UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 ------------------ 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 0-8144 F.N.B. CORPORATION - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 25-1255406 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Hermitage Square, Hermitage, PA 16148 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (412) 981-6000 - ------------------------------------------------------------------------------ (Registrant's telephone number, including area code) Not applicable - ------------------------------------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report) 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 ----- ----- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at October 20, 1995 ----- ------------------------------- Common Stock, $2 Par Value 8,603,952 Shares - -------------------------- ---------------- F.N.B. CORPORATION FORM 10-Q September 30, 1995 INDEX PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheet 2 Consolidated Income Statement 3 Consolidated Statement of Cash Flows 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II - OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Defaults Upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 30 -1- F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET Dollars in thousands SEPTEMBER 30, DECEMBER 31, 1995 1994 ------------ ------------ (Unaudited) (Note) ------------ ------------ ASSETS Cash and due from banks $ 54,373 $ 60,451 Interest bearing deposits with banks 3,130 2,770 Federal funds sold 5,115 4,016 Securities available for sale 148,683 120,061 Investment securities (fair value of $231,778 and $246,834) 233,776 257,956 Loans available for sale 9,785 5,904 Loans, net of unearned income of $24,812 and $22,022 1,194,174 1,188,399 Allowance for loan losses (21,052) (20,295) ------------ ------------ NET LOANS 1,182,907 1,174,008 ------------ ------------ Premises and equipment 22,471 22,982 Other assets 41,415 44,275 ------------ ------------ $ 1,691,870 $ 1,686,519 ============ ============ LIABILITIES Deposits: Non-interest bearing $ 167,541 $ 163,566 Interest bearing 1,263,572 1,261,839 ------------ ------------ TOTAL DEPOSITS 1,431,113 1,425,405 Short-term borrowings 55,078 69,365 Other liabilities 25,751 26,142 Long-term debt 40,656 39,017 ------------ ------------ TOTAL LIABILITIES 1,552,598 1,559,929 ------------ ------------ MINORITY INTEREST 540 ------------ STOCKHOLDERS' EQUITY Preferred stock - $10 par value Authorized - 20,000,000 shares Outstanding - 455,838 and 456,288 shares Aggregate liquidation value - $11,396 and $11,407 4,558 4,563 Common stock - $2 par value Authorized - 20,000,000 shares Outstanding - 8,602,201 and 8,163,014 shares 17,252 16,364 Additional paid-in capital 58,564 51,686 Retained earnings 56,465 53,121 Net unrealized securities gains 2,886 625 Treasury stock - 23,750 and 18,974 shares at cost (453) (309) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 139,272 126,050 ------------ ------------ $ 1,691,870 $ 1,686,519 ============ ============ NOTE: The balance sheet at December 31, 1994 was derived from the audited financial statements at that date. See accompanying Notes to Consolidated Financial Statements -2- F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT Dollars in thousands, except per share data Unaudited THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- -------------------- 1995 1994 1995 1994 --------- --------- --------- --------- INTEREST INCOME Loans, including fees $ 28,897 $ 25,820 $ 84,916 $ 76,075 Securities: Taxable 4,808 4,596 13,409 14,219 Tax exempt 357 381 1,102 1,170 Dividends 153 134 452 420 Other 357 400 1,162 902 --------- --------- --------- --------- TOTAL INTEREST INCOME 34,572 31,331 101,041 92,786 --------- --------- --------- --------- INTEREST EXPENSE Deposits 13,350 11,043 38,360 32,761 Short-term borrowings 829 947 2,499 2,498 Long-term debt 809 691 2,331 2,073 --------- --------- --------- --------- TOTAL INTEREST EXPENSE 14,988 12,681 43,190 37,332 --------- --------- --------- --------- NET INTEREST INCOME 19,584 18,650 57,851 55,454 Provision for loan losses 1,366 1,854 4,300 6,685 --------- --------- --------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 18,218 16,796 53,551 48,769 --------- --------- --------- --------- NON-INTEREST INCOME Insurance commissions and fees 1,149 951 3,487 3,127 Service charges 1,624 1,412 5,037 4,487 Trust 260 448 1,015 1,247 Gain on sale of securities 62 126 423 902 Other 451 271 1,317 730 --------- --------- --------- --------- TOTAL NON-INTEREST INCOME 3,546 3,208 11,279 10,493 --------- --------- --------- --------- 21,764 20,004 64,830 59,262 --------- --------- --------- --------- NON-INTEREST EXPENSES Salaries and employee benefits 7,373 6,636 22,185 20,761 Net occupancy 1,160 1,143 3,413 3,428 Amortization of intangibles 303 370 953 1,118 Equipment 732 901 2,653 2,918 Deposit insurance 253 923 2,121 2,797 Other 4,810 4,596 13,995 13,668 --------- --------- --------- --------- TOTAL NON-INTEREST EXPENSES 14,631 14,569 45,320 44,690 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 7,133 5,435 19,510 14,572 Income taxes 2,277 1,915 6,325 4,832 --------- --------- --------- --------- NET INCOME $ 4,856 $ 3,520 $ 13,185 $ 9,740 ========= ========= ========= ========= NET INCOME PER COMMON SHARE: Primary $ .54 $ .39 $ 1.45 $ 1.06 ========= ========= ========= ========= Fully Diluted $ .51 $ .37 $ 1.39 $ 1.03 ========= ========= ========= ========= CASH DIVIDENDS PER COMMON SHARE $ .10 $ .07 $ .24 $ .20 ========= ========= ========= ========= AVERAGE COMMON SHARES OUTSTANDING 8,593,248 8,566,516 8,594,323 8,571,464 ========= ========= ========= ========= See accompanying Notes to Consolidated Financial Statements -3- F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Dollars in thousands Unaudited Nine Months Ended September 30 1995 1994 --------- --------- OPERATING ACTIVITIES Net income $ 13,185 $ 9,740 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,544 4,591 Provision for loan losses 4,300 6,685 Deferred taxes 215 (2,155) Gain on securities available for sale (423) (902) Gain on loan sales (94) (83) Proceeds from sale of loans 23,166 41,490 Loans originated for sale (26,953) (38,701) Change in: Interest receivable (365) 304 Interest payable 1,740 1,826 Other, net (1,293) 4,495 --------- --------- Net cash flows from operating activities 17,022 27,290 --------- --------- INVESTING ACTIVITIES Net change in interest bearing deposits with banks (360) 1,629 Net change in federal funds sold (1,099) 16,408 Purchase of securities available for sale (61,384) (69,466) Purchase of investment securities (35,082) (21,091) Proceeds from sale of securities available for sale 1,036 11,818 Proceeds from maturity of securities available for sale 35,754 66,224 Proceeds from maturity of investment securities 58,628 49,011 Net change in loans (9,376) (58,151) Increase in premises and equipment (1,514) (1,216) --------- --------- Net cash flows from investing activities (13,397) (4,834) --------- --------- FINANCING ACTIVITIES Net change in non-interest bearing deposits 3,975 (1,756) Net change in interest bearing deposits 1,733 (21,603) Net change in short-term borrowings (14,287) 8,445 Increase in long-term debt 5,611 3,502 Decrease in long-term debt (3,972) (4,392) Proceeds from sale of stock 1,031 762 Purchase of treasury stock (1,123) (934) Cash dividends paid (2,671) (2,326) --------- --------- Net cash flows from financing activities (9,703) (18,302) --------- --------- NET (INCREASE) DECREASE IN CASH AND DUE FROM BANKS (6,078) 4,154 Cash and due from banks at beginning of period 60,451 59,978 --------- --------- CASH AND DUE FROM BANKS AT END OF PERIOD $ 54,373 $ 64,132 ========= ========= See accompanying Notes to Consolidated Financial Statements -4- F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 1995 BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 1995 are not necessarily indicative of the results that may be expected for the year ended December 31, 1995. For further information, refer to the consolidated financial statements and footnotes thereto included in the Corporation's annual report on Form 10-K for the year ended December 31, 1994. PER SHARE AMOUNTS Per share amounts are adjusted for common stock dividends. Primary earnings per common share is calculated by dividing net income, adjusted for preferred stock dividends declared, by the sum of the weighted average number of shares of common stock outstanding and the number of shares of common stock which would be issued assuming the exercise of stock options during each period. Fully diluted earnings per common share is calculated by dividing net income, adjusted for minority interest, by the weighted average number of shares of common stock outstanding, assuming the conversion of outstanding convertible preferred stock from the beginning of the year or date of issuance and the exercise of stock options. Cash dividends per common share are based on the actual cash dividends declared adjusted for stock dividends. Book value per common share is based on shares outstanding at each period end adjusted retroactively for stock dividends. LOANS On January 1, 1995, the Corporation adopted Statement of Financial Accounting Standards (FAS) No. 114, "Accounting by Creditors for Impairment of a Loan," which requires that impaired loans be identified and measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price or at the fair value of the collateral if the loan is collateral dependent. Impaired loans consist of non-homogenous loans, which based on management's evaluation of current information and events, has determined that it is probable that the Corporation will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Corporation evaluates all commercial and commercial real estate loans which have been classified for regulatory reporting purposes, including nonaccrual and restructured loans, in determining impaired loans. At September 30, 1995 the recorded investment in loans that are considered to be impaired under Statement 114 was $9.6 million (of which $2.2 million were on a nonaccrual basis). Included in this amount is $4.7 million of impaired loans that as a result of write-downs do not have an allowance for credit losses. The average recorded investment in impaired loans during the nine months ended September 30, 1995 was approximately $12.8 million. For the nine months ended September 30, 1995, the Corporation recognized interest income on those impaired loans of $629,000 which does not include any interest income recognized using the cash basis method of income recognition. -5- CASH FLOW INFORMATION Following is a summary of supplemental cash flow information (in thousands): Nine months ended September 30 1995 1994 ------- -------- Cash paid for: Interest $41,449 $ 35,491 Income taxes 6,319 5,122 Noncash Investing and Financing Activities: Acquisition of real estate in settlement of loans 1,567 995 Loans granted in the sale of other real estate 281 809 Loans reclassified from available for sale 119,858 Conversion of minority interest 540 EFFECT OF NEW ACCOUNTING STANDARDS In May of 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (FAS) No. 122, "Accounting for Mortgage Servicing Rights," an amendment of FAS No. 65. This Statement, which is required to be adopted during the first quarter of 1996, allows enterprises engaging in mortgage banking activities to recognize as separate assets rights to service mortgage loans for loans originated for sale by the enterprise. As the Corporation does not significantly engage in the sale of mortgage loans, the impact of this Statement is not anticipated to have a material impact on the Corporation's results of operations or financial position. PART I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Interest Rate Sensitivity The Corporation monitors its liquidity position on an ongoing basis to assure that it is able to meet the need for funds at all times. Given the monetary nature of its assets and liabilities and the significant source of liquidity provided by its investment portfolio, the Corporation generally has sufficient sources of funds available as needed to meet its routine, operational cash needs. In addition to normal liquidity provided from operations, the Corporation has external sources of funds available should it desire to use them. These include approved lines of credit with several major domestic banks, of which $22.0 million was unused at September 30, 1995. To further meet its liquidity needs, the Corporation also has access to the Federal Reserve System, the Federal Home Loan Bank and other uncommitted funding sources. Interest rate sensitivity measures the impact that future changes in interest rates will have on net interest income. The cumulative gap reflects a point-in-time net position of assets and liabilities repricing in specified time periods. The gap is one measurement of risk inherent in a balance sheet as it relates to changes in interest rates and their effect on net interest income. The gap analysis which follows is based on a combination of asset and liability amortizations, maturities and repricing opportunities. Non-maturity deposit balances have been allocated to various repricing intervals to more accurately depict their true behavior and characteristics. This allocation was done in accordance with Section 305 of the Federal Deposit Insurance Corporation Improvement Act. Based on the cumulative one year gap in this table and assuming no restructuring or modifications to asset/liability composition, a rise in interest rates would have a negative impact on net interest income. Gap analysis alone does not accurately measure the magnitude of changes in net interest income since changes in interest rates do not affect all categories of assets and liabilities equally or simultaneously. Recognizing that traditional gap analyses do not measure dynamically the exposure to interest rate changes, the Corporation also relies on computer simulation modeling to measure the effect of upward and downward interest rate changes on net interest income. Simulation has been in use at the Corporation's lead bank (representing 53% of consolidated assets) and is currently being implemented at its other subsidiaries. Through the review of gap analyses and simulation modeling, management continually monitors the Corporation's exposure to changing interest rates. -6- Following is the gap analysis as of September 30, 1995 (in thousands): Within 4-12 1-5 Over 3 Months Months Years 5 years Total -------- --------- -------- -------- ---------- Interest Earning Assets Interest bearing deposits with banks $ 3,130 $ 3,130 Federal funds sold 5,115 5,115 Securities: Available for sale 14,866 $ 44,249 $ 74,779 $ 14,789 148,683 Held for investment 2,501 36,931 185,144 9,200 233,776 Loans, net of unearned 257,339 204,171 422,281 320,168 1,203,959 -------- --------- -------- -------- ---------- 282,951 285,351 682,204 344,157 1,594,663 Other assets 97,207 97,207 -------- --------- -------- -------- ---------- $282,951 $ 285,351 $682,204 $441,364 $1,691,870 ======== ========= ======== ======== ========== Interest Bearing Liabilities Deposits: Interest checking $ 7,480 $ 22,439 $119,675 $ 149,594 Savings 40,135 120,406 240,812 401,353 Time deposits 144,404 271,734 295,313 $ 1,174 712,625 Short-term borrowings 22,267 20,948 11,863 55,078 Long-term debt 4,640 14,995 8,832 12,189 40,656 -------- --------- -------- -------- ---------- 218,926 450,522 676,495 13,363 1,359,306 Other liabilities 193,292 193,292 Stockholders' equity 139,272 139,272 -------- --------- -------- -------- ---------- $218,926 $ 450,522 $676,495 $345,927 $1,691,870 ======== ========= ======== ======== ========== Period Gap $ 64,025 $(165,171) $ 5,709 $ 95,437 ======== ========= ======== ======== Cumulative Gap $ 64,025 $(101,146) $(95,437) ======== ========= ======== Rate Sensitive Assets/Rate Sensitive Liabilities (Cumulative) 1.29 0.85 0.93 1.17 ======== ========= ======== ======== Cumulative Gap as a Percent of Total Assets 3.8% (6.0%) (5.6%) ======== ========= ======== Capital Resources The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance and changing competitive conditions and economic forces. The Corporation maintains a strong capital base to support its growth and expansion activities, to provide stability to current operations and to promote public confidence. The capital management function is a continuous process. Central to this process is internal equity generation accomplished mainly by earnings retention. Since December 31, 1994, total retained earnings has increased $11.0 million as a result of earnings retention. For the nine months ended September 30, 1995, the return on average equity was 13.25%. Total cash dividends declared represented 20.26% of net income. Book value per share was $14.87 at September 30, 1995, compared to $13.38 at December 31, 1994. During the first quarter of 1995, the minority interest of First County Bank, a subsidiary of the Corporation, was exchanged for the Corporation's common stock. As a result of this exchange, the Corporation now owns 100% of First County Bank. Series A - Cumulative Convertible Preferred Stock was created for the purpose of acquiring Reeves Bank. The Corporation has the right to require the conversion of the balance of all outstanding shares at the conversion rate at any time after 50% of the 49,512 shares issued are no longer outstanding. There are currently 25,038 shares outstanding. Series B - Cumulative Convertible Preferred Stock (Series B Preferred) was issued during 1992, has a stated value of $25.00 per share, and is convertible at the option of the holder at any time into shares of the Corporation's common stock at a price of $12.84 per share. Currently this is an exchange ratio of 1.95 common for each share of preferred. The Corporation has the right to redeem the Series B Preferred Stock for cash on or after May 15, 1996 as set forth in the prospectus dated May 8, 1992. -7- The Corporation's capital position continues to exceed regulatory minimums. The primary indicators relied on by the Federal Reserve Board in measuring strength of capital position are the Core Capital, Total Risk-Based Capital and Leverage ratios. Following is a table summarizing these ratios and the related regulatory minimums as of September 30, 1995 and December 31, 1994, respectively (in thousands): SEPTEMBER 30, DECEMBER 31, REGULATORY 1995 1994 MINIMUMS ------------ ----------- ---------- Capital Ratios: Core Capital 11.53% 10.58% 4.00% Total Risk-Based Capital 13.65 12.71 8.00 Leverage 7.90 7.25 5.00 Core Capital consists of common and qualifying preferred stockholders' equity less non-qualifying intangibles and Total Risk-Based Capital consists of Core Capital, qualifying subordinated debt and a portion of the allowance for loan losses both calculated with reference to risk-weighted assets consisting of both on- and off- balance sheet risks. The Leverage ratio consists of Core Capital divided by quarterly average assets less non-qualifying intangibles. Under Federal Reserve Board policy, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the Federal Reserve Board's policy that, in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity, in circumstances where it might not do so absent such policy, and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. The failure of a bank holding company to serve as a source of strength to its subsidiary banks would generally be considered by the Federal Reserve Board to be an unsafe and unsound banking practice, a violation of Federal Reserve Board regulations, or both. NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES Non-performing assets include non-performing loans and other real estate owned. Non-performing loans include non-accrual loans, loans 90 days or more past due, and restructured loans. Non-accrual loans represent loans on which interest accruals have been discontinued. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on non-accrual loans is either applied against principal or reported as interest income, according to management's judgment as to the collectibility of principal. Loans which reach non-accrual status may not be restored to accrual status until all delinquent principal and interest has been paid, or the loan becomes both secured and in the process of collection. Restructured loans are loans with respect to which a borrower has been granted a concession on the interest rate or the original repayment terms because of financial difficulties. Following is a summary of non-performing assets (in thousands): SEPTEMBER 30, DECEMBER 31, 1995 1994 ------------ ----------- Non-performing assets: Non-accrual loans $ 5,701 $ 9,512 Loans past due 90 days or more 3,070 2,621 Restructured loans 3,110 3,157 Total non-performing loans 11,881 15,290 Other real estate owned 2,973 3,675 ------- ------- Total non-performing assets $14,854 $18,965 ======= ======= Asset quality ratios: Non-performing loans as percent of total loans .99% 1.28% Non-performing assets as percent of total assets .88% 1.12% -8- Non-accrual loans totaled $5.7 million at September 30, 1995, representing a decrease of $3.8 million from $9.5 million at December 31, 1994. The ratio of non-accrual loans to total loans decreased from .80% at December 31, 1994 to .47% at September 30, 1995. The decrease was the result of management's continued focus on improved asset quality. Non-performing loans are closely monitored on an ongoing basis as part of the Corporation's loan review process. The potential risk of loss on these loans is evaluated by comparing the loan balance to the present value of projected future cash flows or the value of any underlying collateral, recognizing losses where appropriate. Management's analysis of the allowance for loan losses includes the evaluation of the loan portfolio based on internally generated loan review reports and the historical loss experience of the remaining balances of the various homogeneous loan pools which comprise the loan portfolio. Specific factors which are evaluated include the previous loan loss experience with the customer, the status of past due interest and principal payments on the loan, the collateral position of the loan, the quality of financial information supplied by the borrower and the general financial condition of the borrower. Historical loss experience on the remaining portfolio segments is considered in conjunction with current status of economic conditions, loan loss trends, delinquency and non-accrual trends, credit administration, concentrations of credit and off-balance sheet risk. Following is a summary of changes in the allowance for loan losses and selected ratios (dollars in thousands): At or for the At or for the Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1995 1994 1995 1994 ------- ------- ------- ------- Balance at beginning of period $21,173 $19,152 $20,295 $16,440 Charge-offs (1,702) (1,302) (4,588) (4,230) Recoveries 215 255 1,045 1,064 ------- ------- ------- ------- Net charge-offs (1,487) (1,047) (3,543) (3,166) Provision for loan losses 1,366 1,854 4,300 6,685 ------- ------- ------- ------- Balance at end of period $21,052 $19,959 $21,052 $19,959 ======= ======= ======= ======= Net charge-offs as percent of average loans, net of unearned (annualized) .40% .37% Allowance for loan losses to: Total loans, net of unearned income 1.75% 1.70% Non-performing assets 141.73% 108.25% Net charge-offs increased in the third quarter of this year due to a change in the charge-off policy at the Corporation's consumer finance subsidiary. FINANCIAL INFORMATION SUMMARY Net income for the first nine months of 1995 was $13.2 million compared to $9.7 million for the first nine months of 1994. Primary earnings per share for those periods were $1.45 and $1.06, respectively, and $1.39 and $1.03 on a fully diluted basis. Highlights for the first nine months of 1995 include: * A 13.25% return on average equity and a 1.04% return on average assets. * A net interest margin on a fully taxable equivalent basis of 4.99%. * The provision for loan losses for the first nine months of 1995 at $4.3 million was 35.68% lower than the provision recorded for the first nine months of 1994. -9- First Nine Months of 1995 as Compared to First Nine Months of 1994: The following table provides information regarding the average balances and yields and rates on interest earning assets and interest bearing liabilities (dollars in thousands): Nine Months Ended September 30 1995 1994 -------------------------- ------------------------- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ---------- -------- ------ ---------- -------- ------ Assets Interest earning assets: Interest bearing deposits with banks $ 4,611 $ 213 6.17% $ 6,707 $ 158 3.14% Federal funds sold 21,136 949 5.98 20,072 743 4.94 Securities: U.S. Treasury and other U.S. Government agencies and corporations 321,237 13,408 5.58 366,654 14,218 5.18 States of the U.S. and political subdivisions (1) 34,900 1,674 6.40 36,074 1,764 6.52 Other securities (1) 14,195 510 4.79 13,602 537 5.26 Loans (1) (2) 1,195,735 85,869 9.60 1,141,874 77,049 9.02 ---------- -------- ---------- -------- Total interest earning assets 1,591,814 102,623 8.62 1,584,983 94,469 7.97 ---------- -------- ---------- -------- Cash and due from banks 53,042 53,610 Allowance for loan losses (21,163) (18,936) Premises and equipment 22,998 23,496 Other assets 44,732 46,455 ---------- ---------- $1,691,423 $1,689,608 ========== ========== Liabilities Interest bearing liabilities: Deposits: Interest bearing demand $ 153,776 $ 2,011 1.75 $ 168,923 $ 2,374 1.88 Savings 425,510 7,961 2.50 503,126 9,395 2.50 Other time 694,440 28,388 5.47 614,449 20,992 4.57 Short-term borrowings 55,949 2,499 5.97 64,805 2,498 5.15 Long-term debt 39,594 2,331 7.85 31,289 2,073 8.83 ---------- -------- ---------- -------- Total interest bearing liabilities 1,369,269 43,190 4.22 1,382,592 37,332 3.61 ---------- -------- ---------- -------- Non-interest bearing demand deposits 159,687 158,568 Other liabilities 29,388 27,377 ---------- ---------- 1,558,344 1,568,537 ---------- ---------- Minority Interest 525 ---------- Stockholders' Equity Preferred stock 4,561 4,577 Common stock 16,791 15,916 Additional paid-in capital 54,951 48,779 Retained earnings 55,356 49,935 Net unrealized securities gains 1,895 1,581 Treasury stock (475) (242) ---------- ---------- Total stockholders' equity 133,079 120,546 ---------- ---------- $1,691,423 $1,689,608 ========== ========== Excess of interest earning assets over interest bearing liabilities $ 222,545 $ 202,391 ========== ========== Net interest income $ 59,433 $ 57,137 ======== ======== Net interest spread 4.40% 4.36% ===== ===== Net interest margin (3) 4.99% 4.82% ===== ===== <FN> (1) The amounts are reflected on a fully taxable equivalent basis using the federal statutory tax rate of 35% adjusted for certain federal tax preferences. (2) Average outstanding includes non-accrual loans. Loans consist of average total loans less average unearned income. The amount of loan fees included in interest income on loans is immaterial. (3) Net interest margin is calculated by dividing the difference between total interest earned and total interest paid by total interest earning assets. -10- Net interest income, the Corporation's primary source of earnings, is the amount by which interest and fees generated by interest earning assets, primarily loans and securities, exceed interest expense on deposits and borrowed funds. During the first nine months of 1995, net interest income, on a fully taxable equivalent basis, totaled $59.4 million, representing a 4.02% increase over the first nine months of 1994. Net interest income as a percentage of average earning assets (commonly referred to as the margin) rose to 4.99% at September 30, 1995 from 4.82% at September 30, 1994. Net interest income can be analyzed in terms of the impact of changing volumes of interest earning assets and interest bearing liabilities. The following table sets forth certain information regarding changes in net interest income attributable to changes in the volumes of interest earning assets and interest bearing liabilities and changes in the rates for the nine months ending September 30, 1995 as compared to the nine months ending September 30, 1994 (in thousands): Volume Rate Net ------- ------- ------- Interest Income Interest bearing deposits with banks $ (81) $ 136 $ 55 Federal funds sold 55 151 206 Securities: U.S. Treasury and other U.S. Government agencies and corporations (2,465) 1,655 (810) States of the U.S. and political subdivisions (76) (14) (90) Other securities 30 (57) (27) Loans 4,991 3,829 8,820 ------- ------- ------- 2,454 5,700 8,154 ------- ------- ------- Interest Expense Deposits: Interest bearing demand (273) (90) (363) Savings (1,942) 508 (1,434) Other time 3,940 3,456 7,396 Short-term borrowings (509) 510 1 Long-term debt 676 (418) 258 ------- ------- ------- 1,892 3,966 5,858 ------- ------- ------- Net Change $ 562 $ 1,734 $ 2,296 ======= ======= ======= Total interest income on a fully taxable equivalent basis increased $8.2 million or 8.63% for the first nine months of 1995, compared to the first nine months of 1994. Interest income on taxable securities decreased $810,000 or 5.70% over these same periods primarily as a result of maturities of taxable securities being used to fund loan demand. The greater loan demand resulted in an increase of $8.8 million in interest income on loans, including fees, on a fully taxable equivalent basis. Total interest expense increased $5.9 million or 15.69% for the nine months ended September 30, 1995, compared to the nine months ended September 30, 1994. Interest expense on deposits accounted for the majority of this increase, $5.6 million, as a result of the increasing interest rate environment and the change in the deposit mix from savings accounts to higher paying certificate accounts. The provision for loan losses totaled $4.3 million for the first nine months of 1995, representing a decrease of $2.4 million or 35.68% from the first nine months of 1994, a direct result of the improvement in asset quality at the Corporation. The provision for loan losses charged to operations is a direct result of management's analysis of the adequacy of the allowance for loan losses which takes into consideration all factors relevant to the collectibility of the existing portfolio. Total non-interest income increased $786,000 during the first nine months of 1995, compared to the same period of 1994 due to an increase in service charges on deposit accounts and higher insurance premium revenues. -11- Total non-interest expenses increased slightly during the first nine months of 1995, compared to the first nine months of 1994. During the third quarter of 1995, the Federal Deposit Insurance Corporation (FDIC) voted to lower the deposit insurance premiums for banks, now that the Bank Insurance Fund (BIF) has been funded to the required level. The deposit premiums for well capitalized banks have been reduced from $.23 to $.04 per $100 of deposits. This recent action had a beneficial effect on the Corporation since more than half of the Corporation's deposits are in the BIF. This decrease in deposit insurance is offset by higher employee benefit costs during 1995. Conversely, based on Financial Institutions Reform, Recovery and Enforcement Act of 1988 requirements, the Savings Association Insurance Fund (SAIF) is still under-funded and therefore deposit premiums do not change. As a result, it is argued that thrifts are at a competition disadvantage; therefore, Congress is currently considering legislation to impose a one time deposit premium charge to recapitalize the SAIF. It is uncertain as to the amount of this premium, however, indications have been in a range of $.80 to $.90 per $100 of deposits. At September 30, 1995, the Corporation had approximately $454.5 million in SAIF insured deposits. Income before taxes was $19.5 million for the first nine months of 1995, representing an increase of $4.9 million or 33.89% over the first nine months of 1994. Income taxes increased $1.5 million or 30.90% over the same periods due to more taxable income being generated by the Corporation. Consolidated net income was $13.2 million for the first nine months of 1995, representing a $3.4 million or 35.37% increase over the first nine months of 1994. The Corporation's return on average assets was 1.04% and .77% for the first nine months of 1995 and 1994, respectively, while the return on average equity was 13.25% and 10.80% for those same periods. Third Quarter of 1995 as Compared to Third Quarter of 1994 During the third quarter of 1995, net interest income increased $934,000 or 5.01% over the third quarter of 1994. Total interest income increased $3.2 million or 10.34% over these same periods, primarily the result of an increase of $3.1 million in interest income on loans, including fees. This increase is the result of greater loan demand. Total interest expense increased $2.3 million or 18.19% during the third quarter of 1995, compared to the same period of 1994. Interest expense on deposits accounted for the majority of this increase as a result of the increasing interest rate environment and the change in the deposit mix from savings accounts to higher paying certificate accounts. The provision for loan losses totaled $1.4 million for the third quarter of 1995, compared to $1.9 million for the third quarter of 1994. This is the result of the continuing improvement in asset quality at the Corporation. Total non-interest income increased slightly during the third quarter of 1995, compared to the third quarter of 1994, primarily a result of higher account service charges and insurance premium revenue. Total non-interest expenses remained unchanged at $14.6 million for the quarters ended September 30, 1995 and 1994. Higher employee benefit costs in 1995 were offset by savings recognized as a result of a reduction in premiums charged to banks for BIF deposit insurance. Income before taxes increased to $7.1 million in the third quarter of 1995 from $5.4 million in the same period of 1994. Income tax expense increased to $2.3 million from $1.9 million over these same periods. Net income totaled $4.9 million for the third quarter of 1995, compared to $3.5 million for the third quarter of 1994. -12- PART II Item 1. Legal Proceedings No material pending legal proceedings exist 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 2. Changes in Securities Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information On July 28, 1995, the Corporation filed a Registration Statement on Form S-3 to register an additional $125,000,000 in debt securities. Amendments were filed on September 19, 1995 and October 11, 1995. The Registration Statement became effective on October 18, 1995. Regulatory Matters Update The Corporation and two of its subsidiaries had entered into supervisory agreements with certain federal and state bank regulatory agencies. As of September 30, 1995, these agreements have been terminated. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 3.1. Articles of Incorporation as currently in effect and any amendments thereto. (Incorporated by reference to Exhibit 3.1. of the Corporation's Form 10-K for the year ended December 31, 1992). 3.2. By-laws of the Corporation as currently in effect (incorporated by reference to Exhibit 4 of the Corporation's Form 10-Q for the quarter ended June 30, 1994). 4 The rights of holders of equity securities are defined in portions of the Articles of Incorporation and By-laws. The Articles of Incorporation are incorporated by reference to Exhibit 3.1. of the registrant's Form 10-K for the year ended December 31, 1992. The By-laws are incorporated by reference to Exhibit 4 of the registrant's Form 10-Q for the quarter ended June 30, 1994. A designation statement defining the rights of F.N.B. Corporation Series A - Cumulative Convertible Preferred Stock is incorporated by reference to Form S-14, Registration Statement of F.N.B. Corporation, File No. 2-96404. A designation statement defining the rights of F.N.B. Corporation Series B - Cumulative Convertible Preferred Stock is incorporated by reference to Exhibit 4 of the registrant's Form 10-Q for the quarter ended June 30, 1992. The Corporation agrees to furnish to the Commission upon request copies of all instruments not filed herewith defining the rights of holders of long-term debt of the Corporation and its subsidiaries. -13- 10.1. Form of agreement regarding deferred payment of directors' fees by First National Bank of Pennsylvania. (Incorporated by reference to Exhibit 10.1. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.2. Form of agreement regarding deferred payment of directors' fees by F.N.B. Corporation. (Incorporated by reference to Exhibit 10.2. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.3. Form of Deferred Compensation Agreement by and between First National Bank of Pennsylvania and four of its executive officers. (Incorporated by reference to Exhibit 10.3. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.4. Employment Agreement between The Metropolitan Savings Bank of Youngstown and Samuel K. Sollenberger. (Incorporated by reference to Exhibit 10.4. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.5. Employment Agreement between F.N.B. Corporation and Peter Mortensen. (Incorporated by reference to Exhibit 10.5. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). Amendment No. 2 to Employment Agreement (incorporated by reference to Exhibit 10.5. of the Corporation's Form 10-Q for the quarter ended June 30, 1995). Rescinding of Amendment No. 2 to Employment Agreement (filed herewith). 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 10.8. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1991). 10.9. 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. (Incorporated by reference to Exhibit 10.10. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 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. (Filed herewith). -14- Exhibit 10.5. AGREEMENT ENTERED INTO on and as of October 13, 1995 by and between PETER MORTENSEN (the "Executive") and F.N.B. CORPORATION (the "Company"). WHEREAS, the Executive and the Company are parties to an Employment Agreement dated as of January 1, 1990, as amended by an Amendment to Employment Agreement dated June 2, 1994 and Amendment No. 2 to Employment Agreement dated June 26, 1995 (the "Employment Agreement"), and WHEREAS, the Executive and the Company are parties to a Consulting Agreement dated as of June 26, 1995 (the "Consulting Agreement"), and WHEREAS, the Consulting Agreement and Amendment No. 2 to Employment Agreement were entered into simultaneously by the Executive and the Company, and WHEREAS, examiners of the Federal Reserve Bank of Cleveland have reviewed the agreements between the Executive and the Company and have reached a conclusion that the Consulting Agreement constitutes an unsafe or unsound practice under the Federal Reserve regulations, and WHEREAS, Paragraph 13 of the Consulting Agreement provides in the event of any conflict between that Agreement and any statute, law, ordinance, order or regulation, the consulting Agreement shall be curtailed and limited to the extent necessary to bring it within applicable legal requirements, and WHEREAS, the Executive and the Company are committed to complying with all statutes, laws, ordinances, orders and regulations and to operating the Company in a safe and sound manner, and WHEREAS, the Company is reviewing the Consulting Agreement with outside experts taking into account the Federal Reserve regulations and the findings of the Federal Reserve examiners, and NOW, THEREFORE, intending to be legally bound, the Executive and the Company covenant and agree that: -15- 1. In consideration of the sum of one dollar ($1.00) from the Company to the Executive and for other good and valuable consideration, the parties agree that the operation of the Consulting Agreement and Amendment No. 2 to Employment Agreement will be suspended and curtailed in accordance with Paragraph 13 of the Consulting Agreement. 2. The Executive and the Company will retain additional outside experts to obtain their advice and guidance and will negotiate in good faith any changes to the Consulting Agreement and Amendment No. 2 to Employment Agreement as necessary to reach an agreement that is mutually satisfactory to both the Executive and the Company and to ensure that the Company is not engaging in an unsafe or unsound practice. 3. The Executive and the Company will not reinstate the Consulting Agreement in its form prior to the execution of this Agreement or as modified by mutual agreement of the Executive and the Company unless and until the Company has (i) obtained an opinion in writing from Paul S. Pilecki, Esq. of Shaw, Pittman, Potts & Trowbridge that the Consulting Agreement, as modified if necessary, does not constitute an unsafe or unsound practice, (ii) provided 30 days' prior notice to the Federal Reserve Bank of Cleveland that the Consulting Agreement will be reinstated and providing notice of any modifications, if necessary, and (iii) taken into account any comments of the Federal Reserve Bank of Cleveland. 4. Except as specifically provided herein, the Employment Agreement, as amended by an Amendment to Employment Agreement dated June 2, 1994, shall remain in full force and effect in accordance with its terms. 5. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. The language of all parts of this Agreement shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against any of the parties. 6. This Agreement sets forth the entire understanding of the parties in respect of the subject matter contained herein and supersedes all prior agreements, arrangements and understandings relating to the subject matter and may only be amended by a written agreement signed by both parties hereto or their duly authorized representatives. -16- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. WITNESS: EXECUTIVE /s/John D. Waters /s/Peter Mortensen John D. Waters Peter Mortensen ATTEST: F.N.B. CORPORATION /s/William J. Rundorff By /s/James T. Weller William J. Rundorff, Asst. Secretary Chairman of the Compensation Committee of the Board of Directors -17- Exhibit 10.12. EMPLOYMENT AGREEMENT THIS AGREEMENT, entered into as of the 27th day of July, 1995, by and between JOHN W. ROSE, an individual residing in Glen Ellyn, Illinois (the "Executive"), and F.N.B. CORPORATION, a Pennsylvania bank holding company (the "Company"). WITNESSETH: WHEREAS, the Company desires to obtain the benefit of the Executive's services and experience and the Executive desires to enter the employ of the Company upon the terms and conditions herein set forth; NOW, THEREFORE, in consideration of the premises and covenants herein contained, and intending to be legally bound, the parties hereto agree as follows: Section 1. Term of Employment. (a) Initial Term. The term of employment of the Executive under this Agreement (the "Term") shall be initially for a period of three (3) years commencing on March 22, 1995 and ending on March 21, 1998. (b) Extension. The Term of employment of the Executive under this Agreement shall be automatically extended for successive one (1) year periods unless either party, not less than ninety (90) days prior to the expiration of the Term as then in effect, shall give written notice to the other party that the Term shall not be extended at the expiration of the Term as then in effect. In no event shall the Term continue after March 21, 2013. (c) Early Termination. Notwithstanding the provisions of Sections 1(a) and (b), the Term shall terminate upon any of the following events: (i) dismissal of the Executive from his employment by and at the election of the Company pursuant to resolution of the Board of Directors of the Company, or the failure or refusal of the Board of Directors to elect Executive to the position of Vice President of the Company by ______________, 1995 and to re-elect him to that office thereafter (any termination of employment pursuant to this paragraph shall be deemed without "proper cause"); (ii) determination of disability of the Executive pursuant to Section 4 hereof; or (iii) death of the Executive. -18- In the event of termination pursuant to paragraph (ii) above, the provisions of Section 4 hereof shall apply. In the event of death of the Executive, the Company shall be obligated to pay the Executive's estate or designated beneficiary the compensation specified in Section 3(e) hereof. Section 2. Services to be Rendered. The Company hereby employs the Executive as Vice President of the Company to serve at its headquarters office located in the Hermitage, Pennsylvania area, subject to the terms, conditions and provisions of this Agreement, and shall promptly take all necessary action to elect Executive as its Senior Vice President. The Executive hereby accepts such employment and, subject to the provisions of this Section 2, agrees to serve without additional compensation, if elected, as an officer and/or director of any subsidiary of the Company in accordance with Section 10 hereof. Subject to the last sentence of this paragraph, the Executive shall devote his full-time to such employment. In connection therewith, the Executive shall report to and be subject to the direction of the Board of Directors, the Chairman of the Board and the President of the Company, provided, however, that Executive's duties and responsibilities shall be of an executive nature and shall be consistent with the terms of that certain letter dated February 2, 1995, which is attached hereto as Exhibit A. Notwithstanding the foregoing, the Executive may devote a reasonable amount of his time to his personal investments and business affairs (including service as a director of unaffiliated companies) and to civic and charitable activities; provided, however, Executive shall not accept or remain in any position with any unaffiliated for-profit business organization without advance approval of the Company's Chairman of the Board or President, except that Executive may hold the positions described in that certain letter attached hereto as Exhibit B. Section 3. Compensation The Company shall pay and provide to the Executive the following compensation and benefits during the Term: (a) Salary. The Company shall pay the Executive a minimum base salary at the rate of $140,000.00 per year. Such minimum base salary (i) may be increased from time to time to reflect such merit increases as the Board of Directors of the Company may determine are appropriate and (ii) shall be increased from time to time to reflect annual cost of living increases commensurate with those given other key executive officers of The First National Bank of Pennsylvania ("First National"). The stated minimum base salary, as the same may be increased, shall be and remain in effect during the Term and shall be paid in accordance with the Company's normal payroll practice. (b) Bonuses. The Company shall pay bonuses to Executive customary for his office. If Executive is employed for only a portion of a calendar year (for example, such as 1995, or if the Term expires prior to December 31 in any year), Executive shall be paid a fraction of his bonus based on the number of days of the Term during the year divided by 365, unless his employment is terminated for "proper cause" (as defined in Section 5). -19- (c) Fringe Benefits. The Executive shall be entitled to (i) vacations, retirement benefits, disability and other fringe benefits, including but not limited to group life and health insurance coverages, automobile allowances and country club dues and expenses, pursuant to the compensation policies and practices of First National from time to time prevailing (now and in the future) with respect to persons who are key executive officers of First National and (ii) participate in any and all benefits provided for under the January 1, 1986 Deferred Compensation Plan of First National pursuant to the terms thereof, so long as said Plan shall remain in effect. (d) Termination Payments. In the event of termination of the Executive's employment during the Term by the Company for "proper cause" (as defined in Section 5), the Company shall thereupon be relieved of its obligations to pay any compensation and benefits under this Section 3 (except for accrued and unpaid items). In the event of termination of the Executive's employment during the Term by the Company without "proper cause," the Company shall be obligated, for a period of twenty-four (24) months following termination, to continue to pay to the Executive his base salary (as then in effect under paragraph (a) above) and bonuses, and to provide the group life and health insurance coverages he would have received (under paragraph (c) above), had his employment not been so terminated. (e) Death Benefit. In the event of termination of the Executive's employment by reason of his death, the Company shall continue to pay to the Executive's estate or his designated beneficiary the Executive's base salary (as then in effect under paragraph (a) above) for a period of twelve (12) months next following his death or, if earlier, until expiration of the Term. Section 4. Disability. The Term may be terminated at the election of the Company upon a determination by the Board of Directors of the Company, acting reasonably, that the Executive will be unable, by reason of physical or mental incapacity, to perform the reasonably expected duties assigned to him pursuant to this Agreement for a period longer than six consecutive months or more than nine months in any consecutive twelve-month period. In the exercise of its discretion, the Board of Directors shall give due consideration to the opinion of the Executive's personal physician or physicians and the opinion of any physician or physicians selected by the Board of Directors for this purpose. The Executive shall submit to examination by any physician or physicians so selected by the Board of Directors, and shall otherwise cooperate with the Board of Directors in making the determination contemplated hereunder (such cooperation to include, without limitation, consenting to the release of information by any such physician(s) to the Board of Directors). In the event of such termination, the Company shall thereupon be relieved of its obligations to pay compensation and benefits under Section 3 hereof (except for accrued and unpaid items) but shall be obligated to pay or provide to the Executive (or, in the event of his death, his estate or designated beneficiary) the following: -20- (a) For the period of twenty-four (24) full calendar months next following the date (the "Disability Date") at which the Executive was determined by the Board of Directors of the Company to be unable, by reason of physical or mental incapacity, to perform his duties as provided above, a monthly disability income benefit in an amount equal to 100% of Executive's monthly base salary in effect under Section 3(a) hereof on the Disability Date; and thereafter a monthly disability income benefit in an amount equal to 60% of Executive's monthly base salary in effect under Section 3(a) hereof on the Disability Date. The Company shall be entitled to credit against its obligation to pay such disability benefits for (i) amounts received from time to time by the Executive pursuant to any disability income insurance policy maintained by the Company and (ii) amounts received from time to time by the Executive as retirement benefits pursuant to Section 3(c) hereof. (b) At the Company's cost, health insurance coverage comparable to the coverage provided from time to time for key executive officers of First National, unless and until the Executive shall have accepted other employment in which health insurance coverage is available to him at the cost (in whole or in part) of his new employer. Section 5. Termination for Proper Cause. Solely for purposes of this Agreement, the occurrence of any of the following events or circumstances shall constitute "proper cause", at the election of the Board of Directors of the Company, for termination of the employment of the Executive under this Agreement: (a) the Executive shall voluntarily resign as a director, officer or employee of the Company without approval of the Board of Directors of the Company for reasons other than a breach of this Agreement in any material respect by the Company which has not been cured within 30 calendar days after the Company's receipt of written notice of such breach from the Executive; (b) the perpetration of defalcations by the Executive involving the Company or any of its affiliates, as established by certified public accountants employed by the Company, or willful or reckless conduct of the Executive entailing a substantial violation of any material provision of the laws, rules, regulations or orders of any governmental agency applicable to the Company or any of its subsidiaries; (c) the repeated and deliberate failure by the Executive, after prior written notice to him specifying the nature of such failure, to comply with reasonable policies or directives of the Board of Directors; or (d) the Executive shall breach this Agreement in any other material respect and failure to cure such breach within 30 calendar days after the Executive receives from the Company written notice specifying the nature of such breach. -21- Section 6. Non-Competition. During the Term and for the Restricted Period (hereinafter defined) after his employment hereunder terminates or is terminated, Executive will not in any way, directly or indirectly, manage, operate, control, accept employment or a consulting position with or otherwise advise or assist or be connected with, or own or have any other interest in, or right with respect to the revenues, receipts, profits or losses of any Competitive Enterprise (hereinafter defined) (other than through ownership of no more than 4.9% of the outstanding shares of a corporation's stock which is listed on a national securities exchange or in the NASDAQ system). For purposes of this Section 6: (a) "Restricted Period" means the greater of (i) the period of two years next following the termination of the Executive's employment for proper cause, or (ii) the period of time during which the Executive is receiving payments from the Company pursuant to Section 3(d) or 4 hereof (as the case may be); (b) "Competitive Enterprise" means any person, firm or corporation that directly or indirectly (i) is engaged in lending and deposit services or commercial banking of the kinds generally offered by the Company or any of the Company's present or future subsidiaries and (ii) conducts such business or activities in any county in which any of the Company's present or future subsidiaries then operates or in any county (within or without the Commonwealth of Pennsylvania) contiguous thereto. The foregoing to the contrary notwithstanding, the provisions of this Section 6 shall not prohibit the Executive, during the Restricted Period, from rendering services to a Competitive Enterprise if such services are rendered during his physical presence at a place of business located within the Counties of Allegheny or Dauphin, Pennsylvania or Cuyahoga, Ohio. Without limitation of the Company's rights and remedies under this Agreement or as otherwise provided by law or in equity, it is understood and agreed between the parties that the right of the Executive to receive and retain any payments otherwise due to him under this Agreement shall be suspended and cancelled if and for so long as he shall be in violation of the foregoing covenant not to compete. If and when the Executive shall have cured such violation, such right shall be automatically reinstated for the remainder of the period during which such payments are due him. If the employment of the Executive hereunder shall have been terminated without proper cause or because of disability, and if the Executive shall have duly complied with an observed the covenants of this Section 6, the Executive may, at his election, be discharged from the covenants of this Section 6 at any time during the Restricted Period by filing with the Company a duly executed statement (in form and content reasonably satisfactory to the Board of Directors of the Company) releasing the Company (and, if applicable, its insurance carriers) from any and all obligations it (or they) may have (under Sections 3(d) and 4 or otherwise) by reason of such termination (except for accrued and unpaid items). -22- Section 7. Confidentiality For purposes of this Agreement, "proprietary information" shall mean any information relating to the business of the Company or its subsidiaries that has not previously been publicly released by duly authorized representatives of the Company and shall include (but shall not be limited to) information encompassed in all marketing and business plans, financial information, costs, pricing information, and all methods, concepts, or ideas in or reasonably related to the business of the Company of its subsidiaries which is treated by the Company as confidential information. The Executive agrees to regard and preserve as confidential all proprietary information that has been or may be developed or obtained by the Executive in the course of his employment with the Company and its subsidiaries, whether he has such information in his memory or in writing or other physical form. The Executive shall not, without written authorization from the Company to do so, use for his benefit or purposes, nor disclose to others, either during the Term or thereafter, except as required by the conditions of his employment hereunder, any proprietary information connected with the business of the Company or its subsidiaries. This prohibition shall not apply to proprietary information which has been voluntarily disclosed to the public by the Company, independently developed and disclosed by others, or otherwise enters the public domain through lawful means. Section 8. Removal of Documents or Objects. The Executive agrees not to remove from the premises of the Company, except as an employee of the Company in pursuance of the business of the Company or any of its subsidiaries or affiliates, or except as specifically permitted in writing by the Company, any document or object containing or reflecting any proprietary information. The Executive recognizes that all such documents and objects, whether developed by him or by someone else, are the exclusive property of the Company. Section 9. Injunctive Relief. It is understood and agreed by and between the parties hereto that the services to be rendered by the Executive hereunder are of a special, unique and extraordinary character, which gives them a peculiar value, the loss of which may not be reasonably or adequately compensated in damages, and additionally that a breach by the Executive of the covenants set out in Sections 6, 7 and 8 of this Agreement will cause the Company irreparable injury and damage. The Executive hereby expressly agrees that the Company shall be entitled to the remedies of injunction, specific performance and other equitable relief to prevent a breach of Sections 6, 7 and 8 of this Agreement by the Executive. This provision shall not, however, be construed as a waiver of any of the remedies which the Company may have for damages or otherwise. -23- Section 10. Subsidiaries. At the election and direction of the Company's Board of Directors and without modification of the terms and provisions hereof, the Executive shall also serve as an executive officer of any one or more subsidiaries of the Company. Section 11. Successors, Assigns, Etc. This Agreement shall be binding upon, and shall inure to the benefit of the Executive and the Company and their respective successors, assigns, heirs, legal representatives and beneficiaries. Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation which assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation, merger, or transfer of assets and assumption, the term "Company" as used herein shall mean such other corporation, and this Agreement shall continue in full force and effect. Section 12. Notices. All notices and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been given when received if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, and addressed as follows: (a) To the Company: F.N.B. Corporation Hermitage Square Hermitage, Pennsylvania 16148 Attention: Secretary (b) To the Employee: John W. Rose 21 W 330 Crescent Boulevard Glen Ellyn, Illinois 60137 or to such other place as either party shall have specified by notice in writing to the other. Section 13. Governmental Regulation. Nothing contained in this Agreement shall be interpreted, construed or applied to require the commission of any act contrary to law and whenever there is any conflict between any provision of this Agreement and any statue, law ordinance, order or regulation, the latter shall prevail; but in such event any such provision of this Agreement shall be curtailed and limited only to the extent necessary to bring it within applicable legal requirements. -24- Section 14. Arbitration. Any dispute or controversy as to the validity, interpretation, construction, application or enforcement of, or otherwise arising under or in connection with this Agreement, shall be submitted at the request of either party hereto for resolution and settlement through arbitration in Pittsburgh, Pennsylvania in accordance with the rules then prevailing of the American Arbitration Association. Any award rendered therein shall be final and binding on each of the parties hereto and their heirs, executors, administrators, successors and assigns, and judgment may be entered thereon in any court having jurisdiction. The foregoing provisions of this Section 14 shall not be deemed to limit the rights and remedies reserved to the Company under and pursuant to Section 9 hereof. Section 15. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. Section 16. Divisability. Should a court or arbitrator declare any provision hereof to be invalid, such declaration shall not affect the validity of the balance of this Agreement. Section 17. Headings. The headings to the Sections and paragraphs hereof are placed herein for convenience of reference only, and in case of any conflicts the text of this Agreement, rather than the headings, shall control. Section 18. Entire Agreement Amendment. This Agreement sets forth the entire understanding of the parties in respect of the subject matter contained herein and supersedes all prior agreements, arrangements and understandings relating to the subject matter and may only be amended by a written agreement signed by both parties hereto or their duly authorized representatives. In the event of any consistency between this Agreement and any of the Exhibits hereto, the terms of this Agreement shall control. -25- IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the date first above written. WITNESS: EXECUTIVE /s/William J. Rundorff /s/John W. Rose William J. Rundorff John W. Rose ATTEST: F.N.B. CORPORATION /s/William J. Rundorff By /s/Peter Mortensen William J. Rundorff, Asst. Secretary Peter Mortensen Chairman of the Board -26- Exhibit A February 2, 1995 Mr. N. Peter Mortensen Jr. Chairman and Chief Executive Officer F.N.B. Corporation Hermitage Square Hermitage, Pennsylvania 16148 Dear Pete: As a follow up to our telephone conversation I think it useful for me to outline what I understand my job responsibilities to be. Initially, I will take responsibility for two main areas: Community Banking and Investor Relations. In Community Banking I will have as direct reports the CEO's of First County, Reeves, Bucktail Bank & Trust and Metropolitan Savings. I also will have responsibility for recommending mergers and acquisitions of other community banking organizations which would then become part of the Community Banking Group unless the Executive Committee determines that they would better fit as part of First National Bank of Pennsylvania. As head of Investor Relations it will be my responsibility to establish a formalized method of dealing with investor inquiries and to establish contacts with institutional investors and market makers. In addition, I will make myself available to direct or participate in any special projects assigned by you or by the Executive Committee. My title will be Senior Vice President and my initial compensation will be $140,000 per year plus incentives and perqs common to my peers. Pete, if you have any modifications to this letter please let me know and I will make the changes. I sincerely look forward to the opportunity to join the F.N.B. team. Sincerely, /s/John W. Rose John W. Rose -27- Exhibit B Mr. N. Peter Mortensen Jr. Chairman and Chief Executive Officer F.N.B. Corporation Hermitage Square Hermitage, Pennsylvania 16148 Dear Pete: I am currently a Director of three banking or thrift companies and have committed to take a seat on a fourth. They are (1) Lafayette American Bank & Trust in Bridgeport, Connecticut; (2) River Valley Bank, fsb in McAllen, Texas; (3) Equitable Bancshares in Denver, Colorado; and, prospectively, (4) First Pacific Bancorp in Escondido, California. Lafayette American is the largest small business lending bank in Connecticut and an excellent example of what we should strive for in community banking. I would like to continue that relationship as a Director, member of the Executive Committee and Chairman of the Audit Committee. It will require only one travel day a month and an occasional telephone conversation. River Valley Bank is for sale. My hope is that in the next few months a transaction will occur that will end my involvement in this thrift. However, until then the Board meets every other month in person which will involve a day. Equitable Bancshares is the owner of two small community banks in the Denver market. The Board meets quarterly. Unless you wish that I remain involved, I will resign from that Board. Finally, to my surprise the major investors in our California project threatened to pull their commitments unless I remained involved with the banks (four banks to be merged under the First Pacific holding company). I am morally obligated to those investors and to my partner, John Eggemeyer, to see this project through to completion and to remain on the Board of First Pacific until everyone is comfortable with its new direction and progress. Because of the distance this may require two days a month. In summary, Lafayette, River Valley and First Pacific will involve a total of 3 1/2 days per month until River Valley is sold and then 3 days per month for some indefinite period. However, the benefit to F.N.B. will be additional insight into successful community banks in other parts of the country, and the opportunity to cooperate to our mutual benefit. Sincerely, /s/John W. Rose John W. Rose -28- 11 F.N.B. Corporation Statement re Computation of Per Share Earnings Dollars in thousands Three Months Ended Nine Months Ended September 30, September 30, -------------------- -------------------- 1995 1994 1995 1994 --------- --------- --------- --------- Primary Net Income $ 4,856 $ 3,520 $ 13,185 $ 9,740 Less: Preferred Stock Dividends Declared (212) (213) (638) (640) --------- --------- --------- --------- Net Income Applicable to Common Stock $ 4,644 $ 3,307 $ 12,547 $ 9,100 ========= ========= ========= ========= Average Common Shares Outstanding 8,593,248 8,566,516 8,594,323 8,571,464 Net Effect of Dilutive Stock Options - Based on the Treasury Stock Method Using Average Market Price 43,256 18,537 38,027 15,861 --------- --------- --------- --------- 8,636,504 8,585,053 8,632,350 8,587,325 ========= ========= ========= ========= Net Income per Common Share $.54 $.39 $1.45 $1.06 ==== ==== ===== ===== Fully Diluted Net Income $ 4,856 $ 3,520 $ 13,185 $ 9,740 Plus: Minority Interest 19 44 --------- --------- --------- --------- Net Income Applicable to Common Stock $ 4,856 $ 3,539 $ 13,185 $ 9,784 ========= ========= ========= ========= Average Common Shares Outstanding 8,593,248 8,566,516 8,594,323 8,571,464 Series A Convertible Preferred Stock 32,578 39,903 32,578 39,903 Series B Convertible Preferred Stock 839,154 801,420 839,370 801,420 Minority Interest Convertible Preferred Stock 30,771 30,771 Net Effect of Dilutive Stock Options - Based on the Treasury Stock Method Using the Period-End Market Price, If Higher than Average Market Price 45,678 18,537 45,678 17,711 --------- --------- --------- --------- 9,510,658 9,457,147 9,511,949 9,461,269 ========= ========= ========= ========= Net Income per Common Share $.51 $.37 $1.39 $1.03 ==== ==== ===== ===== (b)Reports on Form 8-K No reports on Form 8-K were filed for the three months ended September 30, 1995. -29- SIGNATURES Pursuant to the requirements 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 ------------------------------------------ (Registrant) Dated: November 13, 1995 Peter Mortensen ---------------------------- ------------------------------------------ Peter Mortensen Chairman and President (Principal Executive Officer) Dated: November 13, 1995 John D. Waters ---------------------------- ------------------------------------------ John D. Waters Vice President and Chief Financial Officer (Principal Financial Officer) -30-