for regulatory reporting purposes, including nonaccrual and restructured loans, in determining impaired loans. The adoption of these accounting standards did not have a material impact on the overall allowance for loan losses and did not affect the Corporation's charge-off or income recognition policies. PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed generally on the straight-line method. OTHER REAL ESTATE OWNED: Assets acquired in settlement of indebtedness are included in other assets at the lower of fair value minus estimated costs to sell or at the carrying amount of the indebtedness. Subsequent write-downs and net direct operating expenses attributable to such assets are included in other expenses. ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is based on management's evaluation of potential losses in the loan portfolio, which includes an assessment of past experience, current and estimated future economic conditions, known and inherent risks in the loan portfolio, the estimated value of underlying collateral and industry standards. Additions are made to the allowance through periodic provisions charged to income and recovery of principal on loans previously charged off. Losses of principal are charged to the allowance when the loss actually occurs or when a determination is made that a loss is probable. AMORTIZATION OF INTANGIBLES: Core deposit intangibles acquired after June 30, 1985 are being amortized on accelerated methods over various lives ranging from 5-17 years. ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: The Corporation recognizes the projected future cost of providing postretirement benefits, such as health care and life insurance, as an expense as employees render service. INCOME TAXES: Deferred taxes are determined based on differences between financial reporting and tax basis 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: Per share amounts are adjusted for common stock dividends. Primary 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 and the number of shares of F.N.B. CORPORATION 19 8 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PER SHARE AMOUNTS (CONTINUED): common stock which would be issued assuming the exercise of stock options during each period. Fully diluted earnings per common share is calculated by dividing net income, adjusted for minority interest, 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. 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 dividends per common share are based on the actual cash dividends declared adjusted for stock dividends. Book value per common share is based on shares outstanding at each year-end adjusted retroactively for stock dividends. CASH EQUIVALENTS: The Corporation considers cash and due from banks as cash and cash equivalents. NEW ACCOUNTING STANDARDS: FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which becomes effective for the Corporation in 1996, requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present. The undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Adoption of this Statement in the first quarter of 1996 is not expected to have a material effect on the Corporation's financial position or results of operations. FAS No. 123, "Accounting for Stock-Based Compensation," which becomes effective for the Corporation in 1996, defines a fair value based method of accounting for stock-based employee compensation plans. Under the fair value based method, compensation cost is measured at the grant date based upon the value of the award and is recognized over the service period. However, FAS No. 123 also allows an entity to continue to measure compensation costs for its plans as prescribed in APB Opinion No. 25 "Accounting for Stock Issued to Employees." At this time, management expects to continue its accounting in accordance with APB Opinion No. 25. Disclosure requirements of FAS No. 123 will be adopted as required for financial statements beginning in 1996. 20 F.N.B. CORPORATION 9 SECURITIES Following is a summary of the maturity distribution and weighted average yield for each range of maturities of securities available for sale (dollars in thousands):
FAIR WEIGHTED December 31,1995 VALUE AVERAGE YIELD - -------------------------------------------------------------------------------------- U.S. Treasury and Other U.S. Government Agencies and Corporations: Maturing within one year $104,457 5.54% Maturing after one year but within five years 103,210 6.11 - -------------------------------------------------------------------------------------- TOTAL U.S. TREASURY AND OTHER U.S. GOVERNMENT AGENCIES AND CORPORATIONS $207,667 5.86 ====================================================================================== Mortgage-Backed Securities: Maturing after one year but within five years $ 17 7.98% Maturing after five years but within ten years 351 6.79 - -------------------------------------------------------------------------------------- TOTAL MORTGAGE-BACKED SECURITIES $ 368 6.84 - -------------------------------------------------------------------------------------- EQUITY SECURITIES $ 15,444 4.87% ======================================================================================
Following is a summary of the maturity distribution and weighted average yield for each range of maturities of securities held to maturity (dollars in thousands):
AMORTIZED WEIGHTED December 31,1995 COST AVERAGE YIELD - -------------------------------------------------------------------------------------- States of the U.S. and Political Subdivisions: Maturing within one year $ 1,275 10.78% Maturing after one year but within five years 30,490 5.75 Maturing after five years but within ten years 2,264 6.24 - -------------------------------------------------------------------------------------- TOTAL STATES OF THE U.S. AND POLITICAL SUBDIVISIONS $ 34,029 5.94 ====================================================================================== Mortgage-Backed Securities: Maturing within one year $ 2,078 7.62% Maturing after one year but within five years 99,451 6.00 Maturing after five years but within ten years 1,355 5.32 - -------------------------------------------------------------------------------------- TOTAL MORTGAGE-BACKED SECURITIES $102,884 6.03 ====================================================================================== Other Securities: Maturing within one year $ 12 5.44% Maturing after one year but within five years 24 5.54 Maturing after five years but within ten years 10 5.50 Maturing after ten years 10 2.80 - -------------------------------------------------------------------------------------- TOTAL OTHER SECURITIES $ 56 5.03 ======================================================================================
Maturities may differ from contractual terms because borrowers may have the right to call or prepay obligations with or without penalties. Tax-exempt securities have been adjusted to a taxable equivalent basis using a federal income tax rate of 35 percent. Proceeds from sales of securities during 1995, 1994 and 1993 were $2.7 million, $12.4 million and $40.2 million, respectively. Gross gains and gross losses were realized on those sales as follows (in thousands):
Year Ended December 31 1995 1994 1993 - ------------------------------------------------------------------------ Gross gains $515 $1,329 $726 Gross losses 1 48 212 All sales were from the securities available for sale category.
F.N.B. CORPORATION 21 10 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SECURITIES (CONTINUED) Following is a summary of securities available for sale (in thousands):
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 1995 COST GAINS LOSSES VALUE - ------------------------------------------------------------------------------------------------------------ U.S. Treasury and other U.S. Government agencies and corporations $206,169 $1,552 $ (54) $207,667 Mortgage-backed securities 363 5 368 - ------------------------------------------------------------------------------------------------------------ TOTAL DEBT SECURITIES 206,532 1,557 (54) 208,035 Equity securities 10,898 4,546 15,444 - ------------------------------------------------------------------------------------------------------------ $217,430 $6,103 $ (54) $223,479 ============================================================================================================ December 31, 1994 U.S. Treasury and other U.S. Government agencies and corporations $107,619 $(1,825) $105,794 Mortgage-backed securities 459 (32) 427 - ------------------------------------------------------------------------------------------------------------ TOTAL DEBT SECURITIES 108,078 (1,857) 106,221 Equity securities 11,021 $2,819 13,840 - ------------------------------------------------------------------------------------------------------------ $119,099 $2,819 $(1,857) $120,061 ============================================================================================================ December 31,1993 U.S. Treasury and other U.S. Government agencies and corporations $122,115 $1,071 $ (5) $123,181 Mortgage-backed securities 567 12 579 Other debt securities 16 16 - ------------------------------------------------------------------------------------------------------------ TOTAL DEBT SECURITIES 122,698 1,083 (5) 123,776 Equity securities 4,653 2,596 (81) 7,168 - ------------------------------------------------------------------------------------------------------------ $127,351 $3,679 $ (86) $130,944 ============================================================================================================
Following is a summary of securities held to maturity (in thousands):
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR December 31, 1995 COST GAINS LOSSES VALUE - ------------------------------------------------------------------------------------------------------------ States of the U.S. and political subdivisions $ 34,029 $ 70 $ (236) $ 33,863 Mortgage-backed securities 102,884 424 (421) 102,887 Other debt securities 56 (5) 51 - ------------------------------------------------------------------------------------------------------------ $136,969 $ 494 $ (662) $136,801 ============================================================================================================ December 31,1994 U.S. Treasury and other U.S. Government agencies and corporations $141,097 $ (3,884) $137,213 States of the U.S. and political subdivisions 35,334 $ 63 (2,325) 33,072 Mortgage-backed securities 81,464 1 (4,969) 76,496 Other debt securities 61 (8) 53 - ------------------------------------------------------------------------------------------------------------ $257,956 $ 64 $(11,186) $246,834 ============================================================================================================ December 31, 1993 U.S. Treasury and other U.S. Government agencies and corporations $163,051 $1,980 $ (47) $164,984 States of the U.S. and political subdivisions 36,335 345 (313) 36,367 Mortgage-backed securities 93,306 1,293 (43) 94,556 Other debt securities 65 65 - ------------------------------------------------------------------------------------------------------------ TOTAL DEBT SECURITIES 292,757 3,618 (403) 295,972 Equity securities 6,276 6,276 - ------------------------------------------------------------------------------------------------------------ $299,033 $3,618 $ (403) $302,248 ============================================================================================================
22 F.N.B. CORPORATION 11 On December 21, 1995, the Corporation transferred $92.0 million of debt securities from the held to maturity category to the available for sale category in accordance with recently issued implementation guidance on FAS No. 115. At the time of transfer, the market value of the securities totaled $92.3 million, and the unrealized gain, net of taxes, of $161,000 was recorded as an increase to stockholders' equity. At December 31, 1995 and 1994, respectively, securities available for sale with a fair value of $74.8 million and $13.1 million and securities held to maturity with an amortized cost of $34.3 million and $98.6 million were pledged to secure public deposits, trust deposits and for other purposes as required by law. At December 31, 1995, there were no securities of a single issuer, other than U.S. Treasury and other U.S. Government agencies and corporations, which exceeded 10% of stockholders' equity. FAS No. 119. "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," established disclosures about derivatives and other financial instruments. Derivatives are various instruments used to construct a transaction that is derived from and reflects the underlying value of assets, other instruments or various indices. The primary purpose of derivatives, which include such items as forward contracts, interest swap contracts, options and futures, is to transfer price risk associated with the fluctuations in asset values rather than to borrow or lend funds. As of December 31, 1995, the Corporation had not entered into any such transactions. LOANS Following is a summary of loans (in thousands):
December 31 1995 1994 - ------------------------------------------------------------------------------- Commercial, financial and agricultural $ 120,093 $ 156,848 Real estate - construction 7,993 28,193 Real estate - mortgage 784,492 707,813 Installment loans to individuals 326,772 317,567 Unearned income (26,609) (22,022) - ------------------------------------------------------------------------------- 1,212,741 1,188,399 - ------------------------------------------------------------------------------- Loans available for sale: Real estate-mortgage 7,919 5,071 Installment loans to individuals 2,235 833 - ------------------------------------------------------------------------------- 10,154 5,904 - ------------------------------------------------------------------------------- $1,222,895 $1,194,303 ===============================================================================
During 1995, the Corporation converted its data processing system. The new system allows for the separate classification of commercial real estate loans. The 1995 balances reflect commercial real estate loans within the real estate - mortgage category. Such loans were previously classified within the commercial, financial and agricultural category. Loans past due 90 days or more were $3.8 million, $2.6 million and $3.4 million at December 31, 1995, 1994 and 1993, respectively. During 1994, the Corporation reclassified $119.9 million of residential mortgages and indirect installment loans from an available for sale category into its permanent loan portfolio. This action was taken to more clearly reflect management's intent relative to portfolio lending activities by specifically defining certain loan originations that would be sold in the secondary market. At the time of this reclassification, the book value of those loans closely approximated their market value. Certain directors and executive officers of the Corporation and its significant subsidiaries, as well as associates of such persons, were loan customers during 1995. Such loans were made in the ordinary course of business under normal F.N.B. CORPORATION 23 12 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LOANS (CONTINUED) credit terms and do not represent more than a normal risk of collection. Following is a summary of the amount of loans in which the aggregate of the loans to any such persons exceeded $60,000 during the year (in thousands): Total loans at December 31, 1994 $ 25,483 New loans 11,235 Repayments (13,608) Other 933 ---------------------------------------------------------- Total loans at December 31, 1995 $ 24,043 ==========================================================
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 1995 1994 1993 - ------------------------------------------------------------------------------ Non-accrual loans $ 5,605 $ 9,512 $ 10,262 Restructured loans 3,075 3,157 3,236 - ------------------------------------------------------------------------------ TOTAL NON-PERFORMING LOANS 8,680 12,669 13,498 Other real estate owned 2,742 3,675 3,016 - ------------------------------------------------------------------------------ TOTAL NON-PERFORMING ASSETS $11,422 $ 16,344 $ 16,514 ==============================================================================
For the years ended December 31, 1995, 1994 and 1993, income recognized on non-accrual and restructured loans was $540,000, $621,000 and $671,000, respectively. Income that would have been recognized during 1995, 1994 and 1993 on such loans if they were in accordance with their original terms was $1.0 million, $1.7 million and $1.7 million, respectively. At December 31, 1995, the recorded investment in loans that were considered to be impaired under FAS No. 114 was $10.4 million (of which $2.5 million were on a non-accrual basis). Included in this amount was $3.7 million of impaired loans that as a result of write-downs did not have an allocated allowance for credit losses. The allocated allowance on the remaining $6.7 million of impaired loans totaled $1.1 million at December 31, 1995. The average recorded investment in impaired loans during the year ended December 31, 1995 was approximately $13.4 million. For the year ended December 31, 1995, the Corporation recognized interest income on those impaired loans of $867,000 which did not include any interest income recognized using the cash basis method of income recognition. ALLOWANCE FOR LOAN LOSSES Following is an analysis of changes in the allowance for loan losses (in thousands):
Year Ended December 31 1995 1994 1993 - ----------------------------------------------------------------------------- Balance at beginning of year $20,295 $16,440 $ 14,737 Loss reserves transferred (893) Charge-offs (6,136) (6,311) (8,275) Recoveries 1,739 1,716 1,373 - ------------------------------------------------------------------------------ NET CHARGE-OFFS (4,397) (4,595) (6,902) - ------------------------------------------------------------------------------ Provision for loan losses 5,652 8,450 9,498 - ------------------------------------------------------------------------------ Balance at end of year $21,550 $20,295 $ 16,440 ==============================================================================
24 F.N.B. CORPORATION 13 PREMISES AND EQUIPMENT Following is a summary of premises and equipment (in thousands):
December 31 1995 1994 - ---------------------------------------------------------------------------- Land $ 2,421 $ 2,415 Premises 26,288 26,442 Equipment 21,051 18,788 - ----------------------------------------------------------------------------- 49,760 47,645 Accumulated depreciation (27,256) (24,663) - ----------------------------------------------------------------------------- $ 22,504 $ 22,982 =============================================================================
Depreciation expense was $2.7 million for 1995, $3.1 million for 1994 and $3.1 million for 1993. The Corporation has announced plans to construct a new multi-story building in Hermitage as well as two new branches in Erie. Preliminary construction, equipment and furnishing costs are projected to be approximately $12.9 million. DEPOSITS Following is a summary of deposits (in thousands):
December 31 1995 1994 - ---------------------------------------------------------------------------- Non-interest bearing $ 167,700 $ 163,566 Savings and NOW 549,497 620,212 Certificates of deposit and other time deposits 724,912 641,627 - ----------------------------------------------------------------------------- $1,442,109 $1,425,405 =============================================================================
Following is a summary of time deposits of $100,000 or more by remaining maturities (in thousands):
CERTIFICATES OTHER TIME December 31, 1995 OF DEPOSIT DEPOSITS TOTAL - ----------------------------------------------------------------------------- Three months or less $ 29,937 $ 3,250 $ 33,187 Three to six months 21,057 2,879 23,936 Six to twelve months 15,755 4,345 20,100 Over twelve months 18,713 15,979 34,692 - ----------------------------------------------------------------------------- $ 85,462 $26,453 $111,915 =============================================================================
SHORT-TERM BORROWINGS Following is a summary of short-term borrowings (in thousands):
December 31 1995 1994 - ----------------------------------------------------------------------------- Securities sold under repurchase agreements $ 2,990 $ 2,535 Other short-term borrowings 4,872 18,745 Subordinated notes 47,362 48,085 - ----------------------------------------------------------------------------- $55,224 $69,365 =============================================================================
F.N.B. CORPORATION 25 14 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHORT-TERM BORROWINGS (CONTINUED) Credit facilities amounting to $25.0 million at December 31, 1995 and December 31, 1994 were maintained with various banks with rates at or below prime rate. The facilities and their terms are periodically reviewed by the banks and are generally subject to withdrawal at their discretion. The amount of these credit facilities which were unused amounted to $22.0 million and $21.0 million at December 31, 1995 and 1994, respectively. In addition, certain subsidiaries have access to short-term credit facilities at the Federal Home Loan Bank, which totaled $109.7 million at December 31, 1995, and if used would require collateralization. No amounts were used as of December 31, 1995. LONG-TERM DEBT Following is a summary of long-term debt (in thousands):
December 31 1995 1994 - ----------------------------------------------------------------------------- Real estate mortgages payable $ 284 $ 452 Federal Home Loan Bank advances 2,077 2,112 Subordinated notes 37,394 36,453 - ----------------------------------------------------------------------------- $39,755 $39,017 =============================================================================
The Federal Home Loan Bank advances are secured by residential real estate loans and are scheduled to mature in various amounts annually from 1996 through the year 1999. Subordinated notes are unsecured and subordinated to other indebtedness of the Corporation. The subordinated notes are scheduled to mature in various amounts annually from 1996 through the year 2005. At December 31, 1995, $29.5 million of long-term debt is redeemable prior to maturity. Of this total, $27.2 million is redeemable by the holder at a discount equal to three months of interest. The issuer 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 debt was 7.85% at December 31, 1995 and 8.02% at December 31, 1994. Scheduled annual maturities for each of the five years following December 31, 1995 are as follows (in thousands): 1996 $17,948 1997 5,320 1998 2,278 1999 898 2000 959
COMMITMENTS AND CREDIT RISK The Corporation has operating leases extending to 2016 for certain land, office locations and equipment. Leases that expire are generally expected to be renewed or replaced by other leases. Rental expense was $2.2 million for 1995, $1.7 million for 1994 and $1.3 million for 1993. Total minimum rental commitments under such leases were $7.0 million at December 31, 1995. Following is a summary of future minimum lease payments for years following December 31, 1995 (in thousands): 1996 $1,334 1997 1,240 1998 1,058 1999 656 2000 475 Later years 2,259
The Corporation's banking subsidiaries were required to maintain aggregate reserves amounting to $17.2 million at December 31, 1995 to satisfy federal regulatory requirements. The Corporation also maintains deposits for various services such as check clearing. 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. 26 F.N.B. CORPORATION 15 Following is a summary of off-balance sheet credit risk information (in thousands):
December 31 1995 1994 - ------------------------------------------------------------------------------- CREDIT CARRYING Credit Carrying AMOUNT AMOUNT Amount Amount - -------------------------------------------------------------------------------- Off-balance sheet credit risk: Commitments to extend credit $172,431 $215 $149,204 $ 63 Standby letters of credit 9,300 67 14,273 102
At December 31, 1995, funding of approximately 70 percent of the commitments to extend credit was 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 amounts under "carrying amount" represent accruals or deferred fee income arising from these unrecognized financial instruments. STOCKHOLDERS' EQUITY Series A - Cumulative Convertible Preferred Stock (Series A Preferred) was created for the purpose of acquiring Reeves Bank. Holders of Series A Preferred are entitled to 4.9 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 any time after 50% of the 49,512 shares issued are no longer outstanding. During 1995, 450 shares of Series A Preferred were converted to 617 shares of common stock. At December 31,1995, 31,148 shares of common stock were reserved by the Corporation for the conversion of the remaining 24,838 outstanding shares. Series B - Cumulative Convertible Preferred Stock (Series B Preferred) was issued during 1992 for the purpose of raising capital for an acquisition. Holders of Series B Preferred have no voting rights. Dividends are cumulative from the date of issue and are payable at $.46875 per share each quarter. Series B Preferred has a stated value of $25.00 per share and is convertible at the option of the holder at any time into shares of the Corporation's common stock at a price of $12.83 per share. The Corporation has the right to redeem the Series B Preferred Stock for cash on or after May 15, 1996, as set forth in the prospectus relating to the offering of Series B Preferred Stock dated May 8, 1992. During 1995, 4,200 shares of Series B Preferred were converted to 8,179 shares of common stock. At December 31, 1995, 831,362 shares of common stock were reserved by the Corporation for the conversion of the remaining 426,800 outstanding shares. Series A Preferred of First County was issued in connection with the initial capitalization of a subsidiary, First County Bank, and recognized as minority interest. The Corporation required the conversion of the outstanding shares during the first quarter of 1995. This conversion resulted in the Corporation issuing an additional 33,676 shares of common stock. Certain limitations exist under applicable law and regulations by regulatory agencies regarding dividend payments to a parent by its subsidiaries. As of December 31, 1995, the subsidiaries had F.N.B. CORPORATION 27 16 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STOCKHOLDERS' EQUITY (CONTINUED) $19.9 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 $12.7 million at December 31, 1995. STOCK INCENTIVE PLANS The Corporation has a restricted stock bonus plan which provides for the issuance of up to 352,800 shares of common stock to key employees of the Corporation. All shares of stock awarded under the plan vest in equal installments over a five year period on each anniversary of the date of grant. Participants have full voting rights on all shares regardless of vesting unless forfeited. The shares of stock awarded under the plan are held in the participant's name and are enrolled in the Voluntary Dividend Reinvestment and Stock Purchase Plan. During 1995, the Corporation awarded 2,901 shares, 20% of which became vested in January 1996. The Corporation has a stock option plan (Option Plan) which provides for the issuance of up to 428,831 stock options and stock appreciation rights to key employees of the Corporation. 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. At December 31, 1995, options for 77,355 shares of common stock were exercisable at prices ranging from $8.64 to $13.61 per share. Activity in the Option Plan during the past three years was as follows:
1995 1994 1993 - ------------------------------------------------------------------------------- Outstanding shares, beginning of year 195,630 142,486 74,601 Granted during the year 82,687 62,816 72,938 Exercised during the year (at prices ranging from $8.64 to $13.61 per share) (1,819) (1,837) Forfeited during the year (10,759) (7,835) (5,053) - ------------------------------------------------------------------------------- Outstanding shares, end of year 265,739 195,630 142,486 ===============================================================================
RETIREMENT PLANS The Corporation's subsidiaries have several retirement plans covering substantially all of their employees. Expense associated with these plans was $1.7 million in 1995, $1.6 million in 1994 and $931,000 in 1993. The defined benefit plans provide benefits based on years of credited service and compensation (as defined), subject to ERISA limitations. Contributions to the tax-qualified plans are made in amounts not less than the minimum-required contribution under ERISA nor more than the maximum-deductible contribution under the Internal Revenue Code. 28 F.N.B. CORPORATION 17 Following is the estimated funded status (in thousands):
December 31 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- PLANS WHOSE PLANS WHOSE Plans Whose Plans Whose ASSETS EXCEED ACCUMULATED Assets Exceed Accumulated ACCUMULATED BENEFITS Accumulated Benefits BENEFITS EXCEED ASSETS Benefits Exceed Assets - -------------------------------------------------------------------------------------------------------------------------------- Actuarial present value of: Vested benefit obligation $ 13,406 $ 2,439 $ 10,282 $ 1,236 ================================================================================================================================ Accumulated benefit obligation $ 13,625 $ 3,169 $ 10,506 $ 1,629 ================================================================================================================================ Projected benefit obligation for services rendered to date $(17,114) $(3,720) $(12,909) $(1,972) Plan assets at fair value, primarily U.S. Government securities and common stocks 17,881 14,673 - -------------------------------------------------------------------------------------------------------------------------------- Plan assets in excess of or (less than) projected benefit obligation 767 (3,720) 1,764 (1,972) Unrecognized net (gain) loss 21 (33) (1,313) (434) Unrecognized net obligation 58 63 Unrecognized prior service cost 162 2,185 179 1,484 Additional liability (707) - -------------------------------------------------------------------------------------------------------------------------------- Prepaid (accrued) pension costs $ 1,008 $(1,568) $ 693 $ (1,629) ================================================================================================================================
The pension expense for the defined benefit plans included the following components (in thousands):
Year Ended December 31 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------------- Service costs - benefits earned during the period $ 854 $ 1,072 $ 771 Interest cost on projected benefit obligation 1,375 1,237 815 Actual return on plan assets (3,014) 330 (757) Net amortization 2,115 (1,293) (212) - --------------------------------------------------------------------------------------------------------------------------------- Net pension expense $ 1,330 $ 1,346 $ 617 =================================================================================================================================
Assumptions as of December 31 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------------- Weighted average discount rate 7.0% 8.5% 7.3% Rates of increase in compensation levels 4.0% 4.0% 4.0% Expected long-term rate of return on assets 8.0% 8.0% 8.0%
At December 31, 1995 and 1994, respectively, plan assets included $745,000 and $519,000 of the Corporation's common stock and $193,000 and $172,000 of the Corporation's subordinated debt. The Corporation's subsidiaries also have a qualified 401(k) deferred compensation, defined contribution plan for its full-time employees. A percentage of employees' contributions to the plan are matched by the Corporation up to a maximum of 6 percent of the employee's salary. The 401(k) pension expense amounted to $340,000 in 1995, $297,000 in 1994 and $314,000 in 1993. Plan assets included $2.7 million and $1.4 million in the Corporation's common stock at December 31, 1995 and 1994, respectively. F.N.B. CORPORATION 29 18 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS POSTRETIREMENT PLANS In addition to the Corporation's retirement plans, the Corporation has various unfunded postretirement plans which provide medical benefits and life insurance benefits to its retirees. The postretirement health care plans vary, the most stringent of which are contributory and contain other cost-sharing features such as deductibles and co-insurance. The life insurance plans are noncontributory. The amounts recognized in the Corporation's consolidated financial statements are as follows (in thousands):
Year Ended December 31 1995 1994 - ------------------------------------------------------------------------------------------------------- Accumulated Postretirement Benefit Obligation: Current retirees $ 186 $ 247 Fully eligible actives 50 83 Other actives 594 702 - ------------------------------------------------------------------------------------------------------- Total Accumulated Postretirement Benefit Obligation 830 1,032 Unrecognized net transition obligation (760) (809) Unrecognized net gain 255 19 Unrecognized prior service cost (9) (22) - ------------------------------------------------------------------------------------------------------- Accrued postretirement benefit liability $ 316 $ 220 =======================================================================================================
Net periodic postretirement benefit cost included the following components (in thousands):
Year Ended December 31 1995 1994 1993 - -------------------------------------------------------------------------------------------------------- Service cost $ 60 $ 75 $ 69 Interest cost 68 73 58 Amortization of transition obligation 38 49 50 - -------------------------------------------------------------------------------------------------------- Net periodic postretirement benefit cost $166 $197 $177 ========================================================================================================
A 7.50 percent annual rate of increase in the per capita costs of covered health care benefits is assumed for 1996, gradually decreasing to 4.75 percent by the year 2001. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995 by $74,000 and increase the aggregate of the service and interest cost component of net periodic postretirement benefit cost for 1995 by $15,000. A discount rate of 7.00 percent was used to determine the accumulated postretirement benefit obligation. INCOME TAXES Deferred tax assets and liabilities are recognized for the expected future tax consequence of events that have been recognized in the Corporation's consolidated financial statements or tax returns and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Income tax expense consists of the following (in thousands):
Year Ended December 31 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------- Current income taxes: Federal taxes $8,892 $ 7,852 $ 5,788 State taxes 224 220 343 - ----------------------------------------------------------------------------------------------------------- 9,116 8,072 6,131 Deferred income taxes: Federal taxes (493) (1,325) (1,641) State taxes 9 - ----------------------------------------------------------------------------------------------------------- $8,623 $ 6,747 $ 4,499 ===========================================================================================================
30 F.N.B. CORPORATION 19 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands):
Year Ended December 31 1995 1994 - --------------------------------------------------------------------------------- Deferred tax assets: Allowance for loan losses $ 6,760 $ 6,355 Compensated absences 46 191 Loans available for sale (285) (48) Deferred compensation 234 213 Loan fees 145 338 Other 2,640 2,037 - --------------------------------------------------------------------------------- TOTAL GROSS DEFERRED TAX ASSETS 9,540 9,086 - --------------------------------------------------------------------------------- Deferred tax liabilities: Depreciation (897) (905) Dealer reserve participation (957) (957) Unrealized gains on securities available for sale (2,117) (337) Securitization of indirect automobile loans (291) (237) Other (2,033) (1,921) - --------------------------------------------------------------------------------- TOTAL GROSS DEFERRED TAX LIABILITIES (6,295) (4,357) - --------------------------------------------------------------------------------- 3,245 4,729 Less valuation allowance 197 - --------------------------------------------------------------------------------- NET DEFERRED TAX ASSETS $ 3,245 $ 4,532 =================================================================================
The valuation allowance for deferred taxes related to state tax benefits. Following is a reconciliation between federal statutory tax and actual effective tax:
Year Ended December 31 1995 1994 1993 - --------------------------------------------------------------------------------- Federal statutory tax 35.0% 35.0% 35.0% Effect of nontaxable interest and dividend income (4.5) (6.2) (6.9) State taxes .5 .7 1.5 Goodwill .5 .7 Other items .8 3.1 .4 - --------------------------------------------------------------------------------- Actual effective tax 32.3% 33.3% 30.0% =================================================================================
A banking subsidiary has been allowed a special thrift bad debt deduction of 8% of otherwise taxable income, subject to certain limitations based on aggregate loan and savings account balances at the end of each year. The Corporation has not recognized a deferred tax liability of approximately $1.3 million. If amounts that qualify as deductions for federal income tax purposes are later used for purposes other than for bad debt losses, they will be subject to federal income tax at the then current corporate rate. Retained earnings at December 31, 1995 include $3.8 million for which federal income tax has not been provided. Included in loan income was interest on tax-free loans of $2.4 million, $2.5 million and $2.6 million for 1995, 1994 and 1993, respectively. The related income tax expense on securities gains amounting to $180,000, $449,000 and $180,000 for 1995, 1994 and 1993, respectively, was included in income taxes. MERGERS AND ACQUISITIONS On February 2, 1996, the Corporation signed a definitive merger agreement with Southwest Banks, Inc. (Southwest), a bank holding company headquartered in Naples, Florida with assets of approximately $386 million. The merger agreement calls for an exchange of .78 share of F.N.B. Corporation common stock for each share of Southwest common stock. Approximately F.N.B. CORPORATION 31 20 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MERGERS AND ACQUISITIONS (CONTINUED) 2,715,545 shares of F.N.B. Corporation common stock are expected to be issued in conjunction with the merger. In connection with the merger agreement, Southwest granted the Corporation an option to purchase, under certain circumstances, up to 727,163 shares of Southwest common stock at a price of $15.00 per share. The exchange ratio, number of shares under option and the price of the options are all subject to possible adjustment. The transaction will be accounted for as a pooling of interests, and is expected to close in early 1997, subject to approval by certain regulatory authorities and Southwest's shareholders. CASH FLOW INFORMATION Following is a summary of supplemental cash flow information (in thousands):
Year Ended December 31 1995 1994 1993 - --------------------------------------------------------------------------------------------------- Cash paid during year for: Interest $ 57,370 $ 51,270 $ 56,549 Income taxes 8,948 7,318 5,812 Noncash Investing and Financing Activities: Acquisition of real estate in settlement of loans $ 1,855 $ 3,210 $ 2,535 Loans granted in the sale of other real estate 321 1,267 4,704 Transfers and reclassifications of securities held to maturity to securities available for sale 91,982 6,227 Loans reclassified from available for sale 119,858
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 1995 1994 - -------------------------------------------------------------------------- ASSETS Cash $ 16 $ 13 Short-term investments 2,928 2,722 Advances to subsidiaries 74,849 70,742 Receivables 6,761 3,087 Securities available for sale 9,180 7,564 Investment in bank subsidiaries 121,584 113,681 Investment in non-bank subsidiaries 20,869 19,691 - -------------------------------------------------------------------------- $236,187 $217,500 ========================================================================== LIABILITIES Short-term borrowings $ 3,000 $ 4,000 Other liabilities 4,514 2,911 Subordinated notes 84,756 84,539 - -------------------------------------------------------------------------- TOTAL LIABILITIES 92,270 91,450 - -------------------------------------------------------------------------- STOCKHOLDERS' EQUITY 143,917 126,050 - -------------------------------------------------------------------------- $236,187 $217,500 ==========================================================================
32 F.N.B. CORPORATION 21 INCOME STATEMENT (in thousands):
Year Ended December 31 1995 1994 1993 - ---------------------------------------------------------------------------------- INCOME Dividends from subsidiaries: Bank $ 8,942 $ 6,849 $ 6,478 Non-bank 3,706 3,596 2,902 - ---------------------------------------------------------------------------------- 12,648 10,445 9,380 Gain on sale of securities 512 1,287 403 Interest 4,924 4,062 193 Other 206 190 189 - ---------------------------------------------------------------------------------- TOTAL INCOME 18,290 15,984 10,165 - ---------------------------------------------------------------------------------- EXPENSES Interest 5,972 5,465 1,967 Service fees 609 559 461 Other 1,297 1,239 620 - ---------------------------------------------------------------------------------- TOTAL EXPENSES 7,878 7,263 3,048 - ---------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 10,412 8,721 7,117 Income tax benefit 700 430 846 - ---------------------------------------------------------------------------------- 11,112 9,151 7,963 - ---------------------------------------------------------------------------------- EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES Bank 5,972 4,226 (4) Non-bank 999 168 2,513 - ---------------------------------------------------------------------------------- 6,971 4,394 2,509 - ---------------------------------------------------------------------------------- NET INCOME $ 18,083 $ 13,545 $ 10,472 ==================================================================================
F.N.B. CORPORATION 33 22 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF CASH FLOWS (in thousands):
Year Ended December 31 1995 1994 1993 - ----------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $18,083 $13,545 $10,472 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of securities (512) (1,287) (403) Undistributed earnings of subsidiaries (6,971) (4,394) (2,509) Other, net (882) (1,417) (1,760) - ----------------------------------------------------------------------------------------- Net cash flows from operating activities 9,718 6,447 5,800 - ----------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of securities (383) (1,151) (320) Proceeds from sale of securities 1,006 2,346 975 Advances from (to) subsidiaries (6,107) (4,779) 688 Investment in subsidiaries (1,996) - ----------------------------------------------------------------------------------------- Net cash flows from investing activities (5,484) (5,580) 1,343 - ----------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net decrease in due to non-bank subsidiary (4,295) (3,020) Net decrease in short-term debt (1,723) (1,210) (1,000) Decrease in subordinated notes (5,334) (7,400) (35) Increase in subordinated notes 6,274 15,275 Purchase of common stock (1,447) (1,143) (1,285) Sale of common stock 1,999 1,027 1,205 Cash dividends paid (4,000) (3,110) (3,007) - ----------------------------------------------------------------------------------------- Net cash flows from financing activities (4,231) (856) (7,142) - ----------------------------------------------------------------------------------------- NET INCREASE IN CASH 3 11 1 Cash at beginning of year 13 2 1 - ----------------------------------------------------------------------------------------- CASH AT END OF YEAR $ 16 $ 13 $ 2 ========================================================================================= CASH PAID Interest $ 5,009 $ 4,433 $ 1,908 Income taxes 39 295
Subordinated notes are unsecured and subordinated to other indebtedness of the Corporation. At December 31 1995, $74.6 million principal amount of such notes was redeemable prior to maturity by the holder at a discount equal to one month of interest on short term notes or three months of interest on long-term notes. The issuer may require the holder to give 30 days prior written notice. No sinking fund has been established to retire the notes. The weighted average interest rate was 6.63% at December 31, 1995 and 6.40% at December 31, 1994. The subordinated notes are scheduled to mature in various amounts annually from 1996 through the year 2005. Following is a summary of the combined aggregate scheduled annual maturities for each year following December 31, 1995 (in thousands): 1996 $ 63,139 1997 5,222 1998 2,254 1999 874 2000 943 Later years 12,324
34 F.N.B. CORPORATION 23 FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: 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 for the same remaining maturities. 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. The fair value estimates do not include the benefits that result from low-cost funding provided by the deposit liabilities compared to the cost of alternate sources of funds. 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. OFF-BALANCE SHEET CREDIT RISK: The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the customer. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The estimated fair values of the Corporation's financial instruments are as follows (in thousands):
1995 1994 - ----------------------------------------------------------------------------------------------- CARRYING FAIR Carrying Fair AMOUNT VALUE Amount Value - ----------------------------------------------------------------------------------------------- FINANCIAL ASSETS Cash and short-term investments $ 84,733 $ 84,733 $ 67,237 $ 67,237 Securities available for sale 223,479 223,479 120,061 120,061 Securities held to maturity 136,969 136,801 257,956 246,834 Net loans 1,201,345 1,203,131 1,174,008 1,156,191 FINANCIAL LIABILITIES Deposits $1,442,109 $1,446,678 $1,425,405 $1,420,719 Short-term borrowings 55,224 55,224 69,365 69,365 Long-term debt 39,755 40,504 39,017 38,778 OFF-BALANCE SHEET CREDIT RISK Commitments to extend credit $ 215 $ 215 $ 63 $ 63 Standby letters of credit 67 68 102 10
F.N.B. CORPORATION 35 24 F.N.B. CORPORATION AND SUBSIDIARIES REPORT OF INDEPENDENT AUDITORS ERNST & YOUNG LLP One Oxford Centre Phone: 412 644 7800 Pittsburgh, Pennsylvania 15219 REPORT OF INDEPENDENT AUDITORS The Stockholders and Board of Directors F.N.B. Corporation We have audited the accompanying consolidated balance sheet of F.N.B. Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the 1993 financial statements of two wholly-owned subsidiaries which reflect net income of $754,000 included in consolidated net income for the year ended December 31, 1993. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to data included for those subsidiaries, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of F.N.B. Corporation and subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP February 5, 1996 Ernst & Young LLP is a member of Ernst & Young International, Ltd. 36 F.N.B. CORPORATION 25 F.N.B. CORPORATION AND SUBSIDIARIES SELECTED AND QUARTERLY FINANCIAL DATA SELECTED FINANCIAL DATA (Dollars in thousands, except per share data)
Year Ended December 31 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------- Total interest income $ 135,356 $ 124,879 $ 125,512 $ 125,825 $ 124,118 Total interest expense 58,056 50,228 55,339 62,533 72,752 Net interest income 77,300 74,651 70,173 63,292 51,366 Provision for loan losses 5,652 8,450 9,498 15,107 5,399 Total non-interest income 15,008 14,382 16,025 13,439 10,892 Total non-interest expenses 59,950 60,291 61,729 51,867 43,261 Net income 18,083 13,545 10,472 6,770 10,005 AT YEAR-END Total assets $1,706,993 $1,686,519 $1,690,150 $1,698,608 $1,378,740 Deposits 1,442,109 1,425,405 1,458,739 1,479 947 1,178 226 Net loans 1,201,345 1,174,008 1,105,876 1,041,979 988,672 Long-term debt 39,755 39,017 31,297 32,823 18,520 Preferred stock 4,516 4,563 4,582 4,605 292 Total stockholders equity 143,917 126,050 115,092 107,679 93,280 PER COMMON SHARE Net income Primary $ 2.00 $ 1.48 $ 1.12 $ .73 $ 1.16 Fully diluted 1.90 1.44 1.11 .73 1.16 Cash dividends .37 .26 .25 .24 .22 Book value 15.40 13.38 12.09 11.21 10.81 RATIOS Return on average assets 1.07% .80% .62% .45% .75% Return on average equity 13.37 11 12 9.39 6.59 11.23 Dividend payout ratio 18.50 17.57 22.32 32.88 18.97 Average equity to average assets 8.00 7.20 6.61 6.76 6.71
QUARTERLY EARNINGS SUMMARY (Dollars in thousands, except per share data)
QUARTER ENDED 1995 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 - ---------------------------------------------------------------------------------------------------------- Total interest income $ 32,635 $ 33,834 $ 34,572 $ 34,315 Total interest expense 13,527 14,675 14,988 14,866 Net interest income 19,108 19,159 19,584 19,449 Provision for loan losses 1,541 1,393 1,366 1,352 Total non-interest income 3,409 4,324 3,546 3,729 Total non-interest expenses 15,116 15,573 14,631 14,630 Net income 3,984 4,345 4,856 4,898 PER COMMON SHARE Net income Primary $ .44 $ .48 $ .54 $ .54 Fully diluted .42 .46 .51 .51 Cash dividends .07 .07 .10 .13
QUARTER ENDED 1994 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 - ---------------------------------------------------------------------------------------------------------- Total interest income $ 30,567 $ 30,888 $ 31,331 $ 32,093 Total interest expense 12,397 12,254 12,681 12,896 Net interest income 18,170 18,634 18,650 19,197 Provision for loan losses 2,686 2,145 1,854 1,765 Total non-interest income 3,642 3,643 3,208 3,889 Total non-interest expenses 14,849 15,272 14,569 15,601 Net income 2,933 3,287 3,520 3,805 PER COMMON SHARE Net income Primary $ .32 $ .36 $ .38 $ .42 Fully diluted .32 .35 .37 .40 Cash dividends .06 .06 .07 .07
F.N.B. CORPORATION 37 26 F.N.B CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIS FINANCIAL REVIEW SUMMARIZES THE CORPORATION'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND IS INTENDED TO BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES TO THOSE STATEMENTS. RESULTS OF OPERATIONS Net income increased 33.5% from $13.5 million in 1994 to $18.1 million in 1995. Primary earnings per share were $2.00 and $1.48 for 1995 and 1994, while fully diluted earnings per share were $1.90 and $1.44. respectively, for those same periods. The key factors to the increase were improved credit quality, which allowed for lower loan loss provisions, an increase in higher yielding assets and continuing efforts to reduce non-interest expense. These factors are further detailed in the discussion which follows. The Corporation's asset quality has improved steadily as indicated by several key credit ratios. At December 31, 1995, non-performing assets decreased to .67% of total assets compared to .97% at December 31, 1994. The allowance for loan losses improved to 1.76% of total loans compared to 1.70% a year ago. The ratio of net charge-offs to average loans outstanding decreased in 1995 to .37% compared to a 1994 ratio of .40%. Common comparative ratios for results of operations include the return on average assets and the return on average equity. The Corporation's return on average assets was 1.07% for 1995 compared to .80% for 1994, while the Corporation's return on average equity was 13.37% for 1995 compared to 11.12% for 1994. NET INCOME (DOLLARS IN MILLIONS) 1991 10.0 1992 6.8 1993 10.5 1994 13.5 1995 18.1 38 F.N.B. CORPORATION 27 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 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------------- AVERAGE YIELD/ Average Yield/ Average Yield/ BALANCE INTEREST RATE Balance Interest Rate Balance Interest Rate - ----------------------------------------------------------------------------------------------------------------------------------- Assets Interest earning assets: Interest bearing deposits with banks $ 3,973 $ 252 6.33% $ 6,267 $ 221 3.53% $ 8,531 $ 165 1.93% Federal funds sold 18,844 1,122 5.95 19,587 751 3.83 23,407 759 3.24 Securities: U.S. Treasury and other U.S. Government agencies and corporations 321,792 18,150 5.64 357,874 18,592 5.20 426,794 23,663 5.54 States of the U.S. and political subdivisions (1) 34,675 2,217 6.39 35,889 2,304 6.42 17,739 1,257 7.09 Other securities (1) 14,400 691 4.81 13,750 714 5.19 10,933 574 5.25 Loans (1) (2) 1,202,036 115,018 9.57 1,153,087 104,529 9.07 1,094,473 100,816 9.21 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest earning assets 1,595,720 137,450 8.61 1,586,454 127,111 8.01 1,581,877 127,234 8.04 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and due from banks 53,161 54,013 50,238 Allowance for loan losses (21,187) (19,327) (16,670) Premises and equipment 22,920 23,336 24,545 Other assets 40,968 46,712 48,955 - ----------------------------------------------------------------------------------------------------------------------------------- $1,691,582 $1,691,188 $1,688,945 =================================================================================================================================== LIABILITIES Interest bearing liabilities: Deposits: Interest bearing demand $ 155,170 $ 2,648 1.71% $ 167,324 $ 3,110 1.86% $ 168,807 $ 3,960 2.35% Savings 417,291 10,418 2.50 495,455 12,173 2.46 511,633 14,617 2.86 Other time 699,497 38,523 5.51 620,562 28,968 4.67 633,670 30,973 4.89 Short-term borrowings 55,772 3,209 5.75 65,171 3,108 4.77 64,329 3,011 4.68 Long-term debt 39,856 3,258 8.18 33,000 2,869 8.69 31,484 2,778 8.82 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest bearing liabilities 1,367,586 58,056 4.25 1,381,512 50,228 3.64 1,409,923 55,339 3.92 Non-interest bearing demand deposits 159,610 159,034 142,452 Other liabilities 29,135 28,297 24,507 - ----------------------------------------------------------------------------------------------------------------------------------- 1,556,331 1,568,843 1,576,882 - ----------------------------------------------------------------------------------------------------------------------------------- MINORITY INTEREST 528 505 - ----------------------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY 135,251 121,817 111,558 - ----------------------------------------------------------------------------------------------------------------------------------- $1,691,582 $1,691,188 $1,688,945 =================================================================================================================================== Excess of interest earning assets over interest bearing liabilities $ 228,134 $ 204,942 $ 171,954 =================================================================================================================================== Net interest income $ 79,394 $ 76,883 $ 71,895 =================================================================================================================================== Net interest spread 4.36% 4.37% 4.12% =================================================================================================================================== Net interest margin (3) 4.98% 4.85% 4.54% =================================================================================================================================== (1) The amounts are reflected on a fully taxable equivalent basis using the federal statutory tax rate of 35%, adjusted for certain federal tax preferences. (2) Average outstanding includes non-accrual loans. Loans consist of average total loans less average unearned income. The amount of loan fees included in interest income on loans is immaterial. (3) Net interest margin is calculated by dividing the difference between total interest earned and total interest paid by total interest earning assets.
F.N.B. CORPORATION 39 28 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION 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 $79.4 million in 1995 versus $76.9 million in 1994. Net interest income consisted of interest income of $ 137.5 million and interest expense of $58.1 million in 1995, compared to $127.1 million and $50.2 million for each, respectively, in 1994. Net interest income as a percentage of average earning assets (commonly referred to as the margin) rose to 4.98% in 1995 compared to 4.85% in 1994. NET INTEREST MARGIN 1991 4.25 1992 4.47 1993 4.54 1994 4.85 1995 4.98 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 1995 1994 VOLUME RATE NET Volume Rate Net - ----------------------------------------------------------------------------------------------------- INTEREST INCOME Interest bearing deposits with banks $ (101) $ 132 $ 31 $ (53) $ 109 $ 56 Federal funds sold (29) 400 371 (135) 127 (8) Securities: U.S. Treasury and other U.S. Government Agencies and corporations (1,959) 1,517 (442) (3,647) (1,424) (5,071) States of the U.S. and political subdivisions (77) (10) (87) 1,175 (128) 1,047 Other securities (56) 33 (23) 147 (7) 140 Loans 4,544 5,945 10,489 5,334 (1,621) 3,713 - ----------------------------------------------------------------------------------------------------- 2,322 8,017 10,339 2,821 (2,944) (123) - ----------------------------------------------------------------------------------------------------- INTEREST EXPENSE Deposits: Interest bearing demand (217) (245) (462) (34) (816) (850) Savings (1,949) 194 (1,755) (450) (1,994) (2,444) Other time 3,959 5,596 9,555 (632) (1,373) (2,005) Short-term borrowings (486) 587 101 (8) 105 97 Long-term debt 568 (179) 389 132 (41) 91 - ----------------------------------------------------------------------------------------------------- 1,875 5,953 7,828 (992) (4,119) (5,111) - ----------------------------------------------------------------------------------------------------- NET CHANGE $ 447 $ 2,064 $ 2,511 $ 3,813 $ 1,175 $ 4,988 =====================================================================================================
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 absolute relative size of the rate and volume changes. 40 F.N.B. CORPORATION 29 Interest income on loans increased 10.0% from $ 104.5 million in 1994 to $115.0 million in 1995. This increase was the result of greater loan demand and higher interest rates throughout most of 1995 compared to 1994. Average loans increased 4.2% from 1994. Interest on federal funds sold increased 49.4% to $1.1 million in 1995. This increase was the result of the rising market interest rates. Interest expense on deposits increased 16.6% to $51.6 million in 1995, due to a change in interest expense on time deposits from $29.0 million in 1994 to $38.5 million in 1995. This was primarily the result of increased market rates of interest and the shift in the deposit mix from transaction and savings accounts into higher paying certificate accounts. The Corporation monitors interest rate sensitivity by measuring the impact that future changes in interest rates will have on net interest income. Through its asset/liability management and pricing policies, management strives to optimize net interest income while minimizing the effects of inflation . (See "Liquidity and Interest Rate Sensitivity" discussion). 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 all factors relevant to the collectibility of the existing portfolio. The provision for loan losses decreased 33.1% to $5.7 million in 1995. The decrease in the provision for loan losses was a direct result of the continued improvement in asset quality. (See "Allowance for Loan Losses" discussion). NON-INTEREST INCOME Total non-interest income increased 4.4% from $14.4 million in 1994 to $15.0 million in 1995. This increase was attributable to increases in service charges and gains on the sale of loans, offset by a decrease in gains on the sale of securities. Service charges increased 10.6% from $6.5 million in 1994 to $7.1 million in 1995. Revenue was recognized as a result of certain increases in retail fees charged to customers, as well as increases in both total loans and total deposits. Gains on the sale of loans increased 182.2% in 1995. Gains in 1994 were negatively impacted by a $200,000 adjustment to the amortization of excess servicing on securitized loans. The remaining difference reflects rapidly rising rates in 1994 which made it difficult to sell at or above par value and more stable rates in 1995 which allowed, in many cases, sales at a premium. Gains on the sale of securities decreased 59.9% because of fewer security sales during 1995. The market value on the securities available for sale increased in 1995, contributing to an increase in net unrealized gains to $3.9 million. NON-INTEREST EXPENSES Total non-interest expense decreased slightly from $60.3 million in 1994 to $60.0 million in 1995. The decrease was attributable to expense control throughout the Corporation and a reduction in premiums charged for deposit insurance. Salaries and personnel expense increased 5.1% in 1995. This increase was primarily due to an increase of $ 1.0 million for incentive compensation. The Corporation's incentive plan allows for additional compensation to be paid to employees based on the Corporation achieving various goals. Deposit insurance decreased 32.1% in 1995. This was the result of the Federal Deposit Insurance Corporation (FDIC) lowering the insurance premiums for banks, now that the Bank Insurance Fund (BIF) has been funded to the required level. Conversely, based on Financial Institutions Reform, Recovery and Enforcement Act of 1989 requirements, the Savings Association Insurance Fund (SAIF) is still under-funded and therefore, deposit premiums have not been reduced. As a result, it is argued that thrifts are at a competitive disadvantage. Congress is currently considering legislation to impose a one-time deposit premium charge to recapitalize the SAIF. The amount of this premium is uncertain, however, indications have been in a range of $.80 to $.90 per $100 of deposits. At December 31,1995, the Corporation had approximately $454.9 million in SAIF deposits. INCOME TAXES The Corporation recognized income tax expense of $8.6 million for 1995 compared to $6.7 million F.N.B. CORPORATION 41 30 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION INCOME TAXES (CONTINUED) for 1994 primarily due to the fact that the Corporation had more taxable income in 1995. The 1995 effective tax rate of 32.3% was below the 35% federal statutory tax rate due to the tax benefits resulting from income on tax-exempt instruments and excludable dividend income. A complete analysis of income taxes is furnished in the Notes to Consolidated Financial Statements. LIQUIDITY AND INTEREST RATE SENSITIVITY The Corporation monitors its liquidity position on an ongoing basis to assure that it is able to meet the need for funds. Given the monetary nature of its assets and liabilities and the significant source of liquidity provided by its securities portfolio, the Corporation generally has sufficient sources of funds available as needed to meet its routine, operational cash needs. Securities due to mature within one year, which will provide a source of short-term liquidity, amounted to $107.8 million or 29.9% of the securities portfolio. In addition to normal liquidity provided from operations, the Corporation has external sources of funds available should it desire to use them. These include approved lines of credit with several major domestic banks, of which $22.0 million was unused at the end of 1995. To further meet its liquidity needs, the Corporation also has access to the Federal Home Loan Bank and the Federal Reserve Bank, as well as other uncommitted funding sources. Interest rate sensitivity measures the impact that future changes in interest rates will have on net interest income. The cumulative gap reflects the net position of assets and liabilities repricing in specified time periods. The gap is one measurement of risk inherent in a balance sheet as it relates to changes in interest rates and their effect on net interest income. The gap analysis which follows is based on a combination of asset and liability amortizations, maturities and repricing opportunities. Non-maturity deposit balances have been allocated to various repricing intervals to more accurately depict their true behavior and characteristics. This allocation was done in accordance with FDIC guidance. Based on the cumulative one year gap in this table and assuming no restructuring or modifications to asset/liability composition, a rise in interest rates would have a slightly negative impact on net interest income. Gap analyses alone do not accurately measure the magnitude of changes in net interest income since changes in interest rates do not affect all categories of assets and liabilities equally or simultaneously. Recognizing that traditional gap analyses do not measure dynamically the exposure to interest rate changes, the Corporation also relies on computer simulation modeling to measure the effect of upward and downward interest rate changes on net interest income. Simulation is currently in use at all of the Corporation's banking affiliates. Through the review of gap analyses and simulation modeling, management continually monitors the Corporation's exposure to changing interest rates. Management attempts to mitigate repricing mismatches through asset and liability pricing and through matched maturity funding. 42 F.N.B. CORPORATION 31 Following is the gap analysis as of December 31, 1995 (dollars in thousands):
WITHIN 4-12 1 -5 OVER 3 MONTHS MONTHS YEARS 5 YEARS TOTAL - ---------------------------------------------------------------------------------------------------------------------------- INTEREST EARNING ASSETS Interest bearing deposits with banks $ 2,503 $ 100 $ 2,603 Federal funds sold 22,335 22,335 Securities: Available for sale 25,517 78,940 $103,227 $ 15,795 223,479 Held to maturity 80 3,285 129,965 3,639 136,969 Loans, net of unearned income 270,354 252,456 460,242 239,843 1,222,895 - ---------------------------------------------------------------------------------------------------------------------------- 320,789 334,781 693,434 259,277 1,608,281 Other assets 98,712 98,712 - ---------------------------------------------------------------------------------------------------------------------------- $320,789 $ 334,781 $693,434 $357,989 $1,706,993 ============================================================================================================================ INTEREST BEARING LIABILITIES Deposits: Interest checking $ 7,770 $ 23,310 $124,321 $ 155,401 Savings 39,410 118,229 236,457 394,096 Time deposits 142,033 309,253 271,274 $ 2,352 724,912 Short-term borrowings 22,276 15,983 16,965 55,224 Long-term debt 819 17,130 8,544 13,262 39,755 - ---------------------------------------------------------------------------------------------------------------------------- 212,308 483,905 657,561 15,614 1,369,388 Other liabilities 193,688 193,688 Stockholders' equity 143,917 143,917 - ---------------------------------------------------------------------------------------------------------------------------- $212,308 $ 483,905 $657,561 $353,219 $1,706,993 ============================================================================================================================ PERIOD GAP $108,481 $(149,124) $ 35,873 $ 4,770 ============================================================================================================================ CUMULATIVE GAP $108,481 $ (40,643) $ (4,770) ============================================================================================================================ RATE SENSITIVE ASSETS/RATE SENSITIVE LIABILITIES (CUMULATIVE) 1.51 .94 1.00 1.17 ============================================================================================================================ CUMULATIVE GAP AS A PERCENT OF TOTAL ASSETS 6.4% (2.4)% (0.3)% ============================================================================================================================
Following is a summary of the maturity distribution of certain loan categories based on remaining scheduled repayments of principal as of December 31, 1995 (in thousands):
WITHIN 1 -5 OVER 1 YEAR YEARS 5 YEARS TOTAL - ----------------------------------------------------------------------------------------------------------------------------- Commercial, financial and agricultural $ 73,356 $ 33,380 $ 13,357 $ 120,093 Real estate - construction 5,966 1,182 845 7,993 - ----------------------------------------------------------------------------------------------------------------------------- Total loans (excluding Real estate - mortgage and Installment loans to individuals) $ 79,322 $ 34,562 $ 14,202 $ 128,086 =============================================================================================================================
The total amount of loans listed above due after one year includes $12.3 million with floating or adjustable rates of interest and $36.5 million with fixed rates of interest. F.N.B. CORPORATION 43 32 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION FINANCIAL CONDITION LOAN PORTFOLIO Following is a summary of loans (dollars in thousands):
% OF % of % of % of % of December 31 1995 TOTAL 1994 Total 1993 Total 1992 Total 1991 Total - --------------------------------------------------------------------------------------------------------------------------------- Commercial, financial and agricultural $ 120,093 10% $ 156,848 13% $ 169,403 15% $ 177,513 17% $ 170,508 17% Real estate - construction 7,993 1 28,193 2 21,120 2 20,146 2 20,305 2 Real estate - mortgage 784,492 64 707,813 59 616,713 55 600,205 57 565,237 57 Installment loans to individuals 326,772 26 317,567 27 241,281 22 241,574 23 270,011 27 Unearned income (26,609) (2) (22,022) (2) (22,179) (2) (21,849) (2) (25,459) (3) - --------------------------------------------------------------------------------------------------------------------------------- 1,212,741 99 1,188,399 99 1,026,338 92 1,017,589 97 1,000,602 100 Loans available for sale: Real estate - mortgage 7,919 1 5,071 1 68,175 6 3,116 Installment loans to individuals 2,235 833 27,803 2 36,011 3 - --------------------------------------------------------------------------------------------------------------------------------- 10,154 1 5,904 1 95,978 8 39,127 3 - --------------------------------------------------------------------------------------------------------------------------------- $1,222,895 100% $1,194,303 100% $1,122,316 100% $1,056,716 100% $1,000,602 100% =================================================================================================================================
Following is a summary of loans 90 days or more past due, on which interest accruals continue (dollars in thousands):
December 31 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------- Loans 90 days or more past due $ 3,785 $ 2,621 $ 3,422 $ 4,254 $ 7,433 Loans 90 days or more past due as a percentage of total loans .31% .22% .30% .40% .74%
The Corporation's lending philosophy is to minimize credit losses by utilizing credit approval standards, diversifying its loan portfolio, maintaining a relatively modest average loan size and conducting ongoing review and management of the loan portfolio. Loans increased 2.4% from 1994. The ratio of loans to deposits at the end of 1995 was 84.8%, up from a ratio of 83.8% at the end of 1994. The slight increase in the ratio was a result of moderate loan growth which more than offset a slight increase in deposits. During 1995, the Corporation converted its data processing system. The new system allows for the separate classification of commercial real estate loans. The 1995 balances reflect commercial real estate loans within the real estate - mortgage category. Such loans were previously classified within the commercial, financial and agricultural category. During 1995, the Corporation sold $16.1 million in fixed rate residential mortgages to the Federal National Mortgage Association (FNMA). The sales allowed the Corporation to avoid the potential LOANS (NET OF UNEARNED INCOME) (DOLLARS IN MILLIONS) 1991 1,001 1992 1,057 1993 1,122 1994 1,194 1995 1,223 44 F.N.B. CORPORATION 33 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 market it serves. All of the mortgages were sold with the servicing retained by the Corporation. In May of 1995, the Financial Accounting Standards Board issued FAS No. 122, "Accounting for Mortgage Servicing Rights," an amendment of FAS No. 65. This Statement, which is required to be adopted during the first quarter of 1996, allows enterprises engaging in mortgage banking activities to recognize as separate assets rights to service mortgage loans for loans originated for sale by the enterprise. As the Corporation does not significantly engage in the sale of mortgage loans, the impact of this Statement is not expected to have a material effect on the Corporation's results of operations or financial position. In 1995, total installment loans to individuals increased 3.3% to $329.0 million. The growth reflects a continuation of strong demand for indirect automobile loans as well as revolving lines of credit. Through its consumer finance subsidiary, the Corporation has initiated a sub-prime used motor vehicle program, purchasing loans from various dealers in its market area. These sub-prime loans totaled $24.9 million at December 31, 1995. The commercial loan portfolio consists principally of loans to small- and medium-sized businesses within the Corporation's primary market area of western Pennsylvania and eastern Ohio. The Corporation generally avoids making significant loans to any single borrower in order to minimize credit risk. During 1994, the Corporation reclassified $119.9 million of residential mortgages and indirect installment loans from an available for sale category into its permanent loan portfolio. This action was taken to more clearly reflect management's intent relative to portfolio lending activities by specifically defining certain loan originations that would be sold in the secondary market. At the time of this reclassification, the book value of those loans approximated their market value. As of December 31, 1995, 1994 and 1993, no concentrations of loans exceeding 10% of total loans existed which were not disclosed as a separate category of loans. 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 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------ Non-accrual loans $5,605 $ 9,512 $10,262 $ 8,658 $ 15,017 Restructured loans 3,075 3,157 3,236 1,388 1,448 - ------------------------------------------------------------------------------------------------ $8,680 $ 12,669 $13,498 $10,046 $16,465 ================================================================================================ Non-performing loans as a percentage of total loans .71% 1.06% 1.20% .95% 1.65%
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 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------- Gross interest income that would have been recorded if the loans had been current and in accordance with their original terms $1,038 $1,659 $1,738 $1,555 $1,724 Interest income included in income on the loans 540 621 671 883 940
As of December 31, 1995, management is not aware of any other loans where there are serious doubts as to the ability of such borrowers to comply with the present repayment terms. F.N.B. CORPORATION 45 34 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION ALLOWANCE FOR LOAN LOSSES Management's analysis of the allowance for loan losses includes the evaluation of the loan portfolio based on internally generated loan review reports and the historical loss experience of the remaining balances of the various homogeneous loan pools which comprise the loan portfolio. Specific factors which are evaluated include the previous loan loss experience with the customer, the status of past due interest and principal payments on the loan, the collateral position of the loan, the quality of financial information supplied by the borrower and the general financial condition of the borrower. Historical loss experience on the remaining portfolio segments is considered in conjunction with the current status of economic conditions, loan loss trends, delinquency and non-accrual trends, credit administration, concentrations of credit and off-balance sheet risk. ALLOWANCE FOR LOAN LOSSES AS A PERCENT OF TOTAL LOANS 1991 1.19 1992 1.39 1993 1.46 1994 1.70 1995 1.76 Following is a summary of changes in the allowance for loan losses (dollars in thousands):
Year Ended December 31 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------- Balance at beginning of year $20,295 $16,440 $14,737 $11,930 $10,140 Addition arising in purchase transactions 376 1,197 Loss reserves transferred on loans sold (893) (685) (408) CHARGE-OFFS: Commercial, financial and agricultural (648) (1,253) (3,869) (6,828) (1,583) Real estate-mortgage (539) (1,454) (549) (2,170) (1,103) Installment loans to individuals (4,949) (3,604) (3,857) (3,937) (2,621) - ------------------------------------------------------------------------------------------------------------------- (6,136) (6,311) (8,275) (12,935) (5,307) - ------------------------------------------------------------------------------------------------------------------- RECOVERIES: Commercial, financial and agricultural 541 689 431 42 106 Real estate-mortgage 189 98 173 208 196 Installment loans to individuals 1,009 929 769 694 607 - ------------------------------------------------------------------------------------------------------------------- 1,739 1,716 1,373 944 909 - ------------------------------------------------------------------------------------------------------------------- Net charge-offs (4,397) (4,595) (6,902) (11,991) (4,398) Provision for loan losses 5,652 8,450 9,498 15,107 5,399 - ------------------------------------------------------------------------------------------------------------------- Balance at end of year $21,550 $20,295 $16,440 $14,737 $11,930 =================================================================================================================== Net charge-offs as a percent of average loans, net of unearned income .37% .40% .63% 1.17% .46% Allowance for loan losses as a percent of total loans, net of unearned income 1.76% 1.70% 1.46% 1.39% 1.19% Allowance for loan losses as a percent of non-performing loans 248.27% 160.19% 121.80% 146.70% 72.46%
46 F.N.B. CORPORATION 35 The Corporation has allocated the allowance according to the amount deemed to be reasonably necessary to provide for the possibility of losses being incurred within each of the categories of loans shown in the table below. The allocation of the allowance should not be interpreted as an indication that loan losses in future years will occur in the same proportions or that the allocation indicates future loan loss trends. Furthermore, the portion allocated to each loan category is not the sole amount available for future losses within such categories since the total allowance is a general allowance applicable to the entire portfolio. ALLOWANCE FOR LOAN LOSSES (DOLLARS IN MILLIONS) 1991 11.9 1992 14.7 1993 16.4 1994 20.3 1995 21.6 Following shows the allocation of the allowance for loan losses (in thousands):
Year Ended December 31 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------- Commercial, financial and agricultural $ 4,540 $ 6,926 $ 6,420 $ 5,632 $ 3,521 Real estate - construction 55 178 458 455 45 Real estate - mortgage 3,035 3,358 2,440 2,261 2,989 Installment loans to individuals 5,728 4,523 4,106 3,981 4,056 Unallocated portion 8,192 5,310 3,016 2,408 1,319 - --------------------------------------------------------------------------------------------------------------- $21,550 $20,295 $16,440 $14,737 $11,930 ===============================================================================================================
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. Instruments that may be sold under certain rate sensitivity, liquidity, economic and market conditions are categorized as securities available for sale and must be marked to market. Under the guidelines of FAS 115, institutions that sell securities out of the securities held to maturity portfolio risk being forced to mark to market the remaining securities in the portfolio since they have not demonstrated their intent to hold these securities to maturity. The Financial Accounting Standards Board (FASB) approved an amnesty period during which institutions had the opportunity to redesignate securities under FAS 115. The FASB provided that securities may be reclassified from mid-November to December 31, 1995. During this period, the Corporation took advantage of this opportunity to reclass $92.0 million of securities held to maturity to securities available for sale. This movement allows the Corporation greater flexibility in managing its portfolio to take advantage of market conditions and will also provide an opportunity to better manage interest rate risk. 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. Excluding the effect of the reclassification, securities available for sale increased 9.5% while securities held to maturity decreased 11.2%, due to maturing securities being used to fund loan demand and support modest deposit growth throughout the year. F.N.B. CORPORATION 47 36 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 subsidiary banks and savings institutions. At both December 31, 1995 and 1994, total deposits were $1.4 billion. However, the composition of deposits changed in 1995 with an increase in total time deposits offset by a decrease in savings and NOW accounts. The increase in time deposits was a direct result of the higher interest rate environment. Customers chose to invest their money in higher-yielding certificates rather than lower-yielding transaction and savings accounts. Short-term borrowings, made up of repurchase agreements, federal funds purchased, notes payable and subordinated notes decreased 20.4% in 1995 to $55.2 million. The primary reason for this decrease was a lower level of federal funds purchased in 1995. Subordinated notes are the largest component of short-term borrowings. At December 31, 1995, subordinated notes represented 85.8% of total short-term borrowings. Following is a summary of selected information on short-term subordinated notes (dollars in thousands):
December 31 1995 1994 1993 - ----------------------------------------------------------------- Balance at end of year $47,362 $48,085 $50,295 Maximum month end balance 47,675 56,126 50,295 Average balance during the year 45,912 52,830 45,341 Weighted average interest rates: At end of year 5.69% 5.21% 5.07% During the year 5.54 5.06 5.09
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. The capital management function is an ongoing process. Central to this process is internal equity generation accomplished by earnings retention. During 1995, total stockholders' equity increased $14.6 million as a result of earnings retention versus $10.3 million in 1994. Total cash dividends declared represented 22.12% of net income for 1995 compared to 22.96% for 1994. Book value per share was $15.40 at December 31, 1995, compared to $13.38 at December 31, 1994. TOTAL STOCKHOLDERS' EQUITY (DOLLARS IN MILLIONS) 1991 93 1992 108 1993 115 1994 126 1995 144 48 F.N.B. CORPORATION 37 BOOK VALUE PER SHARE 1991 10.81 1992 11.21 1993 12.09 1994 13.38 1995 15.40 The Corporation's capital position continues to exceed regulatory minimums. The primary indicators relied on by the Federal Reserve Board in measuring strength of capital position are the Core Capital, Total Risk-Based Capital and Leverage ratios. Core Capital consists of common and qualifying preferred stockholders' equity less non-qualifying intangibles. Total Risk-Based Capital consists of Core Capital, qualifying subordinated debt and a portion of the allowance for loan losses. Both are calculated with reference to risk-weighted assets consisting of on- and off-balance sheet risks. The Leverage ratio consists of Core Capital divided by quarterly average assets less non-qualifying intangibles. Following is a table summarizing these ratios and the related regulatory minimums:
Regulatory December 31 1995 1994 Minimums - --------------------------------------------------------------- Capital Ratios: Core Capital 11.74% 10.58% 4.00% Total Risk-Based Capital 13.86 12.71 8.00 Leverage 8.16 7.25 5.00
The Corporation has announced plans to construct a new multi-story building to house employees of First National Bank of Pennsylvania (First National) as well as become headquarters for F.N.B. Corporation. Ground breaking is anticipated in Spring of 1996. A 14-month construction period would lead to a late Summer 1997 opening. Preliminary construction, equipment and furnishing costs are projected to be approximately $7.5 million. In addition, First National also announced plans to construct a new building in downtown Erie to serve as headquarters for the Erie region and the construction of a new office on Peach Street, also in Erie. Preliminary construction, equipment and furnishing costs are projected to be approximately $5.4 million. F.N.B. CORPORATION 49 38 F.N.B. CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION 1994 VERSUS 1993 The Corporation's net income was $13.5 million for 1994 versus $10.5 million for 1993. Primary earnings per share were $1.48 and $1.12 for 1994 and 1993, while fully diluted earnings per share were $1.44 and $1.11, respectively, for those same periods. This improved performance was primarily a result of an increase in net interest income and the Corporation's continued focus on expense control. Increases in both the return on average equity from 9.39% in 1993 to 11.12% in 1994 and the return on average assets from .62% in 1993 to .80% in 1994 reflect the improved performance of the Corporation. Net interest income, on a fully taxable equivalent basis, increased from $71.9 million in 1993 to $76.9 million in 1994, an increase of 6.9%. Net interest margin rose to 4.85% from 4.54% in 1993. Average loans increased slightly in 1994, which contributed to the improvement in interest income, while the cost of funds continued to decline due to lower interest rates during the first part of 1994. The provision for loan losses was $8.5 million and represented a decrease of 11.0% from 1993, when a provision of $9.5 million was charged to operations. The decrease in the provision was a direct result of improvement in asset quality. Non-interest income decreased 10.3%. Total non-interest income decreased from $16.0 million in 1993 to $14.4 million in 1994, primarily the result of a $1.5 million gain realized from an indirect automobile loan securitization completed in June of 1993. Offsetting this gain was an increase in service charges from $6.3 million in 1993 to $6.5 million in 1994, as a result of certain new retail fees charged to customers. In addition, the gain on sale of securities increased 149.2% to $1.3 million in 1994 as the Corporation took advantage of certain market conditions and sold various equity securities during the year. Non-interest expenses fell from $61.7 million in 1993 to $60.3 million in 1994, a decrease of 2.3%. This decrease was the result of expense control throughout the Corporation. Personnel expense decreased slightly from $27.9 million in 1993 to $27.7 million in 1994. This decrease was the result of several items. Reductions of $1.1 million in salaries and $588,000 in employee insurance expense due to a smaller work force were offset, in part, by increases of $712,000 in pension expense and $366,000 for incentive compensation. The amortization of intangibles decreased 16.5% to $1.7 million in 1994 compared to $2.0 million in 1993. The expense in 1993 was higher due to a full-year effect of a 1992 acquisition. Other non-interest expense also decreased in 1994 due to a number of items. Expenses relating to problem loan work-outs and foreclosed real estate were high in 1993. Also included in 1993 expenses were costs associated with the Corporation's efforts to consolidate the data processing and certain other operational functions of its subsidiaries. Promotional expenses rose to $2.1 million in 1994 compared to $1.9 million in 1993, representing an increase of 10.2%. This increase was the result of management's increased efforts to market its personal banking services. Income tax expenses increased 50.0% to $6.7 million for 1994 as a result of the Corporation generating more taxable income. The 1994 effective tax rate of 33.3% was below the 35% statutory tax rate due to the tax benefits resulting from tax-exempt securities income and excludable dividend income. 50 F.N.B. CORPORATION 39 F.N.B. CORPORATION AND SUBSIDIARIES STOCK PRICES AND DIVIDENDS INFORMATION AS TO STOCK PRICES AND DIVIDENDS The Corporation's common stock trades on The Nasdaq SmallCap Market tier of 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 on April 26, 1995 and April 27, 1994. As of January 31, 1996, there were 3,735 holders of record of common stock.
QUARTER ENDED 1995 LOW HIGH DIVIDENDS - ---------------------------------------------------------------- March 31 $14 $16 1/4 $ .07 June 30 15 1/4 19 .07 September 30 18 21 1/4 .10 December 31 19 3/4 21 3/4 .13
QUARTER ENDED 1994 LOW HIGH DIVIDENDS - ---------------------------------------------------------------- March 31 $11 3/4 $13 3/4 $ .06 June 30 12 14 1/2 .06 September 30 14 1/2 16 5/8 .07 December 31 14 15 1/4 .07
The Corporation has historically paid cash dividends on a quarterly basis at the discretion of the Board of Directors. During 1995, the Board increased cash dividends 42 percent. Further, the Board has increased cash dividends for the first quarter of 1996 to $.16 per share. The payment and amount of future dividends on the common stock will be determined by the Board of Directors and will depend on, among other things, earnings, financial condition and cash requirements of the Corporation at the time such payment is considered, and on the ability of the Corporation to receive dividends from its subsidiaries, the amount of which is subject to regulatory limitations. CASH DIVIDENDS PAID PER COMMON SHARE 1991 .22 1992 .24 1993 .25 1994 .26 1995 .37 1st Qtr. 1996 Annualized .64 F.N.B. CORPORATION 51 40 F.N.B. CORPORATION AND SUBSIDIARIES SHAREHOLDER SERVICES STOCK TRANSFER AGENT AND SHAREHOLDER ASSISTANCE Chemical Mellon Shareholder Services Recordkeeping Services P.O. Box 590 Ridgefield Park, New Jersey 07660 Phone: 800-756-3353 or Shareholder Relations F.N.B. Corporation Hermitage Square Hermitage, Pennsylvania 16148 Phone: 800-490-3951 FORM 10-K AND 10-Q AVAILABILITY Copies of the Corporation's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission will be furnished to any shareholder, free of charge, upon written request to Shareholder Relations at the preceding address. VOLUNTARY DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN Shareholders may participate in the Voluntary Dividend Reinvestment and Stock Purchase Plan. The plan provides that additional shares of common stock may be purchased with reinvested dividends and voluntary cash payments without broker fees. A prospectus and an enrollment card may be obtained by writing to: Chemical Bank, Plan Administrator Investment Product Services P.O. Box 750 Pittsburgh, Pennsylvania 15230-9625 52 F.N.B. CORPORATION EX-21 10 FNB CORPORATION 10-K 1 LIST OF SUBSIDIARIES EXHIBIT 21 Following lists the subsidiaries of the registrant together with their wholly-owned subsidiaries and the state or jurisdiction of incorporation of each:
NAME INCORPORATED 1) First National Bank of Pennsylvania United States First National Building Corp. Pennsylvania 2) Bucktail Bank and Trust Company Pennsylvania 3) Reeves Bank Pennsylvania 4) First County Bank Ohio 5) The Metropolitan Savings Bank of Ohio Ohio 6) Dollar Savings Association Pennsylvania DSA Serv Corp Pennsylvania Aloma Holdings, Inc. Florida 7) Regency Finance Company Pennsylvania Citizens Financial Services of New York, Inc. New York Citizens Equity Corporation of New York, Inc. New York Citizens Financial Services, Inc. Ohio Regency Investment Company, Inc. Delaware 8) Penn-Ohio Life Insurance Company Arizona 9) Mortgage Service Corporation Pennsylvania 10) F.N.B. Building Corporation Pennsylvania
Regency Finance Company conducts business under four names. Business is conducted at the fifteen offices in Butler, Clearfield, Crawford, Elk, Erie, Fayette, Lawrence, McKean, Mercer, Somerset and Warren counties in Pennsylvania and Chatauqua county in New York under the name of F.N.B. Consumer Discount Company. Business is conducted in the five offices in Columbiana, Mahoning, and Trumbull counties in Ohio under the name of Citizens Budget Company. Business is conducted in the twelve offices in Centre, Columbia, Lackawanna, Lehigh, Monroe, Montour, Northampton, Snyder, and Union counties in Pennsylvania under the name of Regency Consumer Discount Company. Business is conducted at the office in Hanover County, Pennsylvania under the name of Reliance Consumer Discount Company. The other subsidiaries conduct business under the names as shown above. EX-23 11 FNB CORPORATION 10-K 1 EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Regarding: 1) Registration Statement on Form S-3 relating to the F.N.B. Corporation Subordinated Notes and Daily Cash Accounts (File #33-61367). 2) Registration Statement on Form S-3 relating to the Dividend Reinvestment Plan (File #33-72532). 3) Registration Statement on Form S-8 relating to the F.N.B. Corporation Voluntary Dividend Reinvestment and Stock Purchase Plan (File #333-943). 4) Registration Statement on Form S-8 relating to the F.N.B. Corporation 401K Plan (File #33-50780). 5) Registration Statement on Form S-8 relating to F.N.B. Corporation 1990 Stock Option Plan (File #33-78114). 6) Registration Statement on Form S-8 relating to F.N.B. Corporation Restricted Stock Bonus Plan (File #33-78134). 7) Post-Effective Amendment No. 1 to the Registration Statement on Form S-3 relating to the F.N.B. Corporation Voluntary Dividend Reinvestment and Stock Purchase Plan (File #33-72532). We consent to the incorporation by reference in the above listed Registration Statements of our report dated February 5, 1996, with respect to the consolidated financial statements of F.N.B. Corporation and subsidiaries incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1995. ERNST & YOUNG LLP Pittsburgh, Pennsylvania March 18, 1996 EX-27 12 FNB CORPORATION 10-K
9 0000037808 F.N.B. CORP 3-MOS DEC-31-1995 DEC-31-1995 59,795 2,603 22,335 0 223,479 136,969 136,801 1,222,895 21,550 1,706,993 1,442,109 55,224 25,988 39,775 17,268 0 4,516 122,133 1,706,993 28,852 5,251 212 34,315 13,229 14,866 19,449 1,352 91 14,630 7,196 4,898 0 0 4,898 0.54 0.51 8.61 5,605 3,785 3,075 0 21,052 1,548 694 21,550 21,550 0 0
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