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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _______________________
Commission File Number 0-13823
FNB CORP.
(Exact name of registrant as specified in its charter)
North Carolina 56-1456589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Sunset Avenue, Asheboro, North Carolina 27203
(Address of principal executive offices)
Registrant's telephone number, including area code: (336) 626-8300
Securities registered pursuant to Section 12(b) of the Act: None
Securities pursuant to Section 12(g) of the Act:
Common Stock, par value $2.50 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the 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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. |_|
As of March 19, 1998, the aggregate market value of voting stock held by
nonaffiliates of the registrant, assuming, without admission, that all directors
and officers of the registrant may be deemed affiliates, was $88,635,993.
The registrant had 3,650,686 shares of $2.50 par value common stock outstanding
at March 19, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1997 are incorporated by reference into Part II.
Portions of the definitive proxy statement for the Annual Meeting of
Shareholders to be held on May 12, 1998 are incorporated by reference into Part
III.
PART I
Item 1. Business
FNB Corp. (the "Parent Company") is a bank holding company incorporated
under the laws of the State of North Carolina in 1984. On July 2, 1985, through
an exchange of stock, the Parent Company acquired its wholly-owned bank
subsidiary, First National Bank and Trust Company (the "Bank"), a national
banking association founded in 1907. The Parent Company and the Bank are
collectively referred to as the "Corporation".
The Bank, a full-service commercial bank, currently conducts all of its
operations in Randolph, Montgomery and Chatham counties in North Carolina. Four
offices, including the main office, are located in Asheboro. Additional
community offices are located in Archdale (two offices), Biscoe, Ramseur,
Randleman, Seagrove and Siler City. Some of the major services offered include
checking accounts, NOW accounts (including package account versions that offer a
variety of products and services), money market accounts, savings accounts,
certificates of deposit, holiday club accounts, individual retirement accounts,
credit cards and loans, both secured and unsecured, for business, agricultural
and personal use. The Bank also has automated teller machines and is a member of
two national teller machine networks, Cirrus and Plus, and one regional network,
Honor.
The Bank has a Trust and Investment Services Division that offers
traditional trust and estate settlement services, investment management
programs, brokerage services and tax-deferred annuities. In 1995, the Trust and
Investment Services Division began offering investment products and services
through "FNB Investor Services", a service provided by Liberty Securities.
On June 3, 1997, the Corporation entered into a definitive agreement to
acquire Home Savings Bank of Siler City, Inc., SSB ("Home Savings") of Siler
City, North Carolina. Under terms of the agreement, Home Savings shareholders
were to receive $15.50 per share, either in FNB Corp. common stock or in cash or
a combination thereof, subject to the limitation that FNB Corp. common stock
issued in the merger would be not more than 60% and not less than 50% of the
total consideration. On January 28, 1998, as permitted by the agreement, the
Board of Directors of Home Savings exercised its right to terminate the proposed
combination due to the increase in the market value of FNB Corp. common stock
above a specified level.
On December 30, 1993, the Corporation entered into definitive agreements to
acquire two mutual savings banks in merger/conversion transactions, pursuant to
which the savings banks would convert from mutual to stock form and the
Corporation would simultaneously acquire the shares issued in the conversions.
In 1995, the agreements expired without the acquisitions having been completed
due to changes in federal and state regulatory policies which strictly limited
the circumstances under which such transactions would be permitted.
The Corporation incurred certain costs in connection with the proposed
acquisitions. Those costs, which had been initially deferred, are included in
merger expenses in the consolidated statements of income and amounted to
$305,000 and $186,350 for the years ended December 31, 1997 and 1995,
respectively.
1
During 1994, a new credit card operation was established in which the Bank
carries its own credit card receivables as opposed to the former fee-based
arrangement under which accounts were generated for and owned by a correspondent
bank. As part of the new credit card strategy, extensive marketing efforts were
undertaken in 1995, primarily to Bank customers. Credit card receivables
amounted to $2,579,799, $2,257,204 and $1,524,718 at December 31, 1997, 1996 and
1995, respectively. Additionally, the merchant aspect of credit card operations
has been shifted to an in-house basis from the prior correspondent arrangement.
In a significant 1994 development, the Bank elected to outsource all of its
data processing, item capture and statement rendering operations. The conversion
to a service bureau arrangement was completed in the 1994 fourth quarter. The
major items of data processing equipment that were no longer needed by the Bank
were acquired by the new processor. Subsequent to the 1994 data processing
changes and without resuming any of the outsourced operations, the Bank has
significantly increased its investment in computer equipment through expanded
use of personal computer networks. The new networks allow for a more direct
input of basic loan and deposit account information to the data files maintained
by the service bureau. Capital expenditures in 1995, which totaled $1,302,230,
related primarily to the increase in computer equipment. Since most of this
equipment was not placed into service until late in 1995, the full effect on
annual depreciation expense was not recognized until 1996. Approximately
one-third of 1996 and one-half of 1997 capital expenditures, which totaled
$1,019,109 and $477,852, respectively, also related to personal computer
networks.
In 1995, management adopted a comprehensive restructuring project for the
purpose of reengineering Bank operations to become more competitive and
cost-effective in developing business and servicing customers and to improve
long-term profitability. In connection with this project, certain positions
within the Bank were either realigned or eliminated. Total restructuring
charges, all of which were incurred and paid in 1995, amounted to $460,457, of
which $301,116 related to personnel costs and $159,341 to professional fees. The
Bank also decided in March 1995 to recognize losses of $414,596 from the sales
of certain investment securities held in the available-for-sale portfolio in
order to gain favorable tax treatment for the losses and to take advantage of
reinvestment opportunities at higher coupon rates. While these actions had a
significant adverse impact on 1995 earnings, management believes these decisions
will enhance the long-term value of the Corporation and strengthen the
competitive position of its community banking operations.
Management decided in March 1996 that the Bank would discontinue the
purchase of retail installment loan contracts from automobile and equipment
dealers, due largely to the declining yields being experienced in this loan
program. Contracts of this nature included in loans at December 31, 1997, 1996
and 1995 amounted to $9,674,229, $20,355,367 and $33,525,143, respectively.
While there will be no purchases of new contracts, current plans call for the
collection of outstanding loans based on their contractual terms. The funds
previously invested in this loan program are being redeployed, as loan payments
occur, to other loan programs or to the investment securities portfolio.
Year 2000 Issue
The Corporation is aware of the issue associated with the programming code
in existing computer systems as the year 2000 approaches. The "year 2000"
problem is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two-digit year
2
value to 00. The issue is whether computer systems and other equipment
incorporating computer components will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Corporation relies on vendors for all computer programming and
equipment. An internal assessment of the year 2000 situation was completed in
January 1997. The assessment included computer software, computer hardware and
other equipment incorporating computer components that are date sensitive. The
Corporation has monitored the status of its vendors and continues to evaluate
vendors for adherence to their year 2000 plans. To date, confirmations have been
received from the Corporation's primary processing vendors that plans have been
implemented to address the processing of transactions in the year 2000.
The Corporation is utilizing both internal and external resources to
identify, correct or reprogram, and test systems for year 2000 compliance. The
vendors anticipate that all reprogramming efforts will be completed by December
31, 1998, allowing adequate time for testing. Management estimates the cost of
year 2000 compliance will be approximately $200,000, which primarily includes
capital expenditures relating to computer equipment expected to be replaced in
1998 and 1999. In 1997, the cost related to year 2000 compliance was immaterial.
Competition
The commercial banking industry within the Bank's marketing area is
extremely competitive. The Bank faces direct competition in Randolph, Montgomery
and Chatham counties from approximately nineteen different financial
institutions, including commercial banks, savings institutions and credit
unions. Although none of these entities is dominant, the Bank considers itself
one of the major financial institutions in the area in terms of total assets and
deposits. Further competition is provided by banks located in adjoining
counties, as well as other types of financial institutions such as insurance
companies, finance companies, pension funds and brokerage houses and other money
funds.
Supervision and Regulation
The Parent Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "BHC Act"), and is registered as
such with the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"). A bank holding company is required to file with the Federal
Reserve Board annual reports and other information regarding its business
operations and those of its subsidiaries. It is also subject to examination by
the Federal Reserve Board and is required to obtain Federal Reserve Board
approval prior to acquiring, directly or indirectly, ownership or control of any
voting shares of any bank if, after such acquisition, it would own or control,
directly or indirectly, more than five percent of the voting stock of such bank,
unless it already owns a majority of the voting stock of such bank. Furthermore,
a bank holding company, with limited exceptions, is prohibited from acquiring
direct or indirect ownership or control of more than five percent of the voting
stock of any company which is not a bank or a bank holding company and must
engage only in the business of banking or managing or controlling banks or
furnishing services to or performing services for its subsidiary banks. One of
the exceptions to this prohibition is the ownership of shares in a company the
activities of which the Federal Reserve Board has determined to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto.
3
The Federal Reserve Board has determined that certain activities are
closely related to banking, and that bank holding companies may apply to the
Federal Reserve Board for permission to form, retain or acquire an interest in a
company engaging or proposing to engage in these activities. The permitted
nonbanking activities include, without limitation: (1) making, acquiring or
servicing loans or other extensions of credit such as consumer finance, credit
card, mortgage, commercial finance and factoring companies would make; (2)
acting as an investment or financial advisor; (3) leasing real or personal
property or acting as agent, broker, or advisor in leasing such property if the
lease is to serve as the functional equivalent of an extension of credit to the
lessee of the property and certain other conditions are met; (4) providing
bookkeeping or data processing services under certain circumstances; (5) acting
as an insurance agent or broker with respect to insurance that is directly
related to the extension of credit with other financial services; (6) acting as
an underwriter for credit life insurance and credit accident and health
insurance directly related to extensions of credit by the holding company
system; and (7) providing securities brokerage services and related securities
credit activities.
As a national banking association, the Bank is subject to regulatory
supervision, of which regular bank examinations by the Comptroller of the
Currency are a part. The Bank is a member of the Federal Deposit Insurance
Corporation (the "FDIC") which currently insures the deposits of each member
bank to a maximum of $100,000 per depositor. For this protection, each bank pays
a quarterly statutory assessment and is subject to the rules and regulations of
the FDIC. The Bank is also a member of the Federal Reserve System and is
therefore subject to the applicable provisions of the Federal Reserve Act, which
imposes restrictions on loans by subsidiary banks to a holding company and its
other subsidiaries and on the use of stock or securities as collateral security
for loans by subsidiary banks to any borrower.
The ability of the Parent Company to pay dividends depends to a large
extent upon the amount of dividends the Bank pays to the Parent Company.
Approval of the Comptroller of the Currency, or his designate, will be required
for any dividend to the Parent Company by the Bank if the total of all
dividends, including any proposed dividend, declared by the Bank in any calendar
year exceeds the total of its net profits for that year combined with its
retained net profits for the preceding two years, less any required transfers to
surplus or a fund for the retirement of any preferred stock.
Effect of Governmental Policies
The operations and earnings of the Bank and, therefore, of the Parent
Company are affected by legislative changes and by the policies of various
regulatory agencies. In particular, the Bank is affected by the monetary and
fiscal policies of the Federal Reserve Board. The instruments of monetary policy
used by the Federal Reserve Board include its open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings,
and changes in reserve requirements on member bank deposits. The actions of the
Federal Reserve Board influence the growth of bank loans, investments and
deposits and also affect interest rates charged on loans or paid on deposits.
Employees
As of December 31, 1997, the Parent Company had three officers, all of whom
were also officers of the Bank. On that same date, the Bank had 127 full-time
employees and 19 part-time employees. The Bank considers its relationship with
its employees to be excellent. The Bank provides employee benefit programs,
including a noncontributory defined benefit pension plan, matching
retirement/savings plan, group life, health and dental insurance, paid
vacations, sick leave, and health care and life insurance benefits for retired
employees.
4
Item 2. Properties
The main offices of the Bank and the principal executive offices of the
Parent Company are located in an office building at 101 Sunset Avenue, Asheboro,
North Carolina. The premises contain approximately 36,500 square feet of office
space. The Bank also has other community offices in Asheboro, Archdale, Biscoe,
Ramseur, Randleman, Seagrove and Siler City, North Carolina. Except as noted
below, all premises are owned by the Bank in fee. The Randolph Mall office in
Asheboro is under a lease expiring January 31, 2002. The Bush Hill office in
Archdale is under a lease expiring January 31, 2002, with lease renewal options
for up to an additional 20-year term. The land on which the Seagrove Office is
situated is under a lease expiring June 30, 2016. At that time, the land is
subject to a purchase option at a fixed price or lease renewal options for up to
an additional 30-year term.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters To A Vote Of Security Holders
Not applicable.
5
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Information with respect to FNB Corp. common stock, appearing under the
headings "Common Stock" and "Market Makers" of the section entitled "General
Information" and under the heading "Table 11 - Quarterly Financial Data" of the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the 1997 Annual Report to Shareholders, is
incorporated herein by reference.
Item 6. Selected Financial Data
The section entitled "Five Year Financial History" in the 1997 Annual
Report to Shareholders is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the 1997 Annual Report to Shareholders
is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Information with respect to market risk, appearing under the heading
"Market Risk" of the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the 1997 Annual Report to
Shareholders, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of FNB Corp. and subsidiary and the
opinion of KPMG Peat Marwick LLP, independent certified public accountants, with
respect thereto, are incorporated herein by reference, as identified below, from
the 1997 Annual Report to Shareholders.
Independent Auditors' Report
Consolidated Balance Sheets, December 31, 1997 and 1996
Consolidated Statements of Income, years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity, years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows, years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
6
Information with respect to quarterly financial data, appearing under the
heading "Table 11 - Quarterly Financial Data" of the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the 1997 Annual Report to Shareholders, is incorporated herein by
reference,
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Not Applicable.
7
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors, appearing under the heading
"Election of Directors" in the Registrant's definitive proxy statement for the
Annual Meeting of Shareholders to be held on May 12, 1998, is incorporated
herein by reference. Information with respect to executive officers, appearing
under the heading "Executive Officers" in the Registrant's definitive proxy
statement for the Annual Meeting of Shareholders to be held on May 12, 1998, is
incorporated herein by reference. Information with respect to delinquent filers
pursuant to Item 405 of Regulation S-K, appearing under the heading "Security
Ownership of Management" in the Registrant's definitive proxy statement for the
Annual Meeting of Shareholders to be held on May 12, 1998, is incorporated
herein by reference.
Item 11. Executive Compensation
Information with respect to executive compensation, appearing under the
heading "Executive Compensation" in the Registrant's definitive proxy statement
for the Annual Meeting of Shareholders to be held on May 12, 1998, is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to security ownership of certain beneficial owners
and management, appearing under the headings "Voting Securities Outstanding and
Principal Shareholders" and "Security Ownership of Management" in the
Registrant's definitive proxy statement for the Annual Meeting of Shareholders
to be held on May 12, 1998, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information with respect to certain relationships and related transactions,
appearing under the heading "Indebtedness of Officers and Directors" in the
Registrant's definitive proxy statement for the Annual Meeting of Shareholders
to be held on May 12, 1998, is incorporated herein by reference.
8
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) The financial statements listed in Item 8 of Part II of this
report are filed as part of this report.
(2) The financial statement schedules normally required on Form 10-K
are omitted since they are not applicable.
(3) Exhibits to this report are listed in the index to exhibits on
pages 12 and 13 of this report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
9
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.
FNB Corp.
(Registrant)
Date: March 27, 1998 By: /s/ Michael C. Miller
-------------------------------------
Michael C. Miller
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 27, 1998.
Signature Title
- --------- -----
/s/ Michael C. Miller President, Chief Executive
- ------------------------------- Officer and Director
Michael C. Miller
/s/ Jerry A. Little Treasurer and Secretary
- ------------------------------- (Principal Financial and
Jerry A. Little Accounting Officer)
/s/ James M. Culberson, Jr. Chairman of the Board
- -------------------------------
James M. Culberson, Jr.
/s/ James M. Campbell, Jr. Director
- -------------------------------
James M. Campbell, Jr.
/s/ Wilbert L. Hancock Director
- -------------------------------
Wilbert L. Hancock
/s/ Thomas A. Jordan Director
- -------------------------------
Thomas A. Jordan
/s/ R. Reynolds Neely, Jr. Director
- -------------------------------
R. Reynolds Neely, Jr.
10
Signature Title
- --------- -----
/s/ Richard K. Pugh Director
- -------------------------------
Richard K. Pugh
Director
- -------------------------------
J. M. Ramsay III
/s/ Charles W. Stout, M.D. Director
- -------------------------------
Charles W. Stout, M.D.
/s/ Earlene V. Ward Director
- -------------------------------
Earlene V. Ward
11
FNB CORP.
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
----------- ----------------------
3.10 Articles of Incorporation of the Registrant, incorporated herein
by reference to Exhibit 3.1 to the Registrant's Form S-14
Registration Statement (No. 2-96498) filed March 16, 1985.
3.11 Articles of Amendment to Articles of Incorporation of the
Registrant, adopted May 10, 1988, incorporated herein by
reference to Exhibit 19.10 to the Registrant's Form 10-Q
Quarterly Report for the quarter ended June 30, 1988.
3.20 Amended and Restated Bylaws of the Registrant, adopted May 9,
1995, incorporated herein by reference to Exhibit 3.20 to the
Registrant's Form 10-QSB Quarterly Report for the quarter ended
June 30, 1995.
4 Specimen of Registrant's Common Stock Certificate, incorporated
herein by reference to Exhibit 4 to Amendment No. 1 to the
Registrant's Form S-14 Registration Statement (No. 2-96498) filed
April 19, 1985.
10.10 Form of Split Dollar Insurance Agreement dated as of November 1,
1987 between First National Bank and Trust Company and certain of
its key employees and directors, incorporated herein by reference
to Exhibit 19.20 to the Registrant's Form 10-Q Quarterly Report
for the quarter ended June 30, 1988.
10.11 Form of Amendment to Split Dollar Insurance Agreement dated as of
November 1, 1994 between First National Bank and Trust Company
and certain of its key employees and directors, incorporated
herein by reference to Exhibit 10.11 to the Registrant's Form
10-KSB Annual Report for the fiscal year ended December 31, 1994.
10.20 Copy of Split Dollar Insurance Agreement dated as of May 28, 1989
between First National Bank and Trust Company and James M.
Culberson, Jr., incorporated herein by reference to Exhibit 10.30
to the Registrant's Form 10-K Annual Report for the fiscal year
ended December 31, 1989.
10.30 Copy of Stock Compensation Plan, as amended effective May 13,
1997, incorporated herein by reference to Exhibit 10.30 to the
Registrant's Form 10-Q Quarterly Report for the quarter ended
June 30, 1997.
12
Exhibit No. Description of Exhibit
----------- ----------------------
10.31 Form of Incentive Stock Option Agreement between FNB Corp. and
certain of its key employees, pursuant to the Registrant's Stock
Compensation Plan, incorporated herein by reference to Exhibit
10.31 to the Registrant's Form 10-KSB Annual Report for the
fiscal year ended December 31, 1994.
10.32 Form of Nonqualified Stock Option Agreement between FNB Corp. and
certain of its directors, pursuant to the Registrant's Stock
Compensation Plan, incorporated herein by reference to Exhibit
10.32 to the Registrant's Form 10-KSB Annual Report for the
fiscal year ended December 31, 1994.
10.40 Copy of Employment Agreement dated as of December 27, 1995
between First National Bank and Trust Company and Michael C.
Miller, incorporated herein by reference to Exhibit 10.50 to the
Registrant's Form 10-KSB Annual Report for the fiscal year ended
December 31, 1995.
13 Portions of the Registrant's 1997 Annual Report to Shareholders,
which are incorporated into this report at the items so
designated.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
13