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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 2001
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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
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Commission file number 0-8144
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F.N.B. CORPORATION
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(Exact name of registrant as specified in its charter)
Florida 25-1255406
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2150 Goodlette Road North
Naples, Florida 34102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 800-262-7600
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
7 1/2% Cumulative Convertible Preferred Stock,
Series B, par value $0.01 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the pre- ceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The registrant estimates that as of February 28, 2002, the aggregate market
value of the voting stock held by non-affiliates of the registrant, computed by
reference to the last sale price as reported by the Nasdaq National Market for
such date, was approximately $1,137,298,291.
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
----------------------------------------
As of February 28, 2002, the registrant had outstanding 41,659,237 shares of
common stock having a par value of $0.01 per share.
Continued
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K into
which Document
DOCUMENT is Incorporated
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Annual Report to Stockholders for fiscal year
ended December 31, 2001 I & II
Definitive proxy statement for the 2002 Annual
Meeting of Stockholders to be held on May 6, 2002 III
FORM 10-K 2001
INDEX
PART I PAGE
Item 1. Business. I-2
Item 2. Properties. I-12
Item 3. Legal Proceedings. I-12
Item 4. Submission of Matters to a Vote of Security Holders. I-12
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters. II-1
Item 6. Selected Financial Data. II-1
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. II-1
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. II-1
Item 8. Financial Statements and Supplementary Data. II-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. II-1
PART III
Item 10. Directors and Executive Officers of the Registrant. III-1
Item 11. Executive Compensation. III-1
Item 12. Security Ownership of Certain Beneficial Owners
and Management. III-1
Item 13. Certain Relationships and Related Transactions. III-1
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K. IV-1
Signatures IV-2
Index to Exhibits IV-4
I-1
PART I
ITEM 1. BUSINESS
F.N.B. Corporation (the Corporation) was formed in 1974 as a bank
holding company. During 2000, the Corporation elected to become and remains a
financial holding company under the Gramm-Leach-Bliley Act of 1999. The
Corporation has three reportable business segments: community banking, insurance
agencies and consumer finance. For additional information regarding these
segments, refer to the Business Segments footnote in the Notes to Consolidated
Financial Statements, which is incorporated by reference to the Corporation's
2001 Annual Report to Stockholders. As of December 31, 2001, the Corporation
owned and operated three community banks and one consumer finance company in
Pennsylvania, southwest Florida, northern and central Tennessee and eastern
Ohio. The Corporation also operates two insurance agencies, one in Florida and
one in Pennsylvania. In recent years, the Corporation has expanded its market
presence in southwest Florida through affiliations with community banks located
primarily between Naples and Clearwater, Florida. During 2001, the Corporation
acquired OneSource Group, Inc., Ostrowsky & Associates, Inc. and James T.
Blalock, all independent insurance agencies located in Florida. These insurance
agencies were merged into an existing insurance agency, Roger Bouchard
Insurance, Inc. Additionally, the Corporation affiliated with Citizens Community
Bank of Florida (Citizens), located in Marco Island, Florida. Citizens was
merged into an existing banking affiliate, First National Bank of Florida
(FNBFL).
On January 31, 2002, the Corporation completed an affiliation with
Central Bank Shares, Inc. (Central), a bank holding company headquartered in
Orlando, Florida, with assets of more than $251.4 million. The transaction was
accounted for as a purchase. Central's banking affiliate, Bank of Central
Florida, was merged into FNBFL.
On January 18, 2002, the Corporation completed an affiliation with
Promistar Financial Corporation (Promistar), a bank holding company
headquartered in Johnstown, Pennsylvania, with assets of $2.4 billion. Under the
terms of the merger agreement, each outstanding share of Promistar's common
stock was converted into .926 shares of the Corporation's common stock. A total
of 16,007,346 shares of the Corporation's common stock were issued. The
transaction was accounted for as a pooling-of-interests. Promistar's banking
affiliate, Promistar Bank, was merged into an existing subsidiary of the
Corporation, First National Bank of Pennsylvania.
The Corporation regularly evaluates the potential acquisition of, and
holds discussions with, various acquisition candidates and as a general rule the
Corporation publicly announces such acquisitions only after a definitive
agreement has been reached.
The Corporation, through its subsidiaries, provides a full range of
financial services, principally to consumers and small- to medium-size
businesses in its market areas. The Corporation's business strategy has been to
focus primarily on providing quality, community-based financial services adapted
to the needs of each of the markets it serves. The Corporation has emphasized
its community orientation by preserving local advisory boards of directors and
by allowing local management certain autonomy in decision-making, enabling them
to respond to customer requests more quickly and concentrate on transactions
within their market areas. However, while the Corporation has sought to preserve
some decision-making at a local level, it has established centralized legal,
loan review, accounting, investment, audit, loan operations and data processing
functions. The centralization of these processes has enabled the Corporation to
maintain consistent quality of these functions and to achieve certain economies
of scale.
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The Corporation's lending philosophy is to minimize credit losses by
following strict credit approval standards (which include independent analysis
of realizable collateral value), diversifying its loan portfolio by industry and
borrower and conducting ongoing review and management of the loan portfolio. The
Corporation is an active residential mortgage lender, and its commercial loans
are generally to established businesses within its market areas. The Corporation
does not have a significant amount of construction loans and has no highly
leveraged transaction loans.
No material portion of the deposits of the Corporation's bank
subsidiaries has been obtained from a single or small group of customers, and
the loss of any customer's deposits or a small group of customers' deposits
would not have a material adverse effect on the business of the Corporation. The
majority of the deposits held by the Corporation's bank subsidiaries have been
generated within the respective subsidiary's market area.
Following is information as of December 31, 2001 for the Corporation's
community bank and consumer finance subsidiaries (including the year established
and location of principal office for each). All subsidiaries are wholly-owned by
the Corporation (dollars in thousands).
NUMBER
TOTAL TOTAL OF
COMMUNITY BANK SUBSIDIARIES: ASSETS DEPOSITS OFFICES
------- --------- -------
First National Bank of Florida (Est. 1988)
Naples, Florida................................ $2,181,035 $1,760,950 37
First National Bank of Pennsylvania (Est. 1864)
Hermitage, Pennsylvania........................ 1,450,859 1,277,671 43
Metropolitan National Bank (Est. 1922)
Youngstown, Ohio............................... 317,846 274,585 12
---------- ---------- --
$3,949,740 $3,313,206 92
========== ========== ==
CONSUMER FINANCE SUBSIDIARY:
Regency Finance Company (Est. 1927)
Hermitage, Pennsylvania........................ $ 147,747 48
========== ==
The Corporation's insurance agencies, Roger Bouchard Insurance, Inc.
(RBI) and Gelvin, Jackson & Starr, Inc. (GJS), have nine and five offices,
respectively.
The Corporation has five other subsidiaries, Penn-Ohio Life Insurance
Company, Est. 1981 (Penn-Ohio), First National Corporation, Est. 1997 (FNC),
Customer Service Center of F.N.B., L.L.C., Est. 1996 (Customer Service), F.N.B.
Building Corporation, Est. 1987 (F.N.B. Building) and Mortgage Service
Corporation (MSC). Penn-Ohio underwrites, as a reinsurer, credit life and
accident and health insurance sold by the Corporation's subsidiaries. FNC holds
equity securities and other assets for the holding company. Customer Service
provides data processing and other services to the affiliates of the
Corporation. F.N.B. Building owns real estate that is leased to certain
affiliates. MSC no longer has any operations and is in the process of being
dissolved.
OPERATIONS OF THE BANK SUBSIDIARIES
The Corporation's bank subsidiaries offer services traditionally offered
by full-service commercial banks, including commercial and individual demand
and time deposit accounts and commercial, mortgage and individual installment
loans. In addition to traditional banking products, the Corporation's bank
subsidiaries offer various alternative investment products, including mutual
funds and annuities.
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In addition, First National Trust Company, a national trust company
formed in January 1999, provides a broad range of personal and corporate
fiduciary services, including the administration of decedent and trust estates.
As of December 31, 2001, the market value of corporate-wide trust assets under
management totaled approximately $1.0 billion. First National Trust Company was
a subsidiary of First National Bank of Pennsylvania until January 18, 2002, on
which date it became a subsidiary of the Corporation.
OPERATIONS OF THE INSURANCE AGENCIES
The Corporation's insurance agencies are full-service agencies offering
all lines of commercial and personal insurance through major carriers.
OPERATIONS OF THE CONSUMER FINANCE SUBSIDIARY
The Corporation's consumer finance subsidiary, Regency Finance Company
(Regency), is involved principally in making personal installment loans to
individuals and purchasing installment sales finance contracts from retail
merchants. Such activity is primarily funded through the sale of the
Corporation's subordinated notes at Regency's branch offices.
MARKET AREA AND COMPETITION
The Corporation, through its subsidiaries, currently operates 234
offices in southwest Florida, Pennsylvania, northern and central Tennessee and
eastern Ohio. The Corporation's Florida subsidiaries operate in an area
represented by high growth and high median family income levels. The industries
served in this market include a diversified mix of tourism, construction,
services, light manufacturing, distribution and agriculture. The market extends
north to Tampa and south through Naples and is served by Interstate 75 and U.S.
Highway 41. The Corporation's most recent acquisition, Central Bank Shares,
Inc., extends the Florida market across Interstate 4 through Orlando. The
Corporation's Pennsylvania and Ohio subsidiaries operate in an area which has a
diversified mix of light manufacturing, service and distribution industries.
This area is served by Interstate Routes 90, 76, 79 and 80, and is located at
the approximate midpoint between New York City and Chicago. The area is also
close to the Great Lakes shipping port of Erie and the Greater Pittsburgh
International Airport.
The Corporation's subsidiaries compete with a large number of other
financial institutions, such as commercial banks, savings banks, savings and
loan associations, credit life insurance companies, mortgage banking companies,
consumer finance companies, credit unions and commercial finance and leasing
companies, many of which have greater resources than the Corporation, for
deposits, loans and service business. In providing wealth and asset management
services, the Corporation's subsidiaries compete with many other financial
services firms, brokerage firms, mutual fund complexes, investment management
firms, trust and fiduciary service providers and insurance agencies.
In the consumer finance subsidiary's market areas, the active
competitors include banks, credit unions and national, regional and local
consumer finance companies, some of which have substantially greater resources
than that of the consumer finance subsidiary. The ready availability of consumer
credit through charge accounts and credit cards constitutes additional
competition. The principal methods of competition include the rates of interest
charged for loans, the rates of interest paid to obtain funds and the
availability of customer services.
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The ability to access and use technology is an increasingly important
competitive factor in the financial services industry. Technology is not only
important with respect to delivery of financial services, but in processing
information. Each of the Corporation's subsidiaries consistently must make
technological investments to remain competitive.
EMPLOYEES
As of February 28, 2002, the Corporation and its subsidiaries had 2,586
full-time and 599 part-time employees. Management of the Corporation considers
its relationship with its employees to be satisfactory.
MERGERS, ACQUISITIONS AND DIVESTITURE
See the Mergers, Acquisitions and Divestiture footnote in the Notes to
Consolidated Financial Statements, which is incorporated by reference to the
Corporation's 2001 Annual Report to Stockholders.
REINCORPORATION
During the 2001, the Corporation completed its reincorporation in the
state of Florida. The Corporation now operates from Naples, Florida. In
connection with the reincorporation, the Corporation reduced the par value of
both its common and preferred stock to $0.01 per share. See the Reincorporation
footnote in the Notes to Consolidated Financial Statements, which is
incorporated by reference to the Corporation's 2001 Annual Report to
Stockholders.
CHARTER CONSOLIDATION
During the first quarter of 2001, the Corporation completed its
consolidation plan to reduce the number of Florida and Pennsylvania bank
charters from seven to two. The Corporation's five Florida banks were merged
under First National Bank of Florida and its two Pennsylvania banks were merged
under First National Bank of Pennsylvania. See the Charter Consolidation
footnote in the Notes to Consolidated Financial Statements, which is
incorporated by reference to the Corporation's 2001 Annual Report to
Stockholders.
SUPERVISION AND REGULATION
BANKING ACTIVITIES AND FINANCIAL HOLDING COMPANY REGULATION
The Corporation and its subsidiary national banks (the Banks) operate in
a highly regulated environment, and their business activities are governed by
statute, regulation and administrative policies. The business activities of the
Corporation and the Banks are closely supervised by a number of regulatory
agencies, including the Federal Reserve Board (FRB), the Office of the
Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation
(FDIC).
The Corporation is regulated by the FRB under the federal Bank Holding
Company Act of 1956, as amended, which requires every bank holding company to
obtain the prior approval of the FRB before acquiring more than 5% of the voting
shares of any bank or all or substantially all of the assets of any bank, and
before merging or consolidating with another bank holding company. The Federal
Reserve Board (pursuant to regulation and published policy statements) has
maintained that a bank holding company must serve as a source of financial
strength to its subsidiary banks. In adhering to the FRB policy, the Corporation
may be required to provide financial support to a subsidiary
I-5
bank at a time when, absent such FRB policy, the Corporation may not deem it
advisable to provide such assistance.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994, the Corporation or any other bank holding company may acquire a bank
located in a state other than the state in which the company is located, subject
to certain deposit percentage and other restrictions. The legislation also
provides that, unless an individual state has elected to prohibit out-of-state
banks from operating interstate branches within its territory, adequately
capitalized and managed bank holding companies may consolidate their multistate
bank operations into a single bank subsidiary and branch interstate through
acquisitions.
As national banks, the Banks are subject to the supervision of the OCC
and, to a limited extent, the FDIC and the FRB. The Banks are also subject to
state banking and usury laws restricting the amount of interest which may be
charged in making loans or other extensions of credit. In addition, the Banks,
as subsidiaries of the Corporation, are subject to restrictions under federal
law when dealing with the Corporation and other affiliates. These restrictions
apply to extensions of credit to an affiliate, investments in the securities of
an affiliate and the purchase of assets from an affiliate.
Loans and extensions of credit by national banks are subject to legal
lending limitations. Under federal law, a national bank may grant unsecured
loans and extensions of credit in an amount up to 15% of its unimpaired capital
and surplus to any person if the loans and extensions of credit are not fully
secured by collateral having a market value at least equal to their face amount.
In addition, a national bank may grant loans and extensions of credit to such
person up to an additional 10% of its unimpaired capital and surplus, provided
that each loan or extension of credit is fully secured by readily marketable
collateral having a market value, determined by reliable and continuously
available price quotations, at least equal to the amount of funds outstanding.
Loans and extensions of credit may exceed the general lending limit if they
qualify under one of several exceptions. Such exceptions include certain loans
or extensions of credit arising from the discount of commercial or business
paper, the purchase of bankers' acceptances, loans secured by documents of
title, loans secured by U.S. obligations and loans to or guaranteed by the
federal government, and loans or extensions of credit which have the approval of
the OCC and which are made to a financial institution or to any agent in charge
of the business and property of a financial institution.
Gramm-Leach-Bliley
The Gramm-Leach-Bliley Act, also known as the Financial Services
Modernization Act of 1999 (GLBA), enacted in 1999, enables bank holding
companies to acquire insurance companies and securities firms and effectively
repeals depression-era laws that prohibited the affiliation of banks and these
other financial services entities under a single holding company. Bank holding
companies, and other types of financial services entities, may elect to become
financial holding companies under the new law allowing them to offer virtually
any type of financial service, or services incident to financial services,
including banking, securities underwriting, merchant banking and insurance (both
underwriting and agency services). The Corporation has elected financial holding
company status. The new financial services authorized by the GLBA also may be
engaged in by a "financial subsidiary" of a national or state bank, with the
exception of insurance or annuity underwriting, insurance company portfolio
investments, real estate investment and development, and merchant banking, all
of which must be conducted under the financial holding company.
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The GLBA establishes a system of functional regulation, under which the
FRB regulates the banking activities of financial holding companies and other
federal banking regulators regulate banks' financial subsidiaries. The
Securities and Exchange Commission regulates securities activities of financial
holding companies and state insurance regulators regulate their insurance
activities. The GLBA also provides new protections against the transfer and use
by financial institutions of consumers' non- public, personal information.
The implementation of the GLBA increases competition in the financial
services sector by allowing many different entities, including banks and bank
holding companies, to affiliate and/or to merge with other financial services
entities and cross-sell their financial products in order to better serve their
current and prospective customers.
Capital Adequacy Requirements
Both the Corporation and the Banks are subject to regulatory capital
requirements imposed by the FRB and the OCC. The FRB and the OCC have issued
risk-based capital guidelines for bank holding companies and banks which make
regulatory capital requirements more sensitive to differences in the risk
profiles of various banking organizations. The capital adequacy guidelines
issued by the FRB are applied to bank holding companies, on a consolidated
basis, with the banks owned by the holding company, as well as to state member
banks. The OCC's risk capital guidelines apply directly to any national bank
regardless of whether it is a subsidiary of a bank holding company. Both
agencies' requirements (which are substantially similar), provide that banking
organizations must have capital equivalent to at least 8.0% of risk- weighted
assets. The risk weights assigned to assets are based primarily on credit risks.
Depending upon the risk level of a particular asset, it is assigned to a risk
category.
For example, securities with an unconditional guarantee by the United
States government are assigned to the lowest risk category, while a risk weight
of 50% is assigned to loans secured by owner-occupied one-to-four family
residential mortgages, provided that certain conditions are met. The aggregate
amount of assets assigned to each risk category is multiplied by the risk weight
assigned to that category to determine the weighted values, which are then added
together to determine total risk- weighted assets.
The FRB and the OCC have also implemented minimum capital leverage
ratios to be used in tandem with the risk-based guidelines in assessing the
overall capital adequacy of banks and bank holding companies. Under these rules,
banking institutions must maintain a ratio of at least 3.0% "Tier 1" capital to
total weighted risk assets (net of goodwill, certain intangible assets, and
certain deferred tax assets). Tier 1 capital includes common shareholders
equity, noncumulative perpetual preferred stock and minority interests in the
equity accounts of consolidated subsidiaries.
Both the risk-based capital guidelines and the leverage ratio are
minimum requirements. They are applicable to all banking institutions unless the
applicable regulating authority determines that different minimum capital ratios
are appropriate for a particular institution based upon its circumstances.
Institutions operating at or near these ratios are expected to have
well-diversified risks, excellent control systems, high asset quality, high
liquidity, good earnings, and in general must be considered strong banking
organizations, rated composite 1 under the CAMELS rating system of banks or the
BOPEC rating system of bank holding companies. The OCC requires that all but the
most highly-rated banks and all banks with high levels of risk or
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experiencing or anticipating significant growth maintain ratios of at least 4.0%
Tier 1 capital to total assets. The FRB also requires bank holding companies
without a BOPEC-1 rating to maintain a ratio of at least 4.0% Tier 1 capital to
total assets; furthermore, banking organizations with supervisory, financial,
operational, or managerial weaknesses, as well as organizations that are
anticipating or experiencing significant growth, are expected to maintain
capital ratios well above the 3.0% and 4.0% minimum levels.
The FDIC has also adopted a rule substantially similar to that issued by
the FRB, that establishes a minimum leverage ratio of 3.0% and provides that
FDIC-regulated banks with anything less than a CAMELS-1 rating must maintain a
ratio of at least 4.0%. In addition, the FDIC rule specifies that a depository
institution operating with less than the applicable minimum leverage capital
requirement will be deemed to be operating in an unsafe and unsound manner
unless the institution is in compliance with a plan, submitted to and approved
by the FDIC, to increase the ratio to an appropriate level. Finally, the FDIC
requires any insured depository institution with a leverage ratio of less than
2.0% to enter into and be in compliance with a written agreement between it and
the FDIC (or the primary regulator, with the FDIC as a party to the agreement).
Such an agreement should contemplate immediate efforts to acquire the capital
required to increase the ratio to an appropriate level. Institutions that fail
to enter into or maintain compliance with such an agreement will be subject to
enforcement action by the FDIC.
The OCC's guidelines provide that intangible assets are generally
deducted from Tier 1 capital in calculating a bank's risk-based capital ratio.
However, certain intangible assets which meet specified criteria ("qualifying
intangibles") are retained as a part of Tier 1 capital. The OCC has modified the
list of qualifying intangibles, currently including only purchased credit card
relationships and mortgage and non- mortgage servicing assets, whether
originated or purchased and excluding any interest- only strips receivable
related thereto. The OCC has amended its guidelines to increase the limitation
on such qualifying intangibles from 50% to 100% of Tier 1 capital, of which no
more than 25% may consist of purchased credit card relationships and non-
mortgage servicing assets.
The risk-based capital guidelines of the OCC, the FRB and the FDIC
explicitly include provisions regarding a bank's exposure to declines in the
economic value of its capital due to changes in interest rates to ensure that
the guidelines take adequate account of interest rate risk. Interest rate risk
is the adverse effect that changes in market interest rates may have on a bank's
financial condition and is inherent to the business of banking. The exposure of
a bank's economic value generally represents the change in the present value of
its assets, less the change in the value of its liabilities, plus the change in
the value of its interest rate off-balance sheet contracts. Concurrently, the
agencies issued a joint policy statement to bankers, effective June 26, 1996, to
provide guidance on sound practices for managing interest rate risk. In the
policy statement, the agencies emphasize the necessity of adequate oversight by
a bank's Board of Directors and senior management and of a comprehensive risk
management process. The policy statement also describes the critical factors
affecting the agencies' evaluations of a bank's interest rate risk when making a
determination of capital adequacy. The agencies' risk assessment approach used
to evaluate a bank's capital adequacy for interest rate risk relies on a
combination of quantitative and qualitative factors. Banks that are found to
have high levels of exposure and/or weak management practices will be directed
by the agencies to take corrective action.
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The OCC, the FRB and the FDIC have added a provision to the risk-based
capital guidelines that supplements and modifies the usual risk-based capital
calculations to ensure that institutions with significant exposure to market
risk maintain adequate capital to support that exposure. Market risk is the
potential loss to an institution resulting from changes in market prices. The
modifications are intended to address two types of market risk: general market
risk, which includes changes in general interest rates, equity prices, exchange
rates, or commodity prices, and specific market risk, which includes particular
risks faced by the individual institution, such as event and default risks. The
provision defines a new category of capital, Tier 3, which includes certain
types of subordinated debt. The provision automatically applies only to those
institutions whose trading activity, on a worldwide consolidated basis, equals
either (i) 10% or more of total assets or (ii) $1 billion or more, although the
agencies may apply the provision's requirements to any institution for which
application of the new standard is deemed necessary or appropriate for safe
banking practices. For institutions to which the modifications apply, Tier 3
capital may not be included in the calculation rendering the 8.0% credit risk
ratio; the sum of Tier 2 and Tier 3 capital may not exceed 100% of Tier 1
capital; and Tier 3 capital is used in both the numerator and denominator of the
normal risk-based capital ratio calculation to account for the estimated maximum
amount that the value of all positions in the institution's trading account, as
well as all foreign exchange and commodity positions, could decline within
certain parameters set forth in a model defined by the statute. Furthermore,
covered institutions must "backtest," comparing the actual net trading profit or
loss for each of its most recent 250 days against the corresponding measures
generated by the statutory model. Once per quarter, the institution must
identify the number of times the actual net trading loss exceeded the
corresponding measure and must then apply a statutory multiplication factor
based on that number for the next quarter's capital charge for market risk.
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
FDICIA), provided a number of reforms relating to the safety and soundness of
the deposit insurance system, supervision of domestic and foreign depository
institutions and improvement of accounting standards. One element of the FDICIA
provides for the development of a regulatory monitoring system requiring prompt
action on the part of banking regulators with regard to certain classes of
undercapitalized institutions. The FDICIA created five "capital categories"
("well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized") which are
defined in the FDICIA and are used to determine the severity of corrective
action the appropriate regulator may take in the event an institution reaches a
given level of undercapitalization. For example, an institution which becomes
"undercapitalized" must submit a capital restoration plan to the appropriate
regulator outlining the steps it will take to become adequately capitalized.
Upon approving the plan, the regulator will monitor the institution's
compliance. Before a capital restoration plan will be approved, any entity
controlling a bank (i.e., a holding company) must guarantee compliance with the
plan until the institution has been adequately capitalized for four consecutive
calendar quarters. The liability of the holding company is limited to the lesser
of five percent of the institution's total assets or the amount which is
necessary to bring the institution into compliance with all capital standards.
In addition, "undercapitalized" institutions will be restricted from paying
management fees, dividends and other capital distributions, will be subject to
certain asset growth restrictions and will be required to obtain prior approval
from the appropriate regulator to open new branches or expand into new lines of
business.
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As an institution's capital levels decline, the extent of action to be
taken by the appropriate regulator increases, restricting the types of
transactions in which the institution may engage and ultimately providing for
the appointment of a receiver for certain institutions deemed to be critically
undercapitalized.
The OCC, the FRB and the FDIC have established regulations which, among
other things, prescribe the capital thresholds for each of the five capital
categories established by the Act. The following table reflects the capital
thresholds:
Total Risk- Tier 1 Risk- Tier 1
Based Based Leverage
Capital Ratio Capital Ratio Ratio
Well capitalized(1) greater than greater than greater than
or equal to 10% or equal to 6% or equal to 5%
Adequately Capitalized(1) greater than greater than greater than
or equal to 8% or equal to 4% or equal to 4%(2)
Undercapitalized(4) less than 8% less than 4% less than 4%(3)
Significantly Undercapitalized(4) less than 6% less than 3% less than 3%
Critically Undercapitalized -- -- greater than
or equal to 2%(5)
- ---------------------------
(1) An institution must meet all three minimums.
(2) greater than or equal to 3% for composite 1-rated institutions, subject
to appropriate federal banking agency guidelines.
(3) less than 3% for composite 1-rated institutions, subject to appropriate
federal banking agency guidelines.
(4) An institution falls into this category if it is below the specified
capital level for any of the three capital measures.
(5) Ratio of tangible equity to total assets.
In addition, the FRB, the OCC and the FDIC have adopted regulations,
pursuant to the FDICIA, defining operational and managerial standards relating
to internal controls, loan documentation, credit underwriting, interest rate
exposure, asset growth, and compensation, fees and benefits. Both the capital
standards and the safety and soundness standards which the FDICIA seeks to
implement are designed to bolster and protect the deposit insurance fund.
Reporting Requirements
As national banks, the Banks are subject to examination and review by
the OCC. These examinations are typically completed on-site at least every
eighteen months and is subject to off-site review at call. The OCC, at will, can
access quarterly reports of condition, as well as such additional reports as may
be required by the national banking laws.
As a financial holding company, the Corporation is required to file
with the FRB an annual report of its operations at the end of each fiscal year
and such additional information as the FRB may require pursuant to the Act. The
FRB may also make examinations of the Corporation and each of its subsidiaries.
I-10
The scope of regulation and permissible activities of the Corporation
and the Banks are subject to change by future federal and state legislation. In
addition, regulators sometimes require higher capital levels on a case-by-case
basis based on such factors as the risk characteristics or management of a
particular institution. The Corporation and the Banks are not aware of any
attributes of their operating plan that would cause regulators to impose higher
requirements.
CONSUMER FINANCE SUBSIDIARY
The Corporation's consumer finance subsidiary is subject to regulation
under Pennsylvania, Tennessee, and Ohio state laws which require, among other
things, that it maintain licenses for consumer finance operations in effect for
each of its offices. Representatives of the Pennsylvania Department of Banking,
the Tennessee Department of Financial Institutions and the Ohio Division of
Consumer Finance periodically visit the offices of the consumer finance
subsidiary and conduct extensive examinations in order to determine compliance
with such laws and regulations. Such examinations include a review of loans and
the collateral thereof, as well as a check of the procedures employed for making
and collecting loans. Additionally, the consumer finance subsidiary is subject
to certain federal laws which require that certain information relating to
credit terms be disclosed to customers and afford customers in certain instances
the right to rescind transactions.
INSURANCE AGENCIES
The Corporation's insurance agencies are subject to licensing
requirements and extensive regulation under the laws of the United States and
its various states. These laws and regulations are primarily for the benefit of
clients. In all jurisdictions, the applicable laws and regulations are subject
to amendment or interpretation by regulatory authorities. Generally, such
authorities are vested with relatively broad discretion to grant, renew and
revoke licenses and approvals, and to implement regulations. Licenses may be
denied or revoked for various reasons, including the violation of such
regulations, conviction of crimes and the like. Possible sanctions which may be
imposed for violation of regulations include the suspension of individual
employees, limitations on engaging in a particular business for a specified
period of time, revocation of licenses, censures and fines.
LIFE INSURANCE SUBSIDIARY
Penn-Ohio is subject to examination on a triennial basis by the Arizona
Department of Insurance. Representatives of the Department of Insurance will
periodically determine whether Penn-Ohio has maintained required reserves,
established adequate deposits under a reinsurance agreement and complied with
reporting requirements under Arizona statutes.
GOVERNMENTAL POLICIES
The operations of the Corporation and its subsidiaries are affected not
only by general economic conditions, but also by the policies of various
regulatory authorities. In particular, the FRB regulates money and credit and
interest rates in order to influence general economic conditions. These policies
have a significant influence on overall growth and distribution of loans,
investments and deposits and affect interest rates charged on loans or paid for
time and savings deposits. FRB monetary policies have had a significant effect
on the operating results of all financial institutions in the past and may
continue to do so in the future.
I-11
ITEM 2. PROPERTIES
The Corporation operates an eight-story building in Naples, Florida,
which serves as its executive and administrative offices and shares this
facility with First National Bank of Florida. The Corporation also owns a
six-story building in Hermitage, Pennsylvania which serves as its northern
executive offices and shares this facility with First National Bank of
Pennsylvania.
The banking, consumer finance and insurance company offices are located
in 5 counties in southwestern Florida, 23 counties in Pennsylvania, 17 counties
in northern and central Tennessee and 6 counties in eastern Ohio. At December
31, 2001, the Corporation's subsidiaries owned 69 of the Corporation's 154
offices and leased the remaining 85 offices under operating leases expiring at
various dates through the year 2087. For additional information regarding the
lease commitments, see the Premises and Equipment footnote in the Notes to
Consolidated Financial Statements, which is incorporated by reference to the
Corporation's 2001 Annual Report to Stockholders.
ITEM 3. LEGAL PROCEEDINGS
During the first quarter of 2001, the Corporation established a legal
reserve of approximately $4.0 million associated with individual retirement
accounts at one of its banking subsidiaries. Various cases have been filed in
the 20th Judicial Circuit and for Lee County, Florida, naming the subsidiary of
the Corporation as a co-defendent. The plaintiffs allege that a third-party
independent administrator misappropriated funds from their individual retirement
accounts held with the banking subsidiary. As of March 25, 2002, the Corporation
has settled all of these cases except one, at an aggregate cost to the
Corporation of $2.6 million. The plaintiff in the remaining case is seeking a
judgment from the Corporation in the principal amount of $150,000.
The Corporation and persons to whom the Corporation may have
indemnification obligations, in the normal course of business are subject to
various pending and threatened lawsuits in which claims for monetary damages are
asserted. Management, after consultation with outside legal counsel, does not at
the present time anticipate that the ultimate liability, arising out of such
pending and threatened lawsuits will have a material adverse effect on the
Corporation's financial position. At the present time, management is not in a
position to determine whether any pending or threatened litigation will have a
material adverse effect on the Corporation's results of operation in any future
reporting period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of the Shareholders of F.N.B. Corporation was held on
October 18, 2001 to vote on the proposed merger with Promistar Financial
Corporation and to amend the Articles of Incorporation to increase the
authorized number of common shares. Proxies were solicited pursuant to Section
14(a) of the Securities and Exchange Act of 1934 and there was no solicitation
in opposition to the Corporation's solicitation.
The Agreement and Plan of merger with Promistar Financial Corporation
was approved with 16,516,279 shares voted for and 402,732 shares voted against.
The Amendment to the Articles of Incorporation to increase the
authorized number of common shares was approved with 17,338,623 shares voted for
and 3,386,345 shares voted against.
I-12
PART II
Information relating to Items 5, 6, 7 and 8 is provided in the
Corporation's 2001 Annual Report to Stockholders under the captions and on the
pages indicated below. The Annual Report is filed as an exhibit to this report
and is incorporated herein by reference.
PAGES IN 2001
ANNUAL REPORT
CAPTION IN 2001 ANNUAL REPORT TO STOCKHOLDERS TO STOCKHOLDERS
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS 62
ITEM 6. SELECTED FINANCIAL DATA 49
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 51-61
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 54-56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 22-48,50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
II-1
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to this item is provided in the Corporation's
definitive proxy statement filed with the Securities and Exchange Commission in
connection with its annual meeting of stockholders to be held May 6, 2002. Such
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to this item is provided in the Corporation's
definitive proxy statement filed with the Securities and Exchange Commission in
connection with its annual meeting of stockholders to be held May 6, 2002. Such
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to this item is provided in the Corporation's
definitive proxy statement filed with the Securities and Exchange Commission in
connection with its annual meeting of stockholders to be held May 6, 2002. Such
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to this item is provided in the Corporation's
definitive proxy statement filed with the Securities and Exchange Commission in
connection with its annual meeting of stockholders to be held May 6, 2002. Such
information is incorporated herein by reference.
III-1
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The following consolidated financial statements of F.N.B.
Corporation and subsidiaries and report of independent auditors,
included in the Corporation's 2001 Annual Report to Stockholders,
are incorporated herein by reference:
PAGES IN 2001
ANNUAL REPORT
TO STOCKHOLDERS
Consolidated Balance Sheets 22
Consolidated Income Statements 23
Consolidated Statements of Stockholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to Consolidated Financial Statements 26 - 48
Report of Independent Auditors 21
Quarterly Earnings Summary 50
(A) 2. FINANCIAL STATEMENT SCHEDULES
All Schedules are omitted because they are not applicable.
(A) 3. EXHIBITS
The exhibits filed or incorporated by reference as a part of this
report are listed in the Index to Exhibits which appears at page
IV-4 and is incorporated by reference.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of
2001.
IV-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
F.N.B. CORPORATION
By /s/Gary L. Tice
-------------------------------------
Gary L. Tice, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/Peter Mortensen Chairman and Director March 18, 2002
- ---------------------------
Peter Mortensen
/s/Gary L. Tice President, Chief Executive March 18, 2002
- --------------------------- Officer and Director
Gary L. Tice (Principal Executive Officer)
/s/Stephen J. Gurgovits Vice Chairman and Director March 21, 2002
- ---------------------------
Stephen J. Gurgovits
/s/John D. Waters Vice President and Chief March 18, 2002
- --------------------------- Financial Officer (Principal
John D. Waters Financial and Accounting
Officer)
Director
- ---------------------------
G. Scott Baton
Director
- ---------------------------
W. Richard Blackwood
Director
- ---------------------------
Alan C. Bomstein
/s/William B. Campbell Director March 18, 2002
- ---------------------------
William B. Campbell
/s/Charles T. Cricks Director March 18, 2002
- ---------------------------
Charles T. Cricks
IV-2
/s/Henry M. Ekker Director March 18, 2002
- ---------------------------
Henry M. Ekker
/s/James S. Lindsay Director March 18, 2002
- ---------------------------
James S. Lindsay
/s/Paul P. Lynch Director March 21, 2002
- ---------------------------
Paul P. Lynch
/s/Edward J. Mace Director March 18, 2002
- ---------------------------
Edward J. Mace
/s/Robert S. Moss Director March 21, 2002
- ---------------------------
Robert S. Moss
Director
- ---------------------------
William A. Quinn
Director
- ---------------------------
Harry F. Radcliffe
/s/William J. Strimbu Director March 18, 2002
- ---------------------------
William J. Strimbu
Director
- ---------------------------
Earl K. Wahl, Jr.
/s/Archie O. Wallace Director March 18, 2002
- ---------------------------
Archie O. Wallace
/s/James T. Weller Director March 18, 2002
- ---------------------------
James T. Weller
Director
- ---------------------------
Eric J. Werner
/s/R. Benjamin Wiley Director March 21, 2002
- ---------------------------
R. Benjamin Wiley
/s/Donna C. Winner Director March 21, 2002
- ---------------------------
Donna C. Winner
IV-3
INDEX TO EXHIBITS
The following exhibits are filed or incorporated by reference as part of this
report:
3.1. Articles of Incorporation of the Corporation as currently in effect.
(incorporated by reference to Exhibit 4.1. of the Corporation's Form
8-K filed on June 1, 2001).
3.2. By-laws of the Corporation as currently in effect. (incorporated by
reference to Exhibit 4.2. of the Corporation's Form 8-K filed on June
1, 2001).
4 The rights of holders of equity securities are defined in portions of
the Articles of Incorporation and By-laws. The Articles of
Incorporation are incorporated by reference to Exhibit 4.1. of the
registrant's Form 8-K filed on June 1, 2001. The By-laws are
incorporated by reference to Exhibit 4.2. of the registrant's Form 8-K
filed on June 1, 2001. A designation statement defining the rights of
F.N.B. Corporation Series A - Cumulative Convertible Preferred Stock is
incorporated by reference to Form S-14, Registration Statement of
F.N.B. Corporation, File No. 2-96404. A designation statement defining
the rights of F.N.B. Corporation Series B - Cumulative Convertible
Preferred Stock is incorporated by reference to Exhibit 4 of the
registrant's Form 10-Q for the quarter ended June 30, 1992. The
Corporation agrees to furnish to the Commission upon request copies of
all instruments not filed herewith defining the rights of holders of
long-term debt of the Corporation and its subsidiaries.
10.1. Form of agreement regarding deferred payment of directors' fees by
First National Bank of Pennsylvania. (incorporated by reference to
Exhibit 10.1. of the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993).
10.2. Form of agreement regarding deferred payment of directors' fees by
F.N.B. Corporation. (incorporated by reference to Exhibit 10.2. of the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993).
10.3. Form of Deferred Compensation Agreement by and between First National
Bank of Pennsylvania and four of its executive officers. (incorporated
by reference to Exhibit 10.3. of the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993).
10.4. Employment Agreement between F.N.B. Corporation and Stephen J.
Gurgovits. (incorporated by reference to Exhibit 10.5. of the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1998).
10.5. Employment Agreement between F.N.B. Corporation and William J.
Rundorff. (incorporated by reference to exhibit 10.9 of the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991). Amendment No. 2 to Employment Agreement.
(incorporated by reference to Exhibit 10.8. of the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995).
10.6. Basic Retirement Plan (formerly the Supplemental Executive Retirement
Plan) of F.N.B. Corporation effective January 1, 1992. (incorporated by
reference to Exhibit 10.9. of the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1993).
IV-4
10.7. F.N.B. Corporation 1990 Stock Option Plan as amended effective February
2, 1996. (incorporated by reference to Exhibit 10.10. of the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
10.8. F.N.B. Corporation Restricted Stock Bonus Plan dated January 1, 1994.
(incorporated by reference to Exhibit 10.11. of the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993).
10.9. Employment Agreement between F.N.B. Corporation and John D. Waters.
(incorporated by reference to Exhibit 10.13 of the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995).
10.10. F.N.B. Corporation Restricted Stock and Incentive Bonus Plan.
(incorporated by reference to Exhibit 10.14. of the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
10.11. F.N.B. Corporation 1996 Stock Option Plan. (incorporated by reference
to Exhibit 10.15. of the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
10.12. F.N.B. Corporation Director's Compensation Plan. (incorporated by
reference to Exhibit 10.16. of the Corporation's Form 10-Q for the
quarter ended March 31, 1996).
10.13. F.N.B. Corporation 1998 Director's Stock Option Plan. (incorporated by
reference to Exhibit 10.14. of the Corporation's Annual Report on Form
10-K for the year ended December 31, 1998).
10.14. Employment Agreement between F.N.B. Corporation and Gary L. Tice.
(incorporated by reference to Exhibit 10.1. of the Corporation's Form
10-Q for the quarter ended June 30, 1999).
10.15. Employment Agreement between F.N.B. Corporation and Kevin C. Hale.
(incorporated by reference to Exhibit 10.16. of the Corporation's Form
10-Q for the quarter ended June 30, 2000).
10.16. F.N.B. Corporation 2001 Incentive Plan. (incorporated by reference to
Exhibit 10.1. of the Corporation's Form S-8 filed on June 14, 2001).
10.17. Termination of Continuation of Employment Agreement between F.N.B.
Corporation and Peter Mortensen. (filed herewith).
10.18. Merger Agreement between F.N.B. Corporation and Promistar Financial
Corporation. (incorporated by reference to Exhibit 2.1. of F.N.B.
Corporation's Form 8-K filed on June 14, 2001).
13 Annual Report to Stockholders. (filed herewith).
21 Subsidiaries of the Registrant. (filed herewith).
23.1. Consent of Ernst & Young LLP, Independent Auditors. (filed herewith).
IV-5