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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, 1996
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
F.N.B. CORPORATION
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(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
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(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
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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
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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 preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The registrant estimates that as of February 28, 1997, 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 $306,870,180.
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
-----------------------------------------
As of February 28, 1997, the registrant had outstanding 12,129,920 shares of
common stock having a par value of $2 per share.
Continued
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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, 1996 I & II
Definitive proxy statement for the 1997 Annual
Meeting of Stockholders to be held on April 23, 1997 III
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FORM 10-K
1996
INDEX
PART I PAGE
Item 1. Business.
General I-2
Statistical Disclosure I-10
Item 2. Properties. I-11
Item 3. Legal Proceedings. I-11
Item 4. Submission of Matters to a Vote of Security Holders. I-11
Executive Officers of the Registrant 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 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
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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, at December 31, 1996,
operated four other banks 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 ten offices of the former The First National
Bank of Pennsylvania and three offices of Marine Bank. At the same time, First
National Bank of Mercer County changed its name to First National Bank of
Pennsylvania (First National). On January 21, 1997, the Corporation completed
its merger with Southwest Banks, Inc. (Southwest). Southwest is a bank holding
company which operates two banks in Naples and Cape Coral, Florida. The merger
was accounted for as a pooling of interests. On November 15, 1996, the
Corporation signed a definitive merger agreement with West Coast Bancorp, Inc.
(West Coast), a single-bank holding company located in Cape Coral, Florida.
The merger is expected to close during the second quarter of 1997. On November
6, 1996, the Corporation announced an agreement with Sun Bancorp, Inc. (Sun), a
bank holding company headquartered in Selinsgrove, Pennsylvania, where Sun will
receive 100% ownership of Bucktail Bank and Trust Company (Bucktail), a
subsidiary of the Corporation, in exchange for a 13.8% ownership interest in
the voting stock of Sun.
The Corporation, through its subsidiaries, provides a full range of
financial services, principally to consumers and small- to medium-size
businesses in its market areas. The Corporation's business strategy has been
to focus primarily on providing quality, community-based financial services
adapted to the needs of each of the markets it serves. The Corporation has
emphasized its community orientation by preserving the names and local boards
of directors of its subsidiaries, by allowing its subsidiaries certain autonomy
in decision-making and thus enabling them to respond to customer requests more
quickly, and by concentrating on transactions within its market areas.
However, while the Corporation has sought to preserve the identities and
autonomy of its subsidiaries, it has established centralized credit analysis,
loan review, accounting, investment, audit and data processing functions. The
centralization of these processes has enabled the Corporation to maintain
consistent quality of these functions and to achieve certain economies of
scale.
The Corporation's lending philosophy is to minimize credit losses by
following strict credit approval standards (which include independent analysis
of realizable collateral value), diversifying its loan portfolio by industry
and borrower and conducting ongoing review and management of the loan
portfolio. The Corporation is an active residential mortgage lender, and its
commercial loans are generally to established local businesses. 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, 1996 for the Corporation's
bank and consumer finance subsidiaries, including Southwest and West Coast
(including the year established and location of principal office for each).
All subsidiaries are wholly-owned by the Corporation.
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TOTAL TOTAL NUMBER
ASSETS (IN DEPOSITS (IN OF
BANK SUBSIDIARIES: THOUSANDS) THOUSANDS) OFFICES
---------- ------------ -------
First National Bank of Pennsylvania (Est. 1864)
Hermitage, Pennsylvania........................ $1,015,060 $ 886,688 32
The Metropolitan Savings Bank of Ohio (Est. 1922)
Youngstown, Ohio................................ 315,899 287,536 11
Reeves Bank (Est. 1868)
Beaver Falls, Pennsylvania...................... 134,642 121,437 9
Bucktail Bank and Trust Company (Est. 1928)
Emporium, Pennsylvania.......................... 118,364 106,004 7
First County Bank (Est. 1987)
Chardon, Ohio................................... 44,161 39,979 2
---------- ---------- --
$1,628,126 $1,441,644 61
========== ========== ==
CONSUMER FINANCE SUBSIDIARY:
Regency Finance Company (Est. 1927)
Hermitage, Pennsylvania......................... $ 95,806 34
========== ==
CONSUMMATED MERGER:
Southwest Bank Subsidiaries:
First National Bank of Naples (Est. 1988)
Naples, Florida............................... $ 423,366 $ 332,893 5
Cape Coral National Bank (Est. 1994)
Cape Coral, Florida........................... 104,673 94,849 2
---------- ---------- --
$ 528,039 $ 427,742 7
========== ========== ==
PENDING MERGER:
West Coast Bank Subsidiary:
First National Bank of Southwest Florida
(Est. 1989) Fort Myers, Florida............... $ 170,066 $ 156,943 5
========== ========== ==
The Corporation has four other subsidiaries, Penn-Ohio Life Insurance
Company, Est. 1981 (Penn-Ohio), Customer Service Center of F.N.B., L.L.C., Est.
1996 (Customer Service), Mortgage Service Corporation, Est. 1944 (Mortgage
Service), and F.N.B. Building Corporation, Est. 1987 (F.N.B. Building).
Penn-Ohio underwrites, as a reinsurer, credit life and accident and health
insurance sold by the Corporation's subsidiaries. Customer Service provides
data processing and other services to the affiliates of the Corporation.
Mortgage Service services mortgage loans for unaffiliated financial
institutions and F.N.B. Building owns real estate that is leased to certain
affiliates.
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 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, 1996, trust
assets under management at First National and Bucktail totaled $275.4 million
and $19.3 million, respectively.
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.
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REGULATION AND SUPERVISION
Bank holding companies, banks and consumer finance companies are
extensively regulated under both federal and state law. The following summary
information describes statutory or regulatory provisions, it is qualified by
reference to the particular statutory and regulatory provisions. Any change in
applicable law or regulation may have a material effect on the business and
prospects of the Corporation and its subsidiaries.
The regulation and examination of the Company and its subsidiaries are
designed primarily for the protection of depositors and not the Corporation or
its stockholders.
BANK HOLDING COMPANIES
The Corporation is registered as a bank holding company under the Bank
Holding Company Act of 1956 (BHCA) and, as such, is subject to regulation by
the Federal Reserve Board (FRB). As a bank holding company, the Corporation is
required to file with the FRB an annual report and such additional information
as the FRB may require pursuant to the BHCA. The FRB may also make
examinations of the Corporation.
The BHCA requires the prior approval of the FRB in any case where a bank
holding company proposes to acquire direct or indirect ownership or control of
more than 5% of the voting shares of any bank (unless it owns a majority of
such bank's voting shares) or otherwise to control a bank or to merge or
consolidate with any other bank holding company. Effective September 29, 1995,
the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
authorizes the FRB to permit a bank holding company that meets all applicable
capital requirements to acquire control, or substantially all of the assets, of
a bank located in another state that is not the bank holding company's home
state, regardless of whether the other state prohibits such transaction.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring more than 5% of the voting shares of any company that is not a
bank and from engaging in any business other than banking or managing or
controlling banks. Under the BHCA, the FRB is authorized to approve the
ownership of shares by a bank holding company in any company, the activities of
which the Federal Reserve has determined to be so closely related to banking or
to managing or controlling banks as to be a proper incident thereto. The FRB
has by regulation determined that certain activities are closely related to
banking within the meaning of the BHCA. These activities, which are listed in
Regulation Y of the FRB regulations, include: operating a mortgage company,
finance company, credit card company or factoring company; performing certain
data processing operations; providing investment and finance advice; and acting
as an insurance agent for certain types of credit-related insurance.
Activities which the FRB has approved by order in connection with
specific applications by bank holding companies include the operation of a
credit card bank or other non-bank banks, certain expanded student loan
servicing activities, the buying and selling of gold and silver bullion and
silver coin for the account of customers and for itself, the provision of
certain financial office services, the printing and sale of checks and similar
documents, underwriting and dealing in commercial paper, certain municipal
revenue bonds and one to four family mortgage backed securities, subject to
certain conditions, and underwriting and dealing in corporate debt or equity
securities, subject to certain conditions. Bank holding companies also are
permitted to acquire savings associations subject to the applicable
requirements of the BHCA.
In approving acquisitions by bank holding companies of banks and
companies engaged in banking-related activities, the FRB considers a number of
factors, including the expected benefits to the public, such as greater
convenience, increased competition or gains in efficiency, as weighed against
the risks of possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. The FRB is also empowered to differentiate between new
activities and activities commenced through acquisition of a going concern.
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Bank holding companies and their subsidiary banks are also subject to
the provisions of the Community Reinvestment Act of 1977 (CRA). Under the
terms of the CRA, the FRB (or other appropriate bank regulatory agency) is
required, in connection with its examination of a financial institution, to
assess the financial institution's record in meeting the credit needs of the
communities served by the financial institution, including low and
moderate-income neighborhoods. Further, such assessment is also required of
any financial institution which has applied to (i) obtain a federally-regulated
financial institution charter; (ii) obtain deposit insurance coverage for a
newly chartered institution; (iii) establish a new branch office that will
accept deposits; (iv) relocate an office; or (v) merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally-regulated
financial institution. In the case of a bank holding company applying for
approval to acquire a bank, savings and loan, or other bank holding company,
the FRB will assess the record of each subsidiary of the applicant bank holding
company, and such records may be the basis for denying the application or
imposing conditions in connection with approval of the application.
BANKS
The Corporation's bank subsidiaries are supervised and regularly
examined by the Office of the Comptroller of Currency (OCC), the Federal
Deposit Insurance Corporation (FDIC), the 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.
CONSUMER FINANCE SUBSIDIARY
The Corporation's consumer finance subsidiary is subject to regulation
under Pennsylvania, Ohio and New York state laws which require, among other
things, that it maintain licenses for consumer finance operations in effect
for each of its offices. Representatives of the Pennsylvania Department of
Banking, the Ohio Division of Consumer Finance and the State of New York
Banking Department periodically visit the offices of the consumer finance
subsidiary and conduct extensive examinations in order to determine compliance
with such laws and regulations. Such examinations include a review of loans
and the collateral thereof, as well as a check of the procedures employed for
making and collecting loans. Additionally, the consumer finance subsidiary is
subject to certain federal laws which require that certain information relating
to credit terms be disclosed to customers and afford customers in certain
instances the right to rescind transactions.
LIFE INSURANCE SUBSIDIARY
Penn-Ohio is subject to examination on a triennial basis by the Arizona
Department of Insurance. Representatives of the Department of Insurance will
periodically determine whether Penn-Ohio has maintained required reserves,
established adequate deposits under a reinsurance agreement and complied with
reporting requirements under Arizona statutes.
GOVERNMENTAL POLICIES
The operations of the Corporation and its subsidiaries are affected not
only by general economic conditions, but also by the policies of various
regulatory authorities. In particular, the FRB regulates money and credit and
interest rates in order to influence general economic conditions. These
policies have a significant influence on overall growth and distribution of
loans, investments and deposits and affect interest rates charged on loans or
paid for time and savings deposits. FRB monetary policies have had a
significant effect on the operating results of all financial institutions in
the past and may continue to do so in the future.
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FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT (FDICIA)
FDICIA was designed to bolster the deposit insurance fund, tighten bank
regulation and trim the scope of federal deposit insurance as summarized below.
FDIC Funding - FDICIA bolstered the bank deposit insurance fund with
$70.0 billion in borrowing authority and increased to $30.0 billion from $5.0
billion the amount the FDIC can borrow from the U.S. Treasury to cover the
costs of potential bank failures.
Bank Regulation - Under FDICIA, regulatory supervision is linked to bank
capital. Regulators have set five capital levels at which insured depository
institutions will be "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." FDICIA established a framework for supervisory actions
regarding insured institutions and their holding companies that are not well or
adequately capitalized.
FDICIA requires increased supervision for banks not rated in one of the
two highest categories under the "CAMELS" composite bank rating system. The
FDIC is authorized to charge banks for regular and special examinations.
Further, FDICIA mandates certain limits on real estate lending by banks and
tightens bank auditing requirements.
The federal bank regulatory agencies are required by FDICIA to adopt
uniform capital and accounting rules. The accounting rules require
supplemental disclosure in reports to the banking agencies of all assets and
liabilities, including contingent assets and liabilities and, to the extent
feasible, of the estimated fair market valuation of assets and liabilities.
As mandated by Section 132 of FDICIA, the federal bank regulatory
agencies issued regulations which prescribe minimum safety and soundness
standards with respect to internal control, internal audit, loan documentation,
credit underwriting, interest rate exposure, asset growth and quality,
earnings, compensation arrangements and stock valuation. Institutions failing
to meet these safety and soundness standards will be required to submit
corrective plans and will be subject to sanctions for failure to submit or
comply with a plan.
The Community Development and Regulatory Improvement Act of 1994 amended
section 132 of FDICIA to permit the regulatory agencies to implement the safety
and soundness standards relative to asset quality, earnings and stock valuation
by regulation or guidelines. The agencies will now be permitted to decide
whether or not to compel institutions that fail to meet these standards to
submit a compliance plan. Finally, depository institution holding companies
are no longer covered under Section 132 of FDICIA.
FDICIA also provided for certain consumer and low and moderate income
lending and deposit programs.
Deposit Insurance - The legislation also reduced the scope of federal
deposit insurance. The FDIC's ability to reimburse uninsured deposits (those
over $100,000 and foreign deposits) was sharply limited beginning January 1995.
The FRB's ability to finance banks with extended loans from its discount window
was restricted, beginning December 1993. In addition, only the best
capitalized banks will be able to offer insured broker deposits or to insure
accounts established under employee pension plans.
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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.
The subsidiaries are subject to various statutory and regulatory
restrictions on their ability to pay dividends to the parent company. Under
applicable federal and state statutes and regulations, the dividends that may
be paid to the parent company by its subsidiaries without prior regulatory
approval are subject to limitations. In the case of 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. All 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, and the FDIC, in
the case of the Corporation's other bank subsidiaries, have authority to
prohibit banks from engaging in unsafe and unsound banking practices. The
payment of a dividend by a bank could, depending on the financial condition of
such bank and other factors, be considered an unsafe and unsound banking
practice. The OCC has indicated its view that it generally would be an unsafe
and unsound practice to pay dividends except out of current operating earnings.
The ability of the subsidiaries to pay dividends is, and is expected to
continue to be, influenced by regulatory policies and capital guidelines. (See
also "Stockholders' Equity" footnote in the Notes to Consolidated Financial
Statements, which is incorporated by reference to the Corporation's Annual
Report to Stockholders).
CAPITAL REQUIREMENTS
The FRB has adopted risk-based capital guidelines applicable to bank
holding companies. The primary indicators relied on by the FRB and other bank
regulators in measuring strength of capital position are the core capital,
total risk-based capital and leverage ratios.
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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, 1996 were
11.99% and 14.06%, respectively. (See also "Regulatory Matters" footnote in
the Notes to Consolidated Financial Statements, which is incorporated by
reference to the Corporation's Annual Report to Stockholders).
In addition, the FRB has established minimum leverage ratio (core
capital to quarterly average assets less non-qualifying intangibles) guidelines
for bank holding companies. These guidelines provide for a minimum ratio of
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, 1996 was 8.58%. 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.
Each bank 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 FRB policy, a bank holding company is required to serve as a
source of financial and managerial strength to its subsidiary banks and may not
conduct its operations in an unsafe or unsound manner. In addition, it is the
FRB's policy that, in serving as a source of strength to its subsidiary banks,
a bank holding company should stand ready to use available resources to provide
adequate capital funds to its subsidiary banks during periods of financial
stress or adversity, in circumstances where it might not do so absent such
policy, and should maintain the financial flexibility and capital-raising
capacity to obtain additional resources for assisting its subsidiary banks.
The failure of a bank holding company to serve as a source of strength to its
subsidiary banks would generally be considered by the FRB to be an unsafe and
unsound banking practice, a violation of FRB regulations, or both.
FDIC INSURANCE ASSESSMENTS
The Corporation's banking subsidiaries are subject to FDIC deposit
insurance assessments for the Bank Insurance Fund (BIF) and Savings Association
Insurance Fund (SAIF). Financial Institutions Reform, Recovery and Enforcement
Act (FIRREA) authorized the FDIC to set the annual premium for banks and
savings associations as high as determined to be necessary to assure stability
of the insurance funds. FDIC deposit insurance premium rates have been
determined through a risk-based assessment which takes into consideration the
capital rating (i.e. "undercapitalized", "adequately capitalized" or "well
capitalized") assigned to the institution by the federal regulators. Each of
the banking affiliates have been assigned a capital rating of "well
capitalized."
During 1996, Congress mandated a one-time assessment to recapitalize the
SAIF. The legislation, passed by Congress during the third quarter of 1996,
included a one-time assessment for all deposits insured by the SAIF, including
those held by chartered commercial banks as a result of previous acquisitions.
The legislation also included provisions that will result in a modest reduction
in future annual deposit insurance for the Corporation.
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FIRREA
As a result of the enactment of the FIRREA on August 9, 1989, a
depository institution insured by the FDIC can be held liable for any loss
incurred, or reasonably expected to be incurred, by the FDIC after August 9,
1989 in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to a
commonly controlled FDIC-insured depository institution in danger of default.
"Default" is defined generally as the appointment of a conservator or receiver
and "in danger of default" is defined generally as the existence of certain
conditions indicating that a "default" is likely to occur in the absence of
regulatory assistance. Liability of any subsidiary under this
"cross-guarantee" provision could have a material adverse effect on the
financial condition of any assessed subsidiary and the Corporation.
OMNIBUS CONSOLIDATED APPROPRIATIONS ACT, FOR FISCAL YEAR 1997 (OMNIBUS ACT)
The Omnibus Act became effective on September 30, 1996. In addition to
requiring commercial banks to make contributions to the SAIF, the Omnibus Act
amended the Bank Holding Company Act to simplify certain nonbank application
procedures for "well capitalized" banking organizations. Additionally, the
Omnibus Act amended certain banking laws governing the operations of insured
depository institutions to provide relief to commercial banks with respect to
lender liability, environmental liability, loans to executive officers, officer
and director interlocks and composition of bank audit committees.
MARKET AREA AND COMPETITION
The Corporation, through its subsidiaries, operated 95 offices in 33
counties in Pennsylvania, eastern Ohio and western New York at December 31,
1996. The economies of the primary market areas in which the Corporation and
its subsidiaries operate have evolved during the past decade from ones
dominated by heavy industry to ones which have a more diversified mix of light
manufacturing, service and distribution industries. This area is served by
Interstate Routes 90, 76, 79 and 80, and is located at the approximate midpoint
between New York City and Chicago. The area is also close to the Great Lakes
shipping port of Erie and the Greater Pittsburgh International Airport. The
Corporation's recent merger with Southwest Banks, Inc. provides a meaningful
presence in two attractive Gulf Coast counties (Lee and Collier). These
counties represent two of the highest growth and median family income levels in
the state of Florida.
The Corporation's subsidiaries compete with a large number of other
financial institutions, such as commercial banks, savings banks, savings and
loan associations, insurance companies, mortgage banking companies, consumer
finance companies, credit unions and commercial finance and leasing companies,
many of which have greater resources than the Corporation, for deposits, loans
and service business. Money market mutual funds, brokerage houses and similar
institutions currently provide many of the financial services offered by the
Corporation's subsidiaries.
In the consumer finance subsidiary's market areas, the active
competitors include banks, credit unions and national, regional and local
consumer finance companies, some of which have substantially greater resources
than that of the consumer finance subsidiary. The ready availability of
consumer credit through charge accounts and credit cards constitutes additional
competition. The principal methods of competition include the rates of
interest charged for loans, the rates of interest paid to obtain funds and the
availability of customer services.
With reciprocal interstate banking, the Corporation also faces the
prospect of additional competitors entering its markets as well as additional
competition in its efforts to acquire other subsidiaries and branches
throughout Pennsylvania and in neighboring states. (See "Regulation and
Supervision.")
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EMPLOYEES
As of February 28, 1997, the Corporation and its subsidiaries, including
Southwest, had 985 full-time and 244 part-time employees. Management of the
Corporation considers its relationship with its employees to be satisfactory.
MERGERS, ACQUISITIONS AND DIVESTITURE
See "Mergers, Acquisitions and Divestiture" footnote in the Notes to
Consolidated Financial Statements, which is incorporated by reference to the
Corporation's Annual Report to Stockholders.
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
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ITEM 2. PROPERTIES
The Corporation is constructing a new six-story building in Hermitage,
Pennsylvania to serve as its corporate headquarters and share with its lead
banking affiliate, First National. The operations of the Corporation and First
National are currently conducted at two primary locations owned by First
National: Hermitage Square and a data processing facility, both located in
Hermitage, Pennsylvania. Operations for Metropolitan are conducted at a
17-story facility owned by Metropolitan at One Federal Plaza West, Youngstown,
Ohio. At December 31, 1996, Metropolitan occupied approximately 44% of the
rentable space, with the remaining rentable space being subleased to third
parties.
The banking and consumer finance subsidiaries' branch offices are
located in 26 counties in Pennsylvania, 6 counties in eastern Ohio and 1 county
in western New York. At December 31, 1996, the Corporation's subsidiaries
owned 43 of the Corporation's 95 branch locations and leased the remaining 52
branch locations under operating leases expiring at various dates through the
year 2010. For additional information regarding the lease commitments and
locations of the 95 offices of the Corporation, see the Premises and Equipment
footnote and the Market Area map in the Annual Report to Shareholders.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Corporation
or any of its subsidiaries is a party, or of which any of their property is the
subject, except ordinary routine proceedings which are incidental to the
ordinary conduct of business. In the opinion of management, pending legal
proceedings will not have a material adverse effect on the consolidated
financial position of the Corporation and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of 1996.
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14
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the executive officers of the
Corporation, as of February 28, 1997, are as follows:
NAME AGE POSITION HELD
Peter Mortensen 61 Chairman, President and Director
Stephen J. Gurgovits 53 Executive Vice President and Director
John W. Rose 47 Executive Vice President
William J. Rundorff 48 Executive Vice President
Gary L. Tice 49 Executive Vice President and Director
Samuel K. Sollenberger 59 Vice President and Director
John D. Waters 50 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).
Mr. Gary L. Tice is Executive Vice President of the Corporation (1997 to
the present), Chairman of the Board, President and Chief Executive Officer of
Southwest Banks, Inc. (1988 to the present) and Chairman of the Board of First
National Bank of Naples (1988 to the present).
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).
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PART II
Information relating to Items 5, 6, 7 and 8 is provided in the
Corporation's 1996 Annual Report to Stockholders under the captions and on the
pages indicated below, and is incorporated herein by reference:
PAGES IN 1996
ANNUAL REPORT
CAPTION IN 1996 ANNUAL REPORT TO STOCKHOLDERS TO STOCKHOLDERS
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 51
ITEM 6. SELECTED FINANCIAL DATA 39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
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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 23, 1997. 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 23, 1997.
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 23, 1997.
Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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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 1996 Annual Report to Stockholders,
are incorporated herein by reference to Item 8:
PAGES IN 1996
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 38
Quarterly Earnings Summary 32
(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 are incorporated by reference.
(B) REPORTS ON FORM 8-K
A report on Form 8-K , dated November 13, 1996, was filed by the
Corporation. The Form 8-K disclosed pro forma financial
information for the period ended September 30, 1996, relating to
the merger agreement between F.N.B. Corporation and Southwest
Banks, Inc. and consolidated financial information for Southwest
Banks, Inc.
A report on Form 8-K, dated November 15, 1996, was filed by the
Corporation. The Form 8-K disclosed information relating to the
definitive merger agreement between F.N.B. Corporation and West
Coast Bancorp, Inc.
A report on Form 8-K, dated January 24, 1997, was filed by the
Corporation. The Form 8-K disclosed information relating to the
consummation of the merger with Southwest Banks, Inc.
A report on Form 8-K, dated March 5, 1997, was filed by the
Corporation. The Form 8-K included Audited Supplemental
Consolidated Financial Statements for the years ended December
31, 1995, 1994 and 1993 with Report of Independent Auditors and
Management's Discussion and Analysis.
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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 25, 1997
- --------------------------- Director (Principal
Peter Mortensen Executive Officer)
/s/ Stephen J. Gurgovits Executive Vice President February 25, 1997
- --------------------------- and Director
Stephen J. Gurgovits
Executive Vice President
- --------------------------- and Director
Gary L. Tice
Vice President and Director
- ---------------------------
Samuel K. Sollenberger
/s/ John D. Waters Vice President and Chief February 25, 1997
- --------------------------- Financial Officer (Principal
John D. Waters Accounting Officer)
Director
- ---------------------------
W. Richard Blackwood
/s/ William B. Campbell Director February 25, 1997
- ---------------------------
William B. Campbell
/s/ Charles T. Cricks Director February 25, 1997
- ---------------------------
Charles T. Cricks
/s/ Henry M. Ekker Director February 25, 1997
- ---------------------------
Henry M. Ekker
Director
- ---------------------------
Thomas C. Elliott
/s/ Thomas W. Hodge Director February 25, 1997
- ---------------------------
Thomas W. Hodge
IV-2
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Director
- ---------------------------
James S. Lindsay
/s/ George E. Lowe Director February 25, 1997
- ---------------------------
George E. Lowe
/s/ Paul P. Lynch Director February 25, 1997
- ---------------------------
Paul P. Lynch
Director
- ---------------------------
Edward J. Mace
Director
- ---------------------------
Robert S. Moss
Director
- ---------------------------
Richard C. Myers
Director
- ---------------------------
John R. Perkins
/s/ William A. Quinn Director February 25, 1997
- ---------------------------
William A. Quinn
Director
- ---------------------------
George A. Seeds
/s/ William J. Strimbu Director February 25, 1997
- ---------------------------
William J. Strimbu
/s/ Archie O. Wallace Director February 25, 1997
- ---------------------------
Archie O. Wallace
/s/ Joseph M. Walton Director February 25, 1997
- ---------------------------
Joseph M. Walton
/s/ James T. Weller Director February 25, 1997
- ---------------------------
James T. Weller
Director
- ---------------------------
Eric J. Werner
Director
- ---------------------------
Donna C. Winner
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INDEX TO EXHIBITS
The following exhibits are filed or incorporated by reference as part of
this report:
3.1. Restated Articles of Incorporation of the Corporation as currently in
effect and any amendments thereto. (filed herewith).
3.2. By-laws of the Corporation as currently in effect. (incorporated by
reference to Exhibit 4 of the Corporation's Form 10-Q for the quarter
ended June 30, 1994).
4 The rights of holders of equity securities are defined in portions of
the Restated Articles of Incorporation and By-laws. The Restated
Articles of Incorporation are incorporated by reference to
Exhibit 3.1. of the registrant's Form 10-K for the year ended
December 31, 1996. The By-laws are incorporated by reference to
Exhibit 4 of the registrant's Form 10-Q for the quarter ended June
30, 1994. A designation statement defining the rights of F.N.B.
Corporation Series A - Cumulative Convertible Preferred Stock is
incorporated by reference to Form S-14, Registration Statement of
F.N.B. Corporation, File No. 2-96404. A designation statement
defining the rights of F.N.B. Corporation Series B - Cumulative
Convertible Preferred Stock is incorporated by reference to Exhibit 4
of the registrant's Form 10- Q for the quarter ended June 30, 1992.
The Corporation agrees to furnish to the Commission upon request
copies of all instruments not filed herewith defining the rights of
holders of long-term debt of the Corporation and its subsidiaries.
10.1. Form of agreement regarding deferred payment of directors' fees by
First National Bank of Pennsylvania. (incorporated by reference to
Exhibit 10.1. of the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993).
10.2. Form of agreement regarding deferred payment of directors' fees by
F.N.B. Corporation. (incorporated by reference to Exhibit 10.2. of
the Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993).
10.3. Form of Deferred Compensation Agreement by and between First National
Bank of Pennsylvania and four of its executive officers.
(incorporated by reference to Exhibit 10.3. of the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993).
10.4. 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. Revised and Restated Amendment No. 2 to Employment Agreement between
F.N.B. Corporation and Peter Mortensen. (incorporated by reference
to Exhibit 10.5. of the Corporation's Form 10-Q for the quarter ended
September 30, 1996).
10.6. 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).
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.
(incorporated by reference to Exhibit 10.8. of the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
IV-4
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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. (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).
10.11. 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. (incorporated by reference to Exhibit
10.12. of the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
10.13. 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).
10.14. F.N.B. Corporation Restricted Stock and Incentive Bonus Plan.
(incorporated by reference to Exhibit 10.13. of the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
10.15. F.N.B. Corporation 1996 Stock Option Plan. (incorporated by
reference to Exhibit 10.13. of the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995).
10.16. F.N.B. Corporation Director's Compensation Plan. (incorporated by
reference to Exhibit 10.13. of the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995).
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-5